Ravi Inventory 09

CHAPTER-I
INTRODUCTION
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INTRODUCTION:
Inventory management is very important in an organization in order to have a

Smooth move of it. The term inventory refers to the stockpile of the products a fire is
offering for sale and the components that make up the product. In other words,
inventory is composed of assets that will be sold in future in the normal course of
business operations. Inventory as a current asset differ from other assets because only
financial managers are not involved, rather all functional areas finance, and
marketing, production and purchasing are involved. The view concerning the
appropriate level of inventory would differ among the different functional areas. The
job of the financial manager is to reconcile the conflicting viewpoints of the various
functional areas regarding the appropriate inventory level in order to fulfill the
overall objective of maximizing the owner’s wealth. Thus, inventory management
should be related to the overall objective of the firm. The basic responsibility of the
financial manager is to make sure the firm’s cash flows are manager efficiently.
Efficient management of inventory should ultimately result in the maximization of
owner’s wealth.
Although our discussion of inventory management will focus on the finance

perspective it is important to understand that good inventory management is vital to
the success of virtually all firms. In fact inventory is the key to being a top player in
many industries today including both retailing and manufacturing because of its
importance, managers at all levels, and in all functional areas, are involved
management. Inventory management activities can range from ensuring that there is
an adequate selection of different sizes of clothing available in a retail store to
stocking necessary replacement parts for commercial Aircraft.
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MEANING OF INVENTORY MANAGEMENT:
“Inventory Management” means planning, procurement, holding and

accounting and distribution of these and materials. Inventories are approximately
60% of current assets in India. In industries using agricultural raw materials the
percentage is still higher. Thus, a large part of working capital is invested in
inventories. The management of inventories is therefore necessary is therefore
necessary to avoid heavy loss due to leakage, theft and wastage because neglecting
the management of inventories may jeopardize. The long on profitability of the
concern may fall ultimately. The reduction in excessive inventories carries a
favorable impact on a company’s profitability.
The financial manager actually is a kind of watchdog over functional areas.
Inventory management consist of Raw-material work in process finished goods
packaging material and semi finished goods.
Infant, the very existence of inventory creates costs. Sometimes it is difficult
to see what value is received from costs incurred. Inventory management may be
diffident as the sum total of those activities, which are necessary for the acquisition,
storage sale and disposal, or use o management. It is a subject. Which merits the
attention of the top-level management and the decisions of the planning and
executive personnel.
Objectives:
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In the contest of inventory management the firm is faced with the problem of
meeting to conflicting needs.
1 To meet the demand for the product by efficiently organizing the production
the production and sales operations.
2 Control investment in inventories and keep it at an optimum level.
3 To minimize investments in inventory.
4 To ensure against delays in deliveries.
5 To utilize the advantage of price fluctuations.
6 To take advantage of quality discount control.
Inventory control techniques:

1 ABC analysis
2 EOQ analysis
3 HML analysis
4 FSN analysis
5 Two bin system
6 MRP analysis
7 VED analysis
8 SED analysis
9 MAX analysis (MAX-MIN).
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OBJECTIVES OF THE STUDY
• To assess the performance of materials and inventory control section of Hetro

Drugs LTD.
• To evaluate the various techniques of Inventory being adopted by Hetero

Groups.
• To understand inventory management procedure followed at HETERO

DRUGS LTD.
• To know the efficiency of the firm in utilizing its Current Assets in general
• To assess overall financial performance of HETERO DRUGS LTD.
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SCOPE OF THE STUDY
The study is done on inventories held by HETERO DRUGS LTD. The

scope of the study includes the LIFO- FIFO Statements, Techniques of Inventory
Management & Just in Time System. The scope of the study is limited to collect in the
financial data published in the annual report of company with reference of the objective
stated above and any analysis of the data with a view to suggest favorable solution to
the various problems related to financial performance.
The project “INVENTORY MANAGEMENT OF HETERO DRUGES

LIMITED” provides information with regard to the comparative common size recent
trends and development and comprehensive review of the financial performance of the
bank. This projects gives an insight of the various tools to ascertain and evaluated the
financial performance of the HETERO DRUGES PVT LIMITED.
The scope of the study is limited to collect from last five years data of the
company and using of Ratios techniques of liquidity ratio, profitability ratios.
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NEED FOR THE STUDY
The present study carried out is The “Inventory Management” of HETERO

DRUGS LTD. at the instant of the management of that company. As there is a need
for every company to analyze its present financial position and inventory
management. I was provided with the required data for analyzing present inventory
management and trends during last five years. The present study makes an attempt to
analyze financial performance of HETERO DRUGS LTD.. besides the future
prospects.
Besides studying financial position one can study the entire organization as
financial analysis covers every aspect. This would be the primary reason that evoked
in the interest and need for the study.
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METHODOLOGY
The methodology designed for my project entitled “Inventory Management” at

HETERO DRUGS LTD. was based on two sources.
1. Primary Data
2. Secondary Data
PRIMARY DATA:
Primary data means first hand information is collected by researcher
Primary data has been collected by interviewing various people in production
department as well as administrative people who will generally give the details
of inventory process and also know the existing software in the company. The
primary data has been collected from the personal observation and personal
interviews with the officials of the firm.
SECONDARY DATA:
Secondry data means already existing data. Which was collected by some one
else .The primary data was supplemented by the secondary data collected from
published annual general reports of the organization and some important presented in
the study with respect to HETERO DRUGS LTD., is taken from material data and
text book which has been matched with the record obtained from the company in
order to may a strategic view.
Internal records and files of HETERO DRUGS LTD.., including
information reports published material on transaction such as the Inventory
statements. Stock data registers have been analyzed interpreted.
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LIMITATIONS
• Due to the limited time available the authenticity of conclusions drawn based
on the observations made cannot be ensured.
• The analysis of Inventory Management is based on information available and

if any mistake would be reflected in the study.
• The figures and facts claimed in the annual reports and other forms are
assumed true.
• It is based on the data supplied by the factory personnel.
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CHAPTER FRAMEWORK
Chapter-I First chapter deals with Introduction, Need, Scope, Limitation, Objectives,
of the study.
Chapter-II Second chapter encompasses with Industrial profile-Lorses companies

Pharmaceuticals in toppers - pharmaceutical industry - origin of the
Pharmaceutical industry – post independence era – Dramatic process.
Chapter-III Third chapter covers the Company profile- Hetero Drugs ltd, Hetero
groups ,vision and mission values,R&D over review,operating
.
procedures,careers,offices,branch offices.
Chapter-IV Fourth chapter explains about Theoretical frame work-Introduction of inventory

management and control,types of inventory,raw materials inwards for five years
units, purchased plan,development inventory management and successful
inventory management.
Chapter –V Fifth chapter consists of Data analysis and Interpretation-techniques of

the inventory management,ordering level, two bin system,the ABC
analysis,FIFO- LIFO,VEDanalysis,just in time management
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Chapter-VI Sixth chapter deals with Findings & Suggestions
CAPTER-II
INDUSTRY PROFILE
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INDUSTRY PROFILE
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The pharmaceutical industry is said to be the second fastest growing industry after
software industry. Pharmaceutical industry is perhaps the most challenging one on the
Indian industrial scene today. The total pharmaceutical market for the year 2002 is of
22000 crores. Pharma companies have out performed by substantial margin the 58
industries index covered by CMIE in terms of growth in sales profit after tax and asset
creation. Very intensive competition with about 16000 companies large, big, medium and
small fighting for their own place under the sun in an Rs.8500 crore (including bulk drugs
as per 1995 estimates). The competition is at its fiercest currently.
The seemingly ever-increasing and almost never ending governmental regulations

and policy changes since the output of the industry is usual to the basic health requirement
and quality of life an emphasis is placed on controlling the quality at all stages of
production, including a check on the ingredient used. Government intervention exists in
the form of price control patenting and compulsory licensing etc. Entry barriers due to
initial setting up costs are extremely high. Stiffing price controls, eroding profits and
consequently a vanishing bottom line. Rigorous controls on formulations and an absence
of international patient protection resulting in me-too maze of products with little or no
product differentiation.
Increasing dominance of trade associations and their constant demand for increase
in trade margins. In the pharmacy industry firms have to come up with new drugs and
newer ways of combating existing as well as newly identified diseases. This makes the
industry highly R & D sales ratio [a standard measure of the technology intensity of an
industry world wide 5.5% for the electronics industry, 8% for computers and 16% for
pharmaceuticals.
The path of a drug evolution from molecular synthesis to fine approval by the FDA is
an expensive affair costing a few hundred million dollars for a single drug. The
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possibility of the molecule or drug getting rejected because of side effects, or unacceptable
toxicity, exists at recovery stage of evolution. This implies a high degree of risk in Pharma
basic research. However, margins a potential drug command (especially under the patent
protection zone) makes basic research a high degree of risk and high gain game. Block
buster patented drugs are known to have brought in revenue of more than $ 1 billion a year
enabling the others not son successful products with in the company a piggy back side. In
short, it is a rat race, where a “better mouse-trap” just will not do. One needs much more
than that. And as in any jungle concrete or real only the fittest survive.
PHARMACEUTICAL INDUSTRY
From ancient times, two systems of medicine will in vague in India firstly, there
was Ayurvedic medicine, which dates back to the vedic period. Ayurvedic medicine
depends largely on the combination of various herbs, minerals and metals like gold, copper
etc. Secondly, there was the Arabian system of medicine. An innumerable invasion has
brought the Arabian system into India. In contrast to, two others systems of medicine,
namely Allopathic and Homeopathy, were in vague in the western part of the
world.Despite of being very advanced indigenous systems of medicine, Ayurvedic
medicine has not really become popular enough, probably because of very long British
Rule and the consequent development of an educational system including medical
educational based on a typical British model. As Allopathic or modern medicine started
taking roots in India, all the research and development activities the world over filled its
growth in India as well. Conversely, there was hardly any research and development
activity in the area of ayurvedic medicine. Though the government has been making some
efforts to promote ayurvedic medicine, its development seems to be a long way off.
It is still popular in rural areas, may be because modern medicine cannot reach
there. In urban areas it has yet to gain importance in so far as the prescription drug market
is concerned.
The indication of allopathic doctors towards prescribing an ayurvedic medicine is
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very low indeed. Of late, however, the attitude of customers towards ayurvedic medicine
seems to be increasingly favorable. Some of the pharmaceutical companies are planning to
diversify into ayurvedic drugs mainly to improve their profitability ayurvedic drugs re
exempted from price control.
ORIGIN OF THE INDIAN PHARMACEUTICAL INDUSTRY
The exact date on which the allopathic systems of medicine make its entry into the country
is not available but it is generally estimated that it happened some time during the early
part of the 19th century. The Britishers for there personal use imported the medicines when
they come to do business. This was the beginning of the pharmaceutical industry in India.
Later, when they ultimately took over the country, the imports became a regular feature.
These pharmaceutical products, which were introduced in India to provide relief to
britishers, soon gained popularity among the people in urban areas. For the first few
decades after their introduction, pharmaceutical products were being imported into the
country, mostly from Germany and the United Kingdom.
Indigenous production of these medicines, however, was started in 1901 with the
establishment of the Bengal chemical and pharmaceutical works, due to the pioneering
efforts of Acharya P.C.Roy. the world of medical treatment was witnessing some
significant, developments, like Louis Pasteur’s discovery of pathogenic bacteria as the
cause of infectious diseases while the Indian Pharmaceutical industry was in its early
stages.
Scientists in India undertook research in tropical diseases like malaria, typhoid and
cholera. Between 19904 and 1907 four research institutes, namely The Haffkine Institute
and Pasteur Institute were established. Yet another significant development of this period
was the use of chemicals for treating various diseases. Some very important drugs like
aspirin and barbiturates were made available during this period.
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The First World War gave a real stimulus to domestic production of pharmaceutical. There
was a step rise in demand and a drastic cut in imports. Consequently, the production of
quinine salts registered a substantial increase for the first time. Production of caffeine from
tea waste and manufacture of surgical dressings were also taken up during this period.
However with the resumption of imports after the war, the industry was back to square
one. It received a setback, s it was unable to compete with imported products.
The Bengal chemical and pharmaceutical works started production of tetanus antitoxin, a
basic drug in 1930. Indigenous production in 1939 was sufficient to meet only about 13
percent of medical requirements. Thus a large part of domestic demand for drugs was still
met by imports. The second world was another landmark in the history of the Indian
pharmaceutical industry it provided a propitious atmosphere for further expansion of
production.
By 1941, the industry took up the manufacture of new drugs like iodochlorohydroxy
quinoline as well as a number of alkaloids like ephedrine and codeine. Besides, the
industry made a beginning in the production of chemotherapeutic drugs like arsenicals,
anti-leporsy drugs and colloidal preparations of calcium, silver, manganese and iodine.
The production of glandular products like liver extracts was also undertaken. The
production of several formulations based on imported bulk drugs also showed a significant
expansion during the period.
Post-war developments in the west resulted in a high degree of product obsolescence,

