CHAPTER ONE: INTRODUCTION

1.1 INDUSTRY PROFILE

Polyvinyl-Chloride (PVC) is a plastic product which has matchless

versatility. It effectively replaces wood, paper and metal in several applications. As
such plastic pipes have been progressively replacing conventional pipes like G.I.,
Cast iron, Asbestos cement or stone-ware for a number of important and uses.
Among the various types of plastic pipes which are commonly used for such
applications PVC pipes are the most widely used all over the world on account of
their most favorable balance of properties. PVC pipes are light in weight, rates for
use under pressure, easy to install, low functional loss, low on maintenance cost,
and have low functional loss. Rigid PVC pipes have wide variety of uses in fields
like city/town/rural water supply scheme, spray irrigation, deep tube well schemes
and land drainage schemes.

Plastics are also called synthetic resins and are broadly classified into two
categories; thermosetting resins and thermoplastic resins. The thermosetting resins
include phenol resin and melamine resin, which are thermally hardened and never
soften again. Thermoplastic resins include PVC, polyethylene (PE), polystyrene
(PS) and polypropylene (PP), which can be softened again by heating. Usually,
thermoplastics are supplied in the form of pelletized material (compounds) with
additives (anti- oxidants, etc.) already blended in it. However, PVC is supplied in
powder form and long term storage is possible since the material is resistant to
oxidizing and degradation. Various additives and pigments are added to PVC
during the processing stage, and then molded and fabricated into PVC products.
PVC is better known as bineel (vinyl) in Japan. This is due to the fact that PVC
products, in the form of films or sheets, were widely used among the public after
World War II, and these products were simply called bineel. When these PVC
products that are soft to the touch first landed Japan, where only rigid thermosetting
resins had been known, they left a very strong impression among the population.

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a) MARKET POTENTIAL

PVC pipes are used for a variety of purposes e.g. water supply schemes,
spray irrigation, deep tube well schemes and land drainage schemes. PVC slotted
and corrugated pipes are ideal systems for drainages of water from land where water
logging is inevitable. It is widely used by various utility services now-a-days too.
The major consumer of PVC pipes are the Public Health Engineering Department
(PHED) and Irrigation Departments.. The usage of PVC pipes also depends upon
the size of these pipes too. It is manufactured in different sizes having innumerable
usage value.

The World Bank has recently given top priority in rural water supply in developing
and under- developed countries. India has also received large amounts from World
Bank aid for Rural Water Supply Schemes. However, due to the acute shortage of
appliances including pipes this money could not be utilized to a large extent in our
country. Thus PVC/HDPE pipe manufacturing industry has received higher
priority. The requirement of PVC pipes in Region is around 10,000 MT out of
which the requirement in maharashtra is more than 50% followed by Tripura and
other five states of N.E. Region. At present there exist around 5 PVC pipes
manufacturing units in the region.

b) The early history of PVC pipes

Many of you have expressed a curiosity about the historical development of

PVC pipe. In response to your requests, we provide you with this brief early history
of PVC pipes and fittings.

PVC was discovered as early as1835, but the first definite report of the
polymerization o vinyl chloride did not come until about 35 years later. At that
time, the material was to be reported to be an off-white solid that could be heated
to 130 degree C without degradation.

PVC remained laboratory curiosity for many years, probably because of its
intractable nature. The polymer was inert to most chemicals and very tough(strong).

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These properties eventually led scientist to consider PVS for applications where
durability and toughness were desirable.

In 1912 the first industrial developments were initiated in Germany.

Throughout the 1920’s, attempts were made to use PVC copolymers that easier
process than PVC. These early attempts were only marginally successful.

By 1932, the first tubes made from PVC copolymer were produced. Nearly
three years later the first PVC pipes were produced using a roll mill and hydraulic
extruder. This two steps process involved melting the PVC powder on a roll mill
and rolling the sheet produced up to a billet. The PVC Could then be processed in
a discontinuously working ram extruder to make pipe. This process was adapted
from that used for celluloid and was really ill-fitted for PVC. As a result, the
products were often oh dubious quality.

Never –the-less, these early PVC pipes were deemed suitable for drinking
water supply piping and waste water piping because of their chemical resistance,
lack of taste or odor and smooth interior surface. From 1936 to 1939 over 400
residences were installed with PVC drinking water and waste pipelines in central
Germany. Various test pipelines of PVC was laid in Leipzig,

Both the pipelines for chemicals and those for water supply and waste water
came upto expectations, as did the test pipe lines in the cities mentioned above,
apart from damage caused by World War 2. The PVC pipes installed in central
Germany are still in use today without any major problems. In retrospect, these first
PVC pipes had been made before their time, before the material compounds and
machines for their manufacture had been perfected. It was not until 1950 that the
systematic development of extrusion technology began. Prior to this, the
manufacture of PVC pipe remained make shift and the use of PVC pies did not
become widespread.

