Você está na página 1de 81

A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER 1
INTRODUCTION
Finance:
Finance is regarded as the lifeblood of business enterprises. This
is because; in the modern money oriented economy finance is one of the basic
foundations of all kinds of all kinds of economy.

Finance is the allocation of assets and liabilities over time under conditions of
certainty and uncertainty. A key point in finance is the time value of money,
which states that a unit of currency today is worth more than the same unit of
currency tomorrow. Finance aims to price assets based on their risk level, and
expected rate of return. Finance can be broken into three different sub
categories: public finance, corporate finance and personal finance.

Personal finance may involve paying for education, financing durable


goods such as real estate and cars, buying insurance, e.g. health and property
insurance, investing and saving for retirement.

Personal finance may also involve paying for a loan, or debt obligations. The
six key areas of personal financial planning, as suggested by the Financial
Planning Standards Board, are:

 Financial position: is concerned with understanding the personal


resources available by examining net worth and household cash flow.
Net worth is a person's balance sheet, calculated by adding up all assets
under that person's control, minus all liabilities of the household, at one
point in time. Household cash flow totals up all the expected sources of
income within a year, minus all expected expenses within the same year.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 1


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

• From this analysis, the financial planner can determine to what degree
and in what time the personal goals can be accomplished.

• Adequate protection: the analysis of how to protect a household


from unforeseen risks. These risks can be divided into liability, property,
death, disability, health and long term care. Some of these risks may be
self-insurable, while most will require the purchase of an insurance
contract. Determining how much insurance to get, at the most cost
effective terms requires knowledge of the market for personal insurance.
Business owners, professionals, athletes and entertainers require
specialized insurance professionals to adequately protect themselves.
Since insurance also enjoys some tax benefits, utilizing insurance
investment products may be a critical piece of the overall investment
planning.

• Tax planning: typically the income tax is the single largest expense
in a household. Managing taxes is not a question of if you will pay
taxes, but when and how much. Government gives many incentives in
the form of tax deductions and credits, which can be used to reduce the
lifetime tax burden. Most modern governments use a progressive tax.
Typically, as one's income grows, a higher marginal rate of tax must be
paid. Understanding how to take advantage of the myriad tax breaks
when planning one's personal finances can make a significant impact.

• Investment and accumulation goals: planning how to accumulate


enough money - for large purchases and life events - is what most
people consider to be financial planning. Major reasons to accumulate
assets include, purchasing a house or car, starting a business, paying for

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 2


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

education expenses, and saving for retirement. Achieving these goals


requires projecting what they will cost, and when you need to withdraw
funds. A major risk to the household in achieving their accumulation
goal is the rate of price increases over time, or inflation. Using net
present value calculators, the financial planner will suggest a
combination of asset earmarking and regular savings to be invested in a
variety of investments. In order to overcome the rate of inflation, the
investment portfolio has to get a higher rate of return, which typically
will subject the portfolio to a number of risks. Managing these portfolio
risks is most often accomplished using asset allocation, which seeks to
diversify investment risk and opportunity. This asset allocation will
prescribe a percentage allocation to be invested in stocks, bonds, cash
and alternative investments. The allocation should also take into
consideration the personal risk profile of every investor, since risk
attitudes vary from person to person.

• Retirement planning: is the process of understanding how much it


costs to live at retirement and coming up with a plan to distribute assets
to meet any income shortfall. Methods for retirement plan include taking
advantage of government allowed structures to manage tax liability
including: individual (IRA) structure or employer sponsored retirement
plans.

• Estate planning: involves planning for the disposition of one's assets


after death. Typically, there is a tax due to the state or federal
government at one's death. Avoiding these taxes means that more of
one's assets will be distributed to one's heirs. One can leave one's assets
to family, friends or charitable groups.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 3


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

• Finance can be broken into three different sub categories;

• Public finance,

• Corporate finance and,

• Personal finance.

Financial accounting
An organization's inventory can appear a mixed blessing,
since it counts as an asset on the balance sheet, but it also ties up money that
could serve for other purposes and requires additional expense for its
protection. Inventory may also cause significant tax expenses, depending on
particular countries' laws regarding depreciation of inventory, as in Thor Power
Tool Company v. Commissioner.

Inventory appears as a current asset on an organization's balance sheet because


the organization can, in principle, turn it into cash by selling it. Some
organizations hold larger inventories than their operations require in order to
inflate their apparent asset value and their perceived profitability.

In addition to the money tied up by acquiring inventory, inventory also brings


associated costs for warehouse space, for utilities, and for insurance to cover
staff to handle and protect it from fire and other disasters, obsolescence,
shrinkage (theft and errors), and others. Such holding costs can mount up:
between a third and a half of its acquisition value per year.

Businesses that stock too little inventory cannot take advantage of large orders
from customers if they cannot deliver. The conflicting objectives of cost
control and customer service often pit an organization's financial and operating

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 4


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

managers against its sales and marketing departments. Salespeople, in


particular, often receive sales-commission payments, so unavailable goods may
reduce their potential personal income. This conflict can be minimized by
reducing production time to being near or less than customers' expected
delivery time. This effort, known as "Lean production" will significantly
reduce working capital tied up in inventory and reduce manufacturing costs.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 5


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

INVENTORY
Inventory or stock refers to the goods and materials that a business holds for
the ultimate purpose of resale (or repair).

Inventory management is a science primarily about specifying the shape and


percentage of stocked goods. It is required at different locations within a
facility or within many locations of a supply network to precede the regular
and planned course of production and stock of materials.

The scope of inventory management concerns the fine lines between


replenishment lead time, carrying costs of inventory, asset management,
inventory forecasting, inventory valuation, inventory visibility, future
inventory price forecasting, physical inventory, available physical space for
inventory, quality management,

Replenishment, returns and defective goods, and demand forecasting.


Balancing these competing requirements leads to optimal inventory levels,
which is an on-going process as the business needs shift and react to the wider
environment.

Inventory management involves a retailer seeking to acquire and maintain a


proper merchandise assortment while ordering, shipping, handling, and related
costs are kept in check. It also involves systems and processes that identify
inventory requirements, set targets, provide replenishment techniques, report
actual and projected inventory status and handle all functions related to the
tracking and management of material. This would include the monitoring of
material moved into and out of stockroom locations and the reconciling of the
inventory balances. It also may include ABC analysis, lot tracking, cycle

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 6


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

counting support, etc. Management of the inventories, with the primary


objective of determining/controlling stock levels within the physical
distribution system, functions to balance the need for product availability
against the need for minimizing stock holding and handling costs.

Reasons for keeping stock


There are four basic reasons for keeping an inventory

• Time - The time lags present in the supply chain, from supplier to user
at every stage, requires that you maintain certain amounts of inventory
to use in this lead time. However, in practice, inventory is to be
maintained for consumption during 'variations in lead time'. Lead time
itself can be addressed by ordering that many days in advance.

• Uncertainty - Inventories are maintained as buffers to meet


uncertainties in demand, supply and movements of goods.

• Economies of scale - Ideal condition of "one unit at a time at a place


where a user needs it, when he needs it" principle tends to incur lots of
costs in terms of logistics. So bulk buying, movement and storing brings
in economies of scale, thus inventory.

• Appreciation in Value - In some situations, some stock gains the


required value when it is kept for some time to allow it reach the desired
standard for consumption, or for production. For example; beer in the
brewing industry

All these stock reasons can apply to any owner or product

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 7


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Objectives of Inventory management


The main Objective of inventory management is operational and
financial. The operational objective means that the Materials and Spares should
be available in sufficient quantity so that work is not disrupted for want of
inventory.

• To ensure that the supply of raw materials and finished goods will
remain continuous so that production process is not halted and demands
of customers are duly met.

