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Block No. 13, Sector H-8, Allama Iqbal Open University, Islamabad.
Submitted by:
Muhammad Hammad Manzoor MBA (HRM) 1st Semester
Roll No. 508195394 508, 5th Floor, Continental Trade Centre (CTC) Block 08, Clifton, KARACHI (0321-584 2326, 0322-555 5901)
ACKNOWLEDGEMENT
All praises to Almighty Allah, the creator of the Universe who blessed me with the knowledge and enabled me to complete this research. I feel great pleasure and honor to express my sincere gratitude and heartfelt thanks to my worthy subject faculty member Mr. M. Attiq ur Rehman Sab, for his guidance, encouragement and friendly attitude during the present study and throughout the period of M.B.A (Semester I).
I pay my thanks to all the Faculty of the Department & AIOU Karachi Campus Staff for their kind support, constructive criticisms and real encouragement. I wish to thank Ms. Zehra Jabeen for valuable discussions and knowledge sharing during the completion of this project. I further wish to record my thanks to all my students, class fellows, well wishers and especially Cera-e-Noor Management, Akhtar Naseem, Mr. Usman Javed (Manager Marketing), Mr. Khizar Iftikhar, Khurram Shahzad, Rehan Hassan, Sohail, Waleem, Javed for their help, valuable suggestions, whole hearted cooperation and prayers.
Finally, I owe all my academic success and progress in life to my loving parents and sisters, whose affection, endless prayers, good wishes and inspiration remained with me for higher ideals of life.
M. Hammad Manzoor
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
ABSTRACT
The study had been carried out by keeping in mind about the selection criteria for and use of appropriate inventory system in the Cere e Noor. Cera-e-Noor (Karachi) has been selected for the sake of the data analysis and working on its merits and demerits, the methodology includes the evaluation of the inventory control management system, that how they take care of the inventory management system in the way they initialize the work flow. After analyzing the inventory management system, different inventory technique had been worked out from Cere e Noor which lead the study for further SWOT analysis. SWOT analysis had been carried out and conclusion followed by recommendations had been made in this regards.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Sr. No.
1
Contents Description
Introduction
What is Inventory? Inventory Control System Inventory Management Inventory Control Business Inventory Typology Principle of Inventory Proportionality High level Inventory Management System Inventory Cost Procedures FIFO LIFO Weighted Average Method Company Profile Data Collection
Page No.
5-7
Review of Literature
6-20
3 4
Cera-e-Noor Ceramics
21-30 31
Data Analysis
Demerits and Deficiencies Merits & Strengths
Recommendations
32
References
33
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Inventory means a list compiled for some formal purpose, such as the details of
an estate going to probate, or the contents of a house let furnished. The term inventory is a designation for goods that are held for sale in the normal course of business, as well as for goods that are in production or are to be placed in production. Practically all tangible items fall into this classification at one time or another. Gasoline, oil and automotive supplies are included in the inventory of a service station, crops and livestock are the inventory of a farmer etc.
Inventory Management:
Inventory management is the active control program which allows the management of sales, purchases and payments. Inventory management software helps create invoices, purchase orders, receiving lists, payment receipts and can print bar coded labels. An inventory management software system configured to your warehouse, retail or product line will help to create revenue for your company. The Inventory Management will control operating costs and provide better understanding. We are your source for inventory management information, inventory management software and tools. A complete Inventory Management Control system contains the following components:
Inventory Management Definition Inventory Management Terms Inventory Management Purposes Definition and Objectives for Inventory Management Organizational Hierarchy of Inventory Management Inventory Management Planning Inventory Management Controls for Inventory Determining Inventory Management Stock Levels
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Inventory Control:
The ultimate challenge in managing inventory is balancing the supply of inventory with demand for inventory. In other words, a company would ideally want to have enough inventory to satisfy the demands of its customers for its products no lost sales due to inventory stock-outs. However, the company does not want to have too much inventory supply on hand because of the cost of carrying inventory. Enough but not too much is the ultimate objective! Our experience shows that companies with sustainable profitability have deep understanding of the complex tradeoffs in managing inventory. Top performers are able to reduce inventory carrying costs by as much as 25-50%, while maintaining or increasing stock availability.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
every stage, requires that you maintain certain amounts of inventory to use in this "lead time." However, in practice, inventory is to be maintained for consumption during 'variations in lead time'. Lead time itself can be addressed by ordering that many days in advance. 2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. 3. Economies of scale - Ideal condition of "one unit at a time at a place where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory. All these stock reasons can apply to any owner or product.
Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore, any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory. Stockout means running out of the inventory of an SKU. "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale that was manufactured long ago but that has never been used. Such merchandise may not be produced anymore, and the new old stock may represent the only market source of a particular item at the present time.
