Description
In American English and in a business accounting context, the word inventory is commonly used to describe the goods and materials that a business holds for the ultimate purpose of resale
INTRODUCTION
In Indian situation on an average approximately 60—70% of the total product cost is contributed by raw materials cost which forms the single major component of current assets. It is even worse in the case of
industries, which strives on imported components for its day-to-day functioning. It is no exaggeration that in few Indian industries imported components are stocked for more than 24 months. The problem of inventory management is one of maintaining, for a given financial investment, an adequate supply of something to meet an expected demand pattern. Inventory can be the one of the management effectiveness on the materials management front. Inventory turn over ratio is an index of business performance. A soundly managed organization will have higher turn over ratio and vice versa.
Inventory management deals with the determination of optimal policies and procedures for procurement of commodities. Since it is quit difficult to imagine a real work situation in which the required material will be made available at the point of use instantaneously, hence maintain inventories become almost necessary.
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INDUSTRY AND COMPANY PROFILE
Amara Raja Batteries is a private Ltd., incorporated under the company’s Act 1956 in 13th February 1985, and then converted into public limited company on 6 th September 1990. Sri Galla Ramachandra Naidu who is an electrical engineer with an experience, promoted Amara Raja. ARBL is the first company in India to manufacture VRLA (Value regulated lead acid) batteries. The company is setting upto 1920 lacks plant is in 18 acres in karakambadi, Renigunta Mandal, chittoor District, A.P., The project site is a notified under “A” category. Amara Raja Batteries Ltd., is now collaboration with JOHNSON CONTROLS inc., the largest manufacturer of lead acid batteries in North America. Johnson controls is also a leading global manufacturer of automotive batteries. Both have pioneered innovative batteries in several revival sectors. Through this tie-up it is now possible for offering power solutions in the automotive sector as well as the industrial sector form one source Amara raja has always offered time tested world class technology and process developed on international standards. Amara Raja is targeted to secure the ISO – 14001 certificate, at present it is having 9001 certificate & as 9000 certificate. AMARA RAJA GROUP OF COMPANIES i. ii. iii. iv. v. Amara Raja Batteries Ltd., Tirupati Amara raja Power Systems Pvt. Ltd., Tirupati Harsha Electronics Pvt. Ltd., Tirupati Mangal Precsion production Pvt. Ltd., Chittoor Amara Raja Electronics Pvt. Ltd., Chittoor
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General Information of all the companies 1. Amara Raja Batteries ltd., Tirupati (ARBL) ARBL Companies of two major divisions there are ? Industrial Battery Division ? Automotive Battery Division Industrial Battery Division All was become the benchmark in the manufacture of industrial batteries. AR is leading in the manufacture of VRLA batteries (value regulated lead acid) Products Types of VRLA batteries manufactured in industrial battery division are • • • • Capacity Install capacity is 4 lakhs per year and utilization capacity is 3,25,000 Customers • • • Telecom Railways Electricity boards [APSEB, TNSEB etc.,] Power stack [Railways, Emergency, Lighting] Kombat [Engine starting, Fine Alaram Security Systems] Brute [Factory Vehicles like Fork lifts, Trucks, Platform trucks] Genpro [Generators]
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Automotive Batteries Division This (ABD) division was launched at Tirupati on 24 th September 2001 for this division the company is audience withJohnson controls, USA. It is also having the facility for producing plastic components (all parts) required for automotive batteries. Products Products of (ABD) are • • • • Amaron Hi-way (Trucks) Amaron Harvest (Tractors) Amaron shield (Inverter0 Amaron Highlife (Cars, Tractors, Utility Vehicles, 3 wheelers)
Customers • • • • • • • • Ford Maruthi Udyog Ltd., Premier Auto Ltd Ashok Leyland Hindustan Motors Telco Mahindra & Mahindra Swaraj Mazda
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Competitors • • • • II. Exide Amco Hyderabad batteries Ltd Standard batteries Amara Raja Power Systems Pvt. Ltd It was incorporated in 1984 and was co-promoted by A.P. electronic development corporation. Products • • Un interrupted Power Systems (UPS) Battery charges
Customers • • • • BSNL VSNL Reliance LG
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III.
Harsha Electronics Pvt. Ltd (HEPL) It was incorporated in 1990 for manufacture of spare parts of (cabinets,
Trays) • • • IV. UPS Battery Charges And to manufacture small parts of batteries Mangal Electronics Systems Pvt. Ltd It was started in the year 96-97 at Chittoor Dist. Products • • • V. Copper connectors, Copper inserts Hardware required by ARBL & ARPSL Amara Raja Electronics Pvt. Ltd.(AREPL)
Products • • Electronic card Power distribution for UPS
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Culture & Environment • • • Encourages initiative and growth of young talent Population, wastage, energy conservation, green belt development programmes Amara Raja is putting a member of HRD initiatives for all levels of employees. Mission and vision • • • • • • • Main vision is to audience customer satisfaction, share holders benefits and economic growth of orga., Manufacture and marketing of reliable power systems, batteries, allied products and services To meet the competition To be the leaders (globally) in batteries manufacturing sector Strong and well organized customer base Approved vendor status in major user segments. To work with honest purpose, strategic planning and enduring perseverance. Awards for ARBL ? “The Spirit of Excellence “ --- Awarded by academy of fine arts, Tirupati ? “Best Entrepreneur of the Year 1998”—Awarded by Hyderabad Management Association. ? “Excellence Award” – by institution of economic studies (ES), New Delhi
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? “Industrial Economist Business Excellence Award” – 1991 award by the Industrial Economist Chennai ARBL’s Future Plans • • • • Maximize export of its batteries Constant up gradation of productions. Stream of new models Constant stress of improving productivity
Mile Stones Year 1997 1998 1999 2000 2001-2002 Mile stone 100 cr. Turnover ISO-9001 Certificate QS – 9000 Certificate Increase volume of Automotive batteries Increased exports
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BOARD OF DIRECTORS OF ABRL
Name Address Chairman Board of Directors : Amara Raja Batteries Limited : Karakambadi (Village) Renigunta (Mandal) Tirupati – 517520 : Mr. Ramachandra N.Galla : Mr. Rama chandra N.Galla Mr. Jayadev Galla Mr. Upendranath .N Mr. Lakshmana Rao .P Mrs. Amara Kumari Galla Mr. Arthur F.Nennig.Jr. Mr. Mark L.Koczela Mr. Raymond J.Brown : Mr. V. Manohar : Mr. C.Rama Chandra Raju : Mr. T.Damodhar chowdary : Mr.P.Varadarajan : E.Phalguna Kumar & CO. M/s.Chevuturi Associates : SBI, Settipalli, Tirupati Andhra Bank, Tirupati SBH Tirupati : Chennai, Tirupati, Calcutta, New Delhi, Bangalore, Mumbai : Renigunta Road, Tirupati – 517520 : V.Gurappa Naidu
Finance G.M Accounts officer Personnel Manager Company Secretary Auditors Bankers Branches Registered Office Costing Manager
OBJECTIVES OF THE STUDY
Primary Objective To study about inventory management of AMARA RAJA BATTERIES LIMITED
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Secondary Objectives • • • • • • To examine the minimum , maximum EOQ levels To achieve better control on inventory by adopting ABC analysis To minimize the carrying cost of inventory To avoid both over stocking ad under stocking To reduce the investment on inventory To evaluate the re-order level for the raw materials
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• SCOPE OF THE STUDY
The study has been conducted to know the most suitable and economic maintenance of inventory for the amara Raja Batteries Limited The raw material is acquiring from abroad (Australia, Korea) as well as locally, and once the order is made it will take 1 month time to get the raw material (approximately)
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LIMITATIONS OF THE STUDY
• • The secondary data is given upto 6 months only The company is using more than 2000 raw materials it is difficult to analysis all the materials. For ABC analysis consumption only taken and EOQ main raw materials. • • The information provided by the various departmental heads The company is importing major raw materials from other countries (pure lead, separators, alloy), so they (HOD’s of finance department, costing department, purchased department) are not given the exact raw material purchase prices.
