INTRODUCTION INVENTORY MANAGEMENT Management of inventory is one of the critical areas of management in any organization. Properly clear out, it helps in creating a tense of purpose and unity among the other functional areas such as production, marketing and finance etc. And channels there energy and effort in achieving commonly accepted organizational goals. It is observed that inventory in industrial enterprises is a sponge which soaks as a substantial portion of the invested capital. It worries controllers; blague purchasing agents haunts production managers and harasses stock Keats. It is the case of broken delivery promises, manufacturing difficulties and business failures. Seccion Tepic inventory management helps an enterprises achieving the goal efficiently, effectively, economic legend expend it outlay inventory management has therefore to play an important role it helps arrest high cost and inflationary trends and can be better described as backbone of materials management function. In any business or organization, all functions are interlinked and connected to each other and are often overlapping. Some key aspects like supply chain management, logistics and inventory form the backbone of the business delivery function. Therefore these functions are extremely important to marketing managers as well as finance controllers. Inventory management is a very important function that determines the health of the supply chain as well as the impacts the financial health of the balance sheet. Every organization constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial figures.
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Inventory is always dynamic. Inventory management requires constant and careful evaluation of external and internal factors and control through planning and review. Most of the organizations have a separate department or job function called inventory planners who continuously monitor, control and review inventory and interface with production, procurement and finance departments.
Defining inventory Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time. Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale. While inventory is a necessary evil of any such business, it may be noted that the organizations hold inventories for various reasons, which include speculative purposes, functional purposes, and physical necessities etc. From the above definition the following points stand out with reference to inventory:
All organizations engaged in production or sale of products hold inventory in one form or other.
Inventory can be in complete state or incomplete state.
Inventory is held to facilitate future consumption, sale or further processing/value addition.
All inventoried resources have economic value and can be considered as assets of the organization.
Inventory management is a science primarily about specifying the shape and percentage of stocked goods. It is required at different locations within a facility or 2
within many locations of a supply network to precede the regular and planned course of production and stock of materials. The scope of inventory management concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods, and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an ongoing process as the business needs shift and react to the wider environment. Inventory management involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling, and related costs are kept in check. It also involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status and handle all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. It also may include ABC analysis, lot tracking, cycle counting support, etc. Management
of
the
inventories,
with
the
primary
objective
of
determining/controlling stock levels within the physical distribution system, functions to balance the need for product availability against the need for minimizing stock holding and handling costs. The term inventory refers to the goods or materials used by a firm for the purpose of production and sale. It also includes the items, which are used as supportive materials to facilitate production. There are three basic types of inventory: raw materials, work-in-progress and finished goods. Raw materials are the items purchased by firms for use in production of finished product. Work-in-progress consists of all items currently in 3
the process of production. These are actually partly manufactured products. Finished goods consist of those items, which have already been produced but not yet sold. Inventory constitutes one of the important items of current assets, which permits smooth operation of production and sale process of a firm. Inventory management is that aspect of current assets management, which is concerned with maintaining optimum investment in inventory and applying effective control system so as to minimize the total inventory cost.
Importance of inventory management Management of inventory assumes importance due to the fact that investment in inventory constitutes one of the major investments in current assets. The term inventory refers to the stockpile of the products a firm is offering for sale and the components that make up the product. The assets which firms store as inventory in anticipation of need are: (i) Raw materials: These represent inputs purchased and store to be converted into finished products in future by making certain manufacturing process on the same. (ii) Work in process: These represent semi-manufactured products which need further processing before they can be treated as finished products. (iii) Finished goods: These represent the finished products ready for sale in the market. (iv) Stores and supplies: 4
These represent that part of the inventory, which does not become a part of final product but are required for production process. They may be in the form of cotton waste, oil and lubricants, soaps, brooms, light bulbs etc. Normally, they form a very minor part of total inventory and do not involve significant investment. Let us have a look on different inventory management views. Means emphasis role of inventory management in different sectors.
INVENTORYMANAGEMENT MANAGEMENTSYSTEM SYSTEM INVENTORY 3 Physical Inventory Management
V I E W S
Logistic Inventory Management
Financial Inventory Management
Inventory management is consisting of 3 hands. The first hand as shown in the diagram is that physical inventory management, second one is financial inventory management and the last one (third one) is logistic inventory management. 5
The reason behind of dividing these views is: to gather the information very easily and for easy to understanding of each view thoroughly. Let us see the meanings of each view one by one.
Physical inventory management Meaning: “Keeping of goods is also a type of management. Whenever requirements comes from the production department, providing of those required materials in a proper manner & providing those at the specified period, is the main motto of physical inventory management.�
Benefits for holding inventory: Benefits in purchasing Benefits in production Benefits in work-in-process Benefits in sales
Objects of inventory management: Usually, the company is faced with the following conflicting objectives in the area of inventory management: 1.
To carry maximum inventory in order to facilitate efficient and smooth production and sales operations.
2.
To minimize investment in inventory for maximize the profitability.
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Both over-investment and under investment in inventories is undesirable as both involve the consequences. The over-investment involves the consequences like: I)
Unnecessary blocking of funds in inventory and hence loss of profit.
II)
Excessive storage and insurance cost. i. Risk of liquidity. The inventories once purchased and stored are normally difficult to dispose off at the same value. The under-investment involves the consequences like: b. If sufficient stock of raw material and work in process is not available, it may result into frequent interruptions in production. c. If sufficient stock of finished goods is not available it may not be possible for the company to serve the customers properly and they may shift to the competitors. Thus, it can be said that the objective of inventory management is to
minimize the investment in inventory without affecting production or sales operations. Inventory, as a current asset, differs from the other current assets because only financial managers are not involved. Rather, all the functional areas, finance, marketing, product & purchasing are involved. The job of the financial manager is to reconcile the conflicting viewpoints of the various functional areas regarding the appropriate inventory levels in order to fulfill the overall objective of maximizing of owner’s wealth.
Two-bin system: Under this system, the inventory items are grouped into two categories. In one group or bin, sufficient quantity is kept to meet the current requirements over a 7
designated period of item. In another group or bin, a safety stock is maintained to meet the requirements of inventory at times when the stock in the first bin is exhausted and re-ordering occurs.
Financial inventory management Meaning: “Recording, maintaining and evaluating of stocks in a value terms is known as financial inventory management.� In other words valuation of stocks, and controlling of ordering and holding costs and also maintaining of sufficient valued stocks in inventory is known as financial inventory management.� Financial inventory management is again divided into three different categories. 1)
Based on valuation
2)
Based on cost analysis
3)
Based on financial statement
1)
Based on valuation There are number of generally accepted methods of determining the cost of
inventories at the close of the accounting period. The selection of a suitable method assumes significance in view of the fact that it has a direct bearing on the cost of goods sold and consequently on profit. Therefore, the method should be selected in the light of probable effects on profits over a period of years. Note: It may not be out of place to mention that once a method is selected, it must be used consistently and cannot be chHYUNDAIed from year to year. 8
The discussion here of the methods to value inventory should, therefore be viewed in this perspective. First in first out (FIFO) method: The FIFO method of valuation of inventory is based on the assumption that the inventory is consumed in chronological order, that is, those received first are consumed first and value fixed accordingly. The merit of FIFO method is that the physical flow of materials matches the flow of cost. Last in first out (LIFO) method: Under the LIFO method, the cost of goods sold and the value of closing inventory can be determined only after the final lot of the year has been received. This is because of the assumption underlying the valuation of inventory, according to this method. As the name LIFO suggests, the use of inventory is valued on the basis of the inverse sequence of receipts. Since the LIFO method assumes that the latest item in is the first item out, the current cost of materials are matched with the current selling price/current revenues. This matching of current costs with current revenues is the essence of the argument for the LIFO method. Average cost method: According to average cost method, each purchase is added to inventory and an average cost determined. Materials are charged into cost of sales at this average until another lot is received, when a new average unit inventory cost is calculated. Note: there are so many other than these above methods but most wide usefully methods are these three so here we discussed those three methods only. 2)
Based on cost analysis
Cost of holding inventory: 9
One operating objective of inventory management is to minimize cost. Excluding the cost of merchandise, the costs associated with inventory fall into two basic categories: (i) ordering or acquisition or set-up costs, and (ii) carrying costs. These costs are an important element of the optimum level of inventory decisions. 1)
Ordering cost: It is the fixed cost of placing & receiving an inventory order. Like (a) preparing a purchase order or requisition form & (b) receiving, inspecting & reordering goods received to ensure both quantity & quality. It is also called as setup cost.
