project inventory management

7/31/2019 Project Inventory Management

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THE INTRODUCTION TO INDO ASIAN GROUP

From an enterprise formed in 1985 by young group of technocrats, Indo Asian has growninto a multiproduct, multibillion Rs group of companies manufacturing and marketing a wide

range of electrical control and protection equipment.

The superior quality of these products have earned them the respect of the world, where

they are popular under the brand names:

STOPSHOCK RCCBs

INDO ASIAN CUTOUTS

INDO ASIAN HRC FUSE LINKS

INDO ASIAN FEEDER PILLARS

INDO ASIAN DISTRIBUTION BOARDS

INDO ASIAN TECHNO ELECTRIC SWITCHES

INDO MENNEKS INDUSTRIAL PLUGS AND SOCKETS

KROCKER MODLER INDOASIAN CONTRACTORS AND RELAYS

The groups annual turnover, which grew from Rs 10 million in 1986, to Rs 600 million, is

slated reach Rs 2500 million by the turn of last century. These will be mass produce the latest

generation of MCBs, RCCBs, compact fluorescent lamps and other high technology, high

quality electrical control and safety equipment.

All the business including assets and liabilities of the erstwhile Indo Asian Fusegear Ltd.were

transferred to and vested in the company with effect from the appointed date i.e.1 st April,

2005, shareholders of the erstwhile Indo Asian Fusegear Ltd.have become shareholders of

the company and the name of the company has since been changed to Indo Asian Fusegear

Ltd. with effect from 23rd August 2005.


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With over 150 highly qualified, technical managers and a 550 strong work force

of quality conscious, superbly trained personnel, Indo Asian is all set to scale new heights of

growth, excellence and world wide acceptance.

FOREIGN COLLABORATION Groups

HEINRICH KOPP.AG, GERMANY

DOEPKE AND CO.AG, GERMANY

WIKMAN OF GERMANY

EFEN OF GERMANY

LOCKNER MOELLER Gmbh, GERMANY

TECHNO ELECTRIC, S.V.I. OF ITALY

MENNEKES ELECTRO TECHNIC Gmbh, GERMANY

CORPORATE OFFICE

207-208, Hemkunt Tower 98,Nehru Place, New Delhi-110019

REGISTERED OFFFICE

51 KM, G.T, KARNAL ROAD, MURTHAL, DISTT.SONEPAT, HARYANA


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WORKING PLACES OF COMPANY

Bye Lane, Nakodar road, Jalandhar (Punjab)

B-200, Phase-II, Noida, U.P

Plot no.9, Sector-1, Parwanoo, Distt. Solan, H.P

G.T. Karnal Road, Murthal, Distt.Sonepat, Haryana

A-39, Phase-II, Noida, U.P

Plot no.21 to 23 Sector-5, Parwanoo, Distt. Solan, H.P

Plot no.10, Sector-4, SIDCUL, Ranipur, Haridwar, Uttranchal

Plot no.2, Sector-2, SIDCUL, Ranipur, Haridwar, Uttranchal

E-4, Bahadrabad Industrial Area, Haridwar, Uttranchal

RISING UP THE VALUE CHAIN

Being the fastest growing company in electrical business, we have always placed the highest

priority to the size, depth and quality of our production facilities. To meet the burgeoning

demands of the revitalized power section, Indo Asian is fast implementing its expansion plan

with an investment of Rs.66 crore in setting up three large plants of switchgear, lighting

equipment and wires & cables at Haridwar, in the tax free zone of Uttranchal which will

substantially enhance Indo Asians production capacity. The total capacity in switchgear

division is expected to increase by three folds and in lighting division capacity will be

increased by four folds on completion of Haridwar unit in Uttraranchal.


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The company joint venture with Nordex Lighting will manufacture lighting products

including state-of-the-art outdoor lighting fittings in its lighting plant in addition to energy

efficient light sources CFLs, PLLs electronic blasts, FTLs etc. Both the plants in

Switchgear and Lighting are expected to resume their commercial operations in second

quarter of 2006-07. The company is also setting up a new plant to manufacture wires &

cables, which will be operational from July 2006.

Expansion of Business And Capacities

Indian Power Sector is witnessing major changes in growth of Power Sector in India since its

independence it has been noteworthy. Keeping in view the mass increase planned in power

generation capacity over the next five years which offers huge growth opportunity to the

Indian electrical market and sharp increase for Indo Asians products, the company has taken

various initiatives to expand the production capacities.

Setting up new plants in Uttranchal

Indo Asian has chalked out an ambitious expansion programme and is setting up three large

units for the manufacture of world-class switchgears, energy efficient lighting products and

wires & cables in the tax free zone in Haridwar, Uttranchal. The company has already made

an investment of over Rs.13 crores in Uttranchal up to 31

st

march, 2006 as a part of largerinvestments outlay for the expansion plans which will more than triple the manufacturing

capacities of Indo Asian after the implementation. The said plants would be in operation in

the second quarter of FY 2006-07 and contribute substantially to the turnover and enhance

the profitability of our company during the coming years.

Expansion of existing facilities for Export Production

The company has further upgraded its state of the all production lines at Noida for the

manufacture of MCB and other Switchgear products to global standards and approvals for the

European markets. The company has also set up the facilities for the manufacture of

Distribution Boards and Feeder Pillars at its units .The existing manufacturing facilities at

Jalandhar and Parwanoo have also been upgraded to take the benefits of export opportunities

from Europe, U.K and Middle East. This strategic move of the company will further

strengthen the bottom line.


