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A PROJECT REPORT ON
INVENTORY AND STORE MANAGEMENT OF
HERITAGE FOODS INDIA LIMITED INDUSTRIES
LIMITED
HYDERABAD
Project Report Sub!tte" !#
P$rt!$% &u%&!%%e#t &or t'e $($r" o&
MASTER OF BUSINESS ADMINISTRATION
SUBMITTED BY
SS)*REENA
Be$r!#+ Ro%% No*,-E./E,,.0
Sree D$t'$ I#1t!tute o& E#+!#eer!#+ 2 Sc!e#ce
3A&&!%!$te" to JNTU4
H5"er$b$"
36,,- 7 ,84
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AC)NO9LEDGEMENT
Behind every successful achievement lies great
contribution by those without whom that could have been
achieved to them, although more words of gratitude is
insufficient for their unlimited contribution, I take this
opportunity to revel my heart felt gratitude imprinted deep
within me. I am very much thankful to the finance manager
Mr. RAG! and the staff of "RI#AG" $%%&' I(&IA
)IMI#"& Industries for giving encouragement and their
kind cooperation. I am e*tremely grateful to Mr.
+A)"'AR RA% assistant general manager -IR
R&/ of "RI#AG" $%%&' I(&IA )IMI#"&0 kindly
guiding me without whose kind help it would not have been
possible for me to complete this pro1ect work. I wish to
e*press my sincere thanks to -.%.&/ Guide and also the
management and staff of my college for providing the
guidance and support.
SS)*REENA
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DECLARATIONS
I here by declare that the enclosed pro1ect entitled
2I(3"(#%R4 A(& '#%R" MA(AG"M"(#5 done at
4&"RABA& in "RI#AG" $%%&' I(&IA )IMI#"&
is submitted to 26(#!, 4&"RABA&5 in partial
fulfillment of 2MA'#"R %$ B!'I("''
A&MI(I'#RA#I%(5, the pro1ect is an original work done
by me and to the best of my knowledge this work is not
submitted to any other university or college for award of
any other degree, diploma or fellowship.
SS)*REENA
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ABSTRACT
%ne can readily visuali7e the determination of inventory
8uantities by physical count or by use of perpetual inventory
records. hen this 8uantity is determined it must be multiplied by
a unity cost in order to determine the in inventory value that is
used on financial statement.
#rade and 8uantity are to be e*cluded from unit cost since
these discount e*ist for the purpose of defining the true invoice
cost of merchandise. 9ash discounts, on the other hand, have been
considered as a reward for early payment and a penalty for late
payment. #he 2reward5 has often been interpreted as a loss rather
than a part of unit cost.
In financial parlance, inventory is defined as the sum of the
value of the raw materials, fules and lubricants to maintenance
consumable semi processed materials and finished goods stock at
any giving point of time. #he operational definition of inventory
world be amount of raw materials, fuel and lubricants and semi :
processed materials to be stock for the smooth running of the
plant ; industry.
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CONTENTS
TOPICS PAGE NO*
CHAPTER: I /:.
INTRODUCTION
NEED OF THE STUDY
OBJECTIVE OF THE STUDY
METHODOLOGY OF THE STUDY
LIMITATION OF THE STUDY
CHAPTER: 6 ;:/est appraisal systems to motivate employees
Incentive, bonus and reward systems to encourage employees
"eritage forges ahead with a motto Gadd value to everything you
doG
Sh$"eho%!e"):
Retu"):
=onsistent (ividend ?ayment since ?ublic Issue 2Nanuary
4
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got self employment in rural areas more than 8000 sales agents
associated with the company
Employment for the youth by providing nancial and animal
husbandry support for establishing I*I ($I#IE)
?roducing highly health conscious products for the society
+u$%'t'e) of *$$(e*et -"'.'-%e):
4. =ustomer focus to understand and meet the changing needs
and e!pectations of customers.
