Inventory and Store Management Hmt Tools Limited Industries

8/10/2019 Inventory and Store Management Hmt Tools Limited Industries

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A PROJECT REPORT ONINVENTORY AND STORE MANAGEMENT

OFHMT TOOLS LIMITED INDUSTRIES LIMITED

HYDERABAD


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ACKNOWLEDGEMENT

Behind every successful achievement lies great contribution

by those without whom that could have been achieved to

them, although more words of gratitude is insufficient for

their unlimited contribution, I take this opportunity to revel

my heart felt gratitude imprinted deep within me. I am very

much thankful to the finance manager Mr. MURALI

KRISHNA GARU and the staff of HMT TOOLS LIMITED

Industries for giving encouragement and their kind

cooperation. I am extremely grateful to Mr.

SOMASUNDARAM assistant general manager (IR & HRD)

of HMT TOOLS LIMITED; kindly guiding me without

whose kind help it would not have been possible for me to

complete this project work. I wish to express my sincere

thanks to (H.O.D) & Guide and also the management and staff

of my college for providing the guidance and support.

B.BABU


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DECLARATIONS

I here by declare that the enclosed project entitled

INVENTORY AND STORE MANAGEMENT done at

HYDERABAD in HMT TOOLS LIMITED is submitted to

JNTU , HYDERABAD in partial fulfillment of MASTER

OF BUSINESS ADMINISTRATION, the project is an

original work done by me and to the best of my knowledge

this work is not submitted to any other university or college

for award of any other degree, diploma or fellowship.

B.BABU


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CONTENTS

TOPICS PAGE NO.

CHAPTER- I 1

INTRODUCTION

NEED OF THE STUDY

OBJECTIVE OF THE STUDY

METHODOLOGY OF THE STUDY

LIMITATION OF THE STUDY

CHAPTER- IV 18-58

CONCEPTUAL BACKGROUND

CHAPTER- III 5-17

ORGANISATIONAL PROFILE

CHAPTER- V 59-77

ANALYSIS AND ITERPRETATION

CHAPTER- VI 78-81

CONCULSIONS & SUGGESTIONS

BIBLIOGRAPHY


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CHAPTER I

INTRODUCTION


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INVENTORY MANAGEMENT

INTRODUCTION:

The materials means and includes the goods an services being sold by the firm and the

raw materials are other components being used in the manufacturing of such goods and

services. A retail shop keeper keeps an inventory of finished goods to be offered to customers

when ever demanded by them. On the other hand, a manufacturing concern has to keep a

stock pile of not only the finished goods it is producing, but also of all physical ingredients

being used in the production process.

inventories are assets o f the firm, and as such they represent an investment. Because such

investment requires a commitment of funds, mangers must ensure that the firm maintains

inventories at the correct level. If they become too large, the firm loses the opportunity to

employee those funds more effectively. Similarly, if they are too small, the firm may lose

sales. Thus, there is an optimal level of inventories and there is an economic order quantity

model for determining the correct level of inventory.

In a complex industry like HMT TOOLS Limited it studied clearly of how the thing

are being performed and what is the real impact of these on industry and how effectively the

inventory is utilized is interested to be known by researcher because of its great significance

in the research.


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NEED OF THE STUDY:

Every industry on average spends 70% - 80% on raw materials (inventory). Therefore

there is a need to know the raw material cost and also there is great importance to understand

the inventory management system of this industry.

The study helps a log to various departments to take steps to control the inventory

process.

OBJECTIVES OF THE STUDY:

1. To examine the organization structure of inventory management in the stores of

HMT TOOLS LIMITEDs.

2. To discuss pattern, levels and trends of inventories in HMT TOOLS LIMITEDs.

3. To understand the various inventory control techniques followed by studies in

HMT TOOLS LIMITEDs.

4. To access the performance of inventory management of the HMT TOOLS

LIMITEDs by selected accounting ratios.

5. To know the inventory control techniques of HMT TOOLS LIMITEDs.


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METHODOLOGY OF THE STUDY:

The study is based on both primary and secondary data.

Primary Data: Consists of information gathered for some specific purposes and primary

data is also that u collects through researches, surveys and experiments.

The collected data is tabulated and suitable interpretation had been made by

considering the data collection through secondary data like annual reports purchase registers,

storage records of the organization.

LIMITATIONS OF THE STUDY:

The study has the following limitations:

1. The study is limited only for a period of 5 years i.e., from 2003 04 to 2007 08.

2. The limitations of ratio analysis can be applicable of the study.

3. There may be approximation in calculating ratios and taking the figures from the

annual reports.
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CHAPTER II

REVIEW OF LITERATURE


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CONCEPTUAL BACKGROUND

The investment in inventories constitutes the most significant part of current assets /

working capital in most of the undertakings. Thus, it is very essential to have proper control

and management of inventories.The purpose of inventory management is to ensure availability of materials in

sufficient quantity as and when required and also to minimize investment in inventories.

Meaning and Nature of Inventory:

In accounting language, inventory may mean the stock of finished goods only. In a

manufacturing concern, it may include raw materials, workin progress and stores etc.,

Inventory includes the following things:

a) Raw Material : Raw material from a major input into the organization. They arerequired to carry out production activities uninterruptedly. The quantity of raw

materials required will be determined by the rate of consumption and the time

required for replenishing the supplies. The factors like the availability of raw

materials and Government regulations etc., too affect the stock of raw materials.

b) Work in progress : The work in progress is that stage of stocks which are in

between raw materials and finished goods. The quantum of work in progress

depends upon the time taken in the manufacturing process. The quantum of workin progress depends upon the time taken in the manufacturing process. The greater

the time taken in manufacturing, the more will be the amount of work in progress.

c) Consumables : These are the materials which are needed to smoother the process

of production but they act as catalysts. Consumables may be classified according

to their consumption add critically. Generally, consumable stores doe not createany supply problem and firm a small part of production cost. There can be

instances where these materials may account for much value than the raw

materials. The fuel oil may form a substantial part of cost.

d) Finished goods : These are the goods, which are ready for the consumers. The

stock of finished goods provides a buffer between production and market, the

purpose of maintaining inventory is to ensure proper supply of goods to

customers.


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e) Spares : The stock policies of spares fifer from industry to industry. Some

industries like transport will require more spares than the other concerns. The

costly spare parts like engines, maintenance spares etc., are not discarded after

use, rather they are kept in ready position for further use.

All decisions about spares are based on the financial cost of inventory on such spares

and the costs that may arise due to their non availability.

BENEFITS OF HOLDING INVENTORIES

Although holding inventories involves blocking of a firms and the costs of storage

and handling, every business enterprise has to be maintain certain level of inventories of

facilitate un interrupted production and smooth running of business. In the absence of

inventories a firm will have to make purchases as soon as it receive orders. It will mean loss

of time and delays in execution of orders which sometimes may cause loss of customers and

business.

A firm also needs to maintain inventories to reduce ordering cost and avail quantity

discounts etc.

There are three main purpose of holding inventories.

1. The transaction motive : This facilitates continuous production and timely execution

of sales order

2. The precautionary motive : This necessitates the holding of inventories for meeting

the unpredictable changes in demand and supplies of materials.

3. The speculative motive : This induces to keep inventories for taking advantage of

price fluctuations, saving in re ordering costs and quantity discounts.

RISK AND COSTS OF HOLDING INVENTORIES

The holding of inventories involves blocking of firms funds and incurrence of capital

and other costs.

The various costs and risks involved in holding inventories are:


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Capital costs: Maintaining of inventories results in blocking of the firms financial

resources. The firm has therefore to arrange for additional funds to meet the cost of

inventories.