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Expansion in overseas countries

The company is also expanding its operations in Middle East and setting up a new electrical

lighting equipment facility in Riyadh, Saudi Arabia, in joint venture with a leading Saudi

company The National Company For Glass Industries Zoujaj and Saudi OFFSET Ltd.

Of Saudi Arabia . The JV Company is setup by the name of Saudi National lamps &

Electrical Company Ltd. The said Joint venture would further strengthen & enhance the

profitability of the company.

EXPORTS

Company has recorded landmark growth of 126% in export business for the year under

review and is placed for exponential jump in operations with enhanced level of activities as

key global players. Company continues to exports its product to prestigious electricity boards

and power projects and other public utility undertaking in Abu Dhabi, U.A.E, MEW Kuwait

and other middle east/African countries. The companys products have successfully

penetrated in its own brand into distribution markets in SAARC, Middle East, South East

Asia, Africa, Australia and United Kingdom. The company has also entered into long-term

arrangements with some of well known brands in Europe & U.K for manufacture and supply

of electrical distribution equipment including MCBs, RCDs, Consumer boards and CFLs

under their popular brands for their global markets.

Company ahs opened up offices in Hamburg, Germany and in prestigious Jabel Ali Free

Zone in Dubai to provide greater marketing support and thus bringing INDO ASIA closer to

its international customers. The international Division participation in MEE-Dubai, Elenex

Indonesia and slated to participate in global level prestigious exhibition light, building

Frankfurt, thus carrying forward INDO ASIA brand further to new markets and establishing

your company as serious and strong players in the international electrical market


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LIGHTING UP LIVES

At INDO ASIA, we believe no corporate entity is an island. WE owe so much to the society

from which we draw out resources and in our own humble way, we endeavour to fulfill our

corporate social responsibility by letting our heart show the way.

Under our joint initiative with help age India, we have donated two fully equipped mobile

medical vans that have brought health and happiness to over 1 lac under privileged people.

INDO ASIA has associated with committed NGOs to improve the lot of destitute women.

We have supported under privileged children to meet the academics needs of deprived

children.

PLUGGING IN TO OPPORTUNITIES WORLDWIDE

As we work to strengthen the value-chain, we are consciously exploring the inorganic route

of growth to boost our global presence. INDO ASIAN is planning to acquire switchgear-

manufacturing firms in UK and Germany. We shall refurbish the production process and use

our existing markets in Middle East, South Asia and Africa to distribute their range.

Spelling profitability for the stakeholders is yet another strategic move- the setting up of

large manufacturing facilities in Parwanoo and Haridwar to enjoy major tax benefits. INDO

ASIAN is on the growth track. Going further. Touching higher. Doing more.


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A BRIGHTER TOMORROW

We at the INDO ASIAN always aim to bring to our customer innovation and superior

products that not only protect and control, but also conserve and manage mankinds greatest

assets electrical energy.

Today INDO ASIAN is also venturing into the new segment of wires & cables and enjoys

meters, which will complement and strengthen its existing product line. Our wires and cables

unit is schedule to start its commercial production in FY-2007, While new electric meters

would storm the market by FY-2008.We expect to derive over Rs.150 crore revenue from

these two segment in FY-2008.


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INTRODUCTION OF INDO ASIAN FUSE GEAR LIMITED,

SONEPAT UNIT

The Co., M/S Indo Asian Fusegear td, Murthal started in the ear 1984 with manufacture

of Miniature Circuit Breaker (MCBs) in technical inspiration of M/s Heinrich Kopp,

Germany and HRC fuse links in technical inspiration of M/s EFEN, Germany and Is a part of

Indo Asian group of companies which were first to launch Breakers (ELCBs) in technical

inspiration of M/s Doepke, Germany was added to its product range. The technology for

various products has now been fully absorbed and based on such successful performance.

One of our inspiration namely M/s Heinrich Kopp Acs has even gone for putting in their

financial stake for setting up a joint venture with their group of companies in the financial

stake for setting up a joint venture with their group of companies in the year 1992.

Through a very strong and the active team of research and development personnel

company has brought in new innovations in its products for instance we develop and are now

producing MCBs, HRC fuse bases/ fuse strips and distribution boards/ feeders pillars as per

specifications/ requirements of national/ international clients.

They are further developing technology for manufacture of plug in MCBs, Moulded case

circuit breakers (MCCBS), Push button starters and Semiconductor fuses cut-outs, energy

meters, etc

The company has been earning considerable foreign exchange by exporting a significant

portion of its annual turnover to various countries e.g.Australia, Iran, UAE, Syria, Kuwait,

Srilanka, Bangladesh, Russia, New Zealand, Cyprus, Nepal, etc.


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Most of its market is catered through Group Company, M/s INDO ASIAN Marketing ltd. Its

reputed national users include M/s ABB, Siemens, NGEF, BHEL, RAILWAYS,

Airport authority boards, Defence services and leading contractors. Also various prestigious

buildings e.g. prestigious Parliament House, Presidents house, Vigyan Bhawan are protected

by our products.

