ABSTRACT

A STUDY ON INVENTORY MANAGEMENT WITH SPECIAL EFERENCE TO

AMMAN SPINNING MILLS,SULLTHANPET,

By

I.SAGABUDEEN

[REG.NO:13B147]

Of

KARPAGAM COLLEGE OF ENGINEERING

(AUTONOMOUS)

Under the guidance of

Ms.D.MINERVA SILVIYA MBA.,

(Assistant professor)

PROJECT REPORT

Submitted to the

DEPARTMENT OF MANAGEMENT STUDIES

In partial fulfilment of the Requirements

For the Award of the Degree

Of

MASTER OF BUSINESS ADMINISTRATION

 APRIL, 2015

(Autonomous)

COIMBATORE – 32

DEPARTMENT OF MANAGEMENT STUDIES

BONAFIDE CERTIFICATE

Certified that this Project Report titled “A STUDY ON INVENTORY

MANAGEMENT ” is a bonafide work of I.SAGABUDEEN (Reg. No 13B147), who
carried out the Project under my supervision. Certified further, that to best of my knowledge,
the work reported here is does not form part of any other project report or dissertation on the
basis of which a degree or award was conferred on an earlier occasion on her or any other
candidate.

Ms.D.MINERVA SILVIYA Dr.R.CHANDRASEKARAN

FACULTY GUIDE DIRECTOR

VIVA-VOCE EXAMINATION HELD ON………………..............

INTERNAL EXAMINAR EXTERNAL EXAMINAR

 (Autonomous)

COIMBATORE – 32

DEPARTMENT OF MANAGEMENT STUDIES

(Approved By AICTE/ NBA Accredited/ Affiliated To Anna University)

DECLARATION

I, I.SAGABUDEEN hereby declare that the project report on “A STUDY ON

INVENTORY MANAGEMENT WITH REFERENCE TO AMMAN SPINNING

MILLS LIMITED”, submitted to Anna University, Chennai in partial fulfillment of the

“MASTER DEGREE IN BUSINESS ADMINISTRATION” is a record of original work

done by me, during the period of study 2013-2015 under the guidance of Ms.D.MINERVA

SILVIYA.

SIGNATURE

I.SAGABUDEEN

[Reg.No.13B147]
 ACKNOWLEDGEMENT

It is with immense pleasure that I present my report of my project. Through this page
of mine, I would like to express my deep sense of gratitude and acknowledgement.

First of all I am indebted to the God Almighty, for having showered his choicest
blessings to complete this project work.

I consider it a privilege in expressing my sincere gratitude to the owner and

employees of AMMAN SPINNING MILLS, giving an opportunity and their support
throughout the study.

I would like to thank Dr.R.VASANTHAKUMAR, Chairman of Karpagam

Educational institutions Shri.K.MURUGAIAH, our principal Dr.A.NIRMAL KUMAR,
Vice Principal Prof.M.GOWRISHANKAR for giving me an opportunity to do this market
survey.

I would like to express my special and sincere thanks to our Director and Faculty

Guide, of Ms.D.MINERVA SILVIYA Department Of Management Studies for giving me

encouragement and direction in the right path.

I also wish to express my heartfelt regards and thanks to my parents and all friends
whose support, inspiration and timely help had been my strong pillars of support throughout
my endeavour.

TABLE OF CONTENTS
CHAPTER
CONTENTS PAGE.NO
NO
I INTRODUCTION

II ORGANIZATIONAL PROFILE

2.2 Industry Profile

2.3 Company Profile

2.4 Product profile

III Review of Literature

IV Research Methodology
4.1 Statement Of the Problem
4.2 Objective Of the Study
4.3 Scope Of the Study
4.4 Limitations of the Study
V Analysis and Interpretation

Findings

Suggestions

Conclusion

Bibliography

Appendix

LIST OF TABLES
TABLE PAGE
TITTLE
NO NO
1 TABLE SHOWING INVENTORY IN CURRENT ASSETS
2 TABLE SHOWING INVENTORY TURNOVER RATIO
3 TABLE SHOWING DEBTOR TURNOVER RATIO
4 TABLE SHOWING CREDITOR TURNOVER RATIO
5 TABLE SHOWING CURRENT RATIO
6 TABLE SHOWING LIQUID RATIO
7 TABLE SHOWING ABSOLUTE LIQUID RATIO
8 TABLE SHOWING FIXED ASSET RATIO
9 TABLE SHOWING OPERATING RATIO
10 TABLE SHOWING PROPREITORY RATIO
11 TABLE SHOWING ABC ANALYSIS
12 TABLE SHOWING CORRELATION

LIST OF CHARTS
CHART PAGE
TITTLE
NO NO
1.1 CHART SHOWING INVENTORY IN CURRENT ASSET
1.2 CHART SHOWING INVENTORY TURNOVER RATIO
1.3 CHART SHOWING DEBTORS TURNOVER RATIO
 1.4 CHART SHOWING CREDITORS TURNOVER RATIO
1.5 CHART SHOWING CURRENT RATIO
1.6 CHART SHOWING LIQUIDITY RATIO
1.7 CHART SHOWING ABSOLUTE LIQUID RATIO
1.8 CHART SHOWING FIXED ASSET RATIO
1.9 CHART SHOWING OPERATING RATIO
1.10 CHART SHOWING PROPRIETORY RATIO
1.11 CHART SHOWING ABC ANALYSIS

ABSTRACT
AAAAAAAAA

Conversion of raw materials into finished goods is the main function of every production
firm. Required raw materials if purchased and stocked in advance, ensures smooth production
process. But, how much should be purchased? How to stock it? How to release the stock?
What costs are involved? How to control the costs of acquiring and storing materials? All
these issues call for Materials Management. Materials management involves. Materials
acquiring-purchasing, receiving and storing, inventory control, disposal of surplus and
control on scrap. Effective materials management is key to a firm’s profitability. The purpose
of this paper is to investigate the reasons behind the inventory management inefficiency in
Industry by implementation of ABC, and then the proposed managerial suggestions will be
presented to deal with the issues.
 CHAPTER-I

INTRODUCTION

INVENTORY MANAGEMENT

Inventory management is a science primarily about specifying the shape and

percentage of stocked goods. It is required at different locations within a facility or within
many locations of a supply network to precede the regular and planned course of production
and stock of materials.

