jayaprakash project

7/28/2019 Jayaprakash Project

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INTRODUCTION

Inventory management is the process of efficiently overseeing the constant flow of units into and

out of an existing inventory. This process usually involves controlling the transfer in of units in

order to prevent the inventory from becoming too high, or dwindling to levels that could put the

operation of the company into jeopardy. Competent inventory management also seeks to control

the costs associated with the inventory, both from the perspective of the total value of the goods

included and the tax burden generated by the cumulative value of the inventory.

Balancing the various tasks of inventory management means paying attention to three key

aspects of any inventory. The first aspect has to do with time. In terms of materials acquired for

inclusion in the total inventory, this means understanding how long it takes for a supplier toprocess an order and execute a delivery. Inventory management also demands that a solid

understanding of how long it will take for those materials to transfer out of the inventory be

established. Knowing these two important lead times makes it possible to know when to place an

order and how many units must be ordered to keep production running smoothly.

Calculating what is known as buffer stock is also key to effective inventory management.

Essentially, buffer stock is additional units above and beyond the minimum number required to

maintain production levels. For example, the manager may determine that it would be a good

idea to keep one or two extra units of a given machine part on hand, just in case an emergency

situation arises or one of the units proves to be defective once installed. Creating this cushion or

buffer helps to minimize the chance for production to be interrupted due to a lack of essential

parts in the operation supply inventory.

Inventory management is not limited to documenting the delivery of raw materials and the

movement of those materials into operational process. The movement of those materials as they

go through the various stages of the operation is also important. Typically known as a goods or

work in progress inventory, tracking materials as they are used to create finished goods also

helps to identify the need to adjust ordering amounts before the raw materials inventory gets

dangerously low or is inflated to an unfavorable level.
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Finally, 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 as refurbished 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.

In addition to maintaining control of the volume and movement of various inventories, inventory

management also makes it possible to prepare accurate records that are used for accessing any

taxes due on each inventory type. Without precise data regarding unit volumes within each phaseof the overall operation, the company cannot accurately calculate the tax amounts. This could

lead to underpaying the taxes due and possibly incurring stiff penalties in the event of an

independent audit.


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INVENTORY MANAGEMENT must tie together the following objectives ,to ensure that there

is continuity between functions :

Companys Strategic Goals

Sales Forecasting

Sales & Operations Planning

Production & Materials Requirement Planning.

Inventory Management must be designed to meet the dictates of market place and support the

companys Strategic Plan . The many changes in the market demand , new opportunities due to

worldwide marketing , global sourcing of materials and new manufacturing technology means

many companies need to change their Inventory Management approach and change the process

for Inventory Control .

Inventory Management system provides information to efficiently manage the flow of materials ,

effectively utilize people and equipment , coordinate internal activities and communicate with

customers . Inventory Management does not make decisions or manage operations, they provide

the information to managers who make more accurate and timely decisions to manage their

operations.

Inventory is defined as the blocked Working Capital of an organization in the form of materials.

As this is the blocked Working Capital of organization, ideally it should be zero. But we are

maintaining Inventory . This Inventory is maintained to take care of fluctuations in demand and

lead time. In some cases it is maintained to take care of increasing price tendency of

commodities or rebate in bulk buying.

Traditional Supply Chain solutions such as Materials Requirement Planning, Inventory Control,

typically focuses on implementing more rapid and efficient systems to reduce the cost of

communicating information between and across the Inventory links in the SCM.COM focuses in

optimizing the total investment of materials cost and workload for every Inventory item

throughout the chain from procurement of raw materials to finished goods Inventory .


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Optimization means providing a balance of supply to meet the demand at a minimum total cost ,

Inventory level and workload to meet customers service goal for each items in the link of

Inventory Chain .

It is strategic in the sense that top management sets goals. These include deployment strategies

(Push versus Pull), control policies, the determination of the optimal levels of order quantities

and reorder points and setting safety stock levels . These levels are critical, since they are

primary determinants of customer service levels.

Keeping in view all concerns, the latest concept of Vendor Managed Inventory is used to

optimize the Inventory. We are entering into Vendor Managed Inventory, Annual Rate Contracts

with manufacturers or their authorized dealers, who maintain Inventory on our behalf and supply

the items as and when required.

VMI reduces stock-outs and optimize inventory in supply chain. Some features of VMI include:

Shortening of Supply Chain

Centralized Forecasting

Frequent communication of inventory, stock-outs and planned promotions

Trucks are filled in a prioritized order , e.g. items that are expected to stock out have top

priority then items that are furthest below targeted stock levels then advance shipments of

promotional items

Despite the many changes that companies go through, the basic principles of Inventory

Management and Inventory Control remain the same. Some of the new approaches and

techniques are wrapped in new terminology, but the underlying principles for accomplishing

good Inventory Management and Inventory activities have not changed.

The Inventory Management system and the Inventory Control Process provides information to

efficiently manage the flow of materials, effectively utilize people and equipment, coordinate

internal activities, and communicate with customers. Inventory Management and the activities of


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Inventory Control do not make decisions or manage operations; they provide the information to

Managers who make more accurate and timely decisions to manage their operations.

The basic building blocks for the Inventory Management system and Inventory Control activities

are:

Sales Forecasting or Demand Management

Sales and Operations Planning

Production Planning

Material Requirements Planning

Inventory Reduction

The emphases on each area will vary depending on the company and how it operates, and what

requirements are placed on it due to market demands. Each of the areas above will need to be

addressed in some form or another to have a successful program of Inventory Management and

Inventory Control.

Inventory is usually a distributors largest asset. But many distributors arent satisfied with the

contribution inventory makes towards the overall success of their business:

The wrong quantities of the wrong items are often found on warehouse shelves. Even

though there may be a lot of surplus inventory and dead stock in their warehouse(s),

backorders and customer lost sales are common. The material a distributor has committed

to stock isnt available when customers request it.

Computer inventory records are not accurate. Inventory balance information in the

distributors expensive computer system does not accurately reflect what is available for

sale in the warehouse.

The return on investment is not satisfactory. The companys profits, considering its

substantial investment in inventory, is far less than what could be earned if the money

were invested elsewhere.


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Meaning Of Inventory Management:

Inventory management means safeguarding the company property in the form of

inventories and maintaining it at the optimum level, considering the operating requirements and

financial resources of the business. Inventory management emphasizes control over purchases,

storage, consumption of materials and determining the optimum level for each item of

investments.

Importance of Inventory Management:

Inventory management is concerned with keeping enough products on hand to avoid

running out while at the same time maintaining a small enough inventory balance to allow for a

reasonable return on investment. Proper inventory management is important to the financial

health of the corporation; being out of stock forces customers turn to competitors or results in a

loss of sales. Excessive level of inventory however, results in large carrying costs, including the

cost of capital tied up in inventory warehouse fees, insurance etc.

A major problem with managing inventory is that the demand for a corporations product

is to a degree uncertain. The supply of the raw materials used in its production process is also

somewhat uncertain. In addition the corporations own production contains some degree of

uncertainty due to possible equipment breakdowns and labor difficulties.

Because of these possibilities, inventory acts as a shock absorber between product

demand and product supply. If product demand is greater than expected, inventory can be

depleted without losing sales until production can be stepped up enough to select the unexpected

demand.

However inventory is difficult to manage because it crosses so many lines of responsibility. The

purchasing manager is responsible for supplies of raw material and would like to avoid shortages

and to purchases in bulk order take advantages of quantity discounts.

The production manager is responsible for uninterrupted production and wants to have

enough raw materials and work in process, inventory on hand to avoid disruption in the

production process. The marketing manager is responsible for selling the product and wants to

minimize the chances of running out of inventory. The financial manager is concerned about

achieving an appropriate overall rate of return. Funds invested in an inventory are idle and do

not earn a return.


