A STUDY ON INVENTORY MANAGEMENT AT DR.REDDYS BY G.SIVA NANDI REDDY HT.

NO:151209672002 (2009-2011)

Project submitted to OSMANIA UNIVERSITY for the partial fulfillment of the Requirement for the award of degree for

MASTER OF BUSINESS ADMINISTRATION

RAJA BAHADHUR VENKATA RAMA REDDY INSTITUTE OF TECHNOLOGY Hanuman Tekdi, Abids-Hyderabad-500001

DECLARATION

I hereby declare that, this project MANAGEMENT

report title INVENTORY

in DR.REDDYS LAB submitted by me to the Department of

Business Management, RBVRRRIT., Hyderabad, is a bonafied work undertaken by me and it is not submitted to any Other University or institution for the award of any degree Diploma / certificate or Published any time before.

Name and Address of student

signature of the student

Date :

CERTIFICATE
Date:

This is to certify that Mr.G.SIVA NANDI REDDY S/o.G.ESWARA REDDY. HT.NO: 151209672002 has submitted a proiject report title INVENTORY MANAGEMENT at Dr REDDYS LAB, HYDERABAD in partial fulfillment for the degree of Master of Business Administration of Osmania University for the academic year 2011.

PROJECT GUIDE

HEAD OF THE DEPARTMENT

ABSTRACT

The management and control of inventory is a problem common to all organizations in any sector of the economy. The problems of inventory do not confine themselves to profit making business firms. The same types of problems are encountered by social and non-profit organizations too. Inventories are common to besides industries agriculture, wholesalers, retailers, hospitals, temples churches, prisons, zoos, universities and national, state and local governments. Inventory problems have been encountered by every society, but it not until the 20 th century that analytical techniques were developed to study them. The initial impetus for analysis expectedly came from the manufacturing sector. It was not until after World War II that a concerted effort on risk and uncertainty aspects of inventory was made. In theory, inventory is an area of organizational operation that is well developed. In practice, it is very backward. This gap will narrow as educational institutions integrated materials management into their course structures. The term inventory had been defined by several authors. The more popular of them are: the term inventory includes materials raw, in process, finished packaging, spares and others stocked in order to meet an unexpected demand or distribution in the future. Another definition of inventory is that it can be used to refer to the stock on hand at a particular time of raw materials, goods-in-process of manufacture, finished products, merchandise purchased for resale, and the like, tangible assets which can be seen, measured and counted. In connection with financial statements and accounting records, the reference may be to the amount assigned to the stock of goods owned by an enterprise at a particular time.

ACKNOWLEDGMENT

I take the opportunity to express my deep sense of gratitude to my principal

M.RADHIKA Mrs. G.SUMAVALLY

HOD Mr.P.CHARY project guide

Ms.

OSMANIA

UNIVERSITY for initially granting me permission to

collect the data at DRREDDYS LAB on my request.

I am extremely greatful to DRREDDYS LAB Director

REDDY

Mr. RAM

For giving the necessary permission to do the project study for six

weeks at the premises of .On receipt of letter from the college authorities.

I extend my sincere and whole hearted thanks to Mr.SRINIVAS GARU (Hyderabad), for his consent to pursue the six weeks study at DRREDDYS LAB premises in Hyd. I am thankful to Mrs.T.CHANDANA, Librarian for helping me to the relevant material. I thankful to my parents and friends for all the direct and indirect help given throughout my work

CONTENTS
CHAPTER NO PAGE NO

1. INTRODUCTION NEED FOR THE STUDY OBJECTIVES OF THE STUDY SCOPE OF THE STUDY RESEARCH METHODOLOGY LIMITATIONS OF THE STUDY TOOLS AND TECHNIQUES

(1-4)

2. REVIEW OF THE LIERATURE 3. COMPANY PROFILE 4. DATA ANALYSIS & INTERPRETATION 64) 5. FINDING, SUGGESTION AND CONCLUSION 67)

(5-28) (29-49) (50-

(65-

BIBLILOGRAPHY

(68)

S.NO 1.

NAME OF THE TABLE

PAGE NO 50

INVENTORY TREND WITH RESPECT TO TURNOVER INVENTORY TURNOVER RATIO TREND ANALYSIS FOR INVENTORY

2.

56

Estimated inventory
3.

TREND ANALYSIS FOR TURNOVER ESTIMATED INVENTORY

58

4.

ABC ANALYSIS

62

LIST OF TABLES

LIST OF FIGURES

S.NO 1.

NAME OF THE FIGURES

PAGE NO 51-54

INVENTORY TREND WITH RESPECT TO TURNOVER INVENTORY TURNOVER RATIO VARIOUS INVENTORY MATERIAL INVENTORY PRODUCTION INVENTORY ENGNEERING INVENTORY

51 52 53 54 57

2.

TREND ANALYSIS FOR INVENTORY

Estimated inventory
3.

TREND ANALYSIS FOR TURNOVER ESTIMATED INVENTORY

59

4.

ABC ANALYSIS

62

1. INTRODUCTION
DEFINITION & MEANING OF PHARMACEUTICAL
DEFINATION: A substance used in the treatment of disease; Drug, Medicament, Medication, Medicine. MEANING: Drug or medicine that is prepared or dispensed in pharmacies & used in medical treatment.

INTRODUCTION TO INVENTORY MANAGEMENT

The management and control of inventory is a problem common to all organizations in any sector of the economy. The problems of inventory do not confine themselves to
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profit making business firms. The same types of problems are encountered by social and non-profit organizations too. Inventories are common to besides industries agriculture, wholesalers, retailers, hospitals, temples churches, prisons, zoos, universities and national, state and local governments. Inventory problems have been encountered by every society, but it not until the 20 th century that analytical techniques were developed to study them. The initial impetus for analysis expectedly came from the manufacturing sector. It was not until after World War II that a concerted effort on risk and uncertainty aspects of inventory was made. In theory, inventory is an area of organizational operation that is well developed. In practice, it is very backward. This gap will narrow as educational institutions integrated materials management into their course structures.

MEANING AND DEFINITION

The term inventory had been defined by several authors. The more popular of them are: the term inventory includes materials raw, in process, finished packaging, spares and others stocked in order to meet an unexpected demand or distribution in the future. Another definition of inventory is that it can be used to refer to the stock on hand at a particular time of raw materials, goods-in-process of manufacture, finished products, merchandise purchased for resale, and the like, tangible assets which can be seen, measured and counted. In connection with financial statements and accounting records, the reference may be to the amount assigned to the stock of goods owned by an enterprise at a particular time.

NEED OF THE STUDY

The question of managing inventories arises only when the company holds inventories. Maintaining inventories involves tying up of the companys funds and incurrence of storage and handling costs. If it is expensive to maintain inventories, why do companies hold inventories? There are three general motives for holding inventories.

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Transactions motive emphasizes the need to maintain inventories to facilitate smooth production and sales operations. Precautionary motive necessitates holding of inventories to guard against the risk of unpredictable changes in demand & supply forces & other factors.

Speculative motive influences the decision to increase or reduce the inventory levels to take the advantage of price fluctuations.

OBJECTIVES OF THE STUDY

The basic objective of the project is to study the inventory control technique adopted by Dr.Reddys Laboratories Ltd.

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To study the inventory management of the Dr.Reddys Laboratories Ltd., for the past few years.

To suggest the suitable technique in order to reduce down the cost of inventory. To find the trends in figures for the past years. To provide full range of reports that will satisfy informational requirements.

SCOPE OF THE STUDY

The topic titled A STUDY ON INVENTORY MANAGEMENT is conducted in DR. REDDYS Laboratories Ltd. Hyderabad. The scope of the study is limited to inventory management and period is limited to five financial years of the company. The analysis was conducted from 2003 -04 to 2007-08. The tools used for are ratio analysis. The trend analysis is for sales and inventory is conducted. The study is based on the inventory data available from financial statements and internal records of the company and primary data collected through informal interview with the company officials.

