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 c Executive summary
2 c troductio to the cocept
3 c dustry profile
4 c ompay profile
a c ack groud ad iceptio of the compay
b c Nature of the busiess carried
c c isio , missio ad quality policy
d croduct/services profile
e c rea of operatio ʹ global/atioal/regioal owership patter
f c ompetitors iformatio
g c frastructural facilities
h cchievemet award
i c orkflow model (ed to ed
5 c ckisey͛s seve c odel
a c àtructure
b càkill
c c àtyle
d càtrategy
e c àystem
f c àtaff
g c àhared value
6 c
esearch methodology
a c itle of the project
b càtatemet of the problem
c c bjectives
d c peratioal defiitios
e c ata collectio
f c àtatistical tools used for research
g c àamplig techiques ʹ samplig uit, sample size ad samplig
method.
h cla of aalysis
i c imitatios
7 c ata aalysis ad iterpretatio
8 c àummary of the fidigs
9 c àuggestios
 c oclusios ʹ future growth
 c earig experiece
2 c exure
a c iacial statemets
b cuestioaires
c c ibliography.
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EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY

Title of the project

o  
    
STATEMENT OF PROBLEM

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OBJECTIVES OF THE STUDY

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.c o study the toolscctechescof ivetory maagemet


adopted at  td.
2.c o study the etoryccotrol measures i ivetory
maagemet.
3.c o study the emcorecst of ivetory maagemet at
 td.
4.c o study how  clyss ad cschele is implemeted
i ivetory maagemet.
5.c o determie the stockcleel i ivetory maagemet at 
td.
6.c o idetify 3roblems related to ivetory maagemet ad to
fid out suitable measures to overcome them.
7.c o study the methoscoclto of ivetory o  td.
8.c o study the ivetory maagemet 3rocere.
9.c o make a comparative study of ivetory maagemet i last
5 years usig rtoclysscteche.


Methodology of data collection

a) Primary data
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b) Secondary data
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c) Field work
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Stores department
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Accounts department
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Plan of analysis
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Scope of the study

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Limitation of the study

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INTRODUCTION TO THE
CONCEPT

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Every enterprise needs inventory for smooth running of its activities. It server
as a link between the production and distribution process. The greater a
time lag, the higher the requirement of inventory the unforeseen fluctuation of
inventory demand and supply of goods, fluctuating inventory prices,
necessitate the need for inventory management.

The investment inventory constitutes the most significant part of the


current assets inventory of the under taking. Thus it is very essential to have a
proper control and management of inventory.


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The general meaning of inventory is stock of goods c or listc of goods


inventory. In accounting language it means stock of finished goods. For
inventory manufacturing concern it includes raw materials, work in progress,
consumables finished goods and spares etc.
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If forms a major input inventory in organization. The quantity of raw
materials required will be determined by the rate of consumption.

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

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

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

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

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

Inventory often constitute a major element of a total working capital


and hence ft has been correctly observed, 'Good inventory management
is good financial management·.

Inventory control is a system, which ensures the provision of the


required quantity at the required time with the minimum amount of
capital.
Inventories are the second largest asset category for the manufacturing
firms next to plant and equipment.

Inventory control includes scheduling, the requirements, purchasing,


receiving and inspecting, maintaining stock records and stock control.
Inventory control is a matter of coordination. A proper material control
helps in improving the input-output ratio.

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The main objective of inventory management are operational and financial.


The operational object means availability of materials and spares in sufficient
quantities for undisturbed flow of production. The financial objective means
investments in inventories should not remain idle and minimum workin g
capital should be locked in it.

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c To ensure continues supply of inventories to the production.

Àc To avoid over stocking and under stocking.

3c To maintain optimum level of investment in inventories.

c To keep material cost under control, to keep low cost of production.


º c To eliminate duplication in ordering or replacing stocks.

è c To minimize losses through, deterioration, pilferage, wastage and


damages.

r c Designing structures for good inventory management.

