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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
PART-A
1. EXECUTIVE SUMMARY
This project entitled “The Inventory management and its control at KS&DL” has been
undertaken with the objective of knowing the functioning departments with its management as a
major focus and also techniques used to control inventories of the KS & DL.
The study was conducted in KS & DL Main branch [Bangalore] with the help of secondary data as
main source and primary data was collected by frequent discussion with KS & DL executives and
officials.
This study was conducted mainly on academic ground and hence. It is also suggests that this study
may be considered as a polite study for understanding a detailed project report in KS & DL.
Thus preliminary study will be considered as a successful effort if some of the research findings,
recommendation are proved to be useful to the organization
1. INDUSTRY PROFILE:
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Soap is one of the commodities which have become an indispensable part of the life of modern
world. Since it is non durable consumer goods, there is a large market for it. The Whole soap
industry is experiencing changes due to innumerable reasons such as government Relations
environment and energy problems increase in cost of raw material etc.
The changing technology and ever existing desire by the individual and the Organization to produce
a better product at a more economical rate has also acted as catalyst for the dynamic process of
change. More and more soap manufactures are trying to capture a commanding market share by
introducing new products. The soap industry in India faces a cut throat competition with
multinational companies dominate the market. They are also facing severe threat from dynamic and
enterprising new entrance especially during 1991-92.
If we look back into the history of soaps & detergents, mankind knew about soaps nearly 2000 years
back i.e. in 70 A.D. when Mr. Elder accidentally discovered the soap, when roasted meat over
flowed on the glow in ashes. This lump like product was soap & had foaming & cleansing character.
In 1192 A.D. the first commercial batch of soaps was made & marketed by M/s Bristol soap market
in London, from there in 1662A.D. the first patent for making soap was taken in London. The world
consumption of soap in 1884A.D. was said to be 2lakh tones p.a.
HISTORY OF THE SOAP
Soap manufacturing was started in North America. Some American companies with well
known names were started 200 years ago. During middle age soap was made at various places in
Italy, France, England & other countries. France became famous & many small factories were
established there.
In India the first soap industry was established by North West soap company in1897 at Meerat
following the swadeshi movement. From 1905 onwards few more factories were setup. They are,
Mysore soap factory at Bangalore
Godrej soap at Bombay
Bengal chemicals
Tata oil mills
1930 lever brothers company
THE INDIAN SOAP INDUSTRY SCENARIO
The Indian soap industry has long been dominated by hand full of companies such as:
1. Hindustan levers limited.
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2. Tata oil mills (taken over by HLL)
3. Godrej soaps private limited.
The Indian soap industry continued to flourish very well until 1967-68, but began to
Stagnate & soon it started to recover & experienced a short upswing in 1974.
This increase in demand can be attributed due to;
1. Growth of population.
2. Income & consumption increase.
3. Increase in urbanization.
4. Growth in degree of personal hygiene.
Soap manufacture has 2 classifications, organized and unorganized sectors. KSDL comes
Under organized sector.
PRESENT STATUS
Market scenario: India is the ideal market for cleaning products. Hindustan liver, which towers over
the cleaning business, sells in all over the cleaning business but the tiniest of Indian settlement. The
7.4lakhs tons per annum soap market in India in crawling along at 4% The hope lies in raising Rupee
worth, the potential for which is high because the Indian soap market is pseudo in nature & it is
amazingly complex being segmented not only on the basis of price benefits, but even a range of
emotions within that outlining framework.
PROBLEMS OF SOAP INDUSTRY
Soap industry faces some problems in case of raw materials. The major ingredients are soap
ash, linear alkyl, benzene& sodium. Tripoli phosphate poses number of serious problems in terms of
availability. The demand supply gap for vegetable oil is 1.5 to 2 lakh tons & is met through imports.
In recent times, caustic soda and soap ashes in the cheaper varieties of soaps are quite high.
SLOGAN: “Natural products with exotic fragrance”.
COMPANY PROFILE
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BACKGROUND & INCEPTION OF THE COMPANY
HISTORY OF KS&DL:
Karnataka soaps & Detergents Limited, a successor to the government soap factory, which is
one of the premier factories among the Indian soap industries. After World War 1, there was a slump
in the sandal wood export to the west. It dropped a blanket of gloom over business & trading in
India. The Maharaja of Mysore turned this threat in to an opportunity, by sowing the budding seeds
of KS & DL on the out skirts of Koti forest, near Bangalore in 1918.
The project took shape with the engineering skill and expertise of a top-level team with the
inspection of the Diwan of Mysore Late Sir. M. Visvesvaraya & with the service of scientists late Sir
S.G. Shastry, Professor Watson & Dr. Sub rough.
The entire credit goes to Sir. S.G.Shastry, who improved & made the process perfect of
Manufacturing of sandalwood oil & world famous Mysore Sandal Soap.
The factory was started a very small unit near K.R.Circle, Bangalore with the capacity of 100 tons
p.a in 1918. Then, the factory shifted its operations to Rajajinagar industrial area, Bangalore in July
1957. The plant occupies an area of 42 acres (covering soap, detergent & fatty acid divisions) on the
Bangalore-Pune Highway easily accessible by transport services and communication. In November
1918, the Mysore Sandal Soap was put in to the market after sincere effort & experiments were
undertaken to evolve a soap perfume blend using sandal wood oil as the main base to manufacture
toilet soap.
RENAMING OF COMPANY
On Oct 1st 1980, the Government Soap Factory was renamed as “KARNATAKA SOAPS
AND DETERGENTS LIMITED”. The company was registered as a Public Limited company.
Today the company produces varieties of products in toilet Soaps, Detergents, Agarbathis and
Talcum powder. KS&DL has been built up with rich tradition for the quality of its products. Mysore
Sandal Soap is the No: 1 anywhere in the world. The Karnataka state is the original home of the
Sandal oil, which uses Original perfume sandalwood in the manufacturing of Mysore Sandal Soaps.
It is also known as the “FRAGRANT AMBASSADOR OF INDIA”.
TRADEMARK OF MYSORE SANDAL SOAP
The “SHARABHA”
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The carving on the cover is the ‘Sharabha’, the trademark of KS&DL. The Sharabha is a
mythological creation from the puranas and embodies the combined virtues of wisdom, courage &
strength, while it is illustrated in its unusual from the body of a lion with head of an elephant. It was
adopted as an official emblem of KS&DL to symbolize the philosophy of the company. The
Sharabha the symbolized power that removed imperfections & impurities. The Maharaja of Mysore
has his official emblem adopted it. And soon took its pride of place as the symbol of the government
Soap factory, of quality that reflects a standard of excellence of Karnataka Soaps & Detergents
Limited.
MILE STONES OF THE COMPANY:
1918 - Government Soap Factory was started by Maharaja of Mysore with the capacity of
112MTs/Annum near Cubbon part, Bangalore and the MYSORE SANDAL SOAP
was introduced into the market for the first time.
1932 - Toilet soap production capacity was enhanced to 750MTs/Annum.
1944 - The second Sandalwood Oil extraction plant was started in Shimoga.
1954 - Foundation stone was laid by Sir M. Visvesvaraya for establishment of new
manufacturing facilities at Rajajinagar, Industrial Suburb, Bangalore.
1957 - Factory was shifted from Cubbon Park to the new premises.
1965 - Started exporting its products to various Countries.
1967 - Celebrated its Golden Jubilee.
1970 - Production capacity was increased to 6000MTs/Annum, in a phase wise with
parallel modernization of various manufacturing equipments.
1974 - Mysore Sales International Limited was appointed as the sole selling agent for
marketing its products.
1975 - Synthetic Detergent plant for manufacture of Detergent cake and Detergent powder
was installed with Italian technology.
1980 - Government Soap Factory was converted into a Public Sector Enterprise and the
Company incorporated on 9th July 1980 and re-named as KARNATAKA SOAPS
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& DETERGENTS LIMITED.
1981 - Fatty Acid unit was established to utilize Indigenously available minor seed oils as
the raw material for Soap manufacturing and to produce Glycerine and Stearic acid.
1984 - Expanded the production capacity with modern manufacturing facilities, which was
available at that time to produce 26000MTs/Annum of Toilet soaps with different
variants.
1987 - Company has taken over the marketing activities from M/s. MSIL and established
its own marketing network by opening seven Branches all over India.
1992 - Company has faced very stiff competition after liberalization in the Country from
different multi National Companies. Company was registered with the Board for
Industries and financial reconstruction (BFR) New Delhi, as the Company suffered
heavy losses.
1996 - The BIFR approved the rehabilitation package in September and Company has
taken stringent measures for the Cost control and improving the productivity and
sales. Company started making profits.
1999 - Company was certified with ISO 9001:1994 Certification by BSI for its effective
implementation of Quality Management Systems.
Company has launched MYSORE SANDAL GOLD- 125gms and MYSORE
SANDAL BABY-75gms in the premium segment.
2000 - Company was certified with ISO 14001 Certification by BSI for its effective
implementation Environmental Management System.
2003 - Company has wiped out entire carry forward losses of `.98.00 crores and come out
from BIFR.
Company has made profits continuously every year and it is the only State Public
Sector unit, which has come out of BIFR and making continuous profits in the State.
2004 - The ISO certification was upgraded to ISO 9001:2000.
2008 - Company has introduced Hand wash liquids under the trade name of Herbal Hand
wash and Rose Hand wash liquids. Company has also introduced liquid Detergent
under the trade name of KLEENOL liquid with different variants for Floor wash,
Dish wash and Automobile wash.
2009 - Company has established In-House state of the Art manufacturing facilities for
manufacture and filling of Mysore Sandal Talcum powder and Mysore Sandal Baby
powder. Company has re—introduced the Talcum powder variants with new
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outlook of containers.
2010 - The ISO certification was upgraded to ISO 9001:2008.
VISION, MISSION AND QUALITY POLICY:
VISSION
• Keeping pace with globalization, global trends & the State’s policy for using
technology in every aspect of governance.
• Ensuring global presence of Mysore Sandal products while leveraging its unique
strengths to take advantage of the current Tech scenario by intelligent & selective
diversification.
• Secure all assistance & prime status from Government India all Tech alliances.
Further, ensure Karnataka’s pre-eminent status as a proponent & provider of Tech
services to the world, nation, & private sectors.
Karnataka Soaps & Detergents Limited has a clear Vision for all round development of the
Company. This is reflected in the form of a well conceptualized and cogent blue print called VISION
2013. The VISION 2013 sets the goals and milestones and suggests the strategies and plans
necessary to relies the Vision. The Vision of the KS&DL is embodied in the following statement:-
“KARNATAKA SOAPS & DETERGENTS LIMITED WILLLEVERAGE LATEST SOAP
MANUFACTURING TECHNOLOGY & INFORMATION.. TECHNOLOGY BY IMBIBING
PROFESSIONAL MANAGEMENT TECHNIQUES TO IMPROVE ITS FUNCTIONS
ACTIVITIES, TRANSPERENCY, BUSINESS AND TO TRANSFORM ITSELF INTO A
COMPETITOR IN THE FMCG MARKETIN INDIA & ALSO TO SPREAD ITS
FRAGRANCE IH THE FMCG GLOBAL MARKET”.
Mission Statement:
• To serve the National economy.
• To attain self-reliance.
• To promote purity & quality products
• To maintain the Brand loyalty of its customers.
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• To build upon the reputation of Mysore sandal soap based on pure sandal oil.
Karnataka soaps & detergents limited shall strive to achive:-
Rs 235.00 Crores sales turnover during the year 2010-11.
Minimum 10% of savings of costs in various activities during the year 2010-11.
ISO 9002 QUALITY POLICY
KS&DL commits to “customer delight” through Total Quality Management & continues
improvement by involvement of all its employees.
