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LIST OF TABLES
Table
No
Title Page
No
7.1 ABC analysis Table 51
8.1 R.M Turnover ratio 67
8.2 R.M Holding Period Table 68
8.3 WIP Turnover Ratio Table 69
8.4 Holding Period of WIP Table 70
8.5 Finished Goods Turnover ratio Table 71
8.6 Inventory to Capital employed Table 72
8.7 Inventory to CA Ratio Table 73
8.8 Inventory to Total Assets Table 74
8.9 Inventory to WC Table 75
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LIST OF FIGURES
Table
No
Title
Page No
3.1 Steps of Methodology 7
6.1 Liberty Group of Companies 16
6.2 Liberty Whitewares limited 17
6.3 Liberty Retail Revolution 17
6.4 Organizational chart of liberty 28
6.5 Organization chart of institution sales department 30
7.1 Economic order quantity graph 47
7.2 Data Flow Diagram 62
7.3 Raw Material Graph at Liberty 66
8.1 R.M Turnover ratio Graph 67
8.2 R.M Holding Period Graph 68
8.3 WIP Turnover Ratio Graph 69
8.4 Holding Period of WIP Graph 70
8.5 Finished Goods Turnover ratio Graph 71
8.6 Inventory to Capital employed Graph 72
8.7 Inventory to CA Ratio Graph 73
8.8 Inventory to Total Assets Graph 74
8.9 Inventory to WC Graph 75
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LIST OF ABBREVIATIONS
RM Raw material
WIP Work in Progress
FG Finished Goods
SS Safety Stock
ROL Reorder Level
ROP Reorder Point
ROQ Reorder Quantity
EOQ Economic Order Quantity
LT Lead Time
ABC Always Better Control
HML High, Medium, Low
SDE Scarce, Difficult, Easy
VED Vital, Essential, Desirable
FSND Fast, Slow, Non moving, Dead
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CHAPTER 1:
EXECUTIVE SUMMARY
If development capital is what establishes a business Inventory
Management is what keeps it going. One of the most common downfalls of business is
unexpectedly high running cost. What is important is not just the size of operating costs,
but the cash flowsthat is when money has to be paid out in relation to the stream of
income arriving in. Thus Inventory Management is of prime importance.
This project is a small attempt to study the Inventory management LIBERTY
SHOES LIMITED. The project can be divided into two sections. First is the analysis of
inventory management position of the company using ratio analysis and second is the study
Inventory management systems and techniques.
Ratio analysis has been done on the basis of three years data. Ratios have been
discussed to compare inventory management performance over the years and to comment and
not the absolute values. To analyze the performance, published balance sheets of LIBERTY
SHOES LIMITED have been used. This project report is based on financial data up to 2010-
2011 only.
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CHAPTER 2:
OBJECTIVE OF THE STUDY
Main Objective
The project is designed to give an overview of Inventory Management in Liberty
Shoes Ltd.
Sub Objective
The study on Inventory is very important for a firm. The objectives of this study are as
follows:
To determine the changes in the Inventory position of the company.
To determine the increase or decrease in Inventory level.
To determine the various ratios for analyzing the Inventory level of the company.
To spot out strengths & weakness of business.
to study and understand as to what exactly is inventory management system
To Study the operational feasibility and utility of inventory management system
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CHAPTER 3:
RESEARCH METHODOLOGY
Research is an important pre-requisite for a dynamic organization to be prcised. Research is
more systematic activity directed towards the discovery and development of organized body
of knowledge. Some of the characteristics of research methodology are as follows:
1. Research is directed towards a solution of problem. It may attempt to answer a
question or determine the relation between two or more variables.
2. Research involves gathering new data for primary of first hand sources or using
existing data for new purposes.
3. Research is based on observable experience or empirical evidence.
4. Research strives to be objective and logical applying every possible test to validate
the proceed are employed the data collection and conclusion research.
DATA COLLECTION
Sources of data: 1) Primary Data which included the input received from directly the
officials and employees through questionnaire and interview.
2) Secondary data: The methodology followed in conducting the study is to
collect data regarding footwear production, working capital and its management, need of
working capital in Liberty Shoes Ltd. The facts & data were taken from magazines and
annual report of company from the books, journals and internet etc.
Method of collecting data: Questionnaire schedule & Interview method
STATISTICAL TOOL USED
The data will be shown with the help of matrix table and bar diagrams.
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PRIMARY DATA ANALYSIS (Bio Profile of the Respondents):
22 percent of the officials belong to the age group of 35 and 50.
58 percent of the officials belong to the age group of 25 to 34.
Percent of the officials belong to the age group of above 50.
69 percent are male officials.
31 percent are female officials.
72 percent are graduates and above.
12 percent are those who are having technical and professional qualifications.
16 percent are undergraduates.
55 percent are those who are associated with the field.
20 percent belongs to the others category.
STEPS OF METHODOLOGY
COLLECTION OF DATA
Fig 3.1 : Steps of Methodology
ORGANIZATION OF DATA
PRESENTATION OF DATA
ANALYSIS OF DATA
INTERPRETATION OF DATA
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CHAPTER 4:
LITERATURE REVIEW
Success of any industrial undertaking depends upon the 6 ms 1) Money
2) Manpower 3) Machine 4) Market 5) Material 6) Management
Materials are pivotal importance not less than any other Ms. Problems have their
root in material affects the efficiency of all men, machine, money & marketing decisions of
the firms and thus become the grave concern of management at all levels. If there were too
much of material problems like ideal funds lied up in excessive inventory storage and
obsolesces difficulties market pressure would arise. Thus the importance of inventory
management is realized.
A number of studies have been done in the field of inventory management by various
researchers. Some of them are given below:
1. Author:- Bern at de William year 2011()
This study tells that the main focus of inventory management is on transportation
and warehousing. The decision taken by management depend s on the traditional method of
inventory control models. The traditional method of inventory management is how much
useful in these days the author tell about it. He is also saying that the traditional method is
not a cost reducing, it is so much expensive. But the managing the inventory is most
important work for any manufacturing unit.
2. Author: - Jon Schreibfeder 1992
He said that it is easy to turn cash into inventory, the challenge is to turn
inventory back into cash. In early 1990s many distributor recognize that they needed help
controlling and managing their largest asset inventory. In response to this need several
companies developed comprehensive inventory management modules and systems. These
new package include many new features designed to help distributors effectively managed
warehouse stock. But after implementing this many distributors do not feel that they have
gained control of their inventory.
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3. Author:-Wolf Bagby, Managing inventory
In this study Mr. W.Bagby explains that by managing the inventory it
becomes easier for the organization to meet the profit goals, shorter the cash cycle, avoid
inventory shortage, avoid excessive carrying costs for unused inventory, and improveprofitability by decreasing cash conversion and adopt JIT system. According to this study
companies need to get smart about inventory.
Boosting financial performance is another benefit that comes from better inventory
management. Infect large number of manufacturers enjoy savings and better performance by
choosing the approach of inventory reduction.
For this company needs to maximize the cash flow and profitability and this include keeping
a watchful discerning eye on charge in supply and demand.
4. Author: - Asfaque Ahmed October 12, 2004
(Article from master requirement planning and master production scheduling)
He said that most of the manufacturing company vendors have planning and
scheduling product which assume either infinite production capacity for calculating quantities
of row material and work in progress (WIP) requirements or infinite quantities of raw
material and WIP materials for calculating production capacity. There are many problems
with this approach and how to avoid these by making sure that the product you are buying
indeed takes into account finite quantities of required materials as well as finite capacities of
work centers in your manufacturing facilities.
5. Author:- D.Hoopman April 7, 2003
(Article from inventory planning and optimization)
In this article he said that inventory optimization recognize that different
industry have different inventory profiles and requirements. Research has indicated that
solutions are priced in a large range from tens of thousands of dollars to millions of
dollars. In this niche market sector price is definitely not an indicator of the quality of
solution, ROI and usability are paramount.