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METHODOLOGY The present study is based on both ? Secondary Data
Secondary Data Company balance sheets costing department HOD’s and purchase department HOD’s and previous records of the company For the purpose of material holding various inventory control tools have been used for arriving material at stock levels eg. ABC analysis for all the raw materials control • EOQ for main raw materials.
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INVENTORY MANAGEMENT Every organization (or) enterprise needs inventory for the smooth running of its activities, it is a link between production and distribution process. Inventory constitute the most important part of current assets. It is approximately 60 to 65% of current assets in public limited company’s in India. So that it is very essential to name a proper control and management on inventories, for that every organization must maintain the availability of required materials in sufficient quantity as and when required and also to minimize inventory investments. Inventory consists of the following Raw materials Work-in-process Finished goods
Raw Materials These are basic inputs that are converted into finished products. Work-in-Progress These are semi-manufactured products
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Finished Goods Inventories are those completely manufactured products which are ready to sale and to use. Need of Inventory Every firm must maintain adequate inventory or its smooth running of the business and to give the competition to our competitors and not to loss of customers and business for that purpose maintenance of adequate inventory is must. • • • To facilitate smooth production and sales operations To face the risk of variation in demand and supply To face the price changes in inventory and quantity discounts.
Inventory Holding Holding of inventory involves blocking of a bring funds and the costs of storage and handling Holding of inventory helps in separating the process of purchasing, producing and selling. In case a firm does not hold sufficient stock of raw materials, finished goods etc., the purchasing of raw materials would taken place only when the firm receives the order form a customer. It may result in delay in executing the order because of difficulties in obtaining raw materials, finished goods etc., thus inventory provides caution so that purchasing, production and sales functions can proceed at optimum speed.
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There are three main purposes or motives of holding inventory. 1. orders. 2. Precautionary Motives Holding of inventory for meeting the unpredictable changes in demand and supplies of materials. 3. Speculative Motives To keep inventory for taking advantage of price fluctuations, saving in the reordering costs and quantity discounts etc., BENEFITS OF HOLDING INVENTORY 1. 2. 3. 1. Avoiding losses of sales Reducing ordering costs Achieving efficient production live/ runs Avoiding loss of sales If we maintain sufficient stocks, when over the order will come automatically the production will stores and there is no loose of customers. 2. Reducing Ordering Costs Typing, checking, approving and mailing the order etc., can be reduced if la firm place a few orders. The Translate Motives Which facilitates continuous production and timely execution of sales
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3.
Efficient Production runs Maintenance of large inventories helps a firm in reducing the set-up costs
associated with each product line. For Eg: If the set up cost is Rs.100 to produce 200 units the cost per units is Rs.0.5 in case the production is increased 400 units the cost P/U is 0.25 RISKS ASSOICATED WITH INVENTORY HOLDING 1. 2. 3. 1. Prices of products will decline Product deterioration Obsolescence Prices Decline This may be due to increase in the market supply of the product,
introduction of a new competitive product, price cutting by the competitors. 2. Product Detioration This may be due to holding a product for too long period or improper storage conditions. 3. Obsolescence This may be due to change in customers taste.
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COST OF HOLDING INVENTORY ARE AS FOLLOWS 1. 2. 3. 1. Materials cost Ordering cost Carrying cost
Materials cost This includes the cost of purchasing the goods, transportation and handling
charges. 2. Ordering Cost The variable cost associated with placing an order for the goods 3. Carrying Cost The expenses for storing the goods. ESSENTIAL OF GOOD INVENTORY HOLDING SYSTEM 1. 2. 3. 4. 5. 6. 7. Classification and codification of inventory by allotting proper code numbers to each item and group and regroup on some basis. Adequate storage facility Standardization and simple fiction of inventory in order to maintain quality and reduce the no. of items Setting different levels and reorder point for each item of inventory Fixing economic order quality Maintain adequate inventory records and reports and statements. Experienced personnel for handling inventory properly.
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DATA ANALYSIS AND INTERPRETATION Data Analysis Analysis the inventory holding using the following techniques • • • ABC Analysis (Control Mechanism) EOQ Control Levels CONTROL MECHANISM For Inventory Holding Usually the firm has to maintain several types of inventories, it is not desirable to keep same degree of control on all item the firm should pay maximum attention to the see items whose is the highest value. The firm should therefore classify inventory to identify which item should receive the most effort in controlling. Te firm should be selective in it approach to control inventory holding in various types of inventories. This analytical approach is called the ABC analysis, and tends to measure the significance of each item of inventories in terms of its value.
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I.
ABC Analysis ABC analysis or classification which is said to be “Always better control”.
This ABC analysis is firstly organized in the “General Electric Company” of USA. In this the items are classified in the importance of their relative value. This is also known as proportional value analysis (PVA) or annual usage value analysis (AUV). In this, the higher value items are classified as “A items” and would be under the tightest control. “C items” represents relatively least value and would be under simple control “B items” fall in between tense two categories and require reasonable attention of management. RULES FOR IMPLEMENTING ABC TECHNIQUES • • • • • • Classify the items of inventories Determine the expected use in units over a given period. Determine the price per unit of each item Find the total cost of each item. Rank the items in accordance with total costs allotting first rank to the item with highest total cost and so on (i.e., arrange in descending order). Find our the total no. of items and calculate the percentage of each item.
