ACKNOWLEDGEMENTS

I take this opportunity as privilege to express my deep sense of gratitude to, The Pimpri
Chinachwad Education Trust’s S. B. Patil Institute of Management, Pune: 44, Dr. Daniel Penkar,
the Director S. B. Patil Institute of Management, Pune for their continuous encouragement,
invaluable guidance and help for completing the present research work. They have been a source
of inspiration to me and I am indebted to them for initiating me in the field of research.
I am deeply indebted to Dr. Manoj Gadre, my research guide, the S. B. Patil Institute of
Management, Pune. With out his help completion of the project was highly impossible.
I take this opportunity as privilege to articulate my deep sense of gratefulness to Mr.Sanjay
More, and the staff of the Shrinath Engineering for their timely help and positive encouragement.
I wish to express a special thanks to all teaching and non-teaching staff members, the
S. B. Patil Institute of Management, Pune for their forever support. Their encouragement
and valuable guidance are gratefully acknowledged. I would like to acknowledge all my family
members, relatives and friends for their help and encouragement.

Place: Pune Name:

Date:

1
INTRODUCTION

2
CHAPTER-I

1.1 INTRODUCTION

Inventory control is vitally important to almost every type of business, whether product or
service oriented. Inventory control touches almost every facets if operations. A proper balance must
be struck to maintain proper inventory with the minimum financial impact on the customer.
Inventory control is the activities that maintain stock keeping items at desired levels. In
manufacturing since the focus is on physical product, inventory control focus on material control.

“Inventory” means physical stock of goods, which is kept in hands for smooth and efficient
running of future affairs of an organization at the minimum cost of funds blocked in inventories.
The fundamental reason for carrying inventory is that it is physically impossible and economically
impractical for each stock item to arrive exactly where it is needed, exactly when it is needed.

Inventory management is the integrated functioning of an organization dealing with supply of

materials and allied activities in order to achieve the maximum co-ordination and optimum
expenditure on materials. Inventory control is the most important function of inventory
management and it forms the nerve center in any inventory management organization. An
Inventory Management System is an essential element in an organization. It is comprised of a series
of processes, which provide an assessment of the organization’s inventory.

1.2 MEANING OF INVENTORY

Inventory generally refers to the materials in stock. It is also called the idle resource of a
company. Inventories represent those items which are either stocked for sale or they are in the
process of manufacturing or they are in the form of materials which are yet to be utilized.

It also refers to the stockpile of the products a firm would sell in future in the normal course
of business operations and the components that make up the product.

Inventory is a detailed list of those movable items which are necessary to manufacture a
product and to maintain the equipment and machinery in good working order.

3
1.3 TYPES OF INVENTORIES
A manufacturing firm generally carries the following types of inventories:

 Raw Materials.
 Bought out parts.
 Work-in-process inventory (WIP).
 Finished goods inventories.
 Maintenance, repair and operating stores.
 Tools inventory.
 Miscellaneous inventory.
 Goods in transit.
 Goods for resale.
 Scrap Material.

1.4 REASONS FOR HOLDING INVENTORY

 To stabilize production.
 To take advantage of price discounts.
 To meet the demand during the replenishment period.
 To prevent loss of orders.
 To keep pace with changing market conditions.

1.5 MOTIVES OF HOLDING INVENTORIES

 The Transaction Motive which facilitates continuous production and timely execution of
sales orders.
 The Precautionary Motive which necessities the holding of inventories for meeting the
unpredictable changes in demand and supplies of materials.
 The Speculative Motive which induces to keep inventories for taking advantage of price
fluctuations, saving in re-ordering costs and quantity discounts etc.,.

4
1.6 COSTS ASSOCIATED WITH INVENTORY

 Production cost.
 Capital cost.
 Ordering cost.
 Carrying cost.
 Shortage cost.

1.7 INVENTORY CONTROL

The main objective of inventory control is to achieve maximum efficiency in production &
sales with minimum investment in inventory.
Inventory control is a planned approach of determining what to order, when to order and
how much to order and how much to stock, so that costs associated with buying and storing are
optimal without interrupting production and sales.

1.8 BENEFITS OF INVENTORY CONTROL

The benefits of inventory control are:

 Improvement in customers’ relationship because of the timely delivery of goods and

services.
 Smooth and uninterrupted production and hence, no stock out.
 Efficient utilization of working capital.
 Economy in purchasing.
 Eliminating the possibility of duplicate ordering.

5
1.9 INVENTORY CONTROL – TERMINOLOGY

 Demand:
It is the number of items required per unit of time. The demand may be either deterministic
or probabilistic in nature.

 Order cycle:
The time period between two successive orders is called order cycle.

 Lead time:
The length of time between placing an order and receipts of items is called lead time.

 Safety stock:
It is also called buffer stock or minimum stock. It is the stock or inventory needed to
account for delays in materials supply and to account for sudden increase in demand due to rush
orders.

