A STUDY OF INVENTORY MANAGEMENT IN AMMAYAPPER

TEXTILES PRIVATE LIMITED

Submitted in partial fulfilment of the requirements for the award of

Master of Business Administration

By

PETER FELIX A
Register No: 39410147

SCHOOL OF BUSINESS ADMINISTRATION

SATHYABAMA
INSTITUTE OF SCIENCE AND TECHNOLOGY
(DEEMED TO BE UNIVERSITY)
Accredited with Grade “A” by NAAC l 12B Status by UGC I Approved by AICTE,
Jeppiaar, RAJIV GANDHI SALAI, CHENNAI - 600 119

April – 2021
 SATHYABAMA
INSTITUTE OF SCIENCE AND TECHNOLOGY
(DEEMED TO BE UNIVERSITY)
Accredited with “A” grade by NAAC I 12B Status by UGC I Approved by AICTE
Jeppiaar Nagar, Rajiv Gandhi Salai, Chennai – 600 119
www.sathyabama.ac.in

SCHOOL OF BUSINESS ADMINISTRATION

BONAFIDE CERTIFICATE

This is to certify that this Project Report is the bonafide work of PETER FELIX A
(39410147) who has done the project work entitled, “A STUDY OF INVENTORY
MANAGEMENT IN AMMAYAPPER TEXTILES PRIVATE LIMITED” under my
supervision from December 2020 to February 2021.

Dr. DHIVYA SATHISH ANNADURAI K

Internal Guide External Guide

Dr. BHUVANESWARI G.
Dean – School of Business Administration

Submitted for Viva voce Examination held on

Internal Examiner External Examiner

 DECLARATION

I PETER FELIX A , (39410147) here by declare that the Project Report entitled, “A
STUDY OF INVENTORY MANAGEMENT IN AMMAYAPPER TEXTILES PRIVATE
LIMITED ” done by me under the guidance of DR. DHIVYA SATHISH is submitted
in partial fulfillment of the requirements for the award of Master of Business
Administration degree.

DATE:

PLACE: PETER FELIX A

 ACKNOWLEDGEMENT

I am pleased to acknowledge my sincere thanks to Board of Management of

SATHYABAMA for their kind encouragement in doing this project and for

completing it successfully. I am grateful to them.

I convey my sincere thanks to Dr.Bhuvaneswari G.,Dean, School of Business

Adminstration and Dr. Palani A., Head, School of Business Administration for

providing me necessary support and details at the right time during the progressive

reviews.

I would like to express my sincere and deep sense of gratitude to my Project Guide

Dr.DHIVYA SATHISH, Faculty, School of Business Administration for her valuable

guidance, suggestions and constant encouragement paved way for the successful

completion of my project work.

I wish to express my thanks to all Teaching and Non-teaching staff members of

the School of Business Administration who were helpful in many ways for the

completion of the project.

PETER FELIX A
 TABLE OF CONTENTS
CHAPTER NO. TITLE PAGE NO
ABSTRACT i
LIST OF TABLES ii
LIST OF CHARTS iii
1 INTRODUCTION 1-22
1.1 Introduction 2
1.2 Industry Profile 13
1.3 Company Profile 17
1.4 Need for the Study 21
1.5 Scope and Significance of Study 22
1.6 Objectives of the Study 22
1.7 Limitations of the Study 22
2 REVIEW OF LITERATURE 24-29
3 RESEARCH METHODOLOGY 30-31
3.1 Research Design 31
3.2 Sampling Technique 31
3.3 Sources of Data 31
3.4 Period of Study 31
3.5 Analytical Tools 31
4 DATA ANALYSIS AND INTERPRETATION 32-45
4.1 ABC analysis 33
4.2 Economic Order Quantity 40
4.3 Re-order Level 43
4.4 Safety Stock 44
4.5 Inventory Turnover Ratio 45
5 FINDINGS &SUGGESTIONS &CONCLUSION 52-55
5.1 Findings 53
5.2 Suggestions 54
5.3 Conclusion 55
REFERENCES 59
BIBLIOGRAPHY 62
APPENDIX – I (Data)
APPENDIX – II (Article)
 ABSTRACT

Traditional inventory models focus on risk-neutral decision makers

characterizing replenishment strategies that maximize expected total profit, or
equivalently, minimize expected total cost over a planning horizon. we propose a
framework for incorporating risk aversion in multi-period inventory models as well as
multi-period models that coordinate inventory and pricing strategies. We show that
the structure of the optimal policy for a decision maker with exponential utility
functions is almost identical to the structure of the optimal risk-neutral inventory
policies. These structural results are extended to models in which the decision
maker has access to a complete financial market and can hedge its operational risk
through trading financial securities. Computational results demonstrate that the
optimal policy is relatively insensitive to small changes in the decision-makers level
of risk aversion. The objective of inventory management is explained in some detail
sections. Section two is concerned with inventory management techniques. Attention
is given here to basic concepts relevant to the management and control of inventory.
The data has been gathered through interaction and discussions with the executives
working in the division.Some important information has been gathered through
couple of unstructured interviews of executive.

i
 LIST OF TABLES

TABLE NO PARTICULARS PAGE NO

4.1.1 Table Showing The re - rational limits 34
4.1.2 Table Showing Raw material 35
4.1.3 Table Showing Stock in process 36
4.1.4 Table Showing Finished goods 37
4.1.5 Table Showing Stores, spares & consumables 38
4.1.6 Table Showing Raw material consumed 39
4.2.1 Table showing EOQ DURING Dec 2020- Jan 2021 40
4.2.2 Table showing EOQ DURING Jan 2021-Feb 2021 42
4.5.1 Table showing Inventory Turnover Ratio 46

ii
 LIST OF CHARTS

CHART NO PARTICULARS PAGE NO

4.1.2 Chart Showing Amount of Raw Material 35
4.1.3 Chart Showing Amount of in Process 36
4.1.4 Chart Showing Amount of Finished Goods 37
4.1.5 Chart Showing Amount of Store , Spare& Consumable 38
4.1.6 Chart Showing Amount of Raw Material Consumed 39
4.6.1 Chart Showing Inventory Turnover Ratio 47

iii
 CHAPTER-1
INTRODUCTION

1
1.1 INTRODUCTION
Inventory Management is concerned with the duties of the finical manager in the
business firm. Financial managers actively manage the financial affairs of any type
of business, namely financial and non-financial, private and public, large and small,
profit seeking and non-profit. They perform such varied task, as budgeting, financial
forecasting, cash management, credit administration, investment analysis, funds
management and inventory management.

A term inventory refers to the stock file of the products a firm is offering for sale
and the components that make up the product. In other words, inventory is
composed of assets that will be showed in future in the normal course of the
business operations. The assets which firms store as inventory in anticipation of
need are:

➢ Raw materials
➢ Work in process (Semi Finished goods)
➢ Finished goods

The raw material inventory contains item that are purchased by the firm from other
and are converted into finished goods through the manufacturing (production)
process. They are an important input of the final product. The working process
inventory consists of items currently being used in the production process.

They are normally semi finished goods that are at various stages of production in a
multi stage production process. A finished goods represented final or completed
products which are available for sale .The inventory of such goods consists of items
that have been produced but are yet be sold.

Inventory, as a current asset, differs from other current assets because only
financial managers are not involved. Rather all the functional areas, finance,

2
marketing, production, and purchasing are involved. The views concerning the
appropriate level of inventory would differ among the different functional areas.

The job of the financial manger is to reconcile the conflicting view points of the
various functional areas regarding the maximizing the owners wealth. Thus,
inventory management, like the management of other current assets , should be
related to the overall objective of the firm. It is in this context that the present chapter
is devoted to the main elements of inventory management from the view point of
financial management.

The objective of inventory management is explained in some detail sections. Section

two is concerned with inventory management techniques. Attention is given here to
basic concepts relevant to the management and control of inventory.
1.1.1 The aspects covered are:

➢ Determination of the type of control required.

➢ The basic economic order quantity
➢ The reorder point, and
➢ Safety stocks.
As a matter of fact, the inventory management techniques are a part of production
management. But a familiarity with them is of great help to the financial managers in
planning and budgeting inventory.
Martin and miller identified three general motives for holding inventories
TRANSACTION MOTIVE:
This refers to the need of maintaining inventory to facilitate smooth production and
sales operations.
PRECAUTIONARY MOTIVE:
Precautionary motive for holding inventory is to provide a safeguard when then
actual level of activity is differ than anticipated. This inventory serves when there is
a unpredictable changes in the demand and supply forces.

3
SPECULATIVE MOTIVE:
This motive influences the decision to increase or decrease the levels of inventory
to take the advantage of price fluctuations.

1.1.2 TYPES OF INVENTORIES:

Inventories play a major role in a business or depending on nature of the businesses.
The inventories may be classified as under.

(I) Raw Materials

Materials and components scheduled for use in making a product. These are the
basic inputs, which are converted into finished products through manufacturing
process. Raw material inventories are those units, which have been purchased and
stored for future production.

(II) Work in process / Progress

Materials and components that have begun their transformation to finished goods.
Materials issued to the stop floor, which have not yet become finished products they
are value added materials to the extent of labor cost incurred.

(III) Finished Goods

A finished goods is a completed part that is ready for a customer order. These
goods have been inspected and have passed final inspection requirements so that
they can be transferred out of work-in-process and into finished goods inventory.
From this point, finished goods can be sold directly to their final user, sold to retailers,
sold to wholesalers, sent to distribution centers, or held in anticipation of a customer
order.

