A STUDY ON

INVENTORY MANAGEMENT
WITH SPECIAL REFERENCE TO
APOLLO TYRES (HYDERABAD)

ABSTRACT
Inventory is the most excessive assets of a manufacturing company like Nalco and also
the idle resource. There are various inventory control techniques such as Economic order
quantity, Reorder point, safety stock, ABC analysis, XYZ analysis, FSN analysis, HML analysis,
VED analysis, Just

in

Time inventory control, perpetual inventory control and many more.

Out of all these, there are some techniques which are applied for inventory control in Apollo
tyres.

Inventory is very vital to every Company is that without inventory no company would

survive. Inventory is meant for protection and for economy in cost. Keeping inventory of
sufficient stocks will help to face lead times component, demand and supply fluctuations and any
unforeseen circumstances in the procurement of materials. Though to have inventory is must,
inventory is such a thing that will pile up and creep into the area of profits to turn them as losses
and can put the company in red. It is therefore, necessary to have control over inventory to save
the company from piling up of inventories and to avoid losses. Better said than done is the world
that suits the inventory control.

CHAPTER-I
INRODUCTION

INTRODUCTION
Inventory management is primarily about specifying the size and placement of stocked
goods. Inventory management is recurred at different locations within a facility or within
multiple locations of a supply or network to protect the regular and planned course of production
against the random disturbance of running out of materials or goods. The scope of Inventory
management also concerns the fine lines between replenishment lead time, carrying costs of
inventory, asset management, Inventory forecasting, physical inventory, available physical space
for Inventory, quality management, returns and defective goods and demand and forecasting.

TYPES OF INVENTORY:Normally the inventory has divided into two types. These,
1.

Merchandising inventory,

2.

Manufacturing inventory.

The manufacturing inventory has been subdivided into three types. These,
1.

Raw materials,

2.

Work in process,

3.

Finished goods.

Raw materials: Everything the crafter buys to make the product is classified as raw
materials. That includes leather, dyes, snaps and grommets. The raw material inventory

only includes items that have not yet been put into the production process.
Work in process: This includes all the leather raw materials that are in various stages of
development. For the leather crafting business, it would include leather pieces cut and in
the process of being sewn together and the leather belts and purse etc. that are partially
constructed.

In addition to the raw materials, the work in process inventory includes the cost of the
labor directly doing the work and manufacturing overhead. Manufacturing overhead is a
catchall phrase for any other expenses the leather crafting business has that indirectly
relate to making the products. A good example is depreciation of leather making fixed
assets.

Finished goods: When the leather items are completely ready to sell at craft shows or
other venues, they are finished goods. The finished goods inventory also consists of the
cost of raw materials, labor and manufacturing overhead, now for the entire product.

1.1 TITLE OVERVIEW

The purpose of inventory management is to ensure availability of raw material in
sufficient qualities as and when required and also minimize investment in inventories. There is
an essential to manage inventories efficiently and effectively in order to avoid excess investment.
It is possible for a company to reduce the level of inventories to a considerable extent without
any adverse effect on production and sales by using simple inventory planning and control
techniques. The reduction of excessive inventories will create a favorable impact on the company
profitability. Inventory turnover ratio, inventory conversion period are very helpful to know how
effectively plays and control in the organization analysis will enables the organization to use of
analysis is very effective and useful tool for classifying, monitoring and control of inventories.
DEFINITATIONS
Inventory control can be defined as Determining and maintaining optimum investment in
inventory given the significance of benefits and cost association with holding inventory .
Inventory Control relates to a set of policies and procedure by which an industries
determines which materials it will hold in stock and the quality of each that it will
carry in stock Therefore inventory control is otherwise known as STOCK CONTROL.
Inventories constitutes second largest category of all manufacturing operation exceeded
only by plant and equipment and followed by receivables. The objectives of inventory
control are:

a) To keep required stock of materials so that production and maintenance actitives do not suffer.
b) Minimum blockage of funds in inventory. Optimization can be achieved and efforts need to be
made to improve input

output ratio of materials by scientific methods of determining.

TYPES OF INVENTORIES
Depending upon the types of business, generally the Inventories Varies. But in a
manufacturing industry the inventory can be classified into four broad categories:
1.

Production Inventory: It contains materials purchased from market like raw

materials; Ready made parts, component, spares and also special parts and
components manufactured in their own industry and kept in stock for self
consumption for use in manufacture.

2.

Maintenance, Repair & Operating Inventory: Contains materials purchased

from vendors to maintain the production process and these maintenance,
repair and operating inventory do not form part of the finished products.

3.

Work in progress Inventory: This contains manufactured good kept in

stores, warehouse or retail outlets, Stock Yard for sales to consumers.

To put this into a diagram, the Constituent of Inventory is as follows:

FACTORS INFLUENCING INVENTORY

How much to buy at onetime and When to buy this quality . These are two
fundamental things on which inventory control depends. Many factors govern these
fundamental things. The prime factors that govern these two fundamental things are:
1.

Requirements

2.

Quality in stock or on order

3.

Lead time

4.

Obsolesce.

CONTROL, MAINTENANCE AND MANAGEMENT

The essence of inventory control, broadly speaking consists of revolving the following
three factors:
1.

Necessity for stocking an items

2.

Time for reordering the items

3.

Quality per order to be order.

Continuous and periodical review is required in the evaluation of inventory management

and treats it as a continuous process as costs, source of supply, availability of materials;
consumption will vary in the course of time making the previous assessment invalid.
This process also helps in standardization of materials for procurement by using near
equivalents and eliminating material, which are discontinued as a regulation, which will
remove obsolescence.

2.2.INVENTORY CONTROL TECHNIQUES

Inventory is being maintained as a cushion in supply of materials for continuous
production without causing stock out situation. This cushion should not be suicidal to
any organization. The following scientific techniques and methods are being used in
control of inventory.
1.

Inventory Management Techniques

2.

Standardization

3.

Selective Inventory Control

4.

Just In Time

5.

Perpetual inventory system

6.

Inventory turnover ratio

2.1.7.1 INVENTORY MANAGEMENT TECHNIQUES

1.

Economic Order Quantity

If the firm is buying raw materials, it has to decide lots in which it has to be
purchased on replenishment. If the firm is planning a production run, the issue is
how much production to schedule. These problems are called order quantity problems,
and the task of the firm is to determine the optimum or economic order quantity.
(a)

Ordering cost:
The term ordering cost is used in case of raw materials and includes
the entire costs of acquiring raw materials.

(b)

Carrying cost:
Cost incurred for maintaining a given level of inventory is called
carrying cost.

Economic Order Quantity is given by the formula:

EOQ =

And the total cost of inventory is given by the formula:

Total cost of inventory = (AP) + (AO) + (EOQC)
EOQ
2

Where A = Annual consumption (in units)

O = Ordering cost per order (in Rs)
C = Carrying cost per unit (in Rs)
P = Price per unit (in Rs)
2.

Reorder Point
The reorder point is that inventory level at which an order should be placed to
replenish the inventory. To determine reorder point:
(a)

Lead time is the time normally taken in replenishing inventory after the
order has been placed.

(b)

Average usage

10

(c)

3.

Economic order quantity

Safety stock
The demand for material may fluctuate from day to day. The actual delivery time
may be different from the normal lead time. If the actual usage increases or the
delivery of inventory is delayed the firm can face problem of stock out, which can
be costly. So, in order to guard against the stock out the firm may maintain a safety
stock.

2.1.7.2 STANDARDIZATION
Standardization is very essential to control the inventory, as by standardization
reduction in variety of material is possible. And because of the reduction in variety the
advantages are low order cost, low inventory, less storage stocks, conservation of
materials, variety reduction, less paper work, easy follow up with suppliers, less number
of orders.
The importance of this field has been recognized since the days of F.W. Taylor,
who first drew attention to this fundamental need in any organization. Just as work
study is necessary preliminary to work simplification, and a basic technique for
production control, quality control, materials handling, estimated cost control, etc.,
Standardization are preliminary necessity to design a basic technique on build control
and standardization procedure.

