STUDY OF PROCUREMENT, INVENTORY

MANAGEMENT AND DELIVERY OF

ENGINEERING GOODS

A PROJECT REPORT

Submitted by

DHWANI DINESH JOSHI

Reg. No. 04-1171-2009

in partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

(INTERNATIONAL AGRIBUSINESS)

UNDER THE GUIDANCE

OF

Dr. SANJIV KUMAR

(Assistant Professor)

INTERNATIONAL AGRIBUSINESS MANAGEMEN INSTITUTE

ANAND AGRICULTURAL UNIVERSITY
ANAND 388 110

JUNE 2011
INTERNATIONAL AGRIBUSINESS MANAGEMEN INSTITUTE
ANAND AGRICULTURAL UNIVERSITY
ANAND 388 110

CERTIFICATE

This is to certify that the project entitled “Study of Procurement,

Inventory Management and Delivery of Engineering goods” of
M.B.A (International Agribusiness) embodies bonafide research
work carried out by Joshi Dhwani under my guidance and
supervision and that no part of this project work has been
submitted for any other degree. The assistance, guidance and help
received during the course of investigation have been fully
acknowledged.

Place: IABMI, Anand (Dr. Sanjiv kumar)

Date: Advisor
ATCYE MILK PRODUCERS’ UNION IZO.

Executive (P & A)
 Declaration by Student

I hereby declare that the project entitled “Study of Procurement, Inventory

Management and Delivery of Engineering goods” Submitted for the M.B.A

(International Agribusiness) Degree is my original work and this has not

formed the basis for the award of any degree, associate ship or other similar

titles.

Place: IABMI, AAU, Anand Name : Dhwani .D. Joshi

Date: Reg.No.: 04-1171-2009

 REFERENCES

Axsater, S. (2000) Inventory Control, second edition, p.48

Chandra, P. Financial Management: inventory management, sixth edition,

p.430

Khan & Jain. Financial Management: inventory management, second

edition, p.50 to 52

Muller, M. (2003) Essentials of Inventory management, fourth edition, p.86

Pandey, I.M. Financial Management: inventory management, ninth edition,

p.624

Prin, T. J. (2007) Cost accounting, 4th edition, chapter no. 2, p.68 to 69

Hedrick, F.D., Barnes, F.C., Davis, E.W., Whybark, D.C., Krieger, M.

(2000), Study on Inventory Management of Small Business
Administration of U.S

Waters, D. (2008) Inventory Control and Management, second edition,

p.410

Wiley, J. & Sons. (2003) Inventory Control and Management, second

edition, p.2 to 3

William, J. S. (2009) Operations Management, eighth edition, p.1 to 3

Glenn, S.J., Kilmer, R.L. and Stevens, T.J. (2001), Supply chain
management and Production Agriculture: A Florida Dairy Study

viii
 ACKNOWLEDGEMENT

It is my privilege to extend my deep sense of gratitude to the management of

AMUL and especially to Mr. Rahul Kumar who gave us an opportunity to
work with this company as a summer trainee, which has been a pleasant and
learning experience for us.

I express my deepest gratitude to Mr. Sanjay Desai who has made available
his support in all the possible ways. It is a pleasure to thank him for his
guidance, encouragement, and motivation throughout my training period.

This final project would not have been started and much less completed
without the encouragement and support of many people. I take this
opportunity to assert my sense of gratitude towards Mr. Bhavin Kapadia, it
is because of the information he gave which formed the foundation of the
project. Without his help and guidance the project would not have been
completed successfully. Learning from him and working with him would be
always cherished and admired.

My sincere thanks are due to Mr. Jignesh Bhoi, HR, AMUL, for his
cooperation throughout my training period.

I am thankful to all the staff members of AMUL for all the help and
cooperation they gave us.

I am also grateful to Dr. G. B Valand, Principal, International Agribusiness

Management Institute, Anand Agricultural University, Anand. For his
guidance, which has always been there with all the students of MBA course.
I sincerely thank my internal guide Dr.Sanjiv Kumar, Assistant Professor
for helping me with his useful suggestion and guidance throughout my
course work.

My sincere sense of gratitude goes to all the IABMI faculty and staff.

And last but not least the support and affection given by my friends and the
time spent with them were truly memorable.

Dhwani Joshi
STUDY OF PROCUREMENT, INVENTORY MANAGEMENT AND
DELIVERY OF ENGINEERING GOODS

Name of student Advisor

Dhwani Dinesh Joshi Dr. Sanjiv Kumar
Reg. No. 04-1171-2009 (Assistant Professor)

INTERNATIONAL AGRIBUSINESS MANAGEMENT INSTITUTE

ANAND AGRICULTURAL UNIVERSITY
ANAND 388110

ABSTRACT

Dairy industry is of crucial importance to India. The country is world’s

largest milk producer, accounting for more than 18% of world’s total milk

production around 118 million MT. It is world’s largest consumer of dairy

products, consuming almost 100% of its own milk production.

Inventory management is very necessary for the firm because if the firm has

lesser investment in inventory, this would lead to unavailability of materials

when required which would ultimately lead to interruption in production

process. Also, if the firm has higher investment in inventory this would lead

to unnecessary locking up of funds in inventory, thus reducing the working

capital. Hence, the inventory should be properly managed in every

organization.

As engineering goods of Amul are the integral part of manufacturing

section, it is very important to maintain its inventory. Out of all engineering

i
items main electrical and mechanical items are chosen as Amul incurs a high

expenditure behind these engineering items, so how much consumption is

there?, How much dead stock is there? etc., is required to be found out.

The present study entitled “Study of Procurement, Inventory Management

and Delivery of Engineering goods” with main objectives of studying

procurement process, inventory management of engineering goods, lead

times of selected engineering goods alongwith the suggestions for reduction

of lead time. The study was carried out in Anand plant of AMUL dairy. For

this study secondary data was used to achieve the stipulated objectives.

Procurement process is mainly divided in to four steps namely, a) Indenting,

b) Purchasing, c) Materials receipt, Issues and Stores Inventory

Management, and d) Bill processing and payment. The increase and

decrease in consumption of electrical and mechanical engineering goods is

due to either plant shutdown, maintenance, new project introduction, new

capital item installation, peak season demand or if it is in the last month of

financial year then it is because of the preparation of next financial year.

Annual purchase of electrical and mechanical items of Amul has increased

during year 2009-10 and 2010-11 respectively, due to high production

demand and new capital installation. Inventory holding period of electrical

ii
and mechanical items of Amul shows a decrease and increase in 2009-10

respectively. The reasons for variations in Inventory holding period are

economic recession, obsolete inventory, poor sales and marketing, a change

of customer taste or bad inventory management. Inventory turnover ratio of

mechanical items is high as compared to that of electrical items. In general

lead time of all engineering items varies from 25 to maximum 30 days.

While in case of emergency the lead time is of 2 days.

There are times in year when due to plant shutdown or maintenance work of

plant, the consumption after its completion increases a lot. The consumption

pattern of electrical and mechanical items are related as when a big machine

is installed it is mechanical consumption while it’s wiring and other work is

electrical consumption. Amul follows a systematic and efficient purchase

procedure, although there are chances of reducing lead time in some steps

by using e-mail, fax instead of courier.

iii
 TABLE OF CONTENTS
PAGE
CHAPTER PARTICULARS
NO.
Abstract i
List of Tables v
List of Figures vi
List of Abbreviations vii
I INTRODUCTION 1
1.1 Company Profile 1
1.2 Industry Profile 9
1.3 Inventory Management 19
1.4 Project Objective 22
II REVIEW OF LITERATURE 23
III METHODOLOGY 28
3.1 Overview of the Project 28
3.2 Source of Data 28
3.3 Analytical tools 29
3.4 Formula used 29
3.5 Scope and limitations of the Study 30
IV RESULTS & DISCUSSION 31
4.1 Plants Covered 31
4.2 Engineering Items Included 31
4.3 To study Procurement process of Engineering Goods 31
4.4 To study Inventory Management of Engineering 49
Goods
4.5 To study Lead times of selected Engineering Goods 62
4.6 Suggestions to reduce Lead time of Engineering 63
Goods
V SUMMARY & CONCLUSION 65
5.1 Findings 66
5.2 Conclusions 68
5.3 Suggestions 69
References viii
iv
 LIST OF TABLES

TABLE PAGE
TITLE
NO. NO.
1.1 Major dairy product’s exporters 11
1.2 India’s Milk product Mix 17
Production and per capita availability of Milk in 17
1.3
India
1.4 Breakup of Milk production by species 19

4.1 Sanctioning Authorities 34

Various stages and processing time for Indigenous 39
4.2
sources
All plants with capital, Dead stock and engineering 50
4.3
items data
4.4 Frequently consumed Items and their Lead times 62

4.5 Steps in purchasing with processing time 63

v
 LIST OF FIGURES

FIGURE PAGE
TITLE
NO. NO.
1.1 Products of AMUL 5
4.1 Material receipt, issues and Stores inventory management 40
4.2 Store procurement procedure 41
4.3 Inventory cycle 49
4.4 Monthly consumption of electrical items 52
4.5 Monthly consumption of mechanical items 53
4.6 Stock value at the end of financial year of electrical items 54
Stock value at the end of financial year of mechanical
4.7 54
items
4.8 Yearly consumption pattern of electrical items 55
4.9 Yearly consumption pattern of mechanical items 56
4.10 Annual purchase of electrical items 57
4.11 Annual purchase of mechanical items 57
4.12 Inventory holding period for electrical items 59
4.13 Inventory holding period for mechanical items 59
4.14 Inventory turnover ratio of electrical items 61
4.15 Inventory turnover ratio of mechanical items 61

vi
 LIST OF ABBREVIATIONS

% Percentage
ERP Enterprise Resource Planning

EU European Union

AAU Anand Agricultural University

Agri Agriculture

Bn Billion

Co-op Co-operatives

Etc Etcetera

Fig. Figure

$ Dollar

MT Metric Tonn

i.e. That is

IABMI International Agribusiness Management Institute

Ltd. Limited

MBA Master of Business Administration

No. Number

Rs. Rupees

NDDB National Dairy Development Board

US United States

Viz. Namely

WTO World Trade Organization

MNC Multi National Company

GoI Government of India

vii
 I. INTRODUCTION

Company Profile

Amul means “Priceless” in Sanskrit. The Brand name “Amul” is from the
Sanskrit word “Amulya,” was suggested by a quality control expert in
Anand.

