1.

1 Objectives of the Study

The main objective of this study is to evaluate the efficiency of Inventory

management in Balasore Alloys Limited (BAL) over a period of 5 years (2004-

2005 to 2007-2008). The specific objectives of the study are as under:

1) To find out the trend of inventory investment in Balasore Alloys Limited.

2) To examine the management pattern of inventory.

3) To analyze closing stock position

4) To establish a relationship between total asset and inventory

5) To establish a relationship between current asset and inventory

6) To establish a relationship between total asset and current asset

7) To know standard consumption of raw material

8) To suggest some measures for improvement of inventory management

practices.

1
 ORGANISATION STUDY

2.1INTRODUCTION

Balasore Alloys Limited(BAL), Balgopalpur, Balasore formerly Ispat

Alloys Limited, is a member of ISPAT group of companies owned by the
Mr. P.K Mittal. It was incorporated in 1984 and started its commercial
production in 1987.

2.2GENERAL PROFILE OF BALASORE ALLOY LTD

2.2.1MISSION
The mission of Balasore Alloys Limited in short BAL is as follows;

 Managing our business with integrity and highest ethical standard

 Acting in a socially responsible manner with particular emphasis

on the wellbeing of all stack holder and communities we serve.

 Adopting new technology, initiative, continuous learning and

innovation for productive use of all resources.

 Maintaining and developing a team of highly motivated trained

professionals.

 Providing total customer support through continuing pursuit of

technical excellence, understanding of product quality, reliability
and services.

 Striving constantly self reliance and self-sufficiency in all

operation.

2.2.2VISION

To be globally trusted supplier of Ferro-alloy as well as to create

sustained value addition for all stakeholders.

2
2.2.3STRATEGIC BUSINESS OBJECTIVE

 To be among top fifteen manufacturer of Ferro-chrome in world

by 2011.

 To achieve 10000 MT per month production level by may 2009.

 To be most competitive Ferro-alloys producer by 2011 with

reasonable profitability.

 To achieve TPM special award by2010.

 To achieve zero customer complaint.

3
2.2.4 SWOT ANALYSIS

Strength
 Positive work culture, skilled and motivated workforce and employee
participation.

 Healthy IR, Union Recognition, Public Utility Service Status

 Balance Score Card and Online PMS system

 Focus on Training and Development.

 Well Laid down policies and procedures ( Policy Manual/ SOPs)

 Monthly Open House Meeting ( Trust/ Transparency)

 Review of HR Policies by HRC on Monthly basis and corrective action plan.

 Finds a place in top ten quality supplier of Ferro Chrome in the world

 Won the most prestigious CII award continuously during last two years.

 Strong customer relation ship both in Domestic and abroad.

 Strongly competes in the market because of low cost of production.

 Financial Management of the company touches the benchmark level.

 Provides a very good platform for career growth of employees

 Long term contracts

WEAKNESS

 Quality variation in RM(Dolomite)

Discussion is going on with TISCO for increasing quality.

 Non available of lumpy ore. (planned for procuring from Pakistan

and Turkey)

 Space constraints for storage of material.

4
  Deterioration and wastage of material.

OPPORTUNITY

 Global souring of raw material

 Acquiring mines

 SAP implementation

 Using Dhamara port for raw material transportation

 Development of premises railway siding for bulk cheap and easy

transportation

 Using RFCD system(planed with it dept)

THREAT
 Change in import and export policy

 Volatility of coke and coal price hike

 Unfavourable changes in taxation and duties

 Highly unstable global petroleum prices and monopolistic

behaviour of OPEC.

5
2.2.5 BORD OF DIRECTOR
Balasore alloy is managed by board which comprises of directors with
significant experience. A team of qualified and experienced personals
assist the board in carrying out day to day operations effectively. The list
of present board of directors of the company is as per the table given
bellow.
a) Mr. Promod Mittal, chairman
b) Er. R.K Jena, managing director
c) Mr.V.K mittal, director
d) Mr. R.N Pandey, independent director
e) Mr. S Mohapatra, independent director
f) Mr. S.K Pal, independent director
g) Dr. A.k Bhatachaya, independent director

2.2.6 AWARD AND RECOGNITION

The company receives the recognition in different field as follows:
 India manufacturing excellence award -2007 (platinum award – 1st
runner up).
 The company has owned the first position in productivity award for
sustained level of high overall productivity by CII(ER)
 The company has been conferred with a special inertia award 2007
for energy efficiency.
 ISO 14000 certification from bureau of Indian standards.
 Company’s chrome mines division accredited with ISO 9001:2000
certification by DNV

6
2.2.7 HISTORY OF BALASORE ALLOY
YEAR EVENTS
1984 - The company was incorporated on 1st May in Orissa. It was
promoted by Ispat Group headed by M.L. Mittal. The main
objective of the company is to manufacture calcium silicide ferro
silicon calcium carbide and all other ferrous and non-ferrous metal
based alloys.

1987 - Due to erratic power situation production of calcium silicide

could not be taken up. Unstable power situation once again stalled
the commencement of calcium slicide production.

- The company installed a second furnace and a captive power

plant with a total outlay of Rs 22.60 crores.

- The company along with an Indonesian firm set up a joint venture

project for manufacture of Silicon Ferro Silicon and Ferro Chrome.

- 100 shares subscribed for by the signatories to the Memorandum

of Association. 31 49 900 shares then issued at par of which the
following shares reserved and allotted:

- (i) 6 09 900 shares to Indian promoters directors etc.

- (ii) 4 50 000 shares to NRI promoters on repatriation basis and

- (iii) 3 00 000 shares to IPICOL Out of the remaining 17 90 000

shares the following shares were reserved for preferential
allotment:

- (i) 89 500 shares to employees including Indian working directors

and

- (ii) 35 800 shares to business associates of the Company. Out of

(i) and (ii) only 36 600 shares taken up.

7
- The balance 16 64 700 shares along with the unsubscribed
portion of 88 700 shares out of the preferential quota were offered
to the public during Sept. 1986.

- Additional 4 47 500 shares allotted to the public to retain

oversubscription.

1989 - The company received a letter of intent for the setting up a

third furnace at the existing site at Balgopalpur for the
implementation of charge chrome/ferro chrome with a licensed
capacity of 15 000 TPA.

- The company issued 45 45 454-14% secured fully convertible

debentures of Rs. 220 each of which (i) 18 00 000 debentures
were reserved for preferential allotment to the existing equity
shareholders of the company in the ratio of 50 debentures for
every 100 equity shares (only 17 58 345 debentures were taken
up);

- (ii) 1 36 000 debentures allotted to NRI (all were taken up);

- (iii) 13 63 636 debentures reserved for preferential allotment to

the equity shareholders of Nippon Denro Ispat Ltd. and Ispat
Profiles India Ltd. (all were taken up);

- (iv) 2 27 000 debentures reserved for UTI ICICI Insurance

companies and Mutual Funds (all were taken up); and

- (v) 2 27 273 debentures offered to the employees (including

Indian working directors) of the Company (only 185 debentures
were taken up).

- The balance of 7 91 545 debentures along with the 2 68 743

debentures not taken up by employees and equity shareholders
were offered to the Indian public (all were taken up). Additional 2
04 544 debentures and 4 47 274 debentures were allotted to the
shareholders of Nippon Denro Ispat Ltd. Ispat Profiles India Ltd.
and Indian public respectively to retain oversubscription.

- Part-A of Rs. 60 has been converted into two equity shares of the
face value of Rs. 10 at a premium of Rs. 20 per share at the end of

8
6 months from the date of allotment. Part-B of Rs. 160 will be
converted into appropriate number of equity shares of the face
value of Rs. 10 at such premium as may be decided by the CCI
between a period of 18 months to 24 months from the date of
allotment.

1990 - With the Government of India extending the scheme of

broad-banding to bulk ferro-alloys industry since January the
company hoped to have a diversified product mix within the
existing licensed capacities.

- 1 00 00 544 No. of equity shares allotted due to the conversion of

Part-A convertible debentures.

1991 - The project was at an advanced stage of implementation

and it was expected to be commissioned in March/April.

- Another letter of intent was received for the setting up of an 100%

Export Oriented Unit (EOU) at Dhenkanal in Orissa for the
manufacture of charge chrome/high carbon ferro-chrome with a
licensed capacity of 75 000 TPA.

1992 - Profitability also improved due to optimum utilisation of

company's resources and adoption of various cost control
measures.

- 352 82 219 shares allotted on conversion of pref. `B' of

debentures.

- The said furnaces are set up as Domestic unit in place of 100%

EOU origin with in build facility to produce other ferro alloys in
addition to charge/ferro chrome to enable the company to market
internationally 2 Nos. of imported DG sets of 5 MW each were
commissioned.

1993 - The company successfully implemented the commissioning

of two new furnaces of 7.5 MVA capacity each at Balgopulpur.

1994 - The company undertook steps to increase captive power

generation capacity from 19 MW to 40 MW by installing two new
imported D.G. Sets of 10.5 MW each at Balgopalpur Orissa.

9
1996 - The Company has been conferred with various awards
during the period under review such as Regional Top Exporter
Shield for 1994-95 from Engineering Export Promotion council
(Eastern Region) HRD First Prize for 1994 from CII. (Eastern
Region) and Best Exporter Award for 1994 from Directorate of
Export Promotion Council Orissa.

- The Company has also received prestigious IS 14002/ISO 9002

accreditation from the Bureau of Indian Standards.

- The Company has successfully used PLCs for economic use of

Resources like Power and Raw Materials.

1997 - IAL is a leading manufacturer of silicon metal and ferro-

silicon. Its products are manufactured under technical collaboration
with global leaders like Nippon Denro Japan Danieli Italy Elkem
Norway and Outokumpo Finland IAL has aggressively added
capacities and diversified within the realms of the ferrous industry.

- IAL have suffered a similar fate of delayed project implementation

for as long as a decade.