2)
Carrying cost: The second broad category of costs associated with inventory is the carrying costs. They are involved in maintaining or carrying inventory. The cost of holding inventory may be divided into two categories. 1.
Those that arise due to the storing of inventory: the main components of this category of carrying costs are (i) storage cost, that is, depreciation, insurance, maintenance of the building and utilities; (ii) insurance of inventory against fire and theft; (iii) deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence and price decline; (iv) serving costs, such as labour for handling inventory, clerical and accounting costs.
2.
The opportunity cost of funds: this consists of expenses in raising funds (interest on capital) to finance the acquisition of inventory. If funds were not locked up in inventory, they would have earned a return.
This is the
opportunity cost of funds or the financial cost component of the cost.
Linking of costs based and physical based inventory management:
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The carrying costs and the inventory size are positively related and move in the same direction. If the level of inventory increases, the carrying costs also increase and vice-versa. Total cost: The sum of inventory increases; the carrying costs represent the total cost of inventory. This is compared with the benefits arising out of inventory to determine the optimum level of inventory. Economic order quantity (EOQ): How much inventory should be bought in a lot? Should the quantity to be purchased be large or small? Should the requirements of material during a given period (say 6 months or 1 year) be acquired in one lot or should it be acquired in installments or in several small lots? Such inventory problems are called order quantity problems. Therefore EOQ is that level of inventory at which total cost of inventory comprising ordering cost & carrying costs is the minimum. Formulae for calculating economic order quantity: EOQ =
2ao C
Where, A= annual quantity O= ordering cost C= carrying cost Assumptions: 11
The firm knows with certainty the annual usage (consumption) of a Particular item of inventory. The rate at which the firm uses inventory is steady over time. The orders placed to replenish inventory stocks are received at exactly That point in time when inventories reach zero.
1. 2. 3.
Order point: Reorder point: This is the point at which to order inventory-expressed equation-ally as: Lead time in days x daily usage. Lead time: It is the time normally taken in receiving delivery after placing orders with suppliers. Safety stock: It implies extra inventories that can be drawn down when actual lead-time and/or usage rates are greater than expected. 3)
Based on financial statement
For having assistance by banks, bankers should first evaluate the followings: 1.
Collateral strength.
2.
Inventory position
3.
Some financial ratios
4.
Payment of all requirements like income tax, wealth tax, interests on debt etc.,
5.
Agreement papers of all authorized persons like debenture holders, shareholders etc.,
6.
All required documents.
7.
Who is the buyer and his country’s relationship etc,
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The main requirement for banker is the financial statements of 3 to 5 years. From this statement it can judge the financial strength of the company. While analyzing of financial strength of the company, inventory is also having its own emphasis role. Because if company is having less inventory than its requirement then company will get less finance from banks and visa-versa. So here high inventory means, high in the sense company should have sufficient inventory according to its order. Not more than its order. Let us have a look on some inventory related ratios and also some important financial ratios those, which are related to inventory. From evaluating of these financial ratios, company can judge the stocks/goods level in inventory, so that company can get loan from banks. The financial statement provides a summarized view of the financial position and operations of a firm. Therefore, much can be learnt about a firm from a
careful
examination
of
its
financial
statements
as
invaluable
documents/performance reports. The analysis of financial statement is, thus an important aid to financial analysis. The analysis of financial statements is a process of evaluating relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance. Tasks of financial analyst are to: 1)
Select the information relevant to the decision under consideration from the total information contained in financial statement.
2)
ArrHYUNDAIe the information in way to highlight significant relationships.
3)
Interpretation and drawing of inferences and conclusions. 13
In brief, financial analysis is the process of selection, relation and evaluation. Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. Financial analysis can be under taken by management of the firm, or by parties outside the firm, viz., owners, creditors, investors and others. The nature of analysis will differ depending on the purpose of the analyst. Management of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently, and that the firm’s financial condition is sound. Trader creditors are interested in firm’s ability to meet their claims over a very short period of time. Investors, who have invested their money in the firm’s shares, are most concerned about the firm’s earnings. Suppliers of long-terms debt, on the other hand are concerned with the firm’s long-term solvency and survival. They analyze the firm’s profitability over time, its ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds.
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2. Ratio analysis related to inventory Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things.” In financial analysis ratio is used as a benchmark for evaluating the financial position and performance of a firm.
Ratios help to
summarize large quantities of financial data and to make qualitative judgment about to form a qualitative judgment the focus of financial analysis is on the key figures in the financial statements and the significant relationships that exist between them.
Types of ratios:
A.
a.
Liquidity ratios
b.
Activity ratios
c.
Profitability ratios
Liquidity ratios: Liquidity refers to the ability of the firm to meet its obligations in the short
run, usually one year. Liquidity ratios measure the ability of the firm to meet its current obligations. Liquidity ratios by establishing a relationship between cash and other current assets to current obligations provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it does not have excess liquidity. Therefore it is necessary to strike a proper balance between high liquidity and lack of liquidity. Following are some of the important liquidity ratios: 1. Current ratio 2. Quick ratio 3. Net working capital ratio 15
Activity ratios:
B.
Activity ratios are concerned with measuring the efficiency in asset management. Sometimes, these ratios are also called efficiency ratios or asset utilization ratios. The efficiency with which, assets are converted into sales. The greater the rate of turnover or conversion, is the more efficient the utilization. For this reason, such ratios are also designated as turnover ratios. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. An activity ratio may, therefore, be defined as a test of the relationship between sales and various assets of a firm. Several activity ratios can be calculated to judge the effectiveness of asset utilization. 1.
Inventory turnover
2.
Assets turnover
3.
Fixed assets and current assets turnover
Asset measurement for different methods of inventory valuation: FIFO method: Under this method, as noted earlier, inventory is valued on the assumption of chronological cost flow. This implies that the unused/unsold inventory consists of the most recent purchases and, therefore, can be assumed to be valued at current cost. The value of inventory as show in the balance sheet would reflect the current cost, if FIFO method were used.
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LIFO method: According to this method, obviously, the inventory figure would not appear in the balance sheet at the current cost. It will reflect rather the cost of raw materials purchased in the past year. Assuming rising prices, the inventory value based on the LIFO method would tend to be undervalued. For example inventory purchased as early as six years or more. In that situation, the inventory figure included in the balance sheet would be actually the price paid on the purchase of inventory six years ago. In a period of rising prices, this value would naturally be grossly out of line with the currently prevailing price. This would imply that the balance sheet would not reflect the current worth of the inventory. That the inventory value will not be correct is another way of saying that the balance sheet will present a distorted picture of the affairs of the firms. a possible solution to correct the above distortion in the balance sheet implicit in the under-valuation of inventory with the lifo method is a modified/adjusted lifo method. The modified method will, thus, serve the needs of correct income determination as well as correct asset measurement. However, this is subject to a qualification; namely, the current year’s purchase (units) should exceed the current year’s consumption (units). If for reasons such as strike/lockouts, transportation problems, and so on, the current consumption exceeds the current purchases, profits will rise. The increase will depend upon the extent of liquidation of the previous years’ inventory. This increase in profit is termed as liquidation profit, which is equal to the difference between the current cost of inventory and the cost of inventory purchased in the past.
