INVENTORY MANAGEMENT

INTRODUCTION

Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60 percent of current assets
in public limited companies in India. Because of the large size of inventories maintained by
firms, a considerable amount of funds is required to be committed to them. It is, therefore
absolutely imperative to manage inventories effectively in order to avoid unnecessary
investment. A firm neglecting the management of inventories will be jeopardizing it long-run
profitability may fall ultimately.

The aim of inventory management to avoid excessive and inadequate levels of

inventories and to maintain sufficient inventory for the smooth production and sales
operations. Efforts should be made to place an order at the right time with the right source to
acquire the right quantity at the right price and quality.

DEFINITION

The term inventory refers to assets, which will be sold in future in the normal course
of business operations. The assets, which the firm stores as inventory in anticipation of need,
are raw materials, work-in-progress or process, and finished goods.

Inventory often constitute a major element of total capital and hence it has been
correctly observed, ‘good inventory management is good financial management’.
NEED FOR THE STUDY

Inventory Management has acquired a great significance and sound position in recent years
with an objective of profitability & liquidity. The success or failure of business enterprise
largely depends upon the management of inventory management. No firm can maintained
without the inventory management but the requirement of inventory differs from to firm.
Inventory management is need to every business enterprise because it indicates the
liquidity position of the firm. Inventory management can be maintained to meet the
obligations within the operating cycle of the business.

Business firms need inventory management because production, sales & cash flow are not
instantaneous. A management student should properly understand the various aspects.

Inventory management if opted for specialization in Finance management. That’s why I have
selected “Inventory Management” as a topic for the study.
 OBJECTIVES OF THE STUDY

 To study the inventory management followed in Zuari cement.

 To identify the existing inventory management and its effectiveness.
 To calculate analysis for their performance in inventory management.
 To study & analyze the various categories of inventory items
 SCOPE OF THE STUDY

The study helps the management to improve its profitability through a reduction in
non- moving inventory.

It develops the policies for both continuous review of inventory management system.

The study helps to show the level of the inventory in the organization. The company will
make the proper inventory methods from the suggestions of the study
 RESEARCH METHODOLOGY

RESEARCH DESIGN

The Descriptive type of research has been applied in the study. In this research
the researcher has no control over the variables. He only reports what has happened or what
is happening. The research can only discover causes but cannot control the variables.

DATA COLLECTION

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

PERIOD OF STUDY

This study covers a period of five years from 2013-18. The accounting year
commenced from April and ending with March of the next year.

AREA OF STUDY

This study was conducted in Zuari cement pvt.ltd Yerraguntla, Kadapa District.

TOOLS FOR ANALYSIS

The following tools have been applied in the present study.

They are listed below

 Ratio analysis (inventory) and

 EOQ analysis
 LIMITATIONS FOR THE STUDY

In this study there are some limitations, which are predicted, and essential care is taken to
reduce their impact on the study.

 This survey is entirely based on the data given by the stores department, purchase
department, production department and other department of GSACL.

 In this study there may be chance of collection of bias information.

 In this study information collection was not possible due to lack of time.
 INDUSTRY PROFILE

INTRODUCTION
India is the second largest producer of cement in the world. No wonder, India's cement
industry is a vital part of its economy, providing employment to more than a million people,
directly or indirectly. Ever since it was deregulated in 1982, the Indian cement industry has
attracted huge investments, both from Indian as well as foreign investors.
India has a lot of potential for development in the infrastructure and construction sector and
the cement sector is expected to largely benefit from it. Some of the recent major initiatives
such as development of 98 smart cities are expected to provide a major boost to the sector.
Expecting such developments in the country and aided by suitable government foreign
policies, several foreign players such as Lafarge-Holcim, Heidelberg Cement, and Vicat have
invested in the country in the recent past. A significant factor which aids the growth of this
sector is the ready availability of the raw materials for making cement, such as limestone and
coal.

MARKET SIZE
The housing and real estate sector is the biggest demand driver of cement, accounting for
about 65 per cent of the total consumption in India. The other major consumers of cement
include public infrastructure at 20 per cent and industrial development at 15 per cent.
Cement production capacity stood at 502 million tonnes per year (mtpy) in 2018. Cement
consumption is expected to grow by 4.5 per cent in FY19 supported by pick-up in the
housing segment and higher infrastructure spending. The industry is currently producing 280
MT for meetings its domestic demand and 5 MT for exports requirement.
The Indian cement industry is dominated by a few companies. The top 20 cement companies
account for almost 70 per cent of the total cement production of the country. A total of 210
large cement plants account for a cumulative installed capacity of over 350 million tonnes,
with 350 small plants accounting for the rest. Of these 210 large cement plants, 77 are located
in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.
INVESTMENTS
On the back of growing demand, due to increased construction and infrastructural activities,
the cement sector in India has seen many investments and developments in recent times.
According to data released by the Department of Industrial Policy and Promotion (DIPP),
cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 5.26
billion between April 2000 and June 2018.
Some of the major investments in Indian cement industry are as follows:

 As of December 2018, Raysut Cement Company is planning to invest US$ 700

million in India by 2022.
 During 2017-18, Ultratech commissioned a greenfield clinker plant with a capacity of
2.5 MTPA and a cement grinding facility with 1.75 MTPA capacity in Dhar, Madhya
Pradesh. The company is expecting to complete a 1.75 MTPA cement grinding
facility and a 13 MW waste heat recovery system by September 2018 at the same
location.
 In May 2018, Ultratech Cement decided to acquire the 13.4 MTPA capacity cement
business of Century Textiles and Industries.
 JK Cement is planning to invest Rs 1,500 crore (US$ 231.7 million) over the next 3 to
4 years to increase its production capacity at its Mangrol plant from 10.5 MTPA to 14
MTPA.

GOVERNMENT INITIATIVES
In order to help the private sector companies thrive in the industry, the government has been
approving their investment schemes. Some such initiatives by the government in the recent
past are as follows:
In Budget 2018-19, Government of India announced setting up of an Affordable Housing
Fund of Rs 25,000 crore (US$ 3.86 billion) under the National Housing Bank (NHB) which
will be utilised for easing credit to homebuyers. The move is expected to boost the demand of
cement from the housing segment.
A large number of foreign players are also expected to enter the cement sector, owing to the
profit margins and steady demand. In future, domestic cement companies could go for global
listings either through the FCCB route or the GDR route.
With help from the government in terms of friendlier laws, lower taxation, and increased
infrastructure spending, the sector will grow and take India’s economy forward along with it.
History of the origin of cement

It is uncertain where it was first discovered that a combination of hydrate non-hydraulic

limeade a pozzolanproduces a hydraulic mixture, but concrete made from such mixture was
first used on large scale by roman engineers. They used both natural pozzolans (tress or
pumice) and artificial pozzolans in the concretes. Many excellent examples of structures
made from these concretes are still standing. Notably the huge monolithic dome of the
pantheon in Rome and the massive Bath of Caracalla. The vast system of roman aqueducts
also made extensive use of hydraulic cement. The use of structural concrete disappeared in
medieval Europe. Although weak pozzolanic concretes continued to be used as a core fills in
stone walls and columns.

Modern cement

Modern hydraulic cement began to be developed from the start of the industrial Revolution
(around 1800) ,driven by three main needs: Hydraulic renders for finishing brick buildings in
wet climates Hydraulic mortars for masonry construction of harbor works etc. , in contact
with sea water.