The funds may be arranged from own resources or from outsiders. But in both the

cased, the firm incurs a cost. In the former case, there is an opportunity cost of investment

while in the later case; the firm has to pay interest to t he outsiders.

1. Storage and Handling Costs : Holding of inventories also involves costs on storage

as well as handing of materials. The storage of costs include the rental of the godown,

insurance charges etc.

2. Risk of Price decline : There is always a risk of reduction in the prices of inventories

by the supplies, competition or general depression in the market.

3. Risk of Obsolescence : The inventories may become absolute due to improved

technology, changes in requirements, change in customer tastes etc.

4. Risk Determination in quality : The quality of materials may also deteriorate while

the inventories are kept.

Objects of Inventory Management

Definition of Inventory Management: Inventory Management is concerned with the

determination of optimum level of investment for each components of inventory and the

operation of an effective control and review of mechanism.

The main objectives of inventory management are operational and financial.

The operational objective mean that the materials and spares should be available in

sufficient quantity so that work is not disrupted for want of inventory.

The financial objective means that inventory should not remain idle and minimum

working capital should be locked in it.

The foll owing are the objectives of inventor y management :

1. To ensure continuous supply of materials, spares and finished goods so that

production should not suffer at any time and the customers demand should also be

met.

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


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3. To maintain investment in inventories at the optimum level as required by the

operational and sales activities.

4. To keep material cost under control so that they contribute in reducing the cost of

production and overall costs.

5. To eliminate duplication in ordering or replenishing stocks. This is possible with the

help of centralizing purchases.

6. To minimize loses through deterioration, pilferages, wastages and damages.

7. To ensure perpetual inventory control so that materials shown in stock ledgers should

be actually lying in the stores.

8. To ensure right quality goods at reasonable prices. Suitable quality standards will

ensure proper quality of stocks. The price analysis, the cost analysis and value

analysis will ensure payment of proper prices.

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

of inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of liquidity but

also increases profit and causes substantial reduction in the working capital of the concern.

The following are the important tools and techniques of inventory management and

control.

1. Determination of stock levels:

Carrying of too much and too little of inventory is detrimental to the firm. If the

inventory level is too little, the firm will face frequent stock outs involving heavy ordering

cost and if the inventory level is too high it will be unnecessary tie up of capital.

An efficient inventory management requires that a firm should maintain an optimum

level of inventory where inventory costs are the minimum and at the same time there is no

stock out which may result in loss or sale or shortage of production.

a) Minimum stock level:

It represents the quantity below its stock of any item should not be allowed to fall.

Lead time : A purchasing firm requires sometime to process the order and time is also

required by the supplying firm to execute the order.

The time in processing the order and then executing it is know as lead time.


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Rate of Consumption : It is the average consumption of materials in the factory. The

rate of consumption will be decided on the basis of past experience and production plans.

Nature of materials : The nature of material also affects the minimum level. If a

material is required only against the special orders of the customer then minimum stock will

not be required for such material.

Minimum stock level can be calculated with the help of following formula.

Minimum stock level Re ordering level (Normal consumption x Normal re order

period)

b) Re ordering Level:

When the quantity of materials reaches at a certain figure then fresh order is sent to

get materials again. The order is sent before the materials reach minimum stock level.

Re ordering level is fixed between minimum level maximum level.

c) Maximum Level:

It is the quantity of materials beyond which a firm should not exceeds its stocks. If the

quantity exceeds maximum level limit then it will be over stocking.

Overstocking will mean blocking of more working capital, more space for storing the

materials, more wastage of materials and more chances of losses from obsolescence.

Maximum stock level Reordering Level + Reorder Quantity (Maximum

Consumption x Minimum reorder period)

d) Danger Stock Level:

It is fixed below minimum stock level. The danger stock level indicates emergency of

stock position and urgency of obtaining fresh supply at any cost.

Danger Stock level = Average rate of consumption x emergency delivery time.

e) Average Stock Level:

This stock level indicates the average stock held by the concern.

Average stock level = Minimum stock level + x reorder quantity.

2) Determination of Safety Stocks:


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Safety stock is a buffer to meet some unanticipated increase in usage. The demand for

materials may fluctuate and delivery of inventory may also be delayed in such a situation the

firm can be face a problem of stock out.

In order to protect against the stock out arising out of usage fluctuations, firms usually

maintain some margin of safety stocks.

Two costs are involved in the determination of this stock that is opportunity cost of

stock outs and the carrying costs.

If a firm maintains low level of safety frequent stock outs will occur resulting into the

larger opportunity costs. On the other hand, the larger quantity of safety stocks involves

carrying costs.

3) Economic Order Quantity (EOQ):

The quantity of material to be ordered at one time is known as economic ordering

quantity.

This quantity is fixed in such a manner as to minimize the cost of ordering and

carrying costs.

Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost.

Carrying Cost:

It is the cost of holding the materials in the store.

Ordering Cost:

It is the cost of placing orders for the purchase of materials.

EOQ can be calculated with the help of the following formula

EOQ = 2CO / I

Where C = Consumption of the material in units during the year

O = Ordering Cost

I = Carrying Cost or Interest payment on the capital.

4) A B C Analysis: (Always better control analysis):

Under A B C Analysis. The materials are divided into 3 categories viz., A, B and

C.

Almost 10% of the items contribute to 70% of value of consumption and this categoryis called A category.


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About 20% of the items contribute about 20% of value of category C covers about

70% of items of materials which contribute only 10% of value of consumption.

5) VED Analysis : (Vitally Essential Desire)

The VED analysis is used generally for spare parts. Spare parts classified as Vital(V),

Essential (E) and Desirable (D).

The vital spares are a must for running the concern smoothly and these must be stored

adequately. The E type of spares are also necessary but their stocks may be kept at low

figures. The stocking of D type spares may be avoided at times. If the lead time of these

spares is less, then stocking of these spares can be avoided.

6) Inventory Turnover ratio:

Inventory turnover ratios are calculated to indicate whether inventories have been

used efficiently or not.

The inventory turnover ration also known as stock velocity is normally calculated as

sales / average inventory of cost of goods sold / average inventory.

Inventory conversion period may also be calculated to find the average time taken for

clearing the stocks. Symbolically.

Inventory Turnover Ratio = Cost of goods sold

__________________________

Average inventory at cost

Or

= Net sales

_____________________

(Average) Inventory

And, Inventory conversion period = Days in a year

______________________

Inventory Turnover ratio

7) Classification and Codification of Inventories:

The inventories should first be classified can then code numbers should be assigned

for their identification. The identification of short names are useful for inventory


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management not only for large concerns but also for small concerns. Lack of proper

classification may also lead to reduction in production.

Generally, materials are classified accordingly to their nature such as construction

materials, consumable stocks, spares, lubricants etc. After classification the materials are

given code numbers. The coding may be done alphabetically or numerically. The later

method is generally used for coding.

The class of materials is assigned two digits and then two or three digits are assigned

to the categories of items divided into 15 groups. Two numbers will be category of materials

in that class.

The third distinction is needed for the quality of goods and decimals are used to note

this factor.

8) Valuation of inventories Method of valuation:

FIFO method

LIFO method

Base Stock method

Weighted average price method

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

While the overall objective of the inventory system is to minimize the cost to the firm

at the risk level acceptable to management, the more proximate criteria for judging the

inventory system are:

Comprehensibility Adaptability Timeliness

Area of improvement:

Inventory management in India can be improved in various ways. Improvements

could be affected through.


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Effective Computerization : Computers should not be used merely for accounting purpose

but also for improving decision making.

Review of Classification: ABC and FSN classification must be periodically reviewed.

