. The greater the time lag, the higher requirements for inventory.

It also provides a cushion for

future

price fluctuations.
In a complex industry like Kesoram Industries

Limited it studied clearly of how the thing are

being performed and what is the real impact of
these on industry and how effectively the
inventory is utilized is interested to be known by
researcher because of its great significance in the
research.
The investment in inventories constitutes the most significant part of current assets / working
capital in most of the undertakings. Thus, it is very essential to have proper control and
management of inventories.
The purpose of inventory management is to ensure availability of materials in
sufficient quantity as and when required and also to minimize investment in inventories.

Meaning and Nature of Inventory:

In accounting language, inventory may mean the stock of finished goods only. In a
manufacturing concern, it may include raw materials, work- in progress and stores etc.,

Inventory includes the following things:

a)

Raw Material: Raw material from a major input into the organization. They are
required to carry out production activities uninterruptedly. The quantity of raw materials
required will be determined by the rate of consumption and the time required for
replenishing the supplies. The factors like the availability of raw materials and
Government regulations etc., too affect the stock of raw materials.

b)

Work in progress: The work in progress is that stage of stocks which are in between
raw materials and finished goods. The quantum of work in progress depends upon the
time taken in the manufacturing process. The quantum of work in progress depends
upon the time taken in the manufacturing process. The greater the time taken in
manufacturing, the more will be the amount of work in progress.

c)

Consumables: These are the materials which are needed to smoother the process of

production but they act as catalysts. Consumables may be classified according to their
consumption add critically. Generally, consumable stores doe not create any supply problem and
firm a small part of production cost. There can be instances where these materials may account for
much value than the raw materials. The fuel oil may form a substantial part of cost.
d)

Finished goods: These are the goods, which are ready for the consumers. The stock
of finished goods provides a buffer between production and market, the purpose of
maintaining inventory is to ensure proper supply of goods to customers.

e)

Spares: The stock policies of spares fifer from industry to industry. Some industries
like transport will require more spares than the other concerns. The costly spare parts
like engines, maintenance spares etc., are not discarded after use, rather they are kept in
ready position for further use.
All decisions about spares are based on the financial cost of inventory on such spares

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

BENEFITS OF HOLDING INVENTORIES

Although holding inventories involves blocking of a firms and the costs of
storage and handling, every business enterprise has to be maintain certain level of inventories
of facilitate un interrupted production and smooth running of business. In the absence of
inventories a firm will have to make purchases as soon as it receives orders. It will mean loss
of time and delays in execution of orders which sometimes may cause loss of customers and
business.
A firm also needs to maintain inventories to reduce ordering cost and avail

quantity

discounts etc.
There are three main purpose of holding inventories.
1.

The transaction motive: Which facilitates continuous production and timely

execution of sales order.

2

2.

The precautionary motive: Which necessitates the holding of inventories for

meeting the unpredictable changes in demand and supplies of materials.

3.

The speculative motive: Which induces to keep inventories for taking advantage of

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

RISK AND COSTS OF HOLDING INVENTORIES
The holding of inventories involves blocking of a firms fund and incurrence of capital
and other costs.
The various costs and risks involved in holding inventories are:
Capital costs: Maintaining of inventories results in blocking of the firms financial
resources. The firm has therefore to arrange for additional funds to meet the cost of
inventories.
The funds may be arranged from own resources or from outsiders. But in both the
cased, the firm incurs a cost. In the former case, there is an opportunity cost of investment
while in the later case; the firm has to pay interest to t he outsiders.
1.

Storage and Handling Costs: Holding of inventories also involves costs on storage
as well as handing of materials. The storage of costs include the rental of the godown,
insurance charges etc.

2.

Risk of Price decline: There is always a risk of reduction in the prices of inventories
by the supplies, competition or general depression in the market.

3.

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

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

4.

Risk Determination in quality: The quality of materials may also deteriorate while
the inventories are kept.

Objects of Inventory Management:

Definition of Inventory Management: Inventory Management is concerned with the
determination of optimum level of investment for each components of inventory and the
operation of an effective control and review of mechanism.
The main objectives of inventory management are operational and financial.
The operational objective mean that the materials and spares should be available in
sufficient quantity so that work is not disrupted for want of inventory.

The financial objective means that inventory should not remain idle and minimum
working capital should be locked in it.

NEED OF THE STUDY:

Every industry on average spends 70% on raw materials (inventory). Therefore there
is a need to know the raw material cost and also there is great importance to understand the
inventory management system of this industry.
The study helps a log to various departments to take steps to control the inventory
process.
In this competitive business world each and every business organization need
inventory management system for determining what to order, when to order, where and how
much to order so that purchasing and storing costs are the lowest possible without affecting
production and sales. Thus, inventory management control incorporates the determination of
the optimum size of the inventory-how much to be order and when after taking into
consideration the minimum inventory cost.
The over all inventory management includes design and inventory control organization with
proper accountability establishing procedure for inventory handling disposal of scrap,
simplification, standardization and codification of inventories, determining the size of
inventory holdings, maintaining record points and safety stocks, economic order quantity,
ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL.

OBJECTIVES OF THE STUDY:

1.

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

Kesoram Cements.

2.

To discuss pattern, levels and trends of inventories in Kesoram Cements.

3.

To understand the various inventory control techniques followed by studies in

Kesoram Cements.

4.

To access the performance of inventory management of the Kesoram Cements by

selected accounting ratios.

5.

To know the inventory control techniques of Kesoram Cements.

6.

To avoid both under stocking and over stocking of inventory.

7.

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

the help of centralized purchasing.
a. To ensure continues supply of materials, spares and finished goods so that
production should not suffer and any time and customers demand should also
be met.
b. To design proper structure for inventory management.

A clear cut

accountability should be fixed at various levels of the organizations.

METHODOLOGY OF THE STUDY:

Source of Data
The methodology Is to study the inventory perception towards Cement company
with special reference to Kesoram Cement it
Contains.

Primary data

Secondary data

Primary Data
Primary data has been collected with the help of the person questionnaires,
interviews, enquiry, observations designed and developed for this purpose. The
questionnaires has been supplied to all the Officers/ executives to edit the required
information. Interviewing technique and personal observation has been used
simultaneously to make the study exact and relevant.

Secondary Data
This data has been collected from previous published records like Annual reports
inventory reports, printed statements do the company like wed site etc.

LIMITATIONS OF THE STUDY:

The study has the following limitations:

1. The study is purely based on secondary data.
2. The time span that is 45 days which it has became difficult to collect all
the information. From the concern departments.
3. The reliability of the study depends upon the information furnished by the
officials.
4. Due to time constraint it is difficult to go into details of the organization.
5. The limitations of ratio analysis can be applicable of the study.

INDUSTRY PROFILE
Cement Industry has been decontrolled from price and distribution on 1st March 1989
and de licensed on 25th July 1991. However, the performance of the industry and prices of
cement are monitored regularly. Being a key infrastructure industry.
The constraints faced by the industry are reviewed in the Infrastructure
Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of
Secretary (Coordination). The Committee on Infrastructure also reviews its performance.
The industry is subject to quality control order issued on 17.2.2003 to ensure quality
standards.
CEMENT INDUSTRY IN INDIA
In India it came to be established during the beginning of 20 th century. In fact the
cement era in India commenced with the establishment of a small cement factory at
WASHERMANPET in 1904 by South India industry Ltd. a company that dates to 1879. The
potential capacity of this plant was only 10,000 metric tones per annum. This was the first
attempt of manufacturing Portland cement with cat carious seashells as a principal raw
material. There was sufficient demand for that product, but because of technological defects
and inadequate supply of raw materials, the plant did not operate economically, a later on
collapsed. India is ranked forth in the world after China, Japan, and USA in cement
production. Yet the per-capital consumption of cement in India however low at 70 to 80 kgs
against the world average of around 220kgs.

CEMENT INDUSTRY IN ANDHRA PRADESH

Cement was first manufactured in America in the year 1875. In India, in 1914 the
India Cements Company Limited was established a cement factory at Portland. Andhra
Pradesh is the second largest cement production state in India, one third of the limestone
(138crore tones) is available in A.P.I.A.P. the cement production was started in 1936 with two
factories. Of these two factories one is Andhra Cement Company Limited and another in
Krishna Cement Factory. One is on the side of Krishna Cement Factory. One is on the side
of Krishna River and another is in between Krishna and Guntur districts respectively.
In 1995, one more factory was established at Panyam in Kurnool Dist., named as
Panyam Cement and mineral industries. At the same time one more factory has been
established at Maacherla in Guntur district. At the end of July 1985 the total capital invested
on cement industry was Rs.427.81 lakhs and provided employment for 1262 persons and 19
factories were functioning with a production of 85lakh tones.