About 270 enthusiastic personnel have been working with the company with total

commitment and team spirit and striking for excellence in all spheres of activities to produce

high quality products to the entire satisfaction of customers in the part, now for the years to

come.


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QUALITY ASSURANCE AROUND THE CUSTOMER

The name INDO ASIAN is today synonymous with high quality in the field of electrical

distribution and protection equipment in India, Asia as well as other developed countries.

Its quality is, infact, checked by impartial bodies which is now a variety of INDO ASIAN

products are Asia listed and their manufacturing plants have won ISO 9001 certification from

(Bureau Varitas Quality International), UK.Infact INDO ASIAN Fusegear ltd. Was the first

Indian manufacture of electrical safety equipment to be awarded ISI 9001 certification under

the upgraded 1995 guidelines.

At INDO ASIAN, it is recognizes that quality provides the general assurance to its customer.


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VALUES OF THE COMPANY

Customer satisfaction

Commitment to total quality

Cost and time consciousness

Innovation and creativity

Trust and team spirit

Respect for individual integrity

Finance is such a powerful source that it performs an important role to operate and co-

ordinate the various economic activities of business and to manage the requirements offinance management. In other words financial management is such a managerial process,

which is concerned with the planning and control of financial resources .In the initial years;

financial management was concerned only with collection of funds for business. But

according to modern point of view not only collection of funds but also their proper

utilization is the basic functions of financial management. Financial management analyses all

financial problems of a business. For the success of any business it is necessary to procure

adequate funds and to utilize them efficiently.


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TURNOVER FOR LAST 5 YEARS

Year 2000-01

Turnover: - Rs.6, 74,562,000

Profit before tax: - Rs.14, 862,000

Profit after tax: - Rs.12, 973,000

Earning per share: - Rs.1.37

Year 2001-02

Turnover: - Rs.7, 07,274,000



Earning per share: - Rs. 0.08

Year 2002-03

Turnover: - Rs.7, 76,378,000




Year 2003-04

Turnover: - Rs.8, 40,125,000




Year 2004-05

Turnover: - Rs.

Profit before tax: - Rs. 3,217,331

Profit after tax: - Rs. 1,364,619



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Year 2005-06

Turnover: - Rs.15, 57,614,441

Profit before tax: - Rs. 1,79,045,072

Profit after tax: - Rs. 1,58,085,012



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OBJECTIVES

1.To find the gaps of inventory management.

2.Sugestion for the improvement of inventory valuation.

3.Effect on profit and loss account.


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INTRODUCTION

Inventories are assets;

a. held for sale in the ordinary course of business;

b. in the process of production for such sale;

c. in the form of materials or supplies to be consumed in the production process or in

rendering of services.

The Council of the Institute of Charatered Accountants in India issues Valuation of

Inventories concept. It laid certain objectives and scope for this concept. Revised

Accounting Standard (AS) 2 is issued in June 1981.

The revised standard comes in effect in respect of accounting periods commencing on or

after 1.4.1999 and is mandatory in nature.

Objective of Inventory Valuation

A primary issue in accounting for inventories is the determination of the value at which

inventories are carried in the financial statement until the related revenues are recognized.

This statement deals with the determination of such value, including the ascertainment of

cost of inventories and any write-down thereof to net realizable value.

Scope of Inventory Valuation

This statement should be applied in accounting for inventories other than:


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a. work in progress arising under construction contracts, including directly related

service contracts

b. work in progress arising in the ordinary course of business of service providers:

c. shares, debentures and other financial instruments held as stock-in-trade; and

d. producers inventories of livestock, agricultural and forest products and mineral oils,

ores and gases to the extent that they are measured at net realisable value in

accordance with well established practices in those industries.

The inventories referred in part (d) are measured at net realisable value at certain stages of

production. This occurs, for example when agriculture crops have been harvested or

mineral oils, ores and gases have been extracted and sale is assured under a forward

contract or a government guarantee, or when a homogenous market exists and there is a

negligible risk of failure to sell. These inventories are excluded from the scope of this

statement.

Net realisable value is the estimated selling price in the ordinary course of business less

the estimated costs of completion and the estimated costs necessary to make the sale.

Inventories encompass goods 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 fixes asset, and whose use is expected to be irregular;

such machinery spares are accounted foe in accordance with Accounting Standard (AS) 10.

Measurement of Inventories: - Inventories should be valued at the lower of cost and net

realisable value.


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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.

Cost of Purchase: -The cysts of purchase consist of the purchase price including duties

and taxes (other than those 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.

Costs of Conversion: - The costs of conversion of inventories include costs related to theunits of production, such as direct labour. They also include a systematic allocation of fixed

and variable overheads that are incurred in converting materials into finished 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 productions

overheads are those indirect costs of production that are varying directly, or nearly directly,

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

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

of conversion is 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 season

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


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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.

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 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 became 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 realisable

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.

Other Costs: - Other cost included in the cost 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 appropriate to include overheads other than production overheads or the costs of

designing products for specific customers in the cost of inventories.

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.

Exclusion from the Cost of Inventories: - in determining the cost of inventories 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:

abnormal amounts of wasted materials, labour or other production costs;

storage costs, unless those costs are necessary in the production process prior to a

further production stage;


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administrative overheads that do not contribute to bringing the inventories to their

present location and condition; and

selling and distribution costs.