 Inventory turnover:
If the company maintains inventories equal to 3 months consumption. It
means that inventory turnover is 4 times a year i.e., the entire inventory is used up and replaced
4 times a year.

1.10 INVENTORY COST RELATIONSHIPS

There are two major cost associated with inventory. Procurement cost and carrying cost. Annual
procurement cost varies with the numbers of orders. This implies that the procurement cost will be
high, if the item is procured frequently in small lots. The annual procurement cost is directly
proportional to the quantity in stock. The inventory carrying cost decreases, if the quantity ordered
per order is small. The two costs are diametrically opposite to each other. The right quantity to be
ordered is one that strikes a balance between the two opposition costs. This quantity is referred to as
“Economic Order Quantity”.

6
Theoretical Background

2.1 ECONOMIC ORDER QUANTITY

MEANING

A decision about how much to order has great significance in inventory management.
The quantity to be purchased should neither be small nor big because costs of buying and
carrying materials are very high. Economic order quantity is the size of the lot to be purchased
which is economically viable. This is the quantity of materials which can be purchased at
minimum costs. Generally economic order quantity is the point at which inventory carrying
costs are equal to order costs. In determining economic order quantity it is assumed that cost of
managing inventory is made up solely of two parts i.e., ordering cost and carrying cost. The cost
relationships are shown in below figure.

FORMULA FOR CALCULATING ECONOMIC ORDER QUANTITY (EOQ)

Economic Order Quantity

Costs Annual Total Cost

Annual Inventory Carrying Cost

Annual Ordering Cost

Q* Economic Order Quantity

Order Quantity

7
2.2 SAFETY STOCK

MEANING

The economic order quantity formula is developed based on assumption that the demand is
known and certain and that the lead time is constant and does not vary. In actual practical situations,
there is an uncertainty with respect to the both demand as well as lead time. The total forecasted
demand may be more or less than actual demand and the lead time may vary from estimated time.
In order to minimize the effect of uncertainty due to demand and the lead time, a firm maintains
safety stock, reserve stocks or buffer stocks.

The safety stock is defined as “the additional stock of material to be maintained in order to
meet the unanticipated increase in demand arising out of uncontrollable factors”.

In simple it is tells about which is used to protect against uncertainties.

Because it is difficult to predict the exact amount of safety stock to be maintained, by using
statistical methods and simulation, it is possible to determine the level of safety stock to be
maintained.

8
DETERMINATION OF SAFETY STOCK

If the level of safety stock is maintained is high, it locks up the capital and there is a
possibility of risk of obsolescence. On the other hand, if it is low, there is a risk of stock out
because of which there may be stoppage of production. When the variation in lead time is
predominant, the safety stock can be computed as:

Safety Stock = (Maximum Lead time- Normal Lead time) * Demand

SAFETY STOCK

The service level of inventory thus depends upon the level safety stocks. Large the safety
stocks, there is a lesser risk of stock out and, hence, higher service level. Sometimes higher
service levels are not desirable as they result in increase in costs, thus, fixing up a safety stock
level is critical. Using past date regarding the demand and lead time data, reliability of suppliers
and service level desired by management, safety stock can be determined with accuracy.

9
2.3 ABC ANALYSIS

MEANING

The inventory of an organization generally consists of thousands of items with varying

prices, usage rate and lead time. It is neither desirable nor possible to pay equal attention of all
items.

ABC analysis is a basic analytical tool which enables management to concentrate its efforts
where results will be greater. The concept applied to inventory is called as ABC analysis.

Statistics reveal that just a few items account for bulk of the annual consumption of the
materials. These few items are called A class items which hold the key to business. The other items
known as B & C which are numerous in number but their contribution is less significant. ABC
analysis thus tends to segregate the items into three categories A, B & C on the basis of their values.
The categorization is made to pay right attention and control demanded by items.

FEATURES OF ABC ANALYSIS

A Class (High Value) B Class (Moderate Value) C Class (Low Value)

1. Tight control on Moderate control Less control
stock levels
2. Low safety stock Medium Large
3. Ordered frequently Less frequently Bulk ordering
4. Individual posting in Individual Collective posting
stores
5. Weekly control Monthly control Quarterly control
reports
6. Continuous effort to Moderate efforts Minimum efforts
reduce lead time

10
ADVANTAGES

 This approach helps the manager to exercise selective control & focus his attention only on
a few items.
 By exercising strict control on A class items, the materials manager is able to show the
results within a short period of time.
 It results in reducer clerical costs, saves time and effort and results in better planning and
control and increased inventory turnover.
 ABC analysis, thus, tries to focus and direct the effort based on the merit of the items and,
thus, becomes an effective management control tool.

2.4 FSN ANALYSIS

All the items in the inventory are not required at the same frequency. Some are required
regularly, some occasionally and some very rarely. FSN analysis classifies items into fast moving,
slow moving, non-moving items.