replacing many older drugs with antibiotics and new chemotherapeutic agents. This put the
fledging Indian pharmaceutical industry at a great disadvantage. As a result, Indian
companies had to stop production of many items that were manufactured during the war
years. Instead, they started manufacture of formulations based on imported bulk drugs and
extraction of therapeutic agents from plant sources. Medicines, the industry could not
make much headway, in the absence of consistent govern-medal support to a nascent
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industry. The estimated value of production of pharmaceuticals in 1947 and Rs.10 crores.
POST-INDEPENDENCE ERA
Immediately after independence, the government addressed itself to the task of achieving a
high rate of economic progress with special emphasis on speedy industrialization. When
the government of independent India embarked on planned economic expansion about four
decades ago, the development of the Indian pharmaceutical industry was not
commensurate with the size of the country and the growing needs of its population. Since,
then the progress of the pharmaceutical industry in the country has been substantial and
many sided can best be described as dramatic.
DRAMATIC PROGRESS
From a mere Rs.10 crore (production value) in 1947 to a whopping Rs.14, 160 crores in
2000 the pharmaceutical industry in India, has come a long way. Today India
manufactures over 400 bulk drugs and around 60000 formulations. The numbers of
pharmaceutical units too have increased from classification of the developing countries
according to the “state of the arts” in the pharmaceutical sector, India is ranked among the
top. Exports of bulk drugs and formulations too are showing a remarkable increase from a
total import –based technology. The Indian pharmaceutical industry has certainly 1970-71
the value of exports was Rs.10 crores. Pharmaceutical exports from formulations have
crosses the Rs.1200 crore mark in 1991-92, thus achieving a net exporter status in the
drugs and pharmaceutical industry. The dramatic progress of drug industry at a glance is
presented in the given table.
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DRUG INDUSTRY: GROWTH INDICATORS
1947-48 1991-92
(Rupees in crores) (Rupees in crores)
Capital Investment 24(1952-53) 950
Production 10 4200
Formulations 18(1956-66) 790
Bulk Drugs
Imports 100 1000
Exports 1.27(1963-64) 1281
R & D Expenditure 6(1972-73) 70
INDUSTRY STRUCTURE
The pharmaceutical industry is very aptly described as a “life-line” industry. It plays a

vital role in alleviating the suffering of millions of people and controlling various ailments
that afflict human beings. Recognizing this, the planners of Indian economic development
after independence have rightly included this industry in the core sector.
The present day Indian pharmaceutical industry has three main sectors:
The public sector
The Indian private sector ( including the organized sector) and
The foreign sector:
It is estimated that there are presently 16000 firms engaged in the production of drugs and
pharmaceuticals. About 300 units out of these are on the list of the Directorate
General of Technical Development.
PRODUCTIONBULK DRUGS
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Bulk drugs are medically effective chemicals. They are derived from 4 type s of
intermediate (raw materials), namely prescription and these are called ethical products.
However, same formulation such as pain balms, health tonics etc can also be purchased by
users directly. These are called over the counter (OTC) products. Formulations can be
categorized as per the route of ministration t patients, viz. Oral i.e., tablets, syrups,
capsules, powders internally. Topical i.e., Ointments, creams, liquids, aerosols that are
applied on the skin Potentials i.e., sterile solutions injected in an extra venous or
intramuscularly fashion. Others such as eye drops, surgical dressing etc. Production of
formulations was valued at Rs.3840 crores in 1990-91. import of formulations is
negligible (Rs. 60 crores in 1990-91) and consists of specialized drug such as anti-cancer
drugs. The estimated value of formulation is around Rs.200 crores in 1991-92. the details
regarding the progress of pharmaceutical production in India are presented below.
PHARMACEUTICAL PRODUCTION IN INDIA:
1986-87 458 2140

1987-88 480 2350
1988-89 550 3150
1989-90 640 3420
1990-91 730 3840
1991-92 720 4200
EXPORTS:
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At the time of independence there were no exports of pharmaceuticals from India.
The total value of exports of pharmaceuticals was a mere by Rs.3 crores in 1965-66.
During the last seven years, the Indian pharmaceutical industry has achieved commendable
progress on the export front. The industry total exports were valued at Rs.1281 crores in
1991-92. The progress of the industry in terms of exports can be seen in the tab
Research & Development:

Pharmaceuticals industry is driven by a global need to conquer disease.
Medicines are developed to treat new diseases or improve upon the existing treatment. An
in-depth understanding of human physiology and disease mechanism is a pre-requisite to
pharmacy R & D to facilitate research, as anti-ulcer, anti-cancer etc. major diseases for
which new drugs are arthritis (rheumatism), cancer depression, diabetes, heart disease,
osteoporosis stroke.
Basic research deals with discovery/invention of a new medicinally effective
chemical process R & Discussion is basically reverse engineering of a molecule through
slight process modifications. Basic research is both time and cost intensive possible
effectiveness. Following such laboratory testing, actual clinical trials are then carried out
to determine the drugs efficacy on patients. The process thus requires around 12-15 years
and costs US $350mm per new chemical entity (NCE). Process R & D is far easier and
costs are negligible compared to basic research.
The drug industry R & D expenditures is estimated at Rs.70 crores in 1991-92 which is
about 2 percent of sales,, as against 1 percent of sales spent on R & D facilities approved
by the Departments of Science & Technology, Government of India. In the developed
countries, pharmaceutical companies spend about 10 to 20 percent of sales on R & D, if
the current low profitability of the industry were to improve it wil be able to spent more on
R & D collaborate with national laborites and also fund some of their more promising
research projects.
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CHAPTER-III
ORGANISATION PROFILE
COMPANY PROFILE
HETERO DRUGS LTD
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Established in the year 1993, with the motto to be the best in the API
manufacture, Hetero today embodies the vision of a top-notch player in developing
and commercializing products catering to a variety of therapeutic categories,
integrating into a leading finished dosage manufacturer.
True to the statement, “WHERE THE FUTURE STARTED
YESTERDAY”, with a foresight on the current trends in the pharmaceutical market,
HETERO has grown from strength to strength, combining its research strengths,
manufacturing capabilities, Human Resources and well established quality
management system. With full-fledged marketing capabilities the company has been
able to market its products in over 80 countries in Asia, Middle – east, Eastern,
Europe and Latin America.
With its compliance to the most stringent regulatory requirements, Hetero
has today gained foothold to market. Several of its APIs in the United States, Canada
and Europe. With all six manufacturing facilities being supported by excellent
infrastructure and compliance to the GMP requirements, Hetero has crossed
numerous milestones in a comparatively small period since its inception
HETERO GROUPS
 HETERO DRUGS LTD

 HETERO LABS
 HETERO RESEARCH FOUNDATION
 CIREX PHARMACEUTICALS
 SYMED LABS
 GENX PHARMA
 LYKA HETERO
 EXPICOR
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FOUNDER & MILESTONES
• The spirit and brain behind the success story of Hetero is its founder
Dr.B.Parthasarathi Reddy, a scientist who started the company drawing
immense strength from the vast and rich experience he gained during his
earlier.
• Stint at the laboratory where he was instrumental in developing and
commercializing processes for several APIs.
• The company was started by him with a vision to be recognized as an
aggressive company that combines its strength of R&D and manufacturing
with definite advantages in terms of cost and chemistry with a strong
emphasis on quality of the products.
• The untiring efforts of the Chairman saw HETERO develop processes for
several products at relatively low cost, thus making it possible for several life
saving drugs to be available tat affordable prices, meeting all the regulatory
and quality norms.
• With the organization having reached a point where it is identified among the
widely recognized companies, the Chairman is now focusing on giving new
dimensions to the company in terms of exploring possibilities of further
growth, exploring new horizons in the field of pharmaceutical development
and evolving strategies to take the company to greater heights
• All the members of HETERO Family draw inspiration and motivation from
the Chairman in working towards achieving the organizational goal.
VISION AND VALUES
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• Hetero visualizes itself as an aggressive player in the global pharmaceutical
scenario, supplying generics developed, combining intellectual property,
research strengths and strong human resource inputs.
• The company values the concepts of having social responsibilities ion the
course of its assent to greater heights. It strongly believes in focusing on
customer requirements and delivering the products at the right pace.
• Hetero considers its human resources as the core of all its capabilities and
believes in tapping and honing the talents of its members to reach the zenith of
success.
• It believes in continuous evaluation and improvement in all the factors that
contribute in transforming the organization into a global force to reckon with.
• Hetero takes due cognizance to the fact that the processes that it develops
should be all Eco- friendly and should not result in any consequence that
harms the ecological harmony.
MISSION
HETERO’s mission is to be a globally acclaimed pharmaceutical company, meeting

the requirements of healthcare imbibing the philosophy of both commercial and
social concerns, driven by research and manufacturing capabilities.
HETERO STRENGTH
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• Strong emphasis on Research and Development.
• Ability to develop processes for a large range of therapeutic categories.
• Ability to orient and adapt to the changing facets of industry, particularly in
terms of regulations, intellectual property and manufacturing capabilities.
• Cohesive team of skilled professionals in all wings related to research,
manufacture and marketing.
• Strong customer base and market presence.
• A strong commitment towards the society to provide timely support by
providing life saving drugs at relatively low costs, short span of time
CAPABILITIES:
• Type of Reactors – Glass, Glass-Lined and Stainless Steel

• Reactors Sizes –250-10,000 LTR Commercial Plant
• 5-250 LTR – Pilot Plant
• Total Reactor Volume -- 1000 Kilo Ltr
• Temperature Range -- 80degrees C to 300degrees C
• Pressure Range -- Unto 50 KG/cm square
ANALYTICAL Strength of Hetero Group
• HPLCs (with PDA facility)

