A STUDY ON INVENTORY MANAGEMENT IN SRI KARPAGAM

ORGANIC COTTONINDUSTRY
 CHAPTER-I

INTRODUCTION:

INVENTORY MANAGEMENT:

In modern competitive one of the burning problem of every business and

industries that of cost control and cost reduction. An all pervasive effort for cost
control and cost reduction is of paramount, importance for survival and growth of
every industrial enterprises. This is why inventory management as a scientific
device for controlling inventory cost and eliminating wastage, is now regarded as
an integral part of industrial management. Inventory management does not involve
any human factor, as it concerns itself not with men but with inventory.

There are three basic types of inventory: raw materials, work-in-progress and
finished goods. Raw materials are the items purchased by firms for use in
production of finished product. Work-in-progress consists of all items currently in
the process of production. These are actually partly manufactured products.
Finished goods are goods that have completed the manufacturing process but have
not yet been sold or distributed to the end user.
Inventory constitutes one of the important items of current assets, which permits
smooth operation of production and sale process of a firm. Inventory management
is that aspect of current assets management, which is concerned with maintaining
optimum investment in inventory and applying effective control system so as to
minimize the total inventory cost.
MEANING & DEFINITION
The term inventory refers to the goods or materials used by a firm for the
purpose of production and sale.
It also includes the items, which are used as supportive materials to facilitate
production.
Inventory is an idle stock of physical goods that contain economic value, and are
held in various forms by an organization in its custody awaiting packing,
processing, transformation, use or sale in a future point of time.
Inventory management refers the overseeing and controlling of the ordering,
storage and use of components that a company will use in the production of the
items it will sell as well as the overseeing and controlling of quantities of finished
products for sale.

MEANING OF INVENTORY:

The dictionary meaning of inventory is stock of goods, of a

list of goods; various authors understand the word inventory differently. In
accounting language it may mean stock of initial goods only. In a manufacturing
concern, it may include raw materials; work in process and stores etc. To
understand the exact meaning of the word inventory we May study it from the
usage side or from the side point of entry in the operations. Inventory includes the
following things.
RAW MATERIALS

Raw material form a major input into the organization. They are required to
carry out production activities uninterruptedly. The liquidity of raw materials
required will be determined by the rate of consumption and the time required for
replenishing the supplies. The factors like the availability of our materials and the
government regulations, etc. to affect the stock of raw materials.

WORK IN PROGRESS

The work in progress is that stage of stocks, which are in between the
materials and initial goods. The raw materials enter the process of manufacture but
them yet party in a final shape of initial goods. The quantum of work in progress
depends upon the time taken in the manufacturing process. The greater the time
taken in a manufacturing the more will be the amount of work in progress.

IMPORTANCE OF INVENTORY MANAGEMENT:-

Investment in inventory normally accounts for about 1/3 value of the total
assets and for an average manufacturing concern, cost of inventory represents
about one half of the product cost. Because inventory constitutes such a significant
part of product cost since the cost is controllable, proper planning, purchasing,
handling, accounting and control of inventories is of great significance.
 Inventory management is now great significance in a view of imperative
need for productivity growth. Optimal utilization of all available resources and
avoidance of all types of waste especially in case of raw materials is required for
an ambitious programmer of economic growth.

The importance of inventory management lies in the fact that many

significant effort for the reducing the materials cost will go along way in
improving the profitability and rate return on investment.

Following are the benefits of optimum inventory management:

It provides a check against the loss of materials through carelessness or

pilferage. Inventory management ensures an adequate supply of materials,
stores, spares etc. Minimizes the stock out and shortages an avoids a costly
interruption in operations.
It reduces length of manufacturing cycle to the minimum.
It enables the management make cost and consumption between operations
and periods.
INVENTORY:

Inventory is a list for goods and materials, or those goods and material
themselves, held available in stock by a business.

Management of Inventories is with the primary objective of

determining, controlling stock levels within the physical distribution function to
balance the need for product availability against the need for minimizing stock
holding and handling costs.

A subsidiary ledger which is usually used to record the details of individual

items of stock. Inventories can also be used to hold the details of other assets of a
business. There are three types of inventory: Raw materials, work in process and
finished goods. Raw materials are materials and components that are inputs in
making final products. Work in process also called stock in process refers to goods
in the intermediate stages of production finished goods consist of final products
that are ready for sale .inventory represents the second largest asset category for
manufacturing companies next only, to plant and equipment he proportion of
inventory to total assets generally consists of 15 to 30 percentage.

Inventories is a list of goods available in stock at warehouses .it is also use

for a list of contains of a household and for a list of testamentary purpose of the
possession of someone who has died in accounting inventory consists as assets.
 Nature of Inventories

Inventories are classified according to uses and point of entry in the

alteration is as follows:

Raw material
Work in process goods,
Finished goods &
Spares and consumables.

Raw Materials
Raw materials are those units that are converted in to finished production
through manufacturing process. Raw material inventories are those units which
have been purchased and stored for future. Under head of raw materials RPN are
maintained rock phosphates, liquid ammonia etc.

Work in Process goods

It is also called stock in process. It refers to goods in the intermediate stage
of production. These inventories are semi finished products. It presents the
products that need more work before they become finished product for sale.

Finished goods
Finished goods consist of final products that are ready for sale. Finished
goods are those completely manufacturing products which are ready for sale. Stock
of material and work in process facilitate production, while stock of finished goods
 is required for smooth marketing operation. Thus inventories serves as a link
between production and consumption of goods.

Spares and consumables

Spares play an important part of inventories by themselves. Their
consumption pattern defers from that of raw material, consumables and finished
goods. They also even keep these items in a spare which is not easily available.
There is the material which act as catalysis in the production process and are not
directly found in to output. This enables the production process to function
smoothly like - fuel, coil, oil, LSHS etc, are the example of the consumables.

OBJECTIVE OF THE INVENTORY MANAGEMENT

The basic responsibility of the financial is to make sure the firms cash flows
are managed efficiently. Efficient management of inventory should ultimately
result in the maximization of the owners wealth. It was indicated that in order to
minimizes cash requirements, inventory should be turned over as quickly as
possible, avoiding stock-outs that might result in closing down the production line
or lead to a loss of sales.
The main objective of inventory management consists of two parts.
1. To minimize investment in inventory.
2. To meet demand for the product by efficiently organizing the
production and sales operations.
The firm should minimize investment in inventory implies that maintaining
inventory involves costs, such that the smaller the inventory, the lower is the cost
to the firm. But inventory also provide benefits to the extent that facilitate the
smooth functioning of the firms.
WHY INVENTORY MANAGEMENT?

An increased emphasis on liquidity has lead businessman to hold cash and

securities in performance to inventories. Inventories are now often referred to as
the grave yard of the business.

The surplus of the stock has been a principal guide of failure thus lead to
change their view regarding holding of inventories and adopt scientific way of
inventory holding. Following are factor that are following the view of scientific
inventory control.

1. Size of Business
The increased size of business establishment has played an important role in
modern large scale enterprise. Often it operates with small profit margin which can
be eliminated by scientific inventories control method.

2. Wide variety and complexity

The wide variety and complexity in modern technology requires conscious
inventory management. The larger the range of requirement, the greater the
number of problem of investment, procurement, storage, holding, accounting,
shortage and stock out deterioration etc.
 3. Urgency in material requirements
The need and importance of inventories varies in different production with
the ideal time, cost of men, machinery and urgency of requirement. But it is highly
uneconomical to keep a secure and a rapid capital turnover and the most effective
means of achieving these objectives is to control stores.

FACTORS INFLUENCING INVENTORY MANAGEMENT DECISION

There two types of factors. They are external and internal factor which
influence decision making for inventory in an organization. The external factor
arises from market conditions, credit availability and government regulation. The
external factors are not controllable easily while internal factor are controllable
with effective inventory management.

Following are the factors influence the inventory decision of an organization

1. Lead Time
Lead time can be defined as the period that elapses between the
reorganization of a need and its fulfillment. Inventories have to take care of normal
consumption during lead time because it increases the inventories and it will have
to be increased correspondingly.

The time spent on each of these four stages will vary from item to item. Out
of these administrative and inspection lead time are under control of purchase.
Procurement lead time is the largest time. This should be taken care of while
negotiating the order and supply detail.
2. Relevant Cost
The inventory problem is one of the balancing costs, so that total cost is
minimized. Their costs are:

A. Cost of Ordering
The activities that are carried out for fulfilling the need for material, which
consume executive time, stationary and communication charges, these are the
cost of ordering.

B. Cost of Carrying out Inventories:

The moving factor to control inventory is the cost incurred by holding. It is
the cost that is expressed as percentage of the average investment i.e. capital
investment, spoilage insurance cost.

MATERIAL CONTROL TECHNIQUES

The concept of material control techniques signifies the efficiency of any

organization. The contingent upon having the right material of right quality at right
quantity at the right time in following three areas:

1. Purchase Control

2. Storage Control

3. Warehouse Accounting
1. Purchase Control

This is one of the basic functions of inventory management and forms a

major part of it. It needs considerable expertise not only negotiating but also in the
techniques of competitors and studying of economic trends in respect of materials
to be purchased in large quantity to increase the profit.

Objectives of Purchasing:

1. To maintain continuity of production

2. To contribute to the competitiveness of the product

3. To contribute towards higher productivity

4. To increase profit

5. To contribute towards standardization, variety reduction, value

analysis.

2. Storage Control
The control of materials when it is in storage is affected through what is known
as the perpetual inventory. Thus two main functions of the perpetual inventory
system have been studied which are

1. Receipt and Issue System,

2. Maintenance of Store Records

The use of inventory control technique also has been evaluated considering
existing position of RPN.
 3. Warehousing System and Procedure

The procedure comes into operation immediately on receipt of dispatched

documents or dispatched intimation in the stores and covers on the activities i.e.
clearance, delivery, inspection, stock charging and preservation, issue and return
of materials by the ends after striking out balance from the stock card and delivery
of the account department.

Classification of Inventory
The Inventories having huge amount of use in the organization has to be
controlled very strictly and low amount of use should be kept low control.

The main classification of Inventory is as under:

(a) ABC classification

(b) Economics Ordering Quantity
(c) FSN classification
(d) HML classification
(e) Zero Inventories
(A) ABC Classification

In most of the inventories a small proportion of items account for a very

substantial usage and large proportion of items accounts for a very small usage.
ABC analysis, based on this empirical reality, advocates in essence a selective
approach to inventory control which calls for a greater concentration of efforts on
inventory items accounting for the bulk of usage value.
 ABC classification is a basic analytical management tools which enable top
management to direct their efforts where the result will be maximum. This
technique properly knows as ALWAYS BETTER CONTROL has universal
application in many areas of human endeavor. The techniques tires to analyze the
distribution of any characteristic by money value of importance in order to
determine its priority.

DETERMINATION OF EOQ:

The economic order quantity can be determined with the help of the following
formula:

EOQ=\|2AB/CI

Where,

A= annual usage in units.

B= buying cost/ordering cost.

C= carrying cost.

I= inventory carrying cost.

Disposal of Non Moving Items

Inventory Control Review Meeting
Alternative Material Use
Circulation of Non Moving / Slow Moving Items list.
(C) FSN Analysis

In RPN in FSN analysis carried for consumable items, which are used by
multi users, FSN means fast moving (F), slow moving (S), non moving (N)
items analysis. The norms established by RPN for each items are as follows:

Fast Moving Items:

RPN has norms that fast moving items have the following:

1. It should have more than 5 issue transactions in a year.

2. There should be multi user.
Slow Moving Items:

RPN has norms that slow moving items have the following;

1. Items should have transaction between 1 to 5 time in a year

2. There should be multi user.
Non Moving Items:

RPN has norms that are non moving items have the following:

Items have no issue transaction for last 3 years

Items should have some quantity available in all the past three years.

