Professional Documents
Culture Documents
Introduction
Inventories are the current assets which are expected to be converted
within a year in the form of cash or accounts receivables. Thus, it is a
significant part of the assets for the business firms. Actually, inventories are
the goods that are stocked and have a resale value in order to gain some
profit. It shows the largest costs for the trading firms, wholesalers and
retailers. Normally, it consists of 2030% of the investment of the total
investment of the firm. Thus, it should be managed in order to avail the
inventories at right time in right quantity. Inventory refers to the stock of the
resources which are held to sales and/or future production. It can be also
viewed as an idle resource which has an economic value. So, better
management of the inventories would release capital productively. Inventory
control implies the coordination of materials controlling, utilization and
purchasing. It has also the purpose of getting the right inventory at the right
place in the right time with right quantity because it is directly connected
with the production.
This implies that the profitability of the firm is directly or indirectly
affected by the inventory management. In this paper, three major steel
manufacturing companies of India are taken for the analysis. Inventory
management is pivotal in effective and efficient organization. It is also vital
in the control of materials and goods that have to be held (or stored) for
later use in the case of production or later exchange activities in the case of
services. The principal goal of inventory management involves having to
balance the conflicting economics of not wanting to hold too much stock.
Thereby having to tie up capital so as to guide against the incurring of costs
such as storage, spoilage, pilferage and obsolescence and, the desire to
make items or goods available when and where required (quality and
quantity wise) so as to avert the cost of not meeting such requirement.
Inventory problems of too great or too small quantities on hand can
cause business failures. If a manufacturer experiences stockout of a critical
2
Literature Review
Rich Lavely (1998) asserts that inventory means Piles of Money on
the shelf and the profit for the firm. However, henotices that 30% of the
inventory of most retail shops is dead. Therefore, he argues that the
inventory control is facilitate the shopoperations by reducing rack time and
thus increases profit. He also elaborates the two types of inventory
calculations thatdetermine the inventory level required for profitability. The
two calculations are cost to order and cost to keep. Finally, heproposes
seven steps to inventory control. The limitation of this literature is that he
does not outline the calculation method thatactually evaluates the inventory
level and cost of handling it.
James Healy (1998) highlights that the distributors carry 1030% of
additional inventory that is unnecessary. Theseinventories unnecessarily
increase costs and loss of customers, lost of sales and lost profit due to
inefficient inventorymanagement. He points out there is a need to set out
procedures to find out physical inventories to determine the true cost
ofhandling cost of the inventory. He further points out some misconceptions
of the inventory management such as adequacy ofEnterprise Resource
Planning System in handling the inventory, the importance of turns in
measuring the success of the inventorysystem and confidence on
profitability of using the inventory optimization method. The limitation of
this literature is that it doesnot give reasons for the causes of the
unnecessary inventory.
3
(ii) Observation of the production process was done to see the flow of
goods in the conversion process. Materialshandling and storage were also
observed and so was the patrol / inspection procedures.
(iii) Record analysis of relevant data was obtained from the
companys annual report and journals.
(iv)Theoretical background information was gathered through review
of related literature on inventory management.
The data collected were analyzed using three major quantitative
instruments. The simple variance method, the EOQmodel and the chisquare
distribution method. The simple variance analysis was used to describe the
data presented.
The EOQ model was used to determine theoptimum inventory level
per year, which were considered as the expected value of inventory in the
chisquarecalculation. The chisquare technique was used to draw inference
about the variance of distribution with eachdistribution determined by the
degree of freedom.
Inventory Management
There is need for controlling the inventories for any firm in developing
countries like India. A firm must install somebetter inventory control
techniques to improve their financial condition. According to Kotler,
inventory management is thetechnique of managing, controlling and
developing the inventory levels at different stages i.e. raw materials, semifinished goodsand finished goods so that there is regular supply of resources
at minimum costs. According to Coyle, inventory management isthe
management of the materials in motion andat rest. According to Rosenblatt,
the inventory management costs are the price which is paid by the
5
customer but it is the cost tothe owner. Different authors defined inventory
management in different way.Sometimes, inventory and stock are
considered as the same thing. But there is a slight difference between them.
