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A STUDY ON INVENTORY MANAGEMENT
A
PROJECT REPORT ON

"A Study on Inventory Management”
At
Kirloskar Electric company ltd
BANGALORE

Submitted By

MANOHARA C K
[USN-1VA11MBA28]
SUBJECT CODE: 10MBA48
Under the guidance of
Internal guide
Dr
...
D
Department of MBA
S
...
I
...
PASHA
Finance Manager
KECL
Bangalore-562 123

Submitted in partial fulfilment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
To
Visvesvaraya Technological University
Belgaum

DEPARTMENT OF MBA
SAI VIDYA INSTITUTE OF TECHNOLOGY
2012-2013

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
DECLARATION

I MANOHARA C K bearing USN [1VA11MBA28] final year student of MBA in SVIT do
hereby declare that a project entitled “"A study on Inventory management at KECL”, has
been prepared by me under the guidance of Dr
...
Pasha finance manager at KECL,
Banglore
...


Place: Bangalore
Date:

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

MANOHARA C K
(1VA11MBA28)

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A STUDY ON INVENTORY MANAGEMENT

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
ACKNOWLEGEMENT
The satisfaction and euphoria that accompany successful completion of my project would be
incomplete without the mention of those people who made it possible
...

At the outset, I would like to express my deep sense of gratitude and sincere thanks to Dr
...

I express my deep gratitude to all my mentors who has supported me for completion of this
project
...
R
...
H
...
RAMACHANDRA And our HOD Prof D
...

I thank and appreciate the gesture of kindness shown by, MR
...
Without his support this project could not have been possible
...

Finally I would like to extend my sincere thanks to my Parents and my sisters for their
continuous moral, emotional and financial support
...


Place:

MANOHARA C K

Date:

USN: 1VA11MBA28

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
TABLE OF CONTENTS
Particulars

Section

Page No

PART – A
1

Industry Profile

1-2

2

Company Profile

3-20



Background of the company



Nature of business carried



Vision and mission statement



Products & services



Vision, mission and quality policy



Area of operation



Ownership pattern



Milestone



Competitors Information



Infrastructure facilities



Achievements and awards



Workflow model



Future growth and prospects

3

McKinsey’s 7s frame work

21-30

4

SWOT analysis

31-32

5

Analysis of financial statement

33

6

Learning experience

34

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
PART – B
1

Introduction to Inventory Management

35-46

2

Design of the study

47-49

 Title of the study
 Statement of the Problem
 Objectives of the study
 Scope of the study
 Methodology of data collection
 Limitations of the study

3

Analysis and Interpretation

4

Findings

79

5

Suggestions

80

6

Conclusion

81

7

Annexure

82-84

8

Bibliography

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

50-78

85

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A STUDY ON INVENTORY MANAGEMENT
LIST OF TABLES
TABLE

TABLE CONTENTS

NO

PAGE
NO

1

Table showing the size of Inventory

50

2

Table showing the Percentage of inventory to current assets

52

3

Table showing the Inventory turnover ratio or stock

54

turnover ratio
4

Table showing the Raw materials turnover ratio

56

5

Table showing the Work-in-process turnover ratio

58

6

Table showing the Finished goods turnover ratio

60

7

Table showing the Inventory conversion period

62

8

Table showing the Raw material conversion period

64

9

Table showing the Work in progress conversion period

66

10

Table showing the Finished goods conversion period

68

11

Table showing the Raw materials analysis in the year 2009-

71

10
12

Table showing the Raw materials analysis in the year 2010-

73

11
13

Table showing the Raw materials analysis in the year 2011-

75

12

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT

LIST OF GRAPHS
GRAPH

GRAPH CONTENT

NO

PAGE
NO

2
...
2

Graph showing the Percentage of inventory to current

53

assets
2
...
4

Graph showing the Raw materials turnover ratio

57

2
...
6

Graph showing the Finished goods turnover ratio

61

2
...
8

Graph showing the Raw material conversion period

65

2
...
10

Graph showing the Finished goods conversion period

69

2
...
12

Graph showing the Raw materials analysis in the year

74

2010-11
2
...

Inventory is like back bone of the every company
...
Inventory will help the company in
regular production and to reduce the cost, the regular order of the inventory will built the
good relation between supplier and company
...

The main objective of the study was to know the importance of the inventory role in the
manufacturing company
...
The study contains brief
description of various ratios on the inventory management, the methodology used in
collecting the data etc
...

Introduction gives detailed information about the company profile that is the company
machinery according to their department vice, the companies different customer, vision,
mission and quality policy of the company, competitor, company infrastructure facilities so
on and about the topic, the statement of problem, background of the study, objective of the
study, need of the study and a brief description of the theoretical background of the study
...
Data analysis
and interception is done on the assumption that information was correct as given by
respondents through questionnaire
...
The suggestions recommendations based on the observation are given
for the actions
...
These industries provide goods and services for
almost all sectors of the economy, including power, rail and road transport
...

 HEAVY ELECTRICAL INDUSTRY:

Heavy Electrical Industry covers power generation, transmission, and distribution and
utilization equipment’s
...
Majority of the products manufactured by
heavy electrical industry in the country, which includes items like transformers, switchgears
etc
...
Some major areas where these are used are the
multi core projects for power generation including un clear power stations, petrochemical
complexes, chemical plants integrated steel plants, non-ferrous metal units, etc…

 GENERATOR SETS:
AC generators manufactured in India are on par with international AC Generators and
consistently deliver high quality power with high performance
...
5 KVA to 25000 KVA and above with
specified voltagerating
...

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
 SWITCHGEAR AND CONTROL GEAR:
In India, the entire range of circuit breakers from bulk oil, minimum oil, air blast, vacuum to
SF6 are manufactured to standard specification for the benefit of customers
...
The industry is competitive in the field of design
and engineering as the skill sets available in the country are relatively less expensive
...
In the late 1970s there were 10 to 12 players and today there are about 4 to
6
...
They now have greater access to
markets and higher bargaining power as a result of combined technological strengths
...




