SHIVAJI UNIVERSITY, KOLHAPUR

A STUDY ON INVENTORY MANAGEMENT SYSTEM WITH

SPECIAL REFERENCE TO PSP PUMPS PVT. LTD.,
KOLHAPUR

1.1. INTRODUCTION:
Financial Management is concerned with the duties of the finical manager in the
business firm. Financial managers actively manage the financial affairs of any type of business,
namely financial and non-financial, private and public, large and small, profit seeking and non-
profit.
They perform such varied task, as budgeting, financial forecasting, cash management,
credit administration, investment analysis, funds management and inventory management. A
term inventory refers to the stock file of the products a firm is offering for sale and the
components that make up the product. In other words, inventory is composed of assets that
will be showed in future in the normal course of the business operations. The assets which
firms store as inventory in anticipation of need are:

1.1.1. Raw materials:

The raw material inventory contains item that are purchased by the firm from other and
are converted into finished goods through the manufacturing (production) process. They are
an important input of the final product. The working process inventory consists of items
currently being used in the production process.

1.1.2. Work in process (Semi Finished goods):

They are normally semi-finished goods that are at various stages of production in a
multi stage production process. A finished goods represented final or completed products
which are available for sale. The inventory of such goods consists of items that have been
produced but are yet be sold.

1.1.3. Finished goods:

Inventory, as a current asset, differs from other current assets because only financial
managers are not involved. Rather all the functional areas, finance, marketing, production, and
purchasing are involved. The views concerning the appropriate level of inventory would differ
among the different functional areas.

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1.2. MEANING OF INVENTORY MANAGEMENT:

The term “Inventory” originates from the “Inventariom”, which implies a list of things
found. French word “Inventaire” and Latin word.
The term inventory has been defined by several authors. The more popular of them are
'the term inventory includes materials- raw, in process, finished packaging, spares and others
stocked in order to meet an unexpected demand or distribution in the future”.
Another definition of inventory is that it 'can be used to refer to the stock on hand at a
particular time of raw materials, goods-in-process of manufacture, finished products,
merchandise purchased for resale, and the like, tangible assets which can be seen, measured
and counted. In connection with financial statements and accounting records, the reference may
be to the amount assigned to the stock of goods owned by an enterprise at a particular time".
The job of the financial manager is to reconcile the conflicting view points of the
various functional areas regarding the maximizing the owners wealth. Thus, inventory
management, like the management of other current assets, should be related to the overall
objective of the firm. It is in this context that the present chapter is devoted to the main elements
of inventory management from the view point of financial management.
The objective of inventory management is explained in some detail sections. Section
two is concerned with inventory management techniques. Attention is given here to basic
concepts relevant to the management and control of inventory.

1.2.1. The following aspects covered are:

1. Determination of the type of control required.
2. The basic economic order quantity.
3. The reorder point, and Safety stocks.
As a matter of fact, the inventory management techniques are a part of production
management. But a familiarity with them is of great help to the financial managers in planning
and budgeting inventory.

1.2.2. Need to hold inventories:

Martin and miller identified three general motives for holding inventories

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Need to hold Inventories

Transaction Precautionary Speculative

Motive Motive Motive

1. Transaction motive: This refers to the need of maintaining inventory to facilitate smooth
production and sales operations.
2. Precautionary motive: Precautionary motive for holding inventory is to provide a
safeguard when then actual level of activity is differ than anticipated. This inventory serves
when there is a unpredictable changes in the demand and supply forces.
3. Speculative motive: This motive influences the decision to increase or decrease the levels
of inventory to take the advantage of price fluctuations.

1.3. IMPORTANCE OF THE STUDY:

Inventory management helps companies identify which and how much stock to order
at what time. It tracks inventory from purchase to the sale of goods. The practice identifies and
responds to trends to ensure there’s always enough stock to fulfill customer orders and proper
warning of a shortage. Inventory management is vital to a company’s health because it helps
make sure there is rarely too much or too little stock on hand, limiting the risk of stock outs
and inaccurate records.