ISO 14001 ENVIRONMENTAL POLICIES OF KS&DL
1. Is committed to preserve the natural environment in the production of its quality products to the
satisfaction of its customer
2. Will comply with all statutory & regulatory requirements pertaining to environment
Stipulated by both state & central authorities.
3. Would invite & implement action to reduce all impacts that are likely to be a source of
Concern to the environment.
4. Would strive & set an example in protection & promotion of an eco-friendly environment.
5. Is committed to prevent & minimize risks to the environment & conserve natural
resources by waging a war against wastes.
6. Will motivate every employee of the company in preserving the environment by
Providing appropriate training.
7. Will make available a copy of environment policy, under environment Management
system on a written request to its manager (Environment & Policy)
PRODUCT PROFILE
KS&DL is the true inheritor of golden legacy of India. Continuing the tradition of
excellence for over eight decades, using only the best East Indian grade Sandalwood oil &
Sandalwood soaps in the world. The products produced at KS&DL are the Soaps, Detergents,
Agarbathies and Sandalwood oil.
PRODUCT RANGE FROM THE HOUSE OF MYSORE SANDAL SOAP
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DETERGENTS
KS&DL also manufactures high quality detergents applying the latest spray drying
technology with well balanced formulation of active matters & other builders; they provide the
ultimate washing powder
NAME OF THE PRODUCT UNITS IN GRAMS
Mysore detergent powder 1000
Mysore detergent powder 500
Mysore detergent Cake 125
Mysore detergent cake 250
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NAME OF THE PRODUCT UNITS OF
GRAMS
Mysore Sandal Soap 75, 125
Mysore Sandal Classic Soap 75
Mysore Sandal Gold Soap 75, 125
Mysore Sandal Baby Soap 75
Mysore Special Sandal Soap 7 5
Mysore Rose Soap 100
Mysore Sandal Herbal Care
Soap
100, 125
Mysore Jasmine Soap 100
Wave Soap 100
Mysore lavender Soap 150
Mysore Sandal bath tablet 150
Mysore Sandal classic bath
tablet
150
Mysore Jasmine bath tablet 150
Mysore Special Sandal tablet 150
Mysore Sandal rose tablet 150
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
AGARBATHIS
NAME OF THE PRODUCT
Mysore Sandal Premium
Mysore Sandal Regular
Mysore Rose
Nagachampa
Suprabhatha
Mysore Jasmine
Parijata
Sir M.V.100
Bodhisattva
Venkateshwara
Durga
Ayyappa
Alif Laila
Meditation
TALCUM POWDERS
NAME OF THE PRODUCT UNITS IN GRAMS
Mysore Sandal Talc 20, 50, 100, 300
Mysore Sandal Baby Talc 100, 200, 400
NEW PRODUCT LAUNCHED
1. Wave Turmeric Soap.
2. Wave Hand Wash Liquid Soap.
3. Herbal Care Liquid Soap.
4. Agarbathies – Mysore Sandal 3 – in – 1.
AREA OF OPERATION
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GLOBAL FAVOURITES FOR THEIR NATURAL GOODNESS KS&DL has a long tradition
of maintaining the highest quality standards, right from the
selection of raw materials to processing and packaging of the end product. The reason why its
products are much in demand globally & are exported regularly to UAE, Bahrain, /Saudi Arabia,
Kuwait, Qatar, South East Asian countries as well as North America & South America. The
sandalwood oil, of course, is much sought after by the leading perfume houses of the world. All the
toilet soaps of KS&DL are made from oils & fats of vegetable origin & totally free from animal fat.
OWNERSHIP PATTERN
“Wholly owned by Government of Karnataka.”
COMPETITORS INFORMATION AND THEIR MARKET SHARE
in soap Industries
NO. PARTICULARS PERCENTAGES
1. HLL [Hindustan Lever Ltd.] 64%
2. KS&DL 11%
3. Procter & Gamble 10%
4. Godrej soaps 4%
5. Wipro 4.6%
7 Others 6.4%
HLL [Hindu
stan Lever Ltd.]; 64%
KS&DL; 11%
Procter &
Gamble; 10%
Godrej soaps;
4%
Wipro; 5%
Others; 6%
Market Share
HLL [Hindustan Lever Ltd.]
KS&DL
Procter & Gamble Godrej soapsWipro Others
PRESENT STATUS
1. The company has entered into shampoo, dish wash, detergent bar & room refresher.
2. The company is striving to develop new perfumes for soaps detergents, agarbathies &
Shampoo.
2. The company wants to improve the existing products in terms of quality.
INFRASTRUCTURAL FACILITIES
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1. Canteen facility
2. Library
3. Car stand
4. Waiting room
ACHIEVEMENTS / AWARD
1. Government of Karnataka Dept of Industries and commerce State Export Promotion
Advisory Board. “EXPORT AWARD” 1974-75
2. Detergent Plant M/s Chemical Bombay have given 1st price for the year 1980-81
3. Geographical Indication GI-2005
4. ISO 9001-2000 in the year 1999
5. ISO 14001-2004 in the year 2000
6. ICWA national award for excellence in cost management 2007
7. Export Award" for the year 2006-07 for Excellence in Exports Market.
8. “National Award for Excellence in Cost Management” & Good Performance for the year 2008.
9. “Chief Minister’s Rathna Award” for the year 2009-10.
WORK FLOW MODEL:
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SILOS
(Silos are closed chambers)
Soaps Noodles
Container Mixer
Simplex Plodder
It becomes NOODLES
Milling
It becomes soap ribbons
Duplex plodder
Cutting Machine
Cakes are led to
Stamping Machine
Wrapping machine
Led through the conveyor belt
FUTURE GROWTH AND PROSPECTUS
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1. With increase in disposable incomes, growth in rural demand is expected to increase because
consumers are moving up towards premium products. However, in the recent past there has not
been much change in the volume of premium soaps in proportion to economy soaps, because
increase in prices has led some consumers to look for cheaper substitutes.
2. Introduction of anti-bacteria, herbal transparent soap, made out of 33 essential oil based
perfume, Aloe Vera, Vitamin-E etc as additive and suitable for all types of skin and all seasons.
3. Improvement in existing products Mysore Sandal classic improved moisturizers & skin
conditions.
4. Introduction of sandalwood powder in 50gms, 100gms to meet the growing demand for
religious purpose.
5. Introduction of new higher powered detergent powder for institutional sales in bulk packaging.
6. To attain market leadership.
7. Introduction of new trade schemes to increase sales.
8. Aggressive advertisement and publicity as part of sales promotion.
9. Reduction in distribution expenses.
10. Cost-reduction in all areas.
11. Instant decision making in certain procurement activities.
12. Timely introduction and implementation of market driven decisions.
13. Ensuring effective internal control.
McKinsey’s 7S Framework:
According to Waterman, organization change is not simply a matter of structure,
although structure is significant variable in the management of change. Again it is also not a simple
relationship between strategy and structure, although strategy is also a critical aspect. In their view
effective organizational change may be understood to be a complex relationship between strategy,
structure, system, style, skills & shared values. The first three elements- strategy, structure &system
are considered the “hardware” of success. The next four – style skills, staff, and shared values are
called the “software”.
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MCKINSEY’S 7S KSDL
This section describes the KSDL profile with reference to 7s of McKinsey namely-
The first 3 factors are referred to as hard while the latter 4 factors are called Soft S. It should
be noted that adherence to this model is not a prerequisite to success: rather it is an
interesting and useful method for evaluating an organization.
1. STRATEGY:
Strategy is about setting corporate goals, defining steps needed to achieve these goals
followed by systematic action and allocation of resources to achieve corporate goals.
STRATEGY AND ITS APPLICATION
The KSDL strategy has the following components: As the company is enjoying the
monopoly in using the pure natural sandalwood oil,in producing the products. and no other
company has such strategy like.
A government of Karnataka Undertaking company,
Having over 9 decades of experience
Involved in the extraction of sandalwood oil
KS&DL have a definite niche in the soap market.
Gifted by the Maharaja of Mysore.
2. STRUCTURE:
It refers to the organization structure and authority/responsibility relationships Organization
structure
STRUCTURE OF ORGANISATION:
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A. BASIS OF DEPARTMENTATION
KS&DL is a manufacturing concern of moderately large size. We can see here functions wise
departmentation. It facilitates effective utilization of manpower and resources and it is a simple,
economical and reasonable organization pattern.
B. LEVELS OF ORGANISATION
The organization of KS&DL consists of 4 levels, they are
TOP LEVEL consisting of BOD’s and M.D
SECOND LEVEL consisting of Directors of Finance and Special officers
THIRD LEVEL consisting of senior managers, deputy managers and officers.
FOURTH LEVEL consisting of clerks, Assistants and Attendees.
C .ORGANIZATION CHART OF KS&DL
KS&DL is Functional type of organization. Under this type of organization men with
special abilities in a specialized function are employed. The hierarchy is represented as follows.
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3. SYSTEMS:
It refers to Procedures such as information system, manufacturing processes,
budgeting and control processes. Thus are the procedures, processes and competitive
advantages present within the organization
SYSTEMS AND ITS APPLICATION
KSDL has several components in their systems which are explained below:
Public relations: KSDL has a dedicated manpower that deals with image building by
using the production plant with different varitie.
Quality Policy: Constant up gradation of Technical machinery A sophisticated plant was
rebuilt in collaboration with M/S Ballestra of Milan, Italy in 1986 to Develop Human
resources Capabilities and Empowerment are ways to achieve all the objectives.
KSDL has a long-standing tradition of maintaining the highest quality standards right from
the selection of raw materials to processing and packaging of the end product.
4. STYLE:
With in the framework of 7s model style refers to patterns of actions, the way
management behaves and collectively spends its time to achieve organizational goals.
STYLE AND ITS APPLICATION
Developing people: KSDL believes and works to develop the organization by
developing its people, whom it considers as invaluable assets.
Empowerment and autonomy to employees after putting right man in the right job is
KSDL’s way of maintaining and developing highly motivated human resources to achieve
professional competence and to ensure career development of its work force.
5. STAFF:
It refers to the quality of people in the enterprise and their socialization into the
organizational culture. Traditionally staff is treated in not of the two ways. Firstly, there will
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be appraisal systems, pay scales and formal training, Secondly, the employee morale,
attitude, motivation and behavior are considered.
STAFF AND ITS APPLICATION
KSDL has several advantages relating to staff.
KSDL has a dedicated work force of 863 professionals, which share the vision of the
KSDL.
Training and Development is a continuous process at KSDL, which has been
intensified to tune the staff to the organizational environment requirements. It also Hire the
qualified technicians and professionals to carry out the project at economical rate.
6. SHARED VALUES [SUPER ORDINTE GOALS]:
Shared values include the core values which are the essential guiding principles and
doctrines and core purpose which encompass the company’s business goals, how it strives to
achieve the, the values it will uphold.
It is the values hared by the members of an organization.
SHARED VALUES AND ITS APPLICATION
The KSDL’s Shared values variables have the following
KSDL’s MISSION AND CORPORATE OBJECTIVES:
To promote purity & quality products
To maintain the Brand loyalty of its customers.
To build upon the reputation of Mysore sandal soap based on pure sandal oil.
Constant up gradation of production plants and System, Developing Human Resources Capabilities
and Empowerment are ways to achieve these objectives.
KSDL has a long-standing tradition of maintaining the highest quality standards right from the
selection of raw materials to processing and packaging of the end product.
7. SKILLS:
It includes the distinctive capabilities and the dominant attributes of the enterprise, which
distinguishes it from its competitors.
SKILLS AND ITS APPLICATION
Friendly and knowledgeable staff: High quality knowledgeable employees at KSDL ensure
continuous focused operations, seeking the best service to customer.
