Arjun Synopsis23

Inventory Management on Homag Machinery
RNSIT, DEPARTMENT OF MBA AND RESEARCH CENTER. Page 1

INTRODUCTION ABOUT PROJECT:
Inventory is an idle stock of physical goods that contain economic value, and are held
in various forms by an organization in its custody awaiting packing, processing,
transformation, use or sale in a further point of time.
Any organization which is into production, trading, sale and service of a product will
necessarily hold stock of various stock of various physical resources to aid in future
consumption and sale.
Different Types of Inventory
Components that make up the product. In other words, inventory is composed of
assets that will be showed in future in the normal course of the business operations.
The assets which firms store as inventory in anticipation of need are:
Raw materials
Work in process (Semi Finished goods)
Finished goods

The raw material inventory contains item that are purchased by the firm from other
and are converted into finished goods through the manufacturing (production)
process. They are an important input of the final product. The working process
inventory consists of items currently being used in the production process.
They are normally semi-finished goods that are at various stages of production in a
multi stage production process. A finished goods represented final or completed
products which are available for sale .The inventory of such goods consists of items
that have been produced but are yet to be sold.

TOPIC CHOOSEN FOR THE STUDY:
A study on INVENTORY MANAGEMENT IN HOMAG MACHINERY
BANGALORE PRIVATE LIMITED


NEED FOR STUDY:
Inventories perform certain basic functions which are of crucial importance in the
firms production and marketing strategies. Effective Control over the utilization of
materials has much bearing on profit and here is an attempt to study the management
of materials. This study helps the company to detect and evaluate its own strength and
weakness and also give recommendation for the better inventory management.
Without inventory management it would be difficult for any company to maintain
Control and be able to handle the needs of customers. Inventories are necessary for a
firm to operate efficiently and almost all business transactions involve the delivery of
a product or services in exchange of currency.
OBJECTIVES OF STUDY:
Finance is a very important aspect in every product/service manufacturing concern. A
study on this subject would be done with the following objectives:
To assess inventory management position and methods fallowed by the
company.
To determine the financial control by studying existing system of inventory
management.
To understand and measure economic order quantity for the selected raw
material items.
To analyze its inventory management methods with the help of ABC analysis,
FSN Analysis etc.

SCOPE OF THE STUDY:
This study is an attempt to study the organization as a whole and to study the different
department in detail, to get the detailed knowledge about an organization from
different aspects and to study the function of different department which constitutes
the organization.
So the attempt can make to suggest effective changes in that the organization to
achieve its objectives and the different department contribute effectively towards the

achievement of this organization goals. This study provides a wide scope for the
student to gain an insight into the practical aspects of a working of an organization.
METHODOLOGY ADOPTED:
Methodology study consists of collection of primary and secondary data, followed by
analysis and interpretation of collected data by using various tools such as ratio, bar
charts, pie charts etc
1. PRIMARY DATA:
Primary data is collected through interaction with the staff of accounting and
inventory and finance department
2. SECONDARY DATA:
The secondary data includes the information collected through following
sources:Books and Journals, Magazines, annual reports and companys website.
RESEARCH DESIGN:
The study was descriptive in nature. The attempt was made to evaluate the
performance of the company, for ascertaining the inventory management, the methods
and techniques used in Homag
LITERATURE REVIEW
1 Rajeev NarayanaPillai was presented in Indian Institute of Science (INDIA)
In ISSN: 20138423 emphasizes on Inventory management performance in machine
tool and Objective was stated that to understand IM practices, inventory cost and
related issues in SMEs. And To probe the factors that influence inventory cost and
ITR in SMEs. Has investigated that SMEs in inventory intensive manufacturing
industries are likely to be aware of the need and importance of IM practices. Our
study with reference to machine tools SMEs in Bangalore has indicated that these
SMEs without exception are indeed aware of the importance of IM practices.
However, when it comes to practice, almost one fourth of them did not pursue any
kind of IM practice.
This is primarily due to lack of motivation as well as lack of perception of immediate

financial gains. Thus modern IM practices are only confined to a minority even in the
inventory intensive machine tools manufacturing industry. Their subsequent analysis
brought out that those which pursued better IM practices also resorted to more
frequent stock verification as well as raw material ordering.
Study brought out that two important dimensions of IM are inventory cost per sales
and ITR. Those SMEs which could achieve better IM should be able to achieve lower
inventory cost per sales as well as higher ITR. If that is so those SMEs which Pursue
modern inventory practices should be able to achieve lower inventory cost per sales
and higher ITR. Our study brought out that this has indeed been the case in the
context of machine tool SMEs. Their final analysis brought out clearly that better IM
practices have a positive influence whereas inventory cost per sales has a negative
influence on ITR. All these enable us to infer that it is appropriate to encourage SMEs
to adopt better IM practices because that would enable them to achieve lower
inventory cost per sales and higher ITRs.

2. Rajeev Paper was presented in Department of Management Studies, Indian
Instituteof Science, Bangalore in Vol. 3 (2008) No. 4, pp. 312-320. Emphasize on
Do inventory management practices affect economic performance? An empirical
evaluation of the machine tool SMEs in Bangalore And the objective was stated
that to analyze the importance of material and hence IM in SMEs. And To probe the
relationship between IM and economic performance.
They concede that this paper aimed at analyzing the importance of inventory as an
input in the production process. Con-sequent, the role of IM in improving the
economic performance of SMEs is probed from an economic perspective. The
estimated production functions confirmed this with beta coefficients of inventory cost
ranking first amongst all the inputs. All the economic performance indicators adopted,
seem to have a positive
and significant association with IM performance in the SMEs. On the whole, it
appears that SMEs which are IM-efficient are also likely to perform better on the
economic front and experience higher returns to scale. Therefore, the SMEs must
aim at enhancing their efficiency of inventory use, as it is expected to be associated
with multiple benefits.


3. Scott Grant Eckert was paper presented in doctorate in Business
Administration (DBA) at the College of Business and Information Technology at
Argosy University.
In Journal of business and public policy (ISNN 1936-9794) was emphasize on
inventory management and effects on customer satisfaction and objective was
stated that to analyze the importance of inventory They concluded that
When studying inventory management, there is a need to further study these variables,
customer needs, vendor partnerships, technology, data integrity, and performance
measurements (Lee &Kleiner, 2001, p. 40) and their affects on inventory
management. In customer satisfaction, there may need to be further study on customer
satisfaction surveys and their effectiveness. Also, a further study of the effects of new
technologies applications such as RFID will have on the inventory management
process in relations to customer satisfaction. Finally, it is worth stating that all the
small business is opted to keep the inventory management system as they saw how it
improved their customer service.

4. Mr. Krishna Murthy was presented in International Journal of Research in
Business Management (IJRBM) Vol. 1, Issue 1, June 2013, 19-26 emphasizes on
THE IMPACT OF INVENTORY CONTROL ON COST AND
PROFITABILITY was objective was stated that to determine the method to
measure and determine the level of inventory by EOQ to explain the true cost for
handling and storing of inventory and they conclude that Inventory control definitely
gives impact to the cost and profitability for an organization. Therefore, we must
identify the type of inventory in our warehouse, whether they are good, bad or ugly in
term of profitability and dead or slow-moving inventory in term of duration of
stocking. We need to liquidate those unwanted inventory to maximize our investment.
In addition, we need to understand the cost of carrying the inventory such as storage,
Insurance, tax, damage and obsolescent in order to minimize the cost incurred. On top
of this, we need to perform Cycle counting for inventory accurately and make sure the
computerized inventory system presents the report in the way we want for
management decision. On the other hand, we need to determine the inventory turns
required to meet the return of investment and forecast of profit. A concept of adjusted
margin has to be introduced to reflect a more accurate calculation of actual inflow of

money in the business. Some cases in the personal Computer Industries are presented
to give examples of the impact of inventory.
Last but not the least, the future trends of Applying Internet, EDI, and virtue based
inventory and specialized industrial village are briefly described to give an
Understanding of latest development.

