Shab

A STUDY ON INVENTORY MANAGEMENT
CONTENTS SL NO 1. CHAPTERS INTRODUCTION INDUSTRY PROFILE 2. REASEARCH DESIGN PAGE NO 8-48 49-53 54-58
3.
COMPANY PROFILE
59-78
4.
DATA ANALYSIS AND INTERPRETATION
79-113
5.
SUMMARY AND FINDINGS
114-115
6.
SUGGESTIONS AND CONCLUSION
116-118
7.
APPENDIX AND ANNEXURE
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TABLE NO Table (1)
TITLE OF TABLE TABLE SHOWING THE AVERAGE STOCK OF RAW MATERIALS 2009-12
PAGE NO 80
Table (2)
TABLE SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012
82
Table (3)
TABLE SHOWING THE AVERAGE FINISHED GOODS INVENTORY FOR A PERIOD OF 2009-2012
84
Table (4)
TABLE SHOWING THE INVENTORY TO TOTAL ASSET RATIO FOR THE PERIOD OF 2009-2012
86
Table (5)
TABLE SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 20092012
88
Table (6)
TABLE SHOWING THE CURRENT RATIO FOR THE PERIOD OF 2009-12
90
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Table (7) TABLE SHOWING THE CURRENT ASSETS RATIO TO SALES RATIO FOR THE PERIOD OF 2009-12 92
Table (8)
TABLE SHOWING THE AVERAGE INVENTORY TO CURRENT ASSETS FOR THE PERIOD OF 2009-12
94
Table (9)
TABLE SHOWING PERCENTAGE OF AVERAGE WORK-IN-PROGRESS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
96
Table (10)
TABLE SHOWING THE RATIO OF FINISHED GOODS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
98
Table (11)
TABLE SHOWING COMPARISON OF SALES INVENTORY RELATIONSHIP FOR THE PERIOD OF 2009-12
100
Table(12)
TABLE SHOWING INVENTORY OF CURRENT ASSET RATIO FOR THE PERIOD OF 2009-12
102
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Table(13) TABLE SHOWING DAYS OF INVENTORY HOLDING 3 YEARS 2009-12 104
Table(14)
TABLE SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12
106
Table(15)
TABLE SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12
108
Table(16)
TABLE SHOWING CALCULATION OF CLOSING INVENTORY 2009-12
110
Table(17)
TABLE SHOWING GROWTH OF TOTAL INVENTORY 2009-12
112
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GRAPH NO
TITLE OF GRAPH
PAGE NO
Graph (1)
GRAPH SHOWING THE AVERAGE STOCK OF RAW MATERIALS 200912
81
Graph (2)
GRAPH SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012
83
Graph (3)
GRAPH SHOWING THE AVERAGE FINISHED GOODS INVENTORY FOR A PERIOD OF 2009-20
85
Graph (4)
GRAPH SHOWING THE INVENTORY TO TOTAL ASSET RATIO FOR THE PERIOD OF 20092012
87
Graph (5)
GRAPH SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 20092012
89
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Graph (6) GRAPH SHOWING THE CURRENT RATIO FOR THE PERIOD OF 200912 Graph (7) GRAPH SHOWING THE CURRENT ASSETS RATIO TO SALES RATIO FOR THE PERIOD OF 2009-12 93 91
Graph (8)
GRAPH SHOWING THE AVERAGE INVENTORY TO CURRENT ASSETS FOR THE PERIOD OF 200912
95
Graph (9)
GRAPH SHOWING PERCENTAGE OF AVERAGE WORK-INPROGRESS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
97
Graph (10)
GRAPH SHOWING THE RATIO OF FINISHED GOODS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
99
Graph(11)
GRAPH SHOWING COMPARISON OF SALES INVENTORY RELATIONSHIP FOR THE PERIOD OF 2009-12
101
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Graph(12) GRAPH SHOWING INVENTORY OF CURRENT ASSET RATIO FOR THE PERIOD OF 2009-12 103
Graph(13)
TABLE SHOWING DAYS OF INVENTORY HOLDING 3 YEARS 2009-12
105
Graph(14)
GRAPH SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12
107
Graph(15)
GRAPH SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12
109
Graph(16)
GRAPH SHOWING CALCULATION OF CLOSING INVENTORY 2009-12
111
Graph(17)
GRAPH SHOWING GROWTH OF TOTAL INVENTORY 2009-12
113
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CHAPTER-1
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INTRODUCTION TO FINANCE
Finance
Finance is the heart of organisation. Finance is a science that deals with money, risk and time. To be more precise, it deals with how money deriving from various activities is spent. Every enterprise, whether big, medium for small, needs finance to carry on its operations and to achieve its targets. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money, risk and how they are interrelated. It also deals with how money is spent and budgeted. Hence efficient management of every business enterprises is closely linked with efficient management of finance.
Definition
A branch of economics concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related to money and the markets.
Definition of Finance
Finance is defined in numerous ways by different groups of people. Though it is difficult to give a perfect definition of finance following selected statements will help you deduce its broad meaning. 1. In General sense, "Finance is the management of money and other valuables, which can be easily converted into cash."
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2. According to Experts, "Finance is a simple task of providing the necessary funds (money) required by the business of entities like companies, firms, individuals and others on the terms that are most favourable to achieve their economic objectives." 3. According to Entrepreneurs, "Finance is concerned with cash. It is so, since, every business transaction involves cash directly or indirectly." 4. According to Academicians, "Finance is the procurement (to get, obtain) of funds and effective (properly planned) utilisation of funds. It also deals with profits that adequately compensate for the cost and risks borne by the business."
Areas of finance
Personal finance Personal financial decisions may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement. Personal financial decisions may also involve paying for a loan, or debt obligations. Corporate finance Managerial or corporate finance is the task of providing the funds for a corporation's activities. Corporate finance generally involves balancing risk and profitability, while attempting to maximize an entity's wealth and the value of its stock, and generically entails three interrelated decisions.
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Finance of public entities Public finance describes finance as related to sovereign states and sub-national entities and related public entities (e.g. school districts) or agencies. It is concerned with: Identification of required expenditure of a public sector entity Source of that entity's revenue The budgeting process Debt issuance (municipal bonds) for public works projects
Financial risk management Financial risk management is the practice of creating and protecting economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. It focuses on when and how to hedge using financial instruments; in this sense it overlaps with financial engineering.
Finance is classified into two classes; Public finance Private finance
FINANCE
PUBLIC FINANCE
PRIVATE FINANCE
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Public finance: It deals with the requirements, receipts and disbursements of funds in the government institutions like states, local self-government. Private finance: It is concerned with requirements, receipts and disbursement of funds in case of an individual, a profit seeking business organization and a non-profit organization.
Importance of finance.
To Promote or establish, the business. To acquire fixed assets. To make investigations such as market surveys, develop product etc
Meaning of financial management.

Financial management refers to that part of the management activity which is concerned with the planning & controlling of firms financial resources.
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Definition of financial management.
In the words of Prather and wart, Business finance deals primarily with raising, administering and disbursing funds by privately owned business units operating in non-financial field of industry.
Importance of financial management.

It helps in financial planning & successful promotion of an enterprise. It helps in acquisition of funds as and when required at the minimum possible cost. It helps in proper use & allocation of funds. It helps in taking sound financial decisions. It helps in improving the profitability through financial controls. It helps in increasing the wealth of the investors & the nation.
Scope of financial management.

Estimating financial Requirements. Deciding capital structure. Selecting a source of investment. Selecting a pattern of investment. Proper cash management. Implementing financial controls. Proper use of surpluses.
Functional Areas of financial management.

Determining financial needs. Selecting the sources of funds.
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Financial Analysis is $ interpretation. Cost Volume Profit Analysis. Capital Budgeting. Working capital management. Profit planning & control. Dividend policy.
Financial decisions.
Investment Decisions Financing Decisions Dividend Decisions
Investment Decision
Dividend Decision
Financial Decision
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Investment Decisions.
Investment Decisions relates to the determination of total amount of assets to be held in the firm, the composition of these assets and the business risk complexions of the firm as perceived by its investors. Financial Decisions Financial decisions deals with selecting such sources of funds which will make optimum capital. Structure & to decide the proportion of various sources overall capital mix of the firm. Dividend Decision Dividend Decisions relates to the disbursement of profits back to investors who supplied capital to the firm. It is concerned with the quantum of profits to be distributed among share holders.
Objectives of Financial Management
Financial
Management
Profit Maximizatio n
Wealth Maximizati on
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Profit Maximization Profit earning is the main aim of every economic activity. No business can survive without earning profit. Profit is a measure of efficiency of a business enterprise. Profits also serve as a protection against risks which cannot be ensured. Thus profit maximization is considered as the main objective of business
Wealth Maximization Wealth maximization is the appropriate objective of an enterprise. When the firm maximizes the stockholders wealth, the individual stockholder can use this wealth to maximize his individual utility. This objective helps in increasing the value of shares in the market. The concept of wealth maximization tells the value of assets in terms of benefits it can produce.
Financial statement
Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of information. It involves recording, classifying and summarizing various business transactions. The end products of business transaction are the financial statements comprising primarily the position statement or the balance sheet and the income statement or the profit and loss accounts. This statement are the outcomes of summarizing process of accounting and are, therefore the sources of information on the basis of which conclusion are drawn about the profitability and the financial position of the concern. Financial statements evolved from system of accounting and its principals. Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decisions by users information. It involves recording, classifying and summarizing various business transactions.
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Meaning of financial statement:Financial statement is the analysis of organized collection of financial data undertaken according to logical reports on the financial aspects of business form such as the operational result of the firm for a particular period of time. Financial statements, also called financial reports, are account balances arrayed in effective and meaningful orders. So that the facts and concepts they portray may be readily interpreted and used as bares for decisions by all people who are interested in the affairs of business on the bares information in their reports, progress to data, and decide upon the course of action to be taken in future.
Definition of financial statements

According to John N Myer Financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liability and capital as on a certain date and the income statement showing the results of operations during a certain period Financial statements are prepared as an end result of financial accounting and are the major sources of financial information of an enterprise.
Nature of Financial statements:According to John N Myer Financial Statements are composed of data which are the results of a combination of Recorded facts. Accounting conventions. Postulates Personal judgment.
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Objective of Financial statements:1.To provide reliable financial information about economic resources and obligations of a business firm. 2.To provide other needed information about changes in such economic resources and obligations. 3.To provide reliable information about changes in net resources (resources less obligations) arising out of business activities.
Types of Financial statements:1. 2. 3. 4. A balance sheet. An income statement. A statement of changes in owners accounts. A statement of changes in financial position.
Limitations of Financial statements

Financial statements are essentially interim reports. Lack of precision and definiteness. Lack of objectives judgment. Record only monetary facts.
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Financial Statement Analysis
Financial statement analysis is all about using accounting information to make business and investment decisions, financial statement analysis is designed for informed business persons, investors, creditors who can understand how to read, interpret and analyze financial statements. It focuses on techniques used by analyst, investors, managers and others to evaluate the financial position, operating performances and cash flow of business. Financial statement analysis is an organized approach to extract relevant information from financial statements for making business. It enhances the chance for success in investing, lending and decision making by providing the back ground, tools and techniques that professionals use on day to day basis.
Need for Financial Statement Analysis