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CHAPTER 5:
FOOTWEAR INDUSTRY
HISTORY OF FOOTWEAR & FOOTWEAR MANUFACTURING
The first foot covering was made by our primitive ancestors. The covering was to protect
their feet from jagged rocks, burning sands, rugged terrains. Development shows that the
importance of protecting the feet was recognized. Egyptians Chinese and other civilization all
contain references to shoes.
The first shoe was made of plated grass or rawhide strapped to the feet. The early Egyptians
made some sandals from plaited papyrus leaves. It shows that sandal making was recognized
as an art, early in the history o that country. Sandals are most generally worn type of footwear
in many warm countries, often ornamented and in form that is suitable to environment in
which it is worn. Sandals continued to be the same simple kind of footwear worn in the early
century.
In Japan, sandals indicated the social status of the wearer by making distinct sandals for
imperial household, merchants and actors, and in fact, for the whole range of vacations and
professions. In Greece, one emphasized design and beauty, while in Rome, they made it for
military purpose to enable their legions to travel on foot.
The moccasin protects the foot in cold countries. The outline of the forepart is puckered seam
with a string gathered and tied about the ankle.
Though all this development, little attention was devoted to fitting quality and comfort. In
Europe, perfection in workmanship and styles seems to have been sought in shoes rather than
foot comfort and protection.
The most conspicuous design in the period was the peaked shoe or crackow, with a toe so
long that it made walking difficult. Till the late 1850, shoes were made only on straight last
without recognizing the left and right. There were only two widths, the slim and the stout.
Up to 1850 shoes were made by hand tools, curved awl, and some tools were added
such as pincers, lap stone hammer and variety of rubbin sticks used for finishing edges and
heels.
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Efforts have been made to develop machinery or shoe production. They had all failed and it
remains or shoemaker in the United States to create the first successful machinery for making
successful shoes.
In 1845, the rolling machine was introduced which replace all the previous tools used by
hand shoemakers or pounding sole leather and increasing wear by compacting the fibers.
In 1846, Elias Howe, invented the swing machine. This major invention seems to have set up
a chain reaction of research and development.
In 1858, layman Blake, a shoe maker, invented a machine for swing the sole of shoes to the
upper. This was purchased by Gordon McKay, who improved the invention.
In 1875, a machine was developed or making different types o shoes, known as Goodyear
welt sewing machine, was developed under the management of Charles Goodyear Jr., son of
the famous inventor of vulcanizing rubber.
Invention continued, researched and progress was made. It required great sum of money to
make one shoe making machine, but it finally paid off. Today one lasting machine can last
1000 pairs or more of shoes in 8 hours a day.
HISTORY OF FOOTWEAR IN INDIA
History of footwear is nearly 5,000 year old when Egypt started covering the feet of the
people who roam about with wooden chappals.
In India, in the ancient period, our ancestors, especially the rishies who moved about
in the forests, wore wooden chappals. There is a mention of king Bharat putting forth before
lord Ram a pair of shoes, crafted from wood and coated with gold, when despite all requests,
Ram refused to accept the throne of Ayodha.
However, it is still a mystery as to when the use of footwear, in the form of chappals,
actually started in India. There is no reference of footwear in the writings and pictures related
with the Indus valley civilization. In the pictures of men & women & seals recovered from
the site, the feet of both men and women are seen bare.
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In the Rig-Veda, there is no mention of any covering for foot, but the word vatturinapad
gives a clue of the warriors wearing on the foot is mentioned in the Yajurvedia and the
chappals in the Atharveda. Thus the use of footwear or chappals started around 1,500 B.C.,
approximately 3,500 years ago from now. The upanah become quite popular during the
period of Ramayana & Mahabharata (circa 1,000 B.C.), the hides of lions, tigers, deer
leopards etc were being used for making upanah.
The Mahavagga, a Buddist religious treatise, of the 6 th century B.C. gives detailed
information about upanah, classifying them into nine types of shoes & chappalssuch as
Patbadh (keen high gum boots), Ajvishan (made of goat skin), Maind-Vishan (made of
sheep skin) etc.
During the Maryan period (3rd Centruey B.C.) many varieties of footwear came into
existence. The Greek historian Arrian writes that shoes made of white leather were special
with Indians and to increase height, Indians used to wear shoes high heels.
During the Shunga period (2nd century B.C.) a class of shoe makers came into
existence. They had specialized in making shoes with good designs and durability, in
fashionable styles. These craftsmen were called Charmkar. Their work was appreciated but
social status was low.
The Kushan period was a golden era of footwear. The shakes, parathions, Greeks and
the Kushans belonging to the Chinese dynasty brought themselves various designs and styles.
A headless statue of Kanishka, made of red stone (1st century A.D.) has been recovered from
Mathura where he has shown wearing laced shoes.
In the Gupta period (4th to 6th century A.D.) the demand of footwear increased greatly
and the hides of cows, buffaloes, goats, sheep and wild animals came into much use.
Chappals and shoes of various heights (Up to the heels, knee or thigh) were in use amongst
people from all walks of life. On their coins, Samudra Gupta and other Gupta kings are
depicated wearing shoes, decorated with flowers. In the paintings of the Ajanta caves, several
horse riders are shown wearing something like shoes.
Footwear industry in India can never be a heavy industry in general and small entrepreneurs
with small investments in machinery and capital could remain for all purposes the backbone
of industry. It is the ideal industry for entrepreneurs without much of investment in the
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CHAPTER 6:
COMPANY PROFILE
LIBERTY GROUP
Liberty Group was the vision of three dreamers who thought of producing an Indian brand offootwear to make a basic necessity available to their countrymen.
Mr. D P Gupta, Mr. P D Gupta and Mr. R K Bansal looked beyond the geographical
boundaries and brought cutting-edge technologies to their own country. Soon the name,
Liberty became synonym to quality in the domestic market and this encouraged the
company to invest further for enhancing production capacities and to cater to the demand ofinternational markets.
Today, Liberty is not only about footwear. It has diversified into various sectors establishing
an invincible business empire of prosperity. In the domestic market it is one of the most
admired names that ensure quality. Liberty Group expanded and diversified into
manufacturing of ceramic sanitary ware under the brand name Liberty White ware With
innovations in bathroom products and accessories that go beyond graceful lines, the company
is setting new trends in Indian ceramic sanitary ware Industry.
In order to offer unusual shopping experience to the customers, the group also entered into
retailing and set up stores in the major cities under the brand name, Liberty Revolution
The Liberty Group is expanding with the passage of time and it is committed to venture into
more business areas keeping abreast with the demands and needs.
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Mission & Vision
Mission
Its the mission of the Liberty Group to continuously improve the quality of its products
using cutting-edge technologies and following the latest trends. The group emerged with an
enthusiasm to offer world-class products to its countrymen and it will carry forward the same
attitude along with the determination to be the global leader.
Vision
The Group is committed to achieve the highest performance standards in each area of its
business. It envisages itself as the most trusted name all over the world.
FIG 6.1 Liberty Group of Companies
Liberty Shoes Limited
The company has a turnover exceeding U.S. $100 million and produces more than 50,000
pairs of footwear a day. The company produces varieties of ranges covering virtually every
age group and income category. The products are marketed across the globe through 150
distributors, 350 exclusive showrooms and over 6000 multi-brand outlets, and sold in
thousands every day in more than 25 countries including fashion-driven, quality-obsessed
nations like France, Italy, and Germany.
Liberty Shoes Ltd.
Liberty Whitewares Ltd.
Liberty Retail Revolutions Ltd.
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Liberty Whitewares limited
With innovations in bathroom products and accessories that go
beyond graceful lines, the company is setting new standards in the
Indian ceramic sanitary ware industry. The products break the
mould to achieve balanced and coherent integration of space, form,
design and comfort. It is redefining the bathroom as a treasured
sanctuary to luxuriate in. Liberty Whiteware is a part of the Rs.
350 crore Liberty Group, and it is taking the concept of luxury to a
new level of excellence.
Fig: 6.2 Liberty
Whitewares limited
Liberty Retail Revolutions Ltd.
