Venu Project Report 1
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Introduction
1.1 Introduction to the study
The importance of inventory management cannot be over emphasized. Inventory and the
management thereof belong to everyone in the company but nobody wants to own it. Inventory
Management is truly interdisciplinary and spans from financial and managerial accounting, to
operations research, material handling to logistics. Inventories represent the second largest assets
category for manufacturing companies next only to plant and equipment. The proportion of
inventories to total assets generally varies between 15 and 30 percent. Given substantial
investment in inventories, Decisions relating to inventories are taken primary by executives in
production, purchasing and marketing departments. Lowering inventories is one of the quickest
ways to decrease working capital needs. Performance measurements, such as the old standby
ROA (return on assets) and the newer EVA (economic value added), as well as other measures
that gauge how efficiently capital is used, have become more common organizational drivers. In
fact, many times an executive's bonus depends, at least in part, on how efficiently capital is used.
Couple the drive for efficient capital use with the need to respond more quickly to changes in
customer demand, with shorter and shorter order-to-delivery cycle times, and you have a
problem that is challenging many organizations.
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1.2 Need of Study
The purpose of doing this project is to know how effective Inventory Control
Management can help in effective functioning of the organization. To assess the
companys trends for the last 5 years with regard to Inventory Control Management. To
find out how total turnover of Inventory Management can result in improving the profits
of the organization.
1.3 Scope of Study
The scope of the study is confined to the sources that Kesoram Cements Limited tapped over the
years under study i.e. 2008-13.
1.4 Objectives of the Study
To know the performance ofInventory Control Management.
To analyze the performance of the inventory management and making
suggestions for modifications.
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1.5 Sources of Data
Secondary Sources
Secondary information relating to the company is collected from the financial
statements and the information Brochures of the organization some of the industrys
information is collected through the financial reports and monthly business Magazines and
journals.
1.6 Limitations of The Study
The Study is conducted within the selected unit of Kesoram Cements Limited
Hyderabad.
The study may not fulfill all the requirements of a detailed investigation since it is
conducted within a period of one month.
The study was conducted with the data available and the analysis was made
accordingly
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2.1 Industry Profile
Cement Industry
In the most general sense of the word, cement is a binder, a substance which sets and hardens
independently, and can bind other materials together. The word "cement" traces to the Romans,
who used the term "opus caementicium" to describe masonry which resembled concrete and was
made from crushed rock with burnt lime as binder. The volcanic ash and pulverized brick
additives which were added to the burnt lime to obtain a hydraulic binder were later referred to
cement. Cements used in construction are characterized as hydraulic or non-hydraulic. The most
important use of cement is the production ofmortarand concretethe bonding of natural or
artificial aggregates to form a strong building material which is durable in the face of normal
environmental effects. Concrete should not be confused with cement because the term cement
refers only to the dry powder substance used to bind the aggregate materials of concrete. Upon
the addition of water and/or additives the cement mixture is referred to as concrete, especially if
aggregates have been added. It is uncertain where it was first discovered that a combination of
hydrated non-hydraulic lime and a pozzolanproduces a hydraulic mixture (see also: Pozzolanic
reaction), but concrete made from such mixtures was first used on a large scale by engineers.
They used both natural pozzolans and artificial pozzolans (ground brick or pottery) in these
concretes. Many excellent examples of structures made from these concretes are still standing,
notably the huge monolithic dome of the Pantheon in Rome and the massive Baths of Caracalla.
Modern Cement
Modern hydraulic cements began to be developed from the start of the Industrial Revolution
(around 1800), driven by three main needs: Hydraulic renders for finishing brick buildings in wet
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climates Hydraulic mortars for masonry construction of harbor works etc, in contact with sea
water.
Types Of Modern Cement
Portland Cement is made by heating limestone (calcium carbonate), with small quantities of
other materials (such as clay) to 1450C in a kiln, in a process known as calcinations, whereby a
molecule ofcarbon dioxide is liberated from the calcium carbonate to form calcium oxide, or
lime, which is then blended with the other materials that have been included in the mix . The
resulting hard substance, called 'clinker', is then ground with a small amount ofgypsum into a
powder to make 'Ordinary Portland Cement', the most commonly used type of cement (often
referred to as OPC).
Portland cement is a basic ingredient ofconcrete, mortarand most non-speciality grout. The
most common use for Portland cement is in the production of concrete. Concrete is a composite
material consisting ofaggregate (gravel and sand), cement, and water. As a construction
material, concrete can be cast in almost any shape desired, and once hardened, can become a
structural (load bearing) element. Portland cement may be gray or white.
Portland Cement Blends
These are often available as inter-ground mixtures from cement manufacturers, but similar
formulations are often also mixed from the ground components at the concrete mixing plant.
Portland blast furnace cement contains up to 70% ground granulated blast furnace slag, with the
rest Portland clinker and a little gypsum. All compositions produce high ultimate strength, but as
slag content is increased, early strength is reduced, while sulfate resistance increases and heat
evolution diminishes. Used as an economic alternative to Portland sulfate-resisting and low-heat
cements. Portland flash cement contains up to 30% fly ash. The fly ash is pozzolanic, so that
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ultimate strength is maintained. Because fly ash addition allows a lower concrete water content,
early strength can also be maintained. Where good quality cheap fly ash is available, this can be
an economic alternative to ordinary Portland cement. Portland pozzolan cement includes fly ash
cement, since fly ash is a pozzolan, but also includes cements made from other natural or
artificial pozzolans. In countries where volcanic ashes are available (e.g. Italy, Chile, Mexico,
the Philippines) these cements are often the most common form in use.
Portland silica fume cement. Addition ofsilica fume can yield exceptionally high strengths,
and cements containing 5-20% silica fume are occasionally produced. However, silica fume is
more usually added to Portland cement at the concrete mixer.
Masonry cements are used for preparing bricklaying mortars and stuccos, and must not be used
in concrete. They are usually complex proprietary formulations containing Portland clinker and a
number of other ingredients that may include limestone, hydrated lime, retarders, water proofers
and coloring agents. They are formulated to yield workable mortars that allow rapid and
consistent masonry work. Subtle variations of Masonry cement in the US are Plastic Cements
and Stucco Cements. These are designed to produce controlled bond with masonry blocks.
Expansive cements contain, in addition to Portland clinker, expansive clinkers and are designed
to offset the effects of drying shrinkage that is normally encountered with hydraulic cements.
This allows large floor slabs (up to 60 m square) to be prepared without contraction joints.
Very finely ground cements are made from mixtures of cement with sand or with slag or other
pozzolan type minerals which are extremely finely ground together. Such cements can have the
same physical characteristics as normal cement but with 50% less cement particularly due to
their increased surface area for the chemical reaction. Even with intensive grinding they can use
up to 50% less energy to fabricate than ordinary Portland cements.
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Non-Portland hydraulic cements
Pozzolan-lime cements. Mixtures of ground pozzolan and lime are the cements used by the
Romans, and are to be found in Roman structures still standing (e.g. the Pantheon in Rome). The
hydration products that produce strength are essentially the same as those produced by Portland
cement. Slag-lime cements. Ground granulated blast furnace slag is not hydraulic on its own, but
is "activated" by addition of alkalis, most economically using lime. They are similar to pozzolan
lime cements in their properties. Only granulated slag (i.e. water-quenched, glassy slag) is
effective as a cement component. Super sulfated cements. These contain about 80% ground
granulated blast furnace slag, 15% gypsum or anhydrite and a little Portland clinker or lime as an
activator. Calcium aluminates cementsare hydraulic cements made primarily from limestone and
bauxite. The active ingredients are mono calcium aluminates CaAl2O4 (Ca O Al2O3 or CA in
Cement chemist notation, CCN) and magenta Ca12Al14O33 (12 Ca O 7 Al2O3, or C12A7 in
CCN). Strength forms by hydration to calcium aluminates hydrates. They are well-adapted for
use in refractory (high-temperature resistant) concretes, e.g. for furnace linings. Calcium sulfa
aluminates cements are made from clinkers that include (Ca4(AlO2)6SO4 or C4A3 in Cement
chemist's notation) as a primary phase. They are used in expansive cements, in ultra-high early
strength cements, and in "low-energy" cements. Their use as a low-energy alternative to
Portland cement has been pioneered in China, where several million tons per year are produced.