 Priceless

 Invaluable

 Precious

It means one cannot measure its value.

Amul today is a symbol of many of high quality products sold at reasonable

prices; of the genesis of a vast Co-operative network; of the triumph of
indigenous technology; of the marketing savvy of a farmers‟ organization
and of a proven model for dairy development.

The moppet who put Amul on India's breakfast table with the baseline
simply said, “Utterly Butterly Delicious Amul”

1
The Logo of AMUL

Anand Milk Union Limited

Symbol of Amul is a ring of four hands, which coordinate each other. The
actual meaning of this symbol is coordination of hand of different people by
whom this union is now at top.

 First hand is for the farmers (producers), without whom

theorganization would not have been existed. Farmers are the inspiration of
the AMUL – the taste of India.
 Second hand is for the representatives of processors by whom
theraw milk processed into different finished products.
 Third hand is for marketers without whom the product would not
beable to reach to the customer.
 Fourth hand is for customers without whom the organization could
not carry on because they are the people who consume the product
Mission & Vision of Amul
Mission of Amul

 The main mission of Amul is to help farmers. As they were the

foundation stone of Amul.

2
 The system works only for farmers and for consumers, not for profit.
 The main aim of Amul is to provide quality products to the consumer
at minimum cost.
 The goal of Amul is to provide maximum profit in terms of money to
the farmers.
Vision of Amul

 Vision of Amul was to provide and vanish the livelihood problems of

farmers (Producers).
Products Profile
1. Bread spreads
Amul Butter
Amul Lite Low Fat Breadspread
Amul Cooking Butter
Delicious Margarine
2. Pure Ghee
Amul Pure Ghee
Sagar Pure Ghee
Amul Cow Ghee
3. Milk Powders
Amul Full Cream Milk Powder
Amulya Dairy Whitener
Sagar Skimmed Milk Powder
Sagar Tea and Coffee Whitener
4. Sweetened Condensed Milk
Amul Mithaimate

3
5. Sweets
Amul Shrikhand & Amrakhand
Amul Mithaee Khoya Gulabjamaun
Amul Basundi
6. Fresh Milk
Amul Taaza Toned Milk 3% fat
Amul Gold Full Cream Milk 6% fat
Amul Shakti Standardised Milk 4.5% fat
Amul Slim & Trim Double Toned Milk 1.5% fat
Amul Saathi Skimmed Milk 0% fat
Amul Cow Milk
7. Curd Products
Yogi Sweetened Flavoured Dahi (Dessert)
Amul Masti Dahi (fresh curd)
Amul Lite Dahi
Amul Prolife probiotic Dahi
Amul Masti Spiced Butter Milk
Amul Lassee
8. Amul Ice-creams
Royal Treat Range (Butterscotch, Rajbhog, Malai Kulfi)
Nut-o-Mania Range (Kaju Draksh, Kesar Pista Royale, Fruit Bonanza,
Roasted Almond)
Nature's Treat (Alphanso Mango, Fresh Litchi, Shahi Anjir, Fresh
Strawberry, Black Current, Santra Mantra, Fresh Pineapple)
Sundae Range (Mango, Black Current, Sundae Magic, Double Sundae)
Assorted Treat (Chocobar, Dollies, Frostik, Ice Candies, Tricone,
Chococrunch, Megabite, Cassatta)
4
Utterly Delicious (Vanila, Strawberry, Chocolate, Chocochips, Cake Magic)
Amul Sugar Free Ice cream
9. Chocolate & Confectionery
Amul Milk Chocolate
Amul Fruit & Nut Chocolate
Amul Bindazz
Amul Rejoice
10. Brown Beverage
Nutramul Malted Milk Food
11. Milk Drink
Amul Kool Flavoured Milk (Mango, Strawberry, Saffron, Cardamom, Rose,
Chocolate, Butterscotch)
Amul Kool Cafe
Amul Kool Koko
12. Health Beverage
Amul Shakti White Milk Food
Amul butter Kool Cafe Kool Koko Amul pure Ghee

Bottle Milk Buttermilk Whitener Paneer

5
Fresh Cream Masti Dahi Amul ice-cream Amul Shrikhand

Nutramul Cheese spread Amul Chocolates Gulab Jamun

Fig. 1.1 Products of AMUL

COMPETITORS OF AMUL IN VARIOUS SEGMENTS

Milk Segment

Amul - Amul Gold, Amul Taaza, and Amul flavored milk

Local Dairy - Annapurna dairy in Baroda, Dudh Sagar milk in Mehsana etc.
are private vendors.

Ice-cream Segment

Amul - Amul Tricone Ice-cream

Vadilal - Different flavors of Ice creams and cones are available

Nirolus - Delhi based Ice-cream retailer

6
H.U.L - Kwality Walls Ice-cream

Chocolate Segment

Amul - Amul Fundoo milk chocolates, Almond Bar, Bindaas

fruit n nuts

HLL - Max brand chocolate and candy

Cadbury - 5 Star, Dairy Milk, and Perk, gems

Nestle - Kitkat, Munch and Milky Bar

Pizza Segment

Amul - Utterly Delicious ready to cook pizza

Nirolus - Delhi base frozen ready to cook pizza

Pizza Hut - Ordered pizza at restaurant and home delivery

Infant Milk / Child Milk

Amul - Amulya Spray powder

Nestle - Carelex baby powder

Farex - Baby powder

Butter Segment

Amul - White butter and Yellow butter

Nestle - Yellow butter

7
Cheese Segment

Amul - Process cheese, spread cheese, pizza cheese, Gouda cheese

Britannia - Cheese slice and cheese cubes

Milk Additives

Amul - Nutramul, Amul Shakti

Cadbury - Bournvita

Smith Kline - Maltova, Viva and Horlicks

Diffrent Plants of Amul

Mogar Plant

It is situated on Anand-Baroda highway no. 8. It produces Chocolates,

Nutramul , & Amul Lite . This plant was established in 1973.

Anand Plant
The products are buttermilk, powder, liquid milk, ghee. It was established in
1973.

Kanjari Plant
The products are cattle feed. Old plant was established in 1964 & new plant
in 1980.

Khatraj Plant
It is situated between Nadiad-Mahemdabad. The product produced by this
plant is cheese.

8
Chilling Center
Kapadvanj, Undel, & Balasinor

Satellite Dairy
Balasinor, Undel, Pune

Services Provided by Amul

Animal Insemination (AI)

Veterinary Services

Cattle feed facility

Animal Health Care

Farmer Education Programs

Rural Health Services

Major plants & chilling centers

Industry Profile

Dairy Industry Overview

International Scenario
The annual world trade in milk products (excluding intra-EU) amounts to 33
Million tonnes, valued at US$ 10 billion. Barely 6 to 7% of the world milk
production is traded internationally. The bulk of the world dairy trade is in
cheese, butter and powder. A growing shift towards cheese is expected in
the near future. Two dynamic products with a substantial projected growth
in the coming years are yoghurt and dessert.
The international dairy trade is dominated by four players - EU, New
Zealand, Australia and USA - which together accounts for 85% of all

9
exports. New Zealand and Australia export as much as 80% and 50% of
their milk production respectively. The Asia-Pacific region has been and
will remain a net milk importer in the foreseeable future. It accounts for the
bulk of milk powder imports and half of the imports of condensed and
evaporated milk. In contrast, most cheese imports go from developing
countries to developed countries such as Japan and the United States. The
dairy industry is regulated in most countries through various ways. Imports
are commonly restricted, and exports frequently subsidized. High dairy price
supports in many countries are put in place to stimulate production to the
extent that subsidies for exports are necessitated to maintain domestic dairy
programmes.
In the United Kingdom, all the milk produced by farmers is procured by the
cooperatives. Private dairies are required to buy their milk requirement from
cooperatives. New Zealand has no private sector dairy plants. As Kenya‟s
90 per cent of dairies in the east while West Germany and 100 per cent in
Denmark, Netherlands and Sweden are in the cooperative sector. In the
United States, 70 per cent of the dairy industry is cooperative. Dairy
programmes are subject to more Government participation or regulation
than most other domestic agricultural industries in the USA. There are also
Federal Milk Marketing Orders and movement barriers in the USA for
orderly marketing control, which is associated with stabilizing fluid milk
prices, providing secure and dependable markets for individual dairy
farmers, primarily for the fluid market and improving the balance of market
power between farmers and handlers. In the emerging liberalized global
scenario, trade-distorting agricultural policies have been the focus of the
GATT multilateral trade negotiations. With the liberalization of agricultural
trade under the new GATT regime, the heavy subsidies prevalent in the
10
dairy sector in the countries of EU as well as in the USA will have to be
brought down in the next few years. The international dairy scene World
milk production was estimated to be around 688 million tonnes in 2008,
about 1.7 per cent higher than in the previous year. Prices of skimmed milk
powder and butter in the international market fell significantly during the
year. In January 2009, prices of dairy commodities in the European
countries fell below intervention levels and prompted a fresh declaration of
export subsidies. However, by March 2009, prices started rising again.