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Experience: KSDL has a dedicated and experience staff that are competitive in Production
experience of KSDL in the SOAPS production sector since 1916 is a dominant distinguishing
attribute it leverages for growth.
SWOT ANALYSIS:
STRENGTHS
Only soap in India that contains pure sandal and almond oil.
The factory is located in the heart of the city & has all infrastructure facilities. They require
quick movement of raw materials & finished products. Due to its Proximity, habitation
movement of men and material are easy.
The company has brand loyalty of consumers and has 90% of sandal soap market, foreign
technology to suit indigenous condition due to government participation, little financial crisis
with backup from government.
An ISO 9002 certified company has its own brand image.
An ISO 14001 company, which commits to reserve the natural environment in the production
of its quality products to the satisfaction of its customers.
Diversified product range keeps the company stable.
Two sandalwood oil factories in Shimoga and Mysore, which produce 75% of world’s
sandalwood oil.
WEAKNESS:
Slow growth rate 6.2 growths over 40 years against the product of 80%.
Power intensive: dependent on power may miscarriage here results in under utilization of
capacity.
High labor oriented cause due to excessive labor force.
Defective marketing strategy lacks effective advertising and publicity.
Needs updating with times in terms of plant and machinery.
The large proportion of the target area is upper middle class and upper class people, it
has very few offer to lower middle class.
OPPORTUNITIES
Existence of vast market and huge demand
Traditional benefits that sandal is good for skin.
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Government support large production capacity.
Good export market can tap foreign market vigorously.
At present it has Good raw material sources to enhance production.
THREATS:
Competition from other global leaders like HLL.
Government interference may reduce growth potential.
As the company depends on forests for its main raw materials makes the company to find
chemical alternative to sandalwood.
Summary of the latest annual report of the company
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2009 & 10
PARTICULARS SCHEDULE AMT FOR THE YEAR
ENDING 31-3-2010
AMT FOR THE YEAR
ENDING 31-3-2009
INCOME
Sales
Less: excise duty.
Net sales
Other income L
1,789,059,796
141,285,059
1,647,774,737
22,288,309
1,693,919,368
160,215,837
1,533,703,531
60,623,797
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Increase /decrease in stock M 53,286,174 70,374,213
1,723,349,221 1,664,701,541
Expenditure
Materials consumed
Other expenditure
Depreciation
N
O
D
775,383,439
799,799,905
4,982,474
801,928,343
734,442,910
3,969,038
1,580,165,818 1,540,340,291
Operating profit/loss 143,183,402 124,361,250
Interest & finance charges. P 8,297,546 7,276,261
PROFIT / LOSS BEFORE TAX
Provision for tax
Current tax
Fringe benefit tax
Deferred tax asset
Dividend tax.
134,885,857
48,000,000
---
8,930,375
2,704,0833
117,084,988
18,500,000
2,128,828
20,358,318
---
PROFIT /LOSS AFTER TAX
Prior period expenditure.
Proposed dividend
Q
93,112,149
1,441,082
15,911,050
116,814,479
14,078,609
---
75,760,017 130,893,088
Profit / brought forward from previous
year.
267,719,129 136,826,041
Profit /carried to balance sheet 343,479,146 267,719,129
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
BALANCE SHEET AS AT 31ST MARCH 2009 & 10
S
c
n
o
Amount as on 31-03-2010 Amount as on 31-03-2009
1 2 3
Rs.
4
Rs.
5
Rs.
6
Rs.
7
Rs.
8
Rs.
Sources of fund.
1. Share holder fund.
A)share capital
b)reserve surplus
c) Exchange
fluctuation ratio.
A
318,221,000
343,479,146
318,221,000
267,719,129
1,769,358
2.loan funds:
a)secured loan
b)unsecured loan
Total
B
C
80,092,400
83,506,504 163,598,904
825,299,050
107,204,608
83,506,504 190,711,112
778,420,599
APPLICATION OF
FUNDS.
1. Fixed assets.
A) Gross block.
Less: depreciation
b) net block
D
327,262,896
241,431,939
85,830,957
309,623,620
239,847,860
69,775,760
2.Investments E 100 100
3.Deferred tax asset 61,435,241 52,504,866
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
4.current assets:
Loans& advances
a)inventories
b)s.debtors
c)cash& bank bal
d)loan& advances
e)invst in gratuity
test.
less: c liability&
provisions.
i)liabilities
ii)provisions
net current asset.
F
G
H
I
K
517,605,839
172,641,760
285,359,727
213,953,267
50,000,000
292,361,773
269,166,068
1,239,560,593
561,527,841
678,032,752
407,452,487
163,529,618
255,132,910
215,257,572
50,000,000,0
0
246,650,794
204,956,560
1,091,372,5
87.
451,607,354
639,766,233
Miscellaneous exp
Total
J 16,374,640
Total 825,299,050 778,420,599
Sales of different class of goods
Class of Goods 2009-10 (Rs in lakhs) 2008-09 (Rs in lakhs)
Soaps 15332,06 14808.29
Detergents 940,79 914.96
Sandal oil 73,43 28.37
Agriculture 762,88 588.88
Talcum powder 347,25 262.61
Others 434,16 336.08
Total 17890.59 16939.19
Total turnover of 5years & profit before & after tax
Years Turnover Profit before Tax Profit after Tax
2005-06 11,092.11 236.79 178.79
2006-07 11,958.03 433.57 358.56
2007-08 14,552.85 1179.35 1203.86
2008-09 16,939.19 1170.85 1168.14
2009-10 17,890,59 1348,85 931,112
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
LEARNING EXPERIENCE:
The learning experience gained by me during the in-plant training was very much
practical oriented. Mostly all the concepts and theories, which is studied in the class. The overall
study of the organization reveals that the company has grown tremendously since its incorporation
from 1918, now it has independent units for manufacturing sandalwood oils, toilet soaps, washing
soaps, detergents, cosmetics and incense sticks. Its initially named Government Soap Factory was
renamed as Karnataka Soaps and Detergents Ltd in 1st October 1980.
Its trademark is “Sharabha”, the slogan stands as “Natural products with exotic fragrance”. The
company is a leading sandalwood soap Manufacturer in the country. Even though they have demand
for their products in both domestic as well as international market, They are not able to establish
themselves as market leaders due to various reasons such as Extensive work force, non-utilization of
installed capacities of manufacturing, lack of proper distribution network, lack of expenditure in the
areas of advertisements and publicity, competitions of various soaps and detergents and lack of
timely decisions.
The company has an effective human resources department where in the employees are given
excellent packages, incentives and extensive care is taken by providing facilities such as canteen,
medical facilities, and extracurricular activities. As it gives insights into the working environment of
an organization. The training has exposed to many facts of an organization and also helped to gain
practical knowledge, which will go a long way in the horizon of our career. It helps to know more
aware of the soap industry and the role played by KSDL.
Structure: got to know how decisions are communicated, the flow of decision process. The way in
which departments are classifieds on the basis of their functioning. The functions of each
departments and its relevance. The way in which the departments are inter-linked and coordinated.
Overall the learning experience was quite good which enabled to experience a slice of the industry.
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PART-B
INTRODUCTION
In recent decades businessmen have shown an increasing awareness of the need for precision in
the field of inventory control. In the past, inventories were considered as indication of wealth, even
inventories greatly in excess of the amount needed to carry on the process of production and
distribution were considered beneficial.
Since the advent of modern industries, wealth has become more and more identified with
money. An increased emphasis on the liquidity has led businessman to hold cash and securities in
preference to inventories although the later have an inherent convertibility not possessed by the other
categories. These have been made a strong tendency towards holding the means for purchase of
goods rather than the goods themselves. Large inventories are now viewed with alarm, where as in
former times no one would ever have doubted that such were beneficial.
Every enterprises needs inventory for smooth running its activities. It serves as a link
between production and distribution processes. There is generally, a time lag between the
reorganization of a need and its fulfillment. The greater the time-lag, the higher the requirement for
inventory. The unforeseen fluctuations in demand and supply of goods also necessitate for inventory.
It also provides a cushion for future price fluctuations.
The investments in inventories constitute 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 control & its management is to ensure availability of
materials in sufficient quantity as and when required and also to minimize investment in inventories.
BACKGROUND OF THE STUDY
Inventory in general meaning ‘stock of goods, or a list of goods’. The word ‘Inventory’ is
understood differently by various authors. In accounting language it may mean finished goods only.
In a manufacturing concern, it may include raw materials, work in process and stores, etc. To
understand the exact meaning of the word ‘inventory’ we may study it from the usage side or from
the ‘side point of entry’ in the operations. Inventory includes the following things
Raw materials
Work In Progress
Finished goods
Consumable stores and spares
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A. RAW MATERIALS:-
They are the inputs of the final products. They are purchased by the firm from others and are
used in the production for converting into finished components. 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:-
This refers to the goods lying in the manufacturing process. They are normally partially
finished or semi-finished goods that are at various stages of production in a multi-stage production
process. The raw materials enter the process of manufacture but they are yet to attain a final shape of
finished goods. The quantum of work-in-process 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-
process.
C. FINISHED GOODS:-
These are the final or completed products which are ready for sale. The stocks of finished
goods provide a buffer between production and market. The purpose of maintaining inventory is to
ensure proper supply of goods to customer. In some concerns the production is undertaken on order
basis, in these concerns there will not be a need for finished goods.
The need of finished goods inventory will be more when production is undertaken in general
without waiting for specific order. Work in production, while stock of finished goods is required for
smooth marketing operation. Thus inventory serve as a link between production and consumption.
D. CONSUMABLE STORES AND SPARES:-
These are the goods held for consumption by machines in a manufacturing concern. They
include spare parts, lubricants, cleaning materials, oil, cotton waste etc. They don’t enter into the
final product but they are required for maintaining and running the machines for production purpose.
The levels of the above four kinds of inventories differ depending upon the nature of the
business. For example-A manufacturing firm will have all the four kinds of inventories. But a retailer
or wholesaler will have a high level of inventories of finished goods but they will have no
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inventories of raw-materials, spares, maintenance supplies and stores and goods in progress. Further
depending upon the nature of the business, inventories may be durable or non-durable, valuable or
inexpensive, perishable or non-perishable etc.
MEANING AND DEFINITION OF INVENTORY: -
The term ‘Inventory’ refers to the stock of raw-materials, spare parts and finished products held
by a business firm. It is the aggregate quantity of material resources and goods that are idle at a given
point of time. The resources may be of any type; for example men, materials, machinery, money,
when the resources involved in materials or goods in any stage of completion, inventory referred to
as stock. Hence inventory refers to the ‘Stock’ that a business firm keeps to meet its future
requirement of production and sales. Several authors have defined the term Inventory. The most
popular of them are,” The term Inventory includes, Raw materials, Work In Progress, finished
packaging spares and other stock in order to meet an unexpected demand or distribution in the
future.”
“In short inventory means stock of materials or goods held by a concern to meet its future
requirements of production and sale.”
IMPORTANCE OF INVENTORY:-
Inventory constitutes the largest component of current assets in many organizations. Poor
management of inventories therefore may result in business failures. A stock out creates an
unpleasant situation for the organization in case of a manufacturing organization could, in
extreme cases, bring production process to a half, conversely, if a firm carries excessive
Inventories the added carrying cost may represent the difference between profit and loss.
Efficient inventory control therefore, can significantly contribute to the overall profit-position of the
organizations.
PURPOSE/ BENEFITS OF HOLDING INVENTORY:-
Every business enterprise has to maintain a certain level of inventories to facilitate
uninterrupted production and smooth running of business. These are three main purpose or motives
of holding inventories. They are as under
Transaction motives: emphasis’s the need to maintain inventories to facilitate smooth
production and sales operation, which facilitates continuous production and timely execution
of sales order.