The 1950’s and 1960’s were decades of dramatic advances for PVC pipe
and fitting technology. Encouraged by the results obtained from the primitive pre-
war PVC pipelines, several European and American companies realized the

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enormous potential for PVC pipes. These companies pursued the technology, both
in formulation and processing. Systematic research and trials were successful in the
development of effective stabilizers, lubricant and processing aids together with
processing machinery engineered specifically for PVC. During this time period,
PVC pipe began competing with traditional products in a number of major markets,
such as: gas distribution; sewer and drainage; water distribution; electrical conduit;
chemical processing; and drain, waste and vent piping.

The Indian pipe industry with presence across all the categories of pipe
(steel, cement and plastic) has become a major exporting hub to the regions like
Middle East, US and Europe due to its location advantage and global accreditations.
Also the lower oil and gas pipe line penetration level in India provides huge
opportunity for laying new pipeline infrastructure in the country, considering its
vast geographical area.

The operating environment for the Indian pipe industry was challenging
during 2012. The steel pipe companies expanded their capacities domestically as
well as globally during the last couple of years, which led to excess capacities.
Hence, most of the domestic players had to resort lower margin orders domestically
to maintain their order books. The higher input and finance costs significantly
eroded their profitability margins.

CARE research expects the demand for Indian pipe industry to improve
from 2014 and remain healthy over the long term, both on the global as well as
domestic fronts, on the back of increasing demand arising from oil, gas &
infrastructure projects. Enhanced global energy demand arising from increasing
population and economic spending in the emerging market will lead to need for
higher exploration and product(E&P) activity, giving boost to the demand for steel
pipe segment. Shale gas discovery is likely to increase demand or pipeline
infrastructure globally.

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1.2 OVERVIEW OF THE COMPANY

Medhansh industries journey began under a strong leadership in 2010 with

the idea of pipe production in needs of the customer. There has been no looking
back since then. The company expanded its activities, innovating new products and
improving operations, with every passing phase.

The industry is situated in Jalgaon. It is well connected by roads and

railways. The jalgaon railway junction just a kilometer away from Medhansh
industries. Further, there is an skilled labour in jalgaon. The Medhansh industries
is one of the leading industries in jalgaon districts.

The company was registered under the name of Medhansh industries (pvt)
ltd jalgaon on 22nd April 2010 under the Indian company act 1956. The company
is situated in jalgaon,

Medhansh Industries leading plastic processing company. The company has

forayed into different types of plastic processing in Injection Moulding, Rotational
Moulding (ROTO), Extrusion, Compression Moulding, Blow Moulding etc.

Medhansh Industries offers wide range of plastic products with a variety of

applications in Moulded Furniture, Storage & Material Handling Products, XF
Films & Products, Performance Films, Industrial Moulded Products, Protective
Packaging Products, Composite Plastic Products, Plastic Piping System &
Petrochemicals

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1.3 MEANING OF INVENTORY
Inventory is a list for goods and materials, or those goods and materials themselves,
held available in stock by a business. It is also used for a list of the contents of a
household and for a list for testamentary purpose of the possessions of someone
who has died. In accounting inventory is considered an asset

a) TYPES OF INVENTORIES
Inventories play a major role in a business or depending on nature of the businesses.
The inventories may be classified as under.

(I) Raw Materials

Materials and components scheduled for use in making a product. These are the
basic
inputs, which are converted into finished products through manufacturing process.
Raw material inventories are those units, which have been purchased and stored for
future production.
(II) Work in process / Progress
Materials and components that have begun their transformation to finished goods.
Materials issued to the stop floor, which have not yet become finished products
they are value added materials to the extent of labor cost incurred.
(III) Finished Goods
A finished goods is a completed part that is ready for a customer order. These goods
have been inspected and have passed final inspection requirements so that they can
be transferred out of work-in-process and into finished goods inventory. From this
point, finished goods can be sold directly to their final user, sold to retailers, sold
to wholesalers, sent to distribution centers, or held in anticipation of a customer
order.
b) STORES & SPARES
The level of four kind of inventory depends upon the nature of the business.
Supplies

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include office and cleaning materials like soap, brooms, oil, light, blubs etc. these
materials do not directly enter production, but are necessary for production process.

c) NEED OR INVENTORY CONTROL

1.Transaction motive:
Every firm has to maintain some level of inventory to meet the day-to-day
requirement of sales, production process, customer demand etc. In the finished
goods as well as raw material are kept as inventories for smooth production process
of the firm.
2.Precautionary motive:
A firm should keep some inventory for unforeseen circumstances also like loss due
to natural calamities in a particular area, strikes, lay outs etc so the firm must have
some finished goods as well as raw-materials to meet circumstances.
3.Speculative motive:
The firm may be made to keep some inventory in order to capitalize an opportunity
to make profit due to price fluctuations.

d) BASIC REASONS TO KEEPING AN INVENTORY:

There are three basic reasons for keeping an inventory:
1. TIME: The time lags present in the supply chain, from supplier to user at every
stage, requires that you maintain certain amount of inventory to use in this “lead
time”.
2. UNCERTAINTY: Inventories are maintained as buffers to meet uncertainties in
demand, supply and movement of goods.
3. ECONOMIES OF SCALE: Ideal condition of “one unit at a time at a place where
user needs it, when he needs it “principle tends to incur lots of costs in terms of
logistics. So bulk buying, movement and storing brings.