In the elite shopping avenues of fashion capitals "Revolutions" has
begun its walk. The fashion accessory and footwear stores have begun
operations in Chennai, Bangalore, Mumbai, Kolkatta, Hyderabad, Pune,
Indore and Lucknow. These are company managed and owned outlets
where the emphasis is to deliver high fashion to the customers backed
by quality service making it a delightful shopping experience. Liberty
showrooms enter the international market as the company has plans of
opening more revolution showrooms nationally & internationally.
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Board of Directors
Mr. Adesh Gupta, Executive Director / CEO
Mr. Shammi Bansal, Executive Director
Mr. Adarsh Gupta, Executive Director
Mr. Sunil Bansal, Non Executive Director
Mr. S.K. Goel, Independent Non Executive Director
Mr Amitabh Taneja, Independent Non Executive Director
Mr. Prem Garg, Independent Non Executive Director
Mr. S.K.Arya, Independent Non Executive Director
Mr. Siddharth Sanghi, Independent Non Executive Director
Mr. Vivek Bansal, Independent Non Executive Director
Mr. Raghu Dayal, Independent Non Executive Director
Audit Committee
Mr. Sunil Bansal
Mr. Prem Garg
Mr. Raghu Dayal
Mr. Vivek Bansal
Remuneration Committee
Mr. Raghu Dayal
Mr. Prem Garg
Representative of outside consultants
Share Transfer & Share Holders/Investors Grievance Committee Meeting
Mr. Adarsh Gupta
Mr. Prem Garg
Mr. Sunil Bansal
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6.1 INTRODUCTION TO PARTICULAR FIRM / DIVISION
Liberty Shoes Ltd.
Liberty Shoes Ltd. is the only Indian company that is among the top 5 manufacturers of
leather footwear in the world with a turnover exceeding U.S. $100 million.
It produces more than 50,000 pairs of footwear a day covering virtually every age group and
income category. Products are marketed across the globe through 150 distributors, 350
exclusive showrooms and over 6000 multi-brand outlets, and sold in thousands every day in
more than 25 countries including fashion-driven, quality-obsessed nations like France, Italy,
and Germany
With 50 years of excellence, today Liberty produces footwear for the entire family and is a
trusted name across the world. In the domestic market it is one of the most admired footwear
brands and holds the largest market share for leather footwear.
History
It was the 25th December of 1954 when India was nurturing its growth as a free country,
three dreamers in a small town in erstwhile Punjab thought of producing an Indian brand of
footwear to make a basic necessity available to their countrymen.
Mr. D P Gupta, Mr. P D Gupta and Mr. R K Bansal allowed their vision to cross every barrier
and brought cutting-edge technologies to their own country. Within a short span of time, the
name, Liberty became a synonym to quality footwear in the domestic market and this
encouraged the company to invest further for enhancing production capacities and to cater to
the demands of international markets.
With 50 years of excellence, today Liberty produces footwear for the entire family and is a
trusted name across the world. In the domestic market it is one of the most admired footwear
brands and holds the largest market share for leather footwear
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THE CREDO:
To ensure that the method we use is the latest technology world-over. To follow the highest standard of honest workmanship in whatever we make.
To walk that extra miles to ensure customer satisfaction worldwide.
To remain a true cosmopolitan to the spirit.
To remain a great corporation to associate with, to work for, to know that:
We Are About People.
LIBERTY RANGE:
The family brand style personified with something for every need. Be it formal or casual, at
office or at the beach, a conference or a soiree - Liberty fits in effortlessly.
MANUFACTURING:
What gives Liberty the edge is vertically integrated manufacturing infrastructure on
technology basis with completely in-house state of the art production facilities which includes
8 DESMA machines for PU Direct Injection, 15 Machines for PVC Direct Injection, 3
Machines for EVA Injection, 3 PU Injection units for unit sole, six lines for cement lasted
injection and one machine for the latest TPU Injection. Above production facilities are
maintained with focus on environment cleanliness ISES 2000 norms, provides a complete
range of family footwear of all seasons and occasions, covers the entire domain of industrial
safety and health footwear requirements.
Liberty also has the ISO: 9001-2000 certification for its Quality, Management System, a
testimony to all the system and procedures in place. Liberty is a technology driven company
HUMANTECH Libertys patented technology is combination of human craftsmanship
and technological excellence.
RESEARCH & DEVELOPMENT:
Our 2-way channel partners dig their feed back deep and constantly. Hammering String of
creative workman at the manufacturing center to produce not just faceless shows dancing
down conveyor belts but shoes with character. So the centers have poled 53 years of the
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research and continuous flow of emotions to redefine the R & D center at Libertypuram.
Fusing technology with the sweat of sagacity. Some call it Research & Development Wing
some put a price to investments in the Emotional Technology that it comes out as. We call
the process HUMANTECH and it priceless.
Liberty also very active in the area of Research & Development and has a number of firsts
to its credit like:
1. Liberty pioneered the PU (Polyurethane) technology in India in footwear industry in 1982
and today is the largest producers of footwear with this technology in Asia.
2. Liberty has developed new material TPE (Thermo-Plastic-Elastomer) for high quality
formal footwear.
3. Liberty has developed a high quality Eva Compound for beach footwear.
4. Liberty was the first company commissioning a latest CAD/ CAM System.
5. Die Less Leather cutting machine which is directly attached with its Design &
Development Section for speedy process of development of new models of footwear.
6. Liberty is the only factory in India having water proofing technology approved by
SYMPATEX, a name known for water proofing technology worldwide.
7. Liberty Management is very thin in size comparing with a huge work force in front line
operation.
DESIGN & DEVELOPMENT:
Liberty has well established state of the art design centers which are constantly engaged in
designing and developing latest trend setting footwear for the young fashions consciousIndian consumers. On an average 4000 new styles are developed every year out of which
roughly 1200 styles are selected and introduced in the market in two seasons i.e. spring /
summer and fall, winter.
FINANCIAL
If you think a company that has helped 50 million people think on their feet in style is big
stuff, you have seen very little yet. For us the future plans are not something that can be
termed as crystal gazing but neatly enclosed ideas idea and deliverables in continuum. We are
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fast building new brands and products, improving the all times favorites and expending our
marketing infrastructure and honing to our skills to further the delight of the consumer. With
an over all 25% boom planned each year for the next 5 year you could says that India is only
true blue footwear manufacturing multinational is just peaking over the edge.
MORE STORES FROM LIBERTY:
Liberty group is expecting to add Rs.70 crores from its footwear retail business. The
company will invest Rs.7 Crores towards expending Revolution - its exclusive footwear
showroom. This year company will add 10 more stores to take it to 25. The company has also
entered the manufacturing of white ware segment of sanitary and bathroom products. Liberty
is looking at introducing new design this season too. The company has expended its retail
presence in over 100 stores across small and big cities.
LIBERTY PLANS TO EXPANDS GLOBAL PRESENCE
Liberty group has also establish manufacturing plant in Uttrakhand state and opening 25
exclusive outlets across the country as well as in 7 overseas centers. Each outlet is estimated
to see an investment of Rs.7.5 million.
With a turnover of Rs.500 crores the company is emerging as an multinational brands with
about 350 Exclusive distributors all over the world. as opposed to the earlier model of
expending retail outlets we plan to bring down the number of retailer from 5000 to 4000. We
do not want retail presence for name shake; the ideas to have real brand presence, Liberty
plans to open super premium at Singapore, Kualampur, Dhaka, Columbo and Dubai . The
currently exports about 25% of footwear production to Germany, Italy, France, United States
and the Middle East.
STRENGTH:
At Liberty we upgrade and re-engineer our design every 6 months so that you have
something new, with it and futuristic every time you visit us. Our shoes are much more than
just B.E. Witching leather work. We understand that a shoe for you is an extension of your
personality. And for one who keeps moving onto to stables of desire loaded with exciting
world fashions trends we craft the dreams with the help of Capital Fashion Technologists shut
away not in dream bars but with their heart minds on the pules of future fashion.
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6.2 LIBERTY SHOES LIMITED AN INNER VIEW
LOCATION:
The company has entered into a lease agreement for 410 canals and 17 marlas (248500sq.
yards) of land on Punit Chamber, Sector -18, Turbe. Dist-Thane.
