A STUDY ON INVENTORY MANAGEMENT PRACTICES...

A STUDY ON INVENTORY MANAGEMENT PRACTICES

FOLLOWED BY VEGETABLE OIL INDUSTRIES IN KURNOOL

DISTRICT, ANDHRA PRADESH

Smt. K.J. VIJAYALAKSHMI1

, Dr. R. NAGI REDDY2

, Dr. V. RAVI SANKAR3

,

Prof. D. PUNYASESHUDU4

1Lecturer in Commerce, Govt. College (M), Kurnool, H. NO: 4-208-5, Mamatha Nagar,

Kurnool, Andhra Pradesh, India,

2Principal, Govt. Degree College, Cumbum, Prakasham District, A.P, India-523333,

3Asst. Director, Research studies, RayalaseemaUniversity, Kurnool-7, A.PIndia, 518002

4Director, Research studies, Rayalaseema University, Kurnool-7 (A.P) India. 518002

ABSTRACT

This study has been made on vegetable oil extractive industry in Kurnool District. The total study

sample consisted of 36vegetable oil mills in Kurnool district, Andhra Pradesh, out of which 07 oil

mills are not functioning. Hence the study sample restricted to 29 oil mills, among them, it is

proposed to study only those mills which were established prior the financial year 2004-05. Hence the

data collected forthis study about 08 oil mills and for five yearperiod from 2005 to 2010.

Unstructured personal interviews were carried out to ascertain the necessary information and also

data collected from the annual reports of sample oil mills. A small amount of recording data is also

used to draw conclusion.On inventory management, respondents were asked how frequently they

prepared inventory budgets and reviewed their inventory levels.The study analyzed inventory

management practices of vegetable oil mills in Kurnool district, Andhra Pradesh and also the study

therefore excludes the non-financial areas such as production, marketing management practices

etc.The present study is based on the pre-supposition that the responsiveness of the inventory

management has been inadequate and inefficient and has resulted in further declining the already low

profitability of the select mills. The results showed that the coefficient of variation of the inventory

management practices inadequate or high profitability category was lower than the low profitability

category, which shows the consistency of inventory management practices adoptedby adequate /high

profitability category oil mills. Thus, it is concluded that preparation of inventory budgets and review

of inventory levels would help the oil millers to keep their short-term liquidity position at the required

level, which would increase thefinancial performance. Nearly 60 % of the respondents fromadequate/

high category reviewed their inventory levels and about50 per cent prepared inventory budgets, which

helped them to avoid accumulation of funds in inventory. In low profitablecategory oil mills,

preparation and practice of inventory budgets and review of level of inventory were at lower level.

Hence, it is suggested that oil mills in low profitable conditions, should improve their practice on

preparation of inventory budgets, which would help them to maintain the short-term liquidity position

and to improve the financial position.

Keywords:Agribusiness Sector, Vegetable Oil Mills, Inventory Management Practices, Kurnool

District, A.P.

INTERCONTINENTAL JOURNAL OF MARKETING MANAGEMENTISSN:2350-0891 -ONLINE ISSN:2350-0883 -PRINT -IMPACT FACTOR:3.772VOLUME 4, ISSUE 5, MAY 2017

An Open Access, Peer Reviewed, Refereed, Online and Print International Research Journal www.researchscripts.org 20 [email protected]

Introduction

―Managing a Business, in the words of Peter Drucker ―Cannot be an administrative or even a policy

making job….. It must be a creative rather than an adaptive task‖1. ―You have to plan something, you

have to organize something, you have to direct something, when you have to select your staff, and

you will have to determine what they will have to know in order to do it. Intimate knowledge of the

subject matter …… is indispensable to …… effective, intelligent administration2. The word

management refers the various functions that a manager performs, when he is actually managing

rather than working on one of the specialties many managers spend part of their time on3. The

management job is that suggested by Luther Gulick in 1930s in one coined word ―POSDCORB‖,

which means: Planning, Organizing, Staffing, Directing, Coordinating, Reporting and Budgeting4.

Thefunds raised by the firm, may be invested in assets for retention in the business to earn profits,

which by their nature are regarded as being fixed or non-permanent and working nature such cash,

short-term investment, receivables and inventory. So, one of the most important element of working

capital is inventory. The success of venture depends on its ability to provide services to customer.

Inventory enables a company to support its customer service, logistic or manufacturing activities

institutions where purchase or manufacture of the items is not able to satisfy demand.

The literary meaning of the word inventory is stock of goods. Thus today‘s inventory is

tomorrow‘s production. ―A physical resource that a firm hold in stock with the intent of selling it or

transforming it into a more valuable state‖. The term inventory has been defined by the ―AMERICAN

INSTITUTE OF ACCOUNTS‖ as the aggregate of those items of tangible personal property

which:Are held for sale in the ordinary course of business, Are in the process of production for such

sales or, Are to be currently consumed in the production of goods or services to be available for sale.

―GREENE‖ defined inventory as ―The movable articles of the business which are eventually expected

to go into the flow of trade‖. The various forms in which inventories exist in a manufacturing

company are: raw materials, work-in-process or semi-finished goods, finished goods and stores and

spares. In a typical manufacturing concern, in addition to the above, there are other inventories which

include supplies. These include miscellaneous consumable stores such as cotton waste, jute twine, oil

and greases and other general‘s office supplies, printed forms, journals, ledgers, electric supplies land

tools like needles, spanners etc. Inventory from the view point of financial manager is the aggregate

value of raw-materials, stores land spares, consumables, work-in-process, finished goods in which the

company‘s funds shave been invested. Optimal level of inventory depends on the necessity of holding

inventory and costs thereof. Every firm maintained some stock of inventory depending upon the

requirement. Operating objective of inventory management is to minimize cost. Holding of inventory

involved certain costs. These include three direct costs which are immediately connected to buying

and holding goods namely materials cost, order cost and carrying cost of inventory.The relationship

between the quantities of each type of material of significance in the inventory with its utilization, the

periodical review is advisable in every business unit. This is observed as inventory management. The

main objective of inventory management is ―Matching of appropriate Costs against

Revenues‖5.Materials Requirement Planning (MRP) which emerges as a new displace attempted to

define inventory management as an integral part of Materials Requirement Planning whose broad

goals are: To minimize investment on inventory, To insure smooth and efficient operation of the

plant, To minimize customer service and satisfaction. High level of customer service / high service

level versus low capital and inventory carrying costs, High quality of material versus low materials

costs, Low level of tied up capital / low liquidity burden versus continuous customer service, Many of

the activities depend on the optimum level of stock being held but the term ―Optimum level‖ varies

depending upon activity, An organization will have many departments including marketing,



purchasing, finance, quality assurance, maintenance contracts and general administration. Each of

these has a different view of the role of inventory control, Stock control encompasses a balancing act

between conflicting requirements of the various departments. Quality management also has an effect

on the levels of stock levels while the necessary checks are made. In integrated materials

management, inventory control signifies the conversion of ―Idle resources into ideal

resources‖.(Source: A.K.DATTA, Materials Management Procedures, Text and Cases, Prentice-Hall

of India, New Delhi, Second Edition-2007.)

Topic Introduction

Vegetable oil industry is the oldest and largest segment of the country‘s industrial sector and occupies

a pride of place in Indian industry. Groundnut is the major oil seed of India. It account for around

25% of the total oil seed production of the country. India ranks second in the world groundnut

production. Around 75% of the crop is produced in Kharif season (June – September) and remaining

25% in Rabi season (November – March). Groundnuts production is highly vulnerable to rainfall

deviations and huge fluctuation between years. In India, Gujarat, Tamilnadu, Andhra Pradesh,

Karnataka and Maharashtra are the major producers of seeds.

Table: 1 India in World Groundnut Industry

Methods and Techniques of Inventory Management

TABLE 2 - INVENTORY BREAKDOWN BETWEEN NUMBER OF ITEMS AND

INVENTORY VALUE

It is possible for an undertaking to reduce its level of inventories to a considerable degree for example

10 to 20 per cent, without any adverse effect on production and sales by using simple inventory

planning and control techniques. In his study ―Chadda‖ highlighted that there is a tendency to stock

INDIA WORLD

% Share

(Millions in Tons)

Annual seed production 6.5 23 28.3

Annual oil production 1.5 5 30.0

GROUP NUMBER OF ITEMS

(PERCENT)

INVENTORY VALUE

(PERCENT)

A 15 70

B 30 20

C 55 10

Total 100 100



in excess and in most cases the investment in stock could be reduced by 20 per cent to 30 per cent if

the inventory decisions are based on reasoning rather than on intuition. Inventory control has gained

attention with the advent of credit squeeze measures adopted by the Government and

recommendations of ―Tandon‖ committee for inventories requiring developing suitable norms for

inventory control.Among the issues of inventory control, the basic problem is how much to order?

