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CHAPTER - I

INVENTORY MANAGEMENT

INTRODUCTION:

Inventory from a considerable part of current assets in private limited companies in

INDIA and if constitute the most significant part of the current assets. Because of large
inventory maintained by firms considerable amount of funds in required to commit to them.

Inventory control refers to a planned method of purchasing and storing the materials
at the lowest possible cost without affecting the production and distribution schedule.
Inventory which comprise of raw materials, consumables stores, machinery and equipment,
general store, work in progress and finished good are to be purchased and stored. Inventory
control, therefore, is a scientific method of determining what, when and how to purchase and
how much to have in stock for a given period of time.

In past, industry used reactive inventory control system such as the order quantity,
reorder point system as the mainstay, ignoring the distinction between depend and indenting
demand. More recently, however, we have learnt that inventory planning systems such as
MRP are most beneficial than reactive system for dependent item. We do not need huge
safety stocks for dependent demand items because we usually known exactly how many will
of dependent demand items in advance. The MRP systems use accurate information about
components.

Information on stocks is required by the production department so that they can

schedule workloads: decide on the number of shifts for workmen and machine usage.
Information on finished goods is required by the marketing department to enable them to
decide whether customer requirement can be fully met or not.

Inventory is stock of physical good held at a specific time. Each distinct item in the
inventory at a location is termed stock keeping units, and each skill has a number of units in
stock. Each location is a stock point.
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Every enterprise needs inventory for smooth running of its activities. It serves as a
link between production and distribution processes. There is, generally, a time lag between
the recognition of a need and its fulfilment. The greater the time lag, the higher the
requirement for inventory. It also provides a cushion for future price flection.

The investment is an inventory constitutes the most significant part of current

assets/working capital in most of the undertakings. Thus, it is very essential to have proper
control and management of inventories. The purpose of inventory management is to ensure
availability of materials in sufficient quantity as and when required and also to minimize
investment in inventories.

Meaning of Inventory:

Inventory management is a very important function that determines the health of the
supply chain as well impacts the financial health of the balance sheet. Every organization
constantly strives to maintain optimum inventory to be able to meet its requirement and avoid
over or under inventory that can impact the financial figures.

Inventory is always dynamic inventory management requires constant and careful

evaluation of external and internal factors and control through planning and review. Most of
the organization have a separate department or job function called inventory planners who
continuously monitor, control and review inventory and interface with production,
procurement and financial department.

Definition of Inventory Management:

Inventory management refers mainly to when a firm strives to attain and uphold an
optimal inventory of goods while also taking note of all orders, shipping and handling and
other associated costs.

Gareth and Silver (1973) defined inventory as an ideas resource of any kind that
possesses economic value. It includes physical goods, stock, pile of managerial and personal
information, cash and production equipment. It is a list or schedule of articles, human or
material resources that are needed in production process.
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Inventory Classification:

Inventory may be classified as follows:

Inventory are stock of the company is manufacturing for sale and components that
make up the products. The various forms in which inventories exist in a manufacturing
company are

(A)Raw Material:

Raw material is those basis inputs that are converts into finished goods through
manufacturing process. Raw material inventories are those units, which will purchase and
stores for future production.

(B)Work-In-Progress:

Work-in-progress inventories are semi manufactured product. They represent products

that needs more work before they becomes finished products for sale.

(C)Finished goods:

These are completely manufacturing products which are ready for sale. Stock of raw
materials and work in progress facilitates production while stock of finished goods is required
for smooth marketing operation.

(D)Supplies:

All the materials needed for the operation of the plant that are not used as parts of the
finished product are classified as supplies. Lubrication oils, sweeping compound, light bulbs
and many other items fall into the supply category.

(E) Purchased Parts:

This classification of inventory includes is applied to component parts of the product

that need no additional processing before being assembled into the finished product. In some
cases, the materials may be classified as raw material inventory. More times than not,
however a separate classification is justified. The TV picture tube that is the finished product
of one manufacturer becomes a purchased part to the television set manufacturer.
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Different Types of Inventory:

Inventory of material occurs at various stages and department of an organization.

A manufacturing organization holds inventory of raw materials and consumables required for
production. It also holds inventory of semi-finished goods at various stages in the plant with
various department. Finished goods inventory is help at plant, FG stages distribution centres‟
etc. Both raw material and finished goods those that are in transit at various locations also
form a part of inventory depending upon who owns the Inventory at the particular juncture
finished goods inventory is help by organization at various stocking points dealers and
stockiest unit in the market end customers

Besides raw material and finished goods, organization also holds inventories of
spare parts to service the products. Defective production, part and scrap also forms apart of
inventory as long as these items are inventoried in the company and in the company and have
economic value.

Management of Inventories:

Inventories constitute the most significant part of current assets. A major part of
working capital is inventories. It is, therefore, necessary for the management to give proper
attention to inventory management. A proper planning of purchasing, handing storing and
accounting should from a part of inventory management. An efficient system of inventory
management will determine.

A. What to purchase
B. How much to purchase
C. From where to purchase
D. Where to store etc.

Hence, it is rightly observed „good inventory management is good financial

management‟.

There are conflicting interests of different departmental heads over the issue of
inventory. Production manager will be interested in purchase of more inventory as he does
not want any interruption in production due to shortage of inventory. The financial manager,
on the other hand, will try to invest less amount in inventory because for him it is an idle
inventory. It is therefore, the prime responsibility of the financial manager to have proper
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management and control over the investment in inventories so that it is not unprofitable for
the business.

Meaning of inventory control:

Material control is a system which ensures required quantity of material of the

required quality at the right time and place with minimum investment of capital. It may be
defined as, “The regulation of the functions of an organization relating to procurement,
storage and usage of materials in such a way as to maintain an even flow of production
without excessive investment in material stock”.
An efficient material control system can improve the input output ratio. It is an effective
integration of various aspects and includes scheduling the requirements, purchasing,
receiving and inspection, maintaining stock records and stock control. Material control is
accomplished through periodical reports and records relating to purchasing, receiving,
inspection and issue of materials. It is also affected by establishment of functional
organization and fixation of responsibilities through standard forms of accounting records
and reports.