Actions taken for FSN Analysis:

Fast Moving Items:
 a. Close watch is required of users, availability of short notice, at time
maximum withdrawals etc data are collected and enough care is taken while
fixing level.
b. Annual rate contract are made to avoid stock outs
c. Frequency of review is more
d. Frequent changes of level are made depending upon the importance of plant
/ equipments.
Slow Moving Items:

a. For slow moving items, consumption pattern is studied. In some cases either
the item are being used only in shutdown or by limited users only. While
fixing level user weightage is given and it withdrawals. Normally these
items are for specific users and levels can be kept low but user should give
their requirement of abnormal requirement of shutdown etc.
b. Frequency of review is less.

Non Moving Items:

a. Normally on closing of the financial year report are prepared for non moving
items. This report is then circulated to all concerned users department and
list will be sent to the stores disposal procedure.
b. Mean while users department study the use of equivalent material against
other similar nature material requirement and give their comment.
c. Accordingly excess material declared for disposal will disposed off.

(D) HML Analysis

 This method is similarly to ABC classification but in this case instead of
consumption value of items, medium value Items is considered.

As the name implies the material are classification according to their unit
price as high value Items and negotiate the price.

As per the company rules:

The items having value greater than or equal to Rs. 1,00,000 are classified as
high value Items.
The items having individual value greater than or equal to Rs. 25,000 and
below Rs. 1,00,000 is considered to be medium value items.
If the value is less than Rs. 25,000 then it is low value items.

HML analysis value is done for electrical items, instrumentations and other
items.

(E) Zero inventories:

RPN is continuously maintaining the zero inventories of Raw Material like

oil and gas. This is possible because the company has contracted with such
suppliers to provide the material on demand on time.

Lubricants whose 200 liters, 50 to 70 drums are used whose supplier is IOC.
RPN has negotiated with IOC and provide it accommodation in plant which is
known as IOC depot. The IOC keeps its stock there and when RPN uses from it
when it is needed lubricants only than it has to pay till that RPN doesnt need to
pay.

The inventory remaining at depot is called the inventory of IOC. On the

behalf of IOC, RPN had just taken care of it and for that IOC pays RPN holding
charges also. So the transaction cost of RPN for lubricant is also reduced. RPN is
 also trying for such a depot for bearing also. For gas also the company has contract
with GAIL India ltd, for supply of gas as requires, lot of saving inventory and its
relevant cost is observed due to this.

Determination of Inventory Level:

The inventory level concept consider store keeping as profit intensive
service to production store keeping should contribute directly to profitability
and be concerned with matter as flow, packing and dispatch.

In the same way that specification is relared to technical needs. so,

general level of stock should be relared to the sales and production policies of
the company.

There are various levels of stock which are established by the RPN are as
follows:

(1) Minimum Level

(2) Maximum Stock Level
(3) Re-order Stock Level
(1) Minimum Level:
This is the level at which any future demands upon the bill will
necessary withdrawals from the reserve stock.
The Minimum stock level is converted to meet exceptional conditions
of Demand. Two months usage of material taken into considerations by the
RPN Ltd. As a minimum stock level.
(2) Maximum Stock Level:
 This is the Level above which the stock should not be permitted to
rise. Eighteen months consumption of stocks taken into considerations by
RPN cotspinindiaLtd. As a Maximum stock level.
(3) Re-order Stock Level:
The Point of which the order has to be placed. The Re-order level may
not always be numerically equal to the Economic Order Quantity. It should
be regularly reviewed for paid moving items. For fast factors as change in
demand, delivery times or variation in trend.

(D) Importance Substitution:

RPN has successfully adopted & exercised these techniques. It has many
items / materials which are imported from abroad. But now, RPN has started to
substitute the imported item by substituting these items / materials by finding
domestic supplier for this product. RPN is importing rock phosphate which is used
as raw materials. Now RPN has developed supplier on domestic market and made
contract with him for supply of that raw material.

Procedure Followed:

a. Items are selected

b. It is checked for dimension as well as for material of construction. It is
also if required check it with the help of metal analyzer to know exact
material of construction. Drawings are developed
c. Local indigenous parties are developed to get it manufactured locally.
d. Trials are taken after success it is stopped procuring from abroad
 (E) Supply Chain Management & Inventory Control:

Supply chain management solve the purchasing problem by foregoing the

short term benefit of competitive bidding in order to develop special long term
relationship. In exchange the vendor coincides his production schedule and
quantity standards to plant needs thus reducing uncertainty and hence the need for
excess inventories. The release and scheduling process with the supplier consist of
four steps:

a. Make a long term purchase commitment to supplier.

b. Give supplier a monthly forecast for a rolling period of six month of
production.
c. Establishment with a supplier a monthly form release for the next month of
production.
d. Make an arrangement of supplier on the policy for changing delivery dates.

Inventory Management and Inventory Control Practice:

In all the company they have all types of inventories. But the main important
thing is when and how many times control of the inventories of all the companies
is required. So in RPN control of all the inventories is mentioned as under:

The company regularly held the meeting with an agenda of inventory controls.
Meeting are held quarterly, semi quarterly or annually as per the need. The
purpose is to see the loopholes and try to remove it.
Brainstorming is to make control the problem of excess inventory. By arranges
such meeting, all the concerned department are informed. The inventory level is
 maintained with storing department. These meeting are held as a part of
constant performance review.
The company maintained the space and planning for the particular department
for example, suppose company has a Pipes and in production department it is
required 500 pipes, but here already company has 200 pipes. So company now
requires only 300 pipes and they purchase it. So in this way company arrange
space and plan to maintain it.

Strength & Weakness of Inventory Management

Strength:

1. Well organized structure of Inventory Management

2. Well Defined Policies and Plans.
3. Good links with raw material requirements planning and monitoring with
annual and monthly requirements plan.
4. Well Established vendor registration procedure.

Weakness:

1. Non moving items inventory is high. It approx 15% need more clarity and
policy plan.
2. Disposal activity resulats are not satisfactory.
MEANING OF INVENTORY

Inventory is a list for goods and materials, or those goods and materials
themselves, held available in stock by a business. It is also used for a list of the
contents of a household and for a list for testamentary purpose of the possessions
of someone who has died. In accounting inventory is considered an asset

TYPES OF INVENTORIES

Inventories play a major role in a business or depending on nature of the

businesses. The inventories may be classified as under.

(I) Raw Materials

Materials and components scheduled for use in making a product. These are
the basic inputs, which are converted into finished products through manufacturing
process. Raw material inventories are those units, which have been purchased and
stored for future production.

(II) Work in process / Progress

Materials and components that have begun their transformation to finished

goods. Materials issued to the stop floor, which have not yet become finished
products they are value added materials to the extent of labor cost incurred.

(III) Finished Goods

 A finished goods is a completed part that is ready for a customer order.
These goods have been inspected and have passed final inspection requirements so
that they can be transferred out of work-in-process and into finished goods
inventory. From this point, finished goods can be sold directly to their final user,
sold to retailers, sold to wholesalers, sent to distribution centers, or held in
anticipation of a customer order.

STORES & SPARES

The level of four kind of inventory depends upon the nature of the business.
Supplies include office and cleaning materials like soap, brooms, oil, light, blubs
etc. these materials do not directly enter production, but are necessary for
production process.

NEED OR INVENTORY CONTROL

Transaction motive:

Every firm has to maintain some level of inventory to meet the day-to-day
requirement of sales, production process, customer demand etc. In the finished
goods as well as raw material are kept as inventories for smooth production
process of the firm.

Precautionary motive:

A firm should keep some inventory for unforeseen circumstances also like
loss due to natural calamities in a particular area, strikes, lay outs etc so the firm
must have some finished goods as well as raw-materials to meet circumstances.
Speculative motive: The firm may be made to keep some inventory in order to
capitalize an opportunity to make profit due to price fluctuations.
BASIC REASONS TO KEEPING AN INVENTORY:

There are three basic reasons for keeping an inventory:

1. TIME:
The time lags present in the supply chain, from supplier to user at every
stage, requires that you maintain certain amount of inventory to use in this
lead time.

2. UNCERTAINTY:

Inventories are maintained as buffers to meet uncertainties in demand,

supply and movement of goods.

2. ECONOMIES OF SCALE:

Ideal condition of one unit at a time at a place where 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.

INVENTORY MANAGEMENT

Inventory management is primarily about specifying the size and placement

of stocked goods. Inventory management is required at differ 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,
feature inventory price forecasting, physical inventory, available physical space for
inventory, quality management, replenishment, returns and defective goods and
demand forecast.
INVENTORY MANAGEMENT INVOLVES:

Inventory management is the active control program which allows the

management of sales purchases and payment.
System and processes that identify inventory requirements, set targets,
provide replenishment techniques and report actual and projected inventory
status.
Inventory management helps providing a good understanding ground and the
capacity to control financial costs.
The Inventory management will control operating costs and provide better
understanding.

OPERATING CYCLE OF INVENTORY MANAGEMENT

Operating Cycle is the time duration to convert sales after the conversion of
resources into invention, into sales there is difference between current assets and
fixed assets. A firm required many years to recover initial invests in fixed assets
such plant and machinery or land buildings or furniture and fixtures etc. On the
contrary, investment in current assets such as inventory and books debts are
realized during the firms operating cycle, which in usually less than a year.

The operation cycle can be said to be the heart of the working capital. The
need for working capital or current assets cannot be over emphasized as already
observed.

The main motive of many business firms is to achieve maximum profits,

which can be earned depending upon the magnitude of the sales among other
things. However, sales do not convert in to cash instantly.

There is invariable time lag between sale of goods and receipts of cash.
Therefore the need of working capital in the form of current assets to deal with the
problem arising good sold. Therefore, sufficient working capital requires
sustaining sales activity.

Technically this is refer to as the operating the cash cycle. The continuous
flow form cash to supplies to inventory to accounts receivable and back into cash
what is called operating cycle.

The operating cycle of manufacturing company has three phases namely

1. Acquisition of resources

2. Manufacturing products

3. Sale of product

Acquisition of resources:-

In the phase first operating cycle, include phases of raw materials, fuel &
power etc., which are totally required or manufacturing product

Manufacturing products:-

In the phase 2 of the operating cycle includes conversion of raw material in

to work-in progress and the work in progress is converted into finished goods.

Sale of product:-

In the phase 3 of the operating cycle may sale the product either for credit is
made to customers.
REASONS AND BENFITS OF INVENTORY:

The optimal level to maintaining inventory is subjective matter and depends

upon the features of a particular firm.

Trading firm

In case of a trading firm there may be several reasons for holding

inventories because of sales activities that should not be interrupted more over it
not always possible to procure the good whenever there is a sales opportunity there
is always a time gap required between purchase and sale of goods.

Thus trading concern should have some stock of finished goods in order to
undertake sales activities independent of the procurement schedule.

Similarly, a firm may have several incentives being offered in terms of

quantity discounts or lower price etc by the supplier of goods. There is trading
concern inventory helps in a de-inking between sales activity and also to capitalize
a profit of opportunity due to purchase make at a discount will result in lowering
the total cast resulting in higher profits for the firm.
SCOPE OF THE STUDY

Inventory management being a very important concept in all the companys

having a void coverage often calls for the managerial attention. In the modern
times inventory management has become the integral part of the all companies. So
all the firm give special importance for inventory management. The major
objective of the study is to examine the effectiveness of inventory management
system adopted by SRI KARPAGAM ORGANIC COTTON INDUSTRY.
The study mainly focuses on the techniques used by this company to control the
inventory.

OBJECTIVES OF THE STUDY

1. To study the inventory management based on the ratios

2. To find out the impact of inventory on working capital.
3. To study the inventory management and its effective control through various
techniques.
4. To suggest the measures for improving the inventory level.
LIMITATION OF THE STUDY

The entire analysis applies only to SRI KARPAGAM ORGANIC

COTTON INDUSTRY.

