1

CHAPTER 2
2.2 COMPANY PROFILE
Company Name: Sri Venkatesswar cas hew nut Industries,
Type of the firm ; Proprietorship,

Address : Venkateswara cashew nut industries,

Kadsalgadde, Talan,
Post : Muttalli,
Taluk : Bhatkal,

District : Uttara Kannada.

PH NO : 08385- 581320.
Year of establishment : Nov 2012.
Name of the Promoter ; Smt Jnaki Chandrahas Naik.
Plant Head ; Chandrahas Naik.
Nature of the business : Manufacturing and exporters of Cashews nut carnnels.

Number of employees : 50,

Skilled employee 35,
Unskilled employee 15.

Total area of the unit : 20000 sq. Ft.

Office Contact no : 08385- 581320.

.

Promoters; Janaki chandrahas naik.

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2.4 VISION :

To be among est the most admired organizations with a significant global presence.

To be better service to the customer.

To hold sense of market.

2.4 MISSION ;

Good market capturing.

Delightful customer service int world class quality.

Effectiveness of cost and innovative technology used int he challenging environment

for the production.
 3

Good and healthy performance of worker creates.

.

Maximum satisfaction to their entire shareholder in the market produced.

2.4 QUALITY POLICY ;

In the production of cashew-nut 30 grade quality mentain.

Equal-pay to the equal work.

Working so rounding cleanness mentaining.

Mentain ace of proper int he working environment of lab ours effectively and
efficiency.

Proper inspection about working of employee in the work field.

Minimum wastage mentaining .

To manage the time schedule.

 4

PRODUCTS PROFILE 2.5,

About cashews-nut basis of the sizes:

W- 180,
W- 210,
W- 240,
W-320,
SSW,
DW,
FW.

Pieces of the cashews-nut basis:

J-H,
S-H.
.

Under the quality basis four pieces.

LWP,
SWP,
JK,
DP.

2.6 AREA OF OPERATION :

Bhatkal,
Murdeswar,
 5

Belke.

2.7 INFRASTRUCTURE FACILITIES :

Good lighting and ventilation facility.

Proper vehicle facility to droop the house.
Evening time tea facility.
24 Hrs water available in the manufacturing firm.
To take a rest good rest room.
If heavy work their is a chance of the safety purposes gloves provides.
Hand oil gloves all so provides.
Cc camera facility to watch the work.
Well bathroom facility.

2.8 COMPITITIVE INFORMATION :

Mahalaxmi cashews nut industries,

Harshad cashews nut industries,
Ganesh cashews nut industries.
 6

2.9 SWOT ANALYSIS ;

Strengths;

Buyers and supplier network are good.

Buyers are like a wide distributed areas say that pune, Man galore and Goa.

Large number of lab-ours are available at the locally.

Employees are well trained in each task.

Good quality of cashews nut providing.

Very good demand for cashews nut especially in the festival time.

Weakness;

Some raw materials are highly sensitive.

High transportation cost because it is held in the rural area.
Lab-ours cost are little bit high.
Maximum time electricity problem.

Opportunities;
 7

Huge utilization of number of worker to work as workforce effectively.

Opporchunity to provide good service to customer and keep tough continuously.

Expanding manufacturing of variety of cashews nut according to the demand, and

customer expectation.

Threads;

Increasing number of competition in now a days.

Risk of uncertainty.

Removal of qualitative risks on raw material imports.

3.10 FUTURE GROWTH AMD PROSPECTS ‘

To capture good industrial among one of them in global world.

 8

To earning sustainable profit in the each and every time.

To mentain well competition to the another industries.

To operate another industries int he new place especially good located area where is
more lab ours available.

To create good employment Opporchunity in the citizen of people.

 9

2.1 INDUSTRY PROFILE :

Cashew a native of eastern Brazil, was introduced to India by the Portuguese

nearly five centuries ago. In India Cashew was first introduced in Goa from where it
is spread to other parts of the con try. In the beginning it was mainly used for soil
binding to check Erosion. Commercial cultivation began in-the early 1960s and , over
 10

the years, Cashew has become a crop of high economy and attained the status of an
export oriented commodity earning considerable foreign exchange for the con-try..

Cashew cultivation in India

India is one of the leading producers, processors and exporters of cashews in the
world.
Currently India has approximately 0.97 million hectors under cashew cultivation
with productively of 770 Kilogram-me per hectors.
Maharashtra, Kerala, and Karnataka are the primary producers of cashew along
the Western coast of the county, While Audra Pradesh, Tamil Nadu, Odis ha, and West
Bengal are the primary producers along the Eastern Coast.
In addition Cashew is all-so grown in Chhatisgash, Goa, Gujarat, and the
Andaman and Nicobar. Islands.
Key Markets Export Destinations.