The need of inventory control:

The necessity of inventory control is to maintain a reserve or goods that will ensure
manufacturing according to a production plan based on sales requirement and the lowest
possible ultimate cost losses from improper inventory control include purchase in excess than
and what needed the cost of slowed up production resulting from material not being
available, when wanted. Each time a machine must be such down for lack of materials or
each time must be postponed or cancelled for lack of goods. Thus factory loses money.

Functions of inventory control:

 To run the store effectively. This includes layout, storing media utilization of storage
space, receiving and issuing production etc.
 To ensure timely availability of material and avoid of stock levels.
 Technical responsibility of the state of material. This includes method of storing,
maintenance procedures, studies or deterioration and obsolescence.
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 Stock control system physical verification, maintenance of records, ordering policies

and procedure for the purchase of goods.
 Maintenance of specified raw materials general supplies, work-in-progress and
component part in sufficient in quantities to meet the demand of production.
 Protecting the inventory from losses due to improper handling and storing of goods
and unauthorized removal from stores.
 Pricing all materials supplied to the shops so as to estimate material cost.

Advantages of inventory control:

o It creates buffer between input and output.

o It ensure against delays in deliveries.

o It allows for public increase in output.

o It allows advantages of quantity discounts.

o It ensure against scarcity of material in the market.

o It utilizes the benefit of price flection.

TECHNIQUES OF INVENTORY MANAGEMENT:

The following are the main techniques of material control

 ECONOMIC ORDER QUANTITY (EOQ)

 HIGH, MEDIUM AND LOW (HML)
 JUST IN TIME (JIT)
 ALWAYS BETTER CONTROL (ABC)
 FAST MOVING, SLOW MOVING AND NON-MOVING (FSN)
 VITAL ESSENTIAL DESIRABLE (VED)
 FIRST IN FIRST OUT METHOD (FIFO)
 LAST IN FIRST METHOD (LIFO)
 MIN-MAX METHOD
 PERPETUAL INVENTORY SYSTEM
 DETERMINATION OF STOCK LEVEL
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EXPLAIN THE TECHNIQUES OF INVENTORY MANAGEMENT:

ECONOMIC ORDER QUANTITY (EOQ):

It is a level to be ordered when the stock reaches the minimum level recorded
quantity is such that when it is added to be minimum stock, it should not exceed the
minimum level. It is the quantity of inventory which can be reasonable ordered at a time and
purchased economically.

It is also known as standard order quantity, optimum quantity or economic lot

size. It means that the total cost is at minimum. The problem is now to buy at a time. In case
large quantities are to be purchased the cost of carrying the inventory is high. This includes
interest on the hand, for frequently purchase in small quantities the cost is high-short of
materials loss of sale, increased buying expenses such as stationery postage etc.

FORMULA EOQ=SQUAREROOT OF 2AB/C*S

EOQ= ECONOMIC ORDER QUANTITY
A=ANNUAL ORDER QUANTITY
B=BUYING COST PER ORDER
C=COST PER UNIT
S=STORAGE AND CARRYING COST

DETERMINATION OF STOCK LEVELS:

 MAXIMUM LEVEL:
Maximum level represents the level beyond which the stock of inventory on hand is
not allowed to exceed. This main object of fixing the maximum level is to over
stocking of inventories which will erode the working capital. This level should be
fixed after taking into consideration the lead time stock torn. Storage capacity nature
of commodity, available of funds and marketing condition of the following formula
used.
MAXIMUM LEVEL= (RE ORDER LEVEL + RE ORDER QUANTITY) –
(MINIMUM CONSUMPTION * MINIMUM DELIVERY PERIOD)
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 MAXIMUM STOCK LEVEL:

Minimum stock level is that of inventory when fresh inventories are excepted to
arrive from the supplier. This level is the cushion stock or the margin of safety, which
is used except when the delivery period is exceeded to cross normal circumstances in
the factory.
Precautionary measure should take to replenish supply before this is crossed. This
factory fixed minimum level followed formula.
MAXIMUM STOCK LEVEL = (RE ORDER LEVEL – (NORMAL
CONSUMPTION * NORMAL RE ORDER LEVEL)

 RE – ORDER LEVEL:
The re-order level system order for fresh consignment are placed whenever the
available stock reduced to pre-fixed quantity called re-order level. This is normally
the point buying between the height that the maximum level following formula
REORDER LEVEL = MAXIMUM CONSUMPTION * MAXIMUM RE ORDER
PERIOD.

 AVERAGE STOCK LEVEL:

The followed formula may help in calculation the average stock level help by the
organization at given period of time.
AVERAGE STOCK LEVEL = MAXIMUM LEVEL + MINIMUM LEVEL * ½.

 SAFETY STOCK LEVEL:

A minimum amount of stock is always desirable in the inventory system. This against
run out the stock necessary is called not requirement much invest and the number of
such items is large the materials which have moderate value may be market (b).

STOCK ITEM PERCENTAGE OF PERCENTAGE OF

TOTAL INCOME MATERIAL COST
A 7-10 70-80
B 15-20 20-25
C 60-70 5-10
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Again the high cost items may represent 70-80 percentages of the total cost but
their number may be, say 7-10 percentages under “A” some items constitute 15-20
percentages may be 20-25 percentages of the items of all under group :B: the rest of the items
have low value but represent large of items under group “C”. These groups will facilitative
the management to exercise to control on the basis of value of material.

JUST IN TIME (JIT) INVENTORY SYSTEM:

The just in time inventories control system, originally developed by Tahiti ok no of

Japan, simply implies that should maintain a minimum level of inventory and rely on
suppliers to provide parts and components just in time to meet its assembly requirement. This
may be constructed with the traditional inventory management system which calls for
maintaining a healthy level of safety stock to provide a reasonable protraction against
uncertain of consumption and supply.

ABC ANALYSIS:

The object of carrying out analysis is to develop policy guidelines foe selective control.
Normally once ABC analysis has been done the following broad.

Policy guideline can be established of each category.

Color cording is identifying A, B and C categories in stores. Usually red is used for A
items. Pink is used for B item and blue is used for C item.

A items merit a rightly controlled inventory system with constant attention by the
purchase and stores management. A large effort per item on savings B item merit a
formalized inventory system with periodic attention by the purchase and store management.
C items use a simpler system designed to cause the lease trouble for the purchase and stores
department, perhaps even at the cost of title extra inventory cost. It is also common to further
subdivide A item as A1 and A+ and A- and similarly categories for B items exist for
exercising fine control.