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• •
Calculate the percentage of total cost of each item to total cost of all items Combine items on the basis of their relative value of form three categories A,B,C
“A” items is having high consumption value (eg.-15%) “C” items having low consumption value ( eg – 55%) “B” items having moderate consumption value ( eg. – 30%)
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Note: The above classification has been made arbitrarily on the basis of selection control as assumed above. The assumes are as follows • • • For “A” class items is 17 lakhs and above For “B” class items is 2 lakhs to less then 17 lakhs For “C” class items is 0 to less then 2 lakhs In this”0” (Zero) means fractions like 0.222 or 0.423 etc., The same diagram can also interpret in the following way. “A “ class items “B” class items “C” class items = = = Value is 72% Quantity 1% Value is 16% Quantity 4% Value is 12% Quantity 95%
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But “A B C” analysis can also analysis according to the A.B.Thomas method. This is as follows: Step – 1 : Average cost per item The formula is Total cost --------------No. of total items
Here:Total cost is = 6,54,53,352 Rs. Total items (Consumed only ) = 678 items 65453335 --------------- = 96538.867 678
The formula is
According to A.B.Thomas, if the average consumption per item is multiplied by 2 it gives cut-off-point b/w A class and B ie., 96538.867x2 = 1,93,077.7345 and above are – A Class items Step – 2 Half of the average consumption will give cut-off point b/w B and C class items = 96538.867/2 = Rs. 48269.4338 below Rs.1,93,077 and above 48,269 are “B” class items Step – 3 Less then Rs.48,629 are “C” class items
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II.
EOQ The effective inventory management requires all effective control over
inventories. Inventory control refers to a system which ensure supply of required quantity and quality of inventory at the required time and at the same time prevent unnecessary investment in inventory is required for hat quantity, for which the order should be placed is one of the important problems concerned with reference to inventory management. Economic order quantity refers to the size of the order which gives maximum economy in purchasing any item of raw material. • • Ordering Cost Carrying Cost
Ordering Cost It is the cost of placing all order and securing the supplies order costs depends upon the no. of orders palced and a no. of items ordered at a time Higher will be the ordering cost when frequent order are placed and vice versa. Carrying Cost It is the cost of keeping items in stock
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Eg: Are • • • • Interest on Investment Obsolesce losses Store-keeping costs Insurance etc., The large volume of inventory the higher will be the carrying cost and viceversa. Formula for EOQ 2 x Annual consumption in units x cost per order EOQ --------------------------------------------------------Price per unit x carrying cost expressed As a % of total investment in inventory Demand of products for 6 months period (from 2003/April to Sept, 2003) Raw material 1. Pure Lead 2. Alloy 3. BMJK - 1440 Separator (NIPPON) P/ Unit Rs. Quantity (Kgs) Total Value 37.526 17,96,004 6,73,96,846 40.52 4,85,082 1,96,55,523 377.32 52,866 1,99,42,113
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Ordering Cost Purchasing Dept. Exp (Salaries )(P.A) Collection Cost (P.A) Inspection Cost (P.A) Building Depreciation (P.A) Miscellaneous (P.A) * * * * * 8,70,000 30,000 22,000 10,000 5,000 9,37,000
Transport Charges Lead Alloy Separators 5,55,000 4,25,000 9,25,000 19,05,000 Calculation of per unit order cost Raw materials No. of order the company is Lead Alloy Separators placing at present 25 15 10 % in the inventory cost of “A” items 20% 15% 12% 187400+55000/25=29696 140550+425000/15=37703 112440+925000/10=103744 Order cost per order
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Carrying Cost Stores personnel exp Obsolesce Material islanding in stores 7,42,560 40,500 5,60,200 13,43,260
Lead (Per Unit carrying Cost) Carrying cost 1343260x 20/100 = 0.1495
Bank Interest
37.50 x 11.50/100
=
4.31
Insurance @ 2%
1796004x 37.50 = 67350150 x 2 = 1347003/1796004 = 0.72
Alloy (Per Unit carrying Cost) Carrying cost Bank Interest Insurance @ 7% 1343260x 15/100 40.52 x 11.50/100 485082x 40.52 x 7/100 = 1375886.58/485082 Separators (Per Unit carrying Cost) = 2.8363 = = 0.4153 4.6898
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Carrying cost Bank Interest Insurance @ 2%
1343260x 12% 52866 377.22 x 11.50% 52866x 377.22 = 19942113 x 20% = 398842.25 52866
= =
0.4153 43.3803
=
7.5444
Carrying cost and order cost per unit of all the raw materials Order Cost P/U 29696 37703 103744 Carrying Cost P/U 5.17 7.89 53.96
Lead Alloys Separators
6 months demand of the 3 raw materials Lead Alloys Separators 1796004 485082 52866
Calculation of EOQ for all the three main raw materials. • • • Lead Alloy Separators
1. Lead
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Total demand Ordering cost P/O Carrying cost P/O Company’s orders
1796004 29696 5.17 25
2 x 179004x29696 EOQ ---------------------5.17
= 143638.99 Kg
1796004 --------------143638.99 = 12.50 or 13 orders
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EXPENDITURE @ VARIOUS LEVELS OF ORDERS FOR LEAD
No. of orders 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Consumption 1796004 898002 598668 449001 359201 299334 256572 224500 199556 179600 163273 149667 138154 128286 119734 112250 105647 99778 94527 89800 85524 81636 78087 74833 71840 69077 Average Carrying cost Ordering cost 29696 59392 89088 118784 148480 178176 207872 237568 267264 296960 326650 356352 386048 415744 945440 475136 504832 534528 564224 593920 623616 653312 683008 712704 742400 772096 Total Cost 4672366 2380727 1636645 1279451 1077014 951954 871111 817901 783776 761226 748711 743241 743176 747363 754951 765302 777930 792454 808576 826053 844695 864341 884862 906147 920106 983378
17926004/2 (898002x5.17) 898002 4642670 449001 2321335 299334 1547557 224501 1160667 179600 928534 149667 773778 128286 663239 112250 580333 29778 515852 89800 464266 81637 422061 74834 386889 69077 357128 64143 331619 59867 309511 56125 290166 52824 273098 49889 257926 47264 244352 44900 232133 42762 221079 40818 211029 39043 201854 37416 193443 33920 185706 34539 178564
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2. Alloy Total demand Ordering cost P/O Carrying cost P/O Company’s orders 485082 37703 7.89 15
2 x 485082x 37703 EOQ ---------------------7.89
= 68088 Kg
4850824 --------------68088 = 7.124 orders or 7 orders
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EXPENDITURE @ VARIOUS LEVELS OF ORDERS FOR ALLOY
No. of orders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Demand 485082 242541 161694 121271 97016 80847 69297 60635 53898 48508 44098 40424 37314 34649 32338 30318 28534 Average 485082/2 242541 121271 80847 60635 48508 40423 34648 30317 26949 24254 22049 20212 18657 17325 16169 15159 14267 Carrying cost (242541x7.89) 1913648 956828 637883 478414 382728 318941 273376 239205 212627 191364 173966 159472 147203 136690 127573 119604 112566 Ordering cost 37703 75406 113109 150812 188515 226218 263921 301624 339327 377030 414733 452436 490139 527842 565545 603248 640951 Total Cost 1951351 1032232 750992 629226 571243 545159 537297 540829 551954 568394 588699 611908 637342 664532 693118 722852 753517
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3.
