TRAINING REPORT

ON
WORKING CAPITAL MANAGEMENT

In Partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION

(Punjab Technical University, Jalandhar)
Session – 2017-2019

I.K Gujral Punjab Technical University, Jalandhar

Submitted By:

Tina Rani
(MBA- 4th Sem.)
Uni. Roll No. 1718771
 INDEX

Sr . No. Topics Page No.

1 Company Profile

2 Introduction

3 Literature Review

4 Objectives of the Study

5 Research Methodology

6 Data Analysis & Interpretation

7 Recommendations

8 Limitations

9 Conclusion & Implications

10 Bibliography
COMPANY PROFILE
 Company Profile

DOCTOR SEEDS PVT. LTD.

Doctor Seeds Pvt. Ltd. promoted by Dr. R.S Punia, an agriculture technocrat having
vast experience in Seed development and two years research fellowship in one of the top
agriculture Universities of Japan and its family members came into existence in January 1998 to
carry out the business of Agriculture, Horticulture, Planting, Cultivation, Breeding and the
business of growers, processors, dealers, distributors, importers and exporters of all kinds of
vegetable seed varieties. Presently, the company is in the area of production, multiplication,
marketing and import & export of vegetable seeds. It has approximately 170 Hybrids, O.P. &
Selection varieties developed on its own R & D base and handling about 25 vegetable crops. It
has since included field crops also into its fold on the strength of its continuous efforts in
research and development.
It has a very strong presence in India and is exporting its vegetable seeds to the other parts of the
world. In view of the adaptability of its quality seeds, demand for supply is pouring in from all
 over the world including African, European, Latin American countries apart from Asian
Countries where it already has strong presence.

Seed is the most vital input for sustainable and profitable agriculture. The quality and quantity of
every single crop or yield depends on the seeds to a great extent. Keeping this in mind, Doctor
Seeds Pvt. Ltd. brings forth an innovative range of Vegetable Seeds of Beans, Beet Root, Bhindi
(Okra), Capsicum, Coriander, etc. The company has revolutionized the seed industry by making
cultivators and farmers capable of planting high quality vegetables using organic, safe and
productive seeds.

The company is managed by Dr. R.S Punia, who is an agriculture technocrat with huge expertise
in the domain of seed development. He has also done two years research fellowship in the
leading agriculture Universities of Japan. In January 1998, he started the company as a major
Manufacturer, Exporter and Supplier to aid cultivators, growers, processors and exporters to
carry out different businesses of Agriculture, Cultivation, Breeding, Horticulture, Planting.

Membership with the Seed Institutions / Associations

The company is member of the following reputed institutions engaged in the field of seed
production, marketing development:

 Asia Of Pacific Seed Association (APSA)

 International Seed Federation (ISF)
 National Seed Association Of India (NSAI)
 National Seeds Corporation Of India (NSCI)
 Agriculture And Processed Food Products Export Development
Authority (APEDA)

The company is managed by Dr. R.S Punia, who is an agriculture technocrat with huge
expertise in the domain of seed development. He has also done two years research fellowship in
the leading agriculture Universities of Japan. In January 1998, he started the company as a major
Manufacturer, Exporter and Supplier to aid cultivators, growers, processors and exporters to
carry out different businesses of Agriculture, Cultivation, Breeding, Horticulture, Planting.
The quality and quantity of every single crop or yield depends on the seeds to a great extent.
Keeping this in mind, Doctor Seeds Pvt. Ltd. brings forth an innovative range of Vegetable
Seeds of Beans, Beet Root, Bhindi (Okra), Capsicum, Coriander, etc. The company has
revolutionized the seed industry by making cultivators and farmers capable of planting high
quality vegetables using organic, safe and productive seeds.
It is worth mentioning that the Company has its own in - house R & D Centre recognized by
Govt. of India. All the R & D Programs undertaken by the company are under direct control and
supervision of Dr. R.S. Punia, Managing Director, who is Head of the R & D Division of the
Company. Approximately 95% of our products are result of our In - House R & D Centre.
Land Development Corporation has adopted a strategy to improve land productivity by taking
proper care of land and water.
Mr. Jasminder Singh Punia, Director is responsible for Processing and Marketing activities of the
company including its product development efforts. Mr. Punia is responsible for the, business
development including import & export as also expansion efforts of Doctor Seeds Pvt. Ltd. All
the matters pertaining to coordination of business are controlled by him.

Products
Beans , Open Pollinated, Beet Root, Bhindi (Okra), Bitter gourd, Bottle gourd, Brinjal,
Broccoli, Cabbage, Capsicum, Carrot, Cauliflower, Chilli, Cluster, Bean (Guwar), Coriander,
Cucumber, Gobi Saron Saag, Knol Khol, Long Melon, Muskmelon, Onion, Paddy, Peas,
Pumpkin, Radish, Ridge gourd, Round Gourd(Tinda), Spinach (Palak), Sponge gourd, Summer,
Squash, Tomato, Watermelon, Zucchini.
INTRODUCTION
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

Material s 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.

3. 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.

 Cash
 Debtor’s Raw material
 Sales Work in Progress
 Finished Goods
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-inprogress

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

32

Manufacturing firm

A manufacturing firm should have inventory or not only the finished goods, but also

of raw materials and work -in-progress for following reasons.

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.

33

ESSENTIALS OF INVENTORY CONTROL

The important requirements of inventory control are:

• A firm needs inventory control system to effectively manage its inventory.

