CHAPTER-1 INTRODUCTION INVENTORY MANAGEMENT INTRODUCTION In the words of Mahatma Gandhiji

CHAPTER-1
INTRODUCTION
INVENTORY MANAGEMENT
INTRODUCTION
In the words of Mahatma Gandhiji, the customer is God of the organization. The organization is required to identify and fulfill his requirement to the extent possible. His satisfaction is goal and objective of organization. Now a day many organizations recognized this fact and adopting customer oriented policies and methods in achieving his satisfaction. In order to fulfill his requirement, the organization is required to make available right product in right time at right place. In production and marketing front, organizations successfully adopting latest technologies and methods to attract the customers. However, many organizations are yet to establish their command in procuring right quality materials in right quantities at right time. The reason is the concept of inventory management is not completely reached the practicing managers. Also, many methods of inventory management or controlled are practically not possible to implement. In this light of experience, an attempt made to study the concept of inventory mgmt and inventory controls keeping in view the concepts and methods of inventory mgmt followed at VISAKA INDUSTRIES.

MEANING OF INVENTORY
The institute of Chartered Accountants of India defined inventory as “tangible property held (1) for sale in the ordinary course of businesses or (2) in the process of production or sale or (3) for consumption in the production of goods or service for sale including maintenance supplies and consumables other than machinery spares”
The American productions and inventory control society states that “inventories are stock keeping items which are held in a stock point and which serve to decouple ssuccessive operations in the processes of manufacturing a product and getting to the consumer”.

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THE BASIC DECOUPLING FUNCTION OF INVENTORIES HAS TWO ASPECTS:
Inventories are necessary because it takes time to complete an operation and to move the product from one state to another-in process and movement of inventories;
Inventories employed for organizational, such as to let one unit schedule its operations more or less independently of another.

Thus, inventory is detailed list of those movable items, which are necessary to manufacture a product and to maintain the equipment and machinery in good working order. The quantities as well as the value of every item are also mentioned in the list.

Thus Inventory Management ensures proper coordination of activities and policies regarding and procurement, production and marketing of materials/ products in order to achieve better inventory control.
In large organizations inventory management is kept under the direct control of manager materials engineering. The basic duties of the person in charge of inventory management are listed below.

Advising the production manager in establishing production and material control.

Preparing policies and programmes for purchasing, receiving and storing materials.

Preparing budgets to accomplish objectives.

Introducing control through comparison of performance against standards.

Keeping effect with trends, which are likely to affect long-range stocking and purchasing policies.

Arranging for purchasing of materials, equipments etc.

Consulting with engineers about current & proposed product design.

Objectives of Inventory Management
The main objectives of inventory management are operational and financial. The operational objectives mean that materials and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. The financial objective means that investment in inventory should not remain idle and minimum working capital should be locked in it. The following are the objectives of inventory management:
To ensure continuous supply of materials, spares and finished goods so that production should not suffer at any time and the customer demand should also be met.

To avoid both over-stocking and under-stocking of inventory.

To maintain investment in inventories at the optimum level as required by the operational and sale activities.

To keep material cost under control so that they contribute in reducing cost of production and overall costs.

To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralizing purchase.

To design proper organization for inventory management. A clear cut accountability should be fixed at various levels of organization.

To ensure perpetual inventory control so that material shown in stock ledgers should be actually lying in the stores.

To ensure right quality goods at reasonable prices. Suitable quality standards will ensure proper quality of stocks. The price-analysis, the cost-analysis and value-analysis will ensure payment of proper prices.

To facilitate furnishing of data for short-term and long-term planning and control of inventory.

NEED AND IMPORTANCE OF THE STUDY
The purpose of inventory management is to keep the stocks in such a way that neither there is over stocking nor under stocking. The over-stocking will mean a reduction of liquidity and starving of other production processes; under-stocking, on the other hand, will result in stoppage of work. The investment in inventory should be kept in reasonable limits.

The need for inventory management arises for determining what to intend, when to intend, how much to intend and how much to stock, so that ordering and carrying costs are lowest possible without affecting production and sales. Thus inventory control optimize size of inventory, how much to order and when after taking into consideration the minimum inventory cost.

OBJECTIVES OF THE STUDY
To analyze whether inventory is managed effectively and efficiently in the organization
To assess if optimum level of inventory are maintained.

To classify select inventory as per ABC analysis.

To make appropriate suggestions for the improvement of inventory management at VISAKA INDUSTRIES based on the information studied.

RESEARCH METHODOLOGY
The data is collected from the VISAKA INDUSTRIES, Hyderabad unit with the help of secondary data.

Secondary Data
The secondary data furnished in this project has been collected from
Information relating to financial statements (Annual Report)
Year ended inventory particulars to calculate ratios and ABC analysis.

VISAKA INDUSTRIES reports, Books and Internet.

PERIOD OF THE STUDY
The above study on “INVENTORY MANAGEMENT” is conducted for a period from 2007-2016 at VISAKA INDUSTRIES, HYDERABAD.

SCOPE OF THE STUDY
The scope is limited to the operations of VISAKA INDUSTRIES:
The information obtained from the secondary data was limited to Visaka Industries.

The key information were taken from 2007-2016
The profit and loss, the Balance sheet was as on last Ten years
ABC has been done on 10 selected inventory items
LIMITATIONS OF THE STUDY
The study is confined to a period of last 10 years and most of the data is from secondary sources.

Most of the information has kept confidential and as such is not passed on as part of the policy of the company.

It is also not possible to compare VISAKA INDUSTRIES performance with other organizations due to difference in capacity, facilities and environment in which it is working. Availability of raw material (i.e. Fibre)
Due to limited supplier of fibre and fixed quantity supplied per month which is core raw material in the industries, it is difficult to prepare EOQ model for the organization and for us.

The study was conducted with the limited data available.

The study conducted within a short period.

CHAPTER-2
Review of literature
INVENTORY MANAGEMENT
INTRODUCTION
Inventories constitute the most significant part of current assets for a large majority of companies in India. On an average, inventories are approximately 60 per cent of current assets in public limited companies in India. Every enterprise needs inventory for smooth running of activities. It serves as a link between production and distribution processes. There is, generally, a time lag between the recognition of a need and fulfillment, the greater the time-lag, the higher the requirements for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It also provides a cushion for future price fluctuation.

The investment in inventories constitutes the most significant part of current assets/working capital in most of undertakings. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories.

NATURE OF INVENTORY
The dictionary meaning of inventory is ‘stock of goods, or a list of goods’. The word ‘Inventory’ is understood differently by various authors. In accounting language it may mean stock of finished goods only. In manufacturing concern, it may include raw materials, work in process and stores, etc. to understand the exact meaning of word ‘inventory’ we may study it from the usage side or from the ‘side of point of entry’ in the operations. Inventory includes the following things:
1) Raw material
2) Work-in-progress
3) Finished goods
4) Spare.

Raw Material – Raw materials are the basic inputs that are converted into finished products through the manufacturing process. Raw material inventories are those units which have been purchased and stored for future production.

Work-in process – The work- in- process is that stage of stock which is between raw material and finished goods. They are also called semi manufactured products. They represent products that need more work before they become finished products for sale
Finished goods – Finished goods inventories are those completely manufactured products which are ready for sale. Stocks of raw materials, while finished goods are required for smooth marketing operations. Thus, inventories serve as a link between the production and consumption of goods.

Spares – Spares also form a part of inventory. The consumption pattern of raw materials, consumables, finished goods are different from that of spares. The stocking policies of spares are different from industry. Some industries like transport will require more spares than the other concern. The costly spare parts like engines, maintenance spares etc are not discarded after use, rather they are kept in ready position for further use. All decisions about spares are based on the financial cost of inventory on such spares and costs that may arise due to their non-availability.

PURPOSE OF HOLDING INVENTORIES
Although holding inventories involve blocking of a firm’s fund and the costs of storage and handling, every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business. In the absence of inventories a firm will have to make purchases as soon as it receives orders. It will mean loss of time and delays in execution of orders which sometimes may cause loss of customers and business. Generally speaking, there are three main purposes or motive of holding inventories.

The Transaction Motive which facilitates continuous and timely execution of sales orders.

The Precautionary Motive which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials.

The Speculative Motive which induce to keep inventories for taking advantages of price fluctuation, savings in re-ordering costs and quantity discounts, etc.

RISK AND COSTS OF HOLDING INVENTORIES
The various costs and risk involved in holding inventories are as below:
Capital Costs. Maintaining of inventories results in blocking of the firm’s financial resources. The firm has, therefore, to arrange for additional funds to meet the cost of inventories. The funds may be arranged from own resource or from outsiders. But in both the cases, the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the later case; the firm has to pay the interest to the outsiders.

Storage and Handling Costs. Holding of inventories also involves costs on storage as well as handling of materials. The storage costs include the rental of the godown , insurance charges, etc.

Risk of price decline. There is always a risk of reduction in the prices of inventories by the suppliers in holding inventories. This may be due to increased market suppliers, competition or general depression in the market.