5 MsParimala Devi was presented in A Case Study of Bharat Heavy Plates and
Vessels Limited, Vishakhapatnam. Vol. 2, Issue 1, August 2011, 69-76
emphasizes on Management in Public Sector Heavy Engineering Industry.
Objective was stated that emphasis on the problems faced by materials management
department in BHPV Limited. She did a comparative study of inventory management
practices of BHPV with the public sector heavy engineering units. And then she
concluded that the researcher observed that frequent changes taking place in materials
management adversely affects the smooth functioning of materials management.
She also observed that the number of items in the inventories on the increase and she
suggested that enforcing strict control on the delegation of powers should curb it. For
determination of the appropriate quantity to be procured and minimum capital without
any delay in the production is of importance, in satisfying the conflicting interests.
For it, she gave some solutions like SIM(selective inventory management) which
consists of Pareto analysis (ABC analysis), criticality analysis (VED
analysis),movement analysis (FSN analysis) and availability analysis (SED, GOLF,
SOS etc.).She further highlighted the deficiencies of the management and they are as
follows. Adoption of inventory control methods like classification, codification, and
standardization, variety reduction, value analysis, ABC analysis is not systematically
implemented. Economic order quantity was not adopted. Vender rating techniques
and value analysis were not followed. Materials management manuals were not even
prepared in BHPV. Buying cost or inventory carrying cost of materials was not
worked out systematically. Computerization was not extensively done. So far, a good
number of research studies were conducted by different researchers in different
institutions in universities and they tried to cover all the aspects of materials
management in both public sector and private sector industrial units located
throughout the country.


6.Rama Krishna Rao B., in his thesis Materials Management in Heavy
Engineering Industry a case study of Bharat Heavy Plate & Vessels Limited
(BHPV), Visakhapatnam in 1979, he has evaluated the performance of materials
management in BHPV and identified some problems pertaining to materials
management in BHPV in particular and heavy engineering industry in general. The
method of investigation involves documentary evidence and survey of expert opinion.
He has evaluated the existing purchase systems and lead-time involved in
procurement of materials and suggested that the long lead-time should be reduced.
His study pinpointed the excess inventory in terms of number of months cost of
production in all the engineering units. He also highlighted some of the problems in
the area of materials management such as delay on the part of customers in supplying
their own materials, existence and disposal of surplus and non-moving items,
excessive lead time and excessive dependence on imports. He also found that the
administrative and procurement lead times of the company are on the higher side due
to the peculiar nature of the industry.
He suggested the liberalized purchase procedures, increasing financial powers to the
personnel, opening up of liaison offices in various countries to reduce the lead-time.
In comparison with the BPE norms, the inventory levels of various stores items in
BHPV and the overall inventory accumulation in Heavy Engineering Group was
relatively higher and he suggested for drastic reduction in the inventory levels.

LIMITATIONS OF THE STUDY:
This study has purely for academic purpose
This study involves levels of inventory constraints
The study is limited to extent of inventory information.


INDUSTRY PROFILE AND COMPANY PROFILE:
A. INDUSTRY PROFILE
India is in 13
th
position in machinery manufacturing industry across globe.
Manufacturing holds a key position in the Indian economy, accounting for nearly 16
per cent of real GDP in FY12 and employing about 12.0 per cent of Indias labor
force. Growth in the sector has been matching the strong pace in overall GDP growth
over the past few years. For example, while real GDP expanded at a CAGR of 8.4 per
cent over FY05-FY12, growth in the manufacturing sector was marginally higher at
around 8.5 per cent over the same period. Consequently, its share in the economy has
marginally increased during this time to 15.4 per cent from 15.3 per cent. Growth
however has remained below that of services.
Origin of machinery manufacturing industry in India:
The industrial revolution in different parts of the world can be visualized as waves , as
first proposed by Nikolai Kondratieff, a Russian economist in 1920s . The first wave
started in 18th century England with inventions related to the textile industry, steam
engine and printing. The second wave s tar ted in 19th century America and
comprised of rapid developments related to automobile, railroad and telephones. The
third wave in 20th century was led by Japan, which focused on electronics and
automation.
Machine was brought by Britishs during Second World War for defense production.
Though the earliest evidence of manufacturing activities in Indian subcontinent is
found in the remains of the Harappa civilization (4000- 3000 BC
Historical Perspective:
The Machine Tools industry in India dates back to the Second World War. Due to
non-availability of imported machine tools, a few British owned general engineering
firms took up their manufacture in India. This was followed by the start of
industrialization in a series of five-year plans.

The process of planning in the economy resulted in a second phase of machine tools

manufacturing with public sector investment in machine tools (HMT Ltd. 1953).
These two initial phases of development of the Indian machine tools industry saw the
production of general purpose machine tools most of which were produced under
technical assistance from foreign Collaborators (Oerlikon, Louden, Ward, Herbert,
Jones & Shipman, etc.).
The 1960s marked the third phase of the machine tools industry. During this phase,
the range of products witnessed rapid growth and various types of machine tools
including SPMs were manufactured. (Multi spindle Automats, Gear Cutting
Machines, SPMs, Broaching Machines, Presses, etc.).The Fourth Phase began in the
mid 1980s which saw the entry of Japanese machine tools makers in the Indian
market through licensing arrangements (Mori-Seiki, Mitsubishi, Hitachi-seiki,
NachiFuji-Koshi, Murata, etc.). At this point of time, the Indian machine tools
industry had the following characteristics:
Blanket Import Substitution The policy regime compelled broad
(Self Sufficiency) range import substitution regardless of
Costs
Encourage Transfer of Firms were in a hurry to replace
Product Technology imported machine tools and imported
Technology regardless of market size.
The technology of simpler machines
were copied by the smaller domestic
Firms.
Over Diversification As a result, the industry produced a
broad range of machine tools on a
small scale
Market Structure A small number of bigger firms
imported technology employed for
design and production; excessive in-
house production, poor subcontracting,
Poor domestic transfer of technology.

The fifth and current phase began in the early nineties after the liberalization of the

Indian economy. With market share of the bigger companies expanding and the public
sector giants shrinking and those of the smaller companies rising, in-house design
capability, entrepreneurial spirit, greater technology friendliness, operational
flexibility and lean management, combined to give a greater competitive edge to the
smaller companies set up by technocrats, resulting in a significant shift in machine
tools production to these medium sized companies. However, these companies
produce sophisticated machines and machines of higher capacity either single or
numbers.
Current Status In India:
The Indian machine tools industry manufactures almost the complete range of
metal-cutting and metal-forming machine tools. Customized in nature, the products
from the Indian basket comprise conventional machine tools as well as computer
numerically controlled (CNC) machines. There are other variants offered by Indian
manufacturers too, including special purpose machines, robotics, handling systems,
and TPM-friendly machines.
Efforts within the industry are now underway to improve the features of CNC
machines, and provide further value additions at lower costs, to meet specific
requirements of users. In keeping with the current trends, and emerging demand,
the CNC segment could be the driver of growth for the machine tools industry in
India.
The slowdown in the Indian economy since mid 1999 had its impact on the prospects
of Indian Machinery manufacturers. Output by domestic metalworking Machinery
manufacturers in 2001 calendar year declined to the lowest of just Rs.5.175 million
marking the fourth year of decline since 1997, for the Indian Machinery industry.
Much of this fall was due to subdued investment in 2002 by all the major user
segments of Machinery, except the defense industry, primarily because of a higher
capital expenditure outlay. However, in the last two calendar years, output of the
industry registered significant growth and the industry has achieved a high growth in
the past two years.
While the decrease in domestic production was lower in the case of conventional
metal-working Machinery, computer numerically controlled (CNC) Machinery
manufacturers too suffered, although marginally.