Babcock Borsig Power took over B&W - Spain



GE Hydro bought over Kvaerner



GEC Alstom and ABB merged to become ABB-Alstom Power (AAP)



GE (USA) bought EGT, France2003 & 2004



Siemens AG bought Alstom’s industrial turbine business



Hitachi Japan took over the assets of insolvent Babcock Borsig
...
42 crores
Land and building area:16 acres & 4
...
Laxmanrao K
...
Back Ground & Inception Of The Company:
The founder of Kirloskar group is late “LAKSHMAN RAO KASHINATH KIRLOSKAR”
...
He had preference
for mechanical from his school days and therefore came to Mumbai and completed a course
of technical draftsman ship at JJ school of arts
...

LaxmanraoKirloskar created the first iron plough for the Indian farmers
...
Since
KEC corporate goal has been took into the future and engineer product that time would
eventually demand
...
Established in
1948 by Mr
...
Kirloskar Electric Company manufactures AC motor, AC generator,
DC motors, Electronics switchgears and Transformers
...
The company started
its production in1947
...
The
company manufactured its first electric motor in 1948
...
Even as the company
continues to grow its core business of rotating machinery new horizons have opened up in the field of
industrial electronics
...
The experiments never stopped but followed by the manufacturing hand pumps,
mechanized pumps, sugarcane crushers, peanut sellers and other mechanical equipments
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
Ravindra L
...
Kirloskar was the youngest son of Laxmanrao and RadhabhaiKirloskar, who
later headed KEC operations
...
S
...
he began his professional career in Kirloskar Brothers
...
K
...
He guided us with the highest level of quality
...
NATURE OF BUSINESS CARRIED:
The business carried by the KSL is production of industrial goods viz
...
C motors, D
...
The KSL produces the motors, generators and transformers in nations
as well as export to many foreign countries
...
The company has no
competitors for the kind manufacturing
...

The company has established 5 offices as global center, which are situated at


Singapore
...




Michigan
...




Sharjah
...
VISION, MISSION & QUALITY POLICY:
VISION:
The power of now is the energy of opportunities that come to us disguised as challenges
...


MISSION:
 To remain a leading producer of electrical technology products in India
...

 To maximize return on investment (ROI)
...


QUALITY POLICY:
The quality policy of KSL unit-1 shall be to continually improve the effectiveness of the
quality management system, conforming to ISO 9001-2000 standard in design, manufacture,
market and service at competitive prices, products of such quality which results in customer
satisfaction, quality reputation and market leadership
...
PRODUCTS/ SERVICES PROFILE:
Kirloskar Electric Designs, Manufactures, Markets and Services Rotating machines,
dedicated to control of the Motive force for operation of Industrial machinery, Power
Generation and control equipment for T&D Industry
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
PRODUCTS MANUFACTURED BY KIRLOSKER ELECTRIC
COMPANY:
AC MOTORS:

Kirloskar Electric was the first company in India to manufacture AC Motors way back in
1948
...
Its initial technology support from BRUSH Electric UK & technical collaborations
with NEI Peebles Electrical Machines, Scotland and AEG of Germany enables KEC to
develop high capacity motors for various applications
...

The product range in capacity and variety caters to multitude applications
...
The wide industrial range is from 0
...
Motors are offered in open type, closed type and heat
exchanger typeEnclosures
...
Class F insulation being
standard for all motors, class H insulation is also offered for low voltage motor specifically
designed for exacting duties
...
The laboratory has been certified by NVLAP (National Voluntary Lab Accreditation
Program) USA
...

Power: Nuclear, Thermal
...
This has resulted in a population
of several million Kirloskar AC Generators
...
The unique strength of the company in customizing AC generators for special
needs of missiles projects, warships, battle tanks, and fighter aircrafts makes KEC the only
company to offer AC generators for the widest of applications
...
The products
quality based on world class technology and state-of-the-art infrastructure makes leading
consultants specify Kirloskar Electric AC Generators again and again
...
In alternatives of
open construction or closed construction air cooled or water cooled, mechanical construction
of single bearing or double bearing and variety of excitations system both brushless and
brush type, with class ‘F’ or class ` H ‘ insulation, meeting the performance requirements of
national and international standards
...


APPLICATIONS
Industries: Telecom, Textile, Agriculture
...

Utilities: Fuel Stations, Milk Dairies, Cinema Houses, Nursing Homes, Construction ,
Hospital

DCMOTORS:

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
Kirloskar Electric from its fabled stable of DC Motors has put into international
use more than 0
...
The wide product range in capacity
and variety satisfies the needs of a multitude of applications
...
75 to 3750 kW caters to the
industry requirement of torques up to 1500K-Nm
...
These products come
from an in house developed technology based on the best of world class international design
and manufacturing concepts
...
It is this spirit that saw us develop complete electric for 5 &
10 cubic meter Electric Shovels for coal mines
...
India's premier
aircraft manufacturing facility in Bangalore houses one of the world’s few high power and
outdoor duty vertical DC motors, for helicopter blade load testing made by Kirloskar

...
The prestigious CERN Super Particle Accelerator project in Geneva uses
Kirloskar Electric Super Conducting DC Corrector Magnets in very large numbers
...

The constant pursuit of newer applications has pushed KEC to enter space applications
...
The fully equipped and highly quality
manufacturing facility backed by a strong force of dedicated and skilled design, marketing
and service team with a focus on quality brings in great levels of reliability to the product
that is trusted in India and abroad
...




Aise series mill duty motors
...


DG SETS:

Kirloskar Electric Company has 60 years of experience in design, development &
manufacture of core products for Generation, Distribution and Utilization of Electric Power
...
A separate unit at Mysore was
started in 1980
...