Improved Coordination: Better coordination among purchase, production, marketing and

finance departments will be help in achieving greater efficiency in inventory management.

Development of long term relationship:

Companies should develop long term relationship with vendors. This would help in

improving quality and delivery.

Disposal of obsolete / surplus inventories:

Procedures for disposing obsolete / surplus inventories must be simplified.

Adoption of challenging norms:

Companies should set benchmarks with global competitors and use ideals like JIT to

improve inventory management.

Inventory cost an overall view

Introduction:

In financial parlance, inventory is defined as the sum of the value of the raw

materials, fuels and lubricants spare parts maintenance consumable semi processed

materials and finished goods stock at any giving point of time. The operational definition of

inventory would be amount of raw materials, fuel and lubricants, spare parts and semi

processed materials to be stock for the smooth running of the plant / industry.

Need of Inventory:

Inventories are maintained basically for the operational smoothness which they can be

affected by uncoupling successive stages of production, whereas the monetary value of the

inventory serves as a guide to indicate the size of the investment made to achieve thisoperational convenience. The materials management departments primary function is to


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provide this operational convenience with a minimum possible investment in inventories.

Materials department is accused of both stock outs as well a large investments in inventories.

The solution lies in exercise a selective inventory control and application of inventory control

techniques. Inventories build to act as a cushion between supply and demand. It is sufficient

to take care of the requirements of demand till the next supply arrives. It is sufficient to take

care of probable delays in supply as well as probable variations in demand.

The size of the inventory depends upon the factors such as size of industry internal

lead time for purchase, suppliers lead time, vendor relations availability of the materials,

annual consumption of the materials. Inventory coat can be controlled by applying Modern

Techniques viz., ABC analysis, SDE, ESN, HMC, VED etc. These techniques can be used

effectively with the help of computerization.

What is meant by inventory cost:

A. The total value of stores and spares and capital spares.

B. Stores in transit and under inspection and

C. Stock of finished products.

Normally, there are certain problems in maintaining optimum level of

inventory. Problems of inventory can be resolved by the cost implications. Costs which are

relevant for consideration are discussed in the following lines;

Basically there are four costs for consideration in developing and inventory model.

1. The cost of placing a replenishment order.

2. The cost of carrying inventory.

3. The cost of under stocking and

4. The cost of over stocking.

The cost of ordering and inventory carrying cost are viewed as the supply side costs

and help in the determination of the quantity to be ordered for each replenishment.

The under stocking and over stocking costs are viewed as the demand side costs and

help in the determination of the amount of variations in demand and the delay in supplies

which the inventory should withstand.

Whenever an order placed for stock replenishment, certain costs are involved, and, for

most practical purpose it can be assumed that the cost per order is constant. The ordering costmay vary depending upon the type of items, for example raw material like steel against


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production component like castings in steel plants, support materials in the case of coal

industry.

The cost ordering includes:

1) Paper work costs, typing and dispatching an order.

2) Follow up costs the follow up, the telephones, telex and postal bills etc.,

3) Costs involved in receiving of the order, inspection, checking and handling in the

stores.

4) Any set up cost of machines charged by the supplier, either directly indicated in

quotations or assessed through quotations of various quantities.

5) The salaries and wages of the purchase department.

Cost of Inventory carrying:

This cost in measured as of the unit cost of the item. This measure gives basis for

estimating what is actually costs a company to carry stock.

This cost includes:

1) Interest on capital.

2) Insurance and tax charges.

3) Storage costs labour costs, provision of storage area and facilities like bins,

racks etc.,

4) Transport bills and hamali charges.

5) Allowance for deterioration or spoilages.

6) Salaries of stores staff.

7) Obsolescence.

The inventory carrying cost varies and a major portion of this is

accounted for by the interest on capital.

Under stocking cost:

This cost is the cost incurred when an item is out of stock. It includes cost of lost

production during the period of stock out and the extra cost per unit which might have to be

paid for an emergency purchase.

Over stocking cost:


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This cost is the inventory carrying cost (which is calculated per year) for a specific

period of time. The time varies in different contexts it could be the lead time of

procurement of entire life time of machine. In the case of one time purchases, over cost

would be = Purchase Price Scrap Price.

INVENTORY VALUATION AND COST FLOWS:

What is the cost of inventory?

One can readily visualize the determination of inventory quantities by physical count

or by use of perpetual inventory records. When this quantity is determined, it must be

multiplied by a unity cost in order to determine the inventory value that is used on financial

statements.

Trade and quantity discount are to be excluded from unit cost since these discount

exist for the purpose of defining the true invoice cost of merchandise. Cash discounts, on the

other hand, have been considered as a reward for early payment and as a penalty for late

payment. The reward has often been interpreted as a loss rather than as a part of unit cost.

Thus it would not be difficult to find difference of opinion as to whether invoice cost includes

or excludes cash discount.

When the current replaMACHINES cost of material on hand at the close of a year

is less than the actual cost, the inventory value is reduced to replaMACHINES cost (current

market price). Thus the acceptable basis inventory valuation is the lower of cost or market

or more properly the lower of actual cost or replaMACHINES cost.

The determination of inventory values is very important from the point of view of the

balance sheet and the income statement since costs not included in the inventory (the balance

sheet) are considered to be expensive and are thus included in the income statement.

Valuation of inventories methods of determination:

Although the prime consideration in the valuation of inventories is cost, there are a

number of generally accepted methods of determining the cost of inventories at the close of

an accounting period. The most commonly used methods are first in first out (FIFO)average, and last in first out (LIFO). The selection of the method for determining cost for


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inventory valuation is important for it has a direct bearing on the cost of goods sold and

consequently on profit. When a method is selected, it must be used consequently and cannot

be changed for year to year in order to secure the most favorable profit for each year.

THE FIFO METHOD (FIRST IN FIRST OUT METHOD)

Under this method it is assumed that the materials or goods first received are the first

to be issued or sold. Thus, according to this method, the inventory on a particular date is

presumed to be composed of the items which were acquired most recently.

The value inventory would remain the same even if the perpetual inventory system

is followed.

Advantage:- The FIFO method has the following advantages.

1) It values stock nearer to current market prices since stock is presumed to be

consisting of

2) The most recent purchases.

3) It is based on cost and, therefore, no unrealized profit enters into the financial

accounts of the company.

4) The method is realistic since it takes into account the normal procedure of

utilizing or selling those materials or goods which have been longer longest in

stock.

Disadvantages :- The method suffers from the following disadvantages.

1) It involves complicated calculations and hence increases the possibility of clerical

errors.

2) Comparison between different jobs using the same type of material becomessometimes difficult. A job commenced a few minutes after another job may have

to bear an entirely different charge for materials because the first job completely

exhausted the supply of materials of the particular lot.

The FIFO method of valuation of inventories is particularly suitable in

the following circumstances.

I. The materials or goods are of a perishable nature.

II. The frequency of purchases is not large.


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III. There are only moderate fluctuations in the prices of materials or goods

purchased.

IV. Materials are easily identifiable as belonging to a particular purchase lot.

The LIFO method (Last in First Out method)

This method is based on the assumption that last item of materials or goods purchased

are the first to be issued or sold. Thus, according to this method, inventory consists of items

purchased at the earliest cost.

Advantages :- This method has the following advantages:

1) It takes into account the current market conditions while valuing materials issued

to different jobs or calculating the cost of goods sold.

2) The method is base on cost and, therefore, no unrealized profit or loss is made on

account of use of this method.

The method is most suitable for materials which are of bulky and non

perishable type.

Base Stock Method:

This method is based on the contention that each enterprise maintains at all times a

minimum quantity of materials or finished goods in its stock. This quantity is termed as base

stock. The base stock is always valued at this price and its carried forward as a fixed asset.