Table no.1.1 Major Dairy Products Exporters

Sr.No. Country Percentage

1 EU 38%
2 New Zealand 31%
3 Australia 12%
4 USA 5%
Sources-: IDA, 2009

Indian Dairy Scenario

The organized sector processing industry can be divided into three

segments:

a) Government/Semi-Government
b) Cooperatives
c) Private Sector
With the exception of a few units the processing industry is largely involved
either in liquid pasteurized milk of conversion of milk to milk powder and

11
ghee. Value addition, consequently, is low. Instead of producing value
added products the domestic processors continue to fight for a share of
reducing domestic market of milk powders for reconstitution. Most domestic
processors do not have the quality or the marketing knowledge to access the
international markets.

The Indian dairy industry has aimed at better management of the national
resources to enhance milk production and upgrade milk processing
involving new innovative technologies. Multinational dairy giants can also
make their foray in the Indian dairy market in this challenging scenario and
create a win-win situation for both.

Dairy Cooperatives account for the major share of processed liquid milk
marketed in the country. Milk is processed and marketed by 170 Milk
Producers' Cooperative Unions, which federate into 15 State Cooperative
Milk Marketing Federations.

The Dairy Board's programmes and activities seek to strengthen the

functioning of Dairy Cooperatives, as producer-owned and controlled
organisations. NDDB supports the development of dairy cooperatives by
providing them financial assistance and technical expertise, ensuring a better
future for India's farmers.

Dairy industry is of crucial importance to India. The country is the world‟s

largest milk producer, accounting for more than 18% of world‟s total milk
production. It is the world‟s largest consumer of dairy products, consuming
almost 100% of its own milk production. The country is the largest milk
producer all over the world, around 118 million MT. 1/5th of world‟s bovine

12
population is present in India. There are many milch animals (45%
indigenous cattle, 55 % buffaloes, and 10% cross bred cows). Dairy
products are a major source of cheap and nutritious food to millions of
people in India and the only acceptable source of animal protein for large
vegetarian segment of Indian population, particularly among the landless,
small and marginal farmers and women.
Dairying has been considered as one of the activities aimed at alleviating the
poverty and unemployment especially in the rural areas in the rain-fed and
drought-prone regions. In India, about three-fourth of the population live in
rural areas and about 38% of them are poor. Small and marginal farmers
account for three-quarters of these households owning livestock, raising
56% of the bovine and 66% of the sheep population. The progress in this
sector will result in a more balanced development of the rural economy.
India is otherwise known as the „Oyster‟ of the global dairy industry, with
opportunities galore to the entrepreneurs globally. Anyone might want to
capitalize on the largest and fastest growing milk and milk products' market.
The dairy industry in India has been witnessing rapid growth. The
liberalized economy provides more opportunities for MNCs and foreign
investors to release the full potential of this industry. The competitive
advantages of the Indian dairy industry are then considered to be substantial.
With substantial and continued investment in building up milk production,
India can emerge as a major exporter of dairy products and technologies in
the next few decades.

Over the years, brands created by cooperatives have become synonymous

with quality and value. Brands like Amul (GCMMF), Vijaya (AP), Verka

13
(Punjab), Saras (Rajasthan). Nandini (Karnataka), Milma (Kerala) and
Gokul (Kolhapur) are among those that have earned customer confidence.

Some of the major Dairy Cooperative Federations include

Andhra Pradesh Dairy Development Cooperative Federation Ltd.

(APDDCF)
Bihar State Cooperative Milk Producers' Federation Ltd. (COMPFED)
Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF)
Haryana Dairy Development Cooperative Federation Ltd. (HDDCF)
Himachal Pradesh State Cooperative Milk Producers' Federation Ltd.
(HPSCMPF)
Karnataka Cooperative Milk Producers' Federation Ltd. (KMF)
Kerala State Cooperative Milk Marketing Federation Ltd. (KCMMF)

Madhya Pradesh State Cooperative Dairy Federation Ltd. (MPCDF)

Maharashtra Rajya Sahakari Maryadit Dugdh Mahasangh (Mahasangh)
Orissa State Cooperative Milk Producers' Federation Ltd. (OMFED)
Pradeshik Cooperative Dairy Federation Ltd. (UP) (PCDF)
Punjab State Cooperative Milk Producers' Federation Ltd. (MILKFED)
Rajasthan Cooperative Dairy Federation Ltd. (RCDF)
Tamilnadu Cooperative Milk Producers' Federation Ltd. (TCMPF)
West Bengal Cooperative Milk Producers' Federation Ltd. (WBCMPF)

Productivity
To increase milk production it will be necessary to focus on improving
productivity through a more scientific approach. NDDB has entered into

14
collaboration with various institutions to produce high genetic merit bulls
for the entire country through progeny testing programmes for five breeds
viz., Murrah, Mehsana, pure Holstein Friesian (HF), HF crossbred and
Jersey crossbred. Genetic improvement programmes for the Rathi and
Kankrej cattle breeds continue to be implemented in their native tracts. As
feed accounts for about 70 per cent of the cost of milk production, NDDB
initiated steps to intensify the dissemination of various technologies that add
value to feed and reduce the cost of milk production. This included ration
balancing advisory services at village level. A record number of more than
10 million doses of semen were produced and sold during the year by
India‟s highest ranked frozen semen stations: Sabarmati Ashram Gaushala,
Bidaj in Gujarat and Animal Breeding Centre, Salon in Uttar Pradesh. These
stations are operated with technical assistance from NDDB.
The main aim of the Indian dairy industry is only to better manage the
national resources to enhance milk production and upgrade milk processing
using Innovative technologies.
Some areas of Indian dairy industry can be toned up by the evocation of
differentiated technologies and equipment from overseas. These include:

Raw milk handling

The raw milk handling needs to be elevated in terms of physicochemical and

microbiological properties of the milk in a combined manner. The use of
clarification and bactofugation in raw milk processing can aid better the
quality of the milk products.

15
Milk processing

Better operational ratios are required to amend the yields and abridge
wastage, lessen fat/protein losses during processing, control production
costs, save energy and broaden shelf life. The adoption of GMP (Good
Manufacturing Practices) and HACCP (Hazard Analysis Critical Control
Points) would help produce milk products adapting to the international
standards.

Packaging

Another area that can be improved is the range of packing machines for the
manufacture of butter, cheese and alike. Better packaging can assist in
retaining the nutritive value of products packed and thus broaden the shelf
life. A cold chain distribution system is required for proper storage and
transfer of dairy products.

Value-added Products

There's vast scope for value-added products like desserts, puddings,

custards, sauces, mousse, stirred yoghurt, nectars and sherbets to capture the
dairy market in India.

The Indian dairy industry has aimed at better management of the national
resources to enhance milk production and upgrade milk processing
involving new innovative technologies. Multinational dairy giants can also
make their foray in the Indian dairy market in this challenging scenario and
create a win-win situation for both.

16
Table No. 1.2: India's Milk Product Mix

COMPOSITION PERCENTAGE
Fluid Milk 46.0%
Ghee 27.5%
Butter 6.5%
Curd 7.0%
Khoa (Partially Dehydrated Condensed Milk) 6.5%
Milk Powders, including IMF 3.5%
Paneer&Chhana (Cottage Cheese) 2.0%
Others, including Cream, Ice Cream 1.0%
Sources-: IDA, 2009

Table No.1.3 Production and Per Capita Availability of Milk in India

Production (Million Per Capita Availability

Year
Tonnes) gms/day)

1991-92 55.7 178

1992-93 58.0 182

1993-94 60.6 187

1994-95 63.8 194

1995-96 66.2 197

1996-97 69.1 202

1997-98 72.1 207

17
 1998-99 75.4 213

1999-2000 78.3 217

2000-01 80.6 220

2001-02 84.4 225

2002-03 86.2 230

2003-04 88.1 231

2004-05 92.5 233

2005-06 97.1 241

2006-07 100.9 246

2007-08 104.8 252

2008-09 108.5 258

Source: Department of Animal Husbandry, Dairying & Fisheries, Ministry of

Agriculture, GoI

In 1998, India achieved the distinction of becoming the world‟s largest milk
producer. Milk production in the year 2000 was 81 million tonnes representing
14% of the world‟s production. In the year 2000 India‟s milk production grew
almost 4.2% as against the world‟s average growth of less than 1%. India is
well set to retain its position as the world‟s top milk producer.

18
BREAKUP OF MILK PRODUCTION BY SPECIES

Table no.1.4 Breakup of Milk Production by Species

Species India World

Buffalo Milk 54% 11.6%

Cow Milk 42% 85%

Others 4% 3.4%

Source: IDF, 2010

India has almost 90 million milk animals. As illustrated in the table above.
54% of India‟s milk comes from the buffalo. Only 42% comes from the cow
as against the world‟s average of 85%. This matter has significance for
exports since the world‟s preference is for products made from cow‟s milk.