• To maintain investments in inventories at the optimum levels as required


by the operational and sales activities.

• To facilitate furnishing of data for short term and long term planning and
control of inventory.

• To ensure perpetual inventory control so that materials shown in stock


ledgers should be actually lying in the stores.

• To ensure right quality goods at reasonable price. Suitable quality


standards will ensure proper quality of stocks. The price Analysis, the
cost analysis and value-Analysis will ensure payment of proper prices.

• To design proper organization or inventory management. A clear cut


accountability should be fixed at various levels of the organization

• The Financial objective means that investments in inventories should not


remain idle and minimum working capital should be locked in it.

• To eliminate duplication in ordering or replenishing stocks. This is


possible with the help of centralizing purchase.

• To keep material cost under control so that they contribute in reducing


cost of production and overall costs.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 8


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Special terms used in dealing with inventory


Stock Keeping Unit (SKU) is a unique combination of all the
components that are assembled into the purchasable item. Therefore, any
change in the packaging or product is a new SKU. This level of detailed
specification assists in managing inventory.

• Stock out means running out of the inventory of an SKU.[1]

• "New old stock" (sometimes abbreviated NOS) is a term used in business to


refer to merchandise being offered for sale that was manufactured long ago
but that has never been used. Such merchandise may not be produced
anymore, and the new old stock may represent the only market source of a
particular item at the present time.

Principle of Inventory Proportionality


Purpose:
Inventory proportionality is the goal of demand-driven inventory
management. The primary optimal outcome is to have the same number of
days' (or hours', etc.) worth of inventory on hand across all products so that the
time of run out of all products would be simultaneous. In such a case, there is
no "excess inventory," that is, inventory that would be left over of another
product when the first product runs out. Excess inventory is sub-optimal
because the money spent to obtain it could have been utilized better elsewhere,
i.e. to the product that just ran out.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 9


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

The secondary goal of inventory proportionality is inventory minimization. By


integrating accurate demand forecasting with inventory management, rather
than only looking at past averages, a much more accurate and optimal outcome
is expected.

Integrating demand forecasting into inventory management in this way also


allows for the prediction of the "can fit" point when inventory storage is
limited on a per-product basis.

Applications:
The technique of inventory proportionality is most appropriate for
inventories that remain unseen by the consumer, as opposed to "keep full"
systems where a retail consumer would like to see full shelves of the product
they are buying so as not to think they are buying something old, unwanted or
stale; and differentiated from the "trigger point" systems where product is
reordered when it hits a certain level; inventory proportionality is used
effectively by just-in-time manufacturing processes and retail applications
where the product is hidden from view.

One early example of inventory proportionality used in a retail


application in the United States was for motor fuel. Motor fuel (e.g. gasoline) is
generally stored in underground storage tanks. The motorists do not know
whether they are buying gasoline off the top or bottom of the tank, nor need
they care. Additionally, these storage tanks have a maximum capacity and
cannot be overfilled. Finally, the product is expensive. Inventory
proportionality is used to balance the inventories of the different grades of
motor fuel, each stored in dedicated tanks, in proportion to the sales of each
grade. Excess inventory is not seen or valued by the consumer, so it is simply

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 10


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

cash sunk (literally) into the ground. Inventory proportionality minimizes the
amount of excess inventory carried in underground storage tanks.

This application for motor fuel was first developed and implemented
by Petrol Soft Corporation in 1990 for Chevron Products Company. Most
major oil companies use such systems today.

High-level inventory management:


It seems that around 1880 there was a change in manufacturing practice
from companies with relatively homogeneous lines of products to horizontally
integrated companies with unprecedented diversity in processes and products.
Those companies (especially in metalworking) attempted to achieve success
through economies of scope - the gains of jointly producing two or more
products in one facility. The managers now needed information on the effect of
product-mix decisions on overall profits and therefore needed accurate
product-cost information. A variety of attempts to achieve this were
unsuccessful due to the huge overhead of the information processing of the
time. However, the burgeoning need for financial reporting after 1900 created
unavoidable pressure for financial accounting of stock and the management
need to cost manage products became overshadowed. In particular, it was the
need for audited accounts that sealed the fate of managerial cost accounting.
The dominance of financial reporting accounting over management
accounting remains to this day with few exceptions, and the financial reporting
definitions of 'cost' have distorted effective management 'cost' accounting since
that time. This is particularly true of inventory.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 11


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Hence, high-level financial inventory has these two basic formulas, which
relate to the accounting period:

• Cost of Beginning Inventory at the start of the period +

inventory purchases within the period + cost of production within the

period = cost of goods available

• Cost of goods available − cost of ending inventory at the end of the

period = cost of goods sold

The benefit of these formulas is that the first absorbs all overheads of
production and raw material costs into a value of inventory for reporting. The
second formula then creates the new start point for the next period and gives a
figure to be subtracted from the sales price to determine some form of sales-
margin figure.

Manufacturing management is more interested in inventory turnover


ratio or average days to sell inventory since it tells them something about
relative inventory levels.

Inventory turnover ratio (also known as inventory turns) = cost of goods


sold / Average Inventory = Cost of Goods Sold / ((Beginning Inventory +
Ending Inventory) /

2) And it’s inverse

Average Days to Sell Inventory = Number of Days a Year / Inventory


Turnover Ratio = 365 days a year / Inventory Turnover Ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 12


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

This ratio estimates how many times the inventory turns over a
year. This number tells how much cash/goods are tied up waiting for the
process and is a critical measure of process reliability and effectiveness.
So a factory with two inventory turns has six months stock on hand,
which is generally not a good figure (depending upon the industry),
whereas a factory that moves from six turns to twelve turns has probably
improved effectiveness by 100%. This improvement will have some
negative results in the financial reporting, since the 'value' now stored in
the factory as inventory is reduced.

While these accounting measures of inventory are very useful because


of their simplicity, they are also fraught with the danger of their own
assumptions. There are, in fact, so many things that can vary hidden
under this appearance of simplicity that a variety of 'adjusting'
assumptions may be used. These include:

• Specific Identification

• Weighted Average Cost

• Moving-Average Cost

• FIFO and LIFO.

Inventory Turn is a financial accounting tool for evaluating inventory


and it is not necessarily a management tool. Inventory management
should be forward looking. The methodology applied is based on
historical cost of goods sold. The ratio may not be able to reflect the
usability of future production demand, as well as customer demand.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 13


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Business models, including Just in Time (JIT) Inventory, Vendor


Managed Inventory (VMI) and Customer Managed Inventory (CMI),
attempt to minimize on-hand inventory and increase inventory turns.
VMI and CMI have gained considerable attention due to the success of
third-party vendors who offer added expertise and knowledge that
organizations may not possess...

Accounting for inventory :


Each country has its own rules about accounting for inventory that fit
with their financial-reporting rules.

For example, organizations in the U.S. define inventory to suit their needs
within US Generally Accepted Accounting Practices (GAAP), the rules defined
by the Financial Accounting Standards Board (FASB) (and others) and
enforced by the U.S. Securities and Exchange Commission (SEC) and other
federal and state agencies. Other countries often have similar arrangements but
with their own accounting standards and national agencies instead.

It is intentional that financial accounting uses standards that allow the public to
compare firms' performance, cost accounting functions internally to an
organization and potentially with much greater flexibility. A discussion of
inventory from standard and Theory of Constraints-based (throughput) cost
accounting perspective follows some examples and a discussion of inventory
from a financial accounting perspective.

The internal costing/valuation of inventory can be complex. Whereas in the


past most enterprises ran simple, one-process factories, such enterprises are
quite probably in the minority in the 21st century. Where 'one process' factories

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 14


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

exist, there is a market for the goods created, which establishes an independent
market value for the good. Today, with multistage-process companies, there is
much inventory that would once have been finished goods which is now held
as 'work in process' (WIP). This needs to be valued in the accounts, but the
valuation is a management decision since there is no market for the partially
finished product. This somewhat arbitrary 'valuation' of WIP combined with
the allocation of overheads to it has led to some unintended and undesirable
results.

