INTRODUCTION
Every enterprise needs inventory for smooth running of its activities. It serves
as a link between production and distribution process. There is, generally, a time lag
between the recognition of a need and its fulfillment. The greater the time lag, the
higher requirements for inventory. It also provides a cushion for future price
fluctuations.
In a complex industry like HERITAGE FOODS INDIA LIMITED it studied
clearly of how the thing are being performed and what is the real impact of these on
industry and how effectively the inventory is utilized is interested to be known by
researcher because of its great significance in the research.
Need for the Study
Every industry on average spends 70% on raw materials (inventory).
Therefore there is a need to know the raw material cost and also there is great
importance to understand the inventory management system of this industry.
The study helps a log to various departments to take steps to control the
inventory process.
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The study is limited only for a period of 5 years i.e., from 2005 -06to
2009 -10.
2.
3.
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CHAPTER II
COMPANY PROFILE
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COMPANY PROFILE
Heritage at a Glance:
The Heritage Group, founded in 1992 by Sri Nara Chandra Babu Naidu, is
one of the fastest growing Private Sector Enterprises in India, with three-business
divisions viz., Dairy, Retail and Agri under its flagship Company Heritage Foods
(India) Limited (HFIL), one infrastructure subsidiary - Heritage Infra Developers
Limited and other associate Companies viz., Heritage Finlease Limited, Heritage
International Limited and Heritage Agro Merine Private Limited. The annual turnover
of Heritage Foods crossed Rs.347 crores in 2008-09 and is aiming for Rs.700 crores
during 2009-10.
Presently Heritages milk products have market presence in Andhra
Pradesh, Karnataka, Kerala, Tamil Nadu and Maharastra and its retail stores across
Bangalore, Chennai and Hyderabad. Integrated agri operations are in Chittoor and
Medak Districts and these are backbone to retail operations.
In the year 1994, HFIL went to Public Issue to raise resources, which
was oversubscribed 54 times and its shares are listed under B1 Category on BSE
(Stock Code: 519552) and NSE (Stock Code: HERITGFOOD)
About the founder:
Sri Chandra Babu Naidu is one of the greatest Dynamic, Pragmatic,
Progressive and Visionary Leaders of the 21st Century. With an objective of bringing
prosperity in to the rural families through co-operative efforts, he along with his
relatives, friends and associates promoted Heritage Foods in the year 1992 taking
opportunity from the Industrial Policy, 1991 of the Government of India and he has
been successful in his endeavour.
At present, Heritage has market presence in all the states of South
India. More than three thousand villages and five lakh farmers are being benefited in
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these states. On the other side, Heritage is serving more than 6 lakh customers needs,
employing more than 700 employees and generating indirectly employment
opportunity to more than 5000 people. Beginning with a humble annual turnover of
just Rs.4.38 crores in 1993-94, the sales turnover has reached close to Rs.300 crores
during the financial year 2007-2008.
Sri Naidu held various coveted and honorable positions including Chief Minister of
Andhra Pradesh, Minister for Finance & Revenue, Minister for Archives &
Cinematography, Member of the A.P. Legislative Assembly, Director of A.P. Small
Industries Development Corporation, and Chairman of Karshaka Parishad.
Sri Naidu has won numerous awards including " Member of the World
Economic Forum's Dream Cabinet" (Time Asia ), "South Asian of the Year " (Time
Asia ), " Business Person of the Year " (Economic Times), and " IT Indian of the
Millennium " ( India Today).
Sri Naidu was chosen as one of 50 leaders at the forefront of change in
the year 2000 by the Business Week magazine for being an unflinching proponent of
technology and for his drive to transform the State of Andhra Pradesh .
Forward looking statements:
We have grown, and intended to grow, focusing on harnessing our
willingness to experiment and innovate our ability to transform our drive towards
excellence in quality, our people first attitude and our strategic direction.
Mission:
Bringing prosperity into rural families of India through co-operative
efforts and providing customers with hygienic, affordable and convenient supply of "
Fresh and Healthy " food products.
Vision:
To be a progressive billion dollar organization with a pan India foot
print by 2012.To achieve this by delighting customers with "Fresh and Healthy" food
products, those are a benchmark for quality in the industry.
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We are committed to enhanced prosperity and the empowerment of the
farming community through our unique "Relationship Farming" Model.
To be a preferred employer by nurturing entrepreneurship, managing
career aspirations and providing innovative avenues for enhanced employee
prosperity.
