CHAPTER I

1. INTRODUCTION TO THE STUDY In this study, an attempt is made to analyze the inventory management in Shri Hari Krishna Papers Pvt Ltd, Udumalpet during the period from 2006-2011.

Inventory is the quantity of goods and materials on hand. A manufacturer's inventory represents those items that are ready and available for sale. Production includes those activities involved in conceptualizing, designing, and creating products and services. In recent years there have been dramatic changes in the way goods are produced. Inventory Management System deals with the maintenance of equipments. Inventory management is a discipline that encompasses the principles, concepts and techniques for determining what to order, when to order and how much to order. Today, computers help monitor, control, and even perform work. Flexible, high-tech machines can do in minutes what it used to take people hours to accomplish. Another important development has been the trend toward just-in-time inventory. The word inventory refers to the amount of goods a business keeps available for wholesale or retail. In just-in-time inventory, the firm stocks only what it needs for the next day or two. Manufacturing and other service organizations have significantly invested in inventory. Often investment in inventory has a direct bearing on the profitability of the firm. Experiences in last twenty years suggest that the world class performance of a firm hinges on the firms ability to cut investment in inventory to very low levels. In addition to cutting down cost, reduced inventory levels help an organisation improve quality, planning systems and supply chain coordination. They also reduce wastage and obsolescence. Hence inventory planning and control continues to derive considerable attention of the management in the organizations.

NATURE OF RAW MATERIAL

Materials are stock of the product accompany in manufacturing for sale and components that make up the products. The various forms in which materials exist in manufacturing company are: Raw Materials Working- in- process Finished Goods

RAW MATERIALS Raw materials are those basic inputs that are converted in to finished products through the manufacturing process. Raw materials are those units which have been purchase and stored for future production. They are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of the consumption and the time required for replacing the supplies. The factors like the availability of raw materials and government regulation, etc affects the stock of raw materials. WORK- IN- PROCESS Work in process is called as stock in process. It refers to goods in the intermediate stage of production. These are semi manufactured products. They represent products that need more work before they become finished products for sale. The work in process is that stage of stocks which are in between raw materials and finished goods. The raw materials enter the process of manufacturing but they are yet to attain the final shape of finished goods. The quantum of work in process depends up on the time taken in manufacturing: the more will be the amount of work in process.

FINISHED GOODS The finished goods materials are those completely manufactured products which are ready for sale. Stocks of raw- materials and working process facility production, while stocks of finished goods are required for smooth marketing operations. These are goods, which are ready for consumers. The stocks of finished goods provide a buffer between production and market. The purpose of maintaining material is to ensured proper supply of goods to the consumers. In some concerns the production is undertaking on order basis. Therefore, efficient inventory management reduces the cost of production and consequently increases the profitability of the organization by minimizing the different type of cost associated with holding inventory.

1.2 NEED AND IMPORTANCE Effective inventory management is essential for realizing the full potential of the value chain and financially, inventory is very important to manufacturing companies because cost of carrying inventory influence profit. Every business organization is in need of a good inventory management system which shall take care of all its inventories in the network. Companies spend lacks of money every year to keep their network monitoring systems updated and to take care of all their network related issues. No one wants problems like sudden stoppage of work due to poor inventory and due to sudden needs of repairs and renewals. Companies often face sudden situations when they realize that their work has stopped because something went terribly wrong with their inventory. This problem can be solved with the right usage of inventory management system. So it is important to do the study on inventory management and cost control due to the following: To know about the unstable market conditions of raw materials. Importance of having adequate materials on hand when needed. To know about the variations in the profitability by means of inventory and cost management.

1.3 INDUSTRY PROFILE PAPER INDUSTRY

Paper industry in India is the 15th largest paper industry in the world. It Provides employment to nearly 1.5 million people and contributes Rs.25 billion to the government. Paper industry is primarily dependent upon forest-based raw materials. The first paper mill in India was set up at Sreerampur, West Bengal, in the year 1812. It was based on grasses and jute as raw material. Large scale mechanized technology of papermaking was introduced in India in early 1905.

Since then the raw material for the paper industry underwent a number of changes and over a period of time, besides wood and bamboo, other non-conventional raw materials have been developed for use in the papermaking. The Indian pulp and paper industry at present is very well developed and established. Now, the paper industry is categorized as forest-based, agrobased and others (waste paper, secondary fibre, bast fibers and market pulp).

In 1951, there were 17 paper mills, and today there are about 515 units engaged in the manufacture of paper and paperboards and newsprint in India. The pulp & paper industries in India have been categorized into large-scale and small-scale. Those paper industries, which have capacity above 24,000 tonnes per annum, are designated as large-scale paper industries. India is self-sufficient in manufacture of most varieties of paper and paperboards. Import is confined only to certain specialty papers.

Indian paper industry has been de-licensed under the Industries (Development & Regulation) Act, 1951 with effect from 17th July, 1997. The interested entrepreneurs are now required to file an Industrial Entrepreneurs' Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA) for setting up a new paper unit or substantial expansion of the existing unit in permissible locations. Foreign Direct Investment (FDI) up to 100% is allowed on

automatic route on all activities except those requiring industrial licenses where prior governmental approval is required for the paper industry.

The mills use a variety of raw material viz. wood, bamboo, recycled fibre, bagasse, wheat straw, rice husk, etc approximately 35% are based on chemical pulp, 44% on recycled fibre and 21% on agro-residues. The geographical spread of the industry as well as market is mainly responsible for regional balance of production and consumption.