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Logistics inventory management Meaning of logistics: Logistics is the organization of services and supplies.
In other words,
logistics is making and taking the permission for sell/exporting the company’s products in foreign countries. In fully export-oriented business this is one of the main departments, where this department gets an approval to sell their goods in foreign countries. And also their main intention is to maintain all documents of those that are related to the exporting of their products. Logistics inventory management: Yes, already we have observed about the meaning of inventory management in the organization. But in fully export oriented business; inventory management is a very important concept. Because every exporter or importer, they do not know about each other who are staying in other countries. So every company, which are exporting or importing of materials, they should communicate each other through banks only. These banks are listed by central bank of that nation.
In our country RBI is lists some banks for
intermediating purpose and every year RBI declare some listed banks as a mediator. For producing of materials and selling of those materials, every company/business should need a working capital. This working capital can also financed by banks. While in export oriented business it is slightly different task. Here banks can acts as financial assistance for pre-shipment and for post shipment of goods.
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For having assistance by banks they should first evaluate followings: 1.
Collateral strength.
2.
Inventory position
3.
Some financial ratios
4.
Payment of all requirements like income tax, wealth tax, interest etc.,
5.
Agreement papers of all authorized persons like debentures, shareholders etc.,
6.
All required documents.
7.
Who is the buyer and his country’s relationship etc,
Before going to detail decision on banks let us have a look on commercial papers. Which are also parts of financing the working capital requirements of the companies? Commercial papers (cps): In the recent past, commercial papers (cps) have become one of the best methods for financing the working capital requirements of the companies. The companies trying to raise the funds by issuing the cp are regulated by guidelines for issue of commercial papers (cp), 2000 issued by reserve bank of India on October 10, 2000. These guidelines apply to the companies trying to raise the funds by issuing the cps. As per these guidelines, a company means a company as defined in section 45-i (aa) of reserve bank of India act, 1934. Section 45-i (aa) of reserve bank act, 1934 defines a company as the company as the company as defined in section 3 of the companies act, 1956. In the Indian circumstances, banks play a very major role in financing the working capital requirement of the organizations. We will consider the bank as a source for financing the working capital requirement of the organizations under the following heads: 19
Amount of assistance To obtain the bank credit for financing the working capital requirements, the company is required to estimate the working capital requirement properly. To estimate the requirement of working capital requirement properly, the company will be required to estimate its level of current assets and current liabilities properly, as working capital is the difference between current assets and current liabilities. For this, the techniques like ratio analysis, trend analysis etc., can be used by the company. More accurate the estimation of the level of current assets and current liabilities, more accurate the estimation of level of current capital. Then, the company will have to approach the bank along with the necessary supporting data. On the basis of estimates submitted by the company, the bank may decide the amount of assistance that can be extended. While extending the working capital assistance, the bank may prescribe the margin money requirement. The margin money stipulation is made by the banks in order to ensure that borrowing company’s own stake in the business and also to provide the cushion against the possible reduction in the value of security offered to the bank. The percentage of margin money stipulation may depend upon the credit standing of the borrowing company, fluctuations in the price of security and the directives of RBI from time to time. The general principle applicable will be, “deicer the nature of security, higher of security, higher will be the margin money stipulations.�
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Form of assistance: After deciding the amount of overall assistance to be extended to the company, the bank can disburse the amount in any of the following forms: 1.
Non-fund based lending
2.
Fund based lending.
Non fund based lending: In case of non-fund based lending, the lending bank does not commit any physical outflow of funds. As such, the funds position of the lending bank remains intact. The non-fund based lending can be made by the banks in two forms: a.
Bank guarantees
b.
Letter of credit
Fund based lending: In case of non-fund based lending, the lending bank commits the physical outflow of funds. As such, the funds position of the lending does not affected. The fund based lending can be made by the banks in following forms: a.
Loan
b.
Overdraft
c.
Cash credit
d.
Bills purchased/discounted
e.
Working capital term loans
f.
Packing credit
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Security for assistance: The bank may provide the assistance in any of the modes as stated above. But normally no assistance will be available unless the company offers some security in any of the following forms. 1)
Hypothecation.
2)
Pledge
3)
Lien
4)
Mortgage
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About organization HYUNDAI MOTOR INDIA LIMITED HYUNDAI MOTOR INDIA LIMITED is a publicly quoted company with a number of shareholders, both Indian and foreign. Promoted by Mr. Y.K.KOO (CEO) in 1995 with a modest capital outlay of Rs. 342 lakes, HYUNDAI today has a capital outlay of Rs. 1200 lakes. A growth of over 350% per annum. Achieved by producing thousands of dynamically stressed machined components for the construction equipment industry The raison deter of HYUNDAI is that the emerging scenario in post liberalized India indicated that the nation was poised to go in for massive infrastructure building: roads, super highways, ports, power projects, and so on. This would put immense pressure on manufacturers of earth-moving equipment. HYUNDAI eases the load on them by supporting the industry with precision engineered sub-assemblies and major assemblies that can go directly into their equipment, such as revolving frames, main frames, booms, arms, dozers, buckets, and so on. As a case in point, we're proud to have been entrusted with the single share of business for all major fabrications that go into the making of Tata Hitachi’s top selling excavators, the ex-60. Over the last 5 years, we have fabricated more than 10,000 components of this particular model alone.
Vision to be recognized as a premier quality manufacturer and supplier fabricated components, embodying thus the spirit of commitment and humanity.
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Mission
As per customer schedule requirement fulfill it, deliver on time, every time.
An eye on product quality and integrity
Highest productivity, thereby offering a cost advantage to all our clients.
HYUNDAI is the largest domestic manufacturer of finished fabricated structures to the earth-moving and construction equipment industry in India. We are presently manufacturing components for top selling excavators, back hoe loaders, cranes, compactors, transit mixers, underground drilling, crushing & screening equipments for the domestic and international market. We also have facilities that can cater to the general engineering requirements of other sectors like railways, power, shipping and aerospace. We have facilities across five plants located in India in Jamshedpur, Dharwad, BHYUNDAIalore and Kharagpur. Vision - to be a global leader in steel fabrication for ce with a turnover of over us $ 200 million by 2018. The hallmark of HYUNDAI is a dedicated and driven team. Our values – integrity, commitment, oneness. At HYUNDAI we work with passion and care. We have 140 engineers & diploma engineers (64 engineers) in our production team. Over 1200 associates, including over 250 highly skilled and certified welders. Our usp – we are a one stop shop for all fabrication requirements. At present we are manufacturing all structures for a 2 ton excavator as well as a 90 ton crawler crane. Our mantra - “if you can imagine it, we can fabricate it
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Fabrication When used as an industrial term, applies to the building of machines, structures and other equipment, by cutting, shaping and assembling components made from raw materials. Small businesses that specialize in metal are called fab shops. Steel fabrication shops and machine shops have overlapping capabilities, but fabrication shops generally concentrate on the metal preparation, welding and assembly aspect while the machine shop is more concerned with the machining of parts.
Metal fabrication Metal fabrication is a value added process that involves the construction of machines and structures from various raw materials. A fab shop will bid on a job, usually based on the engineering drawings, and if awarded the contract will build the product. Fabrication shops are employed by contractors, oem’s (original equipment manufacturers) and var's (value-added reseller) typical projects include; loose parts, structural frames for buildings and heavy equipment, and hand railings and stairs for buildings.