Heritage Slogan:
When you are healthy, we are healthy
When you are happy, we are happy
We live for your "HEALTH & HAPPINESS"
Quality policy of HFIL:
We are committed to achieve customer satisfaction through hygienically
processed and packed Milk and Milk Products. We strive to continually improve the
quality of our products and services through upgradation of technologies and systems.
Heritage's soul has always been imbibed with an unwritten perpetual
commitment to itself, to always produce and provide quality products with continuous
efforts to improve the process and environment.
Adhering to its moral commitment and its continuous drive to achieve
excellence in quality of Milk, Milk products & Systems, Heritage has always been
laying emphasis on not only reviewing & re-defining quality standards, but also in
implementing them successfully. All activities of Processing, Quality control,
Purchase, Stores, Marketing and Training have been documented with detailed quality
plans in each of the departments.
Today Heritage feels that the ISO certificate is not only an epitome of
achieved targets, but also a scale to identify & reckon, what is yet to be achieved on a
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continuous basis. Though, it is a beginning, Heritage has initiated the process of
standardizing and adopting similar quality systems at most of its other plants.
Commitments:
Milk Producers:
Change in life styles of rural families in terms of:
Heritage
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Customers:
Employees:
Heritage forges ahead with a motto "add value to everything you do"
Shareholders:
Returns:
Consistent Dividend Payment since Public Issue (January 1995)
Service:
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Suppliers:
Doehlar: technical collaboration in Milk drinks, yogurts drinks and fruit
flavoured drinks Alfa-Laval: supplier of high-end machinery and technical support
Focusing on Tetra pack association for products package.
Society:
Customer focus to understand and meet the changing needs and expectations
of customers.
2.
People involvement to promote team work and tap the potential of people.
3.
4.
5.
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6.
7.
8.
Outlook:
Considering the growth potential in the liquid milk market, the
company has drawn plans to increase its market share in the existing markets and to
enter into new markets there by doubling revenues in dairy business in the next 3
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years. To achieve this object, company is undertaking major expansion in dairy
business by inverting over Rs20 crores during 2009-10 and over Rs10 crores during
the current year to strengthen the milk procurement.
BRANCHES OF HFIL:
HFIL has 3 wings. They are
1.
Dairy
2.
Retail
3.
Agribusiness
1. Dairy:
It is the major wing among all. The dairy products manufactured by HFIL are
Milk, curd, butter, ghee, flavoured milk, paneer, doodhpeda, ice cream.
2. Retail:
In the retail sector HFIL has outlets namely Fresh@. In those stores the
products sold are vegetables, milk& milk products, grocery, pulses, fruits etc.
In Hyderabad 19 retail shops are there. In Bangalore& Chennai, 3&4
respectively are there. Totally there are 26 retail shops are there.
Fresh@ is a unique chain of retail stores, designed to meet the needs of
the modern Indian consumer. The store rediscovers the taste of nature every day
making grocery shopping a never before experience.
The unique&
range of fresh fruits and vegetables which are directly hand picked from the farms.
Freshness lies in their merchandise and the customers are always welcomed with fresh
fruits and vegetables no matter what what time they walk in.
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3. Agri Business:
In this business HFIL employees will go to farmers and have a deal
with them. Those farmers will sell their goods like vegetables, pulses to HFIL only.
And HFIL will transport the goods to retail outlets.
The agricultural professors will examine which area is suitable to
import vegetables from and also examine the vegetables, pulses and fruits in the lab.
And finally they report to the Head-Agribusiness. Representatives as per the
instructions given by the agri professors will approach the farmers directly and make
a deal with them. It is the process of registering the farmers.
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CHAPTER III
]
CONCEPTUAL BACKGROUND
The investment in inventories constitutes the most significant part of current
assets / working capital in most of the undertakings. Thus, it is very essential to have
proper control and management of inventories.
The purpose of inventory management is to ensure availability of materials in
sufficient quantity as and when required and also to minimize investment in
inventories.
Meaning and Nature of Inventory:
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In accounting language, inventory may mean the stock of finished goods only.
In a manufacturing concern, it may include raw materials, work- in progress and
stores etc.,
Inventory includes the following things:
a)
b)
c)
d)
Finished goods: These are the goods, which are ready for the
consumers. The stock of finished goods provides a buffer between
production and market, the purpose of maintaining inventory is to ensure
proper supply of goods to customers.
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2.
3.
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Capital costs: Maintaining of inventories results in blocking of the firms
financial resources. The firm has therefore to arrange for additional funds to meet the
cost of inventories.