Any quantity over and above the base stock is valued in accordance with any other

appropriate method. As this method aims at matching current costs to current sales, the LIFO

method will be most suitable for valuing stock of materials or finished goods other than the

base stock. The base stock method has advantage of charging out material / goods at actual

cost. Its other merits or demerits will depend on the method which is used for valuing

materials other than the base stock.

Weighted average price method:

This method is based on the presumption that once the materials are put into a

common bin, they lose their identity. Hence, the inventory consists of no specific batch of

goods. The inventory is thus priced on the basis of average priced on the quantity purchased

at each price.


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Weighted average price method is very popular on account of its being based on the

total quantity and value of materials purchased besides reducing number of calculations. As a

matter of fact the new average price is to be calculated only when a fresh purchase of

materials is made in place of calculating it every now and then as is the case with FIFO,

LIFO methods. However, in case of this method different prices of materials are charged

from production particularly when the frequency of purchases and issues/sales in quite large

and the concern is following perpetual inventory system.

Valuation of inventories impact on the flow of costs:

As should be quite evident, the different methods of calculating inventory values will

all have their impact on the flow of costs through the balance sheet into the income statement.

The dollars that are paid to acquire inventory are always divided between the balance sheet

(inventories) and the income statement (cost of goods sold), there is not other place to put

them. Thus if the different methods of calculating inventory produce differing inventory

values, they will also produce differing cost of goods sold figures, and the differing cost of

goods sold figures will naturally produce differing profit figures.

In order show the impact of inventory valuation on cost flows, the preceding exhibits

are summarized. Each method produces a different figure for the transfer of raw materials to

work in process. These differences appear small, but the only reason for this is that the dollar

amounts have been kept small to make the illustration workable.

With the transfer of materials to work in process, the cost flow or transfer with have

its impact on the work in process inventory and the transfer of completed merchandise to

finished gods. Ultimately when goods are sold; the varying methods of valuing inventories

will have their impact on cost of goods sold and these profits. The effects of the cost flows on

cost of gods sold and profits can be accentuated further it the differing methods of valuing

inventories are applies to work in process and finished goods.

Evaluation of methods What causes the differences?

The differences in inventory values and flows for each of the method illustrated result

from only one factor, that it, changing purchases prices or unit costs. If purchase prices had

remained stable or unchanged, each method would have produced the same inventory value

and cost flow.

Cost flows and inventory are exactly the some under stable prices. With a falling pricelevel, the LIFO method produces the highest cost flow and the lowest inventory. With a


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falling price level, the LIFO method produces the lowest cost flow and highest inventory. The

cost flow under LIFO follows the price level, LIFO produces larger cost flows when prices

are rising and smaller cost flows when prices are falling. A final item to consider is that the

average method produces results which fall between the extremes of LIFO and FIFO.

Evaluation of methods can we justify the differences?

The best method of inventory valuation might be specific identification, that is, the

units in inventory should be identified with the specific invoices and thus specific unit costs

to which they apply.

Fortunately, the FIFO method constitutes a very useful approximation to the specific

identification method if on can reasonably assume that the actual flow of materials is first-in

first-out. This assumption is not unreasonable and thus we have stated the main argument for

the FIFO inventory scheme, that is, the physical flow of materials would match the flow of

costs under the first in first out method.

When the units in inventory are identical, interchangeable and do not follow any

specific pattern of physical flow, the average cost system would seen to appropriate.

The primary difference between the FIFO and average methods is centered on the

physical flow since both methods could involve identical and interchangeable units. The

FIFO method fits a first-in first-out physical flow. The average method fits a system which

has no specific pattern of physical flow. Finding a situation where there is no specific pattern

of physical flow should be quite difficult because of the fact that most inventory items are

subject to deterioration by instituting a person would attempt to reduce such deterioration and

any reasonable person would attempt to reduce such deterioration by instituting a physical

flow approximating first-in-first-out. The major reason for the use of the average method is

something other than the lack of specific physical flow.

Ordinarily the LIFO method cannot be justified on the basis of the physical flow of

materials. Under conditions of changing prices, the advocate of LIFO says that the only

method which matches costs and revenues is the LIFO method. The LIFO method assumes

that the latest item is the first item out, and thus the current costs of materials are matched

with the other hand, assumes that the first item in is the first item out, and thus the non-

current costs of matching current costs with current revenues is the essence of the argument

for the LIFO method.

As can be seen by the above comments, there is no one best method of valuinginventories. The method chosen should fit the situation. A physical flow pattern comparable


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to FIFO would force one to consider the FIFO method. The lack of a discernible physical

flow pattern would force one to consider the average method. Concentration on cost flows, as

distinct from physical flows, would force to consider the LIFO method especially where there

appears to be a discernible trend towards rising prices (or falling prices) as has been the case

in our economy during recent years.

Inventories valued at standard cost:

A very useful method of valuing inventories is at a standard cost. With a standard cost

system is no need of spending a great deal of time and money tracing unit cost through

perpetual inventory record.

PERPETUAL INVENTORY CARD UNDER A STANDARD COST

SYSTEM

Perpetual inventory Plant: Standard cost:

Location: Order Quantity:.....

Order Point: ..

Date Description On order Received IssuedAvailable

On order On hand

As shown above, there is need only for physical quantities since the inventory values

is the physical quantity multiplied by the standard cost. With the cost and value columns

disposed off, a perpetual inventory card can include additional data such as quantities on

order, quantities reserved, and quantities available. These additional data are very useful for

inventory and production control purpose. On the basis of a few calculations concerning into

inventories on a FIFO, a LIFO, or an average cost basis.

Inventory of Obsolescence:


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Absolvent inventories cannot be used or disposed off at values carried on the books.

Frequent reviews should be made of all inventories, and when obsolescence is indicated a

request for revaluation should be prepared for approval by management. The difference

between original and obsolete value should be recorded by a change to an operating account.

Inventory obsolescence, and a credit to inventory. If the material is scrapped, this will be for

the full inventory value or used in areas where it will be work less than its

Original value, the entry would be only for the amount of write down. Some companies carry

a salvage inventory and transfer to it materials which may be sold or used at reduced values.

Where this is done, the entry would be:

Dr. Salvage inventory

Dr. Inventory Obsolescence. Cr. Raw Material inventory or Supplies inventory.

Inventory cost in relation HMT TOOLS LIMITEDs shall to classifieds follows:

Inventory can be classified as capital and revenue certain items through titled as

capital in nature. Hence, due care is to be take whole drawing the material.

Materials which are to be imported from other countries have to be planned well in

advance nearly about 24 months are to initiate the proposals for procurement.

Similarly some of the items do not require any lead time some they are available in

the local market.

MACHINES is highly energy intensive industry, the inputs like power and coal are

the major part of the variable cost since Government controls the coal & fuel sector, and

increase is rates adversely effects the MACHINES industry.

HMT TOOLS LIMITED has it own power plant and through which it saves energy

consumption. By this the cost since Government controls the coal & fuel sector, any increase

rates adversely effects the MACHINES industry.

Inventory cost of any organization also adversely affects by retaining obsolete / scrap

and inventory costs can be reduced by management with an advance planning of procurement

of materials, periodical reviews of existing spares with reference to the fast consumption,

ascertaining the information regarding the availability of spares in other areas. Holding of

extra inventory will be an additional financial burden to the company due to payment of

interest charges on the materials purchased, diminishing value of materials purchased,


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diminishing value of materials by keeping them in stores for a log time, handling charges,

spare rent etc.,

The inventory of HMT TOOLS LIMITED mainly includes Watches, Stepper motors,

CNC machines, Ball scrums.