Engineering The fabricator may employ or contract out steel detailers to prepare shop drawings, if not provided by the customer, which the fabricating shop will use for manufacturing. Manufacturing engineers will program cnc machines as needed. 25
Research and Observations Article I.
Raw materials
Standard raw materials used by metal fabricators are;
Plate metal
Formed and expanded metal o
Tube stock, cdsm
o
Square stock
o
Sectional metals (I beams, w beams, c-channel...)
Welding wire
Hardware
Castings
Fittings
2. cutting and burning The raw material has to be cut to size. This is done with a variety of tools. The most common way to cut material is by shearing (metalworking); Special band saws designed for cutting metal have hardened blades and a feed mechanism for even cutting. Abrasive cut-off saws, also known as chop saws, are similar to miter saws but with a steel cutting abrasive disk. Cutting torches can cut very large sections of steel with little effort. Burn tables are cnc cutting torches, usually natural gas powered. Plasma and laser cutting tables, and water jet cutters, are also common. Plate steel is loaded on a table and the parts are cut out as programmed. The support table is made of a grid of bars that can be replaced. Some very expensive burn tables also include cnc punch capability, with a carousel of different punches and taps. Fabrication of 26
structural steel by plasma and laser cutting introduces robots to move the cutting head in three dimensions around the material to be cut.
3. forming Hydraulic brake presses with v-dies are the most common method of forming metal. The cut plate is placed in the press and a v-shaped die is pressed a predetermined distance to bend the plate to the desired HYUNDAIle. Wing brakes and hand powered brakes are sometimes used. Tube bending machines have specially shaped dies and mandrels to bend tubular sections without kinking them. Rolling machines are used to form plate steel into a round section. English wheel or wheeling machines are used to form complex double curvature shapes using sheet metal.
4. machining Fab shops will generally have a limited machining capability including; metal lathes, mills, magnetic based drills along with other portable metal working tools.
5. welding Welding is the main focus of steel fabrication. The formed and machined parts will be assembled and tack welded into place then re-checked for accuracy. A fixture may be used to locate parts for welding if multiple weld elements have been ordered.
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The welder then completes welding per the engineering drawings, if welding is detailed or per his own judgment if no welding details are provided. Special precautions may be needed to prevent warping of the weldment due to heat. These may include re-designing the weldment to use less weld, welding in a staggered fashion, using a stout fixture, covering the weldment in sand during cooling, and straightening operations after welding. Straightening of warped steel weldments is done with an oxy-acetylene torch and is somewhat of an art. Heat is selectively applied to the steel in a slow, linear sweep. The steel will have a net contraction, upon cooling, in the direction of the sweep. A highly skilled welder can remove significant war page using this technique. Steel weldments are occasionally annealed in a low temperature oven to relieve residual stresses.
6. final assembly After the weldment has cooled it is generally sand blasted, primed and painted. Any additional manufacturing specified by the customer is then completed. The finished product is then inspected and shipped.
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HYUNDAI MOTOR INDIA LIMITED Key Strengths Article II. Strong product development
As per the specification from Telkom the new product is been developed
Article III.
By the highly qualified internal engineering department.
Article IV.Strong merchandising team Technically qualified and high skilled merchandising department is another asset of the company, who plays a major role in executing the orders utmost efficiently to the satisfaction of buyers.
1.
Professionally managed: a) Company has two units in DhÄ r wad, one is HYUNDAI MOTOR INDIA LIMITED unit i and the other is HYUNDAI MOTOR INDIA LIMITED unit ii b) Unit i is headed by Mr. Arvind gaur, unit ii is headed by Mr. Pravat Kumar rath
2.
Factories engineered to product specific: All their manufacturing units are engineered to product specific and managed by effective and efficient internal engineering department.
3.
Quality control system: There is an independent quality audit team in process control system in all the factories, which has given quality production consistently.
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4.
Sourcing of raw materials under vigilance of quality audit system:
They source all their raw materials 100% from within India. However, they have a rigid control on their quality control system whereby they ensure that all the raw materials are produced as per their quality standard level before it gets dispatched to their factories.
5.
In house lab:
They have a lab situated in the major procurement centers, such as in DhÄ r wad and Jamshedpur to support their quality control team to carry out the various quality tests at all level onwards to ensure that the product is produced according to their quality in-house.
6.
Pre-shipment inspection to maintain zero-claim from buyers:
A thorough inspection by in-house quality control team and pre-shipment inspection by buyer representative for all their products helps company to maintain zero-quality claims position with all their buyers.
7.
Confidence of their buyers:
All the buyers as of today have been working with them since decades and they started with them on continues basis with enhanced volume. This has given them huge confidence as the confidence level of their buyers is very high in their products, quality, timely deliveries and commitment towards work. They have been awarded for 3 consecutive years for minimum rejection and for safety in process of manufacturing by Telco construction equipment limited
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Organization structure Managing Director General Manager
Production Planning & Control Manager
Finance Manager
CEO
Human Resources Assistant General Manager
Production Assistant General Manager
Administration Assistant
Supply Chain Mgmt. Head
Production department Head
Quality Assurance Head
Machine Department Head
Store Supervisor
Production Supervisor
Assistant Q. A
Machine Operators
Subordinate Members
Workers
32
Helpers
1.
Personnel department this department is almost like a human brain, since it is the human beings
that operate it. This department is concerned with implementation of the plans, with the welfare of the plant, with the industrial relations and above all safety and security of the plant and the work force is its prime concerns. This department looks after the subsidiaries like recruitment selection training and induction, canteen, community development disciplinary actions etc., welfare, security, guesthouse, medical facility etc., (as per Indian factories act 1948.) team HYUNDAI professionally managed with a rich blend of experience and enthusiastic youth, engineers, diploma holders, draft men, ITI welders and fitters, gas cutters, workers and fabrication experts. Let’s go through the process of the recruitment in HYUNDAI MOTOR INDIA LIMITED unit ii. recruitment is process of searching the prospecting candidate, stimulating and encouraging them to apply for the job. The above meaning says that every organization want skilled workers so HYUNDAI MOTOR INDIA LIMITED unit ii also recruit candidates as follows, they firstly check the organization culture which type of employees needed in organization and they also check employment condition in unit. they are searching the candidates in two ways one is advertisement and the other is manual searching. In advertisement they give firstly the adz’s like draft adv., client review adv. And place adv., and then they receive the calls then access their cv’s. In manual searching process they search the employee in plan search, identity search, and contact search, then they check the candidates interest after that they arrHYUNDAIe meeting for selection process
33
Selection process
selection is process of checking the candidate’s
knowledge, behavior, skills, experience, and qualifications etc to select and place the candidate their correct position.
2. Stores department the raw materials are stored separately under material cell in production department; as per the demand this department does the work of receiving and issuing of materials. 3. Purchase department against the approved purchase requisition the department purchases of raw material semi finished goods and accessories and other needs of the various departments.
In order to make the work efficient it has the system of sub
contractors. So the purchase department does the creation of sub contractors and vendors.
This department is guided by the main motto the plant and other
departments working. Let’s have a look on the flow chart of the purchase of raw materials in HYUNDAI unit ii
34
Material indenting (As per customer schedule)
0 Quotations request to one or more vendors according to requirement
Quotations Comparisons
Best Negotiation
Purchase Order creation
Purchase Order send to vendor (supplier)
Follow Up and procure the material for production
35
4. Dispatch department The dispatch of materials and finished goods is done in a very efficient way.
5. Production department this department entrusted with the task of the production of dozer blade, loader bucket, narrow bucket, back hoe main frame, boom, arm, counter weight, heavy duty bucket, revolving frame and track frame. From our very inception at Jamshedpur in 1996 and at Dharwad in 1999, our infrastructural facilities have been meticulously planned out with an eye towards satisfying the exacting standards of world class players in the earth moving industry. Let’s have a look on the process of manufacturing process in HYUNDAI unit ii, basically this company is heavy fabrication company, they are manufacturing back hoe loader component & excavator components. Following are the components. John deer (JD) boom, arm, loader arm and excavators 70, 110, 120, boom and excavators 70, 110,120 arm. The below showing is the manufacturing process of excavators-70 boom.