11

2.1.7.3 SELECTIVE INVENTORY CONTROL MANAGEMENT

Any manufacturing organization consumes few thousand items of stores. A high
degree of control on inventories of each item would, therefore neither be practical
considering the work involved, nor worthwhile since all items are not of equal
importance. Hence, it is desirable to classify or group items to control, commensurate
with importance. This is the principle of selective control as applied to inventories and
the technique of grouping is termed as selective technique.
Selective inventory means variation in the methods of inventory control from
items to item and this differentiation should be on selective basis by classification. A
company has to stock thousands of items of raw materials, standard parts, stores and
spares, sub contract items, tools, stationery etc. To have better control over the inventory/
stock on hand, selective inventory control technique should be used in isolation/ or in
conjunction.
Thus selective control means selecting the area of control so that required objective is
achieved as early as possible without any lost of time due to taking care of full area

Minimum lost of energy and efforts.

At minimum cost without loss of time.

There are following selective control techniques:

*

ABC Analysis

FSN Analysis
12

XYZ Analysis

VED Analysis

HML Analysis

a) ABC ANALYSIS
ABC analysis is a selective control technique which is required to be applied when we
want to control value of consumption of the item in rupees obviously when we want to
control value of the consumption of the material we must select those materials where
consumption is very high.
In any company manufacturing, there are number of items which are consumed or traded
it may run into thousands. It is found after number of studies for different companies
that
Value of consumption of No. Of items

Grade

items (value in Rs).

70% of consumption
20% of consumption
10% of consumption

A
B
C

10% of no. Of items

15% of no. Of items
75% of no. Of items

A items these are those items which are found hardly 5% 10% but their consumption
may amount 70% 75% of the total money spend on materials.
B items these are those items which are generally 10% 15% of he total items and their
consumption amounts to 10% 15% of the money spend on the materials.

13

C items these are large number of items which are cheap and inexpensive and hence
insignificant. They are large in number s running into hardly 5%

10% of the total

money spends on materials.

'A' Class Items
(High consumption value)

B Class Items
(Moderate consumption
value)

'C Class Items

(Low consumption value)

1. Very strict control

1. Moderate control

1. Loose control.

2. No safety stocks or very

Low safety stocks.

2. Low safety stocks.

2. High safety stocks

3. Maximum follow
Expediting

3. Periodic follow

3. Follow up and expediting

in exceptional cases

up and

up

4. Rigorous value analysis

4. Moderate value analysis

4. Minimum value analysis

5. Must be handled by senior

officers

5. Can be handled by
management

5. Can be fully delegated

b) FSN ANALYSIS
This type of analysis is more concerned from the point of view of movement of the
item or issue of the item or issue of the item under this type of analysis.
F items are those items, which are fast moving i.e. in a given period of
time, say a month or a year they have been issued up till number of items. Although
fast moving does not necessarily mean that these items are consumed in large quantities.
S items are those items which are slow moving in the sense that in the
given period of time they have been issued in a very limited number of time
14

N non moving items are those, which are not at all issued for a considerable
period of time.
Thus, stores department whose concerned with the moving of items would like to
know and classify that the items are storing in the categories FSN. So that they can
manage operate and plan stores activity accordingly.
For example, for efficient operations it would be necessary that fast moving items as
far as possible should be stored as near as possible to the point of issue. So that it can
be issued with minimum of handling. Also such items must be stored at the floor level
avoiding storing them at high heights.
Similarly, if the items are slow moving or issued once in a while in a given
period of time they can be stored in the interior of the stores and even at the higher
heights because handling of these items becomes very rare.
Further it is necessary for stores in charge to know about non moving items for
various reasons:
1. They mean unnecessary blockage of money and affecting the rate of returns of
the company.
2. Further they also occupy valuable space in the stores without any usefulness and
therefore it becomes necessary to identify these items and go into details and find
reasons for their non moving and if justified to recommend to top management
for their speedy disposal so that company operations are performed efficiently.

15

Also inventory control to some extent can also be exercised on the basis of FSN
analysis.
For example, fast moving items can be controlled more severely, particularly when their
value is also high. Similarly, slow moving items may not be controlled and reviewed
very frequently since their consumption may not be frequent and their value may not be
high.
c) XYZ Analysis
This type of analysis is carried out from the point of view of value of balance stocks
lying in the stores from time to time and classifies all the items as given below.
X items are those items whose value of balance stocks lying in the stock are very
high.
Y items are those items whose value of balance stock is moderate.
Z items are those items whose value of balance stock lying in the stocks is very low.
After knowing this type of classifications and their items can be taken to control the
situation as shown below:
1] From security point of view high value items must be stored and kept under lock
and key or if not possible they should be kept in such a way that they are always
under supervision. Similarly arrangement can be made for y and z items accordingly.

16

2] From inventory control point of view we must know why there is high inventory for
X items. We should review inventory control procedure for each and every high item
because stock should be maintained to take care of lead time consumption and also to
provide safety stocks. For high value items lying in stores we should review the reasons
for long lead time as well as demand variations and see whether lead time consumption
and safety stocks can be reduced. Thus proper inventory control procedures can be
developed on the basis of XYZ analysis.
Thus proper selective control methods should be selected to control the materials and
prevent from facing loss, taking advantage and knowing what exactly is to be done.
D) VED ANALYSIS
VED analysis is carried out to control situation, which are critical. When applied to
material in VED analysis we try to identify material according to their criticality to the
production, which means the material, without which the production will come to stop
and so on from this point of view material classified into three categories.
V vital,
E essential,
D desirable.
Vital categories of the items are those items for the want of which the production will
come to stop. For e.g. Power in the factory.
Essential group of items are those items because of non availability of which the stock
out cost is very high.
17

Desirable group of items are those items because of non availability of which there is
no immediate loss of production and stock cost is very less and it may cause minor
disruption in the production for a short time.
E) HML ANALYSIS
This analysis, analysis the material according to their prices and then classifies them as
H items or M items or L items.
H stands for high price,
L stands for low price and
M stands for medium price.
Since price is more concerned of purchase department mostly purchase department
people analyses the material according to HML analysis.
HML analysis must be carried out from any one of the following objectives or some of
the objective as the case may be.

When it is desire that purchasing responsibility should be delegated to right level

of people.
When it is desired to evolve purchasing policies then also HML analysis is
carried out i.e. whether to purchase in exact quantities as required or to purchase

in EOQ or purchase only when absolutely necessary.

When the objective is to keep control over consumption at the department level
then authorization to draw materials from the stores will be given to high level H
item, low level for L items and medium level for M item.
18

When it is desired to decide frequency of stock taking then very frequently H

category, very rarely L category and averagely M category.

When it is desired to arrange security arrangements for the items, then H item
under lock and key, L items keep open on the shop floor and under supervision
for M items

19

2.1.7.3 JUST IN TIME INVENTORY SYSTEM

Keeping in view the enormous carrying cost of inventory in the stores and go downs,
manufacturers and merchandisers are asking for more frequent deliveries with shorter
purchase order lead times from their suppliers. Now days organizations are becoming
more and more interested in getting potential gains from making smaller and more
frequent purchase orders. In other words, they are becoming interested in just in time
purchasing system. Just in time purchasing (JIT) purchasing is the purchase of material
or goods in such a way that delivery of purchased items is assured before their use or
demand.
Just in time purchasing recognizes too much carrying costs associated with holding high
inventory levels. Therefore, it advocates developing good relations with suppliers and
making timely purchases from proven suppliers who can make ready delivery of goods
available as and when need arises. EOQ model assumes a constant order quantity
whereas JIT purchasing policy advocates a different quantity for each order if demand
fluctuates. EOQ lays emphasis on ordering and carrying costs but inventory management
extends beyond carrying and ordering costs to include purchase costs quality costs and
stock out. Just in time purchasing takes into consideration all these costs and move
outside the assumptions of the EOQ model.
Advantages of JIT purchasing

20

1. Investment in inventory is reduced because more frequent purchase orders of small

quantities are made.
2. Carrying cost is reduced as a result of low investment in inventory.
3. A reduction in the number of suppliers to be dealt with is possible. Only proven
suppliers who can give quick delivery of quality goods are given purchase orders . As a
result of this reduction in negotiation time is possible. The use of longrun contracts
with some suppliers with minimal paper work involved is possible.
4. Quality costs such as inspection cost of incoming materials or goods , scraps and
rework costs are reduced because JIT purchasing assures quick and frequent delivers of
small size orders which results in low level of inventories causing minimum possible
wastage. Therefore, JIT purchasing is frequently applied by organizations dealing in
perishable goods.