INVENTORY MANAGEMENT

Inventory generally refers to the stock of raw material, which have some
economical value. In this sense inventory management would refer to the
management of current assets and other materials inside the
organization. Inventory management is very necessary for the firm because
if the firm has lesser investment in inventory, this would lead to
unavailability of materials when required. This would ultimately lead to
interruption in production process. However, if the firm has higher
investment in inventory this would lead to unnecessary locking up of funds
in inventory, thus reducing the working capital. Hence the inventory should
be managed properly in every organization.

19
Inventory together with receivable and cash and bank balance constitute
around 30% of the total current assets in effective control of all these factors
can increase the profitability of the organization.

At all the plants of Amul and KAIRA DISTRICT CO-OPERATIVE

SOCIETY inventory is classified mainly in five heads.

 Raw Milk Stock

 Raw Materials: it is major input in the organization which is used in the
production activity. Its quantity will be determine by rate of consumption
and the time required to get the supplies.
 Work in Progress: in this stage the stock are in between materials and
finish goods form. The quantum of work-in-progress depends upon the
time taken in manufacturing process.
 Finished Goods: it means that goods are ready to consume . its stock
provide buffer between production and market.
 Engineering goods
 Scraps
 Stock in Progress
Since all is working on continuous basis, it is bound to have enough amount
of inventory in stock to ensure smoothness in production without any
interruption. To ensure timely availability of milk, Amul brings milk every
day from the 1073 villages surrounding the Kaira district. To store the raw
milk, Amul has already provided chilling centers at the village co-operative
unions. And to store the processed milk, Amul has developed eight milk
storing towers, each having the capacity of storing 1.5 lakhs liters of milk.
The processed milk is sold out in the Kaira and Anand district and the

20
remaining stock of milk is used to produce other milk products. Thus
inventory management is very sound at Amul.

The prime objective of inventory management is;

1) To minimize the possibility of disruption in the production schedule of a

firm.

2) To keep down capital investment in inventory.

It is essential to have necessary resources of the firm. Inventory

management therefore should strike a balance between too much inventory
and too little inventory. The efficient management and effective control of
inventories help in achieving better operation results to eliminate duplication
in ordering cost, and reduce investment in working capital.

Inventory Control:-

Proper control of inventory not only solves the acute problem of liquidity,
but also increase the annual profits and causes substantial deduction in
working capital of the firm. Various measure have been introduced for the
inventory control.

ABC analysis of inventory is based on the concept that the item of higher
values but small in number are watched more closely and looked after by
number of the top management team, whereas the items of lower value but
in large number may not call for strict control and are in charge of junior
executives. The items of the middle category are moderately controlled by
the middle management. In the Amul ABC analysis is not followed as all
items are given equal attention and importance and they are managed by all
managers respectively.

21
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 amounts of inventory to
use in this "lead time."
2. Uncertainty - Inventories are maintained as buffers to meet uncertainties
in demand, supply and movements of goods.
3. Economies of scale - Ideal condition of "one unit at a time at a place
where a user needs it, when he needs it" principle tends to incur lots of
costs in terms of logistics. So bulk buying, movement and storing brings
in economies of scale.

Project Objective

The present study entitled “Study of Procurement, Inventory Management

and Delivery of Engineering goods”. The study was carried out in Anand
plant of AMUL dairy. It had main objectives:

1) To study procurement process of engineering goods.

2) To study Inventory management of engineering goods.
3) To study the lead times of selected engineering goods.
4) To suggest some ways to reduce the lead time.

22
 II. REVIEW OF LITERATURE

Inventory management answers the question of how much inventory is

needed to buffer against the fluctuations in forecast, customer demand and
supplier deliveries. The major reason for managing inventory is to reconcile
the following potentially conflicting objectives:

1. Maximizing Customer service

2. Maximizing Efficiency of purchasing and production
3. Minimizing Inventory Investment
4. Maximizing Profit

Meeting the objectives just discussed requires balancing short-term as well

as the long-term objectives. Whether used to provide customer service or to
achieve efficiencies in procurement or production, the need to carry
inventories conflicts with management’s desire to minimize inventory
investment. Long production runs tend to create inventories; marketing
people want stocks of a larger variety of products and options to serve a
broad customer demand. High levels of inventory also take up space in
factories and distribution centers, thus incurring additional cost of storage,
insurance, etc.

Nature Of Inventory

 Raw Materials: These are goods, which have not yet been committed
to production in a manufacturing firm. They may consist of basic raw
materials or finished components.
 Work In Progress: This includes those materials, which have been
committed to production process but have not yet been completed.

23
  Finished Goods: These are completed products awaiting sale. They
are the final output of the production process in a manufacturing firm.
 Supplies: These materials are of low value and they do not enter the
production process directly.
Need To Hold Inventory

 Transaction Motives: This refers to the need of maintaining inventory

to facilitate smooth production and sales operations. The transaction
motive for holding inventory is to satisfy expected level of operations
in the firm.
 Precautionary Motives: It is to provide safeguard or cushion in case
the actual level of activity is different from anticipated. This inventory
serves as a reserve when there are unpredictable changes in the
demand and supply forces.
 Speculative Motives: This refers to the desire of the firm to take
advantage of opportunities of rising prices which present themselves
at unexpected moments and which are typically outside the normal
course of business. The speculative motive represents an aggressive
approach to exploit profitable opportunities.
Benefits Of Inventory Management

The following are some of the benefits, which we can obtain from proper
management of inventories:

 Efficient & Economical Production

 Protection against too little or excessive stock
 Protection of stock
 Lesser wastage

24
  Avoiding loss of sales & customer satisfaction
 Optimum use of finance
 Efficient stock taking

Although inventory management is not the direct operational responsibility

of the financial manager, the investment of funds in inventory is an
important aspect of financial management. When demand or usage of
inventory is uncertain, the financial manager may try to effect policies that
will reduce the average lead-time required to receive inventory once an order
is placed. The greater the opportunity cost of funds invested in inventories
the greater the incentive to reduce this lead-time.

Glenn, et al (2001-02) studied Supply chain management & production

Agriculture of Florida Dairy. Technological innovations and competitive
pressures have encouraged retailers and processors to improve supply chain
management for agricultural products. This often requires more refined
vertical coordination and inventory management between stages in the
market channel. Inventory management in production agriculture, however,
is a challenge because producers must set production well before they can
determine actual demand. a non-continuous (five-day) delivery schedule
with uniform deliveries increases transfer costs for the dairy marketing
cooperative by $0.1067 per hundredweight of total milk volume. A
continuous non-uniform delivery schedule increased transfer cost by
$0.0140 per hundredweight. Over time, the movement from a five day to a
seven day delivery schedule has reduced the costs associated with
inventories and has increased the freshness of inventory at the processor

25
level, demonstrating that supply chain management can have an impact on
the Florida Dairy Marketing Cooperative (FDMC) and its members.
Hedrick, et al, (2000) did a study on Inventory management of Small
Business Administration (SBA) of U.S. According to them "Inventory" for
many small business owners is one of the more visible and tangible aspects
of doing business. Raw materials, goods in process and finished goods all
represent various forms of inventory. Each type represents money tied up
until the inventory leaves the company as purchased products. Likewise,
merchandise stocks in a retail store contribute to profits only when their sale
puts money into the cash register. For retailers, planning ahead is very
crucial. Since they offer new items for sale months before the actual
calendar date for the beginning of the new season, it is imperative that
buying plans be formulated early enough to allow for intelligent buying
without any last minute panic purchases. Part of your purchasing plan must
include accounting for the depletion of the inventory. Before a decision can
be made as to the level of inventory to order, you must determine how long
the inventory you have in stock will last. The following actions can help
save money when you are stocking inventory:

! Substitution of less costly materials without impairing required quality;

! Improvement in quality or changes in specifications that would lead to
savings in process time or other operating savings;
! Developing new sources of supply;
! Greater use of bulk shipments;
! Quantity savings due to large volume, through consideration of economic
order quantity;
! A reduction in unit prices due to negotiations;

26
! Initiating make-or-buy studies;
! Application of new purchasing techniques;
! Using competition along with price, service and delivery when making the
purchase selection decision.

27
 III. METHODOLOGY

The study entitled “STUDY OF PROCUREMENT, INVENTORY

MANAGEMENT AND DELIVERY OF ENGINEERING GOODS”
was carried out during 15th Feb 2011 to 15th May 2011. The topic was
provided by AMUL Dairy with specific objectives.

Overview of the study

Although the concept of Inventory Management is simple, the process of
getting the right balance can be quite a complex and time consuming task
without the right technology.

The research has the fresh and updated information, which ultimately be
helpful for the company to expand its working to a wider extent through
acute steps. It will help the company to mitigate the risk of competition from
rivals by this updated and valuable information. This can be utilized by the
company as a competitive advantage in the race of becoming the leader in
this sector.
Company wants below mentioned objectives to be fulfilled:
1. Study Procurement process of Engineering goods.
2. Study Inventory Management of Engineering goods.
3. Study the lead time of selected Engineering goods.
4. To provide suggestions to reduce lead time.

Source of data
Secondary data were collected to meet the objective of the study. Major
Secondary data was collected from ERP system of Engineering Store of

28
AMUL Dairy, Anand plant. Some of the data was collected from Magazines,
Books, Reports, websites. As well as data from Employees working in
purchase and store department were collected.