Separators Total demand Ordering cost P/O Carrying cost P/O Company’s orders 52866 103744 53.96 10
2 x 52866x103744 EOQ ---------------------53.96
= 14257 Kg
52866 --------------14257 = 3.7 or 4 orders
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EXPENDITURE @ VARIOUS LEVELS OF ORDERS FOR SEPARATORS
No. of orders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Consumption Average 458082/2 52866 26433 17622 13217 10573 8811 7552 6608 5874 5287 4806 4405 4067 3776 3524 26433 13216 8811 6608 5286 4005 3776 3304 2937 2644 2403 2203 2033 1888 1762 Carrying cost (26433X53.96 ) 1426324 792461 475441 356594 285259 237726 203752 178283 158480 142643 129666 118847 109727 101876 95077 Ordering cost 103744 207488 311232 414976 518720 622464 726208 829952 933696 1037440 1141184 1244928 1348672 1452416 1556160 Total Cost 1530069 999949 786673 771570 803979 860184 929960 1008235 1092176 1180083 1270850 1363775 1458399 1554292 1651237
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III.
STOCK LEVELS Carrying of too much an too little of inventory’s is determine the firm. If
the inventory is too little, the firm will face frequent stock-outs involving heavy ordering cost, for that the firms should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss of sale or stoppage of production Various stock levels are discussed below 1. 2. 3. 4. 1. Minimum Level Maximum Level Re-order Level Average Level Minimum Level
This represents the quality which must be maintain in hand at all times. I the stocks are less than the minimum level then the work will stop due to shortage of materials.
The following factors are taken in to account while fixing minimum stock level. 1. 2. 3. Lead time Rate of Consumption Nature of materials.
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Lead Time
The time taken in processing the order and then executing it is known as lead time.
Rate of Consumption
It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past experience and production plans.
Nature of Material It a material is required only against special orders or the customer then minimum stock will not be required for such material. Formula Min. Level = ROL – [Average Consumption Average Re-order Period ] Re-order Level Re-order level is being between minimum level and maximum level Re-order level is determined by taking into account the suppliers discount, rate of consumption, storage cost, price of the material etc. Formula
ROL = (25%) Maximum Consumption x Maximum Re-order period.
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Maximum Level It Is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be over stocking, it will cause high material cost, blocking of more working capital, more space for storing the materials, more wastage of materials etc., maximum stock level depend upon the following factors. • • • • • Availability of capital Availability of space for storing Rate of consumption of materials during lead time Cost of maintaining the stores Availability of materials
(If the materials are available only during some seasons then they will came to be stored for the rest of the period) Formula Max. Level = Re-order level + EOQ – [Min. Consumption x Min. Re-ordering Period] Average Stock Level The average stock level is calculated as such Formula Min. level + Max. Level -----------------------------
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2 Re-Order Level ROL = Max. Con. (25%) x Max. Re-order Period 1796004 Lead = ----------- = 11973 x 25% 150 Days = 2993 = (11973+2993) 60 Days = 8,97,960 485082 Alloy= ----------- = 3234 x 25% 150 Days = 809 = 3234+809 x 55 Days = 2,22,365 52866 Separators= ----------- = 352 x 25% 150 Days = 88 = 352+88 x 37 Days = 16,284
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Note: 6 months data only 6 x 25 days P/M = 150 Maximum Level Mix. L = ROL +EOQ –[Min. Consumption x Min. Lead time] Lead = = Alloy = = = Note: Min. consumption is taken as per the guidance of costing HOD. Ie., 8567 for lead 1725 for alloy, 275 for separators. Minimum Level Min .L Lead = = Alloy = = = Note: = ROL[Average consumption x Average Re-order Period] 89760-[11973 x 48] 323256 222365-[3234 x 45] 76835 5372 897960+143639-[8567x 35] 454476 222365+68088-[1725 x 35] 230078 23,666
Separators= 16284+14257-[275x25]
Separators= 16284-[352 x31]
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Average cons. Is taken as per the guidance of costing HOD for his suggestion average cons. Is equal to max. consumption
Average Level
Min. level + Max. Level Avg = ----------------------------2 230078+76835 Alloy = ------------------2 454476+323256 Lead = ------------------2 23666+5372 Separators = ------------------2 Lead Time Raw material Lead Alloy Separator Time for order 25 20 12 Order to receive 35 35 25 Min days 35 35 25 60 55 37 Max = 14519 = 388866 = 153457
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Note: Time of order and order to receive is given by the purchased department. FINDINGS 1. Company can save lot of resources if it goes as per EOQ in almost all the raw materials. Inventory Lead Alloy Separators 2. 3. EOQ 743176 537297 771570 Actuals 920106 693118 1180083 Difference 176930 155821 408513
The company is maintaining more stock of raw materials because of main raw materials are importing form outer countries. In raw materials list there are very few items of “A” class and “B” class but they give a equal priority for all the raw materials and they the inspection and stores check before receiving the materials are equal to all the raw materials
4. 5. 6. 7.
Carrying cost of separators is high then compared to other raw materials The company importing the main raw materials because of to give good quality of goods Suppliers are not willing to give small quantity ( as per EOQ) The control levels of inventory are not maintained accurately.
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SUGGESTIONS 1. The company should also concentrate in local markets for procuring the main raw materials, because to maintain the EOQ and reduce the imports. 2. For imported Lead, Alloy, Separators, maximum stock is to maintain because of if any fluctuations in priceses and fluctuations in rupee exchange value. 3. The company should always review the A-class items periodically and see that those materials will move fastly. 4. Man power will be reduced by using computers in stores Departments and latest machinery in plant. 5. Carrying lost of separators is to be reduced by way of reducing the insurance and bank interest. 6. Re ordering should be done only after considering the maximum, minimum and the average levels of the inventory.
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CONCLUSION
Inventory management is an important activity in Manufacturing Concern. And since the production of batteries Involves different raw materials like lead, Alloy, separators, etc., and all these raw materials have to be procured from different places, inventory management plays important role in the industry. As far as ARBL is concerned, a proper maintenance of EOQ, availability of stocks, procurement of raw materials. When the company has to concentrate more in the inventory management, so that the production may increase and the level of shortage decreases and the products as made reality available to the customers.
The company can also consider the suggestions and recommendations, which are actually based on the analysis made, for the battlement of the company.
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BIBLIOGRAPHY
S.NO.