2.1.7.4 PERPETUAL INVENTORY SYSTEM

The Chartered Institute of Management Accountants, London, defines the perpetual
inventory as a system of records maintained by the controlling department, which
reflects the physical movements of stocks and their current balance. Bind cards and the
stores ledger help the movements of the stock on the receipts and in maintaining this
system as they make a record of to physical movements of the stocks on the receipts
and issues of the materials and also reflect the balance in the stores. Thus, it is a

21

system of ascertaining balance after every receipt and issue of materials through stock
record to facilitate regular checking and to avoid closing down the firm for stocktaking.
To ensure the accuracy of perpetual inventory records (i.e. Bin card and stores ledger),
physical verification of the stores is made by bin cards or stores ledger may differ from
the actual balance of stock as ascertained by physical verification. It may be done to the
following avoidable and unavoidable causes.

22

OBJECTIVES OF THE STUDY

To study the manufacturing of Apollo tyres in Hyderabad 2015.

To analyze the inventory those are sufficient to perform production and sales
activities smoothly.

To study the inventory management followed in apllo tyres in Hyderabad

To identify the existing inventory management and its effectiveness.

To calculate analysis for their performance in inventory management.

23

SCOPE OF THE STUDY

The study helps the management to improve its profitability through a reduction in non- moving
inventory.
It develops the policies for both continuous review of inventory management system.
The study helps to show the level of the inventory in the organization. The company will make
the proper inventory methods from the suggestions of the study.

24

NEED &IMPORTANT OF THE STUDY

There are a number of problems that can cause havoc with inventory management. Some
happen more frequently than others. Here are some of the more common problems with
inventory systems.
Unqualified employees in charge of inventory, Using a measure of performance for their
business that is too narrow, Not identifying shortages ahead of time, Bottlenecks and weak points
can interfere with on-time product delivery, Too much distressed stock in inventory, Excessive
inventory in stock and unable to move it quickly enough, Computer assessment of inventory
items for sale is inaccurate, Computer inventory systems are too complicated, Items in-stock gets
misplaced, Not keeping up with the rising price of raw materials.

25

RESEARCH METHODOLOGY
Research Design
The Descriptive type of research has been applied in the study. This research the
researcher has no control over the variables. Only reports what has happened or what is
happening. The research can only discover causes but cannot control the variables.

Data collection
This study purely based on secondary sources of information. The necessary data
calculated from annual report, books, journals and websites.

Period of study
This study covers a period of five years from 2011-2015 MAR

Area of study
This study was conducted in APOLLO TYRES Hyderabad

Tools for analysis

The following tools have been applied in the present study.
They are listed below

Ratio analysis (inventory)

26

LIMITATION OF STUDY
It consumes more time and requires lots of expenditure. More time is needed to do
This study.
Study is based on secondary data only.
The quality of inventory is not compared in analysis.
The analysis is based on figures present in the internal records only.
The study is based on two year reports given by marketing and finance
Department that has its own limitation.
Working environment didnt permit more involved way of collecting data.

27

INDUSTRY OVERVIEW
TYRES INDUSTRY IN INDIA
Technology generation in the Indian tyre industry has witnessed a fair amount of
expertise and versatility to absorb, adapt and modify international technology to suit Indian
conditions. This is reflected in the swift technology progression from cotton (reinforcement)
carcass to high-performance radial tyres in a span of four decades. Globalization has led to
the linking of the economies of all the nations and therefore major Indian players in the tyre
industry are pursuing global strategies to enhance their competitiveness in world markets.
The present section broadly undertakes an overview of the Indian tyre industry through an
examination of its growth trends with respect to production, exports and acquisition of
technological capabilities.
Key Features
At present there are 40 listed companies in the tyre sector in India.
Major players are MRF, JK Tyres, and Apollo Tyres & CEAT, which account for 63 per cent
of the organized tyre market. The other key players include Modi Rubber, Kesoram
Industriesand Goodyear India, with 11 per cent, 7 per cent and 6 per cent share
respectively. Dunlop,Falcon,

Tyre

Corporation

of

India

Limited

(TCIL), TVS-

Srichakra, Metro Tyres and Balkrishna Tyres are some of the other significant players in the
industry.
While the tyre industry is largely dominated by the organized sector, the unorganized sector
is predominant with respect to bicycle tyres.
The industry is a major consumer of the domestic rubber market. Natural rubber constitutes
80% while synthetic rubber constitutes only 20% of the material content in Indian tyres.
Interestingly, world-wide, the proportion of natural to synthetic rubber in tyres is 30:70
The sector is raw-material intensive, with raw material accounting for 70% of the total costs
of production
28

Total production figures in tonnage: 11.35 lakh MT & total production of tyres in all
categories: 811 lakh (2007-08)
Current level of radialization includes 95% for all passenger car tyres, 12% for light
commercial vehicles and 3% for heavy vehicles (truck and bus)
Restrictions were placed on import of used /retreaded tyres since April 2006
Import of new tyres & tubes is freely allowed, except for radial tyres in the truck/bus
segment which has been placed in the restricted list since November 2008
Total value of tyre exports form India is approximately Rs 3000 crore
The major factors affecting the demand for tyres include the level of industrial activity,
availability and cost of credit, transportation volumes and network of roads, execution of
vehicle loading rules, radialization, retreading and exports.
Evolutionary Phases of Tyre manufacturing in India
Table 1: Evolutionary phases of the Tyre industry in India

29

COMPANY OVERVIEW
Apollo Tyres Ltd is a high-performance company and the leading India tyre
manufacturer. Head quartered in Gurgaon, a corporate-hub in the National Capital Region of
India, Apollo is a young, ambitious and dynamic organisation, which takes pride in its
unique identity. Registered as a company in 1976, Apollo is built around the core principles
of creating stakeholder value through reliability in its products and dependability in its
relationships. Apollos present strength and market dynamism steps from its early years of
strife in establishing itself as a tyre manufacturer within the closed Indian economy. Over
two decades, Apollo worked on a portfolio of products, tuned to customer needs and an
array of innovative marketing initiatives to establish itself as a leader in its home market.
Some of these include segmenting customers by their load and mileage requirements,
running tyre loyalty programmes, establishing customer contact programmes which resulted
in better health and driving habits, introducing Indias first farm radials and Indias first
range of high-speed tubeless passenger car tyres. For the first time, in 2006 Apollo ventured
outside India in its quest to test itself outside its home comforts. Apollo acquired Dunlop
Tyres International Pty Ltd in South Africa (since renamed as Apollo Tyres South Africa Pty
Ltd) and Zimbabwe, taking on southern Africa as the second domestic market. The company
holds brand rights for the Dunlop brand across 30 African countries.
In 2009, Apollo acquired Vredestein Banden B V in the Netherlands, and thereby
adding Europe as its third crucial market. The company currently produces the entire range
of automotive tyres for ultra and high speed passenger cars, truck and bus, farm, Off-TheRoad, industrial and specialty applications like mining, retreaded tyres and retreading
material. These are produced across Apollos eight manufacturing locations in India,
Netherlands and Southern Africa. A ninth facility is currently under construction in southern
India, and is expected to commence production towards the end of 2009. The major brands
produced across these locations are: Apollo, Dunlop, Kaizen, Maloya, Regal and Vredestein.
In the three domestic markets of India, Southern Africa and Europe, Apollo operates through
a network of branded, exclusive or multi-product outlets. In South Africa the branded outlets
are called Dunlop Zones, while in India they are variously named Apollo Tyre World (for
commercial vehicles) and Apollo Radial World (for passenger cars). Exports out of these
30

three key manufacturing locations reach over 70 destinations across the world, with key
comprising Europe, Africa, the Middle East and South-East Asia. For Apollo Tyres, offering
the right product to the right customer is essential. Special efforts are made to understand
customer needs and segment the market accordingly. After which, products are developed
for niche applications within a larger category to enable the company to provide efficient,
fuel and cost-saving products to each customer segment. Innovation has always been an
integral part of the Apollo way of doing business, this applies as much to product
development and marketing as to how the company as a whole is focused on challenging
existing boundaries. An integral part of the Apollo Tyres world is its community
involvement and giving programmes directly related to its business. In India, the focus has
always been on finding ways to ensure a direct benefits to customer groups. For the
commercial vehicle community the company runs extensive HIV-AIDS awareness and
prevention programmes and has established Health Care Clinics across the country to cater
to the communitys health needs. For passenger car customers the focus is on cultivating
Safe Driving habits. Across its manufacturing locations, the key initiatives revolve around
health and education programmes. Apollo is one of the largest corporate investors in
developing sporting talent through its Mission 2018, which is focused on nurturing and
training youngsters in the sport of tennis to enable an Indian to win a Singles Grand Slan
Championship by the year 2018.