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d) INVENTORY MANAGEMENT
Inventory management is primarily about specifying the size and placement of
stocked goods.
Inventory management is required at differ locations within a facility or within
multiple locations of a supply network to protect the regular and planned course of
production against the random disturbance of running out of materials or goods.
The scope of inventory management also concerns the fine lines between
replenishment lead time, carrying costs of inventory, asset management, inventory
forecasting, inventory valuation, inventory visibility, feature inventory price
forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand forecast.

Inventory management involves:

• Inventory management is the active control program which allows the
management of sales purchases and payment.
• System and processes that identify inventory requirements, set targets,
provide
replenishment techniques and report actual and projected inventory status.
• Inventory management helps providing a good understanding ground and
the capacity to control financial costs.
• The Inventory management will control operating costs and provide better
understanding.

e) OPERATING CYCLE OF INVENTORY MANAGEMENT

Operating Cycle is the time duration to convert sales after the conversion of
resources into invention, into sales there is difference between current assets and
fixed assets. A firm required many years to recover initial invests in fixed assets
such plant and machinery or land buildings or furniture and fixtures etc. On the
contrary, investment in current assets such as inventory and books debts are realized
during the firms operating cycle, which in usually less than a year.

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The operation cycle can be said to be the heart of the working capital. The need for
working capital or current assets cannot be over emphasized as already observed.
The main motive of many business firms is to achieve maximum profits, which can
be earned depending upon the magnitude of the sales among other things. However,
sales do not convert in to cash instantly. There is invariable time lag between sale
of goods and receipts of cash. Therefore the need of working capital in the form of
current assets to deal with the problem arising good sold. Therefore, sufficient
working capital requires sustaining sales activity. Technically this is refer to as the
operating the cash cycle. The continuous flow form cash to supplies to inventory to
accounts receivable and back into cash what is called operating cycle.

cash

Raw
Debtor’s
material

Work in
Sales
Progress

Finished
Goods

Fig 1.1 operating cycle of inventory management

The operating cycle of manufacturing company has three phases namely

1. Acquisition of resources
2. Manufacturing products
3. Sale of product

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Acquisition of resources:-
In the phase first operating cycle, include phases of raw materials, fuel & power
etc., which are totally required or manufacturing product
Manufacturing products: -
In the phase 2 of the operating cycle includes conversion of raw material in to work-
in progress and the work in progress is converted into finished goods.
Sale of product: -
In the phase 3 of the operating cycle may sale the product either for credit is made
to customers.

f) REASONS AND BENFITS OF INVENTORY:

The optimal level to maintaining inventory is subjective matter and depends upon
the features of a particular firm.
Manufacturing firm
A manufacturing firm should have inventory or not only the finished goods, but
also of raw materials and work -in-progress for following reasons.
Uninterrupted production schedule
Every manufacturing firm must have sufficient stock of raw materials in order to
have the regular and uninterrupted production schedule. If there is stock out of raw
materials in order to have the regular and uninterrupted production schedule. If
there is stock out of raw material at any stage of production process then the whole
production may come to a half. This may result in custom dissatisfaction as the
goods cannot be delivered in time more over the fixed cost will continue to be
incurred even if there is no production.

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

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g) Essentials of inventory control
The important requirements of inventory control are:
• A firm needs inventory control system to effectively manage its inventory.
• Proper classification of materials with codes, material standardization and
simplification.
• The operation of a system of internal check to ensure that all transactions
involving material and equipment are checked by properly authorized and
independent persons.
• The operation of a system of perpetual inventory so that it is possible to
determine at any time, the amount and value of each kind o material in
stock.
• A suitable method of valuation of materials is essential because it affects
the cost of jobs and the value of closing stock of materials.

Objectives of Inventory Control

The main objectives of inventory control are:
• To maintain a large size of inventory for efficient and smooth production
and sales operation.
• To maintain a minimum investment in inventories to maximize profitability.
• To ensure a continuous supply of raw materials to facilities uninterrupted
production.
• To maintain sufficient stocks of raw materials in periods of short supply and
anticipate price change.
• Maintain sufficient finished goods inventory for smooth sales operation and
efficient customer services.
• Minimize the carrying cost and time.
• Control investment in inventories and keep it at an optimum level.

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Advantages of Inventory Control
The following are suggested advantages:
• Eliminates wastages in use of material.
• It reduces the risk of loss form fraud and theft.
• It helps in keeping perpetual inventory and other records to facilitate the
preparation of accurate material reports management.
• To reduce the capital tied up in inventories.
• It reduces cost of storage.