Stock isthe storage of material kept in specified place only. Inventory
management involves all activities which are done for thecontinuous supply
of materials with optimal costs.Basically, inventory management has two
goals. First goal is to avail the goods at right place in right time. Because it
isvery important to keep operations running to give specific service. Second
goal is to achieve the service level against optimalcost. It is very difficult to
achieve goal against optimal cost. All items cannot be stocked, so there is
need to specify the importantgoods to be stocked.
The supplies inventories involves the materials required for the
maintenance, repair and operating that do not go to thefinal product. But it
is also considered as the types of inventories. Thus, inventory management
is also defined as it is the scienceand art of managing the level of stock of
group of items which incurred least costs and also reach the objectives set
by the topmanagement. So, on the final note the primary objective of
inventory management is to improve the customer satisfaction level.The
secondary objective is toincrease the production efficiency. Increasing
production efficiency means that the production control, maintaining the
level ofinventory for efficient materials management.
Costs related to inventory: There are various costs which are related to
the inventories. These costs are incurred due to the inventories. These costs
are:
Inventory Costing methods: These are the methods which are used for
give the values to the inventories. These valuationmethods can be
explained as:
First In First Out: In this method, the materials coming first will be
considered first and then next consignment will be taken. This method
is useful when the price of material is falling because material charge
to production will be high while the replacement cost will be low.
Last In First Out: It is the method in which materials coming latest
will be considered first. The last consignment is taken first and when it
is exhausted then second last consignment is taken. This method is
more useful when the rice is rising and show a charge to production
which is closely related to current price.
Weighted Average Cost method: In this method, material issued
price is based upon the calculation of weighted average cost of the
material. It is calculated with using formula:
Let us assume,
D = Annual Demand
Co = Ordering cost
Cc = Carrying cost
Q = Quantity
Then,
Annual Stock = Q/2
Total Annual Carrying Cost = Cc.Q/2
No. of orders per annum = D/Q
By differentiating, we get,
d(TIC)/dQ = Cc/2 Co.D/Q2
When cost is minimum
thend(TIC)/dQ will be 0.
Then,
Cc/2 Co.D/Q2 = 0
Or,
Q = (2.Co.D/Cc)1/2
Assumptions of EOQ model:There are some assumptions on which EOQ is calculated. These
assumptions are:i. There is known and constant holding cost.
ii. There is a known and constant ordering cost.
iii. The rates of demand are known.
iv. There is known constant price per unit.
v. No stock-outs are allowed.
vi. Replenishment is made instantaneously.
Inventory control techniques:-There are various techniques used by a
firm to control the inventories.Some of these techniques can be explained
as: ABC Analysis:-ABC analysis of inventories represent that the small
portion of material contains bulkamount of money value while a
relatively large portion of material consists less amount of money
value. The money value is ascertained by multiplying the quantity by
unit price. According to this approach, inventory control of high value
items are closely controlled than low value items. Each item is
categorized as A, B and C categories depending upon the amount
spent for the particular item. It may also be clear with the help of
following examples:
After classification, the items are ranked by their value and then the
cumulative percentage of the total value against the percentage of item is
noted. A detailed example clearly indicates the figure that 10 per cent of
item may account for 75 per cent of the value, another 10 per cent of item
may account for 15 per cent of the value. The remaining part may account
for 10 per cent of the value. The importance of this tool is that it directs
give attention on the high valued items.
1
0
1
1
COMPANYS PROFILE
Introduction of the Coca-Cola Company
impressed
the store's
owner, Joseph
A.
F. Thomas and Joseph B. Whitehead obtained exclusive rights to bottle CocaCola across most of the United States (specifically excluding Vicksburg) -- for
the sum of one dollar. A third Chattanooga lawyer, John T. Lupton, soon
joined their venture.