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Nature of Inventories

Inventories are stock of the product a company is manufacturing for sale and

components that make up the product. The various forms in which inventories that exist in

manufacturing company are

Raw materials

Work-in-process

Finished goods

Raw materials

These are those basic inputs that are converted into finished product through the

manufacturing process. Raw materials inventories are those units which have been purchased

and stored for future production.

Work-in-process

These inventories are semi-manufacture products. They represent products that need more

work before they became finished for sale.

Finished goods

These inventories are those completely manufactured products which are ready for sale.

Stocks of raw materials and work-in-process facilitate production while stock of finished goods

is required for smooth marketing operations. Thus, inventories serve as link between the

production and consumption of goods.

Need to hold inventories

Maintaining of inventories involves trying up the companies and incurrence of storage

and handling cost. There are three general motives for holding inventories.

Transaction motive

It emphasizes the need to maintaining inventories to facilitate smooth production and

sales operation.

Precautionary motive

It necessitates the holding of inventories to guard against risk of unpredictable changes in

demand and supply force and other factors.


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Speculative inventories

It influences the decision to increase or reduce inventory level to take advantage of price

fluctuations.

The firm should always avoid a situation of over investment or under investment in

inventories.

The major dangers of over investment in inventories are

i. Unnecessary tie up of the funds and loss of profits.

ii. Excessive carrying cost.

iii. The risk of liquidity.

The consequences of under investment in inventories are

i. Production hold-ups

ii. Failure to meet delivery commitments. Inadequate raw materials.

iii. Work-in-process will result in frequent in production interrupts.

An efficient inventory management should

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

Maintain sufficient supply of raw materials in periods of short supply and

anticipate price changes.

Maintain sufficient finished goods inventory for smooth sales operation and efficient

customer service. Minimize the transportation cost on time.

Control investment in inventories and keep it at an optimum level

Cost of holding inventories

The determination of inventory cost is essentially an income measurement problem, a

means whereby there is rational orderly, systematic interpretation of the effect on the economic

progress of the company of expenditures involved acquiring goods or in maintaining and

operating productive facilities. Ability to quantify and develop rigorous models of most

managerial problems is dependent on the determination behavior of relevant costs. The practical

application of such models is also dependent on ability to obtain the cost data. Relevant

inventory costs which change with level of inventory are listed below.


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Ordering costs

Every order is placed for stock replenishment, certain cost are involved. The ordering

cost may vary, dependent upon type item.

This cost of ordering includes

Paper work cost, typing and dispatching order.

Follow-up costs the follow-up required ensure timely supplies include the travel cost for

purchases follow-up, telephone telex and postal bills.

Cost involved in receiving the order inception, checking and handling to the stores.

Any set up cost of machines if charged by supplier, either directly indicated in quotations

or assessed thought quotations for various quantities.

The salaries and wages to the purchase department are relevant for consideration if the

purchasing function is carried out at the same level with existing staff.

There are certain costs that remain the same regardless of the size of the lot purchased

or requisitioned. This would be retailer ordering from the distributor, from the distributor

ordering from a factory warehouse, for the factory warehouse ordering a new production run

from the factory, and for the factory ordering raw materials from vendors. These kinds of

costs are called preparation or set up costs.

If we are ordering to replenish supplies at one stock point from another stock point, our

interest is in the incremental clerical costs of preparing orders, following these orders.Expediting them when necessary, etc, a large segment of the total cost of the ordering

function is fixed, regardless of the number orders issued. Even then it may be difficult

determined satisfactorily the incremental cost, which results from one more order. Quantity

discounts and handling and transport cost are other factors, which vary lot sizes.

Preparation cost are the incremental costs of planning production, writing production

orders, setting machines and controlling the flow orders through the factory. Material handling

cost in the plant have an effect on production lot sizes in much the same way that freight costs

may effect purchase lot sizes.

Besides the preparation costs of production, there are some other production costs, which have a

direct bearing on inventory models, however. These are over time premiums and the incremental

cost of changing production levels, such as hiring, training, and separation costs.


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Carrying costs

Carrying costs constitutes all the costs of holding items in inventory for a given period of time.

They are expressed either in rupees per period or as percentage of the inventory value per period.

Components of these costs include the following

Storage and handling cost.

Obsolescence and deterioration costs

Insurance

Taxes

The cost of the funds invested in inventories

Storage and handling costs include the cost of warehouse space.

Obsolescence costs represent the decline in inventory value caused by style changes that make

the existing product less salvable.

Deterioration costs represent the decline in value caused by changes in the physical

quality of the inventory such as spoilage and breakage.

Another element of carrying cost is the cost of insuring the inventory against losses due to

theft, fire and natural disaster. In addition, a company must pay any personal property taxes

required by local and state government on the value of its inventories.

Like ordering costs, inventory-carrying costs contain both fixed and variable components.

Most carrying costs vary with inventory level, but a certain portion of them-such as warehouse

rent and depreciation on inventory handling equipment- are relatively fixed over the short run,

inventory model such as EOQ model treat the entire carrying cost as variable.

Stock out costs

Stocks out costs are incurred when ever a business is unable to fill orders because the

demand for an item is greater than the amount currently available in inventory. When a stock out

in raw materials occur, for example, stock out costs include the expenses of placing special

orders (back ordering) and delays. A stock out in work in progress inventory results in

additional costs of rescheduling and speeding production with in the plant, and it also may result

in reduce production costs if work stoppages occur. Final, a stock out in finished goods

inventory may result in the immediate loss of profits of customers decide to purchase the product

from the competitor and in potential long-term losses if customers decide to order from other

companies in the future.


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Other characteristics of inventory situations

Besides the various types of costs involved, there are other characteristics of the

situation that vary among types of inventory and must be captured if the decision model is to be

an accurate representation of the physical circumstances.

Lead times

Obtaining inventory usually requires a lag from the initiation of the process until the

inventory starts to arrive. This lead-time may be a few minutes or it may be many months, and

depends in part on whether the firm is producing goods for its inventory or is ordering these

goods from another firm. To produce goods for its own use, the firm must schedule, set up and

adjust manufacturing equipment.

Sources and levels of risk

Uncertainties play a significant role in inventory situations. Uncertainties usually involve lead

times and demand times and demand levels, but situations where other variables are uncertain

also occur. Where are substantial

uncertainties and where the costs of stock out are important Strategies for addressing risk must

be formulated?

Static versus dynamic problems

Inventory problems are usually divided into two types based on the characteristics of the

goods involved. In static inventory problems, the goods have one-period life; there can be

carrying over of goods from one period to the next. Inventory situations where decisions involve

the number of news papers to print, the number of greeting cards to purchase or the number of

calendars to produce are static inventory problems. In dynamic inventory problems, the goods

have value beyond the initial period; they do not lose their value completely over time.

Replenishment rate

Once goods start to be received from a vendor or from the firms own productionprocesses, there are differences among goods in the rate at which they are received. Small orders

from vendors are likely to by receive all at once. For example, assume that a firm has placed in

order for 10 cases of paper towels. For such a small order the rate of replenishment is infinite;

the firms inventories well go up 10 cases in a very short time as the goods are quickly unloaded.


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For large order from vendors, or for inventory produced with in the firm, the

replenishment rate may be slower.

Types of inventory

Inventories can be classified into five basic types on the basis of their production. These various

types of inventories cannot be identified and segregated within the organization. These five

types are

1. Management inventory

They are needed because of the time required to move stocks from one place to another

place.

2. Lot size Inventories

These are as a result of buying materials in quantities larger than the immediate

requirement, with a view to minimizing cost of transportation, buying, receipt and handling and

to obtaining quantity discount.