Varieties of the cement

There are some varieties in cement that always find good demand in the market. To know
their characteristics and in which area they are most required, it will be better to take a look at
some of the details given below.

Sulphate resisting Portland Cement (SRPC)

This cement is beneficial in the areas where concrete has an exposure to seacoast or sea water
or soil or ground water. Under any such instances, the concrete is vulnerable to sulphates
attack in large amounts and can damage to the structure. Hence, by using this cement one can
reduce the impact of damage to the structure. This cement has high these cement one can
reduce the impact of damage to the structure. This cement has high demand in India.
Rapid hardening Portland Cement (RHPC)

The texture of this cement type is quite to that OPC. But, it is bit more fine than OPC and
possesses immense compressible strength, which makes casting work easy.

Ordinary Portland Cement (OPC)

Also referred to as grey cement or OPC, it is of much use in ordinary concrete construction.
In the production of this type of cement in India, Iron (fe2O3), Magnesium (MgO), Silica
(SiO2), and Sulphur, trioxide (SO3) components are used.

Portland Pozolona Cement (PPC)

As it prevents cracks, it is useful in the casting work of huge volumes of concrete. The rate of
hydration heat is lower in this cement type. Coal waste or waste or burnt clay is used in the
production of this category of cement. It can be availed at low cost in comparison to OPC.

Oil Well Cement (OWC)

Made of iron, coke, limestone and iron scrap, Oil Well Cement is used in constructing or
fixing oil wells. This is applied on both the off-shore and on-shore of the wells.

Clinker Cement (CC)

Produced at the temperature of about 1400 to 14560 degree Celsius, Clinker cement is needed
in the construction work of complexes, houses and bridges. The ingredients for this cement
comprise iron, quartz, clay, limestone and bauxite.

A part from these, some of the other types of cement that are available in India can be
classified as:

 Low heat cement,

 High early strength cement,
 Hydrophobic cement,
 High aluminum cement and
 Masonry cement.
  Top 25 Cement companies in the world

S.NO Name of the Company Name of the

Country
1. Aditya Birla Group-Grasim India
2. Al-Ghurair Group Dubai
3. Ambuja Cements Limited India
4. Anhui Conch Cement Company China
5. Arabian Cement Company Egypt
6. Ararat Cement Co. South Africa
7. Cement Cruz Azul Cement Co. Armenia

8. CEMEX Co. U.S.A

9. China National Cement Materials Group Corporation China
10. Cimpor Cement corp. China
11. Companhia Siderurgical National S.A Brazil
12. Concrete Casting Cement Company Pacific Alloy
13. CRH plc. America
14. Eagle Materials Inc. U.S.A
15. Heidelberg Cement Company Germany
16. James Hardier Cements U.S.A
17. Lafarge India
18. Libyan Cement Company Libya
19. Monarch Cement Ltd. U.S.A, California
20. Noricum Germany
21. Pretoria Portland Cement Company South Africa
22. Ready Mix Inc. India
23. Rinker Group Australia
24. Semapa Group Europe
25. Smith-Midland Cement Company U.S.A, Milford
 COMPANY PROFILE

ZUARI CEMENT

The Zuari cement was started in 1994 to operate the cement plant of Texaco
ltd., under a working arrangement. Subsequently Texaco’s cement business was taken
over by the company in 1995. Today Zuari Cement’s manufacturing facility at
yerraguntla in Andhra Pradesh is one of the largest in South India.

In the year 2000 Zuari enters in to a joint venture with the italcementi group the second
largest cement produce in Europe and Zuari Ltd. Lived off of a separate company.

The Zuari Cement is strategically located at Yerraguntla. The plant location existence
of 6km from Yerraguntla. It is connected to the railway station on by a railway track of 7km
length and is having an exchange plant inside the factory. Plant is connected to the nearest
highway by 0.2km land private road.

PROMOTER OF THE COMPANY

This investment was initially made through a 50:50 joint venture with the KK Birla
group in Zuari Cement Ltd., but subsequently in May 2006. Italicement group acquired the
full central of the company.

Now Company is under joint venture having rated capacity of 17 Lakhs per annum company
for that diversified that production of the cement making EPC along with OPC.

Italcementi Group History :-

Founded in 1864, Italcementi was quoted for the first time on the stock markets, at the
Milan Stock Exchange, in 1925, under the name of “Società Bergamasca per la Fabbricazione
del Cemento e della Calce Idraulica” and has been operating since 1927 under the name of
Italcementi Spa.
 Zuari Cement is part of the Italcementi Group, the fifth largest cement producer in the
world and the biggest in the Mediterranean region. With net sales over 6 billion Euros in
2009 and a capacity of 70 million tonnes. Italcementi Group combines the expertise, know-
how and culture of a number of companies from more than 22 countries in 4 continents. This
includes an industrial network of 63 cement plants, 15 grinding centres, 5 terminals, 134
aggregates quarries and 613 concrete batching units. In India, with its inherent strengths,
Italcementi Group's Zuari Cement is committed to give the building industry a cement that is
truly international.

A commitment to customer satisfaction has seen Zuari Cement grow from a modest
0.5 million tonne capacity in 1995 to 3.5 million tonne today. Zuari Cement is in the process
of increasing this capacity to 6 million tonne by 2009 through setting up of a new 5500 tonne
per day clinker line at Yerraguntla and a grinding center at Chennai. A captive power plant
with a capacity of 43 MW has already been set up at the Company's cement manufacturing
facility at Sitapuram.

With a 6% market share in the south Indian cement market and sales of about Euro
188 million in 2009, Zuari Cement has chalked out ambitious plans for the future. This
includes strengthening its presence in the Maharashtra, Orissa and West Bengal markets.
While technology is just one of its strengths, there are many other factors that contribute
equally to Zuari's success. These include a high-level organisation and decentralised quality
assurance teams to guarantee the full compliance with the customers' expectations.

Our History :-

Strong foundations for a company of strength ;-

Zuari entered the Cement business in 1994 to operate the Texmaco Cement Plant. In
1995, Texmaco’s Plant at Yerraguntla was taken over by Zuari and a Cement Division was
formed. The fledging unit came into its own in the year 2001 when Zuari Industries entered
into a Joint Venture with the Italcementi Group, the 5th largest producer of Cement in the
world, Zuari Cement Limited was born. Zuari Cement took over Sri Vishnu Cement Limited
in 2002. Today, the Company is amongst the topmost cement produces in South India.

Zuari and Italcementi. The strength of two :-

Zuari Cement is one of the leading cement producers in South India.A fully owned
subsidiary of the Euro 6 billion Italcementi Group, Commitment to customer satisfaction has
seen Zuari Cement grow from a modest 0.5 million tonne capacity in 1995 to 3.5 million
tones today.And earned a place among the most reliable cement producers in the country.

Thanks to a careful plan of investments and take-overs of other cement producers,

the company expanded, quickly reaching a strong position on the market and becoming the
leading cement manufacturer in Italy.

After several acquisitions abroad, in 1992 Italcementi achieved important

international status with its take-over of Ciments Français, one of the main global cement
producer.

In 1997 Italcementi consolidated its verticalisation strategy with the acquisition of

Calcestruzzi, thus becoming Italian leader in the ready-mixed concrete sector.

In March 1997, all the international companies of the Group gathered under one
single corporate identity. Since 1998 Italcementi Group has been pursuing its
internationalisation strategy by acquiring new cement works in Bulgaria, Kazakhstan,
Thailand, Morocco, India, Egypt and the United States.
Appotiment of Director Industries Ltd has informed BSE that the Board of Directors at its
meeting held on January 21, 2011 have appointed Mr. Suresh Krishnan, as Additional
Director of the Company.