METHODOLOGY

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For the preparation of project the collection of data is very essential & there are two broad methods, which are followed in project. They are primary and secondary data Primary Data: Direct personnel & oral investigation The staff of Finance, Production & Risk management

Secondary Data: Annual reports of the company Other reports of the corporation Text books Internet

LIMITATIONS
Since the study is based on the inventory management i.e. obtained from the companys finance & production department, the limitations of the inventory management shall be equally applicable. The study is conducted within a short period thus it may not be as detailed & fully fledged. The study is conducted with the data available & analysis was made according to it. Additional information cannot be gathered because of the busy schedule of the white color people.

TOOLS AND TECHNICS

Inventory management tools Ratio analysis ABC analysis Trend analysis

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2.REVIEW OF LITERATURE
INTRODUCTION TO INVENTORY MANAGEMENT Inventories constitute the most significant part of current assets of 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. Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e.g., 10 to 20 per cent, without any adverse effect on production and sales, by using simple inventory planning and control techniques. The reduction in excessive inventories carries a favorable impact on a company`s profitability

Nature of Inventories
Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company are: raw materials, work-in -process and finished goods. Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions. Work-in-process inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale.

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Finished goods inventories are those completely manufactured products which are ready for sale. Stocks of raw materials and work-in-process facilitate production, while stock of finished gods is required for smooth marketing operations.

Thus, inventories serve as a link between the production and consumption of goods. The levels of three kinds of inventories for a firm depend on the nature of its business. A manufacturing firm will have substantially high levels of all three kinds of inventories, while a retail or wholesale firm will have a very high level of finished goods inventories and no raw material and work-in-process inventories. Firms also maintain a fourth kind of inventory, supplies or stores and spares. Supplies include office and plant cleaning materials like soap, brooms, oil, fuel, light bulbs etc. These materials do not directly enter production, but are necessary for production process. Usually, these supplies are small part of the total inventory and do not involve significant investment. Therefore, a sophisticated system of inventory control may not be maintained for them

Objectives of Inventory Management

To maintain a minimum investment in inventories to maximize profitability. Ensure a continuous supply of raw materials to facilitate uninterrupted production Maintain sufficient stock of raw materials in periods of short supply and anticipate price changes Maintain sufficient finished goods inventory for smooth sales operations and efficient customer service Minimise the inventory costs Control inventory investment by maintaining optimum inventory

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The objective of inventory control is to make available all materials required for operation with 5 Rs i. ii. iii. iv. v. Right time Right quality Right quantity Right price Right source

IMPORTANT TERMS IN INVENTORY CONTROL

Demand Demand is the number of units required per period. The study of demand pattern is necessary to determine the amount of stock to be maintained. The demand pattern may be either deterministic or probabilistic. In the deterministic case, it is assumed that quantities needed over subsequent periods of time are known certainty. Probabilistic or stochastic demand occurs when the demand over a certain period of time is not known with certainty but its pattern can be described by a known probability distribution. Lead time The time gap between placing an order for an item and actual receipt of the item is known as lead time. The length of lead time decides upon the level of inventory. Two types of lead times are i. Administrative lead time: Time gap between initiation of procurement of item and placing of an order ii. Delivery lead time: Time gap between placing of an order and actual receipt of item

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Order cycle The time period between placements of two successive orders is referred to as an order cycle. There are two inventory management system based on which the orders may be placed. They are as follows a) Q-system (Fixed order quantity system or re-order point system) The new order is placed when the level of inventory reduced to a specific point called reorder point. The quantity of purchase in each order will be same b) P-system (Fixed periodic review system) In this system, the level of inventory is revived at fixed intervals and orders are placed at that time. The quantity of order is decided depending upon the level of inventory at the time of review. Reserve Stock An extra amount of stock which is kept on hand to take care of greater than normal usage during the replenishment lead time or an average during a greater than the normal lead time or a combination of two. Maximum & Minimum Stock a) Maximum stock A stock level selected as the maximum desirable or allowable is referred to as maximum stock. This is used as an indicator to show when stock levels have risen too high. b) Minimum stock This is also known as buffer stock or safety stock. This is the addition stock needed to allow for delay in deliver or for any unexpected demand that may arise during the lead time

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Reorder Level The inventory level at which a new or fresh order is placed with the suppliers for obtaining additional items is known as reorder level. This point is fixed between the maximum & minimum stock levels. This depends on two factors: I. II. The lead time between order placements & actual receipt and The demand during the lead time.

Costs & Risks Associated With Inventories

Cost Ordering cost The term ordering costs is used in case of raw materials (supplies) & includes the entire costs of acquiring raw materials. They include costs incurred in the following activities: requisitioning, purchase ordering, transporting, receiving, inspecting & storing. Ordering cost increase in proportion to the number of orders placed. On the other hand, if the firm maintains large inventory levels, there will be few orders placed & ordering costs will be relatively small. Thus, ordering costs decrease with increasing size of inventory. Carrying costs Costs incurred for maintaining a given level of inventory are called carrying costs. They include storage, insurance, taxes, deterioration & obsolescence. The storage costs comprise cost of storage space, stores handling costs & clerical& staff service costs incurred in recording & providing special facilities such as fencing, lines, racks etc.

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Carrying costs vary with inventory size. This behavior is contrary to that of ordering costs which decline with increase in inventory.

ORDERING COSTS Requisitioning Order placing Transportation Receiving, inspecting & storing Clerical & staff

CARRYING COSTS Warehousing Handling Clerical & staff Insurance Deterioration & obsolescence

RISK The risks of holding inventories are as follows Price decline due to increase in supply and price cutting through competition Production deterioration due to storing for a long period or improper storing Obsolescence change in customer taste, in production techniques, improvement in product design, specifications etc.

Meaning of the term stores, stocks & stores department- Locations & Layout.
STORES Direct and indirect materials purchased for stocks purpose to be issued to different jobs, work orders or Departments as and when required are known as stores.

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STOCK Finished goods are treated as stocks.

INVENTROY It includes the stock not only for raw material but also stores and spares, work in progress and finished goods. Thus stock of raw materials is only a part of the inventory held by a manufacturing unit. DIRECT MATERIALS Materials, which form part of a finished product, are known as direct materials. For Ex. lubricating oil required for the maintenance of machine.

STORES DEPARTMENT-LOCATION AND LAYOUT The location of the stores department should be carefully planned out and it should be housed in a position that is very near to the receiving department so that transportation charges are at a minimum. At the same time, there should be an easy access to all other departments of the factory, roads, railways siding and wharf so that the minimum of expense is incurred in unloading. It is very important that bulky and heavy stores should be stores nearest to the departments requiring them in order to minimize the lab our and transportation charges. The layout of the stores department needs careful consideration. The stores should be divided into racks, which should be further subdivided into small spaces. All these
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spaces are known as bins and for one item of materials one bin is allocated. Bin is not necessarily a space on a rack but it really means any space on a rack material is kept. All bins should be serially numbered. TYPES OF STORES: The three types of stores are as follows: 1. 2. 3. Centralized stores Decentralized stores Central stores with sub-stores

CENTRALISED STORES This is the commonly used stores. In case of such stores materials are received by and issued from one stores department. All materials are kept at one central stores. DECENTRALIZED STORES In this type of stores independent stores are situated in various departments handling if stores is undertaken by the stores keeper in each department. The departments requiring stores can draw from their respective stores situated from their departments. CENTRAL STORES WITH SUB-STORES In large factories, Departments are situated at distance from central stores, so in order to keep the transportation costs and handling charges to minimum, sub-stores situated near production departments.