Inventory in HMT TOOLS LIMITED during 2003 04 to 2007 08 are as follows:

(Units in m.t)

Years 2009-10 2010-11 2011-12 2012-13 2013-14

Watches 1096560 995650 976750 925720 1569543

Stepper

motors51526 47567 43748 452256 67561

CNC

machines27567 25567 25567 250275 39565

Ball

scrums5956 12567 19102 35765 179555

The value of the above raw materials for the year 2009 14 is as follows: (Value inRs.)

Value of imported and indigenous raw materials, stores, spare parts and components

consumed

Years 2009-10 2010-11 2011-12 2012-13 2013-14

Watches 147261597 12554678 13853482 157130922 253512287

Stepper

motors 31696775 28081883 26991793 23577845 39525576


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CNC

machines18515031 16561576 16561576 18679683 50022296

Ball

scrums27506 745573 745573 2557949 20523505

Value of imported and indigenous raw materials, stores, spare parts and components

consumed during the year:

Imported

Years 2009-10 2010-11 2011-12 2012-13 2013-14

Raw Materials 97365976 602775622 766175615 596226625 1554236729

Stores spare

parts and

components

517577053 517577053 75646207 1216569165106973

6

Indigenous

Years 2009-10 2010-11 2011-12 2012-13 2013-14

Raw Materials 115567978 4025674929 3787749527 5115402137 81251651616

Stores spare

parts and

components

712504256 991790149 199159560 1465764286 4978515267

MACHINES FACTORY RUNS WITH VARIOUS EQUIPMENTS:

I. TECHNICAL DEPARTMENT

1. BEARINGS

2. MECHANICAL

3. ELETRICAL

4. CIVIL


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II. COMMERCIAL DEPARTMENTS

1. STORES

2. PURCHASE

3. ACCOUNTS

TO RUN THE PLANT AND MAINTAIN EQUIPMENTS DEPARTMENTS REQUIRE

SPARES.

FOR SUCH REQUIREMENT OF SPARES DEPARTMENTS RAISE INDENTS AND

SEND THE INDENTS TO PURCHSE DEPARTMENT THROUGH STORES.

INDENTS:

1) ANNUAL INDENTS FOR CONSUMABLE ITEMS (STORES ITEMS).

2) REGULAR INDENTS RAISED BY CONSUMING DEPARTMENTS.

3) ANNUAL REQUIREMENT OF RAW MATERIALS PROMOP & QC.

ENQUIRIES:

1) ENQUIRES WILL BE SENT APPROVED SUN CONTRACTORS.

ORDER PROCESSING FORM:

1) RECEIVING QUOTATIONS FROM SUB CONTRACTORS.

2) ENTER THE PRICE DETAILS OF ENQUIRY SENT IN THE

ORDER PROCESSING FORM.

3) SELECTION OF PARTY ON MERIT BASIS.

PURCHASE ORDER:

1) PREPARE PURCHSE ORDER ON SELECTED PARTY.

2) SEND PURCHASE ORDER COPIES TO PARTY, STORES AND

DEPARTMENTS.

GOODS RECEIPT NOTE:1) RECEIVING GOODS RECEIPT NOTE FROM STORES.


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PURCHASE DEPARTMENT:

ACTIVITY RECEIVING INDENTS:

FLOW CHART:

Receipt of annual indents for consumable items / stores items from stores department. Checking of indent number an authority of item, delivery time consumption period. In case of any deficiency, send the information to concerned department for

clarification.

Segregation of indents for attending at C.P.D. and Hyderabad Office. Sent the Hyderabad indents to Hyderabad Office. Enter the indents details in indent register.


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PURCHASE DEPARTMENT

ORDER PROCESSING FORM

Sl.

No.

In

de

nt

Ref

Ma

teri

al

Co

de

No.

De

scr

ipti

on

Siz

e

Qt

y

1 2 3 4 5 6 Re

ma

rks

ACTIVITY : PREPARATION OF ORDER PROCESSING FROM

FLOW CHART: Receiving quotation against enquiries sent. Enter price and other of the quotation received from sub contractors in the order

processing from.

Mention the earlier purchase details of indented items against each item in the

order processing form if available.

Put up the processing from with enquiry and quotations to head (purchase).

Examine order processing from with decide the sub contractor to whom purchase order to be placed.


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PURCHASE DEPARTMENTPURCHASE ORDER

Sl. No.Indent

No.

Item

CodeDescription Qty Rate Unit Amount

ACTIVITY: PREPARATION OF PURCHASE ORDER

FLOW CHART:

Prepare purchase order after finalization of price and other technical terms

mentioning the following details.

1. Material code2. Indent number

3. Material specification & part number

4. Quantity

5. Rate

6. Payment and other terms & conditions Stipulation of terms of test certificate / ibr / manufactures certificate where

applicable. Fill in and attach the purchase order review proforma to purchase order. Send the prepared purchase order to head (purchase) and competent authority for

approval.

Send the purchase order to identified approved sub contractor. Send the purchase order copies to store and concerned departments. Enter the details of purchase order in purchase order register.


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PURCHASE DEPARTMENT

AMENDMENT / CANCELLATION OF ORDER

Material Code MaterialPrice / Quantity

as per Order

Amended Price /

Quantity

ACTIVITY: ORDER AMENDMENT, ORDER FOLLOW UP AND INFORM THE

SUPPLIER FOR THE REJECTIONS / DAMAGES / SHORTAGES:

FLOW CHART:

Issue of amendments in case of modification to purchase order. Review the pending order and follow up the pending order for breakdown

requirement. Send regular reminders to suppliers against pending purchase order every month. Receive shortage / excess / damages report from stores for the material received. Information the supplier for the rejections / damage / excess / shortage.


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PURCHASE DEPARTMENT

ACTIVITY: IMPORTS:FLOW CHART:

Receipt of indents for import items from stores department.

Taking previous / item, information to be taken from concerned department or

from competitors / journals / Yellow pages.

Send enquiry to overseas supplier.

Receiving quotations against enquiries sent.

Enter price and other terms of the quotations received from overseas supplier in

the order processing form.

Examine order processing form and decide the sub contractor to whom purchase

order to be placed.

Prepare purchase order after finalization of price and other technical terms

mentioning the following details.

1) Material code

2) Indent number

3) Material specification & part number

4) Quantity

5) Rate

6) Payment

7) Insurance and other terms and conditions.

Send the prepared purchase order to head (purchase) and competent authority for

approval.

Send the purchase order to overseas supplier.


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Send the purchase order copies to stores and concerned departments.

Prepare IC documents and submit to bank for onward transmission to overseas

supplier.

Receive shipping documents from overseas supplier and send same to clearing

agents for collection of the material.

STORES DEPARTMENT

ACTIVITY: RECEIPTS AND UNLOADING MATERIAL

Receiving of Goods through Trunk / Personnel Delivery.

Entry of vehicle at Gate Office.

Stamping on Dispatch Advise / Delivery challan by Gate Office.

Checking of challans / Dispatch Advise with purchase order.

Unloading of Goods at allotted place or in case of urgency direct at works site.

All safety precautions are taken while unloading of material like workers should

wear safety shoes, helmets, leather head gloves, noise respirator, nose mask.

Training is given to workers for unloading Heavy & Bulky material by using

chain pulley Blocks, Wire Rope Ceilings, Fork Lift. After UIL receipt

acknowledgement given to driver maintaining Lorry receipts register.