1900-1909 Rapid growth
The three pioneer bottlers divided the country into territories and sold
bottling rights to local entrepreneurs. Their efforts were boosted by major
progress in bottling technology, which improved efficiency and product
quality. By 1909, nearly 400 Coca-Cola bottling plants were operating, most
of them family-owned businesses. Some were open only during hot-weather
months when demand was high.
1916 Birth of the contour bottle
Bottlers worried that the straight-sided bottle for Coca-Cola was easily
confused with imitators. A group representing the Company and bottlers
asked glass manufacturers to offer ideas for a distinctive bottle. A design
from the Root Glass Company of Terre Haute, Indiana won enthusiastic
approval in 1915 and was introduced in 1916. The contour bottle became
one of the few packages ever granted trademark status by the U.S. Patent
Office. Today, it's one of the most recognized icons in the world - even in the
dark!
1920s Bottling overtakes fountain sales
As the 1920s dawned, more than 1,000 Coca-Cola bottlers were operating in
the U.S. Their ideas and zeal fueled steady growth. Six-bottle cartons were a
huge hit after their 1923 introduction. A few years later, open-top metal
coolers became the forerunners of automated vending machines. By the
end of the 1920s, bottle sales of Coca-Cola exceeded fountain sales.
1920s and 30s International expansion
1
3
1
4
1
5
1
6
Vision
The vision of Coca-Cola is the framework for their guides of every aspect of
its business. It is presented in 6Ps:
1. People: Be a great place to work where people are inspired to be the best
they can be.
2. Portfolio: Bring to the world a portfolio of quality beverage brands that
anticipate and satisfy people's desires and needs.
3. Partners: Nurture a winning network of customers and suppliers, together
we create mutual, enduring value. 4. Planet: Be a responsible citizen that
makes a difference by helping build and support sustainable communities.
5. Profit: Maximize long-term return to shareowners while being mindful of
our overall responsibilities.
6. Productivity: Be a highly effective, lean and fast-moving organization.
Headquarters is
campus
in Midtown
Atlanta, Georgia that is home to The Coca-Cola Company. The most visible
building on the site is a 29-story, 403foot (122.8 m) high One Coca-Cola
Plaza. Located on the corner of North Avenue and Luckie Street, the building
was completed in 1979. The architect was FABRAP and the designer Tom
Pardue.
The building and complex is located across the street from Georgia Institute
of Technology and Midtown Atlanta.
In May 2011, to celebrate the 125th anniversary of Coca-Cola, a
projection screen was made for the building that would display various Coke
ads through the years and also transformed the building into a huge cup of
ice which then was "filled" with Coke.
1
7
Markets
1
8
1
9
All age groups are being targeted but the most potential is the age
group from 18-25 that covers around 40% of total age segment.
AGE: The target market for the Coca-Cola is based on age. The
audience of Coca-Coal is youngster or youth.
2
0
It has wide range of targeting. It ranges from the age of 15-25 and
reaches to 40.
Their targeting is not based gender but the results show that both
genders like this product and use it.
Life style; busy life style( face shortage of time) and mobile
generation.
GEOGRAPHIC SEGMENTATION:
It varies according to the taste and income level of the people in that
country. I.e.: third world countries are given low quality and taste
i.e.: ASIA and Middle East etc and their sale increase in summer.
DEMOGRAPHIC:
AGE: Coke segments the small children introducing tastes like
vanilla, lime and cherry. They focus children from 4-12.
Coke specifically target younger than older.
FAMILY TYPE: Coke introduces its economy pack and thats how the
focus family and groups.
INCOME:Coke segments different income levels by packing.
For small income people it has small returnable glass bottle.
For middle people it has small non-returnable bottle.
For higher income people it has Coke Tin.
PSYCHOGRAPHIC:
All psychographics variables the social class, lifestyle, occupation,
level of education and personality Coke segments everyone.
But again its there packaging which is different for different
consumers.