5. ?eople involvement to promote team work and tap the potential
of people.
6. +eadership to set constancy of purpose and promote quality
culture trough out the organiation.
7. ?rocess approach to assess the eOciency and e-ectiveness of
each process.
8. )ystems approach to understand the sequence and interaction
of process.
A. &actual approach to decision making to ensure its accuracy.
/.
=ontinual improvement processes for improved business results.
;. (evelopment of suppliers to get right product and services in
right time at right place.
P"o!u.t0M$"&et #')e -e"fo"*$.e:
The total turnover is #s 674 =rores during the nancial
year 500/@0; against the turnover of 5
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"eritage distributes quality milk F milk products in the states of $.?,
Barnataka, Berala F Tamil nadu.
(uring the year 500/@0; liquid milk sales was
#s.5;65utter milk sales have gone up by 781 over 500A@0/.
Out%oo&:
=onsidering the growth potential in the liquid milk
market, the company has drawn plans to increase its market share in
the e!isting markets and to enter into new markets there by doubling
revenues in dairy business in the ne!t 6 years. To achieve this obect,
company is undertaking maor e!pansion in dairy business by inverting
over #s50 crores during 500/@0; and over #s40 crores during the
current year to strengthen the milk procurement.
BRANCHES OF HFIL:
"&I+ has 6 wings. They are
4. (airy
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5. #etail
6. $gribusiness
12 D$'",:
It is the maor wing among all. The dairy products
manufactured by "&I+ are ilk, curd, butter, ghee, avoured milk,
paneer, doodhpeda, ice cream.
32 Ret$'%:
In the retail sector "&I+ has outlets namely J&reshPQ. In
those stores the products sold are vegetables, milkF milk products,
grocery, pulses, fruits etc.
In "yderabad 4< retail shops are there. In >angaloreF
=hennai, 6F7 respectively are there. Totally there are 5A retail shops
are there.
&reshP is a unique chain of retail stores, designed to
meet the needs of the modern Indian consumer. The store rediscovers
the taste of nature every day making grocery shopping a never before
e!perience.
The uniqueF distinctive feature of &reshP is that it
o-ers the widest range of fresh fruits and vegetables which are directly
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hand picked from the farms. &reshness lies in their merchandise and
the customers are always welcomed with fresh fruits and vegetables
no matter what what time they walk in.
42 A("' Bu)'e)):
In this business "&I+ employees will go to farmers and
have a deal with them. Those farmers will sell their goods like
vegetables, pulses to "&I+ only. $nd "&I+ will transport the goods to
retail outlets.
The agricultural professors will e!amine which area is
suitable to import vegetables from and also e!amine the vegetables,
pulses and fruits in the lab. $nd nally they report to the "ead@
$gribusiness. #epresentatives as per the instructions given by the agri
professors will approach the farmers directly and make a deal with
them. It is the process of registering the farmers.
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CHAPTER III
CONCEPTUAL BAC5GROUND
The investment in inventories constitutes the most signicant
part of current assets R working capital in most of the undertakings.
Thus, it is very essential to have proper control and management of
inventories.
The purpose of inventory management is to ensure availability
of materials in suOcient quantity as and when required and also to
minimie investment in inventories.
Me$'( $! N$tu"e of I/eto",:
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In accounting language, inventory may mean the stock of
nished goods only. In a manufacturing concern, it may include raw
materials, work@ in : progress and stores etc.,
I/eto", '.%u!e) the fo%%o#'( th'():
a3 R$# M$te"'$%9 #aw material from a maor input into the
organiation. They are required to carry out production
activities uninterruptedly. The quantity of raw materials
required will be determined by the rate of consumption and
the time required for replenishing the supplies. The factors
like the availability of raw materials and %overnment
regulations etc., too a-ect the stock of raw materials.
b3 6o"& ' -"o("e))9 The work in progress is that stage of
stocks which are in between raw materials and nished
goods. The quantum of work in progress depends upon the
time taken in the manufacturing process. The quantum of
work in progress depends upon the time taken in the
manufacturing process. The greater the time taken in
manufacturing, the more will be the amount of work in
progress.
c3 Co)u*$b%e)9 These are the materials which are needed to
smoother the process of production but they act as catalysts.