Energy requirements are lower because of the lower kiln temperatures required for reaction, and
the lower amount of limestone (which must be endothermic ally de carbonated) in the mix. In
addition, the lower limestone content and lower fuel consumption leads to a CO 2 emission
around half that associated with Portland clinker.
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2.2 Company Profile
Kesoram Cement Limited
Kesoram Cement Industry is one of the leading manufacturers of cement in India. It is a day
process cement Plant. The plant capacity is 8.26 lakh tones per annum It is located at
Basanthnagar in Karimnagar district of Andhra Pradesh. Basanthnagar is 8 km away from the
Ramagundram Railway station, linking Madras to New Delhi. The Chairman of the Company is
Sri. B.K. Birla.
History
The first unit at Basanthnagar with a capacity of 2.1 lakh tones per annum incorporating
humble suspension preheated system was commissioner during the year 1969. The second unit
was setup in year 1971 with a capacity of 2.1 lakh tones per annum went on stream in the year
1978. The coal for this company is being supplied from Singereni Collieries and the power is
obtained from APSEB. The power demand for the factory is about 21 MW. Kesoram has got 2
DG sets of 4 MW each installed in the year 1987. Kesoram Cement has setup a 15 KW captor
power plant to facilitate for uninterrupted power supply for manufacturing of cement at 24th
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august 1997 per hour 12 mw, actual power is 15 mw. The Company was incorporated on 18th
October, 1919 under the Indian Companies Act, 1913, in the name and style of Kesoram Cotton
Mills Ltd. It had a Textile Mill at 42, Garden Reach Road, Calcutta 700 024. The name of the
Company was changed to Kesoram Industries & Cotton Mills Ltd. on 30th August, 1961 and the
same was further changed to Kesoram Industries Limited on 9th July, 1986. The said Textile
Mill at Garden Reach Road was eventually demerged into a separate company. The First Plant
for manufacturing of rayon yarn was established at Tribeni, District Hooghly, West Bengal and
the same was commissioned in December, 1959 and the second plant was commissioned in the
year 1962 enabling it to manufacture 4,635 metric tons per annum (mtpa) of rayon yarn. This
Unit has 6,500 metric tons per annum (mtpa) capacity as on 31.3.2009. The Company
diversified into manufacturing of cast iron spun pipes and pipe fittings at Bansberia, District
Hooghly, West Bengal, with a production capacity of 45,000 metric tons per annum (mtpa) of
cast iron spun pipes and pipe fittings in December, 1964. The Company subsequently diversified
into the manufacturing of Cement and in 1969 established its first cement plant under the
name 'Kesoram Cement' at Basantnagar, Dist. Karimnagar (Andhra Pradesh) and to take
advantage of favorable market conditions, in 1986 another cement plant, known as
'Vasavadatta Cement', was commissioned by it at Sedam, Dist. Gulbarga (Karnataka). The
cement manufacturing capacities at both the plants were augmented from time to time according
to the market conditions and as on 31.3.2009 Kesoram Cement and Vasavadatta Cement have
annual cement manufacturing capacities of 1.5 million metric tons and 4.1 million metric tons
respectively. The Company in March 1992, commissioned a plant at Balasore known as Birla
Tires in Orissa, for manufacturing of 10 lack MT p.a. automotive tires and tubes in the first phase
in collaboration with Pirelli Ltd., U.K., a subsidiary company of the world famous Pirelli Group
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of Italy - a pioneer in production and development of automotive tires in the world. The
Company as on 31.3.2009 had the manufacturing capacities of 3.71 million tires, 2.95 million
tubes and 1.53 million flaps per annum in the Plants including at Uttarakhand Plant. It has small
manufacturing capacities of various Chemicals at Kharda in the State of West Bengal also. It has
the annual manufacturing capacities of 12,410 mtpa of Caustic Soda Lye, 5,045 mtpa of Liquid
Chlorine, 6,205 mtpa of Sodium Hypochlorite, 8,200 mtpa of Hydrochloric Acid, 3,200 mtpa of
Ferric Alum, 18,700 mtpa of Sulphuric Acid and 1,620,000 m3pa of purified Hydrogen Gas.
The Company is a well-diversified entity in the fields of Cement, Tire, Rayon Yarn, Transparent
Paper, Spun Pipes and Heavy Chemicals with two core business segments i.e. Cement and Tires.
In Spun Pipes & Foundries, a unit of the Company, work suspended from 2nd May, 2008 still
commences till further notice. The Company as of now is listed on three major Stock
Exchanges in India i.e. Bombay Stock Exchange Ltd., Mumbai, Calcutta Stock Exchange
Association Ltd., Kolkata and National Stock Exchange of India Ltd., The commercial
production of cement in the aforesaid unit IV has commenced in June 2009. The Board has
further approved a Motor Cycle Tire Project of 70 MT per day capacity at the same site
involving a capital outlay of Rs.190 crore. The civil construction of both the Projects is in full
swing. The commercial production in both the Projects is likely to start by December 2009/
January 2010. Birla Supreme in popular brand of Kesoram cement from its prestigious plant of
Basantnagar in AP which has outstanding track record. In performance and productivity serving
the nation for the last two and half decades. It has proved its distinction by bagging several
national awards. It also has the distinction of achieving optimum capacity utilization. Kesoram
offers a choice of top quality portioned cement for light, heavy constructions and allied
applications. Quality is built every fact of the operations. The day process technology uses in
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the latest computerized monitoring overseas the manufacturing process. Samples are sent
regularly to the bureau of Indian standards. National council of construction and building
material for certification of derived quality norms. The company has vigorously undertaking
different promotional measures for promoting their product through different media, which
includes the use of news papers magazine, hoarding etc. Kesoram cement industry
distinguished itself among all the cement factories in Indian by bagging the National
Productivity Award consecutively for two years i.e. for the year 1985-1987. The federation of
Andhra Pradesh Chamber & Commerce and Industries (FAPCCI) also conferred on Kesoram
Cement. An award for the best industrial promotion expansion efforts in the state for the year
1984. Kesoram also bagged FAPCCI awarded for Best Family Planning Effort in the state for
the year 1987-1988.
Kesoram cement undertaking marketing activities extensively in the state of Andhra Pradesh,
Karnataka, Tamilnadu, Kerala, Maharashtra and Gujarat. In A.P. sales Depts., are located in
different areas like Karimnagar, Warangal, Nizamabad, Vijayawada and Nellore. In other states
it has opened around 10 depot One among the industrial giants in the country today, serving the
nation on the industrial front. Kesoram industry ltd., has a checked and eventful history dating
back to the twenties when the Industrial House of Birlas acquired it. With only a textile mill
under its banner 1924, it grew from strength to strength and spread its activities to newer fields
like Rayon, Transparent papers. The market share of Kesoram Cement in AP is 7.05%. The
market share of the company in various states is shown as under.
STATES MARKET SHARE
Karnataka 4.09%
Tamilnadu 0.94%
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Kerala 0.29%
Maharashtra 2.81%
Process and Quality Control
It has been the endeavor of Kesoram to incorporate the Worlds latest technology in the plant and
today the plant has the most sophisticated.
Supreme performance
One of the largest Cement Plants in Andhra Pradesh, the plant corporate the latest technology in
Cement - making. It is professionally managed and well established Cement Manufacturing
Company enjoying the confidence of the consumers. Kesoram has outstanding track record in
performance and productivity with quite a few national and state awards to its credit. BIRLA
SUPREME, the 43 Grade Cement, is a widely accepted and popular brand in the market,
commanding a premium. However to meet the specific demands of the consumer, Kesoram
bought out the 53 grade BIRLA SUPREMEGOLD, which has special qualities like higher
fineness, quick-setting, high compressive strength and durability.