• GCs (with Head space facility)
• Infra Red Spectrophotometers
• Ultra violet Spectrophotometers
• Practical size analyzer
• Digital polar meters
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• Differential Scanning Calorimeters
• P-XRD
• NMR
• GCMS
• LCMSM
QUALITY SYSTEMS
All the activities at HETERO right from receipt of raw materials to dispatch of the
finished product are carried out in accordance to a well-oiled quality management
system. The importance of having a strong quality based system has been recognized
by organization due to which every individual in each department understands
his/her responsibilities and carries out them with utmost care avoiding any confusion,
thus delivering the best results.
In addition, talking about quality of the product itself, the company has
evolved the systems to implement GMP’s in the manufacture of the product to
protect the safety, quality and integrity. The approval of Hetero’s API Facility by
USFDA and Finished Dosage Facility by WHO bear a testimony to this fact.
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R & D OVERVIEW
• HETERO’s emphasis has always been on Research and Development. The

emphasis was to ensure that the processes being adopted for the products are
cost effective, safe to handle and with optimum advantage in terms of yield
and quality.
• Having laid solid foundation towards the end HETERO’s R&D approach has
also taken cognizance of the present scenario where stringent patent regime is
under implementation. HETERO’s teams of scientists have been and are
involved in developing non-infringing processes for its products. With its
ability to explore high and achieve the best, HETERO has been able to file
patents for several of its processes.
• From an organization, which was concentrating on developing processes for

API’s HETERO, has now a full-fledged R&D facility for formulation
department.
• HETERO research capabilities have been proven with its ability to carry out a
wide range of reactions, which are difficult to carry
• Given its research capabilities HETERO has today has initiated contract
research. Towards the end, the company has already evolved its strategies and
is into discussions with renowned companies for carrying out the contract
research. Custom synthesis is one area where the company has been
concentrating on and has initiating work on several projects.
• In addition to the above, the company is now on the threshold of commencing
basic research activities to develop and screening new chemical entities for
different therapeutic categories.
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STANDARD OPERATING PROCEDURES
LIST OF STANDARD OPERATING PROCEDURES:
• Receipt, Storage, Handling&Distribution of Raw Material.

• Handling &Disposal of Raw Material.
• Writing Pharma Distribution.
• Cleaning of Dispensing equipment.
• Sanitation.
• Raw Material distribution from Warehouse to Production
• Handling of Hosepipes& their periodical change
• Handling of Desiccant bags
Procedure:
Receipt, Storage, Handling and Distribution of Raw Material
Receipt of Raw Material:

Upon receipt of rawmaterial the following checks can be taken up:
• Whether the rawmaterial is recorded as per the purchase order.
• Whether the consignment is supplied along with the certificate of analysis by
the vendor.
• Whether the vehicle carrying the consignment is clean
• In case of tankers carrying liquid raw material, check whether the valves and
manholes are free from dust, grease or any other lubricant
Above the all conditions are not fulfill the consignment is rejected
Storage of Raw Material:
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• After de-dusting bring the decoding list and deface the original name of the
material on each container or bags and write in-house code of the material.
Before defacing check the label on each container for vendor batch number
and weight.
• Transfer the material to quarantine area. Enter the details into the inward
registar. Allot the in-house batch numbers to the consignment.
• If the number of containers shall be less than 25 then the under test label shall
be pasted on all containers. If it is more than 25 then the under test labels shall
be pasted along four corners of the consignment
Sampling and Testing:
• The warehouse personnel shall then raise a” raw material alert to Quality
Control” for sampling and analysis of the consignment
• The Quality Control personnel shall paste the sampled labels on the containers
from which the samples were taken.
• The Quality Control personnel shall paste Approved/Rejected labels on the
yellow of the under test labels of the consignment.
Storage and Handling:
• Raw Material shall be stored in such a manner that proper spacing between
different lots of the same material and also different material to avoid cross-
contamination between the materials.
• Inventory cards along with the raw material alert and pre-inspection report
shall also be placed along with the status boards.
• Special storage conditions are essential for the raw material say low
temperature and low humidity
Distribution of Raw Materials:
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• On receipt of the raw material request from the production department the
warehouse personnel shall issue the requisite quantity of raw material to the
concerned production department.
• The warehouse personnel shall then enter the details of issue of the material in
the inventory card.
• While issuing the material to the production department, the warehouse
personnel shall follow the “First In First Out system”.
Re-testing of Raw Material:
• Raw materials being stored for longer periods of time shall be re-tested from
time to time i.e., within 5 days of re-test date.
Handling and Disposal of Rejected Raw Materials
• In case of rejection of any consignment subsequent to the analysis, the quality

control personnel shall paste “Rejected” labels on the containers/packages.
• The warehouse personnel should inform to the materials department regarding
the rejection of consignment and ask the material department to dispose the
material within 30 days in case domestic vendor, while incase of overseas
vendor material shall be disposed within 90 days.
Writing Pharma Distributioin
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After receiving the goods transfer note from the production department it is the
responsibility of the warehouse personnel
• Check the batch number, quantity

• Ensure all the details mentioned in Goods Transfer Note are correct and check
all the required labels are pasted on the drums.
• After confirming all the above details enter the details in the Pharma
Distribution
Cleaning of Dispensing Equipment
• All the dispensing equipment like scoop, measuring jars, funnels and buckets
barrels pumps etc should be cleaned after their use.
• After completion of dispensing operations transfer the dispensing equipments
to wash area and rinse the dispensing equipment with water after wearing
goggles, nose masks and hand gloves.
• Cover the hosepipe ends, scoops, funnels, buckets etc and pump end with
clean polythene bag/rexine cover and keep the dispensing equipment in their
dedicated area.
Sanitation
31
• De-dust the entire area using nylon soft broom.
• Mop the floor with clean cloth if not satisfied repeat it again.
• Frequency-Everyday in the first shift
Sampling Room:
• Clean the room before arranging for sampling to Quality Control.

• Follow the cleaning activity in between two different materials sampling.
• Clean the walls, doors and floor with dry cloth, collect the dust and dispose it
into a dustbin, if not satisfied repeat it again.
• Details shall be entered in the sampling and sanitation record.
• Frequency-Every after sampling operation
Dispensing Room:
• Clean the room before starting dispensing activity and after completion of
every dispensing operation.
• Use vacuum cleaner to suck all dust.
• Mop the floor with water and allow to dry if not satisfied repeat it again.
• Details shall be entered in the sampling and sanitation record.
• Frequency-Every after dispensing operation
Raw Material Distribution from Warehouse to Production
Solids:
32
• After receiving raw material requesting check whether all details are entered
or not.
• Raw Material shall be taken into the dispensing room. Material shall be taken
using a clean scoop and tie the bags tightly after dispensing.
• A tag shall be assigned there remaining quantity of the material and the details
shall be entered in the inventory card.
Liquids from Drums:
• Drums shall be cleaned with a clean cloth and open the lid with drum opener.
• Measure the volume with guage rods/measure jars/buckets/by weighing.
• Transfer the required quantity of solvent by using PVC siphon pipe/barrel
pump and drums shall be closed tightly.
Liquids from Tanks:
• Check the day tanks/measuring tanks for the volume.

• Ensure that the solvent valves in the alter production blocks are closed.
• Measure the required volume of liquid raw material in measuring tank then
open the valves from measuring tank.
• Close all the valves of measuring tank and enter the details in the inventory
card.
Handling of Hose pipes and their Periodical Change
33
• All the hosepipes shall be colored as mentioned in the Annexure.
• Before starting of operation the hosepipe shall be cleared with 5 to 10 liters of
the same solvent and discard it.
• Upon completion of operation, when not in use, the ends of the pipe shall be
covered with rexine covers/polythene bags and store at the designated place
keeping both the ends of the pipe facing down.
• Hosepipe shall be checked monthly once and if any damages the pipe shall be
discarded and new pipe shall be used.
• Enter the details of checking and replacement of pipe in the record.
• Pipes shall be replaced with new one after completion of 3 years of usage.
Handling of desiccant bags:
• Place the Desiccant bags in secador desiccator’s cabinet.

• If the humidity is>40% activate the desiccant bags by drying in a oven for 1- 2
hrs at90degrees to –105degrees centigrade
• Always maintain humidity below 40%
• At the time of issuing desiccant bags check the humidity if it is >40% activate
the bags as mentioned above& then use only
• Record the receipt& issuing details in the inventory card.
CAREERS
34
• HETERO considers its Human Resources as its core strength. The company
believes in the fact that its present position as an aggressive player can be
attributed to the efforts on part of all its employees working in different
departments in realizing its goal of being a Top Notch Company.
• The Company offers the best of the opportunities to work, where the potential
and capabilities of personnel are tapped to the maximum advantage of both
the organization and the personnel. The latent talents are honed to meet the
challenges faced by the organization and achieve the best.
• HETERO believes in recognizing and rewarding contributions of its

employees to meet its staff requirements, HETERO has several openings in
different departments for those who are ready to take up the challenge and
deliver the goods.
OFFICES
35
Corporate Office
HETERO DRUGS LIMITED
“Hetero House”
H.no.8-3-166/7/1,Erragadda,
Hyderabad-500018,
(A.P)INDIA
Tel: +91-40-23704923/24/25
Fax: +91 – 40 – 23704926, 23714250
E- mail:
Contact@heterodrugs com
BRANCH OFFICES
HETERO SINGAPORE PTE LTD. HETERO DRUGS LIMITED

19 Loyang way 607/608,6th floor, Matharu Arcade
#02 – 03, C.I.L.C Building Subash road, vile parle (E)
Singapore – 508724 Mumbai - 400057
Tel: (65)65458442/65467901 India
Fax: (65)65458443 Tel: +91 – 22 – 56910809/10/11/12/13
E – Mail: ramakrishna@hetero.com.sg
36
CHAPTER-IV
THEORETICAL FRAME WORK
THEORETICAL FRAME WORK OF INVENTORY MANAGEMENT
Introduction of Inventory Management:
37
Inventory management is the active control program, which allows the
management, sales, purchases and payments.
Inventory management software helps create invoices, purchase orders,

receiving lists, payment receipts and can print bar coded labels. An inventory
management software system configured to your warehouse, retail or product line
will help to create revenue for your company. The Inventory Management will
control operating costs and provide better understanding.
OBJECTIVES OF INVENTORY CONTROL
Scientific control of inventories should serve the following purpose:
• To provide continuous flow of required materials, parts and components for

efficient and uninterrupted flow of production.
• To minimize investment in inventories keeping in view operating
requirements.
• To provide for efficient store of materials so that inventories are protected
from loss by fire and theft and handling time and cost are kept at a minimum.
• To keep surplus and obsolete items to minimum.
Purpose of Inventory
The only inventory that is required is that which is actually being processed
in a manufacturing environment or being delivered to a customer in a distribution
38
environment. Leading companies in all industries recognize that inventory usually
indicates a potential area of improvement; it is a symptom rather than an asset.
Traditional approaches to inventory management include six reasons for
carrying inventory. While each of the reasons seems valid, especially in the short
term, each reason also represents a failure to operate in the most efficient or effective
manner.
Those are as follows:
• Process buffer: Inventory should be used to buffer processes only at strategic