(IV) STORES & SPARES

The level of four kind of inventory depends upon the nature of the business. Supplies
include office and cleaning materials like soap, brooms, oil, light, blubs etc. these
materials do not directly enter production, but are necessary for production process.

4
Transaction motive:
Every firm has to maintain some level of inventory to meet the day-to-day
requirement of sales, production process, customer demand etc. In the finished
goods as well as raw material are kept as inventories for smooth production process
of the firm.

Precautionary motive:
A firm should keep some inventory for unforeseen circumstances also like loss due
to natural calamities in a particular area, strikes, lay outs etc so the firm must have
some finished goods as well as raw-materials to meet circumstances.

Speculative motive:
The firm may be made to keep some inventory in order to capitalize an opportunity
to make profit due to price fluctuations.

1.1.4 BASIC REASONS TO KEEPING AN INVENTORY:

There are three basic reasons for keeping an inventory:
UNCERTAINTY:
Inventories are maintained as buffers to meet uncertainties in demand, supply and
movement of goods.

ECONOMIES OF SCALE:
Ideal condition of “one unit at a time at a place where user needs it, when he needs
it “principle tends to incur lots of costs in terms of logistics. So bulk buying,
movement and storing brings

INVENTORY MANAGEMENT INVOLVES:

Inventory management is the active control program which allows the management
of sales purchases and payment. System and processes that identify inventory
requirements, set targets, provide replenishment techniques and report actual and
projected inventory status.

5
Inventory management helps providing a good understanding ground and the
capacity to control financial costs .the Inventory management will control operating
costs and provide better understanding.

1.1.5 OPERATING CYCLE OF INVENTORY MANAGEMENT

Operating Cycle is the time duration to convert sales after the conversion of
resources into invention, into sales there is difference between current assets and
fixed assets. A firm required many years to recover initial invests in fixed assets such
plant and machinery or land buildings or furniture and fixtures etc. On the contrary,
investment in current assets such as inventory and books debts are realized during
the firms operating cycle, which in usually less than a year.
The operation cycle can be said to be the heart of the working capital. The need
for working capital or current assets cannot be over emphasized as already
observed. The main motive of many business firms is to achieve maximum profits,
which can be earned depending upon the magnitude of the sales among other
things. However, sales do not convert in to cash instantly. There is invariable time
lag between sale of goods and receipts of cash. Therefore the need of working
capital in the form of current assets to deal with the problem arising good sold.
Therefore, sufficient working capital requires sustaining sales activity. Technically
this is refer to as the operating the cash cycle. The continuous flow form cash to
supplies to inventory to accounts receivable and back into cash what is called
operating cycle.

1.1.6 JUST-IN-TIME METHOD:

Just-in-time also known as JIT is an inventory management method whereby labor,

material and goods (to be used in manufacturing) are re-filled or scheduled to arrive
exactly when needed in the manufacturing process.

6
1.1.6.1 ELIMINATING WASTE:
There are seven types of waste:
➢ Waste from product defects
➢ Waste of time.
➢ Transportation waste.
➢ Inventory waste.
➢ Waste from overproduction.
➢ Processing waste.
Waste minimization is one of the primary objectives of Just In Time system. This needs
effective inventory management throughout the whole supply chain. Initially, a
manufacturing entity will seek to reduce inventory and enhance operations within its
own organization. In an attempt to reduce waste attributed to in effective inventory
management.
JIT principles focus on the elimination of waste by deploying tools such as total quality
management, continuous quality improvement, focused factory, reducing setup times,
flexible resources, group technology layout, and pull production system

7
1.1.6.2 JIT PRINCIPLES:

➢ Reduce buffer inventory

➢ Try for zero inventory
➢ Search for reliable suppliers
➢ Reduce lot size and increase the frequency of orders
➢ Reduce purchasing cost
➢ Improve material handling.

1.1.6.3 Advantages & Disadvantages of Just-In-Time Systems

Advantages of Adopting Just-In-Time include:

➢ Just-in-time approach keeps stock holding costs to a minimum level.

➢ The just-in-time approach helps to eliminate waste. Chances of expired or out
of date products; do not arise at all.
➢ By following JIT greater efficiency and High-quality products can be derived.
➢ Better relationships are fostered along the production chain under a JIT system.
➢ Higher customer satisfaction due to continuous communication with the
customer.
➢ Just In Time adoption result in the elimination of overproduction.

Disadvantages of Adopting JIT Systems:

• JIT approach states ZERO tolerance for mistakes, making re-work difficult in
practice, as inventory is kept to a minimum level.
• A successful application of JIT requires a high reliance on suppliers, whose
performance is outside the purview of the manufacturer.
• Chances are quite high of not meeting an unexpected increase in orders as there
will be no excess inventory of finished goods.
• Transaction costs would be comparatively high depending upon the frequency
of transactions.

8
 • JIT may have certain negative effects on the environment due to the frequent
deliveries as the same would result in higher use and cost of transportation,
which in turn would consume more fossil fuels.

1.1.7 MATERIAL REQUIREMENT PLANNING:

A Material Requirements Planning (MRP) system is a planning and decision-making

tool used in the production process which analyses current inventory levels Vs
production capacity and the need to manufacture goods, based on forecasts. MRP
schedules production as per bills of materials while minimizing inventory. The technique
is computerized and looks at requirements within a fixed period.

1.1.7.1 Objectives of MRP:

1. Inventory reduction:
MRP determines how many components are required when they are required in order
to meet the master schedule. It helps to procure the materials/ components as and
when needed and thus avoid excessive buildup of inventory.

2. Reduction in the manufacturing and delivery lead times:

MRP identifies materials and component quantities, timings when they are needed,
availabilities and procurements and actions required to meet delivery deadlines. MRP
helps to avoid delays in production and priorities production activities by putting due
dates on customer job order.

3. Realistic delivery commitments:

By using MRP, production can give marketing timely information about likely delivery
times to prospective customers.

4. Increased efficiency:
MRP provides a close coordination among various work centers and hence help to
achieve uninterrupted flow of materials through the production line. This increases
the efficiency of production system.

9
1.1.8 MRP SYSTEM:
The inputs to the MRP system are:
➢ A master production schedule,
➢ An inventory status file and
➢ Bill of materials (BOM).

1.1.8.1. MASTER PRODUCTION SCHEDULE(MPS):

MPS is a series of time phased quantities for each item that a company produces,
indicating how many are to be produced and when. MPS is initially developed from
firm customer orders or from forecasts of demand before MRP system begins to
operate. The MRP system whatever the master schedule demands and translates
MPS end items into specific component requirements. Many systems make a
simulated trial run to determine whether the proposed master can be satisfied.

1.1.8.2 INVENTORY STATUS FILE:

Every inventory item being planned must have an inventory status file which gives
complete and up to date information on the on-hand quantities, gross requirements,
scheduled receipts and planned order releases for an item. It also includes planning
information such as lot sizes, lead times, safety stock levels and scrap allowances.

10
1.1.8.3 BILL OF MATERIALS (BOM):
BOM identifies how each end product is manufactured, specifying all subcomponents
items, their sequence of buildup, their quantity in each finished unit and the work
centers performing the buildup sequence. This information is obtained from product
design documents, workflow analysis and other standard manufacturing information.

Advantages of MRP:
➢ Inventory control. Inventory management is crucial to realizing
manufacturing efficiency
➢ Purchase planning
➢ Production planning
➢ Work scheduling
➢ Resource management
➢ Data management and documentation
➢ Economic purchasing
➢ Time-saving.

Disadvantages of MRP:
➢ Inaccurate or partial Bill of Materials listing from the engineering firm.
➢ Engineering requisition issues.
➢ Purchase order revisions and inaccuracies.
➢ Shipping and receiving errors causing inaccurate inventory levels.
➢ Inaccurate material inventory counts.

1.1.9 ECONOMIC ORDER QUANTITY METHOD:

Economic order quantity (EOQ) is the ideal order quantity a company should purchase
to minimize inventory costs such as holding costs, shortage costs, and order costs.

11
 Q=√2DS/H
Q=EOQ units
D=Demand in units
S=Order Cost (Per purchase order)
H=Holding Costs (Per unit, per year)

1.1.9.1 HOLDING COSTS (H):

Holding costs are those associated with storing inventory that remains unsold.
These costs are one component of total inventory costs, along with ordering and
shortage costs. A firm's holding costs include the price of goods damaged or spoiled,
as well as that of storage space, labor, and insurance.

1.1.9.2 ANNUAL DEMAND (D):

The annual inventory cost, otherwise known as the carrying cost, is the
cumulative annual cost of holding inventory. The annual inventory cost includes the
cost of the inventory's storage space, taxes paid, insurance premiums paid,
bad inventory, handling and the opportunity cost of the money invested in inventory.

1.1.9.3 ORDER COSTS(S):

Ordering costs are the expenses incurred to create and process an order to a supplier
These costs are included in the determination of the economic order quantity for
an inventory item.

1.1.10 MINIMUM SAFETY STOCKS:

Safety stock inventory, also known as buffer stock, is the extra inventory you order. It's
the stock you need for when the inevitable happens. Whenever demand is greater than
expected or there's a delay from your supplier, safety stock ensures a customer doesn't
walk out the door empty-handed and disappointed.
Safety Stock= (Maximum Daily Usage x Maximum Lead Time Days)-(Average
Daily Usage x Average Lead Time Days)

12
1.1.10.1 Primary reasons for carrying safety stock:
➢ Protect against unforeseen variation in supply
➢ Compensate for forecast inaccuracies (only when demand exceeds the
forecast)
➢ Prevent disruptions in manufacturing or deliveries. ...
➢ Avoid stock outs to keep customer service and satisfaction levels high.