Lathes, machining centers, special purpose machines, and grinding machines were
categories of Machinery that sustained much of the order inflow even during 2001
although these segments registered a decline, in comparison with the previous year.
An industry, which has undergone a radical paradigm shift in its thinking, the Indian
Machinery industry is now recognized as a provider of low-cost high quality lean
manufacturing solutions. The industry resiliently supports all its users to enhance
productivity as well as improve competitiveness for the betterment of the final
customer. It is a well known and often repeated fact that the Machinery industry
forms the pillar for the competitiveness of the entire manufacturing sector since
Machinery produce capital goods which in turn produce the manufactured goods.

Structure of the sector:
The companies surveyed comprised of 43 percent private limited companies, 16
percent partnership firms, 10 percent proprietary firms, and 31 percent public limited
and 10 percent closely held public limited companies. As is evident, the industry is
highly segmented in terms of value and ownership pattern. This is mainly because of
low technology barriers in some segments of the Machinery industry.
The turnover of 72 percent of the companies was below Rs.50 crores and hence we
can derive that the majority of players in this sector are in the small and medium
category. 52 percent of the total companies surveyed had a turnover less than Rs.10
crores. The percentage of companies in the SSI category is the highest in this sector
OF the capital goods industry.
Hence the manufacturing competitiveness of the smaller companies and their
subcontractors producing the components has a major bearing on the industrys
quality and cost competitiveness.
This sector is dominated by companies who are owned either by entrepreneurs or
individuals and it is evident that inductions of professional managers at the top are
low.
When the companies were asked about their opinion on the future structure of the
sector, 19 percent of the companies had no opinion or vision about the future. 31
percent felt that there would be entry of either new players, or foreign players leading
to fragmentation. However, 50 percent of the companies felt that the smaller
companies will not be able to survive the onslaught of second hand machines being

imported into India and the technological changes taking place i.e. from conventional
to CNC and hence the market will witness consolidation in the future with the smaller
ones unlikely to survive with their present level of competitiveness. 51 percent of the
companies catered to the whole range of activities like design and engineering,
manufacturing and installation. 7 percent of the companies are into marketing and
servicing of domestic as well as imported machines


COMPANY PROFILE
PROMOTERS:
Management board of the main branch:
Dr. Markus Flik CEO, Corporate Development, Research
and Development
Harald Becker-Ehmck Production, Materials Management,
Quality Management and Affiliates
Jrgen Kppel Sales, Service, Marketing
Hans-Dieter Schumacher Finance, IT, Human Resources (CFO)

Management board of the Bangalore branch:
Mr. Bhaskar N Managing Director
Mr. Ashok Hegde Sr. Finance Manger
Mr. Ramesh Production Head
Mr. Shreedhar Design Head

Homag Machinery consists of Allocation division, assembling division, and Re
engineering division. It is one of the largest manufacturers of wood working
machineries in the world and renowned for its quality worldwide
It has the well qualified and trained employees and senior executives, managers,
staff and workers man are in the company.

The company has certified with ISO 9001 (Quality Assurance) during recent times,
Homag as ambitiously embraced TPM as one of the vital tools to improve the
performance further, thus aiming at world class excellence through the wee known
German techniques.
Leaders in value added engineering machineries segment
Fully integrated Operations
An ISO 9001-2000 Certified company
All safety instruction with reference to installation, maintenance and up-
keepment of equipment of the manufacturer must be implemented
For the personal safety of the employees Shoes, provided

Firefighting equipment and first aid also play an vital role for the safety of
employees
Major Suppliers:
ASD Safety Solutions
Beckhoff implements
BENZ GmbH
Rexroth Bosch Group
Eatons electrical business
Hans Eissle GmbH
Ferdinand Gross
Helukabel
Igus company
Leits roots
Leuco

B. VISION, MISSION AND QUALITY POLICY
Vision:
To be established as one of the top woodworking machinery manufacturer in the
country and provide innovative and quality products to the customer
Mission:
Living our values
Achieve sustainable and profitable growth in business
Delight our customers through product quality
Core Values:
Utmost concern towards customer needs
Concern and environment and safety
Respect for dignity and potential of all employees
Transparency and Integrity in every operation

Quality Policy:
Quality management System (ISO 9001-2000)
We are committed to improve manufacturing process and products on continuous
basis through effective quality management system for achieving customer
satisfaction
Homag shell strive for continual improvement and innovation in our integrated
machinery plant operations for quality products and services in a healthy and eco-
friendly work environment; include hazard identification and risk management and
create a niche in national and international markets.
C. PRODUCTS PROFILE:
NKR 210: it is an Edgebanding machine. It focus for the development of the NKR
220 Series was to offer a complete processing solution in the entry level segment,
with features which were previously only available on larger machines.
Machines is equipped with a precision gluing unit, a tillable end trimming unit for
straight and chamfer trimming and a top/bottom trimming unit. The feed speeds of
these models are 11 m/min. For the complete processing options and a perfect finish,
add a joint trimming unit, a radius scraper, a glue joint scraper or a buffing unit.
NKR 220FC:it is also edge banding machines are equipped with a precision gluing
unit, a tilt able end trimming unit for straight and chamfer trimming and a top/bottom
trimming unit. The feed speeds of these models are 11 m/min. For the complete
processing options and a perfect finish, add a joint trimming unit, a contour trimming
unit, a radius scraper, a glue joint scraper or a buffing unit. The NKR 220 Series
machine leaves nothing lacking. Whether your needs are batch size one production,
for demanding bespoke shop fitting applications, living & bed - room furniture or
functional office furniture, the NKR 220 Series always offers the right solution for
your requirements.
NKR 720: it is the Sizing and edge banding machine it has a gluing system, which
applies the glue directly on to the edge banding material. The coil-cutoff device is
either activated by foot pedal or, for serial production, by pr selecting the edge length
via digital length counter. The panel is placed on height spacers, which are fixed on

the working table, ordering to the shape of the panel. No template is required.
Because of the flexibility of the NKD 720, shaped parts and straight parts can be
processed easily on this machine
NKR210F: Perfect cut and high operating life due to diamond tipped tools for an
optimum edge joint quality. In 210F series there is joint trimming but NKR 210 there
is no joint trimming and also its connected value is more(9.5) as compared to the
NKR210(5)
NKR220C: Perfect cut and high operating life due to diamond tipped tools for an
optimum edge joint quality. Its connected value is lower than compared to the 220FC
Technical details:
Type of machine Working
height
Connected
value(kw)
Weight
(kg)
Edge
material
thickness
Work
piece
thickness
NKR 210 950mm 5 1180 0.4-3mm 8-50mm
NKR 220FC 950mm 9.5 1320 0.4-3mm 8-50mm
NKD 720 925mm 6 Approx.280 0.5-3mm 10-55mm
NKR 210F 950mm 9.5 1180 0.4-3mm 8-50mm
NKR 220C 950mm 5.5 1270 0.4-3mm 8-50mm

D. AREAS OF OPERATION:
Homag is a world class machine manufacturer, this plant is located at Bangalore
which investment is 30 crore and it is finest machine manufacturer in the country
and it is the largest manufacturer in the world. They import the 60% of the raw
material from Germany and 40% of the raw material would be local products, they
Assimilate, Re engineer, and Label the product and they make product ready. A
major portion of the operation is they export the machineries after finished product;
they mainly sell the product to many European countries.