The funds may be arranged from own resources or from outsiders. But in both
the cased, the firm incurs a cost. In the former case, there is an opportunity cost of
investment while in the later case; the firm has to pay interest to t he outsiders.
1.
2.
3.
4.
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1.
2.
3.
4.
5.
6.
7.
8.
9.
To facilitate furnishing of data for short term and long term planning
and control of inventory.
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stock outs involving heavy ordering cost and if the inventory level is too
high it will be unnecessary tie up of capital.
An efficient inventory management requires that a firm should maintain an
optimum level of inventory where inventory costs are the minimum and at the same
time there is no stock out which may result in loss or sale or shortage of production.
a)
fall.
Lead time: A purchasing firm requires sometime to process the order and time
is also required by the supplying firm to execute the order.
The time in processing the order and then executing it is know as lead time.
Rate of Consumption: It is the average consumption of materials in the
factory. The rate of consumption will be decided on the basis of past experience and
production plans.
Nature of materials: The nature of material also affects the minimum level. If
a material is required only against the special orders of the customer then minimum
stock will not be required for such material.
Minimum stock level can be calculated with the help of following formula.
Re ordering Level:
When the quantity of materials reaches at a certain figure then fresh order is
sent to get materials again. The order is sent before the materials reach minimum
stock level.
Re ordering level is fixed between minimum level maximum level.
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c)
Maximum Level:
It is the quantity of materials beyond which a firm should not exceeds its
stocks. If the quantity exceeds maximum level limit then it will be over stocking.
Overstocking will mean blocking of more working capital, more space for
storing the materials, more wastage of materials and more chances of losses from
obsolescence.
emergency of stock position and urgency of obtaining fresh supply at any cost.
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Danger Stock level = Average rate of consumption x emergency delivery time.
e)
demand for materials may fluctuate and delivery of inventory may also be delayed in
such a situation the firm can be face a problem of stock out.
In order to protect against the stock out arising out of usage fluctuations, firms
usually maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is opportunity
cost of stock outs and the carrying costs.
If a firm maintains low level of safety frequent stock outs will occur resulting
into the larger opportunity costs. On the other hand, the larger quantity of safety
stocks involves carrying costs.
3)
ordering quantity.
This quantity is fixed in such a manner as to minimize the cost of ordering and
carrying costs.
Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost.
Carrying Cost:
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It is the cost of holding the materials in the store.
Ordering Cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula
EOQ = 2CO / I
Where C = Consumption of the material in units during the year
O = Ordering Cost
I = Carrying Cost or Interest payment on the capital.
4)
B and C.
Almost 10% of the items contribute to 70% of value of consumption and this
category is called A category.
About 20% of the items contribute about 20% of value of category C covers
about 70% of items of materials which contribute only 10% of value of consumption.
5)
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at low figures. The stocking of D type may be avoided at times. If the lead time of
these is less, then stocking of these can be avoided.
6)
Or
=
Net sales
_____________________
(Average) Inventory
Days in a year
______________________
Inventory Turnover ratio
7)
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The inventories should first be classified can then code numbers should be
assigned for their identification. The identification of short names are useful for
inventory management not only for large concerns but also for small concerns. Lack
of proper classification may also lead to reduction in production.
Generally, materials are classified accordingly to their nature such as
construction materials, consumable stocks, lubricants etc. After classification the
materials are given code numbers. The coding may be done alphabetically or
numerically. The later method is generally used for coding.
The class of materials is assigned two digits and then two or three digits are
assigned to the categories of items divided into 15 groups. Two numbers will be
category of materials in that class.
8)
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Area of improvement:
Inventory management in India can be improved in various ways.
Improvements could be affected through.
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Review of Classification: ABC and FSN classification must be periodically reviewed.
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Inventory cost an overall view
Introduction:
In financial parlance, inventory is defined as the sum of the value of the raw
materials, fuels and lubricants maintenance consumable semi processed materials
and finished goods stock at any giving point of time. The operational definition of
inventory would be amount of raw materials, fuel and lubricants, and semi
processed materials to be stock for the smooth running of the plant / industry.
Need of Inventory:
Inventories are maintained basically for the operational smoothness which
they can be affected by uncoupling successive stages of production, whereas the
monetary value of the inventory serves as a guide to indicate the size of the
investment made to achieve this operational convenience. The materials management
departments primary function is to
The size of the inventory depends upon the factors such as size of industry internal
lead time for purchase, suppliers lead time, vendor relations availability of the
materials, annual consumption of the materials. Inventory coat can be controlled by
applying Modern Techniques viz., ABC analysis, SDE, ESN, HMC, VED etc. These
techniques can be used effectively with the help of computerization.
