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Submitted By:
r MBA -8NBPI028
Adam Smith Institute Of Management
Project is the systematic study to gain knowledge. It is
possible only in the light of guidance, advice and help
from a number of sources, without which a learner is a
soldier in the vast uncharted sea without radar.
“Study of Receivables Management” was assigned
to me by Amrit Banaspati Company Limited as the part of
the curriculum of 2 years Master of Business
I would like to say thanks to my Project Supervisor Mr.
Parveen Tarika General Manager {Finance} ABC Ltd.
Rajpura for giving me the valuable time, suggestions and
technical guidance during my hard work without which
my hard work would have been too far from the smart
work which is new mantra of success in this century’s
corporate world.
I am also very thankful to Mr. Bhupinder Singh Senior
Manager {Personnel & Admn. Department} for his
valuable time, guidance, inspiration and continuous
encouragement throughout the period of project.
In the end I would like to thank all my friends and people
who helped me in this project and also in regenerating
my enthusiasm whenever I need it the most. I thank them
again and again for letting me be where I am today.
On the changed scenario of globalization, Indian Economy
is also undergoing changes a far as advancement in
technology up gradation and professionalism is
concerned. To complete with the changing requirements,
the state is duly bound to prepare and produce technical
manpower to as to be par in the global market.
To work and concentrate on various projects in
industries, helps to get an overall view and exposure to
industries and the students are encouraged as it helps in
the overall development of their personality. It increases
the confidence and morale of the students.
Since everyone has his own way of manipulating
the observations and interpreting the results. I present
this report in my own way, I hope it will be appreciated by

To produce and sell the goods and services to

achieve the highest return on sales in the
industry to the total satisfaction of Customers,
Employees and Shareholders in that order.

Sr. No.. Chapter Name

1 Edible Oil Industry
1.1 Introduction
1.2 Present Scenario
1.3 Shift to soya from Palm oil
2 Introduction to Organization
2.1 Company Profile
2.2 About the Company
2.3 Background of the Company
2.4 Quality Policy
2.5 Quality
2.6 Pricing Strategy
2.7 Distribution of Production
3 Hierarchy of company
4 List of Executives
5 Refinery Process
6 Products
6.1 Gagan Vanaspati
6.2 Bansari Refined oil
6.3 Ginni Gold Sunflower oil
6.4 Ginni cottonseed oil
6.5 Merrigold Table Margarine
6.6 Ginni Groundnut oil
6.7 Sunehri Teer Vanaspati
7 Raw Material
7.1 Fatty Raw Material
7.2 Non-Fatty Raw Material
8 SWOT Analysis
9 Recievables Management
9.1 Introduction
9.2 Factors Influencing
9.3 Credit Policy
9.4 Policy Objective
9.5 Credit policy-nature & goals
10 Recievables at ABC Ltd.
11 Suggestions
12 Bibliography
Edible oil industry in India is a predominantly retail
demand driven industry. The industry has been
flourishing lately given the constant expansion in retail
segment coupled with increased earnings. India’s oil and
fats per capita consumption is slated to touch 14 kilos
this year. Interestingly, the industry is making a market
shift from what was once a Palm oil dominated to Soya
oil. This fact is very much prevalent in India Oil Statistic.
Domestically sourced soya oil consumption that stood at
1.99 million tones at the beginning of 2001 is estimated
to have increased to 2.70 million tones in the current
year. On the other hand, palm oil consumption during the
same period has slipped from 3.81 million tones to 3.17
million tones.
Similar trend was witnessed in case of imports that
have shown steady decline over the years. Palm oil
imports stood at 3.85 million tones in 2000-01, topped
4.11 million tones in 2002-03 and is estimated to have
declined to 3.15 million tones in 2006-07. Soya oil
imports, on the other hands, have consolidated over the
years. This year soyabean oil imports are expected to
gross 1.75 million tones. This pattern associates with
rising income of middle class that is now open for
changing dietary habits and is health conscious too.
Having said that it goes without saying demand from
industrial segment continuous to be the major driving
In India the consumer does not take any marketed edible
oil, as edible oil preferences vary from household to
household. Mustard oil is widely used in the North Indian
States. In India South India, groundnut oil and soya oil are
alien to the Indian Psyche, more so the soya oil and it is
difficult to make people to consume these oils as easily
as other familiar oils. The marketing strategy on soya oil
and palm oil was not very effective in enhancing
household usage.