E. OWNERSHIP PATTERN:
Nature of ownership:
Public

Private

Others (Specify)
Shareholding Pattern:

Sr.
No.
Name No. of shares
held
% Holding as
on the
beginning of
year
Class of
Shares
held
1 Promoter and Promoter
Group (In detail)

2 Directors
3 Institutions
4 Foreign Holdings 130,000,000 100% Equity
shares
5 General Public


F. INFRASTRUCTURAL FACILITIES
The organization has provided and maintained the infrastructure like buildings,
workspace, process equipment and supporting service like a fax
Weighing bridges
Security
Fueling point
Generators
Go down
Dressing room
Tanker parking
Technique and commercial consultants, sub contractors for the tooling its
related services.
Research and development
Facilities to Customer:
Credit facility
Logistics

Achievements and Awards:
Awards Year
Ludwig Erhard Prize

In 2004
Patent Management Award

2010
Axia-Award

2009

Ligna Innovation Prize 2009


G. COMPETITORS INFORMATION
1) BIESSE manufacturing co.pvt ltd:
2) Burt group Co. ltd:
3) ACM Woodmachinary:

H. SWOT ANALYSIS

Strengths:
Product quality is the strength of the company
Easy availability of raw materials
Good relationship with the suppliers
Satisfied and loyal customers
Location advantage with proximity to major market


Weakness:
The company is entirely depends on external transpiration like truck operators
etc because of these depends on external conveniences they have to
sometimes suffer loss
Opportunities:
Growing market for wood working machineries
Located at the Bangalore industrial area it will be a high-grade for the
company
Accessibility is easy
Competitive environment calls for improvement and increase in productivity
Threats:
High market fluctuations
Competition from new entrants like BIESSE manufacturing company pvt ltd
and some other companies


I. McKenzies 7-s Framework for organization study:
According to the 7s model there are seven basic dimensions, which represent the
basic core of the managerial activities. These are the levers which executive use to
influence complex and large organizations. Obviously, there was a concerted effort on
the part of the originators of the model to coin the managerial variables with words
beginning with the letter S so as to the increase the communication power of the
model. The Seven Ss are shared values, strategy, structure, systems, style, staff and
skills and these are shown in the fallowing figure.
The McKenzies 7S model for organization study is a value Based Management
Model. The value based management model describes how one can holistically and
effectively organize a company. Together these factors determine the way in which a
corporation or an organization operates.
The Hard Ss
STRUCTURE:
The term structure in 7s framework model refers to the organizational structure of the
company.
The designs of the organizational structure is critical task to the management of an
organization, it is the skeleton of whole organization. Organization structure refers to
the relatively more durable organizational arrangements and relationship.
It prescribes the formal relationship among various positions and activities.
Arrangement about reporting how an organization member is to communicate with
other members, the various activities performed by a members is all the part of the
organizational structure.
Organizational structure performs four major functions
It reduces internal uncertainty arising out of variable unpredictable, random
human behavior with the organization through control mechanisms.
It reduces external uncertainty through forecasting, research and planning in
the organization

It undertakes a wide variety of activities through devices such as
departmentation, specialization and division of labor and delegation of
authority
It enables the organization to keep activities coordinated and to have a focus
in the midst of diversity in the pursuit of objectives
It fallows the vertical structure

STRATERGY
It includes basic purposes, missions, objectives, goals and major action plans and
policies. In Homag, every department has its own strategies and policies.
Marketing strategies: Focusing on selected major customers in terms of their
locations, segments, potential demands etc, customizing of product so that the best
advantage by using Homag product in terms of yield, lower costs etc.

Pricing strategies: Homag is into goods segment where sales are made according to
customer specification. Hence not much of publicity and market leadership techniques
are required.
Price fixation: It differs for exports and domestic markets according to the industry
analysis made.
Promotional strategies: The production is done on the basis of customer order;
therefore the organization has not engaging in advertising activity. But as a
promotional tool it is giving is
Quick delivery
Better customer relation
Direct marketing
SYSTEMS
It refers to all rules, regulations and procedures both formal and informal. It includes
production plans, control systems, capital budgeting systems, cost accounting
procedures, budgetary system, valuation methods, recruitment training and
development plans. In Homag, every department has got their own information
system.
Human Resource Information System
There is an HR package which stores all employee profile such as employee ID, code
of joining date, personal profile, bank name, A/c no, qualifications, designation,
experience, pay scale, and history.
On the basis of this data rating is done.It also gives information of overall employee
structure like no. of persons joined in a month, transfers, promoted, land giver
category, loan taken employee, etc
Quality Systems:
Production departments have quality packages. They have their own targets and
grades, they check the machine giving their target or not.


Finance and Accounts Information System:
Following are the external and internal customers for the department whose profile
and transaction details are maintained.
External: suppliers, contractors, government dept, banks, financial institutions,
consultants, buyers and auditors
Internal: material department, stores, employees, purchase dept. HRD, and internal
auditors.
The softs Ss
SKILLS:
Skills are capabilities of organization as a whole. Skills, which describe the
organization as part of its character is, core competence like in Homag has
manufacturing Skills, development skills. The skills, which Homag possess are
assertive decision making, business knowledge, leadership, attitude, adaptability,
courageous and dynamism.
Training and development objective:
To bridge the gap between existing skills and desired skills. Training in Homag is
aimed at the systematic development of knowledge, skills, attitude and team work.
Training and development of personnel skills is considered a high priority area and it
forms an integral part. Programs are undertaken keeping in view the dynamic changes
in the environment, which are contributed by rapid technological obsolescence or for
personality development or as an indication.
Internal training is the when an outside agency or specialists comes to train the
employees
External training is given when the employees are sent to outside, in this company
some employees are sent to main branch which is held at Germany


STYLE:
Homage workforce is participative by nature. Each employee, workers are
contributing themselves at their level best towards the companys policies,
procedures, programs and growth. In every perspective the company considered all
employees, workers in decision making planning and the company respects the
suggestions, opinions, ideas of its human resources. Employees can participative in
plans but cannot change any acts made by the Homag management. Even the policy
decisions are taken with the consultancy of respective persons. Employees take casual
decisions and their immediate head gives the feedback. From the above facts we can
say that Homag has a participative management style.
STAFF:
Technical Staff:
Technical staff comprised of the engineers, diploma holders, etc are directly involved
in the direction. Maintenance of machines, operating of furnace machines, repairing
of machines is look forward by the technical staff. Even some times job rotation
policy of the company indulges the technical staff to carry to non-technical work.
Non-technical Staff:
The main objective of non-technical staff is to carry the business of management. Post
graduates, graduates and highly qualified peoples constitute non technical staff. The
main function of non-technical staff is to maintain paper works, computer works,
planning, decision- making, etc., the non-technical staff indirectly involved in
production process.
Duties and responsibilities of technical and non-technical staff are as follows:
To conserve and safeguard the company premises
To respect the right of peers, sub-ordinates, superiors etc
To maintain the discipline in the working hours and at work place
To follow the rules and regulations set up by the company
To contribute for the well-being and growth of the company
To enrich the knowledge about the job

SHARED VALUES:
It refers to the superior- subordinate goals. Values shared by the members.
Core values: Trust, relationship, challenge and foster ownership.
Other values: Concern for employees, customer satisfaction, commitment to society,
creating shareholders wealth.
J. FUTURE GROWTH AND PROSPTES
1. To improve the corporate image
2. Planning to conduct advanced technical programs. Introduce reward
schemes for shop in quality, safety, housekeeping, invention Etc
3. Survey on organization Climate
4. Introduction of suggestion scheme
5. Preparation of job description
6. Planning to conduct welfare, facilities to the employees

K. FINANCIAL STATEMENT ANALYSIS
Ratio Analysis:
Current Ratio:
Current ratio defined as the relationship between current assets and current liabilities.
This ratio is also known as working capital ratio. It is calculated by dividing the
current assets by total current liabilities
Current ratio=Current assets/current liabilities
Current assets include cash in hand, bills receivables, sundry debtors, inventory,
prepaid expenses, outstanding incomes , temporary investments and advances.
Current liabilities include bills payables, sundry creditors, bank overdraft, unclaimed
dividend, standing expenses provision for taxation and proposed dividend etc.


