A Project Report On A Study On Inventory Management With Special Reference

A STUDY ON INVENTORY MANAGEMENT WITH SPECIAL REFERENCE TO FLOWSERVE MICRO FINISH PVT LTD
COMPANY PROFILE
FLOWSERVE MICROFINISH group of companies is the leading manufacturer of industrial Valves and Pumps. It was recognized in 1997 to manufacture Industrial valves, Plug valves and Ball valve components. The Group of companies is located in Industrial Area, Hubli which is one of the biggest industrial centers. Hubli is situated midway between Pune and Bangalore on the NH4 highway and is well connected by road and rail. Valves and pumps manufacturing units have a 15000 Sq.feet and 10000 Sq.feet of built-up area to house the facilities respectively. Both divisions have an open space of 10000sq.feet and 15000 Sq.feet respectively for future expansion. The two units have excellent machining testing facilities, consisting of CNCS, center lathes, milling, drilling, grinding machines etc. supported by adequate gauging, measuring instruments. Dedicated staff and workers strive and ensure that quality objectives achieved The company is catering to the needs of major industries in the field of petro chemicals, refiners, fertilizers, fine chemicals, pharmaceuticals, food and beverages and other general chemical industries. Flowserve MicroFinish Pvt Ltd. have a Documented Quality System to meet the requirements of ISO 9001:2000 requirements to ensure that its orders are processed; products are manufactured to meet the requirements of the customer.
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FLOWSERVE PVT LTD USA Flowserve Pvt Ltd. is a U.S.A company which was set up in early 1920. Flowserve Pvt Ltd produces manufacturing and process pumps, automated and manual quarter-turn valves, control valves and valve actuators, and provide a range of related flow management services, primarily for the process industries. Flowserve manufacturing products and provides services to meet the needs of the international flow management industry. Flowserve serves the flow management industry worldwide. More than 40% of the Company's 2006 sales of $3 billion were outside the United States. Flowserve Pvt Ltd is having its business more than 30 countries to name few are Canada, Belgium, Australia, India, Argentina, Mexico, Germany, etc. Flowserve Pvt ltd USA found a Indian market for its expanding its business and came to India by the way of joint venture. The Indian Flowserve MicroFinish Lltd.USA the joint venture is in the form of technical collaboration which is now a days a one kind of form entering into foreign market.
OBJECTIVES OF THE COMPANY

Producing quality products Customer satisfaction
APPLICATION AREAS
Process control is the application of automatic control theories and hardware to operations found in process industries. These industries handle three types of materials-fluids, bulk solids and sheeted and welded materials. The most important variables measured and controlled in the process industries include temperature, pressure, vacuum, flow, liquid level, bulk solid level, density, electrical parameters, specific gravity and chemical composition including pH, oxidation-reduction potential and many forms of spectrometry and spectrophotometer
FUTURE GROWTH AND EXPANSION:

The company is also striving to achieve the recognition of ISO -14001 such as waste water treatment, reducing the db (sound) levels in the factory premises
PRODUCT RANGE:
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FLOWSERVE MICRO FINISH VALVES PVT LTD.
SLNO
PRODUCT
SIZE RANGE MAXIMUM (MM) PRICE RATING #300 #800
MATERIAL
OF
CONSTRUCTION CS/SS CS/SS
BALL VALVE
15-20 15-50
PLUG VALVE
15-30 15-30
#150 #300
CS/SS CS/SS
3 PUMPS COMPONENTS AS PER ANSI AND ISO DCI/CS/SS

CS-Carbon steel SS-Stainless steel DCI-Ductile Cast Iron
ABOUT THE COMPANY:
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FLOWSERVE MICROFINISH PVT LTD is a manufacturing industrial valves viz. ball valves and plug valves. The units have excellent machine testing facilities, consisting of CNCs, center lathes, milling, drilling, grinding machines, etc. Supported by adequate gauging, measuring instruments. The company is catering to the needs of major industries in the field of petro chemicals, refiners, fertilizers, fine chemicals, pharmaceuticals, food and beverages and other general chemical industries.
AGENCIES:
Foreign System Pvt. Ltd Germany Panel Kenya South Africa Uniworld Logistics US. Export Freight Singapore. BRANCHES: Pumps Pvt Ltd. Valves Pvt Ltd.
BANK:
1) Canara Bank
2) Bank of India
INDUSTRY PROFILE
VALVE & PUMPS INDUSTRY A Valve is a device that regulates the flow of fluids (either gases, fluidized solids, slurries or liquids) by opening, closing, or partially obstructing, various passageways. A multitude of valve types and designs safely accommodate a wide variety of industrial applications including industrial, commercial, transportation etc. They are mainly used for safety purposes in Steam engines and domestic heating or cooking appliances. Others are used in a controlled way in Otto cycle engines driven by a camshaft, and they have a major part in engine cycle control A Pump is a device for moving or raising (either gases, fluidized solids, slurries or liquids) by pumping. Pumps are used in a variety of applications including industrial, military, commercial, residential, transportation, etc A Valves & Pumps industry deals with the Business Marketing. They are widely used in Chemical & Process industries, Refineries, Petrochemicals & Fertilizer plants, Pharmaceuticals, Oil Exploration, Thermal & Nuclear plants, Food & Beverage industries, Water Treatment, Cooling Water & Water Supply plants, mining industries
Process Control Application