The study takes into account only the quantitative data and the qualitative
aspects were not taken into account.
The assumption made in the EOQ and Safety stock formulas restrict the use
of the formula. In practice, unit cost, lead time, requirements of inventory
items are not accurately predictable. Rate of consumption varies in many
cases. As such application of the formula often becomes a difficult and
complicated matter.
ABC analysis is not one time exercise and items are to be reviewed and re
categorized periodically.
RESEARCH METHODOLOGY

STUDY OR RESEARCH OBJECTIVES:

The main objectives of study:

a. To learn how the company keeps all the data of inventory perfectly.
b. To study how finance department of the company work.
c. To find out the composition of inventory.
d. To study the various inventory ratio.
e. To analyze the inventory management techniques used in the company.
f. To study the Inventory Control Techniques of the company.

METHODS OF DATA COLLECTION:

The data is collected from the respected persons of the company. The
communication was informal in nature.

SECONDARY DATA:
The data was analyzed from the balance sheet, various tables, graphs,
charts, referred some of the reports and other companies report.

DATA ANALYSIS TECHNIQUES:

For the purpose of analysis of the data and the report I have kept in mind the
objective and analyzed each and every data I got at each stage of the report. I have
used many tools for analyzing the data and the different ratios used for it are as
follows:

i. Total investment in inventory ratio.

ii.Total inventory to current ratio.
 iii. Raw materials turnover ratio.
iv. Work in process turnover ratio
v. Finished goods turnover ratio.

SAMPLE PERIOD

The survey was conducted during the year 2015 and the first quarter of the
year 2016. The observations made on the inventory management environment for a
span of four years i.e.,2011-2016 . It has helped the researcher to understand the
inventory environment and to draw appropriate findings and suggestions. The
researcher feels that, auto component manufacturing industry is one among the
dynamic sectors in terms of growth and upgrading of technical climate, investment
opportunities and investment motives, inventory behavior from time to time in the
sample area and in the context of auto sector reforms progress in the state of
Tamilnadu.

SOURCES OF DATA

The present study uses both primary and secondary data. Primary data is
collected from the auto component manufacturing units in the sample area through
a structured questionnaire. In few cases to understand the depth of the issue and the

sensitivity of the variables in the study, the scholar personally met experts in the
industry having professional experience and had a personal interview using both
structured and unstructured interview schedule. This helps in understanding the
issue at broad prospective and to analyse the same in the research point of view.
The secondary data is collected from both print and electronic media. The print
media includes, reports, magazines, journals, published research papers, thesis
works, unpublished industry reports, news paper reports and the other text books.
The electronic media sources includes digital data bases, web portals, indexed
journals in open access portals, industry association reports etc.

GENERAL PROBLEMS OF INVENTORY

To maintain a large size inventories for efficient and smooth production and
sales operation.
To maintain only a minimum possible inventory because of inventory
holding cost and opportunity cost of funds invested in inventory.
Control investment in inventories and keep it at the optimum level.

AREA OF THE STUDY:

The Area of the study was conducted by the SRI KARPAGAM ORGANIC
COTTON INDUSTRY.

CHAPTERIZATION OF THE STUDY:

CHAPTERIZATION I: Deals with Introduction
CHAPTERIZATION II: Deals with Review of literature
CHAPTERIZATION III: Deals with Company profile
CHAPTERIZATION IV: Deals with Data Analysis and Interpretation
CHAPTERIZATION V: Deals with Finding Suggestion and Conclusion
 CHAPTER-II

INDUSTRY PROFILE

INTRODUCTION TO THE ORGONIZATION

INDIAN TEXTILE INDUSTRY

India Textile Industry is one of the leading textile industries in the world.
Though was predominantly unorganized industry even a few years back, but the
scenario started changing after the economic liberalization of Indian economy in
1991. The opening up of economy gave the much-needed thrust to the Indian
textile industry, which has now successfully become one of the largest in the
world. India textile industry largely depends upon the textile manufacturing and
export. It also plays a major role in the economy of the country. India earns about
27% of its total foreign exchange through textile exports. Further, the textile
industry of India also contributes nearly 14% of the total industrial production of
the country. It also contributes around 3% to the GDP of the country. India textile
industry is also the largest in the country in terms of employment generation. It not
only generates jobs in its own industry, but also opens up scopes for the other
ancillary sectors. India textile industry currently generates employment to more
than 35 million
people. Indian textile industry can be divided into several segments, some of which
can be listed as below:
Cotton Textiles
Silk Textiles
Woolen Textiles
 Readymade Garments
Hand-crafted Textiles
Jute and Coir

Government initiatives and regulatory framework

Government Initiatives
The Government of India has promoted a number of export promotion
policies for the Textile sector in the Union Budget 2011-12 and the Foreign Trade
Policy 2009-14. This also includes the various incentives under Focus Market
Scheme and Focus Product Scheme; broad basing the coverage of Market Linked
Focus Product Scheme for textile products and extension of Market Linked Focus
Product Scheme etc. to increase the Indian shares in the global trade of textiles and
clothing. The various schemes and promotions by the Government of India are as
follows - It has allowed 100 per cent Foreign Direct Investment (FDI) in textiles
under the automatic route.
Welfare Schemes:
The Government has offered health insurance coverage and life insurance
coverage to 161.10 million weavers and ancillary workers under the Handloom
Weavers' Comprehensive Welfare Scheme, while 733,000 artisans were provided
health coverage under the Rajiv Gandhi ShilpiSwasthyaBimaYojna.

E-Marketing:
 The Central Cottage Industries Corporation of India (CCIC), and the
Handicrafts and Handlooms Export Corporation of India (HHEC) have developed
a number of e-marketing platforms to simplify marketing issues. Also, a number of
marketing initiatives have been taken up to promote niche handloom and
handicraft products with the help of 600 events all over the country.

Skill Development:
As per the 12th Five Year Plan, the Integrated Skill Development Scheme
aims to train over 2,675,000 people within the next 5 years (this would cover over
270,000 people during the first two years and the rest during the remaining three
years). This scheme would cover all sub sectors of the textile sector such as
Textiles and Apparel; Handicrafts; Handlooms; Jute; and Sericulture.
Credit Linkages:

As per the Credit Guarantee program, over 25,000 Artisan Credit Cards have
been supplied to artisans, and 16.50 million additional applications for issuing up
credit cards have been forwarded to banks for further consideration with regards to
the Credit Linkage scheme.
Financial package for waiver of overdues:

The Government of India has announced a package of US$ 604.56 million to

waive of overdue loans in the handloom sector. This also includes the waiver of
overdue loans and interest till 31st March,2010, for loans disbursed to handloom
sector. This is expected to benefit at least 300,000 handloom weavers of the
industry and 15,000 cooperative societies.

Textiles Parks:
The Indian Government has given approval to 40 new Textiles Parks to be
set up and this would be executed over a period of 36 months. The new Textiles
Parks would leverage employment to 400,000 textiles workers.The product mix in
these parks would include apparels and garments parks, hosiery parks, silk parks,
processing parks, technical textiles including medical textiles, carpet and power
loom parks.

INTRODUCTION TO TEXTIXE

Fabric refers to any material made through weaving, knitting, spreading,

crocheting, or bonding that may be used in production of further goods (garments,
etc.). Cloth may be used synonymously with fabric but often refers to a finished
piece of fabric used for a specific purpose (e.g., table cloth).A textileor clothis a
flexible woven material consisting of a network of natural or artificial fibers often
referred to as thread or yarn.
 Yarn is produced by spinning raw fibers of wool, flax, cotton, or other material
to produce long strands. Textiles are formed by weaving, knitting, crocheting, knotting,
or pressing fibers together (felt).

The words fabric and cloth are used in textile assembly trades (such as tailoring and
dressmaking) as synonyms for textile. However, there are subtle differences in these

terms in specialized usage. Textile refers to any material made of interlacing fibers.
Section 1.01 Etymology

The word 'textile' is from Latin, from the adjective textiles, meaning 'woven',
from textiles, the past participle of the verb textiles, 'to weave'. The word 'fabric'
also derives from Latin, most recently from the Middle Frenchbarbeque, or
'building, thing made', and earlier as the Latin fabric 'workshop; an art, trade; a
skillful production, structure, fabric', which is from the Latin fiber, or 'artisan who
works in hard materials', from PIEdhabh-, meaning 'to fit together'.

The word 'cloth' derives from the Old Englishclay, meaning a cloth, woven or
felted material to wrap around one, from Proto-Germanic kalithaz (compare
O.Frisian 'klath', Middle Dutch 'cleet', Dutch 'kleed', Middle High German 'kleit',
and German 'kleid', all meaning "garment"). There are several different types of
fabric from two main sources: manmade and natural. Inside natural, there are two

others, plant and animal. Some examples of animal textiles are silk and wool. An
example of a plant textile is cotton.
Section 1.02
Section 1.03
Section 1.04 History

The production of textiles is a craft whose speed and scale of production has been
altered almost beyond recognition by industrialization and the introduction of
modern manufacturing techniques. However, for the main types of textiles, plain
weave, twill, or satin weave, there is little difference between the ancient and modern

methods.

Incas have been crafting quipus (or khipus) made of fibers either from a protein,
such as spun and plied thread like wool or hair from camelids such as alpacas,
llamas, and camels, or from a cellulose like cotton for thousands of years. Khipus are

a series of knots along pieces of string. Until recently, they were thought to have
been only a method of accounting, but new evidence discovered by Harvard
professor Gary Urton indicates there may be more to the khipu than just numbers.
Preservation of khipus found in museum and archive collections follow general
textile preservation principles and practice.

During the 15th century, textiles were the largest single industry. Before the 15th
century textiles were produced only in a few towns but during, they shifted into
districts like East Anglia, and the Cotswolds.
Section 1.05 Uses

Textiles have an assortment of uses, the most common of which are for
clothing and for containers such as bags and baskets. In the household they are used

in carpeting, upholstered furnishings, window shades, towels, coverings for tables, beds,
and other flat surfaces, and in art. In the workplace they are used in industrial and
scientific processes such as filtering. Miscellaneous uses include flags, backpacks,
tents, nets, handkerchiefs, cleaning rags, transportation devices such as balloons, kites,

sails, and parachutes; textiles are also used to provide strengthening in composite

materials such as fiberglass and industrial geotextiles. Using textiles, children can learn

to sew and quilt and to make collages and toys.

Textiles used for industrial purposes, and chosen for characteristics other than their
appearance, are commonly referred to as technical textiles. Technical textiles include
textile structures for automotive applications, medical textiles (e.g. implants),
geotextiles (reinforcement of embankments), agro textiles (textiles for crop
protection), protective clothing (e.g. against heat and radiation for fire fighter

clothing, against molten metals for welders, stab protection, and bullet proof vests).
In all these applications stringent performance requirements must be met. Woven
of threads coated with zinc oxidenanowires, laboratory fabric has been shown capable
of "self-powering Nano systems" using vibrations created by everyday actions like
wind or body movements.
Section 1.06 Sources and types

Textiles can be made from many materials. These materials come from four
main sources: animal (wool, silk), plant (cotton, flax, jute), mineral (asbestos, glass
fibre), and synthetic (nylon, polyester, acrylic). In the past, all textiles were made from
natural fibers, including plant, animal, and mineral sources. In the 20th century,
these were supplemented by artificial fibers made from petroleum.

Textiles are made in various strengths and degrees of durability, from the
finest gossamer to the sturdiest canvas. The relative thickness of fibers in cloth is
measured in deniers. Microfiber refers to fibers made of strands thinner than one
denier.
Section 1.07 Fashion and textile designers
Fashion designers commonly rely on textile designs to set their fashion
collections apart from others. Armani, the late Gianni Versace, and Emilio Pucci can be
easily recognized by their signature print driven designs.

(a) Plant textiles

Grass, rush, hemp, and sisal are all used in making rope. In the first two, the
entire plant is used for this purpose, while in the last two, only fibers from the plant
are utilized. Coir (coconutfibre) is used in making twine, and also in floormats,
doormats, brushes, mattresses, floor tiles, and sacking.
Straw and bamboo are both used to make hats. Straw, a dried form of grass, is also

used for stuffing, as is kapok.