BEHAVIORAL:
OCCASION:Coca-Cola
segments
different
occasions
which
are
2
2
FINANCIALS
2
3
FINANCIAL STATEMENTS
Contd
2
4
2
5
Global Workforce
Market Capitalization
2
6
MEANINGANDDEFINITION:
Theconceptofinventorymanagementasknowntodayisradicallydifferentfr
om
whatitwasjustafewyears
ago.Untillthelast
decade,IndianIndustryneededmaximumproductionsincethereexistedsellersmarketforalmostallp
roducts.Costwasnotseriousproblemthatitistoday,fortherewassomebodyready,willingandabletob
uytheproductsassoonasitwasavailable.
Excessmanufacturingcostsweresimplypassedalongtothebuyerintheform
ofhigherprices.Inthisenvironment,
the
emphasis
2
7
was
onthe
successful
productionmananditwasnotunusualtofindInventoryManagementgettingasecondaryplacewithin
theproductionfunction.
Overthelastdecadeorsowehavebeenwitnessingslowreversalofthissituatio
nasthesupplyiscatchingupwiththedemandandthemarketisturningfromsellerstobuyersmarket.For
thefirsttime,Indianindustryistryingtocompeteintheworldwidemarketswhichdemandlowcostand
highqualityproducts.
Meetingthiskindofcompetitionhasbecomeamajorconcernofbusinesstod
ayandsolutionoftheproblemdemandsmostefficientuseofmanufacturingresourcesofmen,money,
materialscountformorethanhalfthetotalmoneyspentbyanybusiness,inventorymanagementhasas
sumedsignificantimportance.
Prof.PeterF.DruckerhasdefinedthepurposeofbusinessasTocreatethecustomer.Logically,
objectiveofinventory
managementisthentoprovidemaximumcustomerservice,thishowever,cannot
bedonewithoutregardtothecompetitivecapabilityofbusiness,asitisonlythiscapabilitydemandstha
tinventorymanagementensuresmaximumplantefficiencyandminimuminventoryinvestment.
Atypicalinventorymanagementsystemisrepresentedinthefigure.Theprincipleinputstosuchasyste
mare:
Forecastofdemandbothlongtermandshorttermfortheproducts.
2
8
Currentdemandfortheproducts
Measurablecharacteristicsofproductsanditemssuchascost,leadtime,essentiallysetuptimeandsoo
n.
Managementpoliciesasregardcarryingcharges,levelofserviceandrateofresponsetochangesincustomerdemand.
MANAGEMENT POLICIES
Forecastof
Inventory
Demand
ManagementSystem
OrderPoint
Inventory
Control
Syste
OrderQuantityor
Operatinglevel
Characteristics(Cost
,leadtime,bulkEsse
ntiality,setup)
OBJECTIVESOFINVENTORY:
Inventorymanagementinvolves
the
control
ofthe
current
assets,namelyrawmaterials,workinprogressandfinishedgoods.
Themainobjectistominimizethetotalcostandindirectcostassociatedwithholdinginventories.
PURPOSEOFINVENTORY:
atcompetitiveprices.Holdinginventoryiscosteffectiveandhelpsto
achievethesales
Theotherpurposeofholdinginventoryis:
Toensurepromptdelivery
Toavailquantitydiscounts.
Toreducetheordercosts
Toavoidproductionshortage
Toachieveefficientproductionruns.
WHYFIRMSHOLDINVENTORIES:
Inventoryformsalinkbetweentheproductionandsalesofapro
duct.Amanufacturingcompanymustmaintainacertain
amountofinventory,knownasworkinprogressduringproduction.Althoughothertypesofinventoryi
ntransit,rawmaterialsandfinishedgoodsinventoriesarenotnecessaryinthestrictestsense,theyallow
firmtobeflexible.Inventoryintransit
thatisinventorybetweenvariousstagesofproductionorshortagepermitsefficientproductionschedu
lingandutilizationorresources.
Withoutthistypeofinventory,eachstage
ofproductionwould
havetowait
forthe
precedingstagetocompleteaunit.Thepossibilityofresultantdelaysandidletimegivesthefirmanince
ntivetomaintainintransitinventory.
