Arjun Synopsis23 (1)

Inventory Management on Homag Machinery

RNSIT, DEPARTMENT OF MBA AND RESEARCH CENTER.

INTRODUCTION ABOUT PROJECT:

Inventory is an idle stock of physical goods that contain economic value, and are held

in various forms by an organization in its custody awaiting packing, processing,

transformation, use or sale in a further point of time.

Any organization which is into production, trading, sale and service of a product will

necessarily hold stock of various stock of various physical resources to aid in future

consumption and sale.

Different Types of Inventory

Components that make up the product. In other words, inventory is composed of

assets that will be showed in future in the normal course of the business operations.

The assets which firms store as inventory in anticipation of need are:

Raw materials

Work in process (Semi Finished goods)

Finished goods

The raw material inventory contains item that are purchased by the firm from other

and are converted into finished goods through the manufacturing (production)

process. They are an important input of the final product. The working process

inventory consists of items currently being used in the production process.

They are normally semi-finished goods that are at various stages of production in a

multi stage production process. A finished goods represented final or completed

products which are available for sale .The inventory of such goods consists of items

that have been produced but are yet to be sold.

TOPIC CHOOSEN FOR THE STUDY:

A study on “INVENTORY MANAGEMENT IN HOMAG MACHINERY

BANGALORE PRIVATE LIMITED”



NEED FOR STUDY:

Inventories perform certain basic functions which are of crucial importance in the

firm’s production and marketing strategies. Effective Control over the utilization of

materials has much bearing on profit and here is an attempt to study the management

of materials. This study helps the company to detect and evaluate its own strength and

weakness and also give recommendation for the better inventory management.

Without inventory management it would be difficult for any company to maintain

Control and be able to handle the needs of customers. Inventories are necessary for a

firm to operate efficiently and almost all business transactions involve the delivery of

a product or services in exchange of currency.

OBJECTIVES OF STUDY:

Finance is a very important aspect in every product/service manufacturing concern. A

study on this subject would be done with the following objectives:

• To assess inventory management position and methods fallowed by the

company.

• To determine the financial control by studying existing system of inventory

management.

• To understand and measure economic order quantity for the selected raw

material items.

• To analyze its inventory management methods with the help of ABC analysis,

FSN Analysis etc.

SCOPE OF THE STUDY:

This study is an attempt to study the organization as a whole and to study the different

department in detail, to get the detailed knowledge about an organization from

different aspects and to study the function of different department which constitutes

the organization.

So the attempt can make to suggest effective changes in that the organization to

achieve its objectives and the different department contribute effectively towards the



achievement of this organization goals. This study provides a wide scope for the

student to gain an insight into the practical aspects of a working of an organization.

METHODOLOGY ADOPTED:

Methodology study consists of collection of primary and secondary data, followed by

analysis and interpretation of collected data by using various tools such as ratio, bar

charts, pie charts etc

1. PRIMARY DATA:

Primary data is collected through interaction with the staff of accounting and

inventory and finance department

2. SECONDARY DATA:

The secondary data includes the information collected through following

sources:Books and Journals, Magazines, annual reports and company’s website.

RESEARCH DESIGN:

The study was descriptive in nature. The attempt was made to evaluate the

performance of the company, for ascertaining the inventory management, the methods

and techniques used in Homag

LITERATURE REVIEW

1 Rajeev NarayanaPillai was presented in Indian Institute of Science (INDIA)

In ISSN: 20138423 emphasizes on Inventory management performance in machine

tool and Objective was stated that to understand IM practices, inventory cost and

related issues in SMEs. And To probe the factors that influence inventory cost and

ITR in SMEs. Has investigated that SMEs in inventory intensive manufacturing

industries are likely to be aware of the need and importance of IM practices. Our

study with reference to machine tools SMEs in Bangalore has indicated that these

SMEs without exception are indeed aware of the importance of IM practices.

However, when it comes to practice, almost one fourth of them did not pursue any

kind of IM practice.

This is primarily due to lack of motivation as well as lack of perception of immediate



financial gains. Thus modern IM practices are only confined to a minority even in the

inventory intensive machine tools manufacturing industry. Their subsequent analysis

brought out that those which pursued better IM practices also resorted to more

frequent stock verification as well as raw material ordering.

Study brought out that two important dimensions of IM are inventory cost per sales

and ITR. Those SMEs which could achieve better IM should be able to achieve lower

inventory cost per sales as well as higher ITR. If that is so those SMEs which Pursue

modern inventory practices should be able to achieve lower inventory cost per sales

and higher ITR. Our study brought out that this has indeed been the case in the

context of machine tool SMEs. Their final analysis brought out clearly that better IM

practices have a positive influence whereas inventory cost per sales has a negative

influence on ITR. All these enable us to infer that it is appropriate to encourage SMEs

to adopt better IM practices because that would enable them to achieve lower

inventory cost per sales and higher ITRs.

2. Rajeev Paper was presented in Department of Management Studies, Indian

Instituteof Science, Bangalore in Vol. 3 (2008) No. 4, pp. 312-320. Emphasize on

Do inventory management practices affect economic performance? An empirical

evaluation of the machine tool SMEs in Bangalore And the objective was stated

that to analyze the importance of material and hence IM in SMEs. And To probe the

relationship between IM and economic performance.

They concede that this paper aimed at analyzing the importance of inventory as an

input in the production process. Con-sequent, the role of IM in improving the

economic performance of SMEs is probed from an economic perspective. The

estimated production functions confirmed this with beta coefficients of inventory cost

ranking first amongst all the inputs. All the economic performance indicators adopted,

seem to have a positive

and significant association with IM performance in the SMEs. On the whole, it

appears that SMEs which are IM-efficient are also likely to perform better on the

economic front and experience higher ‘returns to scale’. Therefore, the SMEs must

aim at enhancing their efficiency of inventory use, as it is expected to be associated

with multiple benefits.