Present Scenario:
Presently the country has more than 15000 oilseeds
crushing units, more than 600 solvent extractors, more
than 400 vegetable oil refiners and more than 190
vanaspati oil units. All these are working at below 40%
capacity utilization. With such a low capacity utilization
the solvent extraction industry is in doldrums, many of
these units have already shut down.
The country has been importing mainly from Indonesia
and Malaysia. It started with refined oil as there was need
to meet the demand supply gap. But the imports were
cheap that imports crossed many times the gap and this
lead to the current plight of the solvent extraction
industry. Moreover all these imports led to increased
consumption of palm oil and its derivates, while other oil
seeds and oil’s consumption is declining. Most affected
are Soyabean, cottonseed, oilcake, Rapeseed etc. Their
demand has not grown in recent years due to these
cheap imports. This is harming oil seed farmers, as they
are not able to sell these in the market due to lower
realizations. Many have already shifted to other crops and
many are planning to do so in near future. If these
imports continue the oilseeds industry is likely to die very
soon. Taking into consideration all these factors plus
seemingly a selfish motive of increase its customs
collection, the government has been taking these duty
hikes from time to time. But every time the hikes are
more than offset by drop in international prices.

Shift to Soya from Palm oil:

iii-effects of palm oil [as per general assumption] is slowly
causing change in consumption pattern which is now
more inclined towards soy oil. further ,the cheap
availability of soya oil[sourced from domestic and
international markets]is certainly ensuring pick-up in its
demand .now it has been observed that the acceptance
of soya oil is growing in Indian kitchen. Palm oil use is on
decline yet it still leads the consumption but its share has
slipped from 31.4% in 2000-01 to 25% in 2006-07.
Amrit Banaspati company limited a company that is
synonymous with purity and goodness, is poised on the
threshold of the new millennium, today. In the country as
diverse as India, nature has showered her best, in full
Amrit Banaspati Company has stayed close to our roots
nature. Its special understanding of nature and their ways
have enabled us to grow from a vanaspati company to a
multi-product organization producing a whole range of
edible oils and fats.


Today ABC Ltd. has an installed capacity of 10,000 metric
tones per month as compared to a mere 3000 metric
tones per month in its first year of operations. This
stupendous growth has been possible because ABC has
continuously endeavored to bring new products to the
Indian consumer and to that end its R&D has played a
key role.
It was there that revolutionary product such as Merrigold-
the Table Margarine was developed, thereby changing
the taste of consumers forever. Further ABC has over the
years introduced a range of refined oils namely-
groundnut, cottonseed, mustard and sunflower.
With the objective of meeting the varied need of the
Indian consumer. Beside ABC also produces bakery
shortenings and confectionary fats and oils among other
products which meet consumer’s specific needs.
Most important, all ABC products meet the stringent
international quality standards. So much so that ABC
brands are household names today and have been
honored with the “Monde Selection Medal of Brussels” on
several occasions.