3. Fluctuation Inventories

These are carried to ensure ready suppliers to consumer even when these are irregular

and unpredictable fluctuations in their demand.

4. Anticipation inventories

These are usually maintained to meet a predictable but changing pattern of future

demand.


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INDUSTRIALPROFILE

Strategically located kanipakam patanam of Chittoor District in Andhra Pradesh, India,

Sai sanjana fruit products is totally Export based food processing unit to process wide

varieties of Tropical Fruit Purees, Concentrates, Fresh Fruits and so on.

At Sai sanjana fruit products , we support the local farming community to cultivate fruits /

vegetables and improve their economical condition. We firmly believe that this farming

community is the source of strength for our organization.

We emphasize on adopting the best practices, proven methodologies and world-class quality

food processing benchmarks. In a phased manner, we are poised to help the industry and

nation in general and farmers in particular.

We envisage extending our operations through a chain of food processing plants across India

with special emphasis on backward integration and making the farmers community as

partners in our progress.

Backward Integration

As part our Backward Integration model, we support the local farming community through:

Interacting with farmer community

Bringing large scale farming land into fruits / vegetable cultivation

Imparting technical training under the guidance of experts from research institutes

Encouraging to accomplish the best quality and higher fruit yields

Training them on advanced fruit / vegetable farming and harvesting techniques

Spreading the awareness among them on the latest horticultural techniques

Enabling them to mobilize and get the fruits directly to the factory

Minimizing the fruit transportation costs through direct purchases

Reducing the unnecessary involvement of middlemen like traders, wholesalers, agents,

etc.


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Minimizing damages in handling fruits / vegetables

Enabling high returns on investment (ROI)

Sai sanjana fruit products has developed state-of-the-art fruit processing facility to process

and produce natural tropical fruit puree, fresh fruits and concentrates. Our plant is strategically

located within the vicinity of largest fruits / vegetables producing districts like Chittoor,

in Andhra Pradesh.

Sai sanjana fruit products Processing (India) Private Limited is a fruit processing

company to provide the best-in-class Tropical Fresh Fruits, Vegetables, Pulp / Puree and

Concentrates. Our products are processed in world-class food processing plants which follow

international heath benchmarks. Sai sanjana fruit products quality standards, are in

compliance with the global standards.

We firmly believe that local farming community is the source of strength for our organization.

With Backward Integration as the core model, we encourage the local farming community to

take up fruits / vegetable cultivation and enable sustainable economical growth.

We emphasize on adopting the best practices, proven methodologies and world-class quality

food processing benchmarks. In a phased manner, we are poised to help the industry and nation

in general and farmers' community in particular.


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OurProcessing Plant

At our fruit processing plant, we have the most modern, world-class and total export oriented

fruit processing facility. We have all operations from farm to finished product delivery is

computer controlled.

Fruit products provided by Sai sanjana fruit products are fully quality driven. We are indeed

proud to be associated with them.

CEO of a Fruit Trading Company

Mango Puree and Concentrate

Our Mango Puree and Concentrates are produced in a more hygienic environment under the

surveillance of highest quality standards and food industry benchmarks. Mango Puree is

produced by processing fresh fruits specially selected. The fruit processing includes:

Cleaning

Washing

Draining

Sorting

Inspection

Mango Puree is then packed, stored and shipped according to the best manufacturing practices.

We have different breeds of Mango Puree from India and other countries. The Puree produced by

us is used mainly in juices, nectar, baby foods and jelly foods.
http://www.mahajuicy.com/images/facilitiesimage.jpg


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Mango Puree is produced from fully ripened Mango fruits both from India and imported from

other countries. We follow stringent guidelines and fruit processing practices without using any

additives or food preservatives.

Mango Concentrate is prepared using fresh and mature Mango fruits. The process includes:

Pulp Extraction

Enzymatic Deactivation

Evaporation

Enzyme Addition

Puree Concentration

Sterilization

The Mango Concentrates produced by Sai sanjana fruit products can be used in beverages,

ice-cream, fruit jams, jellies, sauces and cereal bars.

Fruit products provided by Sai sanjana fruit products are fully quality driven. We are indeed

proud to be associated with them.

CEO of a Fruit Trading Company

Mango Puree and Concentrate

Our Mango Puree and Concentrates are produced in a more hygienic environment under the

surveillance of highest quality standards and food industry benchmarks. Mango Puree is

produced by processing fresh fruits specially selected. The fruit processing includes:

Cleaning

Washing

Draining

Sorting

Inspection


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Pulp Extraction Enzymatic Deactivation

Evaporation

Enzyme Addition

Puree Concentration

Sterilization

The Mango Concentrates produced by Sai sanjana fruit products can be used in beverages, ice-

cream, fruit jams, jellies, sauces and cereal bars.

The lack of mango market development globally opens a large untapped opportunity for India to

make an organized entry in the fresh mango and mango pulp market. India is well positioned to

capitalize on this opportunity with a very large national production of mangos, including leading

varieties like Alphorns. India has the potential to create a longterm global market position and

to capitalize on the fast growth of mango as a preferred ingredient for the natural package food

industry.

Additionally, mango is a preferred fresh fruit within the Indian domestic market, as well as

globally. Mango is in strong demand within the worldwide retail sector. The total market value

of Indian mango and mango pulp represents 25% of the value of agricultural and processed food

products exported by India. Moreover, the consumption growth for mangos in the United States


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and Europe has average 1015% per year during the last 5 years. Collectively, these factors

indicate a strong opportunity to position Indian mango and mango products to meet a growing

international demand. India is the worlds largest supplier of mangos, having an annual

production of 10.5 million metric tons in 2003.

This accounts for 41% of the estimated worldwide mango production of 25.56 million metric

tons in 2003. Despite this large mango production, India is a minor exporter of mango and

mango products at this time. During the fiveyear period from 19982002, exports of fresh

mangos from India averaged approximately 42.4 thousand metric tons, or only about 0.4% of

mango production during this time frame. Data on exports of Indian mango pulp and juice

products are more limited. Data from 1995 indicated that India exported 37.7 thousand metric

tons of mango pulp.

Data from 2001 indicated that India exported 3.2 thousand metric tons of mango juice, but also

imported 2.2 thousand metric tons of mango juice. Collectively, these observations indicate that,

despite being by far the worlds largest mango producer, India exports less than 1% of its mango

crop as fresh mangos or processed mango products. These observations with mango are

consistent with aggregate data available on Indian fruit and vegetable exports.

One barrier to efficient development of the Indian mango industry is an exceedingly complexsupply chain. Within the value chain, a number of buyers and other aggregators operate at local

Minds and APMC to assemble larger lots from the many small producers in any given region.

Associated with this inefficient aggregation process is the application of numerous commissions

as fresh agricultural products trade hands. Numerous stakeholders in India have expressed

concern that this overly complex value chain is a hindrance to effective marketing of Indian

mangos and mango products.

A recent report from the Indian Ministry of Food Processing Industries further details the overly

complex supply chain and its contribution to costs and postharvest losses. This report concludes

that it is imperative to streamline the mango supply chain in order to reduce wastage and raw

material costs. (Sources: India Ministry of Food Processing Industries and Rambo bank Report).


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INDIA MANGO & MANGO PULP INDUSTRY DEVELOPMENT:

Through partnerships with mango growers, processors, export organizations, and Indian

government organizations, among others, PFIDF&V is working to strengthen the small and

medium mango grower base by providing capacity building at all levels.

Education and training in Good Agricultural Practices and other sanitary standards, as well as

employment of certification systems, will lead to better yields, pesticide use in accordance with

regulations, and a more efficient supply chain. PFIDF&V partnerships will also help identify

and facilitate resources necessary for enhancing the mango supply chain such as cold storage

facilities, improved packing and grading facilities, testing facilities, and logistics management.