Table 2.1
Year Current asset Current liability Ratio
2012-2013 6,07,85,648 43643063 1.3927
2011-2012 64916424 38740233 1.6756
2010-2011 61725534 36581218 1.687

Analysis:As per the standards the ideal current ratio is 2:1 But according to the
analysis it is observed that the current ratio is not constant it is fluctuating year-by-
year. So company should maintain standard ratio.
Liquid ratio:
This ratio is also known as acid test ratio or quick ratio. This ratio is ascertained by
comparing the liquid assets to current liabilities prepaid expenses and stock are not
taken as liquid assets. The ratio may express as:
Table 2.2
Year Liquid asset Liquid liability Ratio
2012-2013 57949338 43643063 1.327
2011-2012 39992998 38740233 1.032
2010-2011 37197432 36581218 1.016

Analysis:According to analysis liquid ratio is increasing from year to year indicates
that the company is a liquid and so, it can pay off its short liabilities out of quickly
realizable asset without difficult


Working Capital Turnover Ratio:
Net sales
Working capital
Table 2.3
Year NET Sales Working capital Ratio
2012-2013 95079555 17142585 5.546
2011-2012 6340582 26176198 0.2422
2010-2011 7341654 20435765 0.359
Analysis:Since sales is increases from year to year indicates increase in working
capital requirement. From the analysis it is clear that working capital is effectively
utilized for increase in sales of a company from year to year.
Debtor turnover ratio:
Debtor constitutes an important constituent of current assets and therefore the quality
of debtors to a great extent determines a firms liquidity.
Credit sales
Avg.Account Receivables
Table 2.4
Year Credit sales Average account
receivable
Ratio
2012-2013 95079555 24136423 3.939
2011-2012 6340582 4297651 1.475
2010-2011 5897351 4123943 1.430

Analysis: The company has maintained low debtor turnover ratio which indicates
longer time lag between credit sales and cash collection


Balance sheet 2012-2013 And 2011- 2012

Sl. No Purticular 2012-2013 2011-2012
1 EQUITY AND
LIABILITIES

A Shareholders funds
a) share capital

75,000,000 50,000,000
b) reserves and surplus (32,726,358) (8,816,514)
B Non current liabilities
a) Long term provisions 831,849 506,596
Current liabilities
a) Trade paybles 38,480,199 37,400,410
b) Other current liabilities

4,671599 1,225,093
c) Short term provisions 491,267 114,730
Total Liabilities 86,748,554 80,430,675
2 ASSETS
A Non Current assets
a) Fixed assets
Tangible assets 9,585,420 6,568,726
Intangible assets 3,080,270 400,077
Intangible assets under
development
- 740,480
b) Defferd tax asset 9,373,698 4,234,181
c) Long term loan
advance
3,044,000 3,351,610
d) Other non current
asstes
879,518 219,180
B Current Assets
a) Inventories 24,775,190 40,455,685
b) Trade receivables 24,136,423 4,297,651
c) Cash and cah
equivalents
5,170,025 17,029,042
d) Short term loan and
advance
430,900 233,403
e) Other current assets 6,273,110 2,900,640
Total Assets 86,748,554 80,430,675


L. Learning Experience:
It was a great experience at Homag Machinery Bangalore Private Limited. It was
great knowledge base and an excellent training program we had in the company. The
staff of the Homag is also cooperative and friendly in their approach of training,
whenever we visit to any department the concerned staffs of that department have
allotted their precious time explaining us how that particular department functions.
In every department may be at lower level or higher level the concerned people have
given us all the necessary information we required. The very first day in our project
duration we visited the various department of the company and had a brief
introduction made by the external guide about the organization. My external guide
took me to all departments and introduced same staff of every department who
provides me all support and necessary information for my project work.
In this training period we really learnt many aspects and gain lot of experience in
knowing many things of the production process how the process takes place and how
they actually organization undergoes and work performance done in each department.


THEORATICAL BACK GROUND OF THE STUDY
General Introduction:
One of the most important areas in the day to day management of the firm is the
management of the inventory. Inventory management is the functional area of finance
that covers the efficiency of production of manufacturing firm. it is concerned with
the management of inventories as well as efficiency in cost reduction. The study helps
in evaluating efficiency of inventory management of Homage machineries
Inventory Management:
It recent decade business man have shown an increasing awareness of the need for
precision in the field of inventory context. In past centuries inventories were
considered as indication of wealth, even inventories greatly in excess of the amount
needed to carry on the process of production and distribution were considered
beneficial.
Since the advent of modern industrial wealth has become more and more identified
with money. An increase emphasis on liquidity has led business man to hold capital
and securities in reference to inventories although the later in fact have an inherent
convertibility not possessed, by the other categories. These have been stronger
tendency towards holding the means of purchase goods rather than the goods
themselves. Large inventories are viewed with alarm whereas former times no one
would even have doubled that such surplus were beneficial.
Inventories are often referred to graveyard as surplus stock has been principle cause
of business cycles. In fact they seem to have been the very focus point of instability
and collapse. As a result business men have developed an almost pathological fear of
increasing inventories.
Theoretical aspects of the study:
Meaning:
The term inventory refers to material lying in store. Inventory may be defined as the
raw materials or finished goods held for ultimate use in manufacturing process or for
resale purpose.For manufacturing concern ,inventories may consists of raw-materials,

semi-finished products, stores, and spare materials such as cotton, waste ,lubrication
oil, brush etc. whereas trading concerns inventory includes goods for ultimate resale.
Inventory constitutes the most significant part of current asset of a large majority of
the cost in India. On the average, inventories are approximately 60% of the current
assets in public companies in India. Because the large size inventories maintained by
firms a considerable amount of funds is required to be committed in them. Inventories
can be reviewed as idle sources of any kind having an economic value. They are these
goods which are procured, stored and used for the day to day functioning operation of
an organization
Different managers view inventories in different angles
Production Manager- He will like to have an adequate stock of raw material and
would like to produce in economic batch size. So that production line is not idle and
optimum capacity is utilized.
1) Purchase manager- He would like to order in charge volume as it involves
lesser number of order and consequently lesser work and cost
2) Finance Manager- He would invest on low inventories, because for him goods
are working capital and cash flow gets affected by the large inventory.
However high inventories mean lesser profits and these days no company can afford
high inventories. The reduction of Excessive inventories carries a favorable impact on
the companys profitability.Basically there are three kinds of inventories,
Raw-materials:-These are basic inputs to be converted into finished goods through
manufacturing process.
Semi-finished goods:-These are often referred to as work-in-progress. They represent
raw-materials which are partly converted or on which certain percentage of work is
done at various stages but not completed.
Finished goods:-These are complete in every respect of sale.
Common Characteristics of inventories:
1. Inventories share the fallowing characteristics
2. Inventories represent a financial investment for the company.