Capacity, Production and Exports

India today boasts 129 large plants and over 300 mini cement plants with a
capacity of 165 million tones and production of 134 million tones (2004-05).
It ranks second in the world among cement producing countries, with per capita
consumption at 118Kg compared to the world avg. Of around 317. Per capita consumption
is 366 Kg in Thailand, 626 Kg in China, 606 Kg in Malaysia and 1216 Kg in South Korea.
This indicates a huge potential for increase in consumption.
9

The Cement Corporation of India, which is a central public sector undertaking, has
10 units. Besides, there are 10 large cement plants owned by various state Governments.
Keeping in view the past trends, a production target of 133 million tons has been set for the
year 2004 05. During the Tenth Plan, the Industry is expected to grow at the rate of 10%
per annum and is expected to add capacity of 40 52 million tons.

Mainly through expansion of existing plants and use of more fly ash inthe production
of cement. A part from meeting the domestic demand, the cement Industry also contributes
towards exports. The export of cement and clinker during the last three years is as under:-

Export of Cement
(In million tons)
Year

Cement

Clinker

Total

2005 06

3.47

3.45

6.92

2006 07

3.36

5.64

9.00

2007 08

3.31

4.82

8.13

Overview of the performance of the Cement Sector:

The Indian Cement Industry not only ranks second in the production of cement
in the world but also produces quality cement, which meets global standards. However, the
Industry faces a number of constraints in terms of high cost of power.
High railway tariff; high incidence of state and central levies and duties; lack of
private and public investment in infrastructure projects; poor quality coal and inadequate
growth of related infrastructure like sea and rail transport, ports and bulk terminals. In order

10

to utilize excess capacity available with the cement Industry, the Government has identified
the following thrust areas for increasing demand for cement:

(i)
(ii)
(iii)

Housing development programs;

Promotion of concrete highways and roads;
Use of ready mix concrete in large infrastructure projects;

Technological advancements
Indian cement industry is modern and uses latest technology. Only a small segment
of industry is using old technology based on wet and semi-dry process. Efforts are being
made to recover waste heat and success in this area has been significant.
India is also producing different varieties of cement like Ordinary Portland
Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement
(PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland
Cement, White Cement, etc. Production of these varieties of cement conforms to the BIS
Specifications. It is worth mentioning that some cement plants have set up dedicated jetties
for promoting bulk transportation and export.

Infrastructure driven demand push

The bulk of cement demand is from housing and commercial development of which
metros account for a significant amount. It is estimated that Mumbai, which consumes almost
six million tones, along with Pune, accounts for 45 percent of Maharastras cement
consumption, Bangalore consumes four million tones and Chennai around 3 million tones,
these are really the growth clusters. Today bulk of the demand is driven by housing and
commercial construction and as infrastructure picks up, for example, Bangalore international
airport, Hyderabad airport and modernization of Mumbai and Delhi airports.

11

Another large consumer has been the roads sector. The off take was good when the
NHDP programme was launched but there was a lull last year. Once again new orders have
been placed and in 2006, the industry will pick up. The estimate is that from roads, sdemand
is not more than 4-5 million tones but it makes a difference in the growth numbers.

Narrowing demand-supply gap:

The industry has a capacity of 165 million tons and in Jan 2006, dispatches were at
almost 100%. On an overall basis, the industry does not do more than 90-92% because of
constraints such as transport and raw material.
The industry has been adding capacity of 6-7 million per annum by Brownfield
expansion and de-bottlenecking which is expected to partly cater to the requirement because
it is growing by around 20 million tons per annum.

Challenges before the industry:

Energy costs account for half of the cost of production of cement. Last year saw
a 15-16% increase in coal prices and then diesel prices went up pushing up transportation
costs.

Freight problems
The importance of freight for the cement industry cannot be emphasized enough.
While in the last few months railways have been steadily losing freight to road sector they
have been confined cement to market-is around Rs.350-400 a ton or Rs.20 and bag that could
go as high a Rs.800 for long leads. This would only easy the first level of sale and additional
costs are involved to take it further.

Another issue, which will hit the industry hard, is that of logistics and a Supreme
Court judgment on carrying capacity for trucks. Accordingly, a state govt. has been directed
to enforce the discipline that trucks only carry a specified load.
12

Many states and already implementing this and there is already an increase in freight rates
and in some cases, it has gone up by 50%. Also, the requirement for trucks to carry the same
freight has nearly doubled and in many places the industry is being forced to move to
railways.

High taxes
While the railways have had capacity to meet the requirement, it is expected that in
March the commencement of peak season for the procurement of food grains, the railways
would be constrained to provide adequate number of wagons.
So fright rates are up, railways cannot provide wagons and trucks are unlikely to be
viable so there could be a serious dislocation of supplies going forward. According to the
cement manufactures association total taxes and duties on cement come to around Rs.900 a
ton or Rs. 45 a bag. So at a price of Rs.150 a bag in the market, taxes and duties account for
one third. Which is high for such a basic product. This includes excise duty, sales tax and
royalty on limestone.
The importance of limestone can only be underscored as for every ton of cement
produced. 1.5tons of limestone is required. For limestone, royalty is on a per ton basis at Rs.
40 whereas for most minerals it is a percentage of the pithead cost. Effectively we are paying
Rs.70 a ton for limestone as royalty. VAT is at 12.5% without any justification and it should
be in 4% category, excise is at Rs.408 per ton when it should be around Rs.200.

Export Advantages
From a modest beginning if 1.6 lacks tons in 1989-90, Indian exports of
cement/clinker have grown rapidly at about 30-40% and this year exports will cross 10
million tons.

13

Major cement producers market shares:

Acc -12.8%

Abuja -10.7%

Grasim-10.4%

Ultra tech-9.5%

India cement-6.0%

Jaypee-4.1%

Lafarge-3.2%

Madras-3.2%
Overall, the industry is in a better state today than 2 years ago. Cement prices even

today are way below global levels. So setting up Greenfield capacities is not attractive, as
prices will not give attractive returns on investment. That is a minor reason why there is no
Greenfield capacity coming up. It has to be born in mind that one third of the prices is
accounted for by taxes and duties and nearly 20-25% by the freight component. So what
produces earn at the factory gate is among the lowest in the world.
This year 2008 has commenced on a good note and in fact, December was a very
good month wit dispatches at 12.5 million tons and January dispatches were in excess of 13
million tons.
This means capacity utilization is in the nineties which is healthy and will actually
lead to firming up of prices. It looks like sales could be 137 million a ton for 2007-08(125
million tons in 2006-07) and so far growth has been 10%. There are enough reasons to
believe it will sustain.

14

INDUSTRY PROFILE
The 85 year old Indian cement industry is one of the cardinal and basic
infrastructure industries, which enjoys core sector status and play a crucial role in the
economic development and growth of a country. Being a core sector is industry was
subject to price and or distribution controls almost uninterruptedly from world war -II
to 1982. When the government of India announced the partial decontrol
manufacturing cement became increasingly attractive industry and the industry
experienced substantial expansion.
As the supply in response to the 1982 partial decontrol was significant in
march, 1989. Price and distribution control were finally dispensed with. It was one of
the first major industries in the country to be so deregulated.
DEFINATION OF CEMENT
Cement may be defined as it is a mixture of calcium silicate and aluminates
which have the property of setting and hardening under water. The amount of silica,
alumna who is present in each crust is sufficient to combine with calcium oxide [cao]
to from the corresponding calcium silicate and aluminates.

15

CLASSIFICATION OF CEMENT
Cement is 3 types
i.
ii.
iii.

Puzzolantic cement
Natural cement
Portland cement

1. Puzzolantic cement:
It consists of silicates calcium and aluminum. It shows the hydraulic, properties
when it is in the form of powder and being mixed with suitable proportion of lime.
The rate of hardening is much slower and the comprehensive strength developed is
about a half of Portland cement. It us found more resistant to the chemical action that
others.
2. Natural cement:
This is natural occurring material. It is obtained form cement rocks. The
cement rocks are claying lime stones containing silicates aluminates of calcium. The
selling property of this cement is more than the Portland cement but is comprehensive
strength is half of its.