With an annual production capacity of approximately 70 million tons of cement,

Italcementi Group is the world’s fifth largest cement producer.

The Parent Company, Italcementi Spa., is one of Italy’s 10 largest industrial companies
and is included in S&P/MIB Index of the Italian Stock Exchange.

Italcementi Group’s companies combine the expertise, know how and cultures of 22
countries in 4 Continents boasting an industrial network of 63 cement plants, 13 grinding
centres, 5 In 2009 the Group had sales amounting to almost 6 billion Euro.Italcementi,
founded in 1864, achieved

mportant international status with the take-over of Cements Francis in 1992. Following a
period of re-organization and integration that culminates in the adoption of a single corporate
identity for all Group subsidiaries, the newly-born Italcementi Group began to diversify
geographically through a series of acquisitions in emerging countries such as Bulgaria,
Morocco, Kazakhstan, Thailand and India, as well as operating in North America. As part of
the plan to further enhances its presence in the Mediterranean area, in 2005 the Group
boosted its In 2007 Italcementi acquired full control of the activities in India and signed an
agreement to strengthen its position in Kazakhstan while, in 2008, it further strengthened its
presence in Asia and the Middle East through the operations in China, Kuwait, Saudi Arabia.

As a member of the World Business Council for Sustainable Development (WBCSD)

Italcementi Group has signed the Cement Sustainability Initiative’s Agenda for Action, the
first formal commitment that binds a number of world cement industry leaders to an action
plan that aims at satisfying present-day needs at the same time as safeguarding the
requirements of future generations.

To further confirm its commitment on these issues, the Group has taken over the co-
Chairmanship of the Cement Sustainability Initiative for the period 2007-2008.

Zuari Cement manufactures and distributes its own main product lines of cement .We
aim to optimize production across all of our markets, providing a complete solution for
customer's needs at the lowest possible cost, an approach we call strategic integration of
activities. Cement is made from a mixture of 80 percent limestone and 20 percent additives.
These are crushed and ground to provide the "raw meal”, a pale, flour-like powder. Heated to
around 1450° C (2642° F) in rotating kilns, the “meal” undergoes complex chemical changes
and is transformed into clinker. Fine-grinding the clinker together with a small quantity of
gypsum produces cement. Adding other constituents at this stage produces cements for
specialized uses.

Zuari Blended Cement the eco-friendly, user-friendly cement :-

Zuari Blended Cement has been developed in response to today’s need for
environment-

friendly products that are cost-effective, durable and have minimal by-products.

Durability is a very important property in concrete. And

durability here means concrete that ensures the long life span of structures like homes and
residences that are lifetime investments. Since distress of concrete and early failure of
structures is a common phenomenon, research over a period of time helped develop various
remedial measures that improved durability and cost economics. One of them being blended
Portland cement, with complementary pozzolanic and cementations materials like fly ash,
blast furnace slag, etc.
 Zuari OPC is a high quality cement prepared from the finest raw material. Owing to
optimum water demand, it contributes to a very low co-efficient of permeability of the
concrete prepared. This improves the density of the concrete matrix and increases the
durability of the concrete. Zuari OPC is a high performance cement far exceeding the codal
requirement of BIS. It is this very durability that translates into long - lasting residential and
commercial constructions of a variety. Zuari OPC is a high quality cement prepared from the
finest raw material. Owing to optimum water demand, it contributes to a very low co-efficient
of permeability of the concrete prepared. This improves the density of the concrete matrix
and increases the durability of the concrete. Zuari OPC is a high performance cement far
exceeding the codal requirement of BIS.

It is this very durability that translates into long - lasting residential and commercial
constructions of a wide variety.Zuari 43 & 53 Grade Ordinary Portland cement (OPC) -
Strong cements for longlasting constructions.

Higher compressive strength Better soundness

Lesser consumption of cement for M-20 grade concrete and above

Faster deshuttering of form work

Reduced construction time

In 2008 Zuari Cement launched its high-strength cement under the brand name
'Primo Concrete Cement' in Bangalore City. 'Primo' improves the density of the concrete
matrix and increases the durability of the concrete, making it an immediate hit among
construction and infrastructure projects undertaken in and around Bangalore. Recently Primo
was also launched in

ochi and Chennai. An extensive marketing and distribution network across south India
concretes Zuari Cement's success story. products, on the line of the extremely successful
'Primo' launch, will play a significant role in key markets.Primo Concrete Cement - Concrete
Redefined Primo concrete cement is a high quality cement prepared from the finest raw
material. Owing to optimum water demand, it contributes to a very low co-efficient of
permeability of the concrete prepared. This improves the density of the concrete matrix and
increases the durability of the concrete. Primo is a high performance cement far exceeding
the coda requirement of IS 12269-1987. It is this very durability that translates into long-
lasting residential and commercial constructions of a wide variety, such as dams, canals,
highways, roads and flyovers.

PRODUCTION

Cement production during the period has also increased from about 72.23 million tons

about 90 million tons in 2006-2007 excluding the contribution of mini cement plants.

RAW MATERIALS

The actual requirements of raw material at 100% capacity utilization would be;

 12.5 million tons of limestone per annum.

 70000 tons of Gypsum per annum.
 39000 tons of Bauxite per annum.
 20000 tons of Iron ore per annum.

The limestone is major component required for the plant is net from the mines

located adjacent to the proposed site.

 Gypsum is procured from fertilizer factories at Madras and Cochin.

 Iron is soured partly from mini steel plants located at Tirupathi and partially from
Bellary.
 Bauxite is procured from Goa, Karnataka and Maharashtra.

POWER
Maximum estimated power demand is 45 M.V. The company has an existing contract 50

M.V demands APSEB, the plant presents has D.G sets with an aggregate general capacity of

12.6 M.V.

WATER

Water is required for seeds of consumption make for plant and machinery for general

need in plant. Company has a pumping station and underground bore wells near Hanuman

Gutty village at Penna River to tap the undergrounds water in riverbed.

TRANSPORT

The factory is when connected to different part of the country through rail and road

facilities is near to Yerraguntla railway station and has a railway lint to the factory with an

extern point within the factory premises 605 of the cement is dispatched by rail gal is

received through rail. The plant is connected to the nearest state highway to Bangalore,

Hyderabad and Chennai.

MAN POWER

Existing plant has a total of 500 employees. After and addition of employees may be

required.

QUARRY

It is situated adjacent to the factory. It constituted limestone, one of the major materials for

cement industry. The quarry has a mining base area of 1027.56 acres.

A WIDE RANGE TO ADDRESS EVERY NEED:

  Residential, commercial, multistoried buildings and complex.

 Mass concreting-dams, canals, spillways

 Construction and repair of pavements, roads, flyovers and runways.

 Spun pipes and poles manufacturing

 Cold weather concreting

 Pre-fabricated elements such a pipes, sleepers, windows, door frames etc.

QUALITY CUSTOMER SERVICE

In an effort to reach out to customers better, Zuari cement as set up a technical cell

named Zuari home partner. This cell gives guidance in the field of building. Technology,

architecture, housing finance and economical usage of the high quality. Technical experts

provide the assistance according to the individual requirements. So that customers get the

best value for the investment they have made.