Financial Statement Analysis is used to identify the trends and relationship between financial statement items. Both internal management and external users (such as analysts, creditors and investors) of the financial statement needed to evaluate a companys profitability, liquidity and solvency. The most common methods used for financial statement analysis, common size statements, and ratio analysis. These methods include calculation and Comparisons of the results to historical company data, competitors, or industry average to determine the relative strength and performances of the company being analyzed.
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GRAPH SHOWING THE OBJECTIVES OF FINANCIAL STATEMENT ANALYSIS
It investigates the relationship of primary data
It involves various steps to analyze
It involves the composition of current assets and current liabilities
It helps in decision making
It helps the magnitude and also conclusion
It helps the divided shares and bares market price
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INTRODUCTION OF INVENTORY:The third major current asset is inventory. The term inventory refers to the stockpile of the products a firm is offering for sale and components that make up the product. Inventory, as a current asset, differs from other current assets because only financial managers are not involved. Rather, all the functional areas, like finance, marketing, production and purchasing departments are directly involved. The job of the financial manager is to reconcile the conflicting view points of the various functional areas regarding the appropriate inventory levels in order to fulfil the overall objective of maximizing owners wealth.
MEANING:Every firm, establishment, company carries many items for the purpose of producing goods and services which is either used directly or indirectly. These are called Stocks generally, which in true management sense is called as Inventory. Inventory includes: Raw materials Work-in-progress Finished goods Consumable stores and spares.
DEFINITION:Inventory has been defined as The aggregate of those items of tangible personal property which are held for sale in the ordinary course of business, or are in the process of production for such sale or are to be currently consumed in the production of goods and services to be available for sale.
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TYPES OF INVENTORY
Classifications and categorization of inventories are done on different the basis to meet some of the objectives set by the organization.
Some of the Inventory classifications are given below:
LOT-SIZE INVENTORY
PRODUCTION INVENTORY
M.R.O. INVENTORY
FLUCTUATING
INVENTORY
MOVEMENT INVENTORY
IN-PROCESS INVENTORY
FINISHED GOODS INVENTORY
ANTICIPATION INVENTORY
1) Anticipation Inventory: These are inventories that are carried to meet foreseeable future changes likely to happen in demand when the consumption pattern is reasonably uniform, it would be convenient and economical to hold and build up stocks. 2) Fluctuating Inventory: Demand always fluctuates over a period of time and the exact prediction is not possible. Organizations maintain reserve stocks to meet these unexpected demands in order to avoid risk of losing sales.
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The safety stocks are known as Fluctuating Inventory. 3) Lot Size Inventory: In order to keep the various costs of inventory at the lowest certain fixed/lot is purchased in order to avail of quantity and pricing discount. 4) Movement or Transit Inventory: In any organization a certain amount of raw materials and finished goods keep moving both in and out from one place to another. Longer the transportation greater is the amount of transport and of inventories. Average amount below is determined as I = S x T Where: S = the average rate of sales [Weekly/Monthly Average] T = Transit Time I = the movement of Inventory required. 5) Production Inventory: Both raw materials and other parts/components which enter into production process at different stages are called Production Inventories. 6) In-process- Inventory: Semi finished work in progress and partly finished products formed at various stages of production are called In-process- Inventories. 7) MRO Inventories: These inventories are those which are required for Maintenance, Repairs, and Operating Supplies, which are consumed during the production process and generally do not form part of product itself.
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E.g.: Oil, Lubricant, Grease, etc.
8) Finished Goods Inventory: These are the inventories that are fully procured and ready for sale to the customer.
WHY DO WE NEED INVENTORIES?

There are seven major reasons as to why manufacturing firms carry inventory: 1. To gain economy in purchasing: Ordering involves a certain fixed cost whatever be the quantities purchased in this context it is beneficial for the organization to procure quantities in excess of minimum and gain advantage of large scale economics.
2. To keep pace changing market conditions: of changing market conditions: Inventories are stocked in anticipation of their non-availability in future or spurt in price.
3. To satisfy demand during period of replenishment: Goods have to be produced continuously and supplied to the customer without any break. To meet this continuous demand inventories are stocked.
4. To carry reserve stock or avoid stock outs: Procurement of inventory and production of goods both have different cycles both have to support and complement each other and it is only then the due process of production would be a smooth affair.
5. Stabilized production: Production of goods has to be continuous throughout the year to meet the fluctuating demand of customers. Goods are procured to stabilize production.
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6. To prevent loss of sales: Finished goods inventory is maintained to match requirement of customers promptly on due date, to meet this requirement company has to have regular fixed inventory. 7. Satisfying other business constraints: Purchases are made due to below mentioned extraneous factors. Supplier condition of minimum quantity. Government regulation Seasonal availability.
THEORETICAL BACKGROUND OF THE STUDY

Inventory can be broadly defined as the stock of goods, commodities or other economic resources that has stored as reserved at any given period for future production or for meeting future demand. The term inventory may be classified into two classes.
1.
DIRECT INVENTORY Direct inventory include those item which plays a direct role in the manufacture and
become an integral part of finished goods. Direct inventory can be classified into four groups.
a) Raw materials in inventories provide for i. Economic bulk purchasing. ii. To enable production buffer against delays in transportation. iii. For seasonal fluctuations. b) Work-in-progress inventories i. To enable economical lot production. ii. To cater the variety of products. iii. Replacement for wastages. iv. To maintain uniform production even though sales may vary.
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c) Finished goods inventories i. For providing off- shelf delivery. ii. To allow stabilization of the level of production. iii. For sales promotion
2.
INDIRECT INVENTORIES
Indirect inventories include those items which are necessary for manufacturing but do not become component of the finished production; such as lubricants, grease oil, petrol, office material, maintenance materials etc Remark: Organizations carry inventories for a number of the following reasons:
Smooth productions. Product availability Advantages of productions of buying in large quantities. Hedge against-long or uncertain lead time.
STEPS INVOLVED IN DEVELOPING AN INVENTORY MODEL

An inventory model is concerned with the two decisions; how much to order at one time and when to order so as to minimize total cost? For taking these two decisions respective of quantity and time, many inventory models have been developed. However, the basic steps which may be adopted in developing any inventory model are the same. The sequences of steps, which are usually involved an inventory model in an organizations, are as follows. 1. Take the physical stock of all inventory items in an organization. 2. Classify the stock of items which are ascertained under step one, into various categories. Although there several methods in which inventories may be classified as raw materials, work in progress, and finished goods etc.
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3. Each of the above classification of inventory items may be further divided into several groups. For e.g.: - consumable stores and maintenance spares can be divided further into the following groups i) ii) iii) iv) v) vi) building materials hardware items lubricants and oils textiles and fibers electric spares stationery items etc.,
4. Collect the annual usage value of item. List these in the order of descending value of annual usage of the item. Use selection approach to inventory management. The selection approach requires classification inventory items under capital A, B, C categories. A category of items are managed by top level, B by middle and C by lower level management. 5. Another classification of inventories is to identify the items on the basic of their degree of importance to the production process. This analysis is known as VED analysis. Items belonging to V category are vital, or critical to the production process. E class items are less critical but are classified as essential items while the rest of items are put under D or desirable category. 6. The A-B-C and V-E-D classification of inventories provide a basis for a selective control of inventories through formulation of suitable inventory policies for each category. 7. Decide about the inventory model to be developed. For e.g.:-Fixed order quantity system may be developed for A class and high valued B class items, whereas, periodical view systems may be developed for low valued B CLASS ITEMS AND c class items. 8. Collect data relevant for determining ordering cost, shortage cost inventory carrying cost, inventory carrying cost etc. 9. Make an estimate of annual demand for each inventory item and their prevailing market price. 10. Estimate lead-time, safety stock and record level, if supply is not instantaneous. Also decide about the service level to be provided to the customers.
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11. Develop the inventory model. 12. Review the position and make suitable changes depending upon the current constraints.
SCOPE OF INVENTORY MANAGEMENT

The inventories form a predominant part of the current assets and so they require maximum efficiency in the management for the successful management of the working capital. Since it is slightly different from other current assets with challenging mix of various factors, it is better to pay down the following individual phases of inventory management. 1. 2. 3. 4. 5. 6. 7. 8. 9. To determine the size of the inventory. To establish time frame user and size of new orders. To ascertain the minimum, maximum and safety level. To co-ordinate the production and marketing policies with inventory police To provide sufficient storage facilities. To arrange for receipt of the stores. To design the various forms for recording these transactions. To assign responsibilities for carrying on the inventory control function. To prepare reports on the overall management of inventories.
OBJECTIVES OF INVENTORY MANAGEMENT

Inventory control is highly significant not only because inventories constitute substantial position of total current assets of a firm but also because it has to satisfy the following objectives. 1. 2. 3. To minimize the financial investment in inventories. To ensure that the value of consumed is minimum. To maintain timely records of inventories of all items and to maintain the stock within the desired limits. 4. To provide scientific base for short time and long range planning of inventory requirements. 5. To ensure timely action for replenishment.
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6. To protect the bank of inventories for pilferage, theft, waste, loss, damage and unauthorized use. 7. To standardize and centralize information on stock levels and progress of stock issues. 8. 9. 10. To meet demand fluctuations. To provide a safe guard for variation in raw material delivery time as lead time. To allow flexibility in production scheduling and reduce surplus stock.
MOTIVES FOR HOLDING INVENTORY

The question of managing inventories arises only when the company holds inventories. Maintaining inventories involves tying up of the companys funds and incurrence of storage and handling costs. Economists have established three motives for holding inventories: a transaction motive, a precautionary motive and a speculative motive. In addition, there may be a contractual reason for holding some inventories.
Transactions motive emphasis the need to maintain inventories to facilitate smooth production and sales operations. The transaction motive for holding inventory is to satisfy the expected level of actives of the firm. For example a pizza, restaurant receiving its next materials consignment on Monday starts the weekend with enough flour, salt, sauce, sausage and anchovies to make the number of pizzas anticipated to be ordered over the weekend. Precautionary Motive Necessities holding of inventories to guard against the risk of unpredictable changes in demand supply forces and to provide a cushion in case the actual level of activity in different than anticipated again using a pizza restaurant as an example, in addition to holding enough inventory to make the expected number of pizza over the weekend, the restaurant may hold additional supplies as a precaution against demand being different than anticipated.
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If demand exceed expectations (either in total or for a particular ingredient) sales will probably either be lost or if made. It is doubtful that many customers will accept a pie/topped with anchovies and pineapple as a substitute simply because the restaurant has run out of sausage and pepperoni. Speculative Motive Influences the decision to increase or reduce inventory levels to take advantage of price fluctuations. The speculation motive for holding inventory might entice a firm to purchase a larger quantity of materials then normal in anticipation of making abnormal profile. An advance purchase of raw materials in inflationary times is one form of speculative behaviour. A second reason for speculative inventory purchases may involve an anticipated change in a product. Contractual Requirements occasionally it may be necessary to carry a certain level of inventory at meet a contractual agreement. Some manufactures require dealers to maintain a specified level of inventory in order to be the sole representative in a particular territory.
ADVANTAGES OF HOLDING INVENTORY

Quick Service Customer desires a prompt fulfilment of orders. A firm will have to make the goods available for sale. In the event of its not being able to offer quick service to customers, the latter are likely to get their order executed by cooperations. Discounts a firm is in a position to take advantage of trade discounts by planning bulk orders with suppliers. A proper proportion will have to be maintained between the cost of maintain inventories and the discount that in likely to be gained. Reduction in order costs each other increase certain costs. If the number of orders is reduced it is possible to economize on these costs or the procedure involving each other need not be repeated each time. Efficient production Runs Inventories help a firm to make sufficiently long runs and there by achieve efficient production with an increase in the production run, it is possible to reduce the set-up cost of operations.
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Protection against Shortages Adequate inventory protects a firm against the shortages that would result in production stoppages and considerable losses.
EFFECTS OF HOLDING LOW STOCKS