BUILDING:
It mainly consists of eight huge halls meant for manufacturing operation facility, raw material
and finished goods storage, cutting sections, PVC Sole Section, PU Sole Section,
Administrative Block etc. the design and finishing of building is among the best.The total area of the building is 170 lacks sq.feet (approx) and total cost of building is around
550 lacks. The building is of RC framed structure.
MACHINARY:
Five (new technology) injection-moulding machines are being used by the company for
production purpose. All the machines are imported from Italy and Germany. Production of
shoes as well as quality of shoes has been increased and problems of pasting, sole cracking
have been reduced substantially by this technology. Recently one new computerized machinehas been purchased for cutting leather. It has also been imported from Italy.
INNOVATIVE APPROACHES:
Entire production units of Liberty are interlinked by SAP, a unique ERP Solution
implemented for the first time in India in a Footwear Industry with all modules related with
Finance, Logistics & supply chain.
It is rare to see such clean, state of the art production facility in India with followingmanagement systems and tools.
1. KAIZEN is implemented since 2000 and in practice throughout the organization.
2. 5 S Concept is introduced and in practice since 2001 and presently in matured stage.
The impact of 5S implementation is visible in all dept. and shop floors of the
organization. We may even consider these units are the model units for any Footwear
Industry
3. LEAN awareness is existing in all production floors of the organization. Valuestreams are standardized for most of the regularly produced articles. Now the Group is
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in the process of integrating Lean Concept with PP Module of SAP for controlling the
flow.
4. ISO 9001:2000 CERTIFICATION is awarded to QMS of one of its units and Group is
in the process of getting for other units. Group is having an appointed MR exclusively
for monitoring the Quality System. DNV is the Certifying agency and auditors of the
QMS.
5. WASTE MANAGEMENT SYSTEM is established in one of their unit and it is a pilot
project. Wastage Identification, handling and disposal are documented and monitored
by frequent internal audits.
6. WATER MANAGEMENT SYSTEM is existing in the group. Water wastage is
almostnil- and water is re-cycled in most of their operations.
7. ISES-2000 norms are followed to ensure the best Social, Health and Environmental
Standards. This standard is monitored by Indo German Export Promotion Council of
India.
8. Liberty is the Committee member for setting the standard for Safety Shoes. The
recently released IS: 15298:2000 for Safety shoes is followed by Liberty and it is the
first in Shoe Industry have applied for Certification to use ISI Mark.
9. ENGERGY MANAGEMENT SYSTEM of Liberty is unique in Footwear Industry.
Liberty Units have got lot of incentives / discounts from Haryana State Electricity
Board for maintaining maximum Power Factor.
INTERNATIONAL EXPERIENCE:
1. Liberty has more than 25 years of experience in Export Business and enjoying Status
Holder status as Recognized Export House of India. In 80s when Soviet Market was
invaded by Indian Exporters, Liberty was the Market Leader in USSR.
2. Liberty is having its own office in Russia and Hungary for more than 2 decades.
3. Libertys major operations are mainly with Europe, Middle East, East African, South
African countries and USA.
4. Major brands of Europe, SALAMANDER, JELA, DEICHMANN, ROMIKA and USA
brands like TODDWELSH are selling only Liberty Shoes under their brand umbrella.
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CORPORATE PHILOSOPHY
Steeped in a philosophy that has at its core innovation, technology and advancement, Liberty,
pride itself over and above everything else on its healthy and heart-felt respect for the human
ethos, which projects itself in the expectancy and excitement with which one greets the
arrival of the new combined with a sincere and deep regard for the old, which is appreciative
of and adopts at every stage the unique balance between modernization and tradition.
Liberty as a brand is constantly evolving to keep pace with the changing trends, styles,
beliefs, and aspirations of people while maintaining the sanctity of certain traditions like
workmanship and good value.
SOCIAL RESPONSIBILITY
People at Liberty, are ever conscious of the fact that their reputation stems not just from
quality products and technological innovations but also from the manner in which they
discharge their responsibilities towards its employees, its customers, the society and the
environment. Utmost importance is given to ensuring safe, healthy and non-discriminatory
working conditions for all Liberty employees and ethical standards and practices are
rigorously adhered to. That's why Liberty finds place in the most favored list of respectable
brands like Wal-Mart, Reebok, Nike, etc as an Equal Opportunity Employer.
In fact for Liberty, 3000 employees are all members of the extended Liberty family. So it's no
surprise that its Humantech Centers have crches which give working mothers the freedom
and peace of mind to pursue their careers.
Liberty also has a special charity fund for providing financial assistance to families who
suffer the tragedy of losing their sole earning member. It's this sense of social commitmentthat inspired it to set up the Sanjay Charitable Hospital at Karnal and join the Nation in
felicitating the winners of the Republic Day Bravery Awards with a special gift of free
footwear. Ecological awareness also happens to be uppermost on our minds.
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CONTRIBUTION TO INDUSTRY:
1. Liberty has pioneered in bringing PU Technology to India. Liberty has given a
presentation on Footwear foot prints for the future in Asia Pacific Customer Conference
2000 organized by Huntsman Polyurethane at Singapore on this technology.
2. SYMPATEX is a patented technology on Water Proofing recognized worldwide. Liberty
is the only company in India having recognition/approval of SYMPATEX on
Waterproofing.
3. Safety Shoes are brought to Indian Market for the first time and an exclusive brand
WARRIOR was launched by Liberty in Industrial Segment shoes. Our safety shoes are
meeting all DIN / EN standards in respective segments.
4. PU technology was introduced to Government Sector; Liberty has set the standard as
member of the BIS Committee. BIS Standard IS: 15298: 2000, applicable for Safety
shoes is the Standard on which Liberty is producing Safety shoes for more than one
decade.
5. Liberty Enterprises is the model unit for above Standard and complete testing facility is
available only with Liberty in India after FDDI.
6. Liberty is the First Footwear Manufacturing facility in India awarded with the latest ISO
9001:2000 Certification.
7 The first and only footwear Industry in India, having SAP ERP with all modules
related to Inward/Outward supply chain, Materials, Finance and Costing
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CORPORATE GOALS
Any company if it grows which is the key to survival in the long run should clear and well
defined goals. The goals of liberty shoes limited are given below:
Liberty wants to develop a spirit of cooperation between individuals and group within
the company
Liberty wants to attain and maintain good relations between its union and
management
Liberty will endeavor to keep highly qualified employees by appropriate training and
thus raise their morale and competence.
Liberty will try to practice management of highest standard of competence and
professionalism.
Liberty will strive to remain or become the technological as well as market leaders in
footwear industry and leather product industry.
Liberty wants to be known for the quality of its products and services.
NATIONAL AND INTERNATIONAL AWARDS
Leather Export Promotion Merit Award (1975), till 1982.
Haryana Government Export Award (1978-79).
International Asian Award, Jakarta (1982).
European Awards, Paris (1987).
National Award for best Export of Leather Garments (1987-88).
International Award for Good Quality, Brussels, Belgium (1988). Leather Export Award for Government of India (1991-92).
National Productivity Award from president (1997).
Council of Leather Export (CLE), Indias apex body of leather products exporters,
during the international leather fair held at Chennai, conferred is highest award the
DOYEN OF INDUSTRY upon Mr.P.D.Gupta on 5th Feb., 98.
Worldwide Prestige Award (WPA)-2001.
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6.3 ORGANIZATIONAL CHART OF LIBERTY
FIG -6.4
Department Heads
C.E.O: Mr. Adesh Gupta
H.R: Mr. M.S Sharma
Finance: Mr. Ajay Dhingra
Production: Mr. State Khare
Domestic: Mr. Raman Bansal
Export: Mr. Sunil Goel
Institutional Sales: Mr. Haemant Mohan
D&D: Mr. Kajal Sinha
IT: Mr. Inderjit Singh
Excise: Mr. Pramod Bansal
Lab: Mr. Suresh Kumar
C.E.O
C.G.M
Liberty
Revolutions Ltd.
Liberty Shoes
Ltd.
Departments
H.R Finance Production Purchase Marketing
Domestic ExportInstitutional
Sales
R&D IT Excise
Liberty White
Ware Ltd.