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ANTICIPATIONINVENTORY
FLUCTUATING INVENTORY
LOT-SIZE INVENTORY
MOVEMENT INVENTORY
PRODUCTION INVENTORY
IN-PROCESS INVENTORY
M.R.O. INVENTORY
FINISHED GOODS INVENTORY
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Precautionary motive: which necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors?
Speculative motive: which influences the decision to increase or reduce inventory levels to
take advantage of price fluctuation savings in re-ordering costs and quantity discounts, etc?
TYPES OF INVENTORIES:-
1.
Anticipation Inventory:-
Such inventories are carried to meet predictable changes in demand. In case of seasonal
variations in the availability of some raw materials; it is convenient and also economical to build up
stocks where consumption pattern may be reasonably uniform.
2. Fluctuating Inventory:-
Demand fluctuates overtime and it is not possible to predict it accurately. Business firms
maintain reserve stocks to meet unexpected demand and thereby to avoid risk of losing sales. These
safety stocks are known as fluctuating inventory. There is a time gap between production and use of
certain products. The goods produced in one season are held in stock for sale and used throughout
the year.
3. Lot-Sizes Inventory: - In order to keep costs of buying receipts, inspection, transport and
handling charges low, large quantity are bought for immediate need. It is a common practice to buy
some raw materials in large quantities in order to avail quantity of discounts.
4. Movement or Transit Inventory:- Raw materials and finished goods move from one place to
another. Some amount of inventory is always in transit. Longer the transportation period, greater is
the amount of transport and inventories. The average amount can be determined mathematically:
I=S *T
Where, S = the average rate of sales (weekly average)
T = transit time required to move from one stage to another in a week
I = the movement of inventory needed
5. Production Inventory:-
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Raw materials and other parts and components which enter into the product during the
production process and generally form part of the product are called Production inventories.
6. In-Process Inventory:-
Semi-finished Work In Progress and partly finished products formed at various stages of
production are In-Process inventories.
7. M.R.O. Inventory:-
These inventories are maintenance repairs and operating supplies, which are consumed
during the production process and generally, do not form part of the product itself. E.g.: - Oils and
Lubricants, Machinery and Plants, etc.
8. Finished Goods Inventory:-
Completed finished products ready for sale are finished goods inventories.
Major Dangers of Over-Investments in Inventory:-
Block of firm’s funds in Inventory
Excessive carrying costs
Risk of Liquidity
The excessive level of inventories consumes the funds of the firm and cannot be used for any
other purpose. The carrying cost such as the cost of storage, handling, insurance, recording
and inspection also increases in proportion to the volume of inventory. Excessive inventories
carried for a long period brings down the liquidity of the firm.
Problem of Inadequate Inventories:-
1. Inadequate raw materials and work in progress will result in stoppage of production.
2. If the finished goods inventories are insufficient to meet the demands of the customers, they may
shift to other competitors which will amount to a permanent loss to the firm.
An effective inventory management should avoid both these extreme situations namely, over
Investment and under investment in inventories.
MEANING OF INVENTORY MANAGEMENT:-
Inventory management covers a much wider field. The inventory management is concerned
with the entire range of functions with effect to the flow, conservation and utilization, the quality and
the costs of materials. It is that aspect which is concerned with the activities involved in the
acquisition and storage of all materials directly and indirectly employed in the production of the
finished products. These activities include material planning, programming functions such as
customer service requirements, etc. Viewed in that perspective, Inventory management is broad in
scope and affects a great number of activities in the organization. Because of these numbers, inter
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relationship inventory management stresses the need for integrated information flow and decision
making as it relates to inventory policies and overall systems.
Inventory control on the other hand is defined in a narrow sense than inventory management and
pertains primarily to the administration of established policies, systems and procedures. For example,
the actual steps taken to maintain the stock levels or stock records refer to inventory control.
FACTORS INFLUENCING INVENTORY MANAGEMENT AND CONTROL:-
Several factors influence inventory management and control. The principal effects of these
factors are reflected mostly strongly in the levels of inventory and the degree of control planned in
the inventory control system. The factors include, type of product, type of manufacture, volume of
output and others.
TYPE OF PRODUCT:-
Among the factors influencing inventory management and control, the Type of product is
fundamental. If the material used in the manufacture of the product has a high value, when
purchased. If the material used in the product is in a short supply or is auctioned by the government,
this may influence the purchase of this material and stock maintained.
The manufacture of standard products as compared to custom-made items still influence
inventories as materials needed to manufacture a standard product is easy to obtain and a close
control on the stock is not necessary whereas materials required to produce made-to-order items need
strict control to ensure that no item is lost in the process of manufacture. Such materials and tools are
of special and expensive nature and loss of any small part will hold up the production.
TYPE OF MANUFACTURE:-
Besides type of product, ‘Type of manufacture’ also influences inventory management and
control where, continuous manufacture employed at the rate of production is the key factor. Here
inventory control is of major importance and in reality controls the production of the product. The
economic advantage in this type of manufacture is the uninterrupted operation of the machines and
assembly lines in the plant.
VOLUME:-
The Volume of product to be made as represented by the rate of production may have little
effect on the complexity of the inventory problems. Literally, millions of bases for light bulbs are
manufactured even involving the control of only two principal items of raw materials. On the other
hand, the manufacture of large locomotives involves the planning and control of thousands of items
in inventory. Both the inventory problem and the difficulty of controlling production increases with
the number of component parts of the product and not with the quantity of products to be made.
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1.8 BENEFITS OF INVENTORY MANAGEMENT AND CONTROL:-
Proper management and control of inventories will result in the following benefits for the
organization:-
Inventory control ensures an adequate supply of materials, stores, etc., minimizes stock-out
and shortages and avoids costly interruptions in the operations.
It keeps down investment in inventories, inventory carrying costs and obsolescence losses to
the minimum.
It facilitates economical purchasing through the measurement of requirement on the basis of
recorded experience.
It eliminates duplication in ordering or in replenishing stocks by centralizing the sources from
which purchase requisitions emanate.
It permits a better utilization of avoidable stocks by facilitating inter-department transfers
within a company.
It provides a check against the loss of materials through carelessness or pilferage.
It facilitates cost allotting activities by producing a means for allocating material cost to
production department or other operating accounts.
It enables management to make cost and consumption comparison between operations and
periods.
It serves as a means for identifying and disposal of inactive and obsolete items of stores.
Perpetual inventory values provide consistent and reliable basis for preparing financial
statements.
PROCESS OF INVENTORY MANAGEMENT AND CONTROL:-
As mentioned earlier, inventory management and control refers to the planning for optimum
quantities of materials at all stages in the production cycle and evoking technique, which would
ensure the availability of planned inventories.
Four steps are involved in the process. They are:-
1. Determination of optimum inventory levels and procedures of this review and adjustments.
2. Determination of degree of control that is required for the best results.
3. Planning and design of the inventory control system.
4. Planning of the inventory control organization.
1. Optimum Inventory Levels:-
Determination of inventory that an organization should hold is a, significant but difficult task.
Too much of inventory results in locking up of working capital accompanied by increased carrying
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costs. Excess inventories however, guarantee uninterrupted supply of materials and components, to
meet customers’ demand.
2. Degree of Control:-
The second aspect of inventory management is to decide just how much control is needed to
realize the objectives of inventory management. The difficulty is best overcome by classification of
inventory on the bases of value popularly called ABC, VED, FSN analysis and other methods are
useful in deciding the degree of control. More importance should be given also for items of high
consumption.
3. Planning and Design of the Inventory System:-
Inventory system provides the organizational structure and the operating policies for
maintaining and controlling goods to be inventoried. The system is responsible for ordering and
receipt of goods ,tinning the order placement and keeping track of what has been ordered, how much
and from whom, further the system must provide follow up to enable the system of answering of
question as, has the vendor received the order? Has it been shipped? Are the hems correct? Are the
procedures established for re-ordering or returning undesirable merchandise?
4. Organizational Arrangement:-
The last aspect of inventory management and control is to determine an organization
structure to handle inventory. Organizationally speaking inventory control function is assigned to
materials management or production planning and control.
Attaching inventory control to material management activity is feasible in organizations were
integrated material management is in practice. There is strong justification for such an arrangement
as inventory control is part of material activity and all material functions must be integrated into one
group.
Assigning inventory control function to production planning and control however has
advantages. Production planning and control department will be in a better position to plan its
production schedule with the knowledge of inventory under its control. Besides, the production
planning and control department will be able to issue timely requisitions for replenishment of stocks
used in the production operation. And logically speaking it is the production department, which is the
user of inventories, and the same department must be held responsible for controlling them.
Inventory Control Technique Tools:-
Inventory control techniques are employed by the inventory control organization. Inventory
control techniques represent the operational aspect of inventory management and help realize the
objectives of inventory management & control several techniques of inventory control are in use and
it depends on the convenience of the firm to adopt any of the techniques. What should be stressed
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however is the need to cover all items of inventory & all stages from the stage of receipt from
suppliers to the stage of their use.
Inventory Control Techniques:-
A. ABC classification
B. HML classification
C. VED classification
D. SDE classification
E. FSN classification
F. Level Setting
G. Two Bin System
H. Material Requirement planning
I. Physical verification of Stock
J. Just-In-Time (JIT) technique
A. ABC (Always Better Control) classification:-
One of the widely used techniques for control of inventories is ABC analysis. The objectives
of ABC control is to vary the expenses associated with maintaining appropriate control according to
the potential savings associated with a proper level of such control.
ABC analysis consists of the classification of materials into categories, A, B & C on the basis
of their value. Items of high value and comparatively less in number are included in ‘A’ category.
Generally, they constitute about 70% of the total value and about 15% of the total number. Items of
low value and large in number are included in ‘C’ category.
Generally, they account for about 70% of the total value and about 60% of the total number. Items of
moderate value and moderate in number are included in ‘B’ category. They account for about 20%of
the total value and 25% of the total number.
Items of ‘A’ category are subject to strict control with regard to purchase, storage and use.
Items of ‘B’ category are not subject to much control. The objective of this analysis is to reduce the
investment of inventory, the cost of inventory control and also loss of inventory.
B. HML (High Medium and Low) classification:-
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The HML classification follows the same procedure as adopted in ABC classification. Only
difference is that in HML classification, the unit value is the criterion and not the consumption value.
The items of inventory should be listed in descending order of unit value and it is up to the
management to fix limits for the three categories.
Ex:-The management may decide that, the units with unit value of Rs.2,500 and above will be
‘H’ items, Rs.1000 to Rs.2500 ‘M’ items and less than Rs.1000 ‘L’ items.
The HML analysis is useful for keeping control over consumption at departmental levels, for
deciding frequency of physical verification and for controlling purchases.
C.VED (Vital Essential and Desirable) classification:-
While in ABC classification, inventories are classified on the basis of their consumption
value and in HML analysis, unit value is the basis; criticality of inventories is the basis for VED
categorization. The VED analysis is done to determine the criticality of an item and its effect on
production and other services. It is specially used for classification of spare parts. If a part is vital, it
is given ‘V’ classification, if it is essential, then it is given ‘E’ classification and if it is not so
essential, then it is given ‘D’ classification. For ‘V’ items, a large stock of inventory is generally
maintained, while for ‘D’ items, minimum stock is enough.
D.SDE (Scarce Difficult and Easy) classification:-
The SDE analysis is based upon the availability of items and is very useful in the context of
scarcity of supply. In this analysis, ‘S’ refers to Scarce items, generally imported, and those which
are in short supply. ‘D’ refers to difficult to obtain items, which are available indigenously but are
difficult to produce. Items which have come from distant places or if reliable suppliers are difficult to
come by, fall in ‘D’ category. ‘E’ refers to items which are easy to acquire and which are available in
the local markets.
