INVENTORY MANAGEMENT

SUMMER INTERNSHIP PROJECT

S.S.DEMPO COLLEGE OF COMMERCE AND ECONOMICS

STUDY OF INVENTORY MANAGEMENT

A Joint Venture of Crompton Greaves Ltd. & PPI Adhesive
Products Ltd. Ireland

Name: Narendra N Chhetri

Roll No: 03

Page | 1

INVENTORY MANAGEMENT

DECLARATION
I hereby declare that the study entitled INVENTORY MANAGEMENT in the
context of CG-PPI ADHESIVE PRODUCTS LIMITED in the partial
fulfillment of therequirement for the award of BACHELOR IN BUSINESS
ADMINISTRATION is a record of my own work. This study was conducted of
Finance Department, Purchase Department and Stores Department, CG-PPI
ADHESIVE PRODUCTS LIMITED.
The matter embodied in this project report has not submitted to any other
University or Institution for the award of degree. This project is my original work
and it has not been presented in this manner. This information is purely of
academic interest.

Page | 2

INVENTORY MANAGEMENT

TABLE OF CONTENTS
S.No
.
1
2
3
4
5
6
7
8
9

10
11
12
13
14
15
16
17
18

Particulars
Acknowledgement
Executive Summary
About the company
History of CG-PPI Adhesive Products Limited
Vision and Mission
Quality Policy
Products
Organizational Structure
Introduction to the study i.e. INVENTORY MANAGEMENT
a) Objectives of Project
b) Methodologies
c) Limitation to the study
Operating Cycle of company
Ratio Analysis
Analysis of EOQ
Safety Stock and Reorder Level
Process of Physical Inventory Maintenance
ABC analysis
Findings
Suggestions
Conclusion

Page No.
4
5
6
7
8
9
10
12
13
13
14
14
15
20
30
35
39
44
46
47
47

Page | 3

INVENTORY MANAGEMENT

ACKNOWLEDGEMENT
I have great pleasure in expressing my sincere gratitude to Mrs. MAMATA KANE
Faculty member of S.S.DEMPO COLLEGE OF COMMERCE AND ECONOMICS
COLLEGE for her support in conducting the study.
I have an opportunity to express my sincere thanks to Mrs. SONIYA ANGLE (BBA
DEPT. HEAD) S.S.DEMPO COLLEGE OF COMMERCE AND ECONOMICS
COLLEGE in conducting the study.
I have immense pleasure in expressing my gratitude to MR. RAVINDRA
MURGAONKAR (OPERATION MANAGER) CG-PPI ADHESIVE PRODUCTS
LIMITEDfor his generosity in allowing me to do the project.
My sincere thanks to MR .RANE ( STORE MANAGER) for getting me this
opportunity and my sincere thanks toSANJAY SIR (PURCHASE MANAGER) for
finding me with necessary details pertaining to my study.
At the end, I take this opportunity to express my deepest gratitude to all those people
without whose consistent support, co-operation, guidance, encouragement and
understanding, this project would never have been successfully completed.

NARENDRA CHHETRI

Page | 4

INVENTORY MANAGEMENT
EXECUTIVE SUMMARY
Title of the study:
The study of Inventory Management
As a part of curriculum, every student studying BBA has to undertake a project on a
particular subject assigned to him/her. Accordingly I have been assigned the project work
on the study of Inventory Management in CG-PPI ADHESIVE PRODUCTS
LIMITED
In any organization the inventory of materials plays vital role in working capital
management. A small saving in the inventory will reflect a vital margin in profit of the
organization. Inventory control means the availability of right materials of right quantities
coordinated with lead time. Each and every component of inventory is important and
managing the inventories to keep in an optimum level is a must. Being an adhesive tape
industry CG-PPI ADHESIVE PRODUCTS LIMITED is facing a stiff competition
in the market. Since inventory is the major part of their cost of production there is a need
for inventory control by way of reducing cost and optimum utilization of materials.
Though the company is having certain policies regarding this, still it requires through
study of their policy and systems to some extent to understand the inventory
management.
AtCG-PPI Adhesive Products Limited, the Inventory Management has shown increase
in the period of study. This shows Inventory is managed effectively and all the other
departments are working in perfect co-ordination to ensure the progress of CG-PPI
Adhesive Products Limited, but I have given some Suggestions & Conclusions on the
basis of my Project Study.

About CG-PPI ADHESIVE PRODUCTS LIMITED

Page | 5

INVENTORY MANAGEMENT

CG-PPI Adhesive Products Limited is a Joint Venture between Crompton Greaves

Limited and PPI Adhesive Products Limited, Republic of Ireland, for the Manufacture of
Special Purpose Self Adhesive Tapes for Electrical, Electronics, Paper Industry, Shoe
Industry, Picture Tube, Automobile and other specialty applications. The Company also
offers complete solutions for printed and die cut components and labels.
The Factory is located at Kundaim Industrial Estate Goa, which is approximately 17 kms
from Panaji, the Capital of Goa. Kundaim Industrial Estate is one of the largest Industrial
Estates in Goa and has zero pollution and uninterrupted power supply.
The factory has excellent State-of-the-Art Plant and Machinery. Employees are trained to
achieve zero defects to meet the stringent requirements of the customers in various
segments.
The factory has well equipped laboratories with latest equipments to ensure that products
are as per the exact requirements of the customer. The Laboratory is manned by
experienced and qualified engineers who work arduously for customer satisfaction. The
Company has Sales Regional Offices / Dealers Network all over the country, who are
backed by Factory trained engineers. The Sales Network interacts with the customers to
ensure Win-Win solutions.