The term Process is used to describe the collective functions performed in and by the equipment in which one or more variables are to be controlled. Process variables are physical or chemical quantities, the variations of which affect the operation of a manufacturing process. Process Control is the application of automatic control theories and hardware to operations found in process industries. GROWTH & DEVELOPMENT OF THE INDUSTRY
Pumps & Valve Manufacturing Industry in India is growing at the
rate of 10-12% per annum. 500 large, medium & small-scale manufacturers in India manufacture approximately 6,000 pumps & 20,000 valves per day in India.
All core sectors of industry namely power, oil & gas, water & projects, metal and mining, chemicals, drugs &
infrastructure
pharmaceuticals & food and beverages require various types of pumps & valves and each of these industries are growing at a exorbitant rate today in India.
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PRESENT STATUS OF THE INDUSTRY
Industrialization India has established over the years reasonably sound technological base in many industries including process oriented industries like steel, power, cement, fertilizers, petrochemicals and refineries. In developing these needs for process control instrumentation was readily visible.
BUSINESS ENVIRONEMENT OF THE INDUSTRY

Indian market for Industrial Pumps and Systems has been a ripe (fully developed) market since years. India has been a reliable, technically competent, competitive and enterprising outsourcing option for many multinational companies in the field of Industrial Pumps and Systems for outsourcing to countries such as USA, Germany, Holland etc for - Pumps - Systems - Pump Components and sub-assemblies cast and machined, fabricated and finished, molded, customized and/or mass-produced A Valves & Pumps industry deals with the Business Marketing. They are widely used in Refineries, Petrochemicals & Fertilizer plants, Treatment, mining industries etc. Oil Exploration, Thermal & Nuclear plants, Food & Beverage industries, Water
FUTURE OF THE INDUSTRY:

The companys business strategy is to ensure profitable growth in the future. Valves & Pumps are tremendous growth opportunity in the areas of Refineries, Petrochemicals & Fertilizer plants, Pharmaceuticals, Oil Exploration, Thermal & Nuclear plants, Food & Beverage industries, Effluent Treatment & Sewerage plants, Water Treatment, Cooling Water & Water Supply plants, mining industries etc.
VISION
VISION is to manufacture quality valve products for the process industry word wide. We embrace the concepts of total quality and people involvement to enhance TOTAL QUALITY SATISFACTION and commit to maintain this standard of excellent through continual improve and use of quality management system.
MISSION
MISSION is to manufacture quality valve products for the process industry word wide. We embrace the concept of total quality and people involvement to embrace TOTAL CUSTOMER SATISFACTION and commit to maintain this standard of excellence through continual improvements and use of quality
OWNERSHIP PATTERN
Flowserve micro finish pvt ltd. Managed, by 5 directors:
Mr. Tilak.K Vikamshi Mr. Deepak K Vikamshi Mr. S Gopinath Mr. Michel.D.Olsen Mr. Jhon.M.Nanos
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ORGANISATION CHART
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PRODUCT PROFILE:
Ball Valve
38 series Ball Valve

Ball Valve
Flanged
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Plug valve
VALVES
By definition, valves are mechanical devices allowing the movement in one direction. Valves can be designed to handle either liquid or gas application. By nature of their design, functions and applications, valves come in a wide variety of styles, sizes and pressure classes. There are many valve designs and types that satisfy one or more of the functions identified above.
BASIC FUNCTIONS OF VALVES:

Starting and stopping flow. Preventing reserve flow (called anti-back down).
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Changing flow direction. Limiting fluid pressure
Certificates:
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SCOPE OF THE STUDY

This study is exclusively conducted for Flowserve MicroFinish Values Pvt Ltd, Hubli. It covers five years financial statement analysis. The trend differs from year to year as the pattern of investments, borrowings etc change. This also covers study in general about the company and industry. Inventory Ratio Analysis is employed for finding the impact of Inventory on company's performance. It also covers a study on ABC Anaylsis in particular and other Inventory Management Systems in general. The quality management system is established at Flowserve MicroFinish group of companies taking into consideration the eight quality management principles of ISO 9001-2000 Requirements. This quality management system covers the M/s. Flowserve MicroFinish valves pvt ltd of company
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INTRODUCTION TO THE STUDY

Heavy Manufacturing Industry is one of the largest segments of Industrial production. The research of this kind helps to put the theoretical aspects into practice Flowserve MicroFinish is one of the 100% EOU [Export Oriented Unit] in the city of Hubli. A firm should have an adequate level of investment in inventories of raw materials, work in progress and finished goods. The investments are neither inadequate nor excessive. It should just be enough to sustain the production and sales activities. To ensure adequate levels of inventories continuous monitoring and control of inventories level is called for this involves setting up of inventories levels observing actual moment of inventories. This entire spectrum of activities is called as inventory management or control. The Flowserve MicroFinish is, an manufacing unit based in Hubli, a 100% EOU. The Flowserve MicroFinish is the leading manufacturer of industrial valves and pumps. Since the unit is 100% EOU unit the inventory control assumes all the significance. The firm is accepted to meet the consumers that are important demand for high quality products continuously. For these purpose adequate finished goods levels are necessary. At the same time, to ensure continuous production adequate levels of raw material and work in progress are necessary. Inadequate levels affect the competitive position of the company. Further, from the cost point of view, the unit is expected to produce highest quality products at lower prices. The inventory control is one of the techniques that can be used to achieve the grand objectives of producing the products at lower cost.
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OBJECTIVES OF THE PROJECT:

1) To study the different aspects of Inventory Management: 2) To study the impact of inventory on the companys performance: 3) To study the technique adopted by the company in inventory management:
SHAREHOLDING PATTERN:
Shareholders
% of Holding
Number of Equity shares
Equity capital (Rs.)
Flow serve (Mauritius) Corporation, USA 76% 265200 26524000.00
Micro finish Valves Ltd, Hubli, India 24% 837600 8376000.00
Total
100%
3490000
34900000.00
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METHODOLOGY
Primary 1. Interaction with personnel of the 2. Direct Observation Secondary 1. 2. 3. Monthly 4. Company Records Balance Turnover Inventory Data: Sheet Statements Sthtatements Data: company
TOOLS USED: MS-Excel has been used for calculations.
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DEPARTMENTAL STUDY:
There are mainly 5 Departments 1) Planning and Purchase Department 2) Production and Assembly Department 3) Sales department 4) Quality Assurance Department 5) Accounts and Administration Department
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PLANNING AND PURCHASE DEPARTMENT
OBJECTIVES DEPARTMENT
OF
PLANNING
AND
PURCHASE
For usage of resources to meet the delivery commitments To ensure that all Purchased items and services meet the specified
requirements
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FUNCTIONS
Plan is drawn to meet 90% of capacity and 10% reserve to meet the
URGENT amendments
Monthly manufacturing plan is drawn five weeks early taking into
consideration
Monthly plan is readjusted based on feedbacks from production and
assembly department
Based on the information provided by supplier in the format the
capacity of supplier is assessed
Based on the evaluation report the planning and purchase incharge
will instruct the planning assistant to get sample from the acceptable supplier, on receipt of sample inspection is made by quality assurance department
After the inspection the approval supplier will be entitled in list of
approved of supplier
Approved with whom purchasing is not done for more than two
years from last supply are not included in the list .
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Process module for purchasing

Supplier approval Objective: To ensure that all suppliers are capable of meeting purchase requirements. Scope: applicable to all raw materials/sub-contracted items, capital goods, consumable and services to be procured. RESPONSIBILITY: evaluation and approvalPlanning and purchase in charge through quality assurance and planning assistant. INPUT: supplier evaluation form, supplier introduction form, supplier introduction letter.
Process module for purchasing
Requirement of materials
Contract approval
Supplier for delivery and any special requirement
Release of purchase order
Receipt of material
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PRODUCTION AND ASSAMBLY DEPARTMENT
Production, department ensures that production process is identified, planned and carried out under controlled conditions in accordance with monthly manufacturing plan. the objective of department is to improve the productivity, to reduce the cost of production without any compromise on quality and to manufacture non defective quality products by training the people.
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Process models for control of production, service provision and in process inspection
Work order
Receipt of work order
Prepare monthly plan
Collection f material . Preparation of daily production plan and job cards process drawings Processing and stage wise inspection
Its place in inspection report and run charts
Assembly
Painting
SALES DEPARTMENT:
SALES & SHIPPING DEPARTMENT RESPONSIBILITIES: He should see to the product requirement, the order acceptance document approvalHe is responsible for solving the customer complaints, identifications of training needs and maintenance of quality records. SALES ENGINEER (Tender Reviews: TR): He is responsible for tender/ enquiry review, and follow up and also for amendments review (TED/ENG). He is responsible in preparation of cancellation note, maintenance of concerned quality records & attending the customer during their visit.
SHIPPING OFFICER: He is responsible for handling, storage, packing and
delivery, dispatch follow up, providing delivery status and allocation of stock.
PROCEDURE:
a) Sales & Shipping officer will study the packing slip thoroughly with
respect to W.O. b) Size of the box will b decided the S&SO depending on the quantity.
Mc KENSYS 7S FRAME WORK UNDER ORGANIZATION STUDY 1. STRUCTURE: There are 5 Departments in company. 1) Planning and Purchase Department
2) Production and Assembly Department 3) Sales department 4) Quality Assurance Department 5) Accounts and Administration Department
2. STYLE:
The style of management in the organization is very much similar to TOP DOWN MANAGEMENT. The Director from USA who is at the top most level takes strategic decisions and is passed on to the Managing Director of HUBLI of the respective company. Short term decisions are decentralized in FMVPL and Micro Finish Valves Pvt Ltd as the number of employees is more and it would be impractical for the MD to take regular decisions. Though the decision making is concerned only with the top management, the company also emphasizes on PARTICIPATIVE FEEDBACK from the employees and helpers on a regular basis to enhance thinking capacity of the employees. This is generally done by the Respective department in charge.
3. STRATEGY
To establish themselves as a global company with strong technology capabilities FMVPL, has laid increased emphasis on devising its business strategy on aggressive top line growth, a de-risked business model, increased operational efficiencies and CPI program me adopted to improve the productivity. The company emphasizes on two key elements that form the cornerstone of the companys growth strategy: Developing a global product strategy Creating an integrated organization with world class quality valve to produce and full service supply capability
4. SYSTEM:
MERIT RATING SYSTEM
Objectives :To ensure the performance of the supplier with regards to Quality, Delivery, & Service.
Scope: These ratings are applicable to all the Suppliers, like subcontractors, vendors, traders & suppliers. Responsibility: Planning & Purchase In charge/Planning Assistant is responsible rating to supplier.Planning & Purchase In charge is responsible to carry out the supplier rating with assistance of planning assistant.
Procedures:
The criteria considered for vender rating are, Quality Rating: QR= (A+B) [only for casting supplier] Whereas, A= No Of Quality Accepted Total No Of Quantity received [Maximum marks allotted is 70]
B= Rework Quantity + Rejected Quantity * 10 Total no. of Quantity Received
Delivery Rating:
DR= No of orders completed in time * 20 No. of orders required to be Completed
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Service Rating [SER]:
This includes prompt response to delivery of urgent requirements, prompt Response to communication, prompt response to corrective & preventive actions. Supplier Rating [SR]
SR= QR+DR+SER
Reference:

Goods received inspection Purchase order Statistical welding reports Rejection notes QA department work instruction.
5. STAFF
Number and types of personnel within the organization. Number of employees: 76 The company considers the employees as one of the major resource. The skills of the employees are constantly improved through various training programmers. The company organizes regular Departmental meetings MR meeting with the members wherein the suggestions and feedbacks of the members are discussed.
6. SHARED VALUE
Guiding concepts, fundamental ideas around which a business is built It is generally simple, usually stated at abstract level, have great meaning inside the organization even though outsiders may not see or understand them
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7. SKILL:
Skills refer to the fact that employees have the skills needed to carry out the company's strategy. Training and Development - ensuring people know how to do their jobs and stay up to date with the latest techniques.
Mc KENSYS 7S FRAME WORK UNDER ORGANIZATION STUDY
QUALITY ASSURANCE DEPARTMENT:
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Quality:
Quality refers to the degree of perfection as perceived by the user of a product. At Flowserve Micro finish, the objective of the Quality Assurance department is to maintain a consistent appraisal of the quality of the product at all stages of manufacturing till the product is dispatched. Functions of Quality Assurance Department Receiving Inspection In-process Inspection Final Inspection 1) Receiving Inspection: The materials are coming from outside such as castings, bars, and bought items- nuts, bolts and pickings and sub-contract items are inspected as per the drawings or according to the applicable work instructions
.Receiving Quality Engineer is also responsible for identification of
items, reviewing non-conforming products\component, sub-contractor rating and for maintaining quality records.
Receiving Quality Engineer is also responsible for inspection of
castings, which are received as samples and test the sample material as per the work Instruction. 2) In process Inspection: The quality assurance department is also engaged in the inspection of products as they pass on through various stages of production
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In process Quality Engineer is responsible to ensure that the in
process components\raw materials\products is in accordance with the established methods and the quality of all accepted items are conforming to the specified requirements. Special process carried out by In process quality Engineer are as follows: a) Welding: All the welding process parameters are listed in welding process specification and are carried out by a qualified welder. b) Painting: Painting is carried out as per work instruction of painting specification and the painters have been qualified based on the past experience. 3) Final Inspection: This inspection is mainly to check if any of the lapses that may have occurred in the above two stage, the lapses are detected and the quality assurance department takes corrective and preventive action. Final Product Engineer is responsible to ensure that the products are in accordance with the established methods and the quality of all accepted items is conforming to the specified requirements. Final Product Engineer is also responsible for inspection of painted product\ components as per specification Components meeting specified requirements are accepted and inspection or tests are conducted before taking for future processing order to stores. In case of non-conformance observed during inspection non-conformance review committee for future action.
TESTING:
The FMVPL uses the different tests to check the quality of products and they are as follows Pneumatic seat test
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Hydro static shell test Break way torque test Authority and responsibility of QA in charge AUTHORITY: Final product engineer has the authority to take decisions on rejection and rework of components Final product engineer has the authority to qualify the new machines and machines after each major(mechanical breakdown) break down He is responsible to ensure that all materials components assemblies product are inspected and tested in accordance with established procedures He is responsible to ensure that the products are in accordance with the established methods and the quality of all accepted items is conforming to the specified requirements. He is also responsible for issuing test certificates, material certificates, compliance and warranty certificates as against requirement of Work Order for closing all positive recall loops. Inspection color codes used by the QA Department Green: Conforming Black: Accepted on Deviation Yellow: Red : Rework Reject
Dark Blue: Hold
ADMINISTRATION AND ACCOUNTS DEPARTMENT:
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This department is performing an important role by providing and maintaining the entire details of each and every financial activities.
OBJECTIVES OF ADMINISTRATION AND ACCOUNTS DEPARTMENT:
To provide accurate and complete systematic information of
financial activities

To maintain all financial documents To prepare periodical financial statements of the company like profit
and loss balance sheet Functions of Administration Department (H.R) Training Recruitment Safety House Keeping
1. Training Objective: Is to provide the adequate training to the personnel of all departments performing activities affecting quality.
Responsibility: Administration and Accounts (A & A) In-charge through personnel officer is overall responsible to ensure that the training needs of personnel of all the departments are fulfilled. Training is given for employees ones or twice in a month depending on the need. In training the following aspects are covered: 2. Recruitment: Personnel Officer is responsible for recruiting the right person for the right job. He takes into consideration the knowledge, skill and work experience of the person. 3. Safety: Objective: To ensure safe and healthy environment for personnel Responsibility: Administration and Accounts in charge through personnel officer is responsible for safety related activities. Procedure: Safety round-up is carried out by the personnel officer accompanied by H.O.D and two workmen\staff of different department. 4. House Keeping Objective: To ensure good, healthy, clean, neat and safe work environment. Responsibility: While the activities are co-ordinate by the personnel officer, each and every individual in the organization is responsible for the implementation. Procedure: For effective implementation of the system, the entire premises of the company are divided into sub-zones as Production and Assembly division, Quality Assurance division, Administration and Accounts division etc. Each sub-zone is headed by a team leader and supported by coordinates, supervisory staff and workers.
PERSONNEL DEPARTMENT:
Personnel department Is rendering functions are divided into:
a number of functions and these
Managerial function
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Operative function Statutory function
Managerial
function:
The personnel department in FMVPL is shouldered with responsibility of drafting personnel policy. It is organize in labour force systematically. The department has to differ the workforce towards different department. Since industrial work in walls monetary. Therefore the personnel department is shoulder the responsibility of motivation the work force through offering incentives, bonus etc Managerial functions are:

Planning Organizing Directing Motivating Controlling
OPERATIVE FUNCTION: PROCUREMENT
Selecting the right people for the right job.
DEVELOPMENT:

Training Education Promotion
COMPENSATION:

Salaries reward Incentive plan
MAINTEANCE
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Canteen facility
AUTHORITY: Has authority implement system and follow procedures as

required by the government regulation Has authority to implement safety requirements. Responsibility: He is responsible for coordinating all general, financial, and cost accounting functions to ensure internal control, timely reporting of financial/cost data for internal use. He is responsible for submission of timely returns/statements/data to government authorities and financial institutions as per statutory requirements. He is responsible for facilitating the training activities Production, department ensures that production process is identified, planned and carried out under controlled conditions in accordance with monthly manufacturing plan. The objective of department is to improve the productivity, to reduce the cost of production without any compromise on quality and to manufacture non defective quality products by training the people. Corrective/preventing action monitoring and measurement.
SWOT ANALYSIS: Strengths:.
ISO standard helps to marketing in International Level..