16

3. Portland cement:
a)
b)
c)
d)
e)
f)
g)
h)
i)

Ordinary Portland cement

Rapid hardening Portland cement
Low heat cement
White or colored cement
Water proof Portland cement
Portland slag cement
Portland puzzo
Sulphate resisting cement
Oil well cement

INDIAN CEMENT 1NDUSTERY - PRESENT STATUS

After the deli censing of the industry in July, 1991 it reacted positively to the
policy changes. New capacities created and the volume of the production increased.
From a situation of importing cement, the country started exporting due to high
quality and cost effectiveness. After liberalization the black market in cement also
disappeared
Currently INDIA stands second largest in the cement production world wide
after china after India, japans and USA stands. On the other hand India's per capital
consumption is only 100kgs. As compared to the world average of 260kgs. The
industry has 59 companies owing 115 plants.
In the mailer of exports, the government considers cement as extreme focuses
are& However Indian cement in the global market is not very competitive due to high
power and full costs. In order to improve its position in the international market.
Technological up gradation is essential in terms of process up process up gradation
product diversification costs reduction quality control and energy savings

17

OVERVIEW OF THE INDUSTRY

The word cement means any substance applied for sticking things .But cement
is most vital and important material for modem construction as a binding agent .In the
ancient times ,clay ,bricks and stones have been used for construction Work.
The Romans were using a binding or a cementing material that would harden
Under water. The first systematic effort was made by SMEATION who Under took
the erection of a new lighthouse in 1756.he observed that the production Obtained by
burning limestone was the best cementing material for work under water.
After eighty

years

brunch

chemist

produced

hydraulic cement by

burning finely ground delay used in the form of paste .cement invented by. JOSEPH
ASPDIN in 1824. Since hardened Cement paste resembled Portland stone found
in England be named it a s Portland cement A name that has ensured even Portland
cement was list manufactured in USA in 1975 In Portland cement was produced for
the

rust lime in 1940. by south India industries limited Madras. This unit had

capacity of 30 tones per day

By 1913 however three units started their operations with a combined installed
capacity of 75000 tons per annum. In 1914 indigenous production fees for short
of

domestic demand

difficulties and foreign

necessitating an import of 1, 65,723 tones. Shipment

Trade during the first world war acted as a catalyst for

the . Development of indigenous Industry, and

capacity

by

1924

the total installed

grew to 5,59,800 tones per annum.

In 1963 all the cement companies with the exception of SONE VALLEY
PORTLAND CEMENT COMPANY LIMITED merged to form the ASSOCIATED
CEMENT COMPANIES LIMITED. This has more facilitated a cost reduction as
well as uniformly in quality. By 1947 the
raiscdto2.2miIlion tones per annum. After
units in
that

installed capacity of the

partition 5 of the cement

industry
producing

the country went to Pakistan and total installed capacity of 18 units

remained in India was 1.5 million tons per Annum. This is increased to

3.8million tones by 1950-51.

18

In the three decades between

1950-1980 the capacity expansion was

between 7-8 million tones pe/decade the target set in respect of additional capacity
generation was released with impetus given by the partial decontrol announced in
1982. Several units locked up project for expansion of capacity and modernization
which contributed towards increased production.
INDIAN CEMENT INDUSTRY PRESENT STATUS
After the dealing of the industry in July 1991 it reacted positively to the policy
changes

new capacities created and the volume of production increased from a

situation of importing cement the. country started exploring due to high quality and
cost effectiveness after liberalization the black market in cement

also disappeared

currently India stands second largest in the cement production worldwide after
china on the other hand per capita consumption in India is only books as compared
To the world average of 260kgs the industry has S9 companies owning 1 is plants
in the matters of exports. The government considers cement as a extreme Focus
area .however Indian cement in the global market is not very competitive Due
to

high

power

international market

and

full

costs. In order to improve its

technological

up gradation

is essential

position in the
in terms

of

process Product diversification cost reduction quality control and energy saying.
ABOUT THE INDUSTRY
These chapter examiners a profile of cement industries ltd. i.e. .its history
location organization structures etc.
LOCATION;
Kesoram cement industry is one of the leading manufacturer of cement in India
it is a day process cement plant the plant capacity is 8.25 lakh tones per annum .it is
located at basanthnagar in Karimnagar district of Andhra pradesh Basanth nagar is
8km away from the ramagundam

railway station linking madras to newdelhi the

chairman of the company is syt.B.K.Birla

19

HISTORY:
The first unit at Basanthnagar with a capacity or 2,1 lakh tons per annum
incoresponding suspension-preheated system was commissioned during the year of
1969 the second unit Was setup in year 1971 with a capacity of 2.1 tens per annum
and the third unit with a capacity of 2.5lakh tons per annum went on stream in the year
1978 the coal for this company is being supplied iron singareni collories and the
power is obtained from APSEB the power demand for the factory is about 21MW
kesoram has got 2DG sets of 4M"W each Installed in the year 1987.
Kesoram Cement as set up a 15kw capacity power*plant to facilitate for
unintellpted power supply for manufacturing of cement starts at 24 august 2007 per
hour 12 mw, actual power is 15mw. Birla supreme in popular brand of kesoram
cement from its prestigious plant of Basanthnagar in A.P which has outstanding track
record in performance and productivity serving the nation for the last two and had
decades It distinction by Bagging several national awards .It also has the distinction
optimum capacity utilization. Kesoram offers a choice of top quality portioned cement
for light heavy constructions and allied applications quality is built every fact of the
operations.
The plant layout is rational to begin with the limestone is rich in calcium
carbonate a key factor that influence the quality of final product the day process
technology used in the latest computerized monitoring overseas the manufacturing
process samples are sent regularly to the burenu of Indian standards national council
of constructions and Building material for certification of derived quality norms

20

The company has vigorously undertaking different promotional measures their

product through different media which includes the use of newspapers, magazines
hoardings etc
Kesoram cement industry distinguished itself among all the cement factories in
India by bagging the national productivity award consecutively.For two veat but the
year 1985 -1987.(he federation of Andhra Pradesh chamber of commerce and
industries also conferred an kesoram cement an award for.the best Industrial
promotion expansion efforts in the year 1981.kesoram also bagged FAPCCl Awarded
for "best family planning effort in the state " for the year 1987-1988.
One among the industrial giants in the country today serving the nation on the
industrial front kesoram industrials Ltd has a cheque red and eventful history dating
Back to the twenties when only a textile mill under its banner 1924 it grew from
Strength to spread and activities 10 newer fields like Rayan pulp Transport paper spun
pipes Refractivity tires and other products
Looking to the wide gap between the demand and supply of a vital commonly
cement Which plays Ul important role in national building activity the government of
India had de-licensed the cement industry in the year 1966 with a view to attract
private entrepreneurs to augment the cement industry production kesoram rose to the
occasion And divided to setup a few cement plants in the country Kesoram cement
undertaking marketing activities extensively in the states of Andhra Pradesh
Karnataka Tamilnadu, kerala maharastraha and gujrat in AP sales depots are located in
different areas like karimnagar warangal nizambad vijayawada and nellore In other
states it has opened around 10 depots.

21

THE AWARD WON ARE:

Kesoram cement bagged prestigious awards like national awards for
productivity and technology and conservation and several state awards for year 1984
kesoram cement is best family planning effort in the federation of Andhra Pradesh
chamber of commerce And industry and also national award for two successive years
1985-86& 1986-87.lt has also bagged the national award for energy efficiency for the
year 1989-90 for the performance among all cement plants in India .thus award stallby national council For cement and building material in association with the
government of India .
Kesoram bagged the prestigious Andhra Pradesh state productivity award in
1987-1989 also Annexed state award for industrial management in 1988-1989.and
also "Best Industrial promotion expansion efforts " in the state and yajamanya ratna
and best efforts an industrial unit in the state to develop rural economy was bagged for
its contribution towards the year 1991.it also bagged the "may day award" of the
government of India For the best management and the pandit jawaharlal Nehru silver
rolling trophy for the industrial productivity effort in the state of andhra Pradesh by
FAPCCI and also the Indira Gandhi memorial national award of the government of
Andhra Pradesh for the year 1993.
During the last 3 years the government of Andhra Pradesh has given the
following awards Best awards for the year 1994.Best industrial relation award for
1994.TO keep the ecological balance they have also undertaken massive tree
plantation in The economy and government of India has nominated township areas
and them for VRIKSHMITHRA award Best effort of an industrial unit in March
1996In the year March 2007 "Best management award 2007" for the best management
practices In kesoram cement presented by chief minister.