The scope of inventory management concerns the fine lines between replenishment
lead time, carrying costs of inventory, asset management, inventory forecasting, inventory
valuation, inventory visibility, future inventory price forecasting, physical inventory,
available physical space for inventory, quality management, replenishment, returns and
defective goods, and demand forecasting. Balancing these competing requirements leads to
optimal inventory levels, which is an ongoing process as the business needs shift and react to
the wider environment.

Inventory management involves a retailer seeking to acquire and maintain a proper

merchandise assortment while ordering, shipping, handling, and related costs are kept in
check. It also involves systems and processes that identify inventory requirements, set targets,
provide replenishment techniques, report actual and projected inventory status and handle all
functions related to the tracking and management of material. This would include the
monitoring of material moved into and out of stockroom locations and the reconciling of the
inventory balances. It also may include ABC analysis, lot tracking, cycle counting support,
etc. Management of the inventories, with the primary objective of determining/controlling
stock levels within the physical distribution system, functions to balance the need for product
availability against the need for minimizing stock holding and handling costs.
DEFINITION:

Inventory management is primarily about specifying the size and placement of

stocked goods. Inventory management is required at different locations within a facility or
within multiple locations of a supply network to protect the regular and planned course of
production against the random disturbance of running out of materials or goods.

The scope of inventory management also concerns the fine lines between
replenishment lead time, carrying costs of inventory, asset management, inventory
forecasting, inventory valuation, inventory visibility, future inventory price forecasting,
physical inventory, available physical space for inventory, quality management,
replenishment, returns and defective goods and demand forecasting and also by
replenishment Or can be defined as the left out stock of any item used in an organization.

BUSNIESS INVENTORY:

Reasons for keeping stock

There are five basic reasons for keeping an inventory

1. Time - The time lags present in the supply chain, from supplier to user at every stage,
requires that you maintain certain amounts of inventory to use in this lead time.
However, in practice, inventory is to be maintained for consumption during 'variations
in lead time'. Lead time itself can be addressed by ordering that many days in
advance.
2. Seasonal Demand: demands varies periodically, but producers capacity is fixed. This
can lead to stock accumulation, consider for example how goods consumed only in
holidays can lead to accumulation of large stocks on the anticipation of future
consumption.
3. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,
supply and movements of goods.
4. Economies of scale - Ideal condition of "one unit at a time at a place where a user
needs it, when he needs it" principle tends to incur lots of costs in terms of logistics.
So bulk buying, movement and storing brings in economies of scale, thus inventory.
 5. Appreciation in Value - In some situations, some stock gains the required value when
it is kept for some time to allow it reach the desired standard for consumption, or for
production. For example; beer in the brewing industry

All these stock reasons can apply to any owner or product

Also, some authors mentioned several reasons not to keep high inventory levels:[1]

 Obsolescence: due to progress of technology, the bought inventory for future use may
become obsolete.
 Capital Investment
 Space Usage
 Complicated Inventory Control Systems: higher number of inventory items
complicates the control and monitoring items.

Special terms used in dealing with inventory

 Stock Keeping Unit (SKU) is a unique combination of all the components that are
assembled into the purchasable item. Therefore, any change in the packaging or
product is a new SKU. This level of detailed specification assists in managing
inventory.
 Stock out means running out of the inventory of an SKU.[2]
 "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to
merchandise being offered for sale that was manufactured long ago but that has never
been used. Such merchandise may not be produced anymore, and the new old stock
may represent the only market source of a particular item at the present time.

TYPOLOGY:

1. Buffer/safety stock
2. Reorder level
3. Cycle stock (Used in batch processes, it is the available inventory, excluding buffer
stock)
 4. De-coupling (Buffer stock held between the machines in a single process which
serves as a buffer for the next one allowing smooth flow of work instead of waiting
the previous or next machine in the same process)
5. Anticipation stock (Building up extra stock for periods of increased demand - e.g. ice
cream for summer)
6. Pipeline stock (Goods still in transit or in the process of distribution - have left the
factory but not arrived at the customer yet)

Inventory examples

While accountants often discuss inventory in terms of goods for sale, organizations -
manufacturers, service-providers and not-for-profits - also have inventories (fixtures,
furniture, supplies, etc.) that they do not intend to sell. Manufacturers', distributors', and
wholesalers' inventory tends to cluster in warehouses. Retailers' inventory may exist in a
warehouse or in a shop or store accessible to customers. Inventories not intended for sale to
customers or to clients may be held in any premises an organization uses. Stock ties up cash
and, if uncontrolled, it will be impossible to know the actual level of stocks and therefore
impossible to control them. While the reasons for holding stock were covered earlier, most
manufacturing organizations usually divide their "goods for sale" inventory into:

 Raw materials - materials and components scheduled for use in making a product.
 Work in process, WIP - materials and components that have begun their
transformation to finished goods.
 Finished goods - goods ready for sale to customers.
 Goods for resale - returned goods that are salable.
 Stocks in Transit.
 Consignment Stocks.
 Maintenance Supply
 CHAPTER-II

ORGANIZATIONAL PROFILE

2.1 INDUSTRY PROFILE

The record of ancient and medieval Indian textiles exists mostly in literature and
sculpture. There is archaeological evidence of a cotton textile industry at Mohenjo-Daro in
the Indus Valley around 3000 B.C., and a few fragments survive from much later periods.
Most of the extant textiles are dated after the seventeenth century, because the monsoon climate
has been very destructive to early specimens. The Greeks with Alexander the Great wrote of the
fine flowered muslins and robes embroidered in gold they had seen in India. They may also
have seen the cotton fiber that grew on trees.