36
RESEARCH METHODOLOGY Statement of the problem “Inventory management and its effects on working capital”
Management problem Management is feeling that their huge amount of working capital is held up, so the management wants to know whether they can reduce it through inventory management.
Research problem As above stated management problem the study was carried to know how inventory management helps in proper maintenance of working capital, so the title of this study is “inventory management and its effect on working capital”
Objectives of the inventory management Through the efficient management of inventory of the wealth of owners will be maximized. To reduce the requirement of cash in business, inventory turnover should be maximized and management should save itself from loss of production and sales, arising from its being out of stock. On the other hand, management should maximize stock turnover so that investment in inventory could be minimized and on the other hand, it should keep adequate inventory to operate the production & sales activities efficiently. The main objective of inventory management is to maintain inventory at appropriate level so that it is neither excessive nor short of requirement thus, management is faced with 2 conflicting objectives. 37
(1) To keep inventory at sufficiently high level to perform production and sales activities smoothly.
(2) To minimize investment in inventory at minimum level to maximize profitability. Both in adequate & excessive quantities of inventory are undesirable for business. These mutually conflicting objectives of inventory management can be explained is from of costs associated with inventory and profits accruing from it low quantum of inventory reduces costs and high level of inventory saves business from being out of stock & helps in running production & sales activities smoothly. The objectives of inventory management can be explained in detail as under:(i) to ensure that the supply of raw material & finished goods will remain continuous so that production process is not halted and demands of customers (ii)
To
(iii)
To
(iv) To (v)
are
To
duly
minimize
carrying
keep investment
reduce
the
losses
in of
cost
inventory
theft,
make arrHYUNDAIement for
of at
obsolescence sale of
met.
slow
inventory.
optimum &
wastage moving
level. etc. items.
(vi) To minimize inventory ordering costs.
Scope of the study Inventory management being a very important concept in all the company’s having a void coverage often calls for the managerial attention. In the modern times inventory management has become the integral part of the all companies. So all the firm gives special importance for inventory management. The major objective of the study is to examine the effectiveness of inventory management 38
system adopted by Akash industry; the study mainly focuses on the techniques used by the company to control the inventory. The study also covers other areas like the financial ratios for the period of 2004 to 2007.
Sub objectives: 1
To study the different accepts of inventory management.
Collection of data Primary data: 1.
Interaction with personnel of the company
2.
Direct observation in inventory
Secondary data: 1.
Balance sheet
2.
Turnover statements
3.
Monthly inventory statements
4.
Company records
5.
Internet
Tools used: Ms-excel have been used for calculations.
Manufacturing process of ex-70 boom Manufacturing process of ex- 70 booms is having several steps already you know in the flow chart now below showing manufacturing process in detail
1. Raw materials In every manufacturing process raw materials must required there for HYUNDAI MOTOR INDIA LIMITED (unit ii) purchase raw materials from its main branch at Jamshedpur and form HYUNDAI MOTOR INDIA LIMITED (unit I). Some materials directly comes to unit ii but some materials firstly comes to unit I and after some process it is send to unit ii. Then the stores department sends materials to production department for production 39
2. Boom and bracket assembly In this process boom and bracket assembled or produced. Here firstly they join 20mm bkt plate (rh) (Tc 00558/01) and ta00233/22 according to the diagram. Then they join 20mm bkt plate (LH) (Tc 00558/02) and ta 00233/11. After that back up bars are join at the bottom of both 20mm bkt plates. Then these two jointed by the plate back up plate (ta 00233/19), then they join one square plate for maintaining required dimensions after welding of all this parts this complete the manufacturing of boom and bracket assembly.
3. Beveling of plates Some plates beveled by unit i and those plates are top rolling plate (ta 00233/01), side bend plate LH (ta 00233/07) and side bend plate rh (ta 00233/08)
4. in fixture sub assembly 1st stage In this process one sub assembly will be done in this stage boss (td01164/00) is joined to top rolling plate (ta 00\233/01) at one side then at the top of the boss they join side bend plate LH (ta 00233/07). After that inside of the boss they join boss back up plate (ta 00233/27). Then in the middle of top rolling plate and side bend plate they join gasset plate(ta00233/05) and near to that bend gasset plate is joined with required dimension, after that side bend plate rh(ta 00233/08) is joined according to diagram so this complete sub assembly first stage. 5. Out of fixture first stage welding After completion of sub assembly first stage each part is manually weld in this process. 6. Second stage assembly 40
In this process back up bar (te20789) 03 back up bar (te20790) are attached in the inside part of bottom rolling plate (ta00233/03) at the right side with required dimension according to diagram 7. Out of fixture In this process second stage welding process is done manually. 8. in fixture in this process firstly prepared boom and bracket is joined by using plates such as cover plate 6mm (ta00233/09) and cover plate 8mm (ta00233/10), after that there is some place which is empty so that place is been filled by plates taper side plate(ta00233/04) 2 plates according to diagram. So this process finishes boom and bracket assembly. 9. Lug fitting In this process lugs are fitted to the prepared component which is top lug and bottom lugs and top washers lugs and bottom washer lugs. Firstly bottom lugs are joined to each other and then those lugs are attached to the bottom of the prepared component. After joining the bottom lugs the top lug is joined to the top of prepared component with required dimension or space so as to complete this process. 10. Inspection This is an important stage in manufacturing process. In this stage they check total length of the component. Total length should be 3720mm if there less difference of 4mm then there is no problem it must not exceed 4mm, then they also check centre point of the component and top lug distance to the boom and bracket, and bottom lug distance of the components if there is any problem found then they go for rectification of the component. 11. Assembly out of fixture
41
In this process they join one top cover plate (ta00233/02) to the boom or prepared component according to the standard diagram and they also join ‘m’ plate (ta00233/28) attach to the top lugs so this completes the process of assembly.
12. Robot welding Robot is a programmable multiplication, manipulate design to material part, tools or specialized devices are t O carries out specific task. In robot welding processed components are weld by robot machine. Firstly they set the programs to the robot for welding the components. Every component has is its own welding program according to the standard drawing of the components, after installation of the ex – 70 program the welding process of ex- 70 boom starts, mig welding wire is been used by the robot to weld the component.\
13. Left over welding After completion of the robot welding there are some spaces left which are weld manually by welders. In this process they also join boss reinforcement plate (ta00233/26) at the top and bottom side of the boss according to the diagram. 14. Setting In this process they maintain required dimension in various parts of the components through the gas heating which includes organ and co
15. Inspection In this process they measure the components by using measuring scale, try square, venire and gauges etc. 16. Machining Machining process means removing the rough face as per the standard drawing. In machining process they have two types of jobs one is milling and the 42
other is boring, in this process they are using two types of machines one shw that means hidden control machine and the other is Fanuc control machine. To reduce heat in the process they are using coolant oil because it helps to reduce the heat for insert ware and tear and it helps to smooth milling and boring of the component in machining they are having there stages 1. Rough stage 2. Semi finish 3. Finish stage In ex- 70 boom components are having mainly four bores boss bore must have the size of 75mm and lug bore must have the size of 55mm and bracket must have 60mm. 17. Inspection In this process they use the following instruments to check whether the machining process is properly done or not 1. Bore dial gauge 2. Micrometer 3. Venire 4. Measuring scale etc 18. Dressing dressing is the very important stage in manufacturing process in this process they clean the components by using grinding machine and sander machine to remove spatters chips etc, here they also fit some items to prepare components to according to standard diagram.
