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1.

1 INTRODUCTION
“Good planning is good inventory management and good inventory management is
good financial management”. – S.K. Kuchal. Inventory comprises stock of raw materials,
work-in-process, finished products, stores and components. “John HAMPTON”— treats
inventory as "locked up capital". Inventory measured by rupee value constitutes, the major
element in the "Working Capital" (approximately 60 percent of current assets) of many
business undertaking in India.

DEFINITION OF INVENTORY

"John J. Hampton" defined inventory as “The goods for eventual resale by the firm”.
Inventory, measured by rupee value constitute the major element in the working Capital of
many business undertakings. Inventory is the value of raw materials, Consumables, and
spares, work-in-process, finished goods and scraps are called as locked up capital. The major
determinants of investment in inventory are:

 Level of sales.
 Length and technical nature of the production process.
 Durability vs. Perish ability or styling obsolescence of the product.

Inventory involves two types of costs. The first is "Direct Costs", which is connected
to buying and holding of goods and the second is "Indirect Costs" or "Financial Costs". The
direct costs includes firstly ordering costs. These costs include cost of placing order,
Shipping, handling and quality discount etc., If the firm places few orders frequently, the
ordering cost will be higher. Secondly, carrying cost are the costs which are incurred for
storing the goods. These costs include the space insurance, obsolescence, spoilage and
damages or thefts. The indirect costs include interest paid on the capital tied up in the
inventory and the inadequacy of materials involves the cost.

Efficient inventory management reduces levels of inventories to a considerable degree


without effect on production and sales by using simple inventory planning and control
techniques. An understanding neglecting the management of inventories will be jeopardizing
its long run profitability and survival.

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Inventory is an idle resource which is usable and has value.
 It may be men, money, materials, plant acquisition, spares other stocked to meet
future demand.

 A physical resource that a firm holds in stock with the intent of selling it or
transforming it into a more valuable state.

 Raw Materials
 Works-in-Process
 Finished Goods
 Maintenance, Repair and Operating (MRO)

Inventory Management means safeguarding the company's property in the form of


inventories and maintaining it at the optimum level, considering the operating requirements
and financial resources of the business. Inventory Management emphasizes control over
purchases, storage, consumption of materials and determining the optimum level for each
item of inventory. The reduction in "an excessive inventory i.e., excesses above the optimum
level carries a favorable impact on company's profitability, likewise maintaining inventory
below optimum level negatively affects the company's profitability. Hence, inventory
management should be comprehensive enough to cover the flow of materials starting from
the point when some one makes a request for the purchase, up to the stage when the finished
products are sold.

Meaning of Inventory Control


Inventory comprises stock of raw materials, work-in-process, finished goods, stores
and components. The aim of inventory control is to achieve maximum efficiency in the
management of inventory. "Inventory Control" may be defined as "Safe-guarding of
company's property in the form of inventory and maintaining it at the optimum level,
considering the operating requirements and financial resources of the business". The
definition embraces control over purchases, storage and consumption of materials and
determining the optimum level for each item of inventory. The system of control should be
comprehensive enough to cover the flow of materials starting from the point when some one
makes a request for the purchases up to stage when materials are consumed and their costs
compiled and assembled in cost sheet.

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Objectives of inventory control

The following purpose should be kept in mind in developing and maintaining a


system of control.

♦ Effective use of financial resources available to business i.e. to maintain the


investment in inventory at the lowest level consistent with operating
requirements.

♦ Avoidance of the "out-of-stock" danger i.e., to provide a supply of required


materials without any delay for efficient and uninterrupted operations.

♦ Reduction to a minimum of the risk through obsolescence.

♦ Economy in purchasing as affected by quantity buying and favorable raw


material market.

♦ Storage of inventory with a minimum of handling time and cost and to protect
them from losses by theft, fire and damage.

♦ Service to customers i.e., maintaining sufficient stock of finished products to


meet reasonable expectations of customers for prompt delivery of their order.

♦ Accurate and regular material reports to management by keeping perpetual


inventory and other up to date records.

Techniques of inventory control


The various techniques used for inventory control are as follows:
1. ABC Analysis.
2. Level Setting.
3. Economic order quantity.
4. Proper Purchase Procedure.
5. Proper Storage.
6. Perpetual Inventory Systems.
7. Establishment of a system of Budgets.
8. Review of slow and non-moving items.
9. Use of radios, e.g. inventory turnover.

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Essential requirements of Inventory control
Essential to an adequate control of inventory are the following requirements.
♦ there should be proper co-ordination and co-operation between various
Concerns, viz., purchasing, departments receiving, inspection, storage, Issues
and cost departments.
♦ Purchasing should be centralized under the control of a competent Manager.
♦ There should be proper planning of materials requirements.
♦ There should be proper classification of materials with codes, materials
satisfactorily storage control procedures.
♦ There should be planned storage control and issues so that there will be delivery
of materials upon requisition to departments in the right quantity at the time they
are needed.
♦ Appropriate records should be maintained to control issues and utilization of
stores in production.
♦ The system of perpetual inventory should be operated so that it is possible to
determine at any time the amount and value of each item of material in stock.
♦ Maximum, minimum and re-ordering levels of stocks should be fixed.
♦ There should be a system of regular reporting to management regarding
materials purchase, storage and utilization.
♦ There should be an efficient system of internal audit and internal checks.

ECONOMIC ORDER QUANTITY (EOQ)

The economic order quantity is that inventory level, which minimizes the total of
ordering costs and carrying costs.

It is the question, how much to order the quantity when inventory is replenished. If the
firm is buying raw materials, the question is to purchase the quantity of each replenishment
and if it has to plan for production run, it is how much production to schedule. It may be
solved through EOQ. It involves two types of costs:

a. Ordering Cost
b. Carrying Cost

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a. Ordering Cost

Ordering cost is referred to as the cost of placing an order and securing the supplies.
Ordering cost depends upon the number of orders placed and a number of items ordered at a
time. Higher will be the ordering cost when frequent orders are placed. Similarly, lesser the
ordered quantity, higher the ordering cost.

b. Carrying Cost
Carrying cost or holding cost refers to the cost of keeping the materials which
includes capital cost, cost of storage and cost of deterioration and redundancy. Larger the
volume of inventory, higher the inventory carrying cost and vice versa.

EOQ for an item is arrived on the following assumptions:

1. Demand is continuous at a constant rate.


2. The process continuous infinity.
3. No constraints are imposed on qty ordered, storage capacity, budget etc.,
4. Replenishment is instantaneous.
5. All costs are time invariant.
6. No shortages are allowed.
7. Quantity discounts are not available.

EOQ for an item is arrived by the following formula,

2 * AD * CO
EOQ = CH

Where, EOQ = Economic Order Quantity


AC = Annual Consumption of an item
CO = Cost of Ordering an order
CH = Cost of Carrying one unit / year.

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ABC ANALYSIS

The ABC method is an analytical method of stock control which aims at


concentrating efforts on those items where attention is needed most. It is based on the
Premise that a small number of the items in inventory may typically represent the bulk money
value of the total materials used in production process. While a relatively large number of
items may represent a small portion of the money value of stores used and that small number
of items should be subject to the greatest degree of continuous control under this system, the
materials stocked may be classified into a number of categories according to their importance
i.e., their value and frequency of replenishment during a period. The first category, we may
call it the group of 'A' items, which consists of only a small percentage of total items handled
but its combined value may be a large portion of the total stock value. The second category,
naming it as group of 'B' items, which may be relatively less important. In the third category
consisting of 'C items, all the remaining items of stock may be included which are quite large
in number but their value is not high.

Advantages of ABC Analysis


♦Closer and stricter control on those items which represent a major portion of total
stock value.
♦ Investment in inventory can be regulated and funds can be utilized in the best
possible manner.
♦ Saving in stock carrying costs.
♦ Helps in maintaining enough safety stock for "C" category of items.

♦ Always Better Control

♦ This is based on cost criteria.

♦ It helps to exercise selective control when confronted with large number of items
it rationalizes the number of orders, number of items & reduce the inventory.

♦ About 10 % of materials consume 70 % of resources

♦ About 20 % of materials consume 20 % of resources

♦ About 70 % of materials consume 10 % of resources

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A B C
Maintaining close control Maintains moderate control Maintains loose control
Size of order based on Size of order based on Size of order based on level
calculated requirement usage of inventory
Procurement from many Procured from two or three Procured from two sources
sources sources
Keeps records of receipt and Keep records of receipt and No records are kept
use use
More effort to reduce lead Moderated effort Minimum effort
time
Close checks on schedule Some checks on changes in No checks against need
revision need
Frequent ordering Less frequent ordering Bulk ordering
Continual expediting Expediting for prospective No expediting
shortages
Accurate forecasts Less accurate forecasts Approximate forecasts
Low safety stock for less Large safety stock up to 2 to Large safety stock for more
than two weeks 3 months than 3 months
High consumption value Average consumption Value Low consumption value

INVENTORY TURNOVER RATIO

Inventory Turnover Ratio indicates the efficiency of the firm in producing and selling
its product. It is calculated by dividing the cost of goods soled by the average inventory:

Cost of goods sold


Inventory Turnover = ---------------------------
Average Inventory

The Average Inventory is the average of opening and closing balances of inventory.
In a manufacturing company inventory of finished goods is used to calculate inventory
turnover.