KEC's electronic products have been approved by major consultants like Engineers India
Ltd
...
N
...
, R Singh, Avant Garde, and Entech Consultancy
...

The AC Drives manufactured in collaboration with Fuji Electric Co
...
5kW to 2800kW and are used in plastic, textile and railways for energy saving applications
and are exported to Indonesia,Malaysia & Philippines
...
Ltd, Japan in a range from 0
...

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
The Battery chargers are necessarily thyristorised chargers available in the range 15 Amps to
500 Amps, any voltage range
...
can be supplied, as required
...


Types:
1
...
DC Drive
3
...
Ups

Switchgear:

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
 FEATURES


Air insulated, Metal clad construction
...




Compartmentalized design, Extensible on both sides
...




Suitable for Indoor and Outdoor installation
...



Horizontal Isolation and Horizontal Draw out
...




Identically Rated Breakers are readily interchangeable in the cubicle
...




Suitable for Auto Reclosing duty

 Manual and Electrical Operation
...
Its team of engineers supported by world class manufacturing
DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
facility set out in the eighties to indigenize electric equipment which was, until then,
imported at great cost
...
Today KEC is one of the major suppliers of electrical equipment to
the railways
...
Since then it has been a
series of firsts, with the development of Alsthom design of 3900 hp traction motors and
Hitachi design of 5400 hp for electric locomotives
...
Prestigious

Indian

trains like Rajadhani Express, Shatapthi and Palace on Wheels have 500 KVA AC
generators for power car applications
...
With its successful contribution to the modernizing of Indian
railways KEC has now been approached by world leaders in traction for strategic tie ups
which will ensure the presence of KEC traction products in the global arena
...


Types:


Dynamic Braking Resistors



DC-90 Traction Moto



DC Traction Motor KTM-15250



DC Traction Motor KTM-659



AC Traction Motor WAG-9

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
E
...
Ownership pattern:
Category

No of shares held

Percentage of shareholdings

Promoters

24836203

49
...
62

Foreign investment institutions

55775

0
...
20

Indian public

15149956

29
...
92

Total

50521369

100
...
Competitor’s information:
 Crompton greaves
 Bharat heavy electrical Ltd (BHEL)
 ABB
 Siemens
 Bajaj electrical
 Wasting house bankers and signals
 Crompton Parkinson
 Philips electrical
 Mysore electrical

H
...




It is equipped with ill kinds of modern facilities that are required
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT


It maintains a very good communication system internally and externally as it is facilitated
with telephones, computer and internet services
...




KEC own their own vehicles used to pick up and drop their employees safely and at exact
time
...
Journals in Engineering and
management
...
Regular security checks are conducted to prevent unauthorized
materials leaving/entering the organization
...


I
...
National award
for R & D from the Department of Scientific & Industrial Research, Ministry of Science &
Technology, India
...
WORK FLOW MODEL:
CUSTOMER
REQUIREMENT

DESIGN

INSPECTION

PRODUCTION &
PLANNIG

COIL
SECTION

CUMMUATOR SECTION

NOT OK
...

R/W

ROTOR

ROTOR WINDINGS

STATOR WINDINGS

IMPREGNATION & DIPPING
BALANCING
ASSEMBLY
I

NOT OK
TESTING
PAINTING
PACKING

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
K
...
16 acres
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
CHAPTER – 3:
MCKINSY’S 7-S MODEL:

The 7-s model is better known as MCKENCY’S 7-s
...
Tom peter and Robert Waterman have been consultants at
MCKENCY’S and company
...




System
...




Skills
...




Staff
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
Strategy:
The direction and the scope of the company over the long terms
...


System :
Formal and informal producer that govern every day activity covering everything from
management information system
...


Skills:
The Capabilities and competence that exists within the company
...
Ultimately they guide employees toward ‘valued’
behaviour
...


Style:
The leadership approach of top management and the company’s overall operating approach
...
Here the
strategy explains with reference to KECL is pricing Strategy
...
It is based on the
demand for the products, credit period, prompt payment, performance of the customer;
manufacturing of products based on customer specification and marked conditions
...
When the demands are more
favorable, then skimming price strategy is adopted
...
At that time
the company charges special prices for its products
...

 Company also makes a price variation based on the mode on the mode of payment and
also extended credit period
...

 If the credit period is more than acceptable time, company charges higher rates on its
products
...


PP&MM

Quality R&D ProductionDept

Dev
...
Dept

Computer

Personal

DC

Information

Dept

Engineering

Ac
Engineering

Technology

SYSTEM:
System consists of all the formal and informal procedures that allow the organization to
function
...
QMS are implemented, maintained and improved by quality assurance department to
meet customer requirements
...
Responsibility


Quality objectives
...




Control of Records
...
Resource Management:


Provision of resource



Determination of Competency



Identification of training needs
...
Product Realization:



Planning of measuring instruments/ requirements



Product status identification and traceability
...




Calibration of Measuring devices

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT


Providing inspection/test/quality plans



Verification of purchased product, in process and final inspection and final testing
...
Measurement, analysis and improvement


Monitoring and Measuring of product
...




Analysis of product
...




Prevention action
...
Top Management Skills:
Top management includes Board of Directors, Secretaries and unit chief
...

Example: personal Director of KECL is responsible for determination of basis objectives or
policies or organization, selection of top executives and determination of overall organization
structure
...
Supervisory Management Skills:
Supervisors include Additional General Manager, Deputy General Manager, Senior
Management and manager
...


3
...
For clerical work candidate
should be B
...


Shared Values:
To achieve this objects various departments in organization in working for the stated objects
...

If it meets the company’s requirement, the materials will be received and stored, if not it is
rejected
...