FIFO vs. LIFO Accounting


Main article: FIFO and LIFO accounting

When a merchant buys goods from inventory, the value of the inventory
account is reduced by the cost of goods sold (COGS). This is simple where the
CoG has not varied across those held in stock; but where it has, then an agreed
method must be derived to evaluate it. For commodity items that one cannot
track individually, accountants must choose a method that fits the nature of the
sale. Two popular methods that normally exist are: FIFO and LIFO
accounting (first in - first out, last in - first out). FIFO regards the first unit that
arrived in inventory as the first one sold. LIFO considers the last unit arriving
in inventory as the first one sold. Which method an accountant selects can have
a significant effect on net income and book value and, in turn, on taxation.
Using LIFO accounting for inventory, a company generally reports lower net
income and lower book value, due to the effects of inflation. This generally
results in lower taxation. Due to LIFO's potential to skew inventory value, UK
GAAP and IAS have effectively banned LIFO inventory accounting.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 15


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

National accounts:

Inventories also play an important role in national accounts and the analysis of
the business cycle. Some short-term macroeconomic fluctuations are attributed
to the inventory cycle.

Distressed inventory:

Also known as distressed or expired stock, distressed inventory is


inventory that’s potential to be sold at a normal cost has passed or will soon
pass. In certain industries it could also mean that the stock is or will soon be
impossible to sell. Examples of distressed inventory include products that have
reached their expiry date, or have reached a date in advance of expiry at which
the planned market will no longer purchase them (e.g. 3 months left to expiry),
clothing that is defective or out of fashion, music that is no longer popular and
old newspapers or magazines. It also includes computer or consumer-electronic
equipment that is obsolete or discontinued and whose manufacturer is unable to
support it. One current example of distressed inventory is the VHS format.[4] In
2001, Cisco wrote off inventory worth US $2.25 billion due to duplicate
orders.[5] This is one of the biggest inventory write-offs in business history.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 16


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Stock Rotation;

Stock Rotation is the practice of changing the way inventory is


displayed on a regular basis. This is most commonly used in hospitably and
retail - particularity where food products are sold. For example, in the case of
supermarkets that a customer frequents on a regular basis, the customer may
know exactly where they want and where it is. This results in many customers
going straight to the product they seek and do not look at other items on sale.
To discourage this practice, stores will rotate the location of stock to encourage
customers to look through the entire store. This is in hopes the customer will
pick up items they would not normally see.

Inventory credit:

Inventory credit refers to the use of stock, or inventory,


as collateral to raise finance. Where banks may be reluctant to accept
traditional collateral, for example in developing countries where land title may
be lacking, inventory credit is a potentially important way of overcoming
financing constraints. This is not a new concept; archaeological evidence
suggests that it was practiced in Ancient Rome. Obtaining finance against
stocks of a wide range of products held in a bonded warehouse is common in
much of the world. It is, for example, used with Parmesan cheese in
Italy.[7] Inventory credit on the basis of stored agricultural produce is widely
used in Latin American countries and in some Asian countries.[8] A
precondition for such credit is that banks must be confident that the stored
product will be available if they need to call on the collateral; this implies the
existence of a reliable network of certified warehouses. Banks also face
GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 17
A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

problems in valuing the inventory. The possibility of sudden falls in


commodity prices means that they are usually reluctant to lend more than about
60% of the value of the inventory at the time of the loan.

Cost of Goods Sold:

Cost of goods sold or COGS refer to the carrying value of goods sold
during a particular period.

Costs are associated with particular goods using one of several formulas,
including specific identification, first-in first-out (FIFO), or average cost. Costs
include all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition. Costs of goods
made by the business include material, labor, and allocated overhead. The costs
of those goods not yet sold are deferred as costs of inventory until the
inventory is sold or written down in value.

Stock management:
Stock management is the function of understanding the stock mix of a
company and the different demands on that stock. The demands are influenced
by both external and internal factors and are balanced by the creation
of purchase order requests to keep supplies at a reasonable or prescribed level.

Stock management in the retail supply chain follows the following sequence:

• Request for new stock from stores to head office

• Head office issues purchase orders to the vendor

• Vendor ships the goods


GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 18
A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

• Warehouse receives the goods

• Warehouse stocks and distributes to the stores

• Stores receive the goods

• Goods are sold to customers at the stores

The management of the inventory in the supply chain involves managing the
physical quantities as well as the costing of the goods as it flows through the
supply chain.

In managing the cost prices of the goods throughout the supply chain, several
costing methods are employed:

• Retail method

• Weighted Average Price method

• FIFO (First In First Out) method

• LIFO (Last In First Out) method

• LPP (Last Purchase Price) method

• BNM (Bottle neck method)

Weighted average price method:


The calculation can be done for different periods. If the calculation
is done on a monthly basis, then it is referred to the periodic method. In this
method, the available stock is calculated by:

ADD Stock at beginning of period


ADD Stock purchased during the period

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 19


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

AVERAGE total cost by total qty to arrive at the Average Cost of Goods for
the period.

This Average Cost Price is applied to all movements and adjustments in that
period.
Ending stock in qty is arrived at by Applying all the changes in qty to the
Available balance.
Multiplying the stock balance in qty by the Average cost gives the Stock cost at
the end of the period.

Using the perpetual method, the calculation is done upon every purchase
transaction.

Thus, the calculation is the same based on the periodic calculation whether by
period (periodic) or by transaction (perpetual).

The only difference is the 'periodicity' or scope of the calculation. - Periodic is


done monthly - Perpetual is done for the duration of the purchase until the next
purchase

In practice, the daily averaging has been used to closely approximate the
perpetual method. 6. Bottle neck method ( depends on proper planning support)

Business models:

Just-in-time Inventory (JIT), Vendor Managed Inventory (VMI)


and Customer Managed Inventory (CMI) are a few of the popular models being
employed by organizations looking to have greater stock management control.

JIT is a model that attempts to replenish inventory for organizations when the
inventory is required. The model attempts to avoid excess inventory and its

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 20


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

associated costs. As a result, companies receive inventory only when the need
for more stock is approaching.

VMI and CMI are two business models that adhere to the JIT inventory
principles. VMI gives the vendor in a vendor/customer relationship the ability
to monitor, plan and control inventory for their customers. Customers
relinquish the order making responsibilities in exchange for timely inventory
replenishment that increases organizational efficiency.

CMI allows the customer to order and control their inventory from their
vendors/suppliers. Both VMI and CMI benefit the vendor as well as the
customer. Vendors see a significant increase in sales due to increased inventory
turns and cost savings realized by their customers, while customers realize
similar benefits.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 21


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER 2
RESEARCH DESIGN

A research report is a written document or oral presentation based


on a written document that communicates the purpose, scope, objectives,
methodology, findings, limitations and finally recommendation of a research
project to others.

“Research is a careful enquiry or examination to discover new information or


relationships and to expand and to verify existing knowledge”

"FRANCIS RUMMEL"

“Research is essentially an investigation, a recording and analysis of Evidence


for the purpose of gaining Knowledge”

“ROBERT ROSS”

A research design is a systematic plan to study a scientific problem.