The added capacity of approximately 0.8 million tons during 2009-2011 the operating capacity of the industry currently stands at 9.3 million tons. During this fiscal year, domestic production of paper and paperboard is estimated to be 7.6 million tons.

Demand of paper has been hovering around 8% for some time. During the period 20082011 while newsprint registered a growth of 13%, Writing & Printing, Containerboard, Carton board and others registered growth of 5%, 11%, 9% and 1% respectively. So far, the growth in paper industry has mirrored the growth in GDP and has grown on an average 6-7 per cent over the last few years.

India is the fastest growing market for paper globally and it presents an exciting scenario; paper consumption is poised for a big leap forward in sync with the economic growth and is estimated to touch 13.95 million tons by 2015-16. The futuristic view is that growth in paper consumption would be in multiples of GDP and hence an increase in consumption by one kg per capita would lead to an increase in demand of 1 million tons.

1.4 COMPANY PROFILE SHRI HARI KRISHNA PAPERS PVT LTD was incorporated in the year 1995 as a private limited company with installed capacity of 3000 MT per annum of printing and writing paper. The company commenced its production in the year 1996 with a capacity of 10 MT per day and at present, the company has the production capacity of 85 Mt per day as follows:

Unit-1

30 MT per day- manufacture of printing & writing papers & news print papers.

Unit- 11 35 MT per day- manufacture of printing & writing papers Unit -111 20 MT per day- manufacture of special varieties of papers

At present, the annual turnover of the company is around Rs.90 crores. The company exports around Rs. 10.00 crores/annum and imports around RS. 12.00 crores/annum.

Shri Hari Krishna Papers Pvt Ltd is the sister concern of GVG group. The GVG group has 2 paper mills and 3 textile mills with a combined turnover of Rs. 275 crores per annum. The production capacity of 2 paper mills is 200 MT/day and the installed capacity of Textile mills is 65000 spindles.

Shri Hari Krishna Papers Pvt Ltd has put up 10 wind mills supplied by various manufactures in Attukinathupatti village, Coimbatore & Kongalnagaram. There are 25 wind mills in group of company. The company also have a back pressure turbine connected to the FBC Boiler which produces around 224000 units of power per day. The power generated from wind mills and turbine takes care of more than 50% of our power requirement and even during power cut imposed by the Tamil Nadu Electricity Board we are able to comfortably maintain our production without compromising any of our processes.

The company engages itself in lot of social welfare activities and have recently contributed a sum of Rs.16.00 lakhs from our group towards the construction of a modern electric crematorium in Udumalpet. The company also has a poly technique institution in the name of Rudhraveni Muthuswamy Poly Technique which caters to the needs of lot of student in 7

and around our taluk and contributed for the building of a compound wall of a huge play ground belonging to the Government High School in Udumalpet. Shri Hari Krishna Papers Pvt Ltd also promotes Cricket by sponsoring a Team to play in district league matches and also sponsors lot of other games which are being conducted in and around Udumalpet. Apart from this, the company also do lot of charities for the Temples.

The following are the founders of the company. Shri M. Soundarajan Shri M. Veluswamy Shri M. Amarnath

The following constitute the present Board of Directors of the company. Managing Director : Shri M. Amarnath

Joint Managing Director : Shri A. Anish Directors : Shri V. Vivek

PRODUCTS

The company produces different types of papers for various purposes. According to the need and orders of the dealers the paper is produced and distributed. Each type of the paper has its own and uses. Paper is often characterized by weight. The weight assigned to a paper is the weight of a ream (500 sheets) of varying basic sizes, before the paper is cut into the size it is sold to end customers.

Density of paper: The density of paper ranges from 250 kg/m3 (16 lb/ft3) for tissue paper to 1500kg/m3 (94 lb/ft3) for some specialty paper. Printing paper is about 800 kg/m3 (500lb/ft3). Newsprint Bond paper Book paper Cotton paper Kraft paper Coated paper Writing & Printing paper Wall paper Speciality paper Industrial paper

News Print

News Print is mainly used in the printing of newspapers and magazines. Although used for printing purposes, newsprint is considered a separate end-use category because of the marked difference in its production process as compared with other W&P varities of paper. Besides, newsprint is consumed in very large volumes vis-a-vis other varieties of paper.

Bond Paper Bond paper is a high quality durable writing paper similar to bank paper but having a weight greater than 50g/m2. It is used for letterheads and other stationery and as paper for electronic printers. Widely employed for graphic work involving pencil, pen and felt-tip marker. It is largely made from rag pulp which produces a stronger paper than wood pulp.

Book Paper

The book paper (or publishing paper) is a paper which is designed specifically for the publication of printed books. Traditionally, book papers are off white or low white papers (easier to read), are opaque to minimize the show through of text from one side of the page to the other and are usually made to tighter caliper or thickness specifications, particularly for case bound books.Typically, book papers are light weight 60-90gsm and often specified by their caliper/substance ratios (volume basis).

Cotton Paper

Cotton paper is made from 100% cotton fibers. Cotton paper is superior in both strength and durability to wood pulp-based papers, which may contain high concentrations of acids. May also be known as cotton rag or ragged paper.

Cotton fiber papers is known to last several hundred years without fading, discoloring, or deteriorating, so is often used for important documents such as the archival copies of dissertation or thesis. Legal documents paper typically may contain 25% cotton. Cotton paper is also used in bank notes.

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Kraft Paper

Kraft paper is paper produced by the Kraft process from wood pulp. It is strong and relatively coarse. Kraft paper is usually a brown color but can be bleached to produce white paper. It is used for paper grocery bags, multiwall sacks, envelopes and other packaging.