Production department uses the advanced machinery will skilled workers to produce the
products with minimum wastage and quality, which meets stringent specification standards
...

Design department designs the products according to the customer needs
...

Coordination of all the functional department area works together to achieve the stated object
of the company
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
1
...
The Corporate standards and quality assurance
group analyze the data collected
...
The
results of these are used to update the quality management system and procedures
...
Customer complaint handling system:
This is an important activity initiated from the inception of KECL, But the mission critical
requirement of some customers, expect past corrective/ preventive actions
...


Style:
Style refers not to personality but to the pattern of substantive and symbolization undertaken
by top managers
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
Board or director and Chief Executive of the company give decisions about the management
relating problems of the company
...


Staff:
Classification/duties and responsibilities of Staff
...

b) To provide resources as required
...

d) To participate in corporate management committee meetings for formulating business
strategies and policies at corporate level
...
e
...
Highly technical background employees
will work together to ensure maximum satisfaction to the customers
...


 Production department:
If performs the functions of converting raw-materials into finished products
...
Then the Start
planning for the actions and here they schedule for a month where a products pas though 3
stages and they work in 3 shifts
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
 Finance department:
This department function’s independently and varied functions
...
The Financed department of this unit performs the
following functions:


Maintenance of payroll records
...




Maintaining of cash and bank records
...




Updating the general and subsidiary ledgers
...




Invoicing/ costing
...


When the department gets the purchase orders and suppliers bills, they verify it and forward
it to the accounting department
...
Job costing
...
Batch Costing
...
The terms SWOT is the acronym for Strengths,
Weakness, Opportunities & Threats
...

 Management is very stable, that forms strong foundation for the company
 The company has got the ISO certificate for producing quality products
 Well-equipped quality control department for inspecting the quality of incoming raw
materials & final products
 Employees are being provided with all necessary welfare facilities
 There are highly skilled & committed employees
 Company guarantees job security to all its employees this makes them to
be more committed & loyal
...


THREATS:
 Cost of production is very high
...

 Technology advancement at a faster rate
...
25

1
...
83

Quick ratio

0
...
86

0
...
27

1
...
27

4
...
15

4
...
Normally current ratio of 2:1 is satisfactory
...




Quick ratio:quick ratio indicates that the firm is liquid and has the ability to meet the liability in
time
...
The above table reveals that compare to previous
years in 2011-12 it got decreased to 0
...




Current asset turnover ratio: This ratio helpful to know the firms efficiency of utilizing the
current asse
...
The above table shows ratio is decreased in 2010-11(1
...
27) so
utilization of current asset decreased in 2011
...

This ratio shows increasing trend from 2010-11 to 2011-12
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
CHAPTER - 6
Learning Experience:
From every activity we will learn something
...

I had a great time working on the project, as it gives insights into the working environment
of an organization
...

It is following very good accounting system by which helps in meeting its entire obligation
in time
...

The way in which departments are classified on the basis of their functioning
...
From strategy I found out how
the strategies were formulated to overcome the competition
...
Systems play a very important role of supporting
and facilitating various activities that are carried out within the organization
...
This has
helped me in recalling theoretical aspects learnt in the previous semesters of MBA & relating
it with real working life
...

The training provide an opportunity to relate the class room activity with the reality of
management &also it gives exposure that how to interact with corporate people
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
GENERAL INTRODUCTION:
Inventories constitute the most significant part of current assets of a large company
...
The various inventories exist in a manufacturing company are raw
materials, work-in-progress and finished goods
...


Inventory management techniques have to be applied on a selective and qualitative basis
...
Also in certain cases
industrial products like chemicals, which when exposed to air evaporate and absorb moisture
are to be handled properly and proper care to be taken about purchase and storage
...
It is not possible for a company to procure raw materials
whenever it is needed
...
Also
the existences of uncertainty in procurement of raw materials in time on some occasions
...
Therefore the firm should maintain sufficient stock of raw
materials, at a given time to stream lime production
...
The optimum level of inventory will lie between the
two danger points of excessive and shortage to avoid a situation of over investment or under
investment in inventories
...
The word
‘Inventory’ is understood differently by various authors
...
In a manufacturing concern, it may include raw materials, work in
process and stores, etc
...
Inventory
includes the following things


Raw materials



Work In Progress



Finished goods



Consumable stores and spares

A
...
They are purchased by the firm from others and are
used in the production for converting into finished components
...
The factors like the availability of raw materials and government
regulations, etc
...


B
...
They are normally partially
finished or semi-finished goods that are at various stages of production in a multi-stage
production process
...
The quantum of work-in-process depends upon the
time taken in the manufacturing process
...


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C
...
The stocks of finished
goods provide a buffer between production and market
...
In
some concerns the production is undertaken on order basis, in these concerns there will not
be a need for finished goods
...
Work in production, while stock of finished goods
is required for smooth marketing operation
...


D
...
They
include spare parts, lubricants, cleaning materials, oil, cotton waste etc
...


The levels of the above four kinds of inventories differ depending upon the nature of the
business
...
But a
retailer or wholesaler will have a high level of inventories of finished goods but they will
have no inventories of raw-materials, spares, maintenance supplies and stores and goods in
progress
...


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OPERATING CYCLE:
This shows time period required to convert raw materials into finished products and till the
finished products are sold out
...


Meaning of Inventory:
The term ‘Inventory’ refers to the stock of raw-materials, spare parts and finished products
held by a business firm
...
The resources may be of any type; for example men, materials,
machinery, money, when the resources involved in materials or goods in any stage of
completion, inventory referred to as stock
...


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Importance of Inventory:
Inventory constitutes the largest component of current assets in many organizations
...

A stock out creates an unpleasant situation for the organization in case of a manufacturing
organization (in stock out ability to supply an item from inventory) could, in extreme cases,
bring production process to a half, conversely, if a firm carries excessive inventories the
added carrying cost may represent the difference between profit and loss
...


