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A STUDY ON THE INVENTORY
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CONTROL TECHNIQUE EMPLOYED BY E.I.D

PARRY

INTRODUCTION
The main objective inventory control is to achieve maximum
efficiency in production and sales with the minimum investment
inventory. Inventory comprises of stock of materials, components,
work in progress, and finished product and stores and spares.
Inventory management involves the control of assets being
produced for the purpose of sale of the normal course of the
company’s operations. Inventories include raw materials
inventory, work in process inventory and finished goods
inventory. The goal of effective inventory management is to
minimize the total costs (direct and indirect) that are associated
with holding inventories. The total ordering costs can be decrease
by increasing the size of order, the carrying costs increase with
the increase in order size indicating the need for a proper
balancing of these of costs behaving in opposite directions with
change in order size.

If a company wants to avert stock-out costs it may have to

maintain larger inventories of materials and finished goods which
will results in higher carrying costs. Here also proper balancing of

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the costs becomes important. a system for inventory
management involves three subsystems namely economic order
quantity, reorder point and stock level. The most important
objective or inventory control is to determine and maintain an
optimum level of investment in the inventory. Most companies
have now successfully installed one or the other system of
inventory planning and control. The inventory control models
range from very simple methods to highly sophisticated
mathematical inventory models

Company Profile

E.I.D. Parry is a diversified company. It has also been a pioneer in many

fields, including setting up of India's first chemical fertilizer plant (in Ennore),
sugar plant (in Pettavaithalai, Nellikuppam) and sanitaryware plant (in Ranipet).
Over the last few years, E.I.D. Parry has been sharpening its focus and narrowing
its business spread. It also exited the seeds business (now a JV with Monsanto),
tiles business (in Karaikal) and the electronics business. In this continuous process
of redesigning E.I.D.

The restructuring exercise has enabled the Company to have greater focus on
its Sugar, Parryware and Bio-Product businesses and will facilitate growth in
future. It will continue to benefit from the investment in the fertilizer business
(CFL having acquired 45% net in Godavari Fertilizer & Chemicals Ltd.) without
having to invest new capital. It has reduced debt and has simplified the corporate
financial structure.

E.I.D Parry also totally renovated its office complex consisting of three
adjacent buildings in the' eponymous Parrys Corner, a landmark in Chennai. This
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modern facility now houses all the major companies of the Murugappa Group and
provides a steady cash flow to the Company by way of rent. Sale of surplus assets
has also released cash. The turnover of the Company for the year ended 31st
March 2004 was Rs. 641 crore. The current year's results are therefore not
comparable with the previous year's.

E.I.D. Parry derives majority of its income from its sugar operations, viz.,
sugar, molasses, alcohol and co-generation of power. All the four sugar factories
of the Company are located in Tamil Nadu, viz., at Nellikuppam, Pugalur,
Pettavaittalai and Pudukottai with a combined cane crushing capacity of 14000
tonnes/day. The Nellikuppam unit, an integrated sugar complex, comprises of a
distillery unit (capacity 135 lakh lines), a 24.5 MW co-generation power plant and
an organic manure plant. The company's application for producing ethanol
(capacity 90 lakh litres) is awaiting regulatory clearances. The Company is setting
up a facility for producing high grade sugar.

At Pugalur, the Company is setting up a 22 MW co-generation power plant,

which will be partly funded by Tamil Nadu Newsprint Limited (TNPL). The power
plant is expected to be commissioned in the third quarter of next year.
The company has R & D facility in all its units with a central facility at Bangalore
engaged in breeding, entomology, soil testing, tricho production etc. The
company's tissue culture lab, with a capacity to produce 3 million plantlets,
provides disease-free seedlings to cane growers. The R& D wing also develops and
propagates the best agricultural practices to cane growers to maximise the per acre
yield.

• All 4 sugar factories are strategically located in Tamil Nadu

• Cane crushing capacity of almost 14000 TCD, one of the largest capacities
in the industry

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 • Nellikuppam integrated sugar complex; first of its kind in this part of the
country

• A dedicated R&D centre for the sugar division

• New varieties for improving cane yield

OBJECTIVE
1.To find out the inventory control
technique used in E.I.D PARRY.
2.To find out efficient are performance of
inventory control in E.I.D PARRY.

METHODOLOGY
➢ Collection of data inventory control
➢ Face to face interviews
➢ Analysis & interpretation
➢ Finding & suggestion

Collection of data:
Techniques of inventory control:

1. Setting of various stock level

2. Establishment of system of budgets
3. Use of perpetual inventory and continuous stock verification.
4. Economic order quantity.

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 5. Review of slow and non moving items.

Setting of various stock levels

Minimum level

In the level indicates the lowest figure of inventory

balance, witch must be maintained in hand at all times, so
that there is no stoppage of production due to non
availability of inventory.

Minimum level=ROL- average rate of

consumption×average re order period
Maximum level
It indicates the maximum figure of inventory held in
stock at any time.
Maximum level=Reorder level +Reorder quantity-
(minimum rate con.× Minimum reorder period.
Reordering level
=maximum usage per period × maximum reorder
period

Establishment of system of budgets

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 To control investment in the inventories it is necessary to know
in advance about the inventory requirement during a specific
period usually a year.