History
Page | 6

INVENTORY MANAGEMENT
CG-PPI Adhesive Products Limited is a Joint Venture between Crompton Greaves
Limited and PPI Adhesive Products Limited, Republic of Ireland, for the manufacture of
Special Purpose Self Adhesive Tapes for Electrical, Electronics, and other specialty
applications including printed tapes, precision die cut components and labels.
CG is a USD 2 billion engineering conglomerate with an impressive and diverse
portfolio of products, solutions and services ranging from high-end power and industrial
equipments and solutions, to consumer products and home appliances, addressing myriad
needs. Enjoying a reputation of stature for over seven decades, CG, which originates in
India, has transformed itself into a global corporation. With a permanent footprint and
manufacturing facilities in nine countries across Asia, Europe and North America, CG is
fast emerging as a first choice supplier of high quality, smart electrical, industrial and
consumer products and solutions all over the world.
PPI Adhesive Products Ltd was originally established in 1970 and commenced
production at Waterford Industrial Estate in 1971. The company, which is owned and
managed by its Irish board of directors, produces a very extensive and sophisticated range
of technical self-adhesive tapes for a wide range of applications, notably in the electrical,
electronic, aerospace, photographic and audio/video sectors.
CG-PPI Adhesive Products Limited, located at Kundaim Industrial Estate Goa, which
is approximately 17 kms from Panaji, the Capital of Goa; is built on 17853 sq.mtrs of
land and has a built up area of 3600 sq.mtrs. The factory is well equipped with state of
the art machinery and laboratory facilities and a dedicated team to serve our customers.
The Company has a wide marketing network and dealers throughout the country.

Page | 7

INVENTORY MANAGEMENT

Vision & Mission

VISION
To be one of the globally admired company of choice for Adhesive, Non-Adhesive Tapes,
Labels & Packaging Materials.

MISSION
To Create Superior value in the products and services we provide to our Customers. Our
Adhesive, Non-adhesive Tapes and Labels will carry the image of Innovation,
Satisfaction, State of Art, Trust, respect and value for money.

Page | 8

INVENTORY MANAGEMENT
Quality Policy of CG-PPI

The Quality Policy of CG-PPI is to understand the customer requirements & is flexible to
the changing needs of the customers resulting in a Win-Win relationship.
The Company adopts innovative methods to provide cost effective & quality products
with timely deliveries & services.
The Company continuously motivates its employees to upgrade their skills to attain
customer satisfaction.
The Quality Policy of CG-PPI is a process of continual improvement in all functions of
the organization.

Products
Page | 9

INVENTORY MANAGEMENT

CG 786 FLEXOMOUNT TAPEFPF, NPN, NKN Laminates

Glass Cloth TapesKAPTON/NOMEX TAPES

Metal Foil TapesPolyester Electrical Self Adhesive Tape

Page | 10

INVENTORY MANAGEMENT

Tapes for Shoe Upper & Leather Industries

Organizational Structure
CEO

Page | 11

INVENTORY MANAGEMENT

OPERATION
MANAGER

MARKETING

ACCOUNTS

QA/R&D

ASST. MANAGER
NATIONAL SALES
MANAGER

SR. OFF QA

ACC. OFFICER
QA TRAINEES

SALES
COORDINATOR

TAPES

H.R

REGIONAL SALES
EXECUTIVE

LABELS

MAINTAINANCE

SR. EXECUTIVE PRODUCTN.

EXECUTIVE MAINTAINANCE

SR. EXECUTIVE PRODUCTN.

DTP TECHNICIAN
PRODUCTION EXECUTIVE

PRODUCTION OFFICERS

OPERV
OPERATORS

SR. MAINTAINANCE
SUPERVISOR
OPERATORS

PURCHASE/STORES

EXECUTIVE PURCHASE

EXECUTIVE STORES

INTRODUCTION TO THE STUDY

Page | 12

INVENTORY MANAGEMENT
BACKGROUND OF STUDY

Business motives are to produce, sell and make profit. Inventories are playing vital role in
every business whether industrial unit are trading organization. Inventories are very broad
term and include the elements whose values are always very high, in any industrial unit.
Inventory constitutes major parts, approximately 40% to 80% of gross working capital
depending upon the nature and size if the industrial unit. Inventory can be any form
which consists of raw material, consumables, and spares, work in process, finished
goods.
OBJECTIVES OF PROJECT
PRIMARY OBJECTIVE

Overall, the objective is to minimize the investment in inventories by excising selective

Inventory control techniques.
SECONDARY OBJECTIVE

1. To study and analyze the performance of inventory management of CG-PPI Adhesive

Products Limited
2. To review the system of inventory model and reorder level of raw material.
3. To find out the economic order quantity for Printing Raw Material and consumables.
4. To determine the optimum level of safety stock for Printing Raw Material and
Consumables and to fix reorder point.
METHODOLOGY

This methodology is used to preparation of the project. Both primary andsecondary data
were used for the preparation of project.