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A.
B.
C.
Basically there are four costs for consideration in developing and inventory
model.
1.
2.
3.
4.
costs and help in the determination of the quantity to be ordered for each
replenishment.
The under stocking and over stocking costs are viewed as the demand side
costs and help in the determination of the amount of variations in demand and the
delay in supplies which the inventory should withstand.
Whenever an order placed for stock replenishment, certain costs are involved,
and, for most practical purpose it can be assumed that the cost per order is constant.
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The ordering cost may vary depending upon the type of items, for example raw
material like steel against production component like castings in steel plants, support
materials in the case of coal industry.
2)
Follow up costs the follow up, the telephones, telex and postal bills etc.,
3)
4)
5)
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1)
Interest on capital.
2)
3)
Storage costs labour costs, provision of storage area and facilities like
bins, racks etc.,
4)
5)
6)
7)
Obsolescence.
The inventory carrying cost varies and a major portion of this is
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What is the cost of inventory?
One can readily visualize the determination of inventory quantities by physical
count or by use of perpetual inventory records. When this quantity is determined, it
must be multiplied by a unity cost in order to determine the inventory value that is
used on financial statements.
Trade and quantity discount are to be excluded from unit cost since these
discount exist for the purpose of defining the true invoice cost of merchandise. Cash
discounts, on the other hand, have been considered as a reward for early payment and
as a penalty for late payment. The reward has often been interpreted as a loss rather
than as a part of unit cost. Thus it would not be difficult to find difference of opinion
as to whether invoice cost includes or excludes cash discount.
When the current repla FOODS cost of material on hand at the close of a
year is less than the actual cost, the inventory value is reduced to repla FOODS cost
(current market price). Thus the acceptable basis inventory valuation is the lower of
cost or market or more properly the lower of actual cost or repla FOODS cost.
The determination of inventory values is very important from the point of
view of the balance sheet and the income statement since costs not included in the
inventory (the balance sheet) are considered to be expensive and are thus included in
the income statement.
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be used consequently and cannot be changed for year to year in order to secure the
most favorable profit for each year.
2)
3)
4)
The method is realistic since it takes into account the normal procedure of
utilizing or selling those materials or goods which have been longer
longest in stock.
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1)
2)
I.
II.
III.
IV.
It takes into account the current market conditions while valuing materials
issued to different jobs or calculating the cost of goods sold.
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2)
Weighted average price method is very popular on account of its being based
on the total quantity and value of materials purchased besides reducing number of
calculations. As a matter of fact the new average price is to be calculated only when a
fresh purchase of materials is made in place of calculating it every now and then as is
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the case with FIFO, LIFO methods. However, in case of this method different prices
of materials are charged from production particularly when the frequency of
purchases and issues/sales in quite large and the concern is following perpetual
inventory system.
With the transfer of materials to work in process, the cost flow or transfer with
have its impact on the work in process inventory and the transfer of completed
merchandise to finished gods. Ultimately when goods are sold; the varying methods
of valuing inventories will have their impact on cost of goods sold and these profits.
The effects of the cost flows on cost of gods sold and profits can be accentuated
further it the differing methods of valuing inventories are applies to work in process
and finished goods.
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The primary difference between the FIFO and average methods is centered on
the physical flow since both methods could involve identical and interchangeable
units. The FIFO method fits a first-in first-out physical flow. The average method fits
a system which has no specific pattern of physical flow. Finding a situation where
there is no specific pattern of physical flow should be quite difficult because of the
fact that most inventory items are subject to deterioration by instituting a person
would attempt to reduce such deterioration and any reasonable person would attempt
to reduce such deterioration by instituting a physical flow approximating first-in-firstout. The major reason for the use of the average method is something other than the
lack of specific physical flow.
Ordinarily the LIFO method cannot be justified on the basis of the physical
flow of materials. Under conditions of changing prices, the advocate of LIFO says
that the only method which matches costs and revenues is the LIFO method. The
LIFO method assumes that the latest item is the first item out, and thus the current
costs of materials are matched with the other hand, assumes that the first item in is the
first item out, and thus the non-current costs of matching current costs with current
revenues is the essence of the argument for the LIFO method.
As can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situation. A physical flow pattern
comparable to FIFO would force one to consider the FIFO method. The lack of a
discernible physical flow pattern would force one to consider the average method.