22

CEMENT PRODUCTION WORLDWIDE

Country
CHINA
JAPAN
USA
INDIA
ITALY
GERMANY

1981
83
88
65
21
43
30

1983
108
85
61
25
40
28

1986
106
73
71
36
36
24

1989
210
82
70
45
4
27

1990
210
87
72
48
41
40 '

World ranking
1
2
3
4
5
6

Today in the cement industry is producing 58.3 million tones per annum
indication surplus conditions while its demand is 56.7 million tones lies per annum
Now The cement market has become 'buyer market' which was a selling market till
1970'sAnd so the quality &brand taken an upper edge for cement marketing.
Today installed at the India cement industry is 771 lakh tones but in India 106
Major plants are producing 583lakh tones leaving the balance for exports.

PROFILE OF THE COMPANY

One among the industrial gains in the country today serving the
nation on the industrial front kesoram industries limited has a tenured and extent full history
23

dating hock to the twenties when the industrial house of Birlas enquired it. With only a
Textile mill under its banner in 1924, it grew from strength and spread its activities to newer
fields like Rayon pulp Transparent Paper. Spun pipes and Refectory Tyers oil mills and
refinery Extraction.
Looking to the wide gap between the demand and supply of vital commodity
cement which it plays on important role in Nation Building, the government Private
entrepreneurs to argument the cement production Kesoram rose to the occasion and decided
to set up few cement plants in the country.
Kesoram cement is one of the prestigious units in the renowned Kesoram
industries group that is one of Indias leaden industrial conglomerates, under the leadership of
Mr.B.K.Birla, the famous personality of Indian Industry, who owes branches all over India.
Kesoram cement Industry is one of the leading manufacturer of cement in India Kesoram
cement is a division of Kesoram Industries limited. It is a dry process cement plant. It is
located at Basant Nagar in Karimnagar District of Andhra Pradesh with the plant capacity is
8.26 lakhs tones per annum. It is 8Kms away from the Ramagundam Railway Station Lining
Madras to New Delhi.
PLANTS SETUP:
The first cement point of Kesoram with a capacity of 2.1 lacks tones per annum
incorporating Humboldts suspension preheated system was committed during the year
1969.
The second unit was setup in the year 1971 with capacity of 2.1lacks tons which
added to the above plant capacities.
The third plant with a capacity of 2.5lacks tons per annum, which went on stream in
the year 1978.
The coal for this company is obtained by singareni collieries and the power is obtained
from APSEB. The power demand capacity for the factory is about 21M.W. Kesoram has got
20G sets of 4MN each installed in the year1987.
Kesoram cement belongs to the Birla group Companies one of the industrial giants
in the country. Kesoram cement industries distinguished itself among the cement factories in
India by bagging the national productivity award for two successive years i.e., in 1985-86 and

24

87. Kesoram cement also got the FAPCCI award for best family planning effort in the state
for the year 1987-88.
Kesoram also bagged NCBCNS national award for energy conservation for the year
1989-90. The Kesoram industries look for the welfare of the employees and it provide
various facilities which the employees and it provide various facilities which the employee
feels satisfied with in the organization and after the work they fees satisfies the worker and
works families by providing various welfare schemes and by providing recreational facilities
of a glace.
To keep the ecological balance, company has also undertaken massive tree plantation in
and around Basanth Nagar and nearby villages there by eliminating the pollution and they
have been nominated by the government of India for VRUKSHAMITRA AWARD but
effort of an industrial unit in the state for rural development 1994-95 presented by CM in
march 1996.
BRANDS:
Kesoram brands with namely Birla Supreme and Birla supreme gold (53 grades) has
made a niche with outstanding quality and commands a premium in the market. The latest
offering, Birla Shakthi is also very well received and is the most sought offer brand now.
AWARDS:
National productivity award for 1985-86.
National productivity award for 1986-87.
National award for energy conservation for 1980-90.
National award for mines safely 1985-86, 1986-87.
Prestigious state award yajamanya ratna and but management award for the year
1980.
Best FAPCCI award for but family planning effort in the state 1987-88.
FAPCCI award for best workers welfare 1995-96.
Best industrial productivity award of FAPCCI.
Best management award of state government 1993.
It has got Vanamitra award from the government of Andhra Pradesh
KESORAM GROUP OF INDUSTRIES

25

a)Textiles

Kesoram Industries Ltd,

42, Garden Reach Road
Calcutta-700024.

b)Rayon

Kesoram Rayon Triennia (P.O.),

Dist : Hoogly, West Bengal.

c)Spun Pipes

Kesoram Spun pipes & Foundries,

bansberia (P.O.), Dist: Hoogly,
West Bengal.

d)Cement

Kesoram Cement,
Basantnagar-505187,
Dist : Karimnagar, Andhra Pradesh

e)Cement

Vasavadatta Cement,
Sedam-585222,
Dist : Gulbargah, Karnataka.

f) Tyres

Birla Tyres,
Shivam Chambers,
53, Syed Amir Ali Avenue.
Calcutta-700019.

Product Profile
The main brands of cement manufactured are:
RAASI GOLD (53 Grade)
RAASI SUPER POWER
RAASI 43 Grade cement.
All the brands are known for its best quality standards.

Industrial Relations

26

KIL,KNR is known for its best Industrial Relations practices in this region and won many
awards from Govt. of A.P. and Chamber of Industries.
Norms
Raw Mill Clinker Cement
Lime stone 96%
Iron ore 2.5%
Laterite 1.5%
Raw Mill 1.5 tonnes
Coal 20%
Clinker97%
Gypsum 3%

Directors of Kesoram Industries Limited

Chairman
Syt. B.K. Birla
Directors
Smt. K.G. Maheshwari
Shri. Pramod Khaitan
Shri B.P. Bajoria
Shri P.K. Chokesy
Smt. Neeta Mukerji
(Nominee of I.C.I.C.I.)
Shri D.N. Mishra
(Nominee of L.I.C.)
Shri Amitabha Ghosh
(Nominee of U.T.I.)
Shri P.K. Malik
27

 Smt. Manjushree Khaitan

Secretary
Shri S.K. Parik
Senior Executives
Shri K.C. Jain (Manager of the Company)
Shri J.D. Poddar
Shri O.P. Poddar
Shri P.K. Goyenka
Shri D. Tandon
Auditors
Messrs Price Water house
Subsidiary Companies of Kesoram Industries
Bharat General & Textile Industries Limited
KICM Investment Limited
Assam Cotton Mills Limited
Softshree Estates Limited

28

THEORETICAL FRAME WORK

INVENTORY
A tangible property held finished goods, work in process, raw material including maintenance
and consumables.
Inventory management is a very important function that determines the health of the supply
chain as well as the impacts the financial health of the balance sheet. Every organization
constantly strives to maintain optimum inventory to be able to meet its requirements and
avoid over or under inventory that can impact the financial figures.
Inventory is a quantity or store of goods that is held for some purpose or use (the term may
also be used as a verb, meaning to take inventory or to count all goods held in inventory).
Inventory may be kept "in-house," meaning on the premises or nearby for immediate use; or
it may be held in a distant warehouse or distribution center for future use.

Meaning of inventory
The inventory refers to the stock pile of the product a firm offering for sale the components
that make up the product. In other words, inventory is composed of assets that will be sold in
future in the normal course of business operations. The assets which firms stores as inventory
in anticipation of need can be classified into
Raw materials
Work in progress (semi finished goods)
Finished goods
Raw materials:
Inventory contains items are purchased by the firm from others and are converted into
finished goods through the manufacturing process. They are important inputs for the final
product.

29

Work in progres
Inventory consists of items currently being used in the production process. They are normally
partially or semi finished goods that are at various stages of production in a multistage
production process.
Finished goods:
It represents final or completed products which are available for sale, the inventory of such
goods consists of items that have been produced but are yet to be sold. The job of the final
manager is to reconcile the conflicting view points of the various functional areas regarding
the appropriate inventory levels in order to fulfill the overall objectives of maximizing the
owners wealth.
Importance of inventory
Inventory plays cardinal role in every organization. The profit of the organization mainly
depends on the inventory. Inventory is the second largest value in the organization it is the
liquid asset and the current asset of the organization, inventory storage is in important activity
in the organization.
OBJECTIVES OF INVENTORY MANAGEMENT
The objectives of the inventory management consist of two counter balancing parts:
a) To maximize the firms investment in inventory
b) To meet a demand for the product by efficiently organizing the firms production and
sales operation.
These two conflicting objectives inventory management can also be expressed in
terms of cost and benefits associated with inventory. An optimum level of inventory
should be determined on the basis of the tradeoff between cost and benefits associated
with the levels of inventory.
THE MAIN AIM OF INVENTORY MANAGEMENT
The main aim of inventory management they should be avoid excessive and
inadequate levels of inventories & to maintain sufficient inventory for the smooth production
30

& sales operation effort be made to place an order at the right time with the fight source to
acquire the right quality at the right place & quantity.