Analytical tools
Mainly tabulation analysis and graphical presentation will be used to achieve
the objective of the study.
Formula used
 Inventory holding period indicates how quickly a company is turning
over its inventory.
Inventory holding period= (Average inventory*360)/cost of goods sold

Where, Average inventory= opening stock + closing stock

Cost of goods sold= opening stock + purchase - closing stock.

 Inventory turnover ratio shows how many times a company's inventory

is sold and replaced over a period.

Inventory turnover= Cost of goods sold

Average inventory
 Tabulations, Charts and Graphs (as per the requirement and
applicability).
Analyzer had collect last three to four years’ 2008, 2009, 2010 and 2011 material
issued data. Arrange all the data in unique format.

Separate out the monthly issue detail each material wise as well as section wise.
All the detail data regarding holding the material was gathered. Analyzer also
calculated Inventory Holding period, Inventory Turnover Ratio, Annual Purchase

29
of engineering items in Dairy. Analyzer selected top twenty-three items which
were repeatedly consumed (high frequency) for last three consecutive years in the
dairy and noted their lead times.

Scope and limitations of the study:

Scope:

1. Provide and maintain good customer service.

2. Enable smooth flow of goods through the production process.

3. Provide protection against the uncertainties of demand and supply.

4. Various production operations can be performed economically and

independently.

5. As technical installations are integral part of manufacturing section, it is

very important.

6. As a large volume of expenditure is included in the purchase of these

materials due to expansions and renovations.

Limitations:

1. Time span is the main limitation.

2. As this research is based on secondary data, so the data may not be very
viable.
3. Company may not like to provide all the details associated with policy
matter which may be a constraint for study.
4. Data gathered may not hold true in future.

30
 IV. RESULTS & DISCUSSION

Plants covered

In order to synchronize and simplify, the following plants of the main plant
in Anand were selected:

1. Milk Powder plant

2. Butter plant
3. Flavoured Milk plant
4. Ghee plant
Engineering items included
Out of all Different material groups of inventory module, in engineering
items’ below material groups with corresponding items have been selected;
1. Electrical items
2. Mechanical items
To study procurement process of Engineering Goods

Here partial information about procedure for material procurement, stores,

inventory management and payment procedure. The entire materials
management including engineering material can be classified into four
categories;

A. Indenting (Requirement planning and processing)

B. Purchasing Procedure
C. Materials Receipt, Issues and Stores Inventory Management
D. Invoicing and Payment Process

31
 Indent

Enquiry generation

Supplier Quotation

Comparative Statement

Purchase Order
Indent

1. The indent for the procurement of packing, ingredient and raw material
should be raised in the standard format of organization on monthly
requirement basis.
2. Separate indents for assets/consumables/non-consumables of different
categories should be raised in standard format.
3. The indenter must route through approving authorities.
4. The indent should contain all the details like item code, item description,
quantity, appx. value, suggested supplier, proposed time frame of
material receipt etc., to process requirement in right direction.
5. The indent must indicate detailed specifications and reliable sources of
supply – if known.

32
6. Requirements of Assets, Capital Goods, etc. involving estimated value
beyond different levels would have to be approved at different
hierarchies like, Purchase Itself, Managerial Levels, General Manager,
Managing Director, Chairman, Board resolution etc., respectively.
Enquiry Generation
The enquiry is floated to registered, approved, reputed and introduces
suppliers. Each requirement is processed with enquiry through system
generated specific indentified enquiry number, which comes to trace use
reference later in next process and thereafter too.

Supplier Quotation
Quotations sent by various suppliers contain different quality, price, terms
and conditions of supply and time component therein.

Comparative Statement

On receipt of quotations within prescribed due date, purchase department

prepares comparative statement, which shows the most competitive prices
and services among different suppliers. Looking to different aspects, the
most beneficial supply for company is recommended for purchase to the
Approving Authorities with respective rate, terms and conditions.

Recommendations:
Generally in comparative statement the recommendation of supplier is
practiced as above. However, in case where indenter has specific preference,
their suggestions are taken on comparative statement for processing
purchase to competitive supplier or to go with the suggested product brand
only.

33
Table No. 4.1 Sanctioning Authorities

Value Approval

Up to Rs.5000 Sr. Executive (Purchase)

Up to Rs.50,000 General Manager

50,000 – 3 lac Managing Director

3 lac above Chairman & Board resolution

Note:

(a) Sanctioning power vests on such authorities subject to budgetory

provisions.

(b) All purchase proposals must be sanctioned by the appropriate authority

before placing the order.

Purchase Order

Purchase order is placed, once the comparative statements are approved by

the appropriate authority, purchase department shall issue Purchase Orders
to approved supplier who meets different criteria specifying all terms and
conditions for supplies.
Signing of Purchase Order
1. All Purchase Orders will be signed by the Purchase In charge.
2. Purchase Orders will be issued in the Performa.
3. All purchase made on credit basis must be on the basis of the firm
Supply Orders.
34
4. Copies of purchase order shall be endorsed to:
i) Internal Audit
ii) Purchase Bill
iii) Stores
iv) Indenter
v) Office Copy(Within Purchase)
vi) Supplier on Original Copy
vii) GCMMF Ltd.
viii) Production Manager
ix) Extra copy
Follow up of Purchase order
Purchase Section will be responsible to ensure that Purchase Orders are
regularly followed up and materials ordered are supplied by parties
concerned, within the stipulated delivery period.
Orders follow-up letters will be regularly issued to pursue suppliers to
supply materials as per delivery schedule. When the delivery date has
expired, the firm should be asked to indicate the revised date by which they
expect to supply. The extension in deliveries may be granted subject to
penalties (in the contract, if any) or second suitable supplier is contacted to
meet the requirement.
Supply of material and invoicing

A supplier starts sending the material by Road /Rail / Air / Sea to buyer’s
destination as per buyer’s requirement and in required frequency. An invoice
indicating relevant purchase order No, description of material despatched,
quantity with tare weight, No of bags, truck No, Challan, Rate, Total value

35
of material etc. shall be sent to buyer at Anand office as a claim for payment.
Such copies may also accompany the consignment arriving.

Receipt of Material at Factory

As per Buyer’s conditions the weight received at buyer’s end is always

considered final. The Factory shall prepare weighment slip under the ERP
system instantly for the material received and weighed and prepare R/GR
and forward weighment slip cum GR indicating gross tare and net weight of
material, no of bags etc to driver of the truck with a copy of this receipt as an
official R/GR, duly signed by all respective persons, authorities, to purchase
section. The weight mentioned in GR for such materials is weighed, which is
considered final for payment to supplier.

Payment

On receipt of GR and invoice from the supplier, all these documents are
clubbed and after proper entry of invoice data in ERP system, the payment
voucher (price difference statement) is processed & generated. The
deductions/ additions if any in bill amounts under various heads are operated
through ERP system which generates price difference statement cum
payment voucher. After necessary checking and signing the voucher is
forwarded to audit section and is posted in the system after it is audited.

Rejection of material

In case material is rejected by user as per their official report even by phone,
the same is immediately informed to the supplier, followed by official
intimation to lift back the same within stipulated period with or without
replacement as may be decided & conveyed to the supplier. Late lifting of
36
rejected material attracts devised storage charges. Rejected materials are
returned only after payment of required loading & unloading charges.

Acceptance/ Non acceptance of analysis results

Only for selected ingredients where supplier is allowed retest analysis, a

supplier has to intimate buyer about his intention of acceptance/non
acceptance of analysis results within 12 days from the date of intimation of
results / receipt of payment. In case results are not acceptable, supplier will
give intimation to this effect whereupon retest procedure shall be followed.
However in absence of/non receipt of such intimation within stipulated
period, buyer is free to decide such case as acceptance of their results.

With changing business scenario, it is always buyer’s policy who may also
decide whether or not to keep allowing retest analysis.

Cancellations / extensions

A buyer may cancel / give extensions by making necessary amendments in

the system for delivery dates of the order as may be decided by In charge
purchase. The supplier is intimated suitably by phone/ letters well in time of
such intentions about cancellations/ extensions. Buyer is however always
bound to accept material till the period up to the last date of delivery as
mentioned in the purchase order.

Clearance of GR & balance payments

Final payment ( 100 % in case of material where no ad hoc payment was

allowed & 20 % in case if 80 % ad hoc payment was allowed ) are being
cleared after lab report from QC or as applicable after final clearance of

37
retest / third test results as the case may be.. Necessary vouchers for
payments are being issued for audit and accounts for onward processing.
Suppliers’ ledger accounts also need be maintained and periodically checked
for entire accounting work & to decide periodically holding / release of
payments to any supplier.

Settlements of outstanding supplies

For default supplies, supplier is bound to reimburse to buyer reasonable

amount of rate difference for damages/ losses caused to buyer on account of
failure by a supplier to fulfill contracted obligations for supply of material
within stipulated period. The rate difference is generally decided based on
rates prevalent on last date of delivery of the order or the last extended date
of delivery, if extensions were granted or at any such rates mutually agreed
upon having regard to the above dates & with a sanction from appropriate
authority.

38
Various Stages and Processing time for Indigenous Sources
Following are the various stages in the procurement of stores from
indigenous sources along with optimum processing time:

Table No. 4.2 Various stages and processing time for Indigenous sources

1. Indent/requisition for purchase from Division/Projects/Stores

Officer

2. Notice inviting tenders/enquiries 1 to 3 days

3. Opening of tenders/quotations 7 to 10 days

4. Scrutiny of tenders/quotations and tabulation of 1 to 3 days

comparative statement thereof

5. Formal sanction by competent authority 1 to 3 days

6. Placement of order 1 days

7. Delivery time *

8. Clearance from Railways, Road, Transport Accordingly

Companies, postal authorities, Airlines etc.