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STORES DEPARTMENT

ACTIVITY: PREPARATION OF RECEIPT AND APPROVAL BOOK FOR

GENERAL MATERIAL / D.C. ENTER OF BLOCK, REPAIR AND STATIONARY

MATERIAL MANUALLY IN REGISTER

Sorting of Delivery challans as below:

a) General

b) Stationery

c) Repairs

d) Block

Checking with P.O. and mentioning Material Code, Party Code, Indent No.

Department Name on each & every challans.

Creation of D.C. entry in system for general materials.

Preparation of identification tags for General Materials through system.

Preparation of Receipt & Approval Book for General materials.

Manual entry of block, stationery, repair materials.

Preparation of intimations for block, stationery, repair materials.


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STORES DEPARTMENT

ACTIVITY: PHYSICAL VERIFCATION OF GOODS:

All D.C. handed over to stores assistant physical verification like measuring,

counting and tallying with D.C.s Quantity / Description of the materials by the

Stores Assistant.

Identification tags to be attached to the verified material. Shortage / Excess /

Damages if any found to be noted on challans and inform to section incharge.

Preparation of Shortage / Excess / Reports if any sending to parties under copy to

purchase / bills sections.

STORES DEPARTMENT

ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF GOODS

RECEIPT NOTES:

Intimation is be sent to all the concerned departments. Showing materials to

concern person.

Taking approval of the material in receipt & approval book.

Preparation general material in receipt & approval book.

Preparation ge neral material GRNs through system and stationery / block /

repairs GRNs manually.

Forwarding true copy to issue section of GRN for general material forwarding true

copy to issue section of GRN for General material forwarding true copy of block /

Repair / Stationery GRN to issue section and copy to purchase department.


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STORES DEPARTMENT

ACTIVITY: REJECTED MATERIALS Rejected materials kept in allotted area of rejected materials.

Packing of rejected materials.

Preparation of gate passes for rejected materials.

Sending back to suppliers through our Hyderabad Office.

Sending consignee copy to party vide Register Letter for booking of Register

goods to partys other than.

STORES DEPARTMENT

ACTIVITY: EXCISE GATE PASSES

Sending duplicate for transport copy of excise invoice from suppliers delivery

challans.

Mentioning A.B. Sl. No. and named of concerned department.

Duplicate for transport copy of excise invoice over to bills section for sending the

same to Excise Department.

Corresponding with supplier. If the Excise Invoice is not found with delivery

challans.

STORES DEPARTMENT

ACTIVITY: RECEIPTS OF MEDICINES

Physical verification of Medicines as per Invoices.

Verification of expiry date on medicines.

Verification of MRP.

Sending shortage / excess note if any found.


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Taking approval of Medical Officer.

Sending Rejection notes if any medicine is rejected.

Issuing to dispensary.

Bills forwarding to Account Department vide IOM for making the payment.


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CHAPTER III

COMPANY PROFILE


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COMPANY PROFILE HMT is one of the major public sector undertakings in India for over 50 years.

The government of the India establish HMT in 1953-54 at Bangalore in collaboration with

m/s Oerlikons. Switzerland to manufacture machine tools with a service motive the second

machine tools unit was also set up in Bangalore in 1961 and the third unit at pinjore

(Haryana) in 1963. HMT diversified into new production line.

Gradually HMT established its name in the international market today HMT is a

multi-unit, multi-product central government undertaking with, 18 manufacturing units and

35 product divisions these divisions are spread over 10 different states in the country known

for its quality products all over the world.

HMT manufacturing Hi-tech product is employing 21850 well-qualified and

motivated employee.

HMT Product Range:

HMT is one of the worlds 10 largest machine tools house it manufacturing the worlds

widest range of machine tools and several engineering product.

The total output of five factories in full production is estimated at Rs.25crores per

annum.

Machine tools find implementation in all manufacturing activities not in engineering

industries but also in four sectors like transportation coal generation and defiance.

Hindustan tools one of the India machine tools manufacturing is a multi product

company with 18 production units and 22 product divisions.


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PROFILE OF HMT LTD

Name of the company : HMT MACHINE TOOLS LIMITED

Established in : 1953 PUBLIC SECTOR ENTERPRISE

Turnover of the company : 50 CRORES AS ON 31-3-2008

Multi Product Company : BROADLY CLASSIFIED INTO 5 HEADS

They are:-

1. Machine tools

2. Tractors

3. Industrial Machinery

4.

Consumer Components5. Engineering components

Work force in HMT machine tools division, Hyderabad

Total work force : 778

Work men : 568

Direct work men : 210

Indirect work men : 320


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Supervisory & Executive staff

G.M : 1

J.G.M : 8

D.G.M : 31

A.G.M : 41

Managers : 60

Deputy Managers : 42

Officers : 78

Supervisors : 20

Total : 281

SHIFTS IN HMT, HYDERABAD

There are 3 shifts in HMT:

A from 6.00 AM to 2.00 PM

B from 2.00 PM to 10.00 PM

General from 8.00 AM to 4.00 PM

The administrative department work in general shift.


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BRIEF HISTORY

The first industry police resolution was issued by the government of India on 1 st April

1948 which divided the industrial sector in to three categories they were:

1. Industrial where state is having monopoly

2. Mixed of government control

3. The field private Enterprise

So in the third category which is fielding government control the industries of

national importance were included. Hence the government considered them of such

importance that their regulation and direction was necessary.

The machine tools heavy machinery, tractors belonged to this category.

In 1948 industrial policy resolution remained in effect for 8 years this period was

marked by some significance changes in the economy like the country had completed 1 st five

year planning during the period of 1951-56 and also the industrial development act was

passed in 1951 so the promoted deceleration on new industrial policy resolution 1956 in this

deceleration the machine tools and heavy machine were subjected to the monopoly of state.

Some machine tools industries exists few places like Mumbai, Punjab since 1890. But

they were not able to fulfill the demands for machine tools in domestic market and also

during world war-11.


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The press division:

Here Hyderabad press and press breakers of tonnage up to 200 are designed and

manufactured meeting the bulk of requirement of the defense sector and automobile industry

these high precision presses made originally built in collaboration coming to an end.

HMT is now its own it helps country to space substantial mount of importing a

complete press. Since the business for the major products of the about two diversion highly to

have a strong engineering base enable it diversify into products other than machine tools and

press. It has successfully executed orders for coil winding machine. Hailers for coal

instruments, equipment for rather etc.

HMT FAST FORWARD

It was in the early post independents are that HMT began a small way to meet a big

commitment.

To manufacture mother machine to built modern industrial India

HMT was convinced by the government of India in 1949, and was incorporated in

1953, with the objective of producing a limited range of machine tools required for building

and industrial edifice for the country.

THE 1960S

In 1967 recession struck the Indian engineering industry and the consumption ofmachine tolls dipped drastically. The traumatic years of recession did indeed serve to bring to


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the fore two latent strengths of HMT namely the urge to survive and the confidence to

innovate with these strengths a full play the company

emerged from the recession. With the world widest range of machine tools and associated

services under a single corporate entity.

1. With action plan firmly launched for diversification into tractors presses and press brakes

printing machine, die casting and plastic. Injection moulding machines, homological

machinery etc., which were considered to have economic cycles that are different from

those of machine tools.

2. With a watch factory already established in 1961 to 1962, additional capacities from for

watch production a greater cushion against cyclical fluctuation in capital goods market and

also to meet the burgeoning demand for watches.

THE 1970S

The 70s witnessed the fructification of all the diversification of plans as envisaged.

HMT SETUPS

1. HMT International limited as a subsidiary company to channel HMTS

Products and technical service aboard.

2. Two more units for manufacture of watches one at Srinagar and one at

Tumkar.

HMT took over machine tool Corporation at Ajmer as its sixth

machine tool unit.