Title of the Book
Author Name I.M.PANDY I.M.PANDY R.K.SHARMA & SHASI K.GUPTHA
1. Financial Management 2. Management Accounting 3. Management Accounting & Financial Analysis
4. Website
www.amararaja.com
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doc_926307292.doc
In American English and in a business accounting context, the word inventory is commonly used to describe the goods and materials that a business holds for the ultimate purpose of resale
INTRODUCTION
In Indian situation on an average approximately 60—70% of the total product cost is contributed by raw materials cost which forms the single major component of current assets. It is even worse in the case of
industries, which strives on imported components for its day-to-day functioning. It is no exaggeration that in few Indian industries imported components are stocked for more than 24 months. The problem of inventory management is one of maintaining, for a given financial investment, an adequate supply of something to meet an expected demand pattern. Inventory can be the one of the management effectiveness on the materials management front. Inventory turn over ratio is an index of business performance. A soundly managed organization will have higher turn over ratio and vice versa.
Inventory management deals with the determination of optimal policies and procedures for procurement of commodities. Since it is quit difficult to imagine a real work situation in which the required material will be made available at the point of use instantaneously, hence maintain inventories become almost necessary.
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INDUSTRY AND COMPANY PROFILE
Amara Raja Batteries is a private Ltd., incorporated under the company’s Act 1956 in 13th February 1985, and then converted into public limited company on 6 th September 1990. Sri Galla Ramachandra Naidu who is an electrical engineer with an experience, promoted Amara Raja. ARBL is the first company in India to manufacture VRLA (Value regulated lead acid) batteries. The company is setting upto 1920 lacks plant is in 18 acres in karakambadi, Renigunta Mandal, chittoor District, A.P., The project site is a notified under “A” category. Amara Raja Batteries Ltd., is now collaboration with JOHNSON CONTROLS inc., the largest manufacturer of lead acid batteries in North America. Johnson controls is also a leading global manufacturer of automotive batteries. Both have pioneered innovative batteries in several revival sectors. Through this tie-up it is now possible for offering power solutions in the automotive sector as well as the industrial sector form one source Amara raja has always offered time tested world class technology and process developed on international standards. Amara Raja is targeted to secure the ISO – 14001 certificate, at present it is having 9001 certificate & as 9000 certificate. AMARA RAJA GROUP OF COMPANIES i. ii. iii. iv. v. Amara Raja Batteries Ltd., Tirupati Amara raja Power Systems Pvt. Ltd., Tirupati Harsha Electronics Pvt. Ltd., Tirupati Mangal Precsion production Pvt. Ltd., Chittoor Amara Raja Electronics Pvt. Ltd., Chittoor
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General Information of all the companies 1. Amara Raja Batteries ltd., Tirupati (ARBL) ARBL Companies of two major divisions there are ? Industrial Battery Division ? Automotive Battery Division Industrial Battery Division All was become the benchmark in the manufacture of industrial batteries. AR is leading in the manufacture of VRLA batteries (value regulated lead acid) Products Types of VRLA batteries manufactured in industrial battery division are • • • • Capacity Install capacity is 4 lakhs per year and utilization capacity is 3,25,000 Customers • • • Telecom Railways Electricity boards [APSEB, TNSEB etc.,] Power stack [Railways, Emergency, Lighting] Kombat [Engine starting, Fine Alaram Security Systems] Brute [Factory Vehicles like Fork lifts, Trucks, Platform trucks] Genpro [Generators]
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Automotive Batteries Division This (ABD) division was launched at Tirupati on 24 th September 2001 for this division the company is audience withJohnson controls, USA. It is also having the facility for producing plastic components (all parts) required for automotive batteries. Products Products of (ABD) are • • • • Amaron Hi-way (Trucks) Amaron Harvest (Tractors) Amaron shield (Inverter0 Amaron Highlife (Cars, Tractors, Utility Vehicles, 3 wheelers)
Customers • • • • • • • • Ford Maruthi Udyog Ltd., Premier Auto Ltd Ashok Leyland Hindustan Motors Telco Mahindra & Mahindra Swaraj Mazda
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Competitors • • • • II. Exide Amco Hyderabad batteries Ltd Standard batteries Amara Raja Power Systems Pvt. Ltd It was incorporated in 1984 and was co-promoted by A.P. electronic development corporation. Products • • Un interrupted Power Systems (UPS) Battery charges
Customers • • • • BSNL VSNL Reliance LG
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III.
Harsha Electronics Pvt. Ltd (HEPL) It was incorporated in 1990 for manufacture of spare parts of (cabinets,
Trays) • • • IV. UPS Battery Charges And to manufacture small parts of batteries Mangal Electronics Systems Pvt. Ltd It was started in the year 96-97 at Chittoor Dist. Products • • • V. Copper connectors, Copper inserts Hardware required by ARBL & ARPSL Amara Raja Electronics Pvt. Ltd.(AREPL)
Products • • Electronic card Power distribution for UPS
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Culture & Environment • • • Encourages initiative and growth of young talent Population, wastage, energy conservation, green belt development programmes Amara Raja is putting a member of HRD initiatives for all levels of employees. Mission and vision • • • • • • • Main vision is to audience customer satisfaction, share holders benefits and economic growth of orga., Manufacture and marketing of reliable power systems, batteries, allied products and services To meet the competition To be the leaders (globally) in batteries manufacturing sector Strong and well organized customer base Approved vendor status in major user segments. To work with honest purpose, strategic planning and enduring perseverance. Awards for ARBL ? “The Spirit of Excellence “ --- Awarded by academy of fine arts, Tirupati ? “Best Entrepreneur of the Year 1998”—Awarded by Hyderabad Management Association. ? “Excellence Award” – by institution of economic studies (ES), New Delhi
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? “Industrial Economist Business Excellence Award” – 1991 award by the Industrial Economist Chennai ARBL’s Future Plans • • • • Maximize export of its batteries Constant up gradation of productions. Stream of new models Constant stress of improving productivity
Mile Stones Year 1997 1998 1999 2000 2001-2002 Mile stone 100 cr. Turnover ISO-9001 Certificate QS – 9000 Certificate Increase volume of Automotive batteries Increased exports
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BOARD OF DIRECTORS OF ABRL
Name Address Chairman Board of Directors : Amara Raja Batteries Limited : Karakambadi (Village) Renigunta (Mandal) Tirupati – 517520 : Mr. Ramachandra N.Galla : Mr. Rama chandra N.Galla Mr. Jayadev Galla Mr. Upendranath .N Mr. Lakshmana Rao .P Mrs. Amara Kumari Galla Mr. Arthur F.Nennig.Jr. Mr. Mark L.Koczela Mr. Raymond J.Brown : Mr. V. Manohar : Mr. C.Rama Chandra Raju : Mr. T.Damodhar chowdary : Mr.P.Varadarajan : E.Phalguna Kumar & CO. M/s.Chevuturi Associates : SBI, Settipalli, Tirupati Andhra Bank, Tirupati SBH Tirupati : Chennai, Tirupati, Calcutta, New Delhi, Bangalore, Mumbai : Renigunta Road, Tirupati – 517520 : V.Gurappa Naidu
Finance G.M Accounts officer Personnel Manager Company Secretary Auditors Bankers Branches Registered Office Costing Manager
OBJECTIVES OF THE STUDY
Primary Objective To study about inventory management of AMARA RAJA BATTERIES LIMITED
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Secondary Objectives • • • • • • To examine the minimum , maximum EOQ levels To achieve better control on inventory by adopting ABC analysis To minimize the carrying cost of inventory To avoid both over stocking ad under stocking To reduce the investment on inventory To evaluate the re-order level for the raw materials
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• SCOPE OF THE STUDY
The study has been conducted to know the most suitable and economic maintenance of inventory for the amara Raja Batteries Limited The raw material is acquiring from abroad (Australia, Korea) as well as locally, and once the order is made it will take 1 month time to get the raw material (approximately)
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LIMITATIONS OF THE STUDY
• • The secondary data is given upto 6 months only The company is using more than 2000 raw materials it is difficult to analysis all the materials. For ABC analysis consumption only taken and EOQ main raw materials. • • The information provided by the various departmental heads The company is importing major raw materials from other countries (pure lead, separators, alloy), so they (HOD’s of finance department, costing department, purchased department) are not given the exact raw material purchase prices.