PRODUCTS

Zuari Cement manufactures and distributes its own main product lines of cement .It’s

aim is to optimize production across all of our markets, providing a complete solution for

customer's needs at the lowest possible cost, an approach and it is called as strategic

integration of activities. Cement is made from a mixture of 80 percent limestone and 20

percent clay. These are crushed and ground to provide the "raw meal”, a pale, flour-like

powder. Heated to around 1450° C (2642° F) in rotating kilns, the “meal” undergoes complex

chemical changes and is transformed into clinker.

2.2.21 PROCESS TECHNOLOGY, THE SOLID FOUNDATION

The culture of quality that has always prevailed in Zuari Cement's manufacturing

facilities is best exemplified in the process technology employed. Advanced technology

methods are used to ensure that a high level of quality is attained and sustained right through

the manufacturing process. Yet, these high standards are constantly improved upon by an

experienced and dedicated R&D team to attain performance oriented cement.

THE PROCESS TECHNOLOGY ADVANTAGES

 Complete homogenization of limestone is achieved by stacking the limestone in

stock-plies with the use of stackers and reclaiming it through recliners.

 The optimum ratio of raw mix is attained by the use of X-ray analyzer and automatic

weigh feeder which are linked to the centralized computers control room.

 Reduced variability in kiln feed and complete homogenization of raw meal is attained

through Continuous Flow Silo. This ensures that every grain of cement is of

consistent quality.
 Online X-ray Analyzer Stacker and Reclaimed

Vertical Raw Mill Continuous Fluidized Silo

 The totally computerized monitoring system enables quality clinkerisation. It dictates

the optimum retention time in the proclaimer and the kiln.

 Equipped with a six stage double stream pre-heater cyclone system, the proclaimer

only adds to the quality.

 The modern closed grinding units have a high efficiency separator that produces finer

particles of cement. This yields cement matrix with a lower pore diameter. This in

turn gives concrete of higher density and lower permeability.

VENTOMATIC ELECTRONIC PACKING

 Zuari Cement employs Ventomatic packers to ensure that the customer gets exactly

50 kgs per bag. To minimize damages during transport, advanced loading techniques are

used. These steps reflect Zuari Cement's commitment to offer the best quality and correct

quality to its customers.

ENVIRONMENT-FRIENDLY TECHNOLOGY

To minimize dust emission, Zuari Cement has installed the latest pollution control
equipment such as electrostatic precipitators in the kiln, raw mills, coal mills and cement
mills. this environmental friendly aspect of Zuari's process technology has resulted in
abundance of greenery and clean air in the factory premises.
BOARD OF DIRECTORS

DIRECTORS Saroj Kumar Poddar, Chairman

Rodolfo Danielle (Alternate Mrs.

Regina Bouille)

Yves Rene Nanto (Alternate Giorgio

Bodo) Goran L.Seifert (Alternate
Philippe Marchat ) Maurizio Caneppele,
Managing Director V. Raghunathan

EXECUTIVES Director – Marketing : Krishna

Srinivatava Sr. Vice President – works :
L. Srivastava Chief Finance Officer :
Gabreil Morin

COMPANY SECRETARY L.R. Neelakanta

BANKERS State Bank of India

BNP Paribad

Andhra Bank
 INVENTORY MANAGEMENT

Every enterprise needs inventory for smooth running of its activities. It server as a link between the
production and distribution process. The greater a time lag, the higher the requirement of inventory
the unforeseen fluctuation of inventory demand and supply of goods, fluctuating inventory prices,
necessitate the need for inventory management.

The investment inventory constitutes the most significant part of the current assets inventory of the
under taking. Thus it is very essential to have a proper control and management of inventory.

Meaning and nature of inventory

The general meaning of inventory is stock of goods or list of goods inventory. In accounting
language it means stock of finished goods. For inventory manufacturing concern it includes raw
materials, work in progress, consumables finished goods and spares etc.

1) Raw materials:
If forms a major input inventory in organization. The quantity of raw materials required will
be determined by the rate of consumption.

2) Work in Progress :
The work in progress is that stage of stocks, which are in between raw materials and finished
goods.

3) Consumables :
These are the material, which are needed to smoothen, the process of production. These do
not directly go into production, but act as catalyst.

4) Finished Goods :
These are the goods, which are ready to sale for the consumers. The stock of finished goods
provides as buffer between production and market.

5) Spares :
Spares also from a part of inventory. The stocking policies differ from industry to
industry.
 Inventories cost account for nearly 55 percent of the cost of production, as it is clear from an
analysis of financial statements of large number of private and public sector organizations. So, It
essential to establish suitable procedures for proper control of materials from the time of purchase
order placed with supplier until they have been consumed properly and accounted for.

Definition:

 The term inventory refers to assets, which will be sold in future in the normal
course of business operations. The assets, which the firm stores as inventory
in anticipation of need, are raw materials, work -in-progress/process, and
finished goods.

 Inventory often constitutes a major element of a total working capital and

hence ft has been correctly observed, 'Good inventory management is good
financial management’.

 Inventory control is a system, which ensures the provision of the required

quantity at the required time with the minimum amount of capital.

 Inventories are the second largest asset category for the manufacturing firms
next to plant and equipment.

 Inventory control includes scheduling, the requirements, purchasing,

receiving and inspecting, maintaining stock records and stock control.
Inventory control is a matter of coordination. A proper material control helps
in improving the input-output ratio.
OBJECTIVE OF THE INVENTORY MANAGEMENT:

The main objective of inventory management is operational and financial. The operational object
means availability of materials and spares in sufficient quantities for undisturbed flow of production.
The financial objective means investments in inventories should not remain idle and minimum
working capital should be locked in it.

THE OTHER OBJECTIVES ARE:

1) To ensure continues supply of inventories to the production.

2) To avoid over stocking and under stocking.

3) To maintain optimum level of investment in inventories.

4) To keep material cost under control, to keep low cost of production.

5) To eliminate duplication in ordering or replacing stocks.

6) To minimize losses through, deterioration, pilferage, wastage and damages.

7) Designing structures for good inventory management.

8) Perpetual inventory control of materials.

8) To ensure right quality of goods at reasonable prices. Analysis of prices cost and value.

10) To facilitate data for short and long term planning and control of Inventory.
NEED FOR INVENTORY CONTROL:

If a cost accounting system is to be effective there must be a proper control of

inventory and supplies form the time orders are placed with suppliers until they have been
effectively utilized in production.

Materials are equivalent to cash and they make up an important part of the total
cost. It is essential that materials should be properly safeguarded and correctly accounted.
Proper control of material can make a substantial contribution to the efficiency of a
business. The success of a business concern largely depends upon efficient purchasing,
storage, consumption and accounting.

In a large firm the planning and routing department is responsible for arranging how
and where the work is to be done and issue instructions. It sets definite time schedules so
that necessary materials are delivered to the proper depar tment in proper time not too long
before hand neither lest it should interfere with other work nor after they are required as
this result in idle time.

Business firm keep inventories for different purposes. Every firm big or small
trading or manufacturing has to maintain some minimum level of inventories. Based on
some motives the inventories are maintained.

a. Transaction motives:

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

c. Speculative motive:

The firm may be made to keep some inventory in order to capitalize an opportunity
to make profit due to price fluctuations.

REASONS AND BENEFITS OF INVENTORY:

The optimal level of maintaining inventory is a subjective matter and depends upon
the features of a particular firm,

(i) 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 is not always possible to procure
the goods whenever there is a sales opportunity as 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 under take 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 made at a discount will result in lowering the total cost resulting in high er profits
for the firm.
(ii) Manufacturing firm:

A manufacturing firm should have inventory of not only the finished goods, but also of raw
materials and work-in-progress for following reasons.