Risk deterioration in quality. The quality of the materials may also deteriorate while the inventories are kept in stores.

INVENTORY MANAGEMENT
The investment in inventory is very high in most of the undertaking engaged in manufacturing, whole-sale and retail trade. The amount of investment is sometimes more in inventory than in other assets. In India, a study of 29 major industries has revealed that the average cost of material is 64 paise and the cost of labor and overhead is 36 paise in rupee. In industries like sugar, the raw material cost is as high as 68.75 per cent of the total cost. About 90 per cent part of working capital is invested in investment in inventories. It is necessary for every management to give proper attention to inventory management. A proper planning of purchasing, handling, storing and accounting should form a part of inventory management. An efficient system of inventory management will determine (a) what to purchase (b) how to purchase (c) from where to purchase (d) where to store etc.

OBJECTIVES OF INVENTORY MANAGEMENT
The main objectives of inventory management are operational and financial. The operational objectives mean that materials and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. The financial objective means that investment in inventory should not remain idle and minimum working capital should be locked in it. The following are the objectives of inventory management:
To ensure continuous supply of materials, spares and finished goods so that production should not suffer at any time and the customer demand should also be met.

To avoid both over-stocking and under-stocking of inventory.

To maintain investment in inventories at the optimum level as required by the operational and sale activities.

To keep material cost under control so that they contribute in reducing cost of production and overall costs.

To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralizing purchase.

To design proper organization for inventory management. A clear cut accountability should be fixed at various levels of organization.

To ensure perpetual inventory control so that material shown in stock ledgers should be actually lying in the stores.

To ensure right quality goods at reasonable prices. Suitable quality standards will ensure proper quality of stocks. The price-analysis, the cost-analysis and value-analysis will ensure payment of proper prices.

To facilitate furnishing of data for short-term and long-term planning and control of inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT
Effective inventory management requires an effective control system for inventories. A proper inventory control helps in solving the acute problem of liquidity and increases profit and causes substantial reduction in working capital of the concern. The following are the important tools and technique of inventory management and control.

A.B.C Analysis
Determination of stock levels.

a) Minimum level
b) Re-ordering level
c) Maximum level
d) Danger level
e) Average Stock level
Economic Order Quantity
Inventory turnover ratio
Others
Inventory to Net current Assets
Inventory to Debtors
Inventory to Creditor
Inventory to Cash & Bank Balance
Inventory to Sales
Inventory to Fixed Assets
Inventory conversion Period
1) A-B-C Analysis
The materials are divided into a number of categories for adopting a selective approach for material control. It is generally seen that in manufacturing concern, a small percentage of items contribute a large percentage of value of consumption and a large percentage of items of material contribute a small percentage of value. In between these two limits there are some items which have almost equal percentage of value of materials. Under A-B-C Analysis, the materials are divided into three categories viz., A, B and C.

‘A’ Class – Above Rs. 1,00,000
‘B’ Class – Below Rs. 25,000 –50,000
‘C’ Class – Below Rs. 5000
Past experience has shown that almost 10 per cent of the items contribute to 70 per cent of the value of consumption and this category is called ‘A’ category. About 20 per cent of the items contribute 20 per cent of value of consumption and this is known as category ‘B’ materials. Category ‘C’ covers about 70 per cent of items of material which contributes 10 per cent of value of consumption.

The information is shown in the following diagram:
Class No. of Items Value of Items
A
B
C %
10
20
70 %
70
20
10

The following example explains the advantages of A-B-C analysis:
Suppose three items P, Q, R have been used and their consumption is Rs.2,40,000, Rs. 24,000, Rs.2,400 respectively. Let us presume that A-B-C classification is not done and annual orders are 12 in number. Each item will be ordered 4 times and average inventory will be:
Items Annual consumption
(Rs.) No. of orders Average working inventory
(Rs.)
P
Q
R
Total 2,40,000
24,000
2,400
2,66,400 4
4
4
12 60,000
6,000
600
66,600

Suppose A-B-C analysis is followed and the number of orders will be according to the importance of the items. If the numbers of orders are 8, 3 and 1, for P, Q and R respectively then the average inventory will be as follows:
Items Annual consumption
(Rs.) No. of order Average working inventory
P
Q
R
Total 2,40,000
24,000
2,400
2,66,400 8
3
1
12 30,000
8,000
2,400
40,400
When A-B-C analysis was not followed the average inventory was Rs.66,600 and after following A-B-C analysis the average inventory came down to Rs. 40,000. Average value of inventory is nearly 1.5 times in the earlier situation, than as compared to the second situation.

2) Determination of stock levels
Carrying of too much and too little of inventory is detrimental to the firm. If the inventory level is too little, the firm will face frequent stock-outs involving heavy ordering costs and if the inventory level is too high it will be unnecessary tie-up of capital. Therefore, an efficient inventory management requires that a firm should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock-out which may result in loss of sale or stoppage of production. Various stock levels are discussed as such.

Minimum level. This represent the quantity which must be maintained in hand at all times. If stocks are less than the minimum level then the work will stop due to shortage of materials. Following factors are taken into account while fixing minimum stock level:
Lead Time. A purchasing firm requires some time to process the order and time is also required by the supplying firm to execute the order. The time taken in processing the order and then executing it is known as lead time. It is essential to maintain some inventory during this period.

Rate of Consumption. It is the average consumption of material in the factory. The rate of consumption will be decided on the basis of past experience and production plans.

Nature of Material. The nature of material also affects the minimum level. If a material is required only against special orders of the customer then minimum stock will not be required for such materials. Minimum stock level can be calculated with the help of following formula:
Minimum stock Level = Re-ordering level–(Normal consumption X Normal Re-order period)

b) Re- ordering level. Re –ordering is also known as ordering level. Re-ordering is a stage or limit in the stock of material at which the store keeper advice the purchasing department to secure fresh supplies of material. This level is based on.

The period of time required for procurement of such material.

The minimum quantity which must be maintained by the store keeper at all times
Average rate of consumption and
An allowance or safe margin to Insure against contingency like delay in normal delivery, excessive spoilage in use, etc.

For example, if the minimum limit is 50 tons, and daily consumption is 5 tons and the limit required for procurement is 10 days, the level may be fixed at 100 tons. The ordering level is higher than the minimum stock and lower than the maximum stock.

Re-ordering Level = Maximum Consumption X Maximum re-order period

c) Maximum Level. It is the quantity of material beyond which a firm should not exceed its stock. If the quantity exceeds maximum level limit then it will be overstocking and unnecessarily locks-up the working capital. Maximum stock level will depend upon the following factors:
The availability of capital for the purchase of materials.

The maximum requirement of material at any point of time.

The rate of consumption of material during lead time
Risks of obsolescence.

Availability of store space
The possibility of fluctuation in prices.

Government policies, demand, fashion etc.

The following formula is used to calculate maximum stock level:
Maximum Stock Level = Re-ordering Level + Re-ordering quantity–(Minimum Consumption X Minimum Re-Ordering Period

d) Danger Level. It is the level beyond which material should not fall in any case. If the danger level arises then immediate steps should be taken to replenish the stock even if more cost is incurred in arranging the materials because if material is not arrange there is possibility of stoppage of work. Danger level is determined with the following formula:
Danger Level = Average Consumption X Maximum Re-order period for emergency purchase

3) Economic Order Quantity (EOQ)
The quantity of material to be ordered at one time is known as ‘Economic Ordering Quantity’. It is the size of the lot to be purchased which is economically viable. This is the quantity of material which can be purchased at minimum costs. Generally, economic order quantity is the point at which inventory carrying cost are equal to order costs.

Ordering Costs. These are the costs which are associated with the purchasing or ordering of materials. These costs include:
Costs of staff, posted for ordering of goods. A purchase order is processed the placed with the supplier. The labor costs spent on this process is included in ordering costs.

Expenses incurred on transportation of goods purchased.

Inspection costs of incoming materials.

Costs of stationery, typing, postage, telephone, etc.

These costs are also known as buying costs and will arise only when some purchase is made. When material are manufactured in the concern then this costs will be known as set-up costs. These costs will include costs of setting up machinery for manufacturing materials, time taken up in setting, cost of tools, etc.

Carrying costs. These are the costs for holding the inventories. These costs will not be incurred if inventories are not carried. These costs include:
The cost of capital invested in inventories. An interest will be paid on the amount of capital locked-up in inventories.

Costs of storage which could have been used for other purposes.

The loss of material due to deterioration and obsolescence. The material will deteriorate with passage of time. The loss of obsolescence arises when the material in stock are not usable because of change in process or product.

Insurance cost and costs of spoilage in handling materials.