All the inventory models and formulas, no matter how complex they are, address themselves to the

problem of timing and magnitude of replenishment. Some of the order quantities are: Economic order

quantity,fixed order quantity, Single order quantity. The ABC Analysis concentrates on important

items and is also known as Control by Importance and Exception (CIE). The technique of grouping is

termed as ABC analysis or the classification is said to be ‗Always Better Control‘.

―Inventories should be allowed to increase tills the resulting savings exceed the total cost of holding

the added inventory. Inventory turnover ratio is―one method of reviewing performance and

controlling inventories periodically to check the inventory turnover of each type of raw material

supply and finished goods. Moreover, ―inventory turnover ratio acts as on indicatory of the liquidity

of the inventory‖. A higher turnover indicates more efficient management of inventory. This is so

because the concern has managed business with proportionately fewer amounts of inventories which

results in saving on investment.Every firm has to maintain a certain level of inventory of finished

goods so as to be able to meet the requirements of the business, neither be too high nor too low. It is

harmful to hold more inventories. It will be advisable to dispose of inventory as early as possible. On

the other hand, too low inventory may mean loss of business opportunities. According to Kennedy

and McMullen, the term turnover of inventories, refers to the number of times the inventories were

sold and replaced during the accounting period. In the word of ―Kuchhal‖ this relationship expresses

the frequency with which average level of inventory investment is turned over through operations.

Normally the higher the inventory turnover, the more efficient the inventory management of a firm.

Materials and Methods

The sampling design, data collection and analytical frameworks are outlined in this section. Sample

Frame was taken to study only those mills which were established prior to the financial year 2004-05.

A detailed study of the various aspects of inventory management in 8 oil mills in Kurnool District has

been undertaken.Unstructured personal interviews were carried out to ascertain the necessary

information. Data is represented by way of table, graphs and maps.The study is based on both Primary

and Secondary sources of data. The primary data have been drawn from the sample units with the help

of a pre-tested schedule administered to the management of the oil mills to elicit firsthand

information.The secondary data is obtained from the various previous research studies and articles,

business magazines and other sources.Some of the statistical tools used in analyzing the data are:

Arithmetic mean, Coefficient of Variation, Co-efficient of Correlation, t - Test etc. The study

therefore excludes the non-financial areas such as production, marketing personal from its previews.

Review of Literature

As the present investigation is concerned with Inventory Management, an attempt is made to briefly

discuss the earlier studies on inventory management so as to gain a greater insight into the subject. A

host of articles in professional journals, newspapers have appeared since 1976 and they reviewed in

the following paragraphs.

Joe Ezekiel in his article ―Conversation of material resources‖ observed that the management

must select capital equipment‘s which will economize on use of energy in its operation. Seshadri



advocated that managers should adopt advanced techniques of management such as management by

objectives. Pawan (1996)found that there was a lacuna in application of inventory control techniques

for the efficient Management of purchase and store activities in materials management department.

Chen et al. (2005) analyzed the link between inventory and long-term stock returns of manufacturing

firms. They used firm level Raw Material Inventory (RMI), Work-in-Process (WIP) and Finished

Goods Inventory (FGI) data on COMPUSTAT database and documented a 16 per cent drop (from 96

to 81 days) in the average inventory level (days of inventory) of all publicly-traded US manufacturing

firms over the 20-year period from 1982 to 2000. Lt.Col Venkatesh observed that material cost

accounts for 50% or more in most of the products.Rajeev (2008) used the thumb rule of Inventory

Management (IM) and improved the performance of Small and Medium Enterprises (SMEs).

Koumanakos(2008) tested the hypothesis that efficient inventory management improved firm‘s

financial performance. He collected the financial information on all medium to large Greek firms for

the period 2000 to 2002.Rai and Reddy stated that material requirement planning (MRP-1) and

manufacturing resources planning (MRP-II) are the software‘s used for making material planning

more effective and for linking it to productions scheduling. Wambuaet al. (2015) assessed the effect

of Inventory warehousing systems on the financial performance of Adventist Book Centers (ABC).

They collected the data from 64 employees and analyzed the data with SPSS package. Krishna Kumar

observed that supply chain management is a recurring theme today among conferences and seminars

and is focal point of the debate on competitive advantage.Tony wild elucidates that, control exists at

the cross roads in the activities of an organization many of the activities depend on the optimum level

of inventory holding. Roumiantsev and Netessine (2005) investigated the association between

inventory management policies and the financial performance of a firm. Lwikiet al. (2013) examined

the impact of inventory management practices on the financial performance of sugar manufacturing

firms in Kenya. The empirical studies on the demand for inventories by firms include Paul G.

Darling., and M.C.Lovell‖ Jon M. Joyee, Charles Lieberman, Owen Irvine. F, Akhtar, M.A. Steven,

D. Grossman, Maccini and Rossanna, Prichard and Eagle, Starr and Miller, Plosal and Evert Welch,

Willets, Whitin, Armer, Dobler land Lee, Buchan and Konigsberg and Gopalakrishsna and Sandilya.

Results and discussions:

All the Oil Mills determines minimum level of inventory basing on consumption for a fixed period of

production and maximum level is being determined basing on future plan for production. The lead

time involved is1, 2 or 3 days.stock statements are prepared once in a week and submitted to the

managing director, mentioning the quality of stocks available up to the date. Maximum stock levels

are maintained keeping in view price fluctuations and storage space availability. All the mills are

maintaining maximum level of inventory. This is because, ground nuts and agro based product is

available in plenty during the season. At that time groundnuts of desired quality will be available at a

reasonable rate. So mills usually purchase a considerable amount of ground nuts and store it. When

surveyed all the mills responded that they are employing perpetual inventory system to verify the

stock balances. Because of this system, they have not noticed any discrepancy between balances in

books and physical stock.The quantum of inventory was raised from Rs.34.35 lakhs in 2005-06 to

Rs.51.58 lakhs in 2009-2010 in sample oil mills. During the period 2005-06 and 2009-2010 the size

of investment in inventory showed a remarkable increase in all the oil mills. The minimum value of

inventory is higher in Sree Rama Trading Company, whereas other oil mills recorded a minimum.

Heavy amount of investment is noticed the last two years of study period in almost all the oil mills. It

is observed that this heavy investment in inventory persists due to the conditions prevailed during

those two years. During these year‘s oil price ruled higher due to boom in the export of oil. The rise

in prices of oil compensated the increased the increase in the prices of raw material – nuts during



2005-06 and 2009-10. But the Vasavi Oil Mill & Guru Raghvendra Oil Mills reduced inventory in

2007-08, due to the implement of VAT. But the Sree Rama Trading Co., showed a declining trend. A

very meager amount only Rs.3.62 lakhs in 2007-08 was invested in inventory due to the closure of

mills and low volume of production. The firm faced several financial crises which cripple the unit

and the management also changed. The new partners initiated steps to nurse it back from chronic

losses. Due to increase competition during 2008-10 also all the oil mills could not stand to the

increase in the prices of oil which rose to the extent of 100 percent sand there was shortage of

domestic supply. Because fluctuations of prices more units failed to mobilize money for purchasing

raw materials and evens they could not utilize their fullest capacity. The C.V. value of 13.52 percent

of Dhamodhara Oil Mill indicates consistency in maintaining investment in inventory. Whereas

Radhakrishna Oil Mill, Vasavi Oil Mill, Guru Raghavendra Oil Mill & Sree Rama Trading Co.,

showed a high level of variation. But the Vijaya Lakshmi Oil Mill, Sri Lakshmi Venkateswara Oil

Mill, Maka Oil Mill showed less co-efficient of variation indicating consistency. The size of inventory

in terms of absolute values, Inventory turnover, storage period, has been detailed in the following

tables.

TABLE 3 - SIZE OF INVENTORY IN SAMPLE VEGETABLE OIL MILLS IN

TERMS OF ABSOLUTE VALUES (Rupees in lakhs)

Year

Vij

a

ya

Lak

s

hm

i

Oil

Mil

l

Dh

a

mod

hara

Oil

Mil

l

Rad

hak

r

ish

n

a O

il

Mil

l

Sri

Lak

s

hm

i

Ven

kate

swar

a O

il

Mil

l

Vasa

vi

Oil

Mil

l

Sri

Gu

r

u

Rag

have

nd

ra

Oil

Mil

l

Sre

e

Ram a

Tra

d

ing

Co.,

M

ak

a O

il

Mil

l

Aver

age

2005

-06

53.93 86.41 49.7

1

21.07 27.7

0

12.70 4.94 18.2

7

34.35

2006

-07

57.50 91.30 51.0

0

23.89 32.4

0

13.75 7.96 19.9

0

37.21

2007

-08

69.92 105.16 55.5

6

25.87 20.4

6

6.09 3.62 21.2

6

38.49

2008

-09

79.06 107.32 79.4

1

26.13 21.5

7

9.16 5.36 23.4

7

43.94

2009

-10

85.59 121.21 95.7

9

24.0 42.5

0

11.12 8.05 23.6

6

51.58

X 69.20 102.28 66.2

9

24.33 28.9

2

10.58 5.99 21.3

1

41.11

C.V 19.61 13.52 30.7

9

8.37 31.0

9

28.88 32.62 10.8

5

16.55



Fig: 1Figures Shows The Conversion Period Of Inventory In Sample Oil Mills. Inventory

conversion period = 365 / Inventory Turnover period.