31

REVIEW OF LITERATURE
INVENTORY MANAGEMENT
Inventory management is primarily about specifying the shape and percentage of stocked goods.
It is required at different locations within a facility or within many locations of a supply network
to precede the regular and planned course of production and stock of materials.
The scope of inventory management concerns the fine lines between replenishment lead time,
carrying costs of inventory, asset management, inventory forecasting, inventory valuation,
inventory visibility, future inventory price forecasting, physical inventory, available physical
space for inventory, quality management, replenishment, returns and defective goods, and
demand forecasting. Balancing these competing requirements leads to optimal inventory levels,
which is an on-going process as the business needs shift and react to the wider environment.
Inventory management involves a retailer seeking to acquire and maintain a proper merchandise
assortment while ordering, shipping, handling, and related costs are kept in check. It also
involves systems and processes that identify inventory requirements, set targets, provide
replenishment techniques, report actual and projected inventory status and handle all functions
related to the tracking and management of material. This would include the monitoring of
material moved into and out of stockroom locations and the reconciling of the inventory
balances. It also may include ABC analysis, lot tracking, cycle counting support, etc.
Management of the inventories, with the primary objective of determining/controlling stock
levels within the physical distribution system, functions to balance the need for product
availability against the need for minimizing stock holding and handling costs.
Inventory management is primarily about specifying the size and placement of stocked goods.
Inventory management is required at different locations within a facility or within multiple
locations of a supply network to protect the regular and planned course of production against the
random disturbance of running out of materials or goods. The scope of inventory management
also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset
management, inventory forecasting, inventory valuation, inventory visibility, future inventory
price forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand forecasting.
Or can be defined as the stock of any item used in an organization.
32

Business inventory
The reasons for keeping stock
There are three basic reasons for keeping an inventory:
Time - The time lags present in the supply chain, from supplier to user at every stage, requires
that you maintain certain amounts of inventory to use in this lead time. However, in practice,
inventory is to be maintained for consumption during 'variations in lead time'. Lead time itself
can be addressed by ordering that many days in advance.
Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and
movements of goods.
Economies of scale - Ideal condition of "one unit at a time at a place where a user needs it, when
he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement
and storing brings in economies of scale, thus inventory.

All these stock reasons can apply to any owner or product

Special terms used in dealing with inventory
Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled
into the purchasable item. Therefore, any change in the packaging or product is a new SKU. This
level of detailed specification assists in managing inventory.
Stock out means running out of the inventory of an SKU.
"New old stock" (sometimes abbreviated NOS) is a term used in business to refer to merchandise
being offered for sale that was manufactured long ago but that has never been used. Such
merchandise may not be produced anymore, and the new old stock may represent the only
market source of a particular item at the present time.
Typology
Buffer/safety stock
Cycle stock (Used in batch processes, it is the available inventory, excluding buffer stock)
De-coupling (Buffer stock held between the machines in a single process which serves as a
buffer for the next one allowing smooth flow of work instead of waiting the previous or next
machine in the same process)

33

Anticipation stock (Building up extra stock for periods of increased demand - e.g. ice cream for
summer)
Pipeline stock (Goods still in transit or in the process of distribution - have left the factory but
not arrived at the customer yet)
[edit]Inventory examples
While accountants often discuss inventory in terms of goods for sale, organizations manufacturers, service-providers and not-for-profits - also have inventories (fixtures, furniture,
supplies, etc.) that they do not intend to sell. Manufacturers', distributors', and wholesalers'
inventory tends to cluster in warehouses. Retailers' inventory may exist in a warehouse or in a
shop or store accessible to customers. Inventories not intended for sale to customers or to clients
may be held in any premises an organization uses. Stock ties up cash and, if uncontrolled, it will
be impossible to know the actual level of stocks and therefore impossible to control them.
While the reasons for holding stock were covered earlier, most manufacturing organizations
usually divide their "goods for sale" inventory into:
Raw materials - materials and components scheduled for use in making a product.
Work in process, WIP - materials and components that have began their transformation to
finished goods.
Finished goods - goods ready for sale to customers.
Goods for resale - returned goods that are salable.
Manufacturing:
A canned food manufacturer's materials inventory includes the ingredients to form the foods to
be canned, empty cans and their lids (or coils of electric goods or aluminum for constructing
those components), labels, and anything else (solder, glue, etc.) that will form part of a finished
can. The firm's work in process includes those materials from the time of release to the work
floor until they become complete and ready for sale to wholesale or retail customers. This may
be vats of prepared food, filled cans not yet labeled or sub-assemblies of food components. It
may also include finished cans that are not yet packaged into cartons or pallets. Its finished good
inventory consists of all the filled and labeled cans of food in its warehouse that it has
manufactured and wishes to sell to food distributors (wholesalers), to grocery stores (retailers),
and even perhaps to consumers through arrangements like factory stores and outlet centers.

Principle of inventory proportionality

34

Purpose
Inventory proportionality is the goal of demand-driven inventory management. The primary
optimal outcome is to have the same number of days' (or hours', etc.) worth of inventory on hand
across all products so that the time of runout of all products would be simultaneous. In such a
case, there is no "excess inventory," that is, inventory that would be left over of another product
when the first product runs out. Excess inventory is sub-optimal because the money spent to
obtain it could have been utilized better elsewhere, i.e. to the product that just ran out.
The secondary goal of inventory proportionality is inventory minimization. By integrating
accurate demand forecasting with inventory management, rather than to past averages, a much
more accurate and optimal outcome.
Integrating demand forecasting into inventory management in this way also allows for the
prediction of the "can fit" point when inventory storage is limited on a per-product basis.
Applications
The technique of inventory proportionality is most appropriate for inventories that remain unseen
by the consumer, as opposed to "keep full" systems where a retail consumer would like to see
full shelves of the product they are buying so as not to think they are buying something old,
unwanted or stale; and differentiated from the "trigger point" systems where product is reordered
when it hits a certain level; inventory proportionality is used effectively by just-in-time
manufacturing processes and retail applications where the product is hidden from view.
One early example of inventory proportionality used in a retail application in the United States
was for motor fuel. Motor fuel (e.g. gasoline) is generally stored in underground storage tanks.
The motorists do not know whether they are buying gasoline off the top or bottom of the tank,
nor need they care. Additionally, these storage tanks have a maximum capacity and cannot be
overfilled. Finally, the product is expensive. Inventory proportionality is used to balance the
inventories of the different grades of motor fuel, each stored in dedicated tanks, in proportion to
the sales of each grade. Excess inventory is not seen or valued by the consumer, so it is simply
cash sunk (literally) into the ground. Inventory proportionality minimizes the amount of excess
inventory carried in underground storage tanks. This application for motor fuel was first
developed and implemented by Petrol soft Corporation in 1990 for Chevron Products Company.
Most major oil companies use such systems today
Roots
35

The use of inventory proportionality in the United States is thought to have been inspired by
Japanese just-in-time parts inventory management made famous by Toyota Motors in the
1980s.High-level inventory management
It seems that around 1880[4] there was a change in manufacturing practice from companies with
relatively homogeneous lines of products to horizontally integrated companies with
unprecedented diversity in processes and products. Those companies (especially in
metalworking) attempted to achieve success through economies of scope - the gains of jointly
producing two or more products in one facility. The managers now needed information on the
effect of product-mix decisions on overall profits and therefore needed accurate product-cost
information. A variety of attempts to achieve this were unsuccessful due to the huge overhead of
the information processing of the time. However, the burgeoning need for financial reporting
after 1900 created unavoidable pressure for financial accounting of stock and the management
need to cost manage products became overshadowed. In particular, it was the need for audited
accounts that sealed the fate of managerial cost accounting. The dominance of financial reporting
accounting over management accounting remains to this day with few exceptions, and the
financial reporting definitions of 'cost' have distorted effective management 'cost' accounting
since that time. This is particularly true of inventory.
Hence, high-level financial inventory has these two basic formulas, which relate to the
accounting period:
Cost of Beginning Inventory at the start of the period + inventory purchases within the period +
cost of production within the period = cost of goods available
Cost of goods available cost of ending inventory at the end of the period = cost of goods sold
The benefit of these formulas is that the first absorbs all overheads of production and raw
material costs into a value of inventory for reporting. The second formula then creates the new
start point for the next period and gives a figure to be subtracted from the sales price to
determine some form of sales-margin figure.
Manufacturing management is more interested in inventory turnover ratio or average days to sell
inventory since it tells them something about relative inventory levels.
Inventory turnover ratio (also known as inventory turns) = cost of goods sold / Average
Inventory = Cost of Goods Sold / ((Beginning Inventory + Ending Inventory) / 2)
36