Ensure a continuous supply of raw materials to facilitate uninterrupted production.

Maintain sufficient stocks of raw materials in periods of short supply & anticipated

price customer service.

Minimize the carrying and time, and

Causes of inventory:
External Causes: - Customers, suppliers etc.
Internal Causes: - Market, policy, production and SCM.
Problem with high inventory:

Interest, insurance costs.

Quality deterioration.
Wear and tear.
Storage and pilferage.

Inventory turnover ratio:

ITR = cost of production / inventory

Higher ITR = low inventories
Low ITR = high inventories

High inventory reasons:

Production
More low volume products
Large cycle campaign product
Non-moving products

Marketing:

Uncertainty of orders
Deviating sales forecast

Supply chain management:

Improper planning
Excess / short RM supply.

Suggestions:

Flexible production plans with tight monitoring.

Min & max inventory levels and their up to date revision.
31

Cost benefits analysis in on carrying costs.

Review and disposal of non-moving inventory.
Reliability should improve.
Dynamic approach is essential.
Coordination with market and plants.
Adherence to commitments and time-to-time review is must.

Selection of Site:The following are the chief consideration which should determine the selection of a site.
(a) The site will be connected with road and rail, or if there is river transport, with water
transport.
(b) The existence of facilities for disposal of water or effluent water is important. For this
purpose sometimes it may be possible to use existing waste land. Health authorities
will naturally have a say in the matter.
(c) The available land should be sufficient for purpose of the unit. In addition to factory
buildings, it is often necessary to provide houses for the staff and workers.
STORES, SPARES AND PURCHASES:1.
2.
3.
4.
5.
6.
7.
8.
9.

Store keeping.
Store system.
Various stores operation.
Methods of pricing the material issues.
Receiving section and issue department.
Purchase department
Stores and spares.
Purchasing system.
Inventory.

STORK KEEPING
It is serving facility, inside of an organization responsible for proper storage of the
material and then issuing it to respective department on proper requisition. Those items,
which are not in use for some specific duration example spare parts and the raw materials,
are called stores and the building or space where these are kept is known is store room.
According to Maynard the duties of stock keeping are i.e., to receive materials are to
protect them while in storage from damage and unauthorized removal, to issue the
materials the right quantities at the right time to the right place and to provide these
service promptly at least cost.
It is an establishment fact that more govt of the current assets are invested in stores.
Thus for efficient and economic utilization of fond the importance of store cannot be
ignored.
32

FUNCTIONS OF STORE KEEPING:

The main function of store keeping can be outlined as
i.
ii.
iii.
iv.

Receiving of goods in stores against damage and pilferage.

Custodian of goods in stores against damage and pilferage.
Effective utilization of stores space.
To provide service to the organization in most economic way.

Proper identification and

OBJECTIVES OF STORE KEEPING:
a.
b.
c.
d.

Easy location of the items in store.

Proper identification of items.
Speed issue of material.
Efficient utilization of space.

FACTORS OF PLANT LOCATION.

Primary factors:

Raw material
Market
Fuel and power
Transport
Labor

Secondary Factors:
Industrial atmosphere
Special advantage of a place
Soil and climate
Personal factors
Historical factors
Political stability

Stages in Production control:

Planning
Routing
Scheduling
Loading
Dispatching
Inspection.

Advantages of Production planning and control:Efficient service

Avoidance of rush orders
33

Avoidance of bottlenecks
Inventory control
Economy in production time
Equipment utilization

Types of layout:
Product or line layout
Process of functional layout
Combined layout

Factors in plant layout:

Basis managerial policies and decisions

Nature of plant location
Type of industry and processes.

Economies in Production:

Use of automatic machinery

Division of labor
Utilization of boy-products
Timely and economical repairs and maintenance.

Approach:
The importance of an integrated approach of material management with in the frame
work of the Indian environment and presents a comprehensive coverage of all aspects of the
subjects, such as the operational details of stores system and procedures and modern
mathematical concepts also featured. Since the theory is based on the practical experience
and research projects, it fulfills the needs for authentic literature in the field on materials
management.

Purpose of Stores:A store plays a vital role in the operation of a company. It is in direct touch with the
user departments in its day-to-day activities. The most important purpose served by the
stores is to providing uninterrupted service to the manufacturing divisions. Further, stores is
often equated directly with money, money is locked up in the stores.

The function of stores can be classified as follows:34

1. To receive raw materials, tools, equipments and other items and account for them.
2. To provide adequate and proper storage and pre salvation to the various items.
3. To meet the demands of the consuming departments by proper issues and account for
the consumption.
4. To minimize obsolescence, surplus and scrap through proper codification,
preservation and handling.
5. To highlight stock accumulation, discrepancies and abnormal consumption and effect
control measure.
6. To ensure good housekeeping so that material handling, materials preservation,
stocking, receipt and issue can done adequately.
In India, owing to positions, 4 to 6 months inventories are not uncommon 77 and, in
fact, for certain imported items, it could be as high as 24 months stock. In this
context, stores management assumes greater importance.

Stores leader:The stores leader is very important because this facility the calculations of the value
of goods used for production purpose of materials, finished goods. There are several methods
for calculating the issue price of the materials.

FIFO:Under this method is first issued the earliest consignment on hand and priced at which
that consignment was placed in the stores. In other words materials received first are issued
first.
This method is most suitable in times of falling prices because the issue price of
materials to be jobs work orders will be high while the cost of replacement of materials will
be low.
LIFO:The issue under this method are priced in the reverse order of purchase i.e., The price
of the latest available consignment is taken.

This method is sometimes known as the

replacement cost method because materials are issued at the current cost to work orders
expect when purchases were long ago.
This method is suitable in times of raising prices because material will be issued from
latest consignment at a price which is closely related to the current price levels.
35

Base stock method:Each concern always maintains a minimum quantity of material in stock.

This

minimum quantity is known as safety or base stock and this should be used when an
emergency arises. The objective of this method is to issue the material according to the
current prices.
Average method:In this method stock is divided by the quantity.
Market Price:The issue is made at the market prices.
Inflated prices:
This method is used for any wastage in the materials ex.50 units are purchased at Rs.
10. In 50 units will go for wastage. The issue price will be 500/40=12.5

Location and layout:

More often than not, in the matter of locating the stores, materials management is
rarely consulted. The normal practice is to locate the stores near the consuming departments.
This minimizes handling and ensures timely dispatching stores layout, governing criteria are
easy movement of materials, good housekeeping, and sufficient space for men and materials
handling equipments, such as shovels, racks, pallets and proper preservation from rain, light
and other such elements.
These problems are more important in the case of items that have a limited shelf life.
Other important factors governing the location are the number of users and their
locations, the volume and the verity of goods to be handled the location of the central
receiving section and accessibility to modes of transportation such as rail or road.
Since stores have to be nearest to the sugar, largest organizations usually have stores
near consuming department, whereas receiving is done centrally.
Items of common usage are stocked in the central stores so that inventory is kept at
the planning level of layout.

36

In the case of warehouses stocking finished goods, factors such as proximity to ports,
railway lines, quality of roads, availability of power, etc., become quite important. It also that
the stores are constructed with a futuristic orientation, so that sufficient flexibility for
expansion needs is inbuilt. The activities of receiving the goods, stocking in appropriate
locations, material handling and issue must be done swiftly and economically. The stores
building have adequate facilities for preservation of stores.
Sometimes facilities, such as cold storage, heating equipments, air conditioning and
similar facilities may be required. These should be planned in advance. Comfortable working
conditions must be provided to the stores personnel to get maximum efficiency and morale.
The important factors in the design of stores building can be summarized as follows:

Lighting:Clear and adequate lighting is a must for a work environment. Lighting effects can be
accentuated through a judicious choice of colors for the walls. For stores personnel who work
day in and day out in the stores receiving, checking, stocking, handling and issuing goods, a
pleasing environment goes a long way in reducing monotony. Any attempt to reduce these
facilities will prove false in economizing in the long run.

Safety:-This factor is perhaps the most important aspects. In stores a large volume of goods
are handled every day. Accidents considerably reduce the morale and effectiveness of the
system. The following measures are necessary if accidents are to be checked:

Safety consciousness should be instilled in the minds of stores, personnel through

training programmers, visual aids and literature.

Safety appliances, such as goggles, hand gloves, etc.., must be provided and their use

must be encouraged.
Good housekeeping is essential. This means that gangways must be clean, adequately
wide so that movement of forklifts, trolleys and industrial tractors is smooth. Stocking

must be appropriate locations sot that handling is minimum.