The country accounts for about 65% of the worlds total exports India exports
Kennels to more than 60 countries across the world.
In the 2013-2014, India exported 113620 metric tons of cashew shipments which
also contributed 9226 metric tons of cashew nut shell Liquid [CNSL], Generally
revenues US$ 825.89 Million and US$ 6.18 Million respectively.

Cashew Export Promotion Council of India.

The Cashew Export Promotion Council Of India [CEPCI] works towards the
promotion of export of cashew nut shell Liquid [CNCL].
The Council serve as an intermediary between importers of cashew Kernels and
Exports or Imports arising an account of quality standards, breach of contractual
obligations, etc..... It undertakes numerous activities Such as organizing global
buyers, sellers, meets organizing studies on the nutritional aspects of cashew and
providing support to cashew producers and Export for improving Infrastructure.
India is the largest producers and Exporters of cashew nut Kernels in the world.
 11

over 65% of the World Exports of cashew kernels is accounted for by India. India
cashew are consumed in an many as 60 countries all over the world, the major market
being the United Kingdom, Japan, Australia, Canada, Germany, Honking Singapore,
Newzealand and middle east countries. The Indian cashew Kernels is well acclaimed
for its good quality ,taste and appearance.
Members of the cashew Export Promotion Council Of India, who are
manufacturing and exporters of cashew Kernels are the major sources for cashews
from India. Cashew are available with the prominent importers in USA, Canada,
Japan,the middle East, Singapore, Australia, UK and other EEC countries.
There are regular shipping facilities from India to all port of the world. Major
shipment from Indian take place through Cochin Port.
Cashew nut, once a forest product now emerged as rich agricultural food item. The
cashew Kernels are now mixed. With all infant food and beverage production.
Cashew nut production and processing is a major plantations crop of north Kanara
District. But these industries are facing number of producers, of price instability ,in
the market, due to the no availability design of cashew nut through out the years. And
high rate of cashew nuts. Small and cottage Industry are suffering from take profit
and high cost of production.

,
 12

CHAPTER- 1

INTRODUCTION :

1.1 Introduction about the Internship

An internship provide a more accurate picture of what industries do in

certain profession upon experiences a particular job environment and seeing what it
entails you may decide its not for you, Our internship was for 12 weeks and my
internship topic is inventory management at Sri Venkateswara cashew nut Industries
Kadsalgadde, Bhatkal.
A term investment refers to the stock file of the products a firm is offering
for sale and the component that make up the product. In other word Inventory is
composed of assets that will be showed in future in the normal course of the business
operations anticipation of need are:
Raw- Material,
Work-In-Progress,
Finished Goods.
Inventory as a current assets differs from other current assets because only
Financial Managers are a not ignored. Rather all the functional areas finance,
Marketing, Production, and Purchasing are involved. The view concerning the
appropriate level of Inventory would differ among the different functional area.
The job of functional Managers is to reconciling the conflicting view points of the
various functional areas regarding the maximizing the owners wealth. Thus Inventory
Management, like the management of others current assets, should be related to the
overall objectiveness of the firm. It is in this context at the present chapter is devoted
to the main elements of Inventory Management from the view part of Financial
Management.
 13

The objective of inventory Management, is explained in some detail sections. Set

two is concerned with Inventory Management techniques. Attention is given here to
basic concept relevant to the management and control of inventory.
The Aspects covered are,
Determination of the type of control required..
The Basic Economic Order Quantity.
The reorder Point, and
Safety Stocks.

1.2 Topic choose n for study;

Study on “Inventory Management” in Sri Venkateswara Cashew nut Industries,
Kadsalgadde.

1.3 Need for the study,

Inventory is needed to keep a business running without it, there would be
nothing to sell nothing for the customers to purchase and no was for the business to
make money.
Inventory is a neccessory evil that every organization would have to mentain for
various purposes. Optimum Inventory Management is the goal of every Investment
Planner.
Over intent of under Investment both courses financial impact and health of the
business as well as effect business opportunities.
Inventories are equilent to cash and they make up an import of the total cost. It is
essential that inventory can make a sustainable contributed to the efficiency of a
business the success of business concerns largely depends upon effluent purchasing
storage, consumption and accounting.
Inventory plays a vital role in study of Inventory Management in bulk, so I
selected., Sri Venkateswara Cashew-nut Industry.