1.4. SCOPE OF THE STUDY:

1. Topical scope-
The topical scope of present study is confirmed to the ‘A study on Inventory
Management System with special reference to PSP PUMPS PVT. LTD.’
2. Operational scope-
The study is related to 5 years balance sheet and annual reports of the company.
3. Functional scope-
Analysis of inventory management includes the study of the composition of inventory,
inventory ratios and different techniques with the help of the other reports of the company.

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1.5. STATEMENT OF THE PROBLEMS:

The project Study of “Inventory Management” proves its importance in the current
scenario of business organization. The increasing complexity of inventory management is
challenging businesses to create more efficient processes and strategies to better manage their
inventory. This includes the need to effectively track stock levels, manage inventory
replenishment, and identify potential inventory problems. Companies are struggling to keep up
with the demands of customers and suppliers while ensuring that their stock is accurate and up-
to-date.

1.6. OBJECTIVES OF THE STUDY:

1. To know the inventory management system in PSP pumps Pvt. Ltd.
2. To analyse its inventory management methods with the help of ABC analysis.
3. To study the inventory management practices of PSP Pumps Pvt. Ltd.
4. To offer suitable suggestions for the improvement of inventory management practices.

1.7. RESEARCH METHODOLOGY:

The topic under study was selected through discussion with the project guide and
organization guide in the Company. The information required for the concerned study has been
collected through primary data and secondary data.
1. Primary Data:
Primary data is one collected for the first time. It is very original in characters.
Here primary data is collected from the manager through personal discussion and
interaction.
1. Interaction with Manager and other Staff.
2. observation
2. Secondary Data:
The secondary data one other hand is those which have been already collected
by someone else and which have already been passed through the statistical process.
Secondary data means data that already available i.e. they refer to the data which have
already available i.e. they are refer to the data which have already been collected and
analyzed by someone else.
Secondary data included –
1. Five years annual report of PSP PUMPS PVT. LTD.
2. Reference Book

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3. Website of PSP PUMPS PVT. LTD.

4. Previous projects

1.8. CHAPTER SCHEMES:

CHAPTER I - INTRODUCTION AND RESEARCH METHODOLOGY
This chapter consists of Introduction, Meaning and Definition of Inventory Management,
Statement of problem, Importance of study, Objectives of the study, Scope of the study,
Limitations of the study and Research Methodology.

CHAPTER II - CONCEPTUAL FRAMEWORK

This chapter is related theoretical information like meaning of Inventory management,
Concept of Inventory Management, Functions of Inventories in manufacturing process,
Factors influencing Inventory Management, and Advantages and Disadvantages.

CHAPTER III - PROFILE OF THE COMPANY

This chapter consists of Information about company, Company history, Company
Infrastructure, Board of Directors and Company’s Products.

CHAPTER IV - DATA ANALYSIS AND INTERPRETATIONS

This topic deals with the presentations of the data collected and its interpretations.

CHAPTER V - FINDINGS, SUGGESTIONS AND CONCLUSION

This chapter presents overall findings, suggestions and conclusion about the project work.

1.9. LIMITATIONS OF THE STUDY:

1. Detail study about all the material was not possible because of time limit.
2. Some of the information was kept confidential by the stories department.
3. Study was confined only to the selected components in the stores department.