COLLECTION OF PRIMARY DATA

The researcher approaches various functional heads in charge of purchase, production,

finance and Stores and collected related information for the study. The data was collected
by me based on observation technique personally. The researcher has done physical
Page | 13

INVENTORY MANAGEMENT
inspection of stores and stock levels.
COLLECTION OF SECONDARY DATA

1. Data for the previous year was obtained from the records of the company.
2. The stores of CG-PPI Adhesive Products Limited consists various inventories of raw
materials, consumables, spares packing material etc. the range of inventories are wide
and consists about more than hundred items. Hence, the focus was turned mainly to
consumables and raw materials. The elements were selected after considering its usage
value, importance and contribution towards production.
TOOLS FOR ANALYSIS

1. Ratio Analysis
2. Operating Cycle Analysis
3. ABC Analysis
LIMITATIONS OF THE STUDY

Due to confidentiality of the data and year ending constraintCG-PPI Adhesive

Products Limited I could not able to collect the required data required for this study. As
the company is a closely held one and its policy of disclosing data to the outsiders is
restricted. Hence the collection of fully fledged data could not be achieved.

ANALYSIS AND INTERPRETATION

ANALYSIS OF THE PERFORMANCE OF INVENTORY MANAGEMENT OF
CG-PPI Adhesive Products Limited
Operating cycle analysis
Page | 14

INVENTORY MANAGEMENT
Operating cycle is one of the important factors in determining the working capital of a
concern. Inventories are playing major role in operating cycle. The level of current assets
needed for a business significantly depends upon the length of the operating cycle. The
longer the operating cycle, the larger will be a companys requirements for funds for
various stages of the operating cycle.
The length of operating cycle of a business is influenced by,
1. Nature of business.
2. Production policies.
3. Terms of purchase and sale.
4. Transportation bottlenecks.
5. Business cycle fluctuations.
Inventories constitute 90% of the working capital in many organizations. Hence,
managing the working capital is synonymous with controlling inventories.

Operating Cycle CG-PPI Adhesive Products Limited

(For the period of 2011-12)

Page | 15

INVENTORY MANAGEMENT
Particulars
Annual Sales

Amount
14,53,70,444

Manufacturing Expenses
Cost of Material consumed

8,19,87,792

Employee Benefit

1,40,79,168

Finance Cost

2,83,904

Depreciation

35,77,679

Other Expenses

2,53,42,598
12,52,71,141

Purchase of Material

8,18,55,789

Opening Stock of Raw Material

43,08,249

Closing Stock of Raw Material

40,15,901

Opening Stock of Work in Process

43,10,941

Closing Stock of Work in Process

81,01,568

Opening Stock of Finished Goods

25,15,000

Closing Stock of Finished Goods

13,40,000

Sundry Debtors Opening

6,81,85,847

Sundry Debtors Closing

5,42,76,291

1) Consumption of Raw Material

= Opening Stock of Raw Material + Purchase + Closing Stock of Raw Material
= 43,08,249 + 8,18,55,789 + 40,15,901
= 8,21,48,137
Daily Rate consumption in 365 days per year = 8, 21, 48,137/365 = 2, 25,063.38
Average Stock of Raw Material
Page | 16

INVENTORY MANAGEMENT
= Opening stock of R.M. + Closing Stock of R.M.
2
= 43, 08,249 + 40, 15,901
= 83, 24,150 = 41, 62,075
2
2
Average no. of R.M. in stock = 41, 62,075 = 18.49 days
2, 25,063.38
The credit allowed to Raw Material = 60
So, the Raw Material cycle = 18.49-60 = -41.51

2) Raw Material to Finished Goods

Value of finished goods manufacturing during the year
= Opening WIP + Raw Material consumed + Manufacturing Expenses Closing
WIP
= 43,10,941 + 8,21,48,137 + 12,52,71,141 81,01,568
= 20,36,28,651
Average value of Production per day= 20,36,28,651/ 365 = 5,57,886.71

Average Stock of WIP

= Opening WIP + Closing WIP = 43,10,941 + 81,01,568
2
2
= 1, 24, 12,509 = 62, 06,254.5
2
Average Consumption Period = 62, 06,254.5 = 11.12
5, 57,886.71
3) Average period of finished goods held in stores
= Opening finished goods + cost of finished goods during the year + distribution
expenses closing finished goods
Page | 17

INVENTORY MANAGEMENT
= 22,15,000 + 20,36,28,651- 13,40,000 = 20,44,93,651
Value of finished goods sold/day = 20,44,93,651 / 365 days = 5,60,256.57
Average stock of finished goods is = 25,15,000 + 13,40,000 = 19,27,500
2
Average period for which finished goods have remained in stores
= 19, 27,500/5, 60, 256. 57 = 3.44 days
4) Credit Collection Period
The daily sales = 14,53,70,444 \ 365 = 3,98,275.18
Average debtors = 6,81,85,847+5,42,76,291 = 6,12,31,069
2
Time for collection = 6,12,31,069 = 153.74 days
3,98,275.18

Therefore the total operation cycle

= -41.51 + 11.12 + 3.44 + 153.74
= 126.79 days
365 days/ 126.79 = 2.87 times

Operating Cycle CG-PPI Adhesive Products Limited

(2011-12)

Page | 18

INVENTORY MANAGEMENT

De
b to
rs
F in ish e
d
G oods

W ork
In
P ro c e s s

C
as
h

R aw
M a te r
ia l

Inference

CG-PPI Adhesive Products Limited operating cycle is 126 days. It shows the working
capital turned over about times a year.
CG-PPI Adhesive Products Limitedhavealmost identical days inventory outstanding.
For most companies, their total operating cycle periods are, typically, considerably
shorter than the almost 4-month periods evidenced here. Our assumption is that this
circumstance does not imply poor inventory management but rather reflects product line
and industry characteristics. This company may be obliged to carry large, high-value
inventories in order to satisfy customer requirements.