1998 - Power generation capacity was increased by installing two

new imported D G sets of 10.5 MW each from MAN B & W
Germany at its works at Balgopalpur Orissa.

- The management of Ispat Alloys Ltd has declared an indefinite

lockout following violent incidents at the Balgopalpur factory
premises in Balasore district of Orissa.

- Ispat Alloys Ltd a subsidiary of the Mittals-promoted Ispat

Industries Ltd.

1999 - Two leading manganese alloy producers -- Ispat Alloys and

Maharashtra Elektrosmelt -- have made losses during first quarter
April/June.

2007 -Balasore Alloys Ltd has informed that Mr. Rabindra Kumar
Jena Executive Director of the Company has been elevated to and
appointed as Joint Managing Director of the Company w.e.f.
January 31 2007.

10
-Balasore Alloys Ltd has appointed Mr. Debadatta Sengupta as Director of the
Company w.e.f. January 31 2007.

2.2.8 MODERN MANAGEMENT

The company continuous to actively pursue its modern management

initiatives in the area of

 Six sigma

 Total productive maintenance (TPM)

 Activity based cost management

 Total quality management

 Performance management system

 Just in time (JIT) in order to maximize performance efficiency and

nature of burning desire to excel in each of this faculty.

These initiatives have efficiently assisted the company in rationalizing its

work force and in giving it enough experience to manage the operation
efficiently thus enhancing the company’s global competitiveness and
recognition eventually catapulting the company into the higher echelons
of modern management, in the process giving it a strong leadership
position in the market.

11
 2.2.9 PURCHASE SYSTEM OF BALASORE ALLOY

Balasore alloy purchase department do two type of purchase work. These

are store item and raw material item.
RAW METERIAL
Raw materials are the materials out of which finished product are made
by any manufacturing process.
MEASURE RAW METERIAL ITEM
NAME OF THE RAW
SL NO METERIALS PLACE
A. FLUXES
1 QUARTZ BARIPADA, ORISSA
RAULKELA,
2 DOLOMITE RAJGANGPUR,ORISSA
3 MAGNESITE NAINITAL, US
4 BAUXITE JHARKHAND
5 MILLSCALE DHANKANAL, ORISSA
EC PASTE(INDEL, HIRAKUD ORISSA,
6 HIRAKUD) BELGOWN
EC
7 PASTE(INDEL,BELGAON)
8 EC PASTE(INDIA CARBON)
B REDUCTENTS
1 LAMC (10-20)MM-RAW MET DURGAPUR, WB
2 LAMC (20-70)NAYAN
3 LAMC –KTC
4 LAMC (10-40)STC
5 LAMC (10-40)MMTC ORISSA
ANTHRACITE COAL-NABA
6 BHARAT
7 ANTHRACITE COAL-ROHIT
8 LAMC(10-70)KALIKA
9 LAMC(10-100)PRAVA
10 CIL COCK WB
C CHROME ORES
1 CR LUMP(38-40)S.MINERAL SUKINDA, (OWN

12
 PLANT)
2 TURKEY(40/80) IMPORTED
3 TURKEY (50%)
4 S.MINERAL(42-44) ORISSA
5 S.MINERAL(40-42)
6 FACOR LUMP +54 BHADRAK,ORISSA
7 BAL-CHIPS-MG ORISSA
8 BAL-CHIPS-HG/SHG
9 BAL-CHIP-SMS
WASHING POINT CHIPS
10 (LG/MG/HG)
11 IKP FRIABLE LUMP
12 BAL PRESS BRQT-MG
SUKINDA, (OWN
13 BAL PRESS BRQT-SHG PLANT)
SUKINDA, (OWN
14 BAL PRESS BRQT-HG PLANT)
SUKINDA, (OWN
15 BAL PRESS BRQT-LG PLANT)
16 CEMENT BRIQUETTE JHAR GRAM,WB
17 BAL PRESS BRQT-SMG
BRIQUETTING
D REQUIREMENT
1 BAL CR FINES-MG
2 BAL CR FINES-HG
3 BAL CR FINES-SHG
4 BAL CR FINES-LG
JAMSEDPUR,
5 LIME POWER JHARKHAND
JATANI
ORISSA,ANDHRA
PRADESH,BIHAR,KARN
6 MOLASSES ATAKA
7 CEMENT JHAR GRAM,WB
SOMNATHPUR
8 FURNACE OIL ORISSA, HALDIAA WB

PURCHARE SYSTEM

13
 • According to production, production department decide, how much
quantity of raw material required fulfilling the production target.

• Purchase department analyse in respect of stock at yard, minimum

stock level and requirement, how much quantity of raw material
should be procure.

• After deciding the procurement quantity purchase department or

procurement committee decide from which supplier how much of
raw material and which item should be procure.

• Issue of purchase order, transportation order accordingly.

• Purchase order should is audited by internal auditor.

• When material reaches in the yard, it is tested in the lab to decide

the supplied material is accepted or rejected.

STORE ITEM
Those item which is not directly use in production work, these are store
item.
MEASURE STORE ITEM
STORE PURCHASE ITEM
NAME PLACE
JAMSEDPUR,
1 DA FULL CYLINDER JAGPUR
2 LANCING PIPS KOLKATA
JAMSEDPUR,
3 OXIGEN GAS JAGPUR
4 M.S ROUND ROURKELA
5 SODIUM SILICATE KOLKATA
6 HR SHEET JAMSEDPUR
7 LIQUID OXIGEN GAS KOLKATA
8 HIGH SPEED DISEL HALDIA
9 WELLDING ROD ANUGUL
10 GUNY BAG BHADRAK

14
11 JOMBO BAGS KOLKATA, BALASORE
12 HDPE BAGS KOLKATA, BALASORE
13 COTTON THREAD KOLKATA, BALASORE

PURCHASE SYSTEM

For purchasing of store item Balasore Alloy Company follow ICIS

(integrated computerised information system) system. Through this
system company search, where are needed item found, through internet.
They follow some roll in purchase of store item. These are
describing bellow.

 User department send an indent to purchase department, that what

item they required.

 Then purchase committee make verification and give approval if it

is purchase or not.

 It is initialise by commercial department.

 Purchase department make an enquiry through internet where this

item is found.

 Vender sent there quotation to purchase department.

 Purchase department make a comparison and decide where to

purchase.

 Purchase department then negotiate with the vender.

 Then company place order.

15
2.3BUSINESS PROFILE

Balasore Alloy Ltd. a measure player in the international Ferro-

chrome market, has notched up an impressive growth of 435.59% in its
net profit at RS. 3329.11 lakes for the 15 months period ended 31st march,
2008, as compared with Rs.621.58 lacks recorded during the
corresponding 15 months period ended 31st December, 2006.
Turnover for the 15 month period ended 31st march 2008 increased
by 55.53% to Rs.53085.62 lakes as against Rs.34132.59 lakes during the
corresponding 15 months period ended 31st December 2006. Export
turnover for the 15 month period ended 31st March 2008 increased
by100%to Rs.40514.75 lakes as against Rs.20296.66 lakes during the
corresponding previous financial period. PBT for the 15 month period
ended 31st march 2008 registered a heavy growth of 352.97% at
Rs.5116.83 lakes as against Rs.1129.61 lakes registered in the
corresponding previous financial years. EPS jumped by 366.09% at
Rs.5.36 per share for the 15 months period ended 31st march 2008 as
compared to Rs.1.15 per share for the previous financial period. (Face
value per share =Rs.5/-)
The company has been able to sustain the momentum of its
accelerated growth chiefly on account of judicious product mix, improved
capacity utilisation better realization and improved cost efficiencies,
despite rising input cost and appreciating rupee.

16
INDIA
MEASURE CUSTOMER
 Mukand
JAPAN & KOREA
 Jewels seamless limited
 Mitsui
 Chandan
 Toyota tsusho
 Rathi ispat corporation

 Bhusan  Kinso corporation

 Vardhman special  Stemcor

CHINA  Glencore

 Sino-trust corporation EUROPIAN UNION

 Sindchem international  Indo-german

corporation
 Stemcore
 Magotteaux
 Traxys
 Tsingshan
 Arcelor mittal
 Kovintrade
 CMM(consider
LATIN AMERICA metal marketing)

 Pimasa

 London metal company

17
INFRASTRUCTURE

18
RAW MATERIAL SUPPLY
Balasore alloy utilise chrome ore from captive mines. All raw materials
transported up to the plant through road and rail.

MAN POWER
Balasore alloy enjoys an excellent blend of Techno-Commercial man
power of 450 personnel coupled with cordial labour relationship.

FINISHED PRODUCT MOVEMENT

Packed in bags and transported by trucks up to port and debagged at port
at the time of shipment to avoid contamination, fines generation, spillage
and shortage of material.

QUALITY CONTROL

QUALITY ASSURANCE

Stringent Quality Assurance procedures are in place to ensure proper Raw

Material feeding, Process Control as well as quality of Finished Products.
Sophisticated Analytical equipment is used by experienced
Chemists to ensure that the desired quality standards of the customers are
fulfilled.

19
Chemical: Balasore alloy has a well equipped laboratory with the
modern facilities for analysing the raw materials and the finished goods.
It carries out the analysis of chromium and silicon by wet method as per
is 1559-1961. Balasore alloys test method are standardised by analyzing
the standard sample like Japanese, euro & bsc. It uses leco-cs-300 for
determination of carbon and sulphur by calibrating with standard
sample .it determines phosphorous by wet method partially and by uv/vis
spectrometer with colour developing (phosphomolybdate complex) by
comparing standard sample. Balasore alloy uses aas-3110 for determining
rare elements. it has hollow cathode lamps for specific element. The
instrument is is celebrated by using standard sample.
Physical: At the time of handling the material to required size – both
undersize and oversize are tested using suitable screen and weighing
scale. Further at the time of packing size fractions are tested at random.
Mining: Balasore alloy acquired about 100 hectares of chrome ore mines
in Sukinda valley in the state of Orissa. Mining operations have resulted
in company’s self sufficiency in meeting entire chrome ore requirement
to produce Ferro chrome on sustained basis.