Concentration on cost flows, as distinct from physical flows, would force to consider
the LIFO method especially where there appears to be a discernible trend towards
rising prices (or falling prices) as has been the case in our economy during recent
years.
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Description
On order
Received Issued
Available
On order
On hand
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As shown above, there is need only for physical quantities since the inventory
values is the physical quantity multiplied by the standard cost. With the cost and value
columns disposed off, a perpetual inventory card can include additional data such as
quantities on order, quantities reserved, and quantities available. These additional data
are very useful for inventory and production control purpose. On the basis of a few
calculations concerning into inventories on a FIFO, a LIFO, or an average cost basis.
Inventory of Obsolescence:
Absolvent inventories cannot be used or disposed off at values carried on the
books. Frequent reviews should be made of all inventories, and when obsolescence is
indicated a request for revaluation should be prepared for approval by management.
The difference between original and obsolete value should be recorded by a change to
an operating account. Inventory obsolescence, and a credit to inventory. If the
material is scrapped, this will be for the full inventory value or used in areas where it
will be work less than its original value, the entry would be only for the amount of
write down. Some companies carry a solvage inventory and transfer to it materials
which may be sold or used at reduced values.
Where this is done, the entry would be:
Dr. Solvage inventory
Dr. Inventory Obsolescence. Cr. Raw Material inventory or Supplies
inventory.
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Inventory can be classified as capital and revenue certain items through titled
as capital in nature. Hence, due care is to be take whole drawing the material.
Materials which are to be imported from other countries have to be planned
well in advance nearly about 24 months are to initiate the proposals for procurement.
Similarly some of the items do not require any lead time some they are
available in the local market.
FOODS is highly energy intensive industry, the inputs like power and coal are
the major part of the variable cost since Government controls the coal & fuel sector,
and increase is rates adversely effects the FOODS industry.
HERITAGE FOODS INDIA LIMITED has it own power plant and through
which it saves energy consumption. By this the cost since Government controls the
coal & fuel sector, any increase rates adversely effects the FOODS industry.
Inventory cost of any organization also adversely affects by retaining obsolete / scrap
and inventory costs can be reduced by management with an advance planning of
procurement of materials, periodical reviews of existing spares with reference to the
fast consumption, ascertaining the information regarding the availability of in other
areas. Holding of extra inventory will be an additional financial burden to the
company due to payment of interest charges on the materials purchased, diminishing
value of materials purchased, diminishing value of materials by keeping them in
stores for a log time, handling charges, etc.,
The inventory of HERITAGE FOODS INDIA LIMITED mainly includes
Foods, , CNC FOODS, Dairy.Inventory in HERITAGE FOODS INDIA LIMITED
during 2005 -06to 2009 -10are as follows: (Units in m.t)
Years
2005 -06
2006 -07
2007 -08
2008 -09
2009-10
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Foods
1051620
96465
966540
958620
1209536
HFIL
44637
45267
42871
43151
65960
22142
19602
20705
22011
36567
4756
9022
16201
32607
149255
Agro
Merine
Dairy
The value of the above raw materials for the year 2005 -10are as follows: (Value in
Rs.)
Years
2005 -06
Foods
HFIL
Agro
Merine
Dairy
2006 -07
2007 -08
2008 -09
2009-10
118261591 12544982
13544920
140120920 195410120
31884665
28967991
29067890
23487760
32551176
18513002
16100572
16100772
18799582
46061197
27102
555475
676115
2647958
20111502
Imported
Years
2005-06
2006 -07
2007 -08
2008 -09
2009
-10
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Raw Materials
15542
94753497
521577053
511577057 76345208
Years
2005-06
2006 -07
Raw Materials
Finished
Goods
121624112
36987
41178
038
Indigenous
Finished
Goods
508106545
881880956
2007 -08
179159560
2008 -09
1264674286 3776712867
TECHNICAL DEPARTMENT
1.
FOODS
2.
MATERIAL
3.
PRODUCTION
2009 -10
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II.
COMMERCIAL DEPARTMENTS
1.
STORES
2.
PURCHASE
3.
ACCOUNTS
INDENTS:
1. ANNUAL INDENTS FOR CONSUMABLE ITEMS (STORES ITEMS).
2. REGULAR INDENTS RAISED BY CONSUMING DEPARTMENTS.
3. ANNUAL REQUIREMENT OF RAW MATERIALS PROMOP & QC.
ENQUIRIES:
1)
2)
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3)
PURCHASE ORDER:
1)
2)
PURCHASE DEPARTMENT:
ACTIVITY RECEIVING INDENTS:
FLOW CHART:
Receipt of annual indents for consumable items / stores items from stores
department.