11
2.5 INVENTORY TURNOVER RATIO

Kohler defines inventory turnover as “a ratio which measures the number of times a firm’s
average inventory is sold during a year”.

A higher turnover rate indicates that the material in question is a fast moving one. A low
turnover rate, on the other hand, indicates over-investment and locking up of working capital on
undesirable items.

Inventory turnover ratio may be calculated in different ways by changing the numerator, but
keeping the same denominator. For instance, the numerator may be materials consumed, cost of
goods sold or net sales. Based on any one of these, the ratio differs from industry to industry.

Stock turnover is measured in terms of the ratio of the value of materials consumed to the
average inventory during the period. the ratio indicates the number of times the average inventory is
consumed and replenished. By diving no. of days in a yeat by turnover ratio, the number of days for
which the average inventory is held, can be ascertained.

Comparing the no. days in the case of two different materials, it is possible to know which is
fast moving & which is slow moving. On that basis, attempt may be made to reduce the amount of
capital locked up, and prevent over-stocking of slow moving items.

Net sales
Inventory turnover ratio =
Avg. inventory

No. of days in a year

Inventory velocity =
Inventory turnover ratio

12
NEED FOR THE STUDY

Every organization needs inventory for smooth running of its activities. It serves as a link
between production and distribution processes. 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. So, in order to understand the nature of inventory
management of the organization, I took this Inventory Management as a topic for my project, to
give findings and suggestions by adopting and analyzing different inventory control techniques.

13
OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE

 To analyze the efficiency of Inventory Management of Shrinath Engineering.

SECONDARY OBJECTIVE

 To identify optimum level of inventory which minimizes the cost.

 To identify the safety stock level for various components.
 To classify the various components based on its value and movements.
 To identify inventory requirement of the company for the next year.

14
PRODUCTION PLANNING AND CONTROL

Production system is a system whose function is to convert a set of inputs into a set of
desired outputs. Production system is depicted under with help of chart.

Input Conversion Output

Process

Goods
Land Services
Building
machines
labour capital
management
material Control
other

Production management involves the managerial decisions regarding design of the product
and design of the production system i.e. determination of production processes and production
planning and control.

Once the entrepreneur has taken the decisions regarding the product design and production
processes and system, his next task is to take steps for production planning and control, as this
function is essentially required for efficient and economical production. One of the major problems
of small scale enterprises is that of low productivity small scale industries can utilise natural
resources, which are otherwise lying. Small scale sector can play an important role, similar to the
one played by small scale industries in other developed countries.

Planned production is an important feature of the small industry. The small entrepreneur
possessing the ability to look ahead, organize and coordinate and having plenty of driving force
and capacity to lead and ability to supervise and coordinate work and simulates his associates by
means of a programme of human relation and organization of employees, he would be able to get
15
the best out of his small industrial unit. Gorden and Carson observe production; planning and
control involve generally.

The organization and planning of manufacturing process. Especially it consists of the

planning of routing, scheduling, dispatching inspection, and coordination, control of materials,
methods machines, tools and operating times. The ultimate objective is the organization of the
supply and movement of materials and labour, machines utilization and related activities, in order
to bring about the desired manufacturing results in terms of quality, quantity, time and place.

16
PROFILE OF THE
ORGANIZATION

17
CHAPTER II

PROFILE OF THE ORGANIZATION

Shrinath Engineering a trusted name in the automation sector specially in metal pressings and
manufacturing auto parts. Catering to light and heavy vehicle manufacturers by manufacturing
parts like, bumpers, guard panels and automobiles spare parts.

Company Profile

It was in 1991 when Shrinath Engineering rose on the industrial horizon of Pune in the
Indian State of Maharashtra. Built on a sprawling 96,000 square feet, Shrinath Engineering was
incorporated by a quality committed, result oriented team of experienced technicians. Today,
Shrinath Engineering. has become a name to reckon with. A name that spells trust, dedication,
growth & total faith for its customers. Beginning with a small workforce, Shrinath Engineering has
grown to a whopping 30+ strong, committed skilled personnel, who strive to achieve the set goal-
customer satisfaction.

Shrinath, a name respected by one & all in the automobile industry is engaged in the
manufacture of sheet metal pressed parts ,manufacturing automobile spare parts & assemblies by &
large for the automobiles industry.

The company, working under professional guidance has a special motivation & strives hard to
achieve.

 Continuous improvement in the production processes

 Personnel development within the organization
 Abiding strict regulatory & statutory requirements

18
 Charged with the objective & policy, Shrinath Engineering accepted the mammoth
responsibility to supply complicated automobile parts to some of the giants of Indian industries.
Shrinath Engineering supplies vital pressed parts to India's most significant & largest vehicle
manufacturer - Tata Engineering & Locomotive Co. Ltd. - Telco & Mahindra, one of the leading
manufacturers of multi-utility vehicles.