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For each item of materials, a quantity is determined and this should be kept in stock in sub-stores at the beginning of any period. At the end of the period the storekeeper of each sub-store will requisition from the central stores the quantity of the material consumed to bring the stock up to the predetermined quantity. In short this type of stores operates in a similar way to a petty cash system, so this system of stores is also known as the imp rest system of stores control. We can conclude that the ideal course for a large factory to overcome the disadvantages of centralized and decentralized stores is to have central stores with sub stores. The major goal of inventory management is to discover and maintain the optimum level of inventory investment.

STORES OR MATERIAL RECORDS

The bin cards and the stores ledger are the two important stores records that are generally kept for making a record of various items of stores. Bin Card A bin card makes a record of the receipt and issue of material and is kept for each item of stores carried. Quantity of stores received is entered in the receipts column and the bin card and a balance at any time can be readily seen. The storekeepers maintain these cards and it assist him to control the stock. For each item of stores, minimum quantities are stated in the card. By seeing the bin card the storekeeper can send the material requisition for the purpose of material in time. It is also known as bin tag or stock card and is usually hung up or placed in shelf, rack or bin where the material has been kept. Store Ledger

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This ledger is kept in the costing department and is identical with the bin card except that receipts, issues and balances are shown along with their money values. This contains an account for every item of stores and makes a record of the receipts, issues and the balances, both the information for the pricing of materials issued and the money value at any time of each item of stores.

The difference between Bin Card and Stores Ledger Bin Card A record of quantities only Maintained by storekeeper Ledger Stores A record of both quantities and values Maintained by cost department

Normally posted just before the transaction Always posted after the transaction takes takes place. place Each transaction is individually posted Usually kept inside the stores Transactions may be posted periodically Kept outside the stores

INVENTORY MANAGEMENT TECHNIQUES

In managing inventories, the firms objective should be in consonance with the shareholder wealth maximization principle. To achieve this, the firm should determine the optimum level of inventory. Efficient controlled inventories make the firm flexibile. Inefficient inventory control results in unbalanced inventory & inflexibility-the firm may sometimes may pile up unnecessary stocks. This increases the level of investment and makes the firm unprofitable To manage inventories efficiency, answer should be sought to the following two questions: How much should be order? When should be it ordered?

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The first question, how much to order, relates to the problem of determining Economic Order Quantity (EOQ), and is answered with an analysis of costs of maintaining certain level of inventories. The second questions, when to order, arises because of uncertainty and is a problem of determining the re-order point.

1 Economic Order Quantity (EOQ)

One of the major inventory management is to be resolved is how much inventory should be added when inventory is replenished, if the firm is buying raw materials, it has to decide lots in which it has to be purchased on replenishment. If the firm is planning a production run, the issue is how much production to schedule (or how much to take). These problems are called order quantity problems, and the task of the firm is to determine the optimum or economic order quantity (or economic lot size). Determining an optimum inventory level involves two types of costs:

Where EOQ =Quantity to be ordered A = Annual consumption of the material in units O = Cost of placing one order including the cost of receiving the goods C = Carrying cost / cost of storage per unit per year Assumptions Only on product is involved.

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Annual demands are known. Demand should be spread evenly throughout the year. Constant demand rate are known with certainty. Doesnt involve constraints (e.g. truck capacity or material handling

limitations). Involve two types of costs only i.e. ordering cost & carrying cost. Each order is received in a single delivery

Illustration Calculate EOQ from the following: Annual consumption 600 units; Ordering cost: Rs. 12 per order; Carrying cost 20%; Price per unit Rs.20 Solution

Given A = Annual Consumption = 600; O = Ordering Cost per order = 12; C = Carrying Cost per unit = 29% * 20 = 4/EOQ = SQRT 2*600*124 = 60 units

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2 Level Setting
In order to have proper control on materials, the following levels are set A. Re-order Level B. Minimum Level / Safety Stock C. Maximum Level D. Danger Level E. Average Stock Level These are discussed one by one. Re-Order Level. It is the point at which if stock of a particular material in store approaches, the storekeeper should initiate the purchase requisition for fresh supplies of that material. It is the point lying between the maximum and minimum levels at which time it is essential to initiate purchase orders for fresh supplies of the materials. This point will

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usually be slightly higher than the minimum stock, to cover such emergencies as abnormal usage of materials or unexpected delay in delivery of supplies. Formulae. Re-ordering Level = Maximum Consumption * Maximum Re-order Period. Or Re-ordering Level = Minimum Level + Consumption during the time required to get the fresh delivery. Minimum Level / Safety Stock. It represents the quantity below which stock of any items should not be allowed to fall Formulae Minimum Stock Level = Re-ordering Level (Normal Usage * Normal Re-order Period). Maximum Level. It represents the quantity above which stock of any item should not be allowed to be kept. Formulae Maximum Stock Level = Re-ordering Level + Re-order Quantity (Minimum Usage * Minimum Re-order Period) Danger Level. It is fixed below minimum stock level. The danger level of stock indicates emergency of stock positions and urgency of obtaining fresh supply at any costs. The factors considered are like quickest possible means of transport or the time required for obtaining suppliers from any available sources.

Formulae.
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Danger Level = Average Rate of Consumption * Emergency Delivery Time Average Stock Level. This stock level indicates the average stock held by the concern. Formulae. Average Stock Level = Minimum Stock Level + (Re-ordering Quantity)

Illustration Calculate the minimum stock level, maximum stock level and reordering level from the following information. i. Minimum consumption = 100 units per day ii. Maximum consumption = 150 units per day iii. Normal consumption iv. Re-order period v. Re-order quantity = 120 units per day = 10-15 days = 1500 units

vi. Normal re-order period = 12 days Solution: Re-ordering Level = Maximum Consumption * Maximum Re-order Period
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=150 units * 15 days = 2250 units

Minimum Stock Level = Re-ordering Level (Normal Usage * Normal Re-order Period). = 2250 (120*12) = 810 units

Maximum Stock Level = Re-ordering Level + Re-order Quantity (Minimum Usage * Minimum Re-order Period) = 2250+1500-(100*10) = 2270.

INVENTORY CONTROL SYSTEM

A firm needs an inventory control system to effectively manage its inventory. There are several inventory control system in vogue in practice. They range from simple systems to very complicated systems. The nature of business and the size dictate the choice of an inventory control system. For example, a small firm may operate a two-bin system. Under this system, the company maintains two bins. Once inventory in one bin is used, an order is placed, and meanwhile the firm uses inventory in the second bin. For a large departmental store that sells hundreds of items, this system is quite unsatisfactory. The departmental store will have to maintain a self-operating, automatic computer system for tracking the inventory position of various items and placing order. The techniques most commonly used are the following:

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The Table Showing Salient Features Of ABC Analysis NATURE CATEGORY A CATEGORY B Moderate control Once in 3 months Moderate effort Can be supervised by middle management CATEGORY C Lose control Once in 6 months or once in a year Minimum electrical effort Can be done by electrical staff Annual review 3 reliable sources for each item Follow up in exceptional cases High Decentralized

Extent of control Very strict control Frequency orders Lead time Level of management Frequent ordering Maximum effort to reduce lead time Must be taken care by the senior officials

Period of review Generally after a month Generally after 3 months Source of supplies Follow-up Safety stocks Centralization As many sources as possible for each item Maximum follow up Very low 3 or more reliable sources Period follow up Low

Centralized purchasing Centralized and

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decentralized purchasing JUST-IN-TIME (JIT) SYSTEMS

purchasing

Japanese firm popularized the just-in-time (JIT) system world. In a JIT system material or the manufactured component and parts arrive to the manufacturing sites or stores just few before they are put to use. The delivery of material is synchronized with the manufacturing cycle and speed. JIT system eliminates the necessity of carrying large inventories, & thus, saves carrying & other related costs to the manufacturer. The system requires perfect understanding and coordination between the manufactured and suppliers in terms of the timing of delivery and quality material. Poor quality material or component could halt the production. The JIT inventory system complements the Total Quality Management (TQM). The success of the system depends on how well a company manages its suppliers. The system puts tremendous

pressure on suppliers. They will have to develop adequate systems & procedures to satisfactory meet the needs of manufacturers. OUT-SOURCING A few years ago there was a tendency on the parts of many companies to manufacture all components in-house. Now more and more companies are adopting the practice out-sourcing. Out-sourcing is a system of buying parts and components outside. Rather than manufacturing them internally. Companies develop a single source of supply, and many other help developing small and middle size suppliers of components that they require.
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COMPUTERIZED INVENTORY CONTROL SYSTEMS More and more companies, small or large size, are adopting the computerized system of controlling inventories A computerized inventory control system enables a company to easily track large items of inventories. It is an automatic system of counting inventories, recording withdrawals and revising the balance. There is an in-built system of placing order as the computer notices that the reorder point has been reached. The computerized inventory system is inevitable for large retail stores, which carry thousands of items. The computer information system of the buyers and suppliers are linked to each other. As soon as the suppliers computer receives an order from the buyers system the supply process is activated.