Furthermore,

A further approach will target reduction of waste in the fresh mango chain by developing high

value mango products and enhancing processing capacity for the domestic market. Ultimately,

these steps will help stabilize prices, increase farmer incomes, and development the farmer base

at commercial and social levels.

MANGO PULP INDUSTRY HOPES

Mango pulp production to reach 75,000 tons by 2010

Mango is raised in 36,000 hectares in Krishna Giri district

Mango pulp processed annually is 50,000 tones

Farmers have to go to Bangalore, as there is no testing facility in Krishnagiri

Farmers are not getting fair price, even if there is a rise in prices in global market

MANGO MARKET DEVELOPMENT

PFID-F&V India has continued to forge and strengthen public and private partnerships to the

point that, now, just over one year from project start-up, notable results are beginning to show in

the form on increasing contributions from partnership members.


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Dr. Thiagarajan, MSU/PFID-F&V, together with our two India-based coordinators, recently met

with the Agricultural Product Export Development Authority (APEDA) as well as the Federation

of Indian Chambers of Commerce (FICCI) and the National Institute of Marketing Boards

(NIAM) to follow up on each of their commitments to promote the Indian Mango Industry.

During this visit, both the Maharashtra State Horticulture Mission and the National Horticulture

Missions approvals were secured to begin the critical selection of 100 GAP demonstration

farms, identification of trainers to participate in train-the-trainer courses and program

implementation, as well as the initial survey and audits of the nucleus demonstration farms in

Maharashtra.

A PROPOSAL IS BEING PREPARED & SUBMITTED TO APEDA

Support employment of agric-officers to supervise, inspect and monitor the 100

demonstration farms

To support controlled atmosphere trials of mango for both domestic and export market

purposes

To support training of extension agents from four key mango growing states in India to

replicate mango demonstration model farms in these states

To support GAP certification costs for a sub-set of mango producers To support the interface of project marketing activities with companies such as ITC,

Reliance, ShopRite, and Metro to provide market access for these demonstration farms.

The India team is also engaged in discussion with ITC to cosponsor a packaging conference on

innovations for both fresh and processed mango industries. The goals of this packaging

conference are to expose domestic producers, processors and retailers to modern food packaging

solutions, and to strength market linkages among mango producers and processors with India-

based supermarkets as well as key players in the export market.

Other opportunities to explore with groups like ITC, ShopRite and similar partners are

establishment of a direct contract program which would include promotion, direct shipment from

packing houses to stores, proper packaging, and early contracting.


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GOALS OF INDIA MANGO MARKET DEVELOPMENT

Currently, only 1% of the total mango production in India is exported. One reason contributing

to this poor export performance is that overseas buyers have stricter standards than are currently

accepted within the Indian domestic market. PFIDF&V will facilitate the development and

implementation of quality and safety standards which will meet the demands of the export

market.

PFIDF&V will partner with relevant Indian organizations in establishing a global

image for the Indian mango starting with the establishment of quality standards and Good

Agricultural Practices (GAPs) standards for India.

PFID partnerships in India can facilitate the development of a distribution network in

European and other countries where the value realizations for mango and mango pulp are

the highest.

PFID partnerships can assist mango growers and processors in developing an "India"

brand image for fresh mango and processed mango products that meet consumer

preferences. The predominant mango varieties grown in India make this product unique

in country and abroad.

After demonstrated success in developing a strengthening the market development ofmangoes, PFID India liaisons can easily adapt this approach to the further development of other

fruit and vegetable products in India


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COMPANY PROFILE

History Of Saisanjana Fruit Products Processing (P) Ltd :

The division combines people with vast experience in agric-trading with the saisanjana fruit

products processing (p) ltdGroups credibility to justify its premier standing in the trading arena.

The division was set up in 1967 and since then has handled a wide range of products - such as

Sesame Seeds, Processed Fruits, Food grains, Aqua etc.

Saisanjana fruit products processing (p) ltd began its fruit processing operations in early

70s.However fruit processing operations have been given a special thrust since the last season

with an emphasis on developing strategic partnerships across the value chain especially fruit

procurement and processing. Saisanjana fruit products processing(p) ltd has established it's

presence as a reliable and competitive exporter to Coca Cola, USA, Western Europe, Far East,

Middle East etc.

BACKGROUND OF SAISANJANA FRUIT PRODUCTS PROCESSING(P) LTD

Situated at Chittoor in Andhra Pradesh, the mango belt in India saisanjana fruit products

processing(p) ltd is a 100% Export Oriented Unit (EOU) processing Tropical Fruit Purees,

Concentrates and Fresh Fruits saisanjana fruit products processing(p) ltd was started keeping

in mind the local farming community wealth. The farming community is an integral part and

forms the backbone of the organization. In its effort to be a forerunner in the chosen areas of

business in terms of best practices in quality and technology, FIL plans to benefit armors, the

industry and the nation in a phased manner.

saisanjana fruit products Processing(P) Ltd believes in empowering farmers by providing

technical assistance from research institutes in the saisanjana fruit products industry to supportthe farmers in achieving better quality and higher yields by developing the gardening and

harvesting techniques. Further to educating farmers with latest horticultural techniques,

Saisanjana fruit products Processing (P) Ltd is encouraging farmers to mobilize the fruits

directly to the factory, thereby minimizing the fruit handling damages and high value


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realizations. The first phase has been completed, by setting up of state-of-the-art fruit processing

plant to produce natural tropical fruit puree and concentrates.

Generally speaking, countries export goods primarily to satisfy international demand for the

goods that are intensively produced within its boundary.

Countries may also export to dispose its surplus good that are not consumed domestically, in that

sense a country can import goods which cannot be produced domestically in exchange of

exported goods and reap the benefit of trade through comparative advantage.

The seller of such goods and services is referred to an "exporter" who is based in the country of

export.

Make Use this Exporter Directory to boost your Agro Business from India. Agri Exchange

provides the facility to the importers to track the presence of the exporters of the product of their

interest in the exporters Directory which is accessible by the Agri business houses round the

globe. Do register in this exporters Directory to boost your Business

Company details

Contact Person : Mrs. Dhanajaya Naidu Andulri

Company Name : Sai Sanjana Fruit Products

Year of Establishment : 2005India MART Member Since : 2012

Company Profile : Manufacturer of white guava pulp, alphonso mango pulp etc.

Contact Information

Address : Door No. 16- 479, Old Employment Street

Chittoor - 517 002, Andhra Pradesh, IndiaWebsite :www.indiamart.com/company/5087884
http://www.indiamart.com/company/5087884/http://www.indiamart.com/company/5087884/http://www.indiamart.com/company/5087884/http://www.indiamart.com/company/5087884/


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PRODUCT PROFILE

Mango Puree and Concentrate Our Mango Puree and Concentrates are produced in a more

hygienic environment under the surveillance of highest quality standards and food industry

benchmarks. Mango Puree is produced by processing fresh fruits specially selected. The fruit

processing includes:

Cleaning

Washing

Draining

Sorting

Inspection








Pulp Extraction


Evaporation

Enzyme Addition

Puree Concentration

Sterilization


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The Mango Concentrates produced by saisanjana fruit products can be used in beverages, ice-

cream, fruit jams, jellies, sauces and cereal bars.

Guavas Puree and Concentrate

Guavas are grown in many tropical and subtropical regions. Guava pulp is available in sweet or

sour taste, off-white or pink color, with the seeds in the centre of the pulp or hard pulp. It all

depends on species. Guava is known to be low in calories and high in Vitamin C which is a

powerful antioxidant and anti-inflammatory agent.

Guava is also very delicious and is considered with high consumer acceptability because it is

having unique aroma and flavor. With rich vitamins A and C, and high levels of dietary fiber,

guava is considered as one of the Super Fruits by nutritionists.