points. As viewed by a supply chain, a warehouse or distribution center is
really just a process buffer goods arrive in batches (pallets, truckloads,
cartons, and so on) and are “processed” (distributed to the customer) in
smaller lots. In a manufacturing company, processes frequently operate at
different rates, thereby requiring inventory buffers.
• Fluctuations in demand: This inventory allows a supplier to satisfy customer

demand that is higher than expected. However, inventory is an expensive
substitute for information. When you can see actual usage of your product by
the end customer as well as inventory levels in the supply chain, you can
satisfy your customers while carrying minimal inventories. This approach
requires you to reduce your lead times and those of your suppliers. You can
use this same approach to help your suppliers reduce their inventories, and
therefore their costs. As you will see in another way to reduce the need for this
type of inventory is to reduce the re supply time.
• Unreliability of supply: In the short run, inventory can be used as a buffer
against unreliable suppliers (both internal and external). In the long run, you can
work with suppliers to insure their reliability, or you can replace them. The total
cost of supplier unreliability is usually far greater than any savings in purchase
price. The best suppliers deliver “perfect” materials directly to the desired location
39
inside your company on schedule. This is equally true for internal suppliers in a
manufacturing company. If varying quality is a root cause of unpredictability, it
should be addressed by an appropriate quality initiative (for example, Six Sigma or
Total Quality Management).
• Price protection: Buying large quantities at one time has been a traditional
hedge against price increases. You can negotiate pricing and long-term contracts
with key suppliers, but you should request multiple deliveries. As your suppliers
implement lean practices, they will strongly prefer to ship smaller quantities at
frequent intervals, rather than asking you to take delivery of the entire purchased
amount at once. Pricing agreements should also include the possibility of cost
reductions, automatically passing on the supplier’s cost reductions.
• Quantity discounts: Some suppliers offer discounts for buying large quantities.
Quantity discounts work just like price protection. Quantity discounts are being
replaced today by key supplier agreements, in which you agree to purchase your
entire year’s usage of various product families from one supplier in exchange for
highly favorable pricing, superb service, impeccable quality, and rapid response and
delivery. This reflects a culture of partnering with key suppliers rather than treating
them as adversaries.
• Lower ordering costs: Traditionally companies looked at ordering costs as a

necessary cost that should be traded off against carrying costs. However, today’s
preferred way to lower ordering costs is to eliminate all non-value-added steps in
the ordering cycle. Value stream mapping is a technique of flow-charting all steps
in a process (such as placing an order), calculating the total cost and total elapsed
40
time, then identifying all those steps that don’t really add value in the customer’s
eyes and deciding how to eliminate them.
Types of Inventory
TYPES OF INVENTORY
RAW MATERIAL WORK-IN-PROGRESS FINISHED GOODS
IN-PROCESS
- REJECTED -REJECTED - REJECTED
- APPROVED -APPROVED - APPROVED
INTERMEDIARIES
-REJECTED
-APPROVED
SEMI-FINISHED GOODS
-REJECTED
Inventory can be falls under three basic categories:
-APPROVED
 Raw materials
 Work –in- progress.
 Finished Goods
41
Raw Materials:
These are the Inputs to produce the products. It includes direct material used
in the manufacture of a product and it also includes the components, fuel etc. used in
the manufacture.
These raw materials can be again divided in to two categories. They are: Approved
raw material: Raw materials can be checked by the Quality Control people by using
certain Quality Control Methods. If they are approved after applying those methods
label can be pasted by the quality control people called ‘Approved Label’. It is in
green colour.
Ex: (Robin Singh) 4-Amino-4-Metgyl-3-N Proply Pyrazole-carboxamide silden-

afilicatrate amine, (Richa) PTHALIMIDOAMLODIPINE
Rejected raw material: Raw materials can be checked by the Quality Control
people by using certain Quality Control Methods. If they are rejected after applying
those methods label can be pasted by the quality control people called ‘Rejected
Label’. It is in red colour.
Ex: (Maaza) L-PROLINE, (Sridevi) N2-(1-(S)-ETHOXYCABONY-3-
PHENYPROPYL)-N6- RIFLUOROACETYL -L-LYSINE BENZL ESTER
Work in progress (WIP):
It includes partly finished goods and materials, sub-assemblies etc.held

between manufacturing stages. WIP should be kept to a minimum.Work-in-progess
again can be divided in to three categories. They are:
42
• Intermediaries: The material which is in middle of the production process for
final product is called Intermediaries.
• Semi-finished goods: The material which is in the last stage of production

process is called Semi-finished goods. In this stage also the products can be
approved or rejected by the quality control people.
• In process: Every stage in the production process contains again certain

process. If the materials are in this stage then we may call it as under process. In
these stages also the products may be approved or rejected.
Finished product:
The goods ready for sale or distribution will come under this category. In this
stage also the products may be rejected due to certain reasons.
Ex: Sertraline HCL, Lisino Pril USP, Omeprazole etc.
The classification of inventory of a particular firm depends upon the nature of
the business it carries. For a spinning mill, cotton is the raw material and yarn is the
finished product. But in case of textile mill yarn is the raw material and fabric is the
finished product. A manufacturing concern’s inventory consists of all the above three
types of inventory but in case of trading concern, the first two categories will not
appear in their stocks. The efficiency shown in inventory will have direct impact on
profitability of a business enterprise.
HOW RAW MATERIAL IS INWARDED DURING THE YEAR IN HETERO
DRUGS RAW MATERIAL INWARD FOR THE YEAR APR 2008-MAR 2009(In
Units)
ITEMS APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR
43
DHARNI 0 700 0 0 0 0 0 0 0 250 0 0
0
V SALT 0 4000 0 0 0 300 0 3000 300 0 3000
0 0 300
KAKI- 100 2000 490 200 3040 252 1050 0 0 1520
320 0 0 0 0 580
2020 202 2020 3995 0 0 249 4540
HYFLOW 149 0 202 404 204 7
8 0 0 3 249 254
7 2
Note: ORGINAL NAMES USED FOR ABOVE DECODED MATERAILS

 DHARANI : Sodium Bi Carbonate
 V SALT : Vaccum Salt
 HYFLOW : Hyflow Super Cell
 KAKI – 320 : Acetavated Carbon 320
7000
6000
5000 DHARANI
4000 VSALT
3000 KAKI-320
2000 HYFLOW
1000
0
APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR
From the above graph we can understood that how different raw materials are In
warded throughout the year.Hyflow,Kaki-320 & V salt raw materials are Inwarded
more & Dharani material is inwarded less in the year 2008-2009.
RAW MATERIAL INWARD FOR THE YEAR APR 2007-MAR 2008 (In
44
Units)
200 200
DHARANI 0 3000 0 0 4000 0 0 0 0 0 0 1000
200 1300 700 100 100 200 200 100
V SALT 0 0 0 0 2000 0 0 2000 0 0 0 2000
300 100 100 100 200
KAKI-320 0 2000 0 0 0 0 0 1000 0 0 0 1575
499 299 499 227
HYFLOW 4 1997 6 4 0 0 998 2247 0 499 998 2270

14000
12000
10000 DHARANI
8000 VSALT
6000 KAKI-320
4000 HYFLOW
2000
0
From the above graph we can understood how different raw materials
are Inwarded throughout the year.Hyflow & V salt raw materials are Inwarded
throughout the year.Dharani & Kaki-320 raw materials are inwarded less in the year
2007-2008.
45
Units)
DHARAN 300 1500 200
I 2000 1000 0 0 2000 3000 6000 2000 2000 0 0 7000
1700 400 500 1100 1200 1050 1400 500
V SALT 4000 0 0 0 0 0 7500 0 0 5000 0 9950
100 100 100
KAKI-320 0 1000 0 0 1000 0 1000 2000 1000 0 0 2120
299 199
HYFLOW 2996 4994 6 0 1997 5992 5992 3995 0 1997 7 3995

18000
16000
14000
12000 DHARANI
10000
V SALT
8000
KAKI-320
6000
4000 HYFLOW
2000
0
46
are Inwarded throughout the year.V salt & Dharani raw materials are Inwarded more
through out the year.Hyflow & Kaki-320 raw materials are inwarded less in the year
2006-2007
RAW MATERIAL INWARD FOR THE YEAR APR 2005-MAR 2006(In
Units)
200 600 200 2000
DHARANI 0 2000 0 0 4000 6000 0 0 0 0 0 0
145 250 305 1200 500
V SALT 0 5000 0 0 3000 0 0 0 5000 0 0 8000
100 100 100 100 100 100
KAKI-320 0 0 0 0 1000 1000 0 1000 0 0 0 1000
199 299 349 199 199 136
HYFLOW 7 2996 6 5 3495 0 7 3995 1997 7 2 3632
s
47
25000
20000
DHARANI
15000
VSALT
10000 KAKI-320
HYFLOW
5000
0
are Inwarded throughout the year.V salt raw material was Inwarded continuously
through out the year but Dharani raw material was inwarded only upto the month
December.Hyflow & Kaki-320 raw materials are inwarded less in the year 2005-
2006.
Units)
DHARAN 1800 1570 500 300 300 220
I 0 0 0 0 0 0 0 2000 0 0 0 3500
1000 250
V SALT 0 5000 0 0 0 0 0 0 0 0 0 0
100 100 100 100 100
KAKI-320 1000 0 0 0 1000 0 0 0 0 0 0 1000
199 199 299 149 199 249
HYFLOW 2497 0 7 7 1997 6 0 0 8 7 7 0

48
20000
18000
16000
14000 DHARANI
12000
VSALT
10000
8000 KAKI-320
6000 HYFLOW
4000
2000
0
are Inwarded throughout the year.Dharani, Hyflow & Kaki-320 raw materials are
inwarded continuously through out the year but V salt was Inwarded less in the year
2004-2005.
PURCHASING PLAN
The purchasing plan details:
• When commitments should be placed;