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Fig -6.5 ORGANISATION CHART OF INSTITUTION SALES
DEPARTMENT
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Distribution Network:
Liberty extensive distribution channel has enabled us to develop a firm grip over the
market. Its presence in the global front led us to penetrate deep into the various markets o
world and offer our qualitative range of products. Our presence across the world is in the
form of
02 Overseas Offices
14 Branch Offices
20 Overseas Showrooms
300 Liberty Exclusive Distributors
375 Retail Stores (10 outside India).
PRODUCT RANGE
The new range from Liberty is all about style, design, and comfort. The range imbibes the
spirit of fun and is trendy to the core. There is a product for every season and occasion.
Coolers
Coolers are a brand of unisex sandals and slip-ons. Catering to a wide segment across the
country Coolers are much sought after not just in the summer season but also during the
monsoons and in the coastal regions for their water-resistant property.
Footfun
The brand exhibits the vivacity of children in every way. Colorful and comfortable, the range
has smart sandals, elegant sports shoes and bright colored lace up to ensure a formal look for
the children.
Force 10
Sporty and vibrant the Force 10 range has been rewriting the industry norms. Constant
technologies up gradations have made it one of the more desired brands in the category.
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Fortune
A pure male fashion brand, Fortune has the latest styles in formal footwear for men.
Freedom
Professionals, undertaking high impact, electrical, thermal, chemical or even slippage risks,
walking over surfaces or operating in environments that expose them to dangers related to
these, use a pair of Boots that they completely rely on.
Whether you are a power plant technician, alkali unit worker, or even an X-treme sports
practitioner, you will appreciate the safety of FREEDOM Protective Professional Boots.
Made from super-resilient rubber, blended with PVC, these boots afford the protection that
no ordinary footwear can provide, no matter how well they are constructed. They are resistant
to, electrical shock, mechanical crush, chemical corrosion and extreme heat and cold. These
boots are also anti-static, anti-slippage, non-tear able.
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CHAPTER 7:
INVENTORY MANAGEMENT
7.1 INTRODUCTION
Inventories constitute the most significant part of current assets of a company like in India.
On an average, Inventories are approximately 60% of current assets in public Ltd.
companies in India. A firm neglecting the management of Inventories will be jeopardizing its
long run profitability and may fail ultimately. It is possible for a company for a company to
reduce its level of Inventories to a considerable degree. The reduct ion in excessive
inventories carries a favorable impact on a companys profitability. Inventory is composed
of assets that will sell or used in future in the normal course of business operations. The
assets, which firms store as inventory in anticipation of need, are
1. Raw material
2. Work in progress
3. Finished Goods
Inventory, is current assets, but differs from other current assets. Because only financial
managers are not involved rather, all the functional areas, i.e. finance, marketing, production
& purchasing are involved.
The job of the financial manager is to reconcile the conflicting view points of the various
functional areas regarding the appropriate inventory level in 0order to fulfill the overall
objective of maximizing the owners wealth.
Thus, Inventory management like the management of other current assets, should be related
to the over-all objective of the firm.
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INVENTORY AND FINANCE MANAGER
Although inventory management usually is not the direct operating responsibility of finance
manager, the investment of funds in inventory is an important aspect of financial
management. Consequently the finance manager must be familiar with ways to control
inventory effectively, so that capital may be allocated efficiently. The greater the opportunity
cost of funds invested in inventory, the lower is the optimal level of average inventory and
also the lower the optimal order quantity, all other things held constant. The EOQ model also
can be useful to the finance manager in planning for inventory financing.
When demand or usage of inventory is uncertain. The finance manager may try to effect
policies that will reduce the average lead time required to receive inventory, once an order is
placed. The lower the average lead time, lower is the safety stock needed and lower is the
total investment in inventory, all other things held constant. The greater the opportunity cost
of funds invested in inventory, the greater is the inventory to reduce this lead time. The
purchasing department may try to find new vendor that promise quick delivery, or it may
pressure existing vendor to deliver faster. The production department may be able to deliver
finish goods faster by producing a smaller run. In either case, there is tradeoff between the
added cost involved in reducing the; lead time and the opportunity cost of funds tied up in
inventory.
The finance manager is also concerned with the risk involved in carrying inventory. The
major risks involved in carrying inventory. The major risk is that the market value of specific
inventories will be less than the value at which they were acquired. Certain types of inventory
are subject to obsolescence, whether it is in technology or in consumer tastes. A change in
technology may make an electronic component worthless. A change in style may cause a
retailer to sell goods at substantially reduced prices. The principle risk is that of fluctuationsin market price. The finance manager is perhaps the best person to make an objective analysis
of the risks associated with the firms investment in inventories. These risks must be
considered in determining the appropriate level of inventory the firm should carry.
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NATURE OF INVENTORY
Inventory are stock of the company is manufacturing for sale and components that make up
the product. The various forms in which inventories exist in a manufacturing company are:
1. Raw Material: Raw Material is those basic inputs that are converts into finished
goods through manufacturing process. Raw Material inventories are those units,
which will purchase & stored for future production.
2. Work in progress: Work in progress inventories are semi-manufactured products.
They represent products that need more work before they become finished
products for sale.
3. Finished goods: These are completely manufactured products which are ready
for sale. Stock of raw materials and work in progress facilitates production while
stock of finished goods is required for smooth marketing operations.
PURPOSE OF HOLDING INVENTORY
A firm also needs to maintain inventories to reduce costs and ordering costs and avail
quantity discounts. There are three main purposes or motive:
1. Transactions motive: It emphasizes the need to maintain inventories to facilitate
smooth production & sales operations.
2. Precautionary motive: It necessitates holding of inventories to guard against the
unpredictable changes in demand & supply force & other factors.
3. Speculative motive: It influences the decisions to increase or reduce inventory
levels to take advantage of price fluctuations
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7.3 DEFINITIONS
The following terms are used in this statement with the meanings specified:
Inventories are assets:
(a) Held for sale in the ordinary course of business.
(b) In the process of production for such sale, or
(c) In the form of materials or supplies to be consumed in the production process or in the
rendering of services.
1. Inventories encompass goods purchased and held for resale, for example, merchandise
purchased by a retailer and held for resale, computer software held for resale, or land and
other property held for resale. Inventories also encompass finished goods produced, or
work-in-progress being produced, by the enterprise and include materials, maintenance
supplies, consumables and loose tools awaiting use in the production process. Inventories
do not include machinery spares which can be used only in connection with an item of
fixed asset and whose use is expected to be irregular; such machinery spares are
accounted for in accordance with Accounting Standard (AS) 10, Accounting for Fixed
Assets.
2. Inventories should be valued at lower of cost net realizable value.
3. Cost of Inventories
The cost of inventories should comprise all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present location and condition.
4. Costs of Purchase
The costs of purchase consist of the purchase price including duties and taxes (other thanthose subsequently recoverable by the enterprise from the taxing authorities), freight,
inwards and other expenditure directly attributable to the acquisition. Trade discounts,
rebates, duty drawbacks and other similar items are deducted in determining the costs of
purchase.
5. Costs of Conversion
The costs of conversion of inventories include costs directly related to the units
of production, such as direct labor. They also include a systematic allocation of fixed and
variable production overheads that are incurred in converting materials into finished
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goods. Fixed production overheads are those indirect costs of production that remain
relatively constant regardless of the volume of production, such as depreciation and
maintenance of factory buildings and the cost of factory management and administration.
Variable production overheads are those indirect costs of production that vary directly, or
nearly with the volume of production such as indirect materials and indirect labour.
6. The allocation of fixed production overheads for purpose of their inclusion in the
costs of conversion is on based on the normal capacity of the production facilities.
Normal capacity is the production expected to be achieved on an average over a number
of periods or seasons under normal circumstances, taking into account the loss of capacity
resulting from planned maintenance. The actual level of production may be used if it
approximates normal capacity. The amount of fixed production overheads allocated to
each unit of production is not increased as a consequence of low production or idle plant.