3. Scott Grant Eckert was paper presented in doctorate in Business

Administration (DBA) at the College of Business and Information Technology at

Argosy University.

In Journal of business and public policy (ISNN 1936-9794) was emphasize on

inventory management and effects on customer satisfaction and objective was

stated that to analyze the importance of inventory They concluded that

When studying inventory management, there is a need to further study these variables,

“customer needs, vendor partnerships, technology, data integrity, and performance

measurements” (Lee &Kleiner, 2001, p. 40) and their affects on inventory

management. In customer satisfaction, there may need to be further study on customer

satisfaction surveys and their effectiveness. Also, a further study of the effects of new

technologies applications such as RFID will have on the inventory management

process in relations to customer satisfaction. Finally, it is worth stating that all the

small business is opted to keep the inventory management system as they saw how it

improved their customer service.

4. Mr. Krishna Murthy was presented in International Journal of Research in

Business Management (IJRBM) Vol. 1, Issue 1, June 2013, 19-26 emphasizes on

THE IMPACT OF INVENTORY CONTROL ON COST AND

PROFITABILITY was objective was stated that to determine the method to

measure and determine the level of inventory by EOQ to explain the true cost for

handling and storing of inventory and they conclude that Inventory control definitely

gives impact to the cost and profitability for an organization. Therefore, we must

identify the type of inventory in our warehouse, whether they are good, bad or ugly in

term of profitability and dead or slow-moving inventory in term of duration of

stocking. We need to liquidate those unwanted inventory to maximize our investment.

In addition, we need to understand the cost of carrying the inventory such as storage,

Insurance, tax, damage and obsolescent in order to minimize the cost incurred. On top

of this, we need to perform Cycle counting for inventory accurately and make sure the

computerized inventory system presents the report in the way we want for

management decision. On the other hand, we need to determine the inventory turns

required to meet the return of investment and forecast of profit. A concept of adjusted

margin has to be introduced to reflect a more accurate calculation of actual inflow of



money in the business. Some cases in the personal Computer Industries are presented

to give examples of the impact of inventory.

Last but not the least, the future trends of Applying Internet, EDI, and virtue based

inventory and specialized industrial village are briefly described to give an

Understanding of latest development.

5 MsParimala Devi was presented in “A Case Study of Bharat Heavy Plates and

Vessels Limited, Vishakhapatnam.” Vol. 2, Issue 1, August 2011, 69-76

emphasizes on Management in Public Sector Heavy Engineering Industry.

Objective was stated that emphasis on the problems faced by materials management

department in BHPV Limited. She did a comparative study of inventory management

practices of BHPV with the public sector heavy engineering units. And then she

concluded that the researcher observed that frequent changes taking place in materials

management adversely affects the smooth functioning of materials management.

She also observed that the number of items in the inventories on the increase and she

suggested that enforcing strict control on the delegation of powers should curb it. For

determination of the appropriate quantity to be procured and minimum capital without

any delay in the production is of importance, in satisfying the conflicting interests.

For it, she gave some solutions like SIM(selective inventory management) which

consists of Pareto analysis (ABC analysis), criticality analysis (VED

analysis),movement analysis (FSN analysis) and availability analysis (SED, GOLF,

SOS etc.).She further highlighted the deficiencies of the management and they are as

follows. Adoption of inventory control methods like classification, codification, and

standardization, variety reduction, value analysis, ABC analysis is not systematically

implemented. Economic order quantity was not adopted. Vender rating techniques

and value analysis were not followed. Materials management manuals were not even

prepared in BHPV. Buying cost or inventory carrying cost of materials was not

worked out systematically. Computerization was not extensively done. So far, a good

number of research studies were conducted by different researchers in different

institutions in universities and they tried to cover all the aspects of materials

management in both public sector and private sector industrial units located

throughout the country.



6.Rama Krishna Rao B., in his thesis ‘Materials Management in Heavy

Engineering Industry’ a case study of Bharat Heavy Plate & Vessels Limited

(BHPV), Visakhapatnam in 1979, he has evaluated the performance of materials

management in BHPV and identified some problems pertaining to materials

management in BHPV in particular and heavy engineering industry in general. The

method of investigation involves documentary evidence and survey of expert opinion.

He has evaluated the existing purchase systems and lead-time involved in

procurement of materials and suggested that the long lead-time should be reduced.

His study pinpointed the excess inventory in terms of number of months cost of

production in all the engineering units. He also highlighted some of the problems in

the area of materials management such as delay on the part of customers in supplying

their own materials, existence and disposal of surplus and non-moving items,

excessive lead time and excessive dependence on imports. He also found that the

administrative and procurement lead times of the company are on the higher side due

to the peculiar nature of the industry.

He suggested the liberalized purchase procedures, increasing financial powers to the

personnel, opening up of liaison offices in various countries to reduce the lead-time.

In comparison with the BPE norms, the inventory levels of various stores items in

BHPV and the overall inventory accumulation in Heavy Engineering Group was

relatively higher and he suggested for drastic reduction in the inventory levels.

LIMITATIONS OF THE STUDY:

This study has purely for academic purpose

This study involves levels of inventory constraints

The study is limited to extent of inventory information.



INDUSTRY PROFILE AND COMPANY PROFILE:

A. INDUSTRY PROFILE

India is in 13th

position in machinery manufacturing industry across globe.

