INTRODUCTION

Inventories are the current assets which

are expected to be converted within a
year in the form of cash or accounts
receivables.
It consists of 20-30% of the investment of
the total investment of the firm.
An inventory can be classified into three
parts:-
Raw material
Work-in-process
Finished goods
Purpose of inventory control is getting the
right inventory at the right place in the
right time with right quantity.
 INVENTORY MANAGEMENT
CONCEPT
According to Rosenblatt, the inventory
management costs are the price which is paid
by the customer, but it is the cost to the owner.
According to Kotler, inventory management is
the technique of managing, controlling and
developing the inventory levels at different
stages so that there is regular supply.
According to Coyle, inventory management is
the management of the materials in motion
and at rest.
Sometimes, inventory and stock are considered
as the same thing. But there is a slight
difference between them. Stock is storage kept
in specified place.
 INVENTORY MANAGEMENT
CONCEPT cont.…
The supplies inventories involves the
materials required for the maintenance,
repair and operating that do not go to
the final product.
Inventory management is also defined as
it is the science and art of managing the
level of stock of group of items which
incurred least costs and reach the
objectives set by the top management.
Inventory management has two goals:
(1) First goal is to avail the goods at right
place in right time.
(2) Second goal is to increase the
production efficiency.
INVENTORY COSTING METHODS
Costs related to inventory:
1. Purchase costs
2. Ordering costs
3. Carrying costs
4. Shortage costs.
Inventory costing methods:
1. FIFO
2. LIFO
3. WAC(Weighted Average Cost)
WAC = Value of material in stock/ Quantity in stock.
4. HIPO
INVENTORY COSTING METHODS cont..
Inventory Model:
EOQ Model
 First developed by F.W. Harris in 1913 but still
R.H. Wilson is given credit for this model due to
his early in-depth analysis.
 Also known as Wilson EOQ Model.
 The economic quantity is the level for inventory
which minimizes the total inventory costs.
 It is the optimal level of inventories which
satisfies the demand constraints and cost
constraints.
 Q = (2 X Ordering Cost X Annual Quantity
Demand/ Holding Cost)˄1/2
 Assumptions of EOQ model:-
• There are some assumptions
on which EOQ is calculated.
These assumptions are:-
• There is known and constant
holding cost.
• There is a known and constant
ordering cost.
• The rates of demand are
known.
• There is known constant price
per unit.
ASSUMPTIONS OF EOQ • No stock-outs are allowed.
• Replenishment is made
MODEL instantaneously.
INVENTORY CONTROL TECHNIQUES
Inventory Control techniques:
ABC Analysis.
Minimum level.
Maximum level.
Reorder level.
Just In Time.
Outsourcing.
Computerized Inventory system.
 CASESTUDY BACKGROUD
For the case study five major companies from Mild STEEL manufacturing
Industry are taken:
(1) Steel Authority of India Limited (SAIL),
(2) TATA Steel Limited (TSL),
(3) JSW Steel Limited (JSW)
(4) Rashtriya Ispat Nigam Limited (RINL)
(5) Jindal Steel & Power Limited (JSPL).
Some financial terms are measured and compared like:
(1) Inventory Turnover,
(2) Net Profit,
 OBJECTIVE
The objective of this case study is to find out the following:
1. To find out relationship between inventory and profitability Aspect
of the organizations.
2. How Inventory Control & Inventory Management Techniques affect
an organizations' financial performance.
 ABOUT THE COMPANIES
COMPANY
LOGO

Promoted by Private Sector- Private Sector-

COMPANY Public Sector Public Sector
Tata Group Sajjan Jindal Naveen Jindal
TYPE Undertaking Undertaking
Companies (Chairperson) (Chairperson)

FOUNDED Founded on 19 Founded on 25 Founded on 18

Founded on 1982 Founded on 1952
ON January 1954 August 1907 February 1982

58,042.91 133,016 Crore

REVENUE 71,503 crores INR 1650 Crores INR 27383 Crores INR
Crores INR INR

ANNUAL
INR 44,452 Crore INR 3,179 Crore 1334 Crores INR FY 353 crores 1894 crores INR
TURN-
for FY 2016-17 for FY 2016-17 2016-17 INR FY 2016-17 FY 2016-17
OVER
 TERMS RELATED
TO
INVENTORY & THEIR
MEASURES
 INVENTORY TURNOVER
• Inventory Turnover Ratio= Cost of Goods Sold/ Avg. Inventory
• It measures the inventory management is poor or good.
Inventory Turnover Ratio
9
INVENTORY TURNOVER RATIO

8
7
6
5
4
3
2
1
0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
SAIL 6.01 5.08 3.36 2.79 3.07 2.74 2.44 2.88
TATA Steel 6.14 4.94 5.19 5.59 5.53 6.66 5.63 6.13
JSW Steel 8.4 6.91 5.94 6.95 6.28 6.13 4.72 7.1
RINL 2.95 3.14 3.34 3.34 3.12 2.07 2.02 2.59
JSPL 4.46 4.26 6.26 6.31 5.52 5.26 5.12 4.98
FISCAL YEAR