Supreme Strength
Kesoram Cement has huge captive Limestone Deposits, which make it possible to feed high-
grade limestone consistently, Its natural Grey color is anion- born ingredient and gives good
shade. Both the products offered by Kesoram, i.e. BIRLA SUPREME-43 Grade and BIRLA
SUPREME-GOLD-53 Grade cement are outstanding with much higher compressive strength and
durability.
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D.C. System:
Clinker making process is a key step in the overall cement making process. In the case of BIRLA
SUPREME/GOLD, the clinker-making process is totally computer. control. The Distributed
Control System (DCS) constantly monitors the process and ensures operating efficiency. This
eliminates variation and ensures consistency in the quality of Clinker.
Supreme Expertise
The Best Technical Team, exclusive to Kesoram, mans the Plant and monitors the process, to
blend the cement in just the required proportions, to make BIRLA SUPREME/GOLD OF Rock
Strength.
18 Million Tones Of Solid Foundation
Staying at the top for over a Quarter Century, Quarter Century is no less an achievement. Infact.
Kesoram is synonymous with for over 28 years.
Over the years, Kesoram has dispatched 18 million tons of cement to the nook and corners of the
country and joined hands in strengthening the Nation. No one else in Andhra Pradesh has this
distinction. The prestigious World Bank aided Ramagundam Super Thermal Power Project of
KESORAM and Mannair Dam of Pochampad project in AP arc a couple of projects for which
Kesoram Cement was exclusively uses: to cite an example.
Kesoram Cement - Advantages
Helps in designing sleeker and more elegant. Structures, giving greater flexibility in design
concept. Due to its fine quality, super fine construction can be achieved.. Its gives maximum
strength at Minimum use of cement with water in the water cement ratio, especially the 53 grade
Birlas supreme-gold.
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I.S.O. 9002
All quality systems of Kesoram have been certified under I.S.O. 9002/1.S. 4002, which proves
the worldwide acceptance of the products. All quality systems in production and marketing of
the product have been certified by B.I.S. under ISO 9002/1S 14002. The first unit was installed
at Basantnagar with a capacity of 2.5lakhs TPA (tones per annum) incorporating humble
supervision, preheated system, during the year 1969. The second unit followed suit with added a
capacity of 2 lakhs TPA in 1971. The plant was further expanded to 9 lakhs by adding 2.5 lakhs
tones in august 1978, 1.13 lakhs tones in January 1981 and 0.87 lakhs tones in September 1981.
Power
Singereni collieries make the supply of coal for this industry and the power was obtained from
AP TRANSCO. The power demand for the factory is about 21MW. Kesoram has got 2-diesel
generator seats of 4 MW each installed in the year 1987. Kesoram cement now has a
15MWcaptive power plant to facilities for uninterrupted power supply for manufacturing of
cement.
Performance
The performance of kesoram cement industry has been outstanding achieving over cent percent
capacity utilization all through despite many odds like power cuts and which most 40% was
wasted due to wagon shortage etc. The company being a continuous process industry works
round the clock and has excellent records of performance achieving over 1005 capacity
utilization. Kesoram has always combined technical progress with industrial performance. The
company had glorious track record for the last 27 years in the industry.
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The raw materials used for manufacturing cement are
Lime stone
Bauxite
Hematite
Gypsum
Environmental and Social Obligations
For environmental promotion and to keepup the ecological balance, this section has planted
over two lakhs trees .on social obligation front ,this section has undertaken various social welfare
programs by adopting ten nearly villages, organizing family welfare campus, surgical camps,
animal health camps blood donation camps, children immunization camps, seeds, training for
farmers etc were arranged.
Board of Directors of Kesoram Cements Limited
NAME AND ADDRESS DESIGNATION
1 Sri N.Radhakrishna Reddy Chairman & Managing Director
2 Sri N.Jagan Mohan Reddy Director
3 Sri N. Sujith Kumar Reddy Director
4 Sri G. Krishna Prasad Director
5 Sri P. Koteswara Rao Director
6 Sri G. Ram Prasad Director
Awards
Kesoram cement bagged many prestigious awards including national awards for productivity,
technology, conservation and several state awards since 1984. The following are the some of
important awards.
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Products Of Te Organization:
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3. Theoretical Review
Inventory Management
The investment in inventories constitutes the most significant part of current assets / working
capital in most of the undertakings. Thus, it is very essential to have proper control and
management of inventories. The purpose of inventory management is to ensure availability of
materials in sufficient quantity as and when required and also to minimize investment in
inventories.
Meaning and Nature of Inventory:
In accounting language, inventory may mean the stock of finished goods only. In a
manufacturing concern, it may include raw materials, work- inprogress and stores etc.
Inventory Includes The Following Things:
a) Raw Material: Raw material from a major input into the organization. They are
required to carry out production activities uninterruptedly. The quantity of raw
materials required will be determined by the rate of consumption and the time
required for replenishing the supplies. The factors like the availability of raw
materials and Government regulations etc., too affect the stock of raw materials.
b) Work in progress: The work in progress is that stage of stocks which are in between
raw materials and finished goods. The quantum of work in progress depends upon the
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time taken in the manufacturing process. The quantum of work in progress depends
upon the time taken in the manufacturing process. The greater the time taken in
manufacturing, the more will be the amount of work in progress.
c) Consumables: These are the materials which are needed to smoother the process of
production but they act as catalysts. Consumables may be classified according to their
consumption add critically. Generally, consumable stores doe not create any supply
problem and firm a small part of production cost. There can be instances where these
materials may account for much value than the raw materials. The fuel oil may form a
substantial part of cost.
d) Finished goods: These are the goods, which are ready for the consumers. The stock
of finished goods provides a buffer between production and market, the purpose of
maintaining inventory is to ensure proper supply of goods to customers.
e) Spares: The stock policies of spares fifer from industry to industry. Some industries
like transport will require more spares than the other concerns. The costly spare parts
like engines, maintenance spares etc., are not discarded after use, rather they are kept
in ready position for further use.
All decisions about spares are based on the financial cost of inventory on such spares and
the costs that may arise due to their nonavailability.
Benefits Of Holding Inventories
Although holding inventories involves blocking of a firms and the costs of storage and handling,
every business enterprise has to be maintain certain level of inventories of facilitate un
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interrupted production and smooth running of business. In the absence of inventories a firm will
have to make purchases as soon as it receives orders. It will mean loss of time and delays in
execution of orders which sometimes may cause loss of customers and business. A firm also
needs to maintain inventories to reduce ordering cost and avail quantity discounts etc.
There are three main purpose of holding inventories.
1. The transaction motive: This facilitates continuous production and timely execution of
sales order.
2. The precautionary motive: Which necessitates the holding of inventories for meeting
the unpredictable changes in demand and supplies of materials
3. The speculative motive: Which induces to keep inventories for taking advantage of price
fluctuations, saving in reordering costs and quantity discounts
Risk and Costs Of Holding Inventories
The holding of inventories involves blocking of firms funds and incurrence of capital and
other costs.
The various costs and risks involved in holding inventories are:
Capital costs: Maintaining of inventories results in blocking of the firms financial
resources. The firm has therefore to arrange for additional funds to meet the cost of inventories.
The funds may be arranged from own resources or from outsiders. But in both the cased,
the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the
later case; the firm has to pay interest to t he outsiders.
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1. Storage and Handling Costs: Holding of inventories also involves costs on storage as
well as handing of materials. The storage of costs include the rental of the godown,
insurance charges etc.
2. Risk of Price decline: There is always a risk of reduction in the prices of inventories by
the supplies, competition or general depression in the market.
3. Risk of Obsolescence: The inventories may become absolute due to improved
technology, changes in requirements, change in customer tastes etc.
4. Risk Determination in quality: The quality of materials may also deteriorate while the
inventories are kept.
Objects of Inventory Management
Definition of Inventory Management: Inventory Management is concerned with the
determination of optimum level of investment for each components of inventory and the
operation of an effective control and review of mechanism. The main objectives of inventory
management are operational and financial. The operational objective mean that the materials
and spares should be available in sufficient quantity so that work is not disrupted for want of
inventory. The financial objective means that inventory should not remain idle and minimum
working capital should be locked in it.