XYZ ANALYSIS:

This is based on value of inventory stored if the values are high, special efforts
should be made to reduce them. This exercise can be done once a year. Items classified as X
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denotes high inventory value. Items classified as Y and Z denotes medium and low inventory
respectively.

F N S CLASSIFICATION:

This classification takes into account the pattern of issues from stores. The stand for
fast moving, slow moving and no moving this classification comes in very handy when we
desire to control obsolescence. Items classified as S and N requires attention. Especially N
items require further attention. There may be several reasons why items have got into N
category. There may have been a change in the specification or a particular spare part. When
a FSN classification is made, all such information stands out prominently, enabling managers
to act it in the best interest of the organization.

V E D CLASSIFICATION:

V E D stands for vital, essential and desirable. This type of classification is

application mostly in the case of spare parts is that do not follow a predictable demand
pattern as in the case of raw materials. The result is that if we follow the usual methods
outline earlier, we might get in to difficulties when the demand pattern suddenly changes. For
example, the older a machine gets, the greater will be the spares required for the maintenance.
Hence, past trends to throw much light on stocking policies. To get over this difficulty, VED
classification is used. Here the categorization is made in terms of importance or critically of
the part of the operation of the plant. If it is given a V classification if an item is important it
is classified as E item. If it is given a D classification how such a classification is done? This
purely depends on the machinery or equipment involved and one‟s own experience, case of
availability of the parts, etc.

LAST IN FIRST OUT METHOD:

The principle of adopted is that the materials used in production is the latest. The
inventory in précised at the oldest costs as the method applies the current cost of materials to
the cost units it is also known as the replacement cost method. It is most significant method in
matching cost with revenue in the income determination procedure.
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FIRST IN FIRST OUT METHOD (FIFO):

This method assumes that materials which are received in successive into are
placed on the top of the accordingly issues under this methods are proposed to receive in
other words the first lot that comes in a should are accordingly when issued first then the
pricing unit the whole lot is exhausted then the cost of the second lot and so on.

MIN – MAX METHOD:

Under this technique, each item of material is fixed with its maximum and
minimum levels. When the quantity reaches minimum level, an order is placed for such a
quantity as would make the inventory reach its maximum level.

PERPETUAL INVENTORY SYSTEM:

C.I M.A has defined perpetual inventory system as “a system of records

maintained by the controlling department, which reflects physical movement of stocks and
their current balance”. In other words, it is a technique of controlling inventory by
maintaining stock records such as bin cards in stores ledger in accounts, in such a manner that
the stock balance is available at any point of time.
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1.1 OBJECTIVES OF THE STUDY:

1.1.1 Primary Objective:

 To know the status of ordering and carrying cost.

 To find out how much funds are blocked in unwanted inventory and minimize it.
 To know about the inventory system of the company.
 To suggest optimum level of inventory and order level.

1.1.2 Secondary Objective:

 To study existing inventory system.

 To maintain an optimum level of inventory and to see what is the level of buffer stock
that is to be maintained.
 To find out any inventory audit is conducted at regular internal or not.
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1.2 LIMITATIONS OF THE STUDY:

 The result is confined to this organization only. So the result of this study is not
application to the industries.
 Analysis is purely on secondary data.
 Time and cost is the limiting factors.
 Result arrived only for a specific period.
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1.3 IMPORTANCE OF THE STUDY:

 The importance of inventory control management cannot be overemphasized in this

complex industrial world.
 One of the most important aspects of inventory control is to have the items in stock at
the moment they are needed. This includes going into the market to buy the goods
early enough to ensure delivery at the proper time. Thus buying requires advance
planning.
 It affects not only a particular industry but the entire economic activity of a whole
nation.
 Reduction in the materials cost by about 5 percentages is always possible through an
efficient management of materials.
 Evidences are there to prove that skilful and imaginative management had been able
to save even more than 5 percentages of the total cost of the final product.
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COMPANY PROFILE
TAMIL NADU SALT CORPORATION LIMITED
(A Government of Tamil Nadu Enterprise)

INTRODUCTION:

Tamil Nadu Salt Corporation Limited herein referred to as TNSC Ltd, was
registered under the Indian Companies Act 1956 as a Company with the Registrar of
Companies, Tamil Nadu on the 22 nd July of 1974. It was registered as a Company with the
entire shareholding being held by the Government of Tamil Nadu and TNSC has been
continuing to be a wholly owned Government of Tamil Nadu Undertaking.

TAMIL NADU SALT CORPORATION LIMITED

Registration date 1974/07/22(year/month/date)

Buyer/Seller in Salt Seller
Business Type Salt Manufacturer
Year established 1974
Total Employee Above 1000
Annual revenue 100,000,000
Address Corporate Office (OR) Head Office:
LLA Building, 735, Anna Salai, IVth floor,
Chennai – 600 002.
Manufacturing Office:
Mariyur Valinokkam Salt complex (MVSC)
Unit – 1
Valinokkam Post (Via) Sikkal,
Kadaladi Taluk,
Ramanathapuram Dist – 623528.
Unit – 2
Fortified Salt Project
Valinokkam,
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Ramanathapuram Dist – 623528.

Phone 91-44-28418344, 28522708
Fax 28525846
Homepage www.tnsalt.com

TYPE OF SALT:

There are four type of salt Manufacture in TAMIL NADU SALT

CORPORATION LIMITED following there,

 Industrial Grade Salt.

 Iodised Salt.
 Double Fortified Salt.
 Brittan.

LOCATION:

TNSC is a fully owned enterprise of the Government of Tamil Nadu, established

during 1974 at Valinokkam in Ramanathapuram District, Tamil Nadu.

Salt is cultivated in an area of 5524 acres of land and the project is called Mariyur
Valinokkam Salt complex (MVSC).

TNSC is having a capacity to produce 2 to 2.5 lakhs tonnes per annum by developing
around 3200 acres of land and providing employment to 1200 of workers on direct / indirect
system.

TNSC is developing the additional area of 2320 acres in its unit at Valinokkam from
April 2011 onwards as per Go. MS. No. 48 Industries (MIF2) Department, dated 22.02.2011.
TNSC will achieve a production of about 3.5 to 4 lakhs tonnes/year in addition about 1000
additional local workers will be benefited by this project.