All stores equipment must be kept in good order. This includes adequate maintenance
practice with regard to forklifts, overhead cranes, trolleys, conveyors, etc. operation

must be trained in safety so that safety precautions are not over looker.
Healthy competition can be stimulated by installing safety awards and cash prizes
which bring recognition to the concerned stores personnel for safety practices. This
also motivates other to practice safety.

37

Provision of fire fighting facilities is necessary especially where inflammable

materials are stored and handled. In fact large organizations have a well maintained

the fighting equipment.

Keep the stores in preparedness. This has in the run reduced losses and reduced
insurance expenses, fire extinguisher, fire escapes, alarms and sprinklers must be
available the personnel should be familiar in handling them.

Other factors which merit attention include provision of toilets, routine maintenance
equipments, safe electrical warnings, etc..,

Cost aspects and productivity:It is covered that every cubic meter of space must be utilized by stocks for high
efficiency. Very often such stocking may drastically cut the speed of materials movements
and create bottlenecks apart from affecting overall safety.
Costs involved in stores can be analyzed under two heads, viz.., fixed and variable.
Fixed costs are to be incurred irrespective of the utilization of space stores; they include
money spent on land buildings, rent interest, repairs, maintenance, insurance, etc.
Variable costs vary with the volume through output. They consist of handling cost,
damages, deterioration, obsolescence, etc. Obviously when the throughout or the volume
goods handled is high, the total cost per tone is low. This should be the aim of the stores
manager in order to optimize the costs in stores.

Problems and development:It is an unfortunate fact that stores management has been regulated as a critical
function. In the gamut of material management, a store is considered as the least glamorous
and it never attracts talent. It is forgotten that the stores manager is probably the custodian
of the single largest group of current assets and plays a pivotal role in ensuring smooth
production besides assisting purchase activities through timely support. This is the major
problem and challenge that faces stores manager today.
Many decisions in stores management, such as selection of tracks, bins, handling
equipment, safety practices, codification, training personnel and accounting, call for
considerable, sick and an ability to coordinate with other departments as well as with outsides
agencies. These aspects should be highlighted and appreciated so that the stores function is
given due to importance. Other areas in stores, such as records keeping movement analysis
38

to reduce obsolescence, surplus and damage are critical to the profitable operation of the firm
and the stores manager faces challenges in the areas as well.
In many organizations the scrap yard also comes under control of the stores manager.
This is an entirely new responsibility calling for the ability to maximize returns on the
disposal of scrap. The chief stores officer has under him separate officers for the functions of
receipt, issue, kardex and sub-stores.
Besides coming into contact with the production, purchase maintenance, inspection
and finance departments within his organization, he has to come into contact with the
outsiders like suppliers, transport carriers and bankers. In order to meet such challenges the
important of the stores function should gradually gain momentum and qualified engineers
should be posted as chief stores officers reporting to the materials manager.
ROLE OF FINANCE MANAGER IN INVENTORY
MANAGEMENT
Optimum level of inventory and finding ensures to the problems of EOQ are the
recorder point and the safety stock.
These techniques are very essential to economize the use of minimizing the total inventory
cost. The techniques of inventory management are very useful in data mining. The cases the
board frame works for managing inventories.
To the majority of the companies, inventory represents a substantial investment. Thus
the goal of wealth maximization is related to the financial manager has an important role to
play in the management of inventory.
Although it is not his operating responsibility to control inventory. The financial
should see that only an optimum amount is invested in inventory. He should be familiar with
in inventory control techniques and ensure that inventory is managed well. Effect would be
reduce inventory investment and increase the firms prospects of making profits.

INVENTORY CONTROL:Inventory control renders to the process whereby the investment in materials and
parts carried in stock is regulated within predefined limits set in accordance with the
inventory policy established by the management.
The inventory control is activity oriented process whereas inventory control is the
management process and the later is the firms setup to be followed by the former.
39

Inventory control refers to a planned method of purchasing and storing the material at
lowest possible cost without affecting the sales scheduled. Inventory control therefore, is a
scientific method of determining what, when and how much to purchase and how much to
stock for a given period of time.

The needs for of inventory control:The rewards of inventory control system cannot be over looked in the Indian context
the idea behind this is,

Conserving valuable foreign exchanges.

Release of capital
Reduction in cost

The primary object of inventory control is :

To minimize the idle time caused by shortage of inventory and inventory

availability of inventory.
To keep down capital investment in inventories. Inventory carrying cost and
obsolescence losses.

INVENTORY CONTROL TECHNIQUES

Selective inventory control

Inventory management Techniques

1. ABC analysis

2.
3.
4.
5.
6.
7.

1. EOQ (economic order

Quantity) 2. XYZ analysis

A. Ordering cost

FNS Classification
SOS classification
SOS classification
S-D-E Analysis
HML analysis
Vet classification

B. Carrying cost
2. System of Re-ordering

ECONOMIC ORDER QUANTITY:One of the inventory management problems to be resolved is how much inventory
should be added when inventory is replenished. If the firm is buying raw materials, it has to
decide lots to in which it has to be purchased on cash replenishment.
40

If the firm is planning production as per schedule. These problems are called order
quantity problem and task of the firm is to determine optimum inventory level involves two
type of costs:
1. Ordering cost.
2. Carrying cost.
The economic order quantity is that inventory level, which minimizes the total of
ordering and carrying costs.
Ordering costs:The term ordering cost is used in case of raw materials (or supplies) and includes the
entire costs of acquiring raw materials.
activities.

They include costs incurred in the following

Requisitioning, purchase ordering, transport receiving, inspecting and storing

(store placement), ordering cost increase in proportion to the number of orders placed the
critical and staff costs, however, dont vary in proportion to the number orders placed, and
one view is that so long as they are committed cost they need not to be revoked in computing
ordering cost.
Carrying costs:
Cost incurred for maintaining a given level of inventory are called carrying cost, they
include storage, insurance, taxes, deterioration and obsolescences.
_________________________
2* Quantity required*ordering cost
EOQ (economic order quantity) = --------------------------------------------Carrying cost

ABC Analysis:ABC analysis is one of widely used inventory control tool. Under this we have to
classify materials according to their importance and concentrate more on critical items.
Importance of any item arises due to the two factors namely, consumption values and
critically in use. Classification of materials according to importance has its basis on the
promise vital few and trivial many.
The classification based on consumption value is called ABC analysis and the
classification based on the critically of the items is called VED analysis (vital essential and
41

desirable). Periodical consumption values are used as the basis for VED analysis. ABC is said
to denote always better control, the method of classification of material is also known as
selective method control. The basis of analyzing the annual consumption cost (or usage
cost) goes after the principle vital few and trivial many.
Items held in the stores can grouped into class A,B and C respectively based on their
annual consumption values. It has been found in a large number of organizations that about
20% of the items contribute to 70% of the annual consumption value, 30% of the number of
the number of items contributes about 20% of the annual consumption value and the
remaining 50% of the items contribute 10% of the annual consumption value.
Hence consumption value need to be controlled at the highest level and these are the
A items. The control of bottom 50% of the items that contribute only 20% of the annual
consumption value, that are denoted as C items can be delegated to the lowest decision
making levels while, the middle B items can be controlled by the middle levels of personnel.
The following figures bring out clearly the concept of ABC analysis.
Category value

items10%

% of annual Consumption

A item

20

70

B item `

30

20

C item

70

10

The advantage of ABC method of inventory control is follows.

It becomes possible to concentrate all efforts in areas which need genuine efforts. This
method produces better results and involves minimum control. In the case of an items careful
attention is paid at every stage i.e., estimates of requirements, purchasing safety stocks,
receipts, inspection and issues.
A close watch on high consumption items and their progress of replenishment etc,
maintained. In the case items which are numbers and at the same in expensive are loosely
controlled.

42

The items fall under B category may be dispensed within the record keeping system.
This will help in saving time, money and labor without endangering production schedule, it is
most effective and economical method as it is based on the selective method.
It helps in placing the orders, deciding the quantity of purchasing safety stocks etc.
Thus saving the organization from the unnecessary stocks outs or surpluses.
VED Analysis:VED analysis represents classification of items based on critically the analysis
classifies the items into 3 groups called vital, desirable vital category encompasses those
items for want of which production would come to halt. Essential group includes items
whose stock out is very desirable group comprises of items which do not cause any
immediate loss of production or their stock out entail nominal expenditure and causes minor
disruption for a short duration.