Cost Formulas

The cost f 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.

1. 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 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.

2. FIFO : -The formula is used to reflect the fairest possible approximation to the cost

incurred in bringing the items of inventory to their present location and condition.The (FIFO method) assumes that the items of inventory which are 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.

These items pf inventory are valued at the purchase price of current price lot.

3. Weighted Average Cost Formula : -A variety of formula is used to determine the

cost of inventories other than those for specific identification of individual cost s

appropriate. The formula used I 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 items to its present location and condition. Under


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

weighted average of 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.

4. Standard cost : -Standard costs takein to 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.

5. Retail Method: - 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 it is impracticable to use other costing methods .the cost of inventory

is determined by reducing sales value of the inventory the appropriate percentage

gross margin. The percentage used takes into consideration inventory, which has

been marked below its original selling price. An average percentage for each retail

department is often used.

6. Base Stock & LIFO Method:- These are two distinct methods of stock valuation

which are not permitted under the revised AS-2.The base stock formula proceeds

on the assumption that a minimum quantity of inventory must be held at all times in

order to carry on business. Normally the base stock method of valuation of stock is

not accepted for accounting or income tax purpose.

Net Realisable value

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

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

costs are necessary to make the sale have increased. The practice of writing down inventories

below cost to net realisable value is consistent with the view that assets should not be carried

in excess of amounts expected to be realised from their sale or use.


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Item wise Net Present Value versus Global Net Realisable Value

Inventories are usually written down to net realisable 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.

Estimate of Net Realisable 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 realise. 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.

Estimate of Net Realisable value also take into consideration the purpose for which the

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

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

for less than the inventory quantities held, the net realisable value of the excess inventories 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 (AS) 4, Contingencies and

Events Occurring After the Balance Sheet Date.

Net Realisable Value of Raw Material

Material and other supplies held for use in production of inventories are not written down

below cost if the finished products in which they will be incorporated are expected to 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 finished products will exceed net realisable value.

An assessment is made of net realisable value as at each balance sheet date. Disclosure

Requirement.


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The financial statement should disclose

a. the accounting policies adopted in measuring inventories, including the cost formula

used; and

b. the total carrying amount of inventories and its classification appropriate to the

enterprise.

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

classification of inventories is raw materials and components, work in progress, finished

goods, stores and spares and loose tools.

Valuation of Inventory

b. Excise Duty: - Excise duty contributed directly to bringing inventories to its present

location and condition and is a direct cost, which should be included in the

valuation of inventories. Excise duty is required to be included in the valuation of

the finished goods as per AS-2, though excise duty is paid only when goods are

removed from the factory. The excise duty paid/provided on finished goods should

therefore be including in inventory valuation.

c. CENVAT/MODVAT: - The treatment of Cenvat/modvat in valuation of inventories

AS-2 specifies that the cost of purchase consist of the purchase price including

duties/taxes/freight inward and other expenditure directly attributable to the

acquisition. Therefore for AS-2 purpose, Cenvat credits should not be included in

the cost of purchase of inventory i.e. inventories are valued at net of Cenvat credit.


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Brands Of Company

Switchgear includes

MCBs

HRC fuses

Feeder Pillars

RCCBs

Distribution Boards

Switchgears

Lightings includes

Compact Fluorescent Lamps

Switches

MCCBs


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Company philosophy on the code of governance

Corporate governance primarily involvestransparency full disclosure and being fir to all

stakeholders. The objective of company is not only to meet the statutory requirements but

also to go well beyond it by formulating such systems and procedures so as to make the

management completely transparent and institutionally sound.


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Boards of Director

I. Composition

The company has a combination of executive and non-executive director. The board

consists of six directors, Company has executive chairman and half of the total numbers

of director comprises independent directors.

Chairman Cum managing Director: - Sh. V.P.Mahendru

Joint Managing Director: - Sh. P.K. Ranade

Executive Director: - Sh. Vinay Mahendru

Director: - Sh. R.C. Bansal

Director: - Dr.Sai Ranachandran

Director: - Sh. A.K. Ghosh

Director: - Sh.Vivek Mahendru

Director: - Sh.Vikram Ranade

Director: - Sh. Arvind Vashisht

Director: - Sh. R.K. Chibbar


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Inventory Management

The term Inventory Management refers to raw materials, materials in process, finished goods,

spares and others stocked in order to meet an expected demand or distribution ion the future.

In general, Inventory facilitates transit and handling. Materials may be transported thousand

of kilometers before they are incorporated into an end product. All the time materials are in

transit, which may be a period of several months. Inventories serve to isolate the supplier, the

producer and the consumer. Inventories permit the procurement of raw material in economic

lot-sizes as well as processing of these raw materials into finished goods in the most

economical quantities. Raw material inventories isolate the supplier of raw material from the

user of these raw materials. Finished goods isolate the user from the producer of the goods.

In the process of the goods. In process the inventories isolate the department within plant.

Isolate reduces dependencies of one department and to enable each organization schedule its

operations independently of another.

Another purpose of holding inventories is to reduce material handling costs. In some

manufacturing and service operations, material-handling cost can be reduced by

accumulating parts between operations. This is particularly true of intermittent systems, since

they involve less automation of material handling than do continuous systems.

Another reason for handling inventories is to obtain a reasonable utilization of people andequipment.

