liberty semi final

7/29/2019 Liberty Semi Final

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LIST OF TABLES

Table

No

Title Page

No

7.1 ABC analysis Table 51

8.1 R.M Turnover ratio 67

8.2 R.M Holding Period Table 68

8.3 WIP Turnover Ratio Table 69

8.4 Holding Period of WIP Table 70

8.5 Finished Goods Turnover ratio Table 71

8.6 Inventory to Capital employed Table 72

8.7 Inventory to CA Ratio Table 73

8.8 Inventory to Total Assets Table 74

8.9 Inventory to WC Table 75


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LIST OF FIGURES

Table

No

Title

Page No

3.1 Steps of Methodology 7

6.1 Liberty Group of Companies 16

6.2 Liberty Whitewares limited 17

6.3 Liberty Retail Revolution 17

6.4 Organizational chart of liberty 28

6.5 Organization chart of institution sales department 30

7.1 Economic order quantity graph 47

7.2 Data Flow Diagram 62

7.3 Raw Material Graph at Liberty 66

8.1 R.M Turnover ratio Graph 67

8.2 R.M Holding Period Graph 68

8.3 WIP Turnover Ratio Graph 69

8.4 Holding Period of WIP Graph 70

8.5 Finished Goods Turnover ratio Graph 71

8.6 Inventory to Capital employed Graph 72

8.7 Inventory to CA Ratio Graph 73

8.8 Inventory to Total Assets Graph 74

8.9 Inventory to WC Graph 75


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LIST OF ABBREVIATIONS

RM Raw material

WIP Work in Progress

FG Finished Goods

SS Safety Stock

ROL Reorder Level

ROP Reorder Point

ROQ Reorder Quantity

EOQ Economic Order Quantity

LT Lead Time

ABC Always Better Control

HML High, Medium, Low

SDE Scarce, Difficult, Easy

VED Vital, Essential, Desirable

FSND Fast, Slow, Non moving, Dead


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CHAPTER 1:

EXECUTIVE SUMMARY

If development capital is what establishes a business Inventory

Management is what keeps it going. One of the most common downfalls of business is

unexpectedly high running cost. What is important is not just the size of operating costs,

but the cash flowsthat is when money has to be paid out in relation to the stream of

income arriving in. Thus Inventory Management is of prime importance.

This project is a small attempt to study the Inventory management LIBERTY

SHOES LIMITED. The project can be divided into two sections. First is the analysis of

inventory management position of the company using ratio analysis and second is the study

Inventory management systems and techniques.

Ratio analysis has been done on the basis of three years data. Ratios have been

discussed to compare inventory management performance over the years and to comment and

not the absolute values. To analyze the performance, published balance sheets of LIBERTY

SHOES LIMITED have been used. This project report is based on financial data up to 2010-

2011 only.


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CHAPTER 2:

OBJECTIVE OF THE STUDY

Main Objective

The project is designed to give an overview of Inventory Management in Liberty

Shoes Ltd.

Sub Objective

The study on Inventory is very important for a firm. The objectives of this study are as

follows:

To determine the changes in the Inventory position of the company.

To determine the increase or decrease in Inventory level.

To determine the various ratios for analyzing the Inventory level of the company.

To spot out strengths & weakness of business.

to study and understand as to what exactly is inventory management system

To Study the operational feasibility and utility of inventory management system


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CHAPTER 3:

RESEARCH METHODOLOGY

Research is an important pre-requisite for a dynamic organization to be prcised. Research is

more systematic activity directed towards the discovery and development of organized body

of knowledge. Some of the characteristics of research methodology are as follows:

1. Research is directed towards a solution of problem. It may attempt to answer a

question or determine the relation between two or more variables.

2. Research involves gathering new data for primary of first hand sources or using

existing data for new purposes.

3. Research is based on observable experience or empirical evidence.

4. Research strives to be objective and logical applying every possible test to validate

the proceed are employed the data collection and conclusion research.

DATA COLLECTION

Sources of data: 1) Primary Data which included the input received from directly the

officials and employees through questionnaire and interview.

2) Secondary data: The methodology followed in conducting the study is to

collect data regarding footwear production, working capital and its management, need of

working capital in Liberty Shoes Ltd. The facts & data were taken from magazines and

annual report of company from the books, journals and internet etc.

Method of collecting data: Questionnaire schedule & Interview method

STATISTICAL TOOL USED

The data will be shown with the help of matrix table and bar diagrams.


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PRIMARY DATA ANALYSIS (Bio Profile of the Respondents):

22 percent of the officials belong to the age group of 35 and 50.

58 percent of the officials belong to the age group of 25 to 34.

Percent of the officials belong to the age group of above 50.

69 percent are male officials.

31 percent are female officials.

72 percent are graduates and above.

12 percent are those who are having technical and professional qualifications.

16 percent are undergraduates.

55 percent are those who are associated with the field.

20 percent belongs to the others category.

STEPS OF METHODOLOGY

COLLECTION OF DATA

Fig 3.1 : Steps of Methodology

ORGANIZATION OF DATA

PRESENTATION OF DATA

ANALYSIS OF DATA

INTERPRETATION OF DATA


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CHAPTER 4:

LITERATURE REVIEW

Success of any industrial undertaking depends upon the 6 ms 1) Money

2) Manpower 3) Machine 4) Market 5) Material 6) Management

Materials are pivotal importance not less than any other Ms. Problems have their

root in material affects the efficiency of all men, machine, money & marketing decisions of

the firms and thus become the grave concern of management at all levels. If there were too

much of material problems like ideal funds lied up in excessive inventory storage and

obsolesces difficulties market pressure would arise. Thus the importance of inventory

management is realized.

A number of studies have been done in the field of inventory management by various

researchers. Some of them are given below:

1. Author:- Bern at de William year 2011()

This study tells that the main focus of inventory management is on transportation

and warehousing. The decision taken by management depend s on the traditional method of

inventory control models. The traditional method of inventory management is how much

useful in these days the author tell about it. He is also saying that the traditional method is

not a cost reducing, it is so much expensive. But the managing the inventory is most

important work for any manufacturing unit.

2. Author: - Jon Schreibfeder 1992

He said that it is easy to turn cash into inventory, the challenge is to turn

inventory back into cash. In early 1990s many distributor recognize that they needed help

controlling and managing their largest asset inventory. In response to this need several

companies developed comprehensive inventory management modules and systems. These

new package include many new features designed to help distributors effectively managed

warehouse stock. But after implementing this many distributors do not feel that they have

gained control of their inventory.


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3. Author:-Wolf Bagby, Managing inventory

In this study Mr. W.Bagby explains that by managing the inventory it

becomes easier for the organization to meet the profit goals, shorter the cash cycle, avoid

inventory shortage, avoid excessive carrying costs for unused inventory, and improveprofitability by decreasing cash conversion and adopt JIT system. According to this study

companies need to get smart about inventory.

Boosting financial performance is another benefit that comes from better inventory

management. Infect large number of manufacturers enjoy savings and better performance by

choosing the approach of inventory reduction.

For this company needs to maximize the cash flow and profitability and this include keeping

a watchful discerning eye on charge in supply and demand.

4. Author: - Asfaque Ahmed October 12, 2004

(Article from master requirement planning and master production scheduling)

He said that most of the manufacturing company vendors have planning and

scheduling product which assume either infinite production capacity for calculating quantities

of row material and work in progress (WIP) requirements or infinite quantities of raw

material and WIP materials for calculating production capacity. There are many problems

with this approach and how to avoid these by making sure that the product you are buying

indeed takes into account finite quantities of required materials as well as finite capacities of

work centers in your manufacturing facilities.

5. Author:- D.Hoopman April 7, 2003

(Article from inventory planning and optimization)

In this article he said that inventory optimization recognize that different

industry have different inventory profiles and requirements. Research has indicated that

solutions are priced in a large range from tens of thousands of dollars to millions of

dollars. In this niche market sector price is definitely not an indicator of the quality of

solution, ROI and usability are paramount.