The company's efforts have been highly appreciated by Telco & Mahindra - who put
complete faith & trust in the quality provided by Shrinath Engineering. The self-certification by
Telco & the TS 16949 certificate talk a great deal for the dedication & commitment shown
by Shrinath Engineering.

Equipped with the best in pressed parts machinery, Shrinath Engineering Houses a state-of-
the-art tool room too.

So at Shrinath engineering nothing is impossible…

19
PRODUCTS

20
21
RESEARCH DESIGN AND
METHODOLOGY

22
CHAPTER III

RESEARCH DESIGN AND METHODOLOGY

Research design

Introduction

A research design is the logical and systematic planning and directing of a piece of research.

The research design attempts to integrate various aspects of the research study. Such as what,

where, when, how etc .It bring the various phases of research under the control of the researcher.

The design also takes into account the availability of time, energy and other resources at disposal.

The word “design” suggest, a research plan or design in purposive. It also bring out the inter-

relationships between all these phases and highlights the implication of every step visa-versa, the

previous as well as further steps in the study . It thus helps the researcher to better appreciate the

study in its totality.

The following important features of research design:

A. Resource constraints – time , cost ,manpower

B. Data sources and data collection procedures.

C. A precise statement of research problem.

D. Approaches to data.

A research design that works perfectly in one situation may be ill suited to some other situation. A

good research design is flexible, relevant, efficient, and economical. Flexibility implies

accommodation various aspects, new links , new condition into the study as they arise as the study

progresses. Relevance signifies appropriateness or suitability of the design for the study at hand.

Various type of design emphasizes measure of the quality of the research design.

1) Descriptive research

2) Analytical research

23
 3) Applied research

4) Fundamental research

5) Quantitative research

6) Qualitative research

7) Conceptual research

8) Empirical research

RESEARCH METHODOLOGY

Research methodology refers to scientific procedure for the acquisition of knowledge based

on empirical observation and logical reasoning. The aim of research methodology is merely

collection analysis and interpretation of facts in the most systematic and objective manner. Thus,

the aim of methodology is limited and subservient.

Research Methodology is the way to systematically solve the research problem. It may be

understood as a science of studying how research is done scientifically. In this we study the various

steps that are adopted by the researcher in studying his research problem along with the logic

behind them. It is necessary for the researcher to know not only the research methods but also the

methodology. All this means that it is necessary for the researcher to design his methodology for

the problem as the same may differ from problem o problem.

Data collection:

 Primary Data: If the investigator collects the data originally for the investigation the data is

called primary data.

 Secondary Data: If the investigator dose not collects the data originally but uses data

collected by other investigator or agency and available in published or unpublished form ,

the data is called secondary data.

24
Primary Data:

 Day to day interaction with operator.

 Day to day interaction with supervisor.

 Day to day interaction with Asst. Production Manager.

 Day to day interaction with planning dept. people.

Secondary Data:

 Standard operating procedure (SOP’s)

 Company’s production manual.

 Machine Manual.

 Reports and file.

Limitations of the study

Doing any kind of work, one come across some kind of limitation. There have been some limitation

without which a better analysis could be done and a better report could be made. There are:

 Due to company privacy policy it was not possible to gather all the information.

Summer trainee is not eligible to get detail information.

25
DATA ANALYSIS AND
INTERPRETATION

26
 CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

4.1 ECONOMIC ORDER QUANTITY (EOQ)

MEANING

Economic Order Quantity is the Inventory management technique for determining optimum
order quantity which is the one that minimizes the total of its order and carrying costs.

TABLE 4.1.1 ECONOMIC ORDER QUANTITY

Saving
Procure Carryi No of with
Sr. ment ng unit EOQ
No. Annual Cost/ Cost/u order
Components
consumptio order nit/yea EOQ ATC ATC at
n (S) (cp) r(cu) q0
Bearing - Ball Sealed 30000 4631
1. – 6006 3,60,000 210 2 19443 8520 3889
Bearing - Ball Sealed 4000 1166
2. - 6205 48,000 120 2 5366 2240 1074
12000 29417
3. 1210 Adaptor 1,44,000 110 36 2098 44520 15103
8000 19244
4. 709 Adaptor 96,000 80 36 1461 29760 10516
20000 50477
5. 1210 section tube 2,40,000 130 36 2944 73560 23083
2500 20
6. Washer (S60) 30,000 60 2 3000 1220 1200
3500 2
7. Washer (SI 60) 42,000 65 2 3695 1480 1478
1800 2
8. Shaft 1210 21,600 30 2 1800 720 718
800 4
9. Shaft 709 9,600 10 2 693 280 276
30000 4631
10. M 10 pin 3,60,000 210 2 19443 8520 3889
15000 234
11. M18 pin 1,80,000 130 2 10817 4560 4326
3500 2
12. Guide pin 42,000 65 2 3695 1480 1478
3500 2
13. Guide pin 15 dia 42,000 65 2 3695 1480 1478
7500 8889
14. Assy strap (L-147) 90,000 40 18 1414 13980 5091
3500 3648
15. 709 sleeve 42,000 30 18 837 6660 3012
25000 28957
16. Hex nut 3,00,000 150 18 5000 63000 34043
Clamp 66,600 70 2 5550 4828 1950 1921 29