Checking of indent number an authority of item, delivery time consumption
period.
In case of any deficiency, send the information to concerned department for
clarification.
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Segregation of indents for attending at C.P.D. and Hyderabad Office.
Sent the Hyderabad indents to Hyderabad Office.
Enter the indents details in indent register.
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PURCHASE DEPARTMENT
PURCHASE ENQUIRY
Ms.
Sl.
No.
Material Code
Department Quantity
Unit
When
Required
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ACTIVITY: FLOATING ENQUIRIES:
FLOW CHART:
PURCHASE DEPARTMENT
ORDER PROCESSING FORM
Sl.
Indent
No. Ref
Material
Code
No.
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Enter price and other of the quotation received from sub contractors in
the order processing from.
Mention the earlier purchase details of indented items against each item in
the order processing form if available.
Put up the processing from with enquiry and quotations to head (purchase).
Examine order processing from with decide the sub contractor to whom
purchase order to be placed.
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PURCHASE DEPARTMENT
PURCHASE ORDER
Sl. No.
Indent
Item
No.
Code
Description Qty
Rate
Unit
Amount
Prepare purchase order after finalization of price and other technical terms
mentioning the following details.
1. Material code
2. Indent number
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3. Material specification & part number
4. Quantity
5. Rate
6. Payment and other terms & conditions
Fill in and attach the purchase order review proforma to purchase order.
PURCHASE DEPARTMENT
AMENDMENT / CANCELLATION OF ORDER
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Material Code
Material
Quantity
Review the pending order and follow up the pending order for breakdown
requirement.
Receive shortage / excess / damages report from stores for the material
received.
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PURCHASE DEPARTMENT
ACTIVITY: IMPORTS:
FLOW CHART:
Enter price and other terms of the quotations received from overseas
supplier in the order processing form.
Examine order processing form and decide the sub contractor to whom
purchase order to be placed.
Inventory Management
Prepare purchase order after finalization of price and other technical terms
mentioning the following details.
1) Material code
2) Indent number
3) Material specification & part number
4) Quantity
5) Rate
6) Payment
7) Insurance and other terms and conditions.
STORES DEPARTMENT
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All safety precautions are taken while unloading of material like workers
should wear safety shoes, helmets, leather head gloves, noise respirator,
nose mask.
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STORES DEPARTMENT
Checking with P.O. and mentioning Material Code, Party Code, Indent No.
Department Name on each & every challans.
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STORES DEPARTMENT
ACTIVITY: PHYSICAL VERIFCATION OF GOODS:
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STORES DEPARTMENT
ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF GOODS
RECEIPT NOTES:
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]
STORES DEPARTMENT
ACTIVITY: REJECTED MATERIALS
STORES DEPARTMENT
ACTIVITY: EXCISE GATE PASSES
Duplicate for transport copy of excise invoice over to bills section for
sending the same to Excise Department.
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STORES DEPARTMENT
ACTIVITY: RECEIPTS OF MEDICINES
Verification of MRP.
Issuing to dispensary.
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CHAPTER IV
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RATIO ANALYSIS
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The investment on raw materials over a period of 5 years from 2000 to 2010 is
presented in the following table.
1.
Year
2004 2005
12226.70
2005 2006
13498.80
2006 2007
50975.78
2007 2008
51686.81
2008 2009
42925.25
2009 2010
87905.86
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100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2004-05
2005-06
2006-07 2007-08
2008-09
2009-10
Interpretation:
1)
From the above table it can be understood that the inventory of HERITAGE
FOODS INDIA LIMITED was recorded at 12226.70 during the year 2004 -05
and it is increased to 87905.86 during the year 2008 -09.
2)
3)
4)
2.
Trend Analysis:
Inventory Management
Trend analysis technique is applied to know the growth rate in investment of
raw material of HERITAGE FOODS INDIA LIMITED over the review period which
is shown in the following table.
Trend Analysis:
Raw
Year
Material
Lacks)
(in
Trend %
2004 2005
12226.70
98%
2005 2006
13498.80
94%
2006 2007
50975.78
385%
2007 2008
51686.81
295%
2008 2009
42925.25
313%
2009 2010
87905.86
799%
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2004-05
Interpretation:
2005-06
2006-07
2007-08
2008-09
2009-10
Inventory Management
1)
The investment on investment has increased in the year 2008 -10. And the lost
year investment has declared continuously. The percentage in 2005 -06was
295% as compared to years 2006 -07 to 2009 -10.