The Planning Commission of India had estimated these costs between 15 per cent to 20 percent of total costs. The longer the material kept in stocks, the costlier it becomes by 20 per cent every year. The ordering and carrying costs have a reverse relationship. The ordering cost goes with the increase in number of order placed. On the other hand, carrying costs go down per unit with the increase in the number of units, purchased and stored. It can be shown in the diagram given on the next page:

ORDERING COST
TOTAL
COST
COST
IN
RUPEES

INVENTORY CARRYING COST

NO. OF ORDERS
The ordering and carrying costs of the material being high, an effort should be made to minimize these costs. The quantity to be ordered should be large so that economy may be made in transport costs and discount may also be earned. On the other hand, strong facilities, capital to be locked up, insurance costs should also be taken into account.

Assumptions of EOQ. While calculating EOQ the following assumptions are made.

The supply of goods is satisfactory. The goods can be purchased whenever these are needed.

The quantity to be purchased by the concern in certain.

The prices of goods are stable. It results to stabilize carrying costs.

When above-mentioned conditions are satisfied, economic order quantity can be calculated with the help of the following formula:

EOQ=?2AS/I
Where A= Annual consumption in rupees.

S = Cost of placing order.

I = inventory carrying costs of one unit.

4) Inventory turnover ratio
Inventory turnover ratios are calculated to indicate whether inventory have been used efficiently or not. The purpose is to ensure the blocking of only required minimum funds in inventory. The Inventory Turnover Ratio also known as stock velocity is normally calculated as sales/average inventory or cost of goods sold/average inventory cost. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks.

Symbolically,
Inventory Turnover Ratio = Cost of Goods Sold
Average Inventory at Cost
Or = Net Sales
(Average) Inventory
And, Inventory Conversion Period = Days in a year
Inventory Turnover ratio
CHAPTER-III
C O M P A N Y P R O F I L E
V I S A K A I N D U S T R I E S L I M I T E D
The Company was incorporated under the Indian Companies Act, 1956 on 18th June 1981 as Visaka Asbestos Cement Products Limited. Visaka Industries Limited was started in 1985 with effect from 9th August 1990; the name of the Company was changed to Visaka Industries Limited.

The Company is engaged in two businesses – building products (cement asbestos products, and fibre cement flat products like V-Boards and V-Panels) and textiles. The equity shares of Visaka Industries Limited are listed on the Bombay and National Stock Exchanges. The promoters hold a 37.65% stake in the Company’s equity share capital.

The company diversified into textile yarn manufacturing in 1992. Visaka took the unknown Airjet spinning technology as a challenge ; successfully established the factory in Nagpur to produce about 2000 tons of man-made fibre yarns per annum. With focus on growth plan, the company has now grown to the position of second largest cement sheet manufacturer in India. Visaka has installed 7 factories spread across the country, producing about 650,000 tons of corrugated cement sheets per year.

The spinning plant, with 28 MURATA Twinjet spinning machines, is the world’s largest installation of its kind, producing about 9,000 tons of yarns per annum. The non-asbestos fiber board & panel division was established in the year 2009 to cater to the needs of modern construction designs. This division has a capacity of producing 30,000 tons of sheets per year. Visaka’s turnover has touched Rs.600 crores during the financial year 2008-09. For the last 25 years, Visaka has been steadily growing and has been consistently paying dividends to its share holders. Visaka has been prompt in repaying its debts to all the banks. Visaka continues its corporate social responsibility and provides health, water and education to the under-privileged. Visaka’s dedicated employees with commitment continue to shoulder the successful operations of the company. The company is driven by established processes & systems. There is no compromise on quality at any point of time. Our continuing customers since the day of company’s inception are the testimony for Visaka’s commitment to customers. The company has further growth plans on its anvil and will continue to grow in the years to come.

PRESENT ACTIVITIES OF THE COMPANY

The Company is a multi product/location establishment, presently engaged in the manufacture and marketing of Building Products, Reinforced Building Boards and Synthetic Blended Yarn.

The present production capacity of the Company is as follows:
PRODUCT
Building
Products
Synthetic
Blended
Yarn
Reinforced Building Boards (V-Boards *)
V-Panels ** INSTALLED
CAPACITY
652000 MT
1816 Twin Air
Jet Spinning
Positions
60000 MT
10300 MT PRODUCTION
2008-2009 2009-2010 2010 – 2011
550438 MT 601973 MT 589444 MT
8741 MT 8705 MT 8733 MT
12760 MT 19174 MT 32254 MT
– 1021 MT 5040 MT
* The V-Boards Project of the Company at Miryalguda, Andhra Pradesh has commenced commercial production from 1st May 2008.

* The V-Boards Division started its marketing in Middle East.

* * V-Panels Project of the Company at Miryalaguda, Andhra Pradesh has commenced commercial production from 1st January, 2010.

NOTE- 10 YEARS DATA IS NOT SHOWN AS V-PANEL AND V-BOARD PRODUTION STARTED IN 2008.

PROMOTERS
The Company was jointly promoted by APIDC and Dr. G. Vivekanand to manufacture Fibre Building Products. Dr. G. Vivekanand is a first generation entrepreneur. APIDC has since divested its entire stake.

PROCESS AND TECHNOLOGY
The Company’s Spinning Unit employs the latest spinning machines based on the Air Jet Spinning Technology procured from Murata of Japan and Visaka is the biggest leader of Air Jet Spinning in the World with highest productivity and efficiency. The Company’s Seven Asbestos Cement Sheet Manufacturing Units are operating at above 100% of capacity utilization with ISI accreditation. These units employ a continuous process technology.

FINANCIAL PERFORMANCE

The company’s performance during the last 5 years has been as follows:
As on year ended 31st March Rs.in Crores
Particulars 2006-2007 2007-2008 2008-2009 2009-2010 2010 – 2011
Turnover (Gross) 445.19 459.57 606.35 639.31 66552
Gross Profit 6 0.97 44.58 89.06 115.69 944.57
Net Profit after tax 23.28 7.67 35.94 57.21 45.07
Share Capital (incl. Preference capital) 15.92 15.92 15.92 15.92 15.92
Reserves 140.02 143.07 171.87 219.80 245.43
Dividends (in %) 30.00 30.00 40.00 50.00 50.00
Earnings per share (in Rs.) 17.23 4.83 22.63 36.03 28.38
The Company’s shares are listed on BSE and NSE
CREDIT RATING
The bankers of the Company, i.e. State Bank of India and State Bank of Hyderabad have accorded a credit rating of SB2 to the Company. The Company has been prompt in making payment of interest and repayment of installments to all the Financial Institutions, Banks and other Creditors, thereby enjoying a good rating with them.

DIVIDEND RECORD
Sl. No. Year % of Dividend
1 2006-07 30
2 2007-08 30
3 2008-09 40
4 2009-10 50
5 2010–11 50
6 2011-12 50

VISAKA’S ACHIEVEMENTS
Achieved 100% utilization in the Patancheru Plant within one year of commencement of operation.

Diversified and implemented a totally new technology Air Jet Spinning in the year 1991 and became the World’s largest set up for manufacture of Twin Air Jet Spun Yarn.
The quality produced in this mill comes within the top 5% of the best quality of the yarn produced in the world.

Steady Growth – Grown from a single product single location Company to multi product multi location Company. The turnover of the Company has grown from Rs. 5 crores to Rs. 639 crores over a period of 24 years.
Consistent Dividend Payment Record
Prompt repayment to the banks and financial institutions.

As social responsibility, Company established Charitable Trust to support initiatives that benefit the Society at large.

Visaka now is the second largest player in the Asbestos Cement Industry.

AWARDS
Highest productivity award from the Andhra Pradesh Federation of Chambers of Commerce and Industry in 1987.

Best Management award from the Government of Andhra Pradesh for the year 1987.

Best Entrepreneur of the year award from the Council for Industrial and Trade Development for the year 1990-91.

Highest Productivity award from the Council for Industrial and Trade Development for the year 1995.

Best Industrialist award from the Government of Tamil Nadu for the year 2000.

Best performance in Large and Medium Sector for the year 2001 awarded by All India Manufacturers’ Organization, Andhra Pradesh State Board.

A.P. Distinguished Industrialist Award for the year 2003 awarded by Exhibition Society.
MANAGEMENT Visaka Industries ltd
Management Board

Dr. G. Vivekanand
(Vice Chairman)
Mrs. Saroja Vivekanand
(Managing Director)

Other members of the board

Mr. M. P. V. Rao
Mr. Abraham
Mr. V. Pattabh

Mr. Nagam Krishna Rao
Mr. Bhagirat B. Merchant

PRODUCTS ; LOCATION

DIVISIONAL ANALYSIS

I. BUILDING
PRODUCTS DIVISION
Net turnover: 607 crore, 2011-12
Proportion of the Company’s turnover: 82%
Cement asbestos products
The company, with a capacity of 652000 TPA and 16% market share, is India’s second-largest cement asbestos product manufacturer. Visaka’s high tech cement asbestos product plant is fully automated and incorporated the latest state-of-the-art sophisticated technology, resulting in a consistency in physical by national quality authorities.
34861503380740
Production and sales Volumes:
As against a production of 589444 tonnes during the previous year the production during the Financial Year ended 31st March 2012 was 654198 tonnes. The sale during the Financial Year Ended on 31st March 2012 was 654439 tonnes as against 583691 tonnes sold during the Financial Year 2010 – 2011 recording an increase of 12%.