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Components of Inventory

The manufacturing inventory consists of two more components: (i) raw materials and
(ii) Work-in-Process. An analyst may also be interested in examining the efficiency with
which the firm converts raw materials into Work-in-Process and Work-in-Process into
finished goods. That is, the analyst would like to know the levels of raw materials inventory
and work-in-process inventory held by the firm on an average. The raw materials inventory
should be related to materials consumed and work-in-process to the cost of production. Thus:

Raw materials Material Consumed


Inventory turnover = -----------------------------------------
Average Raw material inventory

Work in process Cost of production


Inventory turnover = -------------------------------------
Avg.Work in process inventory

Finished goods Cost of goods sold


Turnover Ratio = ---------------------------
Avg.Finished goods

Inventory Average inventory


holding period = ------------------------- x 365
Cost of goods sold

Materials Consumed can be found as opening balance of raw material plus purchases
minus closing balances of raw material. Cost of Production is determined as material
consumed plus other manufacturing expenses plus opening balances of work-in-process. In
the absence of information of material consumed or cost production, raw material and work-
in-process inventories may be related to sales.

The inventory turnover shows how rapidly the inventory is turning into receivable through
sales. Generally, a high inventory turnover is indicative of goods inventory management. A
low inventory turnover implies excessive inventory levels than warranted by production and
sales activities or a slow-moving or obsolete inventory. A high level of sluggish inventory
amounts to unnecessary tie-up of funds reduced profit and increased cost.

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If the obsolete inventory is written off, this will adversely affect the working capital and
liquidity position of the firm. However, a relatively high inventory turnover should be
carefully analyzed a high inventory turnover may be the result of a very low level of
inventory which results in frequent stock outs: the firm may be form hand-to-mouth. The
turnover will also be very high if the firm replenishes its inventory in too many small lot
sizes. The situation of frequent stock outs and too many small inventory replacements are
costly for the firm. Thus, too high and too low inventory turnover ratios should be
investigated further. The computation of inventory turnovers for individual components of
inventory may help to detect the imbalanced investments in the various inventory
components.

Efficient inventory management reduces levels of inventories to a considerable degree


without effect on production and sales by using simple inventory planning and control
techniques. An understanding neglecting the management of inventories will be jeopardizing
its long run profitability and survival.

CONTINUOUS FLOW FOR OPTIMAL RESULTS

INVEN- FINISHED
TORY PRODUCT

CASH
FLOW

INVEST- SALES
MENT

ABC ANALYSIS
ABC analysis is a basic analytical management tool which enables top management to place
the efforts where the results will be greatest. ABC analysis is a technique which is used to
classify the items in store based on the demand of the stock.
The NCCPL uses several types of inventories. Inventory Management is an attempt to

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control the quantity and value of the inventory. Inventory Management process starts with
classification of different type of inventories to determine the degree of control required for
each.
The ABC system is widely used technique to identity various items of inventory for purposes
of Inventory Management. This technique is based on the assumption that a firm should not
exercise the same degree of control on all items of inventories. It should rather keep a more
rigorous control on items.

CATEGORIES OF ABC ANALYSIS


In ABC analysis the items are classified in three main categories based on their respective
consumption value.
1. Category ‘A’ items:
The items, which are most costly and valuable, are classified as ‘A’ nearly 10% of the
total number of items stored will account for 70% of total value of all items stocked.
2. Category ‘B’ items:
The items having average consumption value are classified as ‘B’ nearly 20% of total
number of items will account for 20% of total value statistical sampling is general
useful to control them.
3. Category ‘C’ items:
The items having low consumption value are put in category ‘C’ nearly 70% of total
number of items will account for 10% total value. Generally these items are slow and
non-moving items in the stores, which are frequently used for production process but
with more quantity.

PROCEDURE FOR DEVELOPING AN “ABC ANALYSIS”


List each item carried in inventory by number or some other designation.
Determine the annual volume of usage and rupee value of each item.
Multiply each item’s annual volume of usage by its rupee value.
Compute each item’s percentage of the total inventory in terms of annual usage in
rupees.
Select the top 10% of all items which have the highest rupee percentages and classify
them as ‘A’ items.
Select the next 20% of all items with the next highest rupee percentages and designate
those ‘B’ items.

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The next 70% of all items with the lowest rupee percentages are ‘C’ items.

ADVANTAGES OF ABC ANALYSIS


This analysis has helped in reducing the clerical costs and resulted in better planning
and improved inventory turnover.
By this method materials manager is able to control inventories and show ‘visible’
results in a short span of time.
It becomes possible to concentrate all efforts in areas, which needed genuine efforts.
It is the most effective and economical method as it is based on selective approach.
It helps in placing orders, deciding the quantity of purchase, safety stock etc., this
saving the enterprise from unnecessary stock outs or surplus and their resultant
consequences.

STOCK LEVEL
For effective material control and to avoid overstocking and under stocking of materials, an
important requirement is to decide upon various levels of materials these are maximum level,
minimum level and re-order level. By taking action on the basis of these levels, each item of
material will be automatically be held with in appropriate limits of control.. These levels are
not permanent but revision according to the changes in the factors, which determine these
levels.

FACTORS
Rate of consumption of materials
Lead-time
Storage Capacity
Availability of funds for investment in inventories
Cost of storage
Risk of loss due to theft, fire etc.,
Seasonal factors
Fluctuations in market prices
Insurance costs

MAXIMUM LEVEL
Imprested system or Maximum level system reordering is made at regular time intervals. The

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maximum level of each item is predetermined. At a particular fixed period, say after one
week, a fresh collective order for all the times will be placed. This level is fixed after taking
into account some factors.
Rate of consumption of materials
Amount of capital needed and available
Storages space available
Cost of storing above normal stock
Risk of obsolescence and deterioration and
Re-order quantity

THE FORMULA FOR COMPUTING MAXIMUM LEVEL IS:

Maximum Level = Re-order level + Re-order quantity – (Minimum consumption


* Minimum re-order period)

MINIMUM LEVEL
In this system, when the inventory items reaches to a predetermined minimum level, it is
replenished by the fresh purchases up to the predetermined maximum level. The minimum
level serves as a reordering point. The fresh order is placed for that much quantity which
shows deficiency in maximum level. This level is fixed by considering the following factors.
Rate of consumption
The time required under top priority conditions to acquire enough supplies to
avoid a stoppage in production.
THE FORMULA FOR COMPUTING MINIMUM LEVEL IS:

Minimum Level = Re-order level – (Normal consumption * Normal re-order period)

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RE-ORDER LEVEL
The prescription of re-order level (ROL) is an important technique of Inventory Management.
It fundamentally deals with “when to order” to replenish the inventories. Re-order level is
predetermined point, and when the existing stock of inventories reaches this point or falls
below it, the purchase action is initiated to replenish them.
The Re-order level is decided for each important item of inventory on the basis of following
considerations
Lead time
Average periodic consumption (Daily consumption)
Safety stock
RE-ORDER LEVEL IS DECIDED AS UNDER:

ROL = (Lead time * Average daily consumption) + Safety stock

ECONOMIC ORDER QUANTITY


EOQ is an important technique of Inventory Management. EOQ prescribes the size of the
order at which the ordering cost and the inventory carrying cost will be the minimum. Re-
order quantity is some times known as economic order quantity (EOQ), because it is the
quantity, which is most economic to order. In other words, EOQ is the size of the order.
This gives maximum economy in purchase of any materials and ultimately contributes
towards maintaining the material at an optimum level and at the minimum cost. It equates
the cost of ordering with the cost of storing materials.

ORDERING COST
It consists of the cost of paper work for placing an order like use of paper, typing, posting,
filling etc., the cost of the staff involved in this work, the costs incidental to order like follow-
up, receiving, inspection etc., Ordering costs includes
1. Cot of placing an order with a vendor of materials
Preparing a purchase order
Processing payments
Start-up scarp generated the material
2. Ordering from the plant

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Machine setup
Start-up scarp generated from getting a production run started.
Ordering cost is ascertained as under:

Annual Requirement (R) X Cost per order


O.C. = Order size

CARRYING COST
Costs incurred for maintaining a given level of inventory are called Carrying Cost. They
include the cost of store keeping (stationery, salaries, rent, material handling cost etc.,)
interest on capital locked up in stores, the incidence of insurance cost, risk of obsolescence,
determined and wastage of materials, evaporation etc., When the inventories are stored it
involves following types of costs:
Interest cost due to locking up of funds
Cost of storage space
Cost of insurance and taxes.

Total Carrying cost is ascertained as under:

T.C.C. = Average Inventory X Per unit carrying cost

ECONOMIC ORDER QUANTITY IS ASCERTAINED AS UNDER:

2 X Quantity required X Ordering cost


E.O.Q = Carrying cost

INVENTORY TURNOVER RATIO


Turnover of materials is a ratio of materials consumed during a period to the average stock of
materials during the period. It indicates the rate of consumption of materials. The turnover
of different types of materials may be compared to detect those items, which do not move
regularly.