‰ c 0erpetual inventory control of materials.

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


cost and value.

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

inventory.

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If a cost accounting system is to be effective there must be a proper


control of inventory and supplies form the time orders are placed with
suppliers until they have been effectively utilized in production.

Materials are equivalent to cash and they make up an important part of


the total cost. It is essential that materials should be properly
safeguarded and correctly accounted. 0roper control of material can
make a substantial contribution to the efficiency of a business. The
success of a business concern largely depends upon efficient
purchasing, storage, consumption and accounting.

In a large firm the planning and routing department is responsible for


arranging how and where the work is to be done and issue instructions.
It sets definite time schedules so that necessary materials are delivered
to the proper department in proper time not too long before hand
neither lest it should interfere with other work nor after they are
required as this result in idle time.

Business firm keep inventories for different purposes. Every firm big or
small trading or manufacturing has to maintain some minimum level of
inventories. Based on some motives the inventories are maintained.

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Every firm has to maintain some level of inventory to meet the day-to-
day requirements of sales, production process, customer demand etc. In
this finished goods as well as raw material are kept as inventories for
smooth production process of the firm.

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A firm should keep some inventory for unforeseen circumstances also


like loss due to natural calamities in a particular area, strikes, lay outs
etc so the firm must have some finished goods as well as raw-materials
tc meet circumstances.
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The firm may be made to keep some inventory in order to capitalize an


opportunity to make profit due to price fluctuations.

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The optimal level of maintaining inventory is a subjective matter and


depends upon the features of a particular firm,

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


inventories because of sales activities that should not be interrupted.
More over it is not always possible to procure the goods whenever there
is a sales opportunity as there is always a time gap required between
purchase and sale of goods. Thus trading concern should have some
stock of finished goods in order to under take sales activities
independent of the procurement schedule.

Similarly, a firm may have several incentives being offered in terms of


quantity discounts or lower price etc by the supplier of goods. There is
trading concern inventory helps in a de -inking between sales activity
and also to capitalize a profit of opportunity due to purchase made at a
discount will result in lowering the total cost resulting in higher profits
for the firm.

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A manufacturing firm should have inventory of not only the finished


goods, but also of raw materials and work -in-progress for following
reasons.

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Every manufacturing firm must have sufficient stock of raw materials in


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

Further work-in-progress would let the production process run smooth.


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

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Inventory of finished goods is required not only in trading concern but


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

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Every firms maintains inventory depending upon requirement and


other features of firm for holding such inventory some cost will be
incurred there are as follows:

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This is the cost incurred in Keeping or maintaining an inventory of one
unit of raw materials, work-in -process or finished goods. Here there
are two basic cost involved.

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It includes cost of storing one unit of raw materials by the firm. This
cost may be for the storage of materials. Like rent of spaces occupied by
stock, stock for security, cost of infrastructure, cost of insurance, and
cost of pilferage, warehousing costs, handling cost etc.

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This cost includes the cost of funds invested in the inventories .It
includes the required rate of return on the investments in inventory in
addition to storage cost etc. The Carrying cost include there fore both
real cost and opportunity cost associated with the funds invested in the
inventories.

The total carrying cost is entirely variable and rise in directly


proportion to the level of inventories carried.

Total carrying cost = (carrying Cost per unit) x (Average inventory)


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The cost of ordering includes the cost of acquisitions of inventories. It is


the cost of preparation and execution of an order including cost of
paper work and Communicating with the supplier.

The total ordering cost is inversely proportion to annual inventory of


firm. The ordering cost may have a fixed componen t, which is not
affected by the order size: and a variable component, which changes
with the order size.