Raw materials:
The raw materials used in the manufacture of cement asbestos products comprise cement (OPC), white asbestos fibre (chrysotile), wood pulp and fly-ash. Chrysotile is imported from Canada, Brazil, Russia, and Kazakhstan while flyash is available as waste from thermal power plants. Given that the demand for the products remains relatively robust across rural India, profitability is linked to cement and asbestos fibre costs. Imported raw materials (asbestos fibre and wood pulp) account for 60% of the total cost.

Financial Performance: The net turnover of Cement asbestos Division during the year (2012) was 558 crores as compared to 473 crores during the previous Year.
FLOW CHART A.C sheet
PROCESS DESCRIPTION:
MANUFACTURING PROCESS OF A.C. PRODUCT
The Manufacturing process of A.C. product (asbestos cement corrugated sheets & accessories) is as follows:
Asbestos Fiber of different grades are imported mainly from Canada, Russia, Zimbabwe etc, and received in pressure packed condition in impermeable bags in palletized form. The fibre pallets are transported to the factory in closed containers through the trailer trucks. These palletized fiber bags are unloaded in fiber go-downs with the help of forklifts. Fiber bag pallets are conveyed to the fiber feeding section by means of forklifts. Fibre bags are fed to the closed Bag Opening Device (BOD) by slant conveyor. Fibre and bags are separated out in the BOD under negative pressure and taken into a blender along with 35 to 40 % water. While the fibre is carried to the Blender and finally to the Edge Runner Mill (ERM) from the Blender via screw conveyor, the empty bags generated are further conveyed to an attached Shredder unit where bags are torn and shredded to minute pieces before the same joins the fibre being conveyed to the ERM at screw conveyor. The blended wet fiber along with the shredded bag pieces is fed into the ER Mill where it is milled for a certain time. From this point onwards the total process operations involving fibre are carried out in wet condition with no possibility of dust generation during manufacturing process. The milled wet fiber is conveyed to fiber silo through a bucket elevator and stored therein.

The milled fiber is weighed in weigh hopper. The pre-requisite quantity of fiber which is about 8% of the product is mixed with required quantity of water in Wet Opener or fibre cone where it is re-circulated for about 3 to 4 minutes. The above slurry along with other fibers, if any, a small quantity (around less than 1%) of pulp and small quantities of homogenized solid waste + process sludge in slurry form (from sludge recycling tank/Wet Ball Mill) is taken to Beater tank. Pre-requisite quantity of Special binders – Fly ash (around 26 to 28 % of the product) is mixed with water, converted into slurry and sent to Storage silos. This Fly ash slurry is taken to the Cement + Fly ash Mixing Tank which then is joined by pre-requisite quantity of cement (around 45 to 48 %) conveyed through screw conveyor from weigh hopper followed by a specified quantity of water. The weigh hopper receives the cement through screw conveyor from the silo. The silo has a capacity of storing around 150 MT of cement. The cement plus FA slurry thus prepared in the Mixing tank is sent to Wet Rotary Sieve & thence to the Beater Tank, thus joining fiber slurry.
The RM slurry thus prepared is transferred to Storage Tank where it is under constant agitation. From here slurry is taken to the Dilution Tank (or Distribution Tank) and diluted further using recycled process water. Slurry from the Dilution Tank is taken to the sheet forming machine consisting of an assembly of 6/7 vats placed in series and with rotating sieve cylinders placed one in each of 6/7 vats. The sieve cylinders are fitted at its periphery, with the wire mesh of specific size (mostly 40 meshes on top surface and 5 meshes on bottom surface). An end-less felt made of synthetic woven fabric runs tangentially atop the sieve cylinders. The slurry through the sieve cylinders gets filtered out. The differential hydrostatic pressure thus created between the sieve cylinder and Vat causes an asbestos cement film to be formed and picked up by the sieve cylinder which in turn gets transferred to the moving felt. The gradually thickening slurry due to filtration is constantly diluted in the vats. The excess water in film is dehydrated by vacuum system. The wet film from the felt is then transferred on to the rotating sheet forming drum of requisite size.

After the required thickness is achieved the wet sheet is cut by automatic cutter fixed on the sheet forming drum. The formed sheet is then trimmed widthwise with long cutters to the required width. The length of the sheet varies as per the market requirement from 1.5 M to 3 M. after cutting to the required length the sheet is transferred on to the profiling machine (Atmospheric Corrugation Box) by vacuum sucking.

The formed sheets are stacked in between the steel moulds (templates) & subsequently air cured for about 10 to 12 hrs in a closed chamber. After the air curing the sheets are separated out from the moulds in destacker machine. The moulds are cleaned and lubricated and sent back to profiling machine. The sheets then are inspected on-line, stacked on steel pallets and water cured for a minimum of 12 days before being finally inspected and then dispatched.

2. Fibre cement sheets (Flat products)- V-Boards and V-Panels
Net turnover: 50 crore, 2011-12
Proportion of the division’s revenue: 8%
Overview
The company established its V-Board business with HPSC technology conforming to IS 14862-2000 in May 2008. V-Board, a non-asbestos product, is placed at par with international standard fibre cement sheets. The product- using cement, fly ash, pulp and silica- is positioned as a plywood substitute in interior solutions. The cement component reinforces strength and durability while the pulp imparts workability and flexibility. V panels were introduced by the Company in January 2012(installed capacity 500 panels per a day)
37528503390265V-Boards INTERIORS AT THE NEXT LEVEL
The production of this non-asbestos product (4000 TPM) went on stream in 2008. The raw material of this product comprises cement, fly ash and cellulose fibre. The off take of cement bonded boards grew following enhanced product awareness, shift from timber products (due to advantages of fire, water and termite resistance over plywood and particle boards), higher affordability, maintenance-free, a low erection cost, functional use by carpenters, easy transportability (rather than be mixed on site) and safety in seismic zones.

V-Board Application
V-Board have wide range of applications such as –false ceilings, wall paneling, mezzanine flooring, structural glazing back lining, wall partition, door panels etc and used to make fixed furniture like Computer Table, Office table, Shoe Rack, Cupboard, Black Board, School Bench, Shelves, Door.

V-Panels
This non-asbestos product is ideal for use in interiors as it is created from cement, fly ash and polystyrene beads and positioned as dry wall substitute. The product is ideal for disaster-prone areas, is low on maintenance, enhances interior living area on account of its thinness and is ideal where real estate is expensive. Its weight is lower than bricks, quicker to erect, matches wall strength and axial load. The product is preferred on account of its weight ratio and dry wall concept. It is labor-efficient as it can be erected by a few of individuals. It can be reused at different locations. The Company possesses an installed capacity of 500 panels a day. Its customers comprise GMR, Punj Loyd, Shapoorji Pallonji, Soma Enterprises, TCS, Gujarat Ambuja Port, Eenadu Group, Coastal Projects, Uranium Corporation and Larsen ; Toubro, among others.
V-Panels Advantages
Fire, acoustic and thermal properties:- V-Panels have excellent thermal and fire retardant properties needed specially by hospitals, recording studios, etc. 50mm thick V-Panels have a fire rating of 60 minutes ; 75 mm V-Panels have 120 minutes.

Light weight: They are light in weight. Presently they are the lightest in India. Being light they can be easily handled, transported and installed with less effort.

Save space: V-Panel being slim provides extra usable area.

Water Resistant: Water resistant properties withstand adverse conditions.

Termite Resistant: V-Panels are termite resistant lifelong.
V-Panel Applications
Internal ; External wall partition
Roofing
Mezzanine floor
Control rooms
Semi-permanent building
Compound walls etc….

II.TEXTILES
PRODUCTS DIVISION
Net turnover: 138 crore, 2011-12
Proportion of the Company’s turnover: 18%

Overview
During 2010-11, the cost of cotton fibre reached unprecedented levels due to scarcity. This had a cascading effect on the prices of all textile fibres and prompted a temporary switch to synthetic fibres.

In April 2011, the cotton fibre price crashed, influencing realizations for our synthetic yarns. Buyers held back, prices continued to drop throughout 2011-12 and this affected viability. Following a 7.4% increase in the global end user demand for textile fibres in 2010, there was virtually no demand growth in 2011. Besides, the weakness in the European markets affected the business.

Corporate review
The division’s revenues and profits declined during the year under review on account of a slowdown in the international markets. The fact that the division reported a reasonable profit is an index of its niche products, quality, efficiency and customer mix. The Company’s revenues from this division accounted for 18% of the total revenue for 2011-12 (22% in 2010-11). The Company invested in state-of-the-art twin air-jet spinning technology from Murata (Japan) with 28 MTS machines equivalent to 50,000 spindles. The Company produces about 8,000 tonnes of yarn a year (melange yarns, grandrelle yarns, high twist yarn and specialty yarns with different blend styles). The Company has the distinction of being the largest global unit with Murata equipment, reporting one of the highest efficiencies. A high process control translated into lSO certification in 1995, Star Export House status in 2008. Yarns are environment-friendly and were certified as per demanding OEKO·TEX standards from July 2008 onwards. The Company’s yarn products are used to manufacture a range of fabrics including shirting, suiting, fashion fabrics, upholstery and embroidery laces. Its products are marketed to customers in Italy, the U.K., U.S.A., Germany, Australia, Egypt and Turkey, among others.
PROCESS DESCRIPTION:
MANUFACTURING PROCESS OF TEXTILE PRODUCTS
 
1.Mixing—–Different fibres are opened & mixed together after proper weighing so that homogeneous mix-up is there & at later stage during dyeing no variation is there in dye pickup. After that this material is kept in mixing bins for proper conditioning.