MVSC is located on the east coast road from Ramanathapuram to Tuticorin at

distance of 90 Kms from Tuticorin sae port and 120 Kms from the nearest Airport at
Madurai.

Nearest Railway Station is at Ramanathapuram at distance of 45 Kms from our

Project.
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SCHEMES:

Manufacturer and Seller of high quality Industrial Grade Salt to Chemical Industries.

Manufacturer and distribution of Crystal iodized Salt, Refine free flow salt throw fair
trade shops of Co-Operative departments and civil supplies throughout Tamil Nadu.

Manufacturer and distribution of double fortified crystal salt to Puratchi Thalivar PTR
MGR Scheme for school going children‟s in TN.

Manufacturer and distribution of Double Fortified Salt to various states Government

schemes

AIR Live Programme with the help UNICEF

TNSC conducted Iodization awareness programme through FM Radio Network, AIR

Station in Tamil Nadu.

The programme were held during Oct 12 – Dec – 12

One Hour programme was conducted between 5pm – 6pm. Four such programme per
month.

M/s UNICEF, totally sponsored the FM radio programme.

School children‟s were participated, highlighting the uses of Iodised salt.

Precision also participated and gave valuable feed backs on usage of Arasu Iodised
Salt.

Company Officials P.K.DilliKumar GM I/c, Thiru M.Subramanian Manager

(Marketing), Thiru P.T. Dayanandan Company Secretary, Thiru M.Madhavan Deputy
Manager (Marketing), Thiru Prem Anand (P&D) are also participated.

They were interacted with peoples on behalf of TBSC and shared the highlights and
important of usage of Iodized salt among common public especially pregnant women‟s,
children‟s.

M/s UNICEF also coordinate with the government schools and organizing children
camp on usage of Iodized salt.
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The programme was well received by the public.

THE TNSC WAS ESTABLISHED WITH THE MAIN OBJECTIVE:

To manufacture from sea water or from brine or from bitterns or by undertaking

mining operations and trade or otherwise deal in all varieties of salt, salt based chemicals and
by-products thereof and marine chemicals of all kinds.

To treat, cure, refine, purify, compound, manipulate, submit to any process,

manufacture or render marketable whether on account of the Company or otherwise, all
varieties of salt, salt based chemicals and by-products thereof, marine and allied chemicals,
minerals and produce of all kinds.

To manufacture, buy, sell, import, export or otherwise deal in salt, marine and allied
chemicals of all kinds, organic or inorganic.

TNSC STARTED COMMERCIAL OPERATION:

TNSC started its commercial operations during the year 1974-75 and it has
successfully completed 32 years of its effective business life. TNSC, which has started
making profit from the year 1990-91, has been continuing to be profitable and has been
growing steadily over the years.

MAIN ACTIVITIES OF TNSC AT PRESENT ARE AS FOLLOWS:

TNSC manufactures Industrial Grade Salt and other Fortified Salts like Iodised Salt
and Double Fortified Salt (Iodine and Iron). Manufacturers of quality Crystal Iodised Salt for
the benefits of millions of rural population in the entire South India. Distributes Double
Fortified Salt and Iodised Salt to the Noon Meal Programme (NMP) for the school going
children in the entire of Tamil Nadu, Karnataka, Andhra Pradesh and some Northern States.
Distributing quality iodised salt at affordable price for the welfare of the below poverty line
people through retail outlets of the PDS in Tamil Nadu, Andhra Pradesh & Puducherry.

ORGANIZATIONS:

Tamil Nadu Government Organizations are the commercial & non- commercial
establishments in the Indian state of Tamil Nadu by Government of Tamil Nadu. This
includes the state-run PSUs, Statutory corporations and societies. These commercial
institutions are very vital to the economic growth of this state. They have generated revenue
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of Rs.42,535.07 crores for the fiscal 2011-2012. Following are the list of various government
agencies of the state.

OBJECTIVE:

To plan and execute projects for setting up of industries or developing lines of

production.

To establish and administer industries for production of plant, machinery, tools,

implements, materials, chemicals, substances, goods or things of any description which in the
opinion of the Company are likely to promote or advance the industrial development of the
State of Tamil Nadu.

To promote and operate schemes for industrial development of the State of Tamil
Nadu and to prepare feasibility reports, project reports, market studies, blue prints and
statistics.

To engage in the processing and manufacture of metallic products, chemicals,

cement, sugar, yarn, plants, machinery or any other commercial, consumer or industrial
products.

AUDIT:

TAMIL NADU SALT CORPORATION LIMITED all type of accounts maintains

in verified and analysis six month only auditing maintained.

COMPLAIN:

The particulars of facilities available to citizens for obtaining information,

including the working hours of a library or reading room if maintained for public use:
Company does not maintain any public library.

The name, designation and other particulars of the Public Information Officer:

Thiru P.T. Dayanandan Company Secretary in corporate office in Chennai.

“Daily consumption of adequately iodised salt is a healthy habit”

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CHAPTER – II

REVIEW OF THE LITERATURE

According to the JOHANNA SMAROS, JUHA-MATTI LEHTONE PATRIK

APPELQVIST AND JAN HOLMSTROM (2003). Information sharing practices such as
vender-managed inventory (VMT) give manufacturing access to more accurate demand
information. In this paper, discrete-event simulation is used to examine how a manufacturing
can combine traditional order data available from non- VMI customers with sales data
available from VMI customers in its production and inventory control and what impact this
has on the manufacturing‟s operation efficiency. The simulation model is based on real-life
VMI implementation and uses actual product data.

According to the MARCELLO BRAGLIA, ANDREA GRASSI AND ROBERTO

MONTANARI (2004). Inventory constraints, costs of lost production, safety and
environmental objective, strategies of maintenance adopted, logistics aspects of spare parts
are some of the criteria taken into account, and space parts classification is thus defined with
respect to multiple attributes. An inventory management policies matrix is defined to link the
different classes of spare parts with the possible inventory management policies so as to
identify the best control strategy for the spare stock.

According to the BEN-DAYA.M AND DUFFUAA.S.O 91995). The relationship and

interaction between maintenance, production and quality has been discussed. One approach
has been proposed for linking and modelling the relationship between maintenance and
quality so that they can be jointly optimized. It is been on the idea that maintenance affects
the failure pattern of the equipment and that it should be modelled using the concept of
imperfect maintenance.