Paper Towel

A paper towel is a disposable product made of paper. It servers the same general purpose as conventional towels, such as drying hand, wiping windows and dusting. Because paper towels are disposable, they are often chosen to avoid the contamination of germs.

Specialty Paper

This paper includes tissue paper, fine art paper, business card paper, photo paper and greetings card paper, which find various specific applications. It contributes to a very small percentage of total paper demand. Consumption of specialty papers is linked to the standard of living as well the per capita income of the masses due to their high value products.

Writing and Printing Paper

This includes varieties of paper, normally under 120 GSM (grams per square meter), that are used primarily for writing (stationery) purpose and printing (books, notebooks, share applications forms, etc). The various varieties of W&P paper starting from the lower end of the value chain are cream wove, map litho, copier and coated paper. While high-quality paper segments have been garnering a greater share, low quality segments still account for a major share of the market due to a higher base.

To a larger extent, growth in demand for paper in this segment depends on population growth, level of literacy, public and private spending on education, level of business activity and growth in the printing industry. 11

Industrial Paper

This includes Kraft paper, duplex boards, grey and white board, and MG paper. The paper is used for various industrial purposes.

12

CHAPTER II REVIEW OF LITERATURE

Premkumar Asit K. Ghosh in his book production management (1991) has viewed that inventories are basically stocks of resources held for the purpose of future production or sales. Inventories may be viewed as an idle resource, which has an economic value. Better management of inventories would release capital for use elsewhere, productively.

A.K.Datta in his book material management (1994) reviewed as inventories are stock of materials of any kind stored for future use, mainly in the production process. Inventories are resources of any kind having some economical value, either awaiting conversion or use in future.

Rathan Lal Guptha in his book (1994) has explained as inventory comprises a significant portion of the asset of many enterprises and bulk of working capital is locked up in this item. It generally constitutes the second largest item after foxed assets in the financial statements, particularly of manufacturing organizations. Lambert, D.M., J.R. Stock, and L.M. Ellram, 1998 has analyzed the management of the inventories, with the primary objective of determining, controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. Charles Atkinson says inventory management is about two things: not running out, and not

having too much. The desire is not to run out, along with uncertainties in demand and supplier lead times are why we have inventory in the first place. Essentially, inventory is a reserve system to prevent a stock out. Tony Wild 2005 explains that good management of inventory enables companies to improve their customer service, cash flow and profitability. 'Best Practice in Inventory Management' outlines the basic techniques, how and where to apply them, and provides advice to ensure they work to produce the desired effect in practice.

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STANFORD, R.E. AND W. MARTIN 2007 Manufacturers invest considerable resources in planning, analyzing and predicting the optimal timing and quantities to produce the variety of company goods, and new technological tools enable high-quality data analysis to support these growing decision-making needs. However, some traditional decision making systems may still be useful for both high and low budget firms unable to invest in costly tools. These include inventory classification systems, frequently referred to as ABC analyses, which provide an important analytical framework for inventory. It is easy to see how purchase order patterns, restructured based on ABC analysis, can mean considerable savings. ABC analysis thus ensures significant cost savings, representing an invaluable tool in the management tactical arsenal. (Towards a normative model for inventory cost management in a generalized ABC classification system). P.Periyasamy in his book financial management (2009) explains inventory is a physical stock of items that a business or production organization keeps in hand for efficient running of affair of its production. Inventories consists of raw materials, component part supplies and finished assemblies, which an organization purchases from outside source and parts, assemblies and finished products, which the company manufactures itself.

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CHAPTER III

OBJECTIVES OF THE STUDY

To study the inventory ratios of Shri Hari Krishna Papers Pvt Ltd. To study how ABC analysis is implemented in inventory management. To study how FSN analysis is implemented in inventory management.

STATEMENT OF THE PROBLEM A study on inventory management at Shri Hari Krishna Papers Pvt Ltd, Udumalpet is undertaken in order to know the inventory performance and position of the company and to know the strength and weakness and to assess the profitability of the company. Inventories constitute most significant part of assets of large majority of the companies in India. It is therefore absolutely very important to manage inventories efficiently and effectively in order to overcome unnecessary investment and to identify the problems or challenges involved in the inventory management process at Shri Hari Krishna Papers Pvt Ltd, Udumalpet.

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CHAPTER IV

RESEARCH METHODOLOGY

Scope

The scope of the study is to examine the inventory management in Shri Hari Krishna Papers Pvt Ltd for the period of study from 2006-11.

Data collection

The study is based on the secondary data collected from the annual reports and inventory manual of the company.

Data Analysis In order to examine the various objectives of the study the following tools have been used.

1. Inventory ratios 2. ABC analysis 3. FSN analysis

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RATIO ANALYSIS

Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition and performance of a business concern. Ratio analysis determines trends and exposes strengths or weaknesses of a firm. A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

FSN ANALYSIS

FSN analysis is carried out on the basis of the rate of movement of materials in the stores or on the basis of consumption pattern of components. Fast and slowing moving classification helps in arrangement of stocks in the stores and is deciding distribution and handling patterns. Fast , slow moving or non moving items analysis report brings out the list of dead materials which have not have been used at all for quit some time and which should removed from stores.

ABC ANALYSIS

In this technique, the items of inventory are classified according to value of usage. The higher value items have lower safety stocks, because the cost of production is very high in respect of higher value items. The lower value items carry higher safety stocks. This method divides inventory into three classes A,B and C. Items in class A constitute the most important class of inventories so far as the proportion (or percentage) in the total values of inventory is concerned. Items in class B constitute an intermediate position while those in item C are quite negligible.