Disadvantages of Inventory Control

Every firm has to maintain optimal level of inventories. It not the following will be
the result in form of losses.
1. Opportunity cost : Every firm has to maintain inventory for that some
investment is needed it is known as opportunity cost and handle the investment in
inventory are more the funds are blocks up with inventory.
2. Excessive inventories: It will lead to firm losses due to excessive carrying costs
the risk of liquidity. It is also referred as danger level.
3. Inadequate Inventory: It is another danger which results is production hols-up
and failure to meet delivery commitments. In adequate raw materials and work - in
- process inventors will results in frequent production interruptions. It finished
goods are not sufficient customers may shifts to competitors.
4. Danger due to physical decoration: It is one of the reason with the inventories
due to maintaining stocks at high levels they will be deteriorated due to passage of
time, sometimes due to mishandling or improper storage facilities.

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h) Costs involved in Inventory
Every firms maintains inventory depending upon requirement and other features of
firm for holding such inventory some cost will be incurred there are as follows.
Carrying Cost
This is the cost incurred in keeping or maintaining an inventory of one unit of raw
materials, work-in-process or finished goods. Here there are two basic cost
involved.
Cost of Storage
It includes cost of storing one unit or raw materials by the firm. This cost may be
for the storage of materials. Like rent of spaces occupies by stock, stock for
security, cost of infrastructure, cost of insurance, and cost of pilferage, warehousing
costs, handling cost etc.
Cost of Financing
This cost includes the cost of funds invested in the inventories. It includes the
required rate of return on the investments in inventory in addition to storage cost
etc. The carrying cost include therefore both real cost and opportunity cost
associated with the funds invested in the inventories. The total carrying cost is
entirely variable and rise in directly proportion to the level of inventories carried.
Total carrying cost = (carrying cost per unit) X (Average inventory)
Cost of Ordering
The cost of ordering includes the cost of acquisition if inventories. It is the cost of
preparation and execution of an order including cost of paper work and
communicating with the supplier.
The total ordering cost is inversely proportion to annual inventory of firm. The
ordering cost may have a fixed component, which is not affected by the order size:
and a variable component, which changes with the order size.
Total Ordering Cost = (No of orders) X (cost per order).
Cost of Stock out
It is also called as hidden cost. The stock out is the situation when the firm is not
having units of an item is stores but there is a demand for that item either for the
customers or the production department. The stock out refers to zero level

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inventories. So there is a cost of stock out in the sense that the firm faces a situation
of lost sales or back orders. The stock outs are quite often expensive.
Even the good will of firm also be effected due to customers dissatisfaction and
may lose business in case of finished goods, where as in raw materials or work in
process can cause the Production process to stop and it is expensive because
employees will be paid for the time not spine in producing goods.
The carrying cost and the ordering cost are opposite forces and collectively. They
determine the level of inventors in a firm.
Total Cost = (Cost of items purchased) + (Total Carrying and ordering cost)
Valuation of Inventory
The methods of valuing inventory are combination of the actual cost and
replacement cost plans. The chief advantage of the cost or net realizable value rule
is that it is conservative. Hence the methods of valuation of inventory are quite
independent of system of mincing.
In balance sheet closing stock is shown under current assets and it also credited to
manufacturing or trading accounts. The inventories are valued on the basis as
follows:
I) Cost of raw materials in stock may include freight charges and carrying cost. But
such cost should not exceed market price.
II) Work - in - process is generally valued at cost, which includes cost of materials,
labor. And the proportionate factory overhead, as it is reasonable according to
degrees of completion.
III) Cost of finished goods wound normally to the total or full cost it includes prime
cost plus appropriate amount of the overhead. Selling and distribution cost is
deducted on the other hand work in progress may be valued at work in progress
may be valued at work cost, marginal cost, prime cost or , even at direct materials.
Purchase & stores procedure
In inventory management the purchase department store department plays a major
role to be the effective inventory there must be cooperation of various departments
such as purchase receiving and inspection stores production and stock control
departments.

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The main functions of each department are as follows:
Purchase Department
It is responsible for purchase of all necessary goods of proper quality to produces,
without interruption to supply the finished goods.
• It receives purchase requisitions.
• Invites quotations or tenders from suppliers with desired quality.
• Issue purchase orders to the selected supplier.
• Certify the quality and quantity of order received in specified time
• Approve purchase invoice for payment after checking invoice for paying
after checking prices and extensions if any needed.
Material Cost
Materials cost of a job or cost unit can be ascertained by multiplying the quantity
consumed for the job or cost unit by the price of the materials. For ascertaining the
quantity consumed for each job or cost unit we have devised material requisition
which will indicate the quantity required for the job and the job number against
which the material cost will be change directly. For indirect material issued the
material requisition will not indicate the job number but the cost center number will
be indicated for charging to relevant cost center as indirect materials.

Thus, in order to ascertain material cost.