(a) Uninterrupted production schedule:

Every manufacturing firm must have sufficient stock of raw materials in order to have the
regular and uninterrupted production schedule. If there is stock out of raw materials in
order to have the regular and uninterrupted production schedule. If there is stock out of raw
material at any stage of production process then the whole production may come to a half.
This may result in custom dissatisfaction as the goods cannot be delivered in time more
over the fixed cost will continue to be incurred even if there is no production.

Further work-in-progress would let the production process run smooth. In most of
manufacturing concerns the work in progress is a natural outcome of the production
schedule and it also helps in fulfilling when some sales orders, even if the supply of raw -
materials have stopped.

(b) Independent sales activity:

Inventory of finished goods is required not only in trading concern but manufacturing firms
should also have sufficient stock of finished goods. The production schedule is a time
consuming process and in most of the cases goods cannot be produced just after receiving
orders. Therefore, every firm has to maintain minimum level of finished goods in order to
deliver the goods as soon as the order is received.
ESSENTIALS OF INVENTORY CONTROL:

The important requirements of Inventory control are:

a) The proper co-ordination among the departments involved in buying,

receiving, inspecting, ciorage, consuming and accounting.

b) Centralization of purchasing under the control of competent buyer whenever

possible.

c) Proper scheduling of material requirements.

d) Proper classification of materials with codes, material standardization and

simplification.

e) The operation of a system of internal check to ensure that all transactions

involving materials and equipment are checked by properly authorized and
independent persons.

f) The storage of materials is well planned and kept in properly. Planned and
kept in properly designated location, subject to adequate safeguard and
supervision.

g) The operation of a system of perpetual inventory so that it is possible to

determine at any time, the amount and value of each kind of material in
stock.
h) A suitable method of valuation of materials is essential because it affects the
cost of jobs and the value of closing stock of materials.
Objectives of Inventory Control:

The main objectives of inventory control are:

I. To maintain a large size of inventory for efficient and smooth production and sales
operation.

II. To maintain a minimum investment in inventories to maximize profitability.

III. To ensure a continuous supply of raw materials to facilitate uninterrupted

production.

IV. To maintain sufficient stocks of raw materials in periods of short supply and
anticipate price change.

V. Maintain sufficient finished goods inventory for smooth sales operation and
efficient customer service.

VI. Minimize the carrying cost and time.

VII. Control investment in inventories and keep it at an optimum level.

Advantages of Inventory Control:

The following are suggested advantages:

I. Eliminates wastage in use of material,

II. It reduces the risk of loss from fraud and theft.
III. It helps in keeping perpetual inventory and other records to facilitate the
preparation of accurate material reports to management,
IV. To reduces the capital tied up in inventories,
V. It reduces cost of storage,
VI. It furnishes quickly and accurately the value of materials used in various
department.
VII. It prevents delays in production due to lack of materials by supplying, proper
quantities at the right time.

Disadvantages of Inventory Control:

Every firm has to maintain optimal level of inventories. It not the following will be
the result in form of losses.

I. Opportunity cost: Every firm has to maintain inventory for that some investment is
needed it is know as Opportunity cost and handle the investment in inventory are
more the funds are blocks up with inventory.

II. Excessive inventories: It will lead to firm losses due to excessive carrying costs
and the risk of liquidity. It is also referred as Danger level.

III. Inadequate Inventory: it is another danger which results is production hold -up and
failure to meet delivery commitments .In adequate raw materials and work -in -
process inventors will results in frequent production interruptions .It finished
goods are not sufficient customers may shifts to competitors.

IV. Danger due to physical decoration: It is one of the reason with the inventories due
to maintaining stocks at high levels they will be deteriorated due to passage of
time, some times due to mishandling or improper storag e facilities.
Costs involved in inventory:

Every firms maintains inventory depending upon requirement and other features of
firm for holding such inventory some cost will be incurred there are as follows:

(a) Carrying Cost:

This is the cost incurred in Keeping or maintaining an inventory of one unit of raw
materials, work-in -process or finished goods. Here there are two basic cost involved.

(i) Cost of storage:

It includes cost of storing one unit of raw materials by the firm. This cost may be
for the storage of materials. Like rent of spaces occupied by stock, stock for security, cost
of infrastructure, cost of insurance, and cost of pilferage, warehousing costs, handling cost
etc.

(ii) Cost of financing:

This cost includes the cost of funds invested in the inventories .It includes the required rate
of return on the investments in inventory in addition to storage cost etc. The Carrying cost
include there fore both real cost and opportunity cost associated with the funds invested in
the inventories.

The total carrying cost is entirely variable and rise in directly proportion to the level
of inventories carried.

Total carrying cost = (carrying Cost per unit) x (Average inventory)

(b) Cost of ordering:

The cost of ordering includes the cost of acquisitions of inventories. It is the cost of
preparation and execution of an order including cost of paper work and Communicating
with the supplier.

The total ordering cost is inversely proportion to annual inventory of firm. The ordering
cost may have a fixed component, which is not affected by the order size: and a variable
component, which changes with the order size.

Total Ordering Cost = (No. Of orders) x (cost per order)

(c) Cost of stock out:

It is also called as Hidden cost. The stock out is the situation when the firm is not
having units of an item in stores but there is a demand for that Item either for the customers
or the production department .The stock out refers to zero level inventory .So there is a cost
of stock out in the sense that the firm face a situation of lost sales or back orders .The stock
outs are quite often expensive. Even the good will of firm also be effected due to customers
dissatisfaction and may lose business in case of finished goods, where as in raw materials
or work in process can cause the production process to stop and it is expensive because
employees will be paid for the time not spend in producing goods.

The carrying cost and the ordering cost are opposite forces and collectively. They
determine the level of inventors in a firm.

Total cost = (cost of items purchased) +(Total Carrying and ordering cost)

Valuation of Inventory:

The methods of valuing inventory are combination of the actual cost and
replacement cost plans. The chief advantage of the cost or net realizable v alue
rule is that it is conservative. Hence the methods of Valuation of inventory are
quite independent of system of mincing.

In balance sheet closing stock is shown under current assets and is also credited to
manufacturing or trading accounts. The invent ories are valued on the basis as follows.

(i) Cost of raw materials in stock may include freight charges and carrying cost. But
such cost should not exceed market price,

(ii) Work -in -process is generally valued at cost, which includes cost of materials,
labor. And the proportionate factory overhead, as it is reasonable according to
degree of completion,
 (iii) Cost of finished goods wound normally to be total or full cost it includes prime
cost plus appropriate amount of the overhead. Selling and distribution cost is
deducted on the other hand work in progress may be valued at work in progress
may be Valued at work cost, marginal cost, prime cost or, even at direct
materials.

ISSUE PRICING METHODS:

There are two categories:

(i) Cost prices:

(a) FIFO (First in First out)

(b) LIFO (last in first out)
(c) Specific price
(d) Base stock price
(e) HIFO (highest in first out)

(ii) Derived from cost prices:

(a) Simple average price

(b) Weighted average price
(c) Periodic simple average price
(d) Periodic weighted average price
(e) Moving simple average price
(f) Moving weighted average price

(iii) Notional prices:

(a) Standard price

(b) Inflated price
(c) Re-use price
(d) Replacement price
  First in First out (FIFO)

This is the price paid for the material first taken into stock from which the
material to be priced could have been drawn.