Manufacturing holds a key position in the Indian economy, accounting for nearly 16

per cent of real GDP in FY12 and employing about 12.0 per cent of India’s labor

force. Growth in the sector has been matching the strong pace in overall GDP growth

over the past few years. For example, while real GDP expanded at a CAGR of 8.4 per

cent over FY05-FY12, growth in the manufacturing sector was marginally higher at

around 8.5 per cent over the same period. Consequently, its share in the economy has

marginally increased during this time – to 15.4 per cent from 15.3 per cent. Growth

however has remained below that of services.

Origin of machinery manufacturing industry in India:

The industrial revolution in different parts of the world can be visualized as waves , as

first proposed by Nikolai Kondratieff, a Russian economist in 1920s . The first wave

started in 18th century England with inventions related to the textile industry, steam

engine and printing. The second wave s tar ted in 19th century America and

comprised of rapid developments related to automobile, railroad and telephones. The

third wave in 20th century was led by Japan, which focused on electronics and

automation.

Machine was brought by British’s during Second World War for defense production.

Though the earliest evidence of manufacturing activities in Indian subcontinent is

found in the remains of the Harappa civilization (4000- 3000 BC

Historical Perspective:

The Machine Tools industry in India dates back to the Second World War. Due to

non-availability of imported machine tools, a few British owned general engineering

firms took up their manufacture in India. This was followed by the start of

industrialization in a series of five-year plans.

The process of planning in the economy resulted in a second phase of machine tools



manufacturing with public sector investment in machine tools (HMT Ltd. 1953).

These two initial phases of development of the Indian machine tools industry saw the

production of general purpose machine tools most of which were produced under

technical assistance from foreign Collaborators (Oerlikon, Louden, Ward, Herbert,

Jones & Shipman, etc.).

The 1960s marked the third phase of the machine tools industry. During this phase,

the range of products witnessed rapid growth and various types of machine tools

including SPMs were manufactured. (Multi spindle Automats, Gear Cutting

Machines, SPMs, Broaching Machines, Presses, etc.).The Fourth Phase began in the

mid 1980s which saw the entry of Japanese machine tools makers in the Indian

market through licensing arrangements (Mori-Seiki, Mitsubishi, Hitachi-seiki,

NachiFuji-Koshi, Murata, etc.). At this point of time, the Indian machine tools

industry had the following characteristics:

Blanket Import Substitution The policy regime compelled broad

(“Self Sufficiency”) range import substitution regardless of

Costs

Encourage Transfer of Firms were in a hurry to replace

Product Technology imported machine tools and imported

Technology regardless of market size.

The technology of simpler machines

were copied by the smaller domestic

Firms.

Over Diversification As a result, the industry produced a

broad range of machine tools on a

small scale

Market Structure A small number of bigger firms

imported technology employed for

design and production; excessive in-

house production, poor subcontracting,

Poor domestic transfer of technology.

The fifth and current phase began in the early nineties after the liberalization of the



Indian economy. With market share of the bigger companies expanding and the public

sector giants shrinking and those of the smaller companies rising, in-house design

capability, entrepreneurial spirit, greater technology friendliness, operational

flexibility and lean management, combined to give a greater competitive edge to the

smaller companies set up by technocrats, resulting in a significant shift in machine

tools production to these medium sized companies. However, these companies

produce sophisticated machines and machines of higher capacity either single or

numbers.

Current Status In India:

The Indian machine tools industry manufactures almost the complete range of

metal-cutting and metal-forming machine tools. Customized in nature, the products

from the Indian basket comprise conventional machine tools as well as computer

numerically controlled (CNC) machines. There are other variants offered by Indian

manufacturers too, including special purpose machines, robotics, handling systems,

and TPM-friendly machines.

Efforts within the industry are now underway to improve the features of CNC

machines, and provide further value additions at lower costs, to meet specific

requirements of users. In keeping with the current trends, and emerging demand,

the CNC segment could be the driver of growth for the machine tools industry in

India.

The slowdown in the Indian economy since mid 1999 had its impact on the prospects

of Indian Machinery manufacturers. Output by domestic metalworking Machinery

manufacturers in 2001 calendar year declined to the lowest of just Rs.5.175 million

marking the fourth year of decline since 1997, for the Indian Machinery industry.

Much of this fall was due to subdued investment in 2002 by all the major user

segments of Machinery, except the defense industry, primarily because of a higher

capital expenditure outlay. However, in the last two calendar years, output of the

industry registered significant growth and the industry has achieved a high growth in

the past two years.

While the decrease in domestic production was lower in the case of conventional

metal-working Machinery, computer numerically controlled (CNC) Machinery

manufacturers too suffered, although marginally.



Lathes, machining centers, special purpose machines, and grinding machines were

categories of Machinery that sustained much of the order inflow even during 2001

although these segments registered a decline, in comparison with the previous year.

An industry, which has undergone a radical paradigm shift in its thinking, the Indian

Machinery industry is now recognized as a provider of low-cost high quality lean

manufacturing solutions. The industry resiliently supports all its users to enhance

productivity as well as improve competitiveness for the betterment of the final

customer. It is a well known and often repeated fact that the Machinery industry

forms the pillar for the competitiveness of the entire manufacturing sector since

Machinery produce capital goods which in turn produce the manufactured goods.

Structure of the sector:

The companies surveyed comprised of 43 percent private limited companies, 16

percent partnership firms, 10 percent proprietary firms, and 31 percent public limited

and 10 percent closely held public limited companies. As is evident, the industry is

highly segmented in terms of value and ownership pattern. This is mainly because of

low technology barriers in some segments of the Machinery industry.

The turnover of 72 percent of the companies was below Rs.50 crores and hence we

can derive that the majority of players in this sector are in the small and medium

category. 52 percent of the total companies surveyed had a turnover less than Rs.10

crores. The percentage of companies in the SSI category is the highest in this sector

OF the capital goods industry.

Hence the manufacturing competitiveness of the smaller companies and their

subcontractors producing the components has a major bearing on the industry’s

quality and cost competitiveness.