The design of a study defines the study type (descriptive, co relational, semi-
experimental, experimental, review, meta-analytic) and sub-type (e.g.,
descriptive-longitudinal case study), research question, hypotheses,
independent and dependent variables, experimental design, and, if applicable,
data collection methods and a statistical analysis plan.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 22


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

After deciding the basic aspects of research project (i.e. formulating research
problem, objectives of research, data requirement, sample design, etc) and
before the commencement of work of research project, the researcher has to
prepare research design. It is a major step in the research process /procedure.
The research work will be conducted (i.e. data collection, etc) as per the
research design prepared. Research design means to prepare detailed plan and
procedures for the conduct of the research project. It is like preparing a master
plan/blue print for the conduct of formal investigation. It is the basic plan that
guides researcher in the execution of the research project undertaken. It is like
road map which enables the researcher to conduct various activities for the
completion of research project.

In short, research design is a systematic planning, organising and executing a


research project within specified time limit and resource allocation. Research
design tells the type of data to be collected, the sources of data and the
procedures to be followed in data collection. Research design provides suitable
framework that guides the collection and analysis of data.

TITLE OF THE STUDY

The title of project is “A PROJECT REPORT ON INVENTORY


MANAGEMENT AND CONTROL AT SB SILKS PVT LTD”

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 23


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

STATEMENT OF THE PROBLEM

The purpose of the project is to analyze the inventory management


Techniques and process followed by S B Silks. And to give the suggestion to
futher improvements in inventory management in the plant. It is necessary for
every management to give proper attention to inventory management. A proper
planning of purchasing, handling storing, and accounting should form a part of
inventory management .

Objectives of the Study

The primary objective of this study was to determine and compare the
extent of vocational training, satisfaction in employment/careers, and socio-
economic improvement of the project-assisted institute graduates and non-
assisted institute graduates. The second objective was to determine and
compare educational development of the project-assisted and non-assisted
institutes as perceived by teachers, administrators, and current students. A final
objective was to identify employers’ skill requirements for today’s work, their
use of current technology, and their planning for perceived future trends.

General and Specific Objectives.


 To study the historical background of SB Silks.
 To study the competitive environment of the Organization.
 To study the effectiveness of Inventory management in today’s world.
 To determine Critical evaluation of Inventory management and control.
 To analyze the function, procedures in Inventory management and
control.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 24


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 To suggest some strategies, remedies in various aspects of Inventory


management and control.
 To equip myself better in the area of Inventory management and control.

SCOPE OF THE STUDY.

This study is an attempt to study the Inventory management of the


organization as a part of the finance Department Activity. And its core study
with different Aspects of Inventory Techniques and its valuation such as
Maximum Level, Danger level, Economic Order Quantity.VES analysis, ABC
analysis and valuation techniques likes LIFO method, and FIFO method, HIFO
method Etc.,

So, this Study provides a wider scope for us to gain an insight into practical of
an Inventory management of an organization and also increased our managerial
skill.

RESEARCH METHODOLOGY:
To conduct the studies different methodologies have been
adopted. The study was undertaken by visiting the plant for a period of 10
weeks. Both primary and secondary data are used.

Primary data were collected by conducting personal Interviews with the


Departmental Heads and secondary data were collected from the organizational
financial data.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 25


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

DATA COLLECTION.

PRIMARY SOURCES

Direct Interview with Departmental Heads and by Interactions


with workers in the company, and details is also collected by observing the
functions of the organization.

SECONDARY SOURCES
The secondary sources of data are

• Organizations/Company Broachers

• Departmental Records / Documents.

• Annual Reports.

• Journals published by the co.,

• Company’s websites and Internet

• Financial Statements of co.,

FIELD WORK:-
This was undertaking individually to collect various information
regarding the study by following sections.

• Stores Departments.

• Finance Departments

• Information from stores Room, through this Raw material storage


system is analyzed.

• Information regarding Production process, in work place.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 26


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

• Information regarding Stocking of materials, Receipt and issue of Raw


materials to Work Shops.

• Information with regards to Raw materials process in the machinery


with well Equipped Technology.

LIMITATIONS OF THE STUDY

• The Time allocated for completing the whole project was only 10weeks.
It’s not enough for understanding the over all operations of Organization
in detail.

• The study mainly focused on Inventory. So it ignores the other concepts


which directly influence the company performance. Inventory
management is wider concept. But only few concept has taken for the
study and remained are considered as constant.

• The study was limited to SB SILKS…Hence it is not possible to


understand Inventory systems adopted by other Organizations. All the
information required for project is not completely revealed by company.

• Discussion with all related officials was not possible. The Study is
completely based on Secondary data given by company.,

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 27


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER SCHEME

Chapter-1: Introduction to the study


The chapter gives us a general introduction to the study undertaken. It talks
about the project has been taken; the definitions of the study; Need, objective
and the scope of the study conducted.

Chapter-2: Research design of the study


This chapter briefly describes the way in which the study is carried out. It
provides information regarding the specific research design followed for the
study, sources of data, data processing and analysis plan of the study, expected
contribution of the study and the limitations of the study.

Chapter-3: Company Profile


The chapter views the origin, growth and the present status of the organization,
i.e., SB SILKS. It also covers the functional Departments, its organization
structure, its objectives and its future prospects.

Chapter-4: Data Analysis and Interpretation


In this chapter all calculation pertaining to the study are calculated and
interpreted. Calculations refer to the ratios calculated in the study. The trends
of the ratios are also projected and interpreted. As it is said that one picture is
worth 1000 words, graphs have been provided for better understanding.

Chapter-5: Summary of Finding, Suggestions and


Conclusion.
This chapter consists of summary of findings to the study of Finance and for
better knowing of suggestions and conclusions of the data.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 28


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Chapter-6: Annexure
This chapter includes resources of Data. i.e. is Profit and Loss Account,
Balance Sheet of Co., for the 3 years., i.e is taken for Project Study and its
Analysis.

Chapter-7: Bibliography
This chapter includes name of the author, Title of the book, source of Internet
and websites.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 29


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER 3
COMPANY PROFILE

The History Of The Company


Founded in 2006, SB Silk Fabrics has come a long way from its
modest beginning to establish a worldwide market based on trust, integrity and
a thorough understanding of the market dynamics. Addressed as a pre-eminent
manufacturer, exporter, trader and supplier, we specialize in a variety of fabrics
including Dupion Silk Fabric, Silk Taffeta, Plain/Striped/Plaid Fabric, Polka
Dots (both Hand & Computer Embroidered), Hand Embroidered Fabrics for
Designers, and Printed & Hand-woven Fabrics. We also deal in a number of
home furnishing items such as Formal and Ethnic Cushions, Curtains, Quilts,
Bedspreads, Pillow Covers, Duvets and Duvet Covers. Designed to cater to
every genre of masses, our products have created a stir in the market, owing to
their premium quality, smooth texture and vibrant colors.

The team of designers working for us is driven to perfection and ensures


that products reaching to the customers are of the highest standards. It is due to
our focused approach in imbibing all the current fashion trends in our designed
fabrics that we have made a name for ourselves in the domestic as well as in
the international market. It is indeed worthy to note that within a short span of
two years, we have been successful in building a strong customer base in many
overseas regions including UAE, USA and UK.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 30


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Company name : SB Silk Fabrics

Contact Person : Mr. Mehboob

Mobile / Cell Phone : +(91)-9341253129

Telephone : +(91)-(80)-22276269

Fax No : +(91)-(80)-41426920

: #65/5, Sanjeevappa Lane, Avenue Road


Cross, Bengalore - 560002, Karnataka, India.

Vision Statement
• To be a force to reckon with facilitating us to reach the pinnacle of success
and be a leader in manufacturers and exports of pressed components an
into assemblies by incorporating the state of art Technologies for
manufacturing.

Mission Statement
• To become a leading manufacturer and exporter of stamped components
and sub assemblies.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 31


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

SCOPE
Manufacturing and supply of precision pressed components and silk
dresses. The company product ranges does not call for any post delivery
services activities and hence sectional sub elements have not been addressed.