Unallocated overheads are recognized as an expense in the period in which they are
incurred. In periods of abnormally high production, the amount of fixed production
overheads allocated to each unit of production is decreased so that inventories are not
measured above cost. Variable production overheads are assigned to each unit of
production on the basis of the actual use of the production facilities.
7. A production process may result in more than one product being produced simultaneously.
This is the case, for example, when joint products are produced or when there is a main
product and a by- product. When the costs of conversion of each product are not
separately identifiable, they are allocated between the products on a rational and
consistent basis. The allocation may be based, for example, on the relative sales value of
each product either at the stage in the production process when the products become
separately identifiable, or at the completion of production. Most by- products as well as
scrap or waste materials, by their nature, are immaterial. When this is the case, they are
often measured at net realizable value and this value is deducted from the cost of the main
product. As a result, the carrying amount of the main product is not materially different
from its cost.
8. Other costs are included in the costs of inventories only to the extent that they are incurred
in bringing the inventories to their present location and condition. For example, it may be
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appropriate to include overheads other than production overheads or the costs of
designing product for specific customers in the cost of inventories.
9. Interest and other borrowing costs are usually considered as not relating to bringing the
inventories to their present location and condition and are, therefore, usually not included in
the cost of inventories.
10. Exclusions from the cost of Inventories
11. In determining the cost of inventories in accordance with paragraph 3. It is appropriate to
exclude certain costs and recognize them as expenses in the period in which they are
incurred. Examples of such costs are;
1. Abnormal amounts of wasted materials, labour, or other production costs.
2. Storage costs, unless those costs are necessary in the production process prior to a
further production stage.
3. Administrative overheads that do not contribute to bringing the inventories to their
present location and condition, and
4. Selling and distribution costs.
12. The cost of inventories of items that are not ordinarily interchangeable and goods or
services produced and segregated for specific projects should be assigned by specific
identification of their individual costs.
13. Specific identification of cost means that specific costs are attributed to identify items of
inventory. This is an appropriate treatment for items that are segregated for a specific project,
regardless of whether they have been purchased or produced. However, when there are large
numbers of items of inventory which are ordinarily interchangeable, specific identification of
costs is inappropriate since, in such circumstances, an enterprise could obtain predetermined
effects on the net profit or loss for the period by selecting a particular method of ascertaining
the items that remain in inventories.
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14. The cost of inventories, other than those dealt with in paragraph 11, should be assigned
by using the first-in, first-out (FIFO), or weighted average cost formula. The formula used
should reflect the fairest possible approximation to the cost incurred in bringing the items of
inventory to their present location and condition.
15. A variety of cost formulas is used to determine the cost of inventories other than those for
which specific identification of individual costs is appropriate. The formula used in
determining the cost of an item of inventory needs to be selected with a view to providing the
fairest possible approximation to the cost incurred in bringing the item to its present location
and condition.
The FIFO formula assumes that the items of inventory which were purchased or
produced first are consumed or sold first, and consequently the items remaining in
inventory at the end of the period are those most recently purchased or produced. Under
the weighted average costs formula, the cost of each item is determined from the
weighted average of the cost of similar items at the beginning of a period and the cost of
similar items purchased or produced during the period. The average may be calculated on
a periodic basis or as each additional shipment is received, depending upon the
circumstances of the enterprise.
16. Techniques for the measurement of the cost of inventories, such as the standard cost
method or the retail method, may be used for convenience if the results approximate the
actual cost. Standard costs take into account normal levels of consumption of materials and
supplies, labour, efficiency and capacity utilization. They are regularly reviewed and if
necessary, revised in the light of current conditions.
17. The retail method is often used in the retail trade for measuring inventories of large
numbers of rapidly changing items that have similar margins and for which is impracticable
to use other costing methods. The cost of the inventory is determined by reducing from the
sales value of the inventory the appropriate percentage gross margin. The percentage used
takes into consideration inventory which has been marked down to below its original selling
price. An average percentage for each retail department is often used.
18. The cost of inventories may not be recoverable if those inventories are damaged, if they
have become wholly or partially obsolete, or if their selling prices have declined. The cost of
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inventories may also not be recoverable if the estimated costs of completion or the estimated
costs necessary to make the sale have increased.
The practice of writing down inventories below cost to net realizable value is consistent
with the view that assets should not be carried in excess of a amounts expected to be
realized from their sale or use.
19. Inventories are usually written down to net realizable value on an item-by-item basis. In
some circumstances, however, it may be appropriate to group similar or related items. This
may be the case with items of inventory relating to the same product line that have similar
purposes or end uses and are produced and marketed in the same geographical area and
cannot be practicably evaluated separately from other items in that product line. It is not
appropriate to write down inventories based on a classification of inventory, for example,
finished goods, or all the inventories in a particular business segment.
20. Estimates of net realizable value are based on the most reliable evidence available at the
time the estimates are made as to the amount the inventories are expected to realize. These
estimates take into consideration fluctuations of price or cost directly relating to events
occurring after the balance sheet date to the extent that such events confirm the conditions
existing at the balance sheet date.
21. Estimates or net realizable value also take into consideration the purpose for which the
inventory is held. For example, the net realizable value of the quantity of inventory held to
satisfy firm sales or service contracts is based on the contract price. If the sales contracts are
for less than the inventory quantities held, the net realizable value of the excess inventory is
based on general selling prices.
Contingent losses on firm sales contracts in excess of inventory quantities held and
contingent losses on firm purchase contracts are dealt with in accordance with the principles
enunciated in Accounting Standard (A.S) 4, contingencies and events occurring after the
balance sheet date.
22. Materials and other supplies held for use in the production of inventories are not written
down below cost if the finished products in which they will be incorporated are expected to
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be sold at or above cost. However, when there has been a decline in the price of materials and
it is estimated that the cost of the finished products will exceed net realizable value, the
materials are written down to net realizable value. In such circumstances, the replacement
cost of the materials may be the net available measure of their net realizable value. An
assessment is made of net realizable value as at each balance sheet date.
23. Disclosure.
The financial statements should disclose:
The accounting policies adopted in measuring inventories, including the cost formula used,
and The total carrying amount of inventories and its classification appropriate to the
enterprise.
24. Information about the carrying amounts held in different classifications of inventories
and the extent of the changes in these assets is useful to financial statement users. Common
classifications of inventories are raw materials and components, work in progress, finished
goods, stores, spares and loose tools.
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VALUATION OF INVENTORY
The price of materials and income of a concern is directly proportional to each other. So it is
necessary that a method of pricing materials should be such that it gives a realistic value
stocks. To safe guard public interest, the Government of India has instituted statutory controls
to prevent frequent change of material valuation method for at least three years. The
following material pricing methods are generally used:
First in First out (FIFO)
Last in First out (LIFO)
Average Price Method
Base Stock Method
Market Price Method
Standard Price Method
BENEFITS OF HOLDING INVENTORY
The major benefits of holding Inventory are the basic functions which are of crucial
important in firms production & marketing strategies.
The basic function of Inventory is to act as a buffer to decouple or uncouple the various
activities of a firm so that all do not have to be pursued at exactly the same rate
The key activities are:
1. Purchasing
2. Production
3. Selling
Average PriceMethod
Simple averagemethod
Weighted averagemethod
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sometimes may pile up unnecessary stocks. This increases the level of investment and makes
the firm unprofitable. To manage inventories efficiency, answers should be sought to the
following two questions:
1. How much should be ordered?
2. When it should be ordered?
The first questions, how much to order relates to the problem of determining economic
order quantity (EOQ), and is answered with an analysis of costs of maintaining certain
level of inventories.
The second question, when to order arises because of uncertainty and is problem of
determining the reorder point.
ECONOMIC ORDER QUANTITY
One of the major inventory management problem is to be resolved is how much inventory
should be added when inventory is replenished. If the firm is buying raw materials, is has
to decide lots in which it has to be purchased on each replenish. If the firm is planning a
production run, the issue is how much production to schedule. These problem, are called
order quantity problems, and the task of the firm is to determine the optimum or
economic order quantity.