and its inverse

Average Days to Sell Inventory = Number of Days a Year / Inventory Turnover Ratio = 365 days
a year / Inventory Turnover Ratio
This ratio estimates how many times the inventory turns over a year. This number tells how
much cash/goods are tied up waiting for the process and is a critical measure of process
reliability and effectiveness. So a factory with two inventory turns has six months stock on hand,
which is generally not a good figure (depending upon the industry), whereas a factory that moves
from six turns to twelve turns has probably improved effectiveness by 100%. This improvement
will have some negative results in the financial reporting, since the 'value' now stored in the
factory as inventory is reduced.
While these accounting measures of inventory are very useful because of their simplicity, they
are also fraught with the danger of their own assumptions. There are, in fact, so many things that
can vary hidden under this appearance of simplicity that a variety of 'adjusting' assumptions may
be used. These include:
Specific Identification
Weighted Average Cost
Moving-Average Cost
FIFO and LIFO.
Inventory Turn is a financial accounting tool for evaluating inventory and it is not necessarily a
management tool. Inventory management should be forward looking. The methodology applied
is based on historical cost of goods sold. The ratio may not be able to reflect the usability of
future production demand, as well as customer demand.
Business models, including Just in Time (JIT) Inventory, Vendor Managed Inventory (VMI) and
Customer Managed Inventory (CMI), attempt to minimize on-hand inventory and increase
inventory turns. VMI and CMI have gained considerable attention due to the success of thirdparty vendors who offer added expertise and knowledge that organizations may not possess.
Accounting for inventory
Accountancy
Key concepts
Accountant Accounting period Accrual Bookkeeping Cash and accrual basis Cash flow
forecasting Chart of accounts Convergence Journal Special journals Constant item purchasing
37

power accounting Cost of goods sold Credit terms Debits and credits Double-entry system Markto-market accounting FIFO and LIFO GAAP / IFRS Management Accounting Principles General
ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance
Fields of accounting
Cost Financial Forensic Fund Management Tax (U.S.)
Financial statements
Balance Sheet
Cash flow statement Income statement Statement of retained earnings Notes Management
discussion and analysis XBRL
Auditing
Auditor's report Control self-assessment Financial audit GAAS / ISA Internal audit Sarbanes
Oxley Act
Accounting qualifications
CIA CA CPA CCA CGA CMA CAT CIIA IIA CTP
vte
Each country has its own rules about accounting for inventory that fit with their financialreporting rules.
For example, organizations in the U.S. define inventory to suit their needs within US Generally
Accepted Accounting Practices (GAAP), the rules defined by the Financial Accounting
Standards Board (FASB) (and others) and enforced by the U.S. Securities and Exchange
Commission (SEC) and other federal and state agencies. Other countries often have similar
arrangements but with their own accounting standards and national agencies instead.
It is intentional that financial accounting uses standards that allow the public to compare firms'
performance, cost accounting functions internally to an organization and potentially with much
greater flexibility. A discussion of inventory from standard and Theory of Constraints-based
(throughput) cost accounting perspective follows some examples and a discussion of inventory
from a financial accounting perspective.
The internal costing/valuation of inventory can be complex. Whereas in the past most enterprises
ran simple, one-process factories, such enterprises are quite probably in the minority in the 21st
century. Where 'one process' factories exist, there is a market for the goods created, which
establishes an independent market value for the good. Today, with multistage-process companies,
38

there is much inventory that would once have been finished goods which is now held as 'work in
process' (WIP). This needs to be valued in the accounts, but the valuation is a management
decision since there is no market for the partially finished product. This somewhat arbitrary
'valuation' of WIP combined with the allocation of overheads to it has led to some unintended
and undesirable results.
Financial accounting
An organization's inventory can appear a mixed blessing, since it counts as an asset on the
balance sheet, but it also ties up money that could serve for other purposes and requires
additional expense for its protection. Inventory may also cause significant tax expenses,
depending on particular countries' laws regarding depreciation of inventory, as in Thor Power
Tool Company v. Commissioner.
Inventory appears as a current asset on an organization's balance sheet because the organization
can, in principle, turn it into cash by selling it. Some organizations hold larger inventories than
their operations require in order to inflate their apparent asset value and their perceived
profitability.
In addition to the money tied up by acquiring inventory, inventory also brings associated costs
for warehouse space, for utilities, and for insurance to cover staff to handle and protect it from
fire and other disasters, obsolescence, shrinkage (theft and errors), and others. Such holding costs
can mount up: between a third and a half of its acquisition value per year.
Businesses that stock too little inventory cannot take advantage of large orders from customers if
they cannot deliver. The conflicting objectives of cost control and customer service often pit an
organization's financial and operating managers against its sales and marketing departments.
Salespeople, in particular, often receive sales-commission payments, so unavailable goods may
reduce their potential personal income. This conflict can be minimised by reducing production
time to being near or less than customers' expected delivery time. This effort, known as "Lean
production" will significantly reduce working capital tied up in inventory and reduce
manufacturing costs (See the Toyota Production System).
Role of inventory accounting
By helping the organization to make better decisions, the accountants can help the public sector
to change in a very positive way that delivers increased value for the taxpayers investment. It
can also help to incentivise progress and to ensure that reforms are sustainable and effective in
39

the long term, by ensuring that success is appropriately recognized in both the formal and
informal reward systems of the organization.
To say that they have a key role to play is an understatement. Finance is connected to most, if not
all, of the key business processes within the organization. It should be steering the stewardship
and accountability systems that ensure that the organization is conducting its business in an
appropriate, ethical manner. It is critical that these foundations are firmly laid. So often they are
the litmus test by which public confidence in the institution is either won or lost.
Finance should also be providing the information, analysis and advice to enable the
organizations service managers to operate effectively. This goes beyond the traditional
preoccupation with budgets how much have we spent so far, how much do we have left to
spend? It is about helping the organization to better understand its own performance. That means
making the connections and understanding the relationships between given inputs the resources
brought to bear and the outputs and outcomes that they achieve. It is also about understanding
and actively managing risks within the organization and its activities.
[edit]FIFO vs. LIFO accounting
Main article: FIFO and LIFO accounting
When a merchant buys goods from inventory, the value of the inventory account is reduced by
the cost of goods sold (COGS). This is simple where the CoG has not varied across those held in
stock; but where it has, then an agreed method must be derived to evaluate it. For commodity
items that one cannot track individually, accountants must choose a method that fits the nature of
the sale. Two popular methods that normally exist are: FIFO and LIFO accounting (first in - first
out, last in - first out). FIFO regards the first unit that arrived in inventory as the first one sold.
LIFO considers the last unit arriving in inventory as the first one sold. Which method an
accountant selects can have a significant effect on net income and book value and, in turn, on
taxation. Using LIFO accounting for inventory, a company generally reports lower net income
and lower book value, due to the effects of inflation. This generally results in lower taxation. Due
to LIFO's potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO
inventory accounting.
Standard cost accounting
Standard cost accounting uses ratios called efficiencies that compare the labour and materials
actually used to produce a good with those that the same goods would have required under
40