1.4 Objectives of the study.

 14

To study about the stock levels of Inventory.

To understand and measure Economic Order Quantity for the selected Raw-
Material items.
To analyses its Inventory Management methods with help of ABC Analysis, VED
Analysis etc.........
To offer suitable suggestions for the improvement of Inventory Management
practice.

1.5 Scope of the study ‘

Inventory Management is a simple concept don't have too much stock and don't
have too little. Since there can be a sustancial costs involved in staying above and
below the optimal range, care full Inventory Management can make a huge differ-rent
in the right balance can be quite a complex and time consuming task without the right
technology. Inventory Management is a very important for “Venkateswara Cashew
nut Industries.” It enables the business to meet or exceed expectations of the
customers by making the product reading available the scope of the study includes the
ABC Analysis of Raw-Material, Work-In-Progress, and finished goods for four
financial years. This study provides insight to the management of high value items
and also attention of management towards most of A class items over period of four
years.
15
 16

1.7 LITERATURE REVIEW :

The chapter explain es the theoretical and practical empirical evidence about
the Inventory Management In theory features of effective Invent\ry Management
System are explained the how the use of computers affects the organization use of
Inventory Management Systems, the need for control and how much demand with
supply. In practical the chapter training to look at previous studies done on the
Inventory Management. It also establishment the knowledge gap. Success Inventory
Management involves the balance's the costs of inventory with the benefits of
inventories, which includes not only direct cost of storage, Insurance and taxes, but
also the cost of money tied up inventory.
 17

1.6 RESEARCH METHODOLOGY:

Primary Method.
2 The data has been gathered through interaction and discussion with the
executive working in the division. And so interaction with the working and the
employees of the company.
Some important information has been gathered through couple of constructions
interviews of executive.

Secondary Methods:
Annual reports and other Magazine published by the company are used fr
collecting required information. And some information are collected through internet.
 18

1.7 REVIEW OF THEORIES.

Investment control is not a science, More nearly it is a set of methods for

figuring out how much Stock to order , where and how to receive it. It is one of the
roles that management ha to play by putting a system of keeping track of items in
inventory.
A powerful Inventory Management systems is the basis of the every good retail
software packages. An Inventory management system lets you know what our
important needs with Inventory Management systems are, you can get minors to
major report on what you have in stocks on order transit .Re tailors Software with an
Inventory Management systems eliminates the guess work from running your retail
business.
The system can be set up to automatically notified you when it is time to order
more investments such as when stocks belong a prearranged level. By always having
your latest items in stocks , you will be sure to nor sell due to out of stock-items.
Many re tailors software items packages will even generates purchase orders, further
streaming Inventory management. In addition to increasing your sales, retail software
with an items drastically reduce your operating costs by reducing the time spent
manually counting inventory and creating purchases.
It will also tracks which is items are selling and which are not. By identifying
yours less moving items you can adjust their position. Pricing are order issues are
often purchased. In pairs and can groups them consequently in the store. Keeping
Inventory cost low is vital to competitiveness benefits.
 19

FEATURES OF INVENTORY MANAGEMENT SYSTEMS.

Inventory management have been different theories, developed by suggest

different methods of Inventory Management. These Methods have been based on
various features that can be adopted in Inventory Management. They are as follows:
Get your warehouses in order.
Replenishment,order point, and the line point lead time.

The Economic Order Quantity.

Balancing, Inventory, and Costs.

Get your warehouse in order

This is where proprietor of the business should ask themselves why they are in
business. This helps them to focus on the aims and goal of their business hence are
able to predetermined profits and anticipates losses when times are harsh, Under
getting the warehouses in order a theory or Inventory Management was developed
called the Triangle Co-Operation.
The Triangle Co-Operation developed by Jon Schcreibfeder, in 2008. Illustrates
that most companies want to achieve the goal of effective Inventory Management.
Effective Inventory Management allows a company to meet or exceeds customers
expectation or products availability with the amount of each item that will maximize
net profit are minimize costs. But whose responsibility is it to accomplish this goals .
Of fen it is left to one person or department but it has found that effective Inventory
Management takes support and acceptability of responsibility by sales, purchasing or
replenishment, an warehouse people necce ssory to achieve this goals.