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METHODOLOGY The present study is based on both ? Secondary Data
Secondary Data Company balance sheets costing department HOD’s and purchase department HOD’s and previous records of the company For the purpose of material holding various inventory control tools have been used for arriving material at stock levels eg. ABC analysis for all the raw materials control • EOQ for main raw materials.
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INVENTORY MANAGEMENT Every organization (or) enterprise needs inventory for the smooth running of its activities, it is a link between production and distribution process. Inventory constitute the most important part of current assets. It is approximately 60 to 65% of current assets in public limited company’s in India. So that it is very essential to name a proper control and management on inventories, for that every organization must maintain the availability of required materials in sufficient quantity as and when required and also to minimize inventory investments. Inventory consists of the following Raw materials Work-in-process Finished goods
Raw Materials These are basic inputs that are converted into finished products. Work-in-Progress These are semi-manufactured products
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Finished Goods Inventories are those completely manufactured products which are ready to sale and to use. Need of Inventory Every firm must maintain adequate inventory or its smooth running of the business and to give the competition to our competitors and not to loss of customers and business for that purpose maintenance of adequate inventory is must. • • • To facilitate smooth production and sales operations To face the risk of variation in demand and supply To face the price changes in inventory and quantity discounts.
Inventory Holding Holding of inventory involves blocking of a bring funds and the costs of storage and handling Holding of inventory helps in separating the process of purchasing, producing and selling. In case a firm does not hold sufficient stock of raw materials, finished goods etc., the purchasing of raw materials would taken place only when the firm receives the order form a customer. It may result in delay in executing the order because of difficulties in obtaining raw materials, finished goods etc., thus inventory provides caution so that purchasing, production and sales functions can proceed at optimum speed.
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There are three main purposes or motives of holding inventory. 1. orders. 2. Precautionary Motives Holding of inventory for meeting the unpredictable changes in demand and supplies of materials. 3. Speculative Motives To keep inventory for taking advantage of price fluctuations, saving in the reordering costs and quantity discounts etc., BENEFITS OF HOLDING INVENTORY 1. 2. 3. 1. Avoiding losses of sales Reducing ordering costs Achieving efficient production live/ runs Avoiding loss of sales If we maintain sufficient stocks, when over the order will come automatically the production will stores and there is no loose of customers. 2. Reducing Ordering Costs Typing, checking, approving and mailing the order etc., can be reduced if la firm place a few orders. The Translate Motives Which facilitates continuous production and timely execution of sales
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3.
Efficient Production runs Maintenance of large inventories helps a firm in reducing the set-up costs
associated with each product line. For Eg: If the set up cost is Rs.100 to produce 200 units the cost per units is Rs.0.5 in case the production is increased 400 units the cost P/U is 0.25 RISKS ASSOICATED WITH INVENTORY HOLDING 1. 2. 3. 1. Prices of products will decline Product deterioration Obsolescence Prices Decline This may be due to increase in the market supply of the product,
introduction of a new competitive product, price cutting by the competitors. 2. Product Detioration This may be due to holding a product for too long period or improper storage conditions. 3. Obsolescence This may be due to change in customers taste.
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COST OF HOLDING INVENTORY ARE AS FOLLOWS 1. 2. 3. 1. Materials cost Ordering cost Carrying cost
Materials cost This includes the cost of purchasing the goods, transportation and handling
charges. 2. Ordering Cost The variable cost associated with placing an order for the goods 3. Carrying Cost The expenses for storing the goods. ESSENTIAL OF GOOD INVENTORY HOLDING SYSTEM 1. 2. 3. 4. 5. 6. 7. Classification and codification of inventory by allotting proper code numbers to each item and group and regroup on some basis. Adequate storage facility Standardization and simple fiction of inventory in order to maintain quality and reduce the no. of items Setting different levels and reorder point for each item of inventory Fixing economic order quality Maintain adequate inventory records and reports and statements. Experienced personnel for handling inventory properly.
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DATA ANALYSIS AND INTERPRETATION Data Analysis Analysis the inventory holding using the following techniques • • • ABC Analysis (Control Mechanism) EOQ Control Levels CONTROL MECHANISM For Inventory Holding Usually the firm has to maintain several types of inventories, it is not desirable to keep same degree of control on all item the firm should pay maximum attention to the see items whose is the highest value. The firm should therefore classify inventory to identify which item should receive the most effort in controlling. Te firm should be selective in it approach to control inventory holding in various types of inventories. This analytical approach is called the ABC analysis, and tends to measure the significance of each item of inventories in terms of its value.
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I.
ABC Analysis ABC analysis or classification which is said to be “Always better control”.
This ABC analysis is firstly organized in the “General Electric Company” of USA. In this the items are classified in the importance of their relative value. This is also known as proportional value analysis (PVA) or annual usage value analysis (AUV). In this, the higher value items are classified as “A items” and would be under the tightest control. “C items” represents relatively least value and would be under simple control “B items” fall in between tense two categories and require reasonable attention of management. RULES FOR IMPLEMENTING ABC TECHNIQUES • • • • • • Classify the items of inventories Determine the expected use in units over a given period. Determine the price per unit of each item Find the total cost of each item. Rank the items in accordance with total costs allotting first rank to the item with highest total cost and so on (i.e., arrange in descending order). Find our the total no. of items and calculate the percentage of each item.