• When the first delivery should be received;
• When the inventory should be peaked;
• When reorders should no longer be placed; an
• When the item should no longer be in stock.
Well planned purchases affect the price, delivery and availability of products for
sale.
CONTROLLING YOUR INVENTORY
49
To maintain an in-stock position of wanted items and to dispose of
unwanted items, it is necessary to establish adequate controls over inventory on order
and inventory in stock. There are several proven methods for inventory control.
They are listed below, from simplest to most complex.
•Visual control enables the manager to examine the inventory visually to
determine if additional inventory is required. In very small businesses
where this method is used, records may not be needed at all or only for
slow moving or expensive items.
•Tickler control enables the manager to physically count a small portion of

the inventory each day so that each segment of the inventory is counted
every so many days on a regular basis.
•Click sheet control enables the manager to record the item as it is used on a
sheet of paper. Such information is then used for reorder purposes.
•Stub Control (used by retailers) enables the manager to retain a portion of

the price ticket when the item is sold. The manager can then use the
stub to record the item that was sold.
As a business grows, it may find a need for a more sophisticated and

technical form of inventory control. Today, the use of computer systems to control
inventory is far more feasible for small business than ever before, both through the
widespread existence of computer service organizations and the decreasing cost of
small sized computers. Often the justification for such a computer-based system is
enhanced by the fact that company accounting and billing procedures can also be
handled on the computer.
50
• Point-of-sale terminals relay information on each item used or sold. The
manager receives information printouts at regular intervals for review
and action.
• Off-line point-of-sale terminals relay information directly to the supplier's
computer who uses the information to ship additional items
automatically to the buyer/inventory manager.
The final method for inventory control is done by an outside agency.A

manufacturer's representative visits the large retailer on a scheduled basis, takes the
stock count and writes the reorder. Unwanted merchandise is removed from stock
and returned to the manufacturer through a predetermined, authorized procedure.
A principal goal for many of the methods described above is to

determine the minimum possible annual cost of ordering and stocking each item.
Two major control values are used:
1. The order quantity, that is, the size and frequency of orders; and
2. The reorder point that is, the minimum stock level at which additional
quantities are ordered.
The Economic Order Quantity (EOQ) formula is one widely used

method of computing the minimum annual cost for ordering and stocking each item.
The EOQ computation takes into account the cost of placing an order, the annual
sales rate, the unit cost, and the cost of carrying inventory. Many books on
management practices describe the EOQ model in detail.
DEVELOPMENTS IN INVENTORY MANAGEMENT
In recent years, two approaches have had a major impact on inventory management:
• Material Requirements Planning (MRP) and
• Just-In-Time (JIT and Kanban).
51
Their application is primarily within manufacturing but suppliers might
find new requirements placed on them and sometimes buyers of manufactured items
will experience a difference in delivery.
Material Requirements Planning is basically an information system in

which sales are converted directly into loads on the facility by sub-unit and time
period. Materials are scheduled more closely, thereby reducing inventories, and
delivery times become shorter and more predictable. Its primary use is with products
composed of many components. MRP systems are practical for smaller firms. The
computer system is only one part of the total project which is usually long-term,
taking one to three years to develop.
Just-In-Time inventory management is an approach which works to
eliminate inventories rather than optimize them. The inventory of raw materials and
work-in-process falls to that needed in a single day. This is accomplished by
reducing set-up times and lead times so that small lots may be ordered. Suppliers
may have to make several deliveries a day or move close to the user plants to support
this plan.
SUCCESSFUL INVENTORY MANAGEMENT

Successful inventory management involves balancing the costs of inventory
with the benefits of inventory. Many small businesses owners fail to appreciate
fully the true costs of carrying inventory, which include not only direct costs of
storage, insurance and taxes, but also the cost of money tied up in inventory. This
fine line between keeping too much inventory and not enough is not the manager's
only concern. Others include:
• Maintaining a wide assortment of stock--but not spreading the rapidly moving

ones too thin.
52
• Increasing inventory turnover--but not sacrificing the service Level.
• Keeping stock low--but not sacrificing service or performance.
• Obtaining lower prices by making volume purchases--but not ending up with
slow-moving inventory and
• Having an adequate inventory on hand--but not getting caught with obsolete
items.
The degree of success in addressing these concerns is easier to gauge
for some than for others. For example, computing the inventory turnover ratio is a
simple measure of managerial performance. This value gives a rough guideline by
which managers can set goals and evaluate performance, but it must be realized that
the turnover rate varies with the function of inventory, the type of business and how
the ratio is calculated (whether on sales or cost of goods sold). Average inventory
turnover ratios for individual industries can be obtained from trade associations.
CHAPTER-V
53
DATA ANALYSIS AND INTERPRETATIONS
DATA ANALYSIS AND INTERPRETATIONS.
TECHNIQUES OF INVENTORY MANAGEMENT

1. Min-Max levels and Ordering levels
• Minimum stock Level: It is the lower limit below, which the stock of any
stock item should not normally be allowed to fall. Their level is also called
‘safety stock’ or ‘buffer stock level’ .The main object of establishing this level
is to protect against stock-out of a particular stock item and in fixation of
which average rate o f consumption and the item required for replacement,
i.e., lead time are given prime consideration.
Minimum stock Level = Re-order Level-(average or Normal Usage x Average Lead
54
Time)
• Maximum Stock Level: It represents the upper limit beyond which the quality
of any item is not normally allowed to rise to ensure that unnecessary working
capital is not blocked in stock items. Maximum stock level represents the total
of safety stock level and economic order quantity. Maximum stock level can
be expressed in the formula given below:
Maximum Stock Level= Re-order Level + Economic Order Quantity – (Minimum

Usage x Minimum Lead time)
ORDERING LEVEL
The annual consumption of an item and the time lag between ordering
and receiving can be collected from past records. Based on these facts and policies,
the ordering level and ordering quantity of Hetero Drugs Ltd. can be calculated, as
follows:
Ordering level= Minimum level + Consumption during time lag period
(OR)
Maximum consumption x Maximum re-order period
The ordering level should be fixed so that when an indent is placed at the
ordering level, the stock reaches the minimum level when the replenishment is
received. The ordering level is calculated from the following factors:
1. The expected usage

2. The minimum level
55
3. The lead time
Q. Calculate Maximum level, Minimum level, Ordering level & Average level
Example of Material: D (-) Mandalic acid
Minimum Usage –120 Kgs per week

Maximum Usage – 420 Kgs per week
Normal Usage – 230 Kgs per week
Ordering quantity – 6000 Kgs per week
Delivery period – 6 to 8 weeks
Solution:
ORDERING LEVEL = Maximum usage x Maximum deliveryperiod
=420 x 8 = 3360 Kgs
MINIMUM USAGE LEVEL = Ordering level –

(Normal usage x Normal delivery period)
= 3360 - (230 x 7)
=1750 Kgs
MAXIMUM USAGE LEVEL = (Ordering level + Ordering quantity) –

(Minimum usage x Minimum delivery period)
= (3360 + 6000) – (120 x 6)
56
= 9360-720
= 8640 Kgs
AVERAGE LEVEL = (Minimum level + Maximum level)/2

= (1750 + 8640)/2
= 5195 Kgs
Q. Calculate Maximum level, Minimum level, Ordering level & Average level
Example of Material: Di isopropyl ether
Minimum Usage –350 Kgs per week

Maximum Usage – 700 Kgs per week
Normal Usage – 450 Kgs per week
Ordering quantity – 12000 Kgs per week
Delivery period – 6 to 8 weeks
Solution:
ORDERING LEVEL = Maximum usage x Maximum delivery period
=700 x 8 = 5600 Kgs
MINIMUM USAGE LEVEL = Ordering level - (Normal usage x Normal

delivery period)
= 5600 - (450 x 7)
= 2450 Kgs
57
MAXIMUM USAGE LEVEL = (Ordering level + Ordering quantity) –
= (5600 + 12000) – (350 x 6)
= 15500 Kgs

= (2450 + 15500)/2
= 8975 Kgs
2. TWO BIN SYSTEM:

Under two bin systems, each item of material is stored in two bins and
material is continuously issued from one bin until the stock material is emptied
in that bin. Then material from the second bin is started using and action will be
taken to replenish the material in the first bin. The material in the second bin
will be sufficient enough until the fresh delivery is received. The maintenance
of two-bin system is a continuous process.
This system is maintained in another form by maintenance of a single
bin marking it inside with a red line. It indicates the re-order stock position for
replenishment. The operative convenience and the cost analysis is to be made
before adopting two bin system. The major advantage under this system is that
stock can be kept at a lower level because of the ability to re-order whenever
58
stock fall to a low level, rather than having wait for the next re-order date.
3. THE ABC ANALYSIS
In this technique, the items of inventory are classified according to value of

usage. The higher value items have lower safety stocks, because the costs of
production are very high in respect of higher value items. The lower value
items carry higher safety stocks. ABC analysis divides the total inventory list
into three classes A, B and C using the rupee volume, as follows:
• Items in class A constitute the most important class of inventories so for as

the proportion in the total value of inventory. The A items consists of
approximately 15% of the total items, accounts for 80% of the total
material usage.
• Items in class B constitute an intermediate position, which constitute
approximately 35% of the total items, accounts for approximately 15% of
the total material consumption.
• Items in class C are quite negligible. It consists remaining 50% items,

accounting only 5% of the monetary value of total material usage.
59
‘A’ Class Items ‘B’ Class Items ‘C’ Class Items
(High consumption (Moderate consumption (Low consumption

value) value) value)
1 Very strict control. Moderate control Loose control.

2 No safety stocks or Low safety stocks. High safety stocks.
very Low safety
stocks
3 Maximum follow-up Periodic follow-up Follow-up & expediting
and expediting
4 Rigorous value Moderate value analysis. Minimum value analysis.

analysis
5 Must be handled by Can be handled by Can be fully delegated

senior officers. middle Management.
How an organization treats the various class of items according to their

consumption value. For ‘A’ class items, the inventory policy, i.e., order quantity and
re-order point should be carefully determined and the close control over the usage of
materials is desirable. For ‘B’ class items, the economic order quantities and re-order
level calculations can be done and larger stocks can be maintained. The review of
these items may be done quarterly or half-yearly. In case of ‘C’ class items, generally
one year supply can be maintained. Periodic review once a year may be sufficient.
60
The technique tries to analyze the distribution of any characteristics by
stock values of importance in order to determine its priority. This technique can be
applied in all facets of organization. Many organizations are applying this technique
in materials management and spare parts management to identify the contribution
made by the materials/spares in the total inventory value. On the basis of stock value,
materials procurement strategy and consumption strategy is decided.
61
ABC ANALYSIS OF 30 STOCK MATERIAL FOR THE PERIOD 2004-05
CLASS A MATERIAL CLASS B MATERIAL CLASS C MATERIAL
Material
code Annual usage Material code Annual usage Material code Annual usage
Chanti 1004614 Aarthi 612500 AC-501 6136
Colin 861220 Ankita 572707 Bony mix 72406
7 Up 1939860 BPL 160500 Brisk 45056
DSP 671550 C.P.Flakes 248527 Buffer 120890
Honey 676522 C.S.Flakes 232339 Canon 28090
Cat-HH 141525 Cat-C 14994
Dharani 206895 Cat-H 116901
Maaza 383350 Champion 56848
Complan 62130
Dandi 6600
DCM 52080
Dimple 12500
Dranex 3400
Captain Cook 156000
Tata tea 2060
Kores 46400
Limca 10500
5 5153766 8 2558343 17 812991

16.60% 60.40% 26.70% 30% 56.70% 9.60%
NOTE: ORIGINAL NAMES USED FOR ABOVE DECODED
62
MATERIALS
 CHANTI: FORMALDEHYDE
 COLIN: 1 4 DIOXANE
 7UP: 2-METHYL PIPERZINE
 DSP: PYRIDINE
 HONEY: BENZENE SULFONIC ACID
 AARTHI: 3,3A,4,5,6,7,-2H-HEXA HYDRO INDOLE-2-CARBOXTLIC
ACID HYDROCHLORIDE
 ANKITA:PHENYL ISOCYANATE
 BPL: TITANIUM TETRA ISOPROPO
 C.P.FLAKES: CAUSTIC POTASH FLAKES
 C.S.FLAKES: CAUSTIC SODA FLAKES
 CAT – HH: HYDROZEN HYDRIDE 100%
 DHARANI:SODIUM BI CARBONATE
 MAAZA: L-PROLINE
 AC – 501: E.D.T.A
 BONY MIX: TRIETHYL AMINE
 BRISK: FORMIC ACID
 BUFFER: DI SODIUM PHOSPHATE
 CANON: CALCIUM CARBONATE
 CAT – C: TETRA BUTYL AMMONIUM BROMIDE
 CAT-H: HYDROZEN HYDRIDE
 CHAMPION: L-ALANINE
 COMPLAN: 2 CHLORO METHYL 3,5 DIMETHYL 4 METHOXY
PYRIDINE HCL
 DANDI:SODIUM ACETATE (ANHYDROUS)
63
 DCM: DI METHYL CARBONATE
 DIMPLE: 2 MARCAPTO BENZIMIDAZOLE
 DRANEX: TRITYL CHLORIDE
 CAPTIAN COOK:P.T.S CHLORIDE
 TATA TEA: MONO METHYL AMINE 40%
 KORES: CUMENE HYDRO - PEROXIDE.
 LIMCA: DIMETHYL FORMAMIDE
Percentage of A Class item is 60.04%