A handbook of administration, the Arthasastra, tentatively dated to the third century

B.C., dealt with methods for distributing materials to spinners and weavers whether the
workers were guild members or worked privately at home. At that time few occupations
were open to women. Indeed, women who elected not to marry were not allowed to hold
jobs. However, weaving was permitted to widows and retired prostitutes. The
Arthasastragave the penalties for fraudulent practices and listed the taxes to be paid by
weavers. Among the textiles mentioned were white bark cloth from Bengal, linen from
Banaras, cottons from south India, and several kinds of blankets, the best described as being
slippery and soft.

In ancient and medieval India the textile industries were politically controlled, and if a
ruler was favorably disposed towards the arts, weaving prospered. Differentiation was
made between the rural textiles woven for the masses and those made in state workshops for
royalty and the well-to-do in other countries (Plate 48). The best workmanship was found in
the ritual hangings for temples, and even in modern times it has been considered preferable to
destroy worn ones rather than allow them to fall into foreign hands.

Few good commentaries survive from the early medieval period (900 - 1200 A.D.)
when terms were used inconsistently. Fabric names apparently represented the places where
they were woven, and details about weaving techniques were scanty.
 The Muslim period in India extended from around 1200 A.D. to 1760 when the British
took over. A succession of sultans controlled most of India until Genghis Khan attacked
early in the thirteenth century and Tamerlane invaded in the late fourteenth. Marco Polo left
detailed accounts of the people and industries of the coastal regions of India in the late
thirteenth century. He mentioned seeing on the Coromandel Coast the finest and most
beautiful cloth in all the world-buckrams like the tissues of spider webs, and he observed
dyeing with indigo in the great textile center of Cambay and spinning of cotton in Gujarat.
Under the Sultan of Delhi (1325-1351) price controls for food, cloth, and other commodities
were initiated to help fight inflation. A permit was required to buy silks, satins, and brocades,
and only the well-to-do were allowed to have them. The sultan employed four thousand
silk weavers who made robes of honor, hangings, and gifts of gold brocade for foreign
dignitaries.

Babur, a descendant of Genghis Khan, founded a new and important dynasty, the
Mogul, in 1526. A series of great rulers-the greatest Akbar who ruled for the second half of
the sixteenth century-governed a glorious empire where the textile arts flourished until the
late seventeenth century. Some of the best accounts of Indian textiles were written by
European ambassadors to the Mogul courts. Fabulous horse and elephant trappings, as
well as the apparel, pillows, and wall hangings, were remarked upon. A king always wore
a garment but once. There were marvelous gold brocades called kimhabs, or kincobs, from
Banaras. Writers proclaimed on the sheerness of Dacca muslins, called evening dew, running
water, or sweet-like-sherbet. Seventy-three yards, a yard wide, weighed only one pound. By
comparison, the finest Swiss cottons ever made were at best sixteen or seventeen yards to the
pound.

European settlements appealed in India in the latter part of the Mogul period.
Motivated by the desire to break the spice trade monopoly held by Venice and the Arabs,

Vasco daGama found the sea route to India by sailing around Africa in 1498, and by
1510 the Portuguese had jurisdiction in Goa on the west coast of India. For a short time they
controlled the Asian trade by taking over the port of Malacca (near Singapore), where they
met trading junks from China. The Portuguese carried pintados (painted cottons) east from
India to trade for spices.
 Indian textiles were more important to the Dutch and the English than to the
Portuguese. The Dutch East India Company was chartered in 1597, the East India Company
in 1600. Their ships went first to India with bullion to exchange for the cotton textiles that
could be bartered for spices in the Malay Archipelago. Eventually, the Dutch gained a
monopoly in Indonesia, with trade centered in Java, and the English withdrew to India to
establish trading stations known as "factories." One of the intentions of the East India
Company was to sell English woolens in Asia, but broadcloth was never more than a novelty in
India. By 1649 the British were sending chintz (see chapter 4) and cheap cotton calico to
England. Much was for export to America, the Near East, West Africa, and the slave
plantations in the West Indies. A four-cornered trade developed. The East India Company
shipped calicos to London where they were sold to the Royal Africa Company. The latter
shipped them in turn to West Africa as guinea-cloth to be bartered for people. These slaves,
and any remaining cloth, were shipped to the West Indies and exchanged for sugar, cotton,
and tobacco-all cargoes bound back for England.