NUMBERS OF BRANCHES
There are 2 branches in avenue road as below:-

M/s. S B Silks, Bangalore

No. 66, Sanjeevappa Lane, Avenue Road, Cross, Bangalore – 560002

#65/5, Sanjeevappa Lane, Avenue Road, Cross,

Bangalore – 560002, Karnataka, India.

NUMBERS OF DIRECTORS

MR. MEHBOOB [Managing Director]

AYESHA SIDDIQA [Managing Directors’s wife]

Numbers of Employees
25 employees [skilled] 10 contract employees

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 32


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Materials Handling From Raw To Finish:-


The description of the process through which the raw material to
finish product maintained:-

• Item

• Handling

• Storing

• Packing

• Protection

• Delivery.

Is depicted below in each stage

• Raw material

• Customers supply

• In process items

• Finished goods

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 33


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

PRODUCTS OF THE COMPANY

Beaded & Embroidered Fabric

Offer wide variety of designer silk fabrics that are used for manufacturing
garments and home furnishing items. These fabrics are available in various
stripes, colors, prints etc to cater to the varied requirements of our customers.

Silk Yarns

We offer silk that is rough, crisp, uneven texture and a dull luster. We offer this
silk fabric in number of colors other than natural color or white. It is highly
durable due to its tight and plain weaves. This silk is high in demand in indian
as well as overseas market.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 34


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Handwoven Fabric

These hand-woven silk fabrics are developed by the agile hands of our talented
workers by putting in their best effort. These fabrics showcase the magical
blend of softness of silk and charm of trendy patterns.

Embroidered Silk Fabric

We perform a lot of hand work on our embroidered silk fabrics. Having a team
of trained and qualified craftsmen, we are able to embellish the plain fabrics
using a lot of thread embroidery work that enhances their appearance.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 35


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Silk Fabric

We offer our range of superior quality of Silk Fabric that is made from
requisite grade of raw material. Having excellent and smooth finish, we also
have capabilities to provide customization to our entire range as per the needs
and demands of our clients.

Hand Embroidered Fabric

A cream base designer silk fabric that has beautiful small maroon flowers thus
making it look attractive. The fabric is made of pure and original silk thus
adding a good shelf life to it. The silk fabric finds application in varied
applications.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 36


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Embroidery Dripery

This fabric includes hand embroidery and heavy craft work of our dexterous
craftsmen. Dull-gloss sequins are done on refined and suave silk, which makes
them beautiful and delightful.

Hand Embroidered Fabric

A cream base designer silk fabric that has beautiful small maroon flowers thus
making it look attractive. The fabric is made of pure and original silk thus
adding a good shelf life to it. The silk fabric finds application in varied
applications.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 37


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Pure Silk Organza Hand Embroidered Fabric

Hand Embroided Silk Fabric


We deal in a mesmerizing gamut of hand-embroidered dupion silk
fabrics that are known for its unblemished finesse and high
craftsmanship. These seamlessly designed fabrics are hand embroidered
and are offered to our clients in standard and customized specifications.
Following are the types of hand embroideries that we offer:
* Thread embroidery
* Sequin embroidery
* Beads embroidery
* Mirror work

Thread Embroidered Silk Fabric

We Offer Thread Embroidered Silk Fabric. We are offering our clients


Embroidered Silk Fabric, which are manufactured as per the
international quality standards. These are used to decorate houses &
hotels and add elegance to the ambiance. All the latest technology
embroidery machines sure used in the fabrication process. There are
satin flowers to decorate and are appropriate for machine wash.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 38


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

·
·

Embroidered Organza Fabrics

Hand Embroidered Cotton Fabric

We are offering Hand Embroidered Cotton Fabric. This fabric is highly in


demand in the market and highly appreciated by large number of customers
globally. This fabric has widel application area that why it is easily available in
the market. This Hand Embroidered Cotton Fabric are available in market at
competitive rates.
GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 39
A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Due to our specialization in the domain, we offer a wide range of Saree Yarn
which is extensively used in the manufacturing of Sarees. This Saree Yarn is
tested at various levels as per the international quality norms and parameters.
We keep the various demands and requirements of the clients in our mind
while developing the range.

Features:* Quality product


* Reasonable price
* Highly demanded

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 40


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Colored Silk Yarn

Spun Silk Yarn

We offer a range of Spun Silk Yarn, where in we do not extract the noil.
It is made available in 1/40'Nm k, 1/60'Nm k and 2/60'Nm k
specifications. Being highly economical than the others, this yarn applies
very well for Carpets, and weft fillings. Our range of combed spun silk
yarn is available in the specifications of 2/60'Nm C, 2/140'Nm C and
2/210'Nm C. It is extremely suitable for blouse material, saree borders
and drape fabrics. Spun silk when used on fabrics will give smooth wear
unlike

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 41


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Indian Silk Yarn

We are engaged in manufacturing and supplying of a wide range of


Indian Silk Yarn.We also ensure that the entire product range is
stringently tested at our in-house

100% Silk Satin Fabric /16mm Silk Charmuse Satin Fabric

Silkprinted fabric for curtain upholstery fabric

Chenille Silk Fabric for Upholstery


GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 42
A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Yarn sale silk cashmere wool yarn fabric factory supplier

100% polyester knit like silk fabric

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 43


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Mattress silk printing knitting fabric

Silk fabric

Beaded Fabric

We manufacture and export a wide array of beaded fabrics that is used in


garment or home furnishing accessories. These beaded fabrics are available
with various embellishments and trims. Our range of beaded fabric is designed
in compliance with latest market trends for the fashion conscious clients.
GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 44
A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Metal Thread Embroidery

Beautiful and sparkling beads have been used to give life to this beautiful metal
thread embroidery that adds to the grace of the salwar kameez. The design is a
combination of geometrical and floral patterns that are unique. Silk thread of
premium quality has been used to make the design look graceful.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 45


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Beaded Embroidered Fabrics

We have experienced designers in our team who are engaged in embroidering


of fabrics by using optimum quality threads and embellishment on the fabrics.
Beaded Embroidered Fabrics offered by us are available in contemporary as
well as traditional designs as per client’s specific requirements.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 46


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

INFORMATION TECHNOLOGY

IT Assistants ; Its main function is to collect and provide the available


information to the various departments of Organization to the
Organization and when required by them. He should also furnish the
information which helps to the level management in the process of
decision making.

This software importance:-

• It has helped the company a lot to progress high.

• Has increased the knowledge of the employees.

• It gets the things done easily and more systematic.

• Less errors and more accurate.

• Keeps everything updated to the top management.

• Has helped in planning the move into the market more efficiently.

Disadvantage:-
• Very costly.

• Needs lots of training and development to be provided to the employees.

• Needs lot of skilled worker to handle these software.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 47


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER -4
DATA ANALYSIS AND INTERPRETATION

The Data Analysis is the process of critically examining in detail


Accounting Information given in the financial statements. The Data is
sometime regarded to have better understanding of the information with the
help of different Techniques or Tools for the purpose. Analyzing the financial
statements is a process of Evaluating relationship between component parts of
Financial statement to obtain a better understanding of Firm’s position and
performance.

Analysis of Inventory Management


 Gross profit Ratio
 Current Ratio
 Ratio of Current Asset to Fixed Asset
 Inventory or Stock Turn Over Ratio
 Working Capital Turnover Ratio
 Fixed asset turn over ratio
 Net Profit Ratio
 Current Asset turn over Ratio.
 Inventory to Working Capital Turnover Ratio
 Absolute liquid ratio
 Return on Total Ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 48


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Gross profit Ratio

This ratio explains the relationships between Gross profit


and Net sales this ratio indicates the degree to which selling price of goods
per units may decline without resulting in loss from operations to the firm.

Gross profit ratio = Gross profit/Net sales*100

Table showing Gross profit Ratio.