B Class item is 30%
64
C Class item is 9.60%
ABC ANALYSIS OF 30 STOCK MATERIALS FOR THE PERIOD 2005-06

CLASS A MATERIALS CLASS B MATERIALS CLASS C MATERIALS
Material
code Annual usage Material code Annual usage Material code Annual usage
Pepsi 92568000 Limca 142876 Henko 85500
Chacobars 1711400 Castrol 289142 Hema 38135
Seeta 217674 Nutrine 8736
Jasmine 211250 Tata tea 39312
Durban 327540 Dimple 24500
Reeta 179790 Maaza 27060
Hazard 146400 Brisk 21428
Dabour 577500 Chanti 56980
Dhanraj 467116 SBH 54300
Ankita 6540
BPL 40446
Thinner 71853
Sunil 66780
Sagar 5500
Kaki-320 7040
Dharani 96750
Eno carbon 32200
Champion 81600
Kasthuri 56472
2 94279400 9 2559288 19 821132

6.60% 96.50% 30.00% 2.60% 63.40% 0.80%
NOTE: ORIGINAL NAMES USED FOR ABOVE DECODED MATERIALS
 Pepsi: N-(1-(S)-ETHOXY CARBONYL -3- PHENYL) ALANINE

 Chacobar: TRANS -4- HYDROXY -L- PROLINE(DEEC)
 Limca: DIMETHYL FORMAMIDE
 Castrol: ETHYLENE DICHLORIDE
65
 Seeta: CITRIC ACID MONO HYDRATE
 Jasmine: TRIBUTYL TIN CHLORIDE
 Durban: L-VALINE
 Reeta: BENZYOL CHLORIDE
 Hazard:
 Dabur: ACETONITRILE
 Dhanraj: 1,2,BENZISOTHIAZOLINE-3ONE
 Henko: 1 HYDROXY BENZO TRIAZOLE
 Hema: SODIUM-2-ETHYLHEXANOATE
 Nutrine: SODIUM METHOXIDE
 Tata tea: MONO METHYL AMINE 40%
 Dimple: 2 MARCAPTO BENZIMIDAZOLE
 Maaza: L-PROLINE
 Brisk: FORMIC ACID
 Chanti: FORMALDEHYDE
 SBH: SODIUM BORO HYDRIDE
 Ankita: PHENYL ISOCYANATE
 BPL: TRANS-4PHENYL-PROLINE
 Thinner: P.T.S ACID
 Sunil: PHOSPHORIC ACID 85%
 Sagar: SULFOMIC ACID
 Kaki-320: ACETAVATED CARBON 320
 Dharani: SODIUM BI CARBONATE
 Eno carbon: ENO CARBON
 Champion: L-ALANINE
 Kasthuri: VANADYL ACETYL ACETONA
66
B Class item is 2.60%
67
CLASS A MATERIALS CLASS B MATERIALS CLASS C MATERIALS
Material Annual Material Annual Annual
code usage code usage Material code usage
Cycle 11778400 C.P.Flakes 191611 7 Up 2925
Bony mix 1395558 Bacardi 269640 AC-501 5664
C.S.Flakes 2378040 Captian cook 126750 Amisha 10050
Ammonium
Ankitha 1049670 Castrol 724572 formate 15000
Arundhathi 838559 Cat-HH 267399 Anamika 15000
Colin 123420 BPL 5778
Dharani 402930 Bogi 900
Duran 200850 Brisk 28644
DCM 101122 Amruthanjan 93000
Cat-C 49504
Cat-H 66030
Chakobar 9025
Chanti LR 15015
Dabour 28500
Dandi 17292
Dimple 1250
5 17440227 9 2408294 16 363577

16.67% 86.28% 30% 11.92% 53.33% 1.80%
68
 Cycle: SODIUM CYANO BORO HYDRIDE

 Bonymix: TRIETHYL AMINE
 C.S.Flakes: CAUSTIC SODA FLAKES
 Ankitha: PHENYL ISOCYANATE
 Arundhathi: TRI METHYL SILYL CHLORIDE
 C.P.Flakes: CAUSTIC POTASH FLAKES
 Bacardi: FORMAMIDE 99%
 Captian cook: P.T.S CHLORIDE
 Castrol: ETHYLENE DICHLORIDE
 Cat-HH: HYDROZEN HYDRIDE 100%
 Colin: 1 4 DIOXANE
 Duran: L-VALINE
 DCM: DI METHYL CARBONATE
 7 Up: 2-METHYL PIPERZINE
 AC-501: E.D.T.A
 Amisha: AMMONIUM CHLORIDE
 Ammonium formate: AMMONIUM FORMATE
 Anamika: ORTHO FLURO NITRO BENZENE
 BPL: TRANS-4PHENYL-PROLINE
 Bogi: OXALIC ACID
 Amruthanjan: DI METHYL SULPHATE
 Cat-C: TETRA BUTYL AMMONIUM BROMIDE
 Cat-H: HYDROZEN HYDRIDE
69
 Chakobar: TRANS -4- HYDROXY -L- PROLINE(DEEC)
 Chanti LR: FORMALDEHYDE
 Dabur: METHYL(R)-(-)-3-HYDROXY BUTYRATE
 Dandi: SODIUM ACETATE (ANHYDROUS)
 Dimple: 2 MARCAPTO BENZIMIDAZOLE

70
ABC ANALYSIS OF 30 STOCK MATERIAL FOR THE PERIOD 2007-08
CLASS A MATERIAL CLASS B MATERIAL CLASS C MATERIAL

Material Annual Material Annual Material Annual
code usage code Usage code usage
Chakobar 8600000 Champion 580448 Konica 581685
Frooty 3228165 Reeta 454974 Maaza 90200
Picnic 7656120 Arundati 228980 Saffola 61740
Bonymix 1102050 Kaki-320 288000 Brisk 32912
Hazard 1281000 Henna 485300 Mypol 57600
Chanti 453145 Lalu 13250
Manasa 255117 Sunil 16200
Sesikala 608985 Thinner 8600
RM – 162 210270 Tamrind 122500
Bogi 2500
Patna 17800
Amisha 7000
Juhichawala 51220
Menthal 47505
Cat-H 18786
Henko 8100
5 21867335 9 3565219 16 1137598
17.00% 82.30% 30.00% 13.42% 53% 4.28%
71
 Chakobar: TRANS -4- HYDROXY -L- PROLINE(DEEC)
 Frooty: TETRA HYDROFURAN
 Picnic: 4-PHENYL BUTANE -1
 Bonymix: TRIETHYL AMINE
 Hazard: ACETONITRILE
 Reeta: BENZYOL CHLORIDE
 Arundati: TRI METHYL SILYL CHLORIDE
 Henna: CYCLO HEXANE
 Chanti: FORMALDEHYDE
 Manasa: D (-) MANDALIC ACID
 Sesikala: HYDRO BROMIC ACID
 RM – 162: METHANE SULPHONYL CHLORIDE
 Konica: DIMETHYL SULPHOXIDE
 Saffola: N,N DICYCLO HEXYL CORBIDIMIDE
 Mypol: N-METHYL PIPERZINE
 Lalu: LIQUID BROMINE
 Thinner: P.T.S ACID
 Tamrind: L+ TARTARIC ACID
 Bogi: OXALIC ACID
 Patna: SODIUM PERSULPHATE
72
 Amisha: AMMONIUM CHLORIDE
 Juhichawala: PHENYL CHLORO FORMATE
 Menthal: SODIUM TUNGASTANATE
 Cat-H: HYDROZEN HYDRIDE
 Henko: 1 HYDROXY BENZO TRIAZOL

73
74
Class A Materials Class B Materials Class C Materials

Material Annual Material Annual Material Annual
Code Usage Code Usage Code Usage
Sridevi 14,74,20,000 Dabaur 48,51,000 Honey 486472
Manasa 11050638 Richa 43,96,500 Kaki-320 454720
ZEC 6053400 Maaza 31,95,335 Cat-S 414400
Picnic 5354280 Orpat 2680935 Thiophene 251920
Chachobar 2184400 Zing thing 214682
Aarthi 2003750 Eno Carbon 164680
Frooty 1656000 Anaconda 123980
Hazard 1369950 Seeta 101268
Saffola 706986 Champion 91,936
Sunrise 572500 Dharani 68,550
Sunil 559776 7 Up 64,935
Anamika 43,950
Anchor 4,600
Dhanraj 2,764
Limca 8,600
4 169878318 11 11734297 15 2,497,457
13.36% 85% 36.64% 10% 50% 5%
NOTE: ORIGINALS NAMES FOR ABOVE DECOEDED MATERIALS
75
 Sredevi: N2-(1-(S)-ETHOXYCABONY-3-PHENYPROPYL)-N6-
RIFLUOROACETYL -L-LYSINE BENZL ESTER
 Manasa: D (-) MANDALIC ACID
 ZDC: N,N CORBONYL DI IMDAZOLE(DEEC)
 Picnic: 4-PHENYL BUTANE -1
 Dabur: METHYL(R)-(-)-3-HYDROXY BUTYRATE
 Richa: PTHALIMIDO AMLODIPINE
 Orpat: INDOLE-2-CARBOXYLIC ACID
 Chachobar: YDROXY -L- PROLINE(DEEC)
 Aarthi: 3,3A,4,5,6,7,-2H-HEXA HYDRO INDOLE-2-CARBOXTLIC ACID
HYDROCHLORIDE
 Frooty: TETRA HYDROFURAN
 Hazard: ACETONITRILE
 Saffola: CYCLO HEXYL CORBIDIMIDE
 Sunrise: CINCHONIDINE BASE HYDROUS
 Honey: BENZENE SULFONIC ACID
 Cat-S: 1,4 DIMETHYL AMINO PYRIDINE
 Thiophene: THIOPHENE
 Zing thing: HYDROZEN PEROXIDE
 Eno Carbon: ENO CARBON
 Anaconda: VITRIDE(SODIUM DIHYDROBIS (2-
METHOXYETHOXY)ALUMINTE TOLUNE
 Seeta: TRIC ACID MONO HYDRATE
76
 7 Up: 2-METHYL PIPERZINE
 Anamika: ORTHO FLURO NITRO BENZENE
 Anchor: PROPINIC ANHYDRIDE
 Dhanraj: 2,BENZISOTHIAZOLINE-3ONE
 Limca: DIMETHYL FORMAMIDE
Percentage of A Class item is 85%