=onsumables may be classied according to their
consumption add critically. %enerally, consumable stores doe
not create any supply problem and rm a small part of
production cost. There can be instances where these
materials may account for much value than the raw materials.
The fuel oil may form a substantial part of cost.
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d3 F'')he! (oo!)9 These are the goods, which are ready for
the consumers. The stock of nished goods provides a bu-er
between production and market, the purpose of maintaining
inventory is to ensure proper supply of goods to customers.
BENEFITS OF HOLDING INVENTORIES
$lthough holding inventories involves blocking of a rms and
the costs of storage and handling, every business enterprise has to be
maintain certain level of inventories of facilitate un : interrupted
production and smooth running of business. In the absence of
inventories a rm will have to make purchases as soon as it receive
orders. It will mean loss of time and delays in e!ecution of orders which
sometimes may cause loss of customers and business.
$ rm also needs to maintain inventories to reduce ordering
cost and avail quantity discounts etc.
There are three main purpose of holding inventories.
4. The t"$)$.t'o *ot'/e9 Dhich facilitates continuous
production and timely e!ecution of sales order.
5. The -"e.$ut'o$", *ot'/e9 Dhich necessitates the holding of
inventories for meeting the unpredictable changes in demand
and supplies of materials.
6. The )-e.u%$t'/e *ot'/e9 Dhich induces to keep inventories
for taking advantage of price uctuations, saving in re : ordering
costs and quantity discountsS
RIS5 AND COSTS OF HOLDING INVENTORIES
The holding of inventories involves blocking of a rms funds
and incurrence of capital and other costs.
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The various costs and risks involved in holding inventories are9
=apital costs9 aintaining of inventories results in blocking of
the rms nancial resources. The rm has therefore to arrange for
additional funds to meet the cost of inventories.
The funds may be arranged from own resources or from
outsiders. >ut in both the cased, the rm incurs a cost. In the former
case, there is an opportunity cost of investment while in the later caseL
the rm has to pay interest to t he outsiders.
4. Sto"$(e $! H$!%'( Co)t)9 "olding of inventories also
involves costs on storage as well as handing of materials. The
storage of costs include the rental of the godown, insurance
charges etc.
5. R')& of P"'.e !e.%'e9 There is always a risk of reduction in the
prices of inventories by the supplies, competition or general
depression in the market.
6. R')& of Ob)o%e).e.e9 The inventories may become absolute
due to improved technology, changes in requirements, change in
customer tastes etc.
7. R')& Dete"*'$t'o ' 7u$%'t,9 The quality of materials may
also deteriorate while the inventories are kept.
Ob8e.t) of I/eto", M$$(e*et
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A. To minimie loses through deterioration, pilferages, wastages
and damages.
/. To ensure perpetual inventory control so that materials shown in
stock ledgers should be actually lying in the stores.
;. To ensure right quality goods at reasonable prices. )uitable
quality standards will ensure proper quality of stocks. The price :
analysis, the cost analysis and value : analysis will ensure
payment of proper prices.
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$9 M''*u* )to.& %e/e%:
It represents the quantity below its stock of any item should not
be allowed to fall.
Le$! t'*e9 $ purchasing rm requires sometime to process
the order and time is also required by the supplying rm to e!ecute the
order.
The time in processing the order and then e!ecuting it is know
as lead time.
R$te of Co)u*-t'o9 It is the average consumption of
materials in the factory. The rate of consumption will be decided on the
basis of past e!perience and production plans.
N$tu"e of *$te"'$%)9 The nature of material also a-ects the
minimum level. If a material is required only against the special orders
of the customer then minimum stock will not be required for such
material.
inimum stock level can be calculated with the help of
following formula.