Typology:
1. Buffer/safety stock. 2. Cycle stock (Used in batch processes, it is the available inventory, excluding
buffer stock). 3. De-coupling (Buffer stock held between the machines in a single process which serves as a buffer for the next one allowing smooth flow of work instead of waiting the previous or next machine in the same process). 4. Anticipation stock (Building up extra stock for periods of increased demand e.g. ice cream for summer). 5. Pipeline stock (Goods still in transit or in the process of distribution - have left the factory but not arrived at the customer yet).
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Raw materials - materials and components scheduled for use in making a product. Work in process, WIP - materials and components that have begun their transformation to finished goods. Finished goods - goods ready for sale to customers. Goods for resale - returned goods that are salable.
For example: Manufacturing A canned food manufacturer's materials inventory includes the ingredients to form the foods to be canned, empty cans and their lids (or coils of steel or aluminum for constructing those components), labels, and anything else (solder, glue) that will form part of a finished can. The firm's work in process includes those materials from the time of release to the work floor until they become complete and ready for sale to wholesale or retail customers. This may be vats of prepared food, filled cans not yet labeled or sub-assemblies of food components. It may also include finished cans that are not yet packaged into cartons or pallets. Its finished good inventory consists of all the filled and labeled cans of food in its warehouse that it has manufactured and wishes to sell to food distributors (wholesalers), to grocery stores (retailers), and even perhaps to consumers through arrangements like factory stores and outlet centers. Examples of case studies are very revealing, and consistently show that the improvement of inventory management has two parts: the capability of the organization to manage inventory, and the way in which it chooses to do so. For example, a company may wish to install a complex inventory system, but unless there is a good understanding of the role of inventory and its parameters, and an effective business process to support that, the system cannot bring the necessary benefits to the organization in isolation.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Applications
The technique of inventory proportionality is most appropriate for inventories that remain unseen by the consumer. As opposed to "keep full" systems where a retail consumer would like to see full shelves of the product they are buying so as not to think they are buying something old, unwanted or stale; and differentiated from the "trigger point" systems where product is reordered when it hits a certain level; inventory proportionality is used effectively by just-in-time manufacturing processes and retail applications where the product is hidden from view. One early example of inventory proportionality used in a retail application in the United States is for motor fuel. Motor fuel (e.g. gasoline) is generally stored in underground storage tanks. The motorists do not know whether they are buying gasoline off the top or bottom of the tank, nor need they care. Additionally, these storage tanks have a maximum capacity and cannot be overfilled. Finally, the product is expensive. Inventory proportionality is used to balance the inventories of the different grades of motor fuel, each stored in dedicated tanks, in proportion to the sales of each grade. Excess inventory is not seen or valued by the consumer, so it is simply cash sunk (literally) into the ground. Inventory proportionality minimizes the amount of excess inventory carried in underground
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Roots
The use of inventory proportionality in the United States is thought to have been inspired by Japanese just-in-time parts inventory management made famous by Toyota Motors in the 1980s
Inventory Turn is a financial accounting tool for evaluating inventory and it is not necessarily a management tool. Inventory management should be forward looking. The methodology applied is based on historical cost of goods sold. The ratio may not be able to reflect the usability of future production demand, as well as customer demand. Business models, including Just in Time (JIT) Inventory, Vendor Managed Inventory (VMI) and Customer Managed Inventory (CMI), attempt to minimize on-hand inventory and increase inventory turns. VMI and CMI have gained considerable attention due to the success of third-party vendors who offer added expertise and knowledge that organizations may not possess.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Inventory Cost Procedures:Inventories represent one of the most active elements in business operations, being continuously acquired, converted and resold. A large part of a companys resources is frequently tied up in goods that are purchases or manufactured. The cost of such goods must be recorded, grouped and summarized during a period. At the end of the period, cost must be allocated to current activities and future activities. Such allocation occupies a central role in the measurement of periodic operating results as well as in the determination of financial position. Failure to allocate costs properly can result in serious distortions of financial progress and position.
Classes of Inventories:Merchandise Inventory:It is generally applied to goods held by a trading concern, either wholesale or retail, when such goods have been acquired in a condition for resale. e.g. Soaps, Toothpastes, Shampoo etc.
Manufacturing Inventory:The term raw materials, goods in process and finished goods refer to the inventories of a manufacturing concern.
Raw Materials:Raw materials are those tangible goods that are acquired for use in the productive process. For example newsprint is the finished product of the paper mill but it represents raw material to the printer who acquires it.