Objectives of Inventory Management

1.Maintain large size inventories of raw material and work in progress for efficient and

smooth production of finished goods for un-interrupted sales operation.

2.To maintain a minimum investment in inventories to maximise profitability.

Needs for Holding Inventories

1.Transaction Motive: - emphasis the need to maintain inventories for to facilitate the smooth

production and sales operation.


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2.Precautionary Motive: - necessitates holding of inventories guard against the risk of

unpredictable changes in demand & supply forces.

3.Speculative Motive: - influences the decision to increase or reduce inventory level to take

advantages of price fluctuation.

Inventory costs

Inventories cost money. The cost factor must be considered while taking any decision

regarding inventories. Inventory cost includes ordering costs, carrying cost, out of stock or

shortage cost and capacity cost. Each of these comprises several elements as shown below:

1. Ordering costs

A. Cost of placing an order with a vendor of materials:

a. Preparing a purchase order.

b. Processing payments.

c. Receiving and inspecting the material.

B. Ordering from the plant:

a. Machine set-up.

b. Start-up scrap generated from getting a production run started

2.Carrying costs

A. Costs connected directly with materials:

a. Obsolescence.

b. Deterioration.

c. Pilferage.

B. Financial costs:

a. Taxes.

b. Insurance.

c. Storage.

d. Interest

3.Out-Of-Stock Costs

A. Back ordering.

B. Lost sales.


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4.Capacity Costs

A. Overtime payments when capacity is too small.

B. Lay-offs and idle time when capacity is too large.

Inventory Management and Control

Because of high costs involved in inventories, their proper management and control assume

considerable importance. In Inventory management involves the development and

administration of policies, systems and procedure, which will minimize total costs relative to

inventory decisions and related function such as customer service requirements, production

scheduling, purchasing and traffic. Inventory control, on other hand is defined in a narrow

sense than inventory management and pertains primarily to the administration of established

policies, systems and procedures.

Factors influencing Inventory Management and Control

1.Type of product

2.Type of manufacture

3.Volume

Benefits of Inventory Management And Control

1.Inventory control ensures an adequate supply of material and stores minimizes stock outs

and shortages and avoids costly interruptions in operation.

2.It keeps down investment in inventories, inventory carrying costs and obsolescence losses

to the minimum.

3.It facilitates purchasing economies through the measurement of requirements on the basis

of recorded experience.

4.It eliminates duplication in ordering or in replenishing stocks by centalising the source

from which purchase requisitions emanate.

5.It permits a better utilisation of available stocks by facilitating inter-department transfers

within a company

6.It serves as a means for the location and disposition of inactive and obsolete items of stores.


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7.It enables the management to make cost and consumption comparisons between operations

and periods.

Process of inventory management and Control

1.Determination of optimum inventory levels and procedures of their review and adjustment.

2.Determination of the degree of control that is required for the best results.

3.Planning and design of the inventory control system.

4.Planning of the inventory control organization.

Optimum inventory levels

Determination of inventory that an organization should hold is a significant but difficult step.

Too much inventory results in locking up of working capital accompanied by increased

carrying costs. Excess inventories, however, guarantee uninterrupted supply of materials and

components, to meet production schedules and finished goods to meet customers demand.

Degree of Control

This aspect of inventory management is to decide just how much control is needed to realise

the objectives of inventory management. This is done by classification of inventory on the

basis of value. Popularly called the ABC analysis.

Planning and Design of the Inventory System

An inventory system provides the organizational structure and the operating policies for

maintaining and controlling goods to be inventoried. The system is responsible for ordering

and receipt of goods, timing the order placement and keeping track of what has been ordered,

how much and from whom. There are two general approaches to inventory systems (a) the

fixed order quantity system and (b) the fixed order periodic system known as periodic

system.

Fixed Order Quantity System or Q System

A fixed quantity of material is ordered whenever the stock on hand reaches the re-order

point. The fixed Quantity of material ordered is nothing but the economic order quantity

(EOQ). When the new consignment arrives, the total stock (existing plus arrival) shall be

within the maximum and the minimum limits.

Fixed-Order period System or P System


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In this stock position of each item of material is regularly reviewed. When the stock level of

a given item is not sufficient to sustain the production operation until the next scheduled

review an order is placed replenishing the supply. The frequency of reviews varies from firm

to firm. It also varies among materials within the same firm, depending upon the importance

of the material, specific production schedules, market condition and so forth.

Inventory Control Techniques

Inventory control techniques are employed by the inventory control organization within the

framework of one of the basic inventory models i.e. Fixed Order Quantity system or Fixed

Order period system Inventory control techniques represent the operational aspect of

inventory management and help realise the objectives of inventory management and control.

The most commonly used techniques are: -

a. Always Better Control (ABC) classification.

b. High, Medium and Low (HML) classification.

c. Vital, Essential and Desirable (VED) classification.

d. Scarce, Difficult and Easy to Obtain (SDE).

e. Fast Moving, Slow Moving and Non moving (FSN).

f. Economic Order Quantity (EOQ).

g. Max-Minimum System.

h. Two Bin Systems.

i. Materials Requirement Planning (MRP).

j. Just In Time (JIT).