• Proper classification of materials with codes, material standardization and simplification.

• The operation of a system of internal check to ensure that all transactions involving material
and

equipment are checked by properly authorized and independent persons.

• 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 o material in stock.

• 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:

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

operation.

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

3. To ensure a continuous supply of raw materials to facilities uninterrupted production.

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

change.

5. Maintain sufficient finished goods inventory for smooth sales operation and efficient

customer services.

6. Minimize the carrying cost and time.

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

34

Advantages of Inventory Control

The following are suggested advantages:

1. Eliminates wastages in use of material.

2. It reduces the risk of loss form fraud and theft.

3. It helps in keeping perpetual inventory and other records to facilitate the preparation of

accurate material reports management.

4. To reduce the capital tied up in inventories.

5. It reduces cost of storage.

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.

1. Opportunity cost : Every firm has to maintain inventory for that some investment is

needed it is known as opportunity cost and handle the investment in inventory are more the funds
are blocks up with inventory.

2. Excessive inventories: It will lead to firm losses due to excessive carrying costs the risk of

liquidity. It is also referred as danger level.

3. Inadequate Inventory: It is another danger which results is production hols-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.

4. 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, sometimes due

to mishandling or improper storage facilities.

 INVENTORY CONTROL TECHNIQUES
Inventory is being maintained as a cushion in supply of materials for continuous

production without causing stock out situation. This cushion should not be suicidal to

any organization. The following scientific techniques and methods are being used in

control of inventory.

1. Inventory Management Techniques

2. Standardization

3. Selective Inventory Control

4. Just In Time

5. Perpetual inventory system

6. Dropshipping

7. Inventory turnover ratio

1. INVENTORY MANAGEMENT TECHNIQUES

(a) Economic Order Quantity

If the firm is buying raw materials, it has to decide lots in which it has to be

purchased on replenishment. If the firm is planning a production run, the issue is

how much production to schedule. These problems are called order quantity problems,

and the task of the firm is to determine the optimum or economic order quantity.

(b) Ordering cost:

 The term ordering cost is used in case of raw materials and includes

the entire costs of acquiring raw materials.

(c) Carrying cost:

Cost incurred for maintaining a given level of inventory is called

carrying cost.

Economic Order Quantity is given by the formula:

𝟐𝑨𝑶
EOQ = √ 𝑪

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

Total cost of inventory = (A×P) + (A×O) + (EOQ×C)

EOQ 2

Where A = Annual consumption (in units)

O = Ordering cost per order (in Rs)

C = Carrying cost per unit (in Rs)

P = Price per unit (in Rs)

(b) Reorder Point

The reorder point is that inventory level at which an order should be placed to

replenish the inventory. To determine reorder point:

 (a) Lead time is the time normally taken in replenishing inventory after the

order has been placed.

(b) Average usage

(c) Economic order quantity

(c) Safety stock

The demand for material may fluctuate from day to day. The actual delivery time

may be different from the normal lead time. If the actual usage increases or the

delivery of inventory is delayed the firm can face problem of stock out, which can

be costly. So, in order to guard against the stock out the firm may maintain a safety

stock.

2. STANDARDIZATION

Standardization is very essential to control the inventory, as by standardization

reduction in variety of material is possible. And because of the reduction in variety the

advantages are low order cost, low inventory, less storage stocks, conservation of

materials, variety reduction, less paper work, easy follow up with suppliers, less number

of orders.

The importance of this field has been recognized since the days of F.W. Taylor,

who first drew attention to this fundamental need in any organization. Just as work

study is necessary preliminary to work simplification, and a basic technique for

production control, quality control, materials handling, estimated cost control, etc.,

“Standardization “ are preliminary necessity to design a basic technique on build control

and standardization procedure.

3. SELECTIVE INVENTORY CONTROL MANAGEMENT

Any manufacturing organization consumes few thousand items of stores. A high

degree of control on inventories of each item would, therefore neither be practical

considering the work involved, nor worthwhile since all items are not of equal

importance. Hence, it is desirable to classify or group items to control, commensurate

with importance. This is the principle of selective control as applied to inventories and

the technique of grouping is termed as selective technique.

Selective inventory means variation in the methods of inventory control from

items to item and this differentiation should be on selective basis by classification. A

company has to stock thousands of items of raw materials, standard parts, stores and

spares, sub contract items, tools, stationery etc. To have better control over the

inventory/ stock on hand, selective inventory control technique should be used in

isolation/ or in conjunction.

Thus selective control means selecting the area of control so that required objective is

achieved as early as possible without any lost of time due to taking care of full area –

 Minimum lost of energy and efforts.

 At minimum cost without loss of time.

There are following selective control techniques:

* ABC Analysis

* FSN Analysis

* XYZ Analysis

* VED Analysis

* HML Analysis

a) ABC ANALYSIS

ABC analysis is a selective control technique which is required to be applied when we

want to control value of consumption of the item in rupees obviously when we want to

control value of the consumption of the material we must select those materials where

consumption is very high.

In any company manufacturing, there are number of items which are consumed or traded

it may run into thousands. It is found after number of studies for different companies

that –

Value of consumption of No. Of items Grade

items (value in Rs).

70% of consumption 10% of no. Of items A

20% of consumption 15% of no. Of items B

10% of consumption 75% of no. Of items C

A items these are those items which are found hardly 5% 10% but their consumption

may amount 70% 75% of the total money spend on materials.