1. Make valuation of purchase.
2. Make use of proper valuation of material issue and closing stock following
different
method such as, FIFO, LIFO WEIGHTED AVG. Etc.
The purchase price of material is directly obtained from the suppliers receives and
have to be issued to production before the invoice of materials is received.
The rate per unit, total price of the item as shown in the purchase order plus sundry
charges such as delivery and forwarding charges sales tax, duty etc, may be borne
by suppliers, governments-controlled prices by notifications, suppliers, catalogues
and circulars may be valuable guides for obtaining rates of materials.

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Delivery charges may be estimated with reference to the kind of transport with
charges incurred. The price may also include sales tax, excise duty, fright etc, so
the total cost and rate per unit can be computed and entered in the stores received
registered and posted to stores ledger for the issue of material to production.
In some cases material needs adjustment for any discount allowed charges for
transport containers etc.
Discounts may be like trade discounts quantity discount, cash discounts etc.
Transportation and storage costs may not include the cost of air, sea on land
transport and other stores costs, where the purchaser has to bear the costs. Cost of
containers with regarded may not make a separate charge because of non-
refundable and also sales tax, excise duty, insurance etc., all the items are added to
Purchase price.
Receiving and Inspection Department
a) Receiving all raw materials and other supplies from various suppliers.
b) Verify items by count, weight etc., and report any shortage
c) Inspect materials and supplied as to quality by analyzing them suitably.
d) Inform the purchasing department and accounts department all facts that may
require adjustment with vendor.
e) Analyze and give them the code depending up on the type of materials.
Stores keeping Department
a) Check and accept all materials form the received department.
b) Identity each material received with the stock list, check the code number and
place in the respective bins.
c) Issue materials and supplies for use upon presentation of authorized requirement.
d) Record quantities received and issued on bin lards or stock ledger cards
consisting the perpetual inventory records.
Production Department
Make out materials requirement note i.e. requisition of requisite quantity and
quality of materials at the right moment so the all materials may be available
without delay on production.

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 • Check and verify that the materials of requisite quantity and quality have
been received and charged to production.
• Keep proper records or materials received and their progress through
different operations or progress.
• Prepare materials return note for excess materials.
• Prepare materials transfer note to cover any transfer of materials.
• Prepare report on scrap for reporting to management.
Inventory Control Department
In may be a subdivision of the cost accounting department, although in many
concerns, it is a part of the stores keeping department.
A) It keeps perpetual inventory records.
B) Adjust the stock on receipt of the property authorized adjustment notes.
C) Prepare weekly or monthly, statement of receipts, issue, balance and average
consumption of materials both in terms of quantity and value.
i) RECEIPT AND ISSUE OF INVENTORIES:
(a) Receipt Inventories in to store:
After incoming materials have been examined and approved they are passed on to
the
appropriate stores together with the goods received note. Articles are inspected and
passed and on the stores in the usual way. In order to keep the accounting procedure
uniform, it is desirable that a goods received note be prepared for these articles also,
the store keeper than places the inventory in appropriate bin or shelf and make
necessary entries in the receipt column of the Bin Card.
A location code for materials helps in proper store - keeping with greater efficiency,
because stores can be easily identified. It is a part and parcel of stock control
procedure. Location code helps in mechanized accounting and safeguard against
omission in counting as verification.

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1.4 OBJECTIVE OF THE STUDY

To study about how actual manufacturing process is done.

To study about the ordering levels for the important components of inventory.

To analyze its inventory management methods with the help of ABC analysis, VED
analysis etc.

To offer suitable suggestions for the improvement of inventory management

practices

1.5 SCOPE OF THE STUDY

Inventory management is a simple concept-don’t have too much stock and don’t
have too little. Since there can be a substantial costs involved in staying above and
below the optimal range, careful inventory management can make a huge difference
in the right balance can be quite a complex and time consuming task without the
right technology.

Inventory management is very important for “SUJANA METAL PRODUCTS

LTD”. It enables the business to meet or exceed expectations of the customers by
making the products readily available.

The scope of the study includes the ABC Analysis of Raw Materials, work in
progress and finished goods for four financial years.

This study provides insight to the management of high value.

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 CHAPTER TWO: LITERATURE REVIEW

2.1 LITRETURE REVIEW

Johnny De N. Martins and Henry Hemadipour says that The use of plastic materials
by the piping industry accounts for a significant volume of polymers. In this
segment PVC represents the largest worldwide market for plastics. PVC is often
used in plastic pressure pipe systems for pipelines in the water and sewer industries
because of its inexpensive nature and flexibility. Pipes and fittings constitute the
largest volume application at 40% of the marketplace. This paper discusses the
piping extrusion process and the worldwide PVC market. It is also presented a case
study including an overall cost calculation for making an extrusion line for PVC
piping

Dr. Rakesh Kumar (2016) said that Inventors are assets of the firm and that they
describe an investment. Such investment needs a commitment of funds, thus a firm
has to keep inventories at the accurate level. If the stocks are too large, the firm
loses the chance to employ the funds more efficiently. Likewise, if they become too
small, the firm might lose sales. Thus, there is an optimal level of inventories. The
economic ordering quantity is used to compute the optimum quantity that can be
procured to reduce the carrying and ordering costs.