"standard" conditions. As long as actual and standard conditions are similar, few problems arise.
Unfortunately, standard cost accounting methods developed about 100 years ago, when labor
comprised the most important cost in manufactured goods. Standard methods continue to
emphasize labor efficiency even though that resource now constitutes a (very) small part of cost
in most cases.
Standard cost accounting can hurt managers, workers, and firms in several ways. For example, a
policy decision to increase inventory can harm a manufacturing manager's performance
evaluation. Increasing inventory requires increased production, which means that processes must
operate at higher rates. When (not if) something goes wrong, the process takes longer and uses
more than the standard labor time. The manager appears responsible for the excess, even though
s/he has no control over the production requirement or the problem.
In adverse economic times, firms use the same efficiencies to downsize, right size, or otherwise
reduce their labor force. Workers laid off under those circumstances have even less control over
excess inventory and cost efficiencies than their managers.
Many financial and cost accountants have agreed for many years on the desirability of replacing
standard cost accounting. They have not, however, found a successor.
Theory of constraints cost accounting
Eliyahu M. Goldratt developed the Theory of Constraints in part to address the cost-accounting
problems in what he calls the "cost world." He offers a substitute, called throughput accounting,
that uses throughput (money for goods sold to customers) in place of output (goods produced
that may sell or may boost inventory) and considers labor as a fixed rather than as a variable
cost. He defines inventory simply as everything the organization owns that it plans to sell,
including buildings, machinery, and many other things in addition to the categories listed here.
Throughput accounting recognizes only one class of variable costs: the truly variable costs, like
materials and components, which vary directly with the quantity produced
Finished goods inventories remain balance-sheet assets, but labor-efficiency ratios no longer
evaluate managers and workers. Instead of an incentive to reduce labor cost, throughput
accounting focuses attention on the relationships between throughput (revenue or income) on one
hand and controllable operating expenses and changes in inventory on the other.
National accounts

41

Inventories also play an important role in national accounts and the analysis of the business
cycle. Some short-term macroeconomic fluctuations are attributed to the inventory cycle.
]Distressed inventory
Also known as distressed or expired stock, distressed inventory is inventory whose potential to
be sold at a normal cost has passed or will soon pass. In certain industries it could also mean that
the stock is or will soon be impossible to sell. Examples of distressed inventory include products
that have reached their expiry date, or have reached a date in advance of expiry at which the
planned market will no longer purchase them (e.g. 3 months left to expiry), clothing that is
defective or out of fashion, music that is no longer popular and old newspapers or magazines. It
also includes computer or consumer-electronic equipment that is obsolete or discontinued and
whose manufacturer is unable to support it. One current example of distressed inventory is the
VHS format.[5]
In 2001, Cisco wrote off inventory worth US $2.25 billion due to duplicate orders.[6] This is one
of the biggest inventory write-offs in business history.
Inventory credit
Inventory credit refers to the use of stock, or inventory, as collateral to raise finance. Where
banks may be reluctant to accept traditional collateral, for example in developing countries
where land title may be lacking, inventory credit is a potentially important way of overcoming
financing constraints. This is not a new concept; archaeological evidence suggests that it was
practiced in Ancient Rome. Obtaining finance against stocks of a wide range of products held in
a bonded warehouse is common in much of the world. It is, for example, used with Parmesan
cheese in Italy.[7] Inventory credit on the basis of stored agricultural produce is widely used in
Latin American countries and in some Asian countries.[8] A precondition for such credit is that
banks must be confident that the stored product will be available if they need to call on the
collateral; this implies the existence of a reliable network of certified warehouses. Banks also
face problems in valuing the inventory. The possibility of sudden falls in commodity prices
means that they are usually reluctant to lend more than about 60% of the
USES OF INVENTORY TURNOVER ANALYSIS, ANALYSIS
It is helpful in assessing the stock position and productivity position of a concern. The main
objectives of a inventory turnover analysis are to assess
42

The present and future stock capacity of a concern.

To give corrective solution for the inventory problem.

To differentiates the investment with and invest without for purchasing of the raw
material

INVENTORY TURNOVER RATIOS

Inventory turnover ratio
A ratio showing how many times a company's inventory is sold and replaced over a period.
Inventory turnover period
How often interest is calculated and added on to your investment. If you have two conversion
periods, it means that interest is calculated every six months. The inventory conversion period
for calculate the interest for credit sales to their agents
ECONOMIC ORDER QUANTITY
Economic order quantity is that level of inventory that minimizes the total of
Inventory holding cost and ordering cost. The framework used to determine this order quantity is
also known as Wilson Model. The model was developed by F. W. Harris in 1913.The most
economical quantity of a product that should be purchased at one time. The is based on all
associated costs for ordering and maintaining the product. refers to the size of the order which
gives maximum economy in punches of materials.

Where

Bharathi pathak 1991 The bulk of the banking business in the country is in the public
sector comprising the state bank of India and its seven associated banks and twenty nationalized

43

commercial banks till 1991, the Indian banking industry was operating in a highly regulated and
protected regime. But with the acceptance of Norseman committee recommendation, competition
has been injected into the banking industry in two forms.
The study has been found that HDFC Bank emerged as a leader in this financial analysis
of the year ended 2000-01. It closest competitor was ICICI Bank. Financial performance of the
other three, no doubt, lagged behind them, but it by no means, depressing. These Bank obviously,
have to focus more improving parameters like credit quality and cost control for the emerge as
the top performance.
R. Hamsalakshmi-M.Manicham 2000 The study, it has been found the liquidity position
and working capital positions were favorable and good during period of study. Regarding
turnover ratio, efficiency in management of fixed assets and total assets must be increased.
Regarding return on investment and return on equity was proved that the overall profitability
position of the software companies had been increasing at a moderate way.
Dr R.Dharmaraj 2003 The study airtical positing in Indian management industry have
concluded that for the last five year, there has been proliferation of international and domestic
providence of mutual funds. He says that this increased growth is due to the increasing cash
flows among innovative young companies through India.
.Bharathi pathak, Finance India Dec 2003
R. Hamsalakshmi-M.Manicham, Finance India Sep2 2009
Dr R.Dharmaraj Indian journal of finance volume4 Allen and Carolinian (2003)
Dr Harish kumar 2008 A capital adequacy ratio was constant over a period of time. During the
study period. It was observed that the return on net worth had negative correlation with the debt
equity ratio. Inters income to working funds also had a negative association with interest
coverage ratio and the non performing to net advance was negatively correlated with interest
coverage ratio.

44

J R Raiyani 2009 During the periods of high inflation depending on conventional accounting
wisdom. May results in firms financial information losing its meaning and creation of unrealistic
expectation among information users.
Dr.Kavitha Chavvali 2009 Inventory analysis of gold exchange trade funds. Mathew
T.Jones and Maurice ousted (2007) revised and evaluated pre world war ii current date for
countries by treating gold follows on a continuous basis. The historical data of saving and
investment was taken over a time period of 1850- 1945.
N.Prasanna 2009 Stock performance Aitkin 1997 the external effect foreign direct
investment on export with example of Bangladesh where entry of a koala multinational in
garment exports led establishment of a member of domestic export firms creating the countrys
largest export industry.
Awedh 2005 defend that inflator does not have really an effect on the profitability measured
by return on equity of foreign banks exerting in Lebanon. In the same way, the author steers that
the level of inflation affect more than the return on assets of Lebanese bank than foreign banks in
Lebanon.
Dr Harish kumar single,The icfai journal of inventory management (vol vii Feb. 2008)
J R Raiyani, The infaciS university journal of inventory research (vol viii, No 2 Feb. 2009)
Dr.Kavitha Chavvali, Indian journal of inventory (vol 3 No: 2 dec 2009)
N.Prasanna, Indian journal of inventory (vol 5 No: 1 Jan 2008)
Dr.R.B.Bhatasna, Indian journal of inventory (vol 5 No: 2 Feb 2011)
Dr Sushil kumar Mehta 2010 The financial performance mutual funds schemes. Jayadew
(1996) attempted of evaluate the performance of two growth oriented mutual funds on the basis
of monthly return. It was found that master gain performed better according to Jensen and trey
nor measures and basis of sharps ratio.
Monika uppal 2010 Financial performance factors a survey of the literature shows that the
foreign bank performance is affected by factors like the economic and financial environment.
45

Among these factors one can equate the growth rate of gross domestic product, monetary market
rate, inflation rate and foreign exchange rate. (Williams 1998).
Dr Sushil kumar Mehta, Indian Journal of inventory vol: 4 No: 2 Feb, 2010
Monika uppal, Indian Journal of inventory vol: 5 No: 1 Jan 2011

46

CHAPTER-2
DATA ANALYSIS

47

DATA ANALYSIS
Balance Sheet of APOLLO
TYRESE
------------------- in Rs. Cr.
------------------Mar '15
Sources Of Funds
Total Share Capital
Equity Share Capital
Share Application Money
Preference Share Capital
Reserves
Revaluation Reserves
Networth
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
Application Of Funds
Gross Block
Less: Accum. Depreciation
Net Block
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash and Bank Balance
Total Current Assets
Loans and Advances
Fixed Deposits
Total CA, Loans & Advances
Deffered Credit
Current Liabilities
Provisions
Total CL & Provisions
Net Current Assets
Miscellaneous Expenses
Total Assets
Contingent Liabilities
Book Value (Rs)