HML analysis:
HML analysis is the price based analysis. This analysis is generally used for control of
spares. The items m under this analysis are classified into 3 groups which are called high,
medium, low. To classify, items are listed in t he descending order of their unit price.
Ex:- the management may decide that all items of unit price above Rs 1000 will be of
H category. Those with unit price between Rs 100 to Rs 1000 will be of Mcategory and
those having unit price below Rs 100 will be of L category.

F-S-N ANALYSIS:F-S-N analysis is based on the consumption figure of the items. The items under this
analysis are classified into 3 groups.

F-fast moving
S-slow moving
N-non moving

43

To conduct the analysis the last date of receipt or the date of issue whichever is later taken
into account and the period, usually in terms of number of months that has elapsed since the
last movement is recorded.

X-Y-Z ANALYSIS:X-Y-Z analysis is based on value stock on hand. Items whose inventory values are
high are called X items those inventory values are low are called Z items and Y items are
which have moderate inventory stocks.

Usually X-Y-Z analysis is used in conjunction with either ABC analysis or HML
analysis.

S-OS ANALYSIS:S-OS analysis is based on seasonality of the items and it classified the items into 2
groups.

S-seasonal
OS-off seasonal

S-D-E ANALYSIS:S-D-E analysis is based on problems of procurement namely,

Non availability
Security
Longer lead time
Geographical location of suppliers&
Reliability of suppliers etc

S-D-E analysis classifies the items into 3 groups called scare, difficult, and easy.
The information so developed is then used to decide purchasing strategies. Scare
classification comprises of items which are in short supply imported through government
agencies. Difficult classification includes those items which are available indigenously
but are not easy to produce. Easy classification covers those items which are readily
available.

LEVEL SETTING:In order to have proper control on materials the following levels are set:

Re-order level
44

Ordering level
Minimum level
Maximum level
Average stock level
Danger level
Safety stock level

Re-order level:It is the point at which if stock of a particular material in store approaches the
storekeeper should initiate the purchase requisition for fresh suppliers of the material. This
level is fixed somewhere between the maximum and minimum levels in such a way that the
difference of the quantity of the material between the re-ordering level and the minimum
level will be sufficient to meet the requirements of production up to the time fresh supply of
the material is received.
Reorder level can be calculated be applying the following formula:Ordering level=minimum level consumption during the time required to get fresh
delivery.
Another formula given by Weldon in his book cost accounting is follows:
Reordering level=maximum consumption X maximum reorder level period.

Ordering level:This is the quantity of stock fixed between the maximum and minimum level of stock.
When this level is reached, it becomes the duty of the store-in-charge to replenish the stock
within reasonable time. This level is usually a little higher than the minimum level. In order
to be prepared for such emergencies as abnormal consumption delay in delivery of new
supplies etc., while fixing this level following points are taken into consideration:

Time required for obtained fresh suppliers.

Possible unexpected requirements which cannot be avoided.
Possible unexpected delays in getting fresh suppliers because of rains war,
about unrest etc.

Minimum level:-

45

Formula level represents the level beyond, which the stock in hand is not allowed to
exceed. This is because:
If the exceeds this level, it will

Involves more investment

Requires more space for storages
Amount to more wastage because of handling, spoilage, obsolescence
Involves more carrying cost

Excess stock will increase the cost of storage, thereby increasingly selling cost.
Excess stock will involve unnecessary blockade of working capital and prevent its
availability for a more profitable use. Stock in excess will prevent the management from
taking advantages of price fluctuation and favorable market condition.

The fixation of maximum level depends on the following factors:

Rate of consumption of the material

Money available
Time required to obtain deliveries
Storage space available
Economic order quantity
Market conditions, seasonality and price fluctuation
Possibility of loss due to deterioration

T he following for the calculation of maximum stock level given by Weldon is as follows:Maximum stock level = Re-ordering+ Re-ordering-quality
(Minimum consumption X minimum re-ordering period)

Average stock level:The average stock is calculated by the following formula.

Average stock level=minimum stock level+ of reorder quantity of minimum stock level+
maximum stock level

Danger level:This means levels at which normal issues are made only under specific instructions.
The purchases officer will make special arrangements to get the materials which reach at their
46

danger level so that the production may not stop due to storage of material danger level =
Average consumption X maximum re-order period for emergency purchase.

Safety stock level:This level is below the minimum level and represents the stage at which emergency
and immediately steps have to be taken for getting the stock replenished.

The inventory plays a vital role in the efficient operation of a company. Particularly; it
is in direct touch with manufacturing departments, material departments and

marketing department in its day to day activities.

In all most an industries, about 60 percentage of the working capital in the materials.
Efficient inventory managements can help to achieve better utilization of this

investment with considerable degree of success.

Providing all the required raw materials, consumable stores, components etc., to the
manufacturing units at the right time and place, at the lowest possible cost and
adopting inventory control measures, using good material handling practices are the

principle objectives of stores management.

In their words reducing the cost in all spheres of the manufacturing activities will help

in increase the profits of the company.

The efficient with whom the inventory is managed will invariable determine the

efficiency of the producing and levels of profits of the enterprises.

Hence inventory management has attained significant status in the present day

business and industrial management.

The increasing specialization in industry, widening range of technical equipment, fast
development in science and technological field here forced the inventory management
also to innovate and improve its performance and contribute to efficiency and
economy in production.

47

TABLE - 5.1.1
LEVEL OF INVENTORY
ANALYSIS PART-1
RATIO ANALYSIS (INVENTORY)

S.No

Particulars

2007-08

48

2008-09

2009-10

2010-11

2011-12

Raw materials
3330.80

5169.86

8392.21

11109.76

11265.50

1387.83

2154.11

3496.76

4629.10

4693.96

Clay ash
(stacker 15 Per cent)

832.70

1292.47

2098.05

2777.44

2816.40

TOTAL(clinker)

5551.33

8616.44

13937.02

18516.26

18775.86

Work in process

5386.48

8451.74

13822.02

18351.46

18611.09

Finished goods

6251.55

9316.59

14522.32

19216.54

19416.11

Total

17189.36

26384.77

42331.36

56084.26

56803.06

Lime stone
(stacker 60 Per cent)
1

Iron ore
(stacker 25 Per cent)

The inventory level was found to be increased trend from 2007-2008 to 2011-2012.
The overall inventory level position for the five years is satisfactory.

CHART - 5.1.1
LEVEL OF INVENTORY

49
Source: Annual report of Kesoram Cement Corporation Limited

INVENTORY TURNOVER RARIO

.

The inventory turnover ratio measures the number of times a company sells its

inventory during the year.

50

TABLE - 5.1.2
INVENTORY TURNOVER RARIO

S.No

Year

2007-08

Cost of goods sold

Average stock (in tones)

Inventory turnover ratio

2663028

487428

5.46 per cent

2008-09

2844494

503184

5.65 per cent

2009-10

3094850

819401.5

3.78 per cent

2010-11

4010580

945491.5

4.24 per cent

2011-12

4521886

822538.5

5.50 per cent

(` in lakhs)

Source: Annual reports of Kesoram Cements Limited

The inventory turnover ratio was high in the year 2007-08 after that 2008-09 the
inventory turnover ratio was decreased. The present value of inventory turnover ratio is good.

CHART - 5.1.2
INVENTORY TURNOVER RATIO

51

INVENTORY CONVERSION PERIOD

The inventory conversion period is the time required to obtain materials for a product,
manufactured it, sell it.

52

TABLE 5.1.3
INVENTORY CONVERSION PERIOD
Inventory conversion

S.No

Year

No. of days

Inventory turnover ratio

2007-08

365

5.46 per cent

66

2008-09

366

5.65 per cent

64

2009-10

365

3.78 per cent

96

2010-11

365

4.24 per cent

86

2011-12

365

5.50 per cent

65

period (in days)

Source: Annual reports of Kesoram Cements Limited

The inventory conversion period is normally indicates the wealth of the company. The
company wants to concentrates with its inventory conversion period.

CHART 5.1.3
INVENTORY CONVERSION PERIOD

53

ANALYSIS PART-2
EOQ ANALYSIS
TABLE-5.2.1
EOQ ANALYSIS FOR THE YEAR 2007-08

Item

Annual
require
ment

EOQ

54

Total
investm
ent with
EOQ

Total
investmen
t without
EOQ

Saving
invento
ry cost

Iron Ore

31500

36

1.5

65

1230

81794

138615

56821

Lime Stones

15000

40

1.25

144

980

142345

145225

2880

Clay Ash

14000

42

144

767

111982

135915

23933

Sulphur

13000

34.5

1.75

153

716

110801

133927

23136

Gypsum

13500

35

1.25

144

869

126223

130688

4465

Bauxite

11500

36.5

1.5

150

748

113322

116173

2851

Source: Annual report of Kesoram CementsLimited

The companys annual requirement for the year 2007-08 is 101000 tons of raw materials.
They using investment with EOQ spent ` 787168. When the same in without investing EOQ
is

` 882551. So the company saved ` 169432 in the year 2007-08.