2)
The trends in inventories show that inventory have been more in the year 2009
-10and then it has shown a downward trend and again it increased to some
extent.
3.
ss
This ratio indicates the number of times the stock has been turned over during
the period & evaluates the efficiency with which a firm is able
inventory. This ration is calculated by applying the following formula.
Cost of goods sold
Inventor turn over ration
_________________
Average inventory
Cost
of
sold
goods
Avg. Inventory
Ratio
2004 2005
59225.45
6900.22
8.58
2005 2006
58022.22
36225.20
1.58
2006 2007
110221.21
96075.65
1.14
2007 2008
120522.68
11490.07
10.48
2008 2009
125492.78
12223.99
10.26
2009 2010
309266.98
150025.22
2.06
to manage its
Inventory Management
120000
100000
80000
60000
40000
20000
0
2004-05
2005-06
2006-07 2007-08
2008-09
2009-10
Interpretation:
1.
From the above table 2004 it can be observed that (1) inventory turn
over ratio is 8.58 during 2004 2005 and it gradually decreased to 1.58 during
2005 2006.
2.
In the year 2006 -07 it is clear that the ratio is very less i.e., he stock
is not turned into sales quickly.
3.
As compared to all the years the ratio is very less in 2006 -07
4.
It may also be of interest to see average time taken for clearing the stocks.
This can be possible by calculating inventory conversion period. This period is
calculated by dividing the number of the days by inventory turn over.
This formula may be as:
Inventory Management
Days in a year (360 days)
Inventory conversion period
_____________________
Inventory turnover ratio
Year
Ratio
ICP (Days)
6900.22
8.58
42
58022.22
36225.20
1.58
230
110221.21
96075.65
1.14
26
11490.07
10.48
33
sold
inventory
2004 2005
59225.45
2005 2006
2006 2007
120522.68
2007 2008
2008 2009
125492.78
12223.99
10.26
32
2009 2010
309266.98
150025.22
2.06
271
120000
100000
80000
60000
40000
20000
0
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Inventory Management
Interpretation:
From the above table it can be identified the following observations:
1)
The inventory conversion period was 230 days during the year 2005 -06but it
declined to 204 during 2006 - 05, which indicates that the stock has been very
quickly converted into sales which mean the company is managing the
inventory efficiently.
2)
The lowest inventory conversion period was recorded at 26 days in the year
2006 -07 and the highest inventory conversion was recorded at 271days in the
year 2009 -10.
3)
The average inventory conversion period was recorded at 107 days during the
review period.
Inventory Management
5.
Inventory Management
Inventory
Inventory over current assets ratio =
__________ X 100
Current assets
Inventory
Current Assets
Ratio (%)
2004 2005
14286.75
25129.23
56%
2005 2006
11780.77
29780.68
39%
2006 2007
50925.70
54073.55
94%
2007 2008
43950.76
46000.22
94%
2008 2009
47077.45
50722.25
92%
2009 2010
94605.76
87111.59
108%
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
1)
From the above table it can be understand that the % of inventory over current
assets ratio was showing a declining trend for two years 2004 - 2005.
Inventory Management
2)
3)
The lowest inventory over current assets ratio was recorded at 39% during the
year 2005 -06and the highest inventory over current assets ratio we recorded at
108% during 2009 -10.
4)
The average inventory over current assets ratio was recorded at 85%.
6.
Year
Inventory
Current Assets
Ratio (%)
2004 2005
14286.75
88122.55
16.21%
2005 2006
11780.77
89133.25
13.21%
2006 2007
50928.70
118900.79
42.83%
2007 2008
43950.76
114659.62
38.33%
2008 2009
47077.45
114769.56
41.01%
2009 2010
94605.76
199340.25
47.45%
Inventory Management
250000
200000
150000
100000
50000
0
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Interpretation:
1)
2)
3)
The lowest inventory over total assets ratio was recorded at 13.21% during the
year 2005 -06and the highest inventory ratio was recorded at 42.83% during
the year 2009 -10.
4)
The average inventory to total assets ration was recorded at 38.33% during the
review period.
Inventory Management
7.