Advantages of safety stock:

➢ Wholesale pricing
➢ Fast fulfillment
➢ Low risk of shortages
➢ Increased Customer Satisfaction

Disadvantages of safety stock:

➢ Obsolete Inventory
➢ Potential Insurance Costs and Loss
➢ Tying Up Capital

13
1.2 INDUSTRY PROFILE
The textile Industry mostly small-scale, nonintegrated spinning, weaving, cloth
finishing, and apparel enterprises, many of which use outdated technology,
characterize India’s textile sector. Some, mostly larger, firms operate in the “organized”
sector where firms must comply with numerous government labor and tax regulations.
Most firms, however, operate in the small-scale “unorganized” sector where regulations
are less stringent and more easily evaded stringent and more easily evaded.

The unique structure of the Indian textile industry is due to the legacy of tax, labor, and
other regulatory policies that have favored small-scale, labor-intensive enterprises,
while discriminating against larger scale, more capital-intensive operations. The
structure is also due to the historical orientation towards meeting the needs of India’s
predominately low-income domestic consumers, rather than the world market. Policy
reforms, which began in the 1980s and continued into the 1990s, have led to significant
gains in technical efficiency and international competitiveness, particularly in the
spinning sector. However, broad scope remains for additional reforms that could
enhance the efficiency and competitiveness of India’s weaving, fabric finishing, and
apparel sectors.

Unlike other major textile-producing countries, India’s textile industry is comprised

mostly of small-scale, nonintegrated spinning, weaving, finishing, and apparel-making
enterprises. This unique industry structure is primarily a legacy of government policies
that have promoted labor-intensive, small-scale operations and discriminated against
larger scale firms.

Composite Mills. Relatively large-scale mills that integrate spinning, weaving and,
sometimes, fabric finishing are common in other major textile-producing countries. In
India, however, these types of mills now account for about only 3 percent of output in
the textile sector. About 276 composite mills are now operating in India, most owned
by the public sector and many demand financially “sick”.

14
Spinning is the process of converting cotton or manmade fiber into yarn to be used for
weaving and knitting. Largely due to deregulation beginning in the mid-1980s, spinning
is the most consolidated and technically efficient sector in India’s textile industry.
Average plant size remains small, however, and technology outdated, relative to other
major producers. In 2002/03, India’s spinning sector consisted of about 1,146 small-
scale independent firms and 1,599 larger scale independent units.

Weaving and Knitting. Weaving and knitting converts cotton, manmade, or blended
yarns into woven or knitted fabrics. India’s weaving and knitting sector remains highly
fragmented, small-scale, and labor-intensive. This sector consists of about 3.9 million
handlooms, 380,000 “powerloom” enterprises that operate about 1.7 million looms, and
just 137,000 looms in the various composite mills. “Powerlooms” are small firms, with
an average loom capacity of four to five owned by independent entrepreneurs or
weavers. Modern shuttleless looms account for less Then 1 percent of low capacity.

Fabric finishing (also referred to as processing), which includes dyeing, printing, and
other cloth preparation prior to the manufacture of clothing, is also dominated by a large
number of independent, small scale enterprises. Overall, about 2,300 processors are
operating in India, including about 2,100 independent units and 200 units that are
integrated with spinning, weaving, or knitting units. Clothing Apparel is produced by
about 77,000 small-scale units classified as domestic manufacturers, manufacturer
exporters, and fabricators (subcontractors).

1.2.2 Growth of Textile Industry

The analysis of the growth pattern of different segment of the industry during the last
five decades of post independence era reveals that the growth of the industry during
the first two decades after the independence had been gradual, though lower and
growth had been considerably slower during the third decade. The growth thereafter
picked up significantly during the fourth decade in each and every segment of the
industry. The peak level of its growth has however been reached during the fifth decade
i.e., the last ten years and more particularly in the 90s. The Textile Policy of 1985 and

15
Economic Policy of 1991 focussing in the direction of liberalisation of economy and
trade had in fact accelerated the growth in 1990s. The spinning spearheaded the
growth during this period and man-made fibre industry in the organised sector and
decentralised weaving sector.

CHAIRMAN & BOARD OF

DIRECTOR

MANAGING DIRECTOR

↓
▼ ▼ ▼ ▼ ▼
Works CORPORAT MARKETINGHUMAN SECRETERIAL
E
FINANCE RESOURCE
↓
_ _
▼ ▼ ▼ ▼
MATERIAL RE-ROLING TOWERS ACCOUNTS&HUMAN
↓ ↓
► MATERIAL ► MATERIL
MANGEMENT MANAGEMENT

► ACCOUNT & ►HUMAN

RESOURCE RESOURCE

1.2.3 GLOBAL PERPECTIVE IN TEXTILES:

1.2.3.1 World Demand:

Total demand for TextilEs in the world is expected to grow at an annual rate of
1.7% between 1935 and 2000 according to a study by chase econometrics.
According to this estimate, total demand in the year 2000 is expected to be 913 MT
of crude steel. The world growth rate of 1.7% per annum disguises dramatic
differences in steel demand growth. Within the non-socialistic world, steel demand
in advance industrial countries at a whole are expected to grow at 0.6 % annual
rate following a 2.2% annual rate between 1974 and 1984. Steel demand in less

16
developed countries as a whole is expected to grow at a 5.5% annual rate up to
2000 following a 3.1% annual growth rate between 1974 and 1984. Within the
centrally planned economies category, the Eastern Europe erstwhile USSR region
may have a 0.3% annual Textiles demand growth during the period 1974–84.
Textiles Demand rate up to the end of this century after a 7.8% per annum growth
during 1974 – 84.

1.2.3.2THE INDIAN TEXTILES SCENARIO:

Textiles consumption in India has gone up during the past decade from the level of
10 MT (1993-94). Similarly pig iron consumption has gone up from 1.4 MT to about
1.8 MT. The past decade was not significant only for higher growth rate of iron and
steel consumption has gone up from 1.4 MT to about 1.8 MT. The past decade was
not significant only for higher growth rate of iron and steel consumption in the
country compared to previous few decades (during 1960-61 steel consumption in
the county has gone up from 3.6 MT to 8.9 MT only), but some vital events have
also taken place which brought an overall change in the Indian Textiles Scenario.

During the 80’s decade, all main producers have taken a number of steps to
modernize the technology and products of their steel plants. A number of major
secondary products have entered in the integrated steel production activities in a
big way. Some of them have also entered into sophisticated production area of
higher quality cold rolled sheets and coated sheets. The recent policy of the
government of India for liberalizing the Indian iron and steel sector from age- old
control and equalized freight system has changed the basis structure of the
industry.

17
1.3 COMPANY PROFILE
Ammayapper Textiles Private Limited is a Non-govt company, incorporated on
14 Jun, 2005. It's a private unlisted company and is classified as'company limited by
shares'. Company's authorized capital stands at Rs 1000.0 lakhs and has 83.350006%
paid-up capital which is Rs 833.5 lakhs. Ammayapper Textiles Private Limited last
annual general meet (AGM) happened on 30 Sep, 2017. The company last updated its
financials on 31 Mar, 2017 as per Ministry of corporate affairs (MCA) Ammayapper
Textiles Private Limited is majorly in Manufacturing (Textiles) business from last 16
years and currently, company operations are active. Current board members &
directors are VELUCHAMY HARIDOSS, HARIDOSS KARTHIKEYAN, HARIDOSS
SENTHILVELU and RAMYA in modern fashion technology, the demand for perfection
begins right at the birth of the raw material, permeates through every single process,
till the highly discerning customer dons the finished garment.It is this demand for
perfection that has spurred the growth of an organisation and its corporate
philosophy.Those who can furnish clients with the best quality, competitive price,
excellent customer services and prompt delivery can only survive in the market.
ammayapper Textiles Limited takes immense pride in perceiving its role as the
comprehensive architect of every single yarn and garment that its produces.
ammayapper Textiles Limited is a multi-unit, multi-interest business group with a wide
range of industrial activity, an organisation that has founded its evolution on value-
based commercial practice.

18
1.3.1 MANUFACTURING PROCESS

Feeding into Re Heating Furnace

Cut to sizes as per requirement

Cutting to Regulate Length & Straightening

19
1.3.2 OBLIGATIONS:
Towards Shareholders:
➢ To ensure growth projection are matched by performance to build
confidence and goodwill.
➢ To ensure a reasonable annual dividend commensurate with company’s
performance profits and future plans for investments
Towards Customers and Dealers:
➢ To provide a quality product and spread awareness amongst them for
competitive selling in buyers marked backed by world class customer service.
Towards Employees:
➢ To develop and upgrade their skills through in – house and external training
programs enabling careers progressions and advancement.
➢ The inputs for upgrading managerial and operational skills are provided
to meet present and future challenges.
Towards the community:
➢ To the ensure environmental protection in and around plant operational
areas and promote development of community by participating in several
activities.
1.3.3 OBJECTIVES OF COMPANY:
➢ Maintain smooth and uninterrupted supply of products by keeping
adequate inventories and stocks; to ensure product availability in all
markets.
➢ Optimize utilization of existing infrastructure and operate at installed
capacities to maximize production and enhance efficiency.
➢ Shore up man power skills and technical expertise aimed at self –
reliance implementation of expansion programs and diversification
of plans.
➢ To consolidates and sustain growth by developing suitable structure,
inducting monitoring system for cost effectiveness and exercising
controls at levels for effective functioning.