Serhii Z (2015) according to this paper Inventories involves raw materials, work-
in-progress and entirely completed goods that are in to be included in the firm‟s
assets that are in position or would be in position for sale.

Sachin Agarwal (2014) according to author Invent0ry constitutes the furthermost

essential part of industries. It is very important to manage inventories efficiently so
as to evade the expenses of fluctuating production rates, excessive cost of sales and
back order consequences during periods of peak and vigorous demand. The model
provides the optimal solution in closed form which aids to know about the
performance of the inventory system. The closed-form solution is also easy to
calculate. The objective is to find the economic order quantities for warehouse
which reduce the total cost.

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 CHAPTER THREE: RESEARCH METHODOLOGY

Research methodology is the way to systematically solve the research problem.

Objective of research study is analysis of inventory of Medhansh Industry ltd.
Analyzing of inventory, we determining following inventories

1.raw material inventory.

2.work in process inventory.

3. finished goods inventory.

4. supplies inventory

In this section of inventories, we should analyze the annual investment in

inventories, valuation of inventory after closing balance of item in inventory.

In this manner, we calculate reorder point, safety stock levels, minimum and
maximum levels of inventory.

Working hypothesis of the objective is that inventories are the stock piles of goods.
The all organization on their inventories. Medhansh Industry ltd about 60% of total
asset inventory should be analyzed their records.

The analysis of inventory according to their data available in the company. The data
collection of inventory for analysis by the direct store department. We should
record primary and secondary data by the helps of assistants ledger books. We went
to the all inventories as raw material, work in progress inventory, finished goods
inventory by the proper observation of data’s of company.

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 CHAPTER FOUR: DATA DESCRIPTION AND ANALYSIS

4.1 Technique of Inventory Management:

Main problems in inventory management are to answer:
• What are Indus problems in managing inventories?
• Which inventory policy optimum for Indus? Why? Show calculations.
• What should be the over level?
To answer these following techniques are used:
• ABC analysis
• Economic Order Quantity
• VED Analysis
• Re-Order Level
• Safety stock
• Inventory Turnover Ratio
4.2 ABC Analysis
• It is based on proposition that
• Managerial items and efforts are scare and limited.
• Some items of inventory are some important than others.
ABC analysis classifies various inventory into three sets or groups of priority the
allocates managerial efforts in proportion of The priority the most important item
are classified into class - A, Those of intermediate importance are classified as
“class - B’’ and remaining items are classified into class - C’.
The financial manager has to monitor the items belonging to monitor the items
belonging to different groups in that order of priority and depending upon the
consumptions.
The items with the highest values is given priority and soon and are more controlled
then low value item.

The re - rational limits are as follows.

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 % of total cost of
Category % of items materials

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

Procedure
1. Items with the highest value is given top priority and soon.
2. There after cumulative totals of annual value consumption are Expressed as
percentage of total value of consumption.
3. Then these percentage values are divided into three categories. ABC
analysis helps in allocating managerial efforts in proportion to importance
of various items of inventory.

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ABC Analysis
Raw material (at closing stock)
AMOUNT OF RAW MATERIALS
YEAR
(RS IN LAKHS)
2016 2.6
2017 5.2
2018 7.4
2019 6.8

0
2016 2017 2018 2019

Amount of raw
materials in
Lakhs

Interpretation:
The above graph shows the amount of raw materials at cost. In 2016 the cost of
material is 2.6 lakhs increased in this year and in 2017.It is more increased to 5.2
lakhs and in 2018 it is increased to 7.4 lakhs and in 2019 it is decreased to 6.8 lakhs.

23
Finished goods (at closing stock):-
AMOUNT OF RAW MATERIALS
YEAR
(RS IN LAKHS)
2016 8.3
2017 10.9
2018 15.8
2019 12.1

Amount of Finished
18 goods in
Lakhs
16
14
12
10
8
6
4
2
0
2016 2017 2018 2019

Interpretation:
The above graph shows the amount of finished goods at cost. In 2016 the cost of
material is 8.3 lakhs. It is increased to 10.9 lakhs in the year 2017..It is increased in
the year 2018 the cost of goods is 15.8 lakhs and in the year 2019 it is decreased to
12.1 lakhs.

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Stores, spares & consumables (closing stock):-

AMOUNT OF RAW MATERIALS

YEAR
(RS IN LAKHS)
2016 3.6
2017 4.9
2018 6.7
2019 4.2

Amount of Raw
8 material consumed in
Lakhs
7

0
2016 2017 2018 2019

Interpretation:
The above graph shows the amount of stores and spares at cost. In 2016 the
consumable is 3.6 lakhs and it is highly increased to 4.9 lakhs in the year 2017.The
form maintains goods in proper way 6.7 lakhs in the year 2018 and and in the year
2019 it is decreased to 4.2 lakhs.