M''*u* )to.& %e/e% Re o"!e"'( %e/e% No"*$%
.o)u*-t'o ; No"*$% "e o"!e" -e"'o!9
b9 Re o"!e"'( Le/e%:
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Dhen the quantity of materials reaches at a certain gure then
fresh order is sent to get materials again. The order is sent before the
materials reach minimum stock level.
#e : ordering level is !ed between minimum level ma!imum
level.
.9 M$;'*u* Le/e%:
It is the quantity of materials beyond which a rm should not
e!ceeds its stocks. If the quantity e!ceeds ma!imum level limit then it
will be over : stocking.
'verstocking will mean blocking of more working capital, more
space for storing the materials, more wastage of materials and more
chances of losses from obsolescence.
M$;'*u* )to.& %e/e% Reo"!e"'( Le/e% < Reo"!e" +u$t't,
M$;'*u* Co)u*-t'o ; M''*u* "eo"!e" -e"'o!9
!9 D$(e" Sto.& Le/e%:
It is !ed below minimum stock level. The danger stock level
indicates emergency of stock position and urgency of obtaining fresh
supply at any cost.
D$(e" Sto.& %e/e% = A/e"$(e "$te of .o)u*-t'o ;
e*e"(e., !e%'/e", t'*e2
e9 A/e"$(e Sto.& Le/e%:
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This stock level indicates the average stock held by the
concern.
A/e"$(e )to.& %e/e% = M''*u* )to.& %e/e% < > ; "eo"!e"
7u$t't,2
39 Dete"*'$t'o of S$fet, Sto.&):
)afety stock is a bu-er to meet some unanticipated increase in
usage. The demand for materials may uctuate and delivery of
inventory may also be delayed in such a situation the rm can be face
a problem of stock out.
In order to protect against the stock out arising out of usage
uctuations, rms usually maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is
opportunity cost of stock outs and the carrying costs.
If a rm maintains low level of safety frequent stock outs willoccur resulting into the larger opportunity costs. 'n the other hand,
the larger quantity of safety stocks involves carrying costs.
49 E.oo*'. O"!e" +u$t't, EO+9:
The quantity of material to be ordered at one time is known as
economic ordering quantity.
This quantity is !ed in such a manner as to minimie the cost
of ordering and carrying costs.
Tot$% .o)t *$te"'$% = A.7u')'t'o Co)t < Co)t < C$"",'( Co)t)
< O"!e"'( Co)t2
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C$"",'( Co)t:
It is the cost of holding the materials in the store.
O"!e"'( Co)t:
It is the cost of placing orders for the purchase of materials.
E'K can be calculated with the help of the following formula
E'K 5=' R I
Dhere = =onsumption of the material in units during the
year
' 'rdering =ost
I =arrying =ost or Interest payment on the capital.
?9 A B C A$%,)'): A%#$,) bette" .ot"o% $$%,)')9:
Under $ : > : = $nalysis. The materials are divided into 6
categories vi., $, > and =.
$lmost 401 of the items contribute to /01 of value of
consumption and this category is called V$ category.
$bout 501 of the items contribute about 501 of value of
category V= covers about /01 of items of materials which contribute
only 401 of value of consumption.
@9 VED A$%,)') : V't$%%, E))et'$% De)'"e9
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= Net )$%e)
A/e"$(e9
I/eto",
A! I/eto", .o/e")'o -e"'o! = D$,) ' $
,e$"
I/eto", Tu"o/e"
"$t'o
9 C%$))'.$t'o $! Co!'.$t'o of I/eto"'e):
The inventories should rst be classied can then code
numbers should be assigned for their identication. The identication
of short names are useful for inventory management not only for large
concerns but also for small concerns. +ack of proper classication may
also lead to reduction in production.
%enerally, materials are classied accordingly to their nature
such as construction materials, consumable stocks, lubricants etc.
