Abstract cococola

8/18/2019 Abstract cococola

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Abstract:

In the present era, where there is a competitive world in the area of

business it is very important to control various costs to sustain in the

market. And the most importantly customer is to be considered as the most

important part of any business. In such fast moving and rapid environment,

inventory management plays an important role to make a control over the

nancial statement of the organization. Inventory involves in the whole

process cycle of the organization as it starts with the shop oor to the top

level management commitment. In this paper, we will discuss and analyzesome of the parameters which directly show the impact of inventory

management to the nancial statement of the form. his paper also consists

of di!erent parts where the inventory management concepts are discussed,

di!erent inventory control techni"ues are discussed, and their

interrelationship with the nancial statement of the rm. his paper also

introduces the various costs incurred due to the storage inventory,

economic order "uantities, reorder level, shortage costs, and inventory

methods.

Inventory constitutes the most signicant part of current assets of

larger ma#ority of $igerian manufacturing industries. %ecause of the relative

largeness of inventories maintained by most rms, a considerable sum of an

organization&s fund is being committed to them. It thus becomes absolutely

imperative to manage inventories e'ciently so as to avoid the costs of

changing production rates, overtime, subcontracting, unnecessary cost of

sales and back order penalties during periods of peak demand. he study

methods employed include the variance analysis, (conomic )rder *uantity

+()* -odel. he answer to the fundamental "uestion of how best an

organization which handles inventory can be e'ciently run is provided for in

the analysis and ndings of the study. onse"uently, recommendations onthe right "uantity, "uality and timing of material, at the most favorable price

conclude the research study.

As a result to today&s uncertain economy, companies are searching for

alternative ways to stay competitive. his study goes through the process of

analyzing the company&s current forecasting model and recommending an

inventory control model to help them solve their current issue. As a result,

an (conomic )rder *uantity +()* and a /eorder 0oint was recommended

to help them reduce their product stock outs. he shortage of raw material

for production always makes the process discontinuous and reduces the

productivity. he A% analysis techni"ue for the inventory control system is

rst used to identify the most important multiple products and then the


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economic order "uantity +()* of each product is developed to nd their

inventory model e"uation individually.

Introduction

Inventories are the current assets which are e2pected to be converted

within a year in the form of cash or accounts receivables. hus, it is a

signicant part of the assets for the business rms. Actually, inventories are

the goods that are stocked and have a resale value in order to gain some

prot. It shows the largest costs for the trading rms, wholesalers and

retailers. $ormally, it consists of 3435 of the investment of the total

investment of the rm. hus, it should be managed in order to avail the

inventories at right time in right "uantity. Inventory refers to the stock of the

resources which are held to sales and6or future production. It can be also

viewed as an idle resource which has an economic value. 7o, better

management of the inventories would release capital productively. Inventory

control implies the coordination of materials controlling, utilization and

purchasing. It has also the purpose of getting the right inventory at the right

place in the right time with right "uantity because it is directly connected

with the production.

his implies that the protability of the rm is directly or indirectly

a!ected by the inventory management. In this paper, three ma#or steel

manufacturing companies of India are taken for the analysis. Inventorymanagement is pivotal in e!ective and e'cient organization. It is also vital

in the control of materials and goods that have to be held +or stored for

later use in the case of production or later e2change activities in the case of

services. he principal goal of inventory management involves having to

balance the conicting economics of not wanting to hold too much stock.

hereby having to tie up capital so as to guide against the incurring of costs

such as storage, spoilage, pilferage and obsolescence and, the desire to

make items or goods available when and where re"uired +"uality and

"uantity wise so as to avert the cost of not meeting such re"uirement.

Inventory problems of too great or too small "uantities on hand can

cause business failures If a manufacturer e2periences stockout of a critical


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inventory item, production halts could result. -oreover, a shopper e2pects

the retailer to carry the item wanted. If an item is not stocked when the

customer thinks it should be, the retailer loses a customer not only on that

item but also on many other items in the future. he conclusion one might

draw is that e!ective inventory management can make a signicant

contribution to a company&s prot as well as increase its return on totalassets. It is thus the management of this economics of stockholding, that is

appropriately being refers to as inventory management. he reason for

greater attention to inventory management is that this gure, for many

rms, is the largest item appearing on the asset side of the balance sheet.

Literature Review

Rich Lavely (1998) asserts that inventory means 80iles of -oney9 onthe shelf and the prot for the rm. :owever, henotices that 435 of the

inventory of most retail shops is dead. herefore, he argues that the

inventory control is facilitate the shopoperations by reducing rack time and

thus increases prot. :e also elaborates the two types of inventory

calculations thatdetermine the inventory level re"uired for protability. he

two calculations are 8cost to order9 and 8cost to keep9. ;inally, heproposes

seven steps to inventory control. he limitation of this literature is that he

does not outline the calculation method thatactually evaluates the inventory

level and cost of handling it.