This enables the management to avoid keeping capital locked up in undesirable items

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of materials. Inventory Turnover indicates the efficiency of the firm in producing and selling
its product. Turnover of materials is often measured by the following formula:

Cost of goods sold


Inventory Turnover = Average Inventory

Materials consumed = Opening stock + Purchases – Closing stock

Opening stock + Closing stock


Average Inventory = 2

Materials consumed during the year


Average Inventory
Inventory Turnover Ratio =

TECHNIQUES OF INVENTORY CONTROL

There are a number of different techniques employed by wholesale distributors to ensure their
inventory control is maximizing efficiency and profitability. Below are six key techniques of
inventory control for wholesalers and distributors of durable goods:

1) Establishing Annual Stocking Policies

Management must decide the maximum and minimum level of stocks and supplies that need
to be kept in the warehouse or across the network of warehouse locations. Management must
also set optimized re-order levels, safety stock levels (below which supply must not be
allowed to fall) and an average inventory level to ensure costs are contained.

2) Preparation of Inventory Budgets

Many organizations have an annual inventory budget and they are usually prepared well in
advance before inventory is procured. Budgets should include the total cost of ownership to

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keep inventory on hand during that year’s account period. This includes materials cost, fixed
operational costs, carrying costs, logistics costs, redistribution costs and additional
miscellaneous costs that contribute to the total costs of ownersh

3) Maintaining A Perpetual Inventory System

Also known as “the automatic inventory system”, this method is designed to keep a constant
track of the quantity and value of each stocked item. Many wholesale distributors leverage a
combination of an Enterprise Resource Planning (ERP) or Warehouse Management
System (WMS) in conjunction with an Inventory Optimization solution, such as EazyStock,
to optimize inventory balances. Most ERP and WMS technologies struggle to keep costs low
and service rates high, which is why optimization software can be so valuable to operations
processes.

4) Inventory Turnover Ratio

This is a calculation used to determine how quickly inventory is used up or “turned over” in a
given time period. The higher the ratio the shorter the shelf life of the inventory and typically
leads to higher sales volume and profitability for companies with lower profit margins.
Inventory turnover should be closely watched for every item in the warehouse. Over the
course of the product’s life cycle, demand will fluctuate and cause variability in the supply
chain. Tracking demand patterns are one way to ensure product replenishment
calculations are accurate and optimized.

5) Establishment of Optimized Purchasing Procedures

In order to ensure that inventory is under adequate control, management must adopt
purchasing procedures that align with actual sales history and demand pattern data. All
inventory items that have not had an inventory turnover or have not been sold within an
accounting period, typically 12 months, should be classified as obsolete stock and should be
liquidated from inventory to eliminate unnecessary carrying costs. Any item with a declining
customer demand should be flagged in the system and its safety stock level thresholds and re-
order point counts should be downwardly adjusted to mitigate risk of obsolescence and cost.

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6) ABC Analysis and ABC Classification

The fastest moving products in your inventory should be located closest to the shipping,
staging, and receiving area in the lower-right of the diagram below. As the demand for each
product decreases over time, products should be migrated backwards to free up space for
items with higher inventory turnover or for new product introductions that have high demand.
Since the majority of your picking activity is performed in a rather small area, your
warehouse layout should be optimized to reduce time spent looking for product in the back of
the warehouse.

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1.2 INDUSTRY PROFILE

The Footwear Industry is a significant segment of the Leather Industry in India. India ranks
second among the footwear producing countries next to China. India produces more of gents’
footwear while the world’s major production is in ladies footwear. The industry is labour
intensive and is concentrated in the small and cottage industry sectors. While leather shoes
and uppers are concentrated in large scale units, the sandals and chapels are produced in the
household and cottage sector. In the case of chapels and sandals, use of non-leather material
is prevalent in the domestic market. The estimated annual footwear production capacity in
1999 is nearly 1736 million pairs (776 million pairs of leather footwear and 960 million pairs
of non-leather footwear.

Shoes manufactured in India wear brand names like Florsheim, Gabor, Clarks, Salamander
and St. Michael’s. As part of its effort to play a lead role in the global trade, the Indian leather
industry is focusing on key deliverables of innovative design, consistently superior quality
and unfailing delivery schedules. India in itself has a huge domestic market, which is largely
untapped .The availability of abundant raw material base, large domestic market and the
opportunity to cater to world markets makes India an attractive destination for technology
and investments.

IMPORT
In 1999, the global import of footwear (leather and non-leather) in terms of value was around
US$ 43278 million, accounting a share of 63.42% in the total global import of leather and
leather products. Out of this, import of leather footwear alone accounted for US$ 26379
million and non-leather footwear US$ 16899 million.

EXPORT

India’s export of Leather Footwear touched US$ 331 million in 1999-2000, recording an
increase of 3.29% over the preceding year. India thus holds a share of 1.25% in the global
import of leather footwear. The major markets for Indian Leather Footwear are the U.K., the
U.S.A., Germany, Italy, France and Russia. Nearly 71% of India‘s export of Leather
Footwear is to Germany, the U.S.A., the U.K and Italy.

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In 1999-2000, export of leather footwear from India constituted 21% share of its total export
of leather and leather products. Nearly 33 million pairs of various types of leather footwear
were exported during the year, out of which shoes / boots constituted 90%.

The different types of leather footwear exported from India are dress shoes, casuals,
moccasins, sport shoes, hierarchies, sandals, ballerinas, booties.

Trends Preview

Forecasting for the footwear industry

We continually research changes within the fashion industry to keep you updated with the
latest innovation in footwear trends.

Detailed analysis of catwalk and retail looks are translated into accurate forecasts for the
footwear industry.

Real-time reporting on fresh new influences is classified into clearly defined themes.

Each themed report provides a strong overview of seasonal looks along with clear and
concise observations and analysis of latest themes, moods, styles and colours palettes.

Mood analysis provides an in-depth look into footwear styles and materials for the seasons
ahead.

International competition in the footwear industry:

Diffusion of innovation proceeds at varying rates in different countries, creating differences


in the productivity with which resources are used, and hence affecting the competitive
position of nations. At this moment, there is a special ferment in the world of manufacturing
as organizational innovations, automation, and new materials are transforming not only the
manufacturing process but also, the product itself. The speed at which these innovations are
absorbed is likely to have a significant impact on a country's ability to compete. Developing
countries face a special challenge as they determine how best to keep pace with the changes.
In this study, the effect of innovative manufacturing technologies on the long-term
productivity of firms and countries. It is their belief that, through such analysis, they are
enriching the debate on differences in international productivity, and suggesting new policy

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directions to improve productivity in developing countries. In this report, relate their findings
on technology trends to trends in international trade. The systematic nature of the
technological change is emphasized. What implications does this have for the footwear
industry? Will the advent of new technologies pose a threat to footwear manufacturing in
developing countries? If so, what options are available to companies in these countries and
how can these options be exploited?

They say the first thing that someone notices about you is your feet and your footwear, so
why not invest in the best pair of footwear that would enhance your personality to the very
best. Footwear has evolved from being just a mere necessity as a protection for your feet to
an important accessory that ups your fashion game right away. According to Businesswire,
India is the second largest global producer of footwear after China, accounting for 9 percent
of the annual global production of 22 billion pairs. Presently about 90 percent of the footwear
produce in the country is consumed by the domestic market and the rest is exported. The
growing Indian fashion and lifestyle market has given an impetus to the footwear industry as
well.
Market Scenario
Footwear industry in India is very optimistic right now with growing awareness about the
latest trends and consciousness among consumers. Affirms Ishaan Sachdeva, Director,
Alberto Torresi, “Be it men’s category or women’s, footwear have now become a necessary
style statement for everyone. A lot of western influence can also be noticed these days where
people are inclined towards styles like Oxfords taken from Europe and Brogues from
Ireland.” This industry has seen a tremendous growth in the last few years. The demand for
footwear products in India is increasing with each passing day. Harkirat Singh, Managing
Director, Woodland, says, “Indian footwear industry is approximately between Rs.30,000
crores to Rs.40,000 crores. And this can grow up to 100 percent by next 5 years provided the
right policies and tax structure. This market is shared between organized and unorganized
segment. The organized segment caters to about one third of the market while unorganized
players fetch the remaining 70- 75 percent market which essentially falls under micro, mini,
small and medium enterprises.” With the rising disposable incomes of the customers, India’s
domestic footwear market is booming. Rising incomes, advent of globalization, improved
employment and living standards in the country has led to the expansion in the size of this
market. Anupam Bansal, Executive Director, Liberty Group, agrees and says, “Also,
consumer’s increased exposure to plastic money and imposition of GST is going to provide

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more organized retailing and trade transparency in long term. Government of India has
already commenced the “Make in India” campaign which has been proving beneficial in
boosting manufacturing in India. Secondly, due to the ever increasing internet penetration and
adoption of internet and the overall ecosystem for e-commerce falling in place, the last
decade has been the best for this industry.”