Determining an optimum level of inventory level involves two types of costs:
1. Ordering costs
2. Carrying costs
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ORDERING COST
This category of cost is associated with the acquisition or ordering of inventory. Firms have
to place orders with suppliers to replenish inventory of raw material. The expenses involved
are referred to as ordering costs. Included in the ordering costs are involved in
Preparing a purchase order or requisition form
Receiving, inspection and recording the goods received
Ordering costs increase with the number of orders; thus more frequently inventory is
acquired, the higher the firms ordering costs. On the other hand, if the firms maintain large
inventory levels, there will be few orders placed and ordering costs will be relatively small.
Thus, ordering costs decrease with increasing size of inventory.
CARRYING COST
Costs incurred for maintaining a given level of inventory are called Carrying costs. They
include: Storage. Insurance, taxes, Deterioration and Obsolescence. Carrying costs vary with
inventory size. This behavior is contrary to that of ordering costs which decline with increase
in size of inventory. The economic size of inventory would thus depend on trade-off between
carrying costs and ordering costs.
The optimum inventory size is commonly referred to as economic order quantity. It is thatorder size at which annual total costs of ordering and holding are the, minimum. We can
follow three approachesthe trial and error approach, the formula approach and the graphic
approachto determine the economic order quantity (EOQ).
2AO
EOQ = C
Where, A is annual requirement.
O is Ordering cost.
And C is Carrying cost.
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Graphic approach:
The economic order quantity can also be found out graphically. Figure illustrates the EOQ
function. In the figure, costs-carrying, ordering and total- are plotted on vertical axis and
horizontal axis is used to represent the order size. We note that total carrying costs increase as
the order size increasers, because, on an average, a larger inventory level will be maintained,
and ordering costs decline with increase in order size means less number of orders. The
behaviors of total costs line is noticeable since it is a sum of two types of cost which behave
differently with order size. The total costs decline in the first instance, but they start rising
when the decrease in average ordering cost is more than offset by the increase in carrying
costs. The economic order quantity occurs at the point Q* where the total cost is minimum.
Thus, the firms operating profit is maximized at point Q*.
Minimum total cost
Carrying cost
Costs ordering cost
Q* order size (Q)
Fig -7.1Economic order quantity
Optimum productions run: The use of the EOQ approach can be extended to production
runs to determine the optimum size of manufacture. Two costs involved are set-up costs and
carrying costs. Set-up costs include costs on the following activities: preparing and
processing the stock orders, preparing drawings and specifications, tooling machines set-up,
handling machines, tools, equipment and materials, over time etc. Production runs but
carrying costs will increase as large stocks of manufactured inventories will be held. The
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PERPETUAL INVENTORY CONTROL TECHNIQUE
Perpetual inventory system implies maintenance of up-to-date stock records and in
its broad sense it covers both continuous stock taking as well as up-to-date recording
stores books. According to Weldon, It may be defined as a method of recording stores
balances after every receipt and issue to facilitate regular checking and to obviate closing
down for sock-taking. The basic object of this system is to make available details about
the quantity and value of stock of each item at all times. The system thus provides a rigid
control over stock of each item of store can regularly be verified with the stock records in
the bin cards kept in the stores and stores ledger maintained in cost office.
Advantages of Perpetual Inventory system:
1.Saving in time: The long and costly work of stocktaking is avoided. Hence, interim and
final financial accounts can be prepared with greater convenience.
2.Arrangement of proper verification: In this system a detailed and more reliable checking
of the store is exercised because of the continuous and random checking.
3.Verification of Errors: Errors are easily located and rectified. This gives an opportunity
for preventing a recurrence in many cases.
4.Double control: Due to separate records in Bin card and stores ledger, double control is
maintained.
5. Optimum size of material: Overstocking and under stocking can be avoided because
perpetual inventory system covers verification of stock with regards to maximum,
minimum and other levels.
6.Lack of misuse of Material: Under this system, effective control on issue of material is
possible, thus misuse of material can be avoided.
7.Moral Check on Stores staff: Due to continuous checking, this system serves as a moral
check on the stores staff. They are discouraged from committing dishonesty.
8.Loss of stock due to obsolescence: It is detected at an early stage and so timely action can
be taken to prevent recurrence.
SELECTIVE INVENTORY CONTROL
ABC ANALYSIS
Usually a firm has to maintain several types of inventories. It is not desirable to keep the
same degree of control on all of the items. The firm should pay maximum attention to those
items whose value is the highest. The firm should, therefore, classify inventories to identify
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which items should receive the most effort in controlling. The firm should be selective in its
approach to control investment in various types of inventories. This analytical approach is
called ABC analysis and tends to measure the significance of each item of inventories in
terms of its value. The high value items are classified as An item and would be under the
tightest control. C items represent relatively least value and would be under simple control.
B items fall in between these two categories and require reasonable attention of
management. The ABC analysis concentrates on important items is also known as control by
importance and exception (CIE). As the items are classified in the importance of their
relative, this approach is also known as proportional value analysis (PVA).
The following steps are involved in implementing the ABC analysis:
1. Classify the items of inventories, determining the expected use in units and the
price per unit for each item.
2. Determine the total value of each item by multiplying the expected units by its
units price.
3. Rank the items in accordance with the total value, giving first rank to the item
with highest total value and so on.
4. Compute the ratios of number of units of each item to total units of all items andthe ration of total value of each item to total value of all items.
5. Combine items on the basis of their relative value to form three categories A, B
and C
6. The data in the following table illustrate the ABC analysis.
Table 7.1
CLASS NO. OF ITEMS% VALUE OF ITEMS%
A 15 70
B 30 20
C 55 10
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Just-in-time (JIT) System:
Japanese firms popularized the just-in-time (JIT) system in
the world. In a JIT system material or the manufactured components and part arrive to the
manufacturing sites or stores just few hours before they are put to use. The delivery of
material is synchronized with the manufacturing cycle and speed. JIT system eliminates the
necessity of carrying large inventories, and thus, saves carrying and other related costs of
manufacturer. The system requires perfect understanding and coordination between the
manufacturer and supplier in terms of the timing of delivery and quality of the material. Poor
quality material or complements could halt the production. The JIT inventory system
complements the total quality management(TQM). The success of the system depends on
how well a company manages its suppliers. The system puts tremendous pressure on
suppliers. They will have to develop adequate system and procedures to satisfactory meet the
needs of manufacturers.
System of Accounting for Material Issued/Inventory Systems
Either the periodic inventory system or the perpetual inventory system may be used to
account for materials issued to production and ending materials inventory.
Periodic Inventory System
Under the periodic inventory system, the purchase of materials
is recorded in Purchase of Raw Materials Account. The opening/beginning inventory, if
any, is recorded in a separate Materials Inventory- Opening Account. The materials
available for use during a period equal purchases plus opening inventory. A physical count is
made of the materials on hands at the end of the period to arrive at the closing/ending
materials inventory. The cost of materials for the period is determined as shown in Exhibit:
Cost of Materials Issued
Materials inventory-opening
+ Purchases
= Materials available for use
- Materials inventory-closing (based on physical count) = Cost of materials issued
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INVENTORY TURNOVER RATE TECHNIQUE
One important technique of inventory control is to use inventory turnover ratios. These
ratios are calculated to assess the efficiency in use of inventories. Following control ratios
can be computed for inventory analysis:
Inventory Turnover Ratio = Cost of goods sold/ Average Inventory
Where Average Inventory = (Opening Inventory + Closing Inventory)/2
Inventory Turnover Ratios can be calculated separately for raw materials and finished goods.
(A) Raw Material Turnover Ratio = Raw Material Consumed/ Average stock of Raw
material.
(B) Finished Goods Turnover Ratio = Cost of Goods Sold/ Average Stock of Finished
Goods
Average Age of inventory of inventory Turnover in Days = Days during the period/ Inventory
Turnover Ratio
(i) Average inventory to total cost of production = (Average Inventory/ total cost of
production) x 100
(ii) Slow Moving Stores to Total Inventory = Average Cost of Slow Moving
Stores/Average Inventory
(iii) Inventory Performance Index = (Actual Material Turnover Ratio/ Standard Material
Turnover Ratio) x 100
These ratios provide a broad framework for the control and provide the basis for future
decisions regarding inventory control. The ratios provide a tough indication of when
Inventory levels are going to be high. Even if it appears from the ratio that the levels are too
high there might be a perfectly good reason why the level of Inventory is being maintained.