Avoid LossesofSales
Purchasing
GainQualityDiscounts
FirmsholdInventoryto
Producing
Reducingordercost
Selling
Achieveefficientproduct
CLASSIFIATIONOFINVENTORIES:
Inventoriesareusuallyas:
a) Rawmaterials
b) Bought-outcomponentsorsubassemblies
c) Semifinishedgoodsorwork-in-progressorwork-in-process
d) Consumablestores
e) Maintenancesparesparts
f) Finishedgoodsstoredorintransitwarehouseorcustomers
Therawmaterialinventorycontainsitemsthatarepurchasedbythefirmfrom
othersandareconvertedintofinishedgoodthroughthemanufacturing(productionprocess.Theyarea
nimportantinputofthefinalproduct.Thework-inprocessinventoryconsistsofitemscurrentlybeingusedintheproductionprocess.Theyarenormallys
emi-finishedgoodsthatarevariousstagesofproductioninamulti-stageproductionprocess.
Finishedgoodsrepresentfinalorcompletedproductswhichareavailableforsale.Theinventoryofsuc
hgoodsconsistsofitemsthathavebeenproducedareyettobesold.
Inventory,asacurrentasset,differsfromothercurrentassetsbecauseonlyfinancialmanagersarenoti
nvolved.Rather,allthefunctionalareas,financemarketing,production,andpurchasing,areinvolved
.Theviewsconcerningtheappropriatelevelofinventoryworlddifferamongthedifferentfunctionalar
eas.Thejobofthefinancialmanagersistoreconciletheconflictingviewpointsofthe
variousfunctionalareasregarding
theappropriateinventorylevelsinordertofulfilltheoverallobjectiveofmaximizingtheowner`swealt
h.Thus,inventorymanagementofothercurrentassets,
shouldberelatedtotheoverallobjectivefirm.Asamatteroffact,theinventorymanagementtechnique
sareapartofproductionmanagement.Butafamiliaritywiththemisofgreatofthefinancialmanagersin
planningandbudgetinginventory.
Inventories
constitute
themostsignificantpartofcurrent
assetsof
alargemajority
ofcompaniesinIndia.Onanaverage,inventoriesareapproximately60percentofcurrentassetsinpubl
iclimitedcompaniesinIndia.Becauseofthelargesizeofinventoriesmaintainedbyfirmsaconsiderabl
eamountoffundisrequiredtobecommittedtothem.Itis,therefore,absolutelyimperativetomanagein
ventoriesefficientlyandeffectivelyinordertoavoidunnecessaryinvestment.
MOTIVESINHOLDINGINVENTORIES:
Generallythreemotivesarethereinvolvedinholdinginventories
Transactionmotive:Itemphasizestheneedtomaintain
inventory,tofacilitatesmoothproductionandsalesoperations(calledtransactioninventory).
Precautionarymotive:Itnecessitatestheholdingofinventoriestoguardagainsttherisksofunp
redictablechangesindemandandsupplyprocess(calledprecautionaryinventory).
Speculativemotive:Itinfluencesthedecisiontoincreaseorreduceinventorylevelstotakeadva
ntageorpricefluctuations(calledspeculativeinventory).
element
intheoptimum
inventorydecisiondeals
withthebenefits
associatedwithholdinginventory.Themajorbenefitsofholdinginventoryarebasicfunctionsofinve
ntory.Inotherwords,inventoriesperformcertainbasicfunctionsofwhicharecriticalimportanceinth
efirm`sproductionandmarketingstrategies.
Thebasicfunctionofinventoryistoactasabuffertodecoupleoruncouplethevariousactivitiesofafirm
sothatalldonothavetothepursuedattheexactlythesamerate.Thekeyactivitiesarepurchasing,produ
ctionandselling.