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THE 1980S

In the 80s HMT as a part of vertical integration efforts, launched units to manufacture

1. Watches cases at Bangalore.

2. Watches at ranibagh.

3. Stepper motors at tumkur.

4. CNC systems at Bangalore.

5. Ball scrums for use on CNC machines at Bangalore etc., Also

1. HMT took over indo-Nippon precision bearing ltd, a state owned unit as a subsidiary, which

was renamed HMT- bearing ltd.

2. HMT took over praga tools ltd as another subsidiary.

THE 1990S

The company restructured itself into four business groups machine tools, watches

tractors, industrial machinery and engineering components as part of business re-

organization.

THE NEW MILLIENNIUM

HMT is now restructured with addition of there more subsidiaries to those already

existing HMT now comprises of six subsidiaries under the ambit of the holding company

which also manages the tractors business directly.

1. HMT machine tools limited Bangalore.

2. HMT watches limited Bangalore

3. HMT chinar watches limited Jammu.

4. HMT bearing limited Hyderabad


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5. Praga tools limited Hyderabad.

6. HMT (international) limited Bangalore.

The Strategic plan of the HMT group is coordinated by the holding company at

Bangalore.

Anticipating that basic requisition for rapid industrial was self-efficiency in machine

tools segment. Government entered in to technical collaboration with M/s oerlikons

machine tools factory at Bangalore. But how the government till 1953 when HMT was

established as a registered company in Bangalore.

It was 1961 the HMT had show a profit setting of crores and riding the high up the

success HMT decides that the amount generated as profit would be utilized for up of

another unit Bangalore i.e. unit-1 1.

The HMT- 11 was inaugurated by the late. Prime Minister Jawaharlal Nehru on 21 st

July, 1961 the second factory described as Gift of Nation.

HUMAN RESOURCE MANAGEMENT:

The company has continuously added to its installed capacity, yet the Man-MW ration

has been consistently improving. The total strength of employees of the company including

that on secondment to different associated organization stands at 23080 as on March 31, 2004

as against 23427 as on March 31, 2003. All efforts were made to improve the work force

utilization. The overall man-MW ration for the year 2003-04 was 0.98 as against 1.02 for

year 2002-03.

In tune with companys HR initiatives, training & dev elopment given a renewed

thrust to build competence and commitment among the employees. The target of seven days

training per employees achieved by most of the plants.

In order to bring more objectivity and transparency in performance evaluation and

building high performance culture, key performance area based performance, monitoring

system is being implemented from 2004-05.


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Considering the importance of knowledge management, a detailed IT enabled KM

system has designed which provides for various domains of knowledge to be

comprehensively captured. The system under implementation and would benefit a large

number of users in the company.

Employee morale continued to remain high facilitating smooth working of the

company and contributing to higher generation of power. All efforts to achieve employee

development were made through measures like job-rotation, re-deployment etc.

EMPLOYEE RELATIONS:

Employee relations In HMT, rooted in the philosophy of bipartisan, continued to be

cordial & harmonious during the year.

1. effectively leverage information technology to drive process efficiencies.

2. aim for performance excellence in the diversification businesses.

HUMAN RESOURCE DEVELOPMENT:

To enhance organizational performance by institutionalizing an objective and

open performance management system.

To align individual and organizational needs and develop business leaders by

implementing a career development system.

To enhance commitment of employees by recognizing and rewarding high

performance.

To build and sustain learning organization of competent world- calls

professionals.

To institutionalize core values and create a culture of team building,

empowerment, equity, innovation and openness which would motivate

employees and enable achievement of strategic objectives.

FINANCIAL SOUNDNESS:


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To maintain and improve the financial soundness of HMT by prudent

management of the financial resources.

To cautiously strive to reduce the cost of capital through prudent management

of deployed founds, leveraging opportunities in domestic and international financial markets.

To develop appropriate commercial policies and processes which would ensure remunerative

tariffs and minimize receivables?

To continuously strive for reduction in cost of power generation by improving

operating practice.


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CHAPTER IV

DATA ANALYSIS &

INTERPRETATION


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The investment on raw materials over a period of 5 years from 2000 to 2008 is

presented in the following table.

1. Investment on Raw Materials :

Year Investment on Raw Material (in crores)

2008 2009 12376.95

2009 2010 11750.75

2010 2011 47550.86

2011 2012 41572.77

2012 2013 47265.66

2013 2014 92505.68

Interpretation:

1) From the above table it can be understood that the inventory of HMT TOOLS

LIMITED was recorded at 12376.95 during the year 2008 09 and it is increased to

92505.68 during the year 2009 10.

2) It shows that there is on increase in the inventory to the more extent of 82208.91.

3) The average inventory of HMT TOOLS LIMITED was recorded at Rs.47260.15.


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4) The highest investment in inventory was recorded in the years 2009-10

2. Trend Analysis:

Trend analysis technique is applied to know the growth rate in investment of raw

material of HMT TOOLS LIMITED over the review period which is shown in the following

table.

Trend Analysis:

Year Raw Material (in Lacks) Trend %

2008 2009 12376.95 100%

2009 2010 11750.75 97%

2010 2011 47550.86 344%

2011 2012 41572.77 295%

2012 2013 47265.66 359%

2013 2014 92505.68 710%

Interpretation:

1) The investment on investment has increased in the year 2006 08. And the lost year

investment has declared continuously. The percentage in 2003 04 was 295% as

compared to years 2004 05 to 2007 08.

2) The trends in inventories show that inventory have been more in the year 2007 08

and then it has shown a downward trend and again it increased to some extent.


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3) The investment in inventories has shown fluctuating trend is initial years and then it

raised to 710% and again showing fluctuating trend.

3. Inventory Turnover Ratio:

This ratio indicates the number of times the stock has been turned over during the

period & evaluates the efficiency with which a firm is able to manage its inventory. This

ration is calculated by applying the following formula.

Cost of goods sold

Inventor turn over ration = _________________

Average inventory

Inventory turn over ration:

years Cost of goods sold Avg. Inventory Ratio2008 2009 59567.65 7200.12 8.272009 2010 57046.56 36822.20 1.542010 2011 118561.78 94022.27 1.262011 2012 126368.65 11365.07 11.112012 2013 129568.89 12225.77 10.592013 2014 299726.18 155627.91 1.92

Interpretation:

1. From the above table 2002 it can be observed that (1) inventory turn

over ratio is 8.27 during 2007 2008 and it gradually decreased to 1.26 during 2009

2010.

2. In the year 2009 10 it is clear that the ratio is very less i.e., he stock

is not turned into sales quickly.

3. As compared to all the years the ratio is very less in 2009 10.


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4. The average inventory turn over ratio was recorded at 6.3 times during

the review period.

4. Inventory conversion period:

It may also be of interest to see average time taken for clearing the stocks. This can be

possible by calculating inventory conversion period. This period is calculated by dividing the

number of the days by inventory turn over.

This formula may be as:

Days in a year (360 days)

Inventory conversion period = _____________________

Inventory turnover ratio

Inventory conversion period: (in crores)

Year Cost of goodssold Avg. inventory Ratio ICP (Days)

2008 2009 59567.65 7200.12 8.27 432009 2010 57046.56 36822.20 1.54 2332010 2011 118561.78 94022.27 1.26 2852011 2012 126368.65 11365.07 11.11 322012 2013 129568.89 12225.77 10.59 332013 2014 299726.18 155627.91 1.92 187

Interpretation:

From the above table it can be identified the following observations:

1) The inventory conversion period was 233 days during the year 2008 09 but it

declined to 285 during 2009 - 10, which indicates that the stock has been very quickly

converted into sales which mean the company is managing the inventory efficiently.