19. Inspection In this process they are checking welding defects in the components by using ultrasonic technique (ut) machine, the following are the defects we can find by using ut machine. 1. Blow holder area 43
2. Proper penetration 3. Porosity etc
20. Dispatch After completion of all this processes the quality assurance department checks the quality of the component and after checking they finally dispatch the product so this complete the manufacturing process of ex-70 boom model.
44
Inventory management in HYUNDAI MOTOR INDIA LIMITED Each unit of HYUNDAI MOTOR INDIA LIMITED has its own store department that we can call it as work-in-process inventory. This inventory process is fully computerized and here paper work is very less. Only maintaining of documents, which were sent by suppliers as like challans etc., are only here to maintain as paper documents. Otherwise it is fully computerized. Through computers only store department receives purchase order and by computer only they send documents of issuing of materials to manufacturing unit. for easy to communicate and planning of production activity, HYUNDAI MOTOR INDIA LIMITED unit ii has having only one Godown in procedures involved in receiving and issuing of materials are as follows: 1)
Godown will first get purchase order no...
Purchase order number: This Po is comes from purchase department. This purchase department gives a number for the each order made by purchase department only. Before placing any order to suppliers they first check the materials in inventory as to know about whether materials are available in inventory or not. If not available in inventory then only they will place an order according to the requirement.
45
In HYUNDAI MOTOR INDIA LIMITED (unit ii), it is very important to note that: purchase department always places an order to those materials which have ordered by customers/buyers of HYUNDAI MOTOR INDIA LIMITED (unit ii). So, normally it does not have any stocks in its inventory. For every order from customers they make a fresh purchase order for purchasing of materials. It means whatever the materials are requiring for present orders, those materials are only they kept as stocks in inventory. In some cases, materials may be in Godown, which they call it as “buffer stock”. If these old stock is matches the requirements of product which has ordered now by its customers, then purchase department will sent a notice to inventory for issuing of those materials. These old stock may be in form of raw material or in form of finished goods. HYUNDAI MOTOR INDIA LIMITED (unit ii) always produces more than its requirements. For example if telecom has ordered for 20 ex- 70 boom then HYUNDAI produces 25 ex – 70 i.e., 20% more than its requirements. So the remaining or excesses material they call it as “buffer stock”. 2)
Receiving of materials Any materials comes-in or goes-out from the Godown it should be enter in
the gate that is they call it as “gate entry”, which is maintained by security guard. Guard is not an employee of an organization. He is a contact-based employee. When inventory receives materials it first inspects some samples, so for it, they call up as “spot inspection.” Here they inspect the following points:
A)
is it our supplier only and is this parcel is for us only? 46
a. Are these received materials according to the purchase order? Like i.
Quantity
ii.
Date, etc.
b. Are it having all required challan’s or invoices and also does it approved by authorized person? c. Is it having all required documents like octroi etc.? d. Is that challan consistent the correct information of materials? After approval of materials by sample inspection, inventory department put these details in manual book; this documentation is called as “day book.” This daybook is consisting of information like challan no., p.o. no., style no., and description of materials, supplier’s name, transporter’s name, and quantity. After completing of these processes, materials will send to inspection department. In this inspection department they inspect in-details of materials. After approval by inspection department, this inventory department makes one document, which are they calling it as “goods received document”. This goods received document is consisting of gr no., date, grn type (instore), mode of transport, challan no., challan date, status, gate entry no., gate entry date, priority no., all details of materials and received quantity and actual quantity also enters there.
3.
Issuing of materials Merchandising department will send one card called “job card” which it
consisting of all details of materials requires to produce a product. According to that card inventory department should send the materials to manufacturing department. 47
After receiving of materials by manufacturing department from inventory department they issue one document about received of materials, quantity, and description of materials etc. Manufacturing department uses these materials for manufacturing purpose. In manufacturing process sometimes it may happens like some materials get damages and some are not fully matches with requirements. Then those materials will be return to inventory. After utilizing of all these materials by manufacturing department they will send one document called “order completion report” (OCR). This report consist the information of percentage of utilized materials for particular order and percentage of wastage of materials. This report will send to inventory and also to merchandising department. 4.
Return back materials from manufacturing units: Inventory takes those materials, which are return back from manufacturing
units because of excess or surplus occurs while manufacturing of products. This excess or surplus exists because of purchase department, they always orders 20% more than its requirement to meet the requirement of next month.
So these
materials are kept in inventory as name it as “buffer stock.” These buffer stocks will be utilize when company get the same type of order. Inventory issues these materials (buffer stock) only when it receives instruction from merchandising and purchasing department. 5.
Rejected materials: Inspection department make the rejection of materials, when materials are
not as per requirements and not as per the order. These rejected materials are kept in separate section by inventory department. 48
Inventory department inform to purchase department and also notice to suppliers about rejection of materials. That is called “rejection card.� In this card it involves name of supplier, description of materials, challan no., challan date, gate entry no. & date, no. Of quantity rejected, reason for rejection etc., Some times supplier may issue new materials in place of rejected materials. Or he may give some compensation for wrong supply and that is after paying of full payment of materials.
Sections in inventory: Inventory is again divided into 5 sections. Each is section handling by only one person, with the help of 3 to 4 assistants, who helps in maintaining of materials at specific area. Five sections are as follows: Sections in inventory D201 All bought out items are been stored here and processed to the manufacturing as when required
D202 All consumables and tools and maintenance accessories are been stored in this section D203 All raw materials like direct, semi finished goods are stored in this section and processed to the manufacturing as when required and old stock and rejected items are also stored in this section. 49
D204 Gas tank and cylinders is stored in this section. D205 All finished goods are stored in this section
Purchasing procedure of materials In HYUNDAI they purchase materials at from a multiple suppliers. There is a reason for purchase materials from multiple suppliers. The reason is if one supplier delays to fulfill the supply then there must be alternative supplier for it to fulfill the requirement. So there must be no stock outs in the production process HYUNDAI always purchases at bulk but by schedule wise. In other words they purchase materials at a time for specific order. They make the agreement of supplying materials only at once. And they negotiate the price only at once that is before supplying of materials and once their agreement is over then they provide schedule to supplier to supply the materials at a specific time and at a specified quantity. So it reduces the spaces, which occupies in the Godown. So this method is suitable for this type of industry because of same orders from customers.
50
Wipe store Now we come to the wipe store.
As we have already seen that this
HYUNDAI is having only one godown and every unit is having its own store departments. As we know that work in process store means semi-finished goods, here goods are not completed yet and not these are in fully raw materials form. So in valuation matter it is having slightly different way. And in HYUNDAI it is as follows: yes, these goods are includes some labour cost, some other costs. So in valuation of wipe they valuate at raw material price of those goods plus incurred cost to produce till now.
Finished goods Valuation of finished goods in HYUNDAI is at 10% less than selling price of those finished goods. Finished goods are in the sense these goods should be ready to dispatch. There is no separate godown for finished goods/products. Every unit is having its own finished goods godown. In that godown only they store these goods. And dispatching of these products is directly by each unit. They do not consolidate these goods; they dispatch these finished products directly by each unit. HYUNDAI MOTOR INDIA LIMITED (unit ii) has only one customer that is Telkom. So they directly supply finished products to its customers. So it is not necessary to have another godown for finished goods.