27
17.
Suspension Spring 600 6
18. FLT 70 7,200 10 2 600 240 234
150 5
19. stud 1,800 10 2 300 150 145
150 5
20. valve 1,800 10 2 300 150 145
300 5
21. Flange M38 3,600 10 2 424 214 209
300 5
22. Flange filter 3,600 10 2 424 214 209
150 5
23. Flange M14 (12mm) 1,800 10 2 300 150 145
150 5
24. Sleeve 40 dia 1,800 10 2 300 150 145
300 5
25. Pressostat 3,600 10 2 424 214 209
150 5
26. bush T2 1,800 10 2 300 150 145
150 5
27. Water valve 1,800 10 2 300 150 145
1800 4
28. Nut Push In, FLT70 21,600 36 2 1971 792 788
300 5
29. Heater Clip,FLT70 3,600 10 2 424 214 209
300 5
30. Bellow, FLT70 3,600 10 2 424 214 209
600 4
31. Section tube 407 7,200 20 2 848 360 356
150 5
32. Front bumper 407 1,800 10 18 300 150 145
150 5
33. Front bumper 1210 1,800 10 18 300 150 145
300 5
34. L clip 3,600 10 18 424 214 209
150 5
35. Bush 30 Dia 1,800 10 2 300 150 145
150 5
36. Washer Low 1,800 10 2 300 150 145
150 5
37. Hex nut 32 dia 1,800 10 2 300 150 145
150 5
38. Poly V Belt,LT70 1,800 10 2 300 150 145
300 5
39. Pipe Sealing, LT70 3,600 10 2 424 214 209
20000 23533
40. Copper coated wire 2,40,000 110 18 3830 37320 13787

ANALYSIS & INTERPRETATION :

In the above table the EOQ & the no. of orders purchased per year for various components
are calculated. The calculated EOQ is compared with the no. of units of each component purchased
in the organization. It is found that, there is a variation in the EOQ & no. of unit purchased. It is
understood that the company is not following EOQ for purchasing the materials & therefore the
inventory management is not satisfactory. Due to which company is facing loss of 1,75,002 Rs.
28
4.2 SAFETY STOCK

MEANING

Safety stocks are the minimum additional inventory which serve as a safety margin to meet

an unanticipated increase in usage resulting from an unusually high demand and an uncontrollable

late receipt of incoming inventory

Table 4.2.1 Safety stock

Max. daily Average Safety Lead time

Sl. No. Components usage daily usage Demand Stock
15
1. Bearing - Ball Sealed – 6006 1902 986 3,60,000 13740
15
2. Bearing - Ball Sealed - 6205 255 131 48,000 1860
15
3. 1210 Adaptor 771 394 1,44,000 5655
13
4. 709 Adaptor 510 263 96,000 3211
15
5. 1210 section tube 1290 657 2,40,000 9495
4
6. Washer (S60) 154 82 30,000 288
10
7. Washer (SI 60) 255 115 42,000 1400
5
8. Shaft 1210 113 59 21,600 270
3
9. Shaft 709 49 26 9,600 69
16
10. M 10 pin 1902 986 3,60,000 14656
15
11. M18 pin 978 493 1,80,000 7275
10
12. Guide pin 255 115 42,000 1400
10
13. Guide pin 15 dia 255 115 42,000 1400
13
14. Assy strap (L-147) 484 246 90,000 3094
10
15. 709 sleeve 255 115 42,000 1400
4
16. Hex nut 1612 822 3,00,000 3160
11
17. Clamp 358 182 66,600 1936
2
18. Suspension Spring FLT 70 20 11 7,200 18
2
19. stud 9 5 1,800 8
2
20. valve 9 5 1,800 8
29
 2
21. Flange M38 18 10 3,600 16
2
22. Flange filter 18 10 3,600 16
2
23. Flange M14 (12mm) 9 5 1,800 8
2
24. Sleeve 40 dia 9 5 1,800 8
2
25. Pressostat 18 10 3,600 16
26. bush T2 9 5 1,800 8 2
2
27. Water valve 9 5 1,800 8
2
28. Nut Push In, FLT70 111 59 21,600 104
2
29. Heater Clip,FLT70 18 10 3,600 16
2
30. Bellow, FLT70 18 10 3,600 16
2
31. Section tube 407 34 19 7,200 30
2
32. Front bumper 407 9 5 1,800 8
2
33. Front bumper 1210 9 5 1,800 8
2
34. L clip 18 10 3,600 16
2
35. Bush 30 Dia 9 5 1,800 8
2
36. Washer Low 9 5 1,800 8
2
37. Hex nut 32 dia 9 5 1,800 8
2
38. Poly V Belt,LT70 9 5 1,800 8
2
39. Pipe Sealing, LT70 18 10 3,600 16
15
40. Copper coated wire 1296 657 2,40,000 9585

ANALYSIS & INTERPRETATION :

In the above table, safety stock for the various components calculated are shown. Actual
demand is given for each component for a period of 1 year and the lead-time is calculated at a
maximum of 100 days & normal of 60 days and these were converted into per annum. So, from
calculation of safety stock, we can able to determine how much the company can hold the inventory
in reserve stock per annum.