CHART-5.2.1
EOQ ANALYSIS FOR THE YEAR 2007-08

55

TABLE-5.2.2
EOQ ANALYSIS FOR THE YEAR 2008-09

56

Item

Annual
require
ment

EOQ

Total
investm
ent with
EOQ

Total
investm
ent
without
EOQ

Saving
inventory
cost

Iron Ore

33500

35

1.5

75

1250

95626

169675

74049

Lime Stones

13500

41

154

744

116064

140115

24051

Clay Ash

16500

55

154

1100

171050

171050

Sulphur

14000

35

1.5

163

808

132916

153304

20388

Gypsum

12500

36

154

671

104676

153304

20388

Bauxite

11000

37

2.5

160

571

92787

118752

25965

1.5
5

Source: Annual report of Kesoram CementsLimited

The companys annual requirement for the year 2008-09 is 103700 tons of raw
materials. They using investment with EOQ spent ` 590000. When the same in without
investing EOQ is

` 921215. So the company saved ` 195739 in the year 2008-09.

CHART-5.2.3
57

EOQ ANALYSIS FOR THE YEAR 2008-09

TABLE-5.2.3
EOQ ANALYSIS FOR THE YEAR 2009-10
58

Total
investme
nt
without
EOQ

Annual
require
ment

EOQ

Total
investme
nt with
EOQ

Iron Ore

13500

34

1.5

65

1260

83789

153905

7046

Lime Stones

13500

36

1.5

167

805

135642

151515

15873

Clay Ash

15000

38

165

807

134567

166445

13878

Sulphur

14000

37

164

769

127462

154384

26922

Gypsum

15000

35

165

648

108540

166775

58235

Bauxite

11200

36.5

170

684

117476

128191

10715

Item

1.7
5
1.7
5
2.5
1.7
5

Source: Annual report of Kesoram CementsLimited

The companys annual requirement for the year 2009-10 is 98500 tons of raw
materials. They using investment with EOQ spent ` 68646. When the same in without
investing EOQ is

` 800543. So the company saved ` 114076 in the year 2009-10.

CHART-5.2.3
59

Saving
invento
ry cost

EOQ ANALYSIS FOR THE YEAR 2009-10

TABLE-5.2.4
60

EOQ ANALYSIS FOR THE YEAR 2010-11

Item

Annual
require O
ment

Iron Ore

34000

36

Lime Stones

12500

37

Clay Ash

14000

40

Sulphur

16000

38

Gypsum

18000

36

Bauxite

17000

37

Total
investme
nt with
EOQ

Total
investm
ent
without
EOQ

Saving
inventor
y cost

EOQ

1.5

95

1271

123231

217605

94374

174

727

127770

146226

18456

175

864

152496

164575

12079

174

834

146575

187161

40586

2.75 175

686

121938

212190

90252

1122

203082

205062

1980

1.7
5
1.5
1.7
5

180

Source: Annual report of Kesoram Cements Limited

The companys annual requirement for the year 2010-11 is 111500 tons of raw
materials. They using investment with EOQ spent `875092. When the same in without
investing EOQ is `1132819. So the company saved `2577276 in the year 2010-11.

CHART-5.2.4
61

EOQ ANALYSIS FOR THE YEAR 2010-11

TABLE-5.2.5
62

EOQ ANALYSIS FOR THE YEAR 2011-12

Item

Annual
require O
ment

Iron Ore

38000

37

Lime Stones

13500

35

Clay Ash

12000

38

Sulphur

15000

40

Gypsum

17000

40

Bauxite

18000

39

Total
investm
ent with
EOQ

Total
investmen
t without
EOQ

Saving
inventor
y cost

EOQ

105

1268

135358

268736

133378

185

869

161852

167588

5736

195

551

109099

157770

48671

3.25 185

608

114455

187225

72770

194

1043

203646

221110

17464

2.75 200

715

144965

242235

97270

1.7
5
1.2
5
3

1.2
5

Source: Annual report of Kesoram CementsLimited

The companys annual requirement for the year 2011-12 is 113500 tons of raw
materials. They using investment with EOQ spent ` 869375. When the same in without
investing EOQ is

` 1244664. So the company saved ` 375289 in the year 2011-12.

CHART-5.2.5
63

EOQ ANALYSIS FOR THE YEAR 2011-12

FINDINGS
RATIO ANALYSIS (INVENTORY)

In inventory level of the company, the in inventory level has been increased
year by yea. There is no problem in the inventory level of the Kesoram
Cements Limited.
64

 In inventory turnover ratio the ratios of the year has been fined as low in the
years of 2009-10 and 2010-11. After those periods the inventory turnover ratio
has slightly increased in the year 2010-11. Even though that level is quite low
when compare with 2008-09.
In inventory conversion period is funded as good level. Even though they
wants to keep the inventory conversion period as low.
EOQ ANALYSIS

In EOQ analysis for the year 2007-08 to 2011-12 is good. For this year they
followed EOQ with investment for purchase of goods.
In EOQ analysis for the year 2008-09 to 2011-12 is good. For this year they
followed EOQ with investment for purchase of goods.
In EOQ analysis for the year 2009-10 to 2011-12 is good. For this year they
followed EOQ with investment for purchase of goods.
In EOQ analysis for the year 2010-11 to 2011-12 is good. In this year the EOQ
with investment and EOQ without investment are same.
In EOQ analysis for the year 2011-12 is good. All years of EOQ is followed
only investment with EOQ.

SUGGESTION
RATIO ANALYSIS (INVENTORY)

In inventory level of the company shows the increase of the raw materials,
work-in-process and finished goods. The inventory level of Kesoram
CementsLimited is well.
In inventory turnover ratio finded some problems. They want sell their product
to outside also. Now they use their cement which are produced in Kesoram

65

CementsLimited for their own purpose. They want to sell that to others also
then only the ratio will be increased.
Kesoram CementsLimited sells the 25 per cent of the cements produced,
remaining they used for own purpose. For sales to others they allowed more
days as credit to their agents.
EOQ ANALYSIS

In EOQ analysis there is no problems finded in findings for the Kesoram

Cements Limited. Even though they want to keep that situation in upcoming

years also. Then only they can retain position.

In EOQ analysis there is no problems finded in findings for the Kesoram
Cements Limited. Even though they want to keep that situation in upcoming

years also. Then only they can retain position.

In EOQ analysis there is no problems finded in findings for the Kesoram
Cements Limited. Even though they want to keep that situation in upcoming
years also. Then only they can retain position.

In EOQ analysis there is no problems finded in findings for the Kesoram

Cements Limited. The EOQ was finded as same in the concept of EOQ with
investment and EOQ without investment, even though they followed EOQ

with investment.
In EOQ analysis there is no problems finded in findings for the Kesoram
Cements Limited. Even though they want to keep that situation in upcoming
years also. Then only they can retain position.

66

CONCLUSION
The study covers the inventory management for effective inventory control. I have
used a technique Economic Order Quantity Analysis named as EOQ Analysis for find
out the rate with EOQ and without EOQ investment for purchasing of good in the
manufacturing the cement in Kesoram Cements Limited. Hence the inventory
management of the organization quite good. During the year 2007-2011 from this
study I concluded that organization would be effective inventory management. The
study will be use for Kesoram Cements Limited in various ways.

67

BIBLIOGRAPHY
BOOKS
Asohok Banerjee - Financial Accounting A Managerial Emphasis Excel
Books 2005
Collis Business Accounting Palgrave Macmillan 2007
Khan MY Jain P.K Management Accounting : Text, problems and cases 4th
Edition Tata McGraw Hill 2007
Pandikumar Management Accounting Excel Books 2007
Ramachandran N Kakani Kumar Ram Financial Acccounting For
Management Tata McGraw Hill 2006
Robert N.Anthony David F.Hawkins Kenneth A.Merchant Accounting Text
and Cases Tata McGraw Hill 2007
68

 S.K Bhattacharyya Jhon Dearden Costing for Management Vikas

Publishing 2002
S.N Maheswari S.K Maheswari Accounting for Management Vikas
Publishing 2006

WEBSITES
www.google.com
www.inventoryquzz.com

69