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The Following Are The Objectives Of Inventory Management:
To ensure continuous supply of materials, spares and finished goods so that
production should not suffer at any time and the customers demand should also be
met.
To avoid both overstocking and understocking of inventory.
To maintain investment in inventories at the optimum level as required by the
operational and sales activities.
To keep material cost under control so that they contribute in reducing the cost of
production and overall costs.
To eliminate duplication in ordering or replenishing stocks. This is possible with the
help of centralizing purchases.
To minimize losses through deterioration, pilferages, wastages and damages.
To ensure perpetual inventory control so that materials shown in stock ledgers should
be actually lying in the stores.
To ensure right quality goods at reasonable prices. Suitable quality standards will
ensure proper quality of stocks. The price analysis, the cost analysis and value
analysis will ensure payment of proper prices.
To facilitate furnishing of data for short term and longterm planning and control
of inventory.
Tools And Techniques Of Inventory Management
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A proper inventory control not only helps in solving the acute problem of liquidity but also
increases profit and causes substantial reduction in the working capital of the concern. The
following are the important tools and techniques of inventory management and control.
Determination Of Stock Levels:
Carrying of too much and too little of inventory is detrimental to the firm. If the inventory level
is too little, the firm will face frequent stock outs involving heavy ordering cost and if the
inventory level is too high it will be unnecessary tie up of capital. An efficient inventory
management requires that a firm should maintain an optimum level of inventory where inventory
costs are the minimum and at the same time there is no stock out which may result in loss or sale
or shortage of production.
A) Minimum Stock Level:
It represents the quantity below its stock of any item should not be allowed to fall.
Lead time: A purchasing firm requires sometime to process the order and time is also
required by the supplying firm to execute the order.
The time in processing the order and then executing it is known as lead time.
Rate of Consumption: It is the average consumption of materials in the factory. The rate
of consumption will be decided on the basis of past experience and production plans.
Nature of materials: The nature of material also affects the minimum level. If a material
is required only against the special orders of the customer then minimum stock will not be
required for such material.
Minimum stock level can be calculated with the help of following formula.
Minimum stock level Reordering level(Normal consumption x Normal re order
period)
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determination of this stock that is opportunity cost of stock outs and the carrying costs. If a
firm maintains low level of safety frequent stock outs will occur resulting into the larger
opportunity costs. On the other hand, the larger quantity of safety stocks involves carrying costs.
3) Economic Order Quantity (Eoq):
The quantity of material to be ordered at one time is known as economic ordering quantity. This
quantity is fixed in such a manner as to minimize the cost of ordering and carrying costs.
Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost.
Carrying Cost:
It is the cost of holding the materials in the store.
Ordering Cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula
EOQ = 2CO / I
Where C = Consumption of the material in units during the year
O = Ordering Cost
I = Carrying Cost or Interest payment on the capital.
4) ABCAnalysis: (Always Better Control Analysis):
Under ABC Analysis. The materials are divided into 3 categories viz., A, B and C.
Almost 10% of the items contribute to 70% of value of consumption and this category is
called A category. About 20% of the items contribute about 20% of value of category C
covers about 70% of items of materials which contribute only 10% of value of consumption.
5) Ved Analysis: (Vitally Essential Desire)
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The VED analysis is used generally for spare parts. Spare parts classified as Vital (V),
Essential (E) and Desirable (D). The vital spares are a must for running the concern smoothly
and these must be stored adequately. The E type of spares is also necessary but their stocks
may be kept at low figures. The stocking of D type spares may be avoided at times. If the lead
time of these spares is less, then stocking of these spares can be avoided.
6) Inventory Turnover Ratio:
Inventory turnover ratios are calculated to indicate whether inventories have been used
efficiently or not. The inventory turnover ration also known as stock velocity is normally
calculated as sales / average inventory of cost of goods sold / average inventory.
Inventory conversion period may also be calculated to find the average time taken for
clearing the stocks. Symbolically.
Inventory Turnover Ratio = Cost of goods sold
__________________________
Average inventory at cost
(Or)
Net sales
= ________________________
(Average) Inventory
And,
Inventory conversion period = Days in a year
______________________
Inventory Turnover ratio
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7) Classification And Codification Of Inventories:
The inventories should first be classified can then code numbers should be assigned for
their identification. The identification of short names are useful for inventory management not
only for large concerns but also for small concerns. Lack of proper classification may also lead
to reduction in production.
Generally, materials are classified accordingly to their nature such as construction
materials, consumable stocks, spares, lubricants etc. After classification the materials are given
code numbers. The coding may be done alphabetically or numerically. The later method is
generally used for coding. The class of materials is assigned two digits and then two or three
digits are assigned to the categories of items divided into 15 groups. Two numbers will be
category of materials in that class.
The third distinction is needed for the quality of goods and decimals are used to note this
factor.
8) Valuation Of InventoriesMethod Of Valuation:
FIFO method
LIFO method
Base Stock method
Weighted average price method
Criteria For Judging The Inventory System
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While the overall objective of the inventory system is to minimize the cost to the firm at
the risk level acceptable to management, the more proximate criteria for judging the inventory
system are:
Comprehensibility
Adaptability
Timeliness
Area Of Improvement:
Inventory management in India can be improved in various ways. Improvements could be
affected through.
Effective Computerization:
Computers should not be used merely for accounting purpose but also for improving decision
making. Review of Classification: ABC and FSN classification must be periodically reviewed.
Improved Coordination:
Better coordination among purchase, production, marketing and finance departments will be help
in achieving greater efficiency in inventory management.
Development Of Long Term Relationship:
Companies should develop long term relationship with vendors. This would help in
improving quality and delivery.
Disposal Of Obsolete / Surplus Inventories:
Procedures for disposing obsolete / surplus inventories must be simplified.
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Adoption Of Challenging Norms:
Companies should set benchmarks with global competitors and use ideals like JIT to
improve inventory management.
Inventory CostAn Overall View:
Introduction:
In financial parlance, inventory is defined as the sum of the value of the raw materials,
fuels and lubricants spare parts maintenance consumable semiprocessed materials and finished
goods stock at any giving point of time. The operational definition of inventory would be amount
of raw materials, fuel and lubricants, spare parts and semi processed materials to be stock for
the smooth running of the plant / industry.
Need Of Inventory:
Inventories are maintained basically for the operational smoothness which they can be
affected by uncoupling successive stages of production, whereas the monetary value of the
inventory serves as a guide to indicate the size of the investment made to achieve this operational
convenience. The materials management departments primary function is to provide this
operational convenience with a minimum possible investment in inventories. Materials
department is accused of both stock outs as well a large investment in inventories. The solution
lies in exercise a selective inventory control and application of inventory control techniques.
Inventories build to act as a cushion between supply and demand. It is sufficient to take care of
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the requirements of demand till the next supply arrives. It is sufficient to take care of probable
delays in supply as well as probable variations in demand.
The size of the inventory depends upon the factors such as size of industry internal lead
time for purchase, suppliers lead time, vendor relations availability of the materials, annual
consumption of the materials. Inventory coat can be controlled by applying Modern Techniques
viz., ABC analysis, SDE, ESN, HMC, VED etc. These techniques can be used effectively with
the help of computerization.
What Is Meant By Inventory Cost:
A. The total value of stores and spares and capital spares.
B. Stores in transit and under inspection and
C. Stock of finished products.
Normally, there are certain problems in maintaining optimum level of
inventory. Problems of inventory can be resolved by the cost implications. Costs which are
relevant for consideration are discussed in the following lines;
Basically there are four costs for consideration in developing and inventory model.
The cost of placing a replenishment order.
The cost of carrying inventory.
The cost of under stocking and
The cost of over stocking.
The cost of ordering and inventory carrying cost are viewed as the supply side costs and
help in the determination of the quantity to be ordered for each replenishment.
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The under stocking and over stocking costs are viewed as the demand side costs and help
in the determination of the amount of variations in demand and the delay in supplies which the
inventory should withstand.