B Class item is 10%
C Class item is 5%
77
4. i) First-in First-out Method (FIFO):
CIMA defines FIFO as ‘a material of pricing the issue of material using the purchase
price of the oldest unit in the stock’. Under this method materials are issued out of
stock in the order in which they were first received into stock. It is assumed that the
first material to come into stores will be the first material to be used.
Stores Ledger Account of Zing Thing for the period 2008-09(FIFO)

Receipts Issues Balance
Date Particulars Qty Price Value Qty Price Value Qty Price Value
100 2200 100
06.05.08 Purchases 0 22 0 0 22 22000
170 3740 100

21.06.08 Purchases 0 22 0 0 22 22000
170
0 22 37400
100 2200 120

21.07.08 Issues 0 22 0 0 22 26400
1100
500 22 0
1100 120
28.08.08 Purchases 500 22 0 0 22 26400
500 22 11000
250 5500 120

15.09.08 Purchases 0 22 0 0 22 26400
500 22 11000
250 22 55000
78
0
120 2640
22.09.08 Issues 0 22 0 300 22 6600
250
200 22 4400 0 22 55000
19.10.08 Issues 300 22 6600 900 22 19800

160 3520
0 22 0
400 8800
21.11.08 Purchases 0 22 0 900 22 19800
400
0 22 88000
1980 245
19.12.08 Issues 900 22 0 0 22 53900
155 3410
0 22 0
105 2310 245

13.01.09 Purchases 0 22 0 0 22 53900
105
0 22 23100
245 5390 105

27.02.09 Issues 0 22 0 0 22 23100
250 5500 105

02.03.09 Purchases 0 22 0 0 22 23100
250
0 22 55000
09.03.09 Issues 105 22 2310 140 22 30800
79
0 0 0
110 2420
0 22 0
NOTE: ZING THING :Hydrogen Peroxide
ii) LAST-IN FIRST –OUT METHOD (LIFO):
Under this method most recent purchase will be the first to be issued. The
issues are priced out at the most recent batch received and continue to be charged
until a new batch received is arrived in to stock.
Stores Ledger Account of Zing Thing for the period 2008-09(LIFO)

Receipts Issues Balance
Date Particulars Qty Price Value Qty Price Value Qty Price Value
06.05.0 100 2200 100
8 Purchases 0 22 0 0 22 22000
21.06.0 170 3740 100

8 Purchases 0 22 0 0 22 22000
170
0 22 37400
21.07.0 100 2200 100

8 Issues 0 22 0 0 22 22000
500 22 1100 200 22 4400
80
0
28.08.0 1100 100

8 Purchases 500 22 0 0 22 22000
200 22 4400
500 22 11000
15.09.0 250 5500 100

8 Purchases 0 22 0 0 22 22000
200 22 4400
500 22 11000
250
0 22 55000
22.09.0 200 4400 100

8 Issues 0 22 0 0 22 22000
1540
700 22 0 200 22 4400
300 22 6600
19.10.0
8 Issues 300 22 6600 700 22 15400
200 22 4400
300 22 6600
21.11.0 400 8800
8 Purchases 0 22 0 700 22 15400
400
0 22 88000
19.12.0 245 5390

8 Issues 0 22 0 700 22 15400
155
0 22 34100
13.01.0 105 2310

9 Purchases 0 22 0 700 22 15400
81
155
0 22 34100
105
0 22 23100
27.02.0 105 2310

9 Issues 0 22 0 700 22 15400
140 3080
0 22 0 150 22 3300
02.03.0 250 5500

9 Purchases 0 22 0 700 22 15400
150 22 3300
250
0 22 55000
09.04.0 105 2310

9 Issues 0 22 0 700 22 15400
110 2420
0 22 0 150 22 3300
350 22 7700
In HETERO DRUGS LTD there are certain reasons for slow or non-moving
items. They are as follows:
Order cancel
Products Ban by the Government.
Rejected imported material.
Damage in transit.
Sudden decrease of cost for the products in the market.
Expiry of items.
82
When process changed.
Order cancel: Customers may cancel the orders at any time for different reasons. In
HETERO DRUGS LTD some of the items became non-moving because of
order cancel.
For Example: Premipexale, Di HCL
Products Ban by the Government: Some products are ban by the government due to
different causes. In HETERO DRUGS LTD some products became non-
moving because of products ban by the government. For Example: Valdicoxib
& Gati Floxacan.
Rejected Imported material: In some manufacturing companies once the materials are
imported from other countries they may not be returned if they are damaged. In
HETERO DRUGS LTD some materials are imported from China, US, UK
etc.Once the materials are imported they may not be returned. If they are
damaged or rejected by the Quality control people they may become non-
moving items.
Example: Ikon
Damage in Transit: Some materials may become non-moving because of damage in

Transit. In HETERO DRUGS LTD some materials became non-moving
because of damage in transit.
Example: krack jack (BENZYL BROMO ACETATE/BENZYL-2-BROMO
ACETATE)
Sudden decrease of cost for the products in the market: Some times the products may
get very cheaper in the market than we produced. Then we may incur losses
when we produce those products. So we may stop the production to avoid
83
losses. In HETERO DRUGS LTD some items became non-moving because of
this reason only.
Example: Cetrlin Hydro Chloride.
Expiry of items: Some items may became non-moving because they may reach the
expiry date due to certain reasons. If some items are not used they may expire
and will become non-moving items. In HETERO DRUGS LTD some materials
expired due to process changed. When process changed some items will not be
used.
For Example: Ranenikel and London
When process changed: Some items may became non-moving because of process
changed. In HETERO DRUGS LTD some items became non-moving when the
company changes its process due to reduce the cost of production.
For Example: Lisno pril and Fosino pril
All the above are certain reasons for slow or non-moving of items in the stores
]
ECONOMIC ORDER QUANTITY (EOQ):
The prime objective of inventory management is to find out and maintain

optimum level of investment in inventory to minimize the total costs associated with
it. The EOQ is the optimum size of the order for a particular item of inventory
calculated at a point where the total inventory costs are at a minimum for a particular
stock item .It is an optimum size of either a normal out side purchase order or an
internal production order that minimizes total annual holding and ordering costs of
84
inventory. Stock-out costs are difficult to incorporate into this model. Since they are
based on qualitative and subjective judgment.
The ordering costs are the costs of placing a separate order multiplied by the
number of separate orders placed in the period. The carrying costs can be calculated
based on the assumption that annual cost of carrying a particular stock item on
average, half the stock is on hand all the time in addition to the safety or buffer stock.
The fewer the orders, the lower costs of ordering, but the greater the size of the order
the greater the costs of carrying. The safety or buffer stock has no bearing on the
EOQ, only on the timing of orders. The EOQ is an optimum quantity of materials to
be ordered after consideration. Of the following three categories of costs:
Ordering Costs: The costs of ordering inventory include the following:

• Preparation of purchase order.
• Costs of receiving goods.
• Documentation processing costs.
• Transport costs.
• Intermittent costs of chasing orders, rejecting faulty goods.
• Additional costs of frequent or small quantity orders.
• Where goods are manufactured internally, the set-up and tooling costs
associated with each production run.
Carrying Costs: The carrying costs of inventory include the following:

• Storage costs (rent, lighting, heating, refrigeration, air-conditioning etc.)
• Stores staffing, equipment maintenance and running costs.
• Handling costs.
• Audit, stock taking or perpetual inventory costs.
• Required rate of return on investment in current assets.
• Obsolescence and security costs.
85
• Costs of money tied up in inventory.
• Pilferage and damage costs.
Stock-out Costs: The stock-out costs are associated with running out of stock, which
include the following:
• Lost contribution through the lost sales caused by the stock-out.
• Loss of furniture sales because customers go elsewhere.
• Loss of customer goodwill.
• Cost of production stoppages caused by stock-outs of WIP or raw material.
• Labour frustration.
• Over stoppages.
• Extra costs associated with urgent replenishment purchases of small
quantities.
Q. Calculate Re-order Quantity; Re-order level, Minimum level, Maximum level,

Average stock level
Hetero Drugs Ltd. Manufactures D (-) Mandalicacid material and the
following particulars are collected for the year ended March 2009:
Monthly demand 3000
Cost of placing an order 300
Annual carrying cost 15
Normal usage 230
Minimum usage 120
Maximum usage 420
86
Re-order period 4 to 6 weeks
Solution:
Reorder Quantity
2U x P
S
Where, U= Annual consumption (units) during the year
P= Cost of placing an order
S= Annual carrying cost per unit
2 x 33878 x 300
15
=1164 Kgs
RE-ORDER LEVEL = Maximum usage x Maximum delivery
period
= 420 x 8 = 3360 Kgs
MINIMUM LEVEL = Re-Order level –
= 3360 - (230 x 7)
= 1750 Kgs
MAXIMUM LEVEL = (Re-Order level + Re-Order quantity) –

= (3360 + 1164) – (120 x 6)
= 3804 Kgs

= (1750 +3804)/2
87
= 3652 Kgs
Q. Calculate Re-order Quantity; Re-order level, Minimum level, Maximum level,

Average stock level
Hetero Drugs Ltd. manufactures material Di isopropyl ether and the

following particulars are collected for the year ended March, 2009:
Monthly demand 6000

Cost of placing an order 600
Annual carrying cost 15
Normal usage 450
Minimum usage 350
Maximum usage 700
Re-order period 6 to 8 weeks
Solution:
Reorder Quantity
2U x P
S
Where, U= Annual consumption (units) during the year

P= Cost of placing an order
S= Annual carrying cost per unit
88
2 x 87077 x 600
15
=2640Kgs
RE-ORDER LEVEL = Maximum usage x Maximum delivery period

= 700 x 8 = 5600 Kgs
MINIMUM LEVEL = Re-Order level –
= 5600 - (450 x 7)
= 2450 Kgs
MAXIMUM LEVEL = (Re-Order level + Re- Order quantity) –