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It is also called as Hidden cost. The stock out is the situation when the
firm is not having units of an item in stores but there is a demand for
that Item either for the customers or the production department .The
stock out refers to zero level inventory .So there is a cost of stock out in
the sense that the firm face a situation of lost sales or back orders .The
stock outs are quite often expensive. Even the good will of firm also be
effected due to customers dissatisfaction and may lose business in case
of finished goods, where as in raw materials or work in process can
cause the production process to stop and it is expensive because
employees will be paid for the time not spend in producing goods.

The carrying cost and the ordering cost are opposite forces and
collectively. They determine the level of inventors in a firm.


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The methods of valuing inventory are combination of the actual cost


and replacement cost plans. The chief advantage of the cost or net
realizable value rule is that it is conservative. Hence the methods of
Valuation of inventory are quite independent of system of mincing.
In balance sheet closing stock is shown under current assets and is also
credited to manufacturing or trading accounts. The inventories are
valued on the basis as follows.

Õc Cost of raw materials in stock may include freight charges and


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

Õc Œork -in -process is generally valued at cost, which includes cost of


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

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


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

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(a) c FIFO (First in First out)
(b) c LIFO (last in first out)
(c) c Specific price
(d) c Base stock price
(e) c HIFO (highest in first out)

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(a) c Simple average price


(b) c Œeighted average price
(c) c 0eriodic simple average price
(d) c 0eriodic weighted average price
(e) c Moving simple average price
(f) c Moving weighted average price

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(a) c Standard price


(b) c Inflated price
(c) c Re-use price
(d) c Replacement price
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This is the price paid for the material first taken into stock from which
the material to be priced could have been drawn.

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


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

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i. c 0rice is based on actual cost and not on basis of


approximations such as no profits or losses arises by reasons of
adopting this method.
ii.c The resulting stock balance generally represents fair
commercial valuation of stock.
iii.c It is based on traditional principles.

 


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i. c The number of calculations in the stores ledger involved tends


to be complicated with increase in clerical error.

ii.c The cost of consecutive similar jobs will differ if the price
changes suddenly,
iii.c In times of rising prices, the charge to production is unduly
low as the cost of replacing the material will be higher.

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

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i.c 0roduction is charged at the most recent prices so that it is based on


the principle that cost should be related to current price levels.
ii. c It obviates the necessity for continuously ascertaining the
replacement price.
iii. c Neither profit nor loss is usually made by using this method.
iv. c In the times of rising prices there is no wind fall profit as would
have been obtained under FIFO method.
 


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i. c Needs more clerical work.


ii.c Compassion among similar jobs is very difficult.
iii.c Stock valves relating to prices of the oldest cost on hand may be
entirely out of the current replacement prices.

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This is the price which is calculated by dividing the total cost of


material in the stock from which the material to be priced have been
drawn, by the total quantity of material in the stock. This method
differs from all other methods because here issue prices are calculated
on receipts of materials and not on issue of materials. Thus as soon as
new lot is received a new price is calculated and issues are then taken.

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i. c This method is advantageous where the price varies widely as


its use even out the effect of these wide variations.
ii.c The basis of price calculations is a simple one involving only
the division of total amount of material in stock by quantity in
stock.
iii.c Calculation of new prices arises only when receipt of stocks are
received.
iv. c Stock records under this method give a fair indication of the
stock values, which can be used in financial analysis.
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This method is completed than simple average because it takes into


consideration the total quantities and total costs in stock.

i. c 0rofit or loss may be incurred as in simple average price,


ii.c As LIFO or FIFO this method calls for many calculations,
iii.c In order to calculate the accurate value of issues the average
price must normally be calculated to four to five decimal
places.
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c  ! c

It is the predetermination of fixed price on basis of a specification of all


factors affecting price like the quantity of materials in hand and to be
normally purchased and rate of discount compared with existing price
including or excluding freight and ware housing expense.

A standard price for each material is set and the actual price paid is
compared with standard. It is paid exceeds the standard a loss will be
realized if not profit will be obtained.