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1.10. FINDINGS:
1. The inventory to working capital ratio decreased from 25.38% in 2018 to 6.83% in
2020.
2. The inventory turnover ratio of the company has decreased from 7.74 times in 2017 to
5.49 times in 2018, and then increased to 10.46 times in 2021.
3. The raw material turnover ratio decreased from 1.02 times in 2017 to 0.67 times in
2020.
4. The finished goods turnover ratio has seen fluctuations from 39.18% in 2017 to
134.90% in 2019 and 34.42% in 2020.
5. The inventory conversion period in 2021 is the shortest at 34.41 days, while the
inventory turnover ratio is the highest at 10.46 times.
6. The amount of raw material at closing stock has increased steadily over the past five
years.
7. The amount of stock in progress has decreased from 2017 to 2021, with a significant
decrease in 2019.
8. The amount of finished goods at closing stock has decreased from 2017 to 2021.
9. The cost of stores increased significantly from 2017 to 2021, with the highest amount
of cost in 2021 being 4,31,35,425.00 crores.
10. The total turnover ratio has ranged from 0.93 to 1.43 over the past five years.
11. The fixed assets turnover ratio has significantly decreased from 35.51 in 2017 to 14.68
in 2020.
12. The capital turnover ratio decreased over the years from 2.21 in 2017 to 1.39 in 2020,
before increasing to 1.53 in 2021.

1.11. SUGGESTIONS:
1. To reduce the inventory to working capital ratio, proper inventory management and
reduction in inventory levels should be implemented.
2. In order to improve its inventory turnover ratio, the company should aim to reduce its
inventory more effectively.
3. It is suggested to reduce the average stock of raw materials to improve the raw material
turnover ratio.
4. To improve the Finished Goods Turnover Ratio, it is suggested to reduce the amount
of finished goods held in inventory.

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5. Based on the given numbers, it is suggested to aim for an inventory conversion period
of less than 45 days in order to optimize inventory turnover.
6. Reduce the amount of raw material at the closing stock each year to maintain a
sustainable inventory.
7. It is suggested to reduce the stock in progress and ensure timely payments to vendors.
8. It is recommended to keep a track of the amount of finished goods and ensure that the
stock is maintained at an optimal level.
9. It is suggested to keep an adequate stock of stores, spares, and consumables at all times
to avoid any unexpected delays and costs.
10. The company should also focus on improving its sales efficiency. This can be done by
focusing on increasing sales volume, improving pricing strategies, and improving
customer service.
11. It is suggested that the company should consider improving its asset management
practices in order to increase its efficiency in utilizing its resources.
12. The capital turnover ratio has been decreasing over the past few years. Companies
should focus on increasing the efficiency of the capital employed so as to improve their
financial performance. The management should look into reducing the cost of goods
sold and increasing their net assets in order to improve their capital turnover ratio.

1.12. CONCLUSION:
1. Inventory management has to do with keeping accurate records of finished goods that
are ready for shipment. This often means posting the production of newly completed
goods to the inventory totals as well as subtracting the most recent shipments of finished
goods to buyers. When the company has a return policy in place, there is usually a sub-
category contained in the finished goods inventory to account for any returned goods
that are reclassified or second grade quality. Accurately maintaining figures on the
finished goods inventory makes it possible to quickly convey information to sales
personnel as to what is available and ready for shipment at any given time.
2. Inventory management is important for keeping costs down, while meeting regulation.
Supply and demand is a delicate balance, and inventory management hopes to ensure
that the balance is undisturbed. Highly trained Inventory management and high-quality
software will help make Inventory management a success. The ROI of Inventory

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management will be seen in the forms of increased revenue and profits, positive
employee atmosphere, and on overall increase of customer satisfaction.

REFERENCES

Referred following standard Reference books and Websites:

1. Arnold, J (2003). Inventory Management

2. Basu, S. (2020). Principles and Practice of Management. 8th edition. New Delhi: McGraw
Hill Education.
3. Kothari, M. (2000). Principles of Inventory Management
4. Martin, J.R. and Miller, B.P., (1989). Inventory Management and Production Planning and
Scheduling, John Wiley & Sons, Inc., New York
5. www.en.wikipedia.org/wiki/abcanalysis
6. www.inventory-management.com
7. www.investopedia.com/terms/i/inventoryratios.asp
8. www.investopedia.com/terms/i/inventorymanagement.
9. www.managementstudyguide.com
10. www.moneysights.com
11. www.psppumps.com
12. www.wikipedia.org/inventory_management

Signature Signature
Mr. Gaurav Balaji Rane Dr. R. N. Bolake
Place: Kolhapur
Date:

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