Table -1

PARTICULARS 2015 2016 2017

Gross profit 904478 1183676 1769086

Net sales 11237721 13863891 20702416

Gross profit 8.04 8.53 8.54


ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 49


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing gross profit Ratio

8.6
8.5
8.4
8.3
8.2 2015
8.1
2016
8
2017
7.9
7.8
7.7

Gross Profit Ratio

ANALYSIS
The above statement reveals that ratio of gross profit in the year 2015 is 8.04,
in the year 2016 it has increased to 8.53. i.e is indicating gross profit for the
year and in the year 2017 it indicating Gross profit Ratio of 8.54.

INTERPRETATION
This Gross Profit Ratio for the year 2015 is 8.04 and for the next year i.e 2016,
company has incurred a Gross profit of 8.53 Ratio. In the year 2017, it has
Ratio of 8.54, it indicating company’s positive growth towards Gross profit.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 50


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Current Ratio

This is the most widely used Ratio. It is Ratio of current Assets to


current Liabilities. It show’s firms ability to cover its current liabilities
with its current assets.

Current Ratio = Current Asset/Current Liability

Table showing Current Ratio


Table-2

PARTICULARS 2015 2016 2017

Current Asset 5310538 7551545 10935584

Current Liability 5181872 7159019 8050820

Current Ratio 1.02 1.05 1.35

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 51


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing Current Ratio

1.35

1.05
1.4
1.2 1.02
1
0.8
0.6
0.4
0.2
0

Current ratio

2015 2016 2017

ANALYSIS
The graph shows the growth in current ratio is 1.02 in the year 2015, 1.05 in
the year 2016, and it has increased in the year 2017 for 1.35.

INTERPRETATION
The ratio is indicating the company has a good positive growth in current ratio.
It is increasing its capability to payment of its current liabilities. But current
liability indicates idle funds and lack of enthusiasm for the work of the
company. Hence this ratio is not significant.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 52


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Ratio of Current Asset to Fixed Asset

This ratio will differ from Industry to Industry, therefore No standard


can be laid down. Fixed assets have been intensively used. An increase
in the ratio accompanied by increase in profit indicates business is
expanding.

Ratio of current Assets to fixed assets = current Assets / Fixed Assets

Table showing Ratio of current Asset to Fixed Asset


Table – 3

PARTICULARS 2015 2016 2017

Current Asset 5310538 7551545 10935584

Fixed Assets 1941799 1858015 17867999

Current Assets 2.73 4.06 6.12


to fixed assets

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 53


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing current Assets to Fixed Assets

6.12

7 4.06
6
5
4 2.73
3
2
1
0

Current assets to fixed


assets

2015 2016 2017

ANALYSIS
The ratio for 2015 is 2.73 and for the year 2016 is 4.06, it is increased when
compared to 2015 and in the next year I e 2017 it is increased for 6.12.

INTERPRETATION
This ratio indicates that the company has increased its ratio to 6.12 in the year
2017. It is observed that the company, has effectively utilized its fixed assets
during 2017. And due to increase in profit it is indicating Business expansion.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 54


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Inventory or Stock Turnover Ratio

This ratio indicates whether investment in efficiently used or


not. This Explains whether Investment in Inventories is within proper
Limits or not.

ITOR/ STOR = Cost of Goods Sold/ Average Inventory

COGS = Net Sales – Gross Profit

Table showing Stock Turnover Ratio


Table – 4

PARTICULARS 2015 2016 2017

Cost of Goods 10333243 12680215 18933330


Sold

Average 274500 338000 396500


Inventory

STOR/ ITOR 37.64 37.51 47.75

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 55


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing Stock Turn Over Ratio

50 47.75
37.64
37.51
40

30

20

10

Inventory Ratio

2015 2016 2017

ANALYSIS
The above graph reveals that the Inventory /STOR is 37.64 in the
year 2015, 37.51 in the year 2016 and 47.75 in the year 2017

INTERPRETATION
The Inventory Turnover Ratio is decreased in the year 2016, i.e.
37.64 to 37.51. And in the year 2017 the Ratio has been increased to
47.75.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 56


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Working Capital Turnover Ratio

This ratio establishes the relationship between the cost of


sales and working capital.

Working Capital Turnover Ratio = Cost of Sales/ Working Capital.

Working capital = Current Assets – Current Liabilities

Table showing Working capital Ratio


Table – 5

PARTICULARS 2015 2016 2017

Cost of sales 11237721 13863891 20702416

Working capital 128666 392526 2884764

Working capital 87.34 35.31 7.17


turn over ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 57


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing working capital Ratio

87.34
90
80
70
60
50
35.31
40
30
20
10 7.17
0

Working capital Ratio

2015 2016 2017

ANALYSIS
The ratio in the year 2015 is 87.34, and it increased to 35.31 in 2016. And in
the year 2017, the ratio decreased to 7.17.

INTERPRETATION
The working capital for the year 2015 is 87.34, and for the next year i.e 2016,
company has incurred a working capital of 35.31 ratio. In the year 2017, the
working capital of the company is decreased to 7.17 ratios.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 58


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Fixed asset turn over ratio


This ratio measures the efficiency of the asset use the efficient use
of asset will generate greater sales per rupee invested in all the asset of a
concern.

Sales to Fixed Asset turnover Ratio = sales / Net fixed Assets

Table showing the sales to Fixed Assets Turnover Ratio.

Table – 6

PARTICULARS 2015 2016 2017

Net sales 11237721 13863891 20702416

Fixed Assets 1941799 1858015 1786799

Fixed Assets 5.78 7.46 11.58


turnover ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 59


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing sales to fixed assets turnover ratio.

11.58

12

10 7.46
8 5.78

0
Working capital turnover ration

2015 2016 2017

ANALYSIS
The Ratio indicates that the operating Net profit Ratio is increases from the
year 2015 i.e 5.78, for the year 2016 slide changes i.e 7.46 and in the year 2017
it has 11.58.

INTERPRETATION
The Ratio is increasing from year 2015,i.e is to 2016 and 2017. It shows the
company has good profit level for the next preceding years. i.e 5.78 for 2015,
7.46 for 2016 for 2017 i.e 11.58.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 60


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Net Profit Ratio


This ratio establishes the Relationship between the Net Profit and
sales, and is calculated as below.

Net Profit Ratio = Net Profit / Net Sales *100

Table showing Net Profit to Net Sales Ratio


Table – 7

PARTICULARS 2015 2016 2017

Net profit 318611 346972 521866

Net sales 11237721 13863891 20702416

Net profit ratio 2.83 2.50 2.52

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 61


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing Net Profit to Net Sales Ratio.

2.83

2.85
2.8
2.75
2.7
2.65
2.6 2.52
2.5
2.55
2.5
2.45
2.4
2.35
2.3
Working capital turnover ration

2015 2016 2017

ANALYSIS
The ratio of Net profit to Net sales for the year 2015 is 2.83% and for the
next year i.e. 2016 it is decreased to 2.50%, for the year 2017 it is indicating
ratio of 2.52%.

INTERPRETATION
The ratio is indicating relationship between Net Profit and Net Sales. The
above graph shows that the ratio for the year 2015 is 2.83% for 2016 2.50%
and for 2017 i.e. 2.52%. It is indicating that the Company is decreasing its sales
at the same time its Net Profit

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 62


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Current Asset turn over Ratio.

This ratio establishes the relationship between Net sales and Current
assets, and it is calculated ac below-

Current Assets turn over Ratio = Net sales / Current Assets

Table showing Current Asset Turnover Ratio


Table – 8

PARTICULARS 2015 2016 2017

Net sales 11237721 13863891 20702416

Current Asset 5310538 7551545 10935584

Current Asset 2.11 1.83 1.89


turn over Ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 63


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing Current Asset Turnover Ratio

1.89
2.2 2.11
2.1 1.83
2
1.9
1.8
1.7
1.6

Current assets turnover


ratio

2015 2016 2017

ANALYSIS
The graph shows that the current asset turn over ratio in the year 2015 is 2.11
and in the year 2016 it is 1.83 and 1.89 is in the year 2017.