James Healy (1998) highlights that the distributors carry 13435 of

additional inventory that is unnecessary. heseinventories unnecessarily

increase costs and loss of customers, lost of sales and lost prot due to

ine'cient inventorymanagement. :e points out there is a need to set out

procedures to nd out physical inventories to determine the true cost

ofhandling cost of the inventory. :e further points out some misconceptions

of the inventory management such as ade"uacy of(nterprise /esource

0lanning 7ystem in handling the inventory, the importance of turns in

measuring the success of the inventorysystem and condence on

protability of using the inventory optimization method. he limitation of this literature is that it doesnot give reasons for the causes of the

i t


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ave !iasec"i (#$$1) presents an inventory model for calculating

the optimal order "uantity that)rder *uantity method. :e points out that

many companies are not using ()* model because ofpoor results resulted

from inaccurate data input. :e says that ()* is an accounting formula that

determines the point at which thecombination of order costs and inventory

costs are the least. :e highlights that ()* method would not conict withthe =Iapproach. :e further elaborates the ()* formula that includes the

parameters such as annual usage in unit, order cost andcarrying cost.

;inally, he proposes several steps to follow in implementing the ()* model.

he limitation of this literature is thatit does not elaborate further

relationship between ()* and =I. It does not associate the inventory turns

with the ()* formulaand fails to mention the prot gain with the "uantity is

calculated.

%ethodolo&y and data collection

All data for this paper is secondary data and taken from various

sources. 7ome of the sources are from #ournals, articles,magazines and

referred books from the library. 7ome data are also downloaded from the

internet through di!erent sources likegoogle, money control and emerald.

All nancial data are taken from the money control database for thecompletion of my paper.;rom these collected data from di!erent sources of

secondary data, we interpret these and nd the impact of

inventorymanagement on the nancial condition of the rm. >e have taken

three ma#or steel manufacturing companies of India. >e will nd the

0earson correlation coe'cient and analyze it to show theimpact of inventory

management on the protability of the rm.

(ssential information for this research work were collected through

primary and secondary sources thecombinations include?

(i) Interview with some key personnel in the stores, purchasing,production and inventory departments of thecompany.


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(ii) )bservation of the production process was done to see the ow of

goods in the conversion process. -aterialshandling and storage were also

observed and so was the patrol 6 inspection procedures.

(iii) /ecord analysis of relevant data was obtained from the

company&s annual report and #ournals.

(iv) heoretical background information was gathered through review

of related literature on inventory management.

he data collected were analyzed using three ma#or "uantitative

instruments. he simple variance method, the ()*model and the chis"uare

distribution method. he simple variance analysis was used to describe the

data presented.

he ()* model was used to determine theoptimum inventory level

per year, which were considered as the e2pected value of inventory in the

chis"uarecalculation. he chis"uare techni"ue was used to draw inference

about the variance of distribution with eachdistribution determined by the

degree of freedom.

Limitations o' the tudy

here are some certain limitations of this study. It can be listed as?

i. All the data used in this paper are secondary data which has been

taken from di!erent published #ournals, books andnancial data are from

money control database. And this paper is related with the nancialvariables so there may be some

ii. his study is based on only three ma#or steel manufacturing

companies. 7o it may reect some partial view.

iii. In this study only @ years is taken as the period of time

commencing from 31331< which is a short period of time.

iv. Also, ination is the most crucial factor for nancial terms. 7o, it is

not considered in any type of interpretation.

v. orrelation techni"ue is used as statistical tools to interpret thedata.

Inventory %ana&ement

here is need for controlling the inventories for any rm in developing

countries like India. A rm must install somebetter inventory control

techni"ues to improve their nancial condition. According to otler,

inventory management is thetechni"ue of managing, controlling and

developing the inventory levels at di!erent stages i.e. raw materials, semiB

nished goodsand nished goods so that there is regular supply of resources

at minimum costs. According to oyle, inventory management isthe

management of the materials in motion andat rest. According to /osenblatt,


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customer but it is the cost tothe owner. Di!erent authors dened inventory

management in di!erent way.7ometimes, inventory and stock are

considered as the same thing. %ut there is a slight di!erence between them.