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CHAPTER V

LIMITATIONS OF THE STUDY

The study was confined to only 2 years of the inventory manual. The entire analysis applies only to Shri Hari Krishna Papers Pvt Ltd, Udumalpet and if any body wants to generalise the results of this study, it has to be done with caution.

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CHAPTER VI

ANALYSIS AND INTERPRETATION

6.1 INVENTORY RATIOS

6.1.1 INVENTORY TURNOVER RATIO Inventory Turnover Ratio is also known as stock velocity and normally calculated as sales by cost of goods sold/ average inventory. It would indicate whether inventory has been efficiently used or not. The purpose is to see whether only the required minimum funds have been locked in inventory.

A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit, a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively a high profits. Similarly a high turnover ratio may be due to under-investment in inventories.

Sales Inventory turnover ratio = ____________________ Average Inventory

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Table 6.1.1 presents the details of inventory turnover ratio of Shri Hari Krishna Papers Pvt Ltd during the study period from 2006-11.

TABLE 6.1.1

INVENTORY TURNOVER RATIO

SALES YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 MEAN (IN RS) 539313949 559157924 688687570 657804603 719953719

AVG INVENTORY (IN RS) 46,817,163 61,714,683 69,459,534 62,635,803 65,612,118

RATIO (IN TIMES) 11.5 9.06 9.91 10.5 10.9 10.3

It is evident from the above table that the companys mean inventory turnover ratio was 10.3 indicating that company is able to turn its inventory into sales about 10 times a year. There is an increasing trend of the inventory turnover ratio, which indicates the company efficiently utilizes inventory.

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CHART 6.1.1

INVENTORY TURNOVER RATIO

21

6.1.2 INVENTORY CONVERSION PERIOD The ratio expresses the number of days in which the inventory is converted in to finished goods. The efficiency of the company can be determined from this ratio. Less inventory conversion period is better because more fastly, we will convert our inventory into sales, there will be less chance of obsolescence and paying of over-stocking cost. It can be calculated with the following formula.

365 Inventory conversion period= ____________________ Inventory turnover ratio

Table 6.1.2 presents the details of inventory conversion period during the period from 2006-11

TABLE 6.1.2

INVENTORY CONVERSION PERIOD

INVENTORY TURNOVER RATIO YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 MEAN NO OF DAYS 365 365 365 365 365 ( IN TIMES) 11.5 9.06 9.91 10.5 10.9 PERIOD (IN DAYS) 31.7 40.2 36.8 34.7 33.4 35.3

22

The mean inventory conversion period during the study period from 2006-11 was 35.3 days which implies that the inventory has been disposed off or sold on an average in 35 days. Inventory conversion period started decreasing from 40.2 days in 2007-08 to 33.4 days in 201011, which shows the efficiency of management to convert the inventory into cash.

CHART 6.1.2

INVENTORY CONVERSION PERIOD

INVENTORY CONVERSION PERIOD

45 40 35 30 25 20 15 10 5 0

R A T I O

PERIOD (IN DAYS)

YEAR

23

6.1.3 INVENTORY TO CURRENT ASSET The inventory to current asset represents the proportion of inventory in the total current asset. It is determined by dividing the inventory to the current asset. This depicts the amount of investment in inventories from the whole of currents.

Inventory Inventory to current asset= _____________________ Current asset

Table 6.1.3 presents the details of inventory to current asset during the period from 2006-11

TABLE 6.1.3

INVENTORY TO CURRENT ASSET

INVENTORY YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 MEAN ( IN RS) 42019739 81409628 57509441 67762166 63462071

CURRRENT ASSET ( IN RS) 129509376 150991573 158631792 164101815 170914438

RATIO (IN TIMES) 0.32 0.53 0.36 0.41 0.37 0.39

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The mean inventory in current assets ratio during the study period was 0.39 and it has fluctuated over a period of time.

CHART 6.1.3

INVENTORY TO CURRENT ASSET

25

6.1.4 INVENTORY TO SALES This indicates the level of inventory to sales of the organization. It reflects the proportion of stock to that of the sales for the corresponding period. An increasing Inventory to Sales ratio is generally a negative sign, showing the company may be having trouble keeping inventory down and/or Net Sales have slowed, and can sometimes indicate larger financial problems the company may be facing.

A decreasing Inventory to sales ratio is generally a positive sign, showing the company has been more able to keep inventory down and/or Net Sales have increased. It is determined as inventory divided by sales. Inventory Inventory To Sales = _____________ Sales

Table 6.1.4 presents the details of inventory to sales during the period from 2006-11.

TABLE 6.1.4 INVENTORY TO SALES RATIO

INVENTORY YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 MEAN (IN RS) 42019739 81409628 57509441 67762166 63462071

SALES (IN RS) 539313949 559157924 688687570 657804603 719953719

RATIO (IN TIMES) 0.07 0.14 0.08 0.10 0.08 0.094

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The mean inventory to sales ratio during the study period was 0.094. The inventory to sales ratio for the year 2006-07 is 0.07 and it shows an decreasing trend from 0.14 in 2007-08 to 0.08 in 2010-11. It is a positive sign, showing that the company's ability to manage Inventories while attempting to increase sales.