It largest manufacturers of edible oil in the industry. Its
successful brands like Gagan, Ginni and Merrigold are
virtually household names in many parts of the country.
In terms of turnover Amrit Banaspati Company Ltd. has
been ranked among top 100 companies in India.
Amrit Banaspati Co. was set up in 1940 by lt. Shri Lashmi
Narayan Bajaj. It was 9th co. of the country established n
the vanaspati industry.
In the view of the expansion the company went for
diversification in the year 1979 by setting up the paper at
Sailkhurd, Distt. Hoshiarpur as India’s largest wood file
paper plant. It uses only agro washes like wheat and rice
show to manufacturer fine quality writing and printing
The main groups that comes under Amrit Group of
companies area:-
1. Amrit Banaspati Co. Ltd Ghaziabad

2. Amrit Banaspati Co. Ltd Rajpura [Punjab].

3. Amrit Banaspati Co. Ltd Saikhurd [Punjab].

4. Amrit Enterprises Ltd Abohar [Punjab].

Some information about these companies of Amrit

Group is given on following pages:-


Here 125 mts of vanaspati and 60 mts of refined oil
manufactures daily, the products are Gagan
vanaspati, Ginni cotton seed oil Sunheri Teer, Bansari
refined mustard oil big sip, golden soya malik are
also manufactured here, the products are mainly sold
through the dealers in the area of M.P, U.P, Bihar and
some parts of South India.


The company is one of the leadind products of the
new print paper in the country. The production
capacity has increased from 10,000 mts in 1980-
24,000 mts. In at present .


The unit of the company was set up in the year 1969-

1970 with a manufacturing capacity of 100 mts per
day of vanaspati [hydrogenated vegetable oils] later
on the year 1982-1983 capacity was increased to
125 mts. Per day. Thereafter, in the year 1985 to
1986 a separate facility to produce refined oil was
set up of the capacity of mts. Per day.
Presently company is manufacturing around 3600 mt
of vanaspati per month, our of when 3000 mt is
produced in small packs under the brands of Gagan,
which is well known and accepted brand in the entire
northern India. In refined oils company is producing
around 1600-1700 mt per month in the refined oil
companies, are producing 4 kinds of oil i.e.Ginni,

Company also produces another product- table

margarine under the brands name of marigold. The
product is very good and its acceptance in the
market is also good and therefore, its sale is picking
up where it is Introduced, through its introduced very
selectively. From Rajpura, company is catering to the
states of Punjab, Haryana, Himachal Pradesh, Jammu
and Kashmir, Rajasthan, part of Madhya Pradesh,
west Bengal north eastern states of roughly around
60 percent sales turn over of Rajpura is around 340

The plant of our Rajpura unit is all latest technology

developed in the filed of the oil processing. besides
the technology developed by the machinery
suppliers, company having its own complete search
and development facility where in company keeps
improving the processes needed for oil processing
and also the R &D work ifs continuing to develop new
value added products new value added products in
the field of oils and fats.

The state of Punjab has plenty of oil available and

therefore maximum of company requirements met
locally within the state of Punjab and balance from
the other states of the country. In future as well the
company feels that the oil industry will prove to be
the good demand industry since it is processing and
manufacturing cooking medium which is daily
requirement of each and every household.

The company has installed its own turbine to

generate electricity to meet its energy demands. The
company has also expanded its operations to Soya
Nuggets, flavored milk.


“ABC Ltd. committed for total customer satisfaction

and continual improvement in developing,
manufacturing and supplying Quality products. Thus
becoming leading business player in vegetable oil &

To ensure consistent in the quality of various

products manufactured at Rajpura and to further
improve the quality of its various products company
has very good quality control systems together with
the research and development department which is
comparable to be the best in the industry.

It is to be credit of this good quality control, systems

and efficient R&D department that ABC Rajpura has
been honored and awarded with American
International Quality Certificate and Gold Medal to
the management of ABC Rajpura, a trans world trade
fare selection award as a token of recognition for
their outstanding performance in the manufacture in
the Gagan Vanaspati.


Pricing decision effects the overall marketing skills

and consumer acceptability while the external forces
in which the commercial establishment to operate
has to be taken to account but the internal forces, its
strength and weaknesses, the company objectives
etc have been viewed in the competitive field. Edible
oil price is effected not only because of national and
international market variations but because of
internal factors such as government policies, prices
of other oils used in mixture and the total expected
output of oil crops. The interstate ban on the supply
of raw oil also affect the pricing of the product.