INTERPRETATION
The reveals of the statement, there varies between year to year that is in the
year 2015 the ratio is 2.11 , and in the next year i.e 2016 it is decreased to 1.83.
and in the year 2017 it is 1.89. it shows the availability of the current asset
turnover Ratio and it shows the current position of the concern.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 64


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Absolute liquid ratio

The ratio establishes the relationship between cash in hand and current
liabilities, it is calculated as below.

Absolute liquid ratio = cash in hand / current liabilities

Table showing Absolute liquid ratio


Table – 9

PARTICULARS 2015 2016 2017

Cash in hand 106887 132413 55184

Current 5181872 7159019 8050820


liabilities

Absolute liquid 0.02 0.01 0.006


Ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 65


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing liquid Ratio

0.02
0.02

0.015
0.01
0.01
0.006
0.005

Absolute liquid ratio

2015 2016 2017

ANALYSIS
The graph shows that the Absolute liquid Ratio in the year 2015 is 0.02 and
0.01 in 2016 and in the liquid ratio of the company in the year 2017 is 0.006.

INTERPRETATION
The reveals of statement, there varies between year to year the ratio in the year
2015 is 0.02, in the next year 2016, the ratio is decreased to 0.01. and in the
2017 the liquid ratio of the company is 0.006. it shows the profitability position
between year to year.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 66


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Ratio of Inventory to Working Capital

The Working capital is Excess of Current Assets over Current Liabilities.


Increase in volume of sales requires increase in size of Inventory, but from a
sound financial point of view, Inventory should not exceed amount of Working
capital.

Ratio of Inventory to Working capital= Inventory/ Working capital

Table showing Ratio of Inventory to Working capital.


Table – 10

PARTICULARS 2015 2016 2017

Inventory 274500 338000 396500

Working Capital 128666 392526 2884764

Ratio of 2.13 0.86 0.13


Inventory to
Working capital

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 67


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing Inventory to Working capital Turnover Ratio

2.5 2.13

1.5
0.86
1

0.5
0.13
0

Inventory to Working capital Ratio

2015 2016 2017

ANALYSIS
The above statement reveals that the Ratio for the year 2015 is 2.13, and 0.86
in the year 2016 and in the year the inventory ratio is 0.13.

INTERPRETATION
The ratio in the year 2015 is 2.13, and in the year 2016 & 2017 the
Turnover Ratio is decreased to 0.86 & 0.13. Hence it indicates that
Inventory is not locked up at a large scale. It is a good situation for
the company.
GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 68
A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

 Return on Total Ratio

This ratio explains the relationship between Net profit and Total Assets
of the concern.

It is calculated as below.

Return on Total Ratio = Net Profit / Total Assets *100

Table showing Return on Total Ratio


Table – 11

PARTICULARS 2015 2016 2017

Net Profit 318611 346972 521866

Total Assets 7359224 9541972 12777567

Return on total 4.32 3.63 4.08


Ratio

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 69


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

Graph showing Return on Total Ratio

4.08
4.32
4.4

4.2
3.63
4

3.8
3.6
3.4
3.2

Capital Turnover ratio

2015 2016 2017

ANALYSIS
The above statement reveals that the Return on Total Ratio is 4.32 in the year
2015, 3.63 in the year 2016, and in the next year the ratio is 4.08.

INTERPRETATION
The Return on Total ratio for the year 2015 is 4.32, in the next year the ratio is
decreased to 3.63, and in the year 2017 the return on total ratio is decreased to
4.08. it shows the profitability position of the company.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 70


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER -5
FINDINGS, SUGGESTIONS AND
CONCLUSIONS
FINDINGS
1. The SB Silk Industry Gross Profit Ratio is increased in year to year. So it
shows the quit satisfactory position of the industry.

2. The SB Silk Industry Current Ratio is increasing year to year. So it shows


the current position of the industry.

3. The SB Silk Industry Current Asset to Fixed Asset Ratio is increasing


year by year. It leads to availability and utilization of Current Assets.

4. The SB Silk Industry Working Capital Turnover Ratio is decreased in


2017, but compared to 2015 & 2016 it increased. It shows the financial
position of the concern.

5. The SB Silk Industry Fixed Asset Turnover Ratio is increased year to


year . It shows the utilization of Fixed Assets.

6. The SB Silk Industry Net Profit Ratio is decreased in the year 2016 &
2017, but in the year 2015 the Net Profit Ratio is increased. It indicates that
the company has decreased its sales at the same time its Operating Profit.

7. The SB Silk Industry Current Asset Turnover Ratio is decreased in the


year 2016 & 2017, in the year 2015 the Current Asset Turnover Ratio of the
company is increased. It shows the current position of the concern.

8. The SB Silk Industry Absolute Liquid Ratio is decreased in the year 2016
& 2017. But in the year 2015 the Absolute Liquid Ratio of the industry is
increased.

9. The SB Silk Industry Return on Total Ratio is decreased in the year 2016.
In the year 2015 & 2016 the ratio has been increased. It shows the financial
position of the company.
GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 71
A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

10. The products are not designed favour of the organization but it is just
made as per the requirement of the client.

11. Raw materials purchasing is based on the Customer requirements and


after receiving the order from the client.

12. The company has maintained data relating to Inventory Management


through with help of new Accounting Software.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 72


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

SUGGESTIONS
1. It is suggested that company has to reduce it's overall cost production to
improve its competitive strength and profitability.

2. Technical Audit should be done at Regular intervals to reduce pilferage


of Inventory.

3. The investment in Inventory should be properly done because of the Raw


materials, which are subjected to market value.

4. Maintenance of Machinery should be done periodically so as to minimize


material waste.

5. Employees should be trained in such a way that, they should recognize


the Technical problem with in the machinery and identify the defects in
production process itself.

6. The Company should Maximize Assets for balancing liquidity of the


Industry.

7. The Company should properly use efficient Utilization of Industry


resources.

8. The Company must give some importance to Research and Development,


which helps the Company to increase its market share, and its ability to
survive in the long run.

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 73


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CONCLUSIONS

In this project an Effort is made to understand the Inventory Management


and Control at SB Silk., Production process of product manufacturing. And
to know Technology adopted for manufacturing.

SB SILKS has a great history. It has many objective .Of modernization,


expansion, technological time to time improvement, training and
development of the human resource.

Inventory management systems of firm are analyzed.

By overall case study I can conclude that Inventory managed in an Effective


and Efficient manner.

The SB SILKS Industry being managed by highly experienced management


and has well trained, qualified employees, which helps them to improve
their business globally.

I had a great learning experience while doing my internship project in the


organization; I learnt various activities undertaken by the Organization viz,
Production function and organization function.

To conclude, the company is having a great growth prospects in coming


years.....