B items these are those items which are generally 10% 15% of he total items and their

consumption amounts to 10% 15% of the money spend on the materials.

C items these are large number of items which are cheap and inexpensive and hence

insignificant. They are large in number s running into hardly 5% 10% of the total

money spends on materials.

'A' Class Items ‘B’ Class Items 'C Class Items

(High consumption value) (Moderate consumption (Low consumption value)
value)

1. Very strict control 1. Moderate control 1. Loose control.

2. No safety stocks or very 2. Low safety stocks. 2. High safety stocks

Low safety stocks.

3. Maximum follow up and 3. Periodic follow up 3. Follow up and expediting

Expediting in exceptional cases

4. Rigorous value analysis 4. Moderate value analysis 4. Minimum value analysis

5. Must be handled by senior 5. Can be handled by 5. Can be fully delegated

officers management

b) FSN ANALYSIS

This type of analysis is more concerned from the point of view of movement of the

item or issue of the item or issue of the item under this type of analysis.
 ‘F’ items are those items, which are fast moving i.e. in a given period of

time, say a month or a year they have been issued up till number of items. Although

fast moving does not necessarily mean that these items are consumed in large quantities.

‘S’ items are those items which are slow moving in the sense that in the

given period of time they have been issued in a very limited number of time

‘N’ non moving items are those, which are not at all issued for a

considerable period of time.

Thus, stores department whose concerned with the moving of items would like to

know and classify that the items are storing in the categories FSN. So that they can

manage operate and plan stores activity accordingly.

For example, for efficient operations it would be necessary that fast moving items as

far as possible should be stored as near as possible to the point of issue. So that it can

be issued with minimum of handling. Also such items must be stored at the floor level

avoiding storing them at high heights.

Similarly, if the items are slow moving or issued once in a while in a given

period of time they can be stored in the interior of the stores and even at the higher

heights because handling of these items becomes very rare.

Further it is necessary for stores in charge to know about non moving items for

various reasons:
 1. They mean unnecessary blockage of money and affecting the rate of returns of

the company.

2. Further they also occupy valuable space in the stores without any usefulness and

therefore it becomes necessary to identify these items and go into details and find

reasons for their non moving and if justified to recommend to top management

for their speedy disposal so that company operations are performed efficiently.

Also inventory control to some extent can also be exercised on the basis of FSN

analysis.

For example, fast moving items can be controlled more severely, particularly when their

value is also high. Similarly, slow moving items may not be controlled and reviewed

very frequently since their consumption may not be frequent and their value may not be

high.

c) XYZ Analysis

This type of analysis is carried out from the point of view of value of balance stocks

lying in the stores from time to time and classifies all the items as given below.

‘X ‘items are those items whose value of balance stocks lying in the stock are very

high.

‘Y’ items are those items whose value of balance stock is moderate.

‘Z’ items are those items whose value of balance stock lying in the stocks is very low.
After knowing this type of classifications and their items can be taken to control the

situation as shown below:

1] From security point of view high value items must be stored and kept under lock

and key or if not possible they should be kept in such a way that they are always

under supervision. Similarly arrangement can be made for y and z items accordingly.

2] From inventory control point of view we must know why there is high inventory for

‘X’ items. We should review inventory control procedure for each and every high item

because stock should be maintained to take care of lead time consumption and also to

provide safety stocks. For high value items lying in stores we should review the reasons

for long lead time as well as demand variations and see whether lead time consumption

and safety stocks can be reduced. Thus proper inventory control procedures can be

developed on the basis of XYZ analysis.

Thus proper selective control methods should be selected to control the materials and

prevent from facing loss, taking advantage and knowing what exactly is to be done.

d) VED ANALYSIS

VED analysis is carried out to control situation, which are critical. When applied to

material in VED analysis we try to identify material according to their criticality to the

production, which means the material, without which the production will come to stop

and so on from this point of view material classified into three categories.

V vital,

E essential,
 D desirable.

Vital categories of the items are those items for the want of which the production will

come to stop. For e.g. Power in the factory.

Essential group of items are those items because of non availability of which the stock

out cost is very high.

Desirable group of items are those items because of non availability of which there is

no immediate loss of production and stock cost is very less and it may cause minor

disruption in the production for a short time.

e) HML ANALYSIS

This analysis, analysis the material according to their prices and then classifies them as

H items or M items or L items.

H stands for high price,

L stands for low price and

M stands for medium price.

Since price is more concerned of purchase department mostly purchase department

people analyses the material according to HML analysis.

HML analysis must be carried out from any one of the following objectives or some of

the objective as the case may be.

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

of people.

 When it is desired to evolve purchasing policies then also HML analysis is

carried out i.e. whether to purchase in exact quantities as required or to purchase

in EOQ or purchase only when absolutely necessary.

 When the objective is to keep control over consumption at the department level

then authorization to draw materials from the stores will be given to high level H

item, low level for L items and medium level for M item.

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

category, very rarely L category and averagely M category.

 When it is desired to arrange security arrangements for the items, then H item

under lock and key, L items keep open on the shop floor and under supervision

for M items

4. JUST IN TIME INVENTORY SYSTEM

Keeping in view the enormous carrying cost of inventory in the stores and go downs,

manufacturers and merchandisers are asking for more frequent deliveries with shorter

purchase order lead times from their suppliers. Now days organizations are becoming

more and more interested in getting potential gains from making smaller and more

frequent purchase orders. In other words, they are becoming interested in just in time

purchasing system. Just in time purchasing (JIT) purchasing is the purchase of material
or goods in such a way that delivery of purchased items is assured before their use or

demand.