FNSD ANALYSIS FNSD analysis divides the items of stores into four categories in the descending order of importance of their usage rate. F stands for fast moving items that are consumed in a short span of time. Nstands for normal moving items which are exhausted over a period of a year or so. S indicates slow moving items which are not issued at frequent intervals and are expected to be exhausted over a period of two years or more. D means dead items and the consumption of such item is almost nil. INPUT-OUTPUT RATIO

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This ratio is used to judge the efficiency in the usage of material. The ratio indicates the relation between the units of material put in for production and the units of finished product. Input-Output Ratio = Units of Input/Units of Output*100 For example, if 1080 units are introduce into a process and final output is 900 units, then input-output ratio is:1080/900*100=120% VED ANALYSIS Vital, Essential and Desirable analysis is used primarily for control of spare parts. The spare parts are divided into 3 categories keeping in view the criticality production. Vital Spares The spares, stock out of which even for short time will stop production for quite some time and where the cost of stock out is very high, are known as vital spares. Essential Spares The spares, the absence of which cannot be tolerated for more than a few hours or a day and the cost of production is high and which are essential for production to continue, are known as essential spares. Desirable Spares These spares which are needed but their absence for even a week or so will not lead the stoppage if production is known as desirable spares. Some spares though negligible in monetary value, may be vital for the production to continue and requires constant attention. Such spares may not receive the attention they deserve if they are maintained according to ABC analysis because their value of consumption is small. So in that case, VED analysis is made to get effective results.
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MINI MAX SYSTEM This is the one of the oldest methods and still widely used. For each type of inventory a maximum level is set that demand presumably will not exceed as minimum level representing a margin of safety required prevent out of stock conditions. The minimum level also governs the ordinary point. An order of significant size is placed to bring inventory to the maximum point when the minimum level is reached. TWO BIN SYSTEM OR DOUBLE BIN SYSTEM In this system, the stock of each item is separated into 2 piles, bins or groups. In the 1st group a sufficient supply is kept to meet current demand over a designed period of time. In the 2nd group safety stock is available to meet the demand during the lead time necessary to fill the order. When the first bin stock has been exhausted reordering occurs and the stock on the second bin is used requirements.

MATERIAL (INVENTORY) TURNOVER RATIO Inventory turnover ratio indicates the efficiency of a firm selling its products. Generally high inventory turnover ratio indicates a good management. A too high inventory turnover ratio is also be analyzed because it may due to low inventory. Therefore a low and too high inventory turnover is not good for the firm. Cost of goods sold Inventory turnover ratio = ------------------------Average inventory

Raw material consumed Raw material turnover ratio = --------------------------------------Average raw material inventory
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Cost of goods sold Finished goods turnover ratio = -------------------------------Average of finished stock

Average inventory Ratio of inventory to current assets = -----------------------By current assets

THE INVENTORY MANAGEMENT PROCESS

The techniques of inventory management, discussed above, are very useful in determining the optimum level of inventory and finding answers to the problems of the economic order quantity, the re-order point and the safety stock. These techniques are very essential to economise the use of resource by minimizing the total inventory cost. Our discussion of inventory management indicates the broad framework for managing inventories. More sophisticated techniques may be used to handle inventory management problems more efficiently and efficiently. It should, however, be realized that inventory management, more than the use of techniques, is a managerial process of continuous planning, coordination, control and monitoring, motivation etc. it involves a number of steps in these areas.

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The goal of the wealth maximization is affected by the efficiency with which inventory is managed. The task of managing inventory primarily rests with the operating managers-purchase manager; materials control manager, production manager and marketing manager. Financial manager has no operating responsibility to control inventory. He has a role to analyse the behavior of inventory and report its implications to operating managers. The financial manager should see that an optimum amount of funds is invested in inventory. He should be familiar with the inventory control techniques. He should introduce the policies which reduce the lead time, regulate usage and thus, minimize safety stock. The net effect would be to reduce inventory investment and increase the firms prospects of making more profits.

HOW IS A FINANCIAL MANAGER INVOLVED IN INVENTORY MANAGEMENT

The financial executive is only one of the persons in the top management concerned with the levels and fluctuation of investment in inventories. The inventory programme is a part of planning budget, which often falls within the financial area. He plays an important role in determining the general nature of controls exercise the method of balancing the relative cost involved and the measurement of performance of inventory controls. He may have supervisory authority in these areas or he may a member of policy committee with board responsibilities. In smaller firms, he often participates even more directly in the management of inventories.

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The financial officer can do a good job of anticipating change in the need for funds if he thoroughly understands the implication of changing inventory policy and position. He has to help directly in shaping inventory policy where finance is a limiting factor. Good inventory management is a good financial management. The financial executive should pay attention to the following aspects of inventory management. Action taken against imbalance of raw materials and goods in process inventory that may limit the utility of stocks to that items which is in shortest supply The full safety against shortages of inventory has a prohibitive cost. There should, however be reasonable procurement head time assumption and safety stocks level Production schedule, as far as possible, should firmly adhere to reducing inventory of raw material and work in progress goods. In case of a change of a production schedule, purchasing department should get early notification. There should be an efficient system to dispose of goods that are obsolete surplus for production. Continuous efforts have to be made to shorten the production cycle. The larger production runs should be worth the cost and risk of the extra inventory investment. Special pricing policy may be required to extremely slow moving finished items.

Often once is inclined to agree with the observation that a serious look into the inventory accumulation proves highly rewarding. Even if there is no shortage of funds in the business, the financial executive has to participate actively in the formulation of

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inventory policies with a view to speeding inventory turnover ratio and maximizing return on investment. The financial manger is responsible for providing necessary funds to be support the firms investment in inventory. So in order to assess the requirement of funds for inventories, he should be in a position to ask the requirement of inventory and about various methods and techniques that are employed for efficient management of inventories with finance is a concentrate the finance manager should helping preparing inventory policy .a cost benefit analyses has to be made so as to avoid unnecessary blocking of funds in inventory.

3.COMPANY PROFILE
The Indian pharmaceutical industry today is in the front rank of Indias science based industry with wide ranging capabilities in the complex field of drugs manufacturing and technology. It ranks very high in the world, in terms of technology, quality and range of medicines manufactured from simple headaches pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicines is now made in India. The organized sector of the pharmaceutical industry has played a key role in promoting and sustaining development in this vital field. International companies
38

associated with a sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. The pharmaceutical industry in India provides excellent facilities. It has quality producers and regulatory authorities in U.S.A and U.K approve many units. It has a pool of personnel with high managerial and technical competence, as also skilled work force. It track record of development particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. The Indian market has some unique advantages. India has a 61 years old democracy. It has an educated work force and English is commonly used. It has a solid legal frame work and strong financial markets. Professional services are easily available. The country is now committed to free market economy and globalization. Above all, it has 70 million middle class markets, which is continuously growing. For first time in many years the international pharmaceutical industry is finding great opportunities in India. The process of consolidation power, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India. The pharmaceutical industry, with its rich scientific talent and research capabilities, supported by intellectual property protection regime, is well set to mark its place as a sunrise industry.