(Minimum usage and Minimum delivery period)
= (5600 + 2640) – (350 x 6)
= 6140 Kgs
= 15500 Kgs
AVERAGE LEVEL = Minimum level +Maximum level/2
= 2450 + 15500/2
= 10200 Kgs
6. VED ANALYSIS
VED analysis divides items in to three categories in the descending order of their
critically as follows:
• ‘V’ stands for vital items and their stock analysis requires more attention,
because out-of-stock situation will result in stoppage of production. Thus, ‘V’
items must be stored adequately to ensure smooth operation of the plant.
89
• ‘E’ means essential items. Such items are considered essential for efficient
running but without these items the system would not fail. Care must be taken
to see that they are always in stock.
• ‘D’ stands for desirable item which do not affect the production immediately
but availability of such items will lead to more efficiency and less fatigue.
VED analysis can be very useful to capital intensive process industries. As it

analysis items based on their importance and it can be used for those special raw
materials which are difficult to procure.
7. JUST-IN-TIME MANAGEMENT
Japanese firms popularized the Just-in Time (JIT) system in the world. In a JIT
system material or the manufacturing components and parts arrive to the
manufacturing sites or stores just few hours before they are put to use. The delivery
of material is synchronized with the manufacturing cycle and speed. JIT system
eliminates the necessity of carrying large inventories, and thus, saves carrying and
other related costs to the manufacturer.
90
The system requires perfect understanding and coordination between the
manufacturer and suppliers in terms of the timing of delivery and quality of
the material. Poor quality material or components could halt the production.
The JIT inventory system complements the Total Quality Management. The
success of the system depends on how well a company manages its suppliers.
They will have to develop adequate systems and procedures to satisfactory
meet the needs of manufacturers
Who can use JIT?
Quality process improvement is usually thought of as a

continuous journey of improvement, with no definite ending, since there is always
more potential. From the point of view of material flow the principle of JIT is
obviously ideal but it is often difficult to implement in practical situations unless the
conditions are right. Of course, the right conditions do not happen by accident and
anyone looking for the benefits has to work hard to create the appropriate situation.
Just-in-time supply should be considered as a quality process,

although most of the objections to JIT are based on lack of quality in some aspect of
supply or demand. If stock levels are incorrect, this is often the result of complacency
or lack of understanding. There is no perfect solution to stockholding but, like any
other quality improvement process, JIT operations gradually develop an existing
unsatisfactory situation into an improved one. A decrease in lead times and
simplification of processes should be the aim of all inventory managers.
From the viewpoint of JIT, time is a value-added commodity and

wasting it is unprofitable. The more time saved the better, and continuous
improvement means reducing the timescales.
91
The definition of just in time presented so far can apply to any
material management process, which actively minimizes timescales. The purist
would think that there is more to JIT than this simple concept and there are some
specific concepts for achieving this reduction in timescales, particularly:
• Desire to improve
• Simplification
• Demand-led supply (pull)
• Quality conformance
• Devolution of responsibilit
If these concepts are put into practice, then an operation has a JIT
philosophy supported by improvements in communications and driven by the need
for better service and lower costs, the influence of JIT has been felt in all types of
business and has fuelled change
Advantages of JIT:
Operational benefits:
How can it be more efficient to deliver in small quantities, manufacture in small

batches and increase the amount of administration? Equally, someone who only
knows JIT would ask:
• Why do you buy things when you don't need them?
• How do you know what the demand is so far ahead?
• What use is a warehouse?
The operational benefits arising from JIT are

• Inventory investment
• 'Supply to order' instead of 'provision for stock' easier forecasting so less slow
moving stock
• Better flexibility
92
• Simplified administration
• Waste elimination
• Less scrap should there be a problem.
For each of these operational benefits there is a corresponding cost
benefit, which can be offset against any additional costs, which arise. These
additional costs usually occur because methods have not been changed to suit JIT.
For instance: if an item is delivered in a batch once per month, it can be invoiced,
delivery documentation produced and payment made. If through a change to JIT the
item is delivered every day, then it would not be sensible to place a purchase order
for each load, to raise delivery paperwork and to arrange separate payments for each
load. Information is still required for control, but the information system has to be re-
created to meet the new conditions. In the short term this may not be possible and,
so, extra costs can arise. As JIT embodies the process of continuous improvement,
the inefficiency will eventually be eliminated.
Inventory Turn Over Ratio: -
Inventory turn ratio helps management to avoid capital being locked up
unnecessarily. The ratio reveals the efficiency of stock keeping.
Inventory turnover ratio is given by the formula:
Cost of material consumed

Cost of average stock held during the period
Cost of average stock
Cost of opening stock + Cost of closing stock
2
The Inventory turnover ratio can be calculated (in days) as follows:
Days during the period
Inventory turnover ratio
This will reveal the number of days for which the stocks are held.
93
Example for Inventory turnover ratio for the year ended 2004-05
Material: 7up (2-METHYL PIPERZINE)
Material consumed during the year = 3317
Cost of Material per Kg = 585
Cost Material consumed = 3317 x 585 =185445
Opening Stock = 918
Cost of Opening Stock = 918 x 585 = 537030
Closing Stock = 63
Cost of Closing Stock = 63 x 585 = 3685
Inventory turnover ratio:
= 185445
286943
= 0.6
Cost of average stock

Cost of Opening Stock + Cost of Closing
2
= 537030 +36855
2
= 286943
Inventory turnover ratio calculated in days:
= 365 days
0.6
= 608 days
94
Material: B - Soda
Cost Material consumed = 301770 x 30 = 9053100
Opening Stock Stock = 12300 x 30 = 369000
Closing Stock = 5700
= 9053100
270000
= 33.53
Cost of average stock:

2
= 369000 + 171000
2
= 270000
= Days during the period
= 365 x 100
33.53
= 1088 days
95
Material: (Kasturi) VANADYL ACETYL ACETONA
Cost Material consumed = 87 x 29 = 2523
Opening Stock = 118
Closing Stock = 63
= Cost of material consumed
= 2523
26245
= 0.09
Cost of average stock :
2
= 3422 + 1827
2
= 26245
= Days during the period
= 365
0.09
= 4055 days
96
Material: (Manasa) D (-) MANDALIC ACID
Total Cost of Material consumed = 1215 x 775 = 941625
Opening Stock = 20
Closing Stock = 872
= 941625
345650
= 2.7
Cost of Opening Stock + Cost of Closing Stock
2
= 15500 + 675800
2
= 345650
= 365
2.7
= 135 days
97
Material: (Maaza) L-PROLINE
Total Cost of Material consumed = 3050 x 451 = 1375550
Opening Stock = 500
Closing Stock = 76
= 1375550
129888
= 10.5

2
= 225500 + 34276
2
= 129888
= 365
10.5
= 35 days
98
CHAPTER-VI
FINDINGS&SUGGESTIONS
99
FINDINGS
• During the 2004-05 Inventory turnover ratio (in days) 608 days and 2005-06
inventory turnover ratio 1088days.
• During the 2006-07 inventory turnover ratio(in days) 4055 and 2007-08
inventory turnover ratio 135 days
• During the 2008-09 inventory turnover ratio(in days) 35 days only.
• There was good coordination between the Marketing, planning procurement,

production and distribution.
• There is a lack of inventory classification system based on a variety of

practical norms like consumption rate importance in production.
• Hetero exports stock to many countries in world like china, USA,
• The company is not follows the EOQ (economic order quantity) in issuing the
raw material.
• Lead-time for the items was very high. It is high in “A” Class items
• Conversion period was also varying from time to time that is conversion
from raw material to finished goods.
• Company is follows FIFO (first in first out) to issuing the raw materials to the
production, weighted average method for issuing spares, and remaining is
issued at valued at cost.
100
SUGGESTIONS
• The inventory turnovers ratio during the year 2005-06 are 608 days and 1088
days. The days are increased. It is better to reduce the days because if the days are
increased the cost of maintenance is also increased (holding cost, carrying cost)
• The inventory turnover ratios during the year 2007-08 are 4055 days to 135
days. It is a good signal to the organization why because if the days are decreased the
cost of maintenance is also decreased. If leads to the over ratio cast is also decreased.
• The inventory turnover ratio in the year 2008-09 just 35 days only. It shows
the effective inventory management in Hetero Drugs Ltd.
• They have to satisfy the employees needs.
• JIT system has to be implemented in the hetero Drugs. This system eliminates
the necessity of carrying large inventories, and thus, saves carrying and other
related costs to the manufacturer.
• Finding of items that reached the re-order level and
raise the procurement of Indent is done by the stores clerk. But this can be
done by the system itself by setting the appropriate system software
programmed. It will reduce the workload.
• Conversion period of raw materials to finished goods is varying from time to

time. This variation can be reduced by better co-ordination of the activities of
101
all departments concerned.
• Investment in fast moving and non-moving items is high and it must be

reduced freely available items are also maintained at stock levels. Excess
investment in the available items must be reduced as the transportation is at
advanced stage. So no need to maintain them at large quantity.
• For efficient inventory management proper item classifications system is

necessary that is establish of ABC and VED analysis
BIBLIOGRAPHY
102
Referred from the following standard texts and websites:
1. Financial Management,I.M.Pandey, 9th Edition

Vikas Publishing Housing Ltd. P no :500535
2. Cost & Management Accounting , M.Ravi Kishore
3. Financial management by M.Y. Khan and P.K. Jain
http://www.Hetero.com
103

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CHAPTER-I

Inventory management is very important in an organization in order to have a

Although our discussion of inventory management will focus on the finance

“Inventory Management” means planning, procurement, holding and

Inventory control techniques:

• To assess the performance of materials and inventory control section of Hetro

• To evaluate the various techniques of Inventory being adopted by Hetero

• To understand inventory management procedure followed at HETERO

• To assess overall financial performance of HETERO DRUGS LTD.

The study is done on inventories held by HETERO DRUGS LTD. The

The project “INVENTORY MANAGEMENT OF HETERO DRUGES

The present study carried out is The “Inventory Management” of HETERO

The methodology designed for my project entitled “Inventory Management” at

• The analysis of Inventory Management is based on information available and

• It is based on the data supplied by the factory personnel.

Chapter-II Second chapter encompasses with Industrial profile-Lorses companies

Chapter-IV Fourth chapter explains about Theoretical frame work-Introduction of inventory

Chapter –V Fifth chapter consists of Data analysis and Interpretation-techniques of

The seemingly ever-increasing and almost never ending governmental regulations

ORIGIN OF THE INDIAN PHARMACEUTICAL INDUSTRY

Post-war developments in the west resulted in a high degree of product obsolescence,

The pharmaceutical industry is very aptly described as a “life-line” industry. It plays a

PHARMACEUTICAL PRODUCTION IN INDIA:

1986-87 458 2140

Research & Development:

 HETERO DRUGS LTD

VISION AND VALUES

HETERO’s mission is to be a globally acclaimed pharmaceutical company, meeting

• Type of Reactors – Glass, Glass-Lined and Stainless Steel

• HPLCs (with PDA facility)

• HETERO’s emphasis has always been on Research and Development. The

• From an organization, which was concentrating on developing processes for

LIST OF STANDARD OPERATING PROCEDURES:

• Receipt, Storage, Handling&Distribution of Raw Material.

Receipt, Storage, Handling and Distribution of Raw Material

Receipt of Raw Material:

Distribution of Raw Materials:

Handling and Disposal of Rejected Raw Materials

• In case of rejection of any consignment subsequent to the analysis, the quality

Writing Pharma Distributioin

• Check the batch number, quantity

Cleaning of Dispensing Equipment

• Clean the room before arranging for sampling to Quality Control.

Raw Material Distribution from Warehouse to Production

Liquids from Drums:

Liquids from Tanks:

• Check the day tanks/measuring tanks for the volume.

Handling of Hose pipes and their Periodical Change

Handling of desiccant bags:

• Place the Desiccant bags in secador desiccator’s cabinet.

• HETERO believes in recognizing and rewarding contributions of its

HETERO SINGAPORE PTE LTD. HETERO DRUGS LIMITED

THEORETICAL FRAME WORK

THEORETICAL FRAME WORK OF INVENTORY MANAGEMENT

Introduction of Inventory Management:

Inventory management software helps create invoices, purchase orders,

OBJECTIVES OF INVENTORY CONTROL

Scientific control of inventories should serve the following purpose:

• To provide continuous flow of required materials, parts and components for

• Process buffer: Inventory should be used to buffer processes only at strategic

• Fluctuations in demand: This inventory allows a supplier to satisfy customer

• Lower ordering costs: Traditionally companies looked at ordering costs as a