51
Logistics inventory management There is a department called logistic department in HYUNDAI MOTOR INDIA LIMITED, which is concerning about selling of goods and maintaining of all documents related to exporting of products and also taking the permission from banks to sell specific products in specific countries. So logistic department is one of the important front-office departments, like marketing department. Marketing department is one, which takes the orders from its customers. And this is entirely different from logistic department. Logistic department is one, which sells its products and maintains all documents. But marketing department is comes into picture before production process starts. And logistic department comes into picture only after the production process completes. Logistic department is not only taking the approval for selling its products, but also it will concern for taking loan for its working capital. Banks will provide these working capital requirements in two senses: one is on pre-shipment loan and another one is post-shipment loan. There are so many ways to get loan for working capital requirement. HYUNDAI get loan for working capital requirement either through commercial papers or through letter of credit. HYUNDAI is taking loan for working capital requirements from axis bank. Who can issue the cp? A company will be eligible to issue the cp provided: The tHYUNDAIible net worth of the company as per latest audited balance sheet is not less than Rs. 4 crores.
52
Note: THYUNDAIible net worth means share capital plus free reserves duly reduced by intHYUNDAIible assets like accumulated losses, deferred revenue expenditure etc. Free reserves include share premium and debenture redemption reserve but do not include revaluation reserve. ďƒ˜ Company has been sanctioned working capital limits by banks. ďƒ˜ Borrowed amount of company is classified as a standard asset by the bank. Commercial paper is an unsecured promissory note issued at a discount. The rate of discount is required to be decided by the issuer and is not regulated. Before the company issues the cps it is required to obtain satisfactory credit rating from an approved credit rating agency. Presently, following credit rating agencies have been approving by RBI for this purpose. Credit rating information services of India ltd., (crisil) Investment information and credit rating agency of India ltd., (icra) Credit analysis and research ltd., (care) Fitch rating India (p) ltd. The minimum credit rating required is p-2 of crisil. If the rating is given by any other agency, equivalent minimum rating will be required. The rating so obtained by the company should be current and should not have fallen due for review.
53
Who can invest in cp? Following persons can invest in the cp 1. Individuals 2. Banks 3. Corporate bodies incorporated in India 4. Unincorporated bodies 5. Non-resident Indians 6. Foreign institutional investors Nature of a cp: a. A cp can be issued for the maturity period of 7 days to one year. b. A cp has the denomination of Rs. 5 lakes and every single investor should invest minimum Rs. 5 lakes in cp. c. Every issue of cp, including the renewal, will be considered to be the fresh issue. d. The amount of cp shall be within the overall limit sanctioned by the board of directors. It can be issued a “stand alone� product. Banks will be free to adjust the working capital limits after considering the cps issued by the company. It will not be out of place to mention here that cp is not treated as deposit as per the provisions of section 58-a of the companies act, 1956.
Procedure for issuing the cps: Every company issuing the cp should appoint a scheduled bank as the issuing and paying agent (IPA). It will satisfy it-self that company has obtained satisfactory credit rating. It shall also verify the documents submitted by the issuing company and issue a certificate that the documents are in order. IPA should also certify that it has valid agreements with the issuing company. 54
The issuing company shall arrHYUNDAIe to place the cps on private placement basis with the inventors. The issuing company shall disclose to the potential investor its financial position. After the deal is confirmed, the issuing company shall issue physical certificates to the investor. Investors shall be given a copy of IPA certificate to the effect that the issuing company has a valid agreement with the IPA and documents are in order. Every issue of cp should be reported to RBI through the IPA within three days from the date of completion of issue. HYUNDAI MOTOR INDIA LIMITED (unit ii) has setup in telecom premises so as we know earlier that HYUNDAI unit ii is having only one customer that is Telkom so for short distance there is no need of logistic department in HYUNDAI unit ii it is handled by purchase Depa. Rtment Incharge is parmod Singh.
Financial inventory management Already we saw about logistic inventory management. Let us see how HYUNDAI valuates the old and rejected stocks in financial terms and also have a look on the inventory ratios.
Valuation method for old and rejected stocks: Old stock: This old stock means excess of materials from specific order. As already viewed in physical inventory process that, always purchase department purchases 20% more than its order. So that remained or excess materials are said to be “buffer stock�
55
These old stock are in the form of raw materials then valuate it according to purchasing of those materials. If these old stock are after finishing of production process.
Then these are valuating on selling price of same products to the
customer. In easy words it can be said that if materials are raw, and then taking as purchasing value for valuation purpose. If materials are finished goods then taking selling price as a value for valuation of old stock in godown.
Rejected stocks: Again these are divides into three parts. Rejection of raw materials i.e., before sending to production process. Rejection of materials during the production process and rejection of materials after the production process that is, rejection of finished goods. Rejection of raw materials is valuating on purchase value of those materials. Rejection of wipe materials then valuate as purchase value plus its partly incurred costs like labour, overhead costs etc., and for rejection of finished goods valuate at purchase value and fully incurred costs as said now.
Holding or ordering cost These costs are every important in manufacturing companies to minimize the cost. This is not applicable to HYUNDAI by virtue of its business activities. Because, let us have a broad view on statement by following points: ďƒ˜ In HYUNDAI, they purchase the materials only from multiple suppliers. ďƒ˜ Because to fulfill the requirements in required time limit. 56
ďƒ˜ HYUNDAI orders the materials to suppliers only at once and according to the schedule supplier will supply the materials. Yes, depending on shorter order cycle HYUNDAI can hold entire stock well before order starts and also HYUNDAI can have a full stock at a time before starting process of product of that specific order.
EOQ Eoq applicability due to the nature of business as above said is not possible. Reorder point: This is the point is also not having much importance because of nature of business. Lead time HYUNDAI purchases materials from multiple supplier and by on schedule basis to supply materials. So this is also not applicable in this type of business.
57
Financial ratios related to inventory. Raw material turnover ratio: Raw material turnover ratio is velocity at which raw material converted into goods ready for sale. If raw material turnover ratio is high then company is efficiency converting into finished goods.
material consumed / average raw material
Formula:
Raw material turnover ratio Raw material consumed Year 2014 2013 2012
(Rs) 576,484,922 371,223,873 230,779,236
Avg r.m 53,608,082 36,137,266 132,002,490
Ratio ` 10.27 1.74
Ratio 12 10 8 6
Ratio
4 2 0 2014
2013 Years
2012
Form above graph we come know that raw material turnover ratio is increased rapidly in 2013 from 1.74 in 2012 to 10.27 for 2013. Indicates that company is converting raw material into finished or semi finished goods very quickly
58
Holding period of raw material: It refers to the number of days taken for the production unit to convert raw material to finish goods. Formula
360 /raw material turnover ratio
Holding period of raw material Year Total days Ratio 2014 360 10.75 2013 360 10.27 2012 360 1.74
Days 33 35 206
Raw material holding Period 250 200 150 RHP
D A Y S
100 50 0 2014
2013 Years
2012
As the raw material turnover ratio is increasing form to 10.27 for 2013 it indicates that firm is taking less days for conversion as compared to 2012. In 2012 conversion period was 206 days but in decreased to 35 days for 2013. This is shown in above graph. Before 2013there was no production process they were converting semi finished goods into finished products hence to start their own production process they hold the raw material in 2006
Work in process turnover ratio: 59
Work in process turnover ratio is velocity at which w.i.p converted into goods ready for sale. If w.i.p turnover ratio is high then company is efficiency converting into finished goods.