Contemporary Indian Textiles

Where tradition, not fashion, rules, concentration on the aesthetic can prevail instead
of mere change. Indian textile heritage has been preserved by the woman's sari, which often
exhibits fine weaving, delicate textures, beautiful colors, and rich patterns (Plate 49). A
formal sari might be of silk (or a cotton called jamdani), brocaded in floral patterns formed
with many tiny bobbins, each holding a different color. An everyday sari could be simple striped
or checked cotton or a solid made iridescent by having the warp of one color, the weft of
another. Sometimes saris are exquisitely block printed with gold or silver floral sprays or
show allover spot patterns of tie-dye. Ikat is used for traditional diamond or trellis
patterns. Embroidery is important in India and there are many regional styles. Sometimes it is
the work of village women; other times it is done by male professionals. There is a vast
difference between the work that reaches western markets and the fine embroidery, important
for its symbolism that was made for the courts and temples of old India.
 2.2 COMPANY PROFILE

AMMAN SPINNING MILLS

Established in the year 2005, Amman Spinning Mills is located in Coimbatore,

popularly known as Manchester of South India for cotton mills & textile based industries.
Owing to our credit, we produce Coarser to Finer counts of yarns both Carded Warp and
Carded & Semi Combed Hosiery Yarns.
Over 7 years since inception, we are committed to produce very high quality cotton yarns,
with the latest technology machinery and extremely dedicated workforce. We have today
grown exponentially, to become a manufacturer of very high quality and value added cotton
yarns for the higher end of the textile and clothing industries.

We believe that quality is an evolving process. The quality standards that we deliver
through our products and services have become the benchmark in the domain.

At Amman Spinning Mills we have a well built state-of-the-art infrastructure and we

are properly facilitated with all necessary advanced tools and cutting-edge machineries which
are essential for production process and to maintain as per international standards of our
products. The manufacturing unit of our mill is well-equipped with maximum possible latest
machineries and is an integral part of our infrastrcture. All the production related activities
are carried out here.
 2.3 PRODUCT PROFILE

We at Amman Spinning Mills brings forth an extensive array of 100% Cotton, Polyester and
Poly / Cotton yarns. These are broadly known for high efficiency, dimensional accuracy,
unmatched quality and longer service life. Further, these are fabricated using optimal quality
factor inputs and advanced technology in order to confirm superior quality and reliability.
Moreover, our clients can avail these in varied specifications as per their needs. We
constantly strive to add value to our customer's business by providing them with superior
quality yarn products at cost-competitive prices.

The broad gamut of products offered by us includes:

Products :
100% Cotton, 100% Polyester & Poly / Cotton 
Counts :
Ring Spun Yarn - 20s to 80s Carded Warp Yarn
20s to 80s Carded and Semi Combed Hosiery Yarn
Packing :
Cone & Hank 
Single ply, Two ply & Multi ply (3 ply & 4 ply also)

Marketing:

Our yarns are being exported to various countries including Europe, USA and all over India,
which are used in the manufacturing of Woven & Knitted Garments, Apparels, Household
Made-ups, etc. Because of the good reputation and quality there is a good demand for our
yarns and as a result we are installing another modern spinning unit with 30,000 spindles.
 CHAPTER-III

REVIEW OF LITERATURE

Andrew Blatherwick (1996)1 stresses the balancing stock inventories, service delivery
mechanisms and retaining requisite profit margin while ensuring customer loyalty. He admits
that one of the highest costs is the stock and requires immediate attention in order to retain
the profit margin. He brings out the problems of lack of involvement and consideration of
marketing and sales department in the inventory system management. They do not give
enough information and feedback regarding the theme or strategy for the inventory
department to prepare for the seasoned promotion. This results in poor customer service, as
the customers cannot get the products they required. He mentions that good inventory
management is the management of inventory to optimize services and profit and required a
sophisticated modeling technique to determine what is the best economic order quantity and
the appropriate service level. The limitation of the literature is that it does not specify how to
determine the quantity of stock and the service level required in order to attain the required
profit.

R.L Ballard (1996)2 presents how inventory can best be monitored and measured in the
warehouse. He mentions that inventory control is treated as the management function,
whereas the monitoring of stock is regarded as a supervisory function. However, he
highlights that the monitoring and measurement process is often overlooked and thus resulted
in unreliability of the data for the decision making of management. He further stresses that
the need for rapid and accurate monitoring and measurement of inventory becomes vital in
these competitive business world. He explains that monitoring and measuring of inventory is
not just stock checking, but is about knowing at all time, everything that needs to be known
about the stock to ensure the effective control of inventory. The whole process should be
known rather than just the stock. In addition, he categorizes the stock information into fixed
information, variable information and derived information in order to describe the properties,
status, quantity and location of inventory. The limitation of the literature is that it does not
consider the monitoring and measurement of the damage, obsolete or stolen inventory. It also
fails to explain the cost incurred and profit gain resulted from the effective monitoring and
measuring process.
Charles J. Bodenstab (1996)3 presents an idea of managing the customers inventory for
them. He explains that there are many advantages by doing so. First, the competitors will find
it difficult to make any inroads into the relationship between the company and its customers.
Secondly, cost for issuing purchase order can be eliminated, reducing administrative cost and
inventory investment if the system is managed well. However, he admits that there are
problems associated with the above concept. First of all, the customer has to be large in order
to be cost effective. Secondly, a cost effective system to manage the transferring of sales and
ordering information shall be established. Lastly, there should be an efficient inventory
management system that assimilates the customer’s data and order the recommended product
to maintain a high service level. The limitation of this article is that it does not maintain the
cost to manage the customers’ warehouse, as the stocks shall be physically counted to check
the stock. The article also fails to include any increase in profit compared to the normal
method.