ADVATAGES TO INDIA
COMPETENT WORK FORCE:

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India has a pool of personnel with high managerial and technical competence, as also skilled work force. It has an educated workforce and English is a commonly used. Professional service is easily available. COST-EFFECTIVE CHEMICAL SYNTHESIS: It track record of development particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. LEGAL AND FINANCIAL FRAMEWORK: India has a 61-years-old democracy and hence has a solid legal framework and strong financial markets. There is already established international industry and business community. INFORMATION TECHNOLOGY: It has a good network of world class educational institutions and established strengths in Information technology.

THE GROWTH SCENAARIO

Indias US$ 3.1 billion pharmaceutical industry growing at the rate of 14% per annum. It is one of the largest most advanced among the development countries. Over 20,000 registered pharmaceutical manufactures exist in the country. The domestic pharmaceutical industry output is expected to exceed Rs. 260 billion in the financial year 2002, which accounts nearly 1.3% of the pharmaceutical sector. Of this, bulk drugs will accounts for Rs.54 billion (21%) formulations, the remaining Rs.210 billion (79%). In financial year 2001, imports for Rs.20 billion while exports were Rs.87 billion.
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STEPS TO STRENGTHEN THE INDUSTRY

India Company needs to attain the right product-mix for sustained future growth. Core competencies will play an important role in determining the future of many Indian pharmaceutical companies in the post product patent regime after 2005. Indian companies in an effort to consolidate their position will have to increasing the look at merger acquisition options of either companies or products. This would help them to offset loss of new products options, improve their R&D effort and improve distribution to penetrate markets. R&D has always taken the back seat amongst Indian pharmaceutical companies. In order to say competitive, in the future Indian companies will have refocus and invest heavily in R&D. The Indian pharmaceutical industry also need to take advantage of the research advances in Bio-technology and IT. The future of the industry will be determined by how well it markets its products to several regions and distribute risk, Is forward and backward integration capabilities, its R&D, its consolidation through mergers and acquisition, co-marketing and licensing agreement. Profit margins of players vary widely in both domestic and export sales due to many factors.

EXPORTS
Over 60% of Indias bulk drug production is exported. the balance is sold locally to other formulation Indias pharmaceutical export are to the tune of Rs.87 billion of which formulation contribute nearly 55% and the rest 45% comes from bulk drugs. In financial year 2000, exports grown by 21%. Indias pharmaceutical imports were to the tune of rs.20.3 billion in financial year2001. Imports are registered a CAGR of only 2% in the past 5 years. Imports of bulk drugs have been reduced in the recent years. The exports of pharmaceuticals during the
41

years 1989-1999 were Rs.49780 million. From a merger Rs. 46 crores worth of pharmaceutical, drugs and fine chemicals exports in 1980-1981, pharmaceutical exports has rise to approximately to Rs. 6152 crores a rise of 11.19% against the last year export. Amongst the total export of India the percentage share of drugs, pharmaceuticals and fine chemicals during April & October (2000-01) was 4.1% an increasing of 7%.

RESEARCH & DEVELOPMENT

It is a key of the future of pharmaceutical industry. The pharmaceutical advance for considerable improvement in life expectancy and health all over in the world are the result of steadily increasing investment in research. There is considerable scope for collaborative R&D community. These strengths related to availability of excellent scientific talents who can develop combinatorial chemistry, new synthetic molecules and plant derived candidate drugs. R&D in pharmaceutical industry in India is critical to find answers for some of the diseases peculinar to a tropical country like India and also for finding solutions for UN served medical needs. Industry R&D group can carry out limited primary screening to identify lead molecules or even candidate for further vivo screening, pre-clinical pharmaceutical , toxicology, animal & human pharma co kinetics and metabolic studies before taking them up for human trail. In such collaborations, harmonize standards of screening can be assured following establishing good laboratory practices. The R&D expenditure by Indian pharmaceutical industry is around 1.9% of the industry turnover. This obviously, is very low when compared to the investment on R&D by foreign research based pharma companies. They spend 10-16% of the turnover on R&D. However, now that India is entering into the patent protection area , many companies are spending relatively more on R&D. when it comes to clinical evaluation at the time of multi-center trials, India would provide a strong based considering the real availability of
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clinical materials in diverse therapeutic areas. Such active collaboration will be mutually beneficial to both partners. According to survey by the pharmaceutical outsourcing management association and bio/pharmaceutical outsourcing report, pharmaceutical companies are utilizing substantially the service of contract research organization (CRO), Indian pharmaceutical industry, with its scientific talents provides cost effective clinical trial research. It has an excellent record of developing of improved cost beneficial chemical synthesis for various drug molecules. Some MNCs are already sourcing these services from their Indian affiliates. The pharmaceutical and biotechnology industry is eligible for weight deduction for R&D expenses up to 150%. These R&D companies will go also enjoy tax holiday for 10 years. A promotional research and development funds of Rs.150Cr is setup by the government to promote R&D in the pharmaceutical sector. Ever since its
inception in 1984, At Dr. Reddy's we aim at providing affordable and innovative medicines for healthier lives. We serve societys important needs for affordable medicines through the API component of PSAI and the Global Generics business, and for innovative products that solve unmet medical needs through the CPS component of PSAI and the Proprietary Products Businesses.

Headquartered in India, we are a global pharmaceutical company with a presence in more than 100 countries. We have wholly-owned subsidiaries in the US, UK, Russia, Germany and Brazil; joint ventures in China, South Africa and Australia; representative offices in 16 countries; and third-party distribution set ups in 21 countries. Dr. Reddys is the first pharmaceutical company in Asia outside of Japan to be listed on the NYSE. Our strong portfolio of businesses, geographies and products gives us an edge in an increasingly competitive global market and allows us to provide affordable medication to people across the world, regardless of geographic and socio-economic barriers.

What We Are
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Dr. Reddys is a global, vertically integrated pharmaceutical company with a presence across the value chain, producing and delivering safe, innovative, and high quality finished dosage forms, active pharmaceutical ingredients and biological products. Our products are marketed across the globe, with an emphasis on North America, Europe, India, Russia and other emerging markets. We conduct NCE drug discovery research in the areas of metabolic disorders and cardiovascular indications at our research facilities in Atlanta (USA) and Hyderabad (India). Through our Custom Pharmaceutical Services business unit, we provide drug substance and drug product development and manufacturing services on a proprietary basis.

CORPORATE OVERVIEW
We are An Integrated Global Pharmaceutical Company Our Purpose: Providing affordable and innovative medicines for healthier lives Our Vision: To be a top 20 global pharmaceutical company by 2020 Dual Impact Approach
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Improve accessibility through generic pharmaceuticals Satisfy unmet medical needs through new and improved pharmaceuticals

Our values
We strive for excellence in everything we think, say and do

PHARMACEUTICAL SERVICES & ACTIVE INGREDIENTS

Active Pharmaceutical Ingredients (API)

Our capabilities span 24 major chemistries including stereo-selective synthesis, cryogenics, hydrogenations and cyanations. Our strong IP, Regulatory and Analytical skills
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are evident in the 84 US DMFs we have filed, the highest in India and second highest in the world. Our manufacturing facilities are capable of supporting the product development effort through the concurrent scale-up and piloting of feasible routes as they are developed by the R&D teams. State-of-the-art equipment and instruments give us the edge to compete globally. Our operations are fully integrated through supply-chain and ERP systems (SAP R/3), which enable seamless response to customers, all the while keeping the environment around our plants clean, green and safe. Custom Pharmaceutical Services (CPS)

In an industry cluttered with chemical manufacturers, CPS stands out because of our understanding of the pharmaceutical business and the associated expertise needed. Rather than just being a chemical provider, CPS offers a service mix covering the entire pharmaceutical value chain. We execute cost-effective and time-bound projects for our customers, and provide them with GMP-compliant products manufactured in FDAinspected, ISO-certified facilities. A team ofexperienced project manager ensures smooth progress of projects from initiation to closure in order to avoid any cost and time overruns.