7tock isthe storage of material kept in specied place only. Inventory

management involves all activities which are done for thecontinuous supplyof materials with optimal costs.%asically, inventory management has two

goals. ;irst goal is to avail the goods at right place in right time. %ecause it

isvery important to keep operations running to give specic service. 7econd

goal is to achieve the service level against optimalcost. It is very di'cult to

achieve goal against optimal cost. All items cannot be stocked, so there is

need to specify the importantgoods to be stocked.

he supplies inventories involves the materials re"uired for the

maintenance, repair and operating that do not go to thenal product. %ut it

is also considered as the types of inventories. hus, inventory management

is also dened as it is the scienceand art of managing the level of stock of

group of items which incurred least costs and also reach the ob#ectives set

by the topmanagement. 7o, on the nal note the primary ob#ective of

inventory management is to improve the customer satisfaction level.he

secondary ob#ective is toincrease the production e'ciency. Increasing

production e'ciency means that the production control, maintaining the

level onventory for e'cient materials management.

ome actors Related *o Inventory

%ana&ement here are some factors listed below which are essential to be discused

for understanding the concept of inventorymanagement. hese activities

are associated with inventory management and to be considered to achieve

its ob#ectives. hesefactors are?

1. osts related to inventory.

. Inventory costing methods.

4. Inventory models.


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osts included in ordering costs are tendering cost, "uality inspection

cost, transportation cost etc.

• +arryin& cost: It is the cost which is associated with costs which are

spent to the storage of the inventory items in the store. It depends

upon the "uantity and period of time till when the inventory is to be

stored. It includes storage cost, damage cost, depreciation, handlingcost, insurance cost etc.

• horta&e cost: 7hortage cost simply means the cost due to the

absence of inventory items in the store. It is associated with the lost

sales. Fenerally, shortage costs incurred for those items which is

more costly and which incurs more handling costs.

Inventory +ostin& methods: hese are the methods which are used for

give the values to the inventories. hese valuationmethods can be

e2plained as?

• irst In irst ,ut? In this method, the materials coming rst will be

considered rst and then ne2t consignment will be taken. his method

is useful when the price of material is falling because material charge

to production will be high while the replacement cost will be low.

• Last In irst ,ut: It is the method in which materials coming latest

will be considered rst. he last consignment is taken rst and when it

is e2hausted then second last consignment is taken. his method is

more useful when the rice is rising and show a charge to production

which is closely related to current price.

• -ei&hted Avera&e +ost method: In this method, material issuedprice is based upon the calculation of weighted average cost of the

material. It is calculated with using formula?

-A+ . /alue o' material in stoc"0 uantity in stoc"

tandard !rice method? In this method, a standard price is

predetermined. he price is predetermined for the statedperiod of time

taken in the account all the factors a!ecting price such as anticipated

market trends, transportation charges etc.standard prices are

predetermined irrespective of purchase price. Any di!erence between the

predetermined price and actual priceis the material price variance.

• +urrent !rice: In this method, material issued is priced at the

replacement or realizable price at the time of issue. 7o , the cost at

which material could be purchased should be ascertained.

• Inventory models:2Among di!erent inventory models ()* modelis most popular and commonly usedinventory model. hese modelsare used to determine the economic order "uantity of the materialsto be stored.


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3, %odel:2As inventory is determined as the most important factor whicha!ects the operations, thena mathematical model was developed to controlthe inventory levels. he most widely used model is ()* model. It was rstdeveloped by ;.>. :aris in 1H14 but still /.:. >ilson is given credit for thismodel due to his early inBdepth analysis. his model is also known as >ilson

()* model. According to this model, some costs like ordering costs aredeclined with inventory holdings while some costs like holding costs rise andthus total inventory cost curve has a minimum point where inventory costscan be minimized. he economic "uantity is the level for inventory whichminimizes the total inventory costs. It is the optimal level of inventorieswhich satises the demand constraints and cost constraints.

Derivation of ()* formula?B• he derivation of (conomic )rder *uantity formula is as follows?B

et us assume,•D J Annual Demando J )rdering costc J arrying cost* J *uantity•

hen,•Annual 7tock J *6 otal Annual arrying ost J c.*6$o. of orders per annum J D6*

i&414 ()* model

Annual ordering cost J o.D6*

herefore, total inventory cost J total ordering cost K total carrying cost

)r,

I J c.*6 K o.D6*

he order "uantity at which the cost will be minimized is obtained by


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%y di!erentiating, we get,

d+I6d* J c6 L o.D6*

>hen cost is minimumthend+I6d* will be 3. hen,•

c6L o.D6* J 3

)r,

. (#4+o40+c)10#

Assumptions of ()* model?B

here are some assumptions on which ()* is calculated. hese

assumptions are?B

i. here is known and constant holding cost.

ii. here is a known and constant ordering cost.

iii. he rates of demand are known.

iv. here is known constant price per unit.

v. $o stockBouts are allowed.

vi. /eplenishment is made instantaneously.