Whenever an order placed for stock replenishment, certain costs are involved, and, for
most practical purpose it can be assumed that the cost per order is constant. The ordering cost
may vary depending upon the type of items, for example raw material like steel against
production component like castings in steel plants, support materials in the case of Steel industry.
The Cost Ordering Includes:
Paper work costs, typing and dispatching an order.
Follow up costs the follow up, the telephones, telex and postal bills etc.,
Costs involved in receiving of the order, inspection, checking and handling in the
stores.
Any set up cost of machines charged by the supplier, either directly indicated in
quotations or assessed through quotations of various quantities.
The salaries and wages of the purchase department.
Cost Of Inventory Carrying:
This cost in measured as of the unit cost of the item. This measure gives basis for
estimating what is actually costs a company to carry stock.
This Cost Includes:
Interest on capital.
Insurance and tax charges.
Storage costs labor costs, provision of storage area and facilities like bins, racks
etc.,
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Transport bills and hamali charges.
Allowance for deterioration or spoilages.
Salaries of stores staff.
Obsolescence.
The inventory carrying cost varies and a major portion of this is
Accounted for by the interest on capital.
Under Stocking Cost:
This cost is the cost incurred when an item is out of stock. It includes cost of lost
production during the period of stock out and the extra cost per unit which might have to be paid
for an emergency purchase.
Over Stocking Cost:
This cost is the inventory carrying cost (which is calculated per year) for a specific period
of time. The time varies in different contextsit could be the lead time of procurement of entire
life time of machine. In the case of one time purchases, over cost would be = Purchase Price
Scrap Price.
Inventory Valuation And Cost Flows:
What Is The Cost Of Inventory?
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One can readily visualize the determination of inventory quantities by physical count or
by use of perpetual inventory records. When this quantity is determined, it must be multiplied by
a unity cost in order to determine the inventory value that is used on financial statements.
Trade and quantity discount are to be excluded from unit cost since these discount exist
for the purpose of defining the true invoice cost of merchandise. Cash discounts, on the other
hand, have been considered as a reward for early payment and as a penalty for late payment. The
reward has often been interpreted as a loss rather than as a part of unit cost. Thus it would not
be difficult to find difference of opinion as to whether invoice cost includes or excludes cash
discount.
When the current replaAutomobial cost of material on hand at the close of a year is less
than the actual cost, the inventory value is reduced to replaAutomobial cost (current market
price). Thus the acceptable basis inventory valuation is the lower of cost or market or more
properly the lower of actual cost or replaAutomobial cost.
The determination of inventory values is very important from the point of view of the
balance sheet and the income statement since costs not included in the inventory (the balance
sheet) are considered to be expensive and are thus included in the income statement.
Valuation Of InventoriesMethods Of Determination:
Although the prime consideration in the valuation of inventories is cost, there are a
number of generally accepted methods of determining the cost of inventories at the close of an
accounting period. The most commonly used methods are firstin first out (FIFO) average, and
last in first out (LIFO). The selection of the method for determining cost for inventory
valuation is important for it has a direct bearing on the cost of goods sold and consequently on
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profit. When a method is selected, it must be used consequently and cannot be changed for year
to year in order to secure the most favorable profit for each year.
The Fifo Method (FirstIn FirstOut Method)
Under this method it is assumed that the materials or goods first received are the first to
be issued or sold. Thus, according to this method, the inventory on a particular date is presumed
to be composed of the items which were acquired most recently.
The value inventory would remain the same even if the perpetual inventory system is
followed.
Advantage:- The FIFO method has the following advantages.
It values stock nearer to current market prices since stock is presumed to be
consisting of
The most recent purchases.
It is based on cost and, therefore, no unrealized profit enters into the financial
accounts of the company.
The method is realistic since it takes into account the normal procedure of utilizing or
selling those materials or goods which have been longer longest in stock.
Disadvantages:- The method suffers from the following disadvantages.
It involves complicated calculations and hence increases the possibility of clerical
errors.
Comparison between different jobs using the same type of material becomes
sometimes difficult. A job commenced a few minutes after another job may have to
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bear an entirely different charge for materials because the first job completely
exhausted the supply of materials of the particular lot.
The FIFO method of valuation of inventories is particularly suitable in
The following circumstances.
I. The materials or goods are of a perishable nature.
II. The frequency of purchases is not large.
III. There are only moderate fluctuations in the prices of materials or goods purchased.
IV. Materials are easily identifiable as belonging to a particular purchase lot.
The LIFO method (Last
in
First
Out method)
This method is based on the assumption that last item of materials or goods purchased are
the first to be issued or sold. Thus, according to this method, inventory consists of items
purchased at the earliest cost.
Advantages: - This method has the following advantages:
1) It takes into account the current market conditions while valuing materials issued to
different jobs or calculating the cost of goods sold.
2) The method is base on cost and, therefore, no unrealized profit or loss is made on
account of use of this method.
The method is most suitable for materials which are of bulky and nonPerishable type.
Base Stock Method:
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This method is based on the contention that each enterprise maintains at all times a
minimum quantity of materials or finished goods in its stock. This quantity is termed as base
stock. The base stock is always valued at this price and its carried forward as a fixed asset. Any
quantity over and above the base stock is valued in accordance with any other appropriate
method. As this method aims at matching current costs to current sales, the LIFO method will be
most suitable for valuing stock of materials or finished goods other than the base stock. The base
stock method has advantage of charging out material / goods at actual cost. Its other merits or
demerits will depend on the method which is used for valuing materials other than the base
stock.
Weighted Average Price Method:
This method is based on the presumption that once the materials are put into a common
bin, they lose their identity. Hence, the inventory consists of no specific batch of goods. The
inventory is thus priced on the basis of average priced on the quantity purchased at each price.
Weighted average price method is very popular on account of its being based on the total
quantity and value of materials purchased besides reducing number of calculations. As a matter
of fact the new average price is to be calculated only when a fresh purchase of materials is made
in place of calculating it every now and then as is the case with FIFO, LIFO methods. However,
in case of this method different prices of materials are charged from production particularly
when the frequency of purchases and issues/sales in quite large and the concern is following
perpetual inventory system.
Valuation Of InventoriesImpact On The Flow Of Costs:
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As should be quite evident, the different methods of calculating inventory values will all
have their impact on the flow of costs through the balance sheet into the income statement. The
dollars that are paid to acquire inventory are always divided between the balance sheet
(inventories) and the income statement (cost of goods sold), there is not other place to put them.
Thus if the different methods of calculating inventory produce differing inventory values, they
will also produce differing cost of goods sold figures, and the differing cost of goods sold figures
will naturally produce differing profit figures.
In order show the impact of inventory valuation on cost flows, the preceding exhibits are
summarized. Each method produces a different figure for the transfer of raw materials to work in
process. These differences appear small, but the only reason for this is that the dollar amounts
have been kept small to make the illustration workable. With the transfer of materials to work in
process, the cost flow or transfer with have its impact on the work in process inventory and the
transfer of completed merchandise to finished gods. Ultimately when goods are sold; the varying
methods of valuing inventories will have their impact on cost of goods sold and these profits.
The effects of the cost flows on cost of gods sold and profits can be accentuated further it the
differing methods of valuing inventories are applies to work in process and finished goods.
Evaluation Of MethodsWhat Causes The Differences?
The differences in inventory values and flows for each of the method illustrated result
from only one factor, that it, changing purchases prices or unit costs. If purchase prices had
remained stable or unchanged, each method would have produced the same inventory value and
cost flow.
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Cost flows and inventory are exactly the some under stable prices. With a falling price
level, the LIFO method produces the highest cost flow and the lowest inventory. With a falling
price level, the LIFO method produces the lowest cost flow and highest inventory. The cost flow
under LIFO follows the price level, LIFO produces larger cost flows when prices are rising and
smaller cost flows when prices are falling. A final item to consider is that the average method
produces results which fall between the extremes of LIFO and FIFO.
Evaluation of MethodsCan We Justify The Differences?
The best method of inventory valuation might be specific identification, that is, the units in
inventory should be identified with the specific invoices and thus specific unit costs to which
they apply.