CHART 6.1.4

INVENTORY TO SALES RATIO

INVENTORY TO SALES RATIO

0.14 0.12 0.1 0.08 0.06 0.04 0.02 0

R A T I O

RATIO (IN TIMES)

YEAR

27

6.1.5 INVENTORY TO WORKING CAPITAL RATIO This ratio provides the relationship between inventory and working capital. If a firm has to be financially sound then the amount of inventory should not exceed the amount of working capital. This ratio is calculated to know whether there is any over stock.

A low value of 1 or less of inventory to working capital means that a company has high liquidity of current asset, while it may also mean insufficient inventories. A high value inventory to working capital ratio means that a company is carrying too much inventory in stock. It is not favorable for management because excessive inventories can place a heavy burden on the cash resources of a company. A key issue for a company to improve its operation efficiency is to identify the optimum inventory levels and thus minimize the cost tied up in inventories.

Inventory Inventory to Working Capital Ratio = _____________________ Working Capital

Table 6.1.5 presents the details of inventory to working capital ratio during the period from 2006-11. TABLE 6.1.5 INVENTORY TO WORKING CAPITAL RATIO

INVENTORY YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 MEAN (IN RS) 42019739 81409628 57509441 67762166 63462071

WORKING CAPITAL (IN RS) 106,712,883 129718649 134235629 138203184 133132995

RATIO (IN TIMES) 0.39 0.62 0.42 0.49 0.47 0.47 28

The mean inventory to working capital ratio was 0.47. Since the ratio was less than 1, it is found to be satisfactory.

CHART 6.1.5

INVENTORY TO WORKING CAPITAL RATIO

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6.2 ABC ANALYSIS (ALWAYS BETTER CONTROL) ABC Analysis helps in the classification of the items on the basis of their consumption values in a given period. The logic behind this kind of analysis is that the management should study each item of stock in terms of its usage, lead time, technical or other problems and its relative money value in the total investment in inventories.

This analysis in inventory can be done for specified financial periods or for a range of dates as specified by the user. It is possible to do this analysis for a particular warehouse in a location or for all the warehouses in the location.

The consumption value of the items over the specified period for which analysis is to be done is calculated on the basis of the Receipts, Returns and Adjustments made during that time. The consumption value for items are then put in descending order of their values and the percentage of total consumption value for each item calculated.

Usually the first 70% of the total consumption value in the specified period corresponds to A Class, the next 20% are of B Class and the last 10% of the value corresponds to the C Class. ABC analysis also helps in reducing the clerical costs and results in better planning and improved inventory turnover. ABC analysis has to be resorted to because equal attention to A, B and C items will not be worthwhile and would be very expensive. A- Items 1. Tight controls 2. Rigid estimates of requirements 3. Strict and close watch 4. Safety stocks should be low 5. Management of items should be done at top management level.

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B- Items 1. Moderate control 2. Purchase based on rigid requirements 3. Reasonably strict watch and control 4. Safety stocks moderate 5. Management be done at middle level C- Items 1. Ordinary control measure 2. Purchase based on usage estimates 3. Controls exercises by store keeper. 4. Safety stocks high 5. Management be done at lower levels. The following steps are involved in the classification of items into A, B and C categories.

1. Find out the unit cost and the usage of each material over a given period. 2. Multiply the unit cost by the estimated annual usage to obtain the net value. 3. List out all the items and arrange them in the descending value. (Annual Value) 4. Accumulate value and add up number of items and calculate percentage on total inventory in value and in number.

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6.2.1 ABC ANALYSIS FOR THE YEAR 2009-10

TABLE 1
CONSUMPTION VALUE ( IN RS) 2608011.68 1412324.03 862774.207 87.578 60.323 49.388 26.178 16.135 8.31 7.09 5.212 0.859 4.37 2.419 1.8 1.53 1.28 8,939.80 12,968.73 10,190.88 13,811.83 3,975.75 7,107 6,177.98 8,126.74 30,346.91 4,140 6,931.95 7,119 6,834 7,454.95 782929.8044 782312.6998 503307.1814 361566.0857 64148.72625 59059.17 43801.8782 42356.56888 26067.99569 18091.8 16768.38705 12814.2 10456.02 9542.336 7616332.771 10.27 10.27 6.6 4.74 0.84 0.77 0.57 0.55 0.34 0.23 0.22 0.16 0.13 0.12 74.37 84.64 91.24 95.98 96.82 97.59 98.16 98.71 99.05 99.28 99.5 99.66 99.79 99.91 B B C C C C C C C C C C C C % OF CONSUMPTION VALUE 34.24 18.54 11.32 CUMULATIV E% 34.24 52.78 64.1

RAW MATERIALS IMPORTED WASTE PAPER TEXT BOOKS IMPORTED WOOD PULP NO II MACHINE CUTTING NOTE BOOKS WHITE RECORDS NO I ITEMS COLOUR RECORDS DUPLEX BOARDS LOW GRADE WHITE RECORDS OINP (TAMIL) IND WOOD PULP SPL COLOUR RECORDS BOX CRAFT OINP (ENGLISH) MAGAZINES OINP(MALAYALA M) TOTAL

QUANTITY 147.88 137.845 34.7

UNIT COST 17,636 10,245.74 24,863.81

CATEGORY A A A

TABLE 2
CATEGORY A B C TOTAL NO OF ITEMS 3 2 12 17 PERCENTAGE 18 12 71

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It is evident from the table that 3 types of materials namely imported waste paper, text books and imported wood pulp fall under category A where it accounts for 70% of the money value and 2 types of raw materials namely No 2 machine cuttings and note books fall under the category B where it accounts for 20% of the money value and remaining 12 types of raw materials fall under the category C where it accounts for 10% of the money value.