Inventory control techni5ues:2 here are various techni"ues used by arm to control the inventories.7ome of these techni"ues can be e2plainedas?B

A6+ Analysis:2A% analysis of inventories represent that the smallportion of material contains bulkamount of money value while arelatively large portion of material consists less amount of moneyvalue. he money value is ascertained by multiplying the "uantity byunit price. According to this approach, inventory control of high value

items are closely controlled than low value items. (ach item iscategorized as A, % and categories depending upon the amountspent for the particular item. It may also be clear with the help of following e2amples?

8A9 category L @5 to 135 of the items represent E35 toE@5 of the money value.8%9 category L 1@5 to 35 of the items represent 1@5

to 35 of the money value.89 category L E35 to G35 of the items represent @5to 135 of the money value


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Fig.2. ABC Classification

After classication, the items are ranked by their value and then thecumulative percentage of the total value against the percentage of item isnoted. A detailed e2ample clearly indicates the gure that 13 per cent of item may account for E@ per cent of the value, another 13 per cent of itemmay account for 1@ per cent of the value. he remaining part may accountfor 13 per cent of the value. he importance of this tool is that it directsgive attention on the high valued items.

%inimum level:2 he minimum level of inventories kept on thedi!erent bases like consumption duringthe lead time, stockBout costs,customer irritation and loss of goodwill etc. o continue production it is veryessential to maintain optimal amount of inventories. he stock which takescare for the uctuation in demand is known as safety stock. It also governsthe ordering point.

%a7imum level:2 he ma2imum limit beyond which the "uantity of any item is not normally allowed torise is known as ma2imum level. Itis the sum of minimum level and ()*. he amounts to be 2ed inma2imum level depend upon the factors like space available, nature of material etc.


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Reorder level:2It is the level of the stock at which a purchasere"uisition is initiated by the storekeeperfor replenishing the stock. his level is set between the ma2imum and minimum level in a suchway that before material ordered for are received into the stores. Its2ation depends upon ma2imum delivery period and ma2imumconsumption.

Just In *ime system:2 =apanese rms popularized this techni"ue inorder to reduce the inventory level upto zero to eliminate the inventorycosts. According to this system, the materials arrive at themanufacturing sites #ust few hours before they are going to use. hissystem also eliminates the necessity of carrying large inventories.

,utsourcin&:2(arlier there was tendency of manufacturing companiesto manufacture all parts inBhouse.$ow, more companies are adoptingoutsourcing techni"ues. )utsourcing is a system of buying parts andcomponents from other companies rather than manufacturing inhouse.

+omuteried Inventory +ontrol ystem:2It is the moderntechni"ue used for controlling theinventories. It enables a company totrack large items of inventories easily. It is an automatic system of counting inventories, recording withdrawals and balances. here is aninBbuilt system of placing order as the computer notices that thereorder point has been reached. he information system of the buyersand suppliers are linked to each other.


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+,%!A;


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;. homas and =oseph %. >hitehead obtained e2clusive rights to bottle ocaB

ola across most of the Onited 7tates +specically e2cluding Micksburg BB for

the sum of one dollar. A third hattanooga lawyer, =ohn . upton, soon

#oined their venture.

19$$219$9 Raid &rowth

he three pioneer bottlers divided the country into territories and sold

bottling rights to local entrepreneurs. heir e!orts were boosted by ma#or

progress in bottling technology, which improved e'ciency and product

"uality. %y 1H3H, nearly


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ed by longBtime ompany leader /obert >. >oodru!, chief e2ecutive

o'cer and chairman of the %oard, the ompany began a ma#or push to

establish bottling operations outside the O.7. 0lants were opened in ;rance,

Fuatemala, :onduras, -e2ico, %elgium, Italy, 0eru, 7pain, Australia and

7outh Africa. %y the time >orld >ar II began, ocaBola was being bottled in


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19F$s and 8$s +onsolidation to serve customers

As technology led to a global economy, the retailers who sold ocaBola

merged and evolved into international megaBchains. 7uch customers

re"uired a new approach. In response, many small and mediumBsize bottlers

consolidated to better serve giant international customers. he ompany

encouraged and invested in a number of bottler consolidations to assure

that its largest bottling partners would have capacity to lead the system in

working with global retailers.

199$s ew and &rowin& mar"ets

0olitical and economic changes opened vast markets that were closed or

underdeveloped for decades. After the fall of the %erlin >all, the ompany

invested heavily to build plants in (astern (urope. And as the century

closed, more than S1.@ billion was committed to new bottling facilities in

Africa.

#1st +entury

he ocaBola bottling system grew up with roots deeply planted in local

communities. his heritage serves the ompany well today as people seek

brands that honor local identity and the distinctiveness of local markets. As

was true a century ago, strong locally based relationships between ocaB

ola bottlers, customers and communities are the foundation on which the

entire business grows.