FINANCE AND ACCOUNTING SECTION

Finance and accounting both play an important role in any business

organisational setup. The main function of any finance and accounting of
an organisation are funds management, cost monitoring, cost reduction
and financial appraisal.
Money is a very scarce resource & is the most sought after
commodity because all of the transaction of the human society is settled
in term of money. Money & finance are of not one & the same things.

20
Money store in vaults, or kept in shape of gold bars, or an ornament is not
finance. Money is a static value expressed in currency of the country,
where as, finance is an expression of dynamic function of money.
Depending upon the requirements and close monitoring of expenditure
Balasore alloy has formed the following section for smooth running of
the finance and accounts department and to maintain the liability position
of the company.
a) Bills payable section
b) Payroll section
c) Provident fund section
d) Cash office section
e) Finance section
f) Material section
g) Costing section
h) Bills receivable section
i) Book-keeping section

3.RESEARCH METHODOLOGY

3.1 REVIEW OF LITERATURE

This study is based on both secondary and primary data. While secondary data

was collected from the company annual reports, websites and various journals

available through library work.

21
These are as follows websites are as follows

1. www.balasorealloy.com

2. www.outokumpu.com

3. D:\alloy\inventory\Inventory Accuracy article - white paper.mht

4. D:\alloy\inventory\The Aisle Width Decision Wide Aisles, Narrow

Aisles (NA), and Very Narrow Aisles (VNA).mht

5. D:\alloy\inventory\How effective is your Lift Truck Safety program.mht

LIST OF BOOKS

1. Inventory management (s. Chandra)

2. Production and operation management (S.N CHARY) TATA

McGRAW HILL

3. FINANCIAL MANAGEMENT (I M PANDEY)VIKAS PUBLIGHING

HOUSE PVT.LTD

4. MANAGEMENT ACCOUNTING (Shashi K. Gupta & R.K. Sharma)

KALYANI PUBLISHERS

The primary data was collected by taking personal interviews as well as

discussions with senior and middle level executives. The researcher had also

visited the factory to collect information through personal observations.

22
3.2 Methodology and Data Base

After making a review the available literature and setting objectives in the

preceding paragraphs, an attempt is made to crystallize the whole work by way

of making a blue-print of the study. As such the research structure is designed

as follows:

The present piece of research work is analytical and explorative in nature. The

purpose of this research is to contribute towards a very important aspect of

financial management known as inventory management with reference to

Balasore Alloys Limited operating in the Ferro alloys sector.

3. 3Period of the study

The study covers a four-year period starting from 2004-05 to 2007-08. The

period of study was restricted due to paucity of time

3.4Data Set
This study is based on both secondary and primary data. While secondary data

was collected from the company annual reports, websites and various journals

available through library work; the primary data was collected by taking

personal interviews as well as discussions with senior and middle level

executives. The researcher had also visited the factory to collect information

through personal observations.

3.5Tools of Analysis

23
The collected data being tabulated was analyzed and interpreted with the help

of different financial ratios, percentage, average, trend analysis, and

correlation.

4. VIEW TO INVENTORY MANAGEMENT

4.1 INTRODUCTION

Inventories constitute the most significant part of current assets of a

large majority of companies in India. On an average, inventories are
approximately 60% of current asset in public limited companies in India.
Because of the large size of the inventories maintained by firm, a
considerable amount of funds is required to be committed for them. It is,
therefore, absolutely imperative to manage inventory efficiently and
effectively in order to avoid unnecessary investment. A firm neglecting
the management of inventories will be jeopardising its long run
profitability and may fail ultimately. It is possible for the company to
reduce its level of inventories to a considerable degree, e.g., 10 to 20

24
percent, without any adverse effect on production and sales, by using any
simple inventory planning and control techniques. The reduction of
excessive inventories carries a favourable impact on a company’s
profitability.

4.2 What is inventory?

Inventories are resources of any kind having an economic value.
An inventory consists of raw material, finished goods, work-in-progress,
consumable and stores. Thus inventory control is all about planning and
devising procedures to maintain an optimal level of these resources.
4.3What is inventory management?
Inventory management is primarily about specifying the size and
placement of the stocked goods. Inventory management is required at
different locations within a facility or within multiple locations of a
supply network to protect the regular and planned course of production
against the random disturbance of running out of materials or goods. The
scope of inventory management also concerns the fine lines between
replenishment lead time, carrying costs of inventory, asset management,
inventory forecasting, inventory valuation, inventory visibility, future
inventory price forecasting, physical inventory, available physical space
for inventory, quality management, replenishment, returns and defective
goods and demand forecasting.

4.4Definition of inventory management

• Involves a retailer seeking to acquire and maintain a proper

merchandise assortment while ordering, shipping, handling, and
related costs are kept in check.
• Systems and processes that identify inventory requirements, set
targets, provide replenishment techniques and report actual and
projected inventory status.
• Handles all functions related to the tracking and management of
material. This would include the monitoring of material moved into
and out of stockroom locations and the reconciling of the inventory

25
 balances. Also may include ABC analysis, lot tracking, cycle
counting support etc.
• Management of the inventories, with the primary objective of
determining. Controlling stock levels within the physical
distribution function to balance the need for product availability
against the need for minimizing stock holding and handling costs.

In business management, inventory consists of a list of goods and

materials held available in stock.

4.5 Need for inventory

 Primarily inventory is held for transaction purpose.
 In the field of production, an enterprise cannot ensure uninterrupted
production unless it maintains an adequate inventory for materials.
 Inventory is also held as a precaution against a contingency for any
increase in lead time or consumption rate.
 It largely guards against apprehensions of changes in price
4.6 Benefits:
4.6.1• Help reduce purchasing and inventory costs.
Connect inventory control, purchasing, and sales order processing with
demand planning and help reduce costs, improve cash flow, and help
ensure that you have the right stock available when you need it.

4.6.2• Gain visibility into inventory processes.

Effectively balance availability with demand and track items and their
possible expiration dates throughout the supply chain to help minimize
on-hand inventory, optimize replenishment, and increase warehouse
efficiency.

4.6.3• Improve customer satisfaction.

Make more accurate order promises and intelligent last-minute exceptions
with access to up-to-date inventory information. Respond quickly and
knowledgably to customer queries for improved customer service.
4.6.4• Reduce time to market.
With integrated order, inventory, and distribution processes, as well as
item tracking capabilities, your business can reduce manual data entry
and get your goods to market fast.

26
4.7 FEATURES:

4.7.1 Inventory costing- Understand item costs throughout your

warehouse and production processes, including inventory, work-in-
process (WIP), and cost of goods sold (COGS), to help efficiently
manage sales and purchase prices and line discounts with customers and
vendors. Break down costs according to categories such as materials,
capacity, subcontracting, and overhead.

4.7.2 Automated Data Collection System (ADCS)

Help increase the accuracy and efficiency of your warehouse
management—picking and putting away of items, physical inventory
counts, and moving items from bin to bin—with ADCS.

4.7.3 Radio frequency identification (RFID) enablement

Comply more easily with customer or supply chain mandates for RFID.

4.7.4 Order processing Provide customers with accurate item

availability and deliver on time with support for available-to-promise
(ATP) and capable-to-promise (CTP) insight.

4.7.5 Returns management Process returned inventory and account for

additional costs. Automatically organize credit memos, replacement
goods, returns to vendors, and partial or combined return of shipments or
receipts. Exact cost reversal helps increase inventory accuracy.

4.7.6 Item tracking Trace lot or serial numbers to quickly determine

where items were purchased, processed, or sold. Help eliminate waste
due to expiration of goods with support for first expired/first out (FEFO)
handling.
4.7.7 Item substitution Offer customers alternative items when those
they want are out of stock, or if the alternatives can be provided less
expensively with a higher profit margin.

4.7.8 Item cross-references Identify what your customers want by cross-

referencing any customer code, internal code, or vendor code.

4.7.9 Internal pick/put-away Pick or put away items and debit or credit
inventory records independently of purchase receipts, sales, or other
source documents to help maintain accurate inventory records even when

27
you access items for testing, display purposes, or other internal or
operational needs.
4.7.10 Multiple locations and responsibility centres
Provide customers who request non-stock items with immediate quotes.
Automatically create non-stock items and process them in the same way
you process stock items.

4.7.11 Location transfers Manage items individually per location. By

grouping items into stock keeping units, items can be described and
managed individually per location—including replenishment methods,
safety stock, and costs.

4.7.12 Stock keeping units Handle inventory across multiple locations

from one database to gain a complete, real-time business overview and
create manageable cost and profit centres.

4.7.13 Warehouse management system Help reduce costs through

effective warehouse processes such as directed pick and put-away and
automatic bin replenishment.

4.7.14 Cycle counting Determine the counting frequency per item or

stock keeping unit to help increase inventory accuracy and meet shipping
deadlines.

4.7.15 Business notifications Generate e-mail messages to alert your

people, suppliers, or partners to changes in critical inventory levels, order
status, or replenishment needs.
Purpose of Inventory Management
4.8 Inventory control

Inventory control is concerned with minimizing the total cost of

inventory. In the U.K. the term often used is stock control. The three
main factors in inventory control decision making process are:

• The cost of holding the stock (e.g., based on the interest rate).
• The cost of placing an order (e.g., for raw material stocks) or the
set-up cost of production.
• The cost of shortage, i.e., what is lost if the stock is insufficient to
meet all demand.

28
The third element is the most difficult to measure and is often handled by
establishing a "service level" policy, e. g, certain percentage of demand
will be met from stock without delay.

4.8.1The ABC Classification The ABC classification system is to

grouping items according to annual sales volume, in an attempt to
identify the small number of items that will account for most of the sales
volume and that are the most important ones to control for effective
inventory management.

4.8.2 Reorder Point: The inventory level R in which an order is placed

where R = D.L, D = demand rate (demand rate period (day, week, etc),
and L = lead time.