According to the PETER HINES AND NICK RICH (1997). This paper has outlined a
new typology and decision-making process for the mapping of the value stream or supply
chain. This general process is grounded in a contingency approach as it allows the researcher
to choose the most appropriate methods for the particular industry, people and types of
problem that exist.

According to the ALBERTO DE TONI, GUIDO NASSIMBENI, STEFANO

TONCHIA (1997). It is a method for evaluating performance and for productive resource
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management. The sounders of the result depend on the reliability of the ABC data. The model
is proposed for evaluating company production performance in contexts where competitive
derives from cost, time and quality performance, performances that are heterogeneous and
not easily estimated.

According to the GUNASEKARAN.A MARRI. HB, YUSUF.Y.Y. (1999).Conceptual

model has been developed to provide framework for the decision concerning the
implementation of ABC system. ABC system traces more exactly the real costs to the
products than any other volume- based cost systems. Therefore, more accurate overhead cost
allocations lead to fewest distortions. However, a trade-off should occur between the
economic benefits. Of an ABC and the costs of implementing it the management should
adapt an activity-based management system and achieving their primary target, which is
making profits.

According to the MIKE PARTRIDGE, LEW PERREN (1998). This analysis has traced
the development of ABM from its origin as a product costing technique thought to the
extended application of ABC metrics. Even ABMs most ardent supporters would hesitate to
claim that ABC generates absolute truth. Its metrics, tooth is certainly better than none and
better, too, than the flawed data generated by many traditional coat accounting and financial
accounting approaches.

According to the FRANK CHEM (1996). A very different pattern of product line costs
emerged compared to those generated by the conventional costing system. The credibility of
costing information, its comprehension by management and its perceived usefulness was all
enhanced by ABC. The potential application merits and implementation procedure of ABC
for justification of advanced factory information technologies have been explored and
presented.

According to the RENE A BOTTER, LEONARD FORTUIN (2000). Services part

inventories can‟t be managed inventory control methods, as conditions for applying the
underlying models are not satisfied. Nevertheless the basic questions of inventory control
have to be answered which parts should be stocked? How many of them should be stocked in
inventory management.
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CHAPTER – III

RESEARCH METHODOLOGY

3.1 AREA OF THE STUDY:

The TAMIL NADU SALT CORPORATION LIMITED, Anna Salai, Chennai has
been selection to analyse the inventory control followed in the company.

3.2 SOURCES OF DATA:

The sources of data for the present study are secondary data collected from
financial statement of the company.

3.3 DESCRIPTIVE RESEARCH:

The research that serves or seeks to describe, otherwise called for describing or
classification without expressing the judgement. This is known as descriptive research.

3.4 DATA COLLECTION:

The study of this project is on secondary data collected from the source online
information and the data analysis is taken from the operational result of the company. In
additions the technical data obtained from account section records pertaining to materials.
The company profile collection in internet and website. The Tamil Nadu Salt Corporation
Annual Report collection in head of corporate office in Chennai.

SECONDARY DATA:

The information that already been collected for some other purpose perhaps
processed and subsequently stored in a data base i.e. like online, journals, books, newspapers,
etc.

3.5 PROJECT PERIOD OF STUDY:

The present study covers the inventory management of TAMIL NADU SALT
CORPORATION LIMITED From 2009 to 2014. The period of study in 45 days in (Jan to
April)
 23

3.6 TECHNIQUES & TOOLS USED IN THE ANALYSIS:

The following tools and techniques have been used for carrying out the study.

RATIO ANALYSIS:

 INVENTORY TURNOVER RATIO:

A ratio showing how many times a company's inventory is sold and replaced over a
period. The days in the period can then be divided by the inventory turnover formula
to calculate the days it takes to sell the inventory on hand or "inventory turnover
days."

Generally calculated as:

However, it may also be calculated as:

 INVENTORY CURRENT ASSETS RATIO:

A liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

 INVENTORY NETWORKING CAPITAL RATIO:

A measure of both a company's efficiency and its short-term financial health. The net
working capital is calculated as:

Working Capital = Current Assets – Current Liability

The working capital ratio (Current Assets/Current Liabilities) indicates whether a
company has enough short term assets to cover its short term debt. Anything below 1
indicates negative W/C (working capital). While anything over 2 means that the
 24

company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0
is sufficient. Also known as "net working capital".

 INVENTORY RAW MATERIAL RATIO:

Raw materials inventory is the total cost of all component parts currently in stock that
have not yet been used in work-in-progress or finished goods production. The cost of
raw materials on hand as of the balance sheet date appears in the balance sheet as a
current assets. Raw materials may be aggregated into single inventory line item in the
balance sheet that also includes the cost of work-in-progress and finished goods
inventory. The raw material ratio is calculated as:

 INVENTORY WORK – IN – PROGRESS RATIO:

Material that has entered the production process but is not yet a finished product.
Work in progress (WIP) therefore refers to all materials and partly finished products
that are at various stages of the production process. WIP excludes inventory of raw
materials at the start of the production cycle and finished products inventory at the
end of the production cycle.

ABC ANALYSIS:
The object of carrying out analysis is to develop policy guidelines foe selective
control. Normally once ABC analysis has been done the following broad.
Policy guideline can be established of each category.
Color cording is identifying A, B and C categories in stores. Usually red is used
for A items. Pink is used for B item and blue is used for C item.
A items merit a rightly controlled inventory system with constant attention by the
purchase and stores management. A large effort per item on savings B item merit a
formalized inventory system with periodic attention by the purchase and store
management. C items use a simpler system designed to cause the lease trouble for the
 25

purchase and stores department, perhaps even at the cost of title extra inventory cost.
It is also common to further subdivide A item as A1 and A+ and A- and similarly
categories for B items exist for exercising fine control.