9. Passing and payment of bills Within 30

days

Note:

Minimum time for getting a material in store is generally 20-30 days from
the receipt of indent in purchase section. It may take vary sometimes
depending upon factors not in control of suppliers.
39
Material Receipt, Issues and Stores Inventory Management:

STORES DEPARTMENT

STORE
GENERAL ENGINEERING MISCELLANEOUS
CATEGORY CATEGORY CATEGORY

SCRAP HANDLING

Fig. 4.1 Material receipt, issues and Stores inventory management

Every unit stores are divided into four categories;

a. General : It includes Packaging & ingredients materials.

b. Engineering : It includes Mechanical spares, Electrical goods,
Lubricants & Fuel.
c. Miscellaneous : It includes Consumables, Capital Items,
Dead stock items.

d. Scrap : It includes receipt and sale of scrap of different plants.

40
 S TO R E P R O C E D U R E
Rejection

Material Receipt at Storage /Q.C Approval Issue to Users

Store If approved --- Department
S.R For Required Material

G.R. Approve by Q.C/ G.R Forward to P.Bill

S.R ENTRY
G.R Preparation
Indenter For Billing Procedure

Net Stock/
Stock Receipt Stock Issue
Periodic Physical
[+] [-]
Verification

Fig. 4.2 Store Procurement Procedure

Material receipt:

 After placing purchase orders by purchase department, suppliers supply

goods and all the goods are receiving at stores.
 When goods reach at factory premises a gate entry is being made at the
main gate of the factory. This entry is including basic details of the
goods/material supplied by the party, which helps in future tracking. This
entry is being made in the register or computer.
 Once goods are received at stores, stores department is verifying the
documents and ensures that the goods have been received against a valid
purchase order and quantity as mentioned in the purchase order.

41
  If goods are found as per purchase order, stores department make inward
entry in the inward register which capture basic details of goods and
supplier and make arrangement for taking deliveries of goods.
 For that first of all the store personnel make a label containing the data of
item description, inward number, date, item code of received goods,
supplier name and quantity, which also shows whether the goods are
under process or approved. This label sends to godown along with the
challan for unloading.
 After unloading of the goods from vehicle, proper stacking and storage is
done at godown and label get hanged on the stack and physical receipts
verify by the worker at godown and ensure that the physical receipt is as
per the challan.
 After that QA personnel take random samples for the lot and analyze the
goods.
 Once goods are physically verified, stores department prepare “Goods
Receipt cum Test Report”(GR/TR) in the form of enclosed format. This
can be generated though the system. The copies of GR/TR should be
distributed as under:
i) QA / Engineering Department / Indenter : Where goods are to be tested /
inspected / analyzed , before being used / put to use.
ii) Purchase Bill Department: for making payment to the suppliers.
 After receipt of GR/TR copies from Store Department, QA / Engineering
Department / Indenter inspect the goods, put their observation / remark on
the GR/TR and send back the original copy to Stores and make entry in
the system also.

42
 Stores will make necessary notes in their records and send the copy to
purchase bill section along with other documents of consignment for
payment purpose.
 And if material get reject then the copy of GR/TR send is being sent to
purchase section to inform the party.
Whenever any material, which has been once rejected but later on accepted
on rechecking / retesting or because of exigencies of production, QA /
Engineering Department / Indenter shall submit a fresh report of acceptance,
giving references of earlier GR/TR duly approved by Departmental Head.
The Stores shall carryout necessary correction in their records. The goods
once rejected may be accepted either at full value or at discounted value
depending upon the judgment of QA/Engineering
Department/Indenter/Departmental Head.

Material issue:

1. Here material is being issued on bases of “First In First Out” (FIFO)

method.
2. Once material is get ok by QA / Engineering Department / Indenter,
stores is issuing material to user department on their requisition. No
material shall be issued by stores without an authorized “Stores
Requisition” (SR) in the form of enclosed format.
3. When any user department is in need of any material, it is sending stores
requisition copy to store department by filling necessary details like item
code, item name, cost centre, UOM and required quantity. The stores
personnel check with his records and physical stock that whether the
requisite material is there in the stock or not.

43
4. If stores having the material then it will issue the material from the first
received lot. After physical issue of material the data entry is being made
in the system and stock ledger is get up date.
5. For requirement of materials in 2nd and 3rd shift, SR should be submitted
to stores latest by 4.00 p.m., and stores shall ensure that required
material is issued in time, so that production does not suffer in anyway.
6. If the available stock in stores is lesser than the required quantity in SR,
stores issues only the available quantity and SR is considered to e
closed.

Material return:

Once material issued to user department and due to some valid reason if it
cannot use the material for a long then the material is being returned to
stores department on an authorized “Material Return Note”(MRN) in the
form of enclosed format. Stores department take back the material and make
data entry in the system and the stock get increased by the MRN quantity.

Inter store / Unit transfer:

Other than the internal user department, if one store / unit is in need of any
material, it sends a requisite to another store / unit. And if the store
department have the material, it issues the physical material and transfers it
through the system also.

44
 Material issue other than the dairy:

In case material is issuing for redressing to GCMMF, stores is issuing gate

pass and challan and bill is prepared by account section. If material is issued
on sale bases to another dairy / party, it is issued by DC and subsequent
debit note is raised by account section.

In case material is issued on loan bases, it is issued by returnable gate pass

and DC. And data entry is made in loan register.

Material rejection:

Material rejection should be of two types; On Line Material Rejection and

Material Rejection by QA. In both the cases store department inform the
Purchase section about the rejection of the goods to inform the party. Once
the material gets rejected, rejection label get hanged on that lot and that
should not consider in the stock.

 Gate pass:
No material can be taken out of Factory premises without a properly
authorized Gate Pass. Stores / concerned department shall issue a Gate Pass
either of following types.

a. Non Returnable Gate Pass: This Gate Pass is to be issued when

material is permanently dispatched and not expected to be received back.
b. Returnable Gate Pass: This Gate Pass is to be issued when the material
is expected to be received back after repairing, modifications etc.

45
 Material send to subcontractor (third party): for processing
In case of VVP roll, store department is issuing rolls by DC for printing and
cutting work to the third party, while subsequent SR is posted in the account
of the final user only for proper accounting.

Same process is undergone for butter carton, ghee and powder corrugated
boxes and tins for printing and packing arrangements.

 Physical verification of stock:

Physical stock of material is checked by the stores department on regular
basis. Internal Audit team audits the same stock every quarterly basis of the
year. At the end of the year Govt. Auditors also doing physical stock
verification along with the Internal Auditors.

Scrap handling:

1. Each and every department is sending solid waste to the scrap yard,
along with the note describing the type and the quantity of the scrap,
which is handled by the stores department.
2. These scrap is kept to the prefix area only. Here different cages are
allocated to the different type of scraps. Stores department is keeping
records of all the receipt and sale of the scrap.
3. When the scrap is being received at the scrap yard, the scrap personnel
check the quantity and make receipt of the scrap. The stores department
is responsible for the sale of scrap.
4. For the sale of scrap, annual contract is given by purchase section to
different parties at a fixed rate.

46
5. At the time of sale these parties deposited advance amount at account
section and after that take the delivery of scrap from stores scrap yard.
Store is issuing scrap by issuing gate pass, DC and manual sale bill.
6. The final bill is being issued by the account section. At every quarter
and end of the year physical verification is done by the auditors.

4.4.8 Registers & reports:

1. Goods Receipt Register at Main Gate
2. Goods Inward Register
3. Goods Issue Register
4. Stock Statement (central and de-central i.e. storage location vise)
5. Goods Ledger
6. Consumption Report
7. Rejection Register
8. Indent v/s PO Report
9. PO v/s Receipt Register
10.Pending PO Report
11.Material under QC Report

5. Bill Processing & Payment:

 Since prompt payment of the amount due to the suppliers builds the
credit worthiness of the organization in the market, all concerned viz. the
Purchase, Purchase Bill shall ensure that the payment of all bills within
30 days as per terms and conditions.
 All the invoices from suppliers is being received in Purchase Bill
Section. The Purchase Bill Section is entering all the invoices as and
47
 when received in a Computerized Bill Tracking System. The invoices
received in the Stores, KSD Khatraj, FCM Mogar, and CFF Kanjari
along-with consignments will also be redirected to Bill passing Section.
 The Stores will send “Goods Receipt Cum Test Reports” (GR/TR) to
Purchase Billing Section once the Testing / Inspection formalities are
complete.
 The Purchase Billing Section is verifying the invoices, with
Corresponding Purchase Orders, Goods Receipt Cum Test Reports
(GR/TR) etc. and process the supplier’s invoices for payment.
 The payments are made by cheque payable at par. The Purchase bill
section will process the Invoice as per the terms and conditions
mentioned in the Purchase Order.
 On receiving the materials in store the Store Supervisor/Keeper shall
immediately inform the indenter, over phone, of the arrival of materials
in store. The indenter shall promptly inspect materials or arrange
inspection by a Competent Officer and give a certificate. The supplier
has to issue the Test Report with each consignment and in case of
packaging material he should provide the food grade certificate.

48
To study Inventory management of engineering goods:

INDENT
(PLANT)

STORAGE AND ON THE BASIS

ISSUE OF OF CURRENT
MATERIAL STOCK AND
REQUIREMENT

PURCHASE
RECEIPT ORDER
(PURCHASE
(STORE)
DEPT.)