= __________________ X 100
Current liabilities
Inventory
Current liabilities
Ratio (%)
2004 2005
14286.75
7900.21
18%
2005 2006
11780.77
8101.11
145%
2006 2007
50925.70
17202.41
296%
2007 2008
43950.76
17800.42
246%
2008 2009
47077.45
18728.24
257%
2009 2010
94605.76
37257.22
253%
Inventory Management
40000
35000
30000
25000
20000
15000
10000
5000
0
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Interpretation:
1)
2)
3)
8.
Current Ratio:
In order to know the current ratio the percentage of current assets to current
liabilities is calculated and which is presented in the following table.
Current assets
Current Ratio
= _____________________
Current liabilities
Inventory Management
Calculation of Current Ratios:
Year
Inventory
Current liabilities
Ratio (%)
2004 2005
25272.33
8000.12
3.15%
2005 2006
29769.79
8042.70
3.70%
2006 2007
54077.69
17299.15
3.12%
2007 2008
46600.02
17900.15
2.60%
2008 2009
50714.25
18600.25
2.72%
2009 2010
87899.25
37256.42
2.35%
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Interpretation:
1)
From the above table it can be interpreted that the % of current assets over
current liabilities ratio i.e., current ratio was showing a decreasing trend
from year 2005 -06
2)
In the year 2004 -05the ratio was 3.15% and has increased to 3.70% in the
year 2005 -06
3)
The lowest current ratio was recorded at 2009 -10which is 2.35% and the
highest current ratio was recorded at 3.70% during the year 2005 -06
Inventory Management
4)
9.
The average current ratio was recorded at 3.09% during the review period.
Quick Ratio:
The quick ratio is the relationship between quick to current liabilities quick
assets is more rigorous test of liability position of a firm it is computed by applying
the following formula.
Quick ratio
Year
Inventory
Current liabilities
Ratio (%)
2004 2005
9787
6828
1.43%
2005 2006
17460
9042
2.12%
2006 2007
3216
15202
0.21%
2007 2008
3500
17202
0.20%
2008 2009
3701
17204
0.21%
2009 2010
3203
37256
0.08%
Inventory Management
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Interpretation:
1)
From the above table it can be understand as that the % of quick assets to
current liabilities i.e., the quick ratio was 0.002% in 2006 -07and from that
year it is showing increasing trend.
2)
The highest quick ratio was recorded at 2.42% during the year 2005
-06and the lowest quick ratio was recorded at 0.21% during the year 2006
-07
Inventory Management
CHAPTER V
Inventory Management
CONCLUSIONS;
1)
2)
The production of clinker and FOODS during 2006 2007 was 6,74,634
and 6,87,092 respectively which is higher as compared to 2009 2010
which is 5,97,374 and 6,57,756.
3)
4)
The inventory turn over ratio shows that the stock has been converted into
sales is only 1.02 times.
5)
In the year 2006 -07 the stock was cleared within 27 days whereas it took
230 days in the year 2005 2006 which took more days for clearing stock.
6)
Year 2006 -07 is not showing sample profits. This is because of FOODS
prices have been continuously under pressure due to persistent mismatch
between supply and demand.
7)
The quantity of dairy in the year 2009 -10is 8,98,240 and its value
is12,94,24,815 but whereas in the year 2008 -09 the quantity was 8,92,560
and the value is 12,10,71,545.
8)
9)
Inventory Management
10)
SUGGESTION:
1)
Though the production is higher is the year 2006 -07 and the sales were
very high i.e., as per inventory conversion period it took 270 days. This
shows that there is demand for FOODS and the funds unnecessarily tied
up. So, proper demand forecasting should be done and according to that it
may be manufactured.
2)
3)
Neither too high nor too low inventory turnover ratios may reduce profit
and liquidity position of the industry. So, proper balance should be made to
increase profits and to ensure liquidity.
4)
The raw material should be acquired from the right source at right quality
and at right cost.
Inventory Management
5)
6)
To reduce the work, the purchasing department may enter the purchasing
order into database and did not send a copy to any one. When the
merchandise arrived, the receiving clerk would enter the database and
determine whether the order agreed with the electronic purchase order.
If it did, payment was authorized to be made at the appropriate
Time. If it didnt match, the order would be returned until if it is agreed by the
HERITAGE FOODS INDIA LIMITED.
If it institutes Invoice less purchasing where the supplier did not need to
send an invoice to be paid.
This generally simplifies the process for all concerned. As a result, it would
able to reduce the work of its accounts payable department.
BIBLIOGRAPHY
Inventory Management
1.
Financial Management
By IM Pandey
2.
Financial Management
By Prasanna Chandra
3.
By K. Shridhara Bai
4.
5.