Under this method stocks of materials may not be used up in chronological order but
for pricing purpose it is assumed that items longest in stock are used up first. The method is
most suitable for use where in material is slow-moving and comparatively high unit cost.

Advantages:

(i) Price is based on actual cost and not on basis of approximations such as no
profits or losses arises by reasons of adopting this method.
(ii) The resulting stock balance generally represents fair commercial valuation of
stock.
(iii) It is based on traditional principles.

Disadvantages:

(i) The number of calculations in the stores ledger involved tends to be

complicated with increase in clerical error.
(ii) The cost of consecutive similar jobs will differ if the price changes suddenly,
(iii) In times of rising prices, the charge to production is unduly low as the cost of
replacing the material will be higher.
  Last in first out (LIFO)

This is the price paid for the material last taken into stock from which the materials
to be priced could have been drawn. This method also ensure material being issued at the
actual cost. Its use is based on the principle that costs should be as closely as possible
related to current price level. Under this method production cost is calculated on basis on
replacement cost.

Advantages:

(i) Production is charged at the most recent prices so that it is based on the
principle that cost should be related to current price levels.
(ii) It obviates the necessity for continuously ascertaining the replacement price.
(iii) Neither profit nor loss is usually made by using this method.

(iv) In the times of rising prices there is no wind fall profit as would have been
obtained under FIFO method.

Disadvantages:

(i) Needs more clerical work.

(ii) Compassion among similar jobs is very difficult.
(iii) Stock valves relating to prices of the oldest cost on hand may be entirely out of
the current replacement prices
  Weighted average price:

This is the price which is calculated by dividing the total cost of material in the
stock from which the material to be priced have been drawn, by the total quantity of
material in the stock. This method differs from all other methods because here issue prices
are calculated on receipts of materials and not on issue of materials. Thus as soon as new
lot is received a new price is calculated and issues are then taken.

Advantages:

(i) This method is advantageous where the price varies widely as its use even out
the effect of these wide variations.

(ii) The basis of price calculations is a simple one involving only the division of
total amount of material in stock by quantity in stock.

(iii) Calculation of new prices arises only when receipt of stocks are received.

(iv) Stock records under this method give a fair indication of the stock values, which
can be used in financial analysis.

Disadvantages:

This method is completed than simple average because it takes into consideration
the total quantities and total costs in stock.

(i) Profit or loss may be incurred as in simple average price,

(ii) As LIFO or FIFO this method calls for many calculations,

(iii) In order to calculate the accurate value of issues the average price must normally
be calculated to four to five decimal places.
  Standard price:

It is the predetermination of fixed price on basis of a specification of all factors

affecting price like the quantity of materials in hand and to be normally purchased and rate
of discount compared with existing price including or excluding freight and ware housing
expense.

A standard price for each material is set and the actual price paid is compared with
standard. It is paid exceeds the standard a loss will be realized if not profit will be
obtained.

Advantages:

(i) This method is easy to operate.

(ii) Comparing the actual prices with the standard price will determine the efficiency
of purchase department.
(iii) The effect of price variations is eliminated from job costs.
(iv) It reduces classical costs by eliminating detailed cost records.
(v) In times of inflation or price fluctuations is very difficult to fix a standard price.
(vi) This method also incurs a profit or loss on issu es and closing stock.

 Inflated price:

This is the price, which includes a charge designed to cover the cost of
contingencies or related costs.

This price includes not only the cost involved in bringing the material to the
purchases premises but also the loss due to evaporation and breakage etc. as well as
carrying costs.
MATERIAL PURCHASING AND PURCHASING
PROCEDURE

Purchase of material is one of the important functions of material management. At times

more than 50% of the total product cost is material.

Functions of Purchase Department

1. Deciding the items to be purchased based on demand.

2. Selection of sources of supply.
3. Collection the price information.
4. Placing the ordered.
5. Follow-up the ordered.

6. Checking the invoices.

7. Maintenance of purchase records.

8. Maintenance of vendors relations.

PURCHASE PROCEDURE

Purchasing procedure start with the initiation of purchase requisitions and ends with the
receipt of materials in the stores.

CENTERIZED PURCHASING

 Centralized purchasing avoids duplications of efforts and working at cross purpose

from one plant to another.
 Centralized purchasing permits consolidation of order of materials commonly used for
two or more plants. The ultimately results in greater buying power, favorable
contracts and trade agreements.
 Easier to maintain the quality of purchased parts / items through centralized testing
and inspection. It is also possible to conduct testing and inspection facilities.

 Centralized purchasing permits to avail facilities like quantity discounts and cash
discounts thus its helps to reduce cost.
TECHNIQUES OF INVENTORY MANAGEMENT:

Main problems in inventory management are to answer.

(i) Are all items of inventory important if not what are items to be given more
importance?
(ii) What should be the size of the order for replenishment be placed?
(iii) What should be the over level?

To answer these following techniques are used,

 ABC Analysis
 Economic Order Quantity
 VED Analysis
 RE-ORDER Level
 Safety Stock
 Just-in-time Inventory

1. ABC Analysis:

It is based on proposition that

a. Managerial items and efforts are scare and limited

b. Some items of inventory are more important than others.

ABC ANALYSIS:

ABC analysis classifies various inventory into three sets or groups of priority and
allocates managerial efforts in proportion of the priority the most important item are
classified into class-A, those of intermediate importance are classified as "class -B" and
remaining items are classified into class-C'.
 The financial manager has to monitor the items belonging to monitor the items
belonging to different groups in that order of priority and depending upon the
consumptions.

The items with the highest value is given top priority and soon and are more
controlled then low value item. The re-rational limits are as follows.

Class Number of items (%) Value of items (%)

A 5-10 70-85
B 10-20 10-20
C 70-85 5-10

Procedure:

(i) Items with the highest value is given top priority and soon.
(ii) There after cumulative totals of annual value of consumption are expressed as
percentage of total value of consumptions,
(iii) Then these percentage values are divided into three categories.

ABC analysis helps in allocating managerial efforts in proportion to importance of

various items of inventory.

2. ECONOMIC ORDER QUANTITY:

After various inventory items are classified on the basis of the ABC analysis the
management becomes aware of the type of control that would be appropriate for
each of the three categories of the inventory items.

The determination of the appropriate quantity to be purchased in each lot to

replenish stock as a solution to the order quantity problems necessitates resolution of
conflicting goals. Buying in a higher average inventory level wil l assure,
 (i) Smooth production / sale operation and.
(ii) Lower ordering or setup costs. But it will involve higher carrying costs. On the
other hand small orders would reduce the carrying cost of inventory by reducing
the average inventory level but the ordering costs would increase, as there is a
likelihood of interruption in operations due to stock -outs. A firm should not
place either too high or small orders on the basis of a trade off between benefits
derived from the availability of inventory and the cost of carrying that level of
inventory, appropriate or optimum level of order to be placed should be
determined. The optimum level of inventory is popularly referred to as the
economic order quantity or economic lot size. It may be defined as that level of
inventory order that minimizes the total lost associated with inventory
management. It is based on some assumptions, which are restrictive.

a. The firm knows with certainty the annual usage of a particular item of
inventory.

b. Rate at which the firm uses inventory is steady over time.

c. The orders placed to replenish inventory stocks are received at exactly

that point in time when inventories reach zero.

 EOQ can be illustrated by

(i) Trial and error approach,

(ii) Mathematical approach.