CHART 6.2.1

ABC ANALYSIS FOR THE YEAR 2009-10

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6.2.2 ABC ANALYSIS FOR THE YEAR 2010-11

TABLE 1
% OF CONSUMPTION VALUE 27.13 13.31 10.93 10.49 7.85 7.85 4.22 3.57 3.4 2.35 1.61 1.33 1.27 0.84 0.83 0.78 0.11

RAW MATERIALS WHITE RECORDS IMPORTED WOOD PULP TEXT BOOKS NOTE BOOKS IMPORTED WASTE PAPER OINP (TAMIL) MAGAZINES NO II MACHINE CUTTING NO I ITEMS OINP (ENGLISH) COLOUR RECORDS IND WOOD PULP BOX CRAFT LOW GRADE WHITE RECORDS OINP(MALAYALAM) SPL COLOUR RECORDS DUPLEX BOARDS TOTAL

QUANTITY 116.63 34.7 53.425 40.134 35.91 49.427 25.8 19.593 9.72 14.515 19.78 2.61 7.799 7.56 5.09 8.88 0.835

UNIT COST 15,071.65 24,863.81 14,946.84 16,940 17,857.04 10,296.97 10,598.96 11,813.30 22,664.50 10,530.29 5,287.48 33,054.75 10,610 7,276.39 10,658.05 5,700 8,859

CONSUMPTION VALUE 1757807 862774 708535 679870 641246 508948 273453 231458 220299 152847 104586 86273 82747 55010 54249 50616 7397 6478115

CUMULATIVE % 27.13 40.44 51.37 61.86 69.71 77.56 81.78 85.35 88.75 91.1 92.71 94.04 95.31 96.15 96.98 97.76 97.87

CATEGORY A A A A A B B B B C C C C C C C C

TABLE 2 NO OF ITEMS 5 4 8 17

CATEGORY A B C TOTAL

PERCENTAGE 29 24 47

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It is evident from the table that 5 types of materials namely imported waste paper, text books, note books, white records and imported wood pulp fall under category A where it accounts for 70% of the money value and 4 types of raw materials namely No 2 machine cuttings, No I items, OINP (Tamil) and magazines fall under the category B where it accounts for 20% of the money value and remaining 8 types of raw materials fall under the category C where it accounts for 10% of the money value.

CHART 6.2.2

ABC ANALYSIS FOR THE YEAR 2010-11

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6.3 FSN ANALYSIS FSN Analysis aims at classifying items on the basis of their movement from inventory. Here the items are classified as Fast, Slow and Non moving items taking into consideration both 1) Average stay of the item in Inventory and 2) Consumption rate of the item.

This analysis can be done for a specified financial period or for a range of dates as specified by the user. It is possible to do this analysis for a particular warehouse in a location or for all the warehouses in the location.

The higher the average stay (relative) of an item in the warehouse, the slower its movement from inventory. On the contrary a fast moving item will have a shorter stay in the warehouse. A very high consumption rate (relative) implies that the item/variant is a fast moving one and a slow moving item will have a low consumption rate.

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TABLE 6.3.1 FSN ANALYSIS FOR THE YEAR 2009-10

Step I: Calculation of Average Stay

Average Stay for the item = Cumulative number of inventory holding days / (Total receipt quantity + Opening Balance)

ITEMS OINP(MALAYALAM) OINP (ENGLISH) IND WOOD PULP DUPLEX BOARDS IMPORTED WOOD PULP SPL COLOUR RECORDS BOX CRAFT MAGAZINES OINP (TAMIL) LOW GRADE WHITE RECORDS NO II MACHINE CUTTING IMPORTED WASTE PAPER TEXT BOOKS COLOUR RECORDS NO I ITEMS WHITE RECORDS NOTE BOOKS

RECEIPT QTY 0.1 0 0 0 0 21 0.06 3.4 32.12 68 9.57 148 5.55 0.49 52 34 302

CLOSING BALANCE 1.28 1.8 0.859 8.31 34.7 4.37 2.419 1.53 5.212 7.09 88 148 138 16 26 49 60

INVENTORY HOLDING DAYS 393 395 591 387 590 406 28 407 392 402 490 638 776 792 26 75 135

AVG STAY 307 141 93 46.5 17 13 11.57 10 7.84 5.6 4.3 3.6 1.8 0.8 0.47 0.36 0.07

CUMULATIVE AVERAGE STAY 307 448 541 587.5 604.5 617.5 629.07 639.07 646.91 652.51 656.81 660.41 662.21 663.01 663.48 663.84 663.91

% OF CUMULATIVE AVG STAY 46.2 67.4 81.4 88.4 91 93 94.7 96.2 97.4 98.2 98.9 99.4 99.7 99.8 99.9 99.9 100

FSN N N S S F F F F F F F F F F F F F

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Step II: Calculation of consumption rate Consumption Rate = Total Issue Quantity / Total period duration
ISSUE QTY 1012 1 81 63 44 37 29 28 22 23 5.71 5.5 0 0 0 0 0 CUMULATIVE CONS 2.77 5.5 5.72 5.89 6.01 6.11 6.18 6.25 6.31 6.37 6.38 6.39 6.39 6.39 6.39 6.39 6.39 % OF CUM CONS 43.3 86 89.51 92.1 94 95.6 96.7 97.8 98.7 99.6 99.8 100 100 100 100 100 100