Sree Rama Trading Co.,

0

1

2

3

4

5

6

7

8

9

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Day

s

Vijayalakshmi Oil Mill

0

2

4

6

8

10

12

14

16

18

20

2005-06 2006-07 2007-08 2008-09 2009-10

years

days

Dhamodhara Oil Mil

16

16.5

17

17.5

18

18.5

19

19.5

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

days

Radhakrishna Oil Mill

0

2

4

6

8

10

12

14

16

18

20

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Vasavi Oil Mill

0

5

10

15

20

25

30

35

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Sri Guru Raghavendra Oil Mill

0

2

4

6

8

10

12

14

16

18

20

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Day

s

Maka Oil Mill

0

5

10

15

20

25

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

TABLE – 4INVENTORY TURNOVER IN SAMPLE OIL MILLS (Times)

Year

Vij

ay

a

La

ksh

mi

Oil

Mil

l

Dh

am

od

ha

ra

Oil

Mil

l

Ra

dh

ak

rish

n

a O

il M

ill

Sri

La

ksh

mi

Ven

ka

tesw

ar

a O

il M

ill

Va

sav

i O

il

Mil

l

Sri

Gu

ru

Ra

gh

av

end

r

a O

il M

ill

Sre

e R

am

a

Tra

din

g C

o.,

Ma

ka

Oil

Mil

l

Av

era

ge

2005-06 21.25 19.6

8

20.5

9 10.37

13.3

3 20.14 46.58 20.60 21.57

2006-07 23.01 18.8

3

24.9

2 18.55

11.3

2 21.44 50.12 21.51 23.71

2007-08 25.21 20.5

1

27.0

3 17.23

11.6

8 39.45 57.71 22.25 27.63

2008-09 21.41 19.1

3

23.6

0 15.01

17.0

9 62.95 89.04 18.36 33.32

2009-10 20.38 22.0

5

19.1

5 16.38

12.7

0 36.06 51.42 19.20 24.67

X 22.25 20.0

4

23.0

6 15.51

13.2

2 36.01 58.97 20.38 26.18

C.V. 8.57 6.46 13.8

6 20.29

17.4

4 48.14 29.31

7.88 17.38



In sample industries, the components of inventories are raw materials, working in progress, finished

goods and spares and stores. A proper balance has to be maintained among all these components to

control effectively the total investment in inventory. The percentage share of raw materials to total

inventory was fluctuations in Radhakrishna Oil Mill, Sri Lakshmi Oil Mill, Vasavi Oil Mill, Sri Guru

Raghavendra Oil Mill, Sree Rama Trading Co., & Maka Oil Mill over the years under review. These

mills kept low levels of raw materials and these raw materials are obtained from local markets. In

Dhamodhara Oil Mill this percentage varied 22.8 percent to 61.2 percent.

TABLE 5STORAGE PERIOD OF INVENTORY WITHIN THE SAMPLE OIL MILLS

(Source: Compiled from annual reports of sample mills.)

Year

Vij

ay

a

La

ks

hm

i

Oil

Mil

l

Dh

a

mo

dh

ara

Oil

Mil

Ra

dh

ak

ris

hn

a

Oil

Mil

l

Sri

La

ks

hm

i

Ven

k

ate

sw

ara

Oil

Mil

l

Va

s

av

i

Oil

Mil

l

Sri

Gu

ru

Ra

gh

av

en

dra

Oil

Mil

l

Sre

e

Ra

m a

Tra

di

ng

Co

.,

Ma

k

a O

il

Mil

l

Av

er

ag

e

2005-06 17.0 19.0 18.0 35.0 27.

0

18.0 8.0 18.0 20.0

2006-07 16.0 19.0. 15.0 20.0 32.

0

17.0 7.0 17.0 18.0

2007-08 14.0 18.0 14.0 21.0 31.

0

9.0 6.0 16.0 16.0

2008-09 17.0 19.0 15.0 24.0 21.

0.

6.0 4.0 20.0 16.0

2009-10 18.0 17.0 19.0 22.0 29.

0

10.0 7.0 19.0 18.0

X 16.5 18.3 16.1 24.5 28.

2

12.1 6.5 18 17.5

C.V. 8.2 6.2 14.1 25.3 15.

2

43.9 22.4 8 9.2



Source: Compiled from the annual reports of the respective mills. Note: Figures in Parentheses show

the percentages of raw materials aggregate inventory.

Source: Compiled from annual reports of the sample units.

TABLE 6- EXTENT AND PERCENTAGE OF RAW-MATERIALS OF AGGREGATE

INVENTORY IN SELECTED OIL MILLS

Year

Vij

ay

a

La

ksh

mi

Oil

Mil

l D

ha

mo

dh

ara

Oil

Mil

R

ad

ha

k

rish

na

Oil

Mil

l

Sri

La

ksh

mi

Ven

ka

tesw

ar

a

Oil

Mil

l V

asa

vi

Oil

Mil

l S

ri

Gu

ru

Ra

gh

av

end

ra

Oil

Mil

l S

ree

Ra

ma

Tra

din

g C

o.,

Ma

ka

Oil

Mil

l

2005

-06

2,128.60(

39.50)

5,284.32(

61.20)

256.89

(5.20)

158.56(

7.50)

102.58(

3.70)

102.61

(8.00)

63.63(1

2.90)

189.24(

10.40)

2006

-07

2,256.38(

39.20)

2,082.51(

22.80)

159.87(

3.10)

484.80(

20.30)

56.90(1.

80)

506.20(

36.80)

1.90(0.2

0)

87.53(4.

40)

2007

-08

3,125.69(

44.70)

4,206.53(

40.00)

215.37(

3.90)

507.60(

19.60)

82.51(4.

00)

110.20(

18.10)

61.25(1

6.90)

125.87(

5.90)

2008

-09

2,356.89(

29.80)

4,829.27(

45.00)

1,284.32

(16.20)

1,280.75

(49.00)

95.80(4.

40)

54.97(6.

00)

0.30(0.0

5)

185.96(

7.90)

2009

-10

2,156.38(

25.20)

6,060.37(

50.00)

526.40(

5.50)

200.20(

8.10)

694.42(

16.30)

70.70(6.

40)

0.40(0.0

5)

56.90(2.

40)

TABLE 7 - STORAGE PERIOD OF INVENTORY OF RAW MATERIAL (In days)

Name of the unit/year 2005-06 2006-07 2007-08 2008-09 2009-10

Vijaya Lakshmi Oil Mill 7.78

(47.03)

6.44

(56.70)

6.13

(59.54)

6.83

(53.46)

5.18

(70.70)

Dhamodhara Oil Mill 11.38

(32.17)

9.39

(38.87)

5.33

(68.44)

8.20

(44.53)

7.9

(45.92)

Radhaksrishsna Oil Mill 4.27

(85.72)

0.67

(547.61)

0.47

(784.43)

1.40

(260.40)

2.33

(156.93)

Sri Lakshmi Venkateswara Oil

Mill

8.91

(41.07)

2.49

(146.68)

4.35

(84.00)

7.48

(48.79)

8.12

(45.08)

Vasavi Oil Mill 2.35

(155.99)

0.98

(373.42)

0.76

(479.84)

0.92

(397.88)

2.99

(122.22)

Sri Guru Raghavendra Oil Mill 3.02

(121.28)

3.18

(114.95)

3.19

(114.44)

0.76

(478.62)

0.63

(577.20)

Sree Rama Trading Co., 1.14

(320.47)

0.54

(681.39)

0.22

(1693.40)

0.40

(905.12)

0.01

(101176.24)

Maka Oil Mill 1.70

(215.38)

1.42

(256.80)

0.82

(444.32)

1.34

(272.80)

1.18

(310.97)



Note: 1 Figures in parentheses represent turnover of materials in times. 2. For leap year 366 days are

taken for calculation of this ratio

A higher turnover and low storage period of raw materials unfold that the unit has conducted more

production with less amount of investment in raw materials. The turnover and storage period of raw

materials further indicate over or under investment in raw materials. Further indicate over under

investment in raw materials inventory.