The SED classification based on problem faced in procurement is vital to lead time analysis
and in deciding on purchasing strategies.
E.FSN (Fast-moving Slow-moving and Non-moving) classification:-
FSN stands for Fast-moving, Slow-moving and Non-moving goods. Here, classification is
based on the pattern of issue from stores and useful in controlling obsolescence. To carry out FSN
analysis, the date of receipt or the last date of issue whichever is later, is taken to determine the
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number of months which have moved since the last transaction. The items are usually grouped in
period of 12 months.
FSN analysis is helpful in identifying cut-off items which need to be moved regularly and
surplus items which have to be examined further. Non-moving items may be examined further and
their disposal can be considered.
F. Level Setting:-
It involves setting-up of inventory levels such as, Maximum level, Minimum level, Re-order
level, Danger level, Average stock level. The above levels are calculated when a store-keeper places
an indent for fresh stock and also to avoid over-stocking of any material. At the same time to ensure
follow-up to sufficient materials to production process. The main purpose of fixing the levels is to
control the investment on inventories.
1. Minimum level:-
a. This is the limit below which the stock should not be allowed to fall. It is fixed on the
basis of average consumption and average lead-time required for measuring the item.
The main purpose of fixing this level is to ensure adequate check for continuous
production and sales.
Minimum level=Re-Order Level (ROL)-(Normal consumption * Normal Re-Order Period)
2. Maximum level:-
a. This is the limit or level beyond which the stock of an item should not exceed. This
level is fixed for avoiding over-stocking of materials and its associated risks.
Maximum level=Re-Order Quantity (ROQ)-(Minimum consumption * Minimum order
period)
3. Re-Order level:-
a. It is the point fixed between maximum and minimum level at which the storekeeper
has to initiate action to obtain fresh supplies of materials.
b. This point will usually be slightly higher than the minimum stock to cover such
emergencies as abnormal usage or unexpected delay in supply. Re-Ordering level
depends on lead time, rate of consumption and economic order quantity.
Reorder level=Maximum consumption*Maximum reorder period.
4. Danger level:-
a. It is the level below the minimum level. When the stock reaches this danger level,
urgent purchase action is necessary. As the normal lead-time is not available, it is
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necessary to resort to unorthodox purchase procedure resulting in higher purchase
cost.
b. Danger level=Minimum consumption*Emergency reorder period.
5. Average stock level:-
It is the stock level between the Minimum level and Maximum level of stock.
Avg. Stock level=Maximum level + Minimum level
2
G. Economic Order Quantity (EOQ):-
It can be described as the basis for how much to buy. It is the oldest and most widely known
inventory model. It dates back to 1915. The purpose of using EOQ model is to find that particular
quantity of order with minimum total inventory costs. EOQ is the technique which solves the
problem of the materials manager. EOQ is the order size at which the total cost, comprising ordering
cost and carrying cost, is the least. EOQ will be fixed at a level where the total of ordering cost will
be minimum.
EOQ can be calculated by a mathematical formula:-
EOQ = √ 2AO
C
Where, A = annual consumption of units
O = ordering cost per order
C = carrying cost per unit per annum
H. Two-Bin System:-
It is mainly adapted to control ‘O’ group inventories. In the Two-bin system, stock of each
item is separated into two bins. One bin contains stock to last till the date of placing a new order. The
other bin contains a certain quantity of stock that will be sufficient to satisfy probable demand during
the period of replenishment stock first issued from the 1st bin. When the 1st bin is empty, an order of
replenishment is made and the stock in the 2nd bin is utilized until the order material is received.
I. Just-In-Time (JIT):-
The concept JIT means that, virtually no inventories are held at any stage of production and
the exact numbers of units are brought to each successive stages of production at the right time. It is
also called, ‘Zero inventories’. The concept JIT was started in the ‘Motto Machi’ plant of Toyota
Corporation, Japan, where the system has been perfected and results achieved. The plant has a long
line of Trucks waiting outside with full load of automobile parts for the assembly line. As soon as
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
one truck comes out from one end of the plant, another truck gets inside. There is no warehouse for
the parts. In India, the Maruti Udyog Ltd. has adopted JIT.
J. Bin Cards and Stores Ledger:-
a) Bin card :-
Bin is a place, rack or cupboard where materials are stored. Each bin has a card to show the
position of the stock in the bin. It is known as ‘Bin Card’. It has bin number, materials issue,
materials requisition numbers, balance of stock and remarks.
The bin card thus indicates ready stock position of an item at any moment. Entries are made
usually by stores personnel.
b) Stores Ledger :-
Stores ledger contains the same columns which a bin card has but, in addition the, the amount
of columns for pricing receipts and issues of materials are provided. Stores ledger shows at any time,
the value on band. The ledger is maintained in stores as well as cost office to provide a crosscheck on
the stores personnel. Entries in the stores ledger are supported by goods received note, materials
requisition, etc.
Inventory Valuation:-
Many methods of material costing and inventory valuation have come into use among the
more common methods of costing material and valuing inventories are:
1. First In First Out Method [FIFO]
Here the earliest acquired stock is assumed to be used first. The stock is assumed to use
first. The stock, which is bought, first is issued first. In other words the principle is that the
materials are issued in this order and at the price of their original purchase.
This method is claimed to be accurate for the reasons that the material are charged into
production at actual cost in the order of receipt. The closing inventories are valued at the most
recent prices. If the closing inventory balance includes material at several different prices, the
problem of considerable clerical work is involved.
This method assumes that the order in which materials are received in the stores is the order
in which material are issued from the stores. Hence the material which is issued first is priced on
the basis of the cost of material received earliest, soon and so forth
The advantage of this method
The pricing of material is perhaps consistent with the practice of issuing oldest material first
followed in many manufacturing organization.
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
The value of material in stock is fairly close to current cost.
The disadvantage of this method
The issue of material at different prices complicates stores accounting.
Comparisons of job costs become difficult when similar jobs may be charged with different
prices for the same materials.
In a period of rising prices, the charge of production is low. The tends to inflate reported
profile, increase tax burden and push up dividends as a consequence the firm is sapped
financially.
2. Last in first out method [LIFO]
This method is opposite of the FIFO method. It assumes that the material, which is acquired,
last is issued first. Hence material issues are priced on the basis of the cost of the recent
purchases.
The advantage with this method is
The cost of production reflects the current cost of material better.
In the period of rising prices, reported profits are depressed is conserved.
The disadvantage with this method is
The issue of material at different prices complicates store account.
Pricing of material is not consistent with the material first.
Comparison of job becomes when similar jobs may be for the same material at
different price
3. Weighted cost average method
Under this method issues are priced at the weighted average cost of material in stock [the
weight being proportional to quantities.].To get an up to date weighted average cost figures, a
new weighted average cost is calculated each time delivery is received.
Advantages of this method are
It leads to smooth out price fluctuations.
It provides a fairly acceptable figure for stock value.
The limitation of this method may be medium involved in calculating the weighted average cost each
time a new delivery is obtained.
4. Standard Price [Cost] Method:-
Under this method a standard price is predetermined when materials are purchased the
stock account is debited with the standard price. The difference between the actual price and
standard price is carried to a variance account. Material issued is charged as per standard price.
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Advantage of this method
All material issue price identically. The possibility of jobs using the same material
being charged with different costs, a problem with the FIFO or LIFO method does
not exists.
Stock accounting is fairly amplified. There is no need for specific price attribute to
specific issue of materials.
Disadvantage of this method
Determining the standard price may be somewhat difficult; particularly when price
tend to increase somewhat unpredictable are characters by wide fluctuation.
The issue of how variance should be treated may be thorny.
5. Current price method:-
According to this method issue are priced replacements or realizable price at their time of issue.
Advantage of this method
It is easy to calculate the price at which the issues are to be made.
A particular purchase at a higher or lower rate does not disturb the price to a great
extent because in the price it is averaged out.
Simplicity is the greatest advantage of this method.
Disadvantage of this method
Material cost does not represent actual cost price.
When prices fluctuate considerably, this method will give very incorrect result.
This method does not give regard to quantities of material held at each price.
Financial Managers Role in Inventory Management
For a majority of the companies, the inventory represents a substantial investment. The
inventory program is part of the planning budget, which often falls within the financial area. As
management becomes increasingly aware of the necessity of inventory control, ultimate
responsibility is placed more and more in the hand of the financial manager who is playing an
increasingly important role in determine the nature of control involved exercised the methods of
balancing the relative cost involved and measurement of performance of inventory control. He may
be having supervisory authority in this area or he may be a member of policy committee with board
responsibilities. In smaller firm, he often participates even more directly in the management of
inventories.
Though the corporate financial officer may not be directly concerned with inventory policies the
inventory policies have a direct and important bearing on the financial need of the firm. The financial
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
officer can do good job of anticipating change in the need for funds if he thoroughly understands the
implication of changing inventory policies where financier are a LIMITING factor.
Good Inventory Management is Good Financial Management
The greater the opportunity cost of funds invested in inventory the greater the incentive to reduce
the lead time required receiving inventory once an order is placed. The greater the efficiency with
which the firm manages its inventory, the lower the required investment in inventory. Inventories
should be under constant review.
The financial office should pay attention to the following aspects in inventory management:
Action taken against imbalance of raw materials and goods in process inventory that may
limit the utility of stock that item which is in short supply. Here one appreciate the common
saying that the strength of its weakness link.
The full safety against shortage of inventory has a prohibitive cost. There should, however be
reasonable procurement lead-time assumption and safety stock level.
Production schedule, as far as possible, should be firmly adhered for reducing inventory of
raw material and work in progress goods. In case of changes of production schedules,
purchasing department should set early notification.
There should b an efficient system to dispose of goods that are obsolescence, surplus or
unusable for production.
Continuous efforts have been to be made to shorten the production cycle. The longer
production run should be worth the cost and rich of the extra inventory investment.
Literature review
From process selection to supplier selection: a case study about an accessory purchasing department
exploring JIT and/or VMI process collaboration with their suppliers.
University essay from Högskolan i Jonkoping/Internationally Handelshögskolan; Högskolan i
Jonkoping/Internationella Handelshögskolan
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Author: Mette Eisensö; Liselott Dahl; [2007] Abstract: For many retailers, manufacturers, and
wholesalers, inventory is their single largest investments of corporate assets. Problems such as stock-
outs and bullwhip effect due to sales fluctuation and poor visibility are normal for manufactures.
Unnecessary activities, in the purchasing process internally and externally, such as double order
handling, cost both money and time. It is widely known that firms no longer can compete effectively
in isolation of their suppliers and other entities. The future success of many businesses depends on
co-operation and the co-ordination of efforts; making Supply Chain Management important. JIT and
VMI are two of the philosophies that have been used to update supply chain relationships and
management. By recognising your own supply weaknesses, the need for a supply strategy and a
purchasing portfolio which classify suppliers emerges.
There is an interest in examining what possible benefits and drawbacks, JIT and VMI collaboration
can bring and how they differ from each other. In order to have a successful collaboration and
implementation, it is important to know what basis to choose suppliers on and understand what needs
to be in place, internally and externally, before starting either a JIT or VMI relationship with
different suppliers.
An inductive method was used in order to transform the literature review into a case study research.
Explanatory and exploratory strategy was combined as well as qualitative and quantitative data
collection such as oral interviews and written questionnaires. The case study was carried out at an
accessory purchasing department at a large production company referred to as the “Focal company”
in this thesis. Also, participating in the study were selected suppliers of the Focal company.