20
1.3.4 INHERENT STRENGTHS:
➢ Survived through turbulent times of industry.
➢ BIS Standard compliance quality products.
➢ Strong core technical team and low employee turnover.
➢ Capacity for flexible designs and small batch sizes.
➢ Efficient use of infrastructure.

1.3.5 OPPORTUNITIES:
➢ Market value added products through innovation and development.
➢ Good growth prospects for galvanized towers for power transmission and
telecom.
➢ A strong growth in infrastructure industry.
➢ Growth in housing sector expected to continue.
➢ Increased export demand for galvanized products and reduction of tariff
barriers.

1.4 NEED OF STUDY

1.4.1 TRANSACTION MOTIVE:

This refers to the need of maintaining inventory to facilitate smooth production and
sales operations.

1.4.2 PRECAUTIONARY MOTIVE:

Precautionary motive for holding inventory is to provide a safeguard when then
actual level of activity is differ than anticipated. This inventory serves when there is
a unpredictable changes in the demand and supply forces.

1.4.3 SPECULATIVE MOTIVE:

This motive influences the decision to increase or decrease the levels of inventory
to take the advantage of price fluctuations.

21
1.5 SCOPE OF THE STUDY
➢ Inventory management is a simple concept-don’t have too much stock and
don’t have too little. Since there can be a substantial costs involved in staying
above and below the optimal range, careful inventory management can make
a huge difference in the right balance can be quite a complex and time
consuming task without the right technology.
➢ Inventory management is very important for “AMMAYAPPER TEXTILES
PRIVATE LIMITED”. It enables the business to meet or exceed expectations
of the customers by making the products readily available.
➢ The scope of the study includes the ABC Analysis of Raw Materials, work in
progress and finished goods for Three Months.
➢ This study provides insight to the management of high value items and also
brings attention of management towards movement of ‘A’ class items over
period of 3 months

1.6 OBJECTIVE OF THE STUDY

1.6.1 Primary Objective

➢ A Study on inventory Management in Ammayapper Textiles Private

Limited
1.6.2 Secondary Objective

➢ To study about the ordering levels for the important components of inventory.
➢ To understand and measure economic order quantity for the selected raw
material items.
➢ To analysis its inventory management methods with the help of
ABC analysis, EOQ analysis etc.
➢ To evaluate the inventory management practices of AMMAYAPPER
TEXTILES PRIVATE LIMITED.
➢ To offer suitable suggestions for the improvement of inventory
management practices.

22
1.7 LIMITATIONS OF THE STUDY

➢ Detail study about all the material was not possible because of time limit.
➢ Some of the information was kept confidential by the stores department
➢ Study was confined only to the selected components in the stores
department

23
 CHAPTER – 2
REVIEW OF LITERATURE

24
2.1 Review Literature

Sastry(2006) It is the most comprehensive study on manufacturers’ inventories.They

used the CMI data and the consolidated balance sheet data of public limited companies
published by the RBI,in order to analyse each of the major components, like the raw
materials, products-in-process and finished products, for 21 industries during 1946-62.
That study was time series one although there were some inter-industry cross-section
analyses that were carried out in the analysis. The Accelerator represented by change
in sales, bank finance as well as short-term rate of interest was found to be an important
determinant. Also utilisation of manufacturing efficiency with price anticipations was
also found to be relevant on study.

George (2001) study on cross section analysis of balance sheet data of 52 public
limited companies . Accelerator, internal and external finance variables were
considered in formulation of equations for raw items that includes goods-in-process
inventories. However, equations for finished goods inventories conceive only output
volatile. Deliberation was given on accelerator and external finance volatiles.

Mishra (2001) study on six major public sector enterprises. He concluded that
inventory constitutes most important component of working fund of public enterprises
efficiency of working funds employed in receivables is terribly low in selected
enterprises and all units both current assets and quick ratios are greater than their
standards. Enterprises need proper control on receivables.

Bansal(2005) study on Materials Management: A case Study of Bharat Heavy

Electricals Limited, Bhopal Unit, (BHEL), has evaluated the existing systems of
inventory management. He emphasises. The need for automatic replenishment
system in the undertaking offer studying the application of ABC analysis and EOQ
technique of inventory control. He also points out the accumulation of surplus stores
and non-moving items in the organization and recommends that the surplus and
absolute stores which are no longer required should be disposed off as early as

25
possible at the best available price. Further, he suggests the preparation of monthly
class wise statements on inventories for effective control over them and the
introduction of reconciliation system of stores ledgers with account ledgers to avoid
misappropriation of stores, and spares for production and operation are above their
actual consumption level. The inventories in general are found to be above their
routine requirements. The holdings of stores and spares corresponding to two to three
years requirements should be considered excess.

Lambrix and Singhvi (2008) Adopted working fund cycle approach in working fund
management, also suggested that investment in working fund can be optimized and
cash flows can be improved by reducing the time frame of physical flow starting from
the receipt of raw material to the shipment of finished goods, i.e. inventory
management, and by improving the terms and conditions on which firm sells goods as
well as receipt of cash.

Lal (2008) study on private limited as a case study, his study focused on inventory
management. He originated a model which involve price variable in inventory
management earlier price variable in inventory was not considered in that company.
The analysis recommended solid policies, which would look after internal and external
factors, ultimately it would help in bringing in efficient working capital management.

Farzaneh (2009) Presented mathematical model, to assist industries on their decision

to switch from EOQ to JIT purchasing policy. He defines JIT as “to produce and deliver
finished goods just in time to be sold, sub-assemblies just in time to be assembled in
goods and purchased material just in time to be transformed into fabricated parts”. He
highlights economic order quantity model describes how can minimizing expenditure
on inventory rather than minimizing stock inventory. In ideal condition where all the
conditions meet, it is economically better off to choose the JIT over the EOQ because
it results on purchase price, request price.

26
Rich Lavely (2002) the stock inventory means “Piles of Money” on the shelf and the
profit for the firm. However, he notices that 30% stock of maximum retail shops being
dead. Thus, he argues the stock control is facilitate shop operations by minimizing rack
time and thus increases business margin. He also elaborates two types on stock
calculations which determine stock level required for business margin. There are two
calculations such as “ordering cost ” and “ keeping cost ”. Finally, he proposes seven
steps for controlling of inventory.

Dave Piasecki (2001) inventory calculating optimum purchase quantity which used
the EOQ method. He points out that many companies are not using EOQ model
because of poor results resulted from inaccurate data input. He says that EOQ is an
accounting formula which determines point at which combination of ordering costs and
stock inventory costs are the least. He highlights that EOQ method would not conflict
with the JIT approach. He further elaborates the EOQ model formula that includes
parameters like yearly usage on unit, order cost and carrying cost. Finally, he proposes
several steps to follow in implementing the EOQ model. Now this litrature limitation is
as it does not elaborate further association among EOQ and JIT. It does not associate
stock turns with EOQ so fails for mention profit gain with associated stock is calculated.

Sambasiva Rao. K(2002) According his investigation on Materials Managing in

Public Sector Ship Building Industry evaluates. Output of materials managing and
identifies some problems faced by materials managing in the heavy engineering
industry. This investigation method involves the 68 documentary evidence and survey
of expert opinion. He evaluates the existing purchase systems and lead time involved
on procurement of stock item and adviced the long lead time shall be reduced. His
research points at additional stock in terms on months poduction cost in all the
engineering units. He also highlights some of the problems in the area on materials
managing such as delay in customer part on supplying own stock item, existence and
disposal of surplus and non-moving items, excessive lead times and excessive
dependence on imports. He claims that administrative and procurement lead times for
organization are on the higher side according to peculiar nature of industry. He

27
suggests liberalized purchase procedures, increased capital powers to the personnel,
Opening up of liaison offices in various countries to reduce the lead time.

Gaur, Fisher and Raman (2005) study examined firm-level inventory behavior among
retailing companies. They took a sample on 311 public-listed retail firms for years
1987–2000 for investigate relationship on stock turnover about gross margin, capital
intensity , sales surprise. All observed that stock aggregate turnover for retailing
company was positively related to capital intensity with sales surprise while inversely
related gross margins.

S. Singh (2006) Analysed stock control exercises on single fertilizer company named
IFFCO. He statistically examined stock level according consumption, sales as well as
other variables along growth on these variables with inventory patterns. He concluded
increments in components of stocks lead to increment in the proportion on stock in
current assets. The special attention was made in stores with spares for calculate
excess purchases resulting

Pradeep singh (2008) study made an attempt to investigate stock with working capital
managing Indian Farmers Fertilizer Cooperative Limited (IFFCO) / National Fertilizer
Limited (NFL).He concluded that overall position of the working fund of IFFCO / NFL is
satisfactory. But there arises need for imrovement in stocking as situation of IFFCO.
Although stock were not properly utilized as well as maintained bay IFFCO during
investigation period. Also managing organization of NFL surely try to properly utilize
stock with try to care stock according to requirements. So that liquidity will not interrupt.

Capkun, Hameri and Weiss (2009) Statistically analysed the association among stock
levels with fund situation in manufacturing companies using capital information on large
sample on US-based production units over a 26-year period, during, 1980 to 2005.
According to them a significant relationship existed between inventory performance
along with the performance of its components and profitability.