Sales People;
Determine what products share be stocked us in each branch or warehouse
 20

sales people should be almost constant communication with customers. They are
probably in the best position to determine what must be in invention to-meet
Customers” request and expectations It means that the customers imposes has towards
inventory is that it should meet their needs than the stocks of your competitors.
Help develop the forecast of features sale of each products. The sales people
are also best position to see the customer needs and preferences over a given period of
time. They should help them, to largely determine dicrpancy between a for cast and
what was actually sold them particular week or a month.
For eg Why did a customer buy an wastage items unnecessary purchased in large
quantity it has been a new studying of sale unusual activities can provide sales people
with valuable information for huge future sales.
 21

Help keep records of Inventory accurate sales people are usually very honesty
with their customer. They often will go to great lent h to meet customers needs.
However, they must follow the established rules for properly recording all mats
disbursement. For eg ; Sales people should not to take mats out of a whorehouse with
the an properly regarding it in your computer system.

Purchasing or replenishment people;

Make sure that inventory is available to meet the sale or usage for a cost. Whole
accomplishing this primary and most important goals, buyers must replenishment
stock in such a way that a minimum the costs of each piece. If you minimize your
total cost of inventories you will maximize your profits. Decisions involved in the
total cost and Inventory includes;
Decide the best sources of suppleys for each products in each stock allocations.
Do you buy it If so, from what vendor Are replenishment questions transferred from a
central warehouse or distribution center Do you assemble a product from component
parts in this warehouse .
Determine the EOQ for each products.
The EOQ balance the cost of the mats within th carrying cost of inventory, and
the cost of issuing and receiving replenishment orders.

“WAREHOUSE PERSONNEL.”
Warehouse people make up the third party side of the triangle of coop ration and
responsibility. They must ;Organize stoke in the warehouses stock to
minimize th cost of filling order.
It makes sense to store mats to maximize the efficiency of the order
fulfillment process
 22

ORDER POINT :

The safety stock quantity places predicated demand during the anticipated lead
time give the point at which Inventory should be replenished.

LINE POINT :

The Order Point plus predicted demand during the supplies review or order cycle
the normal length of time between typical replenishment orders with the suppliers.

STANDARD ORDER QUANTITY ‘

This is the main quantity that can be once ordered. Replenishment order are
typically placed with a suppliers when the position of replenishment item between its
order points and line points stocks receipts for the replenishment orders. This will
normally be received. When the replenishment position hes somewhere between a
point equal to the line point.

SAFETY STOCK QUANTITY.

For eg If the product is ordered with its replenishment position is just below the
line point, shipment would be received when the available stock quantity of stock
item equal the line point minus Anticipated lead time demand. But if the product is
not ordered units until the replenishment position equals the order point, the receipts
would probably when arrive the available inventory equal, the safety stock. Therefore
it can be estimated that the ‘Average” quantity an hand at the time of stock receipts
will be the quantity average if the line point available at the anticipates lead time
usage and the safety stock quantity.
 23

Lead time and in just in time inventory;

Lead time is the time that elapses between the placing of an order and
actually receiving the goods ordered. If the supplier can not the supply the required
goods on demand, then the client firm must keep an inventory of the needed goods ,
The longer the lead time, the longer the quantity demanded of goods the firm must
carry on inventory.
A just in time is a philosophy that advocate the lowest possible levels of
[Link] espouses that firms need only to keep inventory only the right time of
quantity to the right time with the right time the right quantity of goods ideal lost of
size for JET is one, even though one hears the term is zero Inventories.’ used. Small
scale business can mainly extremity low levels of [Link] a firm may have
a lead time may have up to a three months. That means that firm that uses goods
produced through a process of three month must place orders at-least three month
advance of their needs. In order to keep their operations running in the meantime, n
on-hand inventory of three months required could be necessary.

ECONOMIC ORDER QUANTITY.

It is the level of inventory that is maximize the total inventory holding cost
and ordering costs. It is one and the older classical production sheduli8ng models.
There is a framework used to determine this orders quantity is also known as the
Wilson EOQ model or the Wilson formula. The model was developed by FW Herr is
in 1913.

The required para meters in determining the EOQ are the total demand for the
year, the purchase cost for the items, the fixed cost to place the order and the storage
cost for each item per year. The number of items an order is placed will also affect the
total cost: however this number can be determined from the other parameters.
 24

ASSUMPTIONS OF EOQ MODEL.

The ordering cost must be constant

Demand rate also constant.
The lead time also fixed.
The purchase price of item also [Link] is no discount is available.
The replenishment6 is made industriously the whole bath is delivered at once.