Goods in Process:Goods in Process referred to as work in process; consist of materials partly processed and requiring further work before they can be sold. This inventory is considered to be made up of three cost elements
i. ii. iii.
Finished Goods:Finished goods are the manufactured products awaiting sale. The cost of the finished products consists of the direct material, direct labour and manufacturing overhead costs assigned to it. Finished parts that were purchased and that are to be used in the production of the finished products are normally classed as raw materials. Finished parts that are held for purposes of sale may be reported as finished goods.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Inventories in the Measurement of Income:When goods that are purchased or manufactured are all sold within a fiscal period, the determination of the gross profit on sale is a simple matter. The total cost of goods purchased or manufactured is also the cost of goods sold that is properly chargeable to revenue. Such a situation however is seldom found in practice. Normally, a part of the goods acquired remains on hand at the end of the period. A value must be assigned to these goods. This value is subtracted from the total merchandise acquisition costs and is carried into the subsequent period to be charged against future revenue. Adequate records are required in providing cost data for statement purposes. Such records are also required for the proper internal control of goods on hand.
Inventory Method:Quantities of inventories on hand are ascertained either through a periodic system that calls for physical inventory at the end of each period, or a perpetual system that involves perpetual or book inventories.
Periodic Inventory System:A periodic inventory system is an alternative to a perpetual inventory system. In a periodic system, no effort is made to keep up to date records of either the inventory or the cost of goods sold. Instead, these amounts are determined only periodically usually at the end of each year.
Perpetual Inventory System:In a perpetual inventory system, merchandising transactions are recorded as they occur. The system draws its name from the fact that the accounting records are kept perpetually up to date. Purchases of merchandise are recorded by debiting an asset account entitled inventory. When merchandise is sold, two entries are necessary one to recognize the revenue earned and the second to recognize the related cost of goods sold. This second entry also reduces the balance of the inventory account to reflect the sale of the companys inventory.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Comparison of Perpetual and Periodic Inventory Systems:Perpetual systems are used when management needs information throughout the year about inventory levels and gross profits. Periodic systems are used when the primary goals are to develop annual data and the to minimize record keeping requirements.
Accounting records of inventories and specific products sales are not needed in daily operations. Such information is developed primarily for use in annual income tax returns. Items in inventory have a high per unit cost. Inventory consists of many different kinds of low cost items. Low volume of sales transactions or a High volume of sales transactions and a computerized accounting system manual accounting system lock of full time accounting personnel. Merchandise stored in multiple locations or in All merchandise stored at the sale site. warehouses separate from the sales sites.
Items to be included in Inventory:Goods in Transit:When the terms of Sales are f.o.b. shipping point, title passes to the buyer with the loading of goods at the point of shipment. Goods in transit mean we purchase goods form outside (may from outside the country or city). Physically we have not received these goods yet but we include it into our stock or inventory because we pay money for buying and bringing these goods. These goods are near on the way and near to reach us. Segregated Goods:When goods are prepared on special order and segregated for shipment, title may pass with such segregation. When goods are segregated at the end of the period and title has passed, the vendor may properly recognize a sale and exclude segregated goods form his inventory, while the vendee may properly recognize both a purchase and an inventory increase. Frequently, one encounters many practical problems in arriving at the portion of the inventory that is segregated as well as perplexing legal problems in defining the precise status of such goods. These difficulties normally lead to the adoption of a policy whereby entries for both sale and purchase await formal shipment of goods by the vendor. 15
By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Goods on Consignment:Consignment is an act of sending the goods by the owner (manufacturer or whole seller) to his agent, who agrees to collect, store and sell them on the risk and behalf of the owner on commission basis. Conditional and Installment Sales:Some inventory or merchandise is sold out on conditional or installment basis. This inventory is in our ownership till the full amount of installment is paid.
Specific Identification of Costs with Inventory items:FIRST IN, FIRST OUT METHOD (FIFO):-
This method, frequently referred to as FIFO, assumes that the oldest materials are issued first and are issued at the rate at which they were received. In other words, materials in the store are issued according to their order of receipts in the store.
Advantages of FIFO Method:-
1. 2. 3. 4. 5.
The FIFO method is widely used since it is rational, systematic and consistent with the actual physical flow of the materials. The materials received first in the store tend to be the first materials issued. Material are issued at the prices they were purchased, so costs of jobs of work orders are correctly ascertained so far as material costs are concerned. This method is useful when prices are falling. This method is simple to understand, easy to operate and not subject to manipulation. Closing stock of material under FIFO, will be valued at the most recent unit costs as it will consist of most recent purchases of materials.
Disadvantages of FIFO Method:-
1. 2. 3.