Benefits of Holding Inventory:
 It enables the firm to undertake continuous production and reduce the setup costs
associated with the state of production
...

 It enables the firm to reduce variable costs associated with planning small orders
frequently
...

 It enables the firm to avoid scarcity of goods meant for either production or sale
...
The carrying cost such as the cost of storage, handling, insurance,

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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recording and inspection also increases in proportion to the volume of inventory
...


Problem of Inadequate Inventories:
 Inadequate raw materials and work in progress will result in stoppage of production
...

 An effective inventory management should avoid both these extreme situations
namely, over investment and under investment in inventories
...
The inventory management is concerned
with the entire range of functions with effect to the flow, conservation and utilization, the
quality and the costs of materials
...
These activities include material planning, programming
functions such as customer service requirements, etc
...

Because of these numbers, inter relationship inventory management stresses the need for
integrated information flow and decision making as it relates to inventory policies and
overall systems
...
, minimizes stockout and shortages and avoids costly interruptions in the operations
...



It facilitates economical purchasing through the measurement of requirement on the

basis of recorded experience
...

 It permits a better utilization of avoidable stocks by facilitating inter-department transfers
within a company
...

 It facilitates cost allotting activities by producing a means for allocating material cost to
production department or other operating accounts
...

 It serves as a means for identifying and disposal of inactive and obsolete items of stores
...


Four steps are involved in the process
...
Optimum Inventory Levels:
Determination of inventory that an organization should hold is a, significant but difficult
task
...
Excess inventories however, guarantee uninterrupted supply of
materials and components, to meet customers’ demand
...
Degree of Control:
The second aspect of inventory management is to decide just how much control is needed to
realize the objectives of inventory management
...
More importance should be
given also for items of high consumption
...
Planning and Design of the Inventory System:
Inventory system provides the organizational structure and the operating policies for
maintaining and controlling goods to be inventoried
...
Organizational Arrangement:
The last aspect of inventory management and control is to determine an organization
structure to handle inventory
...


Inventory Control Technique tools:
Inventory control techniques are employed by the inventory control organization
...
What
should be stressed however is the need to cover all items of inventory & all stages from the
stage of receipt from suppliers to the stage of their use
...
ABC (Always Better Control) classification:
One of the widely used techniques for control of inventories is ABC analysis
...

ABC analysis consists of the classification of materials into categories, A, B & C on the basis
of their value
...
Generally, they constitute about 70% of the total value and about 15% of the total
number
...

Generally, they account for about 70% of the total value and about 60% of the total number
...
They account
for about 20%of the total value and 25% of the total number
...

Items of ‘B’ category are not subject to much control
...


B
...
The VED analysis is done to determine the criticality of an item and its
effect on production and other services
...
If
a part is vital, it is given ‘V’ classification, if it is essential, then it is given ‘E’ classification
and if it is not so essential, then it is given ‘D’ classification
...


C
...
Here, classification is
based on the pattern of issue from stores and useful in controlling obsolescence
...
The items are
usually grouped in period of 12 months
...


D
...
The main purpose of fixing the levels is to
control the investment on inventories

1
...
It is fixed on the basis
of average consumption and average lead-time required for measuring the item
...

Minimum level=Re-Order Level (ROL)-(Normal consumption * Normal Re-Order
Period)

2
...
This
level is fixed for avoiding over-stocking of materials and its associated risks
...
Re-Order level:
It is the point fixed between maximum and minimum level at which the storekeeper has to
initiate action to obtain fresh supplies of materials
...
Re-Ordering level depends on lead time,
rate of consumption and economic order quantity
...


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4
...
When the stock reaches this danger level,
urgent purchase action is necessary
...

Danger level=Minimum consumption*Emergency reorder period
...
Average stock level:
It is the stock level between the Minimum level and Maximum level of stock
...
Stock level=Maximum level + Minimum level
2

E
...
It is the oldest and most widely known
inventory model
...
The purpose of using EOQ model is to find that
particular quantity of order with minimum total inventory costs
...
EOQ will be
fixed at a level where the total of ordering cost will be less
...
Just-In-Time (JIT):
The concept JIT means that, virtually no inventories are held at any stage of
production and the exact numbers of units are brought to each successive stages of
production at the right time
...
The concept JIT was started
in the ‘Motto Machi’ plant of Toyota Corporation, Japan, where the system has been
DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
perfected and results achieved
...
As soon as one truck comes out from one end
of the plant, another truck gets inside
...
In India, the
MarutiUdyog Ltd
...


Inventory Valuation:
Many methods of material costing and inventory valuation have come into use among the
more common methods of costing material and valuing inventories are:-

1
...
The stock is assumed to
use first
...
In other words the principle is that
the materials are issued in this order and at the price of their original purchase
...
The closing inventories are valued at the
most recent prices
...


2
...
It assumes that the material, which is acquired,
last is issued first
...


3
...
To get an up to date weighted average cost figures, a
new weighted average cost is calculated each time delivery is received
...
This study basically focuses on the Inventory Management for the past three
years of KECL, Bangalore
...
It serves as a
link between production and distribution processes
...
Thus,
it is very essential to have proper control and management of inventories
...
So, in order to understand the
nature of inventory management of the organization, I took this Inventory Management as a
topic for my project, to give findings and suggestions by adopting and analyzing different
inventory control techniques
...


SECONDARY OBJECTIVE:


To classify the various components based on its value and movements
...




To determine the stock levels of key inventories
...


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SCOPE OF THE STUDY:
The study is being conducted for KECL, Bangalore, a listed company having a work
force of over 1500
...
This report is prepared based on information
given by the company officials / staff and reports of the company and other related industrial
websites
...
The study also
shows the Inventory turnover ratios and ABC analysis
...