.Figure: 2

Storage period of Inventory of Raw materials

Vijayalakshmi Oil Mill

0

1

2

3

4

5

6

7

8

9

2005-06 2006-07 2007-08 2008-09 2009-10

Dhamodhara Oil Mill

0

2

4

6

8

10

12

2005-06 2006-07 2007-08 2008-09 2009-10

Dhamodhara Oil Mill

Radhaksrishna Oil Mill

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2005-06 2006-07 2007-08 2008-09 2009-10

Radhaksrishna Oil

Mill

Sri Lakshmi Venkateswara Oil Mill

0

1

2

3

4

5

6

7

8

9

10

2005-06 2006-07 2007-08 2008-09 2009-10

Sri Lakshmi

Venkateswara Oil

Mill

Vasavi Oil Mill

0

0.5

1

1.5

2

2.5

3

3.5

2005-06 2006-07 2007-08 2008-09 2009-10

Vasavi Oil Mill


0

0.5

1

1.5

2

2.5

3

3.5

2005-06 2006-07 2007-08 2008-09 2009-10

Sri Guru

Raghavendra Oil Mill

Sree Rama Trading Co.,

0

0.2

0.4

0.6

0.8

1

1.2

2005-06 2006-07 2007-08 2008-09 2009-10

Sree Rama Trading

Co.,

Maka Oil Mill

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2005-06 2006-07 2007-08 2008-09 2009-10

Maka Oil Mill

Almost of all oil mills made purchases daily, depending on their manufacturing plan and prices

because the vegetable oil mill have its market very near to their ventures.The mills are allowed a

credit period 6 days. If delay 18% interest is charged by the sellers. In all the Oil Mills material is

purchased on open tender and by placing direct order. As the price of vegetable oil seeds depend upon

the market, so these would be little room for negotiation. Seed sources are purchased from the

Districts Kurnool, Mahaboob Nagar, Kadapa& Guntur and sometimes from surrounding villages near

at Kurnool. These mills purchased groundnuts, sunflower & castor oil seeds.The payment is through

drafts. In case of credit purchase, the mill enjoys a credit period of one week to 2weeks.Gate pass

register is maintained by the mills.Table 8 manifests the size of work in progress in sample oil mills.

The work in progress inventory in Dhamodhara Oil Mill ranged 10 percent to 47 percent of aggregate

inventory. The work in progress inventory was stable around 17 percent and 26 percent in Vijaya

Lakshmi Oil Mill. The work-in-progress inventory was stable around 66 percent and 23 percent in

Radhakrishna Oil Mill and Vasavi Oil Mill. In Maka Oil Mill it declined marginally from 56.12

percent to 19.31 percent. Sree Rama Trading Co., have low proportion of seeds in process (work in

progress) to total inventory in all the years, because the mill directly trade the work-in-progress to

other oil mill. Sri Guru Raghavendra Oil Mill has heavy fluctuations in the study period. However all

the mills invested heavily in work in progress because, the nature of the materials and it is

comfortable to storing when compared to the raw materials (vegetable oil seeds/nuts).



Sources: - Data compilefrom the annual reports of the sample mills.Note: - Figures in parentheses

show the percentages of work-in-progress to Aggregate inventory

TABLE- 8 - EXTENT AND PERCENTAGE OF WORK IN PROGRESS (SEEDS-IN-PROCESS) TO

AGGREGATE INVENTORY IN SAMPLE OIL MILLS (Rs. In Thousands)

Yea

r/N

a

me

of

the

un

it

Vij

a

ya

La

k

shm

i

oil

mil

l D

ha

mo

d

ha

ra

oil

mil

l R

ad

ha

kr

ish

n

a o

il

mil

l S

ri

La

k

shm

i

Ven

ka

te

swa

r

a o

il

mil

l

Va

s

av

i

oil

mil

l S

riG

uru

Ra

g

ha

ve

nd

ra

oil

mil

l

Sre

e

Ra

m a

Tra

din

g

Co

.,

Ma

k

a o

il

Mil

l

2005-06 1025.90(19

.02)

864.10(10.

00)

1456.40(

29.30)

410.10(1

9.47)

1824.90(

65.88)

385.60(3

0.15)

21.00(4.2

5)

1025.40(

56.12)

2006-07 1125.50(19

.58)

4308.50(47

.19)

1625.90(

31.88)

529.10(2

2.15)

1529.80(

47.22)

211.90(1

5.41)

103.10(1

2.96)

1056.90(

53.10)

2007-08 1256.50(17

.97)

3680.70(35

.00)

1725.40(

31.06)

520.10(2

0.10)

726.50(3

5.51)

211.00(3

4.64)

119.30(3

3.01)

1125.40(

52.92)

2008-09 1376.40(17

.41)

1609.80(15

.00)

3864.10(

48.66)

205.00(7.

85)

528.70(2

4.51)

36.60(4.0

0)

76.00(14.

17)

815.20(3

4.74)

2009-10 2256.90(26

.37)

1212.10(10

.00)

2256.90(

23.56)

694.40(2

8.11)

2044.90(

48.12)

631.40(5

6.80)

150.00(1

8.63)

456.90(1

9.31)

.

The conversion period being shorter, the demand for working capital will also be less and vice-versa.

Greater the turnover or shorter the conversion period lesser the investment required for raw materials

in process. Consequently, profits will be more other things remaining the same. In Vasavi Oil Mill the

conversion period was lengthy; it indicates much proportion of work in progress to total inventory. In

Sri Guru Raghavendra Oil Mill, Vijaya Lakshmi Oil Mill, Dhamodhara Oil Mill, Radhakrishna Oil

Mill, Sri Lakshmi Venkateswara Oil Mill and Sree Rama Trading Co., the conversion period was

limited to a short time. In Maka Oil Mill, the process period registered a continuous decline because

of lack of sufficient orders.

TABLE 9 - CONVERSION PERIOD OF WORK IN PROGRESS (in

days)(Data compiled from the annual reports of the respective mills.)

Name of the unit/

year

2005-06 2006-07 2007-08 2008-09 2009-10

Vijaya Lakshmi Oil

Mill

2.87

(127.50)

3.05(11

9.90)

2.74(13

3.00)

3.01

(121.30)

3.69

(99.10)

Dhamodhara Oil

Mill

1.68

(217.30)

4.43

(82.40)

7.61

(48.00)

5.36

(68.10)

2.19

(167.40)

Radhakrishna Oil

Mill

4.65

(78.80)

4.43

(82.40)

4.27

(85.70)

5.98

(61.20)

7.37

(49.60)

Sri Lakshmi

Venkateswara Oil

Mill

6.32

(57.90)

4.08

(89.40)

4.53

(80.60)

3.92

(93.20)

3.18

(114.90)



Note: 1. Figures in parentheses represent turnover of work in progress in times. 2. For leap year 366

days has taken for calculating this ratio.

Figure 3 represent the conversion period of work in progress in selected oil mills.

Vijaya lakshmi Oil Mill

0

0.5

1

1.5

2

2.5

3

3.5

4

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days Vijaya lakshmi Oil

Mill

Dhamodhara Oil Mill

0

1

2

3

4

5

6

7

8

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Dhamodhara Oil Mill


0

1

2

3

4

5

6

7

8

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days


Sri lakshmi Venkateswara Oil Mill

0

1

2

3

4

5

6

7

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days Sri lakshmi

Venkateswara Oil

Mill

Vasavi Oil Mill

0

2

4

6

8

10

12

14

16

18

20

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Vasavi Oil Mill


0

1

2

3

4

5

6

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days Sri Guru


Sree Rama trading Co.,

0

0.2

0.4

0.6

0.8

1

1.2

2005-06 2006-07 2007-08 2008-09 2009-10

years

Days Sree Rama trading

Co.,

Maka Oil Mill

0

2

4

6

8

10

12

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Maka Oil Mill

Finish

ed stock (oil) also occupies an important place in inventory. The finished goods inventory formed

around 50 percent of aggregate inventory in the combined position of Radhakrishna Oil Mill and Sri

Lakshmi Venkateswara Oil Mill except in 2008-09 (see table 10). Sree Rama Trading Co., stocked

larger quantities of finished goods. They are over cautious with regard to meeting the customers‘

needs. This combined with slackness in sales had led to larger stocking of finished goods in this mill.

In Vijaya Lakshmi oil mill, Maka oil mill and Dhamodhara oil Mills, the size of finished goods

inventory showed an increasing trend over the years, while Vasavi Oil Mill and Sri Guru

Raghavendra Oil Mill has showed fluctuations.

Vasavi Oil Mill 14.90

(24.60)

18.73

(19.50)

14.00

(26.10)

6.74

(54.20)

10.44

(35.00)

Sri Guru

Raghavendra Oil

Mill

5.51

(66.50)

4.27

(85.50)

1.76

(207.60)

1.24

(295.40)

2.45

(149.50)

Sree Rama trading

Co.,

0.60

(610.20)

0.59

(620.00)

1.06

(343.00)

1.02

(358.20)

1.14

(321.10)

Maka Oil Mill 9.77

(37.50)

9.31

(39.20)

8.70

(492.00)

9.17

(39.80)

5.59

(65.40)



Sources: Data compiled from the annual reports of the sample units.Note: Figures in Purchases

indicate the percentage of finished goods to aggregate inventory.