Fortunately, the FIFO method constitutes a very useful approximation to the specific
identification method if one can reasonably assume that the actual flow of materials is first-in
first-out. This assumption is not unreasonable and thus we have stated the main argument for the
FIFO inventory scheme, that is, the physical flow of materials would match the flow of costs
under the firstin firstout method.
When the units in inventory are identical, interchangeable and do not follow any specific
pattern of physical flow, the average cost system would seen to appropriate.
The primary difference between the FIFO and average methods is centered on the
physical flow since both methods could involve identical and interchangeable units. The FIFO
method fits a first-in first-out physical flow. The average method fits a system which has no
specific pattern of physical flow. Finding a situation where there is no specific pattern of
physical flow should be quite difficult because of the fact that most inventory items are subject to
deterioration by instituting a person would attempt to reduce such deterioration and any
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reasonable person would attempt to reduce such deterioration by instituting a physical flow
approximating first-in-first-out. The major reason for the use of the average method is something
other than the lack of specific physical flow.
Ordinarily the LIFO method cannot be justified on the basis of the physical flow of
materials. Under conditions of changing prices, the advocate of LIFO says that the only method
which matches costs and revenues is the LIFO method. The LIFO method assumes that the latest
item is the first item out, and thus the current costs of materials are matched with the other hand,
assumes that the first item in is the first item out, and thus the non-current costs of matching
current costs with current revenues is the essence of the argument for the LIFO method.
As can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situation. A physical flow pattern comparable to
FIFO would force one to consider the FIFO method. The lack of a discernible physical flow
pattern would force one to consider the average method. Concentration on cost flows, as distinct
from physical flows, would force to consider the LIFO method especially where there appears to
be a discernible trend towards rising prices (or falling prices) as has been the case in our
economy during recent years.
Inventories Valued At Standard Cost:
A very useful method of valuing inventories is at a standard cost. With a standard cost system is
no need of spending a great deal of time and money tracing unit cost through perpetual inventory
record.
Perpetual Inventory Card Under A Standard Cost System
Perpetual inventory Plant: Standard cost:
Location: Order Quantity:.....
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Order Point: ..
Date Description On order Received Issued
Available
On order On hand
As shown above, there is need only for physical quantities since the inventory values is the
physical quantity multiplied by the standard cost. With the cost and value columns disposed off,
a perpetual inventory card can include additional data such as quantities on order, quantities
reserved, and quantities available. These additional data are very useful for inventory and
production control purpose. On the basis of a few calculations concerning into inventories on a
FIFO, a LIFO, or an average cost basis.
Inventory of Obsolescence:
Absolvent inventories cannot be used or disposed off at values carried on the books. Frequent
reviews should be made of all inventories, and when obsolescence is indicated a request for
revaluation should be prepared for approval by management. The difference between original
and obsolete value should be recorded by a change to operating account. Inventory obsolescence,
and a credit to inventory. If the material is scrapped, this will be for the full inventory value or
used in areas where it will be work less than its Original value, the entry would be only for the
amount of write down. Some companies carry a solvage inventory and transfer to it materials
which may be sold or used at reduced values. Where this is done, the entry would be:
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Data Analysis and Interpretation
Share Capital:
Particulars
As at
31.03.2010
As at
31.03.2009
Authorised
1,20,00,000 Equity Share of Rs.10/- each 12,00,00,000 12,00,00,000
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ScheduleB
Reserves And Surplus:
20,00,000 Preference Share of Rs.10/- each 2,00,00,000 2,00,00,000
Issued And Subscribed & Paid-Up
*1,11,52,300 Equity shares of Rs.10/- each 11,.53,23,000 11,15,23,000
Total 11,.53,23,000 11,15,23,000
*400 Equity Shares of Rs.10/- each were issued for consideration other than
cash
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Particulars
As at
31.03.2010
Rupees
As at
31.03.2009
Rupees
Capital Reserve 34,98,687 29,98,687
General Reserve 70,83,300 70,83,300
Balance in Profit and Loss Account 6,37,23,445 59198440
Share Premium 4,71,06,110 4,71,06,110
TOTAL 12,14,11,542 11,63,86,537
ScheduleC
Secured Loans:
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Particulars
As at 31.03.2010 As at 31.03.2009
Rupees Rupees Rupees Rupees
A. Terms Loans
Industrial Development
Bank Of India
4,50,00,00
0
12,67,50,00
0
The Industrial Credit and
Investment Corporation of
India Ltd. 0 5,75,00,000
Indian Renewable Energy
Development Agency
Limited (IREDA) 0 14,000
State Bank of India 0 33,47,225
Funded Interest
1,42,78,83
1 1,19,09,901
Interest Accrued and Due 0
5,92,78,831
22,14,82,64
9
B. Cash Credit and Bills 5,50,59,18 6,29,82,019
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Discounting State Bank
of Hyderabad
3
Punjab National Bank
2,32,87,31
9 2,69,90,958
State bank Of India
2,10,07,84
2 2,35,74,120
9,93,54,344
11,35,47,09
6
TOTAL
15,86,33,17
5
33,50,29,74
5
ScheduleD
Unsecured Loans:
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SCH
EDU
LE -
I
Current Liabliates & Provisions:
Particulars As at31.03.2010 As at 31.03.2009
Particulars
As at
31.03.2010
Rupees
As at
31.03.2009
Rupees
26,000 Equity shares of Rs.10/- each in
Panchvati Polyfibres ltd., fully paid-up at cost 2,60,000 2, 60,000
500 Equity shares of Rs.10/- each in Kesoram
Priya Investments and Finance Ltd. 5,000 5,000
27,72,430 Equity Shares of Rs.10/- each in
Kesoram Power Limited (Previous Year :
27,72,430 Shares)
2
,77,24,300
2
,77,24,300
TOTAL
2
,79,89,300
2
,79,89,300
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Rupees Rupees Rupees Rupees
CURRENT LIABILITIES
Sundry Creditors
1. For Materials 2,44,15,272 2,08,69,197
2. For Capital Goods 82,71,577 1,58,34,649
3. For Expenses 1,22,88,732 2,14,75,707
4. For Other Liabilities 1,80,33,912 3,15,05,515
6,30,09,494 8,96,85,068
Interest accrued but not due 10,05,068 10,27,910
Deposits/ Advances from
Selling Agents, stockiest and
others 4,97,90,161 3,91,47,108
Provisions
taxation
Dividend
30,99,267
1, 27,16,410
2,01,574
TOTAL 12,96,20,400 13,00,61,660
ScheduleJ
Income From Operations:
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ScheduleK
Particulars
As at
31.03.2010
As at
31.03.2009
Rupees Rupees
Sale of Cement 70,28,79,691 71,43,09,723
Sale of Cement - Second Sale 23,76,99,856 22,77,26,201
Sale of Clinker 1797,07,789 16,78,65,780
Sale of GCBS 71,974 19,29,890
TOTAL 112,03,59,310 111,18,31,603
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Adjustment For Stocks (Process):
Particulars
As at 31.03.2010 As at 31.03.2009
I. Work-in- process
Opening stock 3,28,74,681 78,42,308
Less: Closing
stock
2,00,55,080 32,74,681
1,28,19,601 (2,50,32,373)
Finished Goods
Opening Stock 66,05,349 1,04,59,660
Less: Closing
stock
16,27,777 66,05,349
49,77,572 38,54,311
TOTAL 1,77,97,173 (2,11,78,062)
Management Discussion and Analysis:
Industry Back Ground:-
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Cement is the core industry and the product is the basic requirement for the
development of housing and infrastructure. India is the largest producer of cement
is Asia after china, with an installed capacity of more than 142 million tons per
year. This comprises more than 400 major and mini cement plants. However, more
than 53% of the installed capacity is controlled by the 6 top players in India.