ABC Analysis

One of the widely used techniques for control of inventories is the ABC (Always Better

Control) analysis. The objective of ABC control is to vary the expenses associated with

maintaining appropriate control according to the potential savings associated with a proper

level of such control. For Example an item having an inventory cost of Rs.1, 00,000 such as


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sheet steel, has a much greater potential for saving expenses related to maintaining

inventories than an item with the cost of Rs.100 .The ABC approach is a means of

categorizing an inventories items into three classes A, B and C, according to the

potential amount to be controlled. Once inventory is classified we have a firm base for

deciding where we will put our effort. Logically, we expect to maintain strong controls over

the A, items taking whatever special actions needed to maintain availability of these items

and whole stocks at the lowest possible levels consistent with meeting demands. At the other

end of scale, we cannot afford the expense of rigid controls, frequent ordering and

expediting, because of the low amounts in the area. Thus with the C group we may

maintain somewhat higher safety stocks, order more months of supply, expect lower levels of

customer service, or all of the three.

HML classification

The high, medium and low classification follows the same procedures as is adopted in ABC

classification only difference is that in HML, the classification unit value is the criterion and

not the annual consumption values. The items of inventory should be listed in the descending

order of unit value and it is up to management to fix limits for three categories. For example,

the management may decide that all units with unit value of Rs.2, 000 and above will be H

items, Rs.1, 000 to 2,000 M items and less than Rs.1, 000, L items.

VED classification

The VED analysis is done to determine the criticality of an item and its effect on production

and other services. It is specially used for the classification of spares parts. If the part is Vital,

it is given V classification, if it is essential then it is given E classification and if it is not

so essential the part is given D classification. For V items, a large stock of inventory is

generally maintained, while for D items, minimum stock is enough.

SDE classification

The SDE analysis is based upon the ability of items and is very useful in context of scarcity

of supply. In this analysis, S refers to scarce items, generally imported, and those, which

are in short supply. D refers to difficult items, which are available indigenously but are

difficult items to procure. Items, which are to come from distant places or from which


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realisable suppliers are difficult to come by, fall in to D category. E refers to items which

are easy to acquire and which are available in the local markets.

FSN analysis

FSN stands for fast moving and slow moving and non-moving. Here, classification is based

on pattern of issues from stores and is useful in controlling obsolescence. To carrying out an

FSN analysis the date of receipt or the last date of issue, which ever is later is taken to

determine the numbers of month, which have lapse since the last transaction. The items are

group in periods of 12 months.

Economic Order Quantity

As we explain earlier under the fixed ordered quantity system of inventory management, an

order for suppliers is placed when the existing stock reaches re-order point. The relevant

question now is what should be the size of the order? Buying in large quantities has its

virtues but one of the problems associated with bulk buying is the high carrying cost.

Similarly, buying in small quantities reduces holding cost but adds to ordering cost.

Consequently, the materials manager is torn between a desire to keep inventories low by

ordering in small quantities and a desire to reduce cost by buying large quantities.

A point where the holding cost curve and the ordering cost curve meets, represent the least

total cost which incidentally is the economic order quantity or optimum quantity. EOQ can

be calculated with help of mathematical formula. Following assumptions are implied in the

calculation:

1. Demand for the product is constant and uniform through out the period,

2. Lead time (time from ordering to receipt) is constant,

3. Price per unit of product is constant,

4. Inventory holding cost is based on average inventory,

5. Ordering cost are constant, and

6. All demand for the product will be satisfied (no back orders are allowed).

The following equation is concerned while calculating EOQ.

TC = DC + D/Q.S + Q/2 .H

Where TC=Total cost

D=Annual demand


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C= Purchase cost per unit

Q=Quantity to be ordered (the optimum amount is termed the EOQ or Qopt).

S= Cost of placing an order.

H= Holding cost per unit of average inventory per annum.

Maximum Minimum Technique

The minimum maximum system is often used in connection with manual inventory

controls systems. The minimum quantity is established in the same way as any re-order point.

The maximum is the minimum quantity plus the optimum lost-size. In practice, a requisition

is initiated when, a withdrawal reduces the inventory below the minimum level, and the order

quantity is the maximum minus the inventory status after the withdrawal. If the final

withdrawal reduces the stock level substantially below the minimum level, the order quantity

will be higher then the calculated EOQ.

Two-Bin Technique

One of the oldest inventory system is the two-bin system, which is mainly adopted to control

C group inventories. In the two-bin system, stock of each item is separated in to Two-bins.

One bin contain stock, just enough to last from the date a new order is placed until it is

received in inventory. The other bin contains a quantity of stock, enough to satisfy probable

demand during the period of replenishment. To start with, the stock is issued from first bin.

When the first bin is empty the order for replenishment is placed, and the stock in second bin

utilized until the ordered material is received.

Material Requirement Planning (MRP)

MRP is new solution to an old problem: having stock of materials always on hand when

needed without carrying excess inventory. Highly dependent upon computer technology,

MRP is most helpful to firms with finished goods and products which are made from a

number of components and which are also subject to uneven or lumpy demand. The

technique separates the various components and co-ordinates purchasing and delivery with

production. This results in materials arriving exactly when needed for production and, at the

same time, reduces the length of time when materials are held in stock. MRP plans and

controls goods on order and generates data for determining when and what specific materials

will be needed to meet the previously planned production schedule.