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%ission and ,bGectives

%ission

ocaBola declares the purpose as a company and serves as the standard

against actions and decisions?

o refresh the worldT

o inspire moments of optimism and happinessT

o create value and make a difference.


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Mision

he vision of ocaBola is the framework for their guides of every aspect of

its business. It is presented in C0s?

1. 0eople? %e a great place to work where people are inspired to be the best

they can be.

. 0ortfolio? %ring to the world a portfolio of "uality beverage brands that

anticipate and satisfy peopleNs desires and needs.

4. 0artners? $urture a winning network of customers and suppliers, together

we create mutual, enduring value.


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In I$DIA, its head o'ce is situated in Furgaon, :aryana

%ar"ets


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-orldwide share and >eo&rahical distribution


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6rand wise %ar"et hare

*AR>3* %AR=3* , +,+A2+,LA

• ocaBola takes every customer as target and potential who is thirsty.

• All age groups are being targeted but the most potential is the age

group from 1GB@ that covers around


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• It has wide range of targeting. It ranges from the age of 1@B@ and

reaches to


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• i.e.: A7IA and -iddle (ast etc and their sale increase in summer.

• LOCALY:In I$DIA the coke segments more in urban and suburban

areas as compare to rural areas.

3%,>RA!HI+:

AGE: oke segments the small children introducing tastes like

vanilla, lime and cherry. hey focus children from RA!HI+:

All psychographics variables the social class, lifestyle, occupation,

level of education and personality oke segments everyone.

%ut again its there packaging which is di!erent for di!erent

consumers.

63HA/I,RAL:

OCCASION:ocaBola segments di!erent occasions which are

celebrated in the country.

(ID W DI>AI has become an international event identity of the

culture of I$DIA.

he credit for making celebrations available for almost everyone

largely goes to ocaBola ompany.


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IA+IAL


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IA+IAL *A*3%3*

+ontd


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ervin&s er erson

>lobal -or"'orce

%ar"et +aitaliation


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Investors In'o: toc" In'ormation

stoc" lit History

%3AI>A3II*I,:

Theconceptofinventorymanagementasknowntodayisradicallydifferentfr

om whatitwasjustafewyears ago.Untillthelast

decade,ndianndustryneededma!imumproductionsincetheree!istedsellersmarketforalmostallp

roducts.Costwasnotseriouspro"lemthatitistoday,fortherewassome"odyready,willinganda"leto"

uytheproductsassoonasitwasavaila"le.

#!cessmanufacturingcostsweresimplypassedalongtothe"uyerintheform

ofhigherprices nthisenvironment the emphasis was onthe successful


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productionmananditwasnotunusualtofindnventory$anagementgettingasecondaryplacewithin

theproductionfunction.

%verthelastdecadeorsowehave"eenwitnessingslowreversalofthissituatio

nasthesupplyiscatchingupwiththedemandandthemarketisturningfromsellersto"uyersmarket.&or

thefirsttime,ndianindustryistryingtocompeteintheworldwidemarketswhichdemandlowcostand

high'ualityproducts.

$eetingthiskindofcompetitionhas"ecomeamajorconcernof"usinesstod

ayandsolutionofthepro"lemdemandsmostefficientuseofmanufacturingresourcesofmen,money,

materialscountformorethanhalfthetotalmoneyspent"yany"usiness,inventorymanagementhasas

sumedsignificantimportance.

(rof.(eter&.)ruckerhasdefinedthepurposeof"usinessas*Tocreatethecustomer+.ogically,

o"jectiveofinventory

managementisthentoprovidema!imumcustomerservice,thishowever,cannot

"edonewithoutregardtothecompetitivecapa"ilityof"usiness,asitisonlythiscapa"ilitydemandstha

tinventorymanagementensuresma!imumplantefficiencyandminimuminventoryinvestment.

Atypicalinventorymanagementsystemisrepresentedinthefigure.Theprincipleinputstosuchasystemare-

&orecastofdemand"othlongtermandshorttermfortheproducts.


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Currentdemandfortheproducts

$easura"lecharacteristicsofproductsanditemssuchascost,leadtime,essentiallysetuptimeandsoo

n.

$anagementpolicies

asregardcarryingcharges,levelofserviceandrateofresponsetochangesincustomerdemand.