Farzaneh (1997)4 he presents a mathematical model to assist companies in their decision to

switch from the economic order quantity (EOQ) to the Just in Time (JIT) purchasing policy.
He starts by emphasizing the pressure for the companies to change the traditional EOQ
purchasing order to JIT purchasing order. He defines JIT as “to produce and deliver finished
goods just in time to be sold, sub-assemblies just in time to be assembled in goods and
purchased material just in time to be transformed into fabricated parts.” He highlights that the
economic order quantity model focuses on minimizing the inventory costs rather than on
minimizing the inventory.

From the mathematic model presented by him, he concludes that JIT can eliminate the
storage, capital, insurance, ordering, and transportation costs. However, it depends on certain
conditions. Under the ideal condition, whereby all the conditions meet, it is economically
better off to choose JIT over EOQ because it results in a simultaneously reduction in
purchase price, holding cost and ordering cost. Nevertheless, in reality the manufacturers
produce a large quantity of items even though they may deliver them in very small quantities
to fulfill customers need. In brief, he explains that JIT will become viable only if the annual
demand of inventory items is lower than the break-even point of the model. The limitation of
the literature is that he only compares the cost saving and the required quantities for choosing
the system. However, he does not compare the turnover and profit resulted from the required
quantities.
Rick Lavely (1998)5 stresses that inventory means “Piles of Money” on the shelf and profit
for the company. However, he notices that thirty percent (30 %) of the inventory of most
retails shops is dead. Therefore he argues that the purpose of inventory control is to facilitate
shop operation by reducing rack time, thus increasing gross profit. He further elaborates two
types of inventory calculation that determines the inventory level required for profitability.
The two calculations are based on “cost to order” and “cost to keep”. Finally, he proposes
seven steps to improve inventory control and five rules to live by while operating the
inventory. The limitation of this literature is that he does not outline the calculation method
that actually evaluates the inventory level and cost of handling it. He also fails to relate any
cost, which causes by the operation of inventory.

James Healy (1998)6 highlights that the distributors carry ten to thirty percent of additional
inventory that is unnecessary. These cause unnecessary carrying cost, lost of customers, lost
sales and lost profit due to sloppy and inefficient inventory management. He points out that
there is a need to set out procedures to control physical inventory, to determine the true cost
of carrying inventory and an accurate running report to measure the turns of inventory. He
suggests an inventory optimization method to overcome the above shortfalls. He then
explains that inventory optimization is a process that let distributors reduce the amount of
inventory they carry while improving service levels, ensuring that the right stock is available
when and where it is needed, increasing turns and reducing lost sale opportunities. He further
points out some misconceptions of inventory management such as the adequacy of the
Enterprise Resource Planning System (ERP) in handling the inventory, the importance of
turns in measuring the success of the inventory system and the confidence on profitability of
using the inventory optimization method. He also points out keys to achieve the inventory
optimization goals. The limitation of this article is that it does not give reasons for the causes
of the unnecessary inventory. It gives a general statement and does not explain in details the
reasons behind any cost and profit.

Dave Piasecki (2001)7 the presents an inventory model for calculating optimal order quantity
that used the Economic Order Quantity (EOQ) method. He points out that many companies
are not using the EOQ method due to poor results received resulted from inaccurate data
input. He clarifies that many errors resulted in the calculation of EOQ in the computer
software package are due to the failure of the users in understanding how the data inputs and
system setup that control the output. He says that EOQ is an accounting formula that
determines the point at which the combination of order costs and inventory cost are the least.
He highlights that the EOQ method would not conflict with the Just in Time (JIT) concept. In
fact, he explains that JIT is actually a quality initiative to eliminate wasted steps, wasted
material, wasted labor and other costs; EOQ method is used to determine which components
would fit into the JIT model and what level is economically advantageous for the operation.

Piasecki further elaborates the EOQ formula that includes the parameters such as annual
usage in unit, order cost and carrying cost. Finally, he proposes several steps to follow in
implementing the EOQ method. These include the testing of the formula by manually
checking the result obtained, run a simulation by using a sampling of items, and maintain the
EOQ formula by reviewing the interest rates, storage costs and operational cost periodically.
The limitation of the literature is that it dose not elaborate further the relationship between
EOQ and JIT. It dose not associate the inventory turns with the EOQ formula and fails to
mention the profit gain with the quantity calculated.

Amy M. Azzam (2001)8 the introduces the concept of flow-through warehousing technique
that would replace the static warehousing technique. Flow-through warehousing technique
aims to minimize the holding (carrying) cost of inventory, and increases their speed in
finished goods distribution. Inventory goes from the supplier to a consolidation point straight
to the customers. This eliminates put away, pick up, replenish and stock up cost. Amy points
out that flow-through warehousing simply attempts to minimize how much you are holding
and how long you are holding it. She defines the technique as “product moving fluidly
through a network node.” However, flow-through technique can only make feasible by the
availability of technology and are highly information intensive, requiring computers,
warehouse management system, bar coding and radio frequency identification. Amy
concludes that the retail industry has advantage in applying flow-through technique. The
reasons are a fixed distribution center can responsible for many different stores, the demand
is known, mass production and replacement products are available, and there is less value-
added services. Finally, Amy points out that the absence and inaccuracy real time information
has affected the implementation of this technique. The limitation of the article is that it dose
not evaluate the initial cost of setting up the system. It only mentions the reduction of
inventory holding cost but fails to consider the additional cost incurred in order to coordinate
with other retailers in the distribution center and usage of the facilities.
 CHAPTER-IV

RESEARCH METHODOLOGY

PURPOSE OF STUDY

The objectives of this project were mainly to study the inventory, cash and receivable at
Amman Spinning Mill., but there are some more and they are -

 The main purpose of our study is to render a better understanding of the

concept Inventory management

 To understand the planning and management of Inventory

 To measure the financial soundness of the company by analyzing various

ratios.