No Service Levels can often customer demand cannot be satisfied, leading to immediate loss of business. Increased production control costs an enterprise may have to rush special production runs, re-organized schedules and in ordinate high level of chasing etc. Increased Replenishment costs when operation with low stock levels, average replenishment orders would be placed more frequently.
EFFECTS OF HOLDING HIGH STOCK

These results in: Increased Storage Costs. Increased capital investment, which reduces the capital available for other activities and projects. Increased risk obsolescence. Increased opportunities for obtaining purchase discounts by bulk ordering. Stable production programmers, which results in the maintains of a steady work force.
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DIAGRAM SHOWING INVENTORY COSTS
INVENTORY COSTS
Cost of inventory
Ordering cost
Holding
Shortage or Back order
No .of orders x cost per order

x
Average inventory x holding cost per unit
No. of units short x shortages cost per unit
(No. quality) Constant
Variable (quantity discount)
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INVENTORY COSTS: (ECONOMIC PARAMETERS)
The usual criterion considered in any inventory analysis in minimization of the sum of the cost associated with inventory. These costs are of three types:Purchase (or Production) Costs: The cost of purchasing or producing a unit of item is known as purchase for production cost. The purchase price will become important when quality discounts or prices breaks can be secured for purchase above a certain quantity. 1. Ordering costs or Acquisition cost and setup costs: Costs related to acquisition purchased items are those of getting an item into companys inventory as stores. These cost incurred each items as order in placed with supplies, standing with the purchase requisition. This is a fixed cost per lot and hence a variable cost per item. The cost of placing an order again varies with individual organization but it could be generally classified under the following heads. i. Inspections and stores: The cost of checking materials when they are received for quantity and quality of maintaining records of receipts. ii. Purchasing: The classical and administrative cost associated with purchasing, the cost of requisitioning material, placing and orders, follow up receiving and evaluating quotations. iii. Accounting: The cost of checking suppliers against each order, making payments and or maintaining record of purchases. iv. Transportation costs : The cost of transporting goods from the point of travelling expenses and other various costs incurred.
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2. Inventory carrying or holding cost: These costs are associated with holding a given level of inventory on hand and vary with level and length of time inventory held.
These costs include the following:1. Opportunity costs 2. Handling cost 3. Storage space costs 4. Stores staffing, equipment maintenance and running cost 5. Storage operation cost 6. Taxes, depreciation and insurance 7. Product deterioration and obsolescence 8. Spoilage, breakage, pilferage and loss due to perishable nature.
Factors contributing to cost holding Holding cost annum of total value inventory Interest on capital locked up Insurance Obsolescence and depreciation Storage space Damages and pilferage Total 10 to 15 0.5 to 2 2.5 to 10 1 to 3 1 to 2 15 to 32
Taking into account the contribution of all these factors it is quite common to find that the recurring annual cost of holding inventory is nearly 20% of its value.
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3. Shortage (or stock out) costs: These are the penalty cost associated with either a delay in meeting the demand as inability to meet it at all due to shortage of stocks. The avoidance of these costs is the basic reason why stocks are held in the first instance.
These costs include the following: 1. Loss of contribution through the loss of sales caused by the stock out. 2. Loss of future sales because customers go elsewhere. 3. Loss of customers good will. 4. Extra costs associated with urgent after small quantity replenishment purchase.
4. Salvage costs or selling costs: When the demand for an item is affected by its quantity in stock, the decision model of the problem depends upon the perfect maximization criterion and includes the revenue from the sale of the items, salvage cost are generally combined with storage costs and not considered independent
DIFFERENT CLASSIFICATION METHOD

CLASSIFACTION ABC [ Activity based costing ] VED [ Vital essential and desirable ] The importance or criticality BASIS Value of items consumed
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FSN [ Fast moving and slow moving and nonmoving ] HML [ High, Medium, low ] SDE [ Scarce, difficult, easy to obtain ] XYZ Value of items in storage Procurement difficulties Unit price of the material The pace at which material moves
ABC Classification: An ABC analysis offers an important solution to the problem of a scientific planning and control of inventories, and is an important technique of inventory management. It is based upon the value of different items constituting an inventory. It may be concerned with several items-raw materials, purchase and self fabricated component parts, subassemblies. Factory supplies, office supplies, tools, machinery and handling equipment items.
An inventory may be differentiated on the basis of bulk, size, weight, usage, Value, durability, utility, availability, criticality etc and should be controlled with due weight age an ABC analysis is in the recognition of the principle that same items of inventory are more important than others. Thus items are classified under broad categories A, B, and C. The criteria for selective preference may differ from unit to unit. Considerations however is never the less given to their value, usage and criticality of these, the first two are not difficult of assessment because continue records for this purpose are generally available with business units. However as regards criticality or the relative significance of the items, no easy judgments can be passed; and this makes the process of evolution somewhat difficult.
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The ABC techniques enable an enterprise to keep its investment low and avoid stock-outs of critical items. Its objective is to reduce the minimum stock as well as the working stock. Item under class A constitute a small percentage of the total volume, but account for a large percentage of the product value of a unit. A large glossary of items entering a bulk of the total volume and accounting for an insignificant produce value is placed under class C items under class B constitute a moderate class which are higher substantial nor insignificant in relation to the product value of a unit. The value of items in class A may be significance as a result of: The usage being substantial, though per unit cost of items may be small. As per unit cost of items being substantial though the usage may be small. Both per unit cost of items and usage being substantial.
VED Classification: It applies largely to spare parts. The demand for spare parts demands on the performance of equipment of equipment. The vital spares should be stocked adequately. Essential parts may be stocked rather sparingly, for same risk can be taken in stocking such spares. Desirable spares may be dispensed with if the lead time for their procurement is low. It may be remembered that this classification is done by the technical department of an organization and that it will have to be combined with an earlier classification.
FSN Classification: The FSN classification is mainly attempted on the basis of the consumption pattern. It is made on the basis of raw material has moved during the earlier periods and is often combined with the XYZ classification which is based a value of items in storage. The FSN classification helps in the timely prevention of obsolescence.
HML Classification: This classification is made on the basis of the unit value of an item. Some items may be low value of an items while others may be high-value items The high, medium and low classification follows the same procedure as adopted in ABC analyses classification. Only difference is that in HML classification unit value is the criterion and not the annual consumption value. The items of inventory should be listed in descending orders of unit value and it is up to the management to fix limits for the three categories.
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The HML analysis is useful for keeping control consumption at departmental levels for deciding frequently of physical verification and for controlling purchase. SDE Classification: The SDE classification is made on the basis of scarcity of materials. The materials are classified on the basis of the nature of suppliers, the quality and continuity of supply, the lead time involved and the terms of payment the classical work involved and such other considerations.
XYZ Classification: This is attempted on the basis of the value of items in storage. The purpose is to classify inventories and their uses at scheduled intervals. X items are those whose inventory values are high, while Z is those whose inventory values are low. This type of classification helps to identify those items which are extensively stocked. In conclusion it may be said that it is desirable to apply a selective control approach to the problems of controlling inventories. It is no use being rigid; nor is it worthwhile to adopt a universe approach for controlling all the items constituting the inventory. Such a course action, apart from being single-tracked, is wasteful and in effective. It is neither feasible (nor) desirable to maintain exhausting records of all kinds of inventories. Irrespective of their types and the investment tied up in them. The techniques of selective inventory control should serve as very useful weapons for the control of inventories and if properly utilized, should contribute significantly to the health of industrial, merchandising and other organizations.
OTHER INVENTORY CONTROL TECHNIQUES AND MODELS