$fter classication the materials are given code numbers. The coding
may be done alphabetically or numerically. The later method is
generally used for coding.
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The class of materials is assigned two digits and then two or
three digits are assigned to the categories of items divided into 48
groups. Two numbers will be category of materials in that class.
>4 V$%u$t!o# o& !#?e#tor!e1 7 Met'o" o& ?$%u$t!o#=
$I$% method
)I$% method
Base 'tock method
eighted average price method
CRITERIA FOR JUDGING THE INVENTORY SYSTEM
hile the overall ob1ective of the inventory system is to minimi7e the cost to the
firm at the risk level acceptable to management, the more pro*imate criteria for 1udging
the inventory system ares certificate where
applicable.
$ill in and attach the purchase order review proforma to purchase order.
'end the prepared purchase order to head -purchase/ and competent authority
for approval.
'end the purchase order to identified approved sub : contractor.
'end the purchase order copies to store and concerned departments.
"nter the details of purchase order in purchase order register.
PURCHASE DEPARTMENT
AMENDMENT / CANCELLATION OF ORDER
M$ter!$% Co"e M$ter!$%Pr!ce u$#t!t5
$1 per Or"er
Ae#"e" Pr!ce
u$#t!t5
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ACTIVITY= ORDER AMENDMENT ORDER FOLLO9 UP AND INFORM THE
SUPPLIER FOR THE REJECTIONS DAMAGES SHORTAGES=
FLO9 CHART=
Issue of amendments in case of modification to purchase order.
Review the pending order and follow up the pending order for breakdownre8uirement.
'end regular reminders to suppliers against pending purchase order every
month.
Receive shortage ; e*cess ; damages report from stores for the material
received.
Information the supplier for the re1ections ; damage ; e*cess ; shortage.
PURCHASE DEPARTMENT
ACTIVITY= IMPORTS=
FLO9 CHART=
Receipt of indents for import items from stores department.
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#aking previous ; item, information to be taken from concerned department or
from competitors ; 1ournals ; 4ellow pages.
'end en8uiry to overseas supplier.
Receiving 8uotations against en8uiries sent.
"nter price and other terms of the 8uotations received from overseas supplier
in the order processing form.
"*amine order processing form and decide the sub : contractor to whom
purchase order to be placed.
=repare purchase order after finali7ation of price and other technical terms
mentioning the following details.
?/ Material code
@/ Indent number
/ Material specification part number
/ uantity
C/ Rate
D/ =ayment
E/ Insurance and other terms and conditions.
'end the prepared purchase order to head -purchase/ and competent authority
for approval.
'end the purchase order to overseas supplier.
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'end the purchase order copies to stores and concerned departments.
=repare I9 documents and submit to bank for onward transmission to overseas
supplier.
Receive shipping documents from overseas supplier and send same to clearing
agents for collection of the material.
STORES DEPARTMENT
ACTIVITY= RECEIPTS AND UNLOADING MATERIAL
Receiving of Goods through #runk ; =ersonnel &elivery.
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"ntry of vehicle at Gate %ffice.
'tamping on &ispatch Advise ; &elivery challan by Gate %ffice.
9hecking of challans ; &ispatch Advise with purchase order.
!nloading of Goods at allotted place or in case of urgency direct at works site.
All safety precautions are taken while unloading of material like workers
should wear safety shoes, helmets, leather head gloves, noise respirator, nose
mask.
#raining is given to workers for unloading eavy Bulky material by using
chain pulley Blocks, ire Rope 9eilings, $ork )ift. After !I) receipt
acknowledgement given to driver maintaining )orry receipts register.
STORES DEPARTMENT
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ACTIVITY= PREPARATION OF RECEIPT AND APPROVAL BOO) FOR
GENERAL MATERIAL D*C* ENTER OF BLOC) AND STATIONARY
MATERIAL MANUALLY IN REGISTER
'orting of &elivery challans as below