Fibers from pulpwood trees, cotton, rice, hemp, and nettle are used in making paper.

Cotton, flax, jute, hemp, modal and even bamboo fibre are all used in clothing. Pia

(pineapplefibre) and ramie are also Fibers used in clothing, generally with a blend of
other Fibers such as cotton. Nettles have also been used to make a fibre and fabric
very similar to hemp or flax. The use of milkweed stalk fibre has also been
reported, but it tends to be somewhat weaker than other Fibers like hemp or flax.

Acetate is used to increase the shininess of certain fabrics such as silks, velvets, and

taffetas.

Seaweed is used in the production of textiles: a water-soluble fibre known as alginate

is produced and is used as a holding fibre; when the cloth is finished, the alginate is
dissolved, leaving an open area.

Lyocell is a man-made fabric derived from wood pulp. It is often described as a

man-made silk equivalent; it is a tough fabric that is often blended with other
fabrics cotton, for example.

Fibers from the stalks of plants, such as hemp, flax, and nettles, are also known as
'bast' Fibers.
(b) Mineral textiles

Asbestos and basalt fibre are used for vinyl tiles, sheeting, and adhesives, "transite"
panels and siding, acoustical ceilings, stage curtains, and fire blankets.
Glass fibre is used in the production of spacesuits, ironing board and mattress
covers, ropes and cables, reinforcement fibre for composite materials, insect
netting, flame-retardant and protective fabric, soundproof, fireproof, and insulating
Fibers.

Metal fiber, metal foil, and metal wire have a variety of uses, including the
production of cloth-of-gold and jewelry. Hardware cloth (US term only) is a coarse
woven mesh of steel wire, used in construction. It is much like standard window
screening, but heavier and with a more open weave. It is sometimes used together

with screening on the lower part of screen doors, to resist scratching by dogs. It
serves similar purposes as chicken wire, such as fences for poultry and traps for animal
control.

(c) Synthetic textiles

All synthetic textiles are used primarily in the production of clothing.

Polyesterfibre is used in all types of clothing, either alone or blended with Fibers

such as cotton.

Aramidfibre (e.g. Twaron) is used for flame-retardant clothing, cut-protection, and

armor.

Acrylic is a fibre used to imitate wools, including cashmere, and is often used in

replacement of them.

Nylon is a fibre used to imitate silk; it is used in the production of pantyhose.

Thicker nylon Fibers are used in rope and outdoor clothing.

Spandex (trade name Lycra) is a polyurethane product that can be made tight-fitting

without impeding movement. It is used to make active wear, bras, and swimsuits.
Olefin fibre is a fibre used in active wear, linings, and warm clothing. Olefins are

hydrophobic, allowing them to dry quickly. A sintered felt of olefin Fibers is sold
under the trade name Tyvek.

Ingeo is a polylactidefibre blended with other Fibers such as cotton and used in

clothing. It is more hydrophilic than most other synthetics, allowing it to wick

away perspiration.

Lurex is a metallic fibre used in clothing embellishment.

Milk proteins have also been used to create synthetic fabric. Milk or caseinfibre

cloth was developed during World War I in Germany, and further developed in Italy
and America during the 1930s.14 Milk fibre fabric is not very durable and wrinkles
easily, but has a pH similar to human skin and possesses anti-bacterial properties.
It is marketed as a biodegradable, renewable synthetic fibre.

Carbon fibre is mostly used in composite materials, together with resin, such as

carbon fibre reinforced plastic. The Fibers are made from polymer Fibers through

carbonization.
Section 1.08 Production methods

Weaving is a textile production method which involves interlacing a set of longer

threads (called the warp) with a set of crossing threads (called the weft). This is done

on a frame or machine known as a loom, of which there are a number of types.

Some weaving is still done by hand, but the vast majority is mechanized.

Knitting and crocheting involve interlacing loops of yarn, which are formed either

on a knitting needle or on a crochet hook, together in a line. The two processes are
different in that knitting has several active loops at one time, on the knitting needle
waiting to interlock with another loop, while crocheting never has more than one
active loop on the needle.

Spread Tow is a production method where the yarn are spread into thin tapes, and

then the tapes are woven as warp and weft. This method is mostly used for
composite materials; Spread Tow Fabrics can be made in carbon, aramide, etc.

Braiding or plaiting involves twisting threads together into cloth. Knotting involves

tying threads together and is used in making macrame.

Lace is made by interlocking threads together independently, using a backing and

any of the methods described above, to create a fine fabric with open holes in the
work. Lace can be made by either hand or machine.

Carpets, rugs, velvet, velour, and velveteen are made by interlacing a secondary yarn

through woven cloth, creating a tufted layer known as a nap or pile.

Felting involves pressing a mat of Fibers together, and working them together until
they become tangled. A liquid, such as soapy water, is usually added to lubricate
the Fibers, and to open up the microscopic scales on strands of wool.

Nonwoven textiles are manufactured by the bonding of Fibers to make fabric.

Bonding may be thermal or mechanical, or adhesives can be used.

Bark cloth is made by pounding bark until it is soft and flat.

Section 1.09 Treatments
Textiles are often dyed, with fabrics available in almost every color. The dying
process often requires several dozen gallons of water for each pound of clothing. 17
Colored designs in textiles can be created by weaving together Fibers of different
colors (tartan or Uzbek Ikat), adding colored stitches to finished fabric (embroidery),
creating patterns by resist dyeing methods, tying off areas of cloth and dyeing the rest
(tie-dyeing), or drawing wax designs on cloth and dyeing in between them (batik), or
using various printing processes on finished fabric. Woodblock printing, still used in
India and elsewhere today, is the oldest of these dating back to at least 220 CE in
China. Textiles are also sometimes bleached, making the textile pale or white.

Textiles are sometimes finished by chemical processes to change their

characteristics. In the 19th century and early 20th century starching was commonly
used to make clothing more resistant to stains and wrinkles. Since the 1990s, with
advances in technologies such as permanent press process, finishing agents have been
used to strengthen fabrics and make them wrinkle free.18 More recently,
nanomaterials research has led to additional advancements, with companies such as
Nano-Tex and Nano Horizons developing permanent treatments based on metallic
nanoparticles for making textiles more resistant to things such as water, stains,

wrinkles, and pathogens such as bacteria and fungi.19

More so today than ever before, textiles receive a range of treatments before they
reach the end-user. From formaldehyde finishes (to improve crease-resistance) to
biocidic finishes and from flame retardants to dyeing of many types of fabric, the
possibilities are almost endless. However, many of these finishes may also have
detrimental effects on the end user. A number of disperse, acid and reactive dyes
(for example) have been shown to be allergenic to sensitive individuals. Further to
this, specific dyes within this group have also been shown to induce purpuric
contact dermatitis.

Although formaldehyde levels in clothing are unlikely to be at levels high enough

to cause an allergic reaction, due to the presence of such a chemical, quality
control and testing are of utmost importance. Flame retardants (mainly in the
brominated form) are also of concern where the environment, and their potential
toxicity, are concerned. Testing for these additives is possible at a number of
commercial laboratories, it is also possible to have textiles tested for according to
the Oeko-tex certification standard which contains limits levels for the use of certain
chemicals in textiles products.
Section 1.10 Production

India is the second largest producer of fibre in the world and the major fibre
produced is cotton. Other Fibers produced in India include silk, jute, wool, and
man-made fibers. 60% of the Indian textile Industry is cotton based.
The strong domestic demand and the revival of the Economic markets by 2009 has
led to huge growth of the Indian textile industry. In December 2010, the domestic
cotton price was up by 50% as compared to the December 2009 prices. The causes
behind high cotton price are due to the floods in Pakistan and China.India
projected a high production of textile (325 lakh bales for 2010 -11).5 There has
been increase in India's share of global textile trading to seven percent in five
years.5 The rising prices are the major concern of the domestic producers of the
country.

Man Made Fibers: These includes manufacturing of clothes using fiber or

filament synthetic yarns. It is produced in the large power loom factories.
They account for the largest sector of the textile production in India.This
sector has a share of 62% of the India's total production and provides
employment to about 4.8 million people.6
The Cotton Sector: It is the second most developed sector in the Indian
Textile industries. It provides employment to huge amount of people but its
 productions and employment is seasonal depending upon the seasonal nature
of the production.
The Handloom Sector: It is well developed and is mainly dependent on the
SHGs for their funds. Its market share is 13%. of the total cloth produced in
India.
The Woolen Sector: India is the 7th largest producer. of the wool in the
world. India also produces 1.8% of the world's total wool.
The Jute Sector: The jute or the golden fiber in India is mainly produced in
the Eastern states of India like Assam and West Bengal. India is the largest
producer of jute in the world.
The Sericulture and Silk Sector: India is the 2nd largest producer of silk in
the world. India produces 18% of the world's total silk. Mulberry, Eri, Tasar,
and Muga are the main types of silk produced in the country. It is a labor-
intensive sector.
Section 1.11 Indian Textile Policy

Government of India passed the National Textile Policy in 2000

Section 1.12
Section 1.13 Textile Organization

The Indian Textile industries is mainly dominated by some government, semi

government and private institutions.
The major functions of the ministry of Textile are:

Bhilwara Textiles Industry

Textile Policy & Coordination
Man-made Fiber Industry
Cotton Textile Industry
 Jute Industry
Silk and sericulture Industry
Wool Industry
Decentralized Power loom Sector
Export Promotion
Planning & Economic Analysis
Finance Matters
Information Technology(IT)

The advisory boards include:

All India Handlooms Board

All India Handicrafts Board
All India Power looms Board
Advisory Committee under Handlooms Reservation of Articles for
Production
Co-ordination Council of Textiles Research Association
MM cotton industry

The major export promoting councils include:

Apparel Export Promotion Council, New Delhi

Carpet Export Promotion Council, New Delhi
Cotton Textiles Export Promotion Council, Mumbai

The major PSU or Public Sector Undertaking are:

National Textile Corporation Ltd. (NTC)

British India Corporation Ltd. (BIC)
 Cotton Corporation of India Ltd. (CCI)
Jute Corporation of India Ltd. (JCI)
National Jute Manufacturers Corporation (NJMC)
Handicrafts and Handlooms Export Corporation (HHEC)
National Handloom Development Corporation (NHDC)
Export Promotion Council for Handicrafts, New Delhi
Handloom Export Promotion Council, Chennai
Indian Silk Export Promotion Council, Mumbai
Power loom Development & Export Promotion Council, Mumbai
Synthetic & Rayon Textiles Export Promotion Council, Mumbai
Wool & Woolen Export Promotion Council, New Delhi

Other autonomous bodies in this industry are:

Central Wool Development Board, Jodhpur

National Institute of Fashion Technology, New Delhi
National Centre for Jute Diversification

The textile Research Associations are:

South India Textiles Research Association (SITRA), Coimbatore

Ahmedabad Textiles Industrys Research Association
Bombay Textiles Research Association, Mumbai
Indian Jute Industries Research association, Kolkata
Man-made Textiles Research Association, Surat
Synthetic and art silk Mills Research Association, Mumbai
Wool Research Association, Thane
Northern India Textiles Research Association, Ghaziabad
Section 1.14 Organized sector

According to Kearneys Retail Apparel Index India ranked as the fourth most
promising market for apparel retailers in 2009.

There is large scope of improvement in the textile industry of India as there is a

huge increase in personal disposable income among the Indians after the 1991
liberalisation. There is also a large growth of the organised sector in the Indian
textile industries.The foreign brands along with the collaboration of the Indian
companies established business in India. Some of these are Puma, Armani, Benetton,
Esprit, Levi Strauss, Hugo Boss, Liz Claiborne, Crocs etc.

The major Indian Industries include Bombay Dyeing, Fabindia, Grasim Industries, JCT
Limited, Lakshmi Machine Works, Lakshmi Mills and Mysore Silk Factory.