ECONOMIC ORDER QUANTITY (EOQ) :

It is a level to be ordered when the stock reaches the minimum level recorded
quantity is such that when it is added to be minimum stock, it should not exceed the
minimum level. It is the quantity of inventory which can be reasonable ordered at a
time and purchased economically.
It is also known as standard order quantity, optimum quantity or economic lot
size. It means that the total cost is at minimum. The problem is now to buy at a time.
In case large quantities are to be purchased the cost of carrying the inventory is high.
This includes interest on the hand, for frequently purchase in small quantities the cost
is high-short of materials loss of sale, increased buying expenses such as stationery
postage etc.
FORMULA EOQ=SQUAREROOT OF 2AB/C*S
EOQ= ECONOMIC ORDER QUANTITY
A=ANNUAL ORDER QUANTITY
B=BUYING COST PER ORDER
C=COST PER UNIT
S=STORAGE AND CARRYING COST
 26

CHAPTER – IV

DATA ANALYSIS AND INTERPRETATION

DATA ANALYSIS:

Analysis of data is a process of inspecting, transforming, and modelling data with

the goal of highlighting useful information, suggesting, conclusion and supporting decision
making. Data analysis has multiple facts and approaches, encompassing diverse technique
under a variety of names, in different business, science and social science domains.

Data mining is a particular data analysis technique that focuses on modelling and
knowledge discovery for predictive rather than purely descriptive divided purposes. Business
intelligence covers data analysis that relies heavily on aggregation, focusing on business
information. In statistical application, some people divide data analysis into descriptive
statistics exploratory data analysis and confirmatory data analysis. EDA focuses on
discovering new feature in the data and CDA on confirmingor falsifying existing hypothesis.
Predictive analysis focuses on application of statistical or exiting hypothesis. Predictive
analysis focuses on application of statistical or structural models for predictive forecasting or
classification while text analysis applies statistical, linguistic Structural techniques to extract
and classify information from textual sources, a species of unstructured data. All are varieties
of data analysis.

There is now standard story about the approach to constitutional interpretation in the
1970s and 80% certain constitutional law scholar became concerned with what seemed the
ungrounded jurisprudence of the United States Supreme Court. They began articulate a
theory of interpretation that stressed the obligation of the judge to apply the constitution in its
original and therefore unchanging sense. By this they meant the sense intended by the people
who wrote and ratified it. I say they “articulated” this view because, prior to that time, it was
already the prevailing conventional, if implicit understanding of constitutional interpretation.

A counterattack by the far more numerous academic proponents of an expansive

method of judicial review challenged the practicability even the coherence, of any attempt to
recover those original intentions. The original in response, redefined what they took to be the
object of constitutional interpretation.
 27

They abandoned any pretension that the judge should attempt to ascertain the
meaning of actually intended by the constitution – maker. Rather, the aim of interpretation
was to discover the “objective meaning” of the enacted text the meaning it would have had
for reasonably competent of the language.
 28

RATIO ANALYSIS

TABLE – 4.1

INVENTORY TURNOVER RATIO

Formula: Sales / Inventory

YEAR SALES (X) INVENTORY (Y) RATIO (X/Y)

2009-2010 17,60,68,461 1,31,29,283 13.41

2010-2011 21,37,29,632 1,66,31,088 12.85

2011-2012 16,86,12,311 1,39,37,796 12.09

2012-2013 17,64,50,596 2,03,40,072 8.67

2013-2014 21,72,46,284 1,07,34,619 20.24

Sources: Company Annual Report

INTERPRETATION:

This ratio indicates whether investment in inventory is efficiently used or not it

therefore explains whether investment in inventories in within proper limits or not. The
inventory turnover ratio is increase and decrease year by year. It was 8.67 percentages in
2012-2013 and it got increase 20.24 percentages in 2013-2014.
 29

CHART – 4.1

THE RATIO BETWEEN INVENTORY TURNOVERS

25

20

15

RATIO
10

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
 30

TABLE – 4.2

INVENTORY TO NETWORKING CAPITAL RATIO

Formula: Inventory / Net working capital

Net Working capital = Current Assets – Current Liabilities

NET WORKING
YEAR INVENTORY (X) CAPITAL (Y) RATIO (X/Y)

2009-2010 1,31,29,283 5,81,72,358 0.22

2010-2011 1,66,31,088 6,36,28,060 0.26

2011-2012 1,39,37,796 6,77,53,529 0.20

2012-2013 2,03,40,072 7,94,22,097 0.26

2013-2014 1,07,34,619 9,64,38,989 0.11

Sources: Company Annual Report

INTERPRETATION:

The ratio shows the inventory to net working capital ratio. In 2013-2014 lowest value
0.11 percentages of Net working capital are inventory. It is getting highest value 0.26
percentages in the year 2010-2011 and 2012-2013.
 31

CHART – 4.2

THE RATIO BETWEEN INVENTORY TO NETWORKING CAPITAL

0.3

0.25

0.2

RATIO
0.15

0.1

0.05

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
 32

TABLE – 4.3

INVENTORY TO RAW MATERIAL RATIO

Formula: Raw Material / Inventory

RAW
YEAR MATERIALS (X) INVENTORY (Y) RATIO (X/Y)

2009-2010 37,325 1,31,29,283 2.84

2010-2011 18,046 1,66,31,088 1.11

2011-2012 89,009 1,39,37,796 6.39

2012-2013 1,06,570 2,03,40,072 5.24

2013-2014 2,81,854 1,07,34,619 0.03

Sources: Company Annual Report

INTERPRETATION:

It is inferred that ratio of Raw material and Inventory for the year 2009-2014. The
ratio of Raw materials and Inventory is high value 6.39 percentages in the year 2011-2012.
And lowest value 0.03 percentage in the year 2013-2014.
 33

CHART – 4.3

THE RATIO BETWEEN INVENTORY TO RAW MATERIAL

7 6.39

6 5.24

4
2.84 RATIO
3

2
1.11
1
0.03
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
 34

TABLE – 4.4

INVENTORY TO WORK-IN-PROGRESS RATIO

Formula: Work-in-progress / Inventory

YEAR WORK-IN- INVENTORY (Y) RATIO (X/Y)

PROGRESS (X)

2009-2010 - 1,31,29,283 -

2010-2011 29,855 1,66,31,088 1.79

2011-2012 27,479 1,39,37,796 1.97

2012-2013 1,11,024 2,03,40,072 5.46

2013-2014 - 1,07,34,619 -

Sources: Company Annual Report

INTERPRETATION:

It is inferred that ratio of Work-in-progress and Inventory for the year 2009-2014
The ratio of Work-in-progress and Inventory is high value 5.46 percentage in the year 2012-
2013. And lowest value 0 percentage in the year 2009-2010 and 2013-2014.
 35