28
Gaur and Bhattacharya(2011) Attempted to study the linkage between the
performance of the components of inventory such as raw material, work in progress
and finished goods and financial performance of Indian manufacturing firms. The study
revealed that finished goods inventory as inversely associated with business
performance while raw material inventory and work in progress did not have much
effect on same. They emphasised that instead of focusing on total inventory, an attempt
should be made to concentrate on individual components of inventory so as to
adequately manage the same. They concluded that managers not paying heed to
inventory performance may become weak in combating competitors.

Eneje et al (2012) He researched the changes of raw stock inventory management

system with margin of beer company in Nigeria during data from 1989 to 2008 which
had gathered for analysis from the annual reports of the sampled brewery firms.
Measures of profitability were examined and related to proxies for raw materials
inventory management by brewers. The Ordinary Least Squares (OLS) stated in the
form of a multiple regression model was applied in the analysis. Research analysed
that local variable raw stock inventory managing system design such a way to capturing
changes of efficient management of raw stock inventory on behalf of company in terms
of their margin is significantly strong and positive and influences the profitability of the
brewery firms in Nigeria. They concluded that efficient management of raw material
inventory is a major factor to be contained with by Nigerian brewers in enhancing or
boosting their profitability.

Nyabwanga and Ojera (2012) Their research concentrate relationship among

inventory management with business performance of smallscale enterprises (SSEs),
in Kisii Municipality, Kisii County,Kenya. They used a cross-sectional survey study
based on a small sample size of 79 SSEs. The study inferred that inventory comprised
the maximum portion of working capital, and improper management of working capital
was one of the major reasons of SSE failures. The empirical results disclosed that a
positive significant relationship existed between business performance and inventory
management practices with inventory budgeting having the maximum influence on

29
business performance ensued by shelf-space management. The study suggested that
by following effective inventory management practices business performance can be
enhanced loss of profit.

Sahari, Tinggi and Kadri (2012) They focused on association among the inventory
management system and company performance corresponding to fund capability.
Therefore according to that reason they looked 82 sample construction company in
Malaysia during period of 2006– 2010. Using the regression and correlation analysis
methods, they deduced that inventory management is positively correlated with firm
performance. In addition, the results indicate that there is a positive link between
inventory management and capital intensity.

Lwiki et al (2013) A survey conducted on all the eight (8) sugar manufacturing firms in
Kenya established that there is generally positive correlation between each of inventory
management practices.Specific performance indicators were proved to depend on the
level of inventory management practices. They established that Return on Equity had
a strong correlation with lean inventory system and strategic supplier partnerships. As
such, they concluded that the performance of sugar firms could therefore be stated as
being a function of their inventory management practices.

Panigrahi (2013) According to his analysis inventory management practices used by

Indian cement firms and their effects must be on working fund efficiency. The study
also investigated the relationship between profitability and inventory conversion days.
The study, using a sample of the top five cement companies of India over a period of
10 years from 2001 to 2010, concluded there must be exist inverse relationship among
conversion period of inventory and profit margin.

Madishetti and Kibona (2013) Found that a well designed and executed inventory
management contributes positively to a small or medium-sized enterprises (SMEs)
profitability. They studied the association between. inventory conversion period and
profitability and the impact of inventory management on SMEs profitability. They took

30
a sample of 26 Tanzanian SMEs, and used the data fromfinancial statements for the
period 2006–2011. Regression analysis was adopted to determine the impact of
inventory conversion period over gross operating profit. The results cleared out that
significant negative linear relationship occurred between inventory conversion period
and profitability.

Srinivas Rao Kasisomayajula (2014) The research title based on the” Inventory
Management in Commercial Vehicle Industry In India”. There were five sample firms
had preffered for study. The study concluded that all the units in the commercial vehicle
industry have significant relationship between Inventory and Sales. Proper
management of inventory is important to maintain and improve the health of an
organization. Efficient management of inventories will improve the profitability of the
organization.

Edwin sitienei And Florence Membea (2015) Conducted Effect of Inventory

Management on profitability of Cement Manufacturing Companies in Kenya. The
study concluded that Gross profit margin is negatively correlated with the inventory
conversion period, Increase in sales, which denotes the firm size enriches the firm’s
inventory levels, which pushes profits upwards excessive stock in warehouses. due
to optimal inventory levels. It is also noted that firms inventory systems must maintain
an appropriate inventory levels to enhance profitability and reduce the inventory costs
associated with holding

31
 CHAPTER – 3
RESEARCH METHODOLOGY

32
3.1 RESEARCH DESIGN
Research Design used in this study is Inventory. This research is a study to designed
the depict of the participants in an accurate way. More simply put, descriptive research
is all about describing people who take part in the study

3.2 SAMPLING TECHNIQUE

Sampling is the process is discussinons with The executives divison . To study about
the ordering levels for the important components of inventory.To understand and
measure economic order quantity for the selected raw material items.

3.3 SOURCE OF DATA

3.3.1 Secondary data

The data has been gathered through interaction and discussions with the executives
working in the division. Some important information has been gathered through couple
of unstructured interviews of executive.

3.4 PERIOD OF STUDY

The period of study is from dec 2020 to Feb 2021 (3 Months).

3.5 TOOLS FOR ANALYSIS

❖ ABC analysis
❖ EOQ
❖ The Re-order level
❖ Inventory Turnover Ratio

3.5.1 ABC ANALYSIS:

➢ ABC analysis is an inventory categorization technique.
➢ A-items with very tight control and accurate records.
➢ B-items with less tightly controlled and good records
➢ C-items with the simplest controls possible and minimal records
33
3.5.2 ECONOMIC ORDER QUANTITY:
EOQ is the ideal order quantity a company should purchase to minimize inventory
costs such as holding costs, shortage costs, and order costs.

3.5.3 THE RE-ORDER LEVEL

The re-order level is the level of inventory at which the fresh order for that item must
be placed to procure fresh supply. The re-order level depends upon.

3.5.4 INVENTORY TURNOVER RATIO

This ratio is often a firm’s inventory turns over during the course of the year. Because
inventories are the least liquid form of assets, a high inventory turnover ratio is
generally positive. On the other hand, and usually high ratio compared to the
average for the industry could mean a business is losing sales because of
inadequate stock on hand

34
 CHAPTER – 4
DATA ANALYSIS AND INTERPRETATION

35
4. DATA ANALYSIS

4.1 ABC Analysis

* It is based on proposition that
* Managerial items and efforts are scare and limited.
* Some items of inventory are some important than others.

ABC Analysis
➢ ABC analysis classifies various inventory into three sets or groups of priority
the allocates managerial efforts in proportion of The priority the most
important item are classified into class - A,
➢ Those of intermediate importance are classified as “class - B’’ and remaining
items are classified into class - C’.
➢ The financial manager has to monitor the items belonging to monitor the items
belonging to different groups in that order of priority and depending upon the
consumptions.
➢ The items with the highest values is given priority and soon and are more
controlled then low value item. The re - rational limits are as follows.

Table 4.1.1 Table Showing The re - rational limits

Category % of items % of total cost of

materials
A 5 – 10 70 – 85
B 10 – 20 10 – 20
C 70 – 85 5 – 10

36
Procedure
Items with the highest value is given top priority and soon.There after cumulative
totals of annual valu consumption are Expressed as percentage of total value of
consumption. Then these percentage values are divided into three categories. ABC
analysis helps in allocating managerial efforts in proportion to importance of various
items of inventory.
Table 4.1.2 Table Showing Amount Raw material (at closing stock)
MONTHS AMOUNT OF RAW MATERIALS
DECEMBER 274.94
JANUARY 582.11
FEBRUARY 858.17
Sources: Secondary Data

Amount Of Raw Materials

1000
900
800
700
600
500
400 858.17
300 582.11
200
274.94
100
0
DEC JAN FEB

Amount Of Raw Materials

Chart 4.1.2 Chart Showing Amount of Raw material

Interpretation:
The above graph shows Amount of Raw Materials. In Dec 2020 the cost of material
is 274.94 rs increased in this month and in Jan 2021 it is decreased to rs 582.11 in
the month Feb 2021 it is increased to 858.17.
Inference:
The Amount Of Raw Materials Increased in Feb 2021 (858.17)

37
Table 4.1.3 Table Showing Stock in process (at closing stock):-

MONTHS AMOUNT OF STOCK

DECEMBER 206.20
JANUARY 82.67
FEBRUARY 122.82
Sources: Secondary Data
250

200

150

100 206.2

122.82
50
82.67

0
DEC JAN FEB

Amount of Stock

Chart 4.1.3 Chart Showing Amount of Stock

Interpretation:
The above graph shows that work in progress at cost. In Dec 2020 the cost of
material is 206.20 rs increased in this month and in Jan 2021 it is decreased to rs
82.67 in the month Feb 2021 it is increased to 122.82 .
Inference:
The Amount Of stock Increased in Dec 2020 (206.20)