The literature review and the case study data was analyzed which led to the results that:
• JIT and VMI can shorten lead time, improve quality and relationships if used properly, otherwise it
can lead to increased inventory levels.
• Key factors for enabling JIT and VMI are common goals, management commitment, accurate
information and suitable software systems.
• Suitable suppliers for JIT and VMI are companies that have equal dependency and/or have
interdependency and are willing and able to contribute to the competitive advantage of the buying
firm.
AIT COLLEGE. Inventory management & its control Page 42
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
• Supplier selection criteria are price, quality, delivery, flexibility, reliability organizational culture,
structure and strategy.
• Implementation of JIT is not an option today at the Focal company.
. With a few IT-system updates, a little bit of education and training the Focal company and most of
the suppliers in this study are ready for VMI.
• Because of the good balance of power and dependence in the relationships between the Focal
company and their suppliers there is a good chance of a successful outcome.
• The Focal company’s rating criteria are well correlating with the literatures findings, which further
support that they are ready to select suppliers for integrated relationships.
RESEARCH DESIGN OF THE STUDY
INTRODUCTUON
Inventory management involves the control of assets being produced for the sale in the normal
course of the company’s operation. Inventories can be used to refer to the stock on hand at a
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particular time of raw material. Goods in process of manufacture and finished goods. The goal of
effective inventory management is to minimize the total cost, direct & indirect that is associated with
holding inventories. However the importance of inventory management to the company depends
upon the investment in inventory.
STATEMENT OF PROBLEM
Every business firm big or small has to maintain inventory and it constitute an integral part of the
working capital. It has been estimated that inventory in Indian industries constitute a significant
portion of current asset inventories require a significant investment not only to acquire them but also
hold them investment in inventory is said to be idle but it is unavoidable in any organization
manufacturing or trading so inventory cost has become necessary.
OBJECTIVES
1. To study the effectiveness of inventory management over the past years by conducting ratio
analysis, inventory performance indication by analyzing the data using tables.
2. To study the inventory management as it exists in KS&DL.
3. To find suggestion for improving the efficiency in inventory management.
SCOPE OF THE STUDY
1. The prime importance of the study is to analysis the maintenance and control of inventory.
How goods are classified and codified in KS&DL
2. The study attempts to find out the existing techniques used in KS&DL maintain efficient
transportation including the function of supplying and receiving.
3. The study attempts to find out the consumption of material in production process.
METHODOLOGY:-
The data of study was collected with the help of interviews and discussion with reference
of records maintained in the stores and material department.
Primary data:-The primary data are to be collected through the records maintained by the
firm.
Secondary data:-Are to be collected from company’s annual reports, journal books and
websites.
Location of the Study
The study was done at Karnataka Soaps & Detergents ltd. Bangalore
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
TOOLS OF ANALYSIS
The tools and techniques were used for the study. Are different types of ratios belonging to different
groups are calculated and the trend of each ratio over the years is worked out graphs are drawn for a
better understanding of concepts and theories.
REFERENCE PERIOD:-
A period of 5 years will be taken into consideration for conducting this study.
Limitations of the study
As we have no access to other records of the company except annual report, the interpretation
of records is not complete.
Since the company doesn’t follow a particular recognized technique of inventory control,
practical understanding of inventory control techniques is not possible.
Due to the busy schedule of the executives, data was collected mainly from the secondary
sources. However, sufficient primary data was also available.
The balance sheet ratios cannot be fully relied upon as the balance sheet shows the financial
position as on a particular date.
Difference in definitions of basic concepts renders the comparison incomplete. Hence ratio
values might vary significantly.
Usually the ratios are calculated upon the past financial statements which are no indicators of
future
Data Analysis and Interpretation
1.1 GROWTH OF INVENTORY
Inventory means stock of goods. It covers the stock of raw materials, stores and spares, work in
progress and finished goods.
Table No. 1.1
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Table showing the progressive base year percentage growth of inventory for this
2005-06 inventories is treated as Base year
period 2009-10 Rs. in Crores
year Inventory Growth of inventory
2005-06 34.1214 17.835
2006-07 35.0855 18.339
2007-08 29.6012 15.472
2008-09 40.7452 21.297
2009-10 51.7605 27.055
Percentage growth of total inventory = Inventory x 100
Total Inventory
2005-06 2006-07 2007-08 2008-09 2009-100.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
17.83% 18.34%15.47%
21.30%
27.06%
Inventory growth
Inventory growth
ANALYSIS
The above table shows the percentage growth of total inventory. Year 2005-06 is taken a base
year. 17.835%during the year of 2005-06, the increase of inventory in the year 2006-07 is
18.339%, in the year 2007-08 there is a decrease of inventory percentage to 15.472%, in the year
2008-09 the inventory percentage is increased to 21.297%, in the current year the inventory
percentage increase to 27.055%.
AIT COLLEGE. Inventory management & its control Page 46
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
INTERPRETATION
The position of inventory & its percentage were decreasing in the year 2007-08. The percentage of
inventory decrease in the year 2007-08 is due to decrease in production. In the year 2008-09 the
percentage of inventory growth is increased & its huge increase in the current year.
PERCENTAGE OF INVENTORY TO WORKING CAPITAL
Working capital is the amount of funds used in current operation of business, working
capital need not be in cash, and it can be in form of asset that can be converted into cash within
one year.
Working capital = Current assets - Current liabilities
Table No. 1.2
Table showing the Percentage of Inventory to Working Capital for the period 2006-10
Rs. in Crores
Years Inventory Working capital Percentage
2005-06 34.12 43.12 79.13
2006-07 35.08 40.80 85.98
2007-08 29.60 43.62 67.86
2008-09 40.74 63.98 63.68
2009-10 51.76 67.80 76.34
PERCENTAGE OF INVENTORY TO WORKING CAPITAL = Inventory x 100
Working Capital
As per standard or idle inventory to working capital, the inventory should not observe more than
75% of working capital.
GRAPH NO 1.2
AIT COLLEGE. Inventory management & its control Page 47
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
2005-06 2006-07 2007-08 2008-09 2009-100
20406080
10079.13 85.98
67.86 63.6876.34
percentage
percentage
year.
percentage
ANALYSIS
From the above table shows the percentage of inventory to working capital, year 2005-06 is
79.13 in 2006-07, 85.98 and in 2007-08, 67.86 in 2008-09, 63.68 and in current year its 76.34
its not under control as of standard is 75%
INTERPRETATION
Inventory to working capital which helps to measure the short term solvency of a company, in the year
2007-08 & 2008-09 inventory working capital is sufficient but in the year 2005-06 , 2006-07,& 2009-10
it is above the 75%. This shows it is not good situation of the company. This may be due to much of
inventories is locked up in working capital .
PERCENTAGE OF INVENTORY IN CURRENT ASSETS
Inventory generally means stock of good involved in current assets. Current asset are those
assets which change their form and substances and which are converted into cash during the
normal operating cycle of business.
Table No. 1.3
Table showing the Percentage of Inventory in Current Assets for the period 2006-10
Rs. in Crores
Years Inventory Current assets Percentage
2005-06 34.1214 70.0225 48.73
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
2006-07 35.0855 81.6621 42.96
2007-08 29.6012 91.1689 32.47
2008-09 40.7452 109.1372 37.33
2009-10 51.7605 123.956 41.75
PERCENTAGE OF INVENTORY TO CURRENT ASSETS = Inventory x 100
Current Assets
Graph.No.1.3
Chart showing the percentage of inventories in current assets for the period 2006-10
2005-06
2006-07
2007-08
2008-09
2009-10
0
10
20
30
40
50
6048.73
42.96
32.4737.33
41.75
percentage
percentage
ANALYSIS
The above table shows the percentage of inventory in current assets for year 2006-10 the 48.73%
in 2005-06 and it is in decreasing from year to year, 42.96% in 2006-07 and thereafter it
decreases to 32.47% in 2007-08, and it increase to 37.33% in 2008-09, & now increased to 41.75
% in 2009-10.
INTERPRETATION
It shows the amount of inventory in 2005-06 there was an increase in inventories, where as in the
succeeding year there is decrease in inventories & in the year 2008-09 there is a increase & in current
year also its increase compare to the previous year.
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
INVENTORY TURN OVER RATIO OR STOCK TURN OVER RATIO
It indicates the number of times the stock is turned over (sold) during the year. It is a ratio
between net sales and average inventory
Table No. 1.4
Table showing the percentage of Inventory Turnover Ratio for the period 2006-10
Rs. In Crores
Inventory Turnover Ratio = Net Sales
Average Inventory
Graph. No 1.4
2005-06 2006-
07 2007-08 2008-
09 2009-10
00.5
11.5
22.5
33.5
44.5
2.89 2.97
4.343.76
3.18
Inventory turn over ratio.
turnover times
ANALYSIS
The above table shows the inventory turnover ratio. Year 2005-06 is taken as base year 2.89
times. In 2006-07 2.97 times, in 2007-08 4.34 and there is decrease in times for 1 year. In 2008-
09, 3.76 times and there is decrease in turnover time compared to year 2007-08 & once again
reduced to 3.18 times in the current year
AIT COLLEGE. Inventory management & its control Page 50
Years Net sales Avg. inventory Turnover times
2005-06 98.8111 34.1214 2.89
2006-07 104.4374 35.0855 2.97
2007-08 128.6462 29.6012 4.34
2008-09 153.3703 40.7452 3.76
2009-10 164.7774 51.7605 3.18
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
INTERPRETATION
The inventory turnover ratio is increasing over the year. In the year2007-08 there is improvement in
control over inventories than the previous year. But there is a decrease to 3.76 in the year 2008-09 &
in the current year it decrease to 3.18 times.
STORES AND SPARES TURN OVER RATIO
It is the value of stores and spares inventory consumed during the year.
Average stores and spares =
(Opening stock of stores and spares + closing stock of stores and spares)
2
Table No. 1.5
Table showing the turnover of the Stores and Spares Inventory for the period 2006-10
Rs in cores
Stores and Spares Turnover Ratio = Annual Consumption of Stores & Spares
Average Stores & Spares
Graph No. 1.5
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Years Value of stores and
spares consumption
Average stores
and spares
Turn over times
2005-06 1.9076 1.5259 1.25
2006-07 2.0274 1.9675 1.03
2007-08 1.0313 1.5294 0.67
2008-09 0.8691 0.9502 0.92
2009-10 1.3257 1.0974 1.20
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
2005-06 2006-07 2007-08 2008-09 2009-100
0.2
0.4
0.6
0.8
1
1.2
1.4 1.25
1.03
0.670000000000013
0.92
1.2
TURNOVERTIMES
TURNOVERTIMES
ANALYSIS
The above table shows the stores & spares turnover ratio. Year 2005-06 is taken as the base year 1.25
times. It is decrease to 1.03times in 2006-07, in 2007-08 it decrease to 0.67 times , In the year 2008-09
it increase to 0.92 times & in current year it increase to 1.2 times.
INTERPRETATION
Stores & spares turnover ratio is increasing from the year 2008-09 it shows there is a sufficient
managing in the stores& spares inventory. & the company should maintain this for a long time.
INVENTORY CONVERSION PEROID
This represents the number of days of which inventories remain before they are issued for
production.
Table No. 1.6
Table showing the Inventory turnover Conversion in number of days
For the period 2005-09
Years No. of Days
in a year
Inventory Turnover
Ratio
No. of
Days
2005-06 365 2.89 126
2006-07 365 2.97 123
2007-08 365 4.34 84
2008-09 365 3.76 97
2009-10 365 3.18 115
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Inventory Conversion period = Days in a year
Inventory Turnover Ratio
Graph no.1.6
2005-06
2006-07
2007-08
2008-09
2009-10
0 20 40 60 80 100 120 140
126
123
84
97
115
inventory conversion period.
no of days
The above table shows the inventory conversion period. Year 2005-06 is taken as base year 126
days. In 2006-07, 123 days. In 2007-08, 84 days. In 2008-09, 97 days and in 2009-10 its 115
days.