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CHAPTER 5:

FOOTWEAR INDUSTRY

HISTORY OF FOOTWEAR & FOOTWEAR MANUFACTURING

The first foot covering was made by our primitive ancestors. The covering was to protect

their feet from jagged rocks, burning sands, rugged terrains. Development shows that the

importance of protecting the feet was recognized. Egyptians Chinese and other civilization all

contain references to shoes.

The first shoe was made of plated grass or rawhide strapped to the feet. The early Egyptians

made some sandals from plaited papyrus leaves. It shows that sandal making was recognized

as an art, early in the history o that country. Sandals are most generally worn type of footwear

in many warm countries, often ornamented and in form that is suitable to environment in

which it is worn. Sandals continued to be the same simple kind of footwear worn in the early

century.

In Japan, sandals indicated the social status of the wearer by making distinct sandals for

imperial household, merchants and actors, and in fact, for the whole range of vacations and

professions. In Greece, one emphasized design and beauty, while in Rome, they made it for

military purpose to enable their legions to travel on foot.

The moccasin protects the foot in cold countries. The outline of the forepart is puckered seam

with a string gathered and tied about the ankle.

Though all this development, little attention was devoted to fitting quality and comfort. In

Europe, perfection in workmanship and styles seems to have been sought in shoes rather than

foot comfort and protection.

The most conspicuous design in the period was the peaked shoe or crackow, with a toe so

long that it made walking difficult. Till the late 1850, shoes were made only on straight last

without recognizing the left and right. There were only two widths, the slim and the stout.

Up to 1850 shoes were made by hand tools, curved awl, and some tools were added

such as pincers, lap stone hammer and variety of rubbin sticks used for finishing edges and

heels.


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Efforts have been made to develop machinery or shoe production. They had all failed and it

remains or shoemaker in the United States to create the first successful machinery for making

successful shoes.

In 1845, the rolling machine was introduced which replace all the previous tools used by

hand shoemakers or pounding sole leather and increasing wear by compacting the fibers.

In 1846, Elias Howe, invented the swing machine. This major invention seems to have set up

a chain reaction of research and development.

In 1858, layman Blake, a shoe maker, invented a machine for swing the sole of shoes to the

upper. This was purchased by Gordon McKay, who improved the invention.

In 1875, a machine was developed or making different types o shoes, known as Goodyear

welt sewing machine, was developed under the management of Charles Goodyear Jr., son of

the famous inventor of vulcanizing rubber.

Invention continued, researched and progress was made. It required great sum of money to

make one shoe making machine, but it finally paid off. Today one lasting machine can last

1000 pairs or more of shoes in 8 hours a day.

HISTORY OF FOOTWEAR IN INDIA

History of footwear is nearly 5,000 year old when Egypt started covering the feet of the

people who roam about with wooden chappals.

In India, in the ancient period, our ancestors, especially the rishies who moved about

in the forests, wore wooden chappals. There is a mention of king Bharat putting forth before

lord Ram a pair of shoes, crafted from wood and coated with gold, when despite all requests,

Ram refused to accept the throne of Ayodha.

However, it is still a mystery as to when the use of footwear, in the form of chappals,

actually started in India. There is no reference of footwear in the writings and pictures related

with the Indus valley civilization. In the pictures of men & women & seals recovered from

the site, the feet of both men and women are seen bare.


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In the Rig-Veda, there is no mention of any covering for foot, but the word vatturinapad

gives a clue of the warriors wearing on the foot is mentioned in the Yajurvedia and the

chappals in the Atharveda. Thus the use of footwear or chappals started around 1,500 B.C.,

approximately 3,500 years ago from now. The upanah become quite popular during the

period of Ramayana & Mahabharata (circa 1,000 B.C.), the hides of lions, tigers, deer

leopards etc were being used for making upanah.

The Mahavagga, a Buddist religious treatise, of the 6 th century B.C. gives detailed

information about upanah, classifying them into nine types of shoes & chappalssuch as

Patbadh (keen high gum boots), Ajvishan (made of goat skin), Maind-Vishan (made of

sheep skin) etc.

During the Maryan period (3rd Centruey B.C.) many varieties of footwear came into

existence. The Greek historian Arrian writes that shoes made of white leather were special

with Indians and to increase height, Indians used to wear shoes high heels.

During the Shunga period (2nd century B.C.) a class of shoe makers came into

existence. They had specialized in making shoes with good designs and durability, in

fashionable styles. These craftsmen were called Charmkar. Their work was appreciated but

social status was low.

The Kushan period was a golden era of footwear. The shakes, parathions, Greeks and

the Kushans belonging to the Chinese dynasty brought themselves various designs and styles.

A headless statue of Kanishka, made of red stone (1st century A.D.) has been recovered from

Mathura where he has shown wearing laced shoes.

In the Gupta period (4th to 6th century A.D.) the demand of footwear increased greatly

and the hides of cows, buffaloes, goats, sheep and wild animals came into much use.

Chappals and shoes of various heights (Up to the heels, knee or thigh) were in use amongst

people from all walks of life. On their coins, Samudra Gupta and other Gupta kings are

depicated wearing shoes, decorated with flowers. In the paintings of the Ajanta caves, several

horse riders are shown wearing something like shoes.

Footwear industry in India can never be a heavy industry in general and small entrepreneurs

with small investments in machinery and capital could remain for all purposes the backbone

of industry. It is the ideal industry for entrepreneurs without much of investment in the


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CHAPTER 6:

COMPANY PROFILE

LIBERTY GROUP

Liberty Group was the vision of three dreamers who thought of producing an Indian brand offootwear to make a basic necessity available to their countrymen.

Mr. D P Gupta, Mr. P D Gupta and Mr. R K Bansal looked beyond the geographical

boundaries and brought cutting-edge technologies to their own country. Soon the name,

Liberty became synonym to quality in the domestic market and this encouraged the

company to invest further for enhancing production capacities and to cater to the demand ofinternational markets.

Today, Liberty is not only about footwear. It has diversified into various sectors establishing

an invincible business empire of prosperity. In the domestic market it is one of the most

admired names that ensure quality. Liberty Group expanded and diversified into

manufacturing of ceramic sanitary ware under the brand name Liberty White ware With

innovations in bathroom products and accessories that go beyond graceful lines, the company

is setting new trends in Indian ceramic sanitary ware Industry.

In order to offer unusual shopping experience to the customers, the group also entered into

retailing and set up stores in the major cities under the brand name, Liberty Revolution

The Liberty Group is expanding with the passage of time and it is committed to venture into

more business areas keeping abreast with the demands and needs.


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Mission & Vision

Mission

Its the mission of the Liberty Group to continuously improve the quality of its products

using cutting-edge technologies and following the latest trends. The group emerged with an

enthusiasm to offer world-class products to its countrymen and it will carry forward the same

attitude along with the determination to be the global leader.

Vision

The Group is committed to achieve the highest performance standards in each area of its

business. It envisages itself as the most trusted name all over the world.

FIG 6.1 Liberty Group of Companies

Liberty Shoes Limited

The company has a turnover exceeding U.S. $100 million and produces more than 50,000

pairs of footwear a day. The company produces varieties of ranges covering virtually every

age group and income category. The products are marketed across the globe through 150

distributors, 350 exclusive showrooms and over 6000 multi-brand outlets, and sold in

thousands every day in more than 25 countries including fashion-driven, quality-obsessed

nations like France, Italy, and Germany.

Liberty Shoes Ltd.

Liberty Whitewares Ltd.

Liberty Retail Revolutions Ltd.


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Liberty Whitewares limited

With innovations in bathroom products and accessories that go

beyond graceful lines, the company is setting new standards in the

Indian ceramic sanitary ware industry. The products break the

mould to achieve balanced and coherent integration of space, form,

design and comfort. It is redefining the bathroom as a treasured

sanctuary to luxuriate in. Liberty Whiteware is a part of the Rs.

350 crore Liberty Group, and it is taking the concept of luxury to a

new level of excellence.

Fig: 6.2 Liberty

Whitewares limited

Liberty Retail Revolutions Ltd.