Lime stone is a major raw material used by the cement industry and
based on its availability, the industry is concentrated in Madhya Pradesh, Andhra
Pradesh and Rajasthan. Thus more than 50% of the installed capacity have come
up in 7 cluster with plenty of limestone deposits. The public sector accounts for
only 8% of the capacity, as against the private sector share of 92% of the installed
capacity. The southern region had the highest installed capacity, estimated at
around 46 million tons per annum where in Andhra Pradesh alone accounted for
about 21 mtpa
Demand and Supply:
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Cement is essential and basic input material for the construction activity. The
development of infrastructure is on the top of the Government agenda which
assures good growth for the cement industry in the coming years.
Demand for cement is linked to the economic activity in any country. It can be
categorized into demand for housing construction and infrastructure and hence
cement demand in developing economies is much higher than any developed
countries. The demand for cement is proportionately related to the spending on
infrastructure including housing. In India, housing accounts for about 55% of
cement consumption. After the decontrolling of cement industry, supply and
demand situation has become a sensitive and critical factor in determining the over
all profitability of the industry. Any small imbalance in demand and supply of the
cement results in disproportionate change in the cement prices.
The per capital consumption of cement in India is very low at 99 Kg
against the Asian average of 200 Kgs. Over the last 15 years, the consumption of
cement by the Governments has fallen drastically from 15% to 50% creating stiff
competition between the market players. The trend is likely to be reversed in future
as the Governments focused in infrastructure development like express highways
and other large projects.
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Measures Of Effectiveness:-
The effectiveness of inventory management it is helpful to look in to the following
ratio.
Cost of goods sold
* Inventory turnover ratio =
Average total inventory ratio
Annual consumption of raw material
* Raw material inventory turn over ratio =
Average raw materialinventory
Cost of manufacture
* Work in process inventory turnover ratio =
Avg. work in process inventory at cost
Cost of goods sold
* Finished goods inventory turnover ratio =
Avg. inventory of finished goods at costs
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Average raw material inventory at cost
* Average age if raw materials inventory =
Average daily purchases of raw material
Avg. finished goods inventory at costs
* Average age of finished goods inventory =
Avg. cost of goods manuf. per day
Inventory Turn Over Ratio
COST OF GOODS SOLD
Inventory Turn Over Ratio =
INVENTORY
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Inventory Turn Over Ratio:
SL.NO. YEARS COST OF
GOODS SOLD
AVERAGE
INVENTORY
RATIO
1 2005-06 67,66,06,220 6,60,02,620 1.25
2 2006-07 75,74,53,452 7,97,18,757 9.50
3 2007-08 95,53,18,880 8,62,93,250 11.07
4 2008-09 100,73,54,664 8,28,73,616 12.15
5 2009-10 81,19,63,689 7,43,38,239 10.92
Interpretation: -The above table reveals that every year the inventory increasing in
the above table the year 2009-10 used more inventory than other years.
10.259.5
11.0712.15
10.92
0
2
4
6
8
10
12
14
RATIO
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
INVENTORY TURN OVER RATIO
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INVENTORY TO CURRENT ASSETS
0.29
0.26
0.27
0.24
0.26
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35
2005-06
2006-07
2007-08
2008-09
2009-10
YEARS
RATIOS
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Production Of Inventory:
Interpretation: -The above table reveals that every year the production
Particulars Year
2005-06
Year
2006-07
Year
2007-08
Year
2008-09
Year
2009-10
Average
Store and spares
to inventory
37.52 35.89 42.14 51.02 53.33 43.98
Raw materials to
inventory
6.36 5.98 9.01 8.15 8.52 7.60
Coal to
inventory
10.52 11.10 14.87 8.41 8.15 10.61
Packing
materials to
inventory
1.22 0.84 3.15 2.57 5.36 2.62
Work in process
to inventory
35.87 35.33 24.08 21.74 10.54 25.51
Finished goods
to inventory
8.47 10.82 6.72 8.08 14.07 9.63
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Inventory:
Average increasing in the above table the stores and spares average increased.
Raw Material Inventory Turnover Ratio
Annual consumption of raw material
Raw material inventory turnover ratio =
Average raw materialinventory
43.98
7.610.61
25.51
9.63
0
5
10
15
20
25
30
35
40
45
AVERAGE
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
PRODUCTION OF INVENTORY
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SL.NO. YEARS MATERIAL
CONSUMPTION
AVERAGE RAW
MATERIAL
RAW MATERAL
TURNOVER
RATIO
1 2005-06 7,36,24,597 42,01,752 17.52
2 2006-07 8,92,96,824 47,72,995 18.70
3 2007-08 11,54,49,499 77,79,106 14.84
4 2008-09 12,22,98,007 67,58,858 18.09
5 2009-10 9,29,78,177 63,38,250 14.66
Interpretation :- The above table reveals that every year the raw material inventory
turn over ratio increasing in the above table the year 2008-09 used more raw
material inventory turn over ratio than others years.
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Work In Process Inventory Turnover Ratio
Cost of manufacture
Work in process inventory turnover ratio =
Average work in process inventory
SL.NO. YEARS COST OF
MANUFACTURE
AVERAGE
WORK IN
PROCESS
WORK IN PROCESS
INVENTORY RATIO
1 2005-06 65,99,09,48 2,36,80,986 27.86
2 2006-07 75,21,06,280 2,81,68,422 26.70
3 2007-08 91,35,78,281 2,67,83,057 34.11
4 2008-09 97,72,90,734 1,80,20,774 54.23
5 2009-10 89,00,47,316 1,78,42,309 49.88
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Interpretation :- The above table reveals that every year the work in process
inventory turn over ratio increasing in the above table the year 2008-09 used more
process inventory turn over ratio than others years.
27.86 26.7
34.11
54.23
49.88
0
10
20
30
40
50
60
AVERAGE
WORK IN
PROCESS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
WORK IN PROCESS INVENTORY TURN OVER RATIO
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Finished Goods Inventory Turnover Ratio
SL.NO. YEARS COST OF
GOODS
SOLD
AVERAGE
INVENTORY
OF FINISHED
GOODS
FINISHED
GOODS
TURNOVER
RATIO
1 2005-06 67,66,06,220 55,92,962 12.09
2 2006-07 75,74,53,452 86,27,805 8.77
3 2007-08 95,53,18,880 58,05,978 16.45
4 2008-09 100,73,54,664 67,00,383 15.03
5 2009-10 81,19,63,689 1,04,59,661 7.76
Interpretation :- The above table reveals that every year the finished goods
inventory turn over ratio current increasing in the above table the year 2008-09
used more finished goods inventory turn over ratio than others years.
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FINISHED GOODS INVENTORY TURNOVER RATIO
12.09
8.77
16.45
15.03
7.76
0
2
4
6
8
10
12
14
16
18
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
INVENTORY TURNOVER RATIO
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Average Age Of Raw Material Inventory
SL.NO. YEARS RAW
MATERIAL
INVENTORY
AT COST
DAILY
PURCHASES
OF RAW
MATERAL
AVERAGE AGE
OF RAW
MATERAL
INVENTORY
1 2005-06 42,01,752 65,29,869 0.64
2 2006-07 47,72,995 3,13,13,588 0.15
3 2007-08 77,79,106 ------------- ------
4 2008-09 67,58,858 6,89,49,706 0.09
5 2009-10 63,38,250 11,60,62,197 0.05
Interpretation :- The above table reveals that every year the average age of raw
material inventory turn over ratio increasing in the above table the year 200001
used more average age raw material inventory turn over ratio than others years.
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Average Age Of Finished Goods Inventory
SL.NO. YEARS FINISHED
GOODS
INVENTORY
AT COST
COST OF GOODS
MANUFACTURED
PER DAY
AVERAGE AGE
OF FINISHED
GOODS
INVENTORY
1 2005-06 55,92,962 65,99,09,481 0.008
2 2006-07 86,27,805 75,21,06,280 0.011
3 2007-08 58,05,978 91,35,78,281 0.006
4 2008-09 67,00,383 97,72,90,734 0.006
5 2009-10 1,04,59,661 89,00,47,316 0.011
0.64
0.15
0
0.090.05
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
AVERGE AGE
OF RAW
MATERIALS
INVENTORY
2005-062006-072007-082008-092009-10
YEARS
AVERAGE AGE OF RAW MATERIALS INVENTORY
Series1
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Interpretation :- The above table reveals that every year the average age of
finished goods inventory turnover ratio increasing in the above table the year 2005-
06 and 2009-10 used more average age of finished inventory turnover ratio than
others years.