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Just In Time (JIT)

As a concept, JIT means that virtually no inventories are held at any stage of production and

the exact number of units is brought to each successive stages of production at the right time.

The JIT concept originated from the Motomachi plant of Toyota in Japan, where the system

has been perfected and results achieved. The plant has a long line of trucks waiting outside

with full loads of automotive parts and components for the assembly line. As soon as one

truck comes out at one end of the plant, another gets inside. There is no warehouse for the

parts.


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Research and Development Department

Objectives of Department: -

1. Complete testing as per the International Standards.

2. Upgrading to start short circuit up to kilo ampere.

3. Developing of existing products to improve the performance.

4. Cost reduction.

5. Development of new product such as HRC fuse, Switches etc.

Procedures/Techniques used by the Research and development department: -

The research and development department used the procedures / techniques as per the British

standard, Indian standard and IEC. It can be said that the standard are used according to

which the goods are sent to the consumer or country i.e. if the products are to be sent to

England then British standard are used to test the products.


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Purchase Department

Objectives of Purchase Department

1. To develop satisfactory source of supply and maintain good relation with them.2. To locate new material or product required.

3. To keep inventory as low as is consistent with maintaining production.

4. To pay reasonably low prices for the best values obtainable, negotiating and

executing all company commitments.

5. To achieve a high degree of co-operation and co-ordination with other departments

in the organization.

Procedure followed by Purchase Department

1. First ordered is given to the party.

2. Then the order is received by the gateman and entry is made in their register.

3. Then goods are sent to the store department where the actual amount and quantity is

been checked by them i.e. goods are inspected are they according to the required

quality and standards.

4. If the goods are correct then accepted entry is made along with the inspection letter

is sent to the purchase department their the party account is credit according to the

purchase bill.

5. And at end the payment is made according to the contact with the party or

according to date mention in the purchase bill.

Techniques used by the purchase department

1. Recognition of need is received from the production department.

2. Then there is selection of source or the seller who will supply the right amount of

goods needed.

3. Price and availability are determined.

4. Purchase order is prepared and sent out to the supplier.

5. Follow-up is done by the department to ensure timely delivery of the material.

6. Checking the invoice and approving it for making payment to the supplier.


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Findings

1.Comparison Chart of Inventory for the Quarter end

Particulars As on 30.03.06 As on 30.06.06 Difference

Raw material unit-1 17684973 17689714 4741

Raw material unit-3 355033

370909 15877

Work-in-progress

Unit-1

44477177 48785556 4308379

Work-in-progress

Unit-3

17288190 18574609 1286419

Finished good

Unit-1

9503071 10825171 1322100

Finished good

Unit-1

910337 215565 -694772

Total 90218780 96461524 6242744

The company is showing the increase in inventory from the last Quarter end. This show some

bad point and some good point from the company point of view.

2.The company is holding dead stock in their inventory .The dead stock include RCCB-

(Rs.16, 27,370), Change over (Rs.2, 61,000) MCCB- (Rs. 4,16,000). The total of Rs.23,

04,370 that are dead stock is included in the valuation of inventory. This is totally dead stock.

Which is of no use by the company. The value of dead stock represent false value of stock in


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the balance sheet .It doesnt show the true picture of profits of the company. The reason for

the dead stock is that the design of the stock has become an obsolete and now it is not used

for further production. Now it is been purchased from outside party.

3.The inventory department is using the technique of controlling the inventory i.e. ABC

analysis. ABC analysis is been discussed in the introduction part. In Indo Asian Fusegear

Ltd. ABC Analysis is done as below:

A class item: - Copper, Silver In lead the value is Rs. 3, 19,25,480.80

B class item: - Brass the value is Rs. 59,60,000

C class item: - Body covers the value is Rs. 13, 79,052

4. In Indo Asian the valuation of inventory is done by the following methods: -

a. Raw Material: - At lower of cost determination FIFO basis or Net realisable

Value.

b. Work-in-progress: - At lower of cost or Net Realisable Value.

c. Finished Goods: -

i. Manufactured goods - At lower of cost including excise duty or Net

Realisable Value.

ii. Bought out goods - At cost.

d. Material in transit: - At cost.

5.The company is not using the method while purchasing the inventory, which is Economic

Order Quantity (EOQ). Which is quantity or order size at which the total cost comprising the

ordering cost plus carrying cost is the least. The purchase department is purchasing the

inventory in the lot as required by the production department. They are not considering the

cost while purchasing the inventories.

6.The purchase department is keeping some safety stock. They are having safety stock for

15days, 1months approximately inventory in hand and also having 15-month lead-time.


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Which can be referred to as Fixed Order Quantity as discussed under the topic process of

inventory management and control.

7.For the import inventory valuation the department is using the Basic price, Freight, Excise

duty, Cess, Custom duty, Additional duty and CVD.

8.In Indo Asia there is manual stock taking in process for keeping the records of inventory.

9.For the inventory valuation one person depends upon another person for inventory

valuation.


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Conclusion

1.The increase in inventory from the quarter end has two points one bad and one good one.

The bad point is with the increase in inventory the company is holding cash in inventory,

which is not producing some profit. The good point is that the increase in inventory increases

the profits of the company in profit and loss account and also in balance sheet.

2.The company should not have stock of dead inventory, which is not in use by the company

now. This should be sold as scrap material .The dead stock doesnt represent the true picture

of the company in respect of profits.