SDF and GOLF Classifications: It should not be over looked that inventory levels are also dependent on the source a scarce item with a long lead time will have a higher safety stock for the same consumptions level. The SDF (scarce, difficult, easy to obtain) classification and the GOLF (Government,
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ordinary, local, foreign sources) classification are systems where classification is done on the basis of general availability and the source of suppliers. Economic Order Quantity Model (EOQ model): This model has been suggested by Douglas M.Lambert and James R.Stock. According to them, Economic order quantity is the quantity to buy (or) order for at one time that will achieve the lowest unit cost. It refers to size of order of an item at one time for which inventory costs are minimum it is also called least cost quantity The economic orders quantity (EOQ) is the order quantity for which the total cost of inventory ordering and carrying in minimum. In other words, economic order quantity or least cost quantity is that size of quantity for which ordering cost equal carrying cost. Ordering cost = cost of carrying quantity. E.O.Q = 2PD CV or 2PD C
Where, P = ordering Cost (rupees per order) D = Annual demand in unit C = annual inventory carrying cost V = average cost of one unit of inventory, c is the carrying cost per unit.
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Economic Order Quantity Of function: The Economic order quantity can also be found out graphically. This above figure illustrates the EOQ function. In this figure costs carrying costs increase as the order size increases because on an average a larger inventory level will be maintained and ordering costs decline with increase in order size because larger orders size mean less number of orders. The behaviour of total costs line is noticeable since it is a sum of two types of costs which behave differently with order size. The total costs decline in the first instance, but they start rising when the decrease in average ordering cost in more than offset by the increase in carrying costs. The economic orders quantity occurs at the profit in maximized at point. It should be noted that the total costs of inventory are fairly insensitive to moderate changes in order size. It may, therefore be appropriate economic orders range, not a point. To determine this range the order size may be change by some percentage and the impact on total costs may be studied. If the total costs do not change very significantly, the firm can change E.O.Q within the range without any loss.
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Just In Time (JIT) Inventory System: Manufacturing company has to maintain three classes of inventories raw materials workin-process and finished goods. These inventories are designed to act as buffers so, that operations can proceed smoothly even if the suppliers are late with deliverers of the department is unable to operate for a short period because of breakdown or any other reason. However carrying of inventories results in costs in terms of storage, blocking of capital investment, insurance, etc. Such costs can be reduced/ minimized by keeping the inventories at the lowest possible level.
JIT system basically aims to achieve this objective. JIT inventory system as its name suggests, means all inventories whether of raw materials work-in-process and finished goods are received in time. In order works raw materials are received just in time to go into production, and products are completed just in time to be shipped to customers. In a JIT environment the flow of goods is controlled by what is described as pull approach to the manufacture of products. The pull approach means at the final assembly of products and only that quantum of parts and materials is provided. The same signal is sent back through each preceding work-station so that a smooth flow of parts and materials is maintained with no inventory build-up at any point. The pull approach described above is different from push approach as used in case of conventional inventory system. In the latter case, inventories of parts and materials are built up and pushed forward to the next work-station. The result in blocking of funds and stock piling of parts which may not be used for days or even weeks together. Requirement of JIT System: The following are the key requirements for the successful operation of JIT inventory system. The company must have only few suppliers; suppliers must be found under long-term contracts and willing to make frequent deliveries in small lots. The company must develop a system of total quality control. TQC mean that no defects can be allowed over its parts and materials. Poor quality of goods or parts cannot be accepted since JIT inventory systems operate with almost no work in progress inventory, workers must be multi skilled in JIT environment.
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This is because in case of JIT system machine and equipment are arranged in small cells where several task can be performed in relation to a product. The workers assigned to these cells are expected to operate all the equipments which are there in the cells. Benefits of JIT System: The following are the benefits of JIT Systems: 1) Inventories of all types can be reduced significantly. This results in sharing of costs. 2) Storage space used for inventories can be made available for other made productive uses 3) Total quality control results in production of quality products 4) Productivity of workers is increased and machine set-up time is decreased this all results in smooth flow of goods between workstations, decrease in total production time and maximization of the profits of the company. Flexible Manufacturing System (FMS): The idea of continuous improvement, the central theme of JIT System, has led to the development of FMS for speeding up production. In case of this system too can made, machines within a company are grouped together, each such grouping is called a cell. These machines are controlled by a computer and they are programmed to change quickly from one production run to another. The basic feature of FMS is automated flow of materials to the cell and automated removal of finished items from the cell. In case several cells are linked together by means of an automatic material handling system and the flow of goods is controlled by a computer the system in termed as computer integrated manufacturing system (CIM) The working of FMS in conjunction with JIT inventory system results in substantial increase in through put i.e., process time required for converting raw materials into finished products. All these results in reducing inventories, improving quality and cutting delivery time. Hence, more and more progressive companies in Japan and USA are employing FMS concepts.
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INVENTORY VALUATION
Many methods of material costing and inventory valuation have come into use among the most common methods of costing materials and valuing inventories are: 1. First In, First Out method (FIFO) Here the earliest acquired stock is assumed to be used first. The stock is assumed to be used first. The stock which is brought first is issued first. In other works the principle is that the materials are issued in this order and at the price of their original purchase. This method is claimed to the accurate for the reason that the materials are charged into production at actual cost in the order of receipt. The closing inventories are valued at the most recent price. If the closing in inventory balance includes material at several different prices, the problem of considerable clerical works is involved. This method assumes that the order, in which materials are received in the store, is the orders in which materials are issued front the stores. Hence the material which is issued first in priced on the basis of the cost of material received earliest. Soon and so forth. Advantages: The pricing of materials is perhaps consistent with the practice of issuing oldest material first allowed in many manufacturing organization. The value of materials is stock in fairly close to current cost.
Disadvantages: Issue of materials at different price complicates store accounting Comparing of job costs becomes difficult when similar jobs may be charged with different prices of the same materials. In a period of rising prices the charge to production in low. This trend to inflate reported profile, increase tax burden and push up dividends as a consequence the firm is sapped financially.
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2. Last in first out method (LIFO) This method is the opposite of the FIFO method. It assumes that the material which is purchased last to be issued at first. Hence, material issues are priced on the basis of the cost of the recent purchases. Advantages: The cost of production reflects the current cost of material better. In a period of rising prices, reported profiles are depressed, dividends are kept low and working capital is conserved. Disadvantages: The issue of material at different prices complicates store account. Pricing of materials is not consistent with commonly followed practice of issuing the oldest material first. Comparison of job costs becomes difficult when similar jobs may be charged for the same material at different price.
3. Weighted average cost method: Under this method issues are priced at weighted average cost of materials in stock (the weights being proportional to quantities). To get a weighted cost figures, a new weighted average cost is calculated each times a delivery is received. Advantages: It leads to smooth out price fluctuation. It provides a fairly acceptable figure for stock value. Disadvantage: Disadvantage of this method may be medium, involved in calculating the weighted average cost each time of new delivery in obtained.
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4. Standard price (cost) method: Under this method a standard price is pre-determined when materials are purchased the stock account is debited with the standard price. The difference between the actual price and standard price is carried to a variance account. Material issued is charged as per the standard price. Advantages of this method: All material issues priced identically the possibility of jobs using the same material being charged with different costs a problem with the FIFO or LIFO method does not exist. Stock accounting is fairly amplified there is no need for specific price attributable to specific issue of materials. Disadvantages: Determining the standard price may be somewhat difficult, particularly, when price tend to increase somewhat unpredictable are characters by wide fluctuation. The issue of low variance should be heated may be thorny.
5. Current price method: According to the method issues are priced at their replacement or realizable price at the time of issue.
Advantages: It discloses efficiency of buying Tenders based on production cost which reflect current price may be more realistic.
Disadvantages: Determination of replacement/realizable price may sometimes be difficult.
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Comparison of job cost becomes difficult when similar jobs are charged for same material at different prices. Since this method is not based on cost, confusion may arise.
6. Simple average method: Under the method material issues are valued at average price. It is calculated valued at average price of the materials in the stocks, from which the material to be priced could drawn by the number of prices used in that total.
The issue price is determined as follows: Issue price = Unit price of materials in stock Number of purchases
This method works well if there is a little variation in the purchase prices the simple average is particularly useful in the following circumstances.
Advantages: It is easy to calculate the price at which issues are to be made. A particular at a higher or lower rate does not disturb the price to a great extent because the particular difference in the price is averaged out. Simplicity is the greatest advantage of this method.
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Disadvantages of the method are: Material cost does not represent actual cost price. When price fluctuate considerably, this method will give incorrect result. This method does not give regard to quantities of material held at cost price
CRETERIA FOR JUDGING THE INVENTORY SYSTEM

While the over-all objectives of the inventory system is to minimize the cost to the firm at the risk level acceptable to management the more proximate criteria for finding the inventory system are,
Comprehensibility Adaptability Time lines
Comprehensibility: Inventory system range from the utterly simple to the widely complex irrespective of low simple or complex a system is regardless of whether it is automated or manual it should be clearly understood by all affected parties. The system must be properly explained to all concerned so that its purpose, logic, and rational are transparent. This generates rational are transparent. This generates enthusiasm for the system and enhances its credibility. Otherwise it is likely to be perceived as a mysterious block box of dubious value.
Adaptability: The questions raised in this contest are: is the system responsive to change can new producers, new situations, and new requirements being handled by the system. A certain degree of flexibility and adaptability must be designed into the system to make it versatile of course this cannot be and this should not be carried too far. The system must not provide for every possible and imaginable contingency. If it is developed with this deal, it is likely to be a
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complex monstrosity. Remember the caveat that the design of any system should ordinary take care of about 90% of the cases, learning the balance 10% to be handled by hand.
Timeless: Inventory may suffer loss in value on account of a verity of factors. The more common source of value decline is: Obsolescence caused by changes in technology and shifts in consumer taste Physical deterioration with the passage of time. Price fluctuations because of inherent volatility of contain commodities. The inventory system should be capable of inducing timely action. It should provide adequate for warming which triggers appropriate corrective steps.
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PART B INDUSTRY PROFILE BRIEF HISTORY (EVOLUTION OF THE MANUFACTURING INDUSTRY)
Manufacturing takes place under all types of economic systems. In a capitalist economy, manufacturing is usually directed toward the mass production of products for sale to consumers at a profit. In a collectivist economy, manufacturing is more frequently directed by a state agency to supply perceived needs. In modern economies, manufacturing occurs under some degree of government regulation.
The manufacturing sector is closely connected with engineering and industrial design. Examples of major manufacturers in the United States include General Motors Corporation, Ford Motor Company, Chrysler, Boeing, Gates Rubber Company and Pfizer. Examples in Europe include France's Airbus and Michelin Tire. Modern proponents of Fair Trade policy and a strong manufacturing base for the U.S. economy include economists Paul Craig Roberts and Ravi Batra, and commentator Lou Dobbs.
Manufacturing is a broad term. Virtually any process that turns a raw material into a finished product through use of a machine can be considered manufacturing. If you look around at the objects strewn about the room in which youre currently sitting, youll see that quite a few things are manufactured. However, we can break down the types of manufacturing based on what companies produce or by industry; how they produce them, discrete or flow; and the level of Engineering effort required to manufacture them. The universe of manufacturing includes the galaxies of aerospace and defense, automobile and transportation, chemicals and metals, consumer goods, electronics and high tech, hydraulics equipments, industrial and farm
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equipment, and medical and biotech. Generally, sectors that involve technology and are less matureespecially biotech and medical manufacturingare high-growth opportunities, whereas those that have reached maturitychemical and metals, for instanceare waning and have seen much of their growth exported overseas. Manufacturing companies typically emphasize materials management and sourcing functions. Additionally, the majority of overseas opportunities reside with manufacturing firms. In its earliest form, manufacturing was usually carried out by a single skilled artisan with assistants. Training was by apprenticeship. In much of the pre-industrial world the guild system protected the privileges and trade secrets of urban artisans. Before the Industrial Revolution, most manufacturing occurred in rural areas, where householdbased manufacturing served as a supplemental subsistence strategy to agriculture (and continues to do so in places). Entrepreneurs organized a number of manufacturing households into a single enterprise through the putting-out system. The beginnings of modern industrial manufacturing are covered in the Industrial Revolution article. The development of the modern manufacturing facility is covered in the factory article. The development of the applied science behind manufacturing is covered in the industrial process article. According to some economists, manufacturing is a wealth-producing sector of an economy, whereas a service sector tends to be wealth-consuming. Economists who favour a strong manufacturing base oppose outsourcing for the sake of labour arbitrage to obtain cheap labour as an example of absolute advantage which does not produce mutual gain, and not an example of comparative advantage which does. Emerging technologies have provided some new growth in advanced manufacturing employment opportunities in the Manufacturing Belt in the United States. Manufacturing provides important material support for national infrastructure and for national defence.
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On the other hand, some manufacturing may involve significant social and environmental costs. The clean-up costs of hazardous waste, for example, may outweigh the benefits of a product that creates it. Hazardous materials may expose workers to health risks. Developed countries regulate manufacturing activity with labour laws and environmental laws. In the U.S, manufacturers are subject to regulations by the Occupational Safety and Health Administration and the United States Environmental Protection Agency. In Europe, pollution taxes to offset environmental costs are another form of regulation on manufacturing activity. Labour Unions and craft guilds have played a historic role negotiation of worker rights and wages. Environment laws and labour protections that are available in developed nations may not be available in the third world. Tort law and product liability impose additional costs on manufacturing.
CURRENT SCENARIO
While manufacturing has gotten short shrift in recent years with the rise of the service economy and the information economy, it still occupies an undeniably large piece of the American psyche and a very real place in the heart of American business. Three of the 2004 top ten Fortune 500 companies belong to the manufacturing sector: General Motors, General Electric, and Ford. And while the behemoths of American industry hold their own, a whole new breed of manufacturers, in the guise of specialty medical and electronics equipment manufacturers, rank among the fastest growing and most profitable sectors of the economy. Within each manufacturing segmentmotor vehicle and motor vehicle parts, aerospace and defense, electronics and scientific equipment, medical equipment, hydraulic equipments industrial and farm equipment, consumer durable goods, chemicals, and good old-fashioned conglomeratesare handfuls of Fortune 500 companies, making the final tally of companies within the industry a large one.
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GROWTH PROSPECTS
There have been many changes in the industry recently, but the two major trends include using increasingly high-tech production techniques and the adoption of new business practices. Firms are introducing more technology in response to pressure from domestic and foreign competitors. Robotics, computers, and programmable equipment are becoming common, resulting in increased productivity due to increased efficiency and a decreased need for unskilled labour. Competition is also responsible for efforts to cut costs and boost profits through a rethinking of business practices. Outsourcing is another change often made by companies. They contract labor for jobs that are not part of the primary function of the factory, such as janitorial or security services; this way the company can concentrate more on its core business. The manufacturing sector continues to account for 14% of U.S. GDP and 11% of total U.S. employment. Moreover, manufacturing firms fund 60% of the $193 billion that the U.S. private sector invests annually in research and development. (U.S. Department of Commerce) Manufacturing salaries and benefits average $54,000, higher than the average for the total private sector. Two factors in particular attract workers to manufacturing: higher pay and benefits, and opportunities for advanced education and training. (National Association of Manufacturers) A 2003 survey of U.S. manufacturing employers found that 80% of respondents said that they had a serious problem finding qualified candidates for the highly technical world of modern manufacturing. (National Association of Manufacturers) The outlook of this industry depends on location. Despite recent changes made by companies that have allowed them to become more efficient and competitive, it seems that in developed countries where the industry is more mature, there remains little room for growth. Some countries may even see a decline in the industry as manufacturing operations move to developing countries, where the industry is seeing growth. Another factor that could lead to a decline is the human resources drain coming from the services industries in developed countries. Hope remains, however, since with the growth of an economy more companies in other industries are able to expand or upgrade their facilities, or even construct more. This is good news for the industry that supplies them with the necessary industrial products and machinery.
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Chapter-2
Research Design of the Study
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INTRODUCTION
The research design is the conceptual structure within which research is conducted. It constitutes the blue prints for the collection, measurement and analysis of data. A research design is a basic plan, which guides the data collection and analysis phases of the project. It is the frame work, which specifies the type of data collection procedure.
TITLE OF THE STUDY:
A study on inventory management at HAL.
OBJECTIVES OF THE STUDY:

1. To understand the concept of inventory management HAL Ltd. 2. To study the functional responsibilities of various department of HAL. 3. To study the techniques of inventory management followed in HAL. 4. To understand the aspects of delegation of authority, responsibility, coordination, team work etc. 5. To study about the impact of change in inventory on the financial position of the company. 6. To know the process of managing inventory and to study the progress of HAL.
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SCOPE OF THE STUDY:
This project work involves the study of inventory management in HAL Ltd., Bangalore. It also analyses the capability of the division in maintaining the inventory. Further the study will try to look on the procedure followed by them in holding inventory. In brief scope of this study is the operational jurisdiction inventory management in HAL Ltd., Bangalore.
DATA COLLECTION METHODS:

To collect data for the project, A study on Inventory management at HAL used both primary and secondary data collections methods.
DATA COLLECTION METHODS
PRIMARY DATA
SECONDARY DATA
PRIMARY DATA: The data which are collected from the discussion with executives and stores officers. Primary data are that, which are collected freshly and for first and thus happens to be original in character.
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The methods of primary data collection are: Observation method Direct communication with material manager Inventory manuals
SECONDARY DATA:
The data which have been collected from someone else and which have already been passed through statistical process.
The secondary data sources are: Records of the company like balance sheet, P&L account. Text books like financial accounting, management accounting.
RESEARCH METHODOLOGY:
This phrases of the project deals with the various techniques like FIFO, TQC, JIT, EOQ, and ABC, adopted in gathering information. The data and information was mostly collected by visiting the organization several times during the course of study. This study required observation method which has both of direct and indirect in nature. The direct approach was adopted to gather as much information as possible, by interacting with person working in organization, such as stores manager, finance manager and personal manager etc..,
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This is the study entirely based on: Personal Interview Simple statistical analysis Published sources Records of HAL
STATEMENT OF THE PROBLEM:

Effective management of inventory plays a vital role in any organization to attain its organizational goals. Cost reduction and cost control, are the two important elements which determine the efficiency or in efficiency of any organization. The objective of any inventory management program is to determine an objective of any inventory management program is to determine an optimum level of investment or under investment. We cannot expect to eliminate entirely the effect of inventory fluctuation because inventory fluctuation generally holds strategic position in the working capital i.e., it is mostly determined by the turnover of inventories. In this project an attempt had been made to study the management of inventories.
LIMITATION OF THE STUDY:

1. The time provided for the study was very limited i.e., 45 days. 2. Due to the shortage of the time. I have not collected the full information, only overview of the methods of inventory management. 3. The desire of company to maintain confidentially of some analysis of figures constant. 4. The study on inventory management doesnt provide any suggestions to the technical up gradations of inventory process. 5. Collection of data and analysis is restricted to HAL at BANGALORE only.
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CHAPTER 3
PROFILE OF THE COMPANY
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COMPANY PROFILE
Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964. The Company was formed by the merger of Hindustan Aircraft Limited with Aeronautics India Limited and Aircraft Manufacturing Depot, Kanpur. The Company traces its roots to the pioneering efforts of an industrialist with extraordinary vision, the late Seth Walchand Hirachand, who set up Hindustan Aircraft Limited at Bangalore in association with the erstwhile princely State of Mysore in December 1940. The Government of India became a shareholder in March 1941 and took over the Management in 1942. Today, HAL has 19 Production Units and 9 Research and Design Centres in 7 locations in India. The Company has an impressive product track record - 12 types of aircraft manufactured with inhouse R & D and 14 types produced under license. HAL has manufactured over 3550 aircraft, 3600engines and overhauled over 8150aircraftand 27300 engines. HAL has been successful in numerous R & D programs developed for both Defence and Civil Aviation sectors. HAL has made substantial progress in its current projects: Dhruv, which is Advanced Light Helicopter (ALH) Tejas - Light Combat Aircraft (LCA) Intermediate Jet Trainer (IJT) Various military and civil upgrades.
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Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard in March 2002, in the very first year of its production, a unique achievement. HAL has played a significant role for India's space programs by participating in the manufacture of structures for Satellite Launch Vehicles like PSLV (Polar Satellite Launch Vehicle) GSLV (Geo-synchronous Satellite Launch Vehicle) IRS (Indian Remote Satellite) INSAT (Indian National Satellite) HAL has formed the following Joint Ventures (JVs): BAeHAL Software Limited Indo-Russian Aviation Limited (IRAL) Snecma HAL Aerospace Pvt Ltd SAMTEL HAL Display System Limited HALBIT Avionics Pvt Ltd HAL-Edgewood Technologies Pvt Ltd INFOTECH HAL Ltd
Apart from these seven, other major diversification projects are Industrial Marine Gas Turbine and Airport Services. Several Co-production and Joint Ventures with international participation are under consideration. HAL's supplies / services are mainly to Indian Defence Services, Coast Guards and Border Security Forces. Transport Aircraft and Helicopters have also been supplied to Airlines as well as State Governments of India.
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CHART SHOWING BOARD OF DIRECTORS OF HAL
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HAL VISION
To make HAL a dynamic, vibrant, value-based learning organization with human resources exceptionally skilled, highly motivated and committed to meet the current future challenges. This will be driven by core values of the company fully embedded in culture of the organization.
OUR MISSION
To become a globally competitive aerospace industry while working as an instrument for achieving self-reliance in design, manufacture and maintenance of aerospace defense equipment and diversifying to related areas, managing the business on commercial lines in a climate of growing professional competence
HAL VALUES
CUSTOMER SATISFACTION We are dedicated to building a relationship with our customers where we become partners in fulfilling their mission. We strive to understand our customers ' needs and to deliver products and services that fulfill and exceed all their requirements.
COMMITMENT TO TOTAL QUALITY We are committed to continuous improvement of all our activities. We will supply products and services that conform to highest standards of design, manufacture, reliability, maintainability and fitness for use as desired by our customers.
COST AND TIME CONSCIOUSNESS We believe that our success depends on our ability to continually reduce the cost and shorten the delivery period of our products and services. We will achieve this by eliminating waste in all activities and continuously improving all processes in every area of our work.
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INNOVATION AND CREATIVITY We believe in striving for improvement in every activity involved in our business by pursuing and encouraging risk-taking, experimentation and learning at all levels within the company with a view to achieving excellence and competitiveness.
TRUST AND TEAM SPIRIT We believe in achieving harmony in work life through mutual trust, transparency, co-operation, and a sense of belonging. We will strive for building empowered teams to work towards achieving organizational goals.
RESPECT FOR THE INDIVIDUAL We value our people. We will treat each other with dignity and respect and strive for individual growth and realization of everyone's full potential.
INTEGRITY We believe in a commitment to be honest, trustworthy, and fair in all our dealings. We commit to be loyal and devoted to our organization. We will practice self-discipline and own responsibility for our actions. We will comply with all requirements so as to ensure that our organization is always worthy of trust. COMMITMENT Total We shall accomplish our mission with Absolute integrity and dedication Total customer satisfaction Honesty and transparency Courtesy and promptness Fairness quality
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Innovation and creativity Trust and team spirit Respect for the individual Humility Compassion We commit ourselves to do our duty to the best of our ability, integrity and efficiency with the prime motto of fulfilling the customers, shareholders' and individuals requirements and to rise to their expectations and beyond. STANDARDS We shall strictly adhere to the standards, specifications stipulated in ISO-9001. Ensure that our products reflect the state-of-the-art technology and competitive prices. Deliver our products as per the agreed delivery Schedules Produce goods and services of the highest standards to fulfill all your requirements. Declare that our products have gone through the strictest quality control norms and guarantee the total technical life of the product. Assure you of the highest standard of service and are ever willing to share our knowledge and expertise with you Acknowledge all correspondence from you within ten working days of its receipt. Respond to all your communications within twenty working days of its receipt. Clear your financial dues within thirty working days from receipt of genuine and bonafide claims. Strictly adhere to the delivery schedules committed by us to you Work as an instrument of self-reliance in aerospace defence equipment. Strive to attain international standards to become globally competitive. Our R&D efforts should enable us to be a strong force to reckon with in the global scenario. Make sincere efforts in meeting all our social obligations towards the community in general.
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Always strive to maintain cordial relations with the community
COST AND TIME

We shall, Always be sensitive to our social obligations and maintain the highest ethical standards in all our endeavors, business and economic activities. Always strive to achieve economy in all our products and services without compromising the quality standards. Always remain competitive in the market through continuous improvement in our technology. Always strive to reduce the cost and shorten the delivery schedules of our product and services. We shall eliminate wasteful practices and continuously improve in all areas of our work. We shall hold our capital assets in public money in absolute trust and shall commit ourselves to achieve our economic progress competently and in socially acceptable ways. Provide at international competitive prices.
SOME PRODUCTS OF HAL
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FUTURE PRODUCTS
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SERVICES OF HAL
OUR CUSTOMERS
International Customers Airbus Industries, France APPH Bolton, UK BAE Systems, UK Chelton, UK Coast Guard, Mauritius Corporate Air, Philippines Cosmic Air, Nepal Dassault Aviation, France Dowty Aerospace Hydraulics, UK EADS, France ELTA, Israel Gorkha Airlines, Nepal Hampson, UK Air India Air Sahara Airports Authority of India Bharat Electronics Border Security Force Coal India Defence Research & Development Organisation Govt. of Andhra Pradesh Govt. of Jammu & Kashmir Govt. of Karnataka Govt. of Maharashtra Govt. of Rajasthan Govt. of Uttar Pradesh Domestic Customers
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Honeywell International, USA Island Aviation Services, Maldives Israel Aircraft Industries, Israel Messier Dowty Ltd., UK Mistubishi Heavy Industries, Japan MOOG, USA Namibian Air Force, Namibia Peruvian Air Force , Peru Rolls Royce Plc, UK Royal Air Force, Oman Royal Malaysian Air Force, Malaysia Royal Nepal Army, Nepal Royal Thai Air Force, Thailand Smiths Industries, UK Snecma, France Strongfield Technologies, UK The Boeing Aircraft Company, USA Transworld Aviation, UAE Vietnam Air Force, Vietnam Govt. of West Bengal Indian Air force Indian Airlines Indian Army Indian Coast Guard Indian Navy Indian Space Research Organisation Jet Airways Kudremukh Iron ore Company ltd. NALCO Oil & Natural Gas Corporation Ltd. Ordnance Factories Reliance Industries United Breweries
FINANCIAL PERFORMANCE OF HAL.