GLOBAL GENERICS
Generic Formulations

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Geographic diversification, cost containment, strengthening our product portfolio and building scale we at Dr. Reddys are strong in all these aspects in the generics space. We are now the fourth largest player in Germany after the acquisition of betapharm, and are constantly looking for opportunities to maximize the potential of our current and future portfolio in different territories across the US and EU. We have the necessary expertise for customer-specific packaging, compliance packaging, and anti-counterfeit packaging. In fact, Dr. Reddys has won several awards globally for our packaging efforts, including the Asia Star, AmeriStar and WorldStar awards.

Branded Formulations

Dr. Reddys brands are today recognized and trusted across several continents. Brands like Omez (Omeprazole), Nise (Nimesulide), Stamlo (Amlodipine), Ciprolet (Ciprofloxacin), Enam (Enalapril) and Ketorol (Ketorolac) are leaders in their category in several countries, with many of them being used by more patients than use the innovators
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product. Over 1.5 million patients across the world take Omez for their acid peptic disorders every single day! Entrepreneurship, coupled with the will to make a difference drives our 2,000-strong field force to reach out to over 210,000 doctors and 115,000 pharmacies in more than 40 countries across the world More than 200 brands collectively Top Brands Omez (Omeprazole) No. 1 in 14 countries Stamlo (Amlodipine) No. 1 in 8 countries Nise (Nimesulide) No. 1 in 7 countries Ciprolet (Ciprofloxacin) No. 1 in 5 countries Ketorol (Ketorolac) No. 1 in 5 countries Enam (Enamapril) No. 1 in 2 countries

PROPRIETARY PRODUCTS
Discovery Research

We have put in place a state-of-the-art, fully-integrated discovery infrastructure to strengthen our effort to discover and develop therapeutically useful New Chemical Entities (NCEs) and market them globally. Our two Discovery Research centers one in Atlanta,

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USA, and the other in Hyderabad, India, have more than 300 scientists actively involved in a number of drug-discovery and clinical development programs. Differentiated Formulations

Our Differentiated Formulations business deals with assets like acquired proprietary technologies, internally developed proprietary drug-delivery platforms, and current internal compounds under pre-clinical and clinical development. Our initial global therapeutic area focus is on dermatology and oncology, two therapeutic areas that best leverage our internal assets. A key component of the strategy in this area is a strong, targeted business development effort to accelerate market entry. Biopharmaceuticals

Our Biologics Development Center spans an area of 36,000 sq. ft., with development and manufacturing suites for both E. coli and mammalian cell culture. It caters to the highest development standards of cGMP, GLP and applicable levels of bio-

49

safety. Grafeel (Filgrastim), our first biologics product to enter the market, enjoys a market share of almost 50% in India and has been able to reach many more patients than the innovators product due to its affordability. Our second product Reditux (Rituximab) is the first biosimilar monoclonal antibody to be developed and launched anywhere in the world.

The Management Team

The Management Council is the top tier of our company's management structure. The management of Dr. Reddy's has developed and implemented policies, procedures and practices that attempt to translate the company's vision, mission and purpose into reality. The management also identifies, measures, monitors and controls the risks factors in the business and ensures safe, sound and efficient operation. The Management Council meets every quarter under the chairmanship of the CEO.

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Dr. Anji Reddy

Chairman

Dr. Anji Reddy is the founder-Chairman of Dr. Reddy's Laboratories, and is greatly respected by the Indian Pharmaceutical industry for his work in developing affordable medicines and for sparking drug discovery efforts in the private sector. A philanthropist, Dr. Anji Reddy has founded two not-for-profit organizations that are focused on alleviating urban poverty and providing primary education to underprivileged children. G V Prasad
Vice-Chairman and Chief Executive Officer

GV Prasad drives the overall strategy for the organization, with particular emphasis on innovation and growth. He spearheaded the company's foray into the global generics markets and is now focused on the Innovative Products business, which includes Discovery Research, Biologics and Specialty Pharmaceuticals.

Satish Reddy Managing Director and Chief Operating Officer Satish Reddy drives operational excellence across the organization. He has built the finished dosage business in the emerging markets, including India, and is now focused on strengthening the global generic finished dosage business and giving more attention to the Pharmaceutical Services and Active Ingredients.

Key milestones
2008 Acquires BASFs Pharmaceutical manufacturing contract business and related facility at Shreveport, Louisiana Acquires Dowpharmas small molecule business at its Mirfield and Cambridge facilities, UK. 2007 Becomes No.1 pharmaceutical company in India in turnover and profitability.
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Launches Reditux (Rituximab) the Worlds first biosimilar of a monoclonal antibody. Blaglitazone (DRF 2593) enters Phase III of clinical trials becoming Indias most advanced NCE.

2006 Revenues touch USD 1 Billion in December 2006. Dr. Reddy's obtains its second 180-day marketing exclusivity for a generic drug in the US market with the launch of Ondenesetron Hydrochloride Tablets. Becomes an Authorized Generic Partner for Mercks Proscar & Zocor in the US market during 180 day exclusivity period. Acquires betapharm- the fourth-largest generics company in Germany for a total enterprise value of 480 million. 2005 Acquires Roche's API Business at the state-of-the-art manufacturing site in Mexico with a total investment of USD 59 million. Announces India's first major co-development and commercialization deal for it's molecule Balaglitazone (DRF 2593), with Rheoscience. Announces a unique partnership for the commercialization of ANDAs with ICICI Venture. 2004 2003 Announces a 15-year exclusive product development and marketing agreement for OTC drugs with Leiner Health Products in the US. Launches Ibuprofen, first generic product to be marketed under the Dr. Reddys label in the US 2002 Conducts its first overseas acquisition BMS Laboratories Limited and Meridian Healthcare in UK.
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Acquires Trigenesis gives access to drug delivery technology platforms

2001 Becomes the first Asia Pacific pharmaceutical company, outside Japan, to list on the New York Stock Exchange. Listed with the symbol RDY on April 11, 2001. Launches its first generic product, Ranitidine, in the US market Becomes the first Indian pharmaceutical company to obtain an 180-day exclusive marketing rights for a generic drug in the US market with the launch of Fluoxetine 40 mg capsules on August 3, 2001. 2000 Dr. Reddy's Laboratories becomes India's third largest pharmaceutical company with the merger of Cheminor Drugs Limited, a group company Reddy US Therapeutics, a wholly-owned subsidiary, is established at Atlanta, US to conduct target based drug discovery 1999 Acquisition of American Remedies Limited, a pharmaceutical company based in India. 1998 Licenses anti-diabetic molecule, DRF 2725 (Ragaglitazar), to Novo Nordisk

1997 Licenses anti-diabetic molecule, DRF 2593 (Balaglitazone), to Novo Nordisk. Becomes the first Indian pharmaceutical company to out-license an original molecule. First ANDA filed with the United States Food and Drug Administration for Ranitidine. 1996 Sets up of a Joint Venture in Russia.
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1994 Makes a GDR issue of USD 48 million Foundation stone laid for a finished dosages facility to cater to the highly regulated markets such as the US. 1993 Dr. Reddy's Research Foundation established. The company's drug discovery programme starts 1991 1990 Dr. Reddys, for the first time in India, exports Norfloxacin and Ciprofloxacin to Europe and Far East. 1988 1987 Obtains its first USFDA approval for Ibuprofen API Starts its formulations operations Acquires Benzex Laboratories Pvt. Limited to expand its Bulk Actives business. First formulation exports to Russia commence