3.The company is using the ABC analysis, which is good, and company should keep the

control of inventory on the basis of ABC analysis for the future period of time.

4. The valuation of inventory is done on the basis of the FIFO method and Net realisable

value, which is according to the Accounting Standard (AS-2).

5.The company is not using the technique of the purchasing the inventory, which isEconomic Order Quantity (EOQ) which not only reduces the carrying cost but also the

ordering cost by buying the optimum quantity.

6.The company should maintain the safety stock at regular interval of time show that there is

no effect on the production of the company. There should smooth flow of production of

products of the company.

7.The valuation of import inventory is done rightly and the inventory department should

continue with the same procedure.

8.The work of one person should not depend upon the work of other person in the

department. There should be clear authority and responsibility in the department.


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Suggestions

1.Use of SAP software to end up the manual storekeeping and thus reducing the cost of

inventory valuation. Here the entry of receipt of goods on gate is directly made and will

automatically transfer to all the departments who wants the information of inventory for its

valuation.

2.The company should use the Economic Order Quantity (EOQ) method while the

purchasing the raw material. Which will reduce the overall cost of inventory.

3. The Company should not keep the dead stock in the inventory it should be sold as scrap

material.

4.The company should have to overcome the problem of dependency of one person on

another.


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Inventory Department

Objectives of Inventory Department

1. Not to have excess inventory (there is complete check on inventory that there isinventory according to the requirement).

2. Identify the scrap material tell to the plant manager.

3. To keep the control on inventory by the issue and from the cost point of view.

4. To timely update the stock on regularly basis.

Technique used by Inventory Department

1. The material is issued on basis of FIFO method.

2. To keep control on inventory the Tally Software is used.

Procedure of Inventory Department

1. First the gatekeeper receives the material and he does the gate entry.

2. Then material is transfer to receipt store for the process of inspection; they check

the quantity, quality and number of lots.

3. Then they give their decision on basis of their selection that whether the material is

selected or rejected regarding the quality required and quantity.

4. After that the material is given to inventory store where they made an entry of store

inwards receipt.

5. Then the party bill of purchase is sent to the accounts department for the entry in

resister and for the payment.

6. Then material is sent to production department as per their requirement.

Sales Department

Objectives of Sales department

1. The main objective of sales department is to complete the order with in time and

dispatch the order to part.


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2. To ensure that the right amount of goods which are order is provide to the party.

3. Providing good packaging to the product.

4. Dispatch the order on the basis of FIFO method.

Procedure of Sales Department

1. First the order is received from the party.

2. Then the order is punched in the computer of required quantity.

3. Then the order is passed to production department.

4. Then the gods produced by the production department is received by the finished

goods store with proper documents such as (MMR) i.e. Material Movement

Receipt.

5. Then the order is dispatched to the party with original bill.

Technique used by Sales Department

SalesDepartment uses the Fox-Pro software.


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Domestic Market

The company didnt do sale directly to the direct customer. They have given dealership to

the dealer at very point of the country. The dealer sells the products to the immediatecustomer or we can say that they have opened offices in the name of Indo Asia Company.

The offices are in:

Chandigarh, Delhi, Lucknow, Jaipur, Kolkata, Ahmedabad, Mumbai, Banglore, Chennai,

Cochin, Secundrabad.

Out of these above mention offices or branches the firm is having the maximum ales from

the Ahmedabad and Mumbai branches.


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SWOT analysis

Strength

1.The company is having increase in net profits by 44% and there is 27 % growth in

revenue. These achievements in financial year indicate successful implementation of

change through strategic expansion on products range and new markets within India and

Overseas.

2.With the help from the leading global players company plugged into the changing market

dynamics across the globe.

3.Being fastest growing company in electrical business, company has placed the highest

priority to the size, depth and quality of our products.

Weakness

According to the mangers of the Indo Asian Fusegear ltd. The company has no weakness.

If any problem exists in the company they solve themselves. They have myth that every

problem has solution with it.

Opportunities

1.To meet the demand of revitalized power sector, Indo Asian is implementing itsexpansion plan with an investment of Rs.660 crores in setting up three plants of switchgear,

lighting equipment and wires & cables at Haridwar.

2.Planning to acquire switchgear-manufacturing firms in U.K and Germany.

3.Government increased investments in transmission & distribution sector on account of

the Accelerated Power Development reforms programme (APDRP) will create exponential

demand for power transmission and distribution equipment, which is core product of Indo

Asian Fusegear Ltd.

Threats

1. Domestic electrical market has very intense competition particularly in lighting

segment. Presence of MNC is increasing and there is increased in price for all range of

products.


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Research Methodology

Research Design

The research design of this project is descriptive in nature because it is concerned with

describing the characteristics of a particular group. The research design is made from the

provision for the protection against bias and must maximise reliability, with due concern

for the economical completion of the research study.

Method of Data Collection

a. Primary Method

Observation

Interviewing

b. Secondary

Inventory Register & Methods of Inventory Valuation Applied

Balance Sheet

Company Annuals Reports

Other relevant Records


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References

DSouza, Dolphy and White, Snow; Ready Reckoner to Indian Accounting Standards

& GAAP (Part-1), Ketan Thakkar Snow White Publishers.

project inventory management

Documents