Just in time purchasing recognizes too much carrying costs associated with holding high

inventory levels. Therefore, it advocates developing good relations with suppliers and

making timely purchases from proven suppliers who can make ready delivery of goods

available as and when need arises. EOQ model assumes a constant order quantity

whereas JIT purchasing policy advocates a different quantity for each order if demand

fluctuates. EOQ lays emphasis on ordering and carrying costs but inventory management

extends beyond carrying and ordering costs to include purchase costs quality costs and

stock out. Just in time purchasing takes into consideration all these costs and move—

outside the assumptions of the EOQ model.

Advantages of JIT purchasing

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

quantities are made.

2. Carrying cost is reduced as a result of low investment in inventory.

3. A reduction in the number of suppliers to be dealt with is possible. Only proven

suppliers who can give quick delivery of quality goods are given purchase orders . As a

result of this reduction in negotiation time is possible. The use of long—run contracts

with some suppliers with minimal paper work involved is possible.

4. Quality costs such as inspection cost of incoming materials or goods , scraps and

rework costs are reduced because JIT purchasing assures quick and frequent delivers of

small size orders which results in low level of inventories causing minimum possible

wastage. Therefore, JIT purchasing is frequently applied by organizations dealing in

perishable goods.

5. PERPETUAL INVENTORY SYSTEM

The Chartered Institute of Management Accountants, London, defines the perpetual

inventory as “a system of records maintained by the controlling department, which

reflects the physical movements of stocks and their current balance”. Bind cards and the

stores ledger help the movements of the stock on the receipts and in maintaining this

system as they make a record of to physical movements of the stocks on the receipts
and issues of the materials and also reflect the balance in the stores. Thus, it is a

system of ascertaining balance after every receipt and issue of materials through stock

record to facilitate regular checking and to avoid closing down the firm for stocktaking.

To ensure the accuracy of perpetual inventory records (i.e. Bin card and stores ledger),

physical verification of the stores is made by bin cards or stores ledger may differ from

the actual balance of stock as ascertained by physical verification. It may be done to the

following avoidable and unavoidable causes.

6. DROPSHIPPING

Dropshipping is a business model, it allows to sell and ship commodities without owning and
stocking them. This technique of inventory management eliminates the cost of inventory holding
all together.
The Dropshipping process is very simple:
Following are the benefit of dropshipping:
a. Low startup costs
b. Low inventory cost
c. Low cost of fulfillment of orders
d. Sell and test more products with less risk

7 (a) . Inventory turnover ratio

Inventory turnover ratio is used to ascertain the rate at which the company’s inventory is
converted to cash. A company with higher inventory ratio is considered to have the effective
sales strategy. It is generally measured using inventory period which is the average inventory
divided by average cost of goods is sold

*Average Inventory is the opening balance of the inventory plus the closing balance divided by
2.
A high inventory turnover ratio indicates efficient management of inventory and goods are fast
moving.

(b) Inventory Outstanding Days

Inventory Outstanding days represent the average number of days it takes for an entity to sell the
inventory. It is the number of days the inventory stored in the warehouse before it is sold to the
customer.
(c) Operating Cycle
Operating cycle is the number of days it takes for an entity to sell the inventory and collect cash
from the customers. This is termed as operating cycle because it is the process of purchasing
inventories, selling them, recovering cash from customers, using that cash to purchase
inventories and so on is repeated as a cycle

*It is the average days taken to sell the inventory i.e (365/ Inventory Turnover ratio)
+ This is the number of days for realizing the receivables i.e. (365/ account receivable turnover
ratio)
A short operating cycle is good as it ensures the entity’s cash is held up for a shorter period.
Literature Review
Review of Literature