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Feedback information is provided to all employees. Benefits provided by government to 100% EOU Unit. The company has good quality product with minimum time The company has unity of teamwork, good salary to workers. Feed-back information is provided to all employees.
Weaknesses:

It is not having a separate marketing dept. No direct exporting.
Opportunities:

Potential market for spare parts is growing high. Whatever is produced is exported. Opportunity to enter plug valve market. International Customers shows more interest to buy Flowserve
Microfinish products.
Company has an out bond logistic management and documentation.
Threats:
No threat in the sense, no competitors for it because it is not a independent firm but has got JV with Flowserve USA. So threat may be any action of Flowserve USA on Microfinish like taking back shares invested in Microfinish or can stop giving export order to Flowserve Microfinish.
INTRODUCTION TO INVENTORY MANAGEMENT
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Inventories mean the stock of the product and the components of the product, i.e. raw material and semi product. In other words, inventory is the composed of assets that will be sold in the future in the normal course of business operations

Raw materials: Stainless steel Casting Seats bars Fasteners Chemicals
Meaning of inventory: The term inventory includes raw materials, finished packaging, spares and other stocked in order to meet an unexpected demand or distribution in the future. Inventory includes the following categories of items:

Production inventories In process inventories MRO (maintenance, repair and operating) inventories. Finished goods inventories.
These inventories are stocked by the company for the purpose smooth production and customer satisfaction. Inventories constitute the most significant part of current assets of a large majority of companies. The large size of inventories maintained by firm are considerable amount of funds is required to commit to them. It is therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. It is possible for a company to reduce its levels of inventories to considerable degree without any address effect on production and sales by using simple inventories planning and control technique. The reduction in excessive inventories carries a favorable impact on companies profitability.
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Nature of Inventories:
Material purchased pending usage is inventory. What is the company purchased for manufacture of product is inventory? Inventory is stock of the product a company is manufacturing for sale and components that make up the product.
The various forms in which inventories exist in a manufacturing company, they are as follows:
The manufacturing companies hold inventories in the form of raw material, work in process and finished goods. There are at least three motives for holding inventories.
1.
To facilitate smooth production and sales operation(transaction
motive)
2.
To guard against the risk of unpredictable changes in usage rate and
delivery time(precautionary motive)

3.
To take advantageous of price fluctuations (speculative motive).
Inventories represent investment of a firms fund. The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore consider
1. 2. 3.
Costs Return Risk factors
Two types of costs are involved in the maintenance:

1.
Ordering costs: requisition, placing of order, transportation,
receving, inspecting and storing clerical and staff services. Ordering costs are fixed per order. Therfore, they decline as the order size increases.
2.
Carrying costs: warehousing, handling, clerical and staff services,
insurance and taxes. Carrying costs vary with inventory holding. As order size increases, average inventory holding increases and therefore, the carrying costs increases. The firm should minimize the total cost (ordering plus carrying). The economic order quantity (EOQ) of inventory will occur at point where the total cost is minimum.
The following formula can be used to determine EOQ: EOQ=Q* Where A is the annual requirement, O is the per order cost, and c is the per unit carrying cost When should the firm place an order to replenish inventory? The inventory level at which the firm places order to replenish inventory is called the reorder point. It depends on a)
b)
The lead time The usage rate perfect be certainity to: about lead the time usage x rate, and rate.
Under will
instaneous delivery (i.e. zero lead time), the reorder point equal usage In practice, there is uncertainty about the lead time and usage rate. Under perfect certainty about the usage rate. Therefore, firms maintain safety stock which serves as a buffer to meet contingencies. In that case, the reorder point will be equal to lead timexusagerate+safety stock. The firm should strike a trade-off between the marginal rate of return and marginal cost of funds to determine the level of safety stock. A firm, which carries a number of items in inventory which differ in value, can follow a selective control system. A selective control system, such as the A-B-C analysis, classifies inventories in three categories according to the value of the items. B-category consists of high value items and C-category consist of lowest value items. More categories of inventories can also created. Tight control may be applied for high-value items and relatively loose control for low-value items.
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The following are the advantages of available from the efficient inventory management;

Reduction in investment in inventories. Proper and efficient use of raw materials. Ensuring continuous production and maximum sales. Maintaining sufficient stock of finished goods for smooth and timely
supply of goods to customers and maintain their patronage.

Minimizing inventory costs. Efficient and optimum use of physical as well as financial resources.
safety stock. Benefits of inventory management and control:
Proper management and control of inventories will result in the
following benefits to an organization.
Inventory control ensures an adequate supply of materials and stores,
minimizes stock outs and shortages and avoids costly interruptions in operations.
It keeps down investment in inventories, inventory carrying costs
and obsolescence losses to the minimum.
It facilitates purchasing economies through the measurement of
requirements on the basis of recorded experience.
It eliminates duplication in ordering or in replenishing stocks by
centralizing the source from which purchase requisitions emanate.
Its permits better utilization of available stocks by facilitating inter-
department transfers within a company.
It
facilitates cost accounting activities by providing a means for
allocating material cost to products, departments or other operating accounts.