ECONOMIC ORDER QUANTITY is the quantity to order, so that ordering

plus carrying cost finds its minimum. ECONOMIC ORDER QUANTITY can be
calculated by using the formula.
ECONOMIC ORDER QUANTITY = 2AO/ C
Where, A= Annual demand,
O= Ordering cost,
C= Carrying cost.

BALANCING INVENTORY AND COSTS.

There are three types costs that is to gather constitute the total inventory cost.
Holding cost, setup costs, and purchasing costs.

Holding cost
Holding cost is also called carrying costs. That result in to maintaining the
inventory in examining of current demand frequently mean that is holder must
provide a place for its storage when not in use. This could range from a small storage
area not production line to a large warehouse in a difference places. A storage facility
required personnel to move the invent5ory when needed and to keep track what is
stored. If the inventory is heavy or bulky may be necessary to move it around.
Storage facilities are required to heating, cooling, and water. The firm pay taxes
 25

on the inventory, and opportunity cost occur from the lost use of the fund, that were
spent on the inventory. Also, obsolescence and shrinkage and problems. All of these
things add cost to holding cost or carrying inventory.
Set-up cost.
Setup cost incurred from getting a machine ready to [produce the required desired
goals, In a manufacturing setting this would require the use a skilled technicians who
able to tooling handle and machine. The disassembled tooling is there taken to a tool
roam or a shop for mentain or possible repairs. The technician then labels the
currently needed tooling from the tool-room and brings it to the machine in question.
There is a technician has to assemble the tooling on the machine in the order
manner required for the goods to be produced. Then the technician has to calibrate the
machine and probably will run a number of parts that will have a rapped in order.
There the technician has to assemble the tooling on the machine in the manner
required for the goods to be produced. Then the technician has to calibrate the
machine and probably will run a number of parts that will run a number of parts that
will have to be scrapped in order.
If the firm purchase the parts of raw materials, then on order cost, rather than a
setup cost, is incurred. Ordering costs includes the purchasing agents salary and travel
budget, Adminitati9ve and secretarial support office space, office suppliers, forms and
documents, long- distance telephone bill, and computer systems and support. Also,
some firms include the cost of the shipping the purchase goods in the order cost.
Purchasing cost
Purchasing cost simply the cost of the purchase items itself. If the firm purchase
a part the goes into its finished product, the firm can determine its annual purchasing
cost by multyplaying the cost of one purchasing cost is expressed as PD.
Total cost = Holding cost + setup cost +purchasing cost.
 26

NEED FOR INVENTORY CONTROL RECORDS :

A comprehensive inventory control record system is relevent in order tht,
Goods sold be recorded and balance in both physical and monitory terms
calculations.
Checks can be implemented on regular or and on the basis to minimize losses due
to damage in stores.
Goods can be on a receipts records in relation to both quantity and both prices by
use of highly effective integrated computer system besides the manual system.
SRperly.
Rightful quality and quantity duly signed and recorded in goods received.
Stock taking procedure at a given period of time effectively done.

1.8 LIMITATION OF THE STUDY:

Detail study about all the material was not possible because of the time limit.
Some of the information was kept confidential by the department of stories.
Study was confined only to the selected components in the stores department.
 27

CERTIFICATE.

I Muralidhar, here by declare that the Internship report entitlement by me under

the guidance of professor preeti kalgutkar, faculty of M.B.A Dept, A.I.T.M and
internal assistance by the managing director Mr. Ishwar naik, Sri Venkateswara
cashew-nut Industries, Kadsalgadde, Bhatkal.
I also declare that to guide in the form of internship work is towards the partial
fulfillment of the requirements for the award of the degree of M.B.A of V.T.U
Belgaum Karnataka.

Signature of Internal guide

 28

CHAPTER 3
Theoretical background about the study.

The term inventory refer to the stockpile of the products a firm is offering for sale
and the components that make up the product. In other words, inventory is composed
of assets that will be sold in future in the normal course of business operations. The
assets which firms store as inventory in anticipation of need are [1] raw materials,
[2]Work-in-progress and [3] finished goods. The raw material inventory contains
items are purchased by a firms from others and are converted into finished goods
through the manufacturing process. They are an important input of the final products..
The Work-in-progress inventory consists of items currently being used in the
production process. They are normally semi finished goods that are at various stages
of production in a malty stage production process. Finished goods represents final or
com pleated products which are available for sale. The inventory of such goods
consists of items that have been produced but are yet to be sold.
Inventory, as a current assets, differs from other assets because only financial
managers are not involved. Thus , inventory management, like the management of
other current assets, should be related to the overall objective of the firm. It is in this
context that the present chapter is devoted to the main elements of inventory
management from the view point of financial managers. The objectives of inventory
management are explain in some detail in section 1. Section 2. Is concerned with
inventory management techniques. The aspects covered are [1] determination of the
type of control required, [2] the basic economic order quantity, [3] the reorder point,
and [4] safety stocks. As a matter of fact, the inventory management techniques are a
part of production management.