%AA>3%3* !,LI+I3

&orecastof nventory %rder(oint

)emand $anagement/ystem

%rder0uantityor

%peratinglevel

Characteristics1Cost

,leadtime,"ulk#sse

ntiality,setup2

nventory

Control

/yste


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This informationformsthe "asisforvarious decisionsconcern the order

'uantityandoperatinglevel,whichinturnfromthe"asisofinventorycontrolsystem.

nventoriesareessentialforsales,andsalesarenecessaryforprofits.Actualinventoryco

ntrolisgenerallynotunderthedirectcontrolofthefinancialmanager.3ather,inmanufacturingcompa

nies,productionpeopletypicallyhavecontroloverinventories.4hereasinretailconcernsthiscontro

lise!ercised"ythemerchandisingpeople.5oweverthefinancialmanagerisvitallyconcernedwithin

ventorylevels,forheorshehasresponsi"ilityfortrackingfactorswhichaffecttheoverallprofita"ilityo

fthefirmand"ecauseinventoriesgenerallyamounttosome67

879ofthetotalassets,poorinventorycontrolwillhurtthefirm:sprofita"ility.

nventorymanagementhasanaffectonthecashconversioncycle.%neofthecomponentsofthecashco

nversioncycleistheinventoryconversionperiod,theaveragelengthoftimere'uiredtoconvertrawm

aterialsintofinishedgoodsandthentosellthesegoods.;aturally,thelargertheamountofinventoriesh

eld,theinventoryconversionperiodhencethelongercashconversioncycle.

,6J3+*I/3,I/3*,R; :

nventorymanagementinvolves the control ofthe current

assets,namelyrawmaterials,workinprogressandfinishedgoods.

Themaino"jectistominimi


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Theotherpurposeofholdinginventoryis-

Toensurepromptdelivery

Toavail'uantitydiscounts.

Toreducetheordercosts

Toavoidproductionshortage

Toachieveefficientproductionruns.

-H;IR%H,LI/3*,RI3:

nventoryformsalink"etweentheproductionandsalesofapro

duct.Amanufacturingcompanymustmaintainacertain

amountofinventory,knownasworkinprogressduringproduction.Althoughothertypesofinventoryi

ntransit,rawmaterialsandfinishedgoodsinventoriesarenotnecessaryinthestrictestsense,theyallow

firmto"efle!i"le.nventoryintransit=

thatisinventory"etweenvariousstagesofproductionorshortagepermitsefficientproductionschedu

lingandutili


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Avoid osseso

0urchasing

Fain*ualityDis

;irmsholdInventoryto0roducing

/educingorde

7elling Achievee'cientp


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+LAIIA*I,,I/3*,RI3:

nventoriesareusuallyas-

a2 3awmaterials

"2 Boughtoutcomponentsorsu"assem"lies

c2 /emifinishedgoodsorworkinprogressorworkinprocess

d2 Consuma"lestores

e2 $aintenancesparesparts

f2 &inishedgoodsstoredorintransitwarehouseorcustomers

Therawmaterialinventorycontainsitemsthatarepurchased"ythefirmfrom

othersandareconvertedintofinishedgoodthroughthemanufacturing1productionprocess.Theyarea

nimportantinputofthefinalproduct.Theworkin

processinventoryconsistsofitemscurrently"eingusedintheproductionprocess.Theyarenormallys

emifinishedgoodsthatarevariousstagesofproductioninamultistageproductionprocess.

&inishedgoodsrepresentfinalorcompletedproductswhichareavaila"leforsale.Theinventoryofsuc

hgoodsconsistsofitemsthathave"eenproducedareyetto"esold.

nventory,asacurrentasset,differsfromothercurrentassets"ecauseonlyfinancialmanagersarenoti

nvolved.3ather,allthefunctionalareas,financemarketing,production,andpurchasing,areinvolved

.Theviewsconcerningtheappropriatelevelofinventoryworlddifferamongthedifferentfunctionalar

eas.Thejo"ofthefinancialmanagersistoreconciletheconflictingviewpointsofthe

variousfunctionalareasregarding

theappropriateinventorylevelsinordertofulfilltheoverallo"jectiveofma!imi


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nventories constitute themostsignificantpartofcurrent assetsof alargemajority

ofcompaniesinndia.%nanaverage,inventoriesareappro!imately>7percentofcurrentassetsinpu"l

iclimitedcompaniesinndia.Becauseofthelargesi


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*;!3,I/3*,R;+,*:

Thecostfactormust"econsideredwhiletakingdecisionregardinginventories.nventorycostin

cludesorderingcost,carryingcost,outofstockorshortagecostcapacitycost.

#achofthesecomprisesseveralelementsasshown"elow-

,rderin& +osts:

a2 (reparingapurchaseorder.

"2 (rocessingpayments.