2. Blowroom—Further open material into small tufts & convert the material into sheet form (called lap) with even weight per unit length.

3. Carding—–Individualisation of fibre take place & lap sheet is converted into rope form called sliver. Sliver is accumulated into cans with fix length.

4. Drawframe—-Doubling & drafting of slivers take place to make draw frame sliver more even so that yarn produced from this sliver is even & meet market requirement.

5. MTS (Muratec Twin Spinner) —This is a high drafting & high speed m/c with 4/4 drafting systems. We are making two plied parallel yarn on this m/c after drafting feed slivers & wound on cheese with fix length.

6. TFO—-Feed material is MTS cheeses & final package is twisted cone. Here with two parallel cheeses one cone is made & twist is given as per market requirement so that in the final yarn sufficient strength is there to withstand warping & weaving tension.

7. Packing—-Domestic & export packing is done as per standard. After that material is shifted in Finished God own for ready to despatch.

We are making 100% polyester, poly/vis dyed as well as grey yarn as per market requirement.

 
CHAPTER- 4
DATA ANALYSIS AND INTERPRETAION
Introduction
In this chapter a detailed analysis of inventory management as obtained from financial statement is presented as follows:
Inventory to Net current Assets
Inventory to Debtors
Inventory to Cash ; Bank Balance
Inventory to Sales
Inventory to Fixed Assets
Inventory conversion Period
ABC Analysis
EOQ (Economic Order Quantity)
The above analysis will help to find out how effectiveness the organization is maintaining their inventory. By performing a detail analysis of above technique we can know whether the organization is enabling to increase profit and minimization of cost or not.

As we all ready discussed the situation of under-stock or over-stock should not come. Because it will lead to unnecessary investment of capital or either stoppage of work in both the case it lead to loss for the organization. So with the analysis of above techniques and tools we can find out how efficient the organization is.

TABLE 4.1
STATEMENT SHOWING INVENTORY TO NET CURRENT ASSETS RATIO
YEAR INVENTORY
Rs. In Cr. NET CURRENT ASSETS
Rs. In Cr. RATIO
2007 20.75 36.15 0.57
2008 27.30 44.61 0.61
2009 45.96 54.22 0.85
2010 72.25 77.62 0.93
2011 71.48 138.37 0.52
2012 94.07 138.55 0.68
2013 89.97 134.23 0.67
2014 116.67 165.15 0.71
2015 148.28 189.19 0.78
2016 155.55 175.28 0.89
Net Current Assets = Current Assets – Current Liabilities

Inventory to Net Current Asset Ratio = Inventory
Net Current Assets
Graph 4.1 Inventory to Net Current Assets Ratios
lefttopINTERPRETAION
Inventory to Net Current Assets is an important indicator of a company’s operation efficiency. A low value of 1 or less of inventory to working capital means that a company has high liquidity of current asset and it may also mean insufficient inventories. A high value inventory to working capital ratio means that a company is carrying too much inventory in stock. It is not favorable for management because excessive inventories can place a heavy burden on the cash resources of a company. Here ratio is less than 1. From 2007-2016 inventory to net current assets ratio is increased by 56 percent but still it is below 1 which show firm is able to maintain adequate inventory and has high liquidity.

TABLE 4.2
STATEMENT SHOWING INVENTORY TO DEBTOR RATIO
YEAR INVENTORY
Rs. In Cr. DEBTOR
Rs. In Cr. RATIO
2007 20.75 12.39 1.67
2008 27.30 16.95 1.61
2009 45.96 17.73 2.59
2010 72.25 31.53 2.29
2011 71.48 43.39 1.65
2012 94.07 53.65 1.75
2013 89.97 53.14 1.69
2014 116.67 50.77 2.29
2015 148.28 69.48 2.13
2016 155.55 73.96 2.10
Inventory to Debtor Ratio = Inventory
Debtor
Graph 4.2 Inventory to Debtor Ratios

INTERPRETATION
In above graph we can see that from 2007-08 inventory to debtor ratio is decrease by3.6 percent but in 2009 it increased. From 2009 – 11 it decreased by 36 percent, similarly from 2014-16 it decreased by 8 percent which means organization collection policy is good. It shows that availability of cash with the bank will be more and bad debts are less. We know that if the money from debtor will recovered fast we can invest that amount for other purpose and unwanted requirement of working capital can be avoided.

TABLE 4.3
STATEMENT SHOWING INVENTORY TO SALES
YEAR INVENTORY
Rs. In Cr. SALES
Rs. In Cr. RATIO
2007 20.75 131.19 0.21
2008 27.30 158.43 0.17
2009 45.96 209.84 0.22
2010 72.25 294.56 0.25
2011 71.48 378.88 0.19
2012 94.07 432.45 0.22
2013 89.97 584.68 0.15
2014 116.67 600.14 0.19
2015 148.28 652.71 0.23
2016 155.55 750.04 0.21
Inventory to Sales = Inventory
Sale
Graph 4.3 Inventory to Sales Ratios

INTERPRETATION
The Inventory to Sales ratio measures the percentage of Inventories the company currently has on hand to support the current amount of Net Sales.

An increasing Inventory to Sales ratio is generally a negative sign, showing the company may be having trouble keeping inventory down and/or Net Sales have slowed. This often indicates larger financial problems the company may be facing. In the above graph we can see that there is little increase or decrease in the inventory to sale ratio able, from 2007 to 2008 it decrease by 19 percent, similarly comparing 2009 to 2016 the fluctuation (increase or decrease) is by average of 5 percent.

From 2006 -08 inventories is increased by 32 percent while inventory to sale ratio is decrease by 19 percent which shows we are able to sell more and lead to increase in profit. Similarly from 2008-09 inventories increased by 68 percent and from 2013 to 2016 by 72 percent. But inventory to sale ratio fluctuate by 5 percent which show organization is able to maintain its inventory and able to sell off.

TABLE 4.4
STATEMENT SHOWING INVENTORY TO FIXED ASSETS (Gross Block)
YEAR INVENTORY
Rs. In Cr. FIXED ASSETS (Gross Block)
Rs. In Cr. RATIO
2007 20.75 108.18 0.19
2008 27.30 116.89 0.23
2009 45.96 170.05 0.27
2010 72.25 213.67 0.35
2011 71.48 250.31 0.29
2012 94.07 269.96 0.35
2013 89.97 312.34 0.29
2014 116.67 330.98 0.35
2015 148.28 337.50 0.44
2016 155.55 396.36 0.39
Inventory to Fixed Assets Ratio = Inventory
Fixed Assets
Graph 4.4 Inventory to Fixed Assets (Gross Block) Ratios

INTERPRETATION
From the above graph, it can be observed that around 31.5% of the total investment is made in inventories with relation to fixed assets. The lowest inventory to fixed assets ratio was recorded at 19% in 2005. And the highest inventory over current assets ratio was recorded at 44% during 2009.

It shows that how inventory is important in this organization because in this type of industries inventory is most important than other fixed assets as the main important raw material fibre is not available in sufficient quantity, it is important to maintain appropriate inventory instead of other fixed assets. But for some organization fixed assets are prior as their output is entirely depend on fixed assets used but in case of fibre sheet production the quality and quantity of fibre is most important and its management.
Table-4.5
STATEMENT SHOWING MATERIAL TURNOVER RATIO
YEAR NET SALES
Rs. in Cr. Cost of Goods sold
Rs. in Cr. Gross Profit
Rs. in Cr. Average Inventory Inventory Turnover Ratio
2007 137.46 108.58 28.88 20.14 5.4
2008 163.62 136.36 27.26 24.03 5.7
2009 215.17 186.16 29.01 36.63 5.1
2010 294.56 254.35 40.21 59.11 4.3
2011 378.88 324.45 54.43 71.87 4.5
2012 432.45 405.67 26.78 82.78 4.9
2013 584.68 460.70 123.98 92.02 5.0
2014 600.14 522.72 77.42 103.32 5.1
2015 652.71 568.57 84.14 132.48 4.3
2016 750.04 673.24 76.80 151.92 4.4
Gross Profit = Net sales – Cost of Goods Sold
Inventory Turnover Ratio = Cost of Goods Sold
Average Inventory
Average Inventory = Opening Stock + Closing Stock
2
Graph 4.5 Material Turnover Ratios
MATERIAL
TURNOVER

Interpretation:
Inventory turnover ratio measures the velocity of conversion of stock into sales or how quickly the inventory is sold. Usually, a high inventory turnover/Stock velocity indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventory, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investments. A too high turnover of inventory may not necessarily always imply a favorable situation. A high inventory turnover may be result of a very low level of inventory which results in shortage of goods in relation to demand and a position of stock-out or the turnover may be high due to a conservative method of valuing inventory at lower values or the policy of the firm being to buy frequently in small lots.