While making the price structure the marketer has to

watch carefully the pricing strategy adopted by
competitors, the pricing structure which represents
the margin to distributors, retailers etc. has an
impact on the sales of product. The pricing structure
of ABC Ltd. Rajpura is as follows:
Basic prices:
a} 3.5 % dealer’s margin
b} 5.5 % retailer’s margin
ABC brand also covers the distributors on
retrospective basis if there is any price fluctuations,
thus a safe play for the distributors and retailers too.


Distribution of the products is the main objective of

the marketing process. It is the process of
transferring the product from the producers to the
distributors and ultimately to the consumer through
retailers, the decision regarding channels of the
distribution is a very important decision from the
company’s point of view because the selection of
channel affects considerably the other marketing

All the products at ABC Rajpura and are sold in the area
of Punjab, Haryana, Rajasthan, J&K, Himachal Pradesh,
West Bengal and Chandigarh through 30 Depots and 575

VC & M D
Sr. Executive


M arketing HR & Quality

Production Accounts M aterial Enginee
& Sales P ersonnel Control

Sh. J.K Khaitan VC & MD
Sh. S.C Aggarwal Sr. Executive Director
Sh. S.A Rahman Executive Director
Sh. A.K Jain Sr. VC {work &SCM}
Sh. Ashish Mittal GM {Marketing & sales}
Sh. Rajesh Aggarwal VP {Accounts}
Sh. Parveen Tarika GM {Finance}
Sh. S.K Handoo Sr. GM {RD & QC}
Sh. Vinay Sharma GM {Commodity}
Sh. R.K Kalia GM {HR & Admn.}
Sh. Sanjeev Goyal GM {IT}
Sh. S.S Brar GM {Production}
Sh. S. Wadhera GM {Engineering}

The refinery process of vanaspati is as follows:

 Gagan Vanaspati
 Ginni Gold Refined Sunflower
 Ginni Refined Groundnut oil
 Ginni Lite Refined Oil
 Ginni Refined Cotton Seed Oil
 Ginni Gold Soyabean Oil
 Ginni Gold Ricebran Oil
 Merrigold Table Margarine
 Gagan Kachi Mustard Oil
 Gagan Salt
 Soya Nuggets

Gagan Vanaspati is India’s largest selling vanaspati. It has won
the hearts of housewives the nation over. Gagan as a cooking
medium enhances the taste and flavor of food. It can be used for
deep frying among others. Gagan being low in free fatty acids is a
healthier cooking medium. Products cooked in Gagan have a
longer shelf life.
Gagan is a recipient of Rome Monde Selection Gold Medal.

Values per 10 gm serving

Calories 73
Cholesterol 0
Saturates 24
Sodium 0

It is made from following vegetable oils:

Sunflower, Maize, Kardi Sesame, Solvent Extracted Groundnut
and Mustard, Cottonseed, Mahuwa, Palm, Rapeseed, Ricebran,
Soyabean, Sal seed {upto 10 %}. It contains Vitamin A 30 IU/g
and Vitamin D 2 IU/g.
Available in15 liter Poly packs/tin, 10 liters, 5 liters, 2 liters poly
packs, 1 liter, 500 ml, 200 ml and 100 ml pouch.

Bansari Refined Vegetable Oil:

Bansari refined vegetable oil has all the qualities of mustard. It is
perfectly healthy oil which is high in Polyunsaturated Fatty
Acids{PUFA}. It can be used for deep frying, shallow frying and
sauting among others. No wonder, it is the most commonly
accepted cooking medium today.

Values are per 10 gm serving
90 Cholesterol
0 Saturates
7 Poly/mono unsaturated %

It is high quality Mustard oil. It contains Vitamin A 30 IU/g and

Vitamin D 2 IU/g.
It is available in 15 liter tin/poly packs, 5 liter poly pack, 1 liter
bottle and 1 liter & 500 ml pouch and 1 liter pouch in jar.
Ginni Gold Sunflower oil is light and nutritious oil. Ginni Gold is an
ideal cooking medium. It is good for shallow frying and salad
dressings. It is high in polyunsaturated fatty acids and low in
saturates. No wonder it is the best oil for the health of people of
all ages.
Ginni Gold is recipient of Paris Monde Selection Gold Medal.
It is high quality Sunflower oil. It is available in 15 liter tin/poly pack, 10 liter,
5 liter, 2 liter poly packs and 1 liter per bottle and 1 liter & 500 ml pouch.