This sector is dominated by companies who are owned either by entrepreneurs or

individuals and it is evident that inductions of professional managers at the top are

low.

When the companies were asked about their opinion on the future structure of the

sector, 19 percent of the companies had no opinion or vision about the future. 31

percent felt that there would be entry of either new players, or foreign players leading

to fragmentation. However, 50 percent of the companies felt that the smaller

companies will not be able to survive the onslaught of second hand machines being



imported into India and the technological changes taking place i.e. from conventional

to CNC and hence the market will witness consolidation in the future with the smaller

ones unlikely to survive with their present level of competitiveness. 51 percent of the

companies catered to the whole range of activities like design and engineering,

manufacturing and installation. 7 percent of the companies are into marketing and

servicing of domestic as well as imported machines



COMPANY PROFILE

PROMOTERS:

Management board of the main branch:

Dr. Markus Flik CEO, Corporate Development, Research

and Development

Harald Becker-Ehmck Production, Materials Management,

Quality Management and Affiliates

Jürgen Köppel Sales, Service, Marketing

Hans-Dieter Schumacher Finance, IT, Human Resources (CFO)

Management board of the Bangalore branch:

Mr. Bhaskar N Managing Director

Mr. Ashok Hegde Sr. Finance Manger

Mr. Ramesh Production Head

Mr. Shreedhar Design Head

Homag Machinery consists of Allocation division, assembling division, and Re

engineering division. It is one of the largest manufacturers of wood working

machineries in the world and renowned for its quality worldwide

It has the well qualified and trained employees and senior executives, managers,

staff and workers man are in the company.

The company has certified with ISO 9001 (Quality Assurance) during recent times,

Homag as ambitiously embraced TPM as one of the vital tools to improve the

performance further, thus aiming at world class excellence through the wee known

German techniques.

Leaders in value added engineering machineries segment

Fully integrated Operations

An ISO 9001-2000 Certified company

All safety instruction with reference to installation, maintenance and up-

keepment of equipment of the manufacturer must be implemented

For the personal safety of the employees Shoes, provided



Firefighting equipment and first aid also play an vital role for the safety of

employees

Major Suppliers:

ASD Safety Solutions

Beckhoff implements

BENZ GmbH

Rexroth Bosch Group

Eaton’s electrical business

Hans Eissle GmbH

Ferdinand Gross

Helukabel

Igus company

Leits roots

Leuco

B. VISION, MISSION AND QUALITY POLICY

Vision:

To be established as one of the top woodworking machinery manufacturer in the

country and provide innovative and quality products to the customer

Mission:

Living our values

Achieve sustainable and profitable growth in business

Delight our customers through product quality

Core Values:

Utmost concern towards customer needs

Concern and environment and safety

Respect for dignity and potential of all employees

Transparency and Integrity in every operation



Quality Policy:

Quality management System (ISO 9001-2000)

“We are committed to improve manufacturing process and products on continuous

basis through effective quality management system for achieving customer

satisfaction”

Homag shell strive for continual improvement and innovation in our integrated

machinery plant operations for quality products and services in a healthy and eco-

friendly work environment; include hazard identification and risk management and

create a niche in national and international markets.

C. PRODUCTS PROFILE:

NKR 210: it is an Edgebanding machine. It focus for the development of the NKR

220 Series was to offer a complete processing solution in the entry level segment,

with features which were previously only available on larger machines.

Machines is equipped with a precision gluing unit, a tillable end trimming unit for

straight and chamfer trimming and a top/bottom trimming unit. The feed speeds of

these models are 11 m/min. For the complete processing options and a perfect finish,

add a joint trimming unit, a radius scraper, a glue joint scraper or a buffing unit.

NKR 220FC:it is also edge banding machines are equipped with a precision gluing

unit, a tilt able end trimming unit for straight and chamfer trimming and a top/bottom

trimming unit. The feed speeds of these models are 11 m/min. For the complete

processing options and a perfect finish, add a joint trimming unit, a contour trimming

unit, a radius scraper, a glue joint scraper or a buffing unit. The NKR 220 Series

machine leaves nothing lacking. Whether your needs are “batch size one” production,

for demanding bespoke shop fitting applications, living & bed - room furniture or

functional office furniture, the NKR 220 Series always offers the right solution for

your requirements.

NKR 720: it is the Sizing and edge banding machine it has a gluing system, which

applies the glue directly on to the edge banding material. The coil-cutoff device is

either activated by foot pedal or, for serial production, by pr selecting the edge length

via digital length counter. The panel is placed on height spacers, which are fixed on



the working table, ordering to the shape of the panel. No template is required.

Because of the flexibility of the NKD 720, shaped parts and straight parts can be

processed easily on this machine

NKR210F: Perfect cut and high operating life due to diamond tipped tools for an

optimum edge joint quality. In 210F series there is joint trimming but NKR 210 there

is no joint trimming and also its connected value is more(9.5) as compared to the

NKR210(5)

NKR220C: Perfect cut and high operating life due to diamond tipped tools for an

optimum edge joint quality. Its connected value is lower than compared to the 220FC

Technical details:

Type of machine Working

height

Connected

value(kw)

Weight

(kg)

Edge

material

thickness

Work

piece

thickness

NKR 210 950mm 5 1180 0.4-3mm 8-50mm

NKR 220FC 950mm 9.5 1320 0.4-3mm 8-50mm

NKD 720 925mm 6 Approx.280 0.5-3mm 10-55mm

NKR 210F 950mm 9.5 1180 0.4-3mm 8-50mm

NKR 220C 950mm 5.5 1270 0.4-3mm 8-50mm

D. AREAS OF OPERATION:

Homag is a world class machine manufacturer, this plant is located at Bangalore

which investment is 30 crore and it is finest machine manufacturer in the country

and it is the largest manufacturer in the world. They import the 60% of the raw

material from Germany and 40% of the raw material would be local products, they

Assimilate, Re engineer, and Label the product and they make product ready. A

major portion of the operation is they export the machineries after finished product;

they mainly sell the product to many European countries.