At saisanjana fruit products processing plants, Guava Puree is aseptically processed,

manufactured from the best quality Guava fruits free of insects and diseases. Generally Guava

Puree is creamy in texture and confirms to highest industry food quality standards. We use

different Guava breeds from India and other countries. We have white as well as pink Guava

Puree. All the puree is free from stone cells. Our Guava Puree is extensively used in food

products juices, nectars, baby foods and jelly foods.

Our Guava Puree is aseptically processed which is creamy in texture with a pink color and

powerful flavor.

We manufacture Guava Concentrate using fresh, hygienic and mature Guava fruits. At our

processing plants, Guava fruits are processed aseptically as:

Cold Extractor Grinding


Evaporation

Enzyme Addition

Puree Concentration

Sterilization


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At saisanjana fruit products, we produce pink guava concentrate as well as white guava

concentrate. These are mainly used in beverages, ice-creams, jams, jellies, sauces, cereal bars,

etc.

While processing tomato paste, skin and seeds are removed, then water content is removed

through evaporation. Our automated processes ensure to retain the flavor, color and richness of

the fruit. This process converts tomato paste / puree to concentrate. The processed Tomato Puree

/Concentrate are then packed into customized aseptic containers.

Manufacturing Practices (GMP) to maintain good quality and consistency.

Our Tomato Puree or Concentrate is widely used in:

Food Soups

Stews

Sauces

Curries

Chutneys

Ketchups

Casseroles

Vinaigrettes

Any other dish where the tomato flavor is required

OurProducts images


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Papaya Puree and Concentrate

Papaya Puree and Concentrate are derived from fresh, full ripen and red / yellow papaya fruits

which are free from insects and bacteria. Our products are prepared by special thermal treatment

free from any food additives or food preserve.

Though Papaya fruits are majorly available in Central and South America, they are also

cultivated in other parts of the world. Papaya fruits are available with black seeds, yellow or red

color based on the variety. Papaya fruits are normally bell-shaped as one end is smaller

compared to other side. Their outer skin is smooth and leathery. It changes from green to yellow

as it ripens.

Fully ripened Papaya fruits are juicy, sweet in taste, resembles Cantaloupe Fruits in flavor. Thesefruits contain valuable digestive properties for total diet. Papaya fruits are considered as one the

best nutritious fruits by dieticians.

Alphorns Mango Pulp:

The range of alphonsa mango pulp offered by us is extracted from the fresh, delicious and

quality mangoes that are hygienically processed and are stored at the required temperature to

provide the real taste of mango. The natural taste and the flavor are the key factors for the highdemand for our mango pulp. The frozen mango pulp that we offer provides juicy and sweet taste,

which makes it ideal to be served as, slices for dessert or as ice-creams, juice, and milkshakes

and so on.

Offering Quality Alphonsa Mango Pulp

The range of alphonsa mango pulp offered by us is extracted from the fresh, delicious and

quality mangoes that are hygienically processed and are stored at the required temperature to

provide the real taste of mango. The natural taste and the flavor are the key factors for the high

demand for our mango pulp. The frozen mango pulp that we offer provides juicy and sweet taste,

which makes it ideal to be served as, slices for dessert or as ice-creams, juice, milkshakes and so

on.


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offering Mango Pulp Kesar Alphorns.

The product is manufactured from ripe, sound, hand-picked, selected Kesar / Alphonso mangoes,

free from damage, soils and cuts. Ripe mango fruits are washed, inspected, sliced and carefully

pulped. The pulpy mass is pasteurized, hot filled in OTS cans and sealed hermetically. The filled

cans are then retorted and cooled immediately, The whole operation is carried out with great care

to retain maximum level of natural flavor and taste.Refractometric Brix @ 20 C ( Brix ) : 24.0 to 26.0

Acidity : ( % as Anhydrous Citric Acid ) : 0.45 - 0.55

pH as Natural : 3.50 - 4.20

Consistency ( Sec) Ford cup no: 8 : 18.0 - 25.0

Brix- Acid Ratio : 50-70

Co lour : Orangish Yellow

Flavor & Taste : Characteristic of Natural Ripe Kesar/ Alphonso Mango, Free from Off- flavor.

Appearance : Smooth, Uniform, Homogenous, No Foreign matter.

Packing : Packed in cartons /Trays of 12 x A 2 1/2 Cans of 850 gms. net in each carton/ tray OR

Packed in trays of 6 x A 2/1/2 Cans of 850 gms. net in each tray OR Packed in Cartons of 24 x A

2 1/2 Cans of 850 gms. net in each carton.

Storage : Storage at dry Warehouse conditions at ambient temperature.


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Mango Pulp

We are the leading exporter supplier and manufacture in India, We have our own Manufacturing

Unite for Spices in South India. We are exporting , supplying all varieties of Mango Pulp with

good quality and bulk quantity

Mango pulp is the inner fleshy yellow, sweet part of the mango. Pulp of mango can be easily

extracted by peeling any variety of mango and then crushing it. In order to extract mango pulp,

crush using your hands or put the pieces in a mixer or food processor and blend to a pulp.

Health Benefits

Mango has high iron content, so pregnant women and people suffering from anemia are

advised to consume it regularly. Thus, fresh mango pulp can be consumed.

It combats acidity and improves digestion.

Mango is rich source of Vitamin A and Vitamin E which helps hormonal system function

efficiently.

Selenium is also present in mangoes which provide protection against heart disease.

Mango Pulp

We offer aseptic kesar mango puree in 220 kgs. Aseptically packed drums, 850 gms. Tins and 3.

1 kgs. Tins.

The product is manufactured from ripe, sound, hand picked, selected kesar mangoes, free from

damage, soils and cuts. Ripe mango fruits are washed, inspected and sliced and carefully pulped.

The pulpy mass is heated, cooled and filled aseptically in pre-sterile aseptic bag. The whole

operation is carried out with great care to retain maximal level of natural flavor and taste.

Simultaneously ensuring "commercial sterility".

Item: aseptic kesar mango puree (16 brix)

Crop: 2011/2012 season

Packing: aseptically packed 220 kg net wt bag in drum

Please contact for specifications and price with your requirements
http://trade.indiamart.com/details.mp?offer=3943123552http://trade.indiamart.com/details.mp?offer=3943123552http://trade.indiamart.com/details.mp?offer=3943123552http://trade.indiamart.com/details.mp?offer=3943123552http://trade.indiamart.com/details.mp?offer=3943123552http://trade.indiamart.com/details.mp?offer=3943123552


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Mango Pulp

We at subasri are having nearly 1000 acres of alphonsoa mango plantation in karnataka and allour farmers are doing organic farming since 2006 and certified for both npop and nop standards.

We are having good certified processing unit to meet the us and german requirements. As per the

specmore...

We at subasri are having nearly 1000 acres of alphonsoa mango plantation in karnataka and all

our farmers are doing organic farming since 2006 and certified for both npop and nop standards.

We are having good certified processing unit to meet the us and german requirements. As per the

spec required. (available in 215kg aseptic packing).

Mango Pulp

Offering Mango Pulp. All mango pulps conform to highest international standards. Every care is

taken to retain the natural characteristics of taste, colour, nutritional value and flavour of the

fruits. Mango Pulp is widely used in production of juices, drinks, nectars, fruit cheese, jams.

Offering Mango Pulp.

All mango pulps conform to highest international standards. Every care is taken to retain the

natural characteristics of taste, colour, nutritional value and flavour of the fruits.

Mango Pulp is widely used in production of juices, drinks, nectars, fruit cheese, jams and in

various other kinds of foods & beverages.

Totapuri mango-pulp is the most popular variety with the food and beverage industry worldwide,

for its sweet-tart taste. Very popular in the Middle-East region.