CHART –4.4

THE RATIO BETWEEN INVENTORY TO WORK-IN-PROGRESS

5.46

RATIO

1.79 1.97

0 0

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

 36

TABLE – 4.5

INVENTORY TO CURRENT ASSETS RATIO

Formula: Inventory / Current assets

YEAR INVENTORY (X) CURRENT RATIO (X/Y)

ASSETS (Y)

2009-2010 1,31,29,283 11,09,08,374 0.12

2010-2011 1,66,31,088 15,19,23,468 0.11

2011-2012 1,39,37,796 16,15,50,939 0.09

2012-2013 2,03,40,072 15,68,83,963 0.13

2013-2014 1,07,34,619 16,85,88,356 0.06

Sources: Company Annual Report

INTERPRETATION:

The ratio shows the liquidity of inventory and adequacy of inventory control. In
2013-2014 lowest value 0.06 percentage of Current assets are inventory. It is getting highest
value 0.13 percentage in the 2012-2013.
 37

CHART – 4.5

THE RATIO BETWEEN INVENTORY TO CURRENT ASSETS

0.14 0.13
0.12
0.12 0.11

0.09
0.1

0.08
0.06 RATIO

0.06

0.04

0.02

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
 38

TABLE – 4.6

INVENTORY TO FINISHED GOODS RATIO

Formula: Finished goods / Inventory

YEAR FINISHED GOODS INVENTORY (Y) RATIO (X/Y)

(X)

2009-2010 31,35,201 1,31,29,283 0.24

2010-2011 11,17,948 1,66,31,088 0.07

2011-2012 (-40,52,701) 1,39,37,796 -0.29

2012-2013 95,81,800 2,03,40,072 0.47

2013-2014 (-1,15,04,043) 1,07,34,619 -1.08

Sources: Company Annual Report

INTERPRETATION:

It is inferred that the ratio of finished goods to inventory for the year 2009-2014.
The ratio of finished goods to inventory is highest value 0.24 in the year 2009-2010. And
lowest value (-0.29) in the year 2012- 2013.
 39

CHART – 4.6

THE RATIO BETWEEN INVENTORY TO FINISHED GOODS

0.6 0.47
0.24
0.4
0.2 0.07

0 RATIO
-0.2 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

-0.4 -0.29

-0.6
-0.8
-1
-1.2 -1.08
 40

TABLE – 4.7

STOCK TURNOVER RATIO

Formula: Cost of goods sold / Average Stock

Average Stock = Opening stock + Closing stock

YEAR SALES (X) AVERAGE STOCK RATIO (X/Y)

(Y)

2009-2010 17,60,68,461 69,80,352 25.22

2010-2011 21,37,29,632 1,06,74,527 20.02

2011-2012 16,86,12,311 97,66,439 17.26

2012-2013 17,64,50,596 1,05,05,268 16.80

2013-2014 21,72,46,284 1,43,35,047 15.15

Sources: Company Annual Report

INTERPRETATION:

It is referred that the ratio of Stock Turnover Ratio for the year 2009-2014. The
ratio of Stock Turnover Ratio is highest value 25.22 in the year 2009-2010. And lowest value
15.15 in the year 2013-2014.
 41

CHART – 4.7

THE RATIO BETWEEN STOCK TURNOVER

30

25.22
25

20.02
20
17.26
16.8
15.15
15
RATIO

10

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
 42

ECONOMIC ORDER QUANTITY

It is basic fixed order quantity model. It was developed more than seventy years ago.

Let us consider the purchase of the material required for one year. To reduce the inventory

cost we can purchase material in small quantity.

In these business enterprises we have to place a number of purchase orders. It increase

the ordering cost such as requisitioning, transporting, receiving and cost, so that the total

inventory costs (inventory, carrying cost and ordering cost) is minimum. This quantity is

known as EOQ.

ECONOMIC ORDER QUANTITY (EOQ):

EOQ = √2AB/CS

A- Annual consumption / usage of material in units

B- Buying cost per order

C- Cost per unit

S- Storage and carrying cost per annum

EOQ

1. Material code IGS

Annual requirement = 137,285.890 units

Cost of material = Rs.2

Cost of placing and receiving order = Rs.3

Annual carrying cost of inventory 10% of inventory value

EOQ = √ (2*137,285.890*3) / (2*0.1)

= 2029.43 units
 43

2. Material code IS

Annual requirement = 27,294.975 units

Cost of material = Rs.2.80

Cost of placing and receiving order = Rs.4

Annual carrying cost of inventory 20% of inventory value

EBQ = √ (2*27,294.975*50) / (2.80*0.2)

= 624.44 units

3. Material code DFS

Annual requirement = 2,043.200 units

Cost of material = Rs.3.20

Cost of placing and receiving order = Rs.6

Annual carrying cost of inventory 8% of inventory value

EOQ = √ (2*2,043.200*6) / (3.20*0.08)

= 309.47 units

TABLE OF EOQ – 4.8

S.NO MATERIAL MATERIAL NEW MONTHLY EOQ

CODE DESCRIPTION RATE REQUIREMENT (UNITS)
Industrial Grade
1. IGS Salt 2.00 11440.49 2029.43

2. IS Iodised salt 2.80 2274.58 624.44

Double Fortified
3. DFS Salt 3.20 170.27 309.47

Sources: Company Annual Report

 44

INTERPRETATION:

Above table represents the EOQ of each product for 1 month, some of the products,
such as Industrial Grade Salt the unit would be 2029.43, Iodised Salt the unit would be
624.44, and Double Fortified Salt the unit would be 309.47. Therefore, the order is placed
when it is needed.