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Calculate the percentage of total cost of each item to total cost of all items Combine items on the basis of their relative value of form three categories A,B,C
“A” items is having high consumption value (eg.-15%) “C” items having low consumption value ( eg – 55%) “B” items having moderate consumption value ( eg. – 30%)
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Note: The above classification has been made arbitrarily on the basis of selection control as assumed above. The assumes are as follows • • • For “A” class items is 17 lakhs and above For “B” class items is 2 lakhs to less then 17 lakhs For “C” class items is 0 to less then 2 lakhs In this”0” (Zero) means fractions like 0.222 or 0.423 etc., The same diagram can also interpret in the following way. “A “ class items “B” class items “C” class items = = = Value is 72% Quantity 1% Value is 16% Quantity 4% Value is 12% Quantity 95%
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But “A B C” analysis can also analysis according to the A.B.Thomas method. This is as follows: Step – 1 : Average cost per item The formula is Total cost --------------No. of total items
Here:Total cost is = 6,54,53,352 Rs. Total items (Consumed only ) = 678 items 65453335 --------------- = 96538.867 678
The formula is
According to A.B.Thomas, if the average consumption per item is multiplied by 2 it gives cut-off-point b/w A class and B ie., 96538.867x2 = 1,93,077.7345 and above are – A Class items Step – 2 Half of the average consumption will give cut-off point b/w B and C class items = 96538.867/2 = Rs. 48269.4338 below Rs.1,93,077 and above 48,269 are “B” class items Step – 3 Less then Rs.48,629 are “C” class items
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EOQ The effective inventory management requires all effective control over
inventories. Inventory control refers to a system which ensure supply of required quantity and quality of inventory at the required time and at the same time prevent unnecessary investment in inventory is required for hat quantity, for which the order should be placed is one of the important problems concerned with reference to inventory management. Economic order quantity refers to the size of the order which gives maximum economy in purchasing any item of raw material. • • Ordering Cost Carrying Cost
Ordering Cost It is the cost of placing all order and securing the supplies order costs depends upon the no. of orders palced and a no. of items ordered at a time Higher will be the ordering cost when frequent order are placed and vice versa. Carrying Cost It is the cost of keeping items in stock
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Eg: Are • • • • Interest on Investment Obsolesce losses Store-keeping costs Insurance etc., The large volume of inventory the higher will be the carrying cost and viceversa. Formula for EOQ 2 x Annual consumption in units x cost per order EOQ --------------------------------------------------------Price per unit x carrying cost expressed As a % of total investment in inventory Demand of products for 6 months period (from 2003/April to Sept, 2003) Raw material 1. Pure Lead 2. Alloy 3. BMJK - 1440 Separator (NIPPON) P/ Unit Rs. Quantity (Kgs) Total Value 37.526 17,96,004 6,73,96,846 40.52 4,85,082 1,96,55,523 377.32 52,866 1,99,42,113
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Ordering Cost Purchasing Dept. Exp (Salaries )(P.A) Collection Cost (P.A) Inspection Cost (P.A) Building Depreciation (P.A) Miscellaneous (P.A) * * * * * 8,70,000 30,000 22,000 10,000 5,000 9,37,000
Transport Charges Lead Alloy Separators 5,55,000 4,25,000 9,25,000 19,05,000 Calculation of per unit order cost Raw materials No. of order the company is Lead Alloy Separators placing at present 25 15 10 % in the inventory cost of “A” items 20% 15% 12% 187400+55000/25=29696 140550+425000/15=37703 112440+925000/10=103744 Order cost per order
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Carrying Cost Stores personnel exp Obsolesce Material islanding in stores 7,42,560 40,500 5,60,200 13,43,260
Lead (Per Unit carrying Cost) Carrying cost 1343260x 20/100 = 0.1495
Bank Interest
37.50 x 11.50/100
=
4.31
Insurance @ 2%
1796004x 37.50 = 67350150 x 2 = 1347003/1796004 = 0.72
Alloy (Per Unit carrying Cost) Carrying cost Bank Interest Insurance @ 7% 1343260x 15/100 40.52 x 11.50/100 485082x 40.52 x 7/100 = 1375886.58/485082 Separators (Per Unit carrying Cost) = 2.8363 = = 0.4153 4.6898
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Carrying cost Bank Interest Insurance @ 2%
1343260x 12% 52866 377.22 x 11.50% 52866x 377.22 = 19942113 x 20% = 398842.25 52866
= =
0.4153 43.3803
=
7.5444
Carrying cost and order cost per unit of all the raw materials Order Cost P/U 29696 37703 103744 Carrying Cost P/U 5.17 7.89 53.96
Lead Alloys Separators
6 months demand of the 3 raw materials Lead Alloys Separators 1796004 485082 52866
Calculation of EOQ for all the three main raw materials. • • • Lead Alloy Separators
1. Lead
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Total demand Ordering cost P/O Carrying cost P/O Company’s orders
1796004 29696 5.17 25
2 x 179004x29696 EOQ ---------------------5.17
= 143638.99 Kg
1796004 --------------143638.99 = 12.50 or 13 orders
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EXPENDITURE @ VARIOUS LEVELS OF ORDERS FOR LEAD
No. of orders 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Consumption 1796004 898002 598668 449001 359201 299334 256572 224500 199556 179600 163273 149667 138154 128286 119734 112250 105647 99778 94527 89800 85524 81636 78087 74833 71840 69077 Average Carrying cost Ordering cost 29696 59392 89088 118784 148480 178176 207872 237568 267264 296960 326650 356352 386048 415744 945440 475136 504832 534528 564224 593920 623616 653312 683008 712704 742400 772096 Total Cost 4672366 2380727 1636645 1279451 1077014 951954 871111 817901 783776 761226 748711 743241 743176 747363 754951 765302 777930 792454 808576 826053 844695 864341 884862 906147 920106 983378
17926004/2 (898002x5.17) 898002 4642670 449001 2321335 299334 1547557 224501 1160667 179600 928534 149667 773778 128286 663239 112250 580333 29778 515852 89800 464266 81637 422061 74834 386889 69077 357128 64143 331619 59867 309511 56125 290166 52824 273098 49889 257926 47264 244352 44900 232133 42762 221079 40818 211029 39043 201854 37416 193443 33920 185706 34539 178564
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2. Alloy Total demand Ordering cost P/O Carrying cost P/O Company’s orders 485082 37703 7.89 15
2 x 485082x 37703 EOQ ---------------------7.89
= 68088 Kg
4850824 --------------68088 = 7.124 orders or 7 orders
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EXPENDITURE @ VARIOUS LEVELS OF ORDERS FOR ALLOY
No. of orders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Demand 485082 242541 161694 121271 97016 80847 69297 60635 53898 48508 44098 40424 37314 34649 32338 30318 28534 Average 485082/2 242541 121271 80847 60635 48508 40423 34648 30317 26949 24254 22049 20212 18657 17325 16169 15159 14267 Carrying cost (242541x7.89) 1913648 956828 637883 478414 382728 318941 273376 239205 212627 191364 173966 159472 147203 136690 127573 119604 112566 Ordering cost 37703 75406 113109 150812 188515 226218 263921 301624 339327 377030 414733 452436 490139 527842 565545 603248 640951 Total Cost 1951351 1032232 750992 629226 571243 545159 537297 540829 551954 568394 588699 611908 637342 664532 693118 722852 753517
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Separators Total demand Ordering cost P/O Carrying cost P/O Company’s orders 52866 103744 53.96 10
2 x 52866x103744 EOQ ---------------------53.96
= 14257 Kg
52866 --------------14257 = 3.7 or 4 orders
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EXPENDITURE @ VARIOUS LEVELS OF ORDERS FOR SEPARATORS
No. of orders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Consumption Average 458082/2 52866 26433 17622 13217 10573 8811 7552 6608 5874 5287 4806 4405 4067 3776 3524 26433 13216 8811 6608 5286 4005 3776 3304 2937 2644 2403 2203 2033 1888 1762 Carrying cost (26433X53.96 ) 1426324 792461 475441 356594 285259 237726 203752 178283 158480 142643 129666 118847 109727 101876 95077 Ordering cost 103744 207488 311232 414976 518720 622464 726208 829952 933696 1037440 1141184 1244928 1348672 1452416 1556160 Total Cost 1530069 999949 786673 771570 803979 860184 929960 1008235 1092176 1180083 1270850 1363775 1458399 1554292 1651237
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III.