I/3*,R;+,*R,L3+II,:

%neofthemajorconcernsofapurchasemanageristoreducethecostofinventory.Atthesametimetooli

ttleofinventorymightresultinshortageandconse'uentproductionholdup.5enceoneofthemajordec

isionsinpurchaseistheoptimum'uantityoforder.)uetoenvironmentalinfluences"eyondthecontro

lofmanager,theperformanceandactivitiesoftendonotadheretoplannedtargets.Controlistherefore

"roughtin,throughfeed"ack,sothatcorrectiveareinitiated,whereverdeviatione!ceedsacceptedlim

its.

nventorycontrolmaytherefore"edefinedasapplicationofcontroltheoryinmanagin

ginventorywithpredeterminedlevels.nventoryisstorageofgoodsandmaintainingofstocks.nman

ufacturing,inventoriesmeankeepingitemsinstocks.Consideredunderthissense,inventorycontrolc

an"evisuali


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Demand InventoryIn

Duesin :and 0lace

)rder

$etorder Issues /eceive ender

*uantity tenders "uotation evaluation

I/3*,R; +;+L3

(roduction /tores nspectaccept 3eceiving

/upplies


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nventorycontroltechni'uesareemployed"ytheinventorycontrol

organi


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A*A !R33*A*I, AAL;I

he inventory policy of $igeria %ottling ompany 0, Ilorin can only be appreciatin the conte2t of its peculiar circumstances as the leading soft drink bottling compaand one of the seventeen functional plants of the company within the country. It thimplies that whatever policy is adopted at the plant level must take into consideratithe overall company&s ob#ectives. he main determinant of the company&s inventopolicy is the national economy itself in which the demand of their product stands another factor. According to Ilorin 0lant managers, the company is constanreviewing performance as a unit of the economyV thus what happens in the economenvironment a!ects the policies and strategies of the company as a whole and t

plants as subsets. he company&s ob#ective is to maintain "uality, increase market shares aprotability. his implies that enough inventories should be available to enhancontinuous production. his fact also determines the levels of inventory, which tcompany keeps. 7torage space is no barrier to operational activities of the industry it has avery large storage space located within the plant premises. )rders materials are obtained by re"uest or by direct allocation from the headB"uarters o'in agos.

he company operations three sets of stores, the raw material stores the nishgoods stores and the spare parts machinery stores. A store manager w

operationally works in con#unction with production manager, since most of tproducts are used by his department alongside with bottling department heads traw material store. :owever, the store manager is responsible directly to the plamanager and the bottling manager.

he nished goods store is headed by the sales manager assisted by the bottlimanager. he bottling manager helps to conrm the total of bottles produced regular basis. he sales manager takes responsibility as soon as production completed.

he spare parts store is headed by the 0lant engineer, the raw materials that astored include the following? B

+a 7ugar? his is obtained locally from Dangote $igeria td. And sometimimported from oversea if need be. hey are stored in bags, which are stackedpellets arranged in such a way as to facilitate easy stock taking. A ma2imum of 13,3bags of sugar can be stored. Insectucotors are installed in the store keep o! bees aother insects.

+b oncentrates? he concentrates are got from ocaBola international while thchemicals are imported from evant&s ondon. hey come in syrup forms stored

bottles and put in worms, which are built within the materials store at temperaturebetween


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in millions ( N) in millions (N)

2000 1 2 12.50 0 . 5

2001 2 0 21.76 1.76

2002 2 7 28.50 1.50

2003 3 5 36.14 1.14

2004 4 1 41.50 0 . 5

companyNs prot negatively during those periods of skyBrocketing ination level.

ata Analysis and Hyothesis *estin&

he data in tables


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Adecreasingviewisobservedintheperiodofholdingunderaboveanalysisoftheinventor

A/,IA6L3 +A?3:

• lericalmistakes,i.e.wrongposting,nonB

postingofentries,wrongcastingetc.sucherrorscanbecorrectedandactualbal

ancecanagreewithbookbalancebymakingthere"uiredcorrectioninbincards

ofstoresledger.

• 0ilferageinmaterialhandling.

• arelessnessinmaterialhandling.

• 7hortoroverBissueofmaterials.

?A/,IA6L3 +A?3:

• ActualBalancesmay"elessduetoshrinkageandevaporation.

• Actual"alancemay"emoreduetoa"sorptionofmoisture.

• Actual"alancemay"elessdueto"reakdownoffire,riotsetc.

• $aterialsmay"elostdueto"reakingup"ulkmaterialintosmallerpartsforissue.

• &ore!ample,someironislostdueto"reakingup"igrodsintosmallerparts.


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INVENT!" T#!NVE! !$TI:

nventoryTurnoverratio Costofgoodssold

Costof?oods/old

Averageinventory

/ales?ross(rofit

Averagenventory 1%pening/tocknventoryDClosing/tocknventory2

6

Particulars 2%%&'2%%( 2%%('2%)% 2%)%'2%)) 2%))'2%)2 2%)2'2%)*

/ales E7>E EEFG EHF6 EIG> EFG6

?ross(rofit EGH E88 >J >6 67G

Costof?oods/old1/al

es=?ross(rofit2

FFF E78H EHEH EIE8 E>>I

nventory-

>J

E6G

E6G

EJI

EJI

EIG

EIG

EJF

EJF

E>6

%pening/tock

Closing/tock

Averagenventory JF E>E EG> EGF EF7

nventory

Turnover 3atio

J.7> >.8G G.8> F.I7 J.6I

INVENT!