Benefitsinpurchasing:
Inthefirstplaceafirmcanpurchaselargerquantitiesthaniswarrantedbyusageinproductionorthesale
slevel.Thiswillenableitavailofdiscountsthatareavailableonbulkpurchases.Moreover,itwilllower
theorderingcostsasfeweracquisitionswouldbemade.Therewill,thusbeasignificantsavinginthecos
ts.Secondfirmcanpurchasegoodsbeforeanticipatedorannouncedpriceincreases.
Inventoriesthusservesasahedgeagainstpriceincreasesaswellasshortageofrawmaterials.Finished
goodsinventoryservestouncoupleproductionandsale.Thisenablesproductionandsales.Thatisprod
uctioncanbecarriedonataratehigherorlowerthanthesalesrate.Thiswould
advantagetothe
firmwith
seasonalsalespattern.
bespecial
Thus
inventory
helpsafirmtoreducethecostofdiscontinuousintheproductionprocess;thisispossiblebecauseprodu
ctioniskeptasinventorytomeetfuturedemands.Thus,inventoryhelpsfirmtocoordinateitsproductionschedulingsoastoavoiddisruptionsandaccompanyingexpenses.
Benefitsinsales:
Themaintenanceofinventoryalsohelpsafirmtoenhanceitssalesefforts.Foronething,iftherearenoin
ventoriesoffinishedgoods,thelevelofsaleswilldependuponthelevelofcurrentproduction.Afirmwi
llnotbeabletomeetdemandinstantaneously.Thusinventoryservestobridgethegapbetweencurrentp
roductionandactualsales.Arelatedaspectisthatinventoryservesasacompetitivemarketingtooltom
eetcustomersdemand.
Byholdingfewerinventories,costcanbeminimizedbutthereisariskthattheoperationswillbedisturb
edastheemergingdemandscannotbemet.Theappropriatelevelofinventoryshouldbedeterminedint
ermsofatrade-offbetweenthebenefitsandcostassociatedwithmaintaininginventory.
3
0
TYPESOFINVENTORYCOSTS:
Thecostfactormustbeconsideredwhiletakingdecisionregardinginventories.Inventorycostin
cludesorderingcost,carryingcost,outofstockorshortagecost&capacitycost.
Eachofthesecomprisesseveralelementsasshownbelow:
Ordering Costs:
a) Preparingapurchaseorder.
b) Processingpayments.
INVENTORYCONTROLDECISION:
Oneofthemajorconcernsofapurchasemanageristoreducethecostofinventory.Atthesametimetooli
ttleofinventorymightresultinshortageandconsequentproductionholdup.Henceoneofthemajordec
isionsinpurchaseistheoptimumquantityoforder.Duetoenvironmentalinfluencesbeyondthecontro
lofmanager,theperformanceandactivitiesoftendonotadheretoplannedtargets.Controlistherefore
broughtin,throughfeedback,sothatcorrectiveareinitiated,whereverdeviationexceedsacceptedlim
its.
Inventorycontrolmaythereforebedefinedasapplicationofcontroltheoryinmanagin
ginventorywithpredeterminedlevels.Inventoryisstorageofgoodsandmaintainingofstocks.Inman
ufacturing,inventoriesmeankeepingitemsinstocks.Consideredunderthissense,inventorycontrolc
anbevisualizedastechniquesofmaintainingstockkeepingitemsatdesiredlevels.Aschematicinvent
orycycleisshownbelow.
INVENTORY CYCLE
Production
Stores
Demand
Duesin
Inspect&accept
Supplies
Receiving
InventoryIn
Hand
Place
Order
Netorder
Issues
Quantity
tenders
Receive
quotation
INVENTORYCONTROLTECHNIQUES:
Tender
evaluation
Inventorycontroltechniquesareemployedbytheinventorycontrol
organizationswithintheframeworkofoneofthebasicinventorymodels,viz.,fixedorderqu
antitysystemorfixedorderperiodsystem;Inventorycontroltechniquesrepresenttheopera
tionalaspectofinventorymanagement&control.