From the above graph, it can be understood that material turnover ratio was very high in 2005-2009 and in 2012 i.e. 5.4, 5.7, 5.1 and 5.1 respectively which shows how fast the inventory was converted into cash. Material turnover ratio was very average or low in current year but it doesn’t mean that management is not efficient as compared to 2007-2009 it is low but 4.0 and above is also high. It indicates that there was efficient inventory management in the organization.

Table-4.6
STATEMENT SHOWING HOLDING PERIOD OR INVENTORY CONVERSION PERIOD
Holding period = (Average Stock / Cost of Goods Sold) x 365
(OR)
Inventory conversion period = 365
Inventory turn over
YEAR AVERAGE STOCK COST OF GOOD SOLD
Rs. In Cr. HOLDING PERIOD
in Days
2007 20.14 108.58 68
2008 24.03 136.36 64
2009 36.63 186.16 72
2010 59.11 254.35 85
2011 79.87 324.45 90
2012 82.78 405.67 74
2013 92.02 460.70 73
2014 103.32 522.72 72
2015 132.48 568.57 85
2016 151.92 673.24 82

GRAPH 4.6 Holding Period

Interpretation:
The average holding period from 2007-2016 is 76 days and individual holding period of all the year is also near to 76 days. The holding period in 2007- 2009 and 2012-2014 is less as compared to rest of the year, the holding period was less which indicates the stock is being converted into goods or disposed were faster compared to all the year. Again in 2015 and in 2016 holding period is at the average of 83 days which shows that organization is able to sell its goods very fast. It indicates turnover stock is efficient or reduced investment in stock.

NOTE- In VISAKA INDUSTRIES generally finished goods are stored for 10 to 14 days and then it will be disposed off or sold within 14 days. As we already discussed finished goods or raw material are stored for 76 days in a year.

TABLE 4.7
STATEMENT SHOWING INVENTORY TO CURRENT ASSETS RATIO
INVENTORY TO CURRENT ASSETS RATIO = INVENTORY
CURRENT ASSETS
YEAR INVENTORY
Rs. In Cr. CURRENT ASSETS
Rs. In Cr. RATIO
2007 20.75 37.56 0.55
2008 27.30 52.13 0.52
2009 45.96 75.28 0.61
2010 72.25 122.75 0.59
2011 71.48 140.39 0.51
2012 94.07 177.30 0.53
2013 89.97 180.99 0.50
2014 116.67 205.43 0.57
2015 148.28 270.87 0.55
2016 155.55 278.88 0.56

Graph 4.7 INVENTORIES TO CURRENT ASSETS RATIO

Interpretation:
From the above graph, it can be observed that around 55% of the total investment is made in inventories with relation to current assets. The lowest inventory to current assets ratio was recorded at 50% 2013. And the highest inventory over current assets ratio was recorded at 61% during 2009.

As per the research made the most important raw material fibre is imported and limited available throughout the world so it is important to maintain appropriate inventory.

Table-4.8
ABC ANALYSIS FOR ITEMS
ITEMS RANK ANNUAL CONSUMPTION
Rs.in Lakhs CUMULATIVE USAGE
Rs.in lakhs CUMULATIVE % in USAGE
OIL FOR TEMPLETS 1 268.00 268.00 28.35
FELT 2 220.05 488.05 51.62
FORK LIFT HSD OIL 3 115.00 603.05 63.79
FORK LIFT SPARES 4 85.00 688.05 72.78
BEARINGS 5 85.44 773.49 81.81
OIL ; LUBRICANTS 6 75.98 849.47 89.85
MAJOR MODIFICATION ITEMS 7 70.21 919.68 97.28
DG SET SPARES 8 20.70 940.30 99.46
STEEL ROD / PLATES ETC 9 5.00 945.38 100
OTHERS – 620.86 – –
NOTE 1) Items are ranked as per amount
2) “Other” includes thousands of items such as spare parts nuts, bolts etc. which directly can be said as C class.

3) Above DATA is for all the 8 PLANT.

A-Occupies 70% annual consumption value i.e., 70% of 945.38 = 661.766
A+B Occupies 90% annual consumption value i.e. 90% of 945.38 = 850.842
Here,
As per above assumption items less than 20 lakhs as per consumption are C Class,
Items more than 20 lakhs but less than 1crore as B Class
Items more Than 1 crore are A Class
Table-4.9
CALCULATION OF EOQ USING BELOW INFORMATION
Description Annual consumption
(In Quantity– MT) Annual consumption
(Rs. In lakhs) Safety stock
(Qty)
MT
(I) Cement Asbestos product – MT Asbestos Fibre/Wood pulp 49253 16186.74 12313.25
Cement 250412 8675.63 25041.20
Other 166319 2073.17 16631.90
(II) Textile Yarn – MT Polyester Staple Fibre 8336 7489.34 833.60
Viscose Staple Fibre 622 957.04 62.20
Others 6 18.85 0.60
(III) Boards – MT Wood pulp 1690 724.40 422.50
Cement 10343 295.97 1034.30
Others 15851 460.16 1585.10
(IV) panels –MT Cement 2407 66.02 240.70
Others 519 125.93 51.90
Assumptions:
Here,
EOQ=?2AS/I
Where A= Annual consumption in rupees.

S = Cost of placing order. Or Ordering Cost
I = inventory carrying costs of one unit.
Safety Stock = 25% of Total Quantity (MT) for Asbestos Fibre.

Safety Stock =10% of Total Quantity (MT) for all other Materials.

Ordering Cost = 5% of Price Value (Annual consumption)
Carrying Cost = 20% of Price Value (Annual consumption)
Lead time = 15 days (Except asbestos Fibre and Wood pulp)
All the above value is assumed. The reason is discussed in “Finding”.

Table-4.10
STATEMENTS SHOWING ECONOMIC ORDER QUANTITY:
Description Annual consumption
(In Quantity– MT) Ordering
cost
(Rs. In Lakhs) Carrying
Cost
(Rs. In lakhs)
EOQ
(I) Cement Asbestos product – MT Asbestos Fibre/Wood pulp 49253 809 3237 157
Cement 250412 434 1735 354
Other 166319 104 415 289
(II) Textile Yarn – MT Polyester Staple Fibre 8336 374 1498 181
Viscose Staple Fibre 622 48 191 18
Others 6 1 4 2
(III) Boards – MT Wood pulp 1690 36 145 29
Cement 10343 15 59 73
Others 15851 23 92 89
(IV) panels –MT Cement 2407 3 13 30
Others 519 6 25 16
Table-4.11
STATEMENT SHOWING LEAD TIME CONSUMPTION
LEAD TIME CONSUMPTION = (LEAD TIME*AVERAGE CONSUMPTION)
AVERAGE CONSUMPTION = ANNUAL CONSUMPTION / 365
Description Lead Time
(Days) Average Consumption
(Usage Per Day )
MT Lead Time Consumption
(MT)
(I) Cement Asbestos product – MT Asbestos Fibre/Wood pulp 60 134.94 8096.40
Cement 15 686.06 10290.9
Other 15 455.67 6835.05
(II) Textile Yarn – MT Polyester Staple Fibre 15 22.83 342.45
Viscose Staple Fibre 15 1.70 25.50
Others 15 0.016 0.24
(III) Boards – MT Wood pulp 60 4.63 277.80
Cement 15 28.34 425.10
Others 15 43.43 651.45
(IV) panels –MT Cement 15 6.59 98.85
Others 15 1.42 21.30
Table-4.12
STATEMENTS SHOWING RE-ORDER LEVEL:
RE-ORDER LEVEL = (LEADTIME*AVERAGE USAGE) + SAFTEY STOCK
Description Lead Time
(Days) Average Consumption
(Usage/Day) Lead Time Consumption
(Qty- MT) Safety Stock
(Qty-MT) Re-order level
(Qty-MT)
(I) Cement Asbestos product – MT Asbestos Fibre/Wood pulp 60 134.94 8096.40 12313.25 20409.65
Cement 15 686.06 10290.9 25041.20 35332.10
Other 15 455.67 6835.05 16631.90 23466.95
(II) Textile Yarn – MT Polyester Staple Fibre 15 22.83 342.45 833.60 1176.05
Viscose Staple Fibre 15 1.70 25.50 62.20 87.70
Others 15 0.016 0.24 0.60 0.84
(III) Boards – MT Wood pulp 60 4.63 277.80 422.50 700.30
Cement 15 28.34 425.10 1034.30 1459.40
Others 15 43.43 651.45 1585.10 2236.55
(IV) panels –MT Cement 15 6.59 98.85 240.70 339.55
Others 15 1.42 21.30 51.90 73.20
CHAPTER-5
FINDINGS ,SUGGESTIONS and conclusions
FINDINGS
By observing the changes in Material Turnover ratio from the year 2007- 2016, Material Turnover ratio was efficient in all the year from 2007-2016 with little increase and decrease but always with effective results. It indicates that there was effective inventory management in the VISAKA INDUSTRIES.