4.8.3 Safety Stock: Remaining inventory between the times that an order
is placed and when new stock is received. If there are not enough
inventories then a shortage may occur.

Safety stock is a hedge against running out of inventory. It is an extra

inventory to take care on unexpected events. It is often called buffer
stock. The absence of inventory is called a shortage.

 Select quantity with the lowest Total Cost, including the cost of the
items purchased.

4.9 Some concepts About Inventories

Inventories considerably influence the profitability and liquidity of

the industrial units. It is therefore essential to have a clear-cut idea about
the various aspects of inventories, which are as follows:
1. Inventory – a major cost component
2. Material – a fertile area for more research
3. Material – a limiting factor
4. Lead time influences on inventories
5. Productivity of inventories

29
4.9.1 INVENTORY – A MAJOR COST COMPONENT

An analysis of sales of some industrial undertakings during 2000-2001

gave the following information:
Direct materials 60%
Labour 15%
Overheads and profit 25%
Total 100%
The above data shows that direct materials and indirect materials
forming part of the overhead cost, constituting inventories, account for a
large percentage of the total cost. Inventories, therefore, offer the most
important and fruitful area of cost reduction and increased profits.
The inventory problem is therefore one of balancing various costs
so that the total cost is minimized. These costs are:

(a) Cost of ordering

(b) Cost of holding or carrying inventory
(c) Under stocking cost
(d) Overstocking cost
The cost of ordering opposes the cost of carrying while the under
stocking cost opposes the overstocking cost. If these costs operate in the
same direction, instead of behaving in opposition, there will be no
inventory problem. The cost of ordering and the cost of carrying enable
us to optimize on the number of orders and the quantity of inventory to be
ordered. The under stocking and overstocking costs help an industrial unit
to determine the service level that has to be maintained by the inventory.

30
 4.9.1.a. Cost of Ordering
An organization can meet its need for materials only after fulfilling
certain activities. These activities consume executive and non-executive
time, stationery and communication charges, thus giving rise to the
ordering cost. The cost of an imported order is much higher than that of a
cash purchase from the market. This is on account of the variation in the
level of activities for different ranges of items.
The ordering cost consists of several costs attributable to the
following factors.
1. Stationery, typing and dispatching of orders and issuance
of reminders
2. Advertisements, tender forms, tender opening formalities,
etc.
3. Follow-up costs. These constitute the travel costs,
telephone and postal bills.
4. Costs incurred by the goods received bay, inspection and
handling
5. Rent and depreciation on the space and the equipment
utilized by the concerned purchasing personnel
6. Salaries and all statutory payments to the purchasing
personnel
7. Cost of source developments
8. Cost of entertaining suppliers
Thus the average ordering cost is:
Total costs incurred on all these heads during a year
Number of orders in that year

31
4.9.1.b. Cost of Holding or Carrying Inventory

One of the motivating factors to control inventory arises on account of its

carrying cost. It comes to around 30 per cent of the total inventory cost in
most of the industrial undertakings, i.e. if the annual average inventory is
valued at Rs 100 lakh, then it will cost the company Rs 30 lakh to carry it.
Inventory carrying cost is usually expressed as a percentage of the
average investment in inventory. Capital cost, cost of storage and
handling and deterioration and obsolescence costs are its main
components.

4.9.1.c.Under stocking Cost

It is penalty that an undertaking has to pay on account of its inability to
meet the demand in time. The quantum of penalty depends on the nature
of the demand. In the cases where the demand is from a customer of the
retail establishment, the shortage condition may result in a cost relatively
small compared with the item cost. If, on the contrary, the demand arises
in a manufacturing activity, the penalty cost for shortage may be
extremely high relative to the cost of the item. This is because the entire
manufacturing activity would necessarily have to wait for the item which
is out of stock.
4.9.1.d. Overstocking cost
The overstocking cost arises on account of the opportunity lost when
disinvestment in inventories is postponed for a longer period than is
necessary. In the case of items which will ultimately be used, this cost be
equated with the carrying cost. For items which cannot be used after a

32
certain period, this cost will be the difference between the cost of the item
and its salvage value.
As far as an organization is concerned, the situation of both
overstocking and under stocking is not at all desirable. Both shortages
and surpluses prove costly and need to be balanced – one against the
other. Arriving at the happy medium between too much and too little is
the essence of inventory management.

4.10 Tools and Techniques of Inventory Management

4.10.1 INTRODUCTION

The basic problem of inventory management is to strike a balance

between the operating efficiency and the cost of investment and other
costs associated with large inventories, with the object of keeping the
basic conflicts at the minimum while optimizing the inventory holding.
The decisions as to which item to manufacture and when to keep
inventories in balance, require the application of a wide range of
techniques ranging from simple graphical methods to more sophisticated
and complex quantitative techniques. Many of these techniques employ
concepts and tools of mathematics and statistics and make use of various

33
control theories from engineering and other fields. They are primarily
aimed at helping to make better decisions and following a sound policy.

4.10.2INVENTORY MANAGEMENT TECHNIQUES

The various techniques applied for inventory management are as follows:

1. Selective inventory control
2. Setting of various stock levels
3. Systems of inventory control
4. Economic ordering quantity (EOQ)
5. Re-order point and safety stock
6. Application of computers to inventory management
7. Just-in-time inventory management
8. Materials requirement planning (MRP)
9. Inventory audit.

34
Selective Inventory Control

Effective inventory management requires the understanding and

knowledge of the nature of inventories and to gain this under standing the
following analysis and classification techniques are available.

1. ABC analysis
2. HML analysis
3. XYZ analysis
4. VED analysis
5. FSN analysis
6. SDE analysis
7. GOLF analysis
8. SOS analysis

The motive behind these analyses and their classifications is to tackle the
important aspects more rigorously. Moreover, and equally critical
analysis of all items will be very expensive and will have a diffused effect
regardless of priorities. Table 5.1 shows the available classifications, their
bases and their uses.

TABLE 5.1 Classifications of inventories

Technique Basis Main use
ABC Value of To control raw material,
(Always Better Conception components and work-in –
Control) progress inventories in the
normal course of business
HML Unit price of the Mainly to control purchases
(High, material
Medium, Low)
XYZ Value of the items To review the inventories and
in storage their uses at scheduled
VED Criticality of the intervals
(Vital, component To determine the stocking
Essential, levels of spare parts
Desirable)

35
 Consumption
FSN pattern of the To control obsolescence
(Fast moving, components
Slow moving
Non-moving)
SDE Problems faced in Lead time analysis and
(Scarce, procurement purchasing strategies
Difficult, Easy
to obtain)

TABLE Classification of inventories (Contd.)

Basis Main use

Technique
GOLF (Government Source of the Procurement strategies
Ordinary, Local, material
Foreign source)

SOS (Seasonal, Off- Nature of Procurement/holding

Seasonal) supplies strategies for seasonal
items like agricultural
products.

ABC analysis

The method of ABC classification for managing inventories has been

currently adopted in most of the industrial units. Inventories of
undertakings are classified into various categories on the basis of their
importance, namely their value and frequency of replenishment during a
period. One category called group ‘A’ items, consists of only a small
percentage of the total items handled but has a combined value that
constitutes a major or large portion of a total stock holding of the
concern. The second category consisting of group ‘B’ items is relatively
less important. The third category consisting of ‘C’ items is of least
importance, i.e. the group consists of very large number of items, the
value of which is not very high.

36
The ABC analysis is a rational approach for determining the degree of
control that should be exercised on each item in inventories. Obviously,
the ‘A’ class items should be subjected to a strict management control
under either continuous review or periodic review with short review
cycles. The ‘C’ class items require little attention and can be relegated
down the line for periodic review say, just once a year. The control over
’B’ class items should be somewhere in between.

The ABC analysis follows the general principles of pare to (Wilfredo

Pareto, Italy, 1896) that “in any series of elements to be controlled, a
selected small fraction in terms of the number of elements would always
account for a large fraction in terms of effect”.

HML analysis
While the ABC classification is based on the annual consumption value of an item,
the basic criterion for HML classification is the unit value of an item. In this respect
the HML classification is district from the ABC classification. On the basis of the unit
value of an item, the materials arte further classified as high-value materials, medium-
value materials and low – value materials. In HML analysis, the items should be listed
out in descending order of unit value and the management may fix limits for
determining the three categories. .

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 is 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.

Usually the XYZ analysis is made in conjunction with ABC analysis or

HML analysis. The XYZ analysis can be combined with the ABC
analysis as given below.

Class A B C
of
items

37
X Efforts to be made Efforts to be made Steps to be taken
for reducing for converting for disposing of
stocks to the Z stocks to the Y the surplus
category. category. stocks.
Y
Efforts to be made --
for converting Control may be
stocks to the Z further tightened.
category

Z
Stock levels may
-- be reviewed twice
a year --

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 the essential items fall somewhere in between the vital and
desirable categories.

FSN analysis

When analysis is carried out on the basis of the rate of movement of

materials in the stores or on the basis of consumption pattern of
components, it is known as the FSN analysis. The three letters stand for
fast-moving, slow –moving and non-moving. This classification comes in
very handy when it is necessary to control obsolescence. The demand for
fast-moving items is generally high. Thus special care should be taken in
respect of these items, otherwise the production may be interrupted due to
the shortage of such materials. Inventories which have only a low
turnover are brought under the category of slow moving items. These
items are not issued at frequent intervals.

38
SDE analysis
The SED analysis is generally done on the basis of the problems faced in
procurement of an item. These letters stand for Scarce items, those which
are Difficult to obtain and those which are fairly Easy to obtain.

GOLF analysis

The GOLF analysis is carried out mainly on the basis of the source of
material. GOLF stands for Government, Ordinary, Local, and Foreign.
There are many imported items which are channelized through the State
Trading Corporation, Metals Trading Corporation, etc.