Perpetual inventory values provide a consistent and reliable basis for
preparing financial statements.
Composition of Material:
RAW MATERIAL
Work in process
Finished goods
Body casting
Valve bodies
Plug Valve
Fasteners
Valve stem
Ball Valve
38 series Ball Paints Stem gaskets Valve
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INVENTORY MANAGEMENT
FINANCIAL PHYSICAL INVENTORY MANAGEMEN T INVENTORY MANAGEMEN T
Inventory Management is consisting of 2 hands. The first hand as shown in the diagram is that Physical Inventory Management, Second one is Financial Inventory Management. The reason behind of dividing these views is: to gather the information very easily and for easy to understanding of each view thoroughly. Let us see the Meanings of each view one by one.
Physical Inventory Management

Meaning: Keeping of goods is also a type of management. Whenever requirements comes from the production department, providing of those required materials in a proper manner & providing those at the specified period, is the main motto of Physical Inventory Management. Benefits for Holding Inventory:

Benefits in Purchasing Benefits in Production Benefits in Work-in-Process Benefits in Sales.
Inventory, as a current asset, differs from the other current assets because only financial managers are not involved. Rather, all the functional areas, finance, Marketing, Product & Purchasing are involved. The job of the financial manager is to reconcile the conflicting viewpoints of the various functional areas regarding the appropriate inventory levels in order to fulfill the overall objective of maximizing of owners wealth.
Two-Bin System:
Under this system, the inventory items are grouped into two categories. In one group or bin, sufficient quantity is kept to meet the current requirements over a designated period of item. In another group or bin, a safety stock is maintained to meet the requirements of inventory at times when the stock in the first bin is exhausted and re-ordering occurs.
An effective inventory management should:
Ensure a continuous supply of raw materials to facilitate
uninterrupted production.
Maintain sufficient finished goods inventory for smooth sales
operation and efficient customer services.

Minimize the carrying cost and time. Control investment in investment in inventories and keep it at an
optimum level.
It permits a better utilization of available stocks by facilitating
interdepartmental transfers with in a company.
Maintain sufficient stocks of raw materials in periods of
short
supply and anticipated price changes. Benefits of inventory management and control: Proper management and control of inventories will result in the following benefits to an organization. Inventory control ensures an adequate supply of materials and stores, minimizes stock outs and shortages and avoids costly interruptions in operations. It keeps down investment in inventories, inventory carrying costs and obsolescence losses to the minimum. It facilitates purchasing economies through the measurement of
requirements on the basis of recorded experience. It eliminates duplication in ordering or in replenishing stocks by centralizing the source from which purchase requisitions emanate. Its permits better utilization of available stocks by facilitating interdepartment transfers within a company.
It facilitates cost accounting activities by providing a means for allocating material cost to products, departments or other operating accounts. Perpetual inventory values provide a consistent and reliable basis for preparing financial statements.
Methodology of the study

The study uses both primary and secondary data the primary data relating to organization structure different departments and information relating to inventory control have been collected through informal interviews with the official of the company format of different records used in the company are also collected the secondary data relating to financial aspects, inventory turn over ratios, ABC Method, of the companies products have been collected form published annual reports of the company.
ANALYSIS AND INTERPRETATION:

The data collected through primary and secondary sources were processed and presented in the chapter Data Analysis by various table and explanations. The table thus obtained were analyzed by calculating averages, percentages, Ratios and they are followed in respect of the stock of raw material , spares, work in progress, Sales, Inventory control procedures and thus to draw conclusions from the analysis done.
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Inventory Turnover Ratio:

Meaning:This ratio indicates the speed at which the inventory is converted into sales, which contributed, to the profits of the organization. Higher the ratio better will be the efficiency. Inventory Turnover Ratio = Cost of goods sold Average Inventory Table showing Cost of Goods Sold, Average Inventory and Inventory Turnover ratio Table No:1.
Year
Cost of Goods Sold in Rs
Average Inventory in Rs
Inventory Ratio.
Turnover
2003-04 2004-05 2005-06 2006-07
5,12,81,523.00 7,90,80,064.00 6,63,57,248.00 8,78,28,736.00
4,76,49,699.00 5,17,54,072.00 5,17,54,072.00 5,17,54,072.00
1.08 1.53 1.14 1.36
2007-08
9,37,52,654.00
7,36,08,050.00
1.27
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Chart No: 1
Interpretation:- From the above table no1 we come to know that the ratio is fluctuated during the study period the ratio is varied between in the period 2003-2004 is 1.08, in the year 2004-2005 is 1.53, in the year 2005-2006 is 1.14, in the year 2006-2007 is 1.36 and in the year 2007-2008 is 1.27. Inference : From the above calculations it can be inferred that that inventory turnover ratio effect negatively. It has decrease so it will effect to productivity .
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Inventory to Current asset Ratio: Meaning: Inventory to current asset ratio indicates the relationship between the inventory and current assets. It shows the percentage of inventory to current assets, which helps the organization it deciding the current asset policy, which also affect the liquidity of the organization. . Inventory to Current asset Ratio= Inventory
Current Assets
Table showing Current Assets, Inventory Percentage of inventory to Current Assets. Table No: 2
Year
Inventory in Rs Current Assets in Rs
Inventory to Current Asset Ratio.
2003-04
4,76,496,99.00 10,63,38,799.00
0.45
2004-05
5,58,58,444.00 1,45,76,0324.00
0.38
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2005-06 6,02,70,775.00 1,46,531,184.00 0.41
2006-07
6,88,35,885.00 15,52,90,452.00
0.44
2007-08
7,83,80,214.00 22,43,55,920.00
0.35
Chart No:2
Interpretation: From the above table no 2 we come to know that the companys inventory to current assets ratio shows that in the year 2004, 45 % thereafter decreased to 38% in the year 2005, in 2006 it again increased to 41%, in 2007 also it increased to 44%, But in 2008 again decreased to 35 %. Inference: From the above calculations it can be inferred that inventory to current ratio of the company increasing & decreasing in these years. it is because of decrease in the inventory level so it shows firm wants to increase its sales. It is not satisfactory because the ratio the reason is there is less increase in inventory, so the company may improve this ratio by increasing the inventories.
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Inventory to total assets. Meaning: Inventory to total assets indicates the relationship between the inventory and total assets. The significance of this ratio is it reflects the portion of the inventory as a percentage of total assets, which helps the management in deciding the utilization of remaining resources profitably. Since the inventory will lock up the huge funds and reduces the profitability of the organization. Inventory to Total Assets = INVENTORY Total Assets
Table showing ratio of inventory to total assets Table No:3
Year. 2003-04 2004-05 2005-06 2006-07
Inventory in Rs 4,76,49,699.00 5,58,58,444.00 6,02,70,775.00 6,88,35,885.00
Total Assets in Rs 13,04,13,852.00 16,70,36,683.00 16,62,54,264.00 17,23,66,405.00
Inventory to Total Assets Ratio. 0.37 0.33 0.36 0.40
2007-08
7,83,80,214.00
23,96,22,179.00
0.33
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Chart No:3
Interpretation: From the above table no 3 we come to know that in the year 2003-2004 0.37, In the year 2004-2005,and 200520-06 it is decreased to 0.33, 0.36 respectively in the year 2006-2007 again increased to 0.40 and in the year 2007-2008 is 0.33 it is decreased so inventory in the values was decreased. Inference: From the above calculations we inferred that the inventory to total assets ratio is decreased last year so the company is not using remaining resources properly.
Inventory to Working Capital Ratio.