Evolving Shopping Behaviour


Instant awareness and aspirations for the latest global trends with the advent of technology
has resulted in frequent shopping behaviour of consumers. According to Farah Malik, MD
and CEO, Metro Shoes Ltd., demand for footwear is expected to remain strong over the
forecast period. The category is anticipated to register a retail value CAGR of 7 percent at
constant prices, with sales reaching Rs.778 billion in 2021. Farah Malik further elaborates,
“The way consumers are spending their money on various items has changed in recent years.
With the ever-increasing penetration of internet and social media, the purchasing behaviour
of Indian consumers has changed dramatically. Urbanization is taking place in India at a
dramatic pace and is influencing the life style and buying behaviour of the consumers. The
factors that affect buying behaviour and draw customers to the shopping centers include
space, ambiance and convenience and moreover an array of choice under one roof. The
growth of integrated shopping malls, retail chains and multi-brand outlets is evidence of
consumer behaviour being favourable to the growing organized segment of the business in
the metros. Also, global fashion and lifestyle brands have suddenly started betting big on
small cities of India.” Also, footwear now is an integral part of the outfit. It can make or
break an outfit. The consumer in the present era is no longer the same simple, subtle and
single- minded consumer he used to be a decade ago. Now, they prefer having a variety of
footwear options. “The consumer has become more technological savvy, extensively prone to
digital marketing and practices, fashion conscious, demanding the latest trends and
contemporary styles and voguish in a certain manner. The growing footwear segment along
with the rising brand consciousness, rising discretionary incomes which consequentially leads
to higher propensity to buy along with rising fashion consciousness and increasing share of
organized footwear market led to an enormous growth in footwear consumption,” maintains
Anupam Bansal.
There has been a shift from being constraint to only a few types of footwear styles to a craze
of owning different types of footwear for different occasions. Harkirat Singh feels, “Unlike
earlier times when people used to own lesser number of shoes because they preferred wearing

Page 21
the same pair to office, to parties, for tea, etc., people today need different kinds of shoes for
different occasions. For example, a fitness enthusiast would need running shoes for jogging
or exercising, formal shoes for office, trendy and stylish shoes for parties and casual shoes for
a casual outing, etc. Secondly, with trends changing very fast, brands are offering varied
collections for varied seasons. So, when people visit shopping centers, they see a wide variety
of footwear from different brands and that induces them to buy more. Furthermore,
promotional offers, discounts, etc. also contribute in making their shopping more easy and
convincing.” He further maintains that the advent of footwear retail in apparel stores, the later
being a bigger sector, has lead to a massive growth in sales of footwear and thereby growth in
this industry. While Ishaan Sachdeva asserts, “With an increased contribution in household
income and change in spending patterns, the footwear sector is experiencing a great boom.
Footwear is not just a part of wardrobe but has become a huge status symbol these days.”
Furthermore, talking about different categories in footwear, Farah Malik asserts, “At present,
men’s category contributes around 60 percent of sales in the footwear segment as against
women’s share of 30 percent. Men’s footwear market is growing at a CAGR of 10 percent.
The women’s segment, however, is growing at a much faster CAGR of 20 per cent.”

Growing Opportunities
Indian market, especially the footwear market, has a lot of scope. The Indian footwear
industry is gearing up to leverage its strengths towards maximizing benefits. Resource
strength of India in the form of materials and skilled manpower is a comparative advantage
for the country, among other things. Ishaan Sachdeva says, “The increasing significance of
footwear is leading to an upsurge in the demand of footwear day by day which is further
leading to higher growth prospects of footwear industry. The easy availability of varied styles
is also increasing brand loyalty amongst the customers. The advent of such huge varieties of
footwear is growing the potential of footwear industry even in tier-II and tier-III cities as the
people are becoming more and more brand centric in these cities as well.” As said many
times, rural areas are where the real India lies. The organized sector has definitely realized
that and is now moving towards the hinterlands of India. Anupam Bansal affirms, “India has
a lot of potential in tier-II and tier-III cities and towns and therefore, Liberty is constantly
entering these towns and tapping the potential market. Approximately two-third of the
consumer market is dominated by the urban market and rest is located in the rural areas. It is
something that needs to be worked upon.” Harkirat Singh from Woodland points that the
Indian retail sector is set to grow substantially over the next few years, as the reach of

Page 22
organized retail would gradually spread to smaller towns and under penetrated areas. “Today
consumers in tier-II and tier-III cities are aware about the domestic and international brands
across categories. The market has evolved and there is a lot of potential. Currently, tier-II
cities contribute a large percentage in the total sales; however, tier-III cities are catching up in
terms of sales and are expected to grow exponentially by FY 2020,” he says. Furthermore,
talking about online market share in the hinterlands of India, Farah Malik from Metro Shoes,
apprises, “Mobile technology is revolutionizing the tier-II and tier-III markets and an online
retailer must not ignore this segment. Women are the driving force in tier-II and tier-III
online retail markets.”
Also, with a considerable rise in consumption of trendiest and most comfortable pair of
footwear, consumers today do not mind paying higher for quality products as they now
understand that ‘higher price definitely means better quality’. Harkirat Singh agrees, “India is
a price sensitive market. But today consumers do not hesitate in paying more for quality,
innovation and technology. We offer tech footwear which are water proof, anti- microbe
shoes, non- skid shoes, etc. and people actually pay for these premium tech collections
happily.” Apart from quality, people also look for good customer service which ultimately
makes their store visit more satisfying. Farah Malik explains, “Customers remain loyal if the
brand delivers on quality and a good customer service experience and are willing to pay extra
for superior customer service. If you look at the millennials, they are the first generation who
is willing consciously to spend more for better quality, for sustainability, for traceability. I
think there is a change. Moreover, delivering excellent customer service experience along
with consistent quality is imperative for any brand to retain customers.”

Challenges Ahead
While the footwear industry is set for an exponential growth in the times to come, there are
many challenges that are continuously erecting roadblocks in the process. “The industry is
already working towards consolidating the growth. This has seen technology being the key
element in making things possible to enhance growth. Many institutes have blossomed to
provide retail professionals to the industry which will help in the long run. The government
initiatives to taper down the real estate demands and make the pricing more pragmatic will
also give a boost to the retail industry and push it to a higher growth path,” says Anupam
Bansal. Talking about other challenges facing the industry right now, Farah Malik maintains,
“The unorganised retail market is the most dominant and popular mode of retailing and
purchase destination for the majority of India’s 1.3 billion population. Like food habits,

Page 23
footwear fashion changes every 100 kilometers. For example, the shortest heel preference in
Chandigarh is the longest preferred in Kolkata. Hence, fashion footwear has always been
dominated as well as successfully managed by local retailers. The unorganized footwear
industry also enjoys the advantage of the passion and zeal of its business owners that is
difficult to replicate across employees and store personnel. Also, footwear retailing primarily
involves touching the feet of our customers as part of service and hence the front end does
not attract the best manpower in terms of education, technical expertise and sophistication.”
Apart from these, Harkirat Singh point out that product counterfeiting is another big
challenge for the organized footwear industry. “Organised sector is something we cannot
avoid because it’s the bigger chunk of the market. But the real problem lies in stopping the
counterfeit products; its easy to sell fake shoes for the unorganized retailers but that
ultimately hampers the brand image as consumers start associating the quality and
performance of a fake product to the brand. We try to curtail that through legal processes
where we conduct raids, seize counterfeits and apply to some suit in the court, etc. But that
still possess as a big challenge for us, especially in a country like India where we don’t have
too many laws against counterfeit, he asserts.

In-Trend And Forthcoming


Footwear trends as such are difficult to forecast as they tend to change frequently with every
season. Furthermore, its also true that in fashion, trends have their way of repeating
themselves over time and footwear sue is no exception. According to Ishaan Sachdeva, “A
drastic shift has been witnessed from the mainstream lace-ups and slip-ons to styles such as
monk straps, oxfords, brogues and tassels. Then plimsolls that are inspired by the British
culture are another shoe style that have gained massive acceptance in the recent times. Not
just by the younger generation but plimsolls are preferred by celebrities as well. Talking
about the women footwear trends, boots are always preferred by them. Women are investing
in stylish ankle and desert boots. Boots with block heels are also quite in vogue these days.
Another shoe style, sneakers makes an ideal choice for daily wear.” In the past, comfort was
the most important factor during the selection of footwear. However, with the advent of
media and increased global travel, Indians have become style conscious. “Fashion footwear
with comfort is now the trend in the market. Consumers have also started shopping for shoes
that compliment and accentuate their clothes,” maintains Farah Malik.
According to Singh from Woodland, trends keep changing because every season now has
new colours, features, etc. coming up and Woodland brings in trends from its fashion houses

Page 24
in Italy and Hongkong. For the forthcoming season, “Woodland is coming up with
technology driven footwear and apparels”. While Alberto Torresi is soon launching its new
collection which is a “sweet hybrid of Italian and Indian footwear”, Liberty’s Autumn/Winter
collection is going to transform the idea of being elegant and sensational without
compromising on comfort. Meanwhile, Metro Shoes have launched its new evening and
bridal shoe collection.