30
4.3 ABC ANALYSIS

MEANING

The ABC system is a widely used classification technique to identify various items of
inventory for purposes of inventory control. On the basis of unit cost involved, the various items are
classified into 3 categories:

(1) A, consisting of items with the large investment,

(2) C, with relatively small investments but fairly large number of items and
(3) B, which stands mid-way between category A & C.

Category A needs the most rigorous control, C requires minimum attention and B deserves
less attention than A but more than C.

CLASSIFYING RANK

Annual Price per

Sl. No. Components Consumption unit Annual usage Rank

1. Bearing - Ball Sealed – 6006 3,60,000 2 720,000 8

2. Bearing - Ball Sealed - 6205 48,000 2 96,000 11

3. 1210 Adaptor 1,44,000 36 5,184,000 3

3456000
5
4. 709 Adaptor 96,000 36

5. 1210 section tube 2,40,000 36 8640000 1

6. Washer (S60) 30,000 2 60000 14

12
7. Washer (SI 60) 42,000 2 84000
43200
8. Shaft 1210 21,600 2 15

9. Shaft 709 9,600 2 19200 17

8
10. M 10 pin 3,60,000 2 720000

11.
M18 pin 1,80,000 2 360000 9
12
12. Guide pin 42,000 2 84000

13. Guide pin 15 dia 42,000 2 84000 12

14. Assy strap (L-147) 90,000 18 1620000 6

7
15. 709 sleeve 42,000 18 756000

16. Hex nut 3,00,000 18 5400000 2

Clamp 66,600 2 133200 10
31
17.
18
18. Suspension Spring FLT 70 7,200 2 14400

19. stud 1,800 2 3600 20

20. valve 1,800 2 3600 20

19
21. Flange M38 3,600 2 7200

22. Flange filter 3,600 2 7200 19

20
23. Flange M14 (12mm) 1,800 2 3600

24. Sleeve 40 dia 1,800 2 3600 20

19
25. Pressostat 3,600 2 7200
26. bush T2 1,800 2 3600 20
20
27. Water valve 1,800 2 3600

28. Nut Push In, FLT70 21,600 2 43200 15

19
29. Heater Clip,FLT70 3,600 2 7200

30. Bellow, FLT70 3,600 2 7200 19

31. Section tube 407 7,200 2 14400 18

16
32. Front bumper 407 1,800 18 32400

33. Front bumper 1210 1,800 18 32400 16

34. L clip 3,600 18 64800 13

35. Bush 30 Dia 1,800 2 3600 20

36. Washer Low 1,800 2 3600 20

20
37. Hex nut 32 dia 1,800 2 3600

38. Poly V Belt,LT70 1,800 2 3600 20

39. Pipe Sealing, LT70 3,600 2 7200 19

40. Copper coated wire 2,40,000 18 4320000 4

32
CLASSIFYING CATEGORY

Sl. descending cumulative cumulative usage

No. Components order annual usage percentage category
8640000
1. Bearing - Ball Sealed – 6006 8640000 26.91 A