3. Inventories become part of the cost of goods sold and therefore a business
expenses.
4. Inventories use storage space, require handling incur tax, require insurance
and sometimes deteriorate , become obsolete or get lost or stolen
5. The availability of the right item at the right time is necessary for operating
any production process or satisfies a demand by a customer for a finished
product.
6. Inventories are not self-correcting. They must be managed and effective
management requires appropriate measures of performance
Nature of the inventories:
Inventories are the stock of the product of a company is manufacturing for sale and
components that make up the product. The various forms in which inventories exists
in a manufacturing company are:
1) Raw-materials
2) Work in progress
3) Finished goods
4) Stores and supply
Raw materials:
Raw materials are those basic inputs that are converted into finished product through
the manufacturing process. Raw materials inventories are those units, which have
purchased and stores for future productions
Work-in progress:
Work-in-progress inventories are semi-manufactured products, they represent
products that need more work before they become finished goods.
Finished goods:
Finished goods inventories are those completely manufactured products which are
ready for sale. Stocks of raw materials and work in process facilitate production.
While stock of finished goods are required to smooth marketing operation thus;
inventories serve link between the production and consumption of goods

Stores and supply:
Firm also maintain a fourth kind of inventories, supplies stores or stores and spares.
Suppliers include office and plant cleaning materials like soap, brooms, oil, and light
bulbs etc.
Need to hold inventories:
The questioning of the managing inventories arises only when the company holds
inventories. Maintaining inventories involve tying up of the companys funds and
incurrence of storing and handling costs. If it is expensive to maintain inventories,
why do companies hold inventories? There are three general motives for holding
inventories.
Transaction Motive emphasis the need to maintain inventories to facilitate smooth
production and sales operations.
Precautionary Motive necessitates holding of inventories to guard aginest the risk of
unpredictable changes in demand and supply forces and other factors.
Speculative Motive influences the decision to increase or reduce inventory level to
take advantage of price fluctuations.
Costs of holding inventories:
Ordering cost:
This category of costs associated with the acquisition or ordering inventory. Firms
have to place orders with suppliers to replenish inventory of raw materials. The
expenses involved are referred to as ordering costs. Apart from placing orders outside,
the various production departments have to acquire materials from stores. Any
expenditure involved here is also a part of the ordering cost. Included in the ordering
costs are costs involved in preparing a purchase order or requisition form and
receiving, inspecting, and recording the goods received to ensure both quantity and
quality.

The cost of acquiring materials consists of clerical costs and cost of stationery. It is
therefore called a set up cost. They are generally fixed per order placed, irrespective
of the amount of order.
Carrying cost:
The second broad categories of costs associated with inventory are the carrying costs.
They are involved in maintaining or carrying inventory. The cost of holding inventory
may be divided into two categories:
Those that arise due to the storing of inventory The main components of this category
of carrying costs are (1) Storage cost, that is tax, depreciation, insurance, maintenance
of the building, utilities and janitorial services:(2) insurance of inventory against fire
and theft: (3) deterioration in inventory because of pilferage, fire, technical
obsolescence, style obsolescence and price decline:(4) Serving costs, such as, labor
for handling inventory, clerical and accounting costs.
The opportunity cost of funds this consists of expenses in raising funds (interest on
capital) to finance the acquisition of inventory. If funds were not locked upon
inventory, they would have earned a return. This is the opportunity cost of funds or
the financial cost component of the cost.
The carrying costs and the inventory size are positively related and move in the same
direction. If the level of inventory increases, the carrying cost also increases and vice
versa.
The sum of order and carrying costs represents the total cost of inventory. This is
compared with the benefits arising out of inventory to determine the optimum level of
inventory.
1. ordering shipping and receiving cost
a) cost of placing order, include production and set up costs
b) Shipping and handling costs.
2. Cost of running stock/stock output
a) loss of sales varies
b) loss of customer go will varies
c) disruption of production varies

Acquisition Costs:
Acquisition costs encompass costs incurred in requisitioning purchase ordering setting
up, tracking receiving and storing placement. The more frequently acquisition of an
inventory are made the higher firms acquisition costs groom different perception if the
firms keep relatively large inventory levels there will be fewer acquisition made and
acquisition cost will be relatively small. So acquisition cost decreases with increasing
inventory size other thing being equal
If the inventory is inadequate then
1) It may hamper the production activities during the period of scarcity.
2) Trading firm may forego the possible anticipated profit if, it does not hold
sufficient quantity of goods in stock to meet the increasing demands of the
customers.
If the inventory is morethen,
1) Increased total cost incurred
2) Storage and handling cost will also increases
3) Required return on capital being tied up in the inventor
Therefore
A perfect balance should be struck between investment made on the inventory and
benefits to be obtained there from.Inventory management includes the determination
of quantity of inventory to be carried, fixing timing schedules, determining minimum
stock levels, procuring, disbursing ,storing materials, assigning inventory control
responsibilities and supervision.
Thus, inventory management is concerned with proper planning and controlling raw
materials, finished goods, and store materials in stock for efficient production or
ultimate selling purpose.
Inventory Evaluation:
Many methods of materials costing and inventory has come into use among the more
common methods of costing materials and valuing inventories are

1) First in First out (FIFO) :
Here the earliest acquired stock is assumed to be used first. The stock which is bought
first is issued first in other words the principle is that the materials are issued in this
order and price of their original purchase.
This method is claimed to the accurate for the reason that the materials are changed
into production at annual cost in the order of receipt. The closing inventories are
valued at the most recent prices. If the closing inventory balance includes material at
several different prices the problem of considerable clerical work is involved.
It is a method in which materials are issued according to their incoming time i.e.
whichever is come first that should be issued to manufacturing department first. This
method is very reliable to the company for full and efficient utilization of materials
and some are remained lastly without issuing they are known as Shelf Life Items.
This method assumes that the order in which materials are received in the stores is the
order in which materials are issued from the stores. Hence the material which is
issued first placed on the basis of the cost of materials received earliest soon and so
forth.
2) Last in First out (LIFO):
This method is the opposite of the FIFO method; it assumes that the material which is
acquired last is issued first hence materials issues are priced on the basis of the cost of
the recent purchases
3) Weight Average Cost Method:
This method is issued are priced at the weighted average cost of materials in stock to
get an into data weighed average cost figures a new weighted average cost is
calculated each times a delivery is received.
ANALYTICAL TECHNIQUES USED FOR THE STUDY:
ABC Technique:
Organizations can classify inventories on the basis of amount spent on purchasing
various items. The comparatively costlier items can be kept in one class and

moderately costly items can be put into another. Comparatively cheaper items
forming the bulk of inventories can be put into yet another class. The class comprising
costlier items can be designated as A class and class with moderately costly items as
B class and cheaper items as C class. This is the simple ABC technique of
managing inventories.
The procedure of ABC classification is as fallows
1) Classify the inventories determine the expected use in units and the price per
unit for each item.
2) Determine the total value of each item by multiplying the expected units by its
unit price.
3) Rank the items in accordance with the total value giving first rank to the item
with the highest total value and so on.
4) Compute the ratio of number of units of each item to total value of all items.
5) Combine items on the basis of their relative value to form three categories A,B
and C
Item category % of the total inventory
A 70%
B 20%
C 10%
Total 100%

FSN Technique:
This will be made on the principle of classification, which classifies the inventory
items depending on whether an item is Fast moving, Slow moving and Nonmovingfor
the business activities. The items identified as vital require more attention.
EOQ Technique:
EOQ is the quantity of any item that should be ordered in order to keep inventory
cost, carrying cost and ordering cost to the minimum. This technique controls the
quantum of inventories as well as of the order.

JIT Technique:
JIT focuses on ordering inventories as and when the need arises. It focuses on
reduction in investment in inventories and in carrying cost. It improves return on
investment as the amount blocked in inventories is minimized. However, the success
of JIT technique depends on faster communication with suppliers and the seat lead-
time of various items. This technique is successful when the organization has easy
geographical approach and is near to the sources of input materials.

Various levels of materials
1) Minimum stock level
2) Maximum stock level
3) Re-ordering level
4) Danger level
Techniq
ues of
inventor
y
manage
ment
FSN
ABC
JIT
EOQ

Minimum stock level:
This represents the minimum quantity of stock that should be held at till times; stock
level is normal not allowed facing below this level. This level of stock is a buffer
stock for use during emergencies. Fall stock level below minimum level will indicate
potential danger to this business. Thus extra efforts have to be taken to expedite the
supply.
Minimum stock level= (Reorder level-Normal consumption)
The following factors are to be considered in fixing the minimum level
1) Nature of items of materials.
2) Minimum time required for delivery.
3) Rate of consumption of materials.
4) Stock-out costs which includes loss of contribution margin, loss of Goodwill
etc.
Maximum stock level:
Maximum level indicates maximum quantity of an item of material. It is that level
above which stocks are not allowed to rise. Maximum level is calculated as, Re-order
level+ Re-order quantity minimum consumption * minimum Re-order period
In fixing minimum stock level the factors to be considers are:
1) Maximum requirement of the stock for production at any point of time.
2) Storage space available.
3) Storage and insurance costs.
4) Availability of funds.
5) Price advantage arising out of bulk purchases.
6) Economic order quantity also affects the maximum level.
7) Government restriction on import
8) Possibility of price fluctuation
Re-order quantity (EOQ):
It refers to the quantity to be purchased in a single purchase order. It is nothing but
economic order quantity.