In the elite shopping avenues of fashion capitals "Revolutions" has

begun its walk. The fashion accessory and footwear stores have begun

operations in Chennai, Bangalore, Mumbai, Kolkatta, Hyderabad, Pune,

Indore and Lucknow. These are company managed and owned outlets

where the emphasis is to deliver high fashion to the customers backed

by quality service making it a delightful shopping experience. Liberty

showrooms enter the international market as the company has plans of

opening more revolution showrooms nationally & internationally.


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Board of Directors

Mr. Adesh Gupta, Executive Director / CEO

Mr. Shammi Bansal, Executive Director

Mr. Adarsh Gupta, Executive Director

Mr. Sunil Bansal, Non Executive Director

Mr. S.K. Goel, Independent Non Executive Director

Mr Amitabh Taneja, Independent Non Executive Director

Mr. Prem Garg, Independent Non Executive Director

Mr. S.K.Arya, Independent Non Executive Director

Mr. Siddharth Sanghi, Independent Non Executive Director

Mr. Vivek Bansal, Independent Non Executive Director

Mr. Raghu Dayal, Independent Non Executive Director

Audit Committee

Mr. Sunil Bansal

Mr. Prem Garg

Mr. Raghu Dayal

Mr. Vivek Bansal

Remuneration Committee

Mr. Raghu Dayal

Mr. Prem Garg

Representative of outside consultants

Share Transfer & Share Holders/Investors Grievance Committee Meeting

Mr. Adarsh Gupta

Mr. Prem Garg

Mr. Sunil Bansal


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6.1 INTRODUCTION TO PARTICULAR FIRM / DIVISION

Liberty Shoes Ltd.

Liberty Shoes Ltd. is the only Indian company that is among the top 5 manufacturers of

leather footwear in the world with a turnover exceeding U.S. $100 million.

It produces more than 50,000 pairs of footwear a day covering virtually every age group and

income category. Products are marketed across the globe through 150 distributors, 350

exclusive showrooms and over 6000 multi-brand outlets, and sold in thousands every day in

more than 25 countries including fashion-driven, quality-obsessed nations like France, Italy,

and Germany

With 50 years of excellence, today Liberty produces footwear for the entire family and is a

trusted name across the world. In the domestic market it is one of the most admired footwear

brands and holds the largest market share for leather footwear.

History

It was the 25th December of 1954 when India was nurturing its growth as a free country,

three dreamers in a small town in erstwhile Punjab thought of producing an Indian brand of

footwear to make a basic necessity available to their countrymen.

Mr. D P Gupta, Mr. P D Gupta and Mr. R K Bansal allowed their vision to cross every barrier

and brought cutting-edge technologies to their own country. Within a short span of time, the

name, Liberty became a synonym to quality footwear in the domestic market and this

encouraged the company to invest further for enhancing production capacities and to cater to

the demands of international markets.

With 50 years of excellence, today Liberty produces footwear for the entire family and is a

trusted name across the world. In the domestic market it is one of the most admired footwear

brands and holds the largest market share for leather footwear


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THE CREDO:

To ensure that the method we use is the latest technology world-over. To follow the highest standard of honest workmanship in whatever we make.

To walk that extra miles to ensure customer satisfaction worldwide.

To remain a true cosmopolitan to the spirit.

To remain a great corporation to associate with, to work for, to know that:

We Are About People.

LIBERTY RANGE:

The family brand style personified with something for every need. Be it formal or casual, at

office or at the beach, a conference or a soiree - Liberty fits in effortlessly.

MANUFACTURING:

What gives Liberty the edge is vertically integrated manufacturing infrastructure on

technology basis with completely in-house state of the art production facilities which includes

8 DESMA machines for PU Direct Injection, 15 Machines for PVC Direct Injection, 3

Machines for EVA Injection, 3 PU Injection units for unit sole, six lines for cement lasted

injection and one machine for the latest TPU Injection. Above production facilities are

maintained with focus on environment cleanliness ISES 2000 norms, provides a complete

range of family footwear of all seasons and occasions, covers the entire domain of industrial

safety and health footwear requirements.

Liberty also has the ISO: 9001-2000 certification for its Quality, Management System, a

testimony to all the system and procedures in place. Liberty is a technology driven company

HUMANTECH Libertys patented technology is combination of human craftsmanship

and technological excellence.

RESEARCH & DEVELOPMENT:

Our 2-way channel partners dig their feed back deep and constantly. Hammering String of

creative workman at the manufacturing center to produce not just faceless shows dancing

down conveyor belts but shoes with character. So the centers have poled 53 years of the


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research and continuous flow of emotions to redefine the R & D center at Libertypuram.

Fusing technology with the sweat of sagacity. Some call it Research & Development Wing

some put a price to investments in the Emotional Technology that it comes out as. We call

the process HUMANTECH and it priceless.

Liberty also very active in the area of Research & Development and has a number of firsts

to its credit like:

1. Liberty pioneered the PU (Polyurethane) technology in India in footwear industry in 1982

and today is the largest producers of footwear with this technology in Asia.

2. Liberty has developed new material TPE (Thermo-Plastic-Elastomer) for high quality

formal footwear.

3. Liberty has developed a high quality Eva Compound for beach footwear.

4. Liberty was the first company commissioning a latest CAD/ CAM System.

5. Die Less Leather cutting machine which is directly attached with its Design &

Development Section for speedy process of development of new models of footwear.

6. Liberty is the only factory in India having water proofing technology approved by

SYMPATEX, a name known for water proofing technology worldwide.

7. Liberty Management is very thin in size comparing with a huge work force in front line

operation.

DESIGN & DEVELOPMENT:

Liberty has well established state of the art design centers which are constantly engaged in

designing and developing latest trend setting footwear for the young fashions consciousIndian consumers. On an average 4000 new styles are developed every year out of which

roughly 1200 styles are selected and introduced in the market in two seasons i.e. spring /

summer and fall, winter.

FINANCIAL

If you think a company that has helped 50 million people think on their feet in style is big

stuff, you have seen very little yet. For us the future plans are not something that can be

termed as crystal gazing but neatly enclosed ideas idea and deliverables in continuum. We are


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fast building new brands and products, improving the all times favorites and expending our

marketing infrastructure and honing to our skills to further the delight of the consumer. With

an over all 25% boom planned each year for the next 5 year you could says that India is only

true blue footwear manufacturing multinational is just peaking over the edge.

MORE STORES FROM LIBERTY:

Liberty group is expecting to add Rs.70 crores from its footwear retail business. The

company will invest Rs.7 Crores towards expending Revolution - its exclusive footwear

showroom. This year company will add 10 more stores to take it to 25. The company has also

entered the manufacturing of white ware segment of sanitary and bathroom products. Liberty

is looking at introducing new design this season too. The company has expended its retail

presence in over 100 stores across small and big cities.

LIBERTY PLANS TO EXPANDS GLOBAL PRESENCE

Liberty group has also establish manufacturing plant in Uttrakhand state and opening 25

exclusive outlets across the country as well as in 7 overseas centers. Each outlet is estimated

to see an investment of Rs.7.5 million.

With a turnover of Rs.500 crores the company is emerging as an multinational brands with

about 350 Exclusive distributors all over the world. as opposed to the earlier model of

expending retail outlets we plan to bring down the number of retailer from 5000 to 4000. We

do not want retail presence for name shake; the ideas to have real brand presence, Liberty

plans to open super premium at Singapore, Kualampur, Dhaka, Columbo and Dubai . The

currently exports about 25% of footwear production to Germany, Italy, France, United States

and the Middle East.

STRENGTH:

At Liberty we upgrade and re-engineer our design every 6 months so that you have

something new, with it and futuristic every time you visit us. Our shoes are much more than

just B.E. Witching leather work. We understand that a shoe for you is an extension of your

personality. And for one who keeps moving onto to stables of desire loaded with exciting

world fashions trends we craft the dreams with the help of Capital Fashion Technologists shut

away not in dream bars but with their heart minds on the pules of future fashion.


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6.2 LIBERTY SHOES LIMITED AN INNER VIEW

LOCATION:

The company has entered into a lease agreement for 410 canals and 17 marlas (248500sq.

yards) of land on Punit Chamber, Sector -18, Turbe. Dist-Thane.