Meaning: This ratio indicates the proportion of inventory is occupied out of total working capital. Lower the ratio less investment in inventories out of working capital and higher the ratio more investment in inventory. Inventory to Working Capital Ratio = Inventory Working capital
Table showing inventory, working capital and its ratio. Table No: 4 Year Inventory in Rs Working capital in Rs 2003-04 2004-05 2005-06 2006-07 2007-08 4,76,49,699.00 5,58,58,444.00 6,02,70,775.00 6,88,35,885.00 7,83,80,214.00 7,22,64,800.00 9,75,41,032.00 10,69,10,818.00 13,18,88,503.00 16,56,72,980.00 Inventory working Capital Ratio 0.66 0.57 0.56 0.52 0.47 to
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Cha
Chart No:4
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Interpretation: Above table no 4 shows that in the year 2004 the ratio of inventory to working capital is - 66%. In the year 2005-decreased to 57%, in 2006 it again decreased to 56%, in 2007 decreased to 52% and in 2008 it again decreased to 47% Inference: From the above calculations we inferred that the ratio of inventory to working capital is decreasing year by year, so it shows that company is trying to reduce amount of capital in the inventory which is blocked up out of total working capital of the company.
6) Material cost ratio

Meaning: This ratio indicates the percentage of material cost included in the sales. Lower the ratio better for the company Material cost ratio = material consumed X 100 Sales Table No:5
Year
Material Consumed in Rs
Sales in Rs
Materi al Cost Ratio
2003-04
5,12,81, 523.00 7,90,80,0 64.00 6,63,57,248.00 8,78,28,736.00 9,37,52,654.00
11,10,70,550.00
46.17
2004-05 2005-06 2006-07 2007-08
20,08,26,666.00 16,23,45,990.00 21,27,98,446.00 26,86,72,843.00
39.38 40.87 41.27 34.89
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Chart No:5
Interpretation: From the above table No 5 we come to know that the material cost is included in the sales of the firm. Inference: During the year 2007-2008 sales has increased so profit also increased.
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Method of Control
Yes/No
ABC analysis
Yes
VED analysis
No
FSN analysis
No
Interpretation: The unit adopts ABC analysis techniques for the control of the materials.
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ABC Analysis: ABC Analysis is a technique of exercising selective control over inventory items. The technique is based on the assumption that a firm should not exercise the same degree of control on all the items of inventory. , Classification of components under ABC analysis
'A' Class Items
'B' Class Items
'C' Class Items
1. Ball Valve
Top Cap Lock
Levers
A.Body
Adjuster
Sleeves
B.Tail Piece
TH. Collars
Wrenchers
C.Ball
Stopper Pin
Adapters
2.Plug Valves
Locking Plate
Adapter Pipes
A.Body
Gland
Springs
B.Plug
Stem Fasteners
Washers
C. Top Cap
Check Nuts
Ring Gaskets
Seats
Body Seal
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Bushes
Stem Seal
Retainers
Circlips
Bonnets
Metal Tags
Stem Seals
Lock Strips
Gear Box
Rubber Caps
Diaphram
Plastic Grips
Round Balls
Interpretation: The components under 'A' class items are costlier and enjoy greater degree of control, where as 'C' class items lower degree of control as they are least costly, 'B' class items are composed of those items that are less costlier.
ABC Analysis for the year 2007-08:

Table No: 6 Group items of Percentage of Items Percentage of Cost
5.0
78
15.0
14
80.0
Total
100
100
This table states that 5% of items account for 78% of total inventory cost, 15% of items of consumption have the share of 14% and 80% of items consume material worth of 8% of the inventory cost. The study reveals that the unit has controlled the materials in an effective way, by concentrating on A group items through ABC Analysis. This unit was able to minimize the cost and maintain the stock turnover rate at the comparatively higher level through scientific inventory control technique.
Chart6
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ABC Analysis for the year 2007-08
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% percentage of items & costs
78%
80%
% of items % of cost 15% 14% 5% A B Group of items C
8%
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FINDINGS
The company is using always
method best (ABC) control for
inventory management.
The inventory turnover ratio is increased to 1.36 in the year 2006-
2007 but company has taken care and now it is decreased to 1.27 in the year 2007-2008
Inventory to current asset ratio indicate that the liquidity of the
company is not high in the year 2007-2008 due to the inventories.
Inventory to total assets ratio indicates that the the co is not utilizing
the assets properly
From the above statement I found that blocking of working capital in
inventory is going on reducing to 0.47 in the year 2007-2008