RESEARCH METHODOLOGY:
Research is a process in which the researcher wishes to find out the end result for a
given problem and thus the solution helps in future course of action
...


DATA COLLECTION:


Primary Sources
1
...
Data are collected through the discussion with procurement and logistic- Manager
...
, 2009-2012



Data are collected from the company’s website and records
...


LIMITATIONS OF THE STUDY:
 The entire analysis applies only to KEC limited, Bangalore
...



The study was limited to be the information available in the published financial
statement
...




Unavailability of confidential data was another limitation of the study
...


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CHAPTER – 8
DATA ANALYSIS AND INTERPRETATION:
1
...
It covers the stock of raw materials, stores and spares, work
in progress and finished goods
...


Total Inventory

Table No
...
29

2010-11

1,161,719

249,537

21
...
82

Analysis:
The above table shows the percentage growth of total inventory
...
19
...
48% in 2010-11 and then there
is a change of 11
...

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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Graph 2
...


Growth of inventory
249,537

250,000
200,000

175,944
155,741

150,000
100,000
50,000
0
2009-10
2010-11

2011-12

Interpretation:
As seen in the graph, there is an increase in growth of inventory in the year 2010-11 and
20011-12 when compared to 2010-11 there is a drastic fall in the growth of inventory which
might be due to


Decrease in working capital
...




Less funds and less demand
...


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2
...
Current asset is
those assets which change their form and substances and which are converted into cash
during the normal operating cycle of business
...
3

Table No
...
17

2010-11

1,161,719

3,682,049

31
...
97

Analysis:
The above table shows the Percentage of inventoryto currentassets
...
17%
...
55% in 2010-11 and then there is a change of 37
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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No
...
2: Percentage of Inventory in Current Assets
...
17

31
...
97

Interpretation:
Current assets and inventory form a major part of the company’s working and
balance sheet
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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3
...
It is a ratio
between net sales and average inventory
...
3:
Table showing the percentage of Inventory Turnover Ratio for the period 2009-12
Inventory turnover ratio:
YEAR

NET SALES

AVERAGE

INVENTRY

INVENTORY

TURNOVER
RATIO

2009-10

8,407,330

824,210

10
...
95

2011-12

8,717,397

1,239,590

7
...
10
...
95 in 2010-11 and then turnover ratio is 7
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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Graph No 2
...


INVENTRY TURNOVER RATIO

12
10
8
6
4
2
0
2009-10

2010-11

2011-12

Interpretation:
Hence a high inventory turnover indicates efficient management of inventory because
more frequently stocks are sold
...
,
In 2009-10 company managed its inventory more efficiently compared to other years by
selling stocks more frequently and it shows the company’s efficient utilization of inventory
...
The ratio should be on increasing trend
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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4
...
If the raw material turnover ratio is high, then the company is efficiently converting the
raw materials into finished goods
...
4:
Table showing the turnover of the raw materials Inventory for the period 2009-12(Rs in
000’s)

YEAR

NET SALES

AVERAGE RAW

TURN OVER

MATERIALS

RATIO

2009-10

8,407,330

177,219

47
...
31

2011-12

8,717,397

407,640

21
...
47
...
31 in 2010-11 and then turnover ratio is 21
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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Graph No
...
4: Turnover of the raw materials Inventory for the period
2009-12(Rs in 000’S)

RAW MATERIALESTURN OVER RATIO
50
45
40
35
30
25
20
15
10
5
0
RAW MATERIALESTURN OVER
RATIO

2009-10

2010-11

2011-12

47
...
31

21
...
As seen in the graph there is a high conversion rate from
2009-10
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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5
...
A higher ratio indicates efficient utilization of work in progress and
the times it is turned into simultaneous sales
...
18

2010-11

8,238,754

570,192

14
...
99

Analysis:
The above table shows the Work-in-process turnover ratio
...
18 is the inventory turnover
ratio in the year 2009-10
...
45 in 2010-11, and then turnover ratio is 12
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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A STUDY ON INVENTORY MANAGEMENT
Graph No
...
5: Turnover of the WORK-IN-PROGRESS Inventory for the
period 2009-12

WORK-IN-PROCESS TURN OVER RATIO

20

18
...
45

16

12
...
There is a drastic fall in the work in progress turnover ratio from 2009-10 to
2011-12 and the work in progress turnover ratio has been decreasing at an decreasing level
which is not a good sign for the company as the final consumable goods only fitch profits
and not the work in progress materials or semi-finished goods
...
Finished goods turnover ratio:

Formula
Finished goods turnover ratio= Net sales/Avg
finished goods

Table No
...
58

2010-11

8,238,754

159,274

51
...
23

Analysis:
The above table shows the Finished goods turnover ratio
...
58 is the turnover ratio in the
year 20009-10
...
72 in 2010-11 and then turnover ratio is 56
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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Graph No
...
6: Turnover of the finished goods Inventory for the period
2009-12

Axis Title

FINISHED GOODS TURN OVER RATIO
57
56
55
54
53
52
51
50
49
48
47
2009-10

2010-11
2011-12
2009-10

FINISHED GOODS TURN
OVER RATIO

2010-11

2011-12

50
...
72

56
...
Where the cost invested can be
recovered
...


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7
...


Formulae:
Graph No
...
6 Conversion period = No
...
7
Table showing the Inventory turnover Conversion in number of days
for the period 2009-12
YEAR

NO OF DAYS

INVENTORY

INVENTORY

IN YEAR

TURN OVER

CONVERSION

RATIO

PERIOD DAYS

2009-10

365

10
...
95

46

2011-12

365

7
...
36 days is required for the inventory
conversion in the year 2009-10, 46 days is the change during the year 2010-11 and then there
is a change of 52 in 2011-12
...
2
...
Hence it is very much necessary to see to it that the inventory conversion period
is low
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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8
...