Ginni Refined Cottonseed Oil is rich in polyunsaturated fatty acids, which
makes it healthy oil. It is an ideal for deep frying. Research has shown that
cotton seed oil being light & pure and is high in flavor stability apart from
keeping the food fresh for a longer period of time. It is economical as
compared to most of other refined oils.

Values are per 10 gm.
90 Cholesterol
0 Saturates
24 Poly/mono unsaturates %

It is available in 15 liter tin/poly pack, 10 liter, 5 liter, 2 liter poly

pack and 1 liter bottle and 1 liter & 500 ml pouch.


Merrigold Table Margarine is a healthier substitute for butter. It
has the taste, feel and look of butter minus cholesterol. In fact, it
is zero cholesterol. Moreover, Merrigold is made from vegetable
oils and is rich in Polyunsaturated fatty acids which is good for
health. Being an alternative to butter it can be used in a same
manner, butter is used. Merrigold is a recipient of Paris Monde
Selection Silver Medal.

Values are per 10 gm
73 Cholesterol
0 Saturates
It contains refined Sunflower oil, hydrogenated and liquid
vegetable oils, salt, permitted emulsifying and stabilizing agents,
permitted colors and flavorings agents, Vitamin A 30 IU/g and
Vitamin D 2 IU/g.
It is available in 200 gram & 100 gram cups, 500 gram & 100
gram duplex cardboard packing and 10 gram blister pack.


Ginni Refined Groundnut Oil is an excellent cooking medium as it
can be used for a wide range of food preparations. It is suitable
for deep frying spray or wet roasting. Being low in saturated fatty
acids, it is recommended for people on low calorie diet.
Values are per 10 gm.
90 Cholesterol
It is available in 15 liter tin/poly pack, 10 liter, 5 liter, 2 liter poly
pack, 1 liter per bottle and 1 liter pouch.


Sunheri Teer Vanaspati enhances the taste of food. On
continuous heating it does not turn black, emits very less smoke
and is practically odorless. While frying it is consumed less. That’s
why it is economical in usage.

Values per 10 gm.
Calories 90
Cholesterol 0
Poly/mono unsaturates % 40-50
Saturates 50-
It is made from any or following vegetable oils:
Sunflower, Maize, Kardi, Sesame, Solvent, Extracted Groundnut
and Mustard, Cottonseed, Mahuwa, Palm, Rapeseed Rice Bran,
Soyabean, Sal seed {upto 10 %}.
It contains Vitamin A 30 IU/g and Vitamin D 2 IU/g.
It is available in 15 liter tin.


The raw material used for manufacturing can be classified into

categories as:
a} Fatty Raw Material
b} Non-Fatty Raw Material

Fatty Raw Material: The various edible oils generally used for
the manufacturing are:-
Cottonseed oil
Sesame oil
Rice Bran oil
Mustard oil
Palm oil
Groundnut oil
Sunflower oil
Corn oil
Soya Bean oil
Rapeseed oil

Non-Fatty Raw Material: The various non fatty materials used

in each step of manufacturing are:-
Degumming- steam, citric acid, phosphoric acid & dilute
sulphuric acid.
Refining- caustic soda, phosphoric acid, boral and Nacl.
Bleaching- acetic dated carbon, bleaching earth{clay} and
bentonite type of Clay.
Hydrogenation- catalysts and hydrogen
Deodorization- live steam & citric acid
Vitamins- Vitamin A & Vitamin D.