From the year 2007-2016, investment in inventory increased every year ; by comparing it with Net Sales we can say that there is no over-stocked or under-stocked of inventory in the organization.
In 2014 the Inventory Turnover Ratio is increased from 4.3 (2011) to 4.4. But the Holding Period decreased from 85 days to 82 days, which is also an indicator of effective inventory management at VISAKA INDUSTRIES
Inventory to Current Assets ratio indicates around 50% of total investment of Current Asset is made in inventories. Investment in inventories doesn’t mean ineffective management. As the production of VISAKA INDUSTRIES ltd. Has always increased the requirement for raw material is also increased.

Overall by seeing inventory to other several ratio we can say VISAKA INDUSTRIES is able to manage inventory efficiently and effectively
VISAKA INDUSTRIES now is the second largest player in the Asbestos Cement Industry. And can become first largest by updating their technology, machinery used in all the plant and using 2 machines at a single plant because in case of failure of 1 machinery other machinery can produce required quantity or simultaneously machine can be used.

In Patancheru plant, company is using more than 23 years old machine which can be replaced with a high speed and advanced technological machine which can reduce cost and increase profit.

EOQ technique is not used by the VISAKA INDUSTRIES, as they there main raw- material Fibre is supplied in a fixed quantity and they have only two main supplier one i.e. smaller supplier supply 5000 ton per year and the big one supply 41000 ton for all the plant and they have to used this quantity for all the plant. In case of more demand also this quantity will not exceed this quantity so, they have to use only. At any cost supply will not exceed. Data for EOQ Model is assumed in the data analysis.

SUGGESTIONS
As in the case of Fibre as a raw-material in VISAKA INDUSTRIES whatever quantity supplier of Fibre is providing to VISAKA INDUSTRIES or any other company in India has to except because of following reason:
Limited number of supplier.

It is band in number of country where mines are present and other parts has put it as a health hazard raw material.

It is unique raw material (Fibre)
So VISAKA INDUSTRIES has to prepare a strategy to find either an alternative (i.e. substitute which is at present not available) or optimum utilization of resource. Proper combination of fibre should be made as there are number of Grades are available.

EOQ technique is not used by the VISAKA INDUSTRIES, as they there main raw- material Fibre is supplied in a fixed quantity and they have only two main supplier one i.e. smaller supplier supply 5000 ton per year and the big one supply 41000 ton for all the plant and they have to used this quantity for all the plant. In case of more demand also this quantity will not exceed this quantity so, they have to use only. At any cost supply will not exceed.

Proper policy has to prepare so wastage (Fibre) can be minimizes. This will help in cost cutting and lead to higher profit.
As its main product is asbestos and more profit is coming from asbestos division, and due to less supply of Fibre they have to concentrate on their other product which are new to the market and this product helps them to grab market for longer period as V-Board and V-Panel is new concept and more reliable then wood because of its important features like water resistant, fire resistant, termite resistant etc.

Conclusions
In purchase department for want of any item it should go through several process. This may include receiving indents, floating enquiries, preparation of order processing form, preparation of purchase order and order follow up and inform the supplier. Most of the time was spent in accounts payable.

In this type of process, it requires more number of employees and supplier should also wait for until the accounts are matched.

This process takes an input, adds value to it and provides an output to an internal or external customer.

ANNEXURE
ANCE SHEET
—————————- in Rs.Cr.—————————-
SOURCES OF FUNDS
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Total share capital 15.92 15.92 15.92 15.92 15.92 13.91 13.21 13.21 13.21 13.21
Equity share capital 15.92 15.92 15.92 15.92 15.92 13.91 10.71 10.71 10.71 10.71
Share application money 0.00 0.00 0.00 0.00 0.00 1.24 0.00 0.00 0.00 0.00
Pref.share capital 0.00 0.00 0.00 0.00 0.00 0.00 2.50 2.50 2.50 2.50
Reserve 270.56 254.43 219.81 171.87 143.37 130.47 74.62 59.36 48.99 42.20
Revaluation Reserve 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Networth 286.48 261.35 235.73 187.79 159.29 145.62 87.83 72.57 62.20 55.41
Secured loans 97.55 142.95 116.55 150.83 181.29 163.21 134.32 98.95 58.65 51.49
Unsecured loans 61.17 30.09 32.07 6.57 7.19 9.56 11.43 2.58 1.72 1.921
Total Debt 158.72 173.04 148.62 175.40 188.76 172.77 145.75 101.53 60.37 53.41
Total Liabilities 445.20 434.39 384.35 345.19 348.05 318.39 233.58 174.10 122.57 108.82
APPLICATION OF FUND Gross Block 396.36 337.50 330.98 312.34 269.96 250.31 213.67 170.05 116.89 108.18
Less: Accum.Depreciation 151.92 135.26 123.22 114.09 97.73 75.03 61.61 51.03 43.54 37.47
Net Block 244.22 202.24 207.76 198.25 172.23 175.28 152.06 119.02 73.35 70.71
Capital Work in progr. 10.41 27.98 9.16 10.51 32.27 3.50 3.82 0.83 4.55 1.86
Investments 15.06 14.97 2.30 2.22 0.00 1.25 0.01 0.01 0.03 0.04
inventories 155.55 148.28 116.67 87.97 94.07 71.48 72.25 45.96 27.30 20.75
Sundry Debtor 73.96 69.48 50.77 53.14 53.65 43.39 31.53 17.73 16.95 12.39
Cash & Bank Balance 49.37 53.11 37.99 37.88 29.58 25.52 18.97 11.59 7.88 4.42
Total Current Assets 278.88 270.87 205.43 180.99 177.30 140.39 122.75 75.28 52.13 37.56
Loan and Advances 20.52 89.75 78.95 66.86 64.21 58.11 34.90 26.67 22.26 22.38
Fixed Deposit 4.51 0.74 22.88 7.68 1.27 13.54 0.30 0.60 3.28 2.34
Total CA, Loan & Advances 303.91 361.36 307.26 255.53 242.78 212.04 157.95 102.55 77.67 62.28
Deffered Credit 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Current Liabilities 116.06 98.73 83.22 73.13 67.23 45.31 58.78 31.06 18.55 16.93
Provisions 12.57 73.44 58.89 48.17 37.00 28.36 21.55 17.27 14.51 9.20
Total CL & Provisions 128.63 172.17 142.11 121.30 104.23 73.67 80.33 48.33 33.06 26.13
Net Current Assets 175.28 189.19 165.15 134.23 138.55 138.37 77.62 54.22 44.61 36.15
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00 0.00 0.09 0.01 0.04 0.06
Total Assets 445.19 434.38 384.37 345.21 348.05 318.40 233.60 174.09 122.58 108.82
Contingent Liabilities 29.62 42.12 50.67 6.33 2.16 17.52 23.43 18.22 38.01 16.36
Book Value (Rs.) 180.39 164.57 148.43 118.25 100.30 104.08 79.94 65.64 55.93 49.57
INVENTORIES FOR LAST 10 YEARS
INVENTORIES
————————Rs. In lakhs————————-
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
PARTICULARS Store & Spares 549.95 393.21 400.26 345.76 330.77 352.42 302.87 227.04 180.63 158.50
Raw Materials 6885.09 7132.80 4419.48 4432.84 1826.18 2009.81 2562.76 1168.95 701.22 644.18
Work-in-Process 2604.29 2056.15 1896.40 1346.81 1307.40 1201.61 1175.01 639.36 372.96 294.83
Finished goods 5515.59 5245.76 4950.54 2871.21 5942.22 3584.38 3184.02 2560.6 1475.26 977.66
Total 15554.92 14827.9 11666.7 8996.62 9406.57 7148.22 7224.66 4595.95 2730.1
2075.2
OTHER METHODS OR TOOLS OF INVENTORY MANAGEMENT
1) Just In Time (JIT) Inventory Control System
Just in time philosophy, which aims at eliminating waste from every aspect of manufacturing and its related activities, was first developed in Japan. Toyota introduced this technique in 1950’s in Japan, however, U.S. companies started using this technique in 1989’s. The term JIT refers to a management tools that help to produce only the needed quantities at the needed time.

According to the official terminology of C.I.M.A., JIT, is “a technique for the organization of workflows, to allow rapid, high quality, flexible production whilst minimizing manufacturing work and stock level. There are broadly two aspects of JIT (i) just in time production, and (ii) just in time purchasing.