Product : Totapuri Mango Pulp (2011Crop)

Packing : 6 OTS cansX3.1Kgs = 18.6 Kgs per carton

Quality : Export Material, De

Fresh Mango Pulp
http://trade.indiamart.com/details.mp?offer=3958361688http://trade.indiamart.com/details.mp?offer=3958361688http://trade.indiamart.com/details.mp?offer=3958361688http://trade.indiamart.com/details.mp?offer=3958361688http://trade.indiamart.com/details.mp?offer=3954961848http://trade.indiamart.com/details.mp?offer=3954961848http://trade.indiamart.com/details.mp?offer=3954961848http://trade.indiamart.com/details.mp?offer=3958361688http://trade.indiamart.com/details.mp?offer=3958361688


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We are the one of the best supplier of Mango pulp with good quality and more varieties, We able

to supply any bulk varieties all over the World Health Benefits Mango has high iron content, so

pregnant women and people suffering from anemia are advised to consume it regularly. Thus,

fresh mango pulpmore...

We are the one of the best supplier of Mango pulp with good quality and more varieties, We able

to supply any bulk varieties all over the World

HEALTH BENEFITS:

Mango has high iron content, so pregnant women and people suffering from anemia are advised

to consume it regularly. Thus, fresh mango pulp can be consumed.

It combats acidity and improves digestion. Mango is rich source of Vitamin A and Vitamin E which helps hormonal system function

efficiently.

Selenium is also present in mangoes which provide protection against heart disease.

Totapuri Mango Pulp & Alphansa Mango Pulp

We Supplies Fruit concentrate of Mango and we have carefully tied up with Manufacturer in

Dharamapuri and Krishnagiri Belt which is the hub for Tamil Nadu mango Pulp Industry.

Apex has an edging system to select the processors from where the Products are sourced.We evaluate their purchasing mechanism, Processing Capacity and strength.

We also work with certified manufacturers.

We have a strict evaluating mechanism which gives us the consistency in the output. We

exported to South Asian countries and Europe Markets. Specification:
http://trade.indiamart.com/details.mp?offer=3954961848http://trade.indiamart.com/details.mp?offer=3954961848http://trade.indiamart.com/details.mp?offer=3954961848http://trade.indiamart.com/details.mp?offer=3944632334http://trade.indiamart.com/details.mp?offer=3944632334http://trade.indiamart.com/details.mp?offer=3944632334http://trade.indiamart.com/details.mp?offer=3954961848


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T. S. S. ( Brix) : Min 18-24

Acidity (% as C/A) : Min 0. 5

PH : < 4. 00

Brix Acid Ratio : 32

Ascorbic Acid (ppm): Min 200

Additives : Nil

Pesticide residue : Absent

Color : Golden yellow

Flavor : Characteristic

Taste : Characteristic Our Packaging: 3. 1KGS Cans or 215 KGS Drums Loadability3. 1KGS-

> 1000 Cartons in 20 Feet Container->

Totapuri Mango Pulp

We produce fine quality of Totapuri mango Pulp in 3.1 K.G.s tins.

We are a leading exporter and supplier of fresh lemon from India. We offered range is

considered as prime source of citrus acid and comes under the house of citrus fruits. It is highly

appreciated by our clients for its sweet aroma, tempting colour and flavour. It is widely used by

our customers for cooking purposes and can also be consumed in the form of juice. Offered
http://trade.indiamart.com/details.mp?offer=3946534667http://trade.indiamart.com/details.mp?offer=3946534667http://trade.indiamart.com/details.mp?offer=3946534667


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lemons are tested on several quality parameters by our expert quality controllers so that only

qualitative range of fruits can be delivered to our clients and it can be availed at reasonable price

range.

Need for the study

o To avoiding wastage

o To avoid shortage of material

o To avoid lack of material

o To manage inventory effectively

o To meet unexpected demands of material

About Company

Contact Person : Mrs. Dhanajaya Naidu Andulri

Company Name : Sai Sanjana Fruit Products

Year of Establishment : 2005

IndiaMART Member Since : 2012

Company Profile : Manufacturer of white guava pulp, alphonso mango pulp etc.


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OBJECTIVE OF THE STUDY

o To classify the raw material for the better control

o To recommend proper inventory management

o To suggest suitable measures to improve the inventory management system

o To study the effective utilization of inventoryo To maintained large size of inventory of raw materials and work in process for

efficient and smooth production and finished goods for uninterrupted sales

operation

o To maintain a minimum investment in inventory to maximize profitability

o To study which item is having the high percentage of usage in the processing of

finished goods.

o To study the major raw materials being used in chittoor co- operative sugar

limited


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SCOPE OF THE STUDY

The present study aims at the following

Highlight the need for and nature of inventory.

Underline need for investing in current assets and elaborate the concept of inventory

management.

Focus on the need for analyzing investment in inventory.

Discuss the process of managing inventory.

]


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LIMITATIONS OF THE STUDY

o The information used primarily from historical annual reports available to the public and

same does not indicate the current situation of the firm.

o Detailed analysis could not be carried for the project work because of the limited time

span.

o Since financial matters are sensitive in nature the same could not be acquired easily

o The study is based on the data given by the finance department which has its own

limitations.

o The information is collected only the secondary data

o An extensive analysis was not possible is short of time

o The study may not be detailed in all respect


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2. REVIEW OF LITERATURE

Inventory Management is concerned with keeping enough product on hand to avoid



health of the corporation. Excessive level of inventory, results in large inventory carrying cost,

including the cost of capital tied up in inventory warehouse fees, insurance etc.

Inventory is needed for the definite consumption demand of materials, and to take careof the uncertainty involved in the usage or availability of the materials. Some times other

authors described as the decoupling function of the inventory of materials is maintained at the

different stages of production.

The inventory taking care of the normal consumption requirements i.e., depending upon

the average consumption rates and average lead times for procurement/manufacture of the

material, inventories are kept at the appropriate times is called the normal inventory and the

inventory taking care of a production process, however continuous it maybe, is bound to have

some interruptions; it may also have imbalances in the consumption and production rates of the

materials at different stages.

These interruptions and imbalances make it necessary to keep stocks of inventory

between the different stages of the operations the aspect of this uncertainty is called the safety

stock or buffer stock of inventory


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2.1 MEANING OF INVENTORY MANAGEMENT:

Inventory management means safeguarding the company property in the form of

inventories and maintaining it at the optimum level, considering the operating requirements and

financial resources of the business. Inventory management emphasizes control over purchases,

storage, consumption of materials and determining the optimum level for each item of

investments.

2.2 IMPORTANCE OF INVENTORY MANAGEMENT:

Inventory management is concerned with keeping enough products on hand to avoid



health of the corporation; being out of stock forces customers turn to competitors or results in a

loss of sales. Excessive level of inventory however, results in large carrying costs, including the

cost of capital tied up in inventory warehouse fees, insurance etc.

A major problem with managing inventory is that the demand for a corporations product

is to a degree uncertain. The supply of the raw materials used in its production process is also

somewhat uncertain. In addition the corporations own production contains some degree of

uncertainty due to possible equipment breakdowns and labor difficulties.

Because of these possibilities, inventory acts as a shock absorber between product

demand and product supply. If product demand is greater than expected, inventory can be

depleted with out losing sales until production can be stepped up enough to select the unexpected

demand.

However inventory is difficult to manage because it crosses so many lines of responsibility. The

purchasing manager is responsible for supplies of raw material and would like to avoid shortages

and to purchases in bulk order take advantages of quantity discounts.

The production manager is responsible for uninterrupted production and wants to have

enough raw materials and work in process, inventory on hand to avoid disruption in the

production process. The marketing manager is responsible for selling the product and wants to

minimize the chances of running out of inventory. The financial manager is concerned about

achieving an appropriate overall rate of return. Funds invested in an inventory are idle and do

not earn a return.