25
4.3 Economic order quantity:
During 2016-17:
The firm requires below given units of material for manufacturing of steel. The
following are the details of their operation during 2016-17.
PARTICULARS

Material 28,889 Qty (mt)

Ordering cost per Rs. 2000

order

Carrying cost 10%

Purchase price per 400

unit

1. Calculation of EOQ:-
Total units required (A) =28889
The ordering cost per order (O) = Rs.2000
Carrying cost per unit (C) = 10%
(i.e.) 10% of Rs.400 =Rs.40
EOQ =√2AO/C

=2*28889* 2000/40
=Rs.1699.67
2. Number of orders for the year = A/EOQ
=2889/1699.67
=16.99~17orders
3. Total annual cost = carrying cost + ordering cost
= 1445000+ 34000
= Rs.1479000
Carrying cost = order size * average inventory
order size = A/no of orders

26
 =28889/17
= 1699.67
Average inventory = order size/2
=1700/2
= Rs.850
Carrying cost = 1700*S850
= Rs.1445000
Ordering cost = cost per order * no of orders
= 2000*17
=Rs.34000

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EOQ DURING 2007-2008
The firm requires below given units of material for manufacturing of steel. The
following are the details of their operation during 2007-2008.
PARTICULARS

Material 28,889 Qty (mt)

Ordering cost per order Rs. 2000

Carrying cost 10%

Purchase price per unit 400

1. Calculation of EOQ:-
Total units required (A) =123596mt
The ordering cost per order (O) = Rs.2200
Carrying cost per unit (C) = 10%
(i.e.) 10% of Rs.2000 =Rs.42

EOQ = √2AO/C

= 2*123596*2200/42
= Rs.3598.354
2. Number of orders for the year = A/EOQ
= 123596/3598.354
= 34.79~35orders
3. Total annual cost = carrying cost + ordering cost
= 6245669+ 77000
= Rs.6322669

➢ Carrying cost = order size average inventory

• Order size = A/no of orders

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 = 123596/35
= 3531.31
• Average inventory = order size/2
= 3531.1/2
= Rs.1768.655
• Carrying cost = 3531.31*1768.655
= Rs.6245669
• Ordering cost = cost per order no of orders
= 2200 *35
= Rs.77000

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EOQ DURING 20018-2019

The firm requires below given units of material for manufacturing of steel. The
following are the details of their operation during 2009-2019.

PARTICULARS

Material 28,889 Qty (mt)

Ordering cost per order Rs. 2000

Carrying cost 10%

Purchase price per unit 400

1.Calculation of EOQ:-
Total units required (A) =184,661mt
The ordering cost per order (O) = Rs.3000
Carrying cost per unit (C) = 12%
(i.e.) 12% of Rs.500 =Rs.50
E OQ =√2AO/C

= 2*184,661*3000/50
= Rs.4, 707.37
2.Number of orders for the year = A/EOQ
= 184661/4707.37
= 39.23~39 orders
3.Total annual cost = carrying cost + ordering cost
= 11209639+ 117000
= Rs.11326639.
➢ Carrying cost = order size* average inventory
• Order size = A/no of orders

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 = 184661/39
= 4734.90
• Average inventory = order size/2
= 4734.90/2
= Rs.2367.45
• Carrying cost = 4734.90 *2367.45
= Rs.11209639
• Ordering cost = cost per order* no of orders
= 3000* 39
= Rs.117000

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4.4 VED ANALYSIS
Vital Essential and Desirable analysis is done mainly for control of spare parts
keeping in view of the criticality to production.
Vital spares are spare the stock – out of which even for a short time will stop
production for quite some time. Essential spares are spares the absence of which
cannot be tolerated for more than a few hours a day. Desirable spare are those,
which are needed, but their absence for even a week or so will lead to stoppage of
production.
MATERIAL CLASS VALUE PRIORITY MATERIAL
10% “A” 70% V 10% 70%
E 20% 20%
D 70% 10%
20% “B” 20% V 10% 70%
E 20% 20%
D 70% 10%
70% “C” 10% V 10% 70%
E 20% 20%
D 70% 10%

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4.5 THE RE-ORDER LEVEL
The re-order level is the level of inventory at which the fresh order for that item
must be placed to procure fresh supply. The re-order level depends upon.
1. Length of time between the placement of an order and receiving the supply.
2. The usage rate of the item. The inventory is constantly being used up. The
rate at which the inventory is being used up. The rate at which the inventory
is being used up is called the usage rate.
The reorder level can be determined as follows:
R= M+TU
R=Reorder level
M=Minimum level of inventory
T=time gap/delivery time
U=Usage Rate
The reorder level and inventory patterns have be shown as follows:
The figure shows that if the usage rate is constant, the order are made at even
intervals for the same amounts each time and the inventory goes to zero just before
an order is received.
Safety stock:
The safety stock protects firm from tradeoffs due to unanticipated demand for the
items level of inventory investments is however increased by the amount of safety
stock. Safety level is ascertained in inventory as a part because there is always an
uncertainly involved in time lag usage rate or other factors.
Usually smaller the safety level greater the risk of stock – outs. If stock levels are
predictable then there is a chance of stock out occurring. However stock inflows
and outflows are unpredictable or lesser predictable it becomes to carry additional
safety to prevent unexpected stock outs so usage rate is estimated if cost is low then
no safety stock is needed.
Just – In – Inventory:
The Basic concept is that every firm should keep a minimum level of inventory on
hand, relying suppliers to furnish just in time as and when required. JIT helps in
emphasizing sufficient level of stock to ensure that production will not be