BUILDING:

It mainly consists of eight huge halls meant for manufacturing operation facility, raw material

and finished goods storage, cutting sections, PVC Sole Section, PU Sole Section,

Administrative Block etc. the design and finishing of building is among the best.The total area of the building is 170 lacks sq.feet (approx) and total cost of building is around

550 lacks. The building is of RC framed structure.

MACHINARY:

Five (new technology) injection-moulding machines are being used by the company for

production purpose. All the machines are imported from Italy and Germany. Production of

shoes as well as quality of shoes has been increased and problems of pasting, sole cracking

have been reduced substantially by this technology. Recently one new computerized machinehas been purchased for cutting leather. It has also been imported from Italy.

INNOVATIVE APPROACHES:

Entire production units of Liberty are interlinked by SAP, a unique ERP Solution

implemented for the first time in India in a Footwear Industry with all modules related with

Finance, Logistics & supply chain.

It is rare to see such clean, state of the art production facility in India with followingmanagement systems and tools.

1. KAIZEN is implemented since 2000 and in practice throughout the organization.

2. 5 S Concept is introduced and in practice since 2001 and presently in matured stage.

The impact of 5S implementation is visible in all dept. and shop floors of the

organization. We may even consider these units are the model units for any Footwear

Industry

3. LEAN awareness is existing in all production floors of the organization. Valuestreams are standardized for most of the regularly produced articles. Now the Group is


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in the process of integrating Lean Concept with PP Module of SAP for controlling the

flow.

4. ISO 9001:2000 CERTIFICATION is awarded to QMS of one of its units and Group is

in the process of getting for other units. Group is having an appointed MR exclusively

for monitoring the Quality System. DNV is the Certifying agency and auditors of the

QMS.

5. WASTE MANAGEMENT SYSTEM is established in one of their unit and it is a pilot

project. Wastage Identification, handling and disposal are documented and monitored

by frequent internal audits.

6. WATER MANAGEMENT SYSTEM is existing in the group. Water wastage is

almostnil- and water is re-cycled in most of their operations.

7. ISES-2000 norms are followed to ensure the best Social, Health and Environmental

Standards. This standard is monitored by Indo German Export Promotion Council of

India.

8. Liberty is the Committee member for setting the standard for Safety Shoes. The

recently released IS: 15298:2000 for Safety shoes is followed by Liberty and it is the

first in Shoe Industry have applied for Certification to use ISI Mark.

9. ENGERGY MANAGEMENT SYSTEM of Liberty is unique in Footwear Industry.

Liberty Units have got lot of incentives / discounts from Haryana State Electricity

Board for maintaining maximum Power Factor.

INTERNATIONAL EXPERIENCE:

1. Liberty has more than 25 years of experience in Export Business and enjoying Status

Holder status as Recognized Export House of India. In 80s when Soviet Market was

invaded by Indian Exporters, Liberty was the Market Leader in USSR.

2. Liberty is having its own office in Russia and Hungary for more than 2 decades.

3. Libertys major operations are mainly with Europe, Middle East, East African, South

African countries and USA.

4. Major brands of Europe, SALAMANDER, JELA, DEICHMANN, ROMIKA and USA

brands like TODDWELSH are selling only Liberty Shoes under their brand umbrella.


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CORPORATE PHILOSOPHY

Steeped in a philosophy that has at its core innovation, technology and advancement, Liberty,

pride itself over and above everything else on its healthy and heart-felt respect for the human

ethos, which projects itself in the expectancy and excitement with which one greets the

arrival of the new combined with a sincere and deep regard for the old, which is appreciative

of and adopts at every stage the unique balance between modernization and tradition.

Liberty as a brand is constantly evolving to keep pace with the changing trends, styles,

beliefs, and aspirations of people while maintaining the sanctity of certain traditions like

workmanship and good value.

SOCIAL RESPONSIBILITY

People at Liberty, are ever conscious of the fact that their reputation stems not just from

quality products and technological innovations but also from the manner in which they

discharge their responsibilities towards its employees, its customers, the society and the

environment. Utmost importance is given to ensuring safe, healthy and non-discriminatory

working conditions for all Liberty employees and ethical standards and practices are

rigorously adhered to. That's why Liberty finds place in the most favored list of respectable

brands like Wal-Mart, Reebok, Nike, etc as an Equal Opportunity Employer.

In fact for Liberty, 3000 employees are all members of the extended Liberty family. So it's no

surprise that its Humantech Centers have crches which give working mothers the freedom

and peace of mind to pursue their careers.

Liberty also has a special charity fund for providing financial assistance to families who

suffer the tragedy of losing their sole earning member. It's this sense of social commitmentthat inspired it to set up the Sanjay Charitable Hospital at Karnal and join the Nation in

felicitating the winners of the Republic Day Bravery Awards with a special gift of free

footwear. Ecological awareness also happens to be uppermost on our minds.


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CONTRIBUTION TO INDUSTRY:

1. Liberty has pioneered in bringing PU Technology to India. Liberty has given a

presentation on Footwear foot prints for the future in Asia Pacific Customer Conference

2000 organized by Huntsman Polyurethane at Singapore on this technology.

2. SYMPATEX is a patented technology on Water Proofing recognized worldwide. Liberty

is the only company in India having recognition/approval of SYMPATEX on

Waterproofing.

3. Safety Shoes are brought to Indian Market for the first time and an exclusive brand

WARRIOR was launched by Liberty in Industrial Segment shoes. Our safety shoes are

meeting all DIN / EN standards in respective segments.

4. PU technology was introduced to Government Sector; Liberty has set the standard as

member of the BIS Committee. BIS Standard IS: 15298: 2000, applicable for Safety

shoes is the Standard on which Liberty is producing Safety shoes for more than one

decade.

5. Liberty Enterprises is the model unit for above Standard and complete testing facility is

available only with Liberty in India after FDDI.

6. Liberty is the First Footwear Manufacturing facility in India awarded with the latest ISO

9001:2000 Certification.

7 The first and only footwear Industry in India, having SAP ERP with all modules

related to Inward/Outward supply chain, Materials, Finance and Costing


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CORPORATE GOALS

Any company if it grows which is the key to survival in the long run should clear and well

defined goals. The goals of liberty shoes limited are given below:

Liberty wants to develop a spirit of cooperation between individuals and group within

the company

Liberty wants to attain and maintain good relations between its union and

management

Liberty will endeavor to keep highly qualified employees by appropriate training and

thus raise their morale and competence.

Liberty will try to practice management of highest standard of competence and

professionalism.

Liberty will strive to remain or become the technological as well as market leaders in

footwear industry and leather product industry.

Liberty wants to be known for the quality of its products and services.

NATIONAL AND INTERNATIONAL AWARDS

Leather Export Promotion Merit Award (1975), till 1982.

Haryana Government Export Award (1978-79).

International Asian Award, Jakarta (1982).

European Awards, Paris (1987).

National Award for best Export of Leather Garments (1987-88).

International Award for Good Quality, Brussels, Belgium (1988). Leather Export Award for Government of India (1991-92).

National Productivity Award from president (1997).

Council of Leather Export (CLE), Indias apex body of leather products exporters,

during the international leather fair held at Chennai, conferred is highest award the

DOYEN OF INDUSTRY upon Mr.P.D.Gupta on 5th Feb., 98.

Worldwide Prestige Award (WPA)-2001.


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6.3 ORGANIZATIONAL CHART OF LIBERTY

FIG -6.4

Department Heads

C.E.O: Mr. Adesh Gupta

H.R: Mr. M.S Sharma

Finance: Mr. Ajay Dhingra

Production: Mr. State Khare

Domestic: Mr. Raman Bansal

Export: Mr. Sunil Goel

Institutional Sales: Mr. Haemant Mohan

D&D: Mr. Kajal Sinha

IT: Mr. Inderjit Singh

Excise: Mr. Pramod Bansal

Lab: Mr. Suresh Kumar

C.E.O

C.G.M

Liberty

Revolutions Ltd.

Liberty Shoes

Ltd.

Departments

H.R Finance Production Purchase Marketing

Domestic ExportInstitutional

Sales

R&D IT Excise

Liberty White

Ware Ltd.