Formula: Cost of production Average w.i.p W.I.P. turnover ratio Year Cost of production 2014 849,054,442 2013 555,094,500 2012 361,110,197
Avg w.i.p 36,720,702 15,010,347 9,755,839
Ratio 23.12 36.98 37.01
Work in Process Turnover ratio 40 35 30 25 20
Ratio
D A Y S
15 10
5 0 2014
2013
2012
Years
Form above graph we came to know that work in process turnover ratio is decreasing from 37.01 in 2012 to 23.12 2008. The ratio was high in 2012 as compared to 2013 and 2014. The ratio was 37.01. Indicates that company is converting semi finished into finished goods quickly
Holding period of w.i.p: 60
it refers to the number of days taken for the production unit to convert semi finished goods into finish goods. Formula: 360 W.i.p turnover ratio Holding period of W.i.p Year Total days 2014 360 2013 360 2012 360
Ratio
23.12 36.98 37.01
Days 15.57 9.73 9.72
Holding period of W I P 18 16 14 12 10 8 6 4 2 0
D A Y S
Ratio
2014
2013 Years
2012
As the work in process turnover ratio is increasing form 9.72. In 2012 to 15.57 for 2014 it indicates that firm is taking less days for conversion. Which shown in above graph
Finished goods turnover ratio: 61
Finished goods turnover ratio is velocity at which finished goods converted into for sale. If finished goods turnover ratio is high then company is efficient.
Formula:
cost of goods sold Average finished goods Finished goods turnover ratio Year Cost of goods sold Avg f.g 2014 849,054,442 26,243,339 2013 555,094,500 19,858,482 2012 361,110,197 10,940,008
Ratio 32.35 27.95 33.01
Finished Goods Turnover Ratio 34 33 32 31 30 29
Ratio
D A Y S
28 27 26 25
2014
2013
2012
Years
Form above graph we came know that finished goods turnover ratio is decreasing from 33.01 in 2012 to 27.95 for 2013. Indicates that company is selling goods little slowly as compared to 2012 but it is bit fast as compared to 2014. Where the ratio for that particular period was 32.35 Decreased to 11.20 for 2014 it is satisfactory. Which shown in above graph.
Inventory to capital employed: 62
This ratio indicates the relationship between the total capitals employed and inventories it shows how much capital utilized to invest in the inventories other than the other assets. The normal manufacturing firms have low ratio of inventory total capital employed in the organization.
Formula: inventory / total capital employed Inventory to capital employed Total Year 2014 2013 2012
Inventory 197,465,069 121,558,000 67,994,623
capital
employed 301,443,215 145,492,599 98,333,324
Percentage 65.50 83.54 69.14
Inventory to capital employed 90 80 70 60 50 40 30 20 10 0
P E R C E N T A G E
ICE
2014
2013 Years
2012
By observing above graph we can say that the firm investing huge amount in inventories compared to other assets. It invested 83.54% of its capital in inventory in 2013 where as it reduced to 65.50% in 2012
Inventory to current asset ratio: 63
This ratio indicates the relationship between the inventory and current assets. It shows the percentage of inventory to current assets, which helps the organizations in deciding the current assets policy which also affect the liquidity position of the organization.
Formula:
inventory / current assets Inventory to current asset ratio Year Inventory Current assets 2014 197,465,069 331,314,504 2013 121,558,000 237,687,684 2012 67,994,623 117,022,625
Percentage 59.60 51.14 58.10
Inventory to current asset ratio 62 60 58 56 54
Ratio
52 50 P E R C E N T A G E
48 46
2014
2013
2012
Years
The inventory to current assets ratio in the year 2012 was 58.10% and it decreased to 51.14% in the year 2013 but again it increased to 59.60% in 2014. It shows that the firm investing 59.60% of its investment is for inventory only.
64
Inventory to total assets: This ratio indicates the relationship between the inventory and total assets. The significance of this ratio is it reflects the portion the inventory as a percentage of the total assets, which helps the management deciding the utilization remaining resources profitably, since the inventory will lock up the huge funds and reduces the profitability of the organization
Formula:
inventory / total assets Inventory to total assets Year Inventory 2014 197,465,069 2013 121,558,000 201
Total assets 990,329,087 540,916,088
Percentage 19.93 22.47
2
414,901,234
16.38
67,994,623
Inventory to total assets 25 20 15 Ratio
10
P E R C E N T A G E
5 0
2014
2013 Years
2012
During the year 2012 the rate of inventory to total assets was 16.38% it increased to 22.47% in 2013. But again it reduced to 19.93% in 2014. It indicates that firm investing only 19.93% in inventory out of total assets.
Inventory to working capital: 65
This ratio indicates the relationship between inventory to working capital and it also indicates the amount to inventory tied up in the working capital and it also shows the efficiency of inventory management.
Formula:
Inventory Working capital Inventory to working capital Year
Inventory
Working capital
Percentage
2014
197,465,069
199,345,123
99.05
2013
121,558,000
146,097,210
83.20
2012
67,994,623
46,338,277
146.45
Inventory to working capital 160 140 120 100 80
Ratio
60 40 P E R C E N T A G E
20 0
2014
2013 Years
2012
In the year the ratio was 146.45% in 2012. It decreased to 83.20% for 2013 but it increased it to 99.05% in 2014. It indicates that firm investing huge amount in inventory
Findings: 66
1. Raw material turnover ratio is increased rapidly in 2013 from 1.74 in 2012 to 10.27 for 2013. 2. As the raw material turnover ratio is increasing form to 10.27 for 2013 it indicates that firm is taking less days for conversion as compared to 2012 3. Work in process turnover ratio is decreasing from 37.01 in 2012 to 23.12 2014. The ratio was high in 2012 as compared to 2013and 2014 4. As the work in process turnover ratio is increasing form 9.72. In 2006 to 15.57 for 2008 it indicates that firm is taking less days for conversion 5. Finished goods turnover ratio is decreasing from 33.01 in 2012 to 27.95 for 2013 indicates that company is selling goods little slowly as compared to 2012. But it is bit fast as compared to 2014 6. Company is selling goods little slowly as compared to 2012 but it is bit fast as compared to 2014. Where the ratio for that particular period was 32.35 7. The inventory to current assets ratio in the year 2013 was 58.10% and it decreased to 51.14% in the year 2014 but again it increased to 59.60% in 2014. It shows that the firm investing 59.60% of its investment is for inventory only. 8. During the year 2013 the rate of inventory to total assets was 16.38% it increased to 22.47% in 2014. But again it reduced to 19.93% in 2013. It indicates that firm investing only 19.93% in inventory out of total assets. 9. In the year the ratio was 146.45% in 2012. It decreased to 83.20% for 2013 but it increased it to 99.05% in 2014. It indicates that firm investing huge amount in inventory. 10. As the finished goods turnover ratio is increasing from 10.87 in 2013 to 12.86 for 2014 it indicates that firm is taking less days for sale. In 2014 conversion period was 12.86 days but in decreased to 11.20 for 2014 it is satisfactory.
Suggestions: 67
a) From the findings it is came to know that in the year 2006 the number of days for holding raw material is more, it is not good for the company because it eats unnecessary investment. To avoid this problem the following points will help. Purchase raw materials at the time when the stock reaches the minimum level. The purchases should not cross the maximum limit otherwise the stock kept in stores idle. Quantity should be ordered as per the demand. We can assume the demand for the goods from past experience. We can have more raw materials which are imported from other countries but carry reasonable stocks which are available locally. b) If we purchase less quantity of materials at a time it will reduce the carrying cost but increases the ordering cost and vice versa. Therefore optimum ordering quantity is necessary, which minimizes the cost. c) The company should maintain a safety level and also reordering point so that they come to know at what time they should order for the supply of material and need not to suffer from short fall of required material.
Conclusion
68
After the study, we can come to a conclusion that, effectiveness of inventory management should improve in all the aspects; hence the industry can still strengthen its position by looking into the following. The inventory should be fast moving so that warehouse cost can be reduced. The finished goods have to be dispatched in feasible time as soon as manufacturing is completed. Optimum order quantity should be maintained, hence cost can be minimized. Proper inventory control techniques are employed by the inventory control organization within the framework of one of the basic models like ABC, HML and VED etc.
Bibliography Books Financial management : I.M. Panday Production management : K. Ashwatappa
Websites www.MOTORS INDUSTRY.com Www.google.com
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