STRENGTHS {Internal}:-
Sound Infrastructure
Efficient Management
Sound Economic Condition
Brand Value

Limited Network
Poor Technology
Traditional Values and beliefs

Tie up with new retailing companies i.e. Reliance, Pantaloon
Target the market on segmentation or niche basis.

THREATS {External}:-
Local brands in market
More dependency on imports for raw material

A sound managerial control requires proper management of liquid
assets and inventory. These assets are a part of working capital
of the business. An efficient use of financial resources is
necessary to avoid financial distress. Trade credit arises when a
firm sells its products or services on credit and does not receive
cash immediately. It is an essential marketing tool, acting as a
bridge for the movement of goods through production and
distribution stages to customers. A firm grants trade credit to
protect its product at favorable terms. Trade credit creates
account receivables or trade debtors that the firm is expected to
collect in the near future. The customers from whom receivables
have to be collected in near future are called trade debtors and
represent the firm’s claim as assets.

Thus receivables constitute a significant portion of current

assets of a firm. But for investment in receivables a firm has to
incur certain costs. Further there is also risk of bad debt. It is
therefore, there is a risk of bad debt also. It is therefore, very
necessary to have a proper control and management of


The following are the factors that directly and indirectly affect the
size of receivables:
Size of credit sales:- If the company sells only on cash basis,
then there will be no receivables. The higher the part of credit
sales out of total sales, figures of receivables will also be more
and vice versa.
Credit policies:- A firm with conservative credit policy will have a
low size of receivables w hile a firm with
liberal credit policy will be increasing this figure. But if collections
are prompt then even if the credit policy is liberally extended the
size of receivables will remain under control.
Terms of credit:- The period of credit allowed and rates of
discount given are linked with receivables. If credit period allowed
is more, then receivables will also be more.
Expansion Plans:- When a concern wants to expand its
activities, it will have to enter new markets. To attract customers,
it will give incentives in the form of credit facilities. The period of
credit can be reduced when the firm is able to get permanent
customers. In the early stage of expansion more credit becomes
essential and size of receivables will be more.
Relation with profits:- The credit policy is followed with a view to
increase sales. When the sales increases beyond a certain level
the additional costs incurred are less than increase in revenues. It
will be beneficial to increase sales beyond appoint because it will
bring more profits. The increase in profit will be followed by an
increase in the size of receivables or vice versa.
Habits of the customers:- The paying habits of the customers
also have a bearing on the size of receivables. The customers
may be in habit of delaying the payments even though they are
financially sound. The concern should remain in touch with such
customers and should make them realize the urgency of their

This type of financing helps companies free up capital that is
struck in accounts receivables. Accounts receivable financing
transfers the risk associated with the account receivables to the
financing company; this transfer of risk can help the company
using the financing to shift can help the company using the
financing to shift focus from trying to collect receivables to current
business activities.

To ensure that all Government accounts receivable are managed
fairly, efficiently and effectively to recover such receivables and
minimize the risk of loss.
A firm may allow a lenient or a stringent credit policy. The firm
following a lenient credit policy tends to sell on credit to customers
on very liberal terms and standards, credit is granted for longer
periods even to those customers whose creditworthiness is not
fully known or whose financial position is doubtful. In contrast, a
firm following a stringent credit policy sells on credit on a selective
basis only to those customers who have proven creditworthiness
and who are financially strong. In practical, firms follow the credit
policy ranging between stringent to lenient.


A firm’s investment in account receivables depends on:
a} The volume of credit sales
b} The collection period
Investment in account receivable=daily credit sales* average
Collection period
The investment in receivable may be expressed in terms of cost
of sales instead of sales volume.
There is only one way in which the financial manager can effect
the volume of credit sales and collection period and consequently
investment in accounts receivables. The term credit policy is used
to refer the changes in credit policy. The term credit policy is also
used to refer to the combination of three decision variables:
a} Credit Standards
b} Credit Terms
c} Collection Efforts
These are the criteria to decide the types of
customer to whom goods could be sold on credit. If the firm has
soft standards and sells to almost all the customers, its sales may
increase but it will result in enhanced costs and risks of bad
debts, delayed receipts and also increase the credit
administration cost. Therefore the firm will have to consider the
impact in terms of increase in profits and increase in cost of a
change in credit standards or any other policy variable. If a firm
has more slow paying customers, then it will result into tying up of
additional capital in receivables.