Just in time inventory control system involves the purchase of material in such a way that delivery of purchased material is assured just before their use or demand. The philosophy of JIT control system implies that the firm should maintain a minimum (zero level) of inventory and rely on suppliers to provide materials just in time to meet the requirements.
Objective of JIT
The ultimate goal of JIT is to reduce wastage and enhance productivity. The important objectives of JIT include:
Minimum/zero Inventory and its associated costs.

Elimination of non-value added activity and all wastes.

Minimum batch/lot size.

Zero breakdown and continuous flow of production.

Manufacturing right product at right time.

Feature of JIT
It emphasizes that firms following traditional inventory control system overestimate ordering cost and underestimate carrying costs associated with holding of inventories.

It involves frequent production/order runs because of smaller batch/lot sizes.

It requires reduction in set up time as well as processing time.

The major focus of JIT approach is to purchase or produce in response to need rather than as per the plans and forecasts.

Advantages of JIT Inventory Control System
The following are the major advantages of just in time inventory control system:
The right quantities of materials are purchased or produced at right time.

Investment in inventory is reduced.

Wastes are eliminated.

Carrying or holding cost of inventory is also reduced because of reduced inventory.

2) FSN Analysis
In F-S-N analysis, items are classified according to their rate of consumption. The items are classified broadly into three groups: F – means Fast moving, S – means Slow moving, N – means Non-moving. The FSN analysis is conducted generally on the following basis:
The last date of receipt of the items or the last date of the issue of items, whichever is later, is taken into account.

The time period is usually calculated in terms of months or number of days and it pertains to the time elapsed seems the last movement was recorded.

FSN analysis helps a company in identification of the following
a)      The items to be considered to be “active” may be reviewed regularly on more frequent basis.

b)      Items whose stocks at hand are higher as compared to their rates of consumption.

c)      Non-moving items whose consumption is “nil” or almost in significant.

3) SOS Analysis (Seasonal and Off-Seasonal)
SOS is based on seasonality of items and it classifies all the items into two categories:
-Seasonal and off seasonal
The analysis helps in:
1.Identifying items that are available only during a limited period of the year. For e.g. raw mangoes are only available only during summers
2.Identifying items that are seasonal but available throughout the year however their costs in offseason are relatively high.

3.Non Seasonal items
As discussed above there are a number of methods used for selective inventory control and each method highlights a different aspect .The right method should be selected on the purpose for which we wish to carry out the selective inventory control.

For e.g. SOS analysis can be selected when we want to determine the seasonality of items and the right season for procuring them.

4) SDE Analysis: S-Scarce Material i.e. hardly availableD-Difficult material i.e. difficult in sourcing.E-Easy materials i.e. materials available easilySDE analysis is done based on purchasing problems associated with items on day-to-day basis. Some of the purchasing problems are as under: –Long Lead Times.-Scarcity and hardly available-Sourcing the same material from many geographically scattered sources-Uncertain and unreliable sources of supplypurchasing department classifies these materials and formulates the strategy and policy of procurement of these items accordingly. So classification of materials is done based on level of difficulty in sourcing.

S Class Materials
These materials are always in shortage and difficult in procurement. These materials sometimes require government approvals, procurement through government agencies. Normally one has to make the payment in advance for sourcing these materials. Purchase policies are very liberal for such materials
D Class Materials:
These materials though not easy to procure but are available at a longer lead times and source of supply may be very far from the consumption. Procurement of these materials requires planning and scheduling in advance. Particular OEM spares of the machinery may fall under this category as that OEM may be very far from the ordering or consumption location.

E Class Materials
These materials are normally standard items and easily available in the market and can be purchased anytime.
5) VED Analysis
The VED Analysis popularly known as Vital, Essential and Desirable analysis is used primarily for the control of spare parts. On the basis of the critical nature or relative importance, spare parts may be classified into three categories, namely vital (V), essential (E), and desirable (D). The vital items have extreme criticality, the desirable items are not critical and essential items falls somewhere in between the vital and desirable categories.

The non-availability of ‘vital spare parts’ even for short periods lead to stoppage of production. The stock-outs costs associated with such items are very high and therefore, the service levels will very high for this class of items. Thus, every effort should be made to ensure the availability of these spares parts at all times. The service level of the essential spares is lower than that of the vital spares. Hence the production should not get interrupted due to the non-availability of ‘essential spares’ even for a day. The desirable spares are easily available in the market. They do not hold up production and may be substituted as well. Thus, desirable spares are those spares which are needed but their stock-out for a short period may not lead to stoppage of production.

Apart from conventional ABC analysis, the VED analysis is of great significance. Such VED ranking can be done on the basis of the shortage costs of spare parts which can be either quantitatively or qualitatively expressed. Since both ABC and VED analysis are of great significance, it is preferable to combine both classification and arrive at a joint classification of items.
6) GOLF analysis
The GOLF analysis is carried out mainly on the basis of the source of material. GOLF stand for:
G- Government suppliers
O- Ordinary or non-government suppliers
L- Local suppliers
F- Foreign suppliers
There are many imported items which are channelized through the State Trading Corporation, Metal Trading Corporation, etc. Certain special procedures are required to be followed for procuring such items. As such, the ordinary procedures of inventory control may not work in respect of these items. Similarly, the items which are available indigenously are treated differently on the basis of their source, i.e. whether local or from very distance towns or places where they have been specially manufactured. The imported items are accorded a unique treatment as they belong to a special class, i.e. totally different from the local items.

7) XYZ Analysis
The XYZ analysis is based on the value of the inventory stored. The X items are those whose values are high while the Z are those whose inventory values are low. And the Y items are those which have moderate inventory stocks. This analysis, therefore, helps to identify those few items which account for the large amount of money locked up in stock and take steps for their liquidation/reduction.

XYZ analysis is calculated by dividing an item’s current stock value by the total stock value of the stores. The items are first sorted on descending order of their current stock value. The values are then accumulated till values reach say 60% of the total stock value. These items are grouped as ‘X’. Similarly, other items are grouped as ‘Y’ and ‘Z’ items based on their accumulated value reaching another 30% ; 10% respectively. The XYZ analysis gives, you an immediate view of which items are expensive to hold. Through this analysis, you can reduce your money locked up by keeping as little as possible of these expensive items.

8) Other methods
The following methods for pricing material issues are generally used:
1) First in First out method (known as FIFO method)
2) Last in First out method (known as LIFO method)
3) Weighted Average Price method
FIFO
In first in first out method the material received first are issued first. The materials are issued in chronological order. The recently received materials remain in stock. Whenever a requisition for material issue is presented to the store-keeper he will use the price of the first lot and then of the second and third lot, etc when the quantity of the first, second lot is exhausted. When prices are fluctuating then the cost of different batches of production will be different because issue price of various lots will be different. This method is suitable when prices are falling because material issue will be priced at earlier (bigger) figure while costs of replacements will be low.

LIFO
In the last in first out method the last received materials are issued first and ending inventory consists of earlier acquired materials. This method is also known as replacement cost method because the latest purchased goods will correspond to the current market prices except that goods were not purchased much earlier. The inventories will be valued at oldest lots on hand and these values will be quite different from current invoice prices. Last in first out method is suitable during rising prices because goods will be issued from the latest received lots at prices which are closely related to current market prices.

WEIGHTED AVERAGE METHOD
In this method the total costs of all the material is divided by the total number of items in stock. The price calculated in this way will be used for issue of materials upto the time a fresh purchase has not been made. After a fresh purchase, the quantity will be added to the earlier balance quantity and material cost will be added to earlier cost. A fresh price is calculated by dividing the changed total cost by the number of units in stock after the purchase. A new price is calculated where even a fresh purchase is made. The weighted average price method recovers the whole costs of material. This method is suitable when price fluctuation are frequent because it smoothes out fluctuations by taking into account total cost and total quantity of materials.
BIBLIOGRAPHY
BOOKS:
SHASHI K. GUPTA ; R.K SHARMA (2008) financial management, 6th Edition, Kalyani Publishers, Ludhiana.

KHAN M.Y ; JAIN P.K (2007) Financial Management, 5th Edition, Tata McGraw-Hill Publishing Co. Ltd., New Delhi.

PANDEY I.M (2005) Financial Management, 9th Edition, Vikas Publishing House Pvt. Ltd., New Delhi.

KHAN M.Y ; JAIN P.K (2011) Financial Management: Text, problems and cases, 6th Edition, Tata McGraw Hill Education Private Limited.

PRASANNA CHANDRA (2011) Fundamentals of Financial Management, 5th Edition, Tata McGraw Hill Education Private Limited.

RAVI M. KISHORE () Financial Management, 7th Edition, Taxmann Allied Services Private Limited.

JONATHAN BERK (2010) Financial Management, Pearson Publication.

SHEEBA KAPIL (2010) Financial Management, Pearson Education.

SUDHIR GUPTA (2011) Financial Management, Centrum Press.

SAWALIA BIHARI VERMA (2010) Financial Management, 1st Edition, Asian Books.

P PERIASAMY (2012) Financial Management, 3rd Edition, McGraw Hill Education.

RAJIV SRIVASTAVA ; ANIL MISRA (2008), 1st Edition, Oxford University Press.

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