Costs of holding inventory

One operating objective of inventory management is to minimize cost. Excluding
the cost of merchandise, the cost associated with inventory fall in to the two basic
 29

categories: [1] Ordering or acquisition of set up costs, and [2] Carrying costs. These
costs are an important element of the optimum level of inventory decisions.
Ordering Costs This category of cost is associated with the acquisition or
ordering of inventory. Firms have to place orders with suppliers to replenish
inventory of raw materials. The expenses involved are referred to as ordering costs.
Carrying costs The second broad category of costs associated with inventory are
the carrying costs. They are involved maintaining or carrying inventory. The cost of
holding inventory may be divided into two categories :
1. Those that arise Due to the storing of Inventory The main component of this
category of carrying costs are [1] storage costs, that is, tax, depreciation, insurance,
maintenance of the building, utilities and janitorial services: [2] insurance of
inventory against fire and theft: [3] deterioration in inventory because of pilferage:
fire, technical obsolescence, style obsolescence, and price decline; [4] serving costs,
such as, lab our for holding inventory, clerical and accounting costs.
2. The opportunity costs of funds This consists of expenses in raising funds, to
finance the acquisition of inventory. If funds where not locked up in inventory, they
would have earned a return. This is the opportunity cost of funds of the financial
component of the cost.

Benefits of Holding Inventory

The second elements in the optimum level of inventory decision deals with the
benefits associated with Holding inventory. The major benefits of holding inventory
are the basic functions of inventory. In other words, inventories perform certain basic
functions which are all crucial importance in the firms production and marketing
strategies.
The basic functions of inventory is to act as a buffer to decouple or uncouple the
various activities of a firm so that all do not have to be pursued at exactly the same
[Link] key activities are ;[1] purchasing, ‘[2] production,and [3] selling. The term
coupling means that these interrelated activities of a firm carried on independently. In
other words , purchase and production functions would depend upon the level of
 30

sales. It is , of course, true that in the long run, the purchasing and production
activities are and,in fact,should be tied to the sales activities of a firm. But, if in the
Tories permit short term they are rigidly related, the three key activities cannot be
carried out efficiently.
Since inventory enable uncoupling oft he key activities of a firm, each of them can be
operated at the most effluent rate. This has several beneficial effects on the firms
operations. In other words, three types of inventory, work-in-progress and finished
goods, perform certain useful functions. Alternatively, rigid tying of purchase and
production to sales schedules is undesirable in the short run as it will deprive the firms
of certain benefits. The effect of uncoupling are as follows.
Benefits in purchasing If the purchasing of raw material and other goods is not tied to
production or sales, that is, a firm can purchase independently to ensure the most
effective quantities than is a warranted by usage in production or the sales level. This
will enable it to avail of discount that are available on bulk purchases.

Benefits in production Finished goods inventory serves to uncouple production and

sales. That is, production can be carried on at a rate higher or lower than a rate of
sales. This would be of special advantage to firms with seasonal sales [Link] their
case, the sales rate will be higher than the production rate during a part of the year and
lower during the off-season.

Benefits in work-in process The inventory of work-in-process performs two

functions, In the first place, it is necessary because production processes are not
instantaneous. The larger the steps involved in the production processes , the larger
the work-in-process inventory and vice-verse.

Benefits in sales The maintain of inventory also helps a firm to enables enhance its
sales efforts. For one thing, if there are no inventories of finished goods, the level of
sales will depend upon the level of current production. A firm will not be able to meet
 31

demand instantaneous . There will be a lag depending upon the production process. If
the production inventory,actual sales will not have to depend on lengthy
manufacturing processes.

TECHNIQUES
The financial managers should aim at an optimum level of inventory on the basis of
the basis of the trade-off between cost and benefits to maximize the owner;s wealth.