INTERPRETATION
The inventory conversion period shows the decreasing trend in the year 2007-08 & the base year 2005-
06 it is good for the inventory management.
RAW MATERIAL Turnover Ratio
This represents the number of times the Raw material inventory turned over during
a year. It indicates the firms efficiency in manufacturing its product.
Raw materials turn Over Ratio = Net Sales
Average Raw materials
Table No. 1.7
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Table showing the Raw Materials Turnover Ratio
Years Net Sales Average raw materials Ratios
2005-06 98.8111 9.8576 10.02
2006-07 104.4374 8.2450 12.66
2007-08 128.6462 5.3810 23.90
2008-09 153.3703 6.5946 23.26
2009-10 164.774 11.8806 13.869
Average Raw Materials = Opening Stock Raw Materials + closing stock raw materials
2
Graph no 1.7
2005-06 2006-07 2007-08 2008-09 2009-100
5
10
15
20
25
10.02 12.66
23.9 23.26
13.869
Raw material turn over ratio
ANALYSIS
The above table shows the duration of raw materials turnover ratio. The year 2005-06 is taken as the
base year the 10.02 times in the 2005-06,12.66 times in the year 2006-07, 23.90 time in the year 2007-
08, 23.26 times in the year 2008-09, & 13.869 times in the current year.
INTERPRETATION
The raw material turnover ratio shows the increasing trend in the year 2007-08 which is doubled
compared to the base year. But in the 2008-09 & in the current year it decreasing .it shows the slow
movement of raw materials.
Duration of raw materials conversion period.
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
This represents the number of days for which raw materials remain in inventory before they are
issued for production.
Raw Materials Consumed per Day = Average Raw Materials X Turnover Times of
Raw Materials
365
Table No. 1.8
Table showing the Duration of Raw Materials Conversion period for the period 2004-09
Rs. in Crores
Years Average Raw
Materials
R.M Consumed
per Day
No. of
Days
2005-06 9.8576 0.1005 98
2006-07 8.2450 0.1389 59
2007-08 5.3810 0.1483 36
2008-09 6.5946 0.1660 40
2009-10 11.8806 0.4514 26
Duration of Raw Materials = Average Stock of Raw Materials
Avg. R.M consumed per Day
Graph no.1.8
2005-06
2006-07
2007-08
2008-09
2009-10
0 10 20 30 40 50 60 70 80 90 100
98
59
36
40
26
no of days
no of days
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
ANALYSIS:-
The above table shows the raw materials conversion period. The 2005-06 is taken as the base year 98
days. 59days in the year 2006-07, 36 days in the year 2007-08, 40 days in the year 2008-09, & in the
current year 26 days.
INTERPRETATION:-
The raw materials conversion period is in the decreasing trend from the base year to year 2007-08,but
in the year 2008-09 it slightly increased , in the current year again it decreased to 36 days. so the raw
material conversion period is in decreasing trend which is the good sign of inventory management.
.
WORK IN PROGRESS Inventory Turnover ratio
This indicates the number of times the work in progress inventory turned over(related to sales)
during the year. It tells the firms efficiency in manufacturing & selling its product.
Work in progress inventory turnover ratio = Net Sales
Average W.I.P
Table No.1.9
Table showing Work in Progress turnover ratio for the period 2006-10
Years Net Sales Average Work in
Progress
Turnover ratio
2005-06 98.8111 1.3724 71.99
2006-07 104.4374 1.1757 88.83
2007-08 128.6462 1.2929 99.50
2008-09 153.3703 2.3630 64.90
2009-10 164.7774 3.3441 49.27
Average W.I.P =Opening W.I.P + Closing W.I.P
2
Graph no1.9
AIT COLLEGE. Inventory management & its control Page 56
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
2005-06
2006-07
2007-08
2008-09
2009-10
020406080
100
71.9988.83 99.5
64.9 49.27
0
WIP turn over ratio
WIP turn over ratio
ANALYSIS
The above table shows the ratio of work in progress. Year 2005-06 is taken as base year,
71.99 times. In 2006-07, 88.83 times, In 2007-08, 99.5 times, In 2008-09, 964.9 times in 2009-10
its 49.27 times.
INTERPRETATION
The WIP ratio is increased till the year 2007-08. But in the year 2008-09 & in the current year its
decreasing. It shows the company is not succeeding in control of work in progress in inventory.
FINISHED GOODS TURNOVER RATIO:
This represents the number of times the finished goods inventory turn over sales during a year.
This ratio indicates the efficiency of the firm in selling its products
Table No. 1.10
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KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Table showing Finished Goods Turnover ratio for the period 2005-09
Finished Goods Turnover ratio = Net sales
Average Finished Goods Inventory
Graph No.1.10
2005-06 2006-07 2007-08 2008-09 2009-1001234567
3.73 4.49 5.33 6.07 5.4
fineshed goods turn over ratio
turn over ratio
ANALYSIS
The above table shows the duration of finished turnover ratio. Year 2005-06 is taken as
base year 3.73 times, in 2006-07, 4.49 times, in 2007-08, 5.33 times. & in 2008-09, 6.07 times &
in current year its 5.4 times it is increase compare to base year.
INTERPRETATION
The duration of finished goods turnover ratio is good and it is more than when compare to
base year so it tells the efficiency of the firm in selling its product till the year 2008-09 but
compare to previous year ratio the current year ratio is decrease to 5.4.
AIT COLLEGE. Inventory management & its control Page 58
Years Net Sales Average finish goods Turnover ratio
2005-06 98.8111 26.4933 3.73
2006-07 104.4374 23.2151 4.49
2007-08 128.6462 24.1400 5.33
2008-09 153.3703 25.2652 6.07
2009-10 164.7774 30.4672 5.40
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
TOOLS AND TECHNIQUE OF INVENTORY MANGEMENT AND ITS CONTROL
USED BY KARNATAKA SOAP AND DETERGENT LTD
Effective Inventory Management requires an effective control system of inventory .A
proper inventory control not only helps in solving problem but also increasing the profit.
The following are the tools and technique of inventory management and control used
KS&DL
1. Determination of stock levels: An efficient inventory management requires that a firm
should maintain an optimum level of inventory where inventory costs are minimum and
at the same there is no stock out which may result in loss of sale or stoppage of
production, various stock levels are discuss as such,
a) Minimum level: This represent the quantity which must be maintained in hand at
all times. If stock is less than the minimum level then the work will stop due to
shortage of materials
Minimum Stock Level = Re-ordering - (Normal Consumption X Normal Reorder Point)
1. Maximum level: It is the quantity of materials beyond which a firm should not exceed its stocks.
If the quantity exceed maximum level limit then it will be over stocking. A firm should avoid over
stocking because it results in high material cost.
Maximum Stock Level = Re-ordering Level – Reordering Qty (Minimum Consumption X
Minimum Reordering Period)
2. Lead time: A purchasing firm requires some time to process the order and time is also
requires by the supplying firm to execute the order. The time taken is processing the order
and then executing it is known as Lead Time.
3. Rate of consumption: It is the average consumption of material in the factory.
Item wise Inventory Level in days in Karnataka Soaps & Detergents Ltd
AIT COLLEGE. Inventory management & its control Page 59
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Sl.
No.
Name of the
Material
Services
Inventory Level in Days
Oil & Fats Minimum
Stock
Maximu
m Stock
Lead
Time
Remarks
1. Palm fats acid
distillate
60 120 90 -
2. Palm Kernel
fatty distillate
60 120 90 Single
Source
3. Rice Bran Oil 15 30 15 Single
Source
4. Soap Nobles 60 120 90 -
5. Palm fatty acid
distillate soap
nobles
60 90 30 Seasonal
6. Imported
Aromatic Oil
60 90 30 Seasonal
Sl. No. Name of the Material
Services
Inventory Level in Days
Perfumery Material Minimum
Stock
Maximum
Stock
Lead
Tim
e
Remarks
1. ABBALIDE/Alpha
damaslone
30 45 30 -
2. ACETY long felon 30 45 30 -
3. Ally corporate 30 30 30 -
4. Almond oil 30 30 30 -
5. Camphor 30 30 30 -
6. Benzyl Propionale 30 45 30 -
7. Clove Leaf Oil 60 90 60 Single Source
8. Stem on 30 45 30 Single Source
AIT COLLEGE. Inventory management & its control Page 60
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Sl. No. Name of the
Material Services
Inventory Level in Days
Chemical Minimu
m Stock
Maximum
Stock
Lead
Time
Remarks
1. AB Red oil 30 45 30 -
2. Acid Slurry 30 45 30 -
3. Bull color pase 30 45 30 -
4. CMCCarbolic
methyolicelluses
60 120 30 Seasonal
5. Calicle/Dolomite 60 120 30 Seasonal
6. Common Salt 60 120 30 Seasonal
7. Glycerin 30 30 30 -
8. Liquid Paraffin 30 30 30 -
9. Oil Dark Brown 30 45 30 -
10. Oil Green 30 45 30 -
DETERMINE SAFETY OF STOCK
SAFETY STOCK:- The usages of inventory cannot be perfectly forecasted if fluctuation once a
period of time. The demand for materials may fluctuate and delivery of inventory may also be
delayed and in such a situation the firm can face a problem of stock out. In order to protect stock
out, arising out of fluctuations, firms usually maintain some margin of safety or safety stocks are
maintained.
SAFETY STOCK MAINTAINED IN KS&DL FOR DIFFERENT STORES
AIT COLLEGE. Inventory management & its control Page 61
Sl. No. Name of the Materials Inventory Level in Days
Oil & Fats Safety Stocks
1. Rice Bran Oil 30
2. Soap Nooble 90
3. Palm Kernel Fatty Distillate 90
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
SELECTION OF PROPER ORDERING PURCHASE PROCEDURE
FOR INVESTMENT IN KS&DL
1. Purchase planning.
2. Purchase procedure.
3. Purchase guidelines/General guidelines to control the inventory of raw material.
1. Purchase planning: - It is an important function. If purchase of material is not carefully
planned it will lead to piling unnecessary stock, which will increase the working capital.
The purchase department has to first set the target dates when the material should be
kept for production. With these target dates the purchase planning department has to work
backwards and calculate, when the material should be ordered, which is nothing but
calculation of lead time.
The basic steps for preparing purchase planning are the production and provision
program, revenue, capital expenditure, budgeting and sales order.
2. Purchase procedure:-
The following are the steps undergone for purchase of material.
The user department/ production department raises on indent to material department.
Production department provides the detailed information regarding the requisition of
materials.
The material department prepares the bill of material with the information regarding the
requisition of materials. The different types of material i.e., oil and fats material,
chemicals material, engineering material etc, quantity, quality required is specified in this
note called Bill of Material.
The material department forwards the bill of materials to the stores department.
AIT COLLEGE. Inventory management & its control Page 62
Sl. No. Name of the Materials Inventory Level in Days
Packing Materials Safety Stocks
1. Cellophane Paper 45
2. MRS Wrapper 30
3. Adhesive Gum 30
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
The store department after considering the stock level in the stores and the bill of material
prepares a statement of material required for production department. This statement is
known as Revised Requisition Note.
Even after this, the purchase negotiation committee considering 5 members like Quality
Control Department, Accounts Department, Material Department and Stock Department
will decide the requisition of material.
After this step the Material Department will send an enquiry letter of material to their
suppliers or they will call by the way of open tender with in the presence of representative
like Store Manager, Material Manager and Finance Manager. This supplier would register
in KSDL and quoted price will be announced.