ITEMS NOTE BOOKS OINP (ENGLISH) WHITE RECORDS LOW GRADE WHITE RECORDS OINP (TAMIL) MAGAZINES NO I ITEMS SPL COLOUR RECORDS COLOUR RECORDS TEXT BOOKS IMPORTED WASTE PAPER IND WOOD PULP BOX CRAFT NO II MACHINE CUTTING DUPLEX BOARDS OINP(MALAYALAM) IMPORTED WOOD PULP

CONSUMPTION 2.77 2.73 0.22 0.17 0.12 0.1 0.07 0.07 0.06 0.06 0.01 0.01 0 0 0 0 0

FSN F S S N N N N N N N N N N N N N N

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Step III: Final FSN classification based on average stay and consumption rate

ITEMS NOTE BOOKS OINP (ENGLISH) WHITE RECORDS LOW GRADE WHITE RECORDS OINP (TAMIL) MAGAZINES NO I ITEMS SPL COLOUR RECORDS COLOUR RECORDS TEXT BOOKS IMPORTED WASTE PAPER IND WOOD PULP BOX CRAFT NO II MACHINE CUTTING DUPLEX BOARDS OINP(MALAYALAM) IMPORTED WOOD PULP

CONS RATE F S S N N N N N N N N N N N N N N

AVG STAY F N F F F F F F F F F S F F S N F

FINAL FSN F N S S S S S S S S S N S S N N S

Step IV: FSN analysis for the year 2009-10

CATEGORY F S N TOTAL

NO OF ITEMS 1 12 4 17

PERCENTAGE 6 71 24

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It is evident from the table that only one type of material namely note books fall under fast moving items where it accounts for 6% of the total items. And 12 types of raw materials namely white records, low grade white records, No 2 machine cuttings, No I items, OINP (Tamil), spl colour records, colour records, magazines, text books, imported waste paper, box crafts, and imported wood pulp fall under slow moving items where it accounts for 71% of the total items and remaining 4 types of raw materials namely OINP (English & Malayalam), duplex boards, and ind wood pulp fall under non moving items where it accounts for 24% of the total items.

CHART 6.3.1

FSN ANALYSIS FOR THE YEAR 2009-10

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TABLE 6.3.2 FSN ANALYSIS FOR THE YEAR 2010-11

Step I: Calculation of Average Stay

Average Stay for the item = Cumulative number of inventory holding days / (Total receipt quantity + Opening Balance)

ITEMS DUPLEX BOARDS OINP(MALAYALAM) IND WOOD PULP SPL COLOUR RECORDS OINP (ENGLISH) MAGAZINES IMPORTED WOOD PULP LOW GRADE WHITE RECORDS COLOUR RECORDS NO II MACHINE CUTTING OINP (TAMIL) TEXT BOOKS BOX CRAFT IMPORTED WASTE PAPER WHITE RECORDS NO I ITEMS NOTE BOOKS

INVENTORY CUMULATIVE % OF RECEIPT CLOSING HOLDING AVG AVERAGE CUMULATIVE QTY BALANCE DAYS STAY STAY AVG STAY 0 0.835 269 322 322 61.4 4 5 274 62.9 384.9 73.4 0 3 277 26 410.9 78.4 12 9 286 25.3 436.2 83.2 3 15 301 23.4 459.6 87.7 19 26 327 14.6 474.2 90.5 0 35 362 13 487.2 92.9 17 6 17 42 73 6.28 0 240 33 257 8 20 20 49 53 8 36 117 10 40 370 390 410 459 512 520 556 673 10 50 11.1 9.75 5.15 3.27 2.38 2.25 2.06 0.33 0.27 0.16 498.3 508.05 513.2 516.47 518.85 521.1 523.16 523.49 523.76 523.92 95.1 96.9 97.9 98.5 99 99.4 99.8 99.9 99.9 100

FSN N S S S S F F F F F F F F F F F F

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Step II: Calculation of consumption rate Consumption Rate = Total Issue Quantity / Total period duration

ITEMS WHITE RECORDS NOTE BOOKS IMPORTED WASTE PAPER TEXT BOOKS OINP (TAMIL) NO II MACHINE CUTTING NO I ITEMS LOW GRADE WHITE RECORDS SPL COLOUR RECORDS BOX CRAFT COLOUR RECORDS DUPLEX BOARDS OINP(MALAYALAM) OINP (ENGLISH) MAGAZINES IMPORTED WOOD PULP IND WOOD PULP

ISSUE QTY 340 302 166 49 47 32 26 23 5 0 0 0 0 0 0 0 0

CONSUMPTION 0.93 0.82 0.45 0.13 0.12 0.08 0.07 0.06 0.01 0 0 0 0 0 0 0 0

CUMULATIVE CONS 0.93 1.75 2.2 2.33 2.45 2.53 2.6 2.66 2.67 2.67 2.67 2.67 2.67 2.67 2.67 2.67 2.67

% OF CUM CONS 34.8 65.5 82.3 87.2 91.7 94.7 97.3 99.6 100 100 100 100 100 100 100 100 100

FSN F F S S N N N N N N N N N N N N N

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Step III: Final FSN classification based on average stay and consumption rate

ITEMS WHITE RECORDS NOTE BOOKS IMPORTED WASTE PAPER TEXT BOOKS OINP (TAMIL) NO II MACHINE CUTTING NO I ITEMS LOW GRADE WHITE RECORDS SPL COLOUR RECORDS BOX CRAFT COLOUR RECORDS DUPLEX BOARDS OINP(MALAYALAM) OINP (ENGLISH) MAGAZINES IMPORTED WOOD PULP IND WOOD PULP