SOS analysis

The SOS analysis is making on the basis of the nature of supplies. As

such it classifies the items into two groups S (Seasonal) and OS (Off
Seasonal). The analysis identifies items into (i) seasonal, but available
only for a limited period, (ii) seasonal, but available throughout the year;
and (iii) off-seasonal items whose quantity is determined on different
considerations.

4.10.3 Systems of Inventory Control are:

(a) Perpetual inventory (Automatic inventory) system
(b) Double bin system

.1Perpetual inventory system

The control of inventories while in storage is affected through what is
known as the perpetual inventory. Thus the two main functions of the
perpetual inventory are recording store receipts and issues so as to
determine at any time the stock in hand, in terms of quantity or value, or
both, without the need for a physical count of the stock.
Continuous verification of the physical stock with reference to the
balance recorded in the stores records, at any frequency, as convenient to
the management.

39
 The perpetual inventory system consists of:
(i) Bin cards
(ii) Stores ledger
(iii) Continuous stock taking

1.1Bin cards
Bin cards are printed cards used for accounting the stock of material, in
stores. For every item of materials, separate bin cards are kept.
The details regarding the material such as the name of the material, the
part number, the date of receipt ad issue, the reference number, the name
of the supplier, the quantity received and issued, the value of the
material,, the rate the balance quantity, etc. are recorder in the bin cards.
The bin cards are kept in the bin serially according to part number of the
component. At the end of the financial year the balance quantity in the
bin cards is taken as the closing stock, and it is valued at the rates noted
in the bin cards.

Stores ledger- Like bin cards, a store ledger is maintained to record all
the receipts and issues in respect of materials with the difference that
along with the quantities, the values are entered in the receipt, issue and
balance columns. Additional information as noted in the bin cards
regarding the quantity on order and the quantity reserved, together with
their values may also be recorded in the stores ledger.
Continuous stock taking- The perpetual inventory system is not
complete without a systematic procedure for physical verification of the
stores. The bin cards and the stores ledger record the balances, by but
their correctness can be verified by means of physical verification only.
There is a proper procedure for the physical verification of the stocks in
most of the industrial units. The excesses/shortages found in the
verification are reported for action so as to reconcile the differences in
stock.
Double bin system
The double bin system is a recently developed technique in certain
industries in respect of low consumption value items, i.e. items belonging
to class ‘C’ in ABC analysis. This system separates the stock of each item
into two bins, one to store the quantity equal to the minimum quantity and
the other to store the remaining quantity. There are instructions not to use
the quantity in the smaller portion as long as there is stock in the other
portion. As soon as it becomes necessary to use the quantity marked as

40
minimum, it is a signal to place new orders. When the fresh order is
received, the minimum quantity is segregated again.
The double bin system is ideal for items for which demand and lead time
are fairly regular and established. It also avoids the necessity of taking
physical inventories as in the case of the perpetual inventory system.
Since the storekeeper k knows automatically when to initiate the
replenishment action, this being the time when he is forced to dip his
hand into the minimum stock bin.
In the fixed order quantity or the double bin system, there is a built-in
safety provision in that the replenishment interval between two
successive orders varies and hence adequate arrangements are required to
take care of variations in the rate of demand. If the usage rate rises, the
re-order level is reached earlier than expected and hence the
replenishment interval is shortened. On the other hand, if the rate of usage
goes down, the replenishment interval is lengthened. In either case the
safety stock has to provide protection against variations in demand and
lead time.

4.10.5 Economic Ordering Quantity (EOQ)

In the fixed order quantity system, the reorder quantity is the economic
order quantity which is fixed in such a manner as would minimize the
total variable cost of managing the inventory. The various components of
this cost are as follows:
(a) Procurement cost (this includes administrative and provisioning
costs)
(b) Storage cost (this includes carrying and handling costs, etc.)
(c) Stock out cost (this may be laid down by the management
according to its policy)

41
The appropriate term for economic order quantity appears to be
'economic lot size', meaning thereby the quantity that should be accepted
per occasion so as to make the inventory procurement cost equal to the
inventory carrying cost.

A company is said to be on a point of minimum cost wl1en its

ordering cost is just equal to the carrying cost. In other words, a company
should neither store excess quantity of material nor should it frequently
place too many orders for the same material. When the unit price is same
regardless of the quantity purchased, the following formula is used. Then
it is found that the order quantity varies in proportion to the square root of
the demand. There are indices given on scientific basis to help calculate
the order quantity, keeping in view the position cost of inventories,
namely the set-up costs, the ordering costs and the carrying costs. This is
known as Economic Order Quantity (EOQ) or Square Root Formula,
developed by.R.B. Wilson around the 1930s, which may be modified
according to the individual requirement.

42
Where
Q=annual requirement in units
A=unit cost of pacing an order
C = annual carrying cost
D=optimum lot quantity or batch size.The formula for EOQ can be
verified with reference to the following assumptions:
Suppose the cost of each article is one rupee. The annual demand is
40,000 units. The cost of carrying inventory is 20 percent. The cost per
order is Rs 10. Using the given formula, we have

=2000 units

Here the economic order quantity is 2000 units. Both the ordering cost
and the average inventory carrying cost are the same, i.e. Rs 200 each as
shown in Table 5.4 when the economic order quantity is 2000 units.
Moreover when both the ordering cost and the inventory carrying cost are
the same, the number of orders to be placed in a year is 20. thus the total
cost becomes Rs 400 (i.e. ordering cost Rs 200 + carrying cost Rs 200),
which is the minimum (see Table 5.4).

The graphical presentation of the behavior f carrying and ordering costs is

shown in Figure 5.4 in the figure, EOQ units and costs have been plotted
along x-axis and y-axis respectively. The inventory carrying cost line
intersects the ordering cost line at a point P where both the carrying cost
and the ordering cost are equal to Rs 200. thus the economic order
quantity (EOQ) is 2000 units as shown at the point Q in Figure 5.4.
Re-order Point and safety Stock

The computation of the re-order point is expressed in terms of the number

of units used per day., multiplied by the lead time in days with
adjustments to provide safety stock as will. Thus the formula to be
followed is:

Re-order point = Average daily usage x Lead time in days + Safety stock

43
 The various problems identified to be tackled in most of the
industrial units in India for the implementation of JIT are:
(a) Reduction of set-up times
(b) Kanban system
(c) Delivery (from vendor) of exact quantity as per exact schedule
(d) Preventive maintenance
(e) Group technology.

All these problems can be tackled only with a very serious planned
effort. Workers' motivation and literacy need to be enhanced. These are
important for reducing the set-up time and introducing the Kanban
systems. Moreover, the involvement and commitment of top management
are needed to bring a drastic change in the working environment and
change of attitude in people. These changes are difficult but possible. As
there are wide differences in the operating environments of Japanese and
Indian industries, the work environments in the industrial units in India
need to be improved before the implementation of JIT.

44
Materials Requirement Planning (MRP)

Most of the blue chip companies in India faced an acute cash

crunch situation during some periods of 1990s. Indian companies were,
therefore, compelled to bring efficiency in working capital management,
which in turn resulted in better receivables and inventory management.
Table 5.6 shows the capital sensitivity vis-a-vis profitability of some
leading Indian companies, related to a period in 1990s.
The American industries have been successful, simply because of
the implementation of new management systems like MRP and JIT. The
efficiency attained by the various American industries after the successful
introduction of MRP is clear from Table 5.7.
The post-MRP achievements by the American firms are really
worth emulating. In fact, the US and other industrially developed
countries have set a way for the rest of the world to follow. The changes
taking place on the Indian business scene are also forcing the Indian
industries to make full use of the MRP and other cost effective systems.

The MRP system

Materials requirement planning is a special technique used to plan

the requirements of materials for production. In other words, it is a

TABLE 5.6 Working capital sensitivity

Company 10% of working Increase in profits due to
capital reduction of 10% in
(Rs in crore) working capital
(Rs in crore)
Reliance 39 78
ACC 42 8.4
Grasim MLM 163 32.6
Telco 76.8 15.4
Tisco 160.4 32.1
Bajaj Auto 209.3 41.9
BBLIL 105.2 21.1
HLL 30.2 6.1
ITC 40.3 8.1
L&T 115.1 23.1

45
Ashok Leyland 143.1 28.6
Century Textile 117.3 23.5
GSFC 74.2 14.8
Nalco 63.0 12.6
Videcon Int 60.3 12.1
BSES 84.1 16.8
52.0 10.4

Source: The Economic Times, Tuesday, 15 March, 1997, P.14.

TABLE 5.7A VERAGE OPERATING PERFORMANCE OF MRP (300

companies) in the USA

Operation Pre-MRP Post-MRP Future estimate

Inventory 4.5 15.2 22.0
turnover ratio 73.9 88.6 99.6
Meeting delivery 52.3 44.0 39.2
promises(%) 10.8 5.1 2.1
Inventory costs 55.6 41.7 31.8
(%)
Number of
expeditors
Delivery lead
times (days)

Source: “Japanese Manufacturing Lessons for India” ASCI Journal of

Management, Vol. 19, No. 2 (March 19900), p. 117.

System of planning and scheduling the time-phased material requirements

for production operations. It is geared towards meeting the end-item
inputs and it updates the material requirements on a regular basis. The
MRP system combines inventory control with production planning and
works backwards from planned quantities (Master Production Schedule)
for determining the material requirements. Thus the unique feature of the
system is its continuous adjustment of material requirements with the
changes in production schedule.

46
 The MRP system is not based on the averaging process as the EOQ
model is, it actually determines how much is needed and when needed on
the basis of a master production schedule.