CHART OF EOQ – 4.8

2500
2029.43
EOQ
2000

1500

1000
624.44
309.47
500

0
IGS IS DFS
 45

ABC ANALYSIS – 4.9

ANNUAL USAGE VALUE OF PRODUCT “X”

S.NO DESCRIPTION ANNUAL PERCENTAGE

USAGE IN OF USAGE
(LAKHS) (%)

1. Industrial Grade Salt 1135.022 52.25

2. Iodised Salt 916.320 42.18

3. Double Fortified Salt 121.122 5.58

TOTAL 2172.46 100.01

 46

A ITEMS

ANNUAL PERCENTAGE
S.NO DESCRIPTION USAGE IN OF USAGE
(LAKHS) (%)

1 Industrial Grade Salt 1135.022 52.25

TOTAL 1135.022 52.25

B ITEMS

ANNUAL PERCENTAGE
S.NO DESCRIPTION USAGE IN OF USAGE
(LAKHS) (%)

1 Iodised Salt 916.320 42.18

TOTAL 916.320 42.18

C ITEMS

ANNUAL PERCENTAGE
S.NO DESCRIPTION USAGE IN OF USAGE
(LAKHS) (%)

1 Double Fortified Salt 121.122 5.58

TOTAL 121.122 5.58

Sources: Company Annual Report

 47

INTERPRETATION:

The above raw material has categorized as “A” class material and should be kept under
rigorous control as the investment in the inventory constitute more than 70% value of the
total investment made in raw material inventory.

The company should direct its most of the inventory control efforts items included in
the category.

Although the number of items which constitute “B” & “C” category is not fairly large
investment in these category is less than 30% and which warrant the minimum attention.

During the discussing and clarification with the executive of the company controlling
production and stores we were explained that the raw material which was grouped under “B”
“C” category even though critical to the production process were available easily.

While making the analysis utmost care was taken not to include critical raw material
essential for production process which is not available easily in the market even though it
involve small investment in “B” “C” category.

CHART OF ABC ANALYSIS – 4.9

60 52.25

50 42.18

40
ABE ANALYSIS
30

20
5.58

10

0
A B C
 48

CHAPTER – V

5.1 FINDINGS
 The ratio of inventory turnover ratio in high value 20.24 percentage in the year 2013-

2014. And low value 8.67 percentage in the year 2012-2013.

 The ratio between inventory to networking capital in high value 0.26 percentages in

the year 2012-2013 and 2010-2011. And low value 0.11 percentages in the year 2013-

2014.

 The ratio between inventory to raw material in high value 6.39 percentages in the year

2011-2012. And low value 0.03 percentages in the year 2013-2014.

 The ratio between inventory to working-in-progress in high value 5.46 percentage in

the year 2012-2013. And low value 0 percentage in the year 2009-2010 and 2013-

2014.

 The ratio between inventory to current assets in high value 0.13 percentage in the year

2012. And low value 0.06 percentage in the year 2013-2014.

 The ratio between finished goods and total inventory in increase value 0.24 percentage

in the year 2009-2010. And decrease value (-0.29) in the year 2012-2013.

 The ratio of stock turnover ratio in increase value 25.22 percentage in the year 2009-

2010. And decrease value 15.15 in the year 2013-2014.

 The EOQ of each product for 1 month indicates that the sale of the product is high. So,

the company should place the order whenever it is needed.

 In ABC analysis, the A category constitutes more than 70% of the total investment

made in the raw material. B and C category is not fairly large investment in this

category is less than 30% and which warrant the minimum attention.
 49

CHAPTER – V

5.1SUGGESTIONS

 A current asset of the company has increased and even though they are not utilizing

the enhanced technology to increase sales. So the management should take initiative

steps for the proper initiative steps for the proper utilization of the resources.

 The inventory management measures are to be done in TAMIL NADU SALT

CORPORATION LIMITED to avoid both over stocking and minimize losses to

deterioration pilferage, wastages and damages.

 In the present organization, information technologies play an important role, so using

this technology the organisation maintain in inventory efficiency.

 Ratio between sales and inventory has not satisfactory for the past two years. The

company should take necessary steps to increase the sale and inventory.

 The total inventory of the company is high. So the company should take the initiative

for the proper utilization of inventory.

 To avoid over stock frequently planning and checking is necessary.

 Ratio between inventory and working capital is not satisfactory for last five years. It is

fluctuating over the year and there is no standard ratios maintained. So the

management should take steps to improve the inventory and working capital of the

company.

 The organization train the employees efficiently that the control the wastages.

 The sales of the organization can be further increased by improving the quality through

optimum utilization of company‟ (resources Assets raw material, credit systems etc.)

and that in will increase the overall profit of the organization.

 50

 The management must out the reasons for the decrease in sales and must, take

appropriate measures.

 The management must also study market position and it also finds the demand

prevailing in the market for the products and thus will guide them to enhance their

sales volume.

 For the past 5 years are stayed in the go down as an inventory. Since the modification

process is undergone one can‟t use their old parts for the modernized machined.

 Here the production can be sold at record rate or can be removed as scrap to reduce the

cost of inventory.
 51

CHAPTER – VI

CONCLUSION

The most important of inventory management in a manufacturing company where

there are multi-location stock points and large number of the item dealt with had have well
understood observing the systems following in the company.

Added to the theoretical knowledge, the observations at the shop floor and stores
have enabled understanding of the system and fulfilment of aim of this project.

Thus inventory palsy vital role in the efficient functioning of the management of the
firm this requires effective control of the inventory and maintenances of optimum inventory
level of stock. Hence inventory coupled with cost control results in efficient performances of
the company.

The some more modifications will tend to further improvement in inventory

management in TAMIL NADU SALT CORPORATION LIMITED. The analysis report the
inventory is managed at an optimum level. Some modifications will lead to further
improvement in inventory management.
 52

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 Dr.R.Ramachandran and Dr.R.Srinivasan, Financial Management, Sriram

Publications, Tennur, Tiruchi.

 Rajiv srivastava, Financial Management, Oxford university press, New Delhi.

 Prasanna Chandra, Financial Management, theory practice TataMcG raw Hill

Publication Company limited New Delhi 1997.

 Janesc.van Home fundamentals and Financial Management, practice hall at India pvt

limited New Delhi 1998.

 Sharma R.K. and Shashikk. Gupta Financial Management Kalyani publisher, New

Delhi.

 S.N.Mahesware, Financial Management theory and practice, Tata McG raw hill

publishing company limited New Delhi, 1994.

 Alberto De Tooni, Guido Nassimbeni, Stefano Tonchi „An integrated production

performance measurement system Industrial Management & Date System 1997.

 Charles A. Watters, Chan K. Hahn, Buying-Kyu Sohn „Monitoring the performance

of a Recorder Point System „Industrial Management & Date System 1996.

 Gunasekaran.A, Marri. H.B, Yusuf.Y.Y „Application of activity- based costing‟

Managerial Auditing Journal 14/ 1999.