The Way Forward


Going forward, with expansion in retail sector and technological advancements, footwear
market is amongst the fastest emerging sectors in the fashion industry. According to Ishaan
Sachdeva, “The demand for footwear products in India is to expand in the coming years as
the customers do not compromise both with comfort and style.” Farah Malik further asserts,
“I believe the footwear industry has been recognised by the Government of India as a focus
sector in the ‘Make in India’ mission whether we do it for India or we do it for the world. The
challenge for Indian footwear industry is lit large but anticipating India to become amongst
top 5 superpowers by 2030, our consumption rates can reach as high as 7-8 pairs. In such a
scenario, India would need to produce anywhere between 8-10 billion pairs considering
yearly population growth. With global integration of Indian industry, rapid change in
lifestyle, income growth at bottom of the wealth pyramid, footwear industry is expected to
grow by leaps and bounds. For the Indian footwear to explode and deliver, favourable
government policies, infrastructure, removal of high doses of taxation, infrastructural support
in capacity building, skill education and technology up gradation, brand building exercise
should be initiated expeditiously no later than now.”

Page 25
1.3 COMPANY PROFILE

APACHE,” an Indian tribe known for its fearlessness and toughness, along with their
bravery, wisdom, and daring spirits have made them strong when they were once weak. Ever
since then, the “APACHE” tribe has become the symbol of victory and wisdom, and its
influence lingers on. Passing on the spirit of perpetual perfection, APACHE India was born
on 24th of February 2006. Located in Tada, Nellore District, Andhra Pradesh. It is a large-
scaled foreign-invested enterprise with a plant that takes up 314 acres of area. We’re
manufacturing the famous Adidas sports shoes.Our products are exported worldwide, with
the spirit of bravery and wisdom that “APACHE” symbolized, APACHE India plans to grow
into a large corporation that owns a technologically advanced R&D team and conveyance
plants, and possesses over 40 complete production units with 20,000 employees that
generates an average monthly volume of two million pairs of shoes. Now, APACHE India,
with steady and strong stance is spreading its wings towards the future.
Under the guidance of our management team, APACHE India hopes to achieve many
extraordinary achievements with its fully functioned organization and highly efficient
management. It continues to grow and leads its teammates into sheer brilliance. Being a large
business group, APACHE India has its own unique corporate culture-- “Human based, joint
efforts and shared benefits” are our managerial beliefs. Further more, APACHE corporate
motto-- “LOYALTY,PRACTICALITY, QUALITYand DILIGENCE” is our everlasting
objectives. Apache not only emphasizing to the value of the company itself but also to the
joining with our employees in all ways, thus to create a united APACHE India. Meanwhile,
the company management also enthusiastically support and participate in all types of social
and charitable events. During the process of constant development, many jobs have been
offered and the local economy has been greatly prospered.
Based in Qingyuan China, the APACHE Group is constantly expanding overseas; the goal is
to become globalize as well as to enforce group management. APACHE will strive to
establish 3 to 4 oversea production units in order to provide better and broader services to our
client - Adidas and become a boundless and world-class corporation. With unequaled faith
and will, APACHE India will work with all partners in a newer and stronger form to create a
bright and beautiful future!

Page 26
History of Footwear
There are evidences which show that the history of the shoe starts in 10,000 BC, that is, at the
end of the Paleolithic period (paintings of this time in caves in Spain and in the south of
France make reference to the footwear). Among the utensils of rock of the men of the caverns
there are several that were used to scrape the skins, which indicate that the art of tanning is
very old. In the Egyptian hypogeum (underground chambers used to multiple funerals),
whose age is between 6 and 7 thousand years, paintings were discovered representing the
various stages of the preparation of the leather and the footwear. In cold countries the
moccasin is the protector of the feet and in hotter countries the sandal is still the most used.
The Egyptian’s sandals were made of straw, papyrus or of palm fiber.

It’s known that only the noblemen of that time owned sandals. Even a Pharaoh as
Tutancamon paved footwear as sandals and simple leather shoes (despite the ornaments of
gold).
In Mesopotamia it was common raw leather shoes tied to the feet by straps of the same
material. The boots were symbol of high social status.
The Greek introduced new fashion as different models for right and left feet
In the middle age, men as well as women wore leather shoes whose form was similar to the
ballet slipper. Men also wore high and short boots tied in the front and in the side. The most
current material was the cow skin, but the upper quality boots were made of goat skin.

Page 27
Process

 modeling: creation, elaboration and accompaniment of the models in the manufacture


process;
 warehouse: act of receiving, storage, classification and control of the leather and other
materials;
 Cut: operation of cut of the different parts that compose the "cabedal" (upper part of
the footwear). In the cut special blades and/or knives are used to pressure the metallic
molds in the leather surface and/or other materials;
 chamfer: leather preparation to receive the sewing;

 Sewing: junction of the parts that compose the "cabedal"(upper part of the footwear).
In many companies this sector is subdivided into preparation, chamfer and sewing;
 Pre-manufactured: manufacture of soles, shoe heels and slippers. Many companies
don’t have this sector because there are specialized factories that produce these
materials;
 distribution: it controls the volume of production, revises the quality of the materials
and distributes them to the sections of assembling and final touch (finishing);
 assembling: set of operations that join the upper part of the footwear with the sole;
 finishing: final operations linked to the presentation of the footwear as brushing,
painting and cleaning;

Page 28
 assembling and finishing: in many companies these two sectors are organized in
assembling line, that is, work rates replaced in line and the elaborating product
incorporates the partial operations of each worker until the end of the line, where the
product results finished;
 Expedition: packing, boxing and sending to the destination market.

General details
Company Name
APACHE FOOTWEAR INDIA PRIVATE LIMITED
Corporate Identification Number (CIN)
U19202AP2006PTC049219
Ownership Type
private
Primary Business Type

Year of establishment
20/02/2006
Age of Company
12 Years 17 Days
Category
Company limited by shares
Sub Category
Indian Non-Government Company
Primary Location
Tada
Main Language
ENGLISH
Registered Address
APACHE SEZ, MAMBATTU VILLAGE, Tada, Andhra Pradesh,524401
Date of Balance sheet
2014-03-31
Date of Last Annual General Meeting
2014-09-26
APACHE FOOTWEAR INDIA PRIVATE LIMITED is a private limited Company
incorporated on 20/02/2006 and is 12 Years 17 Days old. It is classified as Indian Non-

Page 29
Government Company and is registered at RoC-Hyderabad. Its authorized share capital is
Rs. 1200000000 and its paid up capital is Rs. 1059678750.

APACHE FOOTWEAR INDIA PRIVATE LIMITED 's Annual General Meeting (AGM)
was last held on 2014-09-26. As per records from Ministry of Corporate Affairs (MCA),
this company's balance sheet was last filed on 2014-03-31.

Registration number of the company is 49219. U19202AP2006PTC049219 is the


Corporate Identification Number (CIN) of this company. Its registered address is APACHE
SEZ, MAMBATTU VILLAGE, Tada, Andhra Pradesh, 524401.

The company is involved in Footwear made primarily of vulcanized or molded rubber


and plastic, manufacturing, Footwear of canvas-cum-plastic, manufacturing, Footwear
of canvas-cum-rubber, manufacturing, Footwear of plastic, manufacturing, Footwear of
plastic & PVC, manufacturing, Footwear of rubber, manufacturing, Manufacturing of
footwear of canvas-cum-plastic, Manufacturing of footwear of canvas-cum-rubber,
Manufacturing of footwear of plastic, Manufacturing of footwear of plastic & PVC,
Manufacturing of footwear of rubber, Manufacturing of sports footwear (rubber / plastic
/ canvas / any like combinations),Sports footwear (rubber / plastic / canvas / any like
combinations), manufacturing.

Current status of APACHE FOOTWEAR INDIA PRIVATE LIMITED is - Active.

Directors of this company are CHIEN CHUNG CHEN and CHAO SUNG TSAI.

Page 30
Apache Corporation's revenue from 2007 to 2017 (in million U.S. dollars)

Page 31
2.1 NEED OF THE STUDY

In today’s competitive scenario especially in the manufacturing sector, the


management of inventory is given the highest importance. Organizations are in the process of
implementing various techniques in order to maintain inventory at an optimum level. Hence
this study is undertaken to look into various aspects of inventory management of apache
footwear Indian pvt Ltd.,

As the global inventory scenario is moving at very fast pace. Apache footwear Indian
pvt Ltd., being a manufacturing concern had huge number of items and the inventory
constitutes of variety of items. There is a need for the system to be devised on value basis. So
that effective control can be exercised on inventory.

Page 32
2.2 SCOPE OF THE STUDY

The choice of area of the study for the project work was given after initial study of
company's operations and the system of working. Though the company has several
departments, the prime area of my interest was in Finance.

The scope of an inventory system defines which needs it addresses, including valuing
the inventory, measuring the change in inventory and planning for future inventory levels.
The value of the inventory at the end of each period provides a basis for financial reporting
on the balance sheet. Measuring the change in inventory allows the company to determine the
cost of inventory sold during the period. Together, inventory values and level changes allow
the company to plan for future inventory needs.

Page 33
2.3 OBJECTIVES OF THE STUDY

1. To know the about Inventory Management in Apache footwear Indian pvt Ltd.,

2. To know how much quantity should be ordered (EOQ)

3. To study the inventory turnover of the company.

4. To know the minimum and maximum consumption level of the raw material of the

company.