MRP and EOQ Models

Material requirement planning is a simple system of calculating

(arithmetically) the requirement of the inputs at different points of time
based on the plan or schedule for the production of the finished goods,
Firms usually deal with bunched requirement of materials when they
formulate plans to make assemblies out of various components. Thus the
requirement of raw materials depends on the requirement of production of
the finished product. However, it would be better if the firms know the
production plan/schedule for the assembly of the finished product so as to
arrange all the raw materials that go into the finished products. This is
precisely what the materials requirement planning (MRP) attempts to do.-
Under the MRP system, the material requirements of inputs are derived
on the basis of requirements or plan for production of the final products, It
means that there are no probabilities involved anywhere. Such a system
will work well for materials that have no direct demand of their own, but
have only a derived demand. These materials are called dependent
demand items. On the contrary, as the finished assembly has a direct
demand of its own, it is known as an independent demand item. Let us
review the economic order quantity (EOQ) models. All of them assume a
uniform (or more or less uniform) pattern of consumption of materials,
The EOQ model answers the questions such as 'how much' and 'when' for
optimal cost consideration on the basis of average consumption.
HovJever, some basic difficulty arises in some peculiar production
situations on account of the averaging of the consumption of materials.
When a company deals with five different varieties of soaps, five
varieties of shampoos, another five of cleaning powders, the requirement
for many raw materials over time for these formulations does not fall in
the smooth average consumption pattern. Figure 5.6 shows that in case
the material is stocked in accordance with EOQ a firm may have excess
material in inventory during the months of March, May- and September
when

47
The firm does not need the material at all. Moreover, thefirm falls terribly
short of the required material during the months of FEBRUARY, April
and August. In all respects, the EOQ model tries to answer the questions
of ‘how much?’ and ‘when to stock’. But this model fails miserably when
encountered with an erratic requirement pattern for the material. Thus in
many industries such erratic requirement patterns are common, especially
for dependent items.

CONCLUSION
Most of the industrial units in India have adopted certain efficient
techniques like ABC analysis, and perpetual inventory for controlling
their inventories. But with the advent of electronic data processing, better
selective inventory control measures are available, the adoption of which
will lead to better control of inventory at a reduced amount of investment.
The just –in-time inventory control technique can be implemented only
after improving the work environment. The industrial units do not strictly
adhere to the control measures such as EOQ and fixing of material stock
levels. So it results in high inventory costs.

48
 4.11 INVENTORY RATIO

The impact of various inventory management techniques such as ABC

analysis, perpetual inventory, etc adopted in most of the industrial
undertakings is not very clear. An analysis of inventory ratio will clarify
this point. These ratios provide guidelines for planning and controlling of
inventories of industrial units. They also provide relative or comparative
information about the performance of the inventory function.
The manufacturing firms generally have four kinds of
inventories.
a) Stores and spars
b) Raw materials
c) Work-in-progress
d) Finished goods
Thus ratios useful to inventory management are:
1. inventory turnover ratio
2. store and spares inventory holding period
3. conversion period of work in progress
4. inventory as per percentage of current asset
5. inventory as percentage of total asset
6. inventory in term of months of production
7. number in days stock in hand ratio
8. return per rupee invested ratio
4.11.1 INVENTORY TURNOVER RATIO (ITR)
It is an important parameter used to evaluate the performance of the
inventory function, and expressed as:

Here the average stock indicates the yearly average (average of

opening and closing inventory), where the numerator of the ratio, i.e. the
cost of sales means sale minus gross profit. Since inventories are valued
in term of their cost, the cost of sales rather then sales has been used in
computing the turnover ratio.
The inventory turn over shows how quickly the inventory is turning
into receivable/cash through sale. This ratio indicates the number of times
the stock is turned over on the average and must inventories is reflected
in the number of time the firm’s average inventory is turned over during
the year.

49
 Inventory turnover has a direct relationship with the profit-earning
capacity of the firm. Generally, the higher the rate of inventory turnover,
the larger the amount of profit, the smaller the amount of work-in-capital
tied up with inventory, and the more current the stock of merchandise.
Each turn over adds to the volume of profit. A low inventory turnover
implies excessive inventory levels compared to those warranted by
production and sales activities, or a slow moving, or obsolete inventory.
A high level of sluggish inventory amount to unnecessary tie-up of funds
is impairment of profits and increased cost. If the obsolete inventories
have to be written off, this will adversely affect the working capital. And
liquidity position of the firm. Thus a higher turnover is better then a lower
turnover.
Ideally, the inventory should be 12 and 20 percent of the sales
value. As such, inventory turnover ratio should be within the range of
5.0-8.3, while it is also opined that the same could be 9 as well. It is,
therefore, recommended that the inventory turnover ratio should be
between 5 and 9.
Against the above background the inventory turnover ratio of the
firm in India is an average of 1.0only. This situation suggests that
inventory is most slow moving component of current asset. Thus, most of
the firm in India keep excessive stock of inventory. Excessive stocks are
usually unproductive and represent an investment with a low or zero rate
of return.
Table 6.1 gives an insight into an average inventory turnover ratio
of Japanese, American and Indian industries in order to highlight the
potential available for cost reduction in Indian industries on account of
inventories.
A low inventory turnover ratio implies excessive inventory levels
compared to those warranted by production and sales activities or
indicates slow-moving inventories. A high level of sluggish inventories
amounts to unnecessary tie-up of funds which in turn result in more cost
and finally, less profitability. An inventory turnover ratio of 45.5 by
Japanese companies is commendable by any standard. It means that the
Japanese industries carry an average Inventory for 8 days at any point of
time while the Indian industries carry an average inventory for 48 days.
The American industries have also been able to reduce investment in
inventories to a large extent.
TABLE inventory turn over ratio of Japanese, U.S and India
automobile industries

50
 J
year apan U.S India
1950 3 3 1
1960 8 10.5 2
1975 21 10.5 3.7
1985 38 12 4.2
1990 44 20.3 7.5
1992 45.5 21 7.5
Source: consolidated from the data given in Chartered Finance Analyst
(Hydrabad) ASCI Journal of management and management accountant
(1993), kolkata.

Of course, the inventory turnover ratio alone should not serve as

the sole determinant of the liquidity of a firm’s inventories. More in-dept
analysis, involving a thorough item-by-item check on existing
inventories, is necessary to fully assess the liquidity of the inventory.
4.11.2 STORES AND SPARES INVENTORY HOLDING PERIOD
Stores and spares is a term which commonly covers all kinds of supplies
necessary to keep the production equipments operating in order to turn
out production to the desired quantity and quality at the desire time. The
lack of spares is often the one of the most serious bottlenecks in on
interrupted production.
Stores and spares inventory constitute a large number of items,
some of them are most important and require longer period of time to
procure while most of them are not that important and require shorter
periods of time to procure. In discriminate stocking of each and every
item of stores and spares is not wise because a huge amount of funds may
unnecessarily get locked up in the component of stores and spares. Thus
the stock of components of stores and spares should be kept to a
reasonable level.
Stores and spares inventory is the slowest moving among the four
components of inventory. A close watch on the movement of this
component of inventory and its affective control can pay rich dividends to
a firm. In most of the firms, the stores and spares inventory occupies, on
an average, about two-third of the total inventory. Such huge amount of
investment in the stores and spares .inventory affects both liquidity and
profitability of firms.

51
Stores and spares inventory turnover

The suggested norm for the stores and spares inventory holding
period should be between three and six months. But in most of the firms,
the stores and spares holding period is above the suggested norms. Thus
the inference that can be drawn is that there is an over investment in
stores and spares on account of poor inventory management. Long lead
time’s procedural delays in procurement and uncertainty about
availability, particularly of imported items are the main reasons which
compel the firm to have more stocks of stores and spares. Moreover,
heavy initial purchases at the time of procurement of new machineries
and subsequent purchases without proper assignment of the requirement
are also responsible for such huge investment in stores and spares.
4.11.3 CONVERSION PERIOD OF WORK-IN-PROGRESS (WIP)
Work-in-progress inventories represent product that need more work
before they become finished product for sale. They are semi
manufactured products. The longer the production cycles, the grater the
volume of work-in-progress and vice-versa. It is calculated by dividing
the WPI inventory by the cost of production and then multiplying the
result by 365.
The suggested norm is that the work-in-progress conversion period
should be less then 15 days. But this period is abnormally high in most of
the firms. This situation is the result of week inventory management and
hence is liable to affect the profitability of the firms.
4.11.4 Inventory as a percentage of current asset
The share of inventory in the current assets indicates how much
liability of a firm is locked up in inventory. Inventory is generally ness
liquid then other current asset. As such the inventory is the most non-
liquid current asset.

Inventory as a percentage of current asset

The quality and liquidity of current asset are largely dependent on

the composition of current asset. The lower the percentage of inventory to
the current assets is the greater the liquidity of current assets and vice-
versa. Thus a low ratio is greater then high ratio asset

52
 In the most of the firm in India, inventory on an average, occupies
about 50% of the total current assets. Such a high ratio reveals that the
quality and liquidity of current asset are very low in various firms.
4.11.5Inventory as a percentage of total assets
Inventory is an important element in the asset structure of an
industrial under taking. As such, its share in the asset structure and the
proportion if the funds invested in inventory for operational activities of
the undertaking should be examined.

Inventory to total asset

Studies have suggested that the ratio of inventory to total asset

should be concentrated in the 16 to 30 percentage range. As against
this norm, the average ratio in India is 54.4 percentages. Thus, inventory
alone occupies more then half of the total assets in most of the firms.
4.11.6 INVENTORY IN TERM OF MONTHS’ COST OF
PRODUCTION
The main yardstick used to measure the accuracy of the inventory
is the month’s value of the usage. For the purpose, the aggregate
inventory is converted in to month’s value of production, the stores and
spares inventory to their month’s consumption and the worked-in-
progress is assessed in term month’s cost of production.
Investment in inventory in term of months’ value of production is
ascertain as follows

Depreciation is excluded from the cost of production as

depreciation does not involve case outflows.
The Tariff commission of India has suggested that the inventory in
public sector enterprises should not exceed 4 to 6 months’ value of
production. Against this background, it is found that most of the firms
maintain a large quantity of inventory and thus a considerable
overstocking exist therein. Overstocking is due to huge investment in
store and spares. The management of most of the firms fear that it may
not get spares in time for repair and upkeep of machineries, which
situation is likely to disturb the production schedule. All these are the
main reason for heavy accumulation of inventories.
NUMBER OF DAYS STOCK-IN-HAND RATIO

53
Number of days in stock-in-hand ratio =

The ratio measures the efficiency in selling the goods. The smaller
the number of day’s stock-in-hand, the higher the efficiency in inventory
management.
4.11.7RETURN PER RUPEE INVESTED RATIO

Return per rupee invested ratio is given

by

The ratio shows efficiency in management of inventory in term of

profitability. The higher this ratio is the better the management.
CONCLUSION
The inventory turnover ratio is an important parameter used to
evaluate the performance of inventory management techniques. It has a
direct relationship with the profit-earning capacity of a firm.
Inventory as a percentage of current asset, inventory as a percent of
total asset and inventory in term of months’ value of production, are all
important parameter that reflect the adequacy or otherwise of the
inventory holdings.