 To suggest ways for better management and control of inventories in concern.

4.1 STATEMENT OF PROBLEM.

Inventory is defind as an idle source which has an economic value .in an industry
inventory comprises of raw materials .processed matrials, general stores .consumables
and spare parts and semi finished& finished goods.inventory of input matrials are
carried to support production and maintenance activities .so that the same is available
in right quantity at right point of time .carrying excessive inventory not only result in
blocking up of working capital but also adds inventory cost to it .inventory carrying
cost consists of interest on locked working capital, cost of storage and detoriation.

4.2 OBJECTIVES OF THE STUDY.

 To analyse the maintenance of inventory level.

 To find if there is any relation between debtors &creditors ratio

 To describe the inventory position of the company.

 To offer suggestion for improving performances of the industries.

4.3 RESEARCH DESIGN

Research design indicates plan of action to be carried out in connection. The research
design is simply a specific presentation of various steps in the process of research. The
researched used analytical research design for a study.

Methodology

The type of study undertaken is descriptive study. The data is collected from
secondary resources. In secondary sources the data are collected from the annual report,
company’s website and book journals pertaining to the topic.

Secondary data

Secondary data may be define as the second hand data that is already been collected
or recorded in printed format for (i.e).

 Annual report
 Company brouchers, magazines, periodical report
 Balance sheet, profit and loss account
 Published text books
 Internet

4.4 SCOPE OF THE STUDY

o The study is to find the facts and opinions of inventory management

o In accordance with the present trends it aims mainly at finding out the
inventory management
o This study gives the brief information about the inventory management of the
indo the management
o The study was done by using annual reports, inventory manual…etc.
4.5 LIMITATIONS OF THE STUDY:

o The study is limited to 5 years

o There is no comparison of the performance of the company with other
companies
o The study only covers one part of the firm inventory management
o The annual report and the accounts provide only limited information regarding
the company performance

DATA SOURCES:

The following sources have been sought for the preparation report:

 Primary sources such as current annual reports, book on Financial

Management by various authors and internet websites.

 Secondary sources like previous years annual reports, CMA Data, reports on
inventory management for research, analysis and comparison of the data gathered.

STATISTICAL TOOLS USED:

The financial statement are analyzed and interpreted to understand the operational
performance and financial position of the firm, on the basis of which further decisions are
to be taken. Depending upon the need and purpose, different techniques are used for this
purpose like.,

 Ratio Analysis
 ABC Analysis
 Correlation
 CHAPTER-V

ANALYSIS AND INTREPRETATION

5.1 TABLE SHOWING THE PERCENTAGE OF INVENTORY IN CURRENT

ASSETS

AVERAGE % INVENTORY IN
YEAR CURRENT ASSETS
INVENTORY CURRENT ASSETS
2009-10 560556459 562723495 1.00
2010-11 605226312 587627703 1.03
2011-12 700872373 792977787 0.88
2012-13 614347694 672613659 0.91
2013-14 561564905 694949672 0.81

INTERPRETATION:

From the above table shows that the inventory in current assets for the year (2009-
2010) is 1.00% in the year (2010-2011) it increases to 1.03% In the year (2011-2012) it
increases to 0.88% and in the year (2012-2013) there is a decrease to 0.91% In the year
(2013-2014) is 0.81% which is lower than the past four years.
 CHART 5.1 SHOWING THE PERCENTAGE OF INVENTORY IN CURRENT
ASSETS

1.2

1 1.03
1
0.88 0.91
0.81
0.8

0.6
% INVENTORY IN CURRENT
ASSETS
0.4

0.2

0
2009-10 2010-11 2011-12 2012-13 2013-14

YEAR

5.2 TABLE SHOWING THE INVENTORY TURNOVER RATIO

 AVERAGE INVENTORY
YEAR GROSS SALES
INVENTORY TURNOVER RATIO
2009-10 560556459 562723495 1.00
2010-11 605226312 587627703 0.97
2011-12 700872373 792977787 1.13
2012-13 614347694 672613659 1.10
2013-14 561564905 694949672 1.24

INTERPRETATION:

From the above table shows that the inventory turnover ratio for the year (2009-2010)
is 1.00% in the year (2010-2011) it increases to 0.97 % In the year (2011-2012) it increases
to.1.13% and in the year (2012-2013) there is a decrease to 1.10.% In the year (2013-2014) is
1.24 % which is lower than the past four years.

5.2 CHART SHOWING THE INVENTORY TURNOVER RATIO

1.4
1.24
1.2 1.13 1.10
1.00 0.97
1

0.8

0.6 INVENTORY TURNOVER RATIO

0.4

0.2

0
2009-10 2010-11 2011-12 2012-13 2013-14

YEAR

5.3 TABLE SHOWING THE DEBTORS TURNOVER RATIO

 CLOSING
NET CREDIT DEBTORS TURNOVER
YEARS TRADE
SALES RATIO
DEBTORS
2009-10 893043 159938 5.58
2010-11 811120 126296 6.42
2011-12 439302 62029 7.08
2012-13 258196 43002 6.00
2013-14 406620 122635
3.32

INTERPRETATION:

From the above table shows that the Debtors turnover ratio for the year (2009-2010)
is 5.58 % in the year (2010-2011) it increases to 6.42% In the year (2011-2012) it increases
to.7.02 % and in the year (2012-2013) there is a decrease to 6.00 % In the year (2013-2014)
is 3.32% which is lower than the past four years.