5. To draw the conclusion and offer feasible suggestions to improve the efficiency of

Inventory management in Apache footwear Indian pvt Ltd.,

Page 34
2.4 RESEARCH METHODOLOGY

The process used to collect information and data for the purpose of making business

decisions. The methodology may include publication research, interviews, surveys and other

research techniques, and could include both present and historical information.

COLLECT THE DATA:

Primary Data

First hand information was collected from experts of Finance department on their
course of actions towards collections.

Secondary Data

The second hand information was collected from annual reports, schedules, budgets,
company website (www.apache.com), and previous reports etc.

Research methodology is the way to systematically solve the research problem


Objective of research study is Analysis of inventory of Apache footwear Ltd. Analyzing
of inventory, we determining following inventories.

1. Raw materials inventory.


2. Work in progress inventory.
3. Finished goods inventory
4. Supplies inventory.

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


of inventory after closing balance of items in inventory. In this manner, wecalculate reorder
point, safety stock levels, minimum & maximum levels of inventory. Working hypothesis of
the objective is that inventories are the stock piles of goods .The all organization on their
inventories.

Page 35
2.5 LIMITATIONS OF THE STUDY

 Time period for the study has been limited to make a detailed analysis i.e. only 8

weeks.

 Much of the data is collected from secondary source and the analysis is made on five

years data only.

Page 36
3.DATA ANALYSIS AND INTERPRETATIONS

Inventory Management Techniques

In managing inventory the firm’s objective should be in consonance with the


shareholders, wealth maximization principle. To achieve this, the firm should determine
the optimum level of inventory. Efficiency controlled inventories make the firm flexible.
Inefficient inventory controlled inventories make the firm flexible. In efficient inventory
control results in unbalanced inventory and inflexibility – the firm may sometimes run out
of stock and sometimes may pile up unnecessary stocks. This increases the level of
investment and makes the firm unprofitable.

To manage inventories efficiency, answers should be sought to the following two


questions:
 How much should be ordered?
 When should it be ordered?

The first question, how much to order, relates to the problem of determining
Economic Order Quantity (EOQ), and is answered with an analysis of costs of certain
level of inventories. The second question, when to order, arises because. Of uncertainty
and as a problem of determining the re-order point.

Economic Order Quantity (EOQ)

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


inventory should be added when inventory in replenished. If the firm is buying raw materials,
it has to decide lots in which it has to be purchased with each replenishment. If the firm is
planning a production run, the issue is how much production to schedule (or how much to
make). These problems are called order quantity problem, and the task of the firm is to
determine the optimum or economic order quantity (a) Ordering cost (b) Carrying cost. The
Economic Order Quantity is that inventory level which minimizes the total of ordering cost
and carrying cost.

Page 37
EOQ for an item is arrived by the following formula,

2 * AD * CO
EOQ = CH

Where, EOQ = Economic Order Quantity


AC = Annual Consumption of an item
CO = Cost of Ordering an order
CH = Cost of Carrying one unit / year.

Ordering Cost
The term ordering cost is used in case of raw materials (or supplies) and includes the
entire costs of acquiring raw materials. They include costs incurred in the following
activities: requisitioning, purchase ordering, transporting, receiving, inspecting and
storing (store placement) ordering costs increase in proportion to the number of orders
placed. The clerical and staff costs, however, do not have to vary in proportion to the
number of order placed. And one view is that so long as they are committed costs, they
need not be reckoned in computing ordering cost. Alternatively, it may be argued that as
the number of orders increases, the clerical and staff force released now can be used in
other departments. Thus, these costs may be included in the ordering costs. It is the more
appropriate to include clerical and staff costs on a pro rata basis.

Carrying Cost

Cost incurred to maintaining a given level of inventory are called carrying costs. The
including storage, insurance, taxes, deterioration and obsolescence. The storage costs
comprise cost of storage space (warehousing cost), storage handling costs and clerical and
staff service costs (administrative costs) incurred in recording and providing special
facilities such as fencing, lines, racks etc.,

Page 38
Ordering Costs and Carrying Cost

Ordering Costs Carrying Cost


Requisitioning Storage
Purchase Ordering Insurance
Transporting Taxes
Receiving, Inspecting & Storing Deterioration
Clerical and Staff Obsolescence

Page 39
TABLE NO.1

ECONOMIC ORDER QUANTITY (2012-2013)

Annual Ordering Carrying EOQ


Description Consumption Cost Cost
LEAD-A 132827193.2 7395.6 3.339561035 767009.1
LEAD-B 10667526.61 540 0.300133651 195923.4
LEAD-C 5238997.96 289 0.131719665 151622.2
LEAD-D 362802426.4 22155 8.904450803 1343638
LEAD-E 82222161.09 5302 2.362562052 607488
LEAD-F 151503021.7 10305 3.990497753 884577.9
LEAD-G 90219604.18 5261 2.646367148 598927.9
LEAD-H 75688159.84 4210 1.948271607 571933.1
LEAD-I 51622360.5 2762 1.297897061 468733.1

ECONOMIC ORDER QUANTITY (2012-2013)


1343638
1400000

1200000

1000000 884577.9
ORDERS

767009.1
800000
607488 598927.9 571933.1
600000
468733.1

400000

195923.4
200000

0
LEAD-A

LEAD-E
LEAD-D
LEAD-B

LEAD-F
LEAD-C

LEAD-G

LEAD-H

LEAD-I

MATERIALS

INTERPRETATION

The above data indicates in the year 2013 indigenous items like Lead-A and Lead-C

are increased based on the company orders and the EOQ respectively.

Page 40
TABLE NO. 2
ECONOMIC ORDER QUANTITY (2013-2014)

Annual Ordering Carrying EOQ


Description consumption cost cost
LEAD-A 197502159.60 7264 15.81230149 425982.047
LEAD-B 23815321.44 923 1.033302007 206267.324
LEAD-C 8056951.10 281 0.324606244 118106.85
LEAD-D 371790043.10 11900 14.59495924 778638.569
LEAD-E 91534338.84 3739 4.066062402 410296.427
LEAD-F 166562629.34 7657 6.882704027 608770.442
LEAD-G 99352279.40 3321 4.515980384 382263.058
LEAD-H 79324194.96 14050 3.031998152 857415.895
LEAD-I 52048334.70 1910 2.070089408 309913.538

ECONOMIC ORDER QUANTITY (2013-2014)

900000 857415.8952

778638.5699
800000

700000
608770.4427
600000
ORDERS

500000
425982.0477 410296.4271
382263.0582
400000
309913.5389
300000
206267.3246
200000
118106.85

100000

0
LEAD-A

LEAD-F

LEAD-H
LEAD-E

LEAD-I
LEAD-G
LEAD-B

LEAD-C

LEAD-D

MATERIALS

INTERPRETATION

The above table shows in the year 2014 indigenous items like Lead-A, Lead-D and

imported items like Lead-F, Lead-H increased as compared to the year 2013 respectively.

Page 41
TABLE NO. 3
ECONOMIC ORDER QUANTITY (2014-2015)

Annual Ordering Carrying EOQ


Description consumption Cost cost
LEAD-A 759398976 2770 0.821819293 2262568.412
LEAD-B 12287610 758 0.134980812 371490.1401
LEAD-C 10145470 146 10.88744244 16495.46548
LEAD-D 148666539 415 0.123427151 999862.5682
LEAD-E 248082560 820 0.238343931 1306525.806
LEAD-F 122637708 355 0.114488865 872086.4981
LEAD-G 77201388 180 0.077529479 598729.1058
LEAD-H 36142807 321 0.032430905 845860.8362
LEAD-I 128348532 693 0.117028297 1232910.711

ECONOMIC ORDER QUANTITY (2014-2015)


2262568.412
2500000

2000000

1306525.806
1232910.711
1500000
999862.5682
872086.4981 845860.8362
ORDERS

1000000 598729.1058

371490.1401

500000
16495.46548

0
LEAD-D
LEAD-C

LEAD-F

LEAD-G

LEAD-H
LEAD-A

LEAD-B

LEAD-E

LEAD-I

MATERIALS

INTERPRETATION

The above table shows in the year 2015 indigenous items like Lead-A, Lead-D and

imported items like Lead-F, Lead-H decreased as compared to the year 2012 respectively.

Page 42
TABLE NO. 4
COMPARISON OF ECONOMIC ORDER QUANTITY

DESCRIPTION 2012-2013 2013-2014 2014-2015


LEAD-A 767009.1 425982.0477 2262568.412
LEAD-B 195923.4 206267.3246 371490.1401
LEAD-C 151622.2 118106.85 16495.46548
LEAD-D 1343638 778638.5699 999862.5682
LEAD-E 607488 410296.4271 1306525.806
LEAD-F 884577.9 608770.4427 872086.4981
LEAD-G 598927.9 382263.0582 598729.1058
LEAD-H 571933.1 857415.8952 845860.8362
LEAD-I 468733.1 309913.5389 1232910.711

COMPARISON OF ECONOMIC ORDER QUANTITY

2500000

2000000
ORDERS

2012-2013
1500000
2013-2014
2014-2015

1000000

500000

0
LEAD-A LEAD-B LEAD-C LEAD-D LEAD-E LEAD-F LEAD-G LEAD-H LEAD-I

MATERIALS

INTERPRETATION

In the year 2015 the items like Lead-A, Lead-B's EOQ and company orders are

increased when compared to previous years. In the year 2014 Lead-E, Lead-F, Lead-G’s

EOQ and Company Orders are decreased when compared to 2013 respectively.