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Fig -6.5 ORGANISATION CHART OF INSTITUTION SALES

DEPARTMENT


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Distribution Network:

Liberty extensive distribution channel has enabled us to develop a firm grip over the

market. Its presence in the global front led us to penetrate deep into the various markets o

world and offer our qualitative range of products. Our presence across the world is in the

form of

02 Overseas Offices

14 Branch Offices

20 Overseas Showrooms

300 Liberty Exclusive Distributors

375 Retail Stores (10 outside India).

PRODUCT RANGE

The new range from Liberty is all about style, design, and comfort. The range imbibes the

spirit of fun and is trendy to the core. There is a product for every season and occasion.

Coolers

Coolers are a brand of unisex sandals and slip-ons. Catering to a wide segment across the

country Coolers are much sought after not just in the summer season but also during the

monsoons and in the coastal regions for their water-resistant property.

Footfun

The brand exhibits the vivacity of children in every way. Colorful and comfortable, the range

has smart sandals, elegant sports shoes and bright colored lace up to ensure a formal look for

the children.

Force 10

Sporty and vibrant the Force 10 range has been rewriting the industry norms. Constant

technologies up gradations have made it one of the more desired brands in the category.
http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=1http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=3http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=8http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=1http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=3http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=8http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=1http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=3http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=8


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Fortune

A pure male fashion brand, Fortune has the latest styles in formal footwear for men.

Freedom

Professionals, undertaking high impact, electrical, thermal, chemical or even slippage risks,

walking over surfaces or operating in environments that expose them to dangers related to

these, use a pair of Boots that they completely rely on.

Whether you are a power plant technician, alkali unit worker, or even an X-treme sports

practitioner, you will appreciate the safety of FREEDOM Protective Professional Boots.

Made from super-resilient rubber, blended with PVC, these boots afford the protection that

no ordinary footwear can provide, no matter how well they are constructed. They are resistant

to, electrical shock, mechanical crush, chemical corrosion and extreme heat and cold. These

boots are also anti-static, anti-slippage, non-tear able.
http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=10http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=2http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=10http://www.libertyshoes.com/cpages.aspx?mpgid=21&1pgid=21&brandid=2


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CHAPTER 7:

INVENTORY MANAGEMENT

7.1 INTRODUCTION

Inventories constitute the most significant part of current assets of a company like in India.

On an average, Inventories are approximately 60% of current assets in public Ltd.

companies in India. A firm neglecting the management of Inventories will be jeopardizing its

long run profitability and may fail ultimately. It is possible for a company for a company to

reduce its level of Inventories to a considerable degree. The reduct ion in excessive

inventories carries a favorable impact on a companys profitability. Inventory is composed

of assets that will sell or used in future in the normal course of business operations. The

assets, which firms store as inventory in anticipation of need, are

1. Raw material

2. Work in progress

3. Finished Goods

Inventory, is current assets, but differs from other current assets. Because only financial

managers are not involved rather, all the functional areas, i.e. finance, marketing, production

& purchasing are involved.

The job of the financial manager is to reconcile the conflicting view points of the various

functional areas regarding the appropriate inventory level in 0order to fulfill the overall

objective of maximizing the owners wealth.

Thus, Inventory management like the management of other current assets, should be related

to the over-all objective of the firm.


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INVENTORY AND FINANCE MANAGER

Although inventory management usually is not the direct operating responsibility of finance

manager, the investment of funds in inventory is an important aspect of financial

management. Consequently the finance manager must be familiar with ways to control

inventory effectively, so that capital may be allocated efficiently. The greater the opportunity

cost of funds invested in inventory, the lower is the optimal level of average inventory and

also the lower the optimal order quantity, all other things held constant. The EOQ model also

can be useful to the finance manager in planning for inventory financing.

When demand or usage of inventory is uncertain. The finance manager may try to effect

policies that will reduce the average lead time required to receive inventory, once an order is

placed. The lower the average lead time, lower is the safety stock needed and lower is the

total investment in inventory, all other things held constant. The greater the opportunity cost

of funds invested in inventory, the greater is the inventory to reduce this lead time. The

purchasing department may try to find new vendor that promise quick delivery, or it may

pressure existing vendor to deliver faster. The production department may be able to deliver

finish goods faster by producing a smaller run. In either case, there is tradeoff between the

added cost involved in reducing the; lead time and the opportunity cost of funds tied up in

inventory.

The finance manager is also concerned with the risk involved in carrying inventory. The

major risks involved in carrying inventory. The major risk is that the market value of specific

inventories will be less than the value at which they were acquired. Certain types of inventory

are subject to obsolescence, whether it is in technology or in consumer tastes. A change in

technology may make an electronic component worthless. A change in style may cause a

retailer to sell goods at substantially reduced prices. The principle risk is that of fluctuationsin market price. The finance manager is perhaps the best person to make an objective analysis

of the risks associated with the firms investment in inventories. These risks must be

considered in determining the appropriate level of inventory the firm should carry.


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NATURE OF INVENTORY

Inventory are stock of the company is manufacturing for sale and components that make up

the product. The various forms in which inventories exist in a manufacturing company are:

1. Raw Material: Raw Material is those basic inputs that are converts into finished

goods through manufacturing process. Raw Material inventories are those units,

which will purchase & stored for future production.

2. Work in progress: Work in progress inventories are semi-manufactured products.

They represent products that need more work before they become finished

products for sale.

3. Finished goods: These are completely manufactured products which are ready

for sale. Stock of raw materials and work in progress facilitates production while

stock of finished goods is required for smooth marketing operations.

PURPOSE OF HOLDING INVENTORY

A firm also needs to maintain inventories to reduce costs and ordering costs and avail

quantity discounts. There are three main purposes or motive:

1. Transactions motive: It emphasizes the need to maintain inventories to facilitate

smooth production & sales operations.

2. Precautionary motive: It necessitates holding of inventories to guard against the

unpredictable changes in demand & supply force & other factors.

3. Speculative motive: It influences the decisions to increase or reduce inventory

levels to take advantage of price fluctuations


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7.3 DEFINITIONS

The following terms are used in this statement with the meanings specified:

Inventories are assets:

(a) Held for sale in the ordinary course of business.

(b) In the process of production for such sale, or

(c) In the form of materials or supplies to be consumed in the production process or in the

rendering of services.

1. Inventories encompass goods purchased and held for resale, for example, merchandise

purchased by a retailer and held for resale, computer software held for resale, or land and

other property held for resale. Inventories also encompass finished goods produced, or

work-in-progress being produced, by the enterprise and include materials, maintenance

supplies, consumables and loose tools awaiting use in the production process. Inventories

do not include machinery spares which can be used only in connection with an item of

fixed asset and whose use is expected to be irregular; such machinery spares are

accounted for in accordance with Accounting Standard (AS) 10, Accounting for Fixed

Assets.

2. Inventories should be valued at lower of cost net realizable value.

3. Cost of Inventories

The cost of inventories should comprise all costs of purchase, costs of conversion and

other costs incurred in bringing the inventories to their present location and condition.

4. Costs of Purchase

The costs of purchase consist of the purchase price including duties and taxes (other thanthose subsequently recoverable by the enterprise from the taxing authorities), freight,

inwards and other expenditure directly attributable to the acquisition. Trade discounts,

rebates, duty drawbacks and other similar items are deducted in determining the costs of

purchase.

5. Costs of Conversion

The costs of conversion of inventories include costs directly related to the units

of production, such as direct labor. They also include a systematic allocation of fixed and

variable production overheads that are incurred in converting materials into finished


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goods. Fixed production overheads are those indirect costs of production that remain

relatively constant regardless of the volume of production, such as depreciation and

maintenance of factory buildings and the cost of factory management and administration.

Variable production overheads are those indirect costs of production that vary directly, or

nearly with the volume of production such as indirect materials and indirect labour.

6. The allocation of fixed production overheads for purpose of their inclusion in the

costs of conversion is on based on the normal capacity of the production facilities.

Normal capacity is the production expected to be achieved on an average over a number

of periods or seasons under normal circumstances, taking into account the loss of capacity

resulting from planned maintenance. The actual level of production may be used if it

approximates normal capacity. The amount of fixed production overheads allocated to

each unit of production is not increased as a consequence of low production or idle plant.