38
 Table 4.1.4 Table Showing Finished goods (at closing stock):-

MONTHS AMOUNT OF FINISHED GOODS

DECEMBER 2704.08
JANUARY 6717.44
FEBRUARY 5019.79
Sources: Secondary Data

8000

7000

6000

5000

4000
6717.44
3000
5019.79
2000
2704.08
1000

0
DEC JAN FEB

Amount Of Finished Goods

Chart 4.1.4 Chart Showing Amount Finished goods

Interpretation:
The above graph shows the amount of finished goods at cost. In Dec 2020 the cost
of material is 2704.08 rs.It is increased to rs6717.44 in the month Jan 2021.It is
decreased in the month Feb 2021 the cost of goods is rs 5019.79
Inference:
The Amount of Finished goods is Increased in Jan 2021(6717.44) Decreased in
Feb 2021(5019.79)

39
Table 4.1.5 Table Showing Stores, spares & consumables (closing stock):-

MONTHS COST OF STORES, SPARES AND CONSUMABLES

DECEMBER 673.25
JANUARY 1628.44
FEBRUARY 3617.38
Sources: Secondary Data

4000

3500

3000

2500

2000
3617.38
1500

1000
1628.44
1
500
637.25
0
DEC JAN FEB

Amount Of Stores, spares & consumables

Chart 4.1.5 Chart Showing Amount Of Stores, spares & consumables

Interpretation:
The above graph shows the amount of stores and spares at cost. In Dec 2020 the
consumable is rs673.25 and it is highly increased to rs 1628.44 in the month Jan
2021.The form maintains goods in proper way rs 3617.38 in the month Feb 2021 .
Inference:
The Amount of stores and spares increased month Feb 2021

40
 Table 4.1.6 Table Showing Amount Raw material consumed:-

MONTHS AMOUNT OF RAW MATERIAL CONSUMED

DECEMBER 65875.45
JANUARY 68699.73
FEBRUARY 172305.70

Sources: Secondary Data

200000

180000

160000

140000

120000

100000
172305.7
80000

60000

40000
65875.45 68699.75
20000

0
DEC JAN FEB

AMOUNT OF RAW MATERIAL CONSUMED

Chart 4.1.6 Chart Showing Amount of Raw material consumed

Interpretation:
The above graph shows consumption of raw materials .The consumption of raw
material in the month Dec 2020 is rs 65875.45 the consumption of raw material
increased in the Month Jan -Feb in the rs 172305.70
Inference:
The Amount of Raw materials consumption increased month Feb 2021(172305.70)

41
4.2 Economic order quantity:

Table 4.2.1 Table Showing EOQ During Dec 2020 -Jan 2021:
The firm requires below given units of material for manufacturing of clothes.
The following are the details of their operation during .

PARTICULARS
Billets/Blooms 28,889 Qty (mt)
Ordering cost per Rs. 2000
Order
Carrying cost 10%
Purchase price per 400
Unit
Sources: Secondary Data

Calculation of EOQ:-
Total units required (A) =28889
The ordering cost per order (O) =Rs.2000
Carrying cost per unit (C) =10%
(i.e.) 10% of Rs.400 =Rs.40
EOQ =⌐√2AO/C
=2*28889* 2000/40
=Rs.1699.67
Number of orders for the year = A/EOQ
=2889/1699.67
=16.99~17orders

Total annual cost = carrying cost + ordering cost

= 1445000+ 34000
= Rs.1479000

42
➢ Carrying cost = order size * average
inventory

• order size = A/no of orders

=28889/17

= 1699.67

• Average inventory = order size/2

=1700/2
= Rs.850

• Carrying cost = 1700*S850

= Rs.1445000

• Ordering cost = cost per order * no of orders

= 2000*17

=Rs.34000
Interpretation:
The above Details Showing EOQ During Dec 2020 -Jan 2021.The The firm requires
Above given units of material for manufacturing of clothes. The following details
1699.67 their operation For Two Months.
Inference:
The EOQ During Dec 2020 -Jan 2021(1699.67)

43
4.2.2 Table Showing EOQ DURING Jan 2021-Feb 2021
The firm requires below given units of material for manufacturing of clothes. The
following are the details of their operation during Jan 2021-Feb 2021.

PARTICULARS
Billets/Blooms 123596Qty
(Mt)
Ordering cost per order 2200
Carrying cost 10%
Purchase price per unit Rs 420
Sources: Secondary Data

Calculation of EOQ:-
Total units required (A) =123596mt
The ordering cost per order (O) =Rs.2200
Carrying cost per unit (C) =10%
(i.e.) 10% of Rs.2000 =Rs.42
EOQ = √2AO/C
= 2*123596*2200/42
= Rs.3598.354

Number of orders for the month = A/EOQ

= 123596/3598.354
= 34.79~35orders

Total annual cost = carrying cost + ordering cost

= 6245669+ 77000
= Rs.6322669

44
Carrying cost = order size average inventory

• order size = A/no of orders

= 123596/35

= 3531.31

• Average inventory = order size/2

= 3531.1/2
= Rs.1768.65

• Carrying cost = 3531.31*1768.655

= Rs.6245669

• Ordering cost = cost per order * no of orders

= 2200 *35

= Rs.77000

Interpretation:
The above details Showing EOQ During Jan 2021 -Feb 2021.The firm requires
below given units of material for manufacturing of clothes. The following details
3598.354 of their operation For Two Months.
Inference:
EOQ During Jan 2021 -Feb 2021(3598.354)

45
4.3 THE RE-ORDER LEVEL

The re-order level is the level of inventory at which the fresh order for that item must
be placed to procure fresh supply. The re-order level depends upon.Length of time
between the placement of an order and receiving the supply.The usage rate of the
item. The inventory is constantly being used up. The rate at which the inventory is
being used up. The rate at which the inventory is being used up is called the usage
rate.

4.3.1 The reorder level can be determined as follows:

R= M+TU
R=Reorder level
M=Minimum Level Of Inventory
Time =time gap/delivery time
U=Usage Rate
The figure shows that if the usage rate is constant, the order are made at even
intervals for the same amounts each time and the inventory goes to zero just before
an order is received.

4.4 Safety stock:

The safety stock protects firm from tradeoffs due to unanticipated demand for the
items level of inventory investments is however increased by the amount of safety
stock. Safety level is ascertained in inventory as a part because there is always
an uncertainly involved in time lag usage rate or other factors. Usually smaller the
safety level greater the risk of stock – outs. If stock levels are predictable then there
is a chance of stock out occurring. However stock inflows and outflows are
unpredictable or lesser predictable it becomes to carry additional safety to prevent
unexpected stock outs so usage rate is estimated if cost is low then no safety stock
is needed.

46
4.4.1 Just – In – Inventory:
The Basic concept is that every firm should keep a minimum level of inventory on
hand, relying suppliers to furnish just in time as and when required. JIT helps in
emphasizing sufficient level of stock to ensure that production will not be
interrupted. Although the large inventories may be had idea due to heavy carrying
JIT is a modern approach to inventory management and the goal is essentially to
minimize such inventories and there by maximizing turnover.
JIT system significantly reduces inventory carrying cost be requiring that the raw
material be procured just in time to be placed into production. Additionally the work
in process inventory is minimized by eliminating inventory buffers between different
production departments.
If JIT is to be implemented successfully there must be a high degree of coordination
and co operation between the supplier and manufacturer and among different
production centers. JIT does not appear to have any relation with EOQ however it
is in fact alters some of the assumptions of EOQ model. The average inventory
level under the EOQ model is defined as

Average inventory =1/2EOQ+safety level JIT attacks this equation in two ways.

By reducing the order cost.

By reducing the safety stock.
Inventory and delivery time to a bare minimum through adjustment EOQ model, will
more than offset the costs associated with the increased possibility of stock – outs.

4.5 Inventory Turnover Ratio

What it is
This ratio is often a firm’s inventory turns over during the course of the year. Because
inventories are the least liquid form of assets, a high inventory turnover ratio is
generally positive. On the other hand, and usually high ratio compared to the
average for the industry could mean a business is losing sales because of
inadequate stock on hand.

47
When to use it
If a firm’s business has significant assets tied up in inventory, tracking its turnover
is critical to successful planning. If inventory is turning too slowly, it could indicate
that is may be hampering the firm’s cash flow. Because this ratio judge’s annual
inventory turns, it is usually conducted once a year.

Table 4.5.1 Table Showing Inventory Turnover Ratio

The formula: cost of goods sold

Average value of inventory

MONTH COST OF GOODS AVG VALUE INVENTORY

SOLD OF INVENTORY TURN OVER
RATIO
DECEMBER 70340.33 4076.86 17.25
JANUVERY 75687.45 4800.64 15.76
FEBUVARY 184082.21 12583.99 14.63

Sources: Secondary Data

48
4.5.1 Chart Showing Inventory Turnover Ratio

17.5

17

16.5

16

15.5
17.25
15

14.5
15.76
14
14.63
13.5

13
DEC JAN FEB

Inventory Turnover Ratio

Interpretation:
The above graph shows inventory turnover ratio of the form. The ratio can be
continuously increased from the year Dec 2021 -Feb 2020.The turnover ratio of the
form is 17.25 in the Month dec 2020. The decreased turnover shows good consumption
of raw material.