Severaltechniquesofinventorycontrolareinuse&itdependsonthe
convenienceofthefirmtoadoptanyofthetechniques.Thetechniquesshouldcoveralltheite
msof inventory and all the stages,i.e., from the stageof receipt fromsuppliersto
thestageoftheiruse.Thetechniquesmostcommonlyusedthefollowing:
I.
II.
III.
IV.
V.
VI.
VII.
Max-Minimumsystems.
VIII.
Twobinsystem
Crown Corks are kept in polythene bags and tore in cases, safe from dust and
moisture, which bring about rusting.
Table1:Sales(inMillions)
Years
2000
BudgetedSales
ActualSales
inmillions(N)
inmillions(N)
85.00
2001
94
2002
100
2003
110
Variance(N)
86.45
95
101.25
11
3.14
1.45
1
1.25
3.14
understudy, because there was a positive variation in each of the years. Positive
variation indicates good performance on the part of the company while negative
variation indicates poor performance, since the basic objective of any profit-making
company is to maximize sales.
Table 2 show the volume of production of the brands of the company's products that
is coke, fanta, and sprite. The variance reflects the inability of the company to meet its
target for a period of four years (2001-2004) out of the five years understudy. Upon
interview, the operations manager explained that this had no negative impact on the
overall profit, as it is part of the company's policy to plan in excess of forecast so that
even when actual production does not equal budget, it is of no negative consequence.
Table2:Salesincreates(VolumeofProduction)
Years
BudgetedSales
ActualSales
inmillions(N)
inmillions(N)
Variance(N)
2000
4,500,000
4,500,000
2001
4,750,000
3,950,000
800,000
2002
4,900,000
4,700,000
200,000
2003
4,950,000
3,756,621
1,193,397
2004
5,150,000
5,100,000
50,000
Table 3 show the overall production cost in value. It reveals that the actual cost of
production for the five years under study were above the budgeted cost. This was due
to in-crease in the prices of raw materials, incessant increase in fuel price, technology
and labour and the resulting effect of inflation in the Nigeria Economy. This has gone a
long way to affect
Table3:Productioncost(inMillionsofNaira)
Years
BudgetedSales
ActualSales
Variance(N)
inmillions(N)
inmillions(N)
2000
12
12.50
0.5
2001
20
21.76
1.76
2002
27
28.50
1.50
2003
35
36.14
1.14
2004
41
41.50
0.5
Table4:Sugar
Years
Annual No.of
demandin orders
(000)
2000
840
2001
900
2002
950
2003
1010
2004
1070
2=0.3095
3
3
3
3
3
Materials Ordering
unit
costper
cost
order
(000)
320
360
410
480
520
Carrying
costasa
%ofunit
7
8
9
11
12
4%
4%
5%
6%
6%
Ordering
costper
order
(000)
Carrying
costasa
%ofunit
8
10
12
13
20
3%
3%
4%
4%
5%
{N}
value
12.8
14.4
20.5
28.8
31.2
EOQ
(000)
O
(000)
E
(000)
(OE)2
30.31
31.62
28.89
27.78
28.69
29.46
29.46
29.46
29.46
29.46
0.72
4.67
0.32
2.82
0.59
EOQ
(000)
O
(000)
E
(000)
(OE)2
35.80
42.64
42.73
44.16
50.60
43.19
43.19
43.19
43.19
43.19
54.61
0.30
0.21
0.94
54.91
(000)
(OE)2
E
0.0244
0.1585
0.0109
0.0957
0.0200
Table5:Concentrates
Years
Annual
demandin
(000)
2000
450
2001
600
2002
700
2003
720
2004
800
2=2.5646
No.of Materials
orders
unit
cost
3
3
3
3
3
210
220
230
240
250
{N}
value
6.3
6.6
9.2
9.6
12.5
(000)
(OE)2
E
1.26
0.0069
0.0049
0.0218
1.271
AVOIDABLE CAUSES:
Clericalmistakes,i.e.wrongposting,nonpostingofentries,wrongcastingetc.sucherrorscanbecorrectedandactualbal
ancecanagreewithbookbalancebymakingtherequiredcorrectioninbincards
ofstoresledger.