HAL profit crosses 1000 crore mark. Hindustan aeronautics limited [Hal] has cruised past the Rs. 5000 crore mark for the first time with a sales turnover of Rs. 5375 crores [s 1.21billion] The company which declared its financial year results for has also gone up by 16.4 at Rs. 5750 cores while the profit of the company [profit before tax] soared to rs.1002 crores which is an increase of 32 over its last years performance contract worth Rs. 17800 crores [4 billion USD] were concluded during the year.
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The export turnover also shot-up to Rs. 185 crore registering a growth of 23%, compared to the last year. The company thrust on exports received a boost with booking of export orders worth Rs. 249.33crores. HAL has paid the highest ever interim dividend of Rs 188.45crores, which is around 156% of the paid-up share capital of the company. The company stellar performance is mainly attributing to the successful execution of several programmes during the year, including SU-30 MKI, DO-228, ALH and lakshya. This apart, a series of aircraft upgrade programmes are contributing to HAL growth. HAL division are brimming with activity with Jaguars, Dorniers, SU 30MKI, Aerospace structures and ALH. The ALH production was on in full swing with flying restored and several new machines being delivered to customers. Besides, HAL launched the project activities for advance Jet Trainer (Hawk), to be produced under license from BAE system, UK, with the first Hawk to be rolled out in 2007-08. HAL has also launched the project for design and development of light combat Helicopter (LCH) to meet the requirement of the IAF. Certification activities continued for the intermediate Jet Trainer (IJT) and Light Combat Aircraft (LCA), with orders received for both types. During the year, also set the ball rolling for the design, development and manufacture of a 10Ton class multi Role Helicopter for the services. The project would be undertaken in collaboration with a reputed foreign company. Making a foray into the design and development of a transport aircraft, HAL is collaborating with Russian partners for a Multi-Role transport aircraft in 15-20 Ton capacity. This aircraft would meet the requirement of both Indian and Russian air forces. HAL could convert this platform into a hundred setter passenger aircraft. HAL has spent Rs 412.82 crore towards research and development activities during 2005-06. HAL plans for increased partnership with various Indian and foreign companies for execution of its current programmes and development of new business opportunities. HAL consider its manpower as its biggest asset and is implementing a host of Human Resources Development activities in this regard.
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Hindustan aircraft limited (HAL) has cruised past the Rs. 7,500- crore mark for the first time with a sales turnover of Rs7,783.61 crorer ( $1.82 billion) during the financial year 2006-07, the value of production has also gone up by 55.54% to Rs 9,201.88 crorer, while the profit of the company ( profit before tax ) soared to Rs 1,743.60 crores. Which is an increase of 54.88% over the previous years performance? The highlights are given below: a. Particulars 2005-2006 2006-2007 Growth over Previous Year b. Sales 5342 7773 45.69% c. VOP (Value of production) 5916 9202 55.54% d. Profit before tax 1126 1744 54.88% e. Profit after tax 771 1149 49.03% f. Gross block 1694 2081 22.85% g. Hindustan Aeronautics Limited (HAL) Has cruised past the Rs.8, 500 Crore mark for the first time with a sales turnover of Rs.8625.33 crores ($2.15 billion) during the Financial Year 2007-08. The profit of the Company (Profit before Tax) soared to Rs.2164.23 crores, which is an increase of 24.08% over the previous years performance.
The highlights are given below: a. Particulars 2006-07 2007-08 Growth over Previous Year b. Sales 7783 8625 10.82% c. VOP (VALUE OF PRODUCTION) 9202 8791 -4.46% d. PROFIT BEFORE TAX 1744 2164 24.08% e. PROFIT OFTER TAX 1149 1632 42.04% f. GROSS BLOCK 2081 2255 8..36% g. CORRUPTION FREE SERVICES
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Shall adopt systems and procedures which leave no scope for any corrupt practice Maintain absolute confidentiality of the information/complaints Believe that means and ends cannot be separated. Good end calls for good means. Good means cannot but lead to good ends. There shall be no need for anyone at any time to offer bribe or any other inducement for doing business with us. We shall promptly and expeditiously enquire into all genuine and legitimate complaints of corruption against any employee of our organization. Shall always be honest and transparent and would like to be seen as honest. We shall not claim any judicial privilege for our documents and records except in rare cases and that too in the interest of national security. Shall implement all the policies and directives of Central Vigilance Commission.
COMPLAINTS AND GRIEVANCES

Keep our complaint and grievance redressal Machinery open and receptive to you. Acknowledge your complaints and commit ourselves to redress them within a period of thirty working days on receipt of the complaints. Should you still have any complaint or grievance you may also take up the matter with the designated officer heading the public grievance committee at our corporate and divisional offices. Acknowledgment of grievances and disposal thereof within 30 days. In case of any complaint or grievance, please take up the matter with the officer nominated by the division for redressed of public grievance in the division which is headed by an officer of the grade of a DGM Promptly take action against the complaints by going into the genuineness and roots of the complaints and within a time frame attend to the grievances.
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HAL has 7 different Branches in India SL NO
1 2 3 4 5 6 7
BRANCH
BANGALORE KANPUR HYDERABAD KORAPUT LUCKNOW KORWA NASIK
ORGANIZATION STRUCTURE Management Team of Hal SL NO 1 2 3 4 5 6 7 8 9 NAME

Mr.Ashok.K.Baweja Mr.M.Fakruddin Mr.D.shivamurthy Mr.SanjeeevShai Mr.M.S.Nadagir Mr.AshokNayak Mr.K.P.Puri Mr.Umamaheshwar Mr.V.H.Deshmukh
POSITION
Chairman Corporate planning and marketing Director Finance Director P & A Director Design & Development Director Managing director, Bangalore complex Managing Director MIG complex Managing director, Accessories complex IPS Chief Vigilance Office
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FINANCE DEPARTMENT
The management of the corporate capital is one of the most vital & critical areas of corporate management, as money only a medium of exchange and is substituted of real resource of the economy, it is obvious that financial management or money management ought to be basically concerned with getting the best out of the resources developed are men, money, machine, material and methods. All these inputs to form which of the firm are derived, are commanded through one single resource i.e. money. At higher level of corporate management, almost every decision becomes financial decisions. Decisions taken production, marketing personnel & industrial relations have financial implications, which in turn affect the profitability of the enterprises. Therefore it is essential that executives in companies irrespective of their field of specialization should have understanding &appreciation of corporate finance. The objective part should in harmony with the objective of for any function within the business, be it production marketing or personnel without clear defining the objectives of the corporation as a whole, what is or what ought to be the objective of modern corporation is highly contra version question.
MISSION OF FINANCE DEPARTMENT

To become a globally player in the aerospace Industry
SL NO 1
BASIS
FUNCTIONS
Scrutiny & recurrence as per delegation of power Capital expenditure, Revenue expenditure, Purchase of of proposal materials store tools & other services, Man power recruitments, Incentives, Cases involving relaxation of rules, Wavier dues to the company writers of the losses.
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2 Estimates & awards of contract Civil electrical works/ other works, plant orders Project reporters. 3 Fixation of rent &rates of recovery Services/ Supplies/ Disposal by the company. 4 Certification of availability of funds To capital & performance budgets & appropriation of funds for procurements capital equipment. 5 Approvals & procurements of revenue items (ARS), works administration Approvals (MPRS), Procuremt of revenue items.
EVOLUTION AND GROWTH OF THE COMPANY

The Company's steady organizational growth over the years with consolidation and enlargement of its operational base by creating sophisticated facilities for manufacture of aircraft / helicopters, aero engines, accessories and avionics illustrated below. The Company has also achieved a foothold in export in more than 30 countries, having demonstrated its quality and price competitiveness. HAL has won several International & National Awards for achievements in R&D, Technology, Managerial Performance, Exports, Energy Conservation, Quality and Fulfillment of Social Responsibilities. HAL was conferred the coveted NAVARATNA status on 22nd June 2007.
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HAL was awarded the INTERNATIONAL GOLD MEDAL AWARD for Corporate Achievement in Quality and Efficiency at the International Summit (Global Rating Leaders 2003), London, UK by M/s Global Ratingand UK in conjunction with the International Information and Marketing Centre (IIMC).
HAL was presented the International - ARCH OF EUROPE Award in Gold Category in recognition for its commitment to Quality, Leadership, Technology and Innovation.
At the National level, HAL won the "GOLD TROPHY" for excellence in Public Sector Management, instituted by the Standing Conference of Public Enterprises (SCOPE).
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CHART SHOWING ORGANISATION GROWTH OF HAL
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CHAPTER-4
ANALYSIS AND INTERPRETATION
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ANALYSIS AND INTERPRETATION
INVENTORY MANAGEMENT
Following are the analysis and finding which have been arrived at after the detailed study of inventory management practices of the firm ratios and calculations which were used to evaluate the efficiency of inventory management. They are as follows
THE ANALYSIS OF THE DATA COLLECTED FROM THE HAL IS SHOWN AS FOLLOWS
AVERAGE STOCK OF RAW MATERIALS AND COMPONENTS
TABLE SHOWING THE AVERAGE STOCK OF RAW MATERIALS AND COMPONENTS FOR A PERIOD OF 20092012 TABLE NO 1
YEAR 2009-10 2010-11 2011-12 AVERAGE STOCK(IN LAKHS) 40529.87 37902.81 33182.05
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GRAPH SHOWING AVERAGE STOCK OF RAW MATERIALS
AVERAGE STOCK(RS IN LAKHS)

45000 40000 35000 Amt in lakhs 30000 25000 20000 15000 10000 5000 0 AVERAGE STOCK(RS IN LAKHS) 40529.87
37902.81 33182.05
2009-2010
2010-2011
Avg stock of raw materials
2011-2012
INTERPRETATION The average stock of raw materials for the year 2009-10 is 40529.87 and it decreased to 37902.81 in 2010-11. In the year 2011-12 it decreased to 33182.05, therefore the average stock of raw materials is not stable in the three consecutive years.
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AVERAGE WORK-IN-PROGRESS
FORMULA:
TABLE SHOWING THE AVERAGE WORK-IN-PROGRESS FOR A PERIOD OF 2009-2012 TABLE NO 2
YEAR
AVERAGE STOCK(RS IN LAKHS)
2009-10
207.36
2010-11
142.09
2011-12
240.73
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GRAPH SHOWING AVERAGE WORKING IN PROGRESS
AVERAGE WORKING IN PROGRESS(RS IN LAKHS)
100% 90% 80% Amt in lakhs 70% 60% 50% 40% 30% 20% 10% 0% 2009-2010 207.36 142.09 240.73 AVERAGE WORKING IN PROGRESS(RS IN LAKHS)
2010-2011
Avg W-I-P
2011-2012
INTERPRETATION The average work-in-progress declined year after year i.e. in the year 2009-2010 it is 207.36 and it decreased to 142.09 in the year 2010-2011. The ratio in the year 2011-2012 increased to 240.73.Since, from the above graph the average w-i-p is satisfactory.
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3 AVERAGE FINISHED GOODS INVENTORY
FORMULA:
TABLE SHOWING THE AVERAGE FINISHED GOODS INVENTORY FOR A PERIOD OF 2009-2012 TABLE NO 3
YEAR
AVERAGE STOCK (RS IN LAKHS)
2009-10
133555.60
2010-11
97833.37
2011-12
57250.26
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GRAPH SHOWING AVERAGE FINISHED GOODS INVENTORY
AVERAGE FINISHED GOODS