Page 43
TABLE NO. 5

ABC ANALYSIS (2012-2013)

Cumulat
% of No. of % of Cumulative % of
Class Quantity Value ive
Qty items Items % Value
%

A 23393529 39.33 5 5 0.755287009 1388304424 70.58 70.58

B 11349706 19.08 18 23 3.474320242 399770309 20.33 90.91

C 24735959 41.59 639 662 100 178813574 9.09 100

Total 59479194 100 662 1966888307 100

ABC Analysis (2012-2013)

INTERPRETATION:

In the year 2012-2013, there are 5 items which constitutes 0.75% and 70.58% in the
total value which comes under "A" category, 18 items which constitutes 3.47% and 20.33%
in the total value which comes under "B" category and 639 items which constitutes 662% and
9.09% in the total value which comes under "C" category.

Page 44
TABLE NO. 6

ABC ANALYSIS (2013-2014)

Cumul
% of No. of % of Cumulative % of
Class Quantity Value ative
Qty items items % Value
%

A -71318 -1.67 9 0.33532042 0.33532042 395706044849 70.51 70.51

B 1795898 41.69 24 0.89418778 1.2295082 1142419089997 20.36 90.87

C 2582722 59.98 2651 98.7704918 100 512232191923 9.13 100

Total 4307302 100 2684 561171129769 100

ABC Analysis (2013-2014)

INTERPRETATION:

In the year 2013-2014, there are 9 items which constitutes 0.33% and 70.51% in the
total value which comes under "A" category, 24 items which constitutes 0.89% and 20.36%
in the total value which comes under "B" category and 2651 items which constitutes 98.7%
and 9.13% in the total value which comes under "C" category.

Page 45
TABLE NO. 7

ABC ANALYSIS (2014-2015)

No. Cumulat
% of % of Cumulative % of
Class Quantity of Value ive
Qty Items % Value
items %

A 10396480 44.97 12 0.427046263 0.427046263 167488933 71.73 71.73

B 6732390 29.12 9 0.320284698 0.747330961 42723357 18.3 90.03

C 5987397 25.91 2789 99.25266904 100 23273817 9.97 100

Total 23116267 100 2810 233486107 100

ABC Analysis (2014-2015)

INTERPRETATION

In the year 2014-2015, there are 12 items which constitutes 0.42% and 71.73% in the
total value which comes under "A" category, 9 items which constitutes 0.32% and 18.3% in
the total value which comes under "B" category and 2789 items which constitutes 99.2% and
9.97% in the total value which comes under "C" category.

Page 46
TABLE NO.8
INVENTORY TURNOVER RATIO

Turnover Ratio 2012-13 2013-14 2014--15 2015-16 2016-17

Raw Materials 7.37 8.54 11.47 15.29 17.4

Work in Process 10.07 9.6 10.62 13.38 16.18

Finished Goods 16.78 12.04 13.16 24.63 15.42

Inventory 3.11 5.1 2.89 3.32 4.26

INTERPRETATION:
From the above table it was observed that in the year 2016-17consumption of raw
materials and work in process is more i.e. 174 and 16.18 in the year 2015-16.

Page 47
TABLE NO.9

RAW MATERIALS TURNOVER RATIO

Turnover Ratio 2012-13 2013-14 2014-15 2015-16 2016-17

Raw Materials 7.37 8.54 11.47 15.29 17.4

RAW MATERIALS TURNOVER RATIO

17.4
18
16 15.29

14
11.47
12
Times 10
7.37 8.54
8 Raw Materials
6
4
2
0
2008-09
2013 2009-10
2014 2010-11
2015 2011-12
2016 2012-13
2017
Years

INTERPRETATION

The above data indicates raw material turnover Ratio is 7.37 times in the year 2012-
13 and it is increased continuously to 15.29 in the year 2016. Then, it is increased to 17.4 in
the year 2017.

Page 48
TABLE NO. 10

WORK IN PROCESS TURNOVER RATIO

Turnover Ratio 2012-13 2013-14 2014-15 2015-16 2016-17

Work in Process 10.07 9.6 10.62 13.38 16.18

WORK IN PROGRESS TURNOVER RATIO

18 16.18
16
13.38
14
10.07 10.62
12
Times 9.6
10
8
6
4
2
0
2008-09
2013 2009-10
2014 2010-11
2015 2011-12
2016 2012-13
2017
Years

Work in Process

INTERPRETATION

The above data indicates work-in-process turnover ratio is 10.07 times in the year.
But, it is decreased to 9.6 in the year 2014.Then, it is increased to 10.62 in the year 2015 and
16.18 in the year 2017.

Page 49
TABLE NO. 11

FINISHED GOODS TURNOVER RATIO

Turnover Ratio 2012-13 2013-14 2014-15 2015-16 2016-17

Finished Goods 16.78 12.04 13.16 24.63 15.42

FINISHED GOODS TURNOVER RATIO

24.63
25

20 16.78
15.42
15 13.16
12.04
Times
10

0
2008-09
2013 2009-10
2014 2010-11
2015 2011-12
2016 2012-13
2017
Years

Finished Goods

INTERPRETATION

The above data indicates finished Goods ratio is 16.78 times in the year 2013. But, it
is decreased continuously to 13.16 in the year 2015. Then, it is increased to 24.63 in the year
2016.

Page 50
TABLE NO. 12

INVENTORY TURNOVER RATIO

Turnover Ratio 2012-13 2013-14 2014-15 2015-16 2016-17

Inventory 3.11 5.1 2.89 3.32 4.26

INVENTORY TURNOVER RATIO

6
5.1
5
4.26
4 3.32
Times 3.11
2.89
3

0
2008-09
2013 2009-10
2014 2010-11
2015 2011-12
2016 2012-13
2017
Years

Inventory

INTERPRETATION

The above data indicates inventory turnover ratio is 3.11 times in the year 2013. But, it
is increased to 5.1 in the year 2014. Then, it is decreased to 2.89 in the year 2015. Again it is
increased to 3.32, 4.26 in the year 2016 and 2017 respectively.

Inventory turnover ratio declined for year by year that is company production is also
declined. Subsequently sales are also declined.

Page 51
TABLE NO. 13

COMPARISON OF TURNOVER RATIO

Turnover Ratio 2012-13 2013-14 2014-15 2015-16 2016-17

Raw Materials 7.37 8.54 11.47 15.29 17.4

Work in Process 10.07 9.6 10.62 13.38 16.18

Finished Goods 16.78 12.04 13.16 24.63 15.42

Inventory 3.11 5.1 2.89 3.32 4.26

COMPARISON OF TURNOVER RATIOS

25

20
TIMES
15

10

0
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Raw Materials Turnover Ratio Work in Process Turnover Ratio


Finished Goods Turnover Ratio Inventory Turnover Ratio

INTERPRETATION

The above data indicates inventory turnover ratio is 3.11 times in the year 2013. But, it
is increased to 5.1 in the year 2014. Then, it is decreased to 2.89 in the year 2015.
Inventory turnover ratio declined for year by year that is company production is also
declined. Subsequently sales are also declined.

Page 52
TABLE NO. 14

INVENTORY HOLDING PERIOD

Inventory 2012-13 2013-14 2014-15 2015-16 2016-17

Raw Materials 49 42 31 24 21

Work in Process 36 38 34 27 22

Finished Goods 22 30 27 15 23

Inventory 116 71 125 108 85

Page 53
TABLE NO. 15

RAW MATERIALS HOLDING PERIOD

Inventory 2012-13 2013-14 2014-15 2015-16 2016-17

Raw Materials 49 42 31 24 21

RAW MATERIALS HOLDING PERIOD


49
50 42
45
40
31
35
30 24
Times 21
25
20 Raw Materials

15
10
5
0
2012-13 2013-14 2014-15 2015-16 2016-17
Years

INTERPRETATION

Inventory holding period is 49 days in the year 2013. But, it is decreased to 42 days in
the year 2014. Then, it is decreased continuously to 21 days in the year 2017 respectively.

Page 54
TABLE NO. 16

WORK IN PROCESS HOLDING PERIOD

Inventory 2012-13 2013-14 2014-15 2015-16 2016-17

Work in Process 36 38 34 27 22

WORK IN PROCESS HOLDING PERIOD

36 38
40
34
35
30 27
25 22
Times
20
15
10
5
0
2008-09
2013 2009-10
2014 2010-11
2015 2011-12
2016 2012-13
2017
Years

Work in Process

INTERPRETATION

Work-in-process holding period is 36 days in the year 2013. But, it is increased to 38


days in the year 2014. Then, again it is decreased continuously to 22 days in the year 2017
respectively.