Ratio analysis
Ratio analysis is a power tool of financial analysis. A ratio is defined as indicated
Page | 19

INVENTORY MANAGEMENT
quantity of two mathematical expressions. Ratios help to summarize large quantities of
financial data and to make qualitative judgment about the firm financial performance.
Ratio can be compared with sum standards. A company may select either of the following
standards of comparison.
Ratios calculated from the past financial statement of the same firm.
Competitors of the industry to which the firm belongs.

Activity ratio / turnover ratio

Activity ratios are employed to evaluate the efficient with which the firm manages and
utilize its asset. These ratios are called turnover ratio because they indicate the speed with
which assets are being converted or turned over into sales. A proper balance between
sales and assets generally reflects how efficiently the assets are managed.
The following informations have been collected from the financial indicators for the past
two years as mentioned below:

MANUFACTURING COST OF CG-PPI Adhesive Products Limited

Page | 20

INVENTORY MANAGEMENT
Particulars

Sales

2010-11

2011-12

14,03,58,405

14,53,70,444

Raw Material

43,08,249

40,15,901

Consumables

8,31,644

14,17,426

Cost of Material
Consumed
Employee Benefit

7,69,75,810

8,19,87,792

1,03,15,351

1,40,79,168

Finance Cost

1,13,887

2,83,904

Depreciation &
Amortization

16,83,765

35,77,679

Other Expenses

2,57,29,616

2,53,42,598

Purchase:

Expenditure:

DETAILS OF STOCKS
Particulars Rupees

Particulars

2010-11

2011-12
Page | 21

INVENTORY MANAGEMENT
Raw Material

43,08,249

40,15,901

Consumables

8,31,644

14,17,426

WIP

43,10,941

81,01,568

Finished Goods

13,40,000

25,15,000

TOTAL

1,07,90,834

1,60,49,895

Inferences:
1) In 2011-12 raw material inventory has decreased nearly 2, 92,348 compared to
previous years. This indicates that company is getting quick cash flow in company and it
is a quite good sign for the company.
2) In 2011-12 investment in raw material is quite low. In spite of that there is a massive
increase in Finished good. Its very good sign for the company.
3) In 2011-12 work in process of the company has been increased even though the
investment in raw material is low compared to previous year. It means that company is
maintains a good inventory through modern techniques such as Computerized e.t.c.

Page | 22

INVENTORY MANAGEMENT

INVENTORY LEVEL 2010-11

50
45
40
35
30
2010-11
25
20
15
10
5
0
Raw Material

Consumables

WIP

Finished Goods

Page | 23

INVENTORY MANAGEMENT

INVENTORY LEVEL 2011-12

90
80
70
60
50

2011-12

40
30
20
10
0
Raw Material

Consumables

WIP

Finished Goods

Page | 24

INVENTORY MANAGEMENT

COST OF GOODS SOLD

PARTICULARS

2010-11

2011-12

Raw Material Used

Purchases

7,50,43,445

8,18,55,789

(+) Opening Stock

63,33,556

43,08,249

(-) Closing Stock

43,08,249

40,15,901

Total

7,70,68,752

8,21,48,137

Cost of Material
Consumed
Employee Benefit

7,69,75,810

8,19,87,792

1,03,15,351

1,40,79,168

Finance Cost

1,13,887

2,83,904

Depreciation &
Amortization
Other Expenses

16,83,765

35,77,679

2,57,29,616

2,53,42,598

Total

11,48,18,429
82,65,151
43,10,941
11,87,72,639
13,10,000
25,15,000
11,75,67,639

12,52,71,141
43,10,941
81,01,568
12,14,80,514
25,15,000
15,40,000
12,24,55,514

Manufacturing Cost

Opening WIP
Closing WIP
Cost of Production
Opening FG
Closing FG
Cost of Goods Sold