Unallocated overheads are recognized as an expense in the period in which they are

incurred. In periods of abnormally high production, the amount of fixed production

overheads allocated to each unit of production is decreased so that inventories are not

measured above cost. Variable production overheads are assigned to each unit of

production on the basis of the actual use of the production facilities.

7. A production process may result in more than one product being produced simultaneously.

This is the case, for example, when joint products are produced or when there is a main

product and a by- product. When the costs of conversion of each product are not

separately identifiable, they are allocated between the products on a rational and

consistent basis. The allocation may be based, for example, on the relative sales value of

each product either at the stage in the production process when the products become

separately identifiable, or at the completion of production. Most by- products as well as

scrap or waste materials, by their nature, are immaterial. When this is the case, they are

often measured at net realizable value and this value is deducted from the cost of the main

product. As a result, the carrying amount of the main product is not materially different

from its cost.

8. Other costs are included in the costs of inventories only to the extent that they are incurred

in bringing the inventories to their present location and condition. For example, it may be


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appropriate to include overheads other than production overheads or the costs of

designing product for specific customers in the cost of inventories.

9. Interest and other borrowing costs are usually considered as not relating to bringing the

inventories to their present location and condition and are, therefore, usually not included in

the cost of inventories.

10. Exclusions from the cost of Inventories

11. In determining the cost of inventories in accordance with paragraph 3. It is appropriate to

exclude certain costs and recognize them as expenses in the period in which they are

incurred. Examples of such costs are;

1. Abnormal amounts of wasted materials, labour, or other production costs.

2. Storage costs, unless those costs are necessary in the production process prior to a

further production stage.

3. Administrative overheads that do not contribute to bringing the inventories to their

present location and condition, and

4. Selling and distribution costs.

12. The cost of inventories of items that are not ordinarily interchangeable and goods or

services produced and segregated for specific projects should be assigned by specific

identification of their individual costs.

13. Specific identification of cost means that specific costs are attributed to identify items of

inventory. This is an appropriate treatment for items that are segregated for a specific project,

regardless of whether they have been purchased or produced. However, when there are large

numbers of items of inventory which are ordinarily interchangeable, specific identification of

costs is inappropriate since, in such circumstances, an enterprise could obtain predetermined

effects on the net profit or loss for the period by selecting a particular method of ascertaining

the items that remain in inventories.


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14. The cost of inventories, other than those dealt with in paragraph 11, should be assigned

by using the first-in, first-out (FIFO), or weighted average cost formula. The formula used

should reflect the fairest possible approximation to the cost incurred in bringing the items of

inventory to their present location and condition.

15. A variety of cost formulas is used to determine the cost of inventories other than those for

which specific identification of individual costs is appropriate. The formula used in

determining the cost of an item of inventory needs to be selected with a view to providing the

fairest possible approximation to the cost incurred in bringing the item to its present location

and condition.

The FIFO formula assumes that the items of inventory which were purchased or

produced first are consumed or sold first, and consequently the items remaining in

inventory at the end of the period are those most recently purchased or produced. Under

the weighted average costs formula, the cost of each item is determined from the

weighted average of the cost of similar items at the beginning of a period and the cost of

similar items purchased or produced during the period. The average may be calculated on

a periodic basis or as each additional shipment is received, depending upon the

circumstances of the enterprise.

16. Techniques for the measurement of the cost of inventories, such as the standard cost

method or the retail method, may be used for convenience if the results approximate the

actual cost. Standard costs take into account normal levels of consumption of materials and

supplies, labour, efficiency and capacity utilization. They are regularly reviewed and if

necessary, revised in the light of current conditions.

17. The retail method is often used in the retail trade for measuring inventories of large

numbers of rapidly changing items that have similar margins and for which is impracticable

to use other costing methods. The cost of the inventory is determined by reducing from the

sales value of the inventory the appropriate percentage gross margin. The percentage used

takes into consideration inventory which has been marked down to below its original selling

price. An average percentage for each retail department is often used.

18. The cost of inventories may not be recoverable if those inventories are damaged, if they

have become wholly or partially obsolete, or if their selling prices have declined. The cost of


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inventories may also not be recoverable if the estimated costs of completion or the estimated

costs necessary to make the sale have increased.

The practice of writing down inventories below cost to net realizable value is consistent

with the view that assets should not be carried in excess of a amounts expected to be

realized from their sale or use.

19. Inventories are usually written down to net realizable value on an item-by-item basis. In

some circumstances, however, it may be appropriate to group similar or related items. This

may be the case with items of inventory relating to the same product line that have similar

purposes or end uses and are produced and marketed in the same geographical area and

cannot be practicably evaluated separately from other items in that product line. It is not

appropriate to write down inventories based on a classification of inventory, for example,

finished goods, or all the inventories in a particular business segment.

20. Estimates of net realizable value are based on the most reliable evidence available at the

time the estimates are made as to the amount the inventories are expected to realize. These

estimates take into consideration fluctuations of price or cost directly relating to events

occurring after the balance sheet date to the extent that such events confirm the conditions

existing at the balance sheet date.

21. Estimates or net realizable value also take into consideration the purpose for which the

inventory is held. For example, the net realizable value of the quantity of inventory held to

satisfy firm sales or service contracts is based on the contract price. If the sales contracts are

for less than the inventory quantities held, the net realizable value of the excess inventory is

based on general selling prices.

Contingent losses on firm sales contracts in excess of inventory quantities held and

contingent losses on firm purchase contracts are dealt with in accordance with the principles

enunciated in Accounting Standard (A.S) 4, contingencies and events occurring after the

balance sheet date.

22. Materials and other supplies held for use in the production of inventories are not written

down below cost if the finished products in which they will be incorporated are expected to


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be sold at or above cost. However, when there has been a decline in the price of materials and

it is estimated that the cost of the finished products will exceed net realizable value, the

materials are written down to net realizable value. In such circumstances, the replacement

cost of the materials may be the net available measure of their net realizable value. An

assessment is made of net realizable value as at each balance sheet date.

23. Disclosure.

The financial statements should disclose:

The accounting policies adopted in measuring inventories, including the cost formula used,

and The total carrying amount of inventories and its classification appropriate to the

enterprise.

24. Information about the carrying amounts held in different classifications of inventories

and the extent of the changes in these assets is useful to financial statement users. Common

classifications of inventories are raw materials and components, work in progress, finished

goods, stores, spares and loose tools.


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VALUATION OF INVENTORY

The price of materials and income of a concern is directly proportional to each other. So it is

necessary that a method of pricing materials should be such that it gives a realistic value

stocks. To safe guard public interest, the Government of India has instituted statutory controls

to prevent frequent change of material valuation method for at least three years. The

following material pricing methods are generally used:

First in First out (FIFO)

Last in First out (LIFO)

Average Price Method

Base Stock Method

Market Price Method

Standard Price Method

BENEFITS OF HOLDING INVENTORY

The major benefits of holding Inventory are the basic functions which are of crucial

important in firms production & marketing strategies.

The basic function of Inventory is to act as a buffer to decouple or uncouple the various

activities of a firm so that all do not have to be pursued at exactly the same rate

The key activities are:

1. Purchasing

2. Production

3. Selling

Average PriceMethod

Simple averagemethod

Weighted averagemethod


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sometimes may pile up unnecessary stocks. This increases the level of investment and makes

the firm unprofitable. To manage inventories efficiency, answers should be sought to the

following two questions:

1. How much should be ordered?

2. When it should be ordered?

The first questions, how much to order relates to the problem of determining economic

order quantity (EOQ), and is answered with an analysis of costs of maintaining certain

level of inventories.

The second question, when to order arises because of uncertainty and is problem of

determining the reorder point.

ECONOMIC ORDER QUANTITY

One of the major inventory management problem is to be resolved is how much inventory

should be added when inventory is replenished. If the firm is buying raw materials, is has

to decide lots in which it has to be purchased on each replenish. If the firm is planning a

production run, the issue is how much production to schedule. These problem, are called

order quantity problems, and the task of the firm is to determine the optimum or

economic order quantity.