Use of perpetual inventory and continuous

stock verification

Bin cards

In the card maintain a quantitative record of receipts, issue

and closing balance each item of store. Separate bin card
maintain in each items.

Stores ledger

Is maintains to record all receipts and issue transactions in

respect of materials. It is filled up with the help of goods received
note and materials issue requisitions’.

Economic order quantity

Purchase deportment in manufacturing concerns is usually

faced with the problem of deciding the quantity of various items
which they should purchase. If the purchases of material are
made in bulk then inventory carrying cost will be high. On the
other hand if order size is small each time, then the ordering cost
will be high. In the order to minimize ordering and carrying costs
is necessary to determine the order quantity which minimizes
these two costs. The size of the order for which both ordering and
carrying cost are minimum is know is economic order quantity.

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MATREIAL COST

These are the costs of purchasing the goods including

transportations and handling costs.

ORDRING COST

Any manufacturing organization has to purchase materials.

In that event the ordering costs refer to the cost associated with
the preparation of purchase requisitions by the user deportment,
preparation of purchase order and follow up measure taken by
the purchase deportment, transportations of materials ordered
for, inspection and handling at the warehouse for storing.

CARRYING COST

These are the expenses of storing good. Once the goods

have been accepted, they become part of the firm inventories.
These cost include in insurance, rent, warehouse depreciation,
salaries of storekeeper only small portion of total carrying cost.

Review of slow and non moving items

Due to high value of slow moving and non moving raw
material, it appears that the concern has blocked huge sum of
money unnecessarily in raw materials. To overcome this problem,
it is necessary to dispose off early as possible, the non moving
items or make arrangement for their exchange with the
inventories required by the concern.

Face to face interview

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 I asked for the duration of techniques they are using. They
said that the above the techniques were installed at from to time
to time. They have been faced the lot of problems while installing
the system. But the difficulties were overcome by them using the
work of internal audit staff. The techniques are very benifitable to
them in all aspect as it reduces the cost of the inventory
considerably. The company has appointed the Internal Auditor for
verifying the stock physically on a yearly basis. The management
has insisted the stores department to verify the materials for
every quarter. The stock record has to be submitted to the
management for every review meeting. Reasons for any
deviations in the verification made should be explained by the
concerned person. The company has installed the Enterprise
Resource Planning (ERP) for accounting the stock movements. In
ERP the company is using the SAP package.

EID Parry (India) Ltd., requires various components for producing

the sugar. From that I have selected the following four
components for analysis of the control technique employed:

➢ Bearings,
➢ Shaft
➢ Nuts and bolts

The company Annual demand for bearing and shaft and nuts and
bolts 4000, 2500and 6000.ordering cost per order, Rs. 120, 100
and 130. Carrying cost per unit 10%, 20% and 8%.

Analysis & interpretation

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 Table: 1
orderi carryi
Carryi
Annual ng ng
S.n cost of ng
Component require cost cost EOQ
o per unit cost
ment per per
%
order unit

Bearings (In
1 Units) 300 4000 120 10 30 179

2 shaft(In units) 1000 2500 100 20 200 50

Nuts and bolts

3 (In Units) 200 6000 130 8 16 312

Chart: 1

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Calculation of EOQ:

EOQ = 2AF/C
Where:

A-annual demand

F-ordering cost per order

C-carrying cost (cost per unit *carrying cost %)

EOQ of Bearing:

A=4000, F=120, C=300*10/100

EOQ= 2AF/C

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 =2×4000×120÷30

=32000
=178 units

EOQ of shaft:

A=2500, F=100, C=1000*20/100

EOQ= 2AF/C

=2×2500×100÷200

=2500
=50 units

EOQ of Nuts and bolts:

A=6000, F=130, C=200*8/100

EOQ= 2AF/C

=2×6000×130÷16

=97500
=312 units

EOQ of Annual requirement of inventory control in

E.I.D parry

s.no Compound Annual

requirement

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 inventory
1 Nuts and bolts 312 units
2 shaft 50 units
3 Bearing 178 units

Setting of various stock levels

Details of lead time

Average 10 days maximum 15 days, minimum 6 days,

for emergency purchases 4 days.

Rate of consumption

Average 15 units per day, maximum 20 units per day

Calculations of stock level

Reordering level

=maximum usage per period × maximum reorder

period

= 20 × 15 = 300 units

Maximum level

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 = Reorder level +Reorder quantity-(minimum rate
con.×Minimum reorder period
= 300 units + 200 units – (10 unit per day × 6 day)
= 440 units

Minimum level

= Reorder level- average rate of consumption×average

re order period

= 300 units – (15 units per day × 10 days)

= 150 units.

Danger level

= average consumption × lead time for emergency

= 15 units per day × 4 days.
= 60 units.

Finding & suggestion

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 1. ERP system installed in the company is very useful for
controlling the inventory movements.
2. The staffs are well trained in using the system.
3. Inventory control techniques employed by the company
are very benifitable to the company.

Conclusion
The company may also employ some other techniques like
ABC analysis and Two Bin system etc., so as to improve the
efficiency of controlling the inventory.

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