2. Bearing - Ball Sealed – 6205 5400000 14040000 43.79 A

3. 1210 Adaptor 5184000 19224000 59.96 A

4. 709 Adaptor 4320000 23544000 73.43 A

5. 1210 section tube 3456000 27000000 84.21 B

6. Washer (S60) 1620000 28620000 89.26 B

7. Washer (SI 60) 756000 29376000 91.62 C

8. Shaft 1210 720000 30096000 93.87 C

9. Shaft 709 720000 30816000 96.11 C

10. M 10 pin 360000 31176000 97.24 C

11. M18 pin 133200 31309200 97.65 C

12. Guide pin 96000 31405200 97.95 C

13. Guide pin 15 dia 84000 31489200 98.21 C

14. Assy strap (L-147) 84000 31573200 98.48 C

15. 709 sleeve 84000 31657200 98.74 C

16. Hex nut 64800 31722000 98.94 C

17. Clamp 60000 31782000 99.13 C

18. Suspension Spring FLT 70 43200 31825200 99.26 C

19. Stud 43200 31868400 99.4 C

20. Valve 32400 31900800 99.5 C

21. Flange M38 32400 31933200 99.6 C

22. Flange filter 19200 31952400 99.66 C

23. Flange M14 (12mm) 14400 31966800 99.7 C

24. Sleeve 40 dia 14400 31981200 99.75 C

25. Pressostat 7200 31988400 99.77 C

26. bush T2 7200 31995600 99.79 C

27. Water valve 7200 32002800 99.82 C

28. Nut Push In, FLT70 7200 32010000 99.84 C

33
 29. Heater Clip,FLT70 7200 32017200 99.86 C

30. Bellow, FLT70 7200 32024400 99.88 C

31. Section tube 407 3600 32028000 99.89 C

32. Front bumper 407 3600 32031600 99.91 C

33. Front bumper 1210 3600 32035200 99.92 C

34. L clip 3600 32038800 99.93 C

35. Bush 30 Dia 3600 32042400 99.94 C

36. Washer Low 3600 32046000 99.95 C

37. Hex nut 32 dia 3600 32049600 99.96 C

38. Poly V Belt,LT70 3600 32053200 99.97 C

39. Pipe Sealing, LT70 3600 32056800 99.98 C

40. Copper coated wire 3600 32060400 100 C

Table 4.3.1 ABC ANALYSIS

Total No. Items in Classes

Categories Percentage

A 4 10

B 2 5

C 34 85

Total 40 100

34
Chart 4.3.1 ABC Analysis

90
80
70
60
50
40
30
20
10
0
A B C

ANALYSIS & INTERPRETATION:

The above table shows the classification of various components as A, B & C classes using
ABC analysis techniques based on unit value. From the classification A classes are those whose
unit value is more than Rs.100 and constitutes 10% of total components. B classes are those whose
unit value is between Rs.25-100 constitutes 5% of total components and C classes are those whose
unit value is less than Rs.25 constitutes 85% of total components. It is good that the company
maintains its inventories based on its value using controlling techniques.

\
35
4.4 FSN ANALYSIS

MEANING

All the items in the inventory are not required at the same frequency. Some are required
regularly, some occasionally and some very rarely.
FSN classifies items into Fast moving, Slow moving and Non-moving.

FAST MOVING ITEMS

Bearing - Ball Sealed - 6006

Bearing - Ball Sealed - 6205
1210 Adaptor
709 Adaptor
1210 section tube
Washer (S60)
Washer (SI 60)
Shaft 1210
Shaft 709
M 10 pin
M18 pin
Guide pin
Guide pin 15 dia
Assy strap (L-147)
709 sleeve
Hex nut
Copper coated wire

36
 SLOW MOVING ITEMS

Clamp
Suspension Spring FLT 70
stud
valve
Flange M38
Flange filter
Flange M14 (12mm)
Sleeve 40 dia
Pressostat
bush T2
Water valve
Nut Push In, FLT70
Heater Clip,FLT70
Bellow, FLT70
Section tube 407
Front bumper 407
Front bumper 1210
L clip
Bush 30 Dia
Washer Low
Hex nut 32 dia
Poly V Belt,LT70
Pipe Sealing, LT70

37
 Categories Total No. items in Classes Percentage

F 17 43

S 23 57

N 0 0

Total 40 100

Chart 4.4.1 FSN Analysis

60

50

40

30

20

10

0
F S N

ANALYSIS & INTERPRETATION :

In the above table shows the classification of various components as FSN items using FSN
analysis techniques based on movements. From the classification F items are those which moves
fastly and constitutes 43% of total components. S items are those which moves slowly constitutes
57% of total components and N items are those which doesn’t move (Non-moving items).
According to data given, there is no Non-moving items. It is not good as the company maintains
low percentage in moving items.

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4.6 INVENTORIES TURNOVER RATIO

MEANING

This ratio is calculated to consider the adequacy of the quantum of capital and its
justification for investing in inventory. A firm must have reasonable stock in comparison to sales. It
is the ratio of net sales and the average inventory. This ratio helps the financial manager to evaluate
inventory policy. This ratio reveals the number of times finished stock is turned over during a given
a accounting period.

The formula for the ratio is = Net sales

Avg. Inventory

Table 4.6.1 Inventories Turnover Ratio & Velocity

Net Sales Avg. Inventory Ratio Velocity

Year (Rs.) (Rs.) (in Days)

2008 12,30,05,134 8,42,09,371 1.46: 1 250

2009 16,06,43,669 8,92,28,407 1.80: 1 203
2010 11,73,30,581 14,52,26,925 0.80: 1 456
2011 55,53,74,571 18,98,23,381 2.92: 1 125
2012 79,11,78,220 17,40,71,613 4.5: 1 81

ANALYSIS & INTERPRETATION :

In the above table shows inventory turnover ratio for the past years. The ratio is showing
increasing trend from1.46 to 4.5 in the year 2008 to 2012, except in the year 2010 which shows
only 0.80 times.
Whereas in the velocity of inventories shows less in 2012 as compared to 2008 which is 81
days in 2012 and 250 days in 2008 except in the year 2010 which is 456 days. This shows that the
inventories are easily converted into sales within the shortest period i.e. the company was able to
sell rs. 4.5 by investing rupee one in the stock in 2012.