0.008
0.011
0.006 0.006
0.011
0
0.002
0.004
0.006
0.008
0.01
0.012
FINISHED
GOODS
INVENTORY
RATIO
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
AVERAGE AGE OF FINISHED GOODS INVENTORY
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INVENTORY TO FIXED ASSETS
Inventory
Inventory to fixed assets =
Fixed assets
SL.NO. YEARS INVENTORY FIXED ASSETS TOTAL
1 2005-06 6,60,02,620 35,48,81,491 0.18
2 2006-07 7,97,18,757 48,45,39,817 0.16
3 2007-08 8,62,93,250 46,65,88,545 0.18
4 2008-09 8,28,73,616 52,54,88,379 0.15
5 2009-10 7,43,38,239 61,71,41,364 0.12
Interpretation: - The above table reveals that every year the inventory to fixed asset
increasing in the above table the year 2005-06 and 2008-09 used more inventory to
fixed assets than other years.
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INVENTORY TO FIXED ASSETS
0.18
0.16
0.18
0.15
0.12
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
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Debtors Turnover Ratio
Net current sales
Debtors turnover ratio = ----------------------------------------
Average debtors
SL.NO. YEARS NET CREDIT
SALES
AVERAGE
DEBTOR
TOTAL
1 2005-06 67,66,06,220 14,39,91,394 4.69
2 2006-07 75,74,53,452 15,95,78,999 4.74
3 2007-08 95,53,18,800 10,44,64,642 9.14
4 2008-09 100,73,54,664 21,15,02,047 4.76
5 2009-10 81,19,63,689 22,53,07,679 4.60
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Debtors Turnover Ratio
Interpretation :- The above table reveals that every year the debtors turnover ratio
increasing in the above table the year 2009-10 used more debtors turnover ratio
than other years.
SL.NO. YEARS NO OF DAYS IN
A YEAR
DEBTOR
TURNOVER
RATIO
TOTAL
1 2005-06 365 4.69 77.82
2 2006-07 365 4.74 77.00
3 2007-08 365 9.14 39.93
4 2008-09 365 4.76 76.68
5 2009-10 365 4.60 79.34
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77.82 7700%
39.93
76.68 79.34
0
10
20
30
40
50
60
70
80
TOTAL
2005-06 2006-07 2007-08 2008-09 2009-10YEARS
DEBTOR TURNOVER RATIO
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Findings
From 2005-2006 there is an increase in the inventory turnover ratio 1.25 to
9.5 and from 2006-07 to 2007-08 inventory turn over ratio increases to 12.5
and decreases to 10.92. But, the inventory turn over Ratio from 2003-04 to
2007-08 was increased 1.25 to 10.92.
In the years 2007-08 the inventory to current asset was decreased from 0.29
to 0.26
in Production of Inventory the average ratio of stores & spares was 43.98,
Raw Material to inventory was 7.60, Coal to Inventory was 10.61, Packing
to Inventory was 2.62, Work in process to inventory was 25.51 & Finished
Goods to inventory was 9.63
From 2005-2006 there is an decrease in the Raw material inventory turnover
ratio 17.52 to 14.84 and from 2006-07 to 2007-08 current ratio 18.09
decreases to 14.66. But, the Raw Material inventory turn over Ratio from
2003-04 to 2007-08 was decreased 17.52 to 14.66.
From 2005-2006 there is an increase in the WIP inventory turnover ratio
27.86 to 34.11 and from 2006-07 to 2007-08 WIP inventory turnover ratio
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increases to 54.23 and decreases to 49.88 But, the WIP inventory turnover
Ratio from 2003-04 to 2007-08 was increased 27.86 to 49.88
From 2005-2006 there is an increase in the Finished Goods inventory
turnover ratio 12.09 to 16.45 and from 2006-07 to 2007-08 Finished Goods
inventory turnover ratio decreases to 15.03 to 7.76 But, the Finished Goods
inventory turnover Ratio . 2007-08 was decreased 12.09 to 7.76
The Average Age of inventory was decreased from 0.64 to 0.05 in the year
2007-08. There was no average of inventory for the year 2007-08.
The Average Age Finished Goods inventory was increased from 0.008 to
0.01 in the year 2007-08. there was a constant average of finished goods
inventory for the year 2007-08 to 20062007
In the year 2007-08 the inventory to fixed asset was decreased from 0.18 to
0.12
The Debtors Turnover Ratio has maintained consistency throughout the
project. It maintained average of 4.69 to 4.60
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Suggestions
In most recent years. Kesoram Cement Limited has worked to its full capacity. This
reflects that the efficiency of men and machines in the organization. A company of this
nature can multiply its profits by increasing in Inventory Control Management.
The proportion of inventory to the total current assets has not been showing a consistent
increase. The size of inventory should be increased so as to meet the demand.
The size of Inventory Control Management, which has shown tremendous increase
during first two years, has remained static thereafter. Between the inventories on current
assets, is not more profitable.
Thought the sale of Kesoram Cements Limited is showing an increasing trend, the profits
have not registered an increasing trend as well. This is due to the increase in the cost of
production. Therefore, company should take care of controlling cost of production.
The company must concentrate on new and improved technology to increase production
and there by decrease cost of production.
The company should aim at minimizing cost by implementing strict cost control and
maintain cost records for each department to identify the risk in controllable costs.
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More Innovation techniques are to be introduced to meet an increased demand in the
market.
References provided by prospective customers should be consulted and necessary follow-
up action should be taken.
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Conclusion
1. The Inventory Control Management of Kesoram Cements Limited has registered an
increasing trend throughout the period under study from 2005-06 to 2009-10. The
Inventory Control Management indices show a continuous increase.
2. Inventories the major components of raw materials, work in process and finished goods,
which range from 25% to 30% in almost all years.
3. The percentage of inventory on current assets is increasing in 4.14% in the year 2008-09.
4. In the year 2008-09, there has been an increase in the inventory turnover ratio from
12.5%. This reveals improvement in the inventory turnover of the company.
5. There has been a study increase in the inventory turnover ratio of Kesoram Cement
Limited and in the year 2008-09 it has increased to 12.15%.
6. The indices of inventory are at a comfortable position.
7. The sales of the company have an upward trend. It represents the operational
achievement of the company.
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8. The financial charges of Kesoram Cements Limited are comparatively lower and it has a
decreasing trend, which is not a healthy sign to the company.
9. The average collection period 77 days i.e. just over 2 & half months, which indicates
normal debtors turn over ratio. But, it is maintaining an average collection. Company
should try to bring down the collection period to improve liquidity.
10.The company efficiency in turning its inventory is increasing sales is good, the years
holding of all types of inventory is decreasing. There is a positive trend.
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BIBLOGRAPHY
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S.P.Jain, K.L.NaraNG, 2003, ADVANCED ACCOUNTANCY, 10th Edition,
Kalyani Publishers, Ludhiana.
Prasanna Chandra, 2002, FINANCIAL MANAGEMENT, 5th Edition,
TATA-McGRAW HILL, New Delhi.
I.M. Pandey, 2002, FINANCIAL MANAGEMENT, 8th Edition, Vikas
Publishing House Private Limited, New Delhi.
R.K.Sharma, Shashi K.Gupta, MANAGEMENT ACCOUNTING, 2nd
Edition, Kalyani Publishers, Ludhiana.
JOURNALS:
The ICFAI Journal of Applied Finance
Finance India (Indian Institute of Finance)
Investment Monitor.
www.kesoram.com
www.inventorycontrols.com
www.wikkepedia.com
http://www.kesoram.com/http://www.kesoram.com/http://www.inventorycontrols.com/http://www.inventorycontrols.com/http://www.wikkepedia.com/http://www.wikkepedia.com/http://www.wikkepedia.com/http://www.inventorycontrols.com/http://www.kesoram.com/ -
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