E. OWNERSHIP PATTERN:

Nature of ownership:

Public

Private

Others (Specify)

Shareholding Pattern:

Sr.

No.

Name No. of shares

held

% Holding as

on the

beginning of

year

Class of

Shares

held

1 Promoter and Promoter

Group (In detail)

2 Directors

3 Institutions

4 Foreign Holdings 130,000,000 100% Equity

shares

5 General Public



F. INFRASTRUCTURAL FACILITIES

The organization has provided and maintained the infrastructure like buildings,

workspace, process equipment and supporting service like a fax

Weighing bridges

Security

Fueling point

Generators

Go down

Dressing room

Tanker parking

Technique and commercial consultants, sub contractors for the tooling its

related services.

Research and development

Facilities to Customer:

Credit facility

Logistics

Achievements and Awards:

Awards Year

Ludwig Erhard Prize

In 2004

Patent Management Award

2010

Axia-Award

2009

Ligna Innovation Prize 2009



G. COMPETITORS INFORMATION

1) BIESSE manufacturing co.pvt ltd:

2) Burt group Co. ltd:

3) ACM Woodmachinary:

H. SWOT ANALYSIS

Strengths:

Product quality is the strength of the company

Easy availability of raw materials

Good relationship with the suppliers

Satisfied and loyal customers

Location advantage with proximity to major market



Weakness:

The company is entirely depends on external transpiration like truck operators

etc because of these depends on external conveniences they have to

sometimes suffer loss

Opportunities:

Growing market for wood working machineries

Located at the Bangalore industrial area it will be a high-grade for the

company

Accessibility is easy

Competitive environment calls for improvement and increase in productivity

Threats:

High market fluctuations

Competition from new entrants like BIESSE manufacturing company pvt ltd

and some other companies



I. McKenzie’s 7-s Framework for organization study:

According to the 7’s model there are seven basic dimensions, which represent the

basic core of the managerial activities. These are the “levers” which executive use to

influence complex and large organizations. Obviously, there was a concerted effort on

the part of the originators of the model to coin the managerial variables with words

beginning with the letter S so as to the increase the communication power of the

model. The Seven S’s are shared values, strategy, structure, systems, style, staff and

skills and these are shown in the fallowing figure.

The McKenzie’s 7’S model for organization study is a “value Based Management

Model”. The value based management model describes how one can holistically and

effectively organize a company. Together these factors determine the way in which a

corporation or an organization operates.

The Hard S’s

STRUCTURE:

The term structure in 7s framework model refers to the organizational structure of the

company.

The designs of the organizational structure is critical task to the management of an

organization, it is the skeleton of whole organization. Organization structure refers to

the relatively more durable organizational arrangements and relationship.

It prescribes the formal relationship among various positions and activities.

Arrangement about reporting how an organization member is to communicate with

other members, the various activities performed by a members is all the part of the

organizational structure.

Organizational structure performs four major functions

It reduces internal uncertainty arising out of variable unpredictable, random

human behavior with the organization through control mechanisms.

It reduces external uncertainty through forecasting, research and planning in

the organization



It undertakes a wide variety of activities through devices such as

departmentation, specialization and division of labor and delegation of

authority

It enables the organization to keep activities coordinated and to have a focus

in the midst of diversity in the pursuit of objectives

It fallows the vertical structure

STRATERGY

It includes basic purposes, missions, objectives, goals and major action plans and

policies. In Homag, every department has its own strategies and policies.

Marketing strategies: Focusing on selected major customers in terms of their

locations, segments, potential demands etc, customizing of product so that the best

advantage by using Homag product in terms of yield, lower costs etc.



Pricing strategies: Homag is into goods segment where sales are made according to

customer specification. Hence not much of publicity and market leadership techniques

are required.

Price fixation: It differs for exports and domestic markets according to the industry

analysis made.

Promotional strategies: The production is done on the basis of customer order;

therefore the organization has not engaging in advertising activity. But as a

promotional tool it is giving is

Quick delivery

Better customer relation

Direct marketing

SYSTEMS

It refers to all rules, regulations and procedures both formal and informal. It includes

production plans, control systems, capital budgeting systems, cost accounting

procedures, budgetary system, valuation methods, recruitment training and

development plans. In Homag, every department has got their own information

system.

Human Resource Information System

There is an HR package which stores all employee profile such as employee ID, code

of joining date, personal profile, bank name, A/c no, qualifications, designation,

experience, pay scale, and history.

On the basis of this data rating is done.It also gives information of overall employee

structure like no. of persons joined in a month, transfers, promoted, land giver

category, loan taken employee, etc

Quality Systems:

Production departments have quality packages. They have their own targets and

grades, they check the machine giving their target or not.



Finance and Accounts Information System:

Following are the external and internal customers for the department whose profile

and transaction details are maintained.

External: suppliers, contractors, government dept, banks, financial institutions,

consultants, buyers and auditors

Internal: material department, stores, employees, purchase dept. HRD, and internal

auditors.

The softs S’s

SKILLS:

Skills are capabilities of organization as a whole. Skills, which describe the

organization as part of its character is, core competence like in Homag has

manufacturing Skills, development skills. The skills, which Homag possess are

assertive decision making, business knowledge, leadership, attitude, adaptability,

courageous and dynamism.

Training and development objective:

To bridge the gap between existing skills and desired skills. Training in Homag is

aimed at the systematic development of knowledge, skills, attitude and team work.