The Material Department prepares comparative statement of rate by considering with
their terms and conditions. Based on this statement make a list of price lower1,
lower2 and lower3 among this they check existing one suppliers if any new suppliers.
Suppliers send the required material to Stores Department based on quotation.
The stores department receives the material based on purchase order and raises goods
received report and goods received note, which signed by competitive authorities.
The stores department sends the material for inspection/verification which is done by Quality
Control Department and also Production Department should certify the material.
The Stores Department sends G.R.N to Accounts Department for payment of bill made for
materials.
The accounts department after verifying the note and stock received release the payment
GENERAL GUIDE LINES GIVEN BY KSDL TO CONTROL OF RAW MATERIAL
Marketing department has to give annual budgetary production plan to the production
department 2 months in advance.
Production department has to prepare and send the annual bill of material.
Material department has to send the tentative bill of material to the Stores department to
plan for procurement.
Material department after following the KTPP Act (Karnataka Transport Purchase
Procedure) action to be taken for procurement.
Stores department has to give final bill of material after scrutinizing the closing stock
during the weeks/months.
After following the procurement procedures the inventory should be monitored as per the
norms indicated in Annexure.
AIT COLLEGE. Inventory management & its control Page 63
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Material department and Stores department has to closely monitor the closing stock at
stores and plan for the procurement.
In case of any urgency demand/changes for any product by the Marketing department,
the requirement of material to be discussed in purchase negotiation committee and the
recommendation of the P.N.C to be sent for approval of the competent authority.
Critical items like dyes and color has to be procured twice in a year to maintain
consistency in color.
Procurement of material like PFAD, PKFAD soap, nobles, sandal wood oil, caustic soda,
acid slurry will depend upon the price advantage, storage facility and the management
decision.
The quality of materials to be purchased depending upon the minimum order quantities which
will be decided by P.N.C.
ABC ANALYSIS USED IN KSDL
ALWAYS BETTER CONTROL
All inventory items are categorized as ‘A’, ‘B’ & ‘C’ items. The total consumption of item
materials for the previous years will be arranged in descending order and items according by the
values the first 10, 00,000 and above of total consumption are taken as ‘A’ class items. The items
accounting for above 2, 00,000 and above within 10, 00,000 value of total consumption are taken
as ‘B’ class items. The items accounting for below 2, 00,000 value of total consumption are taken
as ‘C’ class items.
Strict control for commitment, receipt and consumption would be exercised on ‘A’ category
items. The purchase budget for the budget year will be complied in detail for ‘A’ category items
and under major groups for ‘B’ and ‘C’ category. The internal audit department conduct their
visit strictly attempt once in a year for an items once in two to three year for B & C items
respectively.
Advantages of ABC
This approach helps the material manager to exercise selective control and focus his
attention only on few items.
By concentrative on ‘A’ class items the material manager is able to control inventories
and show visible results in a short spare of time.
It reduces the clerical cost and resulted in better planning and improved inventory.
AIT COLLEGE. Inventory management & its control Page 64
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Disadvantages of ABC
As ABC analysis is based on grades of different items, this gradation may include a lot of
subjective elements.
The result of ABC analysis should be received and updated which is not easy.
KARNATAKA SOAPS AND DETERGENTS LTD FOLLOWS THE ABC ANALYSIS
TECHNIQUE OF INVENTORY MANAGEMENT.
ABC Analysis (Always Better Control) segregated on the basis of value in Rs.
A Class Items B Class Items C Class Items
Consumption worth Rs.
10,00,000 & above p.a.
Consumption worth Rs.
2,00,000 & below
10,00,000 p.a.
Consumption worth
below Rs.2,00,000 p.a.
Palms, fatty acid distillate Solvents Camphor
Soap nobles Items other than solvents Benzyl propionale
Imported aromatic chemicals Almond oil Common salt
Indigenous items AB Red oil Liquid paraffin
Rice bran acid oil Blue color paper Glycerin
Clove leaf oil Oil dark brown White clay
Stemon Oil green White oil
Acid slurry Soda ash Sandal wood oil bottle
Silicon Water soluble yellow MS gold pouches
Cellophane paper Tactaric acid Wrappers
CLASSIFICATION AND CODIFICATION OF INVENTORIES IN KS&DL
Classification of Inventory is done on group wise and codifications are directly identified.
The inventories of a manufacturing concern may consist of raw materials, stores & spares; work
in process, finished goods etc. The inventories are classified according to their nature/group.
VALUATION OF INVENTORIES IN KS&DL
Weighted average method is used in this factory the total cost of all the materials is divided
by the total number of items in stock. The price calculated in this way will be used for issue of
AIT COLLEGE. Inventory management & its control Page 65
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
materials up to the time a fresh purchase has not been made. After a fresh purchase, the quality
will be added to the earlier balance quality and material cost will be added to the earlier cost. A
fresh price is calculated by the number of units of stock after the purchase.
SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLISION
Based on the study “Inventory Management and its Control” conducted at Karnataka Soaps and
Detergents limited, Bangalore, following are the
Findings
A material planning is done based on orders obtained from different customers. The material
requirement plan processed is to give exact requirements of material to be produced.
All material is stored in right condition at respective locations and the company has items
which are slow moving and non-moving, which are disposed off at regular intervals.
Verification of high value material in holding store is conducted in accordance with
predetermined programmers.
Vendors are rated based on their performance with respect to deliver a quantity price
standard.
The received materials are inspected as per standard plan is finished products are tested on
100% basis material is released and handled properly.
The inventory turnover ratio of the company is showing a decrease trend from previous year
where as in current year there is a decrease in control over its inventories.
The raw material turnover ratio shows an increasing trend in years but in year 2008-09 its
decreasing & in current year it is drastic decrease compare to the previous year turn over
ratio. It shows the slow movement of raw materials.
Stores and spares turnover times is fluctuating. But in the year 2008-09 its increasing This
show there is sufficient managing in the stores and spares inventory from the last year.
The inventory conversion period shows decreasing trend in 2007-08 & in base year 2004-
05 it is good for inventory management.
There is slight decrease in the turnover ratio, so there will be higher inventory accumulated in
this area and higher working finance is tied up.
The duration of finished goods turnover ratio is good its increased when compare to base
year so it tells the efficiency of the firm in selling its product.
The funds collected from various sources are utilized for current and fixed assets.
The scrap obtained in the process is comparatively very low.
The entire department of KSDL is computerized.
AIT COLLEGE. Inventory management & its control Page 66
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
SUGGESTION
The sales department should be effective to reduce the stocking in the finished goods
component of inventory. New sales technique should be activated to increase the sales.
Over stocking and under stocking of raw materials should be controlled by technical auditors,
there should be coordination between production processes department and inventory
handling department for efficient outcome.
Standardization of components should go a long way to reduce the variety of components to
be stocked.
The company should follow EOQ to reduce over stocking of material, purchase at
competitive prices, to reduce the cost of product.
Concentrated effort will be needed to reduce stock of materials, which have not moved for
years, insurance items should be monitored and made certain that they would meet their
purpose when called upon to do so.
The company constitutes a task force to reduce the high value items involving the heads of
the concerned departments like finance, production planning, and material planning etc, so
that judicious decision can be taken in dealing with adverse situation and avoid unnecessary
inventory holding.
The production department should sequence the cycle of operation and stick to the scheduled
dates in all areas. Speed conversion of inventory will reduce the interest burden and improve
the bottom line.
CONCLUSION
The performance of KS&DL in the financial year 2008-09 was acceptable.. The turnover of the
company has been increased in the financial year 2009-10. But there is a decrease in the profit after
tax of the company by (-20.29 %.)
In KS&DL rate of inventory represents a very significant proportion of current assets .The size of the
inventory is increasing year after which indicate inefficient inventory management in ks&dl. So
necessary steps have to be taken by management. To excise control over the inventories of the
company further. They have to adopt new techniques and new methods of production process in
order to increase production of the company. Hence there is considerable scope for improvements in
inventory management in KS&DL
AIT COLLEGE. Inventory management & its control Page 67
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
ANNEXURES
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED
PARTICULARS SCHEDULE AMT FOR THE YEAR
ENDING 31-3-2010
AMT FOR THE YEAR
ENDING 31-3-2009
INCOME
Sales
Less: excise duty.
Net sales
Other income L
1,789,059,796
141,285,059
1,647,774,737
22,288,309
1,693,919,368
160,215,837
1,533,703,531
60,623,797
Increase /decrease in stock M 53,286,174 70,374,213
1,723,349,221 1,664,701,541
Expenditure
Materials consumed
Other expenditure
Depreciation
N
O
D
775,383,439
799,799,905
4,982,474
801,928,343
734,442,910
3,969,038
1,580,165,818 1,540,340,291
Operating profit/loss 143,183,402 124,361,250
Interest & finance charges. P 8,297,546 7,276,261
PROFIT / LOSS BEFORE TAX
Provision for tax
Current tax
Fringe benefit tax
Deferred tax asset
Dividend tax.
134,885,857
48,000,000
---
8,930,375
2,704,0833
117,084,988
18,500,000
2,128,828
20,358,318
---
AIT COLLEGE. Inventory management & its control Page 68
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
PROFIT /LOSS AFTER TAX
Prior period expenditure.
Proposed dividend
Q
93,112,149
1,441,082
15,911,050
116,814,479
14,078,609
---
75,760,017 130,893,088
Profit / brought forward from previous
year.
267,719,129 136,826,041
Profit /carried to balance sheet 343,479,146 267,719,129
Balance sheet for the year ended 31-03-010
S
c
n
o
Amount as on 31-03-2010 Amount as on 31-03-2009
1 2 3
Rs.
4
Rs.
5
Rs.
6
Rs.
7
Rs.
8
Rs.
Sources of fund.
1. Share holder fund.
A)share capital
b)reserve surplus
c) Exchange
fluctuation ratio.
A
318,221,000
343,479,146
318,221,000
267,719,129
1,769,358
2.loan funds:
a)secured loan B 80,092,400 107,204,608
AIT COLLEGE. Inventory management & its control Page 69
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
b)unsecured loan
Total
C 83,506,504 163,598,904
825,299,050
83,506,504 190,711,112
778,420,599
APPLICATION OF
FUNDS.
1. Fixed assets.
A) Gross block.
Less: depreciation
b) net block
D
327,262,896
241,431,939
85,830,957
309,623,620
239,847,860
69,775,760
2.Investments E 100 100
3.Deferred tax asset 61,435,241 52,504,866
4.current assets:
Loans& advances
a)inventories
b)s.debtors
c)cash& bank bal
d)loan& advances
e)invst in gratuity
test.
less: c liability&
provisions.
i)liabilities
ii)provisions
net current asset.
F
G
H
I
K
517,605,839
172,641,760
285,359,727
213,953,267
50,000,000
292,361,773
269,166,068
1,239,560,593
561,527,841
678,032,752
407,452,487
163,529,618
255,132,910
215,257,572
50,000,000,0
0
246,650,794
204,956,560
1,091,372,5
87.
451,607,354
639,766,233
Miscellaneous exp
Total
J 16,374,640
Total 825,299,050 778,420,599
Biblography.
Financial Management- I.M.Pandey, Vikas Publishing House Pvt.Ltd.
Financial Management- Prasanna Chandra.
Financial Management- B.S.Raman, United Publishers.
Management Accounting- M.N.Arora, 1st edition, Himalaya Publishing House.
AIT COLLEGE. Inventory management & its control Page 70
KS & DL MYSORE SANDAL An ISO 9002-2001 certified company
Website: http:// www.mysoresandal.com
AIT COLLEGE. Inventory management & its control Page 71
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