5.3 CHART SHOWING THE DEBTORS TURNOVER RATIO

8
7.08
7
6.42
6
6 5.58

4
3.32 DEBTORS TURNOVER RATIO
3

0
2009-10 2010-11 2011-12 2012-13 2013-14

YEAR

5.4 TABLE SHOWING THE CREDITORS TURNOVER RATIO

 CLOSING
YEAR NET CREDIT
TRADE CREDITORS TURNOVER RATIO
S PURCHASES
CREDITORS
2009-10 563235 181092 3.11
2010-11 549783 166335 3.30
2011-12 549000 120490 4.55
2012-13 137431 142147 0.97
2013-14 200220 61762 3.24

INTERPRETATION:

From the above table shows that the Creditors turnover ratio for the year (2009-
2010) is 3.11% in the year (2010-2011) it increases to 3.30 % In the year (2011-2012) it
increases to.4.55% and in the year (2012-2013) there is a decrease to 0.97%. In the year
(2013-2014) is 3.24 % which is lower than the past four years.

5.4 CHART SHOWING THE CREDITORS TURNOVER

 5
4.55
4.5
4
3.5 3.3 3.24
3.11
3
2.5
CREDITOR TURNOVER RATIO
2
1.5
0.97
1
0.5
0
2009-10 2010-11 2011-12 2012-13 2013-14

YEAR

5.5 TABLE SHOWING THE CURRENT RATIO

YEAR CURRENT CURRENT

ASSETS LIABILITIES CURRENT RATIO
 2009-2010 791085217 228361723 3.46
2010-2011 808117017 220489312 3.66
2011-2012 792977787 740756101 1.07
2012-2013 672613659 504068856 1.33
2013-2014 694949672 455981791 1.52

INTERPRETATION:

From the above table shows that the Current ratio for the year (2009-2010) is 3.46%
in the year (2010-2011) it increases to 3.66% In the year (2011-2012) it increases to.1.07%
and in the year (2012-2013) there is a decrease to 1.3%. In the year (2013-2014) is 1.52 %
which is lower than the past four years.

5.5 CHART SHOWING THE CURRENT RATIO

 CURRENT RATIO
4
3.66
3.46
3.5

2.5

2
1.52
1.5 1.33
1.07
1

0.5

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

YEAR

5.6 TABLE SHOWING THE LIQUIDITY RATIO

 CURRENT
LIQUID ASSETS LIQUIDITY RATIO
YEAR LIABILITIES

       
2009-2010 2430035 228361723 0.01
2010-2011 3198863 220489312 0.02
2011-2012 2730732 740756101 0.04
2012-2013 1605400 504068856 0.01
2013-2014 2876537 455981791 0.01

INTERPRETATION:

From the above table shows that the Liquidity ratio for the year (2009-2010) is 0.01%
in the year (2010-2011) it increases to 0.02% In the year (2011-2012) it increases to.0.04%
and in the year (2012-2013) there is a decrease to 0.01 %In the year (2013-2014) is 0.01%
which is lower than the past four years.

5.6 CHART SHOWING THE LIQUIDITY RATIO

 LIQUIDITY RATIO
0.05
0.04
0.04
0.04
0.03
0.03 LIQUIDITY RATIO
0.02
0.02
0.02
0.01 0.01 0.01
0.01
0.01
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

YEAR

5.7 TABLE SHOWING THE ABSOLUTE LIQUID RATIO

 ABSOLUTE LIQUID CURRENT ABSOLUTE LIQUID
YEAR
ASSETS LIABILITIES RATIO

2009-2010 562986494 228361723 2.46

2010-2011 608425175 220489312 2.76
2011-2012 703603105 740756101 0.95
2012-2013 615953094 504068856 1.22
2013-2014 564441442 455981791 1.24
       

INTERPRETATION:

From the above table shows that the Absolute Liquid ratio for the year (2009-2010) is
2.46% in the year (2010-2011) it increases to 2.76% In the year (2011-2012) it increases
to.0.95% and in the year (2012-2013) there is a decrease to 1.22 % In the year (2013-2014) is
1.24% which is lower than the past four years.

5.7 CHART SHOWING THE ABSOLUTE LIQUID RATIO

 ABSOLUTE LIQUIDITY RATIO
3
2.76
2.46
2.5

1.5 ABSOLUTE LIQUIDITY RATIO

1.22 1.24

1 0.95

0.5

0
0
YEAR 2009- 2010- 2011- 2012- 2013-
2010 2011 2012 2013 2014

YEAR

5.8 TABLE SHOWING THE FIXED ASSET RATIO

FIXED ASSETS SALES FIXED ASSET RATIO

 YEAR
2009-2010 697188925.00 893042563.00 1.28
2010-2011 701978311.00 1011120224.00 1.44
2011-2012 681572587.00 439302158.00 0.64
2012-2013 612549077.00 258196441.00 0.42
2013-2014 578831943.00 406620345.00 0.70

INTERPRETATION:

From the above table shows that the Fixed Asset ratio for the year (2009-2010) is
1.28% in the year (2010-2011) it increases to 1.44% In the year (2011-2012) it increases
to.0.64% and in the year (2012-2013) there is a decrease to 0.42%. In the year (2013-2014) is
0.70% which is lower than the past four years.