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i.c This method is easy to operate.


ii. c Comparing the actual prices with the standard price will
determine the efficiency of purchase department.
iii. c The effect of price variations is eliminated from job costs.
iv. c It reduces classical costs by eliminating detailed cost records.
v. c In times of inflation or price fluctuations is very difficult to fix a
standard price.
vi. c This method also incurs a profit or loss on issues and closing
stock.

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This is the price, which includes a charge designed to cover the cost

of contingencies or related costs

This price includes not only the cost involved in bringing the
material

to the purchases premises but also the loss due to evaporation and

Breakage etc. as well as carrying costs.


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0urchase of material is one of the important function of material management.


At times more than 50% of the total product cost is material.

Functions of 0urchase Department

c Deciding the items to be purchased based on demand.


c Selection of sources of supply.
 c Collection the price information.
 c 0lacing the ordered.
 c Follow-up the ordered.
 c Checking the invoices.
 c Maintenance of purchase records.
 c Maintenance of vendors relations.
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0urchasing procedure start with the initiation of purchase requisitions and


ends with the receipt of materials in the stores.

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It is most important and relevant to large organizations operating deferent


plants may or may not be located at different places. For a single place
organization decentralization might be feasible on a very limited place. But
where as M & M Ltd., is a multiple plants operating organization.

In Mahindra and Mahindra Centralized purchasing procedure is following to


purchase of materials.

c Centralized purchasing avoids duplications of efforts and working


at cross purpose from one plant to another.

c Centralized purchasing permits consolidation of order of materials


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

c Easier to maintain the quality of purchased parts / items through


centralized testing and inspection. It is also possible to conduct
testing and inspection facilities.

c Centralized purchasing permits to avail facilities like quantity


discounts and cash discounts thus its helps to reduce cost.
c It is beneficial to vendor also in case the size of order constituted
major proportion of his total production capacity

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quatity classificatio records

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aalysis aalysis aalysis schedule

etermiatio etermiatio Ecoomic vetory vetory


of stock level of stock order quatity report budget
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ABC analysis classifies various inventory into three sets or groups of


priority and allocates managerial efforts in proportion of the priority
the most important item are classified into class-A, those of
intermediate importance are classified as "class-B" and remaining items
are classified into class-C'.

The financial manager has to monitor the items belonging to monitor


the items belonging to different groups in that order of priority and
depending upon the consumptions.

The items with the highest value is given top priority and soon and are
more controlled then low value item. The re-rational limits are as
follows.

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A 5-10 70-85

B 10-20 10-20

C 70-85 5-10

c c c

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(i) c Items with the highest value is given top priority and soon.
(ii)c There after cumulative totals of annual value of consumption
are expressed as percentage of total value of consumptions,
(iii)c Then these percentage values are divided into three categories.

ABC analysis helps in allocating managerial efforts in proportion to


importance of various items of inventory.

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After various inventory items are classified on the basis of the ABC
analysis the management becomes aware of the type of control that
would be appropriate for each of the three categories of the inventory
items.
The determination of the appropriate quantity to be purchased in each
lot to replenish stock as a solution to the order quantity problems
necessitates resolution of conflicting goals. Buying in a higher average
inventory level will assure.

(i) c Smooth production / sale operation and


(ii) c Lower ordering or setup costs. But it will involve higher
carrying costs. On the other hand small orders would reduce the
carrying cost of inventory by reducing the average inventory level but
the ordering costs would increase, as there is a likelihood of
interruption in operations due to stock-outs. A firm should not place
either too high or small orders on the basis of a trade off between
benefits derived from the availability of inventory and the cost of
carrying that level of inventory, appropriate or optimum level of order
to be placed should be determined. The optimum level of inventory is
popularly referred to as the economic order quantity or economic lot
size. It may be defined as that level of inventory order that minimizes
the total lost associated with inventory management. It is based on
some assumptions, which are restrictive.

a. c The firm knows with certainty the annual usage of a particular


item of inventory.
b. c Rate at which the firm uses inventory is steady over time.
c. c The orders placed to replenish inventory stocks are received at
exactly that point in time when inventories reach zero.
d. c
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(i) c Trial and error approach,


(ii) c Mathematical approach.