Installation of a proper inventory control system in any organization in developing countries like
India is of paramount necessity. Inventory management is defined as a science based art of
ensuring that just enough inventory stock is held by an organization to meet demand (Coleman ,
2000; Jay & Barry, 2006). Inventory is the availability of any stock or resources used in an
organization. An inventory system is the set of policies that controls and monitor inventory level
and determine what level should be maintained, how large orders should be made and when
stock should be replenished.
Inventory control is the supervision of the storage, supply and accessibility of items to ensure an
adequate supply without excessive oversupply (Miller, 2010).
Inventory control means availability of materials whenever and wherever required by stocking
adequate number and kind of stocks. The sum total of those related activities essential for the
procurement, storage, sales, disposal or use of material can be referred to as inventory
management. Inventory managers have to stock-up when required and utilize available storage
space resourcefully, so that available storage space is not exceeded. Maintaining accountability
of inventory assets is there responsibility. They have to meet the set budget and decide upon
what to order, how to order and when to order so that stock is available on time and at the
optimum cost (Benedict and argeridis,1999). Hence, Inventory management involves planning
organizing and controlling the flow of materials from their initial purchase unit through internal
operations to the service point through distribution (Smaros, et al., 2003).
Inventory constitute one of the largest and most tangible investment of any retailer or
manufacturing organization. Intelligent inventory management strategies can not only help boost
profit but they can mean the difference between a business thriving or barely surviving. Holding
inventories at the lowest possible cost and giving the objectives to ensure uninterrupted supplies
for on-going operations is the aim of inventory management. When making decisions on
inventory, management has to find a compromise between the different cost component, such as
the cost of supplying inventory, inventory holding cost and cost resulting from sufficient
inventories (Peterson and Silver, 1998; Zipkin, 2000). According to Miller (2010), inventory
control is the activity which organizes the availability of item to the customers. It coordinates the
purchasing, manufacturing and distribution functions to meet the marketing needs. This role
include the supply of current sales items, new product, consumables, spare parts, obsolescent
items and all other supplies. Inventory enables a company to support the customer’s services,
logistics or manufacturing activities in situation where purchasing or manufacturing of the items
is not able to satisfy the demand. Inventory plays an unnegligible row in the growth and survival
of an organization in the sense that failure to an effective and efficient management of inventory,
will mean that the organization will lose customers and sales will decline. In other to attain its
organizational objectives, a business is to meet customer’s needs. Customer desire has always
been a vital issue in a Company not only to maintain sales but also to increase it (Tersine, 1994;
Potilen & Goldsby, 2003). Kotler (2002), posits that inventory management refers to all the
activities involved in developing and managing the inventory levels of raw materials, semi-
finished materials (working-progress) and finished good so that adequate supplies are available
and the costs of over or under stocks are low.
Inventory management is primarily about specifying the size and placement of stocked goods.
Inventory management is required at different locations within a facility or within multiple
locations of a supply network to protect the regular and planned course of production against the
random disturbance of running out of materials or goods. The scope of inventory management
also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset
management, inventory forecasting, inventory valuation, inventory visibility, future inventory
price forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand forecasting. Balancing
these competing requirements leads to optimal inventory levels, which is an on-going process as
the business needs shift and react to the wider environment (Ghosh and Kumar, 2003).
Rosenblatt (1977) says: “The cost of maintaining inventory is included in the final price paid by
the customer. Good in inventory represent a cost to their owner; the manufacturer has the
expense of materials and labour. The wholesaler also has funds tied up.” Therefore, the basic
goal of the manufacturers is to maintain a level of inventory that will provide optimum stock at
lowest cost. Morris (1995) stressed that inventory management in its broadest perspective is to
keep the most economical amount of one kind of asset in order to facilitate an increase in the
total value of all assets of the organization human and material resources. Ogbo (2011) posits
that the major objective of inventory management and control is to inform managers how much
of a good to re-order, when to reorder the good, how frequently orders should be placed and
what the appropriate safety stock is, for minimizing stock-outs. Thus, the overall goal on
inventory is to have what is needed, and to minimize the number of times one is out of stock.
Ghosh & Kumar (2003) defined inventory as a stock of goods that is maintained by a business in
anticipation of some future demand. This definition was also supported by Brag (2005) who
stressed that inventory management has an impact on all business functions, particularly
operations, marketing, accounting, and finance. He established that there are three motives for
holding inventories, which are transaction, precautionary and speculative motives. The
transaction motive occurs when there is a need to hold stock to meet production and sales
requirements. A firm might also decide to hold additional amount of stock to cover the
possibility that it may have under estimated its future production and sales requirements. This
represents a precautionary motive, which applies only when future demand is uncertain. The
speculative motive for holding inventory might entice a firm to purchase a larger quantity of
materials than normal in anticipation of making abnormal profits. Advance purchase of raw
materials in inflationary times is one form of speculative behaviour.