5.8 CHART SHOWING THE FIXED ASSET RATIO

1.6
FIXED ASSET TURNOVER RATIO
1.44
1.4
1.28
1.2

0.8 FIXED ASSET TURNOVER RATIO

0.7
0.64
0.6
0.42
0.4

0.2

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

5.9 TABLE SHOWING THE OPERATING RATIO

OPERATNG OPERATING
YEAR SALES
PROFFIT RATIO
2009-2010 697188925.00 893042563.00 0.78
 2010-2011 701978311.00 1011120224.00 0.69
2011-2012 681572587.00 439302158.00 1.55
2012-2013 612549077.00 258196441.00 2.37
2013-2014 578831943.00 406620345.00 1.42

INTERPRETATION:

From the above table shows that the Operating ratio for the year (2009-2010) is 0.78
%in the year (2010-2011) it increases to 0.69% In the year (2011-2012) it increases to.1.55%
and in the year (2012-2013) there is a decrease to 2.37% In the year (2013-2014) is 1.42
%which is lower than the past four years.

5.9 CHART SHOWING THE OPERATING RATIO

 OPERATING RATIO
2.5 2.37

1.55
1.5 1.42
OPERATING RATIO

1
0.78
0.69
0.5

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

YEAR

5.10 TABLE SHOWING THE PROPRIETORY RATIO

SHAREHOLDERS TOTAL
YEAR PROPREITORY RATIO
FUND ASSET
 2009-2010 252756 1124340 0.22
2010-2011 253146 1089479 0.23
2011-2012 257380 1037214 0.25
2012-2013 72549 873397 0.08
2013-2014 82983 856967 0.10

INTERPRETATION:

From the above table shows that the Proprietory ratio for the year (2009-2010) is 0.22
%in the year (2010-2011) it increases to 0.23% In the year (2011-2012) it increases to.0.25
%and in the year (2012-2013) there is a decrease to 0.08.% In the year (2013-2014) is 0.10
%which is lower than the past four years.

5.10 CHART SHOWING THE PROPRIETORY RATIO

 PROPRIETORY RATIO
0.3
0.25
0.25 0.23
0.22
0.2
PROPRIETORY RATIO
0.15
0.1
0.1 0.08

0.05

0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

YEAR

5.11 TABLE SHOWING THE ABC ANALYSIS

CATEGOR TOTAL NO OF ITEMS
PERCENTAGE
Y IN CLASS

A 33 65

B 10 20

C 7 15

TOTAL 50 100

5.11 CHART SHOWING THE ABC ANALYSIS

 120

100 NO
OF
80

60 PERCENTAGE
100 CATEGORY
40
65
20
20 15
0
1 2 3 4
ITEMS IN A CLASS

CORRELATIONS
Relationship between Debtors turnover ratio and Creditors turnover ratio analysis:

Null hypothesis: There is no relationship between Debtors turnover ratio and Creditors
turnover ratio.

Alternative hypothesis: There is no relationship between Debtors turnover ratio and

Creditors turnover ratio.

Particular X Y X=x-x Y=y-y X2 Y2 Xy

&year
2010 5.58 3.11 -0.1 0.08 0.01 0.0064 -8
2011 6.42 3.30 0.74 0.27 0.5476 0.0729 0.1998
2012 7.08 4.55 1.4 1.52 1.96 2.3104 2.128
2013 6.00 0.97 0.32 -2.06 0.1024 4.2436 0.6592
2014 3.32 3.24 -2.36 0.21 5.5696 0.0441 0.4956
Total 28.4 15.17 -0 0.02 8.1896 6.6774 -4.5174

∑XY

R= _______________

√ ∑ X 2∗∑ y 2

4.5174 4.5174

r=_____________________=___________

❑
√ 8 .1896∗6 . 6774 19.10

r=0.236

INTERPRETATION:

Calculate value is (0.236) There is no relationship between Debtors turnover ratio and
Creditors turnover ratio. So Null hypothesis is accepted.

FINDINGS:

1. The maintenance of inventory level of the company is decreasing in the

consecutive years that is it is not stable.
 2. There is no relationship between the debtors and creditors turnover ratio during
the study period.

3. From the study it is found that the inventory turnover relation of the company is
getting increased during the study time (ie) the inventory position of the company is increase
sing.

SUGGESTION:

 Inventory level can be increased by the increasing the sales of the company.
 The company may increase the time and decrease the interest and the maintained a
good relation with them and the product to increase to increase the relationship
between debtors and creditors.
 The company can be analyse the supply and demand of the product and keep the
inventories auction to control the inventory turnover in the same level

CONCLUSION:
 Inventory management is one of the primary function of financial department. In
which investment made on inventory should be reasonable investment. Further This Project
period is more useful and helpful for my studies which, I really involved to know the
Inventory process at Amman Spinning Limited, Sulthanpet. It helped me to Know about the
organization financial investment and their control measures in the inventory process .

inventory management report gives a clear knowledge and ideas about the
performance of the financial Investment process and the procedures involved.

BIBLIOGRAPHY
REFERENCE BOOK:

And Blather wick (1996).Ministry of Textile :Indian Textile-weaving a global spin

R.L Ballard (1996), “ The Textile and Apparel Industry in India” , Oxford University
press.

Charles J. Bodenstab (1996) “Idea of managing the customer’s inventory”

Farzaneh (1997) “the economic order quantity (EOQ) to the Just in Time (JIT)”

Rick Lavely (1998) ““Piles of Money””

James Healy (1998) “adequacy of inventory to the Enterprise Resource Planning System
(ERP)”

Dave piasecki (2001) “model for calculating optimal order quantity that used the
Economic Order Quantity (EOQ) method”

Amy.M.Azzam (2001) “concept of flow-through warehousing technique’

BOOK REFERENCE:

1.production and operation management, SN cherry, Tata McGraw Hill.

2. production and operation management, K.Aawathappaet all, Himalaya puplishing house

pvt ltd

WEBSITE REFERENCE:

www.ammam.com

www.inventoryyops.com