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Nature of Inventories

Inventories are stock of the product a company is manufacturing for sale and

components that make up the product. The various forms in which inventories that exist in

manufacturing company are

Raw materials

Work-in-process

Finished goods

Raw materials

These are those basic inputs that are converted into finished product through the

manufacturing process. Raw materials inventories are those units which have been purchased

and stored for future production.

Work-in-process

These inventories are semi-manufacture products. They represent products that need more

work before they became finished for sale.

Finished goods

These inventories are those completely manufactured products which are ready for sale.

Stocks of raw materials and work-in-process facilitate production while stock of finished goods

is required for smooth marketing operations. Thus, inventories serve as link between the

production and consumption of goods.

Need to hold inventories

Maintaining of inventories involves trying up the companies and incurrence of storage

and handling cost. There are three general motives for holding inventories.

Transaction motive

It emphasizes the need to maintaining inventories to facilitate smooth production and

sales operation.

Precautionary motive

It necessitates the holding of inventories to guard against risk of unpredictable changes in

demand and supply force and other factors.

Speculative inventories


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It influences the decision to increase or reduce inventory level to take advantage of price

fluctuations.

The firm should always avoid a situation of over investment or under investment in

inventories.

The major dangers of over investment in inventories are

iv. Unnecessary tie up of the funds and loss of profits.

v. Excessive carrying cost.

vi. The risk of liquidity.

The consequences of under investment in inventories are

iv. Production hold-ups

v. Failure to meet delivery commitments. Inadequate raw materials.

vi. Work-in-process will result in frequent in production interrupts.

An efficient inventory management should

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

Maintain sufficient supply of raw materials in periods of short supply and

anticipate price changes.

Maintain sufficient finished goods inventory for smooth sales operation and efficient

customer service.

Minimize the transportation cost on time.

Control investment in inventories and keep it at an optimum level

Cost of holding inventories

The determination of inventory cost is essentially an income measurement problem, a

means where by there is rational orderly, systematic interpretation of the effect on the economic

progress of the company of expenditures involved acquiring goods or in maintaining and

operating productive facilities. Ability to quantify and develop rigorous models of most

managerial problems is dependent on the determination behavior of relevant costs. The practical

application of such models is also dependent on ability to obtain the cost data. Relevant

inventory costs which change with level of inventory are listed below.


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Ordering costs

Every order is placed for stock replenishment, certain cost are involved. The ordering

cost may vary, dependent upon type item.

This cost of ordering includes

Paper work cost, typing and dispatching order.

Follow-up costs the follow-up required ensure timely supplies include the travel cost for

purchases follow-up, telephone telex and postal bills.

Cost involved in receiving the order inception, checking and handling to the stores.

Any set up cost of machines if charged by supplier, either directly indicated in quotations

or assessed thought quotations for various quantities.

The salaries and wages to the purchase department are relevant for consideration if the

purchasing function is carried out at the same level with existing staff.

There are certain costs that remain the same regardless of the size of the lot purchased

or requisitioned. This would be retailer ordering from the distributor, from the distributor

ordering from a factory warehouse, for the factory warehouse ordering a new production run

from the factory, and for the factory ordering raw materials from vendors. These kinds of

costs are called preparation or set up costs.

If we are ordering to replenish supplies at one stock point from another stock point, our

interest is in the incremental clerical costs of preparing orders, following these orders.

Expediting them when necessary, etc, a large segment of the total cost of the ordering

function is fixed, regardless of the number orders issued. Even then it may be difficult

determined satisfactorily the incremental cost, which results from one more order. Quantity

discounts and handling and transport cost are other factors, which vary lot sizes.

Preparation cost are the incremental costs of planning production, writing production

orders, setting machines and controlling the flow orders through the factory. Material handling

cost in the plant have an effect on production lot sizes in much the same way that freight costs

may effect purchase lot sizes.

Besides the preparation costs of production, there are some other production costs, which have a

direct bearing on inventory models, however. These are over time premiums and the incremental

cost of changing production levels, such as hiring, training, and separation costs.

Carrying costs


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Carrying costs constitutes all the costs of holding items in inventory for a given period of time.

They are expressed either in rupees per period or as percentage of the inventory value per period.

Components of these costs include the following

Storage and handling cost.

Obsolescence and deterioration costs

Insurance

Taxes

The cost of the funds invested in inventories

Storage and handling costs include the cost of warehouse space.

Obsolescence costs represent the decline in inventory value caused by style changes that make

the existing product less salvable.

Deterioration costs represent the decline in value caused by changes in the

physical quality of the inventory such as spoilage and breakage.

Another element of carrying cost is the cost of insuring the inventory against losses due to

theft, fire and natural disaster. In addition, a company must pay any personal property taxes

required by local and state government on the value of its inventories.

Like ordering costs, inventory-carrying costs contain both fixed and variable components.

Most carrying costs vary with inventory level, but a certain portion of them-such as warehouse

rent and depreciation on inventory handling equipment- are relatively fixed over the short run,

inventory model such as EOQ model treat the entire carrying cost as variable.

Stock out costs

Stocks out costs are incurred when ever a business is unable to fill orders because the

demand for an item is greater than the amount currently available in inventory. When a stock out

in raw materials occur, for example, stock out costs include the expenses of placing special

orders (back ordering) and delays. A stock out in work in progress inventory results in

additional costs of rescheduling and speeding production with in the plant, and it also may result

in reduce production costs if work stoppages occur. Final, a stock out in finished goods

inventory may result in the immediate loss of profits of customers decide to purchase the product

from the competitor and in potential long-term losses if customers decide to order from other

companies in the future.


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Other characteristics of inventory situations

Besides the various types of costs involved, there are other characteristics of the

situation that vary among types of inventory and must be captured if the decision model is to be

an accurate representation of the physical circumstances.

Lead times

Obtaining inventory usually requires a lag from the initiation of the process until the

inventory starts to arrive. This lead-time may be a few minutes or it may be many months, and

depends in part on whether the firm is producing goods for its inventory or is ordering these

goods from another firm. To produce goods for its own use, the firm must schedule, set up and

adjust manufacturing equipment.

Sources and levels of risk

Uncertainties play a significant role in inventory situations. Uncertainties usually involve lead

times and demand times and demand levels, but situations where other variables are uncertain

also occur. Where are substantial

Uncertainties and where the costs of stock out are important Strategies for addressing risk must

be formulated.

Static versus dynamic problems

Inventory problems are usually divided into two types based on the characteristics of thegoods involved. In static inventory problems, the goods have one-period life; there can be

carrying over of goods from one period to the next. Inventory situations where decisions involve

the number of news papers to print, the number of greeting cards to purchase or the number of

calendars to produce are static inventory problems. In dynamic inventory problems, the goods

have value beyond the initial period; they do not lose their value completely over time.

Replenishment rate

Once goods start to be received from a vendor or from the firms own production

processes, there are differences among goods in the rate at which they are received. Small orders

from vendors are likely to by receive all at once. For example, assume that a firm has placed in

order for 10 cases of paper towels. For such a small order the rate of replenishment is infinite;

the firms inventories well go up 10 cases in a very short time as the goods are quickly unloaded.


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For large order from vendors, or for inventory produced with in the firm, the

replenishment rate may be slower.

Types of inventory

Inventories can be classified into five basic types on the basis of their production. These various

types of inventories cannot be identified and segregated within the organization. These five

types are

1. Management inventory

They are needed because of the time required to move stocks from one place to another

place.

2. Lot size Inventories

These are as a result of buying materials in quantities larger than the immediate

requirement, with a view to minimizing cost of transportation, buying, receipt and handling and

to obtaining quantity discount.