The Reasons for Stocking Inventory

A firm would hold more inventory than is currently necessary to ensure the firms operations.
Reasons for maintaining inventories:
Demand
A retailer stays in business when he has the product the customer wants on hand when the
customer wants them. If not, the retailer will have to back order the product. If the customer can
get the goods from some other source, he or she many chose to do so rather than wait than wait
in order to allow the original customer to meet demand later (through back-order). Hence, in
some instances a sale is lost forever if goods are not in stock.
Running Operations
In order to manufacture a product a manufacturer must have certain purchased items (raw
materials component or subassemblies). Completing the production of a finished goods can be
prevented when a manufacturer is running out of only one item. Inventory between successive
dependant operations also serves to decouple the dependency of the operations. A work-centre
often depends upon the previous operation to provide it with parts to work on. If work stops at a
work-centre, all subsequent centre’s will shut down for lack of work. Each machine can maintain
its operation for a limited time, hopefully until operations resume at the original centre if a
supply of work-in-progress inventory is kept between each work-centre (kuku, 2004).
Lead Time
Lead time is the time that elapses between when order is placed ( either a production order issued
to the factory floor or a purchase order ) and actual time goods ordered are received. If an
external firm or an internal department or plant (supplier) cannot supply the required goods on
demand, then the client firm must keep an inventory of needed goods. The larger the quantity of
goods the firm must carry in inventory depends on the longer the lead time.
Hedge
Inventory can also be used as a hedge against price increases and inflation. Before a price
increase goes into effect, salesmen routinely call purchasing agents. This gives the buyer a
chance to purchase material in excess of current need at a price that is lower than it would be if
the buyer waited until after the price increase occur (kuku,2004)
Quantity Discount
Purchase of large quantities of goods often times attracts a price discount to the firms. This also
frequently results in inventory in excess of what is currently needed to meet demand. However,
the decision to buy in large quantities is justifiable if the discount is sufficient to offset the extra
holding cost incurred as a result of the excess inventory.
Flexibility Of Inventory Service
Flexibility of inventory service provides an organization with the ability to keep inventory
services to an agreed service level in a predictable fashion with acceptable risk and cost. This
capability can be tested and valued by customers. Managing inventory to ensure high customer
service level is critical in the supply chain. However, to maintain asset is very costly. Reflecting
the level of availability of inventory to the customers are in three categories namely, raw material
inventory, work-in-progress inventory and finished goods inventory (Lieberman et al 2002)
Excess in each side is wasteful, although there may be reasons for it, such as prevention of stock-
outs, production runs, seasonality or improvement of customer’s satisfaction levels (Lieberman
et al, 1999). However, it is critical keeping the right amount of the three types of inventories to
meet customer needs. In addition, inventory service flexibility can also be as pursuing high
inventory utilization while reducing waste, because an important indication of management
efficiency and effectiveness is inventory utilization (Caplice and Sheffi, 1994).
In the business market, inventory management is the structuring of internal and external
organizational groups and how resources are leveraged based on environmental demands.
Furthermore, the relations between firms performance, capability and competence have seldom
been studied simultaneously; the resource-based view of the firm contends that firm performance
is a function of resource mix.
When resources and capability are heterogeneous, special, and difficult to replicate; when
organizational offerings create more value or capability for customers, then competitive
advantage is achieved. Thus, differences in performance across firms result from variances in
service capability, which is further, decided by the resource or competence portfolios.
Flexibility
The survival of an organization in the long run is critically the ability of the organization to adapt
to change (Upton,1994). In the short run, the competitive position of the firm is affected by the
management flexibility and may impact on its overall profitability. Flexibility in supply chain
management may well represent a potential source to improve a company’s efficiency and may
be a significant measurement of supply chain performance (Vikery et al, 1999). Especially
through inter-firm inventory management flexibilities, organizations can reduce reliance on
forecasting when and where inventory will need to be located to meet customer demand and
instead allow suppliers to respond to demand on a just-in-time basis. Meanwhile, intra-firm
inventory management flexibilities can be directly linked to overall firm performance for its
control and coordination inventory allocation and delivery to multiple destinations at the
warehouse level. The organizations within the supply chain should see improvements in
performance as a result of both intra- and inventory managerial flexibility.
Stock and Lambert (2001) proposed that one of the common delivery service variables is
inventory service level. As a kind of service flexibility, the competence of a firm inventory
management directly reflects inventory service level. On the one hand, intra-firm inventory
management flexibilities enable a firm to have good control on stock and keep a high level of
availability to customer demands, thus, by leveraging the service-cost trade off relationship, the
organization can keep a reasonable level of raw material inventory, work-in-process inventory,
and finished goods inventory and reduce inventory waste simultaneously.
On the other hand, inter-firm inventory management flexibilities allow a firm to manage stock
between supply chain participants. These flexibilities seek a reasonable inventory service chain
level based on a high level of coordination, participation, and close communication. Through
these joint efforts, organizations along the supply chain can prevent running out of stock or
overstocking.
Zhang et al, (2005) have argued that causal relationship exists between inventory management
flexibility and performance. They suggested that good inventory management flexibility allows
firms to leverage their managerial experience and intra- and inter- inventory management
competences, and finally generate high levels of inventory service flexibility. That is because
flexible competency, which is an internal management focus, provides the processes and
infrastructure that enable a firm to achieve the desired levels of capability. The outcome of an
efficient inventory service is “developing service capabilities as these investments will provide
firms with access to different market segments, hence, yield economic returns. So, the higher the
level of inventory flexibility, the higher the performance of firms. Therefore, the simultaneous
development of inventory management flexibility and service flexibility will reinforce a firm’s
ability to improve performance. This implies that inventory management flexibility is expected
to positively influence performance via its positive impact on service flexibility (inventory
service flexibility as a mediating variable)
Objectives of the study
 To study and understand the financial position of the company.

 To study , understand and analyze the inventory of various raw materials, fuel,

intermediatary and finished goods.

 To study the various inventory control techniques that are followed in Nalco and

analyze it

 To analyze the selective control techniques such as ABC, XYZ and FSN analysis

applied in the company

 To calculate the EOQ of various raw materials and analyze it.

 To evaluate the total cost of inventory for EOQ and analyze it..

 To recommend methods and strategies to control the inventory.

Research Methodology
Data collection:

The information was collected from dealers as well as farmers. Interview

schedule was prepared to collect the information from dealers & farmers. The interview schedule
is designed keeping in mind the objective of the study.

Sample size:
20 dealers & 50 progressive farmers were taken as sampling size for the study.

Sampling unit:

Dealers of Mandi, Hamirpur, Kangra, Shimla and Solan distt. Were defined as a sampling
unit.

Sampling frame:
Convenient sampling was used as a sampling method. The list of dealers along with area has
been prepared by using secondary data. The list was given by the company. The dealers &
farmers were selected from Mandi, Hamirpur, Kangra, Shimla, Solan, Kandaghat and
Palampur. The dealers & farmers were interviewed by using convenient method of sampling.

Interview schedule:
Interview schedule of questions related to the awareness and satisfied of dealers & farmers
toward the seeds & also related to the quantity of hybrid seed sold by the dealers in a current &
last year.
Analytical tool:

Percentage method:
By certain percentage method we mean parts per hundred. There are 99 points which divided the
into 100 equal parts.

X
%= ------------------------------------------------ * 100

Where as –

X = No. of respondent
Y = Total no. of respondents
DATA ANALYSIS
&
INTERPRETATION
ON THE BASIS OF FARMER’S RESPONSE


 WHERE DID THE FARMERS PURCHAGE THE SEED?