Turnover and Storage Period of Inventory of Finished Goods: The storage period had ranged

between the lowest of 2 days and the highest of 20 days over the period of study. The storage period

of finished goods was lower in Vijaya Lakshmi& Dhamodhara Oil Mills.

TABLE- 11 STORAGE PERIOD OF INVENTORY OF FINISHED GOODS (in

days)

Name of the unit 2005-06 2006-07 2007-08 2008-09 2009-10

Vijaya Lakshmi Oil Mill 6 (61.80) 6 (64.20) 5 (73.60) 6

(56.20)

8 (43.50)

Dhamodhara Oil Mill 5 (73.50) 4 (84.20) 4 (99.70) 5

(73.10)

6 (63.50)

Radhakrishna Oil Mill 8 (48.20) 8 (44.30) 8 (48.40) 7

(52.40)

8 (44.30)

Sri Lakshmi Venkateswara

Oil Mill

20

(18.60)

13

(27.80)

12

(29.80)

13

(27.80)

11 (33.30)

Vasavi Oil Mill 10

(36.00)

12

(30.10)

16

(22.20)

14

(26.90)

15 (24.00)

Sri Guru Raghavendra Oil

Mill

9 (38.60) 10

(38.40)

4 (83.80) 4

(97.20)

7 (52.30)

Sree Rama trading Co., 6 (59.80) 6 (59.60) 5 (72.80) 3

(137.20)

6 (61.80)

Maka Oil Mill 6 (58.30) 6 (59.10) 7 (53.40) 9

(39.50)

12 (30.10)

Table 10- EXTENT AND PERCENTAGE OF FINISHED GOODS (OIL & CAKE) TO

AGGREGATE INVENTORY IN SAMPLE OIL MILLS (Rs. In Thousands)

Year

Vij

ay

a

La

ks

hm

i

Oil

Mil

l

Dh

a

mo

d

ha

ra

Oil

Mil

l R

ad

h

ak

ris

hn

a

Oil

Mil

l

Sri

La

ks

hm

i

Ven

k

ate

s

wa

ra

Oil

Mil

l

Va

sa

vi

Oil

Mil

l S

ri

Gu

ru

Ra

gh

av

en

dra

Oil

Mil

l

Sre

e

Ra

m a

Tra

d

ing

Co

.,

Ma

k

a O

il

Mil

l

2005

-06

1,953.60

(36.22)

2060.10

(23.84)

2825.40

(56.84)

1538.10

(73.01)

842.40

(30.41)

790.80

(61.83)

409.40

(82.87)

612.40

(33.52)

2006

-07

2052.60

(35.70)

1826.00

(20.00)

2856.90

(56.02)

1375.00

(57.56)

1652.90

(51.02)

656.90

(51.02)

690.60

(86.80)

845.80

(42.50)

2007

-08

2256.80

(32.28)

2313.60

(22.00)

3125.70

(56.26)

1559.40

(60.28)

1236.90

(60.46)

288.00

(27.27)

181.0

(50.06)

875.80

(41.16)

2008

-09

3856.60

(48.78)

3756.10

(35.00)

2360.10

(29.72)

1127.00

(43.14)

1533.00

(71.50)

224.80

(90.00)

460.10

(85.78)

1345.40

(57.33)

2009

-10

3756.20

(43.89)

4242.30

(35.00)

6339.60

(66.18)

1575.30

(63.78)

1510.20

(35.54)

409.50

(36.84)

654.90

(81.32)

1852.40

(78.29)



Note: - Figures in parentheses represent turnover of finished goods in times. (Data Compiled from

annual reports of the sample units)

Figure 4

Vijaya lakshmi Oil Mill

0

1

2

3

4

5

6

7

8

9

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Day

s Vijaya lakshmi Oil

Mill


6.4

6.6

6.8

7

7.2

7.4

7.6

7.8

8

8.2

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

Years

Days


Sri lakshmi Venkateswara Oil Mill

0

5

10

15

20

25

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days Sri lakshmi

Venkateswara Oil

Mill

Vasavi Oil Mill

0

2

4

6

8

10

12

14

16

18

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Vasavi Oil Mill

Maka Oil Mill

0

2

4

6

8

10

12

14

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Maka Oil Mill


0

2

4

6

8

10

12

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

Years

Days Sri Guru


Sree Rama trading Co.,

0

1

2

3

4

5

6

7

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days Sree Rama trading

Co.,

It may be concluded that over-investment in finished goods inventory was noticed in the cases of

Vasavi and Sri Lakshmi Venkateswara Oil Mills when compared to other Oil Mills. Vijaya Lakshmi,

Dhamodhara, Radhakrishna, Sri Guru Raghavendra, Sri Rama Trading Co., and Maka Oil Mills

showed the minimization of investment in finished goods inventory. Figure 4 is provided to show

finished goods storage period in sample oil mills.The practice of maintaining stores and spares of

sample mills have been summarized here under: The Vijaya Lakshmi Oil mill categories the spare

parts as being Vital, Essential and Desirable analysis (VED) based. Fitter makes known their

requirements to the stores and spares department. The mill purchases most of the spare parts like

generator set spares, getter machine etc. The lead time of procurement is one week to 10 days.

Indigenously and imported ones takes 6 months. A minimum level of spare parts is maintained in the

sample mill. The lead time involved is 10 to 15 days locally within the country. The consumption

value of spares to total material consumption is around 5 percent to 6 percent.Lakshmi Venkateswara

Oil Mill, Vasavi Oil Mill, Sri Guru Raghavendra Oil Mill, Sree Rama Trading Co., and Maka Oil Mill

not have a separate stores and spare department. Stores and spare parts are kept under the control of

fitter. These mills are not maintaining proper records regarding spare parts. Managing director

examines it and overhauls it or replace the spare parts. In addition to this, as per service contract for

every three months the agents of the vendor would check the machine and take necessary action. So

the mill is investing only few amounts in the spare parts. Being the president of Kurnool Oil Mills

Association, Sri Guru Raghavendra Oil Mill calls for quotation among the members for disposing if

the obsolete spare parts. If this sale is not possible, the mill would sell them as scrap. However, the

same procedure is adopted in remaining oil mills.The ratios generally used to measure their

performance are, Inventories to total assets ratio&Inventories to current assets ratio. This ratio varied

from 28.97 percent to 35.52 percent in all oil mills. Moreover, the share of inventories as a percentage

of total current assets recorded a fluctuating trend throughout the period of study and its average and

CV value stood at 32.02 and 7.43 percentages.Among the all oil mill, the average ratio of inventories

to total assets is the largest in Vasavi Oil Mill (45.23) followed by Vijaya Lakshmi Oil Mill (38.75),

Sri Lakshmi Venkateswara Oil Mill (38.28), and Radhakrishna Oil Mill (37.86) and Dhamodhara Oil

Mill (35.59). This indicates that inventories hold by the mills fluctuate widely from one mill to

another.

Dhamodhara Oil Mill

0

1

2

3

4

5

6

7

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Days

Dhamodhara Oil Mill



TABLE- 12 - INVENTORIES TO TOTAL ASSETS RATIO

Year V

ija

ya

La

ksh

mi

Oil

Mil

l

Dh

am

od

ha

ra O

il

Mil

l

Ra

dh

ak

ri

shn

a O

il

Mil

l

Sri

La

ksh

mi

Ven

ka

tes

wa

ra O

il

Mil

l

Va

sav

i

Oil

Mil

l

Sri

Gu

ru

Ra

gh

ave

nd

ra

Oil

Mil

l

Sree

Ra

ma

Tra

din

g

Co

.,

Ma

ka O

il

Mil

l

Av

era

ge

2005-

06

32.71 40.75 38.26 38.02 51.26 13.66 18.66 28.01 32.67

2006-

07

32.23 36.40 31.88 33.30 51.11 11.23 25.88 28.78 31.35

2007-

08

35.93 36.44 34.37 38.61 37.06 5.67 13.46 30.19 28.97

2008-

09

45.69 33.12 39.51 40.35 34.61 11.34 12.71 35.26 31.58

2009-

10

47.19 31.25 45.29 41.12 52.11 10.87 25.11 31.26 35.52

X Bar 38.75 35.59 37.86 38.28 45.23 10.56 19.17 30.70 32.02

C.V. 18.53 10.22 13.60 7.98 19.08 27.88 32.47 9.26 7.43


Data also indicate that size of inventories varies widely among the individual mills. It varied

from 32.23 percent to 47.17 percent for Vijaya Lakshmi Oil Mill, 31.25 percent to 40.75 percent for