Inference:
Inventory Turnover ratio increased in the Month Dec 2020 (17.63)

49
4.5.3 STOCK LEVELS
4.5.3.1 During Dec 2020- Jan 2021
The company Required to 28889 units of billets/blooms to manufacture of
Cloths for the month Dec 2020-jan 2021.EOQ is 1700 units. The company makes
safety stock equal to 30 day requirement and the normal lead time is 10-20 days.
The company works for 300days in a year.
a. Reorder level = lead time*Average usage+ safety stock
= (10*96.29) + 2888.9
= 3851.9
i.Safety = usage * period of safety stock/ total
stock working days in a year

= 28889*30/300

= 2888.9
ii.Average = usage/total working days in a year
usage

= 28889/300

= 96.29
b. Minimum stock level = re-order level –(Average usage *
Average
lead time)
= 3851.9 – (96.29* 10+20/2)
= 2408
c. Maximum stock level = re-order level + re-ordering quantity-
(Minimum usage * minimum lead time)
= 3851.9+1700-(96.29*10)
= 5551.9-962.9
= 4589
d. Average stock level = ½(Minimum stock level + Maximum
Stock Level)
= 2408+4589/2
= 3496

50
Interpretation:

The company required to 28889 units of billets/blooms to manufacture of Cloths

for the month Dec 2020-jan 2021.EOQ is 1700 units. The company makes safety
stock equal to 30 day requirement and the normal lead time is 10-20 days

Inference:
The average stock level is Dec 2020-Jan 2021(3496)

51
4.5.3.2 During Jan 2021-Feb 2021
The company requires 123596 units of billets/blooms to manufacture of
Cloths for the month Jan 2021-Feb 2021.EOQ is 3335 units. The company
makes safety stock equal to 30 day requirement and the normal lead time is 10-
20 days. The company works for 300days in a year.
a. Reorder level = lead time*Average usage+ safety
stock
= (10*412) + 12360
= 16480
i. Safety = usage * period of safety stock/ total
stock working days in a year

= 123596*30/300

= 12360
ii. Average
= usage/total working days in a year
usage

= 123596/300

= 412

b. Minimum stock level = re-order level – (Average usage *

Average lead time)
= 16480 – (412* 10+20/2)
= 10300
c. Maximum stock level = re-order level + re-ordering quantity-
( Minimum usage*Minimum lead time)
= 16480+3335-(412*10)
= 19815-4120
= 15695
e. Average stock level = ½(Minimum stock level + Maximum
stock Level)
= 10300+15695/2
= 13000

52
Interpretation:
The company requires 123596 units of billets/blooms to manufacture of Cloths
for the month Jan 2021-Feb 2021.EOQ is 3335 units. The company makes
safety stock equal to 30 day requirement and the normal lead time is 10-20 days.

Inference:
The average stock level is Jan 2021-Feb 2021 (13000)

53
 CHAPTER- 5
FINDINGS & SUGGESTIONS
& CONCLUSION

54
5.1 FINDINGS:

➢ It was found that the company is consuming same raw material as per ABC
classification as ‘A’ class items ‘B’ class items and ‘C’ class items.

➢ Basically, the company was running on the basis of job work so, inventory
management is not given that much importance.

➢ Even the carrying cost is high which constant for 3 months as it had a greater
impact on inventory maintenance cost.

➢ In general, when orders increase automatically EOQ decreases which

inversely proportional. EOQ for the past 3 months shows that the company
is going for few orders.

➢ Generally, it is a known fact that the month consumption of raw materials

increases month by month as companies growing. In such a way annual
consumption from Dec 2020 to Feb 2021 has also increased.

55
5.2 SUGGESTIONS:

➢ As the company converted into own sales it should have its own inventory
policy which can produce better results by minimizing costs.

➢ The company has to implement a ABC analysis, which literally reduces

inventory cost.

➢ As the company is going for wide expansion so Ammayappar textils should

pay much more attention to research and development.

➢ Even though inventory conversion the period is moderately good, still there
are a lot of scopes to improve it.

56
5.3CONCLUSION
Inventory management has to do with keeping accurate records of
finished goods that are ready for shipment. This often means posting the
production of newly completed goods to the inventory totals as well as
subtracting the most recent shipments of finished goods to buyers. When the
company has a return policy in place, there is usually a sub-category contained
in the finished goods inventory to account for any returned goods that are
reclassified or second grade quality.Accurately maintaining figures on the
finished goods inventory makes it possible to quickly convey information to sales
personnel as to what is available and ready for shipment at any given
time.Inventory management is important for keeping costs down, while meeting
regulation. Supply and demand is a delicate balance, and inventory
management hopes to ensure that the balance is undisturbed. Highly trained
Inventory management and high-quality software will help make Inventory
management a success. The ROI of Inventory management will be seen in the
forms of increased revenue and profits, positive employee atmosphere, and on
overall increase of customer satisfaction.

57
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➢ Abramovitz & Modigliani, Franco (2007), “Business Reasons for Holding

Inventories and Their Macro Economic Implications”, Problems of Capital
Formation,Studies in Income and Wealth, Vol. 19, NBER, pp. 495-511.

➢ Anichebe, N. A. & Agu, O. A. (2013). Effect of Inventory Management on

Organizational Effectiveness. Information and Knowledge Management,
vol.3 ,iss.8, pp. 92 – 100.

➢ Bansal G.D., 2009, ‘Materials Management: A Case Study of Materials

Management in Bharat Heavy Electricals Limited (BHEL)”, Bhopal Unit’,
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➢ Capkun, Vedran, Hameri, Ari-Pekka & Weiss, Lawrence A. (2009). On the

relationship between inventory and financial performance in manufacturing.
International Journal of Operations & Production Management, vol.29,
iss.8,pp.789–806.

➢ Edwin Sitienei, Florence Memba(2015-16) “ The Effect of Inventory

Management on Profitability of Cement Manufacturing Companies in
Kenya: A Case Study of Listed Cement Manufacturing Companies in
Kenya” InternationalJournal of Management and Commerce Innovations
Vol. 3, Iss. 2, pp. 111-119.

➢ Eneje, B. C., Nweze, A .U. & Udeh, A. (2012). Effect of Efficient Inventory
Management on Profitability: Evidence from Selected Brewery Firms in
Nigeria. International Journal of Current Research, vol.4, iss.11, pp.350-
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➢ Gaur, Jighyasu & Bhattacharya, Sourabh. (2011). The relationship of
financial and inventory performance of manufacturing firms in Indian
context. California Journal of Operations Management, vol. 9, iss.2,pp.70–
77.

➢ George, P. V (2005), “Inventory Behaviour and Efficacy of Credit

Control”, Anvesak,No.2, Vol.II, 2005, pp. 168-175. [7Investment and
Financing in Corporate Sector in India, Tata McHill publishing
Company, New Delhi, 2006.

➢ Krishnamurthy S. & Sastry D.U.,inventories in Indian Manufacturing,

Institute of Economic Growth…, Books Ltd., Mumbai, 2014.

➢ Krishnamurty K., “Private Investment Behaviour in India: A Macro Time

SeriesStudy”, Arthaniti, January 2012.

➢ Krishnankutty, Raveesh. (2011). Panel data analysis on retail inventory

productivity.The Economic Research Guardian 1(1),pp.16–23.

➢ Lambrix, R.J and Singhvi, S.S (2003), “Managing the Working Capital
Cycle”,Financial Executive, June 2003, pp. 32-41. 11] Lal, A.B (2004),
“Inventory Models and Problems of Price Fluctuation”, Shree Publishing
House, New Delhi, 2004.

➢ Lieberman, M.B. & Demeester, L. (2001). Inventory reduction and

productivity growth: Linkages in the Japanese automotive industry.
Management Science, vol.45, iss.4, pp.466–476.

➢ Madishetti, Srinivas & Kibona, Deogratias. (2013). Impact of inventory

management on the profitability of SMEs in Tanzania. Internation
Commerce & Management, vol.4,iss.2, pp.1–6.

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➢ Mishra (2015), “Problems of Working Capital with special reference to
selected Public Sector Undertakings in India”, Somiya Publications Private
Limited, 2015.

➢ NCAER, Structure of Working Capital, New Delhi, 2007. Administrative

Reforms Commission, Report on Public Sector Undertakings, New Delhi,
2007.

➢ Nyabwanga, Robert Nyamao & Ojera, Patrick. (2012). Inventory

managementpractices and business performance for small scale
enterprises in Kenya. KCA Journal of Business Management, vol.4,iss.1,
pp.11–28.

➢ Panigrahi, Ashok K. (2013). Relationship between inventory management

and profitability: An empirical analysis of Indian cement companies. Asia
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➢ Pradeep Singh(2008),” Inventory and Working Capital Management- An

Empirical Analysis”, The ICFAI Journal of Accounting and Research,
Vol.VII, NO.2, pp.53-73.

➢ Sambasiva Rao K., Singh, Sukhdev. (2006). Inventory control practices in

IFFCO.The Management Accountant, vol.41,iss.7, pp.577–582.

➢ Sanjiv Mittal, R.K. Mittal ,Gagandeep Singh, Sunil Gupta (2014).”Inventory

Management in Fertiliser Industry of India: An Empirical Analysis” Asia-
PacificJournal of Management Research and Innovation ,vol.10,iss.4,pp.
291–303.