Pilferageinmaterialhandling.
Carelessnessinmaterialhandling.
Shortorover-issueofmaterials.
UNAVOIDABLE CAUSES:
ActualBalancesmaybelessduetoshrinkageandevaporation.
Actualbalancemaybemoreduetoabsorptionofmoisture.
Actualbalancemaybelessduetobreakdownoffire,riotsetc.
Materialsmaybelostduetobreakingupbulkmaterialintosmallerpartsforissue.
Forexample,someironislostduetobreakingupbigrodsintosmallerparts.
Adecreasingviewisobservedintheperiodofholdingunderaboveanalysisoftheinventories.This
InventoryTurnoverratio
Costofgoodssold
Averageinventory
CostofGoodsSold
AverageInventory
Sales-GrossProfit
(OpeningStockInventory+ClosingStockInventory)
2
Particulars
2008-2009
2009-2010 2010-2011
2011-2012
2012-2013
Sales
1061
1187
1382
1576
1872
GrossProfit
173
144
69
62
207
CostofGoodsSold(Sal
888
1043
1313
1514
1665
OpeningStock
69
127
195
157
198
ClosingStock
127
195
157
198
162
AverageInventory
98
161
176
178
180
9.06
6.47
7.46
8.50
9.25
esGrossProfit)
Inventory:
Inventory
TurnoverRatio
INVENTOR
TIO
Interpretation:
Theinventoryturnoverratiohasdecreasedfrom9.06to6.47fromtheyear20082009to2009-2010whichshowstheefficientmanagementofinventory.
TheInventoryTurnoverratiohasincreasedfrom6.47to7.46fromtheyear20092010to2010-2011whichshows that theinventoryis efficiently managed.
TheITR(InventoryTurnover Ratio) has increased from7.46 in theyear20102011
to
8.50
inthe
year20112012thisindicatesthattheinventoryismanagedinagoodmanner.Inthesimilarway
theITRhasincreasedfrom8.50intheyear2011-2012to9.25intheyear20122013whichindicatedthattheinventoryhasbeenmanagedeffectively.
Findings
The findings as presented above in all the three cases show that we should
reject the alternative hypotheses andaccept the null hypotheses. Our
analysis also shows that the company operates a policy of making orders on
aquarterly basis within a period of one year. Also it can be as well observed
that the company does not always adopt theEOQ model in placing orders for
its raw materials and this account for the variations between the calculated
EOQ andthe expected order sizes of the company. For at least three years
out of the five years under study, the expected valuewas greater than the
observed value for each product. We, thus, concluded that inventory usage
depends on sales that means as sales increases, inventory usagesshould
also be on the increase.
The researchers have found that Cement and sand is fast moving throughout
the year. It is also very clear that Gravel, Bricks and Steelare given less
importance in the stock. Materials management unit should also pay
attention to sales growth over the years and thus take intoconsideration.
More sophisticated techniques may be used to handle inventory
management problem more efficiently and effectively. It is vividthat the EOQ
of Bricks is high during the month March and low in October. During the
month of July the EOQ of Gravel is high and Steel islow. Also during
November EOQ of Steel is high and Sand is low. EOQ of Cement is high in the
month of April and low in February.
The salesand marketing department of the company should pay closer
attention to the growth pattern of inventory usage and incorporate it in
salesforecasting techniqueThe researchers have found that Steel being more
valuable is considered high among the inventory. Cement comes under the
averagecategory. Bricks, Sand and Gravel are in the lowest category of the
inventory. The management can expand the Godown for storing
theinventory. Effort must be made by the management to strike an optimum
investment in inventory since it costs much money to tie down capitalin
excess inventory.The management can take some measures for controlling
wastage of raw inventories.Emphasis can be normally placed on the
economic order quantity model because it was seen to be in the best interest
of organization to maintainan optimal level of materials in store. ABC may be
maintained strictly.