Average stock of Inventory

Page | 25

INVENTORY MANAGEMENT
Particulars
Opening Stock
Closing Stock
TOTAL
Average Stock

2010-11
86,19,190
1,21,17,469
2,07,36,659
1,03,68,329.5

2011-12
1,21,17,469
90,10,210
2,11,27,679
1,05,63,839.5

Average Stock of Raw Material Inventory

Particulars
Opening Stock
Closing Stock
TOTAL
Average Stock

2010-11
63,33,556
43,08,249
1,06,41,805
53,20,902.5

2011-12
43,08,249
40,15,901
83,24,150
41,62,075

Raw Material Consumption

Particulars
Opening Stock
(+) Purchases
(-) Closing Stock
Total

2010-11
63,33,556
7,50,43,445
43,08,249
7,70,68,752

2011-12
43,08,249
8,18,55,789
40,15,901
8,21,48,137

Average Work in Process

Particulars
Opening WIP
Closing WIP
Total
Average

2010-11
82,65,151
43,10,941
1,25,76,092
62,88,046

2011-12
43,10,941
81,01,568
1,24,12,509
62,06,254.5

1) Inventory Turnover Ratio

= Cost of Goods sold
Page | 26

INVENTORY MANAGEMENT
Average stock of inventory

2010-11
11, 75, 67,63912, 24, 55,514
1, 03, 68,329.5
11.33 times

2011-12
1, 05, 63,839.5
11.5 times

Day of Inventory holding =365/ Inventory turnover

2010-11
365/11.33 = 32.21 days

2011-12
365/11.5 = 31.73 days

2) Material Consumption Ratios = Raw Material Consumed/Average Raw Material

Inventory

2010-11
= 7, 70, 68,752

53, 20,902.5
= 14.48 times
Days of Holding Inventory
= 365/14.48 = 25.20

2011-12
= 8, 21, 48,137

41, 62,075
= 19.73 times
= 365/19.73 = 18.49

Page | 27

INVENTORY MANAGEMENT

The companys work in process may also be analyzed in order to know how efficiently
the firm converts the WIP into finished goods.
Work In Process Inventory Turnover Ratio
= Cost of Production
Average WIP inventory

2010-11
= 11, 87, 72,639/ 62, 88,046
= 18.8 times

2011-12
= 12, 24, 55,514 / 62, 06,254.5
= 19.73 times

Turnover Ratio

Page | 28

INVENTORY MANAGEMENT
Ratios

2010-11 (in
times)

In days 20102011

2011-12(in
times)

In days 20112012

Inventory
turnover ratio

11.33

32.21

11.5

31.73

Material turnover
ratio

14.48

25.20

19.73

18.49

Work in process
turnover ratio

18.8

19.41

19.73

18.49

1) CG-PPI Adhesive Products Limited is maintaining an average of 60 days as

inventory
2) In respect to material turnover, holding of inventory has been decreased from 25
days to 18 days. Material turnover times have been increased from 14 to 19 times.
3) The company turns its work in process into finished goods within 18 to 19 days in
the year 2010-11 and 2011-12 but the turnover period is remained same in both
years.

ANALYSIS OF THE ECONOMIC ORDER QUANTITY

Economic order quantity is the size of the order representing standard quality of the
material and it is the one for which the aggregate of the costs of procuring the inventory
and the costs of holding the inventory is minimum. There are two types of cost under
EOQ
1) Ordering Cost 2) Carrying Cost
Page | 29

INVENTORY MANAGEMENT
1) Ordering Cost: The term ordering cost is used in case of raw materials and includes the
entire cost of acquiring raw materials. They include cost incurred in the following
activities: requisitioning, purchase ordering, transporting, receiving, inspecting and
storing (Store Department).
2) Carrying Cost: Cost incurred for maintaining a given level of inventory are called
Carrying Costs. They include storage, insurance, taxes, deterioration, and obsolescence.
EOQ Uses
1) EOQ is useful to decide how many inventories should be added when inventory is
replenished.
2) It is useful in deciding lot sizes, which will reduce both ordering and carrying costs.
3) By using EOQ the optimum inventory level can be maintained, which will reduce the
investment in inventories.

ECONOMIC ORDER QUANTITY FOR CONSUMABLES[Note: 1 Ton= 907.185kgs]

1) Name of the Item: Polyamide Film 1 MIL / 25 MIC

Item Code: 11027
Annual Usages: 3600 KGs
Page | 30

INVENTORY MANAGEMENT
Ordering Costs: Rs 2750
Carrying Costs: Rs 82.50
EOQ=
2*Annual Usage *Ordering Cost
Carrying Cost

2*3600*2750
82.50

=
1, 98, 00,000
82.50
=
2, 40,000

= 489.89 or Approx 490

No. of order per year= 3600/490= 7.34

2) Name of the Item: Toluene

Item Code: 13002
Annual Usages: 12 tons = 10886.2 KGS
Ordering Costs: Rs 80 p.liter
Carrying Costs: Rs 2.4

Page | 31

INVENTORY MANAGEMENT
EOQ=

2AO2*10,886.2*80
C
17, 41,792
2.4

2.4

7, 25,746.66

= 851.9 i.e. 852approx

No. of order per year= 10886.2 KGS/852=12.77= approx 13
3) Name of the Item: Silicon Resin PSA 595
Item Code: 12031
Annual Usages: 15 tons = 13607.8 KGS
Ordering Costs: Rs380p.liter
Carrying Costs: Rs 11.4
EOQ=
2AO/C

=
9, 07,186.66

2*13,607.8*380
11.4

= 952.46 or 952approx

No. of order per year= 13607.8/952=14.29

4) Name of the Item: Cotton Fabric
Item Code: 11289
Annual Usages: 30,000 sq. meter
Ordering Costs: Rs37.25
Carrying Costs: Rs 1.12
EOQ=
2AO/C

2*30,000*37.5
Page | 32

INVENTORY MANAGEMENT
1.12
=

2, 00,892.85

= 448.21

No. of order per year= 30,000/448.21=66.93

5) Name of the Item:Adicryl AP 505
Item Code: XXX020
Annual Usages: 15 tons=13607.8 KGS
Ordering Costs: Rs140
Carrying Costs: Rs 4.2
EOQ=
2AO/C

2*13,607.8*140
4.2

=
9, 07,186.66

= 952.46 or 952approx

No. of order per year= 13,607.8/952=14.2

Item
No.