The conditions for extending credit sales are called
credit terms and they include the credit period and cash discount.
In simple words credit terms specify duration of credit and terms
of payment by customers. There is no binding on fixing the terms
of credit. A concern fixes its own terms of credit depending upon
its customers and the volume of sales. The customs of industry
also act as constraints on credit terms of individual concerns.
Investment in accounts receivables will be high if customers will
be allowed extended time period for making payments.
These determine the actual collection period.
The lower the collection period, the lower the investment in
accounts receivable and vice versa. Collection efforts of the firm
aim at accelerating collections from slow-payers and reducing
bad-debt losses. The firm should in fact thoroughly investigate
each account before extending credit. It should gather information
about each customer analyses it and then determine the credit
limit. Depending upon the financial condition and past experience
with a customer, the firm should decide about its collection tactics
and procedures.


AMRIT BANASPATI COMPANY has its own selling policy. The
company does all sales on cash basis. The process of sales at
ABC is as follows:
a} Company has depots in various cities of Punjab, Haryana,
Jammu & Kashmir, Rajasthan, West Bengal, Himachal Pradesh
and Chandigarh.
b} These depot holders order for dispatch of finished products
according to demand in the market.
c} When the order is dispatched to these depots, the dealers of
the company take dispatch from these depot holders.
d} The retailers and wholesalers take away dispatch of finished
goods from these dealers. Also some dealers approach to
retailers for delivery of finished products as the dealer is
completely responsible for selling the order. From these retailers
and wholesalers the product is dispatched finally to customers.
This process is shown graphically below:

So, the company does all the sales on cash basis. The selling of
products is the responsibility of dealers. The company gets
advance payments from these dealers for dispatch of products.
So the RECEIVABLE for the company is import of crude oil. The
steps are:
a} The people from Sales Department and Production Department
plan for next order of crude oil according to demand.
b} According to demand they place order to Purchase
c} Purchase Department orders to suppliers for crude oil that is
imported from Kandla Port.
d} The crude oil is brought to the company through two ways :-
a) By Train through Tankers
b) By Road through Wagon
e} Most of the time the oil is brought through tankers. It is hired
from Gujarat.
f} The supplier is fully responsible for secure supply of crude oil to
the company.

EOQ Model:
In 1913, F.W.Harris developed this model to determine
the optimum order quantity. EOQ method is used to identify the
order quantity that would minimize the total cost i.e. the sum of
ordering cost and carrying costs.
The formula to calculate EOQ is:


ORDERING COST: These are associated with purchasing
inventory. These costs include costs associated with preparing
the purchase order, postage, telephone calls record keeping and
accounting costs. In case of ABC Ltd. the ordering cost per order
is 100 Rs.
HOLDING COST: This represents the cost incurred while
inventories are stored in stores and warehouses. They are also
referred to as carrying costs or storage costs. It includes the
opportunity costs besides storage costs. ABC Ltd. has its own
storage tanks which the company has installed initially. So in this
case the company does not have to bear any holding cost.
Ordering Cost=100 Rs. Per order
Annual demand=90000 mt.

EOQ= √2*100*90000
=4242.64 mt.
= 4250 mt.
So the optimal order quantity for the company is 4250 metric tone.
At this level the company will be able to minimize total cost.

As Gagan and Ginni are famous brands among people, so
the company should start credit sales also. It will increase
There is more lead time i.e. time lag between order
and supply. It is 7 days. It should be reduced to 5
The company must not depend wholly on suppliers for
bringing crude oil as many times there is theft or
leakage of oil.

Annual Report of ABC Ltd.