Dhamodhara Oil Mill, 31.88 percent to 45.29 percent for Radhakrishna Oil Mill, 33.30 percent to

41.12 percent for Sri Lakshmi Venkateswara Oil Mill, 34.61 percent to 52.11 percent for Vasavi Oil

Mill, 5.67 percent to 13.66 percent for Sri Guru Raghavendra Oil Mill, 12.71 percent to 25.88 percent

for Sree Rama Trading Co., and 28.01 percent to 35.26 percent for Maka Oil Mill. Thus on the whole,

the variation in the ratio of inventories to total assets is the lowest for Maka Oil Mill followed Sri

Lakshmi Venkateswara Oil Mill, Sri Guru Raghavendra Oil Mill, Dhamodhara Oil Mill, Sree Rama

Trading Co., Radhakrishna Oil Mill, Vasavi Oil Mill. It is interesting to note that among the oil mills

Sri Guru Raghavendra Oil Mill is having a low mean value of all the mills under study indicating

relatively high investment in fixed assets. Table 13shows the percentage of inventories to current

assets on an average, inventory constituted more than 30% of current assets in all oil mills. The C.V.

value indicates that the extent of management of the oil mills. Individually the mean values of the

ratio of inventory to current assets had been almost the same for Vijaya Lakshmi Oil Mill, Vasavi Oil

Mill, Radhakrishna, Maka Oil Mill, Dhamodhara Oil Mill & Sri Lakshmi Venkateswara Oil Mil

standing there by at 47.12 percent, 45.72 percent, 43.86 percent, 42.04 percent, 41.50 percent, and 40.

62 percent respectively. Relatively a low level of investments is noticed in Sri Guru Raghavendra Oil

Mill (11.52) and Sree Rama Trading Co., (24.12). This is so because Sri Guru Raghavendra and Sree

Rama Trading Co., has invested more of its current asset investment on ‗other current assets‘ except

during last two years of the study period where it invested more in inventory because of favorable

market for oil. So its coefficient of variation value showed relatively high variation in Sri Guru

Raghavendra (20.74), Sree Rama Trading Co., (36.71) implying less consistency in mode of

investment. Sri Lakshmi Venkateswara Oil Mill has lower CV value (8.19) indicating that variations

in the ratio during the period under study are consistent.




‗T’-Test for Testing Relationship between Inventory and Sales

TABLE- 14 ‘t’- Test Values (For Sales

Inventory) Source: Compiled from annual reports of the sample units

Year Elements Mean Standard

Deviation r r 2 t cal

2005-06

Inventory 3435138.00 2709266.27

0.96475 0.93075 0.044674

Sales 99088251.50 1509328.31

2006-07

Inventory 3721072.13 2786110.09

0.94983 0.90218 0.271702

Sales 111637901.10 84245758.13

2007-08

Inventory 3849243.88 3539808.35

0.96190 0.92526 1.699910

Sales 131855486.00 100031806.20

2008-09

Inventory 4393507.50 3862289.73

0.98051 0.96140 1.368474

Sales 133607887.50 104624904.20

2009-10

Inventory 5157699.63 4322029.08

0.96745 0.93597 0.046714

Sales 145093534.50 126476849.50

To test hypothesis ‗relationship between inventory and sales are significant or not, ‗t‘-test @5% was

performed to test this hypothesis. Generally inventory and sales have positive relationship. Because,

TABLE- 13 - INVENTORIES TO CURRENT ASSETS RATIO

Year

Vij

aya

La

ksh

mi

Oil

Mil

l

Dh

am

od

ha

ra

Oil

Mil

l

Ra

dh

ak

ris

hn

a O

il

Mil

l

Sri

La

ksh

mi

Ven

ka

tesw

ara

Oil

Mil

l

Va

sav

i O

il

Mil

l

Sri

Gu

ru

Ra

gh

aven

d

ra

Oil

Mil

l

Sree R

am

a

Tra

din

g

Co

.,

Ma

ka O

il

Mil

l

Av

era

ge

2005-06 39.93 47.11 45.01 41.35 51.88 13.94 21.31 38.51 37.38

2006-07 39.77 41.81 38.21 35.05 51.64 11.29 28.82 39.51 35.76

2007-08 42.45 43.29 39.53 40.52 37.53 7.60 16.42 40.65 33.50

2008-09 54.71 38.16 45.02 42.65 35.00 12.60 16.85 50.07 36.88

2009-10 58.62 37.12 51.54 43.55 52.56 12.15 37.21 41.44 41.77

X bar 47.10 41.50 43.86 40.62 45.72 11.52 24.12 42.04 37.06

C.V. 18.91 9.73 12.08 8.19 19.00 20.74 36.71 11.00 8.18



sales depend on inventory conversion period (reputation). In the example, ‗t‘ calculated value is less

than ‗t‘ table value (1.96) in all the years. Hypothesis is tested, accepted and results are summarized in

the above table.

Conclusion & Suggestions

To draw a few conclusions and suggests measures to improve the efficiency in managing in a

prudent manner, which maximize the profitability without diluting liquidity portion of the

units.Inventory accounts for a substantial portion of the capital employed in any business concern,

calling for greater attention of the financial executive. Efficient management of inventory not only

solves the acute problem of liquidity but also augment the annual profits, results in reduction in the

investment of working capital. The term ‗inventory‘ in the present study include an aggregate of raw

materials, seeds in process, finished oil and stores and spares. Generally the firm would hold

inventory keeping in view three general motives (i) The transaction motive (ii) The precautionary

motive and (iii) The speculative motive. The study aims to have an in depth analysis of various

inventory management practices and control techniques. But the Managing Director is held

responsible for its effective allocation and management. However in all oil mills financial manager

assisted by store keeper perform the function as per the guidelines of the managing director. Heavy

amount of investment is noticed in almost all the units except Sri Guru Raghavendra Oil Mill and Sree

Rama Trading Co. under study. The percentage of raw materials to aggregate inventory varied from

mill to mill. However the investment is higher because of the nature of Groundnuts. A high level of

investment is noticed in Sree Rama Trading Co., Vasavi Oil Mill, Sri Guru Raghavendra Oil Mill, Sri

Lakshmi Venkateswara Oil Mill and Radhakrishna Oil Mill and a low level in Vijaya Lakshmi Oil

Mill which imply that larger the size of the unit higher the level of investment in inventory. However,

the C.V. value has been relatively lower for Vijaya Lakshmi Oil Mill and Radhakrishna Oil Mill

indicating a balanced approach in maintaining seeds-in-process compared to other oil mills. Vijaya

Lakshmi Oil Mill and Sri Lakshmi Venkateswara Oil Mill followed a relatively balanced approach in

controlling investment in finished oil.Every firm has to balance the opportunity cost of holding excess

inventory and liquidity and risk of holding inadequate inventory, the two forces which effect the

determination of size of investment in a concern. The ratios generally used to measure the size of

investment in inventory are (I) Inventories to current assets ratio and (ii) Inventories to total assets

ratio. Inventory constituted a significant proportion of total investment in all the oil mills. Size of

inventories held by the mills fluctuated widely from one mill to another. Sri Guru Raghavendra Oil

Mill has a low mean value of all the mills under study indicating relatively high investment in current

assets.On the average, the percentage of inventories to current assets constitutes more than 35 percent

during the period under study. The over stocking can be observed in each and every component of

inventory. The mean value of the ratio of inventories to current assets has been almost the same for

Vijaya Lakshmi Oil Mill and Vasavi Oil Mill. These units have overstock of inventory. Conversely,

Sri Guru Raghavendra Oil Mill has a low mean value. The mill has invested more of its current assets

investment on ‗other current assets‘. This is clearly evident by the C.V. value which shows less

consistency in the mode of investment.Inventory turnover ratio has shown a declining trend during the

last year. This may be due to over stocking of raw materials and seeds in process by the individual

units in their attempt to gain advantage of boom. The organization for inventory management is not

satisfactory for the units under study. There is no purchase department to purchases raw

materials.All‘s the purchasing are done under the direct supervision of managing director. The source

of raw material is indigenous mainly from local markets in the state. Financial crisis are more in all

oil mills except Dhamodhara Oil Mill. Frequency of purchases is more during the groundnuts season.