Item Description

Item Code

EOQ

No. of Order per

year

Polymide Film 1 MIL / 25 11027

MIC

490

Toluene

13002

852

13

Silicon Resin PSA 595

12031

952

14

Cotton Fabric

11289

448

66

Adicryl AP 505

XXX020

952

14.2

ECONOMIC ORDER QUANTITY

Page | 33

INVENTORY MANAGEMENT

Inferences
1) Toluene, Silicon Resin PSA 595 and Adicryl AP 505 can be purchase at bulk in order
to reduce ordering cost.
2) Cotton Fabric most order per year in order to reduce carrying and ordering cost.

SAFTY STOCK & REORDER LEVEL FOR RAW MATERIALS PRINTING

Reorder Level
Reorder level is that inventory level at which an order should be placed to replenish the
inventory. the term re-order point may be defined as same as above that level of inventory
when fresh order should be placed with the suppliers for producing additional inventory
equal to the EOQ. The re-order level would be established at appoint such that the stock
in hand would be just sufficient to meet the demand during the lead line. To determine the
re-order point with certainty we should know:
(a) Lead time
(b) Usage
(c) EOQ
Lead Time:
Page | 34

INVENTORY MANAGEMENT
The time between ordering a replenishment of an item and actually receiving the item in
to inventory is referred to as lead time. If lead time is zero then no need for placing the
order in advance. If the lead time exists and also demands known, then it is required to
place an order in advance by an amount of time equal to the lead time. If the lead time is
low, then a small stock is required. But if lead safety time is significant then the company
will have to maintain higher safety stock level to avoid stock out. Thus the capital tied up
in inventory will be high.
Average Usage
Average usage is the important used in reordering level. Average usage is consumption of
materials is utilization of the resource to its maximum extent during a particular period
say week, month, or year. Average consumption is arrived by dividing consumption
during a particular period into the period taken for study.
Safety Stock
Safety stocks are maintained to minimize the effect of unascertained in demand on lead
time. The safety stock may be defined as the minimum additional inventory to secure as a
safety margin or cushion to meet on unanticipated increase in usage resulting from
various uncontrollable factors. In case of imported items the safety stock component of
the inventory is likely to be large.
ANALYSIS OF SAFETY STOCK AND REORDER LEVEL FOR
RAW MATERIALS PRINTINGS
DETAILS OF STOCK

S.
No.

Item Name

Item
code

Lead
time in
days
Normal
15

Maximum Rate per

Lead time unit
in Days

11001

Average
Monthly
Consumptio
n
1400 KGS

Polyester Film 25
MIC

30

136

Fiber Glass Fabric

461 S

11102

3500 MTS

20

30

80.1

Page | 35

INVENTORY MANAGEMENT
3

Natural Rubber
PLC II

12026

500 KGS

20

30

215

Escorez 1204

12165

800 KGS

15

30

175

Adcryl AP 505

XXX020 1000 KGS

10

20

143

Safety stock = (MLT- LT) X A

MLT = Maximum lead time
LT = Lead time in days
A =Average monthly consumption

S. No.

Item Name

Calculations

Safety Stock

Polyester Film 25 MIC

(30-15)/30*1400

700 KGS

Fiber Glass Fabric 461 S

(30-20)/30*3500

1,166.66 MTS

Natural Rubber PLC II

(30-20)/30*500

166.66 KGS

Escorez 1204

(30-15)/30*800

400 KGS

Adcryl AP 505

(20-10)/30*1000

333.33 KGS

Determining the safety stock position for Raw Material Printings

Inferences

Page | 36

INVENTORY MANAGEMENT
From the above table it is necessary to keep the above quantity of items assafety stock to
provide for average consumption during any increase in lead time fromthe normal lead
time.

Fixing reorder level for Raw Material Printings

ROL = LT X A + SS
ROL = reorder level
LT = lead time
A = average monthly consumption
SS = safety stock
S. No. Item Name

Calculations

ROL

Polyester Film 25 MIC

(15/30*1400)+700

700 KGS

Fiber Glass Fabric 461 S

(20/30*3500)+1167

3500 MTS

Natural Rubber PLC II

(20/30*5000)+167

500 KGS

Escorez 1204

(15/30*800)+400

800 KGS

Adcryl AP 505

(15/30*1000)+1000

833.33 KGS

Page | 37

INVENTORY MANAGEMENT
Inferences
1) From the table it can be explained that the company should fix its reorder level as per
the calculated level.
2) Item Fiber Glass Fabric 461 S and Natural Rubber needs close control with regards to
replenishing and its lead time is longer and quantity required is more per month.
3) It can be understood clearly that the reorder quantity increase with the corresponding
increase in lead time.

Process of Physical Inventory Maintenance

CG-PPI Adhesive Products Limited has its own store department that we can call it as
Work-in-process inventory.
This inventory process is fully computerized and here paper work is very less. Only
maintaining of documents, which were sent by suppliers as like challans etc., are only
here to maintain as paper documents. Otherwise it is fully computerized. Through
computers only Store Department receives Purchase Order and by computer only they
send documents of issuing of materials to production department.
For easy to communicate and planning of production activity, CG-PPI Adhesive
Products Limitedhas having only one Godown in Procedures involved in receiving and
issuing of materials are as follows:
1)

Godown will first get Purchase Order No..