Danger level:
This level is fixed usually below the minimum level emergent purchase actions are
initiated if stock falls below danger level.
RAW MATERIAL HANDLING SYSTEM (RMHS):
RMHS is backbone of industry which supply raw material of require quality
inadequate quantity to respective department.
Functions of RMHS:
1) Receive raw material in adequate quantity.
2) Allocate space for raw material stacking.
3) Effective bedding and blending of incoming raw materials from different
sources to get homogeneous structure.
4) Timely supply of raw material to respective department.
Raw material source:-
Heavy fabrication parts Germany
Machine parts Germany and Europe countries
Sheet metals India
Pneumatics India
Brushes India
Stickers Germany
Ball screws India
Motor drivers Germany and France
MCB Germany
MVCB Germany
Cables India
Stores department:
Homag has stores department in its premises with computerized and duties of stores
department in homage


Indent through indent:
User department should issue the indent for the required material through online
system after issuing, this indent comes under stores section and stores will verify the
stocks and clear the indent and then this indent comes to purchase department.
Checking of purchase order:
When materials come to store, then authority person check the material with purchase
order.
If materials are rejected:
If materials are rejected the remarks should be written in rejection column for what
purpose the materials are rejected and the same will be informed to purchase
department and also to Party supplier, then rejected materials are send to supplier
through purchase department.
Issue note: If material is require for user department, the concern head sign is must
and should require on store issue voucher receipts and they also take sign of the
person who receive the material and authority person of store also sign on store issue
voucher i.e. store keeper. The same is to be posted to register and they reduce the
stock and value of materials.
Verifying of stock materials:
They verify stock monthly, quarterly, half yearly, yearly and they also verify stocks
occasionally as per requirement, stock report should be submitted to accounts
requirements at year ending.


DATA ANALYSIS AND INTERPRETATION
Ratio Analysis:
For any firm future corrective action, analysis of past performances of the firm we
front is essential. This requires knowledge and use of certain tools and techniques that
may help management to spot out problem areas and take future action. Among many
tools, ratio analyses are simple but effective tool available to management. Ratio is
the relation between two variables. However ratio has to make sense these variables
should have logical relationship to each other. Ratio analysis involves calculations
and interpretation of ratios. Ratio analysis can be used by management as a powerful
tool to verify the level of comparison of inventory held by management in business as
against its operation the extent of liquidity present in asset structure.
Data analysis:
To analyze the inventories and its turnover periodically and to know how inventory is
relate to other aspects like current assets, sales and working capital. From this
inventory analysis we can come to know that how store management is effectively use
all raw materials.
So the inventory management related ratios are as follows,
1) Inventory turnover ratio
2) Inventory Holding Period
3) Inventory to current assets
4) Inventory to working capital
5) Inventory to sales
6) Average consumption raw material per day


1. Inventory Turnover Ratio =Cost of Goods Sold/average inventory
Table 4.1
Year 2010-2011 2011-2012 2012-2013
Cost of goods sold 55,789.467 64,340,582 86,439,723
Average inventory 42,897,213 40,455,685 24,775,190
Inventory turnover ratio 1.30 1.59 3.488

Graph 4.1

Analysis:
The above graph shows that inventory turnover ratio of Homag, in the year 2010-2011
it was 0.136, in the year 2011-2012 it was 0.156 and in the year 2012-2013 it was
3.837
Interpretation:
The higher inventory turnover will be show a good inventory management. And low
inventory implies excessive inventory levels than warranted by production and sales
activities. In comparatively 2011-2012 and 2010-2011 are turnover quite same, but in
2012-2013 it shows improvement. It shows increase in sales

0
0.5
1
1.5
2
2.5
3
3.5
4
2010-2011 2011-2012 2012-2013
Inventory Turnover Ratio
Inventory Turnover Ratio

2.Inventory Holding Period= 360/Inventory Turnover Ratio
Table4.2
Year 2010-2011 2011-2012 2012-2013
No. Of Days 360 360 360
Inventory turnover ratio 1.30 1.59 3.488
Inventory Holding Period 276days 226 days 103 days

Graph 4.2

Analysis:
The above graph shows that Inventory Holding period of Homag, in 2010-2011 it was
276 days and in the year 2011-2012 it reduce to 226 days and finally in the year 2012-
2013 it was reduced to 103 days
Interpretation:
The inventory holding period should be less, the fewer inventories holding period
shows the good inventory turnover it has high during the year 2010-2011 and 2011-
2012 due to the start up, but it was comparatively good in the year 2012-2013.
0
50
100
150
200
250
300
2010-2011 2011-2012 2012-2013
Inventory Holding Period
Inventory Holding Period

3. Inventory to current assets= inventory/current assets
Table4.3
Years 2010-2011 2011-2012 2012-2013
Average Inventory 42,897,213 40,455,685 24,775,190
Current assets 61,725,534 64,916,424 6,07,85,648
Ratio 0.694 0.623 0.407
Graph 4.3
Analysis:
The above graph shows that the inventory to current assets in Homag. In the year
2010-2011 it was 0.694, in the year 2011-2012 it was 0.623 comparatively slight
decreases and in the year 2012-2013 it was 0.407
Interpretation:
The inventory to current assets ratio should be less than the companys liquidity will
be good. The inventory will be considered as a companys current asset, so the
company has to maintain the less ratio of inventory to current asset. In homag the
inventory to current asset is less, it was decreased in 2011-2012 and 2012-2013

0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2010-2011 2011-2012 2012-2013
Inventory To Current Assets

4. Inventory to working capital=inventory/working capital:
Table 4.4
Years 2010-2011 2011-2012 2012-2013
Inventory 42,897,213 40,455,685 24,775,190
Net working capital 16,321,765 17,142,585 26,176,198
Ratio 2.6282 2.359 0.9664
Graph4. 4

Analysis:
The above graph shows that the inventory to working capital in homag. In the year
2010-2011 it was 2.6282, in the year 2011-2012 it was 2.359 and in the tear 2012-
2013 it was 0.9664.
Interpretation: The inventory to working capital ratio shows the, how the company
utilizing the inventory with using the working capital. This ratio should be less than
its current assets it shows the company is utilizing a good inventory with less
utilization of the working capital.
In homag it was high in the year 2010-2011 and 2011-2012 but it was 0.9964 in 2012-
2013 so it shows the company using high working capital for the utilization of the
inventory.