There are no transportation problems as such. The mills are procuring raw materials mostly on

bidding and direct placement (order) basis, prices are determined basing on the market conditions. In

general the period of credit allowed is one week to 15 days for all the mills. Before bidding they are



tested for quality and quantity for determining price. The sample oil mills are not having separate

purchase department. They did not adopt suitable methods for making purchases. They are making

uneven purchases. All the oil mills are maintaining minimum level of inventory taking into

consideration consumption during procurement time and consumption for a fixed period of production

and maximum levels are determined basing on future plan for production and changes price. Perpetual

inventory system is adopted in all the mills under study for stock verification. So no cases of theft of

stores are reported. Proper accounting system relating to the receipt, issue and reconciliation of the

stores is under taken.In the present study Vijaya Lakshmi Oil Mill, Dhamodhara Oil Mill and

Radhakrishna Oil Mills are only maintaining separate spares and stores department. Other mill are

not maintaining separate spares and stores department due to the size of the business, these are

observed by the fitter under guidelines of managing director. Most of the spares are procured

indigenously and the mills are importing only some of the spares parts. The lead time of procurement

is generally one week to ten days indigenously because most of the mills are getting their spares

supplies from Ludhiana (Punjab). Almost all oil mills responded that they are investing only few

amounts in the spare parts because of regular visits by the agent of the vendor. However fitter

examines spare parts for every year and overhaul it or replace it as the case may be.

Suggestions

Prior to conclude it would be appropriate to offer some suggestions, in the light of the

observations of the present research investigation in to the inventory management practices of the oil

mills in the Kurnool District.

1. Most of the mills have invested more than 40 percent of the investment in current assets in the

form of inventory. It is suggested that the sample units must try to speed up the turnover so as to

minimize investment in working capital.

2. A separate materials management department must be established for the control of raw

materials.

3. There is an urgent need to constitute a purchase committee for raw materials, stores and spares.

The members of the committee must meet at frequent intervals of time so as to review purchases.

4. Targets should be set in the area of inventory management to fix the number of times that the

components of inventory should be turned around in a year.

5. The inventory levels should be reviewed periodically so as to avoid danger of stock outs.

6. The management should not blindly try to convert every indent into a purchase order. It should

review the quantity at the time of processing the purchase requisition.

7. The maximum and minimum levels set must be reviewed from time to time as and when changes

occur in any or all of the factors like lead time and consumption rates and are to be taken into

consideration.

8. The firm must take ample care for raw materials.

9. Every effort must be made to cut down cycle time which result not only in lowering the value of

work-in-process but also enables the unit to have a shorter response time to customer‘s needs.

10. Prudent marketing strategies and responsive pricing policy would avoid stock piling of finished

product (oil).

11. It is suggested to apply the VED Analysis (Vital-Essential-Desirable items) for classification of

maintenance spares, implying its essentiality in maintaining spares and F-S-N (Fast-Slow-

Nonmoving) analysis so as to reduce obsolescence which is a concurrent problem in the

maintenance of spares.



The suggestions, hitherto offered, would help to tone up the performance, efficiency and the success

of the oil mills in the Kurnool District. They may be found to be relevant in other districts of the state

as well as the nation on the whole.

Acknowledgements

The authors acknowledge the staff and Management of oil mills in Kurnool district, Andhra Pradesh

for their support. Our special thanks to staff of the Research Centre, Rayalaseema University,

Kurnool, and Editor, research scripts, ICRC, for their support and cooperation.

References:

Books:

1. The Practice of Management, Harper & Row, New York, 1954, p.47.

2. Lewis Meriam, Public Service And Special Training, The University Of Chicago Press, 1936,

pp.1-3

3. Ernest Dale, Ph.D., Wharton School, University of Pennsylvania and President, Ernest Dale

Associates, Management: Theory and Practice, part I, Management and its Environment,

page 1 - International student edition, 1978, fourth edition, Mc. Graw-Hill International Book

Company, Singapore, ISBN 0-07-Y85106-9.

4. ― Notes on the science of Administration‖ in Luther Gulick and LyndallUrwick(eds.), Papers

on the Science of Administration, Institute of Public Administration, New York, 1937, p.13

5. Accounting – Financial Management and Holding company Accounts- Tenth Edition-1982,

S. Nagarathnam, Chartered Accountant, Institute of Chartered accountants of India, Madras,

& SIRC of the ICAI, Madras-S. Chand & Company Ltd, New Delhi- part I Management

Accounting- Chapter 9 – page 365.

6. A.K. Datta, Materials Management Procedures, Text and Cases, Prentice-Hall of India, New

Delhi, Second Edition-2007.

7. Management Accounting – Financial Management and Holding company Accounts- Tenth

Edition-1982, S. Nagarathnam, Chartered Accountant, Institute of Chartered accountants of

India, Madras, & SIRC of the ICAI, Madras-S. Chand & Company Ltd, New Delhi- part I

Management Accounting- Chapter 9 – pages 365-372.

8. Sharma, P.C, 1984, Materials Management, KitabMahal, Allahabad.

9. Shore, Barry, 1980, Operations Management, Tata Mcgrah-Hill, New Delhi.pp.363.

10. Management Accounting – Financial Management and Holding company Accounts- Tenth

Edition-1982, S. Nagarathnam, Chartered Accountant, Institute of Chartered accountants of

India, Madras, & SIRC of the ICAI, Madras-S. Chand & Company Ltd, New Delhi, Part II,

Financial Management – Chapter 6 – pages 458-465.

11. Viyyanna Rao K. and Prasad G., Inventory management in A.P. Public Sector Undertakings,

LokUdyog, Aug, 1981

12. James C. Van Horne, Financial Management and policy, prentice Hall of India Pvt. Ltd., New

Delhi 1983, P. 482

13. DrebinAllon R. and Biernean Harold Jr., managerial accounting – An introduction, W.B.,

Saunders Co., Philadelphia, Third Edition, 1975, P. 155.

14. Welsch, G.A., and Anthony, A.N. ―Fundamentals of Financial Accounting‖. Richard D. Irwin

INC., Illinois, 1977, P. 646.

15. Welsch, G.A., and Anthony, A.N., Fundamentals of Financial Accounting Illinois. Richard D.

Irwin INC., 1977, P. 646.



16. Kennedy R.D and MC Mullen S.Y, Financial Statements. Form Analysis and Interpretation,

5th Edition Illinois: Richard D, Irwin INC, 1968, P. 365- 366.

17. Kuchhal, S.C., Financial Management 8th Edition, Allahabad: Chaitnya publishing house,

1982, P. 56.

18. Van Horne J.C., Financial Management and Policy, New Delhi: Prentice Hall of India Pvt.

Ltd., 1975,

19. P.661. Ibid P. 324-325.

20. Menon, K.S, Purchasing and Inventory control, wheeler publishing co., Allahabad, 2nd

Edition 1983.

21. Bolten, S.E., (1976) op.cit. P.443.

22. Gopalakrishsna, P., Integrated spares management- Text and cases, S. Chand and Co., Ltd.,

New Delhi 1984, P. 15.

23. Jain, S.C., Dhingra C.M., Bansol, R.K. Inventory Policies for spare parts. A systems

approach, spare parts management seminar proceedings, National Productivity council, New

Delhi, October. 28-29, 1977, P.57-58.

24. Menon, K.S, Purchasing and Inventory Control, Wheeler Publishing Co., Allahabad, Second

Edition, 1983, P 426-427.

25. Gopalakrishsna P., Op. cit., P. 63.

Journals:

Afza, T., and Nazir, M. (2011). Impact of Aggressive Working Capital Management Policy

on Firms‘Profitability. The IUP Journal of Applied Finance, 15(8), 20-30.

Capkun, Ari-pekka and Lawrence, (2009). On the Relationship between Inventory and

Financial Performance in Manufacturing Companies. International Journal of Operations &

Production Management, 29(8), 789-806

Chen, H., Frank, M. Z., and Wu, O. Q. (2005). What Actually Happened to the Inventories of

American Companies between 1981 and 2000? Management Science, 51(7), 1015-1031

Ali, Ashraf and Bankar, Basavaraja (2001). Performance of Cooperative oil mills in

Karnataka. Indian Co-operative Rev., 19 (1): 103 - 111.

Koumanakos, D. P. (2008). The Effect of Inventory Management on Firm Performance.

International Journal of Productivity and Performance Management, 57(5), 355-369.

Kwame K (2007). Working Capital Management Practices of Small Firms in the Ashanti

Region of Ghana. African Journal of Business Management, 6(18), 5807-5817.

Lwiki, T., Ojera, P., Mugend, N., and Wachira, V. (2013). The Impact of Inventory

Management Practices on Financial Performance of Sugar Manufacturing Firms in Kenya.

International Journal of Business, Humanities and Technology, 3(5), 75-85.

Pawan, K. (1996). Analytical Study of Inventory Management in Punjab State Electricity

Board. Finance India, 5(2), 412-417.

Peel, M. J., and Wilson, N. (1996). Working Capital and Financial Management Practices in

the Small Firm Sector. International Small Business Journal, 14(2), 52-68.

Rajeev, N. (2008). Inventory Management in Small and Medium Enterprises A Study of

Machine Tool Enterprises in Bangalore. Management Research News, 31(9), 659-669.

Sekar, M., and Geetha, R. (2013). A Study on Inventory Management with Special Reference

to Suraj Foods, Kaniyampuram. Asia Pacific Journal of Management and Entrepreneurship

Research, 2(4), 103–112.