54
 5. DATA ANALYSIS

5.1 COMPARISON BETWEEN TOTAL ASSETS TO CURRENT

ASSETS

TOTAL
YEAR ASSET CURRENTASSET PERCENTAGE

506856633
2005-06 5 1122682462 22.15%
519087494
2006-07 3 1445536182 27.85%
597187968
2007-08 1 2148380616 35.97%

According to this table from 2005 to 2006 total asset is 5068566335 and
current asset is 1122682462 which are 22.15% of total asset. From 2006
to 2007 total asset position is 5190874943 and current asset is
1445536182 which are 27.85% of total asset. From 2005 to 2006 and
from 2006 to 2007 current asset increases 5.7%. From 2007 to 2008 total
asset is 5971879681 and current asset is 2148380616 which are 35.97%
of total asset. If we compare 2006 to 2007 b/s and 2007 to 2008 b/s
current asset increase 8.12%.
From this above table we can know that current asset is very lower
from total asset. Every year when total asset is increases current asset also
increases.

55
 9000000000
8000000000
7000000000
6000000000
AMOUNT

5000000000 CURRENTASSET
4000000000 TOTAL ASSET
3000000000
2000000000
1000000000
0
05 TO 06TO 07 TO
06 07 08
YEAR

5.2 COMPARISION BETWEEN TOTAL ASSETS TO

INVENTORY

TOTAL
YEAR ASSET INVENTORY PERCENTAGE
2005-06 5068566335 625717065 12.35%
2006-07 5190874943 759536657 14.63%
2007-08 5971879681 1168153161 19.56%
Total asset is divided into two parts, Such as fixed asset and current asset.
Inventory is a part of current asset and total asset.
In Balasore alloy from 05 to 06 total assets is 5068566335 out of that
inventory is 625717065 which is 12.35% of total asset. From 06 to 07
total assets is 5190874943 out of that inventory is 759536657 which is
14.63% of total asset. From 07to 08 total assets is 5971879681 out of that
inventory is 1168153161 which is 19.56% of total asset.
In Balasore alloy total asset is always in increasing mode. As well
as inventory is always in an increasing mode.

56
 8000000000

7000000000

6000000000

5000000000
AMOUNT

INVENTORY
4000000000
TOTAL ASSET
3000000000

2000000000

1000000000

0
05 TO 06 06TO 07 07 TO 08
YEAR

5.3COMPARISON BETWEEN CURRENT ASSETS TO

INVENTORY

YEAR CURRENTASSET INVENTORY PERCENTAGE

2005-06 1122682462 625717065 55.73%

2006-07 1445536182 759536657 52.54%
2007-08 2148380616 1168153161 54.37%

Inventory is a part of current asset. In Balasore alloy from 05 to 06

current assets is 1122682462 out of that inventory is 625717065 which is
55.73% of current asset. From 06 to 07 current assets is 1445536182 out
of that inventory is 759536656 which is 52.54% of current asset. From
07to 08 current assets is 2148380616 out of that inventory is 1168153161
which is 54.37% of current asset.

57
 The current asset portion of Balasore alloy is always in increasing
way. Similarly inventory is also in increase in an increasing mode.
Inventory is above 50% of current asset.

2500000000

2000000000

1500000000
AMOUNT

CURRENTASSET
INVENTORY
1000000000

500000000

0
05 TO 06 06TO 07 07 TO 08
YEAR

5.4 Current Ratio

The current ratio is used to evaluate the liquidity, or ability to meet short

term debts. High current ratios are needed for companies that have

difficulty borrowing on short term notice. The generally acceptable

current ratio is 2:1 and the minimum acceptable ratio is 1:1

Table 5.6
Current Ratio

Particulars 2004 2005 2006 2007 2008

Total Current
3415.69 6024.35 8818.80 12955.91 16983.90
Assets
Total Current
5419.69 8029.35 10824.8 14962.91 18991.90
Liabilities 58

Current Ratio 0.63 0.75 0.81 0.87 0.89

 Current Ratio

0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1 2 3 4 5

Year

Analysis

The table above gives an overall picture of ability of Balasore Alloys

Limited to meet its short tem obligations. It is found that out of five years

of our study, the company is unable to meet the standard current ratio.

59
However, the overall liquidity position is improving from 0.63 in the year

2004 to 0.89 in the year 2008 gradually.

Interpretation

As the company is unable to maintain the minimum acceptable norm

(1:1) of current ratio over the period of study, it can be said that the

liquidity position is unsatisfactory in Balasore Alloys Ltd.

5.5 Quick Ratio

Sometimes a company could be carrying heavy inventory as part of its

current assets, which might be obsolete or slow moving. Thus eliminating

inventory from current assets and then doing the liquidity test is measured

by this ratio. The ratio is regarded as an acid test of liquidity for a

company. It expresses the true 'working capital' relationship of its cash,

accounts receivables, prepaids and notes receivables available to meet the

company's current obligations.

Table 5.7
Quick Ratio
Particulars 2004 2005 2006 2007 2008
1794.4 2449.6
Quick Assets 4003.41 6127.23 7837.49
1 7
Total Current 5419.6 8029.3 10824.8 14962.9
18991.90
Liabilities 9 5 0 1

60
Quick Ratio 0.33 0.31 0.37 0.41 0.41

Quick Ratio

0.50

0.40

0.30

0.20

0.10

0.00
1 2 3 4 5

From the table it is clear that though the quick ratio position is developing from 0.33

to 0.41 over the period of our study, but it is far from satisfactory. None of the year

reaches normal standard of 1:1.

61
5.6 Inventory turnover ratio

The inventory turnover ratio measures the number of times a company sells its

inventory during the year. A high inventory turnover ratio indicated that the

product is selling well and vice-versa. It is calculated as follows:

The table shows that in the year 2004 the company’s Inventory turnover Ratio

was 6.75, but gradually it deteriorated and reached at 2.46 in the year 2008.

This adverse trend of ITR may be attributed to the accumulation of inventory

and slow sale of products due to global recessionary movement.

62
Table 5.9: Inventory Turnover Ratio
Particulars 2004 2005 2006 2007 2008
5740.6 9591.0 10287.9 12045.3
Cost of Goods Consumed 17248.54
1 9 6 0
1125.4
Opening stock 574.6 2588.67 4065.63 6128.58
1
1125.4 2588.6
Closing stock 4065.63 6128.58 7886.56
1 7
1857.0
Average Stock 850.01 3327.15 5097.11 7007.57
4
Inventory Turnover
6.75 5.16 3.09 2.36 2.46
Ratio
ITR in Days 54.05 70.67 118.04 154.45 148.29

5.7 PRODUCTION POSITION OF BALASORE ALLOY

PRODUCTION
MONTH QTY
NOV' 08 7370.66
DEC' 08 7197.46
JAN' 09 7036.16
FEB' 09 6722.72
MAR' 09 6372.38
APR' 09 6021.18

In this above table it is clear that from November 08 to April 09 the

production quantity of Balasore alloy LTD is decreases.
It can be shown by a graph as follows

63
 PRODUCTION QTY

quantity in mt 8000
6000
4000 PRODUCTION QTY
2000
0

9
09
08

9
8

'0
'0
'0

'0
V'

R'

PR
N
EC

B
O

JA

A
FE

A
M
N

months

5.8 COST OF PRODUCTION TREND

% OF COST OF
PARTICULARS PRODUCTION
RAW MATERIAL 52
TRADED GOODS 2
POWER 17
MANPOWER 3
FACTORY
OVERHAEDS 2
R&M 1
ADMINISTRATION 7
STROES &
CONSUMABLES 2
OTHERS 14
TOTAL COST OF 100

64
 PRODUCTION

In this above table it is clear that raw material is more then half of other
item of cost of production.
It is defined bellow by a pie chart.
% OF COST OF PRODUCTION

RAW MATERIAL
17
2 32 TRADED GOODS
1 POWER
7
MANPOWER
2 FACTORY OVERHAEDS

R&M
14 ADMINISTRATION

STROES & CONSUMABLES

52
OTHERS

5.9 CLOSING INVENTORY POSITION FOR LAST SIX

MONTHS

INVENTORY ANALYSIS FOR LAST SIX MONTHS

NAME OF
MATERIAL NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
QTY (MT) QTY QTY QTY QTY QTY
QUARTZ 3034 2245 2036 1954 1863 1854
L A M COKE 5831 5542 4346 3491 3345 3117
C I L COKE 279 186 174 115 112 98
E.C.PASTE 172 154 147 134 123 112
DOLOMITE 4333 3412 2768 2215 1920 1426
ANTHR.COAL 2216 1938 1557 945 815 719
MILL SCALE 23 14 12 8 5 2
BAUXITE 23 19 19 14 11 7
MAGNASITE 230 187 165 115 83 74
MANGANESE ORE
110
DUMP 110 110 110 110 110

65
HIGH MNO SLAG 10 10 10 10 10 10
ISPAT CHROME
203139
FINES 195893 126868 118572 98503 78183
CHROME ORE
2841
LUMPS 2364 1956 1526 912 803
ISPAT CHROME
11899
BRQT 9584 8645 7325 6254 5412
TOTAL 234140 221658 148813 136534 114066 91929

From this above table we know that closing stock of raw material of
Balasore alloy is not constant except manganese ore dump and high
MNO slag. The total raw material position of Balasore Alloy LTD is
always in a decreasing mode shown by a diagram bellow:

TOTAL

250000

200000

150000
TOTAL
100000

50000

0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

Analysis
From the above diagram it is clear that Balasore Alloy Ltd. in
November 08 to April 09 closing stock position is always in a decreasing
mode. The raw material position is sloping down ward.