INDUSTRY PROFILE

The Indian Textile Industry occupies an important place in the Economy of

the Country because of its contribution to the Industrial Output, Employment
Generation and Foreign Exchange Earnings. At present, the contribution of the
textile Industry to GDP is about 4 percent. The textile industry provides direct
employment to about more than 35 million people and is the second largest
employment provider in India next to agriculture. The contribution of this industry
to gross export earnings is about 31% of the country.

The Textile Industry is a self-reliant industry from the production

of raw materials to the delivery of final products with considerable value addition
at each stage of processing. The industry was deli censed in 1991 and under the
current policy no prior government approval is necessary to set up textile mills.
The per capita cloth availability in the country has increased from 24.1 square
meters in 1991 to 30.7 square meters in 2000-01.The textile sector including the
garment sector has a continual increase in the FDI inflow from Rs.80.99 million to
Rs.234.73million.

From growing its own raw material (cotton, jute, silk and wool) to providing value
added products to consumers (fabrics and garments), the textile industry covers a
wide range of economic activities, including employment generation in both
organized and unorganized sectors. Manmade fibers account for around 40 per cent
share in a cotton dominated Indian textile industry. India accounts for 15% of
world's total cotton crop production. And it is the second largest employer after the
agriculture sector in both rural and urban areas. India has a large pool of skilled
low-cost textile workers; experienced in technical skills. Almost all sectors of the
textile industry have shown significant achievement. India's cotton textile industry
has a high export potential. Cost competitiveness is driving the penetration of
Indian basic yarns and grey fabrics in international commodity markets. Besides
natural fibers such as cotton, jute and silk, synthetic raw material products such as
polyester staple fiber, polyester filament yarn, acrylic fiber and viscose fiber are
produced in India.

From 1st January 2013, all textile and clothing products would
be traded internationally without quota-restrictions. And this impending reality
brings the issue of competitiveness to the fore for all firms in the textile and
clothing sectors, including those in India. With the dismantling of quotas in 2004
under mandate from the Agreement in Textile and Clothing of the WTO, the focus
has clearly shifted to the future of the Indian textile and clothing exports. It is
imperative to understand the true competitiveness of Indian textile and clothing
firms in order to make an assessment of what lies over a period of time.
GLOBAL TRADE IN TEXTILE AND CLOTHING -INDIAS
PERFORMANCE

During the MFN period, the textile exporters from industrial countries and those
from developing countries merely changed shares between themselves during 24
years .The share of industrial countries declined by almost as much (19.2%) as was
the gain in the share of developing countries (18.8%). Clothing exporters, however,
exhibit significant changes, with the share of top exporters having declined by
13.8%.

New entrants have come in as well as some old ones have been knocked out. Of
these new entrants, most- if not all- are from developing countries, since the share
of industrial countries has declined during the period, and that of developing
countries has increased.

The countries that are gaining share in clothing exports are the ones whose
industries are integrated to one or the other advanced country through some policy-
induced preferential arrangements. Mexico, Caribbean region, East European
countries and Mediterranean countries are capturing much of the space vacated.

There has been a much deeper globalization in clothing than in textiles. Indeed,
that has been one of the principal reasons for the developed countries agreeing to
an eventual phase-out in the UR of negotiations. While in textiles, there was an
inexorable shift away from developed countries in 1973 to1997 and to developing
countries at large, in clothing the shift away from developed countries is
increasingly being grabbed by preferred developing countries.

Thus, in clothing, the non-preferred group of developing countries is fighting

amongst themselves for a pie that is increasingly declining.

One should expect a much higher level of intra-industry and intra-firm trade in
clothing than in textiles. This is entirely compatible with the fact that it is the trade
in Clothing that is growing faster than that in textile.

And this trend is likely to deepen, as Clothing retailers consolidate, and Outward
Processing Trade (OPT) traffic increases. The Opportunity clearly lies much more
in clothing, though the caveat is the exporting.

Country would have to achieve the preferred status, and integrate its
manufacturing with that of an importing country in order to continue exporting to
the restricted markets. The pressure to export would intensify in the years to come
since 80% of additional output during 1995-2013 is expected to be located in
developing countries. On the other hand, only 50% of the additional fibre
consumption would originate in developing countries.

The main objective of the textile policy 2000 is to provide cloth of acceptable
quality at reasonable price for the vast majority of the population of the country, to
increasingly contribute to the provision of sustainable employment and the
economic growth of the nation; and to compete with confidence for an increasing
share of the global market.

ANIMAL SOURCES FIBERS:

WOOL

Sheep are the primary source of wool in military textile. Wool consists mainly of a
protein called keratin. This is made up of amino acids. Keratin contains 3 4 %
sulfur which is an insect attractant. Wool fibers absorb more moisture and accept
dyes better than vegetable fibers. Wool is not a strong fiber and weakens
considerably when wet.

SILK

Silk is an animal (insect) fiber that is derived from the cocoon filament of the
silkworm (Bombay mori). Because it is basically protein, silk is easily affected by
alkalis and various inorganic acids. Like wool, it easily absorbs moisture and will
take dyes readily. These dyes, however, are not as light-fast as those on wool. Silk
is as strong as a steel wire the same diameter but is very light sensitive. Therefore,
it will break down faster than wool when exposed to ultra violet rays. The most
commonly encountered military artifacts composed of silk are scarves, medal
ribbons and escape maps.

VEGETABLE SOURCE FIBERS:

COTTON

Cotton is a vegetable fiber derived from lint on the cotton seed. It can survive in
moderate alkaline condition but is adversely affected by acids. Cotton does not
transmit moisture like linen and is very absorbent in its processed state. It is this
characteristic clock wise twist ; for this reason , it is commonly spun in a Z twist.

LINEN
Linen is a spun and woven vegetable-based fiber derived from flax stalks and
branches. Linen fiber lies close together and are durable. They withstand moderate
alkaline condition because of their cellulose content, but are readily affected by
acids. Moisture easily passes through the fiber of linen, causing in the overall
strength. Linen does not take dye well and is usually left in a blenched or
unclenched white state.

AGENTS OF DETERIORATION

All textiles are deteriorated by light, insect, microorganism, and air pollution.
Which alone or together, causes considerable loss of tensile strength and pliability?
The oxygen on the atmosphere affects all organic substance to varying degrees.
Prolonged exposure to normal atmospheric condition will cause textiles to weaken
and disintegrate. The speed of the deterioration varies according to environment
and the nature of the fibers . The main factors that promote the decay of textile can
be categorized into three groups.

ORGANIC

All organic source textiles are subject to attack by molds, mildew and bacteria. The
environment that favor the growth of these organism are as damp heat, stagnant air,
and dirty storage conditions. Animal source textiles are particularly susceptible to
attack by insect and rodents.

PHYSICAL

Exposure to ultraviolet light causes a type of deterioration known as tendering,

as well as the photochemical degradation of susceptible dyes. Environment that are
too damper too dry can lead to mold growth or desiccation of a textile. Improper
handling or storage can cause stress on the fabric which leads to tearing or
separation.

CHEMICAL

Exposure to gases from adhesives or paints can cause tendering. In some cases,
these gases are converted to acids, a primary cause for the deterioration of some
textiles. A coat of paint or layer of adhesives in a display case for example, may
produce fumes or off gas for months after it appear to be dry. In larger cities, air
pollution may be a serious threat to textile as well as human health. Traditionally,
the textile industry is very energy, water, and chemical intensive. About 60% of
the energy is used by dyeing and finishing operations. Environment problems
associated with the textile industry are typically those associated with water
pollution. Natural impurities extracted from the fiber being processed along with
chemical used for processing are the two main sources of pollution. Effluents are
generally hot, alkaline, strong smelling and colored by chemicals used in dying
process.
COMPANY PROFILE

Established in 1957 by the late Vengaya Naidu K, SRI KARPAGAM Organic

Company was incorporated as a private limited company in 1914. The flagship of
the Coimbatore-based Sri Karpagam, its associate companies is SRI KARPAGAM
Machine Works, Sri Karpagam Synthetic Machinery Manufacturers and SRI
KARPAGAM Auto Looms. PKR is a composite mill manufacturing a range of
cotton, viscose, blended yarn and a variety of grey and processed cloth. The
company has four manufacturing units located at Coimbatore, Singanallur,
Kovilpatti and Palladam, all in Tamilnadu. The company's cloth processing is done
by its subsidiary, United Bleachers. SRI KARPAGAM exports cotton yarn and
grey cloth to the UK, Germany, Italy, Tamilnadu and Japan. In 1977, Coimbatore
Cotton Mills was amalgamated with the company.

We are a professionally managed company engaged in the field of manufacturing,

supplying and exporting of high quality knitted and hosiery garments. We started
with a zeal and determination to redefine fashion in the industry. Standing on the
grounds of style and elegance, we offer knitted and hosiery garments that are
abreast of the changing international trends and working the total no of employees
are 650.
VISION OF SRI KARPAGAM ORGANIC COTTON

To manufacture products comparable to international standards, to be

customer-focused and globally competitive through better quality,
latest technology and continuous innovation.

MISSION OF SRI KARPAGAM ORGANIC COTTON

To manufacture world-class products of outstanding quality that give

our customers a competitive advantage through superior products and
value, so we can make every customer smile.
To encourage people's ownership, empowerment and working under
team structure.
To attain highest level of efficiency, integrity and honesty.

OUR VALUES

Customer's satisfaction and delight.

Superior quality of performance.
Concern for the environment and the community.
Passionate about excellence.
Fair to all.
To provide a safe workplace and promote healthy work habits.
 CHAPTER-III

REVIEW OF LITERATURE

According to Lieberman, Marvin B; Demeester, Lieven (1999) in his article titled

Inventory reduction and productivity growth: Linkages in the Japanese
automotive industry published in Management Science has said that JIT
production suggests a causal link between work-in-progress inventory and
manufacturing productivity. Such a connection has been described in numerous
case studies but never tested statistically. Historical data for 52 Japanese
automotive companies are used to evaluate the inventory-productivity relationship.
It is found that firms increased their productivity rank during periods of substantial
inventory reduction. More detailed tests suggest that inventory reductions
stimulated gains in productivity.

Moon, Ilkyeong (2001) The authors Moon &Ilkyeong published their paper in
Interfaces titled Inventory Management and Production Planning and Scheduling
which is the third version of Decision Techniques for Stock Control and
Manufacturing Preparing released in 1979 and 1985. Bob Pyke became a coauthor
for this version and performed a key part in composing significant up-dates of
several sections, such as those on supply-chain management, multi-echelon stocks,
just in time, and ERP (enterprise source planning). In addition, the writers have
included worksheet applications for each section as additional components to
improve the audience and usefulness for learners in business applications, and for
experts.
As per the authors Jackson, Duncan (2004), TradeBeam and Global eXchange
Services Partner to Provide Collaborative Inventory Management and
Interoperability for Automotive Industry, in Business Wire says that TradeBeam
is a Global Trade Management software and services company providing solutions
that streamline global trading processes for enterprises and their partners.
TradeBeam's solutions provide import and export compliance, inventory
management, shipment tracking, supply chain event management and global trade
finance solutions such as open account and letter of credit management.
TradeBeam has over 3000 customers with users in over 100 countries worldwide.

Krishna, L Sivarama; Janardhan, G Ranga; Rao, C S P (2009) in their article

Web Integrated Decision Support System for Machine Scheduling and Inventory
Management, was published in IUP Journal of Operations Management tells
about stock management symbolizes the process of managing stocks of completed
products, semi-finished products and raw elements by a company so as to reduce
the total stock cost. The first level contains the development of a organizing
program with make span minimization as the primary objective. The second level
contains the development of the stock management program and creating it with
the organizing program. The third level contains creating the program web
permitted, so that it provides the flexibility of assigned creating choices to your
selection makers.

According to Snehalgavi (2010) in her article titled It Outsourcing in Indian

Automobile Industry in Business & Economy says Outsourcing is the act of
delegating an organizations internal activities and to some extent the right to
decisions to the third party (service vendors) as per specified in the contract.
Outsourcing is a tool, in which the vendor is responsible for certain jobs
outsourced by a company, in return of a price for the goods or service provided by
it. This option is exercised majorly because to cut operation costs of a company
and focus on its core competencies. It is basically a contract between two
companies or concern in which one is getting its business process outsourced from
another company offering such services.