Mar 14

Mar 13

Ma12

Mar 11

50.41
50.41
0
0
1,842.03
3.12
1,895.56
1,093.30
814.67
1,907.97
3,803.53

50.41
50.41
0
0
1,673.07
3.12
1,726.60
875.95
257.02
1,132.97
2,859.57

50.41
50.41
0
0
1,302.18
3.12
1,355.71
462.39
233.13
695.52
2,051.23

48.85
48.85
4.57
0
1,176.84
3.16
1,233.42
223.15
237.51
460.66
1,694.08

46.41
46.41
11.72
0
917.56
3.16
978.85
473.76
144.94
618.7
1,597.55

3,299.13
915.55
2,383.58
502.83
559.35
1,136.33
204.28
133.65
1,474.26
889.36
7.61
2,371.23
0
1,277.81
735.65
2,013.46
357.77
0
3,803.53
697.77
37.55

2,414.17
803.95
1,610.22
536.04
559.38
552.73
137.54
193.44
883.71
802.25
65.39
1,751.35
0
897.45
699.99
1,597.44
153.91
0
2,859.55
921.46
34.19

1,838.00
694.66
1,143.34
281.41
297.45
417.05
87.28
175.36
679.69
590.65
165.24
1,435.58
0
627.15
479.55
1,106.70
328.88
0.15
2,051.23
682.36
26.84

1,569.66
598.66
971
94.41
302.71
513.29
155.13
156.13
824.55
538.56
109.73
1,472.84
0
718.31
428.83
1,147.14
325.7
0.26
1,694.08
444.96
25.09

1,492.51
541.66
950.85
80.46
258.11
451.95
203.06
131.7
786.71
451.75
40.3
1,278.76
0
681.64
289.12
970.76
308
0.12
1,597.54
119.29
207.74

48

Profit & Loss account of APOLLO

TYRES
------------------- in Rs. Cr.
------------------Mar 15
Income
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses
Miscellaneous Expenses
Preoperative Exp Capitalised
Total Expenses
Operating Profit
PBDIT
Interest
PBDT
Depreciation
Other Written Off
Profit Before Tax
Extra-ordinary items
PBT (Post Extra-ord Items)
Tax
Reported Net Profit
Total Value Addition
Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

Mar '14

Mar '13

Mar '12

6,025.45 5,438.57 4,559.23 4,255.04

544.53
392.58
468.37
549.11
5,480.92 5,045.99 4,090.86 3,705.93
24.71
17.29
9.64
11.29
408.72
26.17
-37.41
51.32
5,914.35 5,089.45 4,063.09 3,768.54

Mar 11
3,781.01
490.07
3,290.94
17.43
39.41
3,347.78

4,291.28 3,243.95 2,947.64 2,523.61 2,375.82

179.02
163.47
149.29
134.82
132.68
306.85
289.31
207.55
226.83
199.22
89.37
78.42
59.85
51.52
12.77
388.98
417.14
304.56
285.58
243.86
53.65
62.76
28.19
44.68
34.59
0
0
0
0
0
5,309.15 4,255.05 3,697.08 3,267.04 2,998.94
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
580.49
817.11
356.37
490.21
331.41
605.2
834.4
366.01
501.5
348.84
198.66
113.54
103.83
80.26
89.23
406.54
720.86
262.18
421.24
259.61
147.35
122.78
98.01
87.81
74.23
0
0
0
0
259.19
598.08
164.17
333.43
0
4.36
0.11
6.98
0
185.38
263.55
598.19
171.15
333.43
0
65.3
183.21
63.05
114.14
185.38
198.25
414.99
108.12
219.3
72
1,017.86 1,011.10
749.44
743.43
113.42
0
0
0
0
623.11
25.2
37.8
22.68
25.2
0
4.09
6.28
3.86
4.28
20.88
2.93
5,040.25 5,040.25 5,040.25 4,884.45
464.02
3.93
8.23
2.15
4.49
24.44
50
75
45
50
45
37.55
34.19
26.84
25.09
207.74

49

DATA ANALYSIS &INTERPRETATIONS

Ratio analysis is the major and efficient tool for management to analyze the data. So here some ratios are
given which are related to inventories and with analysis.
13.1>Raw material conversion period
This ratio shows in how many day raw materials is used to manufacturing.
To find this ratio, the formula is;

Average stock of raw material

Total raw material consumed

365

Where average stock of raw material = (Op. stock of raw mat.+ Cl. Stock of raw mat.)/2
Particulars
Opening stock of raw material
Closing stock of raw material
Average stock of raw material
Total raw material consumed

2015-14
901.56
1433.26
1167.41
5709.91

20132012201120102012
2011
2010
2009
720.52
707.54
603.7
287.02
901.56
720.52
707.54
603.7
811.04
714.03
655.62
445.36
3429.52
3121.46
2368.3
1715.14

INTERPRETATION: If we look towards for the year 2011 then we can easily observe that, the raw
material conversion period is too high than the year 2011-12. This trend is showing that the period for
conversion of raw material is decreasing year by year. It very good sign for the company. Because as soon
as raw material is used for production the storing cost will be less. So this chart is showing how
efficiently As reducing its storing cost and how fast raw material is used for production.

13.2>WIP conversion period

50

This ratio shows, in how many days the WIP converted into finished products.
To find out this ratio, the formula is;
Average stock of work-in-process

x 365

Cost of production
Where average stock of WIP = (Op. stock of WIP+ Cl. Stock of WIP)/2

2015-14

Particulars

2013-2012

2012-2011

2011-2010

2010-2009

Opening stock of WIP

71.48

28.94

23.93

32.42

13.76

Closing stock of WIP

73.17

71.48

28.94

23.93

32.42

Average stock of WIP

72.325

50.21

26.44

28.18

23.09

18917.71

14423.47

13300.17

11469.71

9516.97

Cost of production

INTERPRETATION: As we can see in the chart that WIP converted into finished product within a day
in the year 2009-10to 2008-09. But in recent year it is taking more than one day. If we measure this chart,
we can say that the efficiency level of APOLLO TYRES year by year to convert WIP to finished goods.

FINISHED GOODS CONVERSION PERIOD

51

It refers to the time in which the finished goods are converted into sales or in other way we can
say that the time period between production and sales when the finished goods kept in the ware
house before the actual sale is made.
So formula for FGCP is;
Average stock of finished goods

x 365

Cost of goods sold

Where average stock of finished goods
= (Op. stock of finished goods +Cl. Stock of finished goods)/2

Particulars
Opening stock of finished goods
Closing stock of finished goods
Average stock of finished goods
Cost of goods sold

2015-14
2013-2012 2012-2011 2011-2010 2010-2009
1074.27
1078.08
1000.62
887.82
622.13
1361.85
1074.27
1078.08
1000.62
887.82
1218.06
1076.18
1039.35
944.22
754.975
18989
14874.23
13673.31
12012.39
10555.24

INTERPRETATION: From the table and the chart we can easily observed that, though in the
year 2009-10 the conversion period increased than the year 2007-06. But fortunately the recession period
couldnt hit the sales for the year 2009-10 TO 2011-12 The finished goods were converted into sales even
less than only 25 days in the year 2010-09. It shows the efficiency of not only quality of the electric goods
but also the efficiency of marketing department of APOLLO TYRES.

52

13.4>Raw material to current asset

It indicates the percentage of raw materials in the current asset of the company.
To find out this;
Raw material(closing)

x 100

Current asset

Particulars
Raw
material(Closing)
Current asset

2015-14
1433.26
10047.48

2013-2012

2012-2011

901.56
6636.28

720.52
13701.89

2011-2010
707.54
4237.6

2010-2009
603.7
4083.58

INTERPRETATION:
This chart and table can show the one unexpected downfall in the year 2009-10, which is less than 6%. If
we observe carefully then we can see that, in the year 2009-10, the raw material trend is nearly same to
other years, but due to huge cash in hand increase the current asset. Which reduce the percentage of raw
material to current asset.