P.O (LEAST
SUPPLIED PRICE &
MATERIAL AS PER GOOD
P.O QUALITY)

ENGG. GOODS
SUPPLIER

Fig. 4.3 Inventory Cycle

49
Table No. 4.3 All plants with Capital, Dead stock And engineering items

Electrical Mechanical
Plants Capital Dead stock
items items

Administration 7,245 1,75,925

Amul Satellite
56,036 26,250
Dairy, Pune

Animal
3,730 1550.00
Husbandary

Amul-Ii
2,50,493 26,03,535
Process

Amul-Iii
2,39,101 14,99,688 57,46,541
Process

Balasinor
19,809 1,41,777
Chilling center

Boiler 99,406 45,85,834

Butter 4,67,262 6,73,469 30,64,019

Cambay
1,00,201 1,50,096
Satellite Dairy

Dairy Plant 23,66,236 13,11,537 19,36,842

Estate 3,11,158 1,05,949

50
 Etp(Dairy
40,372 93,100 2,80,543
Plant)

F-35 1,39,254 9,58,938

F-60 6,39,146 73,24,695

Ferrum 67,896 6,15,342

Flavoured
1,63,000 1,07,141 8,30,594
Milk

Food Complex
9,220
Mogar

Ghee 38,430 19,585 5,55,457

Kapadwanj
Chilling 25,295 5,42,099
Centre

Kheda
39,283
Satellite Dairy

L & T Plant &

8,42,179 4,44,007 38,59,201
Packing

Laboratory 54,420 15,60,631

Milk Pouch 65,066 6,33,778

Mis 4,962 53,140 5,290

Refrigeration 2,96,030 6,28,212

Rmrd 58,540

51
 Transport 1,662 43,752

Socities 1,654

ELECTRI
CAL
1,20,00,000.00
1,00,00,000.00
80,00,000.00
60,00,000.00
40,00,000.00
20,00,000.00
-
April May June July Aug Sept Octo Nov Dec Janu Febr Mar
ust emb ber emb emb ary uary ch
er er er
2010-11 3,62 9,04 2,69 4,16 6,93 2,47 3,47 19,8 8,32 3,25 13,2 7,98
2009-10 3,76 3,05 50,3 8,52 3,56 81,4 10,8 2,47 2,97 6,44 3,24 46,7
2008-09 4,63 7,89 11,0 3,34 8,55 17,2 3,05 10,0 29,9 7,35 3,71 25,9

Fig. 4.4 Monthly consumption of Electrical items

52
 MECHANIC
AL
1,80,00,000.00
1,60,00,000.00
1,40,00,000.00
1,20,00,000.00
1,00,00,000.00
80,00,000.00
60,00,000.00
40,00,000.00
20,00,000.00
-
April May June July Aug Sept Octo Nov Dec Janu Febr Mar
ust emb ber emb emb ary uary ch
2010-11 48,9 25,5 29,2 60,8 98,0 2e3r,7 25,0 3e6r,4 2e8r,5 23,6 35,4 27,7
2009-10 22,7 12,7 1,07 39,8 31,4 31,2 38,9 20,2 32,0 14,2 24,1 21,7
2008-09 6,98 19,1 32,9 15,2 31,0 37,5 21,5 29,6 78,1 43,2 18,6 51,2

Fig. 4.5 Monthly consumption of Mechanical items

Above graphs show monthly consumption pattern of electrical and

mechanical items for three consecutive years; 2008-09, 2009-10, 2010-11.
From above graph we can say that;

In 2008: there is more consumption of electrical and mechanical items in

December because of peak season. And in March because of end month
preparations.

In 2009: there is more consumption of electrical and mechanical items in

September followed by June and March, the reason may be because of the
requirement for plant shutdown and new project installation respectively.

53
 In 2010: there is more consumption of electrical items in July and August
because of the starting of peak season and of electrical items in
November because of maintenance.

ELECTRI
5000000.00 CAL
4500000.00 4575193.00
4000000.00
3500000.00
3000000.00
2500000.00
2270947.00
2000000.00
1500000.00 1377116.00 1435984.76
1000000.00
500000.00
0.00
2007-08 2008-09 2009-10 2010-11

Fig. 4.6 Stock value at the end of financial year of electrical items

MECHANIC
6000000.00 AL
5543003.00
5000000.00 4851979.00
4000000.00 4179788.00

3000000.00 3123264.00

2000000.00

1000000.00

0.00
2007-08 2008-09 2009-10 2010-11

Fig. 4.7 Stock value at the end of financial year of mechanical items

54
In the above graph the end stock value of electrical and mechanical items for
four consecutive years namely 2007-08, 2008-09, 2009-10, 2010-11, is
shown, from it we can interpret that in case of electrical items more end
stock was there in 2008-09, due to less consumption, and because of this in
2009-10 there was a very low end stock. In case of mechanical items there is
an stagnant increase in end stock value till 2009-10, the reason may be due
to more demand and less production.

25000000.00

20000000.00

15000000.00
Rs
.
10000000.00

5000000.00

0.00
2008-09 2009-10 2010-11

yea
r

Fig. 4.8 Yearly consumption pattern of electrical items

55
 50000000.00
45000000.00
40000000.00
35000000.00
30000000.00
Rs.
25000000.00
20000000.00
15000000.00
10000000.00
5000000.00
0.00 2008-09 2009-10 2010-11

yea
r

Fig. 4.9 Yearly consumption pattern of mechanical items

Above graphs show the annual consumption pattern of electrical and

mechanical engineering items for three consecutive years 2008-09, 2009-10,
2010-11. From these graphs we can interpret that in case of electrical items
there is an increase in consumption in 2009-10 which may be due to new
project introduction and in case of mechanical items there is a normal
increase in all years leading to highest consumption in 2010-11 the reason
may be due to new project requirement new capital items are required to be
bought.

56
 ELECTRI
CAL
20000000
18000000
16000000
14000000
12000000
Rs. 10000000
8000000
6000000
4000000
2000000
0
2008-09 2009-10 2010-2011
ELECTRICAL 15581855 19145499 8562599

Fig. 4.10 Annual purchase of electrical items

MECHANIC
AL
45000000
44000000
43000000
42000000
Rs.
41000000
40000000
39000000
38000000
37000000
2008-09 2009-10 2010-2011
MECHANICAL 40285385 40372743 44981358

Fig. 4.11 Annual purchase of mechanical items

57
Above are the graphs showing annual purchase of electrical and mechanical
items, from these graphs we can interpret that in case of electrical items
there is an increase of purchase in 2009-10 because of increase of high
production demand and in case of mechanical items there is an increase of
purchase in 2010-11 due to new capital item procurement.

Inventory holding period – This indicates how quickly a company is

turning over its inventory. When deciding the appropriate level of inventory,
a company should strike a balance between the cost of tying up capital and
the demands from the customer. Generally, a high inventory turnover (short
inventory holding period) is preferred. An unreasonably long inventory
holding period may indicate an economic recession, obsolete inventory, poor
sales and marketing, a change of customer taste or bad inventory
management.

It can be calculated as;

Inventory holding period= (Average inventory*360)/cost of goods sold

Where, Average inventory= opening stock + closing stock

2
Cost of goods sold= opening stock + purchase - closing stock.

58
 ELECTRI
CAL
100
HOLDING PERIOD IN
80

60

40
DAYS

20

0
2008-09 2009-10 2010-11
ELECTRICAL 92.811 47.952 59.545

Fig. 4.12 Inventory holding period for electrical items

MECHANIC
AL
HOLDING PERIOD IN

50
40
30
20
DAYS

10

0
2008-09 2009-10 2010-11
MECHANICAL 37.232 47.153 37.763

Fig. 4.13 Inventory holding period for mechanical items

Above graphs show the inventory holding period for electrical and
mechanical engineering items, it can be interpreted that in case of electrical
items there is an increase of holding period in 2008-09 but is gradually
59
decreasing, while in case of mechanical items as compared to 2008-09 there
is an increase in holding period in 2009-10. The reasons may be economic
recession, obsolete inventory, poor sales and marketing, a change of
customer taste or bad inventory management.

Inventory turnover ratio:

A ratio showing how many times a company's inventory is sold and replaced
over a period. It measures the relationship between the cost of goods sold
and the inventory level. A high inventory turnover ratio indicated that the
product is selling well. However, it also requires careful analysis because a
high inventory ratio may be indicative of underinvestment in or very low
level of inventory which may lead to firm being out of stock and incurring
high “stock out cost”. A very low inventory ratio is dangerous as well since
it shows excessive inventory and higher carrying cost in terms of interest on
funds locked up, rental space, deterioration etc.