According to Martin, Benjamin Robert (2010) in his article titled Findlay

Automotive group selects first look for pre- owned inventory management needs,
in PR Newswire With 15 brands including Toyota, Honda, Chevrolet, Cadillac,
Saturn, Land Rover, Saab and Volkswagen, Findlay will utilize the First Look
product suite to guarantee the right balance between pre-owned inventory and
demand, and ensure that trades are given the best appraisals. In addition to the
inventory management tool, and trade analyzer, Findlay will use the First Look
Search Engine to allow its dealers to instantly search more than 30 online
marketplaces to identify the best vehicles that meet that dealerships pre-owned
inventory needs.

As per Koumanakos, Dimitrios P. (2008) in Business Wire titled Hitachi

Automotive Improves Efficiency and Inventory Control with Geac's System 21
says that Hitachi America, Ltd. has streamlined production, reduced accounting
costs and improved supply chain management using Geac's System21 software
solution. Hitachi Automotive implemented three System21 modules in 1998 -
financials, manufacturing, and customer service and logistics - across its three
locations in Kentucky, Detroit and Los Angeles. In September 2002, the company
will renew its maintenance contract with Geac(R) for three years.

According to Cachon, Grard P; Olivares, Marcelo (2010), Drivers of

Finished-Goods Inventory in the U.S. Automobile Industry, in Management
Science says Automobile manufacturers in the U.S. supply chain exhibit
significant differences in their days of supply of finished vehicles. The objective in
this research is to measure for this industry the effect of several factors on
inventory holdings. We find that two factors, the number of dealerships in a
manufacturer's distribution network and a manufacturer's production flexibility,
explain essentially all of the difference in finished-goods inventory between
Toyota and three other manufacturers: Chrysler, Ford, and General Motors.

As per Moozakis, Chuck (2001), Honda Automates Web Financing --

Network will let dealers apply for funds online and will eventually support
inventory management in Internet Week says that financing unit of American
Honda Motor Co. next month will begin rolling out its Dealer Financial
Information Network (DFIN), a Web system that will help its 3,000 dealers obtain
financing for inventory in real time. Currently, dealers purchasing inventory from
Honda need to apply for financing through American Honda Finance Corp. or
another bank. Typically, approvals take several days.

According to the aticle Study of vendor-managed inventory practices in Indian

industries by Borade, Atul B; Bansod, Satish V. (2010) in Journal of
Manufacturing Technology Management says that in the global economy, vendor-
managed inventory (VMI) is gradually becoming an important element of supply
chain management strategy of organizations. Recently, Indian industries, both
large and small, have started adopting VMI for their supply chains. The purpose of
this paper is to investigate apparent differences among large and small industries in
terms of objectives, drivers, obstacles and impacts of VMI in Indian context. A
survey was conducted to examine organizational objectives, strategic drivers,
obstacles and affected operations pursuant to VMI adoption.

According to Matson, Jack E; Matson, Jessica O (2007), in Just-in-time

implementation issues among automotive suppliers in the southern USA
published in Supply Chain Management speaks that Purpose - The purpose of this
paper is to provide insight into the major supply chain issues of the automotive
manufacturing industry in the southern USA. Design/methodology/approach - This
paper is based on the results of a survey of automotive suppliers in Tennessee and
Alabama. The survey focused on supply chain issues and demographics,
specifically on 20 JIT-related problems and 100 company characteristics. Findings
- Identifies the extent of JIT implementation in Tennessee's and Alabama's
growing automotive industry and the general characteristics of the companies that
use JIT.
 CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

INTRODUCTION

Effective inventory Controls ensure effective inventory management through

which an organization can minimize their overall projects and liquidity of the
respective concern. In deals with the analysis of data and their interpretation for
understanding the inventory system followed at instrumentation Limited. The data
has been collected from the secondary sources and the interpretations are done on
the basis of theories

RATIO ANALYSIS

INTRODUCTION:

Ratio analysis is an important tool for analyzing the company's financial

performance. Ratio analysis is defined as the systematic use of accounting ratios
in order to weigh and evaluate the operating performance of a firm. Ratio is simply
one number expressed in terms of another number. It refers to numerical
relationship between two figures. It is obtained by dividing one figure by the other.
Accounting ratio is relationship expressed in mathematical term between two
related figures in the financial statements.
OBJECTIVE OF RATIO ANALYSIS:

Ratio analysis is a powerful tool of financial analysis. The objectives of ratio

analysis are summarized as below:

Ratio is helpful in judging financial performance of an enterprise over a

period of time.
It may help the management in the task of planning and forecasting.
It is possible to test liquidity, solvency and profitability of the enterprise
through the technique of ratio analysis. It helps the management to take
decision regarding investment, purchases etc.
It helps to achieve coordination among various departments.
The primary objective of ratio analysis is to regulate and Control sales and
costs calculation of ratio is a clerical task which requires careful selection of the
relevant data from the financial statements. Appropriate ratios to suit the purposes
of analysis should be calculated and interpreted objectively.
 According to nature of functions ratios can be classified as liquidity ratios,
leverage ratios, activity ratios , profitability ratios. For analysis about the inventory
management the appropriate ratio is activity ratios. It includes:

Inventory turnover ratio

Ratio of material consumption to turnover
Inventory to current assets ratio
Inventory to working capital ratio
Cash to current asset ratio
Cash turnover ratio
Debtors turnover ratio
Creditors turnover ratio
Input output ratio
Working capital turnover ratio

TABLE: 4.1
THE PERCENTAGE OF CURRENT ASSET TO INVENTORY FOR SRI
KARPAGAM ORGANIC INDUSTRY.

CURRENT YEARS FIGURE % OF

ASSET INVENTORY

2011-2012 45.34 187.82%

SUNDRY 2012-2013 63.20 244.86%

DEBTORS
2013-2014 63.83 240.32%

2014-2015 72.24 233.10%

2015-2016 65.08 167.99%

2011-2012 .26 1.07%

2012-2013 4.74 18.36%

2013-2014 7.06 26.62%

CASH AND
2014-2015 .43 1.38%
BANK
2015-2016 .10 0.25%

2011-2012 8.83 36.58%

2012-2013 11.43 44.29%

LOAN AND
ADVANCES 2013-2014 11.42 42.99%

2014-2015 13.25 42.75%

2015-2016 13.63 35.18%

INFERENCE

The percentage of sundry debtor to inventory is highest in the year 2012-2013 and
lowest in the year 2015-2016 where cash and bank is highest in the year 2013-
2014, loan and advances is highest in 2012-2013 and lowest in 2015-2016.

INVENTORY TURNOVER RATIO

Inventory turnover ratio also known as stock turnover ratio establishes the
relationship between costs of goods sold and average inventory. Besides it helps in
determining the liquidity of a business concern, this ratio indicates how many
times during the period the firm has turned is inventory. It shows the rate at which
inventories are converted into sales and then into cash.

Cost of Goods Sold

Inventory Turnover =
Average Inventory
 TABLE: 4.2

THE INVENTORY TURNOVER RATIO FOR RPN.

Year Net sales(in Average inventory Ratio

Lakhs) (in Lakh)
2011-2012 75.37 20.36 3.7

2012-2013 91.74 24.98 3.67

2013-2014 100.21 26.19 3.82

2014-2015 101.96 28.77 3.54

2015-2016 102.84 34.87 2.94

INFERENCE

The inventory turnover ratio is maximum in the year 2013-2014. Higher value
indicates better performance. The company was able to sell their inventories
quickly.
The Lowest Inventory turnover ratio is in 2015-2016. A low inventory turnover
ratio indicates an inefficient management of inventory.
 CHART 4.2

THE INVENTORY TURNOVER RATIO

Inventory Turnover Ratio

160
140
120
100
80
60
40
20
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Net sales(in Lakhs) Average inventory (in Lakh) Ratio

INVENTORY HOLDING PERIOD

Inventory holding period shows whether the stock is fast moving or not. It is
calculated to see the average time taken for clearing the stock. The lower material
holding shows whether is any slow moving, fast moving or dormant stock. It is the
average time to convert our total inventory into sales. The lesser inventory
conversion period it is better because more fastly the inventory is converted into
sales.

Material Holding Period = Days in a year

Inventory turnover ratio

TABLE 4. 3:

THE INVENTORY HOLDING PERIOD OF RPN.

Year Days Average inventory Inventory

turnover ratio(in Lakh) Holding period

2011-2012 365 3.7 98.64

2012-2013 365 3.67 99.45

2013-2014 365 3.82 95.54

2014-2015 365 3.54 103.10

2015-2016 365 2.94 124.14

INFERENCE

The above table shows that the inventory conversion period for the 5 years
Inventory conversion period is minimum in 2013-2014 which indicate the
conversion of inventory to sales is faster. Maximum inventory holding period is in
2015-2016.

CHART 4.3:

INVENTORY HOLDING PERIOD FOR RPN.

Inventory Holding Period

500

400

300

200

100

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Days Average inventory turnover ratio(in Lakh) Inventory Holding period

RATIO OF MATERIAL CONSUMPTION TO TURNOVER

Ratio of material consumption to turnover measures how frequently inventory

taken for production. This ratio shows the proportion of expenditure on material
consumption to turnover. It provides a measurement between the amounts of raw
material verses the average amount of raw material in the inventory at any given
time.

A higher ratio is good from the view point of liquidity. It is calculated as follows:

Ratio of material consumption to turnover = Expenditure on material

Turnover

TABLE 4.4:

THE RATIO OF MATERIAL CONSUMPTION TO TURNOVER OF RPN.

Year Material Turnover Ratio

consumption
2011-2012 31.86 75.38 .422

2012-2013 46.49 91.75 .506

2013-2014 51.76 100.21 .516

2014-2015 48.77 101.96 .478

2015-2016 68.06 102.84 .661

INFERENCE

The above table shows an increasing trend of the ratio of material

consumption to turnover from 2011-2012 to 2013-2014. In 2015-2016 the ratio of
material consumption to turnover is maximum which is not good for a company.
The ratio is minimum in the year 2012-2013 which is favorable.

CHART 4.4:

THE RATIO OF MATERIAL CONSUMPTION TO TURNOVER OF.

Material Consumption

180
160
140
120
100
80
60
40
20
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Material consumption Turnover Ratio

INVENTORY TO CURRENT ASSET RATIO

Inventory to current assets ratio establishes a relationship between inventory

and the total current assets. There by analyzing the level of investment in inventory
and consumption of total current assets. It is current assets are those resources of
firm which are either held in the form of cash or a expected to be converted in cash
within the accounting period.

Inventory to current assets ratio= Inventory

Current Asset

TABLE 4.5:

THE INVENTORY TO CURRENT ASSET RATIO FOR RPN.

Year Inventory Current assets Ratio

2011-2012 24.14 79.46 0.303

2012-2013 25.81 106.10 0.243

2013-2014 26.56 109.55 0.242

2014-2015 30.99 117.36 0.264

2015-2016 38.74 118.99 0.325

INFERENCE

The inventory to current asset ratio in RPN has increasing trend from 2013-2014 to
2015-2016.It is maximum in the year 2015-2016.The lower the percentage of
inventory to the current assets, the greater the liquidity of current asset and versa.
Low ratio is shown in 2013-2014.
 CHART 4.5

THE INVENTORY TO CURRENT ASSET RATIO OF RPN

Inventory To Current Asset Ratio

160
140
120
100
80
60
40
20
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Inventory Current assets Ratio

INVENTORY TO WORKING CAPITAL

A firm is financially sound if its amount of inventory does not exceed the
amount of working capital. This ratio is calculated to know whether there is any
overstock in the firm. It is a wise to reduce the level of asset tied up in working
capital since each dollar freed is a dollar that can be used to pay down long-term
debt, repurchase share etc.