53

13.5>Finished goods to current asset

It indicates the percentage of finished goods in the current assets of the company. Finished goods are such
a component of the current assets which can be easily converted into cash.
So the formula is;
Finished goods(closing)

x 100

Current asset

Particulars
Finished
goods(Closing)
Current asset

2015-14
1361.85
10047.48

2013-2012
1074.27
6636.28

20122011
1078.08
13701.89

20112010 2010-2009
1000.62
4237.6

887.22
4083.58

INTERPRETATION: As we saw in the raw material to current assets, which is same as finished goods
to current assets. Due to huge amount of cash held in the year 2009-10, the percentage of finished goods
is lesser than the other years. But in the year 2007-06it is near to 25%. But the percentage is going
downwards in the year 2011-2012, which is less than 15%.

54

13.6>Average inventory turnover ratio

It indicates the percentages of inventory with gross sales.
The formula is;
Average inventory

x 100

Gross sales
Where average inventory = (Op. inventory+ Cl. Inventory)/2
Particulars
Opening inventory
Closing inventory
Average inventory
Gross sales

2015-14
2047.31
2868.28
2457.8
26843

20132012
1827.54
2047.31
1937.43
22191.8

2012-2011
1732.09
1827.54
1779.82
19762.57

2011-2010
1532.34
1732.09
1632.22
17144.22

2010-2009
922.91
1532.34
1227.63
15876.87

INTERPRETATION: As we can observed that, the trend is showing nearly constant, except the year
2009-10 The inventory level is increasing as well as the gross sales. It shows the constant growth of sales
and inventory.

55

13.7>Stock turnover ratio

Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the
requirements of the business. But the level of inventory should neither be too high nor too low.
The stock turnover ratio measures the number of times a company sells its inventory during the year.
The formula for stock turnover ratio is;
Cost of goods sold
Average stock
Where average stock = (Op. inventory+ Cl. Inventory)/2
Particulars
Cost of goods sold
Average stock

20132015-14 2012
2012-2011 2011-2010
18989
14874.23
13673.31
12012.39
2457.8
1937.43
1779.82
1632.22

2010-2009
10555.24
1227.63

INTERPRETATION: As we can find out that in the year 2009-10 the ratio was very high as compare to
other years. In the year 2009-10 it is even less than 7.5, but after that APOLLO TYRES maintained the
consistency on its growth.

56

13.8>Average age of stock

This ratio shows how many days stock are kept as inventory in the company before sales.
To find out the average age of stock is;
365
Stock turnover ratio

Particulars
Stock turnover ratio

2015-14
7.72

2013-2012

2012-2011

2011-2010

2010-2009

7.67

7.68

7.37

8.63

INTERPRETATION: From the chart as given below, we can see that average age of stock is not more
than 50 day in any of the year. But in year 2009-10 it is near to 40 days where, in the year 2009-10 it is
near to 50 days. But in the recent year it is near to 48 day.needs to reduce the day, through its sale with the
help of marketing department.

57

Spare parts index

It shows the index of spare parts, which are used to fixed asset.
To find out spare parts index, the formula is;

Stores and spares parts(closing)

x 100

Net block of fixed asset

Particulars
Stores and spares parts(closing)
Net block of fixed assets

2013201220112012
2011
2010
505.44
442.66
505.44
442.66
11040.56 9865.05 11040.56 9865.05

2015-14

20102009
349.06
9112.24

INTERPRETATION: This index is showing downwards in recent years. But in the year 2009-10 it is
less than 4. And in the year 2009-10 it is more than 4.5. So should try to reduce this index. But the chart is
showing very impressive that index is reducing year by year.

13.10>Inventory conversion period

58

This ratio shows in how many days inventories are converted into sales. It is major ratio analysis for cash
conversion period. Because it is the first component of the cash conversion period.
The formula is;
Inventories(closing)
Sales/365

Particulars
Inventories(Closing
)
Sales

2015-14

2013-2012

1,136.33
24315.77

552.73
19693.28

2012-2011
417.05
17551.09

2011-2010

20102009

513.29
15139.39

451.95
14498.95

INTERPRETATION: From this chart we can observed that in the year 2007-08 and 2007-06, the
inventory was most efficiently converted into sales. But unfortunately it is very high in the year 2010-09.
So it shows the inefficiency for the company.

59

13.11>Current ratio
This ratio is used to judge the short term solvency of a company and is worked out by dividing the
aggregate Current Assets by its aggregate Current Liabilities.
To find out the current ratio, the formula is;

Current asset
Current liabilities
Particulars
Current asset
Current liability

2015-14
2013-2012
2012-2011
2011-2010
10047.48
6636.28
13701.89
4237.6
8974.05
6768.78
5453.66
3808.72

2010-2009
4083.58
3699.99

INTERPRETATION: In the year 2009-10 this ratio is too high due to huge amount cash held in the
company. From here we can say that company has huge liquidity but in other sense we can say that
company blocked this huge amount of cash without investing. Again it is very good sign for the company,
because the recession hit the world in the year 2010-11 and company has huge amount of liquidity to face
the crisis moment. Again we can see that the in the year 2007-08 the ratio is even less than 1. So 2009-10
heavy cash amount saved in the year 2010-11. Rest of the year maintained the consistency, which is just
above 1.

60

13.13>Total inventories to total assets

This ratio shows the percentage level of inventories in compare to total asset.
The formula is;
Total Inventories(closing)

x 100

Total assets

Particulars
Total inventory
Total Assets

2015-14

2013-2012

2012-2011 2011-2010

2010-2009

1,136.33

552.73

417.05

513.29

451.95

58741.77

47075.52

25597.5

14617.16

12143.3

INTERPRETATION: The percentage level is decreasing year by year to increase the liquidity level. But
in the year 2007-06, it is very low because of recession period to increase the liquidity percentage.

61

CHAPTER-V
SUMMARY OF FINDINGS, SUGGESTIONS
CONCLUSIONS.

62

FINDINGS
In inventory level of the company, the in inventory level has been increased year
by yea. There is no problem in the inventory level of the APOLLO TYRES.
In inventory turnover ratio the ratios of the year has been finded as low in the
years of 2011-2012 and 2013-14. After those periods the inventory turnover ratio
has slightly increased in the year 2009-2014. Even though that level is quite low
when compare with 2009-10
In inventory conversion period is finded as good level. Even though they wants to
keep the inventory conversion period as low.

63

SUGGESTION
RATIO ANALYSIS (INVENTORY)

In inventory level of the company shows the increase of the raw materials, workin-process and finished goods. The inventory level of APOLLO TYRES is well.
In inventory turnover ratio finded some problems. They want sell their product to
outside also. Now they use their cement which are produced in APOLLO TYRES
for their own purpose. They want to sell that to others also then only the ratio will
be increased.
APOLLO TYRES sells the 25 per cent of the tyres produced, remaining they
used for own purpose. For sales to others they allowed more days as credit to their
agents.
ANALYSIS

In analysis there is no problems finded in findings for the APOLLO TYRES.

Even though they want to keep that situation in upcoming years also. Then only

they can retain position.

In analysis there is no problems finded in findings for the APOLLO TYRES.
Even though they want to keep that situation in upcoming years also. Then only

they can retain position.

In analysis there is no problems finded in findings for the APOLLO
TYRESLimited. Even though they want to keep that situation in upcoming years
also. Then only they can retain position.

64

CONCLUSION
The study covers the inventory management for effective inventory control. I have used a
technique Economic Order Quantity Analysis named as Analysis for find out the rate
with and without investment for purchasing of good in the manufacturing the cement in
APOLLO TYRES Limited. Hence the inventory management of the organization quite
good. During the year 2009-2014 from this study I concluded that organization would be
effective inventory management. The study will be use for APOLLO TYRES in various
ways.

65

BIBLIOGRAPHY

66

BIBLIOGRAPHY
BOOKS
Asohok Banerjee - Financial Accounting A Managerial Emphasis Excel Books
2005
Collis Business Accounting Palgrave Macmillan 2007
Khan MY Jain P.K Management Accounting : Text, problems and cases 4th
Edition Tata McGraw Hill 2007
Pandikumar Management Accounting Excel Books 2007
Ramachandran N Kakani Kumar Ram Financial Acccounting For Management
Tata McGraw Hill 2006
Robert N.Anthony David F.Hawkins Kenneth A.Merchant Accounting Text and
Cases Tata McGraw Hill 2007
S.K Bhattacharyya Jhon Dearden Costing for Management Vikas Publishing
2002
S.N Maheswari S.K Maheswari Accounting for Management Vikas Publishing
2006

WEBSITES

en.wikipedia.com
Info.shine.com
www.ask.com
www.chettinad.com
www.google.com
www.indiacatalog.com
www.inventoryquzz.com
www.reportjunction.com

67