33
interrupted. Although the large inventories may be had idea due to heavy carrying
JIT is a modern approach to inventory management and the goal is essentially to
minimize such inventories and there by maximizing turnover.
JIT system significantly reduces inventory carrying cost be requiring that the raw
material be procured just in time to be placed into production. Additionally the
work in process inventory is minimized by eliminating inventory buffers between
different production departments.
If JIT is to be implemented successfully there must be a high degree of coordination
and co operation between the supplier and manufacturer and among different
production centers. JIT does not appear to have any relation with EOQ however it
is in fact alters some of the assumptions of EOQ model. The average inventory
level under the EOQ model is defined as
Average inventory =1/2EOQ+safety level JIT attacks this equation in two ways.
• By reducing the order cost.
• By reducing the safety stock
The basic philosophy in JIT is that benefits, associated with reducing inventory and
delivery time to a bare minimum through adjustment iEOQ model, will more than
offset the costs associated with the increased possibility of stock – outs.

34
4.6 Inventory Turnover Ratio
What it is
This ratio is often a firm’s inventory turns over during the course of the year.
Because inventories are the least liquid form of assets, a high inventory turnover
ratio is generally positive. On the other hand, and usually high ratio compared to
the average for the industry could mean a business is losing sales because of
inadequate stock on hand.
When to use it
If a firm’s business has significant assets tied up in inventory, tracking its turnover
is critical to successful planning. If inventory is turning too slowly, it could indicate
that is may be hampering the firm’s cash flow. Because this ratio judge’s annual
inventory turns, it is usually conducted once a year.

The formula: Cost of goods sold

Average value of inventory

35
 CHAPTER FIVE: SUMMARY AND CONCLUSION

5.1 FINDINGS

➢ The company is having good sales for their products during all the years of
the study.
➢ The inventory turnover ratio is on a declining trend year after year in the
period of the study.It indicates inefficiency of management in turning of
their inventory into sales.
➢ The company should adopt sophisticated techniques to manage its inventory
in a better manner.
➢ The EOQ calculated is suggesting that the company should obtain its
inventory requirements by placing orders frequently to its suppliers rather
than one time replenishment.
➢ Company should take measures for maintenance of proper stores and spares
so as to avoid the frequent breakdown of the machinery.
➢ There is a need to develop good communication system between various
departments like marketing, planning, procurement, and production and
distributions functions.
➢ The company should follow Just-in-Time technique, thereby it can do away
with waiting time for a receipt of materials.

36
5.2 CONCLUSION
Inventory management has to do with keeping accurate records of finished goods
that are ready for shipment. This often means posting the production of newly
completed goods to the inventory totals as well as subtracting the most recent
shipments of finished goods to buyers. When the company has a return policy in
place, there is usually a sub-category contained in the finished goods inventory to
account for any returned goods that are reclassified or second grade quality.
Accurately maintaining figures on the finished goods inventory makes it possible
to quickly convey information to sales personnel as to what is available and ready
for shipment at any given time.
Inventory management is important for keeping costs down, while meeting
regulation. Supply and demand is a delicate balance, and inventory management
hopes to ensure that the balance is undisturbed. Highly trained Inventory
management and high-quality software will help make Inventory management a
success. The ROI of Inventory management will be seen in the forms of increased
revenue and profits, positive employee atmosphere, and on overall increase of
customer satisfaction.

37
5.3 RECOMMENDATIONS

1. All the sections in the materials management department such as inventory

control, procurement, transportation should be headed by professionally
qualified personnel in the field while a materials/supply chain manager
should head the department.

2. The materials manager should be made to report to an officer not below the
rank of a general manager
3. Various cost reduction strategies such as value analysis/value engineering,
Materials Requirement Planning (MRP), Just-In-Time (JIT), ABC
Analysis, Negotiation technique, etc. should be widely used where
necessary
4. To further enhance the organizational effectiveness and profit earning
potential, the materials manager should be given a free hand to carry out all
activities relating to materials acquisition and all other functions that
ensures that value is created.

38
CHAPTER SIX :BIBLIOGRAPHY & REFERENCES

1. S. K. Biswas, C. L. Karmaker, Ariful Islam, Nazmul Hossain, Shamim

Ahmed “Analysis of Different Inventory Control Techniques: A Case Study
in a Retail Shop”
2. Stephen ARO-GORDON , Jaideep GUPTE “Review of Modern Inventory
Management Techniques”
3. MEDHANSH INDUSTRIES 2018 ANNUAL REPORT

39