0
0.5
1
1.5
2
2.5
3
2010-2011 2011-2012 2012-2013
inventory to working capital
inventory to working capital

5. Inventory to sales= inventory/sales
Table4.5
Year 2010-2011 2011-2012 2012-2013
Inventory 42,897,213 40,455,685 24,775,190
Net sales 10,321,860 6,340,582 95,079,555
Ratio 4.155 6.380 0.260

Graph4. 5

Analysis:
The above graph shows that the inventory to sales in homag, In the year 2010-2011 it
was 4.155, in the year 2011-2012 it was 6.380 but in the year 2012-2013 it was 0.260
Interpretation:
In inventory to sales ratio it shows that, how the inventory is related to the sales. So
the ratio should be more. In homag inventory to sales ratio has been decreased yearly,
it shows the company has low sales and it is strong more inventories for a longer
period of time
0
1
2
3
4
5
6
7
2010-2011 2011-2012 2012-2013
inventory to sales
inventory to sales

6. Average consumption of raw material per day=total material
consumed during the year/no. of days in year
Table4.6
Year 2010-2011 2011-2012 2012-2013
Cost of raw material 1,209,987,231 1,267,768,763 1,405,925,864
Number of days in
year
360 360 360
Avg.consumption per
day (in Rs)
3361075.641 3521579.89 3905349.22
Graph4.6

Analysis:
The average raw material consumption per day in 2010-2011 was 33 lacks, in the year
2011-2012 it was 35 lacks and in the year 2012-2013 it was 39 lacks
Interpretation:
The average consumption of raw materials in terms of Rs shows that in the year 2010-
2011 was low and gradually it starts increases till the year 2012-2013. Here average
3000000
3100000
3200000
3300000
3400000
3500000
3600000
3700000
3800000
3900000
4000000
2010-2011 2011-2012 2012-2013
Average consumption of raw material per day
Average consumption of raw
material per day

consumption of raw material implies the raw material consumed per day production.
As it increased the production increases the consumption of raw material.

Years 2010-2011 2011-2012 2012-2013
Inventory Turnover
Ratio
1.30 1.59 3.488
Inventory Holding
Period
276days 226 days 103 days
Inventory To Current
Assets
0.694 0.623 0.407
Inventory To
Working Capital
2.6282 2.359 0.9664
Inventory To Sales 4.155 6.380 0.260
Average Consumption
of raw material per
day(Rs)
3361075.641 3521579.89 3905349.22


1. ABC ANALYSIS:
Table 4.7

Exact value: A=90,142,000 B=116,000,000 C=128,760,000
Exact percentage: A=79.27% B=17.37% C=3.36%

Analysis:
The most costly and valuable items are Classified as A i.e. 79.27% in Homag, and
average consumption value are classified as B i.e. 17.37% and rest are in the
category of C.
S.No Items Annual usage Rank Group
Rank
Descending
order
CUM %of items
1 Heavy fabrication parts 6,00,00,000 1 1 6,00,00,000 6,00,00,000 A
2 Machine
Parts
18,00,000 4 2 4,20,00,000 10,20,00,000 B
3 Sheet metals 8,40,000 5 3 2,24,40,000 12,44,40,000 C
4 Pneumatics 4,80,000 7 4 18,00,000 12,62,40,000 C
5 Brushes 2,88,000 8 5 8,40,000 12,70,80,000 C
6 Stickers 1,92,000 9 6 7,20,000 12,78,00,000 C
7 Motor drivers 2,24,40,000 3 7 4,80,000 12,82,80,000 C
8 MPCB 4,20,00,000 2 8 2,88,000 12,85,68,000 C
9 MCB 7,20,000 6 9 1,92,000 12,87,60,000 C
8825000 8825000

2. FSN ANALYSIS
Table 4.8
Group Items Group
1 Heavy Fabrication S
2 Machine Parts F
3 Sheet metals F
4 Pneumatics S
5 Brushes F
6 Stickers F
7 Ball screws N
8 Motor drivers S
9 MPCB N
10 MCB S


Graph 6

Group F-inventory ranging between 1 Week to 2 week.
Group S-2 week to 5 week.
Group N-Above 5week
Interpretation: 40% of the items are Fast moving group, 40% of the items are Slow
moving group and 20% of the items are Non-moving group.

4
4
2
FSN ANALYSIS
F
S
N

CALCULATION OF REORDER LEVEL:
Table 4.9

SS=(max. daily
usage-avg.daily
usage)x lead
time
Avg. daily usage
(Annual demand)
360
Lead time Reorder Level =
Safety Stock +
Average Daily
Usage Lead
Time
Heavy Fabrication 12 0.833 6 76
Machine Parts 16 1 5 80
Sheet metals 9 0.8 6 59
Pneumatics 7 0.533 5 38
Brushes 6 0.533 4 26
Stickers 12 1.06 4 52
Motor drivers 20 1.83 4 87
MPCB 10 0.66 5 53
MCB 12 0.56 5 62

3) EOQ ANALYSIS:
Table 4.10
S.No Items EOQ=2AO/C Units
1 Heavy
Fabrication

=230050/4
87
2 Machine
Parts

=236035/3
92
3 Sheet metals
=224037/2.5
84
4 Pneumatics
=219225/4
49
5 Brushes
=219215/2
54
6 Stickers
=238410/1.5
72
7 Motor drivers
=266070/5.5
130
8 MPCB
=224050/5.5

69
9 MCB
=220441/2.5
81


CALCULATION OF MAXIMUM LEVEL OF INVENTORY:
Table4.11
Particulars Safety Stock EOQ Max Stock =
Safety stock +
EOQ
(units)

Heavy Fabrication 13 87 100
Machine Parts 15 92 107
Sheet metals 9 84 93
Pneumatics 7 49 56
Brushes 6 54 60
Stickers 12 72 84
Motor drivers 20 130 150
MPCB 12 69 71
MCB 7 81 88


FINDINGS
1. As per the inventory turnover ratio in the year 2010-2011 and 2011-20112 it was
1.50 & 1.59 but it was increases up to 3.488 in the year2012-2013
2. In the year 2011 and 2012 inventory holding period was 276 days and 226 days
but it was reduced to 103 days in the year 2012-2013. It is comparatively good for
the inventory management
3. Inventory to Current assets ratio should be less then it shows a good inventory
management, as per the company it decreases from year to year in the year 2011
and 2011-2012 it was 0.694 and 0.623 in the year 2012-2013 it was 0.407
4. As per the Companys working capital ratio is shows good, because in the year
2010-2011 & 2011-2012 it was 2.6282 & 2.359 but in the year 2012 &2013 it
reduces to 0.9964
5. As the inventory to sales in the year 2010& 2011 it was 4.155 & 6.380.because
their net sales is low then in the year 2012 &2013 it was 0.260
6. In the average consumption of raw materials shows good level. In the year 2010-
2011 & 2011-2012 it was 33610.75 & 3521579.89 then in the year 2012-2013 it
increases upto 3905349.22
7. As the ABC Analysis 79.27% of valuable items are considered as A
Category,17.37% are considered as B Category and remaining 3.36% items are
classified as C Category
8. In the FSN Analysis 40% of items are considered as Fast moving group, 40% of
the items are Slow moving group and remaining 20% of items are Non- moving
group


SUGGETIONS
1. The Items of Nonmoving group (20%) can be reduced to have more Control
over the inventory
2. It will be better if the firm try to decrease the Inventory Conversion Period
through efficient management of them.
3. The higher turnover ratio indicates efficient management of inventory because
more frequently the stock sold, so efficient steps have to be introduced to
improve the inventory ratio
4. The company should follow the first in first out method in issuing the
materials to the production department.
5. The company is maintaining ABC Analysis which is at satisfactory level and
hence the company can continue to maintain the same method of inventory
technique


CONCLUSION
Inventory Management is a vast subject and it is very difficult to cover all the
aspects within a short period. However, every effort has been made to cover most of
the important aspects which have a direct bearing on improving the Inventory System
of the Company.
It is investigated in this report that, effectiveness of inventory management should
improve in all the aspects; hence the industry can still strengthen its position by
looking into the inventory should be fast moving so that warehouse cost can be
reduced. And also we can conclude that the finished goods have to be dispatched in
feasible time as soon as manufacturing is completed. And their EOQ level was
satisfactory. And also concluded that The Homag Machinery Bangalore Pvt .Ltd. Rawmaterial
turnover was satisfactory
Finally the success of Inventory System would depend on the efficient Management
of the inventory techniques to proper measures taken to improve

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Inventory Management on Homag Machinery

RNSIT, DEPARTMENT OF MBA AND RESEARCH CENTER. Page 1

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