This method increases the possibility of errors if the prices of the material fluctuate. Sometimes, more than one price for valuing issue of materials may have to be adopted for pricing even a single requisition. It is when the material is issued from the different lots of purchases. If the prices fluctuate, comparison between one job and the other job becomes difficult.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
1. 2. 3.
1. 2. 3. 4.
1. 2. 3. 4. 5. 6.
16
400
6.00
2400
24
300
9.00
2100
27
400 100
6.00 7.00
2400 700
2).
Date
LIFO:
Unit Received Unit Issued Unit Balance
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
200 200
8.00 7.00
1600 1400
300 200
9.00 6.00
2100 1200
3).
Date Oct. 1 5 9 16 24 27
Inventories Special Valuation Procedures:Inventory Valuation at Cost or Market, Whichever is Lower Modification in the Lower of Cost or Market Value Methods of Applying Lower of Cost or Market Procedures Evaluation of Lower of Cost or Market Procedure Application of Lower of Cost or Market in the Accounts Lower of Cost or Market and LIFO Deteriorated Goods, Trade Ins, Repossessions Losses on Purchase Commitments Valuation at Sale Price Valuation at Market
Inventories Techniques for Estimating Inventory Valuation:Estimated costs Gross Profit Method 19
By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Practical Study of
Cera-e-Noor
http://www.cera-e-noor.com/
VISION OF THE COMPANY: We strive to be bench-marked against the best in the tableware industry. Our aim is to exceed our customer's expectations ensuring them of highest standards of service levels and unmatched product quality. FUTURE PLANS: In the future competition will increase in this market and there will be large availability of Chinese product at relatively low price. Customer will become brand & quality conscious. In future we plan to expand our product line by introducing more categories, designs & varieties in both casual & formal ware. We also plan to go beyond the national boundaries and market of products worldwide.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Sales Targets
To achieve a target Expand the number To achieve a target Expand the number To achieve a target Expand the number net sales of Rs. 222 million within the1st year of 2007-08 of dealers by 10 % net sales of Rs. 400 million within the 2nd year of 2008-09 of dealers by 30 % net sales of Rs. 1billion within the 3rd year of 2009-10 of dealers by 50 %
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
1) - Department Requisition:
The first major step in Inventory control system is the departmental purchase requisition. It serve the different purposes for purchasing of raw data or the material required for the packing for preparation of ceramics etc. The budgeting is being prepared by the concerned department that how to meet the order.
2) - Stock Check:
The second major step in Inventory control system is the Stock Check for the sake of purchase requisition. The Purchase request is the system generated and directly delivered the concerned persons, i.e. purchase officer, procurement officer etc. It is the responsibility of the concerned department to validate the department requisition, that either it is available in the present stock or need to purchase from vendor.
3) - Purchase Department:
The third step in Inventory control system is that the Purchase department raised the request for price quote to the different vendors to sort out the different prices comparisons for financial evaluations and the technical evaluations. The lowest bidder with good technical specifications is to solicit and get it approved from bidding committee or through Manager Finance for onward further process.
4) - Purchase Order:
The forth step in Inventory control system is the placement of Purchase Order which includes the Turn Around Time for completion of that project, Terms and conditions and mode of payments.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
9) - Financial Sheet:
The Ninth step in Inventory control system is the Financial Sheet and balance of material. The financial sheet is maintained by store department and then onward pass on to the Finance department.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Financial Accouting (528) Merits, Demerits, Strengths and Deficiencies: Merits & Strengths:
Premier local manufacturer of porcelain tableware. Part of the elite Hashoo group -the owners and operators of two leading chains of hotels namely Marriott and Pearl Continental Ability (knowledge, skills and facility) to manufacture hard porcelain.
Opportunities:
Huge growing domestic market Growing purchasing power of people within the economy More and more consumers are becoming brand conscious Modern lifestyles markets are growing.
Threats:
Growing Manufacturing Power of China (they can do reasonable quality at low cost) Increasing energy costs.(Oil & Electricity) Increasing prices of raw material Political stability is at a decline.
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
References:
A special tribute and thanks to the following professionals of Cera-e-Noor for cooperating in providing data and fruitful assistance.
Name
Eshan Ali Muhammad Usman Javed
Designation
Manager HR Manager Marketing
Contacts
eali@cera-e-noor.com.pk javd.u@pepl.com.pk
o o o o o o o o
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Mr. Attiq ur Rehman House. No. A-64/4 Lane No. 02, Lalarukh WAH CANTT. (0300-513 5164)
M. Hammad Manzoor 508195394 # 508, 5th Floor, CTC Continental Trade Centre, Block-08 08, KARACHI. (0321Clifton 584 2326) Financial Accounting 02 528
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)