3. Fluctuation Inventories

These are carried to ensure ready suppliers to consumer even when these are irregular

and unpredictable fluctuations in their demand.

4. Anticipation inventories

These are usually maintained to meet a predictable but changing pattern of future

demand.

5. Cycle InventoriesThese result from managements attempt to minimize the total cost of carrying and ordering

inventory. They arise from ordering in batches or lots, rather from needed basis.

Inventories can be further classified into production inventories maintenance repair and

operation (MRO) inventories, in-process inventories and finished goods inventories.


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Production inventory consists of raw materials parts and components which are used in

the production process forming parts of the final product.

Maintenance, repair and operation supplies which are used in the production of goods or

services but do not become part of the product.

In-process inventories are semi-finished materials, parts and assemblies found at various

stages in the production operation.

Finished goods inventory consists of completed products ready for sale.

2.3 TECHNIQUES OF THE INVENTORY MANAGEMENT

1) ABC ANALYSES

The ABC method is an analytical method of stock control which aims at

concentrating efforts on those items where attention is needed most. It is based on the premise

that a small number of the items in inventory may typically represent the bulk money value of

the total materials used in production process. While a relatively large number of items may

represent a small portion of the money value of stores used and that small number of items

should be subject to the greatest degree of continuous control.

Under this system, the materials stocked may be classified into a number of categories

according to their importance i.e., their value and frequency of replenishment during a period.

The first category, we may call it the group of A items, may consist of only a small percentage

of total items handled but its combined value may be a large portion of the total stock value.

The second category, naming it as group of B items, may be relatively less important. In

the third category consisting of C items, all the remaining items of stock may be included

which are quite large in number but their value is not high.

Categories of ABC analysis

In ABC analysis the items are classified in three main categories based on their respective

consumption value.

1. Category A items:


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The items, which are most costly and valuable, are classified as A nearly 10 percentage

of the total number of items stored will account for 70 percentage of total value of all

items stocked.

2. Category B items:

The items having average consumption value are classified as B nearly20 percentage of

total number of items will account for 20 percentage of total value. Statistical sampling

is general useful to control them.

3. Category C items:

The items having low consumption value are put in category C nearly 70 percentage of total

number as items will account for 10 percentage total values. Generally these items are slow and

non-moving items in the stores, which are frequently used for production process but with more

quality.

2) VED CLASSIFICATION

This analysis is based on criticality of inventory, it is used to determine the criticality of the

item and its effect on production and other services .it is specially used for classification of spare

parts. If a part is vital, it is given V classification. if essential ,then it is given E classification

and if it is not essential the part is given D classification for V items, a large stock of inventory

is generally maintained ,these item have immediate effect on production more attention paid for

this item.

3) ECONOMIC ORDER QUANTITY

The economic order quantity is that inventory level, which minimizes the total of

ordering cost and carrying costs.

It is the question, how much to order the quantity when inventory is replenished. If the

firm is buying raw materials, the question is to purchase the quantity of; each replenishment and

if it has to plan for production run, it is how much production to schedule. It may be solved

through EOQ.

COST OF HOLDING INVENTORIES

The determination of inventory costs is essentially an income measurement problem, a

means whereby there is a rational, orderly, systematic interpretation of the effect on the

economic progress of the company of expenditures involved in acquiring goods or in


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maintaining and operating productive facilitates. Ability to quantify and develop rigors models

of most managerial problems is dependent on the determination of the behavior of relevant costs.

The practical application of such models is also dependent on ability to obtain the cost data.

Relevant inventory costs which change with the level of inventory are listed below.

Ordering cost:

Every timer an order is placed for stock replenishment, certain costs are involved.

The ordering cost may vary, dependent upon the type of item. However, an estimate of ordering

cost can be obtained for a given range of items.

1. Paper work costs, typing and dispatching an order.

2. Follow up costs-the follow-up required to ensure timely to ensure timely supplies

include the travel cost for purchase followup, telephone, telex and postal bills.

3. Cost involved in receiving the order inspection, checking and handling to the stores.

4. Any set up cost of machines if charged by the supplier, either directly indicated in

quotations or assessed through quotations for various quantities.

5. The salaries wages to the purchase department are relevant for consideration if the

purchasing function is carried out at the same decreases significantly, obviously a

proportional amount of personnel will be transferred to other departments.

Carrying Costs:Carrying costs constitute all the costs of holing items in inventory for a given period

of time. They are expressed either in rupees per unit per period or as a percentage of the

inventory value per period. Components of this cost include the following.

1.Storage and Handling costs: It includes the cost of warehouse space.

1. Obsolescence and deterioration costs:Obsolescence costs represent the decline in

inventory value caused by technological or style changes that make the existing product

less salable. Deterioration costs represent the decline in value caused by changes in the

physical quality of the inventory, such as spoilage and breakage.

2. Insurance: The inventory against losses due to the theft, fire, and natural disaster.

3. Taxes: A company must pay any personal property taxes and business taxes required

by local and state governments on the value of its inventory.


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4. The cost of funds invested in inventories: It is measured by the required rate of return

on these funds. Because inventory investments are likely to be of average risk the

overall weighted cost of capital should be used to measure the cost of these funds.

5. Storage and Handling costs: It includes the cost of warehouse space.

EOQ for an item is arrived on the following assumptions

1. .Demand is continuous at a constant rate.

2. The process continues infinity.

3. No constraints are imposed on quantities ordered, storage capacity, budget etc.,

4. Replenishment is instantaneous.

5. All costs are time invariant.

6. Units are not available.

EOQ for an item is arrived by the following formula

EOQ=CH

CoAD**2

Where

EOQ=economic order quantity

Co=cost of ordering an order

AD= annual consumption of an itemCH=cost of carrying one unit/year

4) HML CLASSIFICATION

The high and medium and low (HML) classification follows the same procedure as is

adopted in ABC classification. Only difference is that in HML, the classification unit value is

the criterion and not the annual consumption value. The item of inventory should be listed to the

descending order of unit value and it is up to the management to fix limits for the three

categories. For example, the the management may decided that all units with unit value of

Rs.2000 and above will be H items, Rs 1000 to 2000 M items and less than Rs. 1000, l items.

The HML analyses is useful for keeping control over consumption at department levels for

deciding the frequency of physical , and for controlling purchases.

5) SDE CLASSIFICATION


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The SDE classification is based upon the availability of items and is very useful in the

context of scarcity of supply. In this analysis, S refers to scarce items, generally imported, and

those which are in short. D refers to difficult items, which are available indigenously but are

difficult items to procure. Items which have to come form distance places or for which reliable

suppliers are difficult to come by, fall in to D category. E refers to items which are easy to

acquire and which are available in the local strategies

The SDE classification. Based on problems faced in procurement, is vital to the lead-time

analyses and in deciding on purchases strategies.

6) MINIMUM-MAXIMUM TECHNIQUE

The minimum maximum system is often used in connection with manual

inventory control system. The minimum quantity is established in the same way as any reorder

point. The maximum is the minimum quantity plus the optimum lot size. In practice, a

requisition is initiated when, a withdrawal reduces the inventory below the minimum level, and

the order quantity is the maximum minus the inventory status after the withdrawal. If the final

withdrawal reduce the stock the stock substantially below the minimum level, the order quantity

will be higher than the calculated EOQ. The effectiveness of a minimum system is determined by

the method and precision with which the minimum and maximum parameters are established

7) TWO BIN SYSTEM

One of the oldest systems of inventory control is the two-bin system,

which is mainly adopted to control C group inventories. In the two bin system. Stock of each

item is separated in to two bins. One bin contained stock; just enough to last from the date a new

order is placed until it is received in inventory. The other bin contains a quantity of stock.

Enough to satisfy probable demand during the period of replenishment. to start with , the stock is

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