1986 1984 Dr Anji Reddy establishes Dr. Reddy's Laboratories with an initial capital outlay of Rs.25 lakhs
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Dr. Reddys goes public Dr. Reddys listed on Bombay Stock Exchange (BSE) Dr. Reddys enters international markets with exports of Methyldopa

Sustainability - Safety Health and Environment Policy

We at Dr. Reddys consider safety, health and environment protection an integral part of our business. We are committed to the principles of sustainable development. As a part of this commitment, we protect the environment in which we operate and ensure the health and safety of our employees, contractors, visitors and communities. All employees are responsible for being aware about safety, health and environment needs in their areas of work. We expect them to participate actively in developing solutions to fulfill these needs and establish a high level of safety, health and environment performance.The SHE policy shall be communicated to all employees and will also be made available to the public on request.In order to implement various elements of our SHE Policy we have created the suitable organization structure for SHE Management System

Sustainability - Social Initiatives

We at Dr. Reddys take pride in the companys mission to help people lead healthier lives. This objective is achieved by increasing access and affordability of medicines through the companys generics, API and branded generics products, and by addressing unmet medical needs by innovation through its Specialty and NCE businesses. We see Social Initiatives as an integral component of Corporate Social Responsibility. Our investments in the community have gone beyond the adhoc disbursement of funds, to planned programs in capability building. We do this by supporting the following organizations: Dr. Reddys Foundation
55

The Naandi Foundation Dr. Reddy's Foundation For Health Education (DRFHE) The Centre for Social Initiative & Management (CSIM) Our Social Initiatives do not involve just the community, but employees as well. By

including employees in our definition of Social Initiatives, the company ensures that the initiators also figure among the beneficiaries.

Worldwide employees : 10000+ 1700+ 3300+ 3300 + 45 + : Research & Scientific staff : Marketing & Sales force : Manufacturing staff : Nationalities

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GLOBAL PRESENCE

Corporate Office Dr. Reddy's Laboratories Ltd. 7- 1 - 27 Ameerpet, Hyderabad 500 016, India. Tel: +91-40-23731946 Fax: +91-40-23731955 Email: [email protected]

Headquartered in Hyderabad, India. We enjoy a wide global presence and an extensiveMarketing network through international subsidiaries and joint ventures. Our Global presence leads to a sensitive understanding of the local laws in the countries where our company has a presence. Global commercialization infrastructure with focus on US, Europe, India, and Russia. Manufacturing locations in India, UK, US, China and Mexico. Research and development locations in India and the US. Wholly-owned subsidiaries in the US, UK, Russia, Germany, Brazil, New Zealand, Turkey and Mexico. Joint Ventures in China, South Africa and Australia. Representative Offices in 16 countries. Third party distribution setups in 23 countries.

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79% of the company's revenues in FY08 came from geographies outside India.

AWARDS & ACHIEVEMENTS

BSE & NASSCOM Foundation Social & Corporate Governance Award for Best CSR Initiative. Global HR Excellence Awards 2008-09, Asia Pacific HR Congress. Best Workplaces 2008 In Biotech / Pharma Industry Sector, The Economic Times. Best Performing CFO in the Pharma Sector for 2007, CNBC-TV18. NDTV Profit Business Leadership Awards 2007, Business Leader in the Pharmaceutical Sector. Amity Leadership Award for Best Practices in HR in Pharmaceutical Sector, 4th HR Summit 08. Dun & Bradstreet American Express, Corporate Awards 2007, Top Indian Company. Pharma Excellence Awards 2006-07 for Corporate Social Responsibility, for Sustained Growth and for Shareholder Protection _ The Indian Express. Asia Pacific HRM Recruiting and Staffing Best in class Award 07-08 for best use of Technology Golden Shield Award for Excellence in Financial Reporting by ICAI, 2008. Economic Times Corporate Excellence Award Best Corporate Citizenship 2008.

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4. DATA ANALYSIS & INTERPRETATION

59

DATA OF INVENTRIES IN Dr. REDDY LAB (UNIT- IV TH BLOCK)

INVENTORY TREND WITH RESPECT TO TURNOVER

Year
2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Material Inventory
34315593 53657482 59247801 81485686 84068811

Production Inventory
85788982 127667802 148119504 193879736 210172029

Engineering Inventory
2451114 3700516 4231986 5619702 6004915

Total Inventory
122555689 185025800 211599291 280985124 300245755

Turnover
784578687 972625415 1081139341 1976597554 1600863896

INVENTORY TURNOVER RATIO

Year

Total Inventory
122555689 185025800 211599291 280985124 300245755

Average Inventory
122555689 153790745 198312546 246292208 290615440

Inventory Turnover Turnover ratio

784578687 972625415 1081139341 1976597554 1600863896 6.40 6.32 5.45 8.03 5.51

2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

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VARIOUS INVENTORIES
25000000

20000000

15000000 MATERIAL 10000000 PRODUCTION ENGINEERING

50000000

0 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

INTERPRETATION: The above graph is showing the various amounts of inventory (Material, Production & Engineering) used in the last 5 years. Material usage in every year go on increasing especially production inventory usage is very high which is indicating the good production level of the company.

INTERPRETATION:

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This graph is showing the amount of material purchased during the 5 years. The purchases of company is regularly in the increasing trend. However it is find that, the company made more purchases in the year 2004-05 in comparison with 2003-04. after that, again the company made more investment in purchases for the year 2006-07. So , I could be expected that again the company need more amount to purchase inventory for the year 2008-09.

INTERPRETATION: It is observed the there is more increase in the usage of production inventory during the years 2004-05 & 2006-07 which is showing the more amount of production carried for that years.

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ENG INEERINGINVENTORY
7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2003-20042004-20052005-20062006-20072007-2008 2451114 3700516 ENGINEERING INVENTORY 4231986 5619702 6004915

INTERPRETATION: It is observed the there is an increase in the usage of engineering inventory during the years. There is more increase in the usage of engineering inventory during the years 2004-05 & 2006-07.

TREND ANALYSIS
The term trend is very commonly used in day to day operation. For example we often talk of increasing the rising trend of share market, population, prices etc, trend also called secular or long term trends in the basic tendency of production, sales, income, employment, etc, to grow or decline over a period of time. There are all sorts of trends, some series increase slowly and some increase fast, others decreasing at varying rates, some remain relatively constant for a long period of

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time, and some after a period of growth or decline reverse themselves and enter a period of decline or growth. Formula for calculating trend y= a + bx Y a = -------N XY b = -------X2 Where, x = years Y=inventory N= total no. Of years

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TREND ANALYSIS FOR INVENTORY Table showing trend analysis for inventory Year(x) Inventory (y) X= (x2006) 2004 2005 2006 2007 2008 122555689 185025800 211599291 280985124 300245755 Y= 1100411659 Y = a + bx Y a = -------N 1100411659 = -----------------5 = 220082332 XY b = -------X2 411339456 = ---------------16 = 25708716 -2 -1 0 1 2 X= 3 4 1 0 1 4 X2=16 -245111378 -185025800 0 280985124 600491510 XY= 451339456 168664900 194373616 220082332 245791048 271499764 2X XY Trend value

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Substitute these values into the equation y = a+bx Estimated inventory for the coming 5 years

Year 2009 2010 2011 2012 2013 INTERPRETATION:

Estimated inventory 297208480 322917196 348625912 374334628 400043344

Estim atedinventory
45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 50000000 0 2009 2010 2011 2012 2013 Estim ated inventory 297208480 322917196 348625912 374334628 400043344

The above table shows a positive trend of the inventory for the coming four years. Material usage in every year go on increasing especially production inventory usage is very high which is indicating the good production level of the company.