Formulae:

Raw material Conversion period =
R
...
Turnover Ratio

No
...
8:
Table showing the Raw Materials Conversion in number of days
for the period 2009-12
...
44

8

2010-11

365

28
...
38

17

Analysis:
The above table shows the Raw material conversion period
...
13 is the change during the year
2010-11, and then there is a change of 17 in 2011-12
...
2
...
Raw material conversion period has drastically increased
in recent year it is unfavorable position of the company in the current year compared to
previous
...
Work in progress conversion period:
This represents the number of days for which work in process remain in inventory

Formulae:

Work in process conversion period =

No of days in a year
Work in process turnover ratio

Table No
...
18

20

14
...
99

28

Analysis:
The above table shows the Work in progress conversion period
...
25days is the change
during the year 2010-11 and then there is a change of 28days in 2011-12
...
2
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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10
...


Formulae:

Finished goods conversion period =

No of days in a year
Finished goods turnover ratio

Table No
...


YEAR

NO OF DAYS IN

FINISHED

A YEAR

NO OF DAYS

GOODS TURN
OVER RATIO

2009-10

365

50
...
22

2010-11

365

51
...
06

2011-12

365

56
...
49

Analysis:
The above table shows the Finished goods conversion period
...
22days is
required for the Finished goods conversion in the year 2009-10
...
06 during the year 2010-11,
and then there is a change of 6
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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Graph No
...
10: Finished goods conversion period for the period 2009-12

FINISHED GOODS CONVERTION PERIOD
7
...
2
7
2009-10

6
...
6

2011-12

6
...
2
6
2009-10

2010-11

2011-12

Interpretation:
Conversion of finished goods plays a very important role as the investments are to be
recovered and profits are to be made
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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ABC ANALYSIS:
Always Better Control
It is based on Pareto’s Law: a few high usage value items constitute a major part of
the capital invested in inventories, whereas bulk of items in inventory having low usage
value constitutes insignificant part of capital
...

 By concentrating on ‘A’ class items the material manager is able to control
inventories and show visible results in a short spare of time
...


Disadvantages of ABC:
 As ABC analysis is based on grades of different items, this gradation may include
a lot of subjective elements
...


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Raw materials analysis in the year 2009-10
...
1505
8
...
0242
6
...
0034
0
...
1385 10
...
0069
1
...
0069
5
...
0069
6
...
0381
7
...
1454 10
...
0451
0
...
0554
0
...
1662
0
...
0034
0
...
0484
0
...
0138
0
...
0173
0
...
0207
0
...
0415
0
...
0069
0
...
2288 16
...
8177 22
...
7895
0
...
1695
0
...
0541
0
...
Here the company is focusing more on A
items than B & C items
...

INTERPRETATION:
The above chart shows the ABC analysis for the period of 2009-10 where A is given more
importance
...
So the company
is focusing on the item which is necessary for the company and it has given importance
...


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Raw materials analysis in the year 2010-11
...
1591
0
...
0066
0
...
0066
0
...
6089
7
...
0631
5
...
4409
1
...
0363
0
...
3097
10
...
0033
0
...
0594
0
...
0462
0
...
0462
0
...
8591
0
...
3094
0
...
0614
0
...
3243
0
...
0462
0
...
3261
0
...
4212
40
...
7923
4
...
5773
0
...
9149
27
...
0146
0
...
0743
0
...
Here the company is focusing more on B
items than A & C items
...

INTERPRETATION:
The above chart shows the ABC analysis for the period of 2010-11 where B is given more
importance
...
So the company
is focusing on the item which is necessary for the company and it has given importance
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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Raw materials analysis in the year 2011-12:
Raw materials analysis in the year 2011-12
CATEGORY A
Material Description
BARE COPPER STRIP
SHAFT
TR7 SHAFT
END SHIELD
BEARING HOUSING
BEARING
BEARING ASSY
BEARING CAP-KTM5BG
BEARING TEMPERATURE
DETECTOR(3WIRE)
ARMATURE COIL ASSY
ARMATURE COIL ASSEMBLY
ADAPTOR PLATE (ONE HOLE)
ADAPTOR PLATE(WITHOUT
GLAND ENTRY)
CATEGORY B
Material Description
BEARING HOUSING (MC)
EPOXY SPACER
ADAPTOR PLATE (TWO HOLES)
ADAPTOR PLATE
PLATE
CATEGORY C
Material Description
CRCA SHEET
CRNO SHEET
EPOXY WDG
EPOXY WEDGE
HEX SKT HD CP SCW CrPltdM
GASKET

Qty
717
12
1
49
2
2
2
19
53

Rate
412
30537
26186
9748
33625
97096
136052
649
734

Value
295404
366444
26186
477652
67250
194192
272104
12331
38902

Qty in %
2
...
0342
0
...
1398
0
...
0057
0
...
0542
0
...
4053
9
...
6564
11
...
6858
4
...
8212
0
...
9752

Category
A
A
A
A
A
A
A
A
A

11
33
11
4

22592
8840
780
750

248512
291720
8580
3000

0
...
0941
0
...
0114

6
...
3129
0
...
0752

A
A
A
A

Qty
1
16
2
11
2

Rate
2700
134
780
772
310

Value
2700
2144
1560
8492
620

Qty in %
0
...
0456
0
...
2113
0
...
0768
0
...
0091
0
...
0155

Category
B
B
B
B
B

Qty
13775
14880
240
1498
3703
6

Rate
46
66
2
5
...
65
44

Value
633650
982080
480
7954
...
95
264

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

Qty in %
39
...
4536
0
...
2738
10
...
0171

Value in %
15
...
6193
0
...
1994
1
...
0066

Category
C
C
C
C
C
C

Page 86

A STUDY ON INVENTORY MANAGEMENT
Graph showing the Rawmaterials analysis in the year 2011-12

ABC analysis in the year 2011-12
A

B

C

25%

54%
21%

ANALYSIS:
The above chart shows the ABC analysis for the year 2011-12 where A items has 54% of
value, B consists of 21% of value and C consists of 25% of value
...