Symbolically it can be represented as follows:

Inventory turnover= Cost of goods sold

Average inventory

60
 8
7
6
5
4
3
2
1
0
2008-09 2009-10 2010-11
ELECTRICAL 3.88 7.51 6.05

Fig. 4.14 Inventory turnover ratio of electrical items

10
9
8
7
6
5
4
3
2
1
0
2008-09 2009-10 2010-11
MECHANICAL 9.67 7.63 9.53

Fig. 4.15 Inventory turnover ratio of mechanical items

From the above graphs we can interpret that inventory turnover ratio of
mechanical items is high as compared to that of electrical items. That shows

61
that inventory of mechanical items is managed well as compared to electrical
items.
To study lead times of selected engineering goods:
From last three years consumption data, certain most frequently consumed
items were selected and their lead times were noted as below:
Table No. 4.4: Frequently consumed Items and their Lead times

Item Code Item Name Unit Lead Time

447011 Shaft - Pump Bwp 50/160 Nos. 28

420007 Pvc Nylone Braided Hose Pipe Mtr. 26

442007 S S Pipe 304 Dia-3" Mtr. 27

442004 S S Pipe 304 Dia-1.5" Mtr. 26

442005 S S Pipe 304 Dia-2" Mtr. 26

420016 Flex Hose Pipe Nos. 28

412053 Ss Box Pipe Mtr. 27

428012 M.S.Pipe Dia-10" - B Class Mtr. 28

442006 S S Pipe 304 Dia-2.5" Mtr. 28

412048 Ss 304 Sheet 3.0 Mm Kgs. 27

Steam Hose Pipe Wire Braided 26

420024 Nos.
Size-3/
442099 Ss Pipe 202 Dia 1.5 In Mtr. 25

428124 G.I. Pipe Dia-6" - B Class Mtr. 25

442003 S S Pipe 304 Dia-1" Mtr. 28

428122 G.I. Pipe Dia-4" - B Class Mtr. 26

62
 G.I. Colum Pipe 'C' Class Size 2.5 26
428297 Mtr.
I
412045 Ss 304 Sheet 1.6 Mm Kgs. 27

428114 G.I. Pipe Dia-1" - A Class Mtr. 28

420012 Steam Hose Pipe Mtr. 25

420003 Hose Pipe Food Graded Mtr. 26

420002 High Pressure Hose Pipe Mtr. 26

412049 Ss 304 Sheet 4.0 Mm Kgs. 27

In general lead time of all engineering items varies from 25 to maximum 30

days. Although, the lead time may vary depending on conditions. While in
case of emergency like a total completion of engineering item like a
situation of total shutdown, then an emergency purchase of the item directly
from the user department is done which takes lead time of 2 days.
To suggest ways to reduce lead time of engineering goods:
The process of purchasing engineering item with processing time is as
follows;
Table No. 4.5: Steps in purchasing with processing time
Steps Processing Time
Indenting 1 - 2 days
Purchase Enquiry 3 – 4 days
Due date 10 days
Comparative statement 2 day
P.O. process 21 days
Supplier lead time 8-10 days

63
 Transport 2-3 days
Gr num. processing 1-2 days
Payment 1-2 days

From above table we can tell a total time period from Indenting to Payment.
 Here in all the procedures from asking for price list of product to sending
P.O in every work couriers are sent to supplier for asking of quotations, or
even for sending the purchase order. Where 3 – 4 days are wasted and it is
costly. Here, I suggest use of e-mails and faxs for sending P.O and for
asking for Quotations.
 A lot of time is required to check all the documents by both the parties
like supplier needs to check P.O, invoices etc., instead of them scanned
documents can be kept.
 Systems like JIT (Just In Time) system may not work in case of Amul as
many break-down occurs but a system like Just Before Time may work
alongwith a software that itself sends an indent to the supplier as soon as the
minimum level of stock is reached, it saves time and money.

64
 V. SUMMARY AND CONCLUSION

Inventory management refers to the process of managing the stocks of

finished products semi-completed items, raw supplies also engineering
goods by a firm. Stock management if carried out properly can bring down
fees and increase the income of a firm. Inventory management is primarily
about specifying the shape and percentage of stocked goods. It is required at
different locations within a facility or within many locations of a supply
network to proceed to the regular and planned course of production and
stock of materials.

The scope of inventory management concerns the fine lines between

replenishment lead time, carrying costs of inventory, asset management,
inventory forecasting, inventory valuation, inventory visibility, future
inventory price forecasting, physical inventory, available physical space for
inventory, quality management, replenishment, returns and defective goods
and demand forecasting. Balancing these competing requirements leads to
optimal inventory levels, which is an on-going process as the business needs
1

Inventory management involves a retailer seeking to acquire and maintain a

proper merchandise assortment while ordering, shipping, handling, and
related costs are kept in check. It also involves systems and processes that
identify inventory requirements, set targets, provide replenishment
techniques, report actual and projected inventory status and handle all
functions related to the tracking and management of material. This would
include the monitoring of material moved into and out of stockroom

65
locations and the reconciling of the inventory balances. Also may include
ABC analysis, lot tracking, cycle counting support etc. Management of the
inventories, with the primary objective of determining/controlling stock
levels within the physical distribution function to balance the need for
product availability against the need for minimizing stock holding and
handling costs.

FINDINGS:

1. Procurement process of engineering goods in AMUL is as follows;

It is mainly divided in to four steps namely, a) Indenting, b) Purchasing,
c) Materials receipt, Issues and Stores Inventory Management, and
d) Bill processing and payment.
a) Any department requiring any material will fill up an indent. All the
indents for capital item purchases will have to be submitted in form of a
“Proposal for Capital Item Purchase” which is approved by Managing
Director and routed to purchase department through Accounts section
that would verify budgetary provisions for such purchases. In highly
emergency situations, user departments may issue purchase orders
directly on the suppliers in the form of “Indent Cum Purchase Order”.
b) Purchase department shall initiate enquiries for various items covered in
indent by floating such enquiries to maximum number of suppliers to get
competitive rates for each item. It should prepare comparative
statements and submit to approving authority. Also a negotiation with
the suppliers should be carried out to arrive at lowest possible rates.
c) The stores shall receive copies of all purchase orders placed on the
suppliers for which the goods are to be delivered in stores. For all goods,
which are received in factory premises an entry will be made at the main

66
 gate of the factory. Once the goods are received at the store, it should
thoroughly verify the documents and shall ensure that the goods have
been received against a valid purchase order and as per specifications. If
goods are found to be as per our purchase order, stores department shall
make arrangements for taking delivery of goods and store it at
appropriate place.
d) All the invoices from suppliers shall be received in purchase bill section.
It will enter all the invoices as and when received in a computerized bill
tracking system. It should verify the invoices, with corresponding
purchase orders, goods receipt cum test reports etc. and shall process the
suppliers’ invoices for payment.
2. The increase and decrease in consumption of electrical and mechanical
engineering goods annually and monthly for last three consecutive years
is due to either plant shutdown, maintenance, new project introduction,
new capital item installation, peak season demand or if it is in the last
month of financial year then it is because of the preparation of next
financial year.

In case of Annual purchase of electrical and mechanical items, for electrical

items there is an increase of purchase in 2009-10 because of increase of high
production demand and in case of mechanical items there is an increase of
purchase in 2010-11 due to new capital item procurement.

The inventory holding period for electrical and mechanical engineering

items is showing an increase in 2008-09 for electrical items but is gradually
decreasing, while in case of mechanical items as compared to 2008-09 there
is an increase in holding period in 2009-10. The reasons may be economic

67
recession, obsolete inventory, poor sales and marketing, a change of
customer taste or bad inventory management.

Inventory turnover ratio of mechanical items is high as compared to that of

electrical items.
In general lead time of all engineering items varies from 25 to maximum 30
days. While in case of emergency like a total completion of engineering item
like a situation of total shutdown, then an emergency purchase of the item
directly from the user department is done which takes lead time of 2 days.
CONCLUSIONS:
From the above findings it can be concluded that inventory of engineering
goods drastically affects the investments of Amul as even new projects or
new capital items lead to high monetary consumption.
There are times in year when due to plant shutdown or maintenance work of
plant the consumption after its completion increases a lot. When a new
capital item like a big machine is installed that is mechanical consumption
while it’s wiring and work later in the month or so is electrical consumption.
So, it can be said that although mechanical and electrical are not much
related but they do work and affect each other.
Production demand rises in peak season of months between monsoon to
winter which leads to more consumption of electrical and mechanical items
in Amul.
There is no drastic increase or decrease in inventory holding period and
inventory turnover ratio of engineering goods in Amul which shows that
Amul maintains its funds and inventory.

68
SUGGESTIONS:
1. Amul should go for maintaining minimum stock level in its stores,
which would help it in properly co-ordinating its investments made in
inventory.
2. Amul must also keep some safety stock to prevent any plant shutdown
or other related problems.
3. Amul should also try for ABC classification so that items, which are
very expensive or are not easily available, can be given proper attention
by the top management while the rest of the items are maintained on the
current level.
4. Many times because of the wrong item code in purchase order and G.R.
there is conflict of taking the delivery of goods by general category,
engineering category or miscellaneous category of store. So. Proper set
of rules should be made for such issues. Which category should take the
goods must be clear either that department in which the item code
follows or that category in which the item follows.
5. The empowerment of checking the engineering items to the user
employee may cause harm to the company, as the tie up between user
employee and supplier may accept the improper machinery which will
cause very dangerous problem from capital loss to stoppage of
production, high repair and maintenance expenses.
6. In all the procedures from asking for price list of product to sending P.O
in every work couriers are sent to supplier for asking of quotations, or
even for sending the purchase order. Where 3 – 4 days are wasted and it
is costly. Here, use of e-mails and faxs can be done for sending P.O and
or asking for Quotations.

69
7. A lot of time is required to check all the documents by both the parties
like supplier needs to check P.O, invoices etc., instead of them scanned
documents can be kept.
8. Systems like JIT (Just In Time) system may not work for such a big
company as Amul but a system like Just Before time may work. So, they
can be used alongwith software that itself sends an indent to the supplier
as soon as the minimum level of stock is reached, it saves time and
money.

70