Page 55
TABLE NO. 17

FINISHED GOODS HOLDING PERIOD

Inventory 2012-13 2013-14 2014-15 2015-16 2016-17

Finished Goods 22 30 27 15 23

FINISHED GOODS HOLDING PERIOD

30
30 27
22 23
25

20
Times 15
15

10

0
2008-09
2013 2014 2009-10
2015 20162010-11
2017 2011-12 2012-13
Years

Finished Goods

INTERPRETATION

Finished Goods holding period is 22 days in the year 2013. But, it is increased to 30
days in the year 2014. Then, again it is decreased to 15 days in the year 2016 and increased to
23 days in the year 2017 respectively.

Page 56
TABLE NO. 18

INVENTORY HOLDING PERIOD

Inventory 2012-13 2013-14 2014-15 2015-16 2016-17

Raw Materials 49 42 31 24 21

Work in Process 36 38 34 27 22

Finished Goods 22 30 27 15 23

Inventory 116 71 125 108 85

INVENTORY HOLDING PERIOD

140 125
116
120 108

100 85
80 71
Times
60

40

20

0
2008-09 2009-10 2010-11 2011-12 2012-13
2013 2014 2015 2016 2017

Years

INTERPRETATION

Inventory holding period is 116 days in the year 2013. But, it is decreased to 71 days in
the year 2014. Then, it is increased continuously to 108 days in the year 2016 and decreased
to 85 days in the year 2017 respectively.

Page 57
TABLE NO. 19

COMPARISON OF INVENTORY HOLDING PERIOD

Inventory 2012-13 2013-14 2014-15 2015-16 2016-17

Raw Materials 49 42 31 24 21

Work in Process 36 38 34 27 22

Finished Goods 22 30 27 15 23

Inventory 116 71 125 108 85

COMPARISON OF INVENTORY HOLDING PERIOD

140

120

100

80
TIMES
60

40

20

0
2008-09
2013 2009-10
2014 2010-11
2015 2011-12
2016 2012-13
2017
YEARS

Raw Materials Turnover Ratio Work in Process Turnover Ratio


Finished Goods Turnover Ratio Inventory Turnover Ratio

INTERPRETATION

The above data indicates inventory holding period is 49 days in the year 2013. But, it
is decreased to 42 days in the year 2014. Then, it is decreased continuously to 21 days in the
year 2014 respectively.

Page 58
SAFETY STOCK

Safety stocks are held to protect against the uncertainties of demand and supply. An
organization generally knows the average demand for various items that it needs. However,
the actual demand may not exactly match the average and could well exceed it. To meet this
kind of a situation, inventories may be held in excess of the average for expected demand.
Similarly, the average delivery time (that is, the time elapsing between placing an order and
having the goods in stock ready for use, and technically called as the lead time) may be
known. But unpredictable events could cause the actual delivery time to be more than the
average. Thus, excess stocks might be kept in order to meet the demand during the time for
which the delivery is delayed. These inventories which are in excess of those necessary just
to meet the average demand (during the average lead time period), held for protecting against
the fluctuations in demand and lead time.

 Safety stocks should be as small as possible for A materials, since those materials have a
high value, which means that even small stocks would generate a high inventory value.

 For C parts also, the safety stocks shouldn’t be too high, but they can contain more buffers
than the A material stocks because the value of C materials is lower.

 A materials should be regularly procured in short order cycles.

 C materials can be procured weekly or monthly in fixed lot sizes.

Lead time is the period that elapses between the recognition of a need and its fulfillment.

There is a direct relationship between lead time and inventories.

Lead time has two components:

(a) Administrative lead time

(b) Delivery lead time

Page 59
For example the safety stocks are determined in table below:

SAFETY STOCK FOR PE ITEMS


ANNUAL LEAD PER DAY SAFETY
DESCRIPTION
CONSUMPTION TIME REQ. STOCK
PE-A 2570160 55 Days 7042 387310
PE-B 754308 60 Days 2067 124020
PE-C 413952 65 Days 1134 73710
PE-D 119208 50 Days 327 16350
PE-E 431580 70 Days 1182 82740
PE-F 57744 48 Days 158 7584
PE-G 675600 65 Days 1851 120315

SAFETY STOCK FOR LEAD ITEMS

ANNUAL LEAD PER DAY SAFETY


DESCRIPTION
CONSUMPTION (MT) TIME REQ. STOCK
LEAD-A 51828 57 Days 142 8094
LEAD-B 9372 55 Days 26 1430
LEAD-C 9024 50 Days 25 1250
LEAD-D 2772 48 Days 8 384
LEAD-E 6708 45 Days 18 810
LEAD-F 4908 60 Days 13 780
LEAD-G 84 40 Days 0.23 9
LEAD-H 2544 45 Days 6.97 315
LEAD-I 2808 50 Days 8 400
LEAD-J 672 55 Days 2 110
LEAD-K 612 48 Days 2 96

Page 60
SAFETY STOCK FOR AGM ITEMS

Annual Lead Per Day Safety


Description
Consumption(Kgs) Time Req. Stock
AGM – A 629664 57 1725 98325
AGM – B 89328 57 245 13965
AGM – C 0 0 0 0
AGM – D 87036 57 238 13566
AGM – E 67332 57 184 10488
AGM – F 0 0 0 0
AGM – G 24072 57 66 3762
AGM – H 264 57 1 57
AGM – I 87648 57 240 13680
AGM – J 7056 57 19 1083
AGM – K 40000 57 132 7524
AGM – L 65076 57 178 10146
AGM – M 0 0 0 0
AGM – N 12432 57 34 1938
AGM – O 75996 57 208 11856
AGM – P 12636 57 35 1995
AGM – Q 0 0 0 0
AGM – R 0 0 0 0
AGM – S 10992 57 30 1710
AGM – T 5940 57 16 912
AGM – U 0 0 0 0
AGM – V 22752 57 62 3534
AGM – W 7860 57 22 1254

Page 61
5.1 FINDINGS

 Variance and uncertainties in lead time.

 Good quality of materials is supplied to stores.

 Gradual increase in the inventory (levels) consumptions.

 As the procurement of the orders is not according to the requirement of the orders
received, a major part of the inventory is held up as non-moving.

 The stores department depreciation is increased during the year 2012-2013 and 2013-
2014. They calculated depreciation on dead items also this is affected to coming loss.

 There is no well defined out bound logistics system.

 Have not been implementing any evolved technique in material or stores management
like two bin system or Just in Time.

 The company has to maintain sufficient stocks of finished products to meet reasonable

expectations of customers for prompt delivery of their orders.

Page 62
5.2 SUGGESTIONS

 The company has to concentrate more on Research and Development so that it can

keep abreast with the latest Developments.

 Weekly inventory report should be prepared without fail. This helps to ensure quality,

controlling of materials, eliminations of exclusive wastage scrap, spoilage and

defective and detailed information of the materials in the stores.

 The company has to eliminate dead inventory as depreciation is charged even on the

dead inventory and this has resulted in decrease profits.

 Company should strive for "getting the right goods to the right places at the right time

for the least cost".

 Company has to position inventory items according to risk and opportunity.

 Company has to distinguish between bottleneck items, critical Items (high risk, high

opportunity).

Page 63
5.3 CONCLUSIONS

The company can reduce ordering cost by the following proper inventory

management technique like

 Just in Time (JIT)

JUST-IN-TIME

It is philosophy of continuous improvement in which non value adding activities (or

wastes) are identified and removed for the purpose of:

1) Reducing Cost

2) Improving Quality

3) Improving performance

4) Improving Delivery

5) Adding Flexibility

6) Increase Innovations

JIT is not about automation. It not only eliminates waste but also helps for controlling

inventory by providing the environment to perfect and simplify the processes. It is collection

of techniques used to improve operations. It can also be a new production system that is used

to produce goods and services.

When the JIT principles are implemented successfully, significant competitive

advantages are realized. JIT principles can be applied to all parts of an organization: order

taking, purchasing, operations, distribution, sales, accounting, design, etc.,

Page 64
ELIMINATION OF WASTE

JIT usually identifies seven prominent types of waste to be eliminated:

a) Waste from over production.

b) Waste of waiting/idle time.

c) Transportation waste.

d) Inventory waste.

e) Processing waste.

f) Waste of motion.

g) Waste from product defects.

Inventory control is the “Life System” control needed for continuous operation in all
businesses. Inventory can be compared to the life blood of the human body. Just as used-up
red and white cells need replacement in the human body in the correct quantity and quality at
the right time for continuous operation.

Page 65
BIBLIOGRAPHY

REFERENCE BOOKS

 S.P. JAIN, K.L. NARANG (2003),"Advanced Accountancy"

10 Edition, Kalyani Publishers, Ludhiyana.

 I.M. PANDEY (2002),"Financial Management"

8th Edition, Vikas Publishing House Pvt. Ltd., New Delhi.

 R.K. SHARMA, SHASHI K. GUPTA," Management of Accounting"

2nd Edition, Kalyani Publishers, Ludhiyana.

 PRASANNA CHANDRA (2002),"Financial Management"

5th Edition, Tata-McGraw hill Publishing Company Ltd., New Delhi.

 M.Y. KHAN and P.K. JAIN,"Management Accounting",

Tata McGraw Hill Publishing Company Limited, New Delhi.

JOURNALS

The ICFAI journal of applied finance

Finance India (Indian Institute of Finance)

Investment Monitor

WEBSITE

www.apache.com

Page 66