Purchase Order Number:

This PO is comes from Purchase Department. This Purchase Department gives a number
for the each order made by Purchase Department only.

Page | 38

INVENTORY MANAGEMENT
Before placing any order to suppliers they first check the materials in inventory as to
know about whether materials are available in Inventory or not. If not available in
Inventory then only they will place an order according to the requirement.
In CG-PPI Adhesive Products Limitedit is very important to note that: purchase
department always places an order to those materials which have ordered by
Customers/buyers of CG-PPI Adhesive Products Limited.
So, normally it does not have any stocks in its inventory. For every order from customers
they make a fresh Purchase Order for purchasing of materials. It means whatever the
materials are requiring for present orders, those materials are only they kept as stocks in
Inventory.
In some cases, materials may be in Godown, which they call it as Buffer Stock. If these
old stock is matches the requirements of product which has ordered now by its customers,
then purchase Department will sent a notice to Inventory for issuing of those materials.
These old stock may be in form of Raw Material or in form of Work in Process. CG-PPI
Adhesive Products Limitedalways produces more than its requirements. For example if
Polyester tape has ordered for 100 and there is only 80., 20% more than its requirements.
So the remaining or excesses material they call it as Buffer Stock.

2)

Receiving of Materials

Any materials comes-in or goes-out from the Godown it should be enter in the Gate that
is they call it as Gate Entry, which is maintained by security Guard. Guard is not an
employee of an organization. He is a contract-based employee.
When Inventory receives materials it first inspects some samples, so for it, they call up as
Spot Inspection. Here they inspect the following points:

a) Is it our supplier only and is this parcel is for us only?

a. Are these received materials according to the Purchase Order? Like
i. Quantity
ii. Date, etc.,
Page | 39

INVENTORY MANAGEMENT
b. Is it having all required Challans or Invoices and also does it approved by
authorized person?
c. Is it having all required documents like Octroi etc.,
d. Is that Challanconsisting the correct information of materials?
After approval of materials by sample inspection, inventory department put these details
in manual book; this documentation is called as Day Book. This daybook is consisting
of information like Challan No., P.O. No., Style No., Description of Materials, Suppliers
Name, transporters Name, and Quantity.

After completing of these processes, materials will send to inspection department. In this
inspection department they inspect in-details of materials. After approval by inspection
department, this inventory department makes one document, which is they call it as
Goods Received Document.

This Goods Received Document is consisting of GR No., Date, GRN Type (In-store),
Mode of Transport, Challan No., Challan Date, Status, Gate Entry No., Gate Entry Date,
Priority No., all Details of Materials and received quantity and actual quantity also enters
there.

1) Issuing of Materials
Merchandising Department will send one card called Job Card which it consisting of
all details of materials requires to produce a product. According to that Card Inventory
department should send the materials to manufacturing department.
After receiving of materials by manufacturing department from inventory department
they issue one document about received of materials, quantity, description of materials
etc. Manufacturing Department uses these materials for manufacturing purpose. In
manufacturing process sometimes it may happens like some materials get damages and
some are not fully matches with requirements. Then those materials will be return to
inventory.
Page | 40

INVENTORY MANAGEMENT
After utilizing of all these materials by manufacturing department they will send one
document called Order Completion Report (OCR). This report consists the information
of Percentage of Utilized Materials for particular order and percentage of wastage of
materials. This report will send to inventory and also to Merchandising Department.

4.

Return Back Materials from Manufacturing Units:

Inventory takes those materials, which are return back from manufacturing units because
of excess or surplus occurs while manufacturing of products. This excess or surplus
exists because of purchase department, they always orders 20% more than its requirement
to meet the requirement of next month. So these materials are kept in Inventory as name
it as Buffer stock.
These Buffer Stocks will be utilize when company get the same type of Order. Inventory
issues these materials (Buffer Stock) only when it receives instruction from
Merchandising and purchasing Department.

5.

Rejected Materials:

Inspection department make the rejection of materials, when materials are not as per
requirements and not as per the order. These rejected materials are kept in separate
section by Inventory Department.
Inventory department inform to Purchase Department and also notice to Suppliers about
rejection of materials. That is called Rejection Card. In this card it involves Name of
Supplier, Description of Materials, Challan No., Challan Date, Gate Entry No. & Date,
No. of Quantity rejected, Reason for rejection etc.,
Sometimes supplier may issue new materials in place of rejected materials. Or he may
give some compensation for wrong supply and that is after paying of full payment of
materials.

Purchasing Procedure of Materials

Page | 41

INVENTORY MANAGEMENT
In CG-PPI Adhesive Products Limited they purchase materials at from a multiple
Suppliers. There is a reason for purchase materials from multiple suppliers. The reason is
if one supplier delays to fulfill the supply then there must be alternative supplier for it to
fulfill the requirement. So there must be no stock outs in the production process.

CG-PPI Adhesive Products Limited always purchases at bulk but by schedule wise. In
other words they purchase materials at a time for specific order. They make the
agreement of somesupplying materials only at once. And they negotiate the
priceaccording to market condition and once their agreement is over then they provide
schedule to supplier to supply the materials at a specific time and at a specified quantity.
So it reduces the spaces, which occupies in the Godown. So this method is suitable for
this type of industry because of same orders from customers.