Determining an optimum level of inventory level involves two types of costs:

1. Ordering costs

2. Carrying costs


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ORDERING COST

This category of cost is associated with the acquisition or ordering of inventory. Firms have

to place orders with suppliers to replenish inventory of raw material. The expenses involved

are referred to as ordering costs. Included in the ordering costs are involved in

Preparing a purchase order or requisition form

Receiving, inspection and recording the goods received

Ordering costs increase with the number of orders; thus more frequently inventory is

acquired, the higher the firms ordering costs. On the other hand, if the firms maintain large

inventory levels, there will be few orders placed and ordering costs will be relatively small.

Thus, ordering costs decrease with increasing size of inventory.

CARRYING COST

Costs incurred for maintaining a given level of inventory are called Carrying costs. They

include: Storage. Insurance, taxes, Deterioration and Obsolescence. Carrying costs vary with

inventory size. This behavior is contrary to that of ordering costs which decline with increase

in size of inventory. The economic size of inventory would thus depend on trade-off between

carrying costs and ordering costs.

The optimum inventory size is commonly referred to as economic order quantity. It is thatorder size at which annual total costs of ordering and holding are the, minimum. We can

follow three approachesthe trial and error approach, the formula approach and the graphic

approachto determine the economic order quantity (EOQ).

2AO

EOQ = C

Where, A is annual requirement.

O is Ordering cost.

And C is Carrying cost.


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Graphic approach:

The economic order quantity can also be found out graphically. Figure illustrates the EOQ

function. In the figure, costs-carrying, ordering and total- are plotted on vertical axis and

horizontal axis is used to represent the order size. We note that total carrying costs increase as

the order size increasers, because, on an average, a larger inventory level will be maintained,

and ordering costs decline with increase in order size means less number of orders. The

behaviors of total costs line is noticeable since it is a sum of two types of cost which behave

differently with order size. The total costs decline in the first instance, but they start rising

when the decrease in average ordering cost is more than offset by the increase in carrying

costs. The economic order quantity occurs at the point Q* where the total cost is minimum.

Thus, the firms operating profit is maximized at point Q*.

Minimum total cost

Carrying cost

Costs ordering cost

Q* order size (Q)

Fig -7.1Economic order quantity

Optimum productions run: The use of the EOQ approach can be extended to production

runs to determine the optimum size of manufacture. Two costs involved are set-up costs and

carrying costs. Set-up costs include costs on the following activities: preparing and

processing the stock orders, preparing drawings and specifications, tooling machines set-up,

handling machines, tools, equipment and materials, over time etc. Production runs but

carrying costs will increase as large stocks of manufactured inventories will be held. The


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PERPETUAL INVENTORY CONTROL TECHNIQUE

Perpetual inventory system implies maintenance of up-to-date stock records and in

its broad sense it covers both continuous stock taking as well as up-to-date recording

stores books. According to Weldon, It may be defined as a method of recording stores

balances after every receipt and issue to facilitate regular checking and to obviate closing

down for sock-taking. The basic object of this system is to make available details about

the quantity and value of stock of each item at all times. The system thus provides a rigid

control over stock of each item of store can regularly be verified with the stock records in

the bin cards kept in the stores and stores ledger maintained in cost office.

Advantages of Perpetual Inventory system:

1.Saving in time: The long and costly work of stocktaking is avoided. Hence, interim and

final financial accounts can be prepared with greater convenience.

2.Arrangement of proper verification: In this system a detailed and more reliable checking

of the store is exercised because of the continuous and random checking.

3.Verification of Errors: Errors are easily located and rectified. This gives an opportunity

for preventing a recurrence in many cases.

4.Double control: Due to separate records in Bin card and stores ledger, double control is

maintained.

5. Optimum size of material: Overstocking and under stocking can be avoided because

perpetual inventory system covers verification of stock with regards to maximum,

minimum and other levels.

6.Lack of misuse of Material: Under this system, effective control on issue of material is

possible, thus misuse of material can be avoided.

7.Moral Check on Stores staff: Due to continuous checking, this system serves as a moral

check on the stores staff. They are discouraged from committing dishonesty.

8.Loss of stock due to obsolescence: It is detected at an early stage and so timely action can

be taken to prevent recurrence.

SELECTIVE INVENTORY CONTROL

ABC ANALYSIS

Usually a firm has to maintain several types of inventories. It is not desirable to keep the

same degree of control on all of the items. The firm should pay maximum attention to those

items whose value is the highest. The firm should, therefore, classify inventories to identify


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which items should receive the most effort in controlling. The firm should be selective in its

approach to control investment in various types of inventories. This analytical approach is

called ABC analysis and tends to measure the significance of each item of inventories in

terms of its value. The high value items are classified as An item and would be under the

tightest control. C items represent relatively least value and would be under simple control.

B items fall in between these two categories and require reasonable attention of

management. The ABC analysis concentrates on important items is also known as control by

importance and exception (CIE). As the items are classified in the importance of their

relative, this approach is also known as proportional value analysis (PVA).

The following steps are involved in implementing the ABC analysis:

1. Classify the items of inventories, determining the expected use in units and the

price per unit for each item.

2. Determine the total value of each item by multiplying the expected units by its

units price.

3. Rank the items in accordance with the total value, giving first rank to the item

with highest total value and so on.

4. Compute the ratios of number of units of each item to total units of all items andthe ration of total value of each item to total value of all items.

5. Combine items on the basis of their relative value to form three categories A, B

and C

6. The data in the following table illustrate the ABC analysis.

Table 7.1

CLASS NO. OF ITEMS% VALUE OF ITEMS%

A 15 70

B 30 20

C 55 10


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Just-in-time (JIT) System:

Japanese firms popularized the just-in-time (JIT) system in

the world. In a JIT system material or the manufactured components and part arrive to the

manufacturing sites or stores just few hours before they are put to use. The delivery of

material is synchronized with the manufacturing cycle and speed. JIT system eliminates the

necessity of carrying large inventories, and thus, saves carrying and other related costs of

manufacturer. The system requires perfect understanding and coordination between the

manufacturer and supplier in terms of the timing of delivery and quality of the material. Poor

quality material or complements could halt the production. The JIT inventory system

complements the total quality management(TQM). The success of the system depends on

how well a company manages its suppliers. The system puts tremendous pressure on

suppliers. They will have to develop adequate system and procedures to satisfactory meet the

needs of manufacturers.

System of Accounting for Material Issued/Inventory Systems

Either the periodic inventory system or the perpetual inventory system may be used to

account for materials issued to production and ending materials inventory.

Periodic Inventory System

Under the periodic inventory system, the purchase of materials

is recorded in Purchase of Raw Materials Account. The opening/beginning inventory, if

any, is recorded in a separate Materials Inventory- Opening Account. The materials

available for use during a period equal purchases plus opening inventory. A physical count is

made of the materials on hands at the end of the period to arrive at the closing/ending

materials inventory. The cost of materials for the period is determined as shown in Exhibit:

Cost of Materials Issued

Materials inventory-opening

+ Purchases

= Materials available for use

- Materials inventory-closing (based on physical count) = Cost of materials issued


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INVENTORY TURNOVER RATE TECHNIQUE

One important technique of inventory control is to use inventory turnover ratios. These

ratios are calculated to assess the efficiency in use of inventories. Following control ratios

can be computed for inventory analysis:

Inventory Turnover Ratio = Cost of goods sold/ Average Inventory

Where Average Inventory = (Opening Inventory + Closing Inventory)/2

Inventory Turnover Ratios can be calculated separately for raw materials and finished goods.

(A) Raw Material Turnover Ratio = Raw Material Consumed/ Average stock of Raw

material.

(B) Finished Goods Turnover Ratio = Cost of Goods Sold/ Average Stock of Finished

Goods

Average Age of inventory of inventory Turnover in Days = Days during the period/ Inventory

Turnover Ratio

(i) Average inventory to total cost of production = (Average Inventory/ total cost of

production) x 100

(ii) Slow Moving Stores to Total Inventory = Average Cost of Slow Moving

Stores/Average Inventory

(iii) Inventory Performance Index = (Actual Material Turnover Ratio/ Standard Material

Turnover Ratio) x 100

These ratios provide a broad framework for the control and provide the basis for future

decisions regarding inventory control. The ratios provide a tough indication of when

Inventory levels are going to be high. Even if it appears from the ratio that the levels are too

high there might be a perfectly good reason why the level of Inventory is being maintained.