Training and development of personnel skills is considered a high priority area and it

forms an integral part. Programs are undertaken keeping in view the dynamic changes

in the environment, which are contributed by rapid technological obsolescence or for

personality development or as an indication.

Internal training is the when an outside agency or specialists comes to train the

employees

External training is given when the employees are sent to outside, in this company

some employees are sent to main branch which is held at Germany



STYLE:

Homage workforce is participative by nature. Each employee, workers are

contributing themselves at their level best towards the company’s policies,

procedures, programs and growth. In every perspective the company considered all

employees, workers in decision making planning and the company respects the

suggestions, opinions, ideas of its human resources. Employees can participative in

plans but cannot change any acts made by the Homag management. Even the policy

decisions are taken with the consultancy of respective persons. Employees take casual

decisions and their immediate head gives the feedback. From the above facts we can

say that Homag has a participative management style.

STAFF:

Technical Staff:

Technical staff comprised of the engineers, diploma holders, etc are directly involved

in the direction. Maintenance of machines, operating of furnace machines, repairing

of machines is look forward by the technical staff. Even some times job rotation

policy of the company indulges the technical staff to carry to non-technical work.

Non-technical Staff:

The main objective of non-technical staff is to carry the business of management. Post

graduates, graduates and highly qualified peoples constitute non technical staff. The

main function of non-technical staff is to maintain paper works, computer works,

planning, decision- making, etc., the non-technical staff indirectly involved in

production process.

Duties and responsibilities of technical and non-technical staff are as follows:

To conserve and safeguard the company premises

To respect the right of peers, sub-ordinates, superiors etc

To maintain the discipline in the working hours and at work place

To follow the rules and regulations set up by the company

To contribute for the well-being and growth of the company

To enrich the knowledge about the job



SHARED VALUES:

It refers to the superior- subordinate goals. Values shared by the members.

Core values: Trust, relationship, challenge and foster ownership.

Other values: Concern for employees, customer satisfaction, commitment to society,

creating shareholders wealth.

J. FUTURE GROWTH AND PROSPTES

1. To improve the corporate image

2. Planning to conduct advanced technical programs. Introduce reward

schemes for shop in quality, safety, housekeeping, invention Etc

3. Survey on organization Climate

4. Introduction of suggestion scheme

5. Preparation of job description

6. Planning to conduct welfare, facilities to the employees

K. FINANCIAL STATEMENT ANALYSIS

Ratio Analysis:

Current Ratio:

Current ratio defined as the relationship between current assets and current liabilities.

This ratio is also known as working capital ratio. It is calculated by dividing the

current assets by total current liabilities

Current ratio=Current assets/current liabilities

Current assets include cash in hand, bills receivables, sundry debtors, inventory,

prepaid expenses, outstanding incomes , temporary investments and advances.

Current liabilities include bills payables, sundry creditors, bank overdraft, unclaimed

dividend, standing expenses provision for taxation and proposed dividend etc.



Table 2.1

Year Current asset Current liability Ratio

2012-2013 6,07,85,648 43643063 1.3927

2011-2012 64916424 38740233 1.6756

2010-2011 61725534 36581218 1.687

Analysis:As per the standards the ideal current ratio is 2:1 But according to the

analysis it is observed that the current ratio is not constant it is fluctuating year-by-

year. So company should maintain standard ratio.

Liquid ratio:

This ratio is also known as ‘acid test ratio ‘or ‘quick ratio’. This ratio is ascertained by

comparing the liquid assets to current liabilities prepaid expenses and stock are not

taken as liquid assets. The ratio may express as:

Table 2.2

Year Liquid asset Liquid liability Ratio

2012-2013 57949338 43643063 1.327

2011-2012 39992998 38740233 1.032

2010-2011 37197432 36581218 1.016

Analysis:According to analysis liquid ratio is increasing from year to year indicates

that the company is a liquid and so, it can pay off its short liabilities out of quickly

realizable asset without difficult



Working Capital Turnover Ratio:

Net sales

Working capital

Table 2.3

Year NET Sales Working capital Ratio

2012-2013 95079555 17142585 5.546

2011-2012 6340582 26176198 0.2422

2010-2011 7341654 20435765 0.359

Analysis:Since sales is increases from year to year indicates increase in working

capital requirement. From the analysis it is clear that working capital is effectively

utilized for increase in sales of a company from year to year.

Debtor turnover ratio:

Debtor constitutes an important constituent of current assets and therefore the quality

of debtors to a great extent determines a firm’s liquidity.

Credit sales

Avg.Account Receivables

Table 2.4

Year Credit sales Average account

receivable

Ratio

2012-2013 95079555 24136423 3.939

2011-2012 6340582 4297651 1.475

2010-2011 5897351 4123943 1.430

Analysis: The company has maintained low debtor turnover ratio which indicates

longer time lag between credit sales and cash collection



Balance sheet 2012-2013 And 2011- 2012

Sl. No Purticular 2012-2013 2011-2012

1 EQUITY AND

LIABILITIES

A Shareholder’s funds

a) share capital

75,000,000 50,000,000

b) reserves and surplus (32,726,358) (8,816,514)

B Non current liabilities

a) Long term provisions 831,849 506,596

Current liabilities

a) Trade paybles 38,480,199 37,400,410

b) Other current liabilities

4,671599 1,225,093

c) Short term provisions 491,267 114,730

Total Liabilities 86,748,554 80,430,675

2 ASSETS

A Non Current assets

a) Fixed assets

Tangible assets 9,585,420 6,568,726

Intangible assets 3,080,270 400,077

Intangible assets under

development

- 740,480

b) Defferd tax asset 9,373,698 4,234,181

c) Long term loan

advance

3,044,000 3,351,610

d) Other non current

asstes

879,518 219,180

B Current Assets

a) Inventories 24,775,190 40,455,685

b) Trade receivables 24,136,423 4,297,651

c) Cash and cah

equivalents

5,170,025 17,029,042

d) Short term loan and

advance

430,900 233,403

e) Other current assets 6,273,110 2,900,640

Total Assets 86,748,554 80,430,675



L. Learning Experience:

It was a great experience at Homag Machinery Bangalore Private Limited. It was

great knowledge base and an excellent training program we had in the company. The

staff of the Homag is also cooperative and friendly in their approach of training,

whenever we visit to any department the concerned staffs of that department have

allotted their precious time explaining us how that particular department functions.