The material cost ratio is satisfactory Re-order Level, Lead-time, Safety Stock etc are considered before
placing order
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SUGGESTIONS
The unit should take effective measure to control and manage the
investment made in inventories. The reduction in investment reduces the working capital requirement and reduces the cost of capital.
Regular cross check of stores should be made by outside agency so
that there is no scope for discrepancy
The company should use bar-coding for tracking the finished goods
inventory position at store which gives exact information and less chances of discrepancy. It also saves time in physical counting and noting the number every time the materials are issued.
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LIMITATIONS:
This study is limited to 5 years financial statements only. The present study is not exhaustive due to time and cost constraints. The study is limited to Hubli branch only.
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CONCLUSION:
From the study it can be concluded that the Flowservre MicroFinish method of Inventoty management system i.e, ABC Analysis is suited for the company. There is decrease in Inventory Turnover Ratio in present year compare to previous year so it has to maintain good Inventory Turnover. The liquidity of the company is not high due to the inventories because conversion of inventory into cash takes time so it is better to reduce the inventories in hand. In working capital blocking of inventory is reduced so it is done in a proper way.
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BIBLIOGRAPHY:

Company manual Company website
REFERNCE BooK:

Khan and jain Baligar
Page 65
ANNEXURE
Balance Sheet
PRTICULARS SOURCES OF FUNDS: Shareholders Fund Share Capital Advance against share capital Reserve & Surplus Net Deferred Tax liability Z APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Capital Work in Progress 45786561 21746008 24040553 24000 24064553 Investments Current Assets,Loans&Advances Inventories 47649699 55858444 60270775 68835885 78380214 10500 47194657 25928798 21265859 -21265859 10500 48904788 30298491 18606297 1096283 19702580 20500 49825927 33869036 15956891 1098562 7055453 20500 50856043 36708346 14147697 1098562 15246259 20000 34900000 35179 61145786 325000 34900000 35179 83931796 -118866975 34900000 35179 91373642 358133 126666954 34900000 35179 113934841 110964 48980984 34900000 35179 145642621 110964 180688764 2003-04 2004-05 2005-06 2006-07 2007-08
Sundry Debtors Cash & Bank Balances Other Current assets Loans & Advances
37807737 19528750 768414 584199 106338799
66497887 21117872 1540382 745739 45760324
46411224 37247819 2120432 480934 146531184
62889194 20727918 817918 2019537 55290452
91004726 47073751 750366 7146863 224355920
Less: Current Liabilities & Provisions Liabilities Provisions Net Current Assets Miscellaneous Expenditure to the extent not written off Total 18096789 15977210 72264800 66112 96405965 32342880 5876412 7541032 49584 118866975 19666956 19953410 106910818 33056 126666954 23171661 230288 131888503 16528 148980984 58778659 154756 165422505 -180688764
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A Project Report On A Study On Inventory Management With Special Reference

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A STUDY ON INVENTORY MANAGEMENT WITH SPECIAL REFERENCE TO FLOWSERVE MICRO FINISH PVT LTD

OBJECTIVES OF THE COMPANY

Producing quality products Customer satisfaction

FUTURE GROWTH AND EXPANSION:

SIZE RANGE MAXIMUM (MM) PRICE RATING #300 #800

CONSTRUCTION CS/SS CS/SS

3 PUMPS COMPONENTS AS PER ANSI AND ISO DCI/CS/SS

CS-Carbon steel SS-Stainless steel DCI-Ductile Cast Iron

ABOUT THE COMPANY:

Process Control Application

Pumps & Valve Manufacturing Industry in India is growing at the

BUSINESS ENVIRONEMENT OF THE INDUSTRY

FUTURE OF THE INDUSTRY:

38 series Ball Valve

BASIC FUNCTIONS OF VALVES:

Changing flow direction. Limiting fluid pressure

SCOPE OF THE STUDY

INTRODUCTION TO THE STUDY

OBJECTIVES OF THE PROJECT:

Number of Equity shares

Equity capital (Rs.)

Flow serve (Mauritius) Corporation, USA 76% 265200 26524000.00

Micro finish Valves Ltd, Hubli, India 24% 837600 8376000.00

TOOLS USED: MS-Excel has been used for calculations.

PLANNING AND PURCHASE DEPARTMENT

Monthly manufacturing plan is drawn five weeks early taking into

Monthly plan is readjusted based on feedbacks from production and

Based on the information provided by supplier in the format the

capacity of supplier is assessed

Based on the evaluation report the planning and purchase incharge

After the inspection the approval supplier will be entitled in list of

years from last supply are not included in the list .

Process module for purchasing

Process module for purchasing

Supplier for delivery and any special requirement

Release of purchase order

Receipt of work order

Prepare monthly plan

Its place in inspection report and run charts

B= Rework Quantity + Rejected Quantity * 10 Total no. of Quantity Received

DR= No of orders completed in time * 20 No. of orders required to be Completed

Mc KENSYS 7S FRAME WORK UNDER ORGANIZATION STUDY

QUALITY ASSURANCE DEPARTMENT:

.Receiving Quality Engineer is also responsible for identification of

Receiving Quality Engineer is also responsible for inspection of

In process Quality Engineer is responsible to ensure that the in

Dark Blue: Hold

ADMINISTRATION AND ACCOUNTS DEPARTMENT:

OBJECTIVES OF ADMINISTRATION AND ACCOUNTS DEPARTMENT:

To provide accurate and complete systematic information of

a number of functions and these

Operative function Statutory function

Planning Organizing Directing Motivating Controlling

OPERATIVE FUNCTION: PROCUREMENT

Selecting the right people for the right job.

Training Education Promotion

Salaries reward Incentive plan

AUTHORITY: Has authority implement system and follow procedures as

SWOT ANALYSIS: Strengths:.

ISO standard helps to marketing in International Level..

It is not having a separate marketing dept. No direct exporting.

Company has an out bond logistic management and documentation.

INTRODUCTION TO INVENTORY MANAGEMENT