Classification problems; A B C System

The first step in the inventory control process is classification of different types of
inventories to determine the type and degree of control required for each. The A B C
system is a widely used classification technique to identify various items of inventory
for purposes of inventory control. This shows technique is based on the assumption on
that a firm should not exercise the same degree of control on all items of inventory. It
should rather keep a more rigorous control on items that are; [1] the most costly, and
or [2] the slowest - turning, while items that are less expensive should given less
control effort.
On the basis of the cost involved, the various inventory items are, according to this
system, categorized into three classes : [1] A [2] B and [3] C. The items included in
group A involve the largest investment. Therefore,inventory control should be the
most rigorous and intensive and the most sophisticated inventory control tecqueniques
should be applied to these items. The C group consists of items of inventory which
involve relatively small investments although the number of items is fairly large.
These items deserve minimum attention. The B group stands midway. It deser-ves less
attention than A but more than C. It can be controlled by employing less sophisticated
inventory techniques.
A B C system is an inventory management technique that divides inventory into three
categories of descending importance based on the rupee investment in each.
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The task of inventory management is to properly classify all the inventory items into
one of these three groups or categories. The typical breakdown of inventory items is
as shows in table: 16.1
TABLE 16.1 Inventory Breakdown between number of items and inventory value.

Group Number of items [per cent] Inventory value [per cent]

A 15 70
B 30 20
C 55 10
Total 100 100

The A B C system of classification should, however, be used with caution. For

example, an item of inventory may be very inexpensive. Under the A B C system it
would be classified into C category. But it may be very crucial to the production
process and may be easily available. It deserve the special attention of management.
But in terms of the A B C framework, it would be included in the category which
requires the least attention. This is a limitation of the A B C analysis.

ECONOMIC ORDER QUANTITY ; [EOQ Model]

Economic order quantity [EOQ] model is the inventory management technique for
determining optimum order quantity which is the one that minimizes the total of its
order and carrying costs; it balances fixed ordering costs against variable ordering
costs.
Economic order quantity is also known as economic lot size. The economic order
quantity may be defined as that level of inventory order that is minimizes the total
costs associated with inventory management. As explained in the earlier section
dealing with the objective of inventory management., the costs associate with
inventories are : [1] ordering costs, [2] carrying costs. Started with reference to cost
perspectives, EOQ refers to the level of inventory at which the total cost of inventory
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comprising acquisition or ordering or setup costs and carrying cost is minimal.

ASSUMPTIONS The EOQ model, as the technique to determine the economic order
quantity, illustrated by us, is based on three restrictive assumptions ;
1. The firm knows with certainty the annual usage of a particular item of
inventory.
2. The rate at which the firm uses inventory is study overtime.
3. The orders placed to replenish inventory stocks are received that exactly that
point in time when inventories reach zero.
ORDER POINT PROBLEM,
The EOQ technique determines the size of an order to acquire inventory so as to
minimize the carrying as well as the ordering costs. In other words, the EOQ provides
an answer to the question: how much inventories is order in one lot1 Another
important question pertaining to efficient inventory management is; When should be
order to be procure inventory to be placed This aspect of inventory management is
covered under the reorder point problem.
The reorder point is started in terms of level of inventory at which an order
should be placed for replenishing the current stock of inventory. In other words,
reorder point may be defined as the level of inventory when fresh order should be
placed with the suppliers for procuring additional inventory equal to the economic
order quantity.
The reorder point= Lead time in days average daily usage of inventory .
The term lead time refers to the time normally taken in receiving the delivery
after placing orders with the suppliers. It covers the time span from the point when a
decision to placed the order for the procurement of inventory is made to the actual
receipts of the inventory by the firm.
The average usage means the quantity of inventory consumed daily. We can,
therefore, define reorder point as the inventory level which should be equal to the
consumption during the lead time.
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SAFWETY STOCKS
The economic order quantity and the reorder point as inventory management
techniques, have been explained, to keep the discussion simple, on the assumption of
certainty conditions. That is to say, we had assumed [1] constant or fixed usage or
requirement of inventory, and [2] instantaneous replenishment of inventory. The
assumptions are, however, of questionable validity in actual situations, that is, under
conditions of uncertainty.
The effects of increased and or slower delivery would be a shortage of inventory.
That is, the firm would face a stock out situation. This, in turn, as explained in detail
below, would disrupt the production j schedule and alienate the customers. The firm
would, therefore,be well advised to keep a sufficient safety margin by having
additional inventory to guard against stock out situations. Such stocks are cal;led
safety stocks. This would act as a buffer or cushion against a possible shortage of
safety stock may, then, be defined as the minimum additional inventory to serve as a
safety margin or buffer or cushion to meet an unanticipated increase in usage resulting
from an unusually high demand and or an uncontrollable late receipts of incoming
inventory.
How can a financial manager determine the safety stocks What is his responsibility
The safety stock involves two types of costs: [1] Stock-out, and [2] carrying costs.
The job of the financial manager is to determine the appropriate level of safety stock
on the basis of a trade-off between these two types of conflicting costs.
The term stock-out costs refers to the cost associated with the shortage of inventory.
It is, in fact, an opportunity cost in the sense that due to the shortage of inventory the
firm would be deprived of certain benefits.
The carrying costs, as already explained in the earlier part of this chapter, are the
costs associated with the maintenance of inventory.
The stock-out and the carrying costs are counterbalancing. The larger the safety
stock, the larger would be the carrying costs and vice-verse. Conversely, the larger is
the safety stock, the smaller would be the stock-out costs. The object of the financial
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managers should be to have the lowest total cost. The safety stock with the minimum
carrying and stock-out costs is the economic level which financial managers should
aim at . In brief, the appropriate level of safety stock is determined by the trade-off
between the stock-out and the carrying costs.
The level of inventories by retailers are influenced by the demand patterns of
their customers and supply relationship with their distributors and manufactures, the
suppliers to their manufactures and soon. Supply chain describes the flows of goods
or services or information from the initial source of materials and services to the
delivery of products to customers regardless of whether those activities occur in the
same organization or in other organizations.