INTERPRETATION:
The above chart shows the ABC analysis for the period of 2011-12 where A items has 54%,
B items has 21% and C items has 25%
...
So the company is making more investment in the
high items and then other items
...
So the company has to change their strategy and
should concentrate on the B items
...
Reorder level = Maximum consumption x Maximum delivery time
= 30500 x 6 weeks
Reorder level = 1,83,000 units
...
Minimum level = Reorder level – [ Avg
...
delivery time ]
= 1,83,000 – [ 30,500 x 5 weeks]
Minimum level = 30,500 units
...
Maximum stock level = Reorder level – [ Min
...
delivery time] + ROQ
= 1,83,000 – [ 26000 x 4 weeks] + 86000
Maximum stock level = 1,65,000 units
...
Avg
...
stock level = 97,750 units
...
Danger level = Avg
...


Formulae for calculating Economic Order Quantity:

EOQ=√2AO
C
= √2*400000*600
100

EOQ = 2,190 units

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

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CHAPTER - 9
A
...




The percentage growth of total inventory is decreased by 11
...




The Percentage of inventory to current assets is increased constantly in every year
...
03 in 2011-12
...




The Work-in-process turnover ratio is fluctuating from past 3 years then turnover ratio is
12
...




Finished goods turnover ratio is fluctuating year on year
...
22 in 2011-12
...
In 2011-12 the
inventory conversion period is 52days
...
In 2011-12 the time taken
for raw material conversion is 17days
...
It is 28days in
2011-12
...
It is 6
...




KECL has implemented SAP ECC 6 system at majority of its units,which creates
efficiency in material management
...




A items quantities are fluctuating from year to year
...
67% in 2011-12
...
5% in 2011-12
...




C items quantities are constantly increased from year to year
...
Suggestions:


KECL should decrease the working capital and decrease the debt to maintain growth of
inventory
...
Because inventory turnover ratio is decreasing year by year
...




The Kirloskar Electric Co Ltd should make efforts to push the sub assembly of
inventories which are at present slow moving in nature
...
There is an increasing of inventory conversion period from year by year
...




ABC analysis must periodically reviewed



Company should maintain long term relationship with vendors; this would help in
improving in quality and delivery
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

Page 91

A STUDY ON INVENTORY MANAGEMENT
C
...

Inventory is one area where the organizations have ample room to reduce the cost
...

The inventory management should aim at procuring the raw material when the requirement
arises most economical way
...

The company has adopted very effective inventory control techniques and also has taken
many measures to reduce the cost of it production
...


DEPARTMENT OF MANAGEMENT STUDIES, SVIT

Page 92

A STUDY ON INVENTORY MANAGEMENT
ANNEXURE:
Balance Sheet as at 31st march 2012

Particulars
1
...
14
18278
...
73
16575
...
07
184
...
7
225
...
38
690
...
15

8580
...
3
1534
...
98

4) CURRENT LIABILITIES
a) Short term borrowings
b) Trade payables
c) Other current liabilities
d) Short term provisions
TOTAL
II
...
67

18369
...
75
13771
...
54

14392
...
68
12284
...
93
62777
...
26

16
16
17

17658
...
28
395
...
05
18810
...
84
209
...
38
1,449
...
21

55680
...
03

18
9
19
20

DEPARTMENT OF MANAGEMENT STUDIES, SVIT

19210
...
21
203
...
73
13,530
...
65
1,480
...
32
3,556
...
54
2) CURRENT ASSETS
a) Inventories
b) Trade receivables
c) Cash and cash equivalents
d) Short term loans and advances
e) Other current assets

21 23,041
...
37
23 2,858
...
73
25 2,473
...
92

16,505
...
03
3,889
...
22
1,324
...
72
93,267
...
11
89,085
...
REVENUE FROM OPERATIONS
2
...
TOTAL REVRNUE (1+2)
4
...
73
773
...
40

109,124
...
73

29

78,263
...

16

30

5,482
...
01

31
32
33
34

Less Expenses capitalized
Total Expenses
5
...
EXCEPTIONAL ITEMS
7
...
83
17,899
...
00
2,486
...
26
110,011
...
88
109,777
...
17
16,628
...
44
2,188
...
36
108
...
05
108,595
...
32
135
...
75
184
...
04

1,090
...
TAX EXPENSE:
a) Current tax
b)Prior year tax
c) Deffered tax
9
...
ADJUSTMENTS
Add: Share of Profit of associates (net of
tax)
Less: Minority Interest profit/(loss)

46
...
52

160
...
31
196
...
59
319
...
69

4
...
36

45
...
05
343
...
PROFIT FOR THE PERIOD (9-10)
12
...
45
691
...
52

1
...
Company Profile, Product/ services profile and published annual report of the
company
...
M
...
KHAN AND P
...
JAIN
“FINANCIAL MANAGEMENT”
Fourth edition, Publisher
Tata McGraw-Hill Publishing Company Ltd
Chapter-7, Page No
...
1
3
...
C Tulsian
“FINANCIAL ACCOUNTING”
Publisher- Dorling Kindersley (India) Pvt, Ltd
Chapter – 12
...
1 to 9
4
...
ASHWATAPPA AND SREEDHAR BHATT
“PRODUCTION AND OPERATION MANAGEMENT”
Himalaya Publishing House,
Page-482 to 486, and
Page-523-542
5
...
N MURTHY AND BHOJANNA
“Business Research Methodology”
Excel Books, 2nd Edition 2007
Chapter-81 and Page no
...
C
...
85, 71
7
...
kirloskar-electric
...
kecl
...
moneycontrol

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