Vipul, C. (2013). Inventory Management and Small Firms Growth: An Analytical Study in

Supply Chain.Vision, 17(3), 213–222.



N. Deepa - Inventory Management Practices Followed In Coconut Oil Mills in Western Tamil

Nadu- -International Journal of Humanities and Social Sciences (IJHSS), ISSN (P): 2319-

393X; ISSN (E): 2319-3948, Vol. 5, Issue 2, Feb - Mar 2016, 23-28© IASET

Wambua, B. J., Okibo, W. B., Nyang‘Au, A., and Ondieki, S. M. (2015). Effects of Inventory

Warehousing Systems on the Financial Performance of Seventh Day Adventist Institutions: A

Case of Adventist Book Centers (ABC), Kenya. International Journal of Business and

Management, 10(4), p259.

Allen, Donald S, 1995, Changes in Inventory Management and the Business Cycle,

Economist at the Federal Reserve Bank of St. Louis.

Allen, Donald S, 1997, Do Inventories Moderate Fluctuations in Output, economist at The

Federal Reserve Bank of St. Louis.

Becker, Dan M, Stanley, Stephen, 1992, Evidence of Improved Inventory Control, Economic

Review. January/February.

G. Srinivasan and K. R. Sundaravaradarajan - Performance of groundnut oil mills in

Thiruvannamalai district, Tamil Nadu - A management appraisal - Agriculture update – Issue

I - volume 6–February 2011,98-100 Research Article on Hind Agro Hearty cultural society -

Hind Agricultural Research and Training Institute.

Lancioni, Richard, A & Howard Keith, 1978, Inventory Management Techniques,

International Journal of Physical Distribution & Logistics Management, Volume 8, ISS: 8, pp.

388,428

Shafi, Mohammad, 1992, Management of Inventory-An Analysis of Its Vital

Dimensions,Management Review, NarseeMonjee Institute of Management Studies (NMIMS),

Mumbai, pg. 28-38

Ondiek, Gerald Ochieng, 2012, Assessment of Materials Management in Kenyan

Manufacturing Firms, University of Nairobi, OdhiamboOdera, MasindeMuliro, University of

Science and Technology, Journal of Business Studies Quarterly, Vol. 3, No.3, pp. 40-49,

ISSN 2152-1034.

Shafi, Mohammad, 1994, Unused Inventories –An Analytical Study, Management Review,

NarseeMonjee Institute of Management Studies (NMIMS), Mumbai, pg. 27-29

Dr. Mohammad Shafi - Management of Inventories in Textile Industry: a cross Country

research review- Singaporean Journal Of Business Economics, And Management Studies

Vol.2, No.7, 2014

Anonymous (1999). Solvent Extractors Association of India, 7th Annual Report.

Nazim Baluch - Evaluating Effective Spare-parts Inventory Management for Equipment

Reliability in Manufacturing Industries - European Journal of Business and Management

ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.5, No.6, 2013 – IISTE

G.V. Chalam - Inventory Management Practices in Cement Industry (A Study on Select

Units in Andhra Pradesh) International Journal of Research and Scientific Innovation (IJRSI)

|Volume III, Issue VIII, August 2016|ISSN 2321–2705

Abramovitz, M. Inventories and Business Cycles with Special reference to Manufacturers

Inventories NSBER 1950

Armor. D.S. Materials Management, Richard D Homewood Irwin Inc., 1968. Arrow, K.J.

Karlin, S. Scarf H., Studies in the Mathematical Inventory and Production.

Battersby, A., A Guide to Stock Control, Pitman, Lond. 1966.

Brech, E.F.L., Management – Its Nature land Significance, Pitman, Lond. 1946.

Brown, R.G., Statistical Forecasting for Inventory control, Mc. Graw-Hill, 1959.

Brown, R.G., Decision Rules for Inventory Management, Rinehart New York, 1967.



Buchan, Joseph and Koenigsberg, Ernew, Scientific Inventory Management, Prentice Hail of

India, New Delhi, 1996.

Chadda, R.S., Inventory Management in India, Allied Publishers Private Ltd, Bombay, 1971.

Chadda, R.S., Inventory Management in India, Allied Publishers Private Ltd, New Delhi,

1964.

Chadha, H.L., Industrial Purchasing and Materials Management, Jaico Publishing House,

Bom. 1978.

D‘Anna, J.P., Inventory and Profit: The Balance of Power in Buying and Selling, AMA-

Taraporevala, Born. 1977.

Dolber, D.W. & Lee Lamer (Jr.), Purchasing and Materials Management, Mc Graw Hill, New

York 1965.

Emission Factor Document For AP-42, Section 9.11.1, Vegetable OH Processing, Midwest

Research Institute, Kansas City, MO, November 1995.

Fred Hanssman., A Survey of inventory Theory from the Operations Research View Point in

Progress in Operations Research, Ed., by Russell L. Ackoff, John Wiley & Sons Inc., New

York, 1961.

George, P.W. Evert, W.W., the Role of Top Management in the Control of Inventory, Reston

Publishing Company INC, Virginia, 1979.

Gopal Krishnan P and Sanderson Material Management An integrated approach, Prentice-

Hall of India Pvt., Ltd, 1971.

Gopal Krishnan, P and Sandilya, M.S., Inventory Management Text and Cases, the

Macmillan Company of India Pvt., Ltd, Delhi, 1978.

Gopal Krishnan, P and Sandilya, M.S., Inventory Management: Text and Cases, Macmillan

Co. of India, New Delhi, 1978.

Gopal Krishnan, P and Sandilya, M.S., Stores Management and Logistics: Text and Cases, S.

Chand & Co., New Delhi, 1978.

Handley, G and within T.M., Analysis of inventory system. Prentice hall, 1963.

Iyengar, A.V.K., Inventory Management, Institute for Financial Management and Research,

Madras, 1980.

Khare, B.D AND Monga, R.C., Inventory Control, National productivity Council, New Delhi,

1978.

Killen L.M., Techniques of Inventory Management, American Management Association,

New York, 1969.

Lee, L. (Jr.) and Dobler, D.W., Publishing and Materials Management, Tata McGraw-Hill

Publishing Co., New Delhi, 1974.

Lewis H.T., Industrial Purchasing—Principles and Practice, Richard D. Irwin, Inc., Chic.

1946.

Magee, J. F. and Boodman, D.M., Production and Inventory Control: Principles and

Techniques, Second edn. McGraw-Hill Book Co., New York, 1967.

Menon, K.S., Purchasing and Inventory Control, Wheeler Publishing Co., Allahabad, Second

Edition, 1983.

Morrison, A., Storage and Control of Stock, Pitman Publishing, London.

Murthy, S.K., ―Inventory Control: Effective Tool of Successful Management‖, Indl. Times,

Bom. (Vol. VIII, No.14), July, 1966.

P.T. Bartlett, el al, National Vegetable Oil Processing Plant Inventory, TRC Environmental

Consultants Inc., Wethersfield, CT. April 1980.



Patel, M.D., Chunawala, S.A, & D.R. Patel., Integrated Materials Management, Himalaya

Publishing House, Bombay, 1984.

Plossl, G.W, and Wight, O.W., Production and Inventory Control: principles and Techniques,

Prentice-Hall of India, New Delhi, 1979.

Prichard, J.W &Eagel, R.H., Modern Inventory Management, John Wiley and Sons, Inc.,

New York, 1965.

Richard James, W. &Eagel Robert, N., Modern Inventory Management, John Wiley & Sons,

New York, 1965.

Roy Chowdhury, B.K., Management of Materials-Quintessence of purchasing, Sultan Chand

& Sons, New Delhi, 1978.

Stanback, Thomas, Post War Cycles in Manufacturing Inventories, NBER, 1962.

Starr, M.K. and Miller, D.W., Inventory Control Theory and Practice, Prentice Hall of India,

New Delhi, 1974.

Starr, M.K. and Miller, D.W., Inventory Control: Theory and Practice, Prentice Hall of India,

New Delhi, 1974.

Verma, M.M., Essentials of Storekeeping and Purchasing, Sultan Chand & Sons, New Delhi,

1978.

Whitin, T.M., Theory of Inventory Management, Princeton University Press, New Jersey,

1953.

Working Paper:

1. Roumiantsev, S., and Netessine, S. (2005). Should Inventory Policy be Lean or Responsive?

Evidence for US Public Companies. Working Paper, University of Pennsylvania

2. Dr. Mohammad Shafi - Management of Inventories in Textile Industry: a cross Country

research review- Singaporean Journal Of Business Economics, And Management Studies

Vol.2, No.7, 2014



A STUDY ON INVENTORY MANAGEMENT PRACTICES...

Documents

Transcript of A STUDY ON INVENTORY MANAGEMENT PRACTICES...