CONS RATE F F S S N N N N N N N N N N N N N

AVG STAY F F F F F F F F S F F N S S F F S

FINAL FSN F F S S S S S S N S S N N N S S N

Step IV: FSN analysis for the year 2010-11

CATEGORY F S N TOTAL

NO OF ITEMS 2 10 5 17

PERCENTAGE 12 59 29

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It is evident from the table that 2 types of material namely note books and white records fall under fast moving items where it accounts for 12% of the total items. And 10 types of raw materials namely low grade white records, No 2 machine cuttings, No I items, OINP (Tamil), colour records, magazines, text books, imported waste paper, box crafts, and imported wood pulp fall under slow moving items where it accounts for 59% of the total items and remaining 5 types of raw materials namely OINP (English & Malayalam), duplex boards, spl colour records, and ind wood pulp fall under non moving items where it accounts for 29% of the total items.

CHART 6.3.2

FSN ANALYSIS FOR THE YEAR 2010-11

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CHAPTER 7 FINDINGS

The inventory turnover ratio shown an increasing trend during the period of the study which indicates that the company efficiently utilizing its inventory. The average inventory conversion period was 35.3 days. It means, the inventory has been disposed off or sold on an average in 35 days, which shows the efficiency of management to convert the inventory into cash in short period. The average inventory in current assets during the study period was 0.39 and it has fluctuated over a period of time. The average inventory to sales ratio was 0.094, the lesser the ratio it is a positive sign, showing that the company's ability to manage inventories while attempting to increase sales. The average inventory to working capital ratio was 0.47. Since the ratio was less than 1, it is found to be satisfactory. Raw materials like imported wood pulp, text books, white records and imported waste paper fall under A category where it accounts for 70% of the money value and constitutes 29% of total items. Raw materials like No II machine cuttings, note books, OINP (Tamil), magazines and No I items fall under B category where it accounts for 20% of the money value and constitutes 24% of total items. Raw materials like colour records, low grade white records, OINP (English & Malayalam), duplex boards and spl colour records fall under C category where it accounts for 10% of the money value and constitutes 47% of total items. Raw materials like note books and white records fall under fast moving items where it accounts for 12% of the total items. Raw materials like low grade white records, No 2 machine cuttings, No I items, OINP (Tamil), colour records, magazines, text books, imported waste paper, box crafts, and

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imported wood pulp come under slow moving items where it accounts for 59% of the total items. Raw materials like OINP (English & Malayalam), duplex boards, spl colour records, and Ind wood pulp come under non moving items where it accounts for 29% of the total items.

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CHAPTER 8 SUGGESTIONS
The company should have control over the non-moving items constituting 29% because there will be unnecessary blocking of working capital. As per analysis there is increase in inventory turnover ratio from 2006-11. The management is required to maintain an increasing trend in inventory for the efficient running of the business. The percentage of fast moving items was very less when compared to the slow moving and non-moving items and hence the company should maintain high percentage in fast moving items. Laying out formal procedures of inventory management for the effective inventory management. Training should be given to the employees on ways of handling and managing inventory as well as new employees on stock management and handling. Improvement of storage facilities. Setting clear inventory controls as well as account for stock on regular periods.

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CHAPTER 9 CONCLUSION
The overall inventory management followed at Shri Hari Krishna Papers Pvt Ltd seems to be satisfactory. The company should implement the financial tools like ABC and FSN analysis based on the consumption value for the better control of inventory. So the demand for scarce raw materials could be met and at the same in the excess storage and investment in raw material can be avoided. The control technique helps the management for the delegation of authority and responsibility to the members in the stores. So the top management could focus attention only on few items.

If the goal is to make the business more profitable, the organization must increase efficiency and reduce costs. Inventory is the largest investment that must be carefully planned. Classification of your inventory, and continuing analysis of those classifications, can play a vital role in maintaining cost at the efficient levels the organization has established as goals. Inventory control is a constant requirement of doing business successfully. The main objective of inventory management is to avoid production bottlenecks by providing continuous supply of all types of materials, avoidance of wastes, effective economy in purchasing through economical order quantity and taking advantages of favorable markets, maintaining optimum level of investment in inventories. So if the organization follows these inventory can be maintained and cost can be controlled.

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BIBLIOGRAPHY
Books

Wild, T., Best Practices in Inventory Management, 1997, (chapter 3): Wiley
publication.

Khan M.Y., Jain P.K., Financial Management, Tata Mc Graw Hill publishing
Company Limited, 2007.

Pandey I.M., financial management, Vikas Publishing House ltd,2005 Maheswari S.N., management accounting, sultan chand and sons,1995
Journals Professure Hossein Ashram views on inventory cost Journal of Small Business

Management.2005. 8(5) pg 28-35 Berniker, E. and D.E. McNabb, Applying matrixed Pareto analysis with activity based costing for operations and cost management, Journal of Business and Management, 2005. 11(1): p. 73-88. Stanford, R.E. and W. Martin, Towards a normative model for inventory cost management in a generalized ABC classification system. Journal of the Operational Research Society, 2007. 58(7): p. 922-928. Websites www.inventorymanagementreview.org www.effectiveinventory.com en.wikipedia.org/wiki/Pareto principle www.businessfinanace.com http://wiki.sdn.sap.com/wiki/display/SI/Inventory+Analysis http://www.paperex-india.com/paperscene.htm http://iamsam.hubpages.com/hub/ABC-Analysis-Technique-of-Inventory-Control

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