The ratios also indicate the situation and trend. However, the limitation of ratios should be

kept in mind. They are not an end themselves, but only tools of sound Inventory

Management.


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7.5 INVENTORY MANAGEMENT AT

LIBERTY

Every industry needs raw material search, so as footwear industry. LIBERTY also does this

raw material search for finding cheaper source of raw material.

LIBERTY does this to find the nearest supplier.

To reduce lead time.

LIBERTY works on ABC analysis for fund management. There are three categories of such

items in ABC analysis

Category A: items of higher value and importance.

Category B: items of medium value and importance.

Category C: items of lesser value and importance.

LIBERTY always monitors category items, in the sense that these items should not be kept

idle because these items need lot of funds. So, they are very careful for a category item. They

keep only that much stock which is required immediately and equal to that of lead time.

MATERIAL MANAGEMENT DEPARTMENT AT LIBERTY;

1. Material management department at LIBERTY receives purchase requisition

Production Planning and Control Department. On the basis of that requirement, they

check their stock and adjust that in available stock and issue the purchase order of thebalance requirement to the predetermined and predecided suppliers.

2. On receipt of material from the supplier, the invoices are entered in DMR (daily

material register)

3. From here, the material is sent to stores for Quality Control and the invoices are

sending to computer section of material management department. Now both the

departments function primarily or side by side.

4. Then quality and quantity is being checked in the stores.


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5. The invoices are being received in SAP.

6. After quality control the material is given to the store keeper for proper storage and if

there is any deviation either in quality or quantity of material than, the quality reports

are send to account department by quality control department for proper handling of

bills.

ISSUE OF MATERIAL TO CONVEYER

On receipt of material required slip from production planning and control department the

stores issue and send the material to different conveyor as mention on the required slip.

PROCESS CYCLE

Manufacturing process:

The company has three kinds of production lines:-

1. PVC Injection Moulding Process.

2. Stuck on / Lasting Process.

3. EVA Injection Moulding Process.

The manufacturing process can be divided into the following:-

1. Making of shoe.

2. Soling (complete shoe).

3. Finishing & packing.

NON LEATHER SHOES:-

Non-Leather Shoe Uppers:

In non leather upper making process, laminated cloth/synthetic material is cut on the cutting

machines according to required size of the uppers, then these cut compound of the uppers

undergo for stitching process where the required components are stitched together to make

the upper.


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Non-Leather Shoe-Soling / Injection Moulding:-

The non-leather shoe upper undergo a process known as the PVC INJECTION

MOULDINGPROCESSunder which upper is tied upon the last which is mounted on the

machine according to the size roll. In the process PVC granules are used as raw material forsole making which get stucked to the upper with the help of injection.

LEATHER SHOES:-

Leather Shoe Upper:-

In leather shoe upper making process leather is cut by hand or on the cutting machines

according to the required size of uppers. Machines cutting process is based on dyes which are

prepared separately for each model. Cutting by hand is on the basis of the pattern to bespecified for each model of the uppers. After skiving and folding these components are

assembled together with the help of stitching machines as per the type of upper required.

Leather Shoe Soling / Stuck-On Process:-

In stuck on process, shoe is made by readymade sole which can be of PU, TPR, EVA,

LEATHER etc.Upper is lasted on the shoe last according to the size roll with the help of

machines. Thereafter sole according to the upper size is taken and they get stucked together

with the help of pasting process. After completing the sole attachment, lasts are removed and

then the shoe is finished with the help of trimming machines and stamping machines.

FINISHING AND PACKING:-

Both Leather and Non-Leather shoe are given the required finished touches by putting insole,

padding, tissue paper etc and after attaching tags, laces etc, are packed in boxes dispatch

EVA INJECTION MOULDING PROCESS

The raw material used for the process is EVA (ethyl vinyl acetate) granules which are fed

into the barrel with the help of hoppers (suction device). After entering into the barrel, a paste

of the granules is formed by heating and then this paste is injected into the moulds as per

shape and size of the required footwear. EVA Injected range of slippers, sandals represent the

most advanced step in the technology for a market.


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RAW MATERIAL USED:

CUTTING MATERIAL

1. Cloth strobe

2. Padded foam

3. Goat skin

4. Softy (cow leather)

5. Cow Venus black

6. Toe puff sheet

7. Foam P.U

8. T.P counter sheet

9. Heavy nylex black

10.Silicon spray

11.Laminated cloth (rexine)

12.Laminated cloth (skin fit)

13.Laminated cloth (mesh)

14.Laminated cloth (RIB)

15.Laminated cloth (canvas)

16.Laminated cloth (EVA lycra)

17.Laminated cloth PVC lining)

18.Leather

19.Leather lining

20.Camarilla lining

21.Fleece lining

22.Rubber

CLOSING MATERIAL:1. Thread

2. Tongue

3. Tape intake (eyelet tape)

4. Eyelet brass

5. Adhesive neufix

6. Adhesive rubber solution

7. Binding nylon


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8. Label

9. Adhesive rubber latex

10.Tape cotton

11.Piping polyester

PACKING MATERIAL:

1. Boxes

2. Shoe lift

3. Marketing bag corporate small/non woven

4. Adhesive sticker pictogram

5. Hologram liberty footwear

6. Silica gel blue

7. Tissue paper white/poster paper

8. Tag card

9. Tag pin

10.Carton

11.Carton label

12.Price stickers

13.Hologram genuine14.Plastic heel

15.Label printed stock, glider black/red.

LASTING MATERIAL:

1. Adhesive P.U 107

2. Adhesive nefix

3. EVA Sole

4. EVA Sheet

5. Sole

INJECTION MATERIAL:

1. PVC Compound

2. EVA Compound

3. PVC Master batch

4. EVA Master batch.


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7.6 INVENTORY MANAGEMENT SYSTEM

CHALLENGES: SINGLE INTEGRATED SYSTEM

Liberty Shoes Ltd was on a path of rapid expansion. With Liberty aiming at markets

spread across the globe, transparency of, and control over, business operations across the

extended organization was posing a big challenge for the top management. Liberty

needed a single integrated and, more importantly, universal solution which would enable

them to establish central transaction and management control. This would, in turn, enable

accurate and on time generation of consolidated MIS reports, helping top management to

monitor the health of individual companies efficiently.

Second, the local management needed systemic support to run their day to day operations.

Generating timely and accurate MIS reports, recording daily transactions and reporting to

central office on time was a great challenge at all the individual offices. Another

important area which needed immediate attention was inventory management. Thus, it

was clear that we needed a system that would be universal, as well as handle country

specific localization needs.

Decision to implement SAP Business One

Liberty Shoes Ltd looked for a solution that was universal yet locally adaptable. They

evaluated a few options before deciding on SAP Business One. Liberty felt that SAP

provided them the much needed adaptability and flexibility. SAP also inherently

possessed control and check features for management control which was important for

Liberty Shoes Ltd, considering their future global expansion plans. Also, SAP was web-

enabled, had the necessary reporting capabilities and had local product support at all the

locations considered for implementation. So, SAP was a clear winner.

Managing a multi location implementation

The biggest challenge Liberty had to deal with was managing simultaneous implementation

across global locations. While the company put together a competent internal team, they

realized that not many members had firsthand experience working at these locations nor did

they have an understanding of the local systems in place.


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After a careful consideration, Octopus-e International was selected as the implementation

partner for all the locations. Octopus-e set up an experienced team to handle the complexities

of the project. The Big Bang implementation approach was followed and implementation was

kicked off in July 2009 across all the locations simultaneously. Standard modules including

sales, purchase, inventory, finance and banking were implemented and the solution was

customized according to local tax and reporting structures. Even though there were

challenges in coping with language issues and understanding the local context, Octopus-e

drew on their experience to deal with them, says Atul Sherry, Director, Octopus-e

International. Liberty Shoes l

liberty semi final

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