STOCK LEVELS Carrying of too much an too little of inventory’s is determine the firm. If
the inventory is too little, the firm will face frequent stock-outs involving heavy ordering cost, for that the firms should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss of sale or stoppage of production Various stock levels are discussed below 1. 2. 3. 4. 1. Minimum Level Maximum Level Re-order Level Average Level Minimum Level
This represents the quality which must be maintain in hand at all times. I the stocks are less than the minimum level then the work will stop due to shortage of materials.
The following factors are taken in to account while fixing minimum stock level. 1. 2. 3. Lead time Rate of Consumption Nature of materials.
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Lead Time
The time taken in processing the order and then executing it is known as lead time.
Rate of Consumption
It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past experience and production plans.
Nature of Material It a material is required only against special orders or the customer then minimum stock will not be required for such material. Formula Min. Level = ROL – [Average Consumption Average Re-order Period ] Re-order Level Re-order level is being between minimum level and maximum level Re-order level is determined by taking into account the suppliers discount, rate of consumption, storage cost, price of the material etc. Formula
ROL = (25%) Maximum Consumption x Maximum Re-order period.
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Maximum Level It Is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be over stocking, it will cause high material cost, blocking of more working capital, more space for storing the materials, more wastage of materials etc., maximum stock level depend upon the following factors. • • • • • Availability of capital Availability of space for storing Rate of consumption of materials during lead time Cost of maintaining the stores Availability of materials
(If the materials are available only during some seasons then they will came to be stored for the rest of the period) Formula Max. Level = Re-order level + EOQ – [Min. Consumption x Min. Re-ordering Period] Average Stock Level The average stock level is calculated as such Formula Min. level + Max. Level -----------------------------
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2 Re-Order Level ROL = Max. Con. (25%) x Max. Re-order Period 1796004 Lead = ----------- = 11973 x 25% 150 Days = 2993 = (11973+2993) 60 Days = 8,97,960 485082 Alloy= ----------- = 3234 x 25% 150 Days = 809 = 3234+809 x 55 Days = 2,22,365 52866 Separators= ----------- = 352 x 25% 150 Days = 88 = 352+88 x 37 Days = 16,284
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Note: 6 months data only 6 x 25 days P/M = 150 Maximum Level Mix. L = ROL +EOQ –[Min. Consumption x Min. Lead time] Lead = = Alloy = = = Note: Min. consumption is taken as per the guidance of costing HOD. Ie., 8567 for lead 1725 for alloy, 275 for separators. Minimum Level Min .L Lead = = Alloy = = = Note: = ROL[Average consumption x Average Re-order Period] 89760-[11973 x 48] 323256 222365-[3234 x 45] 76835 5372 897960+143639-[8567x 35] 454476 222365+68088-[1725 x 35] 230078 23,666
Separators= 16284+14257-[275x25]
Separators= 16284-[352 x31]
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Average cons. Is taken as per the guidance of costing HOD for his suggestion average cons. Is equal to max. consumption
Average Level
Min. level + Max. Level Avg = ----------------------------2 230078+76835 Alloy = ------------------2 454476+323256 Lead = ------------------2 23666+5372 Separators = ------------------2 Lead Time Raw material Lead Alloy Separator Time for order 25 20 12 Order to receive 35 35 25 Min days 35 35 25 60 55 37 Max = 14519 = 388866 = 153457
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Note: Time of order and order to receive is given by the purchased department. FINDINGS 1. Company can save lot of resources if it goes as per EOQ in almost all the raw materials. Inventory Lead Alloy Separators 2. 3. EOQ 743176 537297 771570 Actuals 920106 693118 1180083 Difference 176930 155821 408513
The company is maintaining more stock of raw materials because of main raw materials are importing form outer countries. In raw materials list there are very few items of “A” class and “B” class but they give a equal priority for all the raw materials and they the inspection and stores check before receiving the materials are equal to all the raw materials
4. 5. 6. 7.
Carrying cost of separators is high then compared to other raw materials The company importing the main raw materials because of to give good quality of goods Suppliers are not willing to give small quantity ( as per EOQ) The control levels of inventory are not maintained accurately.
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SUGGESTIONS 1. The company should also concentrate in local markets for procuring the main raw materials, because to maintain the EOQ and reduce the imports. 2. For imported Lead, Alloy, Separators, maximum stock is to maintain because of if any fluctuations in priceses and fluctuations in rupee exchange value. 3. The company should always review the A-class items periodically and see that those materials will move fastly. 4. Man power will be reduced by using computers in stores Departments and latest machinery in plant. 5. Carrying lost of separators is to be reduced by way of reducing the insurance and bank interest. 6. Re ordering should be done only after considering the maximum, minimum and the average levels of the inventory.
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CONCLUSION
Inventory management is an important activity in Manufacturing Concern. And since the production of batteries Involves different raw materials like lead, Alloy, separators, etc., and all these raw materials have to be procured from different places, inventory management plays important role in the industry. As far as ARBL is concerned, a proper maintenance of EOQ, availability of stocks, procurement of raw materials. When the company has to concentrate more in the inventory management, so that the production may increase and the level of shortage decreases and the products as made reality available to the customers.
The company can also consider the suggestions and recommendations, which are actually based on the analysis made, for the battlement of the company.
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BIBLIOGRAPHY
S.NO.
Title of the Book
Author Name I.M.PANDY I.M.PANDY R.K.SHARMA & SHASI K.GUPTHA
1. Financial Management 2. Management Accounting 3. Management Accounting & Financial Analysis
4. Website
www.amararaja.com
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