140000 120000 Amt in lakhs 133555.6
100000
80000
97833.37
60000
40000 20000 0 2009-2010
57250.26 AVERAGE FINISHED GOODS
AVERAGE FINISHED GOODS 2010-2011 Avg finished goods
2011-2012
INTERPRETATION The average finished goods is as follows i.e. in the year 2009-10 the ratio is 133555.6 and in the year 2010-11 the ratio decreased to 97833.37 and in the year 2011-12 the ratio is 57250.26,the above graph shows that the ratio is not constant in the relevant two years.
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INVENTORY TO TOTAL ASSET RATIO
This ratio indicates the portion of inventory consisting of the total assets a high percentage indicates funds being locked in inventory not being liquid assets thus reflect on the liquidity position of the firm.
FORMULA
TABLE SHOWING THE INVENTORY TO TOTAL ASSET RATIO FOR THE PERIOD OF 2009-2012 TABLE NO 4
YEAR INVENTORY(Rs in lakhs) Total Assets (Rs in lakhs) Ratio
2009-10 2010-11
129747.15 133555.60
-86578.83 -67328.07
-149.86 -198.36
2011-12
97833.37
-187566.79
-52.16
SOURCE: Annual reports of HAL ltd
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GRAPH SHOWING INVENTORY TO TOTAL ASSET RATIO
INVENTORY TO TOTAL ASSET RATIO

150000
100000 50000 Amt in lakhs 0 -50000 -100000 -150000 -200000 -187566.79 Inventory to total assests -86578.83 -149.86 2009-2010 -198.36 2010-2011 -67328.82 -52.16 Total Assets(Rs In lakhs) 2011-2012 Ratio 129747.15 133555.6 97833.37 Inventory(Rs In lakhs)
INTERPRETATION The inventory to total assets ratios has been declined year after year stated as follows i.e., in the 2009-10 its -149.86% to -198.36% in the year 2010-11 and again in the year 2011-12 its 52.16%.From the above graph we can understand that the inventory is not sufficient to meet the total assets ratio.
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ACID TEST RATIO
This ratio establishes relationship between quick or liquid assets and current liabilities. An asset is liquid is it can be converted into cash immediately or reasonable soon without a loss of value. In this context liquid asset means all current assets except inventory. This ratio indicated standard ratio= 1:1
TABLE SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 2009-2012 TABLE 5
Year Liquid asset(In lakhs) Current liabilities(In lakhs) 2009-10 2010-11 2011-12 18092.97 28402.97 132569.46 289495.65 229835.67 390841.73 0.06 0.12 0.34 Ratio
Source: Annual reports of HAL ltd FORMULA
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GRAPH SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 2009-12
ACID TEST RATIO

400000 350000 300000 Amt in lakhs 250000 200000 289495.65 229835.67 Liquid asset(In lakhs) 132569.46 Current liabilities(In lakhs) Ratio 390841.73
150000
100000 50000 0 2009-2010 2010-2011 Acid test ratio
18092.97
28402.97 0.06 0.12 0.34 2011-2012
INTERPRETATION The Acid test ratio in the year 2009-10 is 0.06 times which has increased to 0.12 times in the year 2010-11 but where as in the year 2011-12 the ratio has decreased by 0.34 times. Since, the company is quite satisfactory to meet its liquid requirements and also showing its possible results year after year in ratio to attest the necessary standards.
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CURRENT RATIO
The current ratio is calculated by dividing current assets current liabilities. Firms current assets consist of those resources which can be converted into each within a short period i.e., 12 months. Similarly a current liability consists of those items that fall due for payments within 12 months. The firms meet its entire payment obligation only from the currents. This ratio indicates the working capital position of the firm. Standard ratio= 2: 1
FORMULA
TABLE SHOWING THE CURRENT RATIO FOR THE PERIOD OF 2009-12 TABLE NO 6
YEAR 2009-10 2010-11 2011-12 Current assets 151648.57 126236.54 189819.72 Current liabilities Ratio 289495.65 229835.67 390841.73 0.52 0.55 0.48
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GRAPH SHOWING CURRENT RATIO FOR THE PERIOD OF 2009-12
CURRENT RATIO
400000 350000 300000 Amt in lakhs 250000 200000 151648.57 150000 100000 50000 0 0.52 2009-2010 0.55 0.48 2010-2011 2011-2012 126236.54 289495.65
390,842
229835.67 189819.72
Liquid asset Current liabilities Ratio
current ratio
INTERPRETATION The current ratio clearly depicts that in the year 2009-10 the ratio is 0.52 times which is less than the standard i.e. 2:1 and in the year 2010-11 the current ratio increased to 0.55 times and again the ratio declined to 0.48 times in 2011-12.Therefore,the company is not able to meet current ratio standard in relevant three years.
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CURRENT ASSETS TO SALES RATIO
This ratio shows the firms ability in generating sales from all financial resources committed to current assets and also helpful in understanding the firms efficiency in utilizing current assets, separately.
FORMULA
TABLE SHOWING THE CURRENT ASSETS RATIO TO SALES RATIO FOR THE PERIOD OF 2009-12 TABLE NO 7
Year Current asset Sales Ratio
2009-10
151648.57
73563.26
2.06
2010-11
126236.54
86886.06
1.45
2011-12
189819.72
111355.89
1.74
SOURCE: Annual reports of HAL ltd
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GRAPH SHOWING CURRENT ASSETS TO SALES RATIO
CURRENT ASSETS TO SALES RATIO
126236.54 2009-2010 189819.72 151648.57 189819.72
2010-2011
2011-2012
INTERPRETATION Current assets to sales ratio has been plotted as follows i.e., in the year 2009-10 the ratio has reduced from 2.06% to 1.45% in the year 2010-11 and again in the year 2011-12 the ratio reduced to 1.74%.
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PERCENTAGE OF AVERAGE INVENTORY TO CURRENT ASSETS

These indicates the position of inventory constituting current assets. This ratio is expressed as follows:
FORMULA
TABLE SHOWING THE AVERAGE INVENTORY TO CURRENT ASSETS FOR THE PERIOD OF 2009-12 TABLE NO 8
Year Average inventory 2009-10 131651.375 151648.57 86.81 Current Asset Ratio
2010-11
115694.485
126236.54
91.65
2011-12
77541.815
189819.72
40.85
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GRAPH SHOWING PERCENTAGE OF AVERAGE INVENTORY TO CURRENT ASSETS
AVG INVENTORY TO CURRENT ASSETS RATIO

189819.72 151648.57 131651.375 126236.54 115694.485 Average inventory 77541.815 86.81 91.65 Current assets Ratio 40.85 Ratio Current assets 2009-10 Average inventory
200000 180000 160000 140000 Amt in lakhs 120000 100000 80000 60000 40000 20000 0
2010-11
2011-12
Avg inventory to current assets ratio
INTERPRETATION The percentage of average inventory to current assets is fluctuating year after year i.e., in the year 2009-10 the ratio is 86.81% and which is increased to 91.65% in the year 2010-11.But where as in the year 2011-12 the ratio decreased to 40.85%.The above graph states that the average inventory constituting of current assets and ratio is quite satisfactory.
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PERCENTAGE OF AVERAGE WORK-IN-PROGRESS INVENTORY TO AVERAGE INVENTORY

This ratio indicates percentage of average working progress inventory to average inventory. This ratio is expressed as follows:
FORMULA
TABLE SHOWING PERCENTAGE OF AVERAGE WORK-INPROGRESS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12 TABLE NO 9
Year Average w-i-p Average inventory 2009-10 981.47 131651.375 0.74 Ratio
2010-11
174.68
115694.485
0.15
2011-12
191.41
77541.815
0.25
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GRAPH SHOWING PERCENTAGE OF AVERAGE WORK-INPROGRESS TO AVERAGE INVENTORY
AVG INVENTORY TO AVG W-I-P

140000 120000 100000 Amt in lakhs 80000 60000 40000 77541.815 Average w-i-p Average inventory Ratio 131651.375 115694.485
20000
981.47 0 2009-10 2010-11 Avg inventory to W-I-P 2011-12 0.74 174.68 0.15 191.41 0.25
INTERPRETATION The percentage of average work-in-progress to average inventory is as follows. In the year 09-10 the ratio is 0.74% and in the year 10-11 the ratio is 0.15 but, in the year 11-12 its 0.25.Since, the companys average inventory is sufficient enough to overcome the average w-i-p ratio and future demand.
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PERCENTAGE OF FINISHED GOODS TO AVERAGE INVENTORY
This ratio indicates percentage of finished goods to average inventory. This ratio is expressed as follows:
FORMULA
TABLE SHOWING THE RATIO OF FINISHED GOODS TO AVERAGE INVENTORY TABLE NO 10

Year Average finished goods inventory(Rs in lakhs) 2009-10 133555.60 131651.375 101.45 Average inventory Ratio
2010-11
97833.37
115694.485
84.56
2011-12
57250.26
77541.815
73.83
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GRAPH SHOWING PERCENTAGE OF FINISHED GOODS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
FINISHED GOODS TO AVG INVENTORY

131651.375 133555.6 115694.485 Average finished goods inventory(Rs in lakhs) Avereage inventory 77541.815 80000 60000 40000 101.45 20000 0 2009-10 2010-11 2011-12 84.56 73.83 Ratio Avereage inventory Average finished goods 57250.26 Ratio
140000
120000
100000 Amt in lakhs 97833.37
Finished goods to avg inventory
INTERPRETATION The percentage of finished goods to average inventory is decreasing gradually i.e., in the year 2009-10 the ratio is 101.45% ,in the year 10-11 its 84.56% and again the ratio declined to 73.83% in the year 11-12.Therefore,the average inventory is quite sustainable to give the desired outputs.
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INVENTORY TURNOVER RATIO
Relationship between sales to inventory over 5 years can be analyzed using inventory turnover ratio.
TABLE SHOWING COMPARISON OF SALES INVENTORY RELATIONSHIP TABLE NO 11

Year Annual sales Annual inventory Inventory turnover ratio
2009-10
73563.26
129747.15
0.56
2010-11
86886.06
133555.60
0.65
2011-12
111355.89
97833.37
1.39
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GRAPH SHOWING COMPARISON OF SALES TO INVENTORY RELATIONSHIP
Annual sales
86886.06 2009-10 111355.89 111355.89 2010-11 2011-12 73563.26
INTERPRETATION This relationship shows the efficiency of inventory management and also the adequacy of inventory turnover to be very less in the year 2009-10 & it has been increasing year by year after 2009 until the year 2012.Higher the turnover, higher the benefit for the company. But in case of this company, it has been satisfactory in the year 2009-12 with an average turnover of 1.39 times. This indicates an increased storage facility of inventory in the unit. It is found that the inventory turnover ratio low in the year 2009-10 & then after it had increased in the year 2011-2012.
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INVENTORY OF TOTAL CURRENT ASSET RATIO

The inventory to total current asset ratio shows the store of inventory in the total current asset requirement of the firm:
TABLE SHOWING INVENTORY OF CURRENT ASSET RATIO TABLE NO 12