In every department may be at lower level or higher level the concerned people have

given us all the necessary information we required. The very first day in our project

duration we visited the various department of the company and had a brief

introduction made by the external guide about the organization. My external guide

took me to all departments and introduced same staff of every department who

provides me all support and necessary information for my project work.

In this training period we really learnt many aspects and gain lot of experience in

knowing many things of the production process how the process takes place and how

they actually organization undergoes and work performance done in each department.



THEORATICAL BACK GROUND OF THE STUDY

General Introduction:

One of the most important areas in the day to day management of the firm is the

management of the inventory. Inventory management is the functional area of finance

that covers the efficiency of production of manufacturing firm. it is concerned with

the management of inventories as well as efficiency in cost reduction. The study helps

in evaluating efficiency of inventory management of Homage machineries

Inventory Management:

It recent decade business man have shown an increasing awareness of the need for

precision in the field of inventory context. In past centuries inventories were

considered as indication of wealth, even inventories greatly in excess of the amount

needed to carry on the process of production and distribution were considered

beneficial.

Since the advent of modern industrial wealth has become more and more identified

with money. An increase emphasis on liquidity has led business man to hold capital

and securities in reference to inventories although the later in fact have an inherent

convertibility not possessed, by the other categories. These have been stronger

tendency towards holding the means of purchase goods rather than the goods

themselves. Large inventories are viewed with alarm whereas former times no one

would even have doubled that such surplus were beneficial.

Inventories are often referred to “graveyard” as surplus stock has been principle cause

of business cycles. In fact they seem to have been the very focus point of instability

and collapse. As a result business men have developed an almost pathological fear of

increasing inventories.

Theoretical aspects of the study:

Meaning:

The term inventory refers to material lying in store. Inventory may be defined as the

raw materials or finished goods held for ultimate use in manufacturing process or for

resale purpose.For manufacturing concern ,inventories may consists of raw-materials,



semi-finished products, stores, and spare materials such as cotton, waste ,lubrication

oil, brush etc. whereas trading concern’s inventory includes goods for ultimate resale.

Inventory constitutes the most significant part of current asset of a large majority of

the cost in India. On the average, inventories are approximately 60% of the current

assets in public companies in India. Because the large size inventories maintained by

firms a considerable amount of funds is required to be committed in them. Inventories

can be reviewed as idle sources of any kind having an economic value. They are these

goods which are procured, stored and used for the day to day functioning operation of

an organization

Different managers view inventories in different angles

Production Manager- He will like to have an adequate stock of raw material and

would like to produce in economic batch size. So that production line is not idle and

optimum capacity is utilized.

1) Purchase manager- He would like to order in charge volume as it involves

lesser number of order and consequently lesser work and cost

2) Finance Manager- He would invest on low inventories, because for him goods

are working capital and cash flow gets affected by the large inventory.

However high inventories mean lesser profits and these days no company can afford

high inventories. The reduction of Excessive inventories carries a favorable impact on

the company’s profitability.Basically there are three kinds of inventories,

Raw-materials:-These are basic inputs to be converted into finished goods through

manufacturing process.

Semi-finished goods:-These are often referred to as work-in-progress. They represent

raw-materials which are partly converted or on which certain percentage of work is

done at various stages but not completed.

Finished goods:-These are complete in every respect of sale.

Common Characteristics of inventories:

1. Inventories share the fallowing characteristics

2. Inventories represent a financial investment for the company.



3. Inventories become part of the cost of goods sold and therefore a business

expenses.

4. Inventories use storage space, require handling incur tax, require insurance

and sometimes deteriorate , become obsolete or get lost or stolen

5. The availability of the right item at the right time is necessary for operating

any production process or satisfies a demand by a customer for a finished

product.

6. Inventories are not self-correcting. They must be managed and effective

management requires appropriate measures of performance

Nature of the inventories:

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

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

in a manufacturing company are:

1) Raw-materials

2) Work in progress

3) Finished goods

4) Stores and supply

Raw materials:

Raw materials are those basic inputs that are converted into finished product through

the manufacturing process. Raw materials inventories are those units, which have

purchased and stores for future productions

Work-in progress:

Work-in-progress inventories are semi-manufactured products, they represent

products that need more work before they become finished goods.

Finished goods:

Finished goods inventories are those completely manufactured products which are

ready for sale. Stocks of raw materials and work in process facilitate production.

While stock of finished goods are required to smooth marketing operation thus;

inventories serve link between the production and consumption of goods



Stores and supply:

Firm also maintain a fourth kind of inventories, supplies stores or stores and spares.

Suppliers include office and plant cleaning materials like soap, brooms, oil, and light

bulbs etc.

Need to hold inventories:

The questioning of the managing inventories arises only when the company holds

inventories. Maintaining inventories involve tying up of the company’s funds and

incurrence of storing and handling costs. If it is expensive to maintain inventories,

why do companies hold inventories? There are three general motives for holding

inventories.

Transaction Motive emphasis the need to maintain inventories to facilitate smooth

production and sales operations.

Precautionary Motive necessitates holding of inventories to guard aginest the risk of

unpredictable changes in demand and supply forces and other factors.