 Trial and Error approach:

In this approach the procedure of procuring the inventory is assumed the smaller the
lot the lower is average inventory and vice versa and high average inventory would involve
high carrying costs. This approach is used for determination of EOQ uses different
permutations and combinations of lots of inventory purchases so as to find out the least
ordering and carrying cost combinations. The carrying cost and acquisition cost for
different sizes of order to purchase inventories are computed and the order size with lo west
total cost of inventory is EOQ.
 Mathematical Approach:

The EOQ quantity can use a short-cut method calculated by following

2AB
EOQ= EOQ 
C

Where,

A = Annual usage of inventory

B = Buying cost per order

C = carrying cost per unit

Limitations:

While using EOQ it should be noted that it suffers from shortcomings, which are
mainly due to the restrictive nature of the assumptions on which it is based.

The important limitation is assumption of a constant consumption usage and, the

instant replenishment of inventory is of doubtful validity. There may be unusual and
unexpected demand for stocks to meet such [contingencies the firm has to keen additional
inventories like safety stocks. Another weakness is to assume known annual inventorie s is
open to question and there is likelihood of a discrepancy between the actual and expected
demand leading to wrong estimate of EOQ.
 3. VED ANALYSIS:

Vital Essential and Desirable analysis is done mainly for control of spare parts keeping in
view of the criticality to production.

Vital spares are spare the stock-out of which even for a short time will stop
production for quite sometime. Essential spares are spares the absence of which cannot be
tolerated for more than a few hours a day. Desirable spares are those, which are needed, but
their absence for even a week or so will lead to stoppage of production.

4. THE RE-ORDER LEVEL:

The re-order level is the level of inventory at which the fresh order for that item
must be placed to procure fresh supply. The re-order level depends upon

 Length of time between the placement of an order and receiving the supply.

 The usage rate of the item. The inventory is constantly being used up. The
rate at which the inventory is being used up. The r ate at which the inventory
is being used up is called the usage rate.

The reorder level can be determined as follows:

R = M + tu

R = Reorder level

M = Minimum level of inventory

T = Time gap / delivery time

U = Usage rate
The reorder level and inventory patterns have be shown as follows:

The figure shows that if the usage rate is constant, the orders are made at even
intervals for the same amounts each time and the inventory goes to zero just before
an order is received.

5. Safety Stock:

The safety stock protects firm from Trade offs due to unanticipated demand for the items
level of inventory investment is however increased by the amount of safety stock. Safety
level is ascertained in inventory as a part because there is always an uncertainty involved in
time lag usage rate or other factor.

Usually smaller the safety level greater the risk of stock -outs. If stock-levels are
predictable then there is a chance of stock out occurring. However stock inflows and
outflows are unpredictable or lesser predictable it becomes to carry additional safety
stock to prevent unexpected stock outs so usage rate is estimated if cost is low then
no safety stock is needed.
6. JUST-IN-TIME INVENTORY:

The basic concept is that every firm should keep a minimum level of inventory on
hand, relying suppliers to furnish stock just in time as and when required. JIT helps
in emphasizing sufficient levels of stocks to ensure that production will not be
interrupted. Although the large inventories may be bad idea due to heavy carrying
JIT is a modern approach to inventory management and the goal is essentially to
minimize such inventories and there by maximizing the turnover.

JIT system significantly reduces inventory-carrying cost by requiring that the raw materials
be procured just in time to be placed into production. Additionally the work in process
inventory is minimized by eliminating inventory is minimized by eliminating inventory
buffers between different production departments.

If JIT is to be implemented successfully there must be a high degree of coordination and

co-operation between the supplier and manufacturer and among different production
centers. JIT does not appear to have any relation with EOQ however it is in fact alters some
of the assumptions of EOQ model. The average inventory level under the EOQ model is
defined as

Average inventory= 1/2 EOQ + safety level JIT attacks this equation in two ways.

(i) By reducing the ordering cost

(ii) By reducing the safety stock.

The basic philosophy in JIT is that the benefits, associated with reducing
inventory and delivery time to a bare minimum through adjustment in the EOQ
model; will more than offset the costs associated with the increased.
 DATA ANALYSIS AND INTERPRETATION

1. LEVEL OF INVENTORY
TABLE

Qty in thousand tones

Particulars 2013-14 2014-15 2015-16 2016-17 2017-18

Raw materials

Lime stone 3330.80 5169.86 8392.21 11109.76 11265.50

(stacker 60 )

Iron ore
1387.83 2154.11 3496.76 4629.10 4693.96
(stacker 25 )

Clay ash
(stacker 15 ) 832.70 1292.47 2098.05 2777.44 2816.40
TOTAL(clinker) 5551.33 8616.44 13937.02 18516.26 18775.86
Work in process 5386.48 8451.74 13822.02 18351.46 18611.09
Finished goods 6251.55 9316.59 14522.32 19216.54 19416.11
Total 17189.36 26384.77 42331.36 56084.26 56803.06
2. INVENTORY TURNOVER RATIO

. The inventory turnover ratio measures the number of times a company sells its
inventory during the year.

Costofsales
Inventoryturnoverratio =
Averagestock

Costofsales = sales − Grossprofit

Opening stock + Closing stock

Average stock =
2

TABLE
INVENTORY TURNOVER RATIO

Cost of goods
Average stock (in Inventory turnover
S.No Year sold (`in
tons) ratio
lakhs)

1 2013-14 2663028 487428 5.46

2 2014-15 2844494 503184 5.65

3 2015-16 3094850 819401.5 3.78

4 2016-17 4010580 945491.5 4.24

5 2017-18 4521886 822538.5 5.50

Source: Annual reports of Zuari cement pvt limited

 Graphical representation

6 5.46 5.65 5.5

5
4.24
4 3.78

0
2013-14 2014-15 2015-16 2016-17 2017-18

Inventory turnover ratio

Interpretation

The inventory turnover ratio was high in the year 2014-15 after that 2014-15 the
inventory turnover ratio was decreased. The present value of inventory turnover ratio is good
compare to previous years which shows company sales has been improved
3. INVENTORY CONVERSION PERIOD

The inventory conversion period is the time required to obtain materials for a product,
manufactured it, sell it.

No. of days in the year

Inventory conversion period =
Inventory turnover ratio

TABLE

INVENTORY CONVERSION PERIOD

Inventory conversion
S.No Year No. of days Inventory turnover ratio
period (in days)

1 2013-14 365 5.46 66

2 2014-15 366 5.65 64

3 2015-16 365 3.78 96

4 2016-17 365 4.24 86

5 2017-18 365 5.50 65

Source: Annual reports of Zuari cement pvt limited

 Graphical representation

120

100 96
86
80
66 64 65
60

40

20

0
2013-14 2014-15 2015-16 2016-17 2017-18

Inventory conversion period (in days)

The

Interpretation

inventory conversion period is normally indicates the wealth of the company. The
company wants to concentrates with its inventory conversion period. If this period is very
high, it will increase the time to complete the cash conversion cycle. It means, there will be
more liquidity risk in that level of inventory.