Year Annual inventory Total current asset Inventory to current asset ratio (%) 2009-10 129747.15 151648.57 85.56
2010-11
133555.60
126236.54
105.80
2011-12
97833.37
189819.72
51.54
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12. GRAPH SHOWING INVENTORY OF TOTAL CURRENT ASSET RATIO
Annual inventory
97833.37 129747.15 2009-10 2010-11 2011-12
133555.6
INTERPRETATION Almost percentages of the current assets constitute the inventory of the company. This ratio shows the importance of controlling the inventory of the firm in day-to-day management because the increase in the inventory can increase pressure on the total current asset requirement of the company.
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COMPOSITION OF NUMBER OF DAYS OF INVENTORY HOLDING RATIO(DIH).
TABLE SHOWING DAYS OF INVENTORY HOLDING 3 YEARS.
TABLE NO 13
Rs.In Lakhs
Year
Inventory
Sales
Days of holding inventory ratio
2009-2010
129747.15
73563.26
643.77
2010-2011
133555.60
86886.06
561.05
2011-2012
97833.37
111355.89
320.68
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GRAPH SHOWING COMPOSITION OF NUMBER OF DAYS OF INVENTORY HOLDING
Inventory Holding
133555.6 97833.37 129747.15 97833.37
2009-10 2010-11 2011-12
INTERPRETATION The days of holding inventory were very high on 2009-10. It was more than one and half year, however it started decreasing, and it went down as low as 320.68 days in the year 20112012.Therefore, the above graph shows that the company is holding a less inventory in the next two years ,which is a good sign for the company.
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COMPARISON OF ANNUAL INVENTORY TO DEBTORS
Relationship between annual inventories to debtors over 5 years can be analyzed using inventory turnover ratio.
TABLE SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD TABLE NO 14
Year
Annual Inventory Debtors
Ratio
2009-2010
129747.15
9705.75
13.368
2010-2011
133555.60
7218.33
18.502
2011-2012
97833.37
6829.66
14.324
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GRAPH SHOWING ANNUAL INVENTORY TO DEBTORS
ANNUAL INVENTORY TO DEBTORS
140000 120000 100000 Amt in lakhs 80000 60000 40000 20000 0
129747.15
133555.6
97833.37 Annual Inventory Debtors Ratio
13.368 9705.75
18.502 7218.33
14.324 6829.66
Ratio
Debtors
2009-10 Annual Inventory 2010-11 2011-12 Annual inventory to debtors
INTERPRETATION The percentage of Annual inventory to the Debtors is showing the increase trend which is evident from the table that it is 13.368 % in 2009-10 and in the year of 2010-11 its 18.502%, and in the year 2011-12 it has decreased to 14.324% .
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EXPENSE RATIO
TABLE SHOWING DAYS OF OPERATING RATIO 3 YEARS TABLE NO 15
Year
Materials consumed
Net Sales
Expense Ratio
2009-2010
40529.87
73563.26
55.095
2010-2011
37902.81
86886.06
43.623
2011-2012
33182.05
111355.89
29.798
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GRAPH SHOWING EXPENSE RATIO
Expense Ratio
2011-2012 30%
2009-2010 36%
2010-2011 34%
INTERPRETATION The percentage of expense ratio is showing its increase trend in the year 2009-2010 36%, in the year 2010-2011 it has decreased to 34%, and in the year 2011-2012 it is 30% of decrease.
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CLOSING INVENTORY
COST OF SALES: NET SALES GROSS PROFIT
TABLE SHOWING CALCULATION OF CLOSING INVENTORY TABLE NO 16
Year
Cost of sales
Inventory
Closing stock
2009-2010
-72396.15
129747.15
-0.557
2010-2011
-72725.86
133555.60
-0.544
2011-2012
-95654.15
97833.37
-0.977
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GRAPH SHOWING CLOSING INVENTORY
CLOSING INVENTORY
150000 2009-2010, 129747.15 2010-2011, 133555.6
100000
2011-2012, 97833.37
Amt in lakhs
50000 2009-2010, -0.557 0 2009-2010 -50000 2009-2010, 72396.15 2010-2011, 72725.86 Closing inventory
2010-2011, -0.544 2010-2011
2011-2012, -0.977 2011-2012
-100000
2011-2012, 95654.15
INTERPRETATION The percentage of closing inventory is showing its decrease values in the relevant years 20092010(-0.557), 2010-2011(-0.544), 2011-2012 it was -0.977.Therefore, there is a huge necessity to a company to increase its stock values.
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GROWTH OF TOTAL INVENTORY
TABLE SHOWING GROWTH OF TOTAL INVENTORY TABLE NO 17
Year
Annual inventory
Growth
2009-10
129747.15
35.92%
2010-11
133555.60
36.98%
2011-12
97833.37
27.09%
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GRAPH SHOWING GROWTH OF TOTAL INVENTORY
GROWTH OF TOTAL INVENTORY

400000 TOTAL, 361136.12 350000 300000 Amt in lakhs 250000 200000 150000 100000 50000 0 2009-2010, 129747.15 2010-2011, 133555.6
2011-2012, 97833.37
2009-2010, 35.92% 2010-2011, 36.98%2011-2012, 27.09% 2009-2010 2010-2011 2011-2012
TOTAL, 100% TOTAL
Growth of total inventory
INTERPRETATION The percentage of Annual inventory to the total growth is showing the fluctuation trend which is evident from the table that it is 35.92% in 2009-10 and in the year of 2010-11 it was 36.98% and 27.09% in 2011-12.
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CHAPTER 5
FINDINGS
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FINDINGS
The company is concerned with most suitable engineering and industrial design. Primary data is collected by the company through observation method, direct communication with material managers, inventory manuals. Cost control and reduction elements are applied. Successful in numerous research and development program developed for both civil aviation section and defence. Unique achievements in the year 2002 HAL has played a significant role for Indias space programs. HAL supplies are mainly to Indian defence services, coast guards, boarder security forces. Average inventory to current assets is resulting the good stock in year 2010-11. Company has shown good output in producing average inventory. The company is using ABC, JIT along pull and push approaches, EOQ, TQC techniques are probably evaluated to get better results from operations. Specifications stipulated in ISO- 900. Rolling for design, development and manufacturing of 10 Ton class multi role-helicopter for the service. The project would be undertaken in collaboration with reputed company. HAL is collaborating with Russian partners for multi-role transport aircraft in 15-20 Ton capacity. The efficiency inventory management and also the adequate of turnover to be very less in the year 2009-10.It increased year after year till 2012. Days of holding inventory are high in 2009-10. More expenses are terminated in the year 2009-10. There is a growth of total inventory of the company in the year 2010-11.
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A STUDY ON INVENTORY MANAGEMENT SUGGESTIONS

The company can make an effort in improving the efficiency in total asset ratio. Price competitiveness can be achieved in exports in more than 50-60 countries. . The companys current ratio has to be efficient and effective to meet its desired standard ratio 2:1. The Aircraft is utilizing long term funds for short term purchase, this us to be avoided. The capacity utilizing in assembly should increase to maximize production. The Aircraft Division is enjoying liberal facilities from its suppliers. So it can continue to take the advantage of high creditors payment period. Norms should be laid in respect of wastages and must maintain their quality of products in future also. The company can use other technique for its yielding profits. Proper planning of internal and external fund is suggested. Necessary training should be given to staff, so that they are turned to it. HAL has a system of conducting performance appraisal annually. If company has quarterly review technique it can achieve better results. Company should follow strict rules and regulation to reduce the wastage and obsolescence of materials and fixed assets. The company should maintain limited mutual trust and transparency.
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CONCLUSION
HINDUSTAN AERONAUTICS LIMITED is a public sector unit, since its inception the division has been involved in the manufacturing of detailed parts, sub-assemblies, final assemblies and testing of different types of aircrafts. Along with making profit, the company is serving our country by providing Indian Air Force (IAF) required product and service.HAL is undertaking social responsibilities for countries development. We can say that there is an efficient inventory management in the organization to overcome the adverse conditions and to minimize its losses and protect the firm from facing the condition of the nil stocks. In tomorrows economy world will belong to those who are open to creative, imaginative and are flexible to changes, open minded, they have strength of taking risk and an innovative spirit. These entire characteristics can lead the company to a successful path. Based on this study, major findings are that from the overall finance point of view, this study indicates that in order to improve the overall performance of HAL the management must take all possible steps, review, modify various policies in relation with debtors, cash and current liabilities by using sound information management system that enable management to have a close control over the various operations. Though this study may be of academic in nature but it may serve a starting point for the managerial action plans towards enhancing not only the operational efficiency but also will prove a great help in understanding and determining appropriate strategic plans to bring various important financial ratios to the level of industry standards.
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CHAPTER 7 APPENDIX & ANNXURE
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A STUDY ON INVENTORY MANAGEMENT BIBLIOGRAPHY

REFFERED BOOKS:
Shashi k Gupta, Sharma R K and Neeti Gupta (2006),Financial Management- kalyani publishers, New Delhi. APPANIAH AND REDDY (2008),Management accounting, theory, problems and solutions-2nd edition, Himalaya publishing house, Mumbai. Kothari C R (1990),Research Methodology, methods and Techniques-2nd edition, Vishwas prakashan, New Delhi. WWW.HAL INDIA.COM
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A STUDY ON INVENTORY MANAGEMENT

DATA ANALYSIS AND INTERPRETATION

SUMMARY AND FINDINGS

SUGGESTIONS AND CONCLUSION

APPENDIX AND ANNEXURE

A STUDY ON INVENTORY MANAGEMENT

TABLE NO Table (1)

TABLE SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012

TABLE SHOWING THE CURRENT RATIO FOR THE PERIOD OF 2009-12

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

TABLE SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12

TABLE SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12

TABLE SHOWING CALCULATION OF CLOSING INVENTORY 2009-12

TABLE SHOWING GROWTH OF TOTAL INVENTORY 2009-12

A STUDY ON INVENTORY MANAGEMENT

GRAPH SHOWING THE AVERAGE STOCK OF RAW MATERIALS 200912

GRAPH SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

TABLE SHOWING DAYS OF INVENTORY HOLDING 3 YEARS 2009-12

GRAPH SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12

GRAPH SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12

GRAPH SHOWING CALCULATION OF CLOSING INVENTORY 2009-12

GRAPH SHOWING GROWTH OF TOTAL INVENTORY 2009-12

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

Finance is classified into two classes; Public finance Private finance

A STUDY ON INVENTORY MANAGEMENT

Meaning of financial management.

A STUDY ON INVENTORY MANAGEMENT

Importance of financial management.

Scope of financial management.

Functional Areas of financial management.

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

Objectives of Financial Management

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

Definition of financial statements

A STUDY ON INVENTORY MANAGEMENT

Limitations of Financial statements

A STUDY ON INVENTORY MANAGEMENT

Need for Financial Statement Analysis

A STUDY ON INVENTORY MANAGEMENT

It investigates the relationship of primary data

It involves various steps to analyze

It involves the composition of current assets and current liabilities

It helps in decision making

It helps the magnitude and also conclusion

It helps the divided shares and bares market price

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

Some of the Inventory classifications are given below:

FINISHED GOODS INVENTORY

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

WHY DO WE NEED INVENTORIES?

A STUDY ON INVENTORY MANAGEMENT

THEORETICAL BACKGROUND OF THE STUDY

A STUDY ON INVENTORY MANAGEMENT