TREND ANALYSIS FOR TURNOVER (sales) Table showing trend analysis for turnover (sales)
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Year(x)

Turnover (y)

X= (x2006)

2X

XY

Trend value

2004 2005 2006 2007 2008

784578687 972625415 1081139341 1976597554 1600863896 Y= 6415804893

-2 -1 0 1 2 X= 3

4 1 0 1 4 X2=16

-1569157374 -972625415 0 1976597554 3201727792 XY= 2636542557

953593159.4 1118377069 1283160979 1447944889 1612728799

Y = a + bx Y a = -------N 6415804893 = -----------------5 = 1283160979 XY b = -------X2 2636542557 = ---------------16 = 164783910 Substitute these values into the equation y = a+bx Estimated inventory for the coming 5 years

Year
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Estimated turnover

2009 2010 2011 2012 2013

1777512708 1942296618 2107080528 2271864438 2436648348

INTERPRETATION: The above table shows a positive trend of the turnover for the coming five years.

Estim atedturnover
30000 25000 20000 17775.12708 15000 10000 5000 0 2009 2010 2011 2012 2013 19422.96618 22718.64438 24366.48348 21070.80528

Estimated turnover

ABC INVENTORY CONTROL SYSTEM

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Large numbers of firms have to maintain several types of inventories. It is not desirable to keep the same degree of control on all the items. The firm should pay maximum attention to those items whose value is the highest. The firm should, therefore, classify inventories to identify which item should receive the most effort in controlling. The firm should be selective in its approach to control investment in various types of inventories. This analytical approach is called the ABC analysis & tends to measure the significance of each item of inventories in terms of its value. The high value items are classified as A items & would be under the tightest control. C items represents relatively least value & would be under simple control. B items fall in between these two categories & require reasonable attention of management. The ABC analysis concentrates on important items & also known as control by

importance & exception (CIE) The following steps are involved in implementing the ABC analysis: Classify the items of inventories, determining the expected use in units & the price per unit for each item. Determine the total value of each item by multiplying the expected units by its unit price. Rank the items in accordance with the total value, giving first rank to the item with highest total value & so on. Compute the ratios of number of units of each item to total units of all items & the ratio of total value of each item to total value of all items.
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Combine items on the basis of their relative value to form three categories-A, B & C.

ABC ANALYSIS Items Units % of Total 1 2 3 4 5 6 7 Total 10,000 5,000 16,000 14,000 30,000 15,000 10,000 100,000 10 5 16 14 30 15 10 Cumulativ e% 15 45 100 Unit price (Rs) 30.40 51.20 5.50 5.14 1.70 1.50 0.65 Total cost (Rs) 304,000 256,000 88,000 72,000 51,000 22,500 6,500 800,000 % of Total 38.00 32.00 11.00 9.00 6.38 2.81 0.81 Cumulative % 70 90 100

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35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Series1 Series2 Colum n1

The tabular & graphic presentation indicates that Item A forms a minimum proportion, 15 % of total units of all items, but represent the highest value of 70 %. On the other hand, Item C represents 55 % of the total units & only 10 % of the total value. Item B occupies the middle place. Represents 40% of the total units & only 20 % of the total value.

WE CAN NOW QUANTIFY THE DEPTH OF THE INVENTORY MANAGEMENT SYSTEM BY COMPLETING THE TABLE.

If your yes response rate is Higher than 95%

Inventory management system is EXCELLENT! There is little improvement anybody will be able to bring about. You may waste time & money if you try to improve on your management system. VERY GOOD! Additional improvement can be made, but they will most likely require an upgrade of your data processing system GOOD! Your management system needs to be reviewed. However, analyzing your negative response will give you an indication of where to start improving your methods. The
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Between 90 & 95%

Between 80 & 90%

benefits will be tangible and will come quite rapidly Between 70 & 80% FAIR! Your approach to managing inventories is incomplete and outdated, you can make substantial improvements. Your inventories performance is worse than your competitors POOR! Your inventories need major redesign. Your inventory turnover is poor an expertise appears to be missing in your company to manage inventories. You need to take a firm action and define a long plan of action UNACCEPTABLE! You should redesign all your methods from ground zero. Establish a task force to study inventory management with in your company to stop the inventory drain on your cash balances

Between 60 & 70%

Less than 60%

ANALYZING THE RESULTS Total number of questions 1. Subtract the number of N/A responses 2. Total number of applicable questions 3. Total number of yes responses 4. Percentage yes responses (49) divided by the total number of applicable questions (60) 60 60 49 81.6%

CALCULATING THE SCORE

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The percentage of yes response computed in items above with be a first indicator of the quality of the overall management system. The table above enables you to compare the yes response rate against a scale that will put the companys in perspective

ANALYSIS IN RESPECT TO DR.REDDYS LABORATORIES By filling the above questionnaire with the expert opinion of some responsible executives, we came to a conclusion that the inventory management is Good! Since it is lying in the range of 80 to 90%. This means that the inventory management is quite satisfactory. However it is to be reviewed. The negative responses should be scrutinized and by doing so the benefits will come quite rapidly

5. FINDINGS

The firm has focusing more on efficient use of ABC (always better control) technique.

Presently company maintains adequate inventory turnover ratio as a pharmaceutical company it exhibits good signs. There was good

coordination between the Marketing, planning, procurement, production and distribution functions of DRL, higher inventory turnover was possible.

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The company maintains balanced position on Raw Material at cost. For few finished products, most of the important raw materials are either self manufactured or procured locally.

There is more increase in the usage of production inventory during the years 200405 & 2006-07 which is showing the more amount of production carried for that years.

The trend analysis for total inventory is showing that, after five years the total inventory will exceed more than 40 crores.

The trend analysis for turnover (sales) is showing a significant increase in the coming years.

SUGGESTIONS
For inventory control it is advisable to the firm to use JIT (just in time) it helps to the company by way of minimization in holding cost because all items are value based. Company may try to order annually rather than monthly depending upon demand for the products.

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Once non-moving inventory is observed and declared a quick disposal action has to be initiated this exercised has to be carried on through the year.

CONCLUSION
In this project an attempt has been made to study the underline principles of inventory management by using some of the tools & techniques. The main objective of this project is to analyze the inventory management from the FINANCE angle . All the analytical work was done by keeping view of the finance aspect. Necessary theory has been provided to support & analyze the inventory management. 75

The trend of materials inventory, production inventory, engineering inventory & turnover inventory has been made with authentic figures which were scrutinized by some responsible heads. The figure of turnover has been taken from reliable sources which is the most accurate and authentic data. The inventory turnover ratios have been calculated for the past 5 years & also calculated the trend analysis of the future, Total Inventory & Turnover for 5 years to analyze the trend. This is the most important tool for the Finance Manager to assess the situation. The questionnaire on the inventory management was designed in such a way that it covers inventory management of raw materials, work in process & finished goods. By doing so, I was able to access, in general, the inventory management of the company. A through scrutiny of contribution of various authors has been done in order to reach the depth of the subject. Thus this project gives the company a very clear picture of their inventory management. The analysis can help the organization in framing some important policies on inventories & also facilitate them in decision making on inventories, which can decided the position of the organization in the industry.

BIBLOGRAPHY

TEXT BOOKS

Financial Management- AUTHOR-PRASANNA CHANDRA-NEW DELHI Financial Accounting-AUTHOR-R. NARAYANASWAMY

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Financial market and services-AUTHOR-GORDAN&NATRAJANGURGEON

NEWS PAPER:

Economic times Times of india Business standard

Websites

www.inventorymanagement.com www.drreddys.com www.edelweiss.com www.vikaspublishing.com www.phindia.com

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