SAIL TATA Steel JSW Steel RINL JSPL

 CORELATION BETWEEN TURNOVER RATIO & NET PROFIT
So we use correlation techniques to ensure the relationship. We found some
linearity correlations with coefficient (r).
The graphs are showing that: Inventory turnover ratio Vs. net profit: TATA
10
TATA Steel (r= -0.763) 8

NET PROFIT (IN %)

SAIL (r = 0.986) 6
4

JSW Steel (r = 0.829) 2

0
-2 0 1 2 3 4 5 6 7
-4 y = -8.4128x + 47.437
Inventory turnover ratio Vs. net profit: SAIL R² = 0.5829
-6
INVENTORY TRUN OVER RATIO
20
y = 3.1869x - 3.8851
NET PROFIR (%)

15
R² = 0.974 Inventory turnover ratio Vs. net profit: JSW
10 10
y = 3.0543x - 16.924

NET PROFIT (IN %)

8
5 R² = 0.6876
6
0
4
0 1 2 3 4 5 6 7
INVENTORY TRUN OVER RATIO 2
0
0 2 4 6 8 10
INVENTORY TURN OVER RATIO
CORELATION BETWEEN TURNOVER RATIO & NET PROFIT
So we use correlation techniques to ensure the relationship. We found
some linearity.
The graphs are showing that:
RINL (r= 0.869) JSPL (r = 0.906)
Inventory turnover ratio Vs. net profit: RINL Inventory turnover ratio Vs. net profit: JSPL

9 20
8 15
7
10
NET PROFIT (IN %)

NET PROFIT (IN %)

6
5
5
0
4
0 1 2 3 4 5 6
3 y = -1.195x + 8.841 -5
R² = 0.7567
2 -10 y = -6.932x + 22.16
1 -15 R² = 0.8217
0
-20
0 1 2 3 4 5 6 INVENTORY TURN OVER RATIO
INVENTORY TURN OVER RATIO
 INVENTORY MANAGEMENT IN SAIL
Bureau of Industrial costs and pricing fixed the norms
for SAIL as follows:
Raw Material: Within One month’s consumption
Stores & Spares: Within Eighteen Month’s
Consumption
Finished & Semi-Finished goods: Time lag of a month
Others: Within 6 Months
SAIL Inventory management uses VED Analysis
methodology for inventory procurement.
 INVENTORY MANAGEMENT IN TATA STEEL
For valuation of inventory, TATA Steel generally uses FIFO method and for ordering, it
uses EOQ method.
First in first out (FIFO): A method of valuation of inventory, by which the cost are allocated
on the assumption that goods are consumed or sold in the order in which they are received
and taken in towards stock.
Economic Ordering Quantity (EOQ): It is the optimum quantity of goods for which if orders
are placed, the aggregate order placing cost and the aggregate inventory carrying cost
will be equal and economical.
To find out EOQ; the formula is= √2AO/C
Where; A= Annual consumption; O= ordering cost, C= carrying cost
Tata steel inventory management uses ABC analysis for procurement and for spare
planning VED classification is used.
Weighted average method is used for pricing in inventory.
Standard costing is used by Tata steel for accounting of inventories.
 INVENTORY MANAGEMENT IN JSW
Replenishment orders at the central warehouse are fulfilled in FCFS
order.
Stock Keeping Unit (SKU) Alphanumeric system is adopted
Two-echelon structure that is accurate and fast: It explicitly
considers an aggregate mean waiting time constraint at each local
warehouse. The consideration of aggregate mean waiting time per
local warehouse instead of the average over all local warehouses
(such as in Sherbrooke 1968, 2004) is motivated by practice
Finished Goods Inventory Holding Days: 80 days maximum.
Implemented the bar-coding system for physical stock and finished
goods dispatches
 INVENTORY MANAGEMENT IN RINL
Fixed assets are stated at historical cost less depreciation.
Inventories are valued at lower of cost and net realizable value.
The basis of determining cost is:
Finished / Semi-finished goods - Weighted Average cost
Raw material, Stores & Spares, Loose Tools - Monthly weighted
average cost and those in transit at cost.
Obsolete / Surplus / Non-moving inventory are taken care by
VED analysis.
 INVENTORY MANAGEMENT IN JSPL
EOQ method is used for controlling the inventory.
LIFO & FIFO method is used for store keeping.
KODAK digit codification process is used in JSPL.
Procurement of material is done through tender
basis.
JSPL uses SAP for material management.
 FINDINGS
With the following data we found that the negative
correlation coefficient of TATA Steel is because TATA went
into loss due to some other reasons. That may be or may not
be due to poor inventory management
There is positive coefficient value of SAIL and JSW which
indicates the strongly relationship between inventory
turnover and profitability.
RINL also shows positive coefficient value indicating positive
relationship.
JSPL too shows positive relationship between inventory
turnover and profitability.
 CONCLUSIONS & RECOMMENDATIONS
A manufacturing firm must install the optimal inventory control techniques
or improve their inventory turnover as much as possible.
SAIL and JSW Steel have strong inventory control and inventory
management system in place, still there is scope for improvement with
advancement in technology.
TATA Steel should take care of inventory management which may be
responsible for the loss.
RINL and JSPL should improve the inventory turnover ratio.
Inventory management impacts the operational, profitability and financial
aspect of a firm.
Thus inventory should be optimized for the organization’s short run and
long run benefit.
THANK YOU