Just in time Refers to those acquiring materials and manufacturing goods only
as needed to fill customer orders.
The JIT is an innovative manufacturing system. It refers to acquiring materials
and manufacturing goods only as needed learn production, is a demand -pull
manufacturing system because each component in a production line is produced as
soon as and only when needed by the text step in the production line.
The JIT production systems aims to simultaneously [1] meet customer demand in
a timely way, [2] with high quality products and, [3] at the lowest possible total cost.
As a demand pull manufacturing systems, JIT contrasts with more traditional
supply push system in which manufactures simply produce as many goods as
[Link]-value added activities Refers to those functions that do not directly
increase the worth of a product to a customer.
The JIT is, however, more than an approach to inventory management. It is a
philosophy of eliminating non value added activities and increasing product quality
throughout the manufacturing process.
Value added activities Do increase the value of a product to the customers.
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CHAPTER 4
Data - Analysis and Interpretation
ABC Analysis.
2013 Year.

4.1 Table Showing ABC Analysis

Product Amount Cumulative

Raw Cashew nut 3,31,300 3,31,300
Cashew Kernel 45,45,971 4,877,271
Empty tins 90,750 4,968,021
Cashew Shell 1,98,000 5,166,021
5,166,021.00 15,342,613

ABC Analysis an,

15,342,613 * 70|100=10,739,829.1

15,342,613 * 90|100=13,08,351.7

15,342,613 * 100|100=15,342,613

5,166,021 * 70|100= 3,616,214.7

5,166,021 * 90|100=464,418.9

5,166,021 *100|100=5,166,021

A 3,616,214.7
B 4,080,633.6
C
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4.1 Graph Showing ABC Analysis:

ABC Analysis.
2014 Year.

4.2 Table showing A B C Analysis.

Product Amount Cumulative

Raw cashew nut 3,41,300 3,41,300
Cashew Kernel 45,45,971 49,83,021
Empty tins 2,00,000 51,83,021
Total 51,83,021

ABC Analysis an,

15,394613 * 70| 100 =10,7,76,229.1

15,394613 * 90| 100=138,551,951.7

15,3945613 *100| 100=15,3945613.

51,83,021 * 70|100 =36,28,115

51,83,021 * 90 |100=46,64,719
 38

51,83,021 * 100|100=51,83,021

A 36,28,115
B 10,36,604
C

4.2 Graph showing ABC Analysis

Asia

Jan
Feb
Mar
Apr

ABC Analysis.

Year 2015.

4.3 Table Showing ABC Analysis:

 39

Product Amount Cumulative

Raw Cashew nut 3,61,300 3,61,300
Cashew Kernel 46,45,971 5,007,271
Empty tins 99,750 5,107,021

Cashew Shell 2,10,000 5,317,021

5,317,021 15,792,613

ABC Analysis an,

15,792,613 *70|100=11,054,829.1

15,792,613*90|100=14,213,351.7

15,792,613 *100|100=15,792,613.

5,317,021 *70|100=3,721,914.7

5,317,021*90|100=4,785,318.9

5,317,021 *100|100=5,317,021

A 3,721,914.7
B
C

4.3 Graph Showing ABC Analysis;

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