WIP Store
Now we come to the WIP Store. As we have already seen that this CG-PPI Adhesive
Products Limited is having only one Godown and company is having its own Store
Departments. As we know that Work In Process Store means Semi-finished Goods, here
goods are not completed yet and not these are in fully raw materials form.
So in valuation matter it is having slightly different way. And in CG-PPI Adhesive
Products Limited it is as follows: Yes, these goods are includes some labour cost, some
other costs. So in valuation of WIP they valuate at Raw Material Price of those goods
PLUS incurred cost to produce till now.

Finished Goods
Valuation of Finished Goods in CG-PPI Adhesive Products Limitedis at 10% less than
Selling Price of those finished goods. Finished Goods are in the sense these goods should
be ready to dispatch.
There is no separate Godown for Finished Goods/Products. Every unit is having its own
Finished Goods Godown. In that Godown only they store these Goods. And dispatching
Page | 42

INVENTORY MANAGEMENT
of these products is directly by company. They do not consolidate these goods; they
dispatch these finished products directly by company.

ABC ANALYSIS

ABC analysis classifies inventory items in three categories based on their values. Always
better control is its real meaning. Items of high value but small in number are classified
as A item, which would be under a strict control.
Moderate value and size are classified as B items and the management should pay
reasonable attention. Small value items would require simple control. The values also
relatively low in this type of items.
Advantages of ABC Analysis.
1. Facilitates selective control and thereby saves time.
2. Eliminates lot of unnecessary paper work.
3. Facilities control over usage of stores materials which ultimately results in cost and
there by inventory control.
Limitations of ABC Analysis
i) Low value purchases frequently require more items and thereby reduce the time
available for value analysis, vendor investigation.
ii) Classifications of items should be reviewed and updated periodically otherwise the
very approach of control may be defected.

Page | 43

INVENTORY MANAGEMENT

SELECTIVE INVENTORY CONTROL TOOL

The company pays its attention only A class items of raw material analysis for its over
all inventory system. But the company is in a situation to group its important inventories
in ABC analysis.
Procedure of ABC analysis
Actual inventory usage basis
ABC analysis on actual inventory holding Basis with the following steps
i) Determine the period in respect if which the usage is to be computed.
ii) Determine the actual consumption value of selected period.
iii) Average the items in descending order placing first the item having the highest
value.
Reason for selection of actual inventory holding Basis
In CG-PPI Adhesive Products Limitedthe emphasis is placed on the Actual inventory
holding basis with a viewto avoid stock outs.
S. No.

Inventory Nature

Class

% of annual value

Annual Value
(in lakhs)
925

1
2

Raw Material with high

value
Consumables and spares

25

3%

Packing Materials

10

1%

96%

Page | 44

INVENTORY MANAGEMENT
TOTAL

960

100%

Findings
1) Company is incurring more expenditure on inventory because of holding high level of
stock.
2) Working capital blocked in the inventory for 31 days (one month) which is a quite
healthy sign for an organization. Perfect inventory levels are good for the company
because they represent an investment is medium. It also rises the company up to height
should price begin to rise.
3) Safety stock should be increased in case of Polyester Film 25 MIC, Fiber Glass Fabric
461 S, Natural Rubber PLC II, Escorez 1204 and Adcryl AP 505 because average
consumption and safety stock is half of monthly consumption.
4) Modern inventory control techniques are followed by the company.
5) Item Fiber Glass Fabric 461 S and Natural Rubber needs close control with regards to
replenishing and its lead time is longer and quantity required is more per month.
6) In respect to material turnover, holding of inventory has been decreased from 25 days
to 18 days. It is very good sign for the company because there is an optimum investment
in inventory

Suggestions
1) It may suggest that proper reorder level for consumables and raw materials printing
may be maintained so that, the company can prevents the over stock or stock out level.
2) As it was understood from the study that the company maintaining safety stock which
is not adequate to certain materials. So to avoid stock out the safety stock may be
maintained at optimum level.
3) To reduce the inventory cost such as carrying cost, ordering cost it is suggested that the
company can apply EOQ model to all the materials, consumables and tools to the extent
Page | 45

INVENTORY MANAGEMENT
possible.
The reorder level should be placed at the right time, based on the raw materialavailability
in the store.
6) In order to reduce the expenditure and to maintain inventories at optimum level, it
isnecessary to implement proper planning, budgeting and coordination among
allfunctional departments.
7) The review can be made to all the material available in the store to avoid
theunnecessary dumping of materials, so the company can save the storage cost andspace.
8) The production department may introduce the new technique called vendor
qualitymanagement to ensure the standardized quality in the finished product.
Theconcept is adopted in all leading companies.
9) To reduce the lead time and to save ordering cost it may be suggested to localizecertain
important items instead of importing from other country. This will give achance for
increasing employment opportunities to our people.

CONCLUSION
Inventory control means the availability of right materials of right quantities coordinated
with lead time. Each and every component of inventory is important and managing the
inventories to keep in an optimum level is a must. Being atape industry CGPPI is facing a
stiff competition in the market. Since inventory is the major part of their cost of
production there is a need for inventory control by way of reducing cost and optimum
utilization of materials. Though the company is having certain policiesregarding this, still
it requires through study of their policy and systems to some extent to
understand the inventory management.

Page | 46

INVENTORY MANAGEMENT

Page | 47