66
QUARTZ
From this above table in November 08 closing stock of quartz is
3034 MT after that it decreases in a decreasing mode.
It can be shown through a diagram:
QUARTZ

QUARTZ

4000
QUANTITY MT

3000 3034
2000 2245 2036 1954 1863 1854
1000
0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
QUARTZ 3034 2245 2036 1954 1863 1854
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

Analysis

67
 When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

L A M COKE
From this above table in November 08 closing stock of lam cock is 3034
MT after that it decreases in a decreasing mode.
.
It can be shown through a diagram.

L A M COKE

7000

6000 5831
5542 NOV'08
QUANTITY IN MT

5000
DEC'08
4346
4000 JAN'09
3491 3345
3000 3117 FEB'09

2000 MAR'09
APR'09
1000

0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
L A M COKE 5831 5542 4346 3491 3345 3117
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

68
Analysis
When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

C I L COKE
From this above table in November 08 closing stock of cil cock is 3034
MT after that it decreases in a decreasing mode.
It can be shown through a diagram.

C I L COKE

300
279
250
QUANTITY in MT

200
186 174
150 C I L COKE
115 112
100 98

50

0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
C I L COKE 279 186 174 115 112 98
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

69
Analysis
When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

E.C.PASTE
From this above table in November 08 closing stock of e.c paste is 3034
MT after that it decreases in a decreasing mode.
It can be shown through a diagram.
E.C.PASTE

200
172
154
QUANTITY in MT

150 147
134
123
112
100 E.C.PASTE

50

0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
E.C.PASTE 172 154 147 134 123 112
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

Analysis

70
 When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

DOLOMITE
From this above table in November 08 closing stock of DOLOMITE
is 3034 MT after that it decreases in a decreasing mode.
It can be shown through a diagram.
DOLOMITE

5000
4500 4333
4000
3500 3412
QUANTITY

3000
2768
2500 DOLOMITE
2215
2000 1920
1500 1426
1000
500
0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
MONTH

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

Analysis

71
 When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

ANTHR COAL
From this above table in November 08 closing stock of anthra coal
is 2216 MT after that it decreases in a decreasing mode.
It can be shown through a diagram.

ANTHR.COAL

2500
2216
2000 1938
QUANTITY

1500 1557
ANTHR.COAL
1000 945
815
719
500

0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
MONTH

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

72
Analysis
When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

MILL SCALE
From this above table in November 08 closing stock of mill scale
is 23 MT after that it decreases in a decreasing mode.
MILL SCALE

25
23
20

15
quantity

14
12 MILL SCALE
10
8
5 5
2
0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
MILL SCALE 23 14 12 8 5 2
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

73
Analysis
When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

BAUXITE
From this above table in November 08 closing stock of bauxite
is 23 MT after that it decreases in a decreasing mode.
It can be shown through a diagram.

BAUXITE

25
23
20
19 19

15
quantity

14
BAUXITE
11
10
7
5

0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
BAUXITE 23 19 19 14 11 7
month

74
From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.
Analysis
When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

MAGNASITE
From this above table in November 08 closing stock of magnesite
is 230 MT after that it decreases in a decreasing mode.
It can be shown through a diagram:
MAGNASITE

250
230
200
187
165
150
quantity

MAGNASITE
115
100
83 74
50

0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09
MAGNASITE 230 187 165 115 83 74
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

75
Analysis
When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

MANGANESE ORE DUMP

From this above table we can know that MANGANESE ORE DUMP
closing stock is same for all month.

It can be shown through a diagram:

MANGANESE ORE DUMP

120
110 110 110 110 110 110
100
80
quantity

60 MANGANESE ORE DUMP

40
20
0
NOV' DEC'0 JAN'0 FEB'0 MAR' APR'
08 8 9 9 09 09
MANGANESE 110 110 110 110 110 110
ORE DUMP
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

76
Analysis
MANGANESE ORE DUMP use in Balasore alloy LTD is not
continuously. From November to December they don’t use manganese
ore dump. So its closing stock is constant.

HIGH MNO SLAG

From this above table we can know that HIGH MNO SLAG closing
stock is same for all month.
It can be shown through a diagram
HIGH MNO SLAG

12
10 10 10 10 10 10 10
8
quantity

6 HIGH MNO SLAG

4
2
0
NOV'08 DEC'08 JAN'09 FEB'09 MAR'09 APR'09

HIGH MNO 10 10 10 10 10 10
SLAG
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

77
Analysis
HIGH MNO SLAG use in Balasore alloy LTD is not continuously.
From November to December they don’t use HIGH MNO SLAG. So its
closing stock is constant.

ISPAT CHROME FINES

From this above table in November 08 closing stock of ISPAT
CHROME FINES is 203139 MT after that it decreases in a decreasing
mode.
It can be shown through a diagram:
ISPAT CHROME FINES

250000
200000 203139 195893
quantity

150000
126868 118572 ISPAT CHROME FINES
100000 98503
78183
50000
0
NOV'0 MAR'0
DEC'08 JAN'09 FEB'09 APR'09
8 9
ISPAT 203139 195893 126868 118572 98503 78183
CHROME
FINES
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

78
Analysis
When production is decreases automatically consumption of
goods is decreases. And purchase of material is decrease. So closing
stock is decreases.

CHROME ORE LUMPS

From this above table in November 08 closing stock of CHROME ore
lumps is 203139 MT after that it decreases in a decreasing mode.
It can be shown through a diagram:
CHROME ORE LUMPS

3000
2841
2500 2364
2000 1956
quantity

1500 1526 CHROME ORE LUMPS

1000 912 803
500
0
NOV'0 DEC'0 JAN'0 FEB'0 MAR'0 APR'0
8 8 9 9 9 9
CHROME ORE 2841 2364 1956 1526 912 803
LUMPS
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

Analysis

79
 When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

ISPAT CHROME BRQT

From this above table in November 08 closing stock of ISPAT
CHROME brqt is 11899MT after that it decreases in a decreasing mode.
It can be shown through a diagram
ISPAT CHROME BRQT

15000
11899
10000
quantity

9584
8645
7325 ISPAT CHROME BRQT
6254
5000 5412

0
NOV'0 MAR'0
DEC'08 JAN'09 FEB'09 APR'09
8 9
ISPAT 11899 9584 8645 7325 6254 5412
CHROME
BRQT
month

From is above diagram X axis stands for month and Y axis stands for
unit in metric tone.

Analysis

80
 When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is
decreases.

CONCLUSION
From this above analysis it is clear that in Balasore alloy they
follow just-in-time inventory management system. They have no ordering
level, minimum stock level etc. for which the closing stock of raw
material changes every month. Due to rescission period the production of
BAL decreases from November 08 to April 09, for which inventory of
BAL decreases.

5.10 STANDARD QUANTITY CONSUMPTION PER MONTH

ITEM
S DEC JAN FEB MAR APR MAY
LAM
C 2585 2482 3613 3046 2379 5546
ANTHRACIT
E 1849 1311 834 1385 2060 2070
CIL COKE 126 156 101 157 139 169
EC PASTE 120 120 120 120 120 145
Quartz 2775 2775 2775 2288 2288 2288
Dolomite 2325 2325 2325 2177 1877 1877
Magnetite 157 224 225 225 225 225
Chrome Ore
Lump 0 0 0 0 237 246
IAL BRQT 16445 16646 16299 16416 16613 16317
IAL CHIPS/FINES 2030 1990 2223 1884 1588 1792
CHROME ORE
LUMPY 601 586 747 1062 0 0

From this above table we know that in every month for

standard production the raw material quantity is changed. The
standard production capacity of Balasore alloy is 7500. In
December LAMC is 2585, jan 2482, feb 3613, mar 3046, apr 2379
and in may 5546. Like LAMC, anthracite, cil coke, EC paste,

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quartz, dolomite, magnetite, chrome ore lump, IAL brqt, ial
chips/fines, s.mineral, saranga are also changed.
It can see by a graph bellow:
STANDARD CONSUMPTION CHART

20000
15000
QUANTITY IN MT 10000
5000
0
DEC JAN FEB MAR APR MAY
MONTH

LAMC ANTHRACITE CIL COKE

EC PASTE Quartz Dolomite
Magnesite Chrome Ore Lump IAL BRQT
IAL CHIPS/FINES S. MINERAL(42-44) SARANGA(40-44)

In this diagram X axis stands for month and Y axis stands for
quantity in month.

Interpretation:
In this above graph it is clear that every month the standard
consumption of raw material changes. This change is made in every
month.
Cause

Balasore alloy LTD produces 4 quality products. These are FeCr-58.5% P

0.04, FeCr-56% P 0.03, and FeCr-60% P 0.04. For every quality of
production of finished goods are changes according to customers demand.
So every month the raw material consumption position is changes.

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 6.CONCLUSION

6.1SUGGESTION

 Balasore alloy LTD should maintain same level of closing stock for

every month.

 They should maintain minimum stock level there fore the production

can’t stop in any situation.

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 6.2CONCLUSION

From the above research I know that the inventory management system

Of Balasore alloy LTD is very good.

 They always follow just-in-time Purchase technique.

 According to market situation they purchase materials and

Produce their finished product.

 Their purchase technique of raw material, store and Spare are

very nice.

 After proper verification of everything they purchase their

materials.

 They maintain their store very carefully

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 Their inventory investment is good. Every month they maintain
inventory more then 50% of current asset.

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