Table -1

SOURCE NO. OF PERCENTAGE (%)

RESPONDENTS

SELF PRODUCT 7 14%

FROM MARKET 43 86%

TOTAL 50 100%

Graph -1

14%
0

86%

SELF PRODUCT FROM MARKETS

INTERPRETATION:
In this fig. show that 86%farmers purchase the seeds from the market and 14% farmers used
the self product seeds
  WHICH COMPANY FARMER PREFER IN VEGETABLE
SEEDS?

Table -2

NAME OF NO. OF RESPONDENTS PERCENTAGE

COMPANY

DSPL 35 70%

INDO-AMERICAN 5 10%

SEMINAS 4 8%

CENTURY 4 8%

OTHER 2 4%

TOTAL 50 100%

Graph -2

8%4%
8% 0
10%
70%

DSPL INDO-AMERICAN SEMINAS CENTURY OTHER

INTERPRETATION:
In this fig. show that framers were prefer the 70% DSPL, 10% farmers were prefer INDO-
AMERICAN,8% farmers prefer SEMINAS& CENTURY company respectively and rest 4%
prefer the other seeds company.
  IS FARMER SATISFIED WITH THE DSPL COMPANY?
Table - 3

FARMER OPINION NO.OF RESPONDENTS PERCENTAGE(%)

HIGHLY SATISFIED 3 6%

MODERATILY 12 24%
SATISFIED

SATISFIED 25 50%

UNSATISFIED 10 20%

TOTAL 50 100%

Graph -3

0.6
0.5
PERCENTAGE

0.4
0.3
50%
0.2
0.1 24% 20%
6%
0 0 0 0 0
HIGHLY SATISFIED
MODERATILY SATISFIED
SATISFIED UNSATISFIED

FARMER OPINION

INTERPRETATION:
In this fig. show that the 50% farmers are satisfied, 24% farmers are
moderately satisfied, and 20% farmers are unsatisfied and rest 6% of the farmers are highly
satisfied.
 RATE OF ATTRIBUTE THAT COMPELS THE FARMER SELECT THE
PARTICULAR SEED COMPANY.

Table -4

ATTRIBUTE NO. OF RESPONDENTS PERCENTAGE (%)

MARGIN 34 68%

QUANTITY 8 24%

DEMAND 1 50%

BRAND IMAGE 7 20%

TOTAL 50 100%

Graph -4
PERCENTAGE

0.8 68%
0.7
0.6
0.5
0.4
0.3
16% 14%
0.2
0.1 2%
0
MARGIN QUANTITY DEMAND BRAND IMAGE

NAME OF ATTRIBUTE

INTERPRETATION:

In this fig. show that the 68% farmers are select the seed
company on the basis of margin, 16% select on the quantity, 14% farmers are select on the brand
image and 2% farmers are select on the demand basis.
 WHOM DO YOU CONSULT BEFORE PURCHASE THE
VEGETABLE SEED?

Table -5

SOURCE NO.OF RESPONDENTS PERCENTAGE (%)

DEALERS 28 56%

GOVT. DEPTT. 13 26%

NEWSPAPER 3 6%

T.V. PROGRAMMES 6 12%

TOTAL 50 100%

Graph -5

12%
6%

56%
26%

DEALERS GOVT.DEPTT. NEWSPAPER T.V.PROGRAMMES

INTERPRETATION:

In this fig. show that 56% farmers are consult with the dealers, 26% farmers are
consult with govt.deptt. 12% are t.v .programmes and 6% farmers are consult with newspapers.
 FARMERS OPINION ABOUT THE SEED QUALITY OF DSPL
COMPANY ?

Table -6

FARMER’S OPINION NO.OF RESPONDENTS PERCENTAGE (%)

EXCELLENT 3 6%

V.GOOD 17 34%

GOOD 20 40%

POOR 10 20%

TOTAL 50 100%

Graph -6

0.45
0.4 40%
0.35 34%
PERCENTAGE

0.3
0.25
0.2 20%
0.15
0.1
0.05 6%
0
EXCELLENT V.GOOD GOOD POOR

SEED QUALITY

INPERPRETATION:

In this fig. show that 40% farmers are saying the quality of nsc is good,
34% farmers say v.good, 20% farmers are saying the quality of nsc is poor and 6% farmers are
saying the quality of nsc seed company is excellent.
ON THE BASIS OF DEALER’S RESPONSE

 THE MOST PREFER VEGETABLE SEED COMPANY.

Table -1

NAME OF NO. OF PERCENTAGE (%)

COMPANY RESPONDENTS

DSPL 10 50%

INDI- AMERICAN 4 20%

SEMINAS 3 15%

CENTURY 3 15%

OTHER - -

TOTAL 20 100%

Graph -1

15%0%
0
15%
50%

20%

DSPL INDO-AMERICAN SEMINAS CENTURY OTHER

INTERPRETATION:

In this fig. show that 50% dealers are prefer dspl, 20% dealers are prefer indo-
American,15% dealers are prefer the seminas & century seed company respectively, in
vegetable seed company.
  WHICH COMPANY GIVES THE MORE MARGINS IN
VEGETABLE SEEDS?