The ratios also indicate the situation and trend. However, the limitation of ratios should be
kept in mind. They are not an end themselves, but only tools of sound Inventory
Management.
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7.5 INVENTORY MANAGEMENT AT
LIBERTY
Every industry needs raw material search, so as footwear industry. LIBERTY also does this
raw material search for finding cheaper source of raw material.
LIBERTY does this to find the nearest supplier.
To reduce lead time.
LIBERTY works on ABC analysis for fund management. There are three categories of such
items in ABC analysis
Category A: items of higher value and importance.
Category B: items of medium value and importance.
Category C: items of lesser value and importance.
LIBERTY always monitors category items, in the sense that these items should not be kept
idle because these items need lot of funds. So, they are very careful for a category item. They
keep only that much stock which is required immediately and equal to that of lead time.
MATERIAL MANAGEMENT DEPARTMENT AT LIBERTY;
1. Material management department at LIBERTY receives purchase requisition
Production Planning and Control Department. On the basis of that requirement, they
check their stock and adjust that in available stock and issue the purchase order of thebalance requirement to the predetermined and predecided suppliers.
2. On receipt of material from the supplier, the invoices are entered in DMR (daily
material register)
3. From here, the material is sent to stores for Quality Control and the invoices are
sending to computer section of material management department. Now both the
departments function primarily or side by side.
4. Then quality and quantity is being checked in the stores.
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5. The invoices are being received in SAP.
6. After quality control the material is given to the store keeper for proper storage and if
there is any deviation either in quality or quantity of material than, the quality reports
are send to account department by quality control department for proper handling of
bills.
ISSUE OF MATERIAL TO CONVEYER
On receipt of material required slip from production planning and control department the
stores issue and send the material to different conveyor as mention on the required slip.
PROCESS CYCLE
Manufacturing process:
The company has three kinds of production lines:-
1. PVC Injection Moulding Process.
2. Stuck on / Lasting Process.
3. EVA Injection Moulding Process.
The manufacturing process can be divided into the following:-
1. Making of shoe.
2. Soling (complete shoe).
3. Finishing & packing.
NON LEATHER SHOES:-
Non-Leather Shoe Uppers:
In non leather upper making process, laminated cloth/synthetic material is cut on the cutting
machines according to required size of the uppers, then these cut compound of the uppers
undergo for stitching process where the required components are stitched together to make
the upper.
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Non-Leather Shoe-Soling / Injection Moulding:-
The non-leather shoe upper undergo a process known as the PVC INJECTION
MOULDINGPROCESSunder which upper is tied upon the last which is mounted on the
machine according to the size roll. In the process PVC granules are used as raw material forsole making which get stucked to the upper with the help of injection.
LEATHER SHOES:-
Leather Shoe Upper:-
In leather shoe upper making process leather is cut by hand or on the cutting machines
according to the required size of uppers. Machines cutting process is based on dyes which are
prepared separately for each model. Cutting by hand is on the basis of the pattern to bespecified for each model of the uppers. After skiving and folding these components are
assembled together with the help of stitching machines as per the type of upper required.
Leather Shoe Soling / Stuck-On Process:-
In stuck on process, shoe is made by readymade sole which can be of PU, TPR, EVA,
LEATHER etc.Upper is lasted on the shoe last according to the size roll with the help of
machines. Thereafter sole according to the upper size is taken and they get stucked together
with the help of pasting process. After completing the sole attachment, lasts are removed and
then the shoe is finished with the help of trimming machines and stamping machines.
FINISHING AND PACKING:-
Both Leather and Non-Leather shoe are given the required finished touches by putting insole,
padding, tissue paper etc and after attaching tags, laces etc, are packed in boxes dispatch
EVA INJECTION MOULDING PROCESS
The raw material used for the process is EVA (ethyl vinyl acetate) granules which are fed
into the barrel with the help of hoppers (suction device). After entering into the barrel, a paste
of the granules is formed by heating and then this paste is injected into the moulds as per
shape and size of the required footwear. EVA Injected range of slippers, sandals represent the
most advanced step in the technology for a market.
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RAW MATERIAL USED:
CUTTING MATERIAL
1. Cloth strobe
2. Padded foam
3. Goat skin
4. Softy (cow leather)
5. Cow Venus black
6. Toe puff sheet
7. Foam P.U
8. T.P counter sheet
9. Heavy nylex black
10.Silicon spray
11.Laminated cloth (rexine)
12.Laminated cloth (skin fit)
13.Laminated cloth (mesh)
14.Laminated cloth (RIB)
15.Laminated cloth (canvas)
16.Laminated cloth (EVA lycra)
17.Laminated cloth PVC lining)
18.Leather
19.Leather lining
20.Camarilla lining
21.Fleece lining
22.Rubber
CLOSING MATERIAL:1. Thread
2. Tongue
3. Tape intake (eyelet tape)
4. Eyelet brass
5. Adhesive neufix
6. Adhesive rubber solution
7. Binding nylon
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8. Label
9. Adhesive rubber latex
10.Tape cotton
11.Piping polyester
PACKING MATERIAL:
1. Boxes
2. Shoe lift
3. Marketing bag corporate small/non woven
4. Adhesive sticker pictogram
5. Hologram liberty footwear
6. Silica gel blue
7. Tissue paper white/poster paper
8. Tag card
9. Tag pin
10.Carton
11.Carton label
12.Price stickers
13.Hologram genuine14.Plastic heel
15.Label printed stock, glider black/red.
LASTING MATERIAL:
1. Adhesive P.U 107
2. Adhesive nefix
3. EVA Sole
4. EVA Sheet
5. Sole
INJECTION MATERIAL:
1. PVC Compound
2. EVA Compound
3. PVC Master batch
4. EVA Master batch.
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7.6 INVENTORY MANAGEMENT SYSTEM
CHALLENGES: SINGLE INTEGRATED SYSTEM
Liberty Shoes Ltd was on a path of rapid expansion. With Liberty aiming at markets
spread across the globe, transparency of, and control over, business operations across the
extended organization was posing a big challenge for the top management. Liberty
needed a single integrated and, more importantly, universal solution which would enable
them to establish central transaction and management control. This would, in turn, enable
accurate and on time generation of consolidated MIS reports, helping top management to
monitor the health of individual companies efficiently.
Second, the local management needed systemic support to run their day to day operations.
Generating timely and accurate MIS reports, recording daily transactions and reporting to
central office on time was a great challenge at all the individual offices. Another
important area which needed immediate attention was inventory management. Thus, it
was clear that we needed a system that would be universal, as well as handle country
specific localization needs.
Decision to implement SAP Business One
Liberty Shoes Ltd looked for a solution that was universal yet locally adaptable. They
evaluated a few options before deciding on SAP Business One. Liberty felt that SAP
provided them the much needed adaptability and flexibility. SAP also inherently
possessed control and check features for management control which was important for
Liberty Shoes Ltd, considering their future global expansion plans. Also, SAP was web-
enabled, had the necessary reporting capabilities and had local product support at all the
locations considered for implementation. So, SAP was a clear winner.
Managing a multi location implementation
The biggest challenge Liberty had to deal with was managing simultaneous implementation
across global locations. While the company put together a competent internal team, they
realized that not many members had firsthand experience working at these locations nor did
they have an understanding of the local systems in place.
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After a careful consideration, Octopus-e International was selected as the implementation
partner for all the locations. Octopus-e set up an experienced team to handle the complexities
of the project. The Big Bang implementation approach was followed and implementation was
kicked off in July 2009 across all the locations simultaneously. Standard modules including
sales, purchase, inventory, finance and banking were implemented and the solution was
customized according to local tax and reporting structures. Even though there were
challenges in coping with language issues and understanding the local context, Octopus-e
drew on their experience to deal with them, says Atul Sherry, Director, Octopus-e
International. Liberty Shoes l