➢ Soni, Anita. (2012). Inventory management of engineering goods industry

in Volume : 5 | Issue : 8 | August 2016 ISSN - 2250-1991 | IF : 5.215 | IC

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 Value : 77.65 216 | PARIPEX - INDIAN JOURNAL OF RESEARCH Punjab:
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➢ Srinivasa Rao Kasisomayajula(2014) “An Analytical Study on Inventory

Managementin Commercial Vehicle Industry in India”, International Journal
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Performance of the firm” IOSR Journal of Business and Management
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➢ Bosman, Ruud, The New Supply Chain Challenge: Risk Management in a

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62
 APPENDIX – I

AMOUNT OF DECEMBER JANUARY FEBRUARY

MATERIAL
RAW MATERIALS 274.94 582.11 858.17
AMOUNT OF STOCK 206.20 82.67 122.82
AMOUNT OF FINISHED 2704.08 6717.44 5019.79
GOODS
COST OF STORES, 673.25 1628.44 3617.38
SPARES AND
CONSUMABLES
AMOUNT OF RAW 65875.45 68699.73 172305.70
MATERIAL
CONSUMED
COST OF GOODS AND 70340.33 75687.45 184082.21
SOLD
 APPENDIX – II

ARTICLE
A STUDY OF INVENTORY MANAGEMENT IN AMMAYAPPER
TEXTILES PRIVATE LIMITED

PETER FELIX A

(Student , School of Management Studies, Sathyabama Institute of Science

and Technology, Chennai.)

Dr. DHIVYA SATHISH

(Assistant professor School of Management Studies, Sathyabama Institute

of Science and Technology, Chennai.,)

ABSTRACT
Traditional inventory models focus on risk-neutral decision makers, i.e.
characterizing replenishment strategies that maximize expected total profit, or
equivalently, minimize expected total cost over a planning horizon. we propose a
framework for incorporating risk aversion in multi-period inventory models as well
as multi-period models that coordinate inventory and pricing strategies.The
objective of inventory management is explained in some detail sections. Section two
is concerned with inventory management techniques. Attention is given here to basic
concepts relevant to the management and control of inventory. The data has been
gathered through interaction and discussions with the executives working in the
division.Some important information has been gathered through couple of
unstructured interviews of executive.
INTRODUCTION

The Inventory Management is concerned with the duties of the finical manager in the
business firm. Financial managers actively manage the financial affairs of any type
of business, namely financial and non-financial, private and public, large and small,
profit seeking and non-profit. They perform such varied task, as budgeting, financial
forecasting, cash management, credit administration, investment analysis, funds
management and inventory management. A term inventory refers to the stock file
of the products a firm is offering for sale and the components that make up the
product. In other words, inventory is composed of assets that will be showed in future
in the normal course of the business operations.

REVIEW OF LITERATURE

Gaur and Bhattacharya (2011) Attempted to study the linkage between the
performance of the components of inventory such as raw material, work in progress
and finished goods and financial performance of Indian manufacturing firms. The study
revealed that finished goods inventory as inversely associated with business
performance while raw material inventory and work in progress did not have much
effect on same. They emphasised that instead of focusing on total inventory, an attempt
should be made to concentrate on individual components of inventory so as to
adequately manage the same. They concluded that managers not paying heed to
inventory performance may become weak in combating competitors.

Eneje et al (2012) He researched the changes of raw stock inventory management

system with margin of beer company in Nigeria during data from 1989 to 2008 which
had gathered for analysis from the annual reports of the sampled brewery firms.
Measures of profitability were examined and related to proxies for raw materials
inventory management by brewers. The Ordinary Least Squares (OLS) stated in the
form of a multiple regression model was applied in the analysis. Research analysed
that local variable raw stock inventory managing system design such a way to capturing
changes of efficient management of raw stock inventory on behalf of company in terms
of their margin is significantly strong and positive and influences the profitability of the
brewery firms in Nigeria. They concluded that efficient management of raw material
inventory is a major factor to be contained with by Nigerian brewers in enhancing or
boosting their profitability.

Nyabwanga and Ojera (2012) Their research concentrate relationship among

inventory management with business performance of smallscale enterprises (SSEs),
in Kisii Municipality, Kisii County,Kenya. They used a cross-sectional survey study
based on a small sample size of 79 SSEs. The study inferred that inventory comprised
the maximum portion of working capital, and improper management of working capital
was one of the major reasons of SSE failures. The empirical results disclosed that a
positive significant relationship existed between business performance and inventory
management practices with inventory budgeting having the maximum influence on
business performance ensued by shelf-space management. The study suggested that
by following effective inventory management practices business performance can be
enhanced . loss of profit.

OBJECTIVES

Primary Objective

A Study on Inventory Management In Ammmayapper Textiles Private

Limited

Secondary Objective

➢ To study about the ordering levels for the important components of inventory.
➢ To understand and measure economic order quantity for the selected raw
material items.
➢ To analyze its inventory management methods with the help of
ABC analysis, EOQ analysis etc.
RESEARCH METHODOLOGY

Research Design used in this study is Inventory. This research is a study to designed
the depict of the participants in an accurate way. More simply put, descriptive research
is all about describing people who take part in the study The data has been gathered
through interaction and discussions with the executives working in the division. Some
important information has been gathered through couple of unstructured interviews of
executive.

DATA ANALYSIS AND INTERPRETATION

ABC Analysis
ABC analysis classifies various inventory into three sets or groups of priority
the allocates managerial efforts in proportion of The priority the most important item
are classified into class - A,Those of intermediate importance are classified as “class
- B’’ and remaining items are classified into class - C’.
Amount Raw material (at closing stock)
Table 4.1.2 Table Showing Amount Raw material (at closing stock)
MONTHS AMOUNT OF RAW MATERIALS
DECEMBER 274.94
JANUARY 582.11
FEBRUARY 858.17

Interpretation:
The above graph shows Amount of Raw Materials. In Dec 2020 the cost of material
is 274.94 rs increased in this month and in Jan 2021 it is decreased to rs 582.11 in
the month Feb 2021 it is increased to 858.17.
Inference:
The Amount Of Raw Materials Increased in Feb 2021 (858.17)
Economic order quantity:
EOQ During Dec 2020 -Jan 2021:
The firm requires below given units of material for manufacturing of
clothes. The following are the details of their operation during .

PARTICULARS
Billets/Blooms 28,889 Qty (mt)
Ordering cost per Rs. 2000
Order
Carrying cost 10%
Purchase price per 400
Unit

Interpretation:
The above Table Showing EOQ During Dec 2020 -Jan 2021.The The firm
requires below given units of material for manufacturing of clothes. The following
are the details of their operation For Two Months.
Inference: Inference:
Inference:
The Amount Of Raw Materials Increased in Feb 2021 (858.17)

Inventory Turnover Ratio

This ratio is often a firm’s inventory turns over during the course of the year.
Because inventories are the least liquid form of assets, a high inventory turnover
ratio is generally positive. On the other hand, and usually high ratio compared to
the average for the industry could mean a business is losing sales because of
inadequate stock on hand.

The formula: cost of goods sold

Average value of inventory

 MONTH COST OF GOODS AVG VALUE INVENTORY
SOLD OF INVENTORY TURN OVER
RATIO
DECEMBER 70340.33 4076.86 17.25
JANUVERY 75687.45 4800.64 15.76
FEBUVARY 184082.21 12583.99 14.63

Interpretation:
The above Table shows inventory turnover ratio of the form. The ratio can be
continuously decreased from the year Dec 2021 -Feb 2020.The turnover ratio of the
form is 17.25 in the Month dec 2020. The decreased turnover shows good
consumption of raw material
Inference:
Inventory Turnover ratio increased in the Month Dec 2020 (17.63)

FINDINGS:
It was found that the company is consuming same raw material as per ABC
classification as ‘A’ class items ‘B’ class items and ‘C’ class items.Basically, the
company was running on the basis of job work so, inventory management is not
given that much importance.Even the carrying cost is high which constant for 3
months as it had a greater impact on inventory maintenance cost.In general, when
orders increase automatically EOQ decreases which inversely proportional. EOQ
for the past 3 months shows that the company is going for few orders Generally, it
is a known fact that the month consumption of raw materials increases month by
month as companies growing. In such a way annual consumption from Dec 2020 to
Feb 2021 has also increased.

SUGGESTION:
As the company converted into own sales it should have its own inventory policy
which can produce better results by minimizing costs.The company has to
implement a ABC analysis, which literally reduces inventory cost.As of company is
going for wide expansion in Ammayappar textils should pay much more attention to
research and development.Even though inventory conversion the period is
moderately good, still there are a lot of scopes to improve it.

CONCLUSION
Inventory management has to do with keeping accurate records of finished
goods that are ready for shipment. This often means posting the production of
newly completed goods to the inventory totals as well as subtracting the most
recent shipments of finished goods to buyers. When the company has a return
policy in place, there is usually a sub-category contained in the finished goods
inventory to account for any returned goods that are reclassified or second grade
quality. Accurately maintaining figures on the finished goods inventory makes it
possible to quickly convey information to sales personnel as to what is available
and ready for shipment at any given time.

REFERENCES:
➢ Bansal G.D., 2009, ‘Materials Management: A Case Study of Materials
Management in Bharat Heavy Electricals Limited (BHEL)”, Bhopal Unit’,
Ph.D., thesis submitted to Jiwaji University, Gwalior.

➢ George, P. V (2005), “Inventory Behaviour and Efficacy of Credit

Control”, Anvesak,No.2, Vol.II, 2005, pp. 168-175. [7Investment
and Financing in Corporate Sector in India, Tata McHill publishing
Company, New Delhi, 2006.

➢ Lal, A.B (2004), “Inventory Models and Problems of Price Fluctuation”,

Shree Publishing House, New Delhi, 2004.

➢ Lambrix, R.J and Singhvi, S.S (2003), “Managing the Working Capital
Cycle”,Financial Executive, June 2003, pp. 32-41.

➢ Mishra (2015), “Problems of Working Capital with special reference to

selected Public Sector Undertakings in India”, Somiya Publications Private
Limited, 2015.