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2) The lowest inventory conversion period was recorded at 285 days in the year 2009

10 and the highest inventory conversion was recorded at 187 days in the year 2013

14.

3) The average inventory conversion period was recorded at 97days during the review

period.

5. Percentage of Inventory over current assets:

In order to know the percentage of inventory over current assets the

Ratio of inventory to current assets is calculated and which is presented in the

following table.

InventoryInventory over current assets ratio = __________ X 100

Current assetsPercentage of Inventory Over current assets:

Year Inventory Current Assets Ratio (%)

2008 2009 12376.95 20272.23 61%

2009 2010 11750.75 29672.56 39%

2010 2011 47550.86 57522.66 82%

2011 2012 41572.77 49627.06 83%

2012 2013 47265.66 52726.32 89%

2013 2014 92505.68 90277.56 102%


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Interpretation:

1) From the above table it can be understand that the % of inventory over current assets

ratio was showing a declining trend for two years 2007 - 2008.

2) However from the year2013 14 it is showing an increasing trend.

3) The lowest inventory over current assets ratio was recorded at 39% during the year

2008 09 and the highest inventory over current assets ratio we recorded at 102%

during 2013 14.

4) The average inventory over current assets ratio was recorded at 65%.

6. Percent of Inventory Over total current assets & fixed assets:

Inventory / Current + Fixed assets

Year Inventory Current Assets Ratio (%)

2008 2009 12376.95 85272.56 14.51%

2009 2010 11750.75 85262.95 13.78%

2010 2011 47550.86 106567.28 44.62%

2011 2012 41572.77 110643.47 37.57%

2012 2013 47265.66 110347.39 42.83%

2013 2014 92505.68 182256.16 50.75%


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Interpretation:

1) During the year 2007 08the ratio was 14.51% on it declined to 13.78% in the year

2008 09

2) From the year 2008 09 it is showing fluctuating trend but as compared to above 2

years it is increasing.

3) The lowest inventory over total assets ratio was recorded at 13.78% during the year

2008 09 and the highest inventory ratio was recorded at 50.75% during the year

20013 14.

4) The average inventory to total assets ration was recorded at 34.81% during the review

period.


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7. Percentage of Inventory over current liabilities:

In order to know the percentage of inventory over current liabilities the

ration of inventory to current liabilities is calculated and which is presented in

the following table.

Inventory

Inventory over current liabilities ratio = __________________ X 100

Current liabilities

Percentage of Inventory Over current liabilities:

Year Inventory Current liabilities Ratio (%)2008 2009 12376.95 7212.21 17%2009 2010 11750.75 7900.56 148%2010 2011 47550.86 13502.15 352%2011 2012 41572.77 13502.15 307%2012 2013 47265.66 16756.13 282%2013 2014 92505.68 33567.24 275%

Interpretation:1. From the above table it can be understand that the % inventory over current

liabilities ratio was showing a declining trend for two years 2007 08.

2. During the year 2008 09 the ratio was it gradually increased to 148and there

is a net increase to the extent of 352.

3. The lowest inventory over total amounts ratio was recorded at 17 during the

year 2007 08.

4.

The highest inventory to current liabilities ratio was recorded at 275 during theyear 2007 08.


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5. The average inventory to current liabilities ratio was recorded at 256 during

the review period.

8. Current Ratio:

In order to know the current ratio the percentage of current assets to current liabilities

is calculated and which is presented in the following table.

Current assets

Current Ratio = _____________________

Current liabilities

Calculation of Current Ratios:

Year Inventory Current liabilities Ratio (%)2008 2009 22275.16 7212.21 3.08%2009 2010 25650.75 7900.56 3.24%

2010 2011 50052.02 13502.15 3.70%2011 2012 42626.78 13502.15 3.15%2012 2013 47722.14 16756.13 2.84%2013 2014 82521.156 33567.24 2.45%


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Interpretation:

1. From the above table it can be interpreted that the % of current assets over current

liabilities ratio i.e., current ratio was showing a decreasing trend from year 2003 04.

2. In the year 2007 08 the ratio was 3.08% and has increaser to 3.24% in the year 2003

04.

3. The lowest current ratio was recorded at 2013 14 which is 2.45% and the highest

current ratio was recorded at 3.70% during the year 2010 11.

4. The average current ratio was recorded at 3.75% during the review period.


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9. Quick Ratio:

The quick ratio is the relationship between quick to current liabilities quick assets is

more rigorous test of liability position of a firm it is computed by applying the following

formula.

Quick ratio = Quick assets / Current Liabilities

Where Quick assets = Current Assets Inventory

Year Inventory Current liabilities Ratio (%)

2008 2009 12720.76 7212.21 1.76%

2009 2010 19560.52 7900.56 2.47%

2010 2011 5216.24 13502.15 0.38%

2011 2012 3775.78 13502.15 0.27%

2012 2013 4026.95 16756.13 0.24%

2013 2014 3600.57 33567.24 0.10%

Interpretation:

1. From the above table it can be understand as that the % of quick assets to

current liabilities i.e., the quick ratio was 0.38% in 2009 10 and from that year it is

showing decreasing trend.

2. The highest quick ratio was recorded at 2.47% during the year 2008 09 and

the lowest quick ratio was recorded at 0.10% during the year 2013 14.

3. The average quick ratio was recorded at 0.78 during the review period.


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CHAPTER V


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CONCLUSIONS;

1) Over all the inventory of HMT TOOLS LIMITEDs is up to the mark

2) Inventory procurement is also based on and does not confirm toeconomic batch quantities leading to surplus inventories and non-

moving inventories.

3) The production of clinker and MACHINES during 2003-2004was7,47,436 and

7,77,092 respectively which is higher as compared to 2006 2007 which is

6,87,373 and 7,27,447.

4) there is a regular physical verification for A and B class items by internal audit

department to highlight on non-moving inventories.5) Investment on raw material is 92505.68 crores which very high as compared to

2006 07 which is only 47265.66 crores.

6) The inventory turn over ratio shows that the stock has been converted into sales is

only 1.92 times.

7) In the year 2005 06 the stock was cleared within 32 days whereas it took 233

days in the year 2003 2004 which took more days for clearing stock.

8) In this type of process, it requires more number of employees and supplier should

also wait for until the accounts are matched.

9) This process takes an input, adds value to it and provides an output to an internal

or external customer.


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SUGGESTION:

1. A regular reporting system on inventory should be in place to highlight on carryingcosts and liquidity covering all the business groups and at the corporate level.

2. Once non-moving inventory is observed and declared a quick disposal action has to be

initiated. This exercise has to be carried on through out the year.

3. Though the production is higher is the year 2004 05 and the sales were very high i.e.,

as per inventory conversion period it took 272 days. This shows that there is demand for

MACHINES and the funds unnecessarily tied up. So, proper demand forecasting should

be done and according to that it may be manufactured.4. The investment on raw material should be made as per the requirement. Unnecessary

investment may block up the funds.

5. Neither too high nor too low inventory turnover ratios may reduce profit and liquidity

position of the industry. So, proper balance should be made to increase profits and to

ensure liquidity.

6. The raw material should be acquired from the right source at right quality and at right

cost.

7. The process that was being used by HMT TOOLS LIMITEDs with the purchasing

department should undergo changes, so that, it seeks enhance the celerity of the delivery

of a product without compromising its quality by improving the utilization of materials,

labour and equipment.

8. To reduce the work, the purchasing department may enter the purchasing order into

database and did not send a copy to any one. When the merchandise arrived, the

receiving clerk would enter the database and determine whether the order agreed with

the electronic purchase order.


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Inventory and Store Management Hmt Tools Limited Industries

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