Inventory to working capital= Inventory

Working Capital
 TABLE 4. 6:

INVENTORY TO WORKING CAPITAL FOR RPN.

Year Inventory Working Ratio

capital
2011-2012 24.14 69.47 0.34

2012-2013 25.81 87.09 0.29

2013-2014 26.56 91.11 0.29

2014-2015 30.99 94.45 0.32

2015-2016 38.74 88.81 0.43

INFERENCE

Inventory to working capital ratio analysis it shows the proportion of

inventory is less when compared to working capital. The proportions are high in
the year 2015-2016 and lower in the year 2012-2013 and in 2013-2014.
 CHART 4.6:

INVENTORY TO WORKING CAPITAL FOR RPN.

Inventory To Working Capital

140
120
100
80
60
40
20
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Inventory Working capital Ratio

DEBTORS TURNOVER RATIO

It indicates how many times the firm is collecting the cash from its debtors
to whom firm sells in credits. Trade debtors are expected to be converted into cash
with a short period.Debtors turnover ratio or accounts receivable turnover ratio
indicates the velocity of debt collection of a firm. In simple words it indicates the
number of times average debtors (receivable) are turned over during a year.

Debtors Turnover Ratio = Net Credit Sales

Average Trade Debtors

 TABLE 4.7:

DEBTORS TURNOVER RATIO FOR RPN.

Year Sales Debtors Ratio

2011-2012 75.37 45.34 1.66

2012-2013 91.74 63.20 1.45

2013-2014 100.22 63.83 1.57

2014-2015 101.96 72.24 1.41

2015-2016 102.84 65.08 1.58

INFERENCE

The higher debtor turnover ratio is in the year 2015-2016 which is good for the
company. The table shows an increasing trend from 2013-2014 and decreased
in the year 2014-2015.
CHART 4.7:

DEBTORS TURNOVER RATIO FOR RPN.

Debtors Turnover Ratio

180
160
140
120
100
80
60
40
20
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Sales Debtors Ratio

CREDITORS TURNOVER RATIO

In business operations, a firm has to make credit purchase and incur short
term liabilities. Suppliers of goods creditors are likely to take in repaying its trade
creditors. For this purposes, creditors payable turnover ratio is calculated. The two
components of the ratio are trade creditors and annual purchase.

Creditors turnover ratio=net credit annual purchase/trade creditors

TABLE 4.8:

CREDITORS TURNOVER RATIO FOR RPN.

Year Purchase Creditors Ratio

2011-2012 75.37 7.51 4.24

2012-2013 91.74 15.17 3.06

2013-2014 100.22 14.27 3.62

2014-2015 101.96 17.49 2.78

2015-2016 102.84 17.43 3.9

INFERENCE

The analysis of creditors turnover ratio reflects whether terms of credit

allowed by suppliers are liberal or not. Creditors turnover ratio is highest in the
year 2011-2012 which is 4.24. In 2015-2016 RPN has a favorable creditor turnover
ratio which is 3.9.Creditor turnover ratio is lowest in the year 2014-2015.
 CHART 4.8:

TURNOVER RATIO FOR RPN.

Turnover Ratio

140
120
100
80
60
40
20
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Purchase Creditors Ratio

INPUT OUTPUT RATIO

Inventory Control can be exercised by use of this ratio. Input output ratio is
the ratio of the quantity of input of material to production and the standard material
content of the actual output.

TABLE 4.9:

INPUT OUTPUT RATIO FOR RPN.

Year Input Output Ratio

2011-2012 46.05 66.96 0.687

2012-2013 63.56 85.27 0.745

2013-2014 73.13 96.25 0.759

2014-2015 72.54 93.69 0.774

2015-2016 94.76 102.65 0.92

INFERENCE

The analysis of input output ratio shows that above shows the tendency is
fluctuating year by year. This is not favorable to the company. The input output
ratio is increasing from 2014-2015 to 2015-2016.The ratio is highest in the year
2015-2016 which is 0.92
 CHART 4.9:

INPUT OUTPUT RATIO FOR RPN

Input Output Ratio

200

150

100

50

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Input Output Ratio

WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio is the ratio which shows number of time the
working capital requirements in sales. Working capital of a concern is directly
related to sales. It is used to analyze how effectively a company is using the
working capital to generate sales.

Higher the working capital turnover ratio the better it is because it means
that the company is generating lot of sales compared to the money it uses to fund
the sales.

Working capital turnover ratio= Net sales

Net working capital.

TABLE 4.10:

WORKING CAPITAL TURNOVER RATIO FOR RPN.

Year Net Sales(in Net Working Ratio

lakhs) capital(in lakhs)

2011-2012 75.37 69.47 1.08

2012-2013 91.74 87.08 1.05

2013-2014 100.22 90.99 1.10

2014-2015 101.96 94.45 1.08

2015-2016 102.84 88.90 1.15

INFERENCE

The above table shows that the working capital requirements of the firm
which is highest in year 2015-2016 that is 1.15 and lowest 1.05 in the year 2012-
2013.

CHART 4.10:

WORKING CAPITAL TURNOVER RATIO FOR RPN

Working Capital Turnover Ratio

200

150

100

50

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Net Sales(in lakhs) Net Working capital(in lakhs) Ratio

TREND ANALYSIS

The financial statement may be analyzed by computing trends by series of

increase. This method determines the direction upwards or downwards and
involves the computation of the percentage relationship that each statement item
bears to the same item in base year. One year is taken as the base year. Usually, the
first year is taken as the base year.

Trend Analysis is the practice of collecting information and attempting to

spot a pattern, or trend, in the information. Although trend analysis is often used to
predict future events, it could be used to estimate uncertain events in the pasT

Trend percentage = current year amount/ Base year amount*10

TABLE NO 1:

TREND ANALYSIS OF WORKING CAPITAL

Year Working capital(In lakhs Trend percentage

2011-2012 69.47 100

2012-2013 87.08 125.35

2013-2014 90.99 104.44

2014-2015 94.45 103.79

2015-2016 88.90 94.12

INFERENCE

The analysis shows that there is an increase in working capital from 2014-2015 to
2011-2012 then there is decrease in working capital from 2011-2012 to 2012-2013.

CHART 4.1:

TREND ANALYSIS OF WORKING CAPITAL

140
TREND ANALYSIS OF WORKING
120
CAPITAL
100

80
Year
60 Trend percentage

40

20

0
1 2 3 4 5 6
 TABLE NO 4.2.:

TREND ANALYSIS OF CASH

Year Cash( In lakhs) Trend percentage

2011-2012 .261 100

2012-2013 4.74 181.09

2013-2014 7.06 148.94

2014-2015 .428 6.06

2015-2016 .104 24.29

INFERENCE

The trend analysis of cash shows a vast decrease in the year 2014-2015.The trend
percentage on cash has a huge increase on the year 2012-2013 and then decreases
rapidly in 2014-2015.
 CHART NO 4.2:

TREND ANALYSIS OF CASH

Trend Analysis of cash

200
180 181.09
160
148.94
140
120
100 100
80
60
40
20 24.29

0 6.06
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
 TABLE NO 4.3:

TREND ANALYSIS OF DEBTORS

Year Debtors Trend percentage

2011-2012 45.34 100

2012-2013 63.20 139.39

2013-2014 63.84 100.9

2014-2015 72.25 113.17

2015-2016 65.08 90

INFERENCE

The analysis shows that there is a fluctuating effect on the value of debtors. It is
highest in the year 2012-2013and lowest in the year 2015-2016.
 CHART NO 4.3:

ANALYSIS OF DEBTORS

Analysis of Debtors
160

140

120

100

80

60

40

20

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

CORRELATION ANALYSIS

Correlation refers to the relationship between any two or more variables.

The correlation expresses the relationship or interdependence of two set of
variables upon each other in such a way that the change in value of one variable
are in sympathy with the change in another variable. Correlation co-efficient is a
numerical measurement showing degree of correlation between two variables.
 Correlation analysis helps to indicate the degree of relationship between two
variables. There are so many methods used for measuring correlation.

Degree of correlation

Correlation exists in various degrees:

Perfect positive correlation if it is perfect correlation , an increase in one

variable is always followed by a corresponding and proportional increase
Perfect negative correlation: It is negative perfect correlation, if a
decrease in one variable is always followed by a corresponding and
proportional increase.
Correlation for the concern

The present section aims at analyzing the correlation co-efficient under the
following combination of variables to study the relationship existing between
them.

1. Relationship between inventory and current assets.

2. Relationship between raw materials and current assets.

3. Relationship between raw materials and inventory.

RELATIONSHIP BETWEEN INVENTORY AND CURRENT ASSETS

The relationship between inventory and current assets is explained by the

following table.

TABLE NO 4.3.1: TABLE SHOWING RELATIONSHIP BETWEEN

INVENTORY AND CURRENT ASSETS.

Year X X=x- X^2 Y Y=y-y Y^2 XY

x

2011-2012 24.14 -5.1 26.15 79.46 -26.8 718.24 136.68

2012-2013 25.81 -3.44 11.8 106.10 -.17 .02 .58

2013-2014 26.56 -2.69 7.2 109.55 3.28 10.7 -8.82

2014-2015 30.99 1.74 3.02 117.36 11.28 122.9 19.62

2015-2016 38.77 9.52 90.6 118.9 12.63 159.5 120.23

146.27 670.19 531.35 1011.37 268.29

Correlation co-efficient r= XY/X^2*Y^2

 XY=268.29

X^2=138.8

Y^2=1011.37

r= 268.29/138.8 * 1011.37

= -292.27/11.78 * 374.6

= .60

INFERENCE

The table shows the relationship between inventory and current asset. It shows that
correlation between these two variables is.60. This indicates that these two
variables have positive correlation. That is inventory and current asset are changed
in the same direction.

Here x represent inventory.

Yrepresent current asset.

X represents difference of x values from assumed mean of x values

Y represents difference of y values from assumed mean of y values

x represents the average of x values.

y represents the average of y values

 RELATIONSHIP BETWEEN RAW MATERIAL AND CURRENT ASSETS

The relationship between raw material and current assets is explained by the help
of following table.

TABLE NO 4.15 : TABLE SHOWING RELATIONSHIP BETWEEN RAW

MATERIAL AND CURRENT ASSETS.

Year X X=x-x X^2 y Y=y-y Y^2 XY

2011-2012 31.86 -17.52 306.95 79.46 -26.8 718.24 470.06

2012-2013 46.49 -2.89 8.35 106.10 -.17 .02 .49

2013-2014 51.75 2.37 5.61 109.55 3.28 10.7 7.77

2014-2015 48.77 -.16 .372 117.36 11.28 122.9 -6.88

2015-2016 68.06 18.68 348.94 118.9 12.63 159.5 236.36

21.9 670.19 531.35 1011.37 708.3

Correlation co-efficient r= XY/X^2*Y^2

XY= 708.3
 X^2= 670.19

Y^2=1011.37

= 708.3/670.19 * 1011.37

= 708.325.8 * 31.8

= .86

Working note:

x= x/ n

x= n= 5

x= 49.38

X= x- x

y= y/ n

y= 313.5

n= 5

y= 106.27

Y= y- y

INFERENCE

The table shows the relationship between raw materials and current asset. It shows
that correlation between these two variables is .60. This indicates that these two
variables have positive correlation. That is raw materials and current asset are
changed in the same direction.
 Here x represent raw material.

Y represent current asset.

X represents difference of x values from assumed mean of x values

Y represents difference of y values from assumed mean of y values

x represents the average of x values.

y represents the average of y values.

RELATIONSHIP BETWEEN INVENTORY AND RAW MATERIAL

The relationship between inventory and raw material is explained by the help of
following table

TABLE NO 4.3.3: TABLE SHOWING RELATIONSHIP BETWEEN

INVENTORY AND RAW MATERIAL.