During the period 2015-16 it is more but later it starts decreasing which shows the
improvement in liquidity
 EOQ ANALYSIS
EOQ ANALYSIS FOR THE YEAR 2013-14 (TABLE)

Total
Total Saving
Annual investment
Item O C P EOQ investment inventory
requirement without
with EOQ cost
EOQ

Iron Ore 31500 36 1.5 65 1230 81794 138615 56821

Lime
15000 40 1.25 144 980 142345 145225 2880
Stones

Clay Ash 14000 42 2 144 767 111982 135915 23933

Sulphur 13000 34.5 1.75 153 716 110801 133927 23136

Gypsum 13500 35 1.25 144 869 126223 130688 4465

Bauxite 11500 36.5 1.5 150 748 113322 116173 2851

Source: Annual report of Zuari cement pvt limited

Interpretation

The company’s annual requirement for the year 2013-14 is 101000 tons of raw
materials. They using investment with EOQ spent ` 787168. When the same in without

investing EOQ is ` 882551. So the company saved ` 169432 in the year 2013-14.
EOQ ANALYSIS FOR THE YEAR 2014-15(TABLE)

Total
Total Saving
Annual investment
Item O C P EOQ investment inventory
requirement without
with EOQ cost
EOQ

Iron Ore 33500 35 1.5 75 1250 95626 169675 74049

Lime
13500 41 2 154 744 116064 140115 24051
Stones

Clay Ash 16500 55 1.55 154 1100 171050 171050 0

Sulphur 14000 35 1.5 163 808 132916 153304 20388

Gypsum 12500 36 2 154 671 104676 153304 20388

Bauxite 11000 37 2.5 160 571 92787 118752 25965

Source: Annual report of Zuari cement pvt limited

Interpretation

The company’s annual requirement for the year 2014-15 is 103700 tons of raw
materials. They using investment with EOQ spent ` 590000. When the same in without

investing EOQ is ` 921215. So the company saved ` 195739 in the year 2014-15.
EOQ ANALYSIS FOR THE YEAR 2015-16 (TABLE)

Total
Total Saving
Annual investment
Item O C P EOQ investment inventory
requirement without
with EOQ cost
EOQ

Iron Ore 13500 34 1.5 65 1260 83789 153905 7046

Lime
13500 36 1.5 167 805 135642 151515 15873
Stones

Clay Ash 15000 38 1.75 165 807 134567 166445 13878

Sulphur 14000 37 1.75 164 769 127462 154384 26922

Gypsum 15000 35 2.5 165 648 108540 166775 58235

Bauxite 11200 36.5 1.75 170 684 117476 128191 10715

Source: Annual report of Zuari cement pvt limited

Interpretation

The company’s annual requirement for the year 2015-16 is 98500 tons of raw
materials. They using investment with EOQ spent ` 68646. When the same in without

investing EOQ is ` 800543. So the company saved ` 114076 in the year 2015-16.
EOQ ANALYSIS FOR THE YEAR 2016-17 (TABLE)

Total
Total Saving
Annual investment
Item O C P EOQ investment inventory
requirement without
with EOQ cost
EOQ

Iron Ore 34000 36 1.5 95 1271 123231 217605 94374

Lime
12500 37 1.75 174 727 127770 146226 18456
Stones

Clay Ash 14000 40 1.5 175 864 152496 164575 12079

Sulphur 16000 38 1.75 174 834 146575 187161 40586

Gypsum 18000 36 2.75 175 686 121938 212190 90252

Bauxite 17000 37 1 180 1122 203082 205062 1980

Source: Annual report of Zuari cement pvt limited

Interpretation

The company’s annual requirement for the year 2016-17 is 111500 tons of raw
materials. They using investment with EOQ spent `875092. When the same in without

investing EOQ is `1132819. So the company saved `2577276 in the year 2016-17.
EOQ ANALYSIS FOR THE YEAR 2017-18 (TABLE)

Total
Total Saving
Annual investment
Item O C P EOQ investment inventory
requirement without
with EOQ cost
EOQ

Iron Ore 38000 37 1.75 105 1268 135358 268736 133378

Lime
13500 35 1.25 185 869 161852 167588 5736
Stones

Clay Ash 12000 38 3 195 551 109099 157770 48671

Sulphur 15000 40 3.25 185 608 114455 187225 72770

Gypsum 17000 40 1.25 194 1043 203646 221110 17464

Bauxite 18000 39 2.75 200 715 144965 242235 97270

Source: Annual report of Zuari cement pvt limited

Interpretation

The company’s annual requirement for the year 2017-18 is 113500 tons of raw

materials. They using investment with EOQ spent ` 869375. When the same in without

investing EOQ is ` 1244664. So the company saved ` 375289 in the year 2017-18.
FINDINGS

RATIO ANALYSIS (INVENTORY)

 Inventory level of the company has increased year by year. However there is

no problem in the inventory level of the Zuari cement pvt.limited.

 Inventory turnover ratio the ratios of the year has been found as low in the

years of 2015-16 and 2016-17. After those periods the inventory turnover ratio

has slightly increased in the year 2017-18. Even though that level is quite low

when compare with 2014-15.

 Inventory conversion period is found at good level though the effort is to keep

the inventory conversion period as low.

EOQ ANALYSIS

 EOQ analysis for the year 2013-14 to 2017-18 is good. For this year they

followed EOQ with investment for purchase of goods.

 EOQ analysis for the year 2014-15 to 2017-18 is good. For this year they

followed EOQ with investment for purchase of goods.

 In EOQ analysis for the year 2015-16 to 2017-18 is good. For this year they

followed EOQ with investment for purchase of goods.

 In EOQ analysis for the year 2016-17 to 2017-18 is good. In this year the EOQ

with investment and EOQ without investment are same.

 In EOQ analysis for the year 2017-18 to 2017-18 is good. All years of EOQ is

followed only investment with EOQ.

 SUGGESTIONS

RATIO ANALYSIS (INVENTORY)

 Inventory level of the company shows the increase of the raw materials, work-

in-process and finished goods. The inventory level of Zuari cement pvt limited

is well.

 Inventory turnover ratio detected some problems. Now they use their cement

which are produced in Zuari cement pvt limited for their own purpose. If they

sell that to others also then only the ratio will be increased.

 Zuari cement pvt limited sells the 25 of the cements produced, remaining they

used for own purpose. For sales to others more credit days may be allowed to

their agents.
CONCLUSION

The study covers the inventory management for effective inventory control. The

technique used is Economic Order Quantity Analysis named as EOQ Analysis to find

out the rate with EOQ and without EOQ investment for purchasing of good in

manufacturing the cement at Zuari Cement Pvt Limited. With this the inventory

management of the organization was found to be quite good during the years 2013-

2018. From this study it can be concluded that the organization has been in effective

in inventory management. The study will be used for Zuari Cement Pvt Limited in

varied ways.
BIBLIOGRAPHY
BOOKS
 Asohok Banerjee - Financial Accounting – A Managerial Emphasis – Excel Books –
2005
 Collis – Business Accounting – Palgrave Macmillan – 2007
 Khan MY Jain P.K – Management Accounting : Text, problems and cases 4th Edition
– Tata McGraw Hill – 2007
 Pandikumar – Management Accounting – Excel Books – 2007
 Ramachandran N Kakani Kumar Ram – Financial Accounting For Management –
Tata McGraw Hill – 2006
 Robert Anthony David Hawkins Kenneth A.Merchant – Accounting Text and Cases –
Tata McGraw Hill – 2007
 S.K Bhattacharyya JohnDeaden – Costing for Management – Vikas Publishing – 2002
 S.N Maheswari S.K Maheswari – Accounting for Management – Vikas Publishing –
2006
WEBSITES
 en.wikipedia.com
 www zuaricements.com
 www.indiacatalog.com
 www.inventoryquzz.com
 www.reportjunction.com