39
Findings and suggestions

40
5.1 FINDINGS OF THE STUDY

 It is found that the company is not following EOQ for purchasing the materials. So, the
inventory management is not satisfactory. As per calculation made company is facing loss
of 1,75,002 Rs.

 From calculation of safety stock, we can able to determine how much the company can hold
the inventory in reserve stock per annum.

 From the classification A classes are those whose unit value is more than Rs.100 and
constitutes 10% of total components. B classes are those whose unit value is between Rs.25-
100 constitutes 5% of total components and C classes are those whose unit value is less than
Rs.25 constitutes 85% of total components. It is good that the company maintains its
inventories based on its value using controlling techniques.

 From the classification F items are those which moves fastly and constitutes 43% of total
components. S items are those which moves slowly constitutes 57% of total components and
N items are those which doesn’t move (Non-moving items). According to data given, there
is no Non-moving items. It is not good as the company maintains low percentage in fast
moving items in compared to Slow moving inventories based on movements using
controlling techniques.

 The ratio is showing increasing trend from1.46 to 4.5 in the year 2008 to 2012, except in the
year 2010 which shows only 0.80 times. Whereas in the velocity of inventories shows less
in 2012 as compared to 2008 which is 81 days in 2012 and 250 days in 2008 except in the
year 2010 which is 456 days. This shows that the inventories are easily converted into sales
within the shortest period i.e. the company was able to sell Rs. 4.5 by investing rupee one in
the stock in 2012.

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5.2 SUGGESTIONS AND RECOMMENDATIONS

 From the above information it is seen that company doesnot follow EOQ therefor measures
should be taken for implementation of EOQ. This will reduce the cost & help to enhance the
profit of the company.

 The company is required to maintain safety stock for its components in order to avoid stock-
out conditions & help in continuous production flow.

 Under ABC analysis, the management must have more control on A than B&C, because A
class constitutes more(10%) of higher values items. There should be tight control exercised
on stock levels, to avoid deterioration. This is done through maintaining low safety stock,
continuous check on schedules & ordered frequently in inventories, in order to avoid over
investment of working capital.

 The company can store large quantity of fast moving items, medium quantity of slow
moving items and should not stock non moving items as part as possible.

 It measures how quickly inventory is sold. It requires to maintain a high turnover ratio than
lower ratio. A high ratio implies that good inventory management and it also reflects
efficient business activities.

42
CONCLUSION

A better inventory management will surely be helpful in solving the problems the company
is facing with respect to inventory and will pave way for reducing the huge investment or blocking
of money in inventory. From the analysis we can conclude that the Company can follow the
Economic Order Quantity (EOQ) for optimum purchase and it can maintain safety stock for its
components in order to avoid stock-out conditions & help in continuous production flow. This
would reduce the cost and enhance the profit. Also there should be tight control exercised on stock
levels based on ABC analysis & maintain high percentage in fast moving items in inventories as per
on FSN analysis for efficient running of the inventory. Since the inventory Turnover ratio shows the
increasing trend, there will be more demand for the products in the future periods. If they could
properly implement and follow the norms and techniques of inventory management, they can
enhance the profit with minimum cost.

43
CHAPTER-VI

6.1 LIMITATIONS OF THE STUDY

 The entire analysis applies only to Shrinath Engineering, Pune.

 The study takes into account only the quantitative data and the qualitative aspects were not
taken into account.
 The assumption made in the EOQ and Safety stock formulas restrict the use of the formula. In
practice, unit cost, lead time, requirements of inventory items are not accurately predictable.
Rate of consumption varies in many cases. As such application of the formula often becomes a
difficult and complicated matter.
 ABC analysis is not one time exercise and items are to be reviewed and recategorised
periodically.

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6.2 SCOPE FOR THE FURTHER STUDY

 To give plan to the company what to order, when to order and how much to order.
 It is useful for deciding operating policy & volume of inventory.
 It helps to develop the policies for the executives in inventory.
 It helps the company what items goods are categorized.
 Project helps to deal with forecasting in inventory.

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BIBLIOGRAPHY

46
\

BIBLIOGRAPHY

 REFERENCES BOOKS

 M.Y.Khan P K Jain “Financial Management” 4th edition Tata McGraw Hill.

 R.S.N. Pillai V. Bagavathi “Management Accounting” S Chand & Co.
 MartandTelsang “Industrial Engineering & Production Management” S Chand & Co.
 R. Paneerselvam “Operations Research” Prentice hall Of India Private Ltd.
 B.M. Lall Nigam I.C. Jain “Cost Accounting” Prentice hall Of India Private Ltd.
 S.P. Iyengar “Cost & Management Accounting” Sultan Chand & Sons.

 WEB SITES

 www.inventorymanagementreview.org/2005/06/safety_stock
 www.inventorymanagementreview.org/inventory_basics/index
 www.inventorymanagementreview.org/justintime/index
 www.inventorymanagementreview.org/inventory_control/index

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