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 74


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER 7
ANNEXURE
PROFIT AND LOSS ACCOUNT FOR THE YEAR 2015
Particulars Amount Particular Amount
To Opening Stock 385,750.00 By Sales 11,237,721.95
To Purchase 10,110,743.50
By Closing Stock 163,250.00
To Gross Profit C/O 904,478.45

11,400,971.95 11,400,971.95

By Gross Profit B/f


To Staff Salary 82,600.00 By Packing & 904,478.45
To Telephone & Mobile 14,782.00 Forwarding 464.00
Charges
To Insurance 9,281.00
To Rent 55,200.00
To Travelling & 12,560.00
Conveyance
To Postage & Courier 29,876.00
To Printing &Stationery 3,250.00
To Accounting Charges 6,500.00
To Audit Fee 8,500.00
To Electricity Charges 7,562.00
To Professional Tax 2,500.00
To Repairs & Maintenance 7,817.00
To Bank Interest &
Charges 50,901.00
To Sundry Expenses 12,256.00
To Freight Outward 182.785.00
To Discount Allowed 1,391.77
To Depreciation 98.569.00

To Net Profit 318,611.06

904.942.45 904,942.45

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 75


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

BALANCE SHEET FOR THE YEAR 2015


LIABILITIES Amount ASSETS Amount
Capital Account: Fixed Assets
Capital Account Gross Fixed Assets 2,040,369.00
Ahsanulla Khan Net Fixed Assets 98,569.35
Opening Balance 1,467,669.06 (Refer Annexure I) 1,941,799.65
Add: Profit for the 318,611.06
year 1,786,280.12

319,166.40
Less: Drawings 1,467,113.72
Closing Balance Current Assets
Deposits Loan &
Loans: Advance
Secured Loans 323,352.00
Unsecured Loans 500,000.00
Stock in hand 163,250.00
Current Liabilities &
Provisions: Sundry Debtors 5,147,288.61
Sundry Creditors 4,819,232.70
(List Enclosed)
Advance from Deposits:
Customers VAT Deposit 1,000.00

Branch/Divisions: Advanced-Others 120,613.00


Sania Silk fabrics 362,640.00
Cash In Hand 94,530.07
Outstanding
Liabilities: 8,500.00 Bank Accounts
Audit Fees Payable Balance With Bank 12,357.09
account
Total 7,480,838.42 Total 7,480,838.42

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 76


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

PROFIT AND LOSS ACCOUNT FOR THE YEAR 2016


Particulars Amount Particular Amount
To Opening Stock 163,250.00 By Sales 13,863,891.00
To Purchase 12,856,962.50
To Freight Inward 172,752.00 By Closing Stock 512,750.00

To Gross Profit C/O 1,183,676.50


14,376,641.00 14,376,641.00

By Gross Profit B/f


1,183,676.50
To Staff Salary
249,540.00
To Telephone & Mobile
26,307.00
Charges
To Insurance
10,148.00
55,200.00
To Rent
To Travelling &
42,560.00
Conveyance
2,550.00
To Postage & Courier
10,520.00
To Printing &Stationery
16,000.00
To Accounting Charges
8,500.00
To Audit Fee
8,652.00
To Electricity Charges
18,452.00
To Professional Tax
31,996.46
To Repairs &
48,475.00
Maintenance
2,000.00
To Bank Interest &
2,000.00
Charges
221,260.00
To Sundry Expenses
760,00
To Advertisement
83,783.95
Expenses
To Freight Outward
To Discount Allowed
To Depreciation 346,972.09

To Net Profit

1,183,675.50 1,183,675.50

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 77


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

BALANCE SHEET FOR THE YEAR 2016


LIABILITES Amount ASSETS Amount
Capital Account: Fixed Assets
Capital Account Gross Fixed Assets 1,941,799.65
Ahsanulla Khan Net Fixed Assets 83,783.95
Opening Balance 1,467,113.72 (Refer Annexure I) 1,858,015.70
Add: Addition during the period 288,000.00
Add: Profit for the year 346,972.09
2,102,085.81
Less: Drawings 290,398.00
Closing Balance 1,811,687.81
Current Assets Deposits
Loans: Loan & Advance
Secured Loans HDFC Car 184,380.00
Loan
Unsecured Loans 300,000.00 Stock in hand 512,750.00
Sallem 200,000.00
Tasmeen Taj Sundry Debtors 7,038,795.69

Current Liabilities & 6,796,909.50


Provisions: Deposits:
Sundry Creditors VAT Deposit 1,000.00
(List Enclosed)
Advance from Customers Advanced-Others
362,110. 00 120.613.00
Branch/Divisions: Cash In Hand
Sania Silk fabrics 84,353.37
8,500.00 Bank Accounts
Outstanding Liabilities: Balance With Bank 48,059.55
Audit Fees Payable account

Total 9,663,587.91 Total 9,663,587.91

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 78


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

PROFIT AND LOSS ACCOUNT FOR THE YEAR 2017


Particulars Amount Particular Amount
To Opening Stock 512,750.00 By Sales 20,702,416.00
To Purchase 18,466,700.50
To Freight Inward 234,129.00 By Closing Stock 280,250.00

To Gross Profit C/O 1,769.086.50


20,982.666.00 20,982.666.00

By Gross Profit B/f


1,769,086.50

12,000.00
To Account Fee
14,700.00
To Advertisement Charges
15,000.00
To Audit Fee
36,872.18
To Bank Charges
61,435.00
To Bank OD Interest
15,562.00
To Electricity Charges
315,781.00
To Freight Outward
24,828.00
To Car Loan Interest
4,857.00
To Insurance
2,500.00
To Professional Tax
3,415.00
To Postage & Couriers
15,412.00
To Printing & Stationary
32,295.00
To Repairs & Maintain
59,860.00
To Shop Rent
336,000.00
To Staff Salaries
88,458.00
To Travelling & Conveyance
82,495.00
To Sundry Expenses
54,430.00
To Telephone & Mobile
71,216.00
To Depreciation
103.45
To discount Allowed
To net Profit Transferred to
521,866.87
Capital A/c

1,769,086.50 1,769,086.50

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 79


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

BALANCE SHEET FOR THE YEAR 2017


Particulars Amount Particular Amount
Capital Account: Fixed Assets
Mahaboob Pasha: Gross Fixed Assets 1,858,015.70
Opening Balance 1,811,687.81 Less: Depreciation 71,216.00
Add: Net Profit 521,866.87 Net Fixed Assets 1,786,799.70
(Annexure I)
Less: Drawings 2,333,554.68
Closing Balance 251,327.00
Loans: 2,082,227.68
Secured Loans HDFC Car Loan
Unsecured Loans 45,408.00 Current Assets Deposits Loan
Sallem 2,205,728.70 & Advance
Tasmeen Taj 300,000.00 Stock in hand 280,250.00
200,000.00 Sundry Debtors
Current Liabilities & Provisions: 1. Art Silk House 391,841.50
Sundry Creditors 2. G Sons Apparels 6,981,053.45
1. G Kondaiah 3. Pawan Collections 860,911.50
2. T Purusotham 4,539,628.00 4. R.M.K.V Fabrics PVt
1,382,442.00 ltd 2,186,614.74
Branch/Divisions: 5. Sri Krishna fabrics 25,000.75
Sania Silk fabrics 2,128,750.00 6. Subham Intrenational 201,915.00

Outstanding Liabilities: 15,000.00 Deposits:


Audit Fees Payable
Sales Tax Deposit
1,000.00
Advanced Others
Asmathunisa 120,613.00

Cash In hand 56,350.37


Syndicate Bank 1,834.37

Total 12,899,184.38 Total 12,899,184.38

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 80


A STUDY ON INVENTORY MANAGEMENT AND CONTROL AT

CHAPTER 7
BIBLIOGRAPHY

SL.NO TITLE OF AUTHOR


BOOKS
Management Accounting Shashi.K Gupta,
1. R.k. Sharma

2 Cost and Financial Analysis S.P. Jain,


K.L. Narang.

3 Business Management II S.N. Maheshwari.


Dr. C.B. Gupta.

4 Management Accounting Pandia Kumar

5. INTERNET AND WEBSITES

WWW.Google.Com
WWW.SBSilks.Com
WWW.Saniasilkfabric.Com
WWW.Wikepedia.Com

6. Annual Reports of the


Company

 Profit and Loss Account


 Balance Sheet
 Broucher

GOVERNMENT FIRST GRADE COLLEGE, VIJAYNAGAR Page 81