Year X X=x-x X^2 Y Y=y-y Y^2 XY

2011-2012 24.14 -5.1 26.15 31.86 -17.52 306.95 89.35

2012-2013 25.81 -3.44 11.8 46.49 -2.89 8.35 15.72

2013-2014 26.56 -2.69 7.2 51.75 2.37 5.61 -6.37

2014-2015 30.99 1.74 3.02 48.77 -.16 .372 -1.06

2015-2016 38.77 9.52 90.6 68.06 18.68 348.94 177.8

146.27 138.8 670.19 275.47

Correlation co-efficient r= XY/X^2*Y^2

XY= 275.47
X^2= 138.8

Y^2= 670.19

r= 275.47/138.8* 670.19

= .90

Working note:

x= x/ n

x= 146.25

n= 5

x= 29.25

X= x- x

y= y/ n

y= n= 5

y= 49.38

Y= y- y

INFERENCE

The table shows the relationship between inventory and raw materials. It
shows that correlation between these two variables is .90.This indicates that these
two variables have high positive correlation. That is inventory and raw materials
are changed in the same direction.
Here x represent raw material.

Y represent inventory.

X represents difference of x values from assumed mean of x values

Y represents difference of y values from assumed mean of y values

x represents the average of x values.

y represents the average of y values

INVENTORY CONTROL TECHNIQUES

1. ABC analysis

One of the widely used techniques for Control of inventories is the ABC
(Always Better Control) analysis. The objective of ABC Control is to vary the
expenses associated with maintaining appropriate Control according to the
potential savings associated with a proper level of such Control. The ABC analysis
uses this principle to divide inventories in 3 classes according to funds usage.

An items; which represent about 10% of the total inventory range and
account for almost 70% of the usage value, call for a light Control system. Order
quantities and order points are carefully determined. Close attention is paid to
record accurately and variables can be reviewed periodically.

B items which constitute about 20% of the total inventory ranges and
account for 20% of the annual usage value, requires normal Controls. Variables
can be reviewed periodically.

C items are the remaining 70% of the inventory which involve only about
10% of the usage value relatively loose Controls and less frequent reviews
sufficient in their case.ABC analysis is also called proportional parts value analysis
or demand supply method.

Here

Group A consist of inventory ranging between Rs 9,99,99,999 to Rs 99,99,998

Group B consist of inventory ranging between Rs 99,99,999 to Rs 99,998

Group C consist of inventory ranging between Rs 99,999 to Rs 1

TABLE NO 4.4.1:

TABLE SHOWING ABC ANALYSIS

Group Number of items % of items

A 6 0.028%

B 388 1.83%

C 20721 98.13%

100

INFERENCE

In ABC analysis 98.13% of inventory belongs to group C, 1.83% of inventory

belongs to group B and 0.028% of inventory belongs to group A

2. FSN Analysis
FSN stands for fast moving , slow moving and non moving. Here classification
is based on the pattern of issues from stores and is useful in Controlling
obsolescence. The carry out FSN analysis , the is later , is taken to determine the
number of months , which have elapsed since the last transactions.

The items are usually grouped in periods of 12 months. FSN Analysis is helpful
in identifying active item which need to be reviewed regularly and surplus items
which have to be examined further. Non moving items may be examined further
and their disposal can be considered.

TABLE NO 4.4.2:

TABLE INDICATING FSN ANALYSIS

Group Number of items % of items

F 2210 15.39%

S 3399 23.68%

N 8744 60.92%

14353 100

Group F-inventory ranging between 1 year to 2 year.

Group S-2 year to 5 year.

Group N-Above 5 year

INFERENCE
Here 60.92% of inventory belongs to group N, 23.68% of inventory belongs to
group S and 15.39% of inventory belongs to group F.

CHART NO 4.4.1:

Diagram showing FSN

% of items of FSN

15.39%

F
S
23.68%
60.92% N
 CHAPTER-V

FINDINGS, SUGGESSTION, CONCLUSIONS

FINDINGS:

The percentage of current asset to inventory sundry debtors, cash and

bank, loan and advances have decreased in the year 2012-2013.
Inventory turnover ratio shows a fluctuating trend over the years. It has
been decreased to 2.94 in the year 2012-2013 which is not good for the
company
Inventory conversion period of has increased to 124 days in the year
2012-2013 which indicate the conversion of inventory to sales is lower
The material holding period is low in the year 2011-2012. It indicates
that stock is fast moving and in the year 2012-2013 is very high which is
not in favour to the company.
The ratio of material consumption to turnover is maximum .667 in 2012-
2013 which is not good for a company
 The debtors turnover ratio shows increasing from the year 2012-2013
which indicate efficient management of debtors by the company. The
extension of credit and collection of accounts receivable is efficient
Inventory to current asset ratio is fluctuating. Low ratio is good to the
company and it was shown in 2012-2013. But in 2012-2013 the ratio
increases which is not good to the company.
The ratio to inventory to working capital shows an increasing trend
which is favorable to the company. It is maximum in the year 2012-2013
has a favorable effect on the company.
The creditors turnover ratio is high in the year 2012-2013. This is
favorable to the company.
The analysis of input output ratio shows that above shows the tendency is
fluctuating year by year. This is not favorable to the company
Working capital turnover ratio is highest in the year 2012-2013 which is
0.43 which indicate better performance
Correlation analysis shows the relationship between various variables
like inventory and current asset, relationship between raw material and
current asset, relationship between raw material and inventory. It shows a
positive correlation which has a favourable effect.
As per ABC analysis A category 0.028%, B category constitute 1.83%
and C category constitute 98.13% of the total number of items.
As per FSN analysis F category of items constitute23.68 %, S category
constitutes 23.68% and N category constitutes 60.92% of the total
number of items.
SUGGESTIONS

Company have to shift some items of Group B to Group A and C to B for

more Control over the inventory which can reduce the inventory cost.

The Items of Nonmoving group (60.92%) can be reduced to have more

Control over the inventory

Perpetual inventory system and periodic review system should be considered

seriously and also ensure that materials are checked by authorized persons

It will be more better if the firm try to decrease the Inventory Conversion
Period through efficient management of them.
Efficient management of the debtors and creditors have to be maintained
which is favorable for the development of the company.
The higher turnover ratio indicates efficient management of inventory
because more frequently the stock sold, so efficient steps have to be
introduced to improve the inventory ratio
RESEARCH RECOMMENDATIONS

Under the ABC analysis, the management must have more control on C
items than that on A & B items, because C class constitutes more of higher
values. There should not be tight control exercised on stock levels, to avoid
deterioration. This is done through maintaining low safety stock levels,
continuous check on schedules & ordered frequently in inventories, in order
to avoid over investment of working capital.
The past data shows increase in inventory the company is expecting more
inventories for the future period i.e. 2014. The management is required to
maintain the same trend in the forth coming year also.
The company has to keep the master data that is SAP data timely updated so
as there are no unmatched sets and excess of the unwanted buying of the
same time of material parts.
The inventory turnover ratio indicates whether investment in inventory is
within proper limit. It also measures how quickly inventory is sold. It
requires maintaining a high turnover ratio than lower ratio. A high turnover
ratio implies that good inventory management and timely the inventories are
being replenished, also reflects efficient business activities.
The management of the plant should incorporate TQM (Total Quality
Management), particularly in all departments of production to ensure better
sales and reduce the inventory of finished products.

CONCLUSION

This project on The study on inventory management gave me an

opportunity to understand the level of inventory management in the
Instrumentation Limited Palakkad. This research will help the organization to
make necessary measure to the inventories. This will certainly bring down the
causes of inventory problems and help the management of inventories. The high
turnover ratio indicates efficient management of inventory because more
frequently the stock sold. So the organization should try to improves the inventory
turnover ratio.

After the study, we can came to a conclusion that, effectiveness of inventory

management should improve in all the aspects, hence the industry can still
strengthen its position by looking into the following.

The inventory should be fast moving so that warehouse cost can be

reduced.
The finished goods have to be dispatched in feasible time as soon as
manufacturing is completed.
Optimum order quantity should be maintained, hence cost can be
minimized.

Proper inventory control techniques are employed by the inventory control

organization within the framework of one of the basic models like ABC,
HML and VED etc.

REFERENCES
1. Lieberman, Marvin B; Demeester, Lieven (1999), Inventory reduction and
productivity growth: Linkages in the Japanese automotive industry, Management
Science (45.4).
2. Moon, Ilkyeong (2001), Inventory Management and Production Planning and
Scheduling, Interfaces ( 31.6), Pg.-125-127.
3. Jackson, Duncan (2004), TradeBeam and Global eXchange Services Partner to
Provide Collaborative Inventory Management and Interoperability for Automotive
Industry, Business Wire
4. Krishna, L Sivarama; Janardhan, G Ranga; Rao, C S P (2009), Web Integrated
Decision Support System for Machine Scheduling and Inventory Management,
IUP Journal of Operations Management (8.1), Pg.- 35-52.
5. Snehalgavi (2010), It Outsourcing in Indian Automobile Industry, Business &
Economy.
6. Martin, Benjamin Robert (2010), Findlay Automotive group selects first look
for pre- owned inventory management needs, PR Newswire
7. Koumanakos, Dimitrios P. (2008), Hitachi Automotive Improves Efficiency
and Inventory Control with Geac's System21, Business Wire.
8. Cachon, Grard P; Olivares, Marcelo (2010), Drivers of Finished-Goods
Inventory in the U.S. Automobile Industry, Management Science.
9. Moozakis, Chuck (2001), Honda Automates Web Financing -- Network will let
dealers apply for funds online and will eventually support inventory management,
Internet Week 850.
10. Borade, Atul B; Bansod, Satish V. (2010), Study of vendor-managed
inventory practices in Indian industries, Journal of Manufacturing Technology
Management (21.8), Pg.- 1013-1038.

BIBIIOGRAPHY

BOOKS
 Financial Management : I.M.Panday
Production Management : K. Ashwatappa

2015-
2014-2015 2013-2014 2012-2013 2011-2012
2016

Sources Of Funds

Total Share Capital 63.65 63.65 63.65 63.65 63.65

Equity Share Capital 63.65 63.65 63.65 63.65 63.65

Reserves 3,589.53 3,019.73 2,784.67 2,212.92 1,932.37

Net worth 3,653.18 3,083.38 2,848.32 2,276.57 1,996.02

Secured Loans 1,888.33 1,772.23 2,722.57 2,741.13 2,402.89

Unsecured Loans 65.38 13.58 37.99 1.48 35.68

Total Debt 1,953.71 1,785.81 2,760.56 2,742.61 2,438.57

Total Liabilities 5,606.89 4,869.19 5,608.88 5,019.18 4,434.59

Application Of Funds

Gross Block 5,586.48 5,274.92 5,018.49 4,317.17 3,956.35

Less: Accum. Depreciation 3,098.13 2,778.65 2,243.81 1,981.65 1,761.19

Net Block 2,488.35 2,496.27 2,774.68 2,335.52 2,195.16

Capital Work in Progress 84.83 76.78 84.58 212.90 181.91

Investments 1,005.61 674.17 712.34 559.30 514.72

Inventories 1,809.12 1,636.73 1,871.54 1,499.44 1,315.23

Sundry Debtors 681.93 676.82 735.57 631.92 536.83

Cash and Bank Balance 276.77 175.55 52.75 26.63 58.42

Total Current Assets 2,767.82 2,489.10 2,659.86 2,157.99 1,910.48

Loans and Advances 480.87 568.50 648.72 657.62 377.75

Total CA, Loans & Advances 3,248.69 3,057.60 3,308.58 2,815.61 2,288.23

Current Liabilities 1,209.43 1,346.81 1,183.63 851.18 704.59

Provisions 11.14 88.82 87.68 52.96 40.84

Total CL & Provisions 1,220.57 1,435.63 1,271.31 904.14 745.43

Net Current Assets 2,028.12 1,621.97 2,037.27 1,911.47 1,542.80

Total Assets 5,606.91 4,869.19 5,608.87 5,019.19 4,434.59

Contingent Liabilities 844.89 962.91 308.97 595.33 735.87

Book Value (Rs) 573.93 484.41 447.48 357.66 313.58