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In this approach the procedure of procuring the inventory is assumed


the smaller the lot the lower is average inventory and vice versa and
high average inventory would involve high carrying costs. This
approach is used for determination of EOQ uses different permutations
and combinations of lots of inventory purchases so as to find out the
least ordering and carrying cost combinations. The carrying cost and
acquisition cost for different sizes of order to purchase inventories are
computed and the order size with lowest total cost of inventory is EOQ.

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The EOQ quantity can use a short-cut method calculated by following

Àm
EOQ=  ß

Œhere,

A = Annual usage of inventory

B = Buying cost per order

C = carrying cost per unit

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  c

Œhile using EOQ it should be noted that it suffers from shortcomings,


which are mainly due to the restrictive nature of the assumptions on
which it is based.

The important limitation is assumption of a constant consumption


usage and, the instant replenishment of inventory is of doubtful
validity

There may be unusual and unexpected demand for stocks to meet such
[contingencies the firm has to keen a dditional inventories like safety
stocks. Another weakness is to assume known annual inventories is
open to question and there is likelihood of a discrepancy between the
actual and expected demand leading to wrong estimate of EOQ.
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c and   
 analysis is done mainly for control of
spare parts keeping in view of the criticality to production.

Vital spares are spare the stock-out of which even for a short time will
stop production for quite sometime. Essential spares are spares the
absence of which cannot be tolerated for more than a few hours a day.
Desirable spares are those, which are needed, but their absence for even
a week or so will lead to stoppage of production.

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

a) c Length of time between the placement of an order and


receiving the supply.
b) c The usage rate of the item. The inventory is constantly
being used up. The rate at which the inventory is being
used up. The rate at which the inventory is being used
up is called the usage rate.

 c  c  c!


c c   c
cc

R = M+tu

R = Reorder level

M = Minimum level of inventory

T = Time gap / delivery time

U = Usage rate

The reorder level and inventory patterns have be shown as follows:

The figure shows that if the usage rate is constant, the orders are made
at even intervals for the same amounts each time and the inventory
goes to zero just before an order is received.
c

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The safety stock protects firm from Trade offs due to unanticipated
demand for the items level of inventory investment is however
increased by the amount of safety stock. Safety level is ascertained in
inventory as a part because there is always an uncertainty involved in
time lag usage rate or other factor.

Usually smaller the safety level greater the risk of stock-outs. If stock-
levels are predictable then there is a chance of stock out occurring.
However stock inflows and outflows are unpredictable or lesser
predictable it becomes to carry additional safety stock to prevent
unexpected stock outs so usage rate is estimated if cost is low then no
safety stock is needed.

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The basic concept is that every firm should keep a minimum level of
inventory on hand, relying suppliers to furnish stock just in time as and
when required. JIT helps in emphasizing sufficient levels of stocks to
ensure that production will not be interrupted. Although the large
inventories may be bad idea due to heavy carrying JIT is a modern
approach to inventory management and the goal is essentially to
minimize such inventories and there by maximizing the turnover.
JIT system significantly reduces inventory-carrying cost by requiring
that the raw materials be procured just in time to be placed into
production. Additionally the work in process inventory is minimized by
eliminating inventory is minimized by eliminating inventory buffers
between different production departments.

If JIT is to be implemented successfully there must be a high degree of


coordination and co-operation between the supplier and manufacturer
and among different production centers. JIT does not appear to have
any relation with EOQ however it is in fact alters some of the
assumptions of EOQ model. The average inventory level under the EOQ
model is defined as

Average inventory= 1/2 EOQ + safety level JIT attacks this equation in
two ways.

(i) c By reducing the ordering cost


(ii) c By reducing the safety stock.

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


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