Table -2

NAME OF NO. OF RESPONDENTS PERCENTAGE

COMPANY

DSPL 3 15%

INDO-AMERICAN 6 30%

SEMINAS 6 30%

CENTURY 5 25%

OTHER 0 0%

TOTAL 20 100%

Graph -2

0.35
30% 30%
0.3
PERCENTAGE

25%
0.25
0.2
15%
0.15
0.1
0.05
0%
0
OTHER
CENTURY
DSPL

INDO-AMERICAN

SEMINAS

COMPANY NAME

INTERPRETATION:
In this fig. show that about the margin dealers prefers the 30% indo-American &
seminas seed company, 25% prefer the century company and 15% prefer the NSC Company.
  MOST PREFERED PACKING SIZE OF THE VEGEGABLE SEEDS
SOLD BY THE DEALERS.

Table - 3

SIZE OF PACKING NO.OF RESPONDENTS PERCENTAGE (%)

10 gm. 12 60%

50 gm. 8 40%

100 gm. - 0%

Above 100 gm. - 0%

TOTAL 20 100%

Graph -3
PERCENTAGE

0.7 60%
0.6
0.5 40%
0.4
0.3
0.2
0.1 0% 0%
0
10 gm. 50 gm. 100 gm. above 100 gm

DEALERS OPINION

INTERPRETATION:

In this fig. show that the 60%dealers sold 10 gm. Packing size of
the vegetable seeds of the company, 40% dealers sold 50 gm. Packing size of the vegetable
seeds.
 RATE OF ATTRIBUTE THAT COMPELS THE DEALERS SELECT THE
PARTICULAR VEGETABLE SEED COMPANY.

Table -4

ATTRIBUTE NO. OF RESPONDENTS PERCENTAGE (%)

MARGIN 2 10%

QUANTITY 1 5%

DEMAND 9 45%

BRAND IMAGE 8 40%

TOTAL 20 100%

Graph -4
PERCENTAGE

0.5
0.45
0.4
0.35
0.3
0.25 45%
0.2 40%
0.15
0.1
0.05 10% 5%
0 0 0 0 0
MARGIN QUANTITY DEMAND BRAND IMAGE

RATE OF ATTRIBUTE

INTERPRETATION:

In this fig. show that the 45% dealers are select the seed company on the basis of demand, 40%
select on the brand image, and 10% dealers are select on the margin and 5% dealers are select on
the quantity basis.
Recommendations
Looking at the present world scenario and economy these are some of the suggestions:

1. Planning committee
As the number of competitors are increasing and even produce aluminium with cost lower than
Nalco. So for maintaining its prominence in the aluminium world as industry producing lowest
cost aluminium a committee making proper planning and different strategies should be formed
only for procurement of materials keeping in mind the inventory.

2. Proper planning
From the study we learned that inventory in FY 08 has increased due to various macro economic
factors discussed earlier. Precise and better forecasting should be done not only about the
aluminium industry but also about the world economy. Thus maintaining low inventory and
supplying right amount of materials for production.

3. Making better use of Selective Techniques

We have seen that through selective control techniques stores can dispose the non moving
items which are increasing inventory but this process does not eliminate all non moving items.
So, selective control techniques should be better used so that most of the non moving items are
disposed off immediately. Other selective control techniques such as VED can also be used.

4. Improving the inventory control spares techniques for

Spares such as mechanical, electrical, instrumentation spares are the materials which are one of
the reasons for high inventory as these are either slow moving or non moving items. Thus,
inventory control techniques should be used for spares and better planning for procurement and
storing should be made.

5. Revision of AP items
Automatic procurement items are fast moving but duplicate indent may cause high inventory.
Thus, company should review the AP list from time to time and check the list precisely for
double indent.

6. Transfer of stock
There are some items which are required by different departments. If one department finishes the
items stock can be refilled by transfer from other department having surplus items. Thus
avoiding unnecessary procurement of those items

7. Using EOQ model for procurement of raw materials

The company orders the raw materials every month. This can increase the total cost of inventory.
Thus company should use EOQ model for procurement of raw materials as this provide right
level of inventory with minimum cost.

8. Introducing SAP and ERP technology

SAP software and ERP technology provides better maintenance of data and records through
internal control. These technologies can provide easy accessibility to authorized employee of the
organization to go through the record of data, inventory etc to help follow better inventory
management.
Limitations
1- Limited time period was the major constraints in the study.

2-Respondents may be biased.

3-Project sponsored by the company.

4-There may be the interpretation error.

5-Convenient sampling was used.

6- Structured interview schedule.

CONCLUSION
Inventory management has to do with keeping accurate records of finished goods that are
ready for shipment. This often means posting the production of newly completed goods to the
inventory totals as well as subtracting the most recent shipments of finished goods to buyers.
When
the company has a return policy in place, there is usually a sub-category contained in the finished
goods inventory to account for any returned goods that are reclassified or second grade quality.
Accurately maintaining figures on the finished goods inventory makes it possible to quickly
convey
information to sales personnel as to what is available and ready for shipment at any given time.
Inventory management is important for keeping costs down, while meeting regulation. Supply
and
demand is a delicate balance, and inventory management hopes to ensure that the balance is
undisturbed. Highly trained Inventory management and high-quality software will help make
Inventory management a success. The ROI of Inventory management will be seen in the forms of
increased revenue and profits, positive employee atmosphere, and on overall increase of
customer
satisfaction.
BIBLIOGRAPHY
Referred following standard text and websites:
Financial Management
………. I.M. Pandey
Financial Management
………. Prasanna Chandra
Financial Management
………. Van Horn
Management Accounting and Control
………. S.N.Maheswari
Financial Management
……….Khan and Jain

Website:
WWW.SUJANNA.COM
WWW.FINANCIAL MANAGEMENT.COM
WWW.PRICIPALS OF ACCOUNTING.COM