TI


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Interretation:

heinventoryturnoverratiohasdecreasedfromH.3CtoC.


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indin&s

he ndings as presented above in all the three cases show that we should

re#ect the alternative hypotheses andaccept the null hypotheses. )ur

analysis also shows that the company operates a policy of making orders on

a"uarterly basis within a period of one year. Also it can be as well observed

that the company does not always adopt the()* model in placing orders for

its raw materials and this account for the variations between the calculated

()* andthe e2pected order sizes of the company. ;or at least three years

out of the ve years under study, the e2pected valuewas greater than the

observed value for each product. >e, thus, concluded that inventory usage

depends on sales that means as sales increases, inventory usagesshould

also be on the increase.

he researchers have found that ement and sand is fast moving throughoutthe year. It is also very clear that Fravel, %ricks and 7teelare given less

importance in the stock. -aterials management unit should also pay

attention to sales growth over the years and thus take intoconsideration.

-ore sophisticated techni"ues may be used to handle inventory

management problem more e'ciently and e!ectively. It is vividthat the ()*

of %ricks is high during the month -arch and low in )ctober. During the

month of =uly the ()* of Fravel is high and 7teel islow. Also during

$ovember ()* of 7teel is high and 7and is low. ()* of ement is high in the

month of April and low in ;ebruary.

he salesand marketing department of the company should pay closer

attention to the growth pattern of inventory usage and incorporate it in

salesforecasting techni"uehe researchers have found that 7teel being more

valuable is considered high among the inventory. ement comes under the

averagecategory. %ricks, 7and and Fravel are in the lowest category of the

inventory. he management can e2pand the Fodown for storing

theinventory. (!ort must be made by the management to strike an optimum

investment in inventory since it costs much money to tie down capitalin

e2cess inventory.he management can take some measures for controlling

wastage of raw inventories.(mphasis can be normally placed on the

economic order "uantity model because it was seen to be in the best interestof organization to maintainan optimal level of materials in store. A% may be

maintained strictly.


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+onclusion And Recommendations

Inventory is the most important part of any business especially for

manufacturing companies. It is hidden costs whichare to be controlled for

sustaining in present competitive market. Apart of costs, customer

satisfaction is also the mostimportant factors for the businesses. Inventory

management also improves the level of customer satisfaction because

customerwants product at least time as possible. 7o, a manufacturing rm

must install the optimal inventory control techni"ues orimprove their asset

turnover as much as possible. Also, by di!erent analysis it is concluded that

inventory turnover ratio iscorrelated with the net prot of the companies.

he inventory turnover ratio of =7> 7teel is better than the other

twocompanies. :ence, from di!erent ndings it is concluded thatthere is

impact of inventory management on the nancial condition of the rm.7ome

recommendations are also for these companies according to the

interpretation of the data available.

Inventory management has become highly developed to meet the rising

challenges in most corporate entities andthis is in response to the fact thatinventory is an asset of distinct feature.he inventory management situation

of the $igeria %ottling ompany, Ilorin 0lant has been revealed using the()*

model. It was also seen that the company through a wellbuilt policy is able to

handle its idle stock withoutincurringunnecessary costs. A basis for inventory

planning and control was also provided in this study. hough looking

throughthe inventory policy of the company, it can be said to be dynamic to

some e2tent but the analysis and ndings haverevealed the need to remedy

some situations in the companyNs management of inventory.

he study thus suggests some recommendations to remedy certain defects

in the company inventory policy and ifthese recommendations are

implemented, the companyNs inventory management situation will attain a

greater height.;irst, emphasis should be normally placed on the economic

order "uantity model because it was seen to be in the best interest

ofmanufacturing companies to maintain an optimal level of materials in

store, the level that minimizes total cost of investment ininventory. o

achieve this successfully, di!erent costs, which are associated with


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inventory, should be segregated and accumulatedin such a way that ()*

can be easily determined.

7econdly, in the analysis we also mentioned that there was a positive

relationship between inventory and sales andbetween inventory and

production cost. his does not imply that inventory automatically determinesproduction costsor sales and viceversa. :owever, it does show that inventory

levels can be a useful indication of what level of sales toe2pect. It is thus

recommended that the sales and marketing department of the company

should pay closer attention tothe growth pattern of inventory usage and

incorporate it in sales forecasting techni"ue.

Abstract cococola

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