Speculative Motive influences the decision to increase or reduce inventory level to

take advantage of price fluctuations.

Costs of holding inventories:

Ordering cost:

This category of costs associated with the acquisition or ordering inventory. Firms

have to place orders with suppliers to replenish inventory of raw materials. The

expenses involved are referred to as ordering costs. Apart from placing orders outside,

the various production departments have to acquire materials from stores. Any

expenditure involved here is also a part of the ordering cost. Included in the ordering

costs are costs involved in preparing a purchase order or requisition form and

receiving, inspecting, and recording the goods received to ensure both quantity and

quality.



The cost of acquiring materials consists of clerical costs and cost of stationery. It is

therefore called a set up cost. They are generally fixed per order placed, irrespective

of the amount of order.

Carrying cost:

The second broad categories of costs associated with inventory are the carrying costs.

They are involved in maintaining or carrying inventory. The cost of holding inventory

may be divided into two categories:

Those that arise due to the storing of inventory The main components of this category

of carrying costs are (1) Storage cost, that is tax, depreciation, insurance, maintenance

of the building, utilities and janitorial services:(2) insurance of inventory against fire

and theft: (3) deterioration in inventory because of pilferage, fire, technical

obsolescence, style obsolescence and price decline:(4) Serving costs, such as, labor

for handling inventory, clerical and accounting costs.

The opportunity cost of funds this consists of expenses in raising funds (interest on

capital) to finance the acquisition of inventory. If funds were not locked upon

inventory, they would have earned a return. This is the opportunity cost of funds or

the financial cost component of the cost.

The carrying costs and the inventory size are positively related and move in the same

direction. If the level of inventory increases, the carrying cost also increases and vice

versa.

The sum of order and carrying costs represents the total cost of inventory. This is

compared with the benefits arising out of inventory to determine the optimum level of

inventory.

1. ordering shipping and receiving cost

a) cost of placing order, include production and set up costs

b) Shipping and handling costs.

2. Cost of running stock/stock output

a) loss of sales varies

b) loss of customer go will varies

c) disruption of production varies



Acquisition Costs:

Acquisition costs encompass costs incurred in requisitioning purchase ordering setting

up, tracking receiving and storing placement. The more frequently acquisition of an

inventory are made the higher firms acquisition costs groom different perception if the

firms keep relatively large inventory levels there will be fewer acquisition made and

acquisition cost will be relatively small. So acquisition cost decreases with increasing

inventory size other thing being equal

If the inventory is inadequate then

1) It may hamper the production activities during the period of scarcity.

2) Trading firm may forego the possible anticipated profit if, it does not hold

sufficient quantity of goods in stock to meet the increasing demands of the

customers.

If the inventory is morethen,

1) Increased total cost incurred

2) Storage and handling cost will also increases

3) Required return on capital being tied up in the inventor

Therefore

A perfect balance should be struck between investment made on the inventory and

benefits to be obtained there from.Inventory management includes the determination

of quantity of inventory to be carried, fixing timing schedules, determining minimum

stock levels, procuring, disbursing ,storing materials, assigning inventory control

responsibilities and supervision.

Thus, inventory management is concerned with proper planning and controlling raw

materials, finished goods, and store materials in stock for efficient production or

ultimate selling purpose.

Inventory Evaluation:

Many methods of materials costing and inventory has come into use among the more

common methods of costing materials and valuing inventories are



1) First in First out (FIFO) :

Here the earliest acquired stock is assumed to be used first. The stock which is bought

first is issued first in other words the principle is that the materials are issued in this

order and price of their original purchase.

This method is claimed to the accurate for the reason that the materials are changed

into production at annual cost in the order of receipt. The closing inventories are

valued at the most recent prices. If the closing inventory balance includes material at

several different prices the problem of considerable clerical work is involved.

It is a method in which materials are issued according to their incoming time i.e.

whichever is come first that should be issued to manufacturing department first. This

method is very reliable to the company for full and efficient utilization of materials

and some are remained lastly without issuing they are known as Shelf Life Items.

This method assumes that the order in which materials are received in the stores is the

order in which materials are issued from the stores. Hence the material which is

issued first placed on the basis of the cost of materials received earliest soon and so

forth.

2) Last in First out (LIFO):

This method is the opposite of the FIFO method; it assumes that the material which is

acquired last is issued first hence materials issues are priced on the basis of the cost of

the recent purchases

3) Weight Average Cost Method:

This method is issued are priced at the weighted average cost of materials in stock to

get an into data weighed average cost figures a new weighted average cost is

calculated each times a delivery is received.

ANALYTICAL TECHNIQUES USED FOR THE STUDY:

ABC Technique:

Organizations can classify inventories on the basis of amount spent on purchasing

various items. The comparatively costlier items can be kept in one class and



moderately costly items can be put into another. Comparatively cheaper items

forming the bulk of inventories can be put into yet another class. The class comprising

costlier items can be designated as ‘A’ class and class with moderately costly items as

‘B’ class and cheaper items as ‘C’ class. This is the simple ABC technique of

managing inventories.

The procedure of ABC classification is as fallows

1) Classify the inventories determine the expected use in units and the price per

unit for each item.

2) Determine the total value of each item by multiplying the expected units by its

unit price.

3) Rank the items in accordance with the total value giving first rank to the item

with the highest total value and so on.

4) Compute the ratio of number of units of each item to total value of all items.

5) Combine items on the basis of their relative value to form three categories A,B

and C

Item category % of the total inventory

A 70%

B 20%

C 10%

Total 100%

FSN Technique:

This will be made on the principle of classification, which classifies the inventory

items depending on whether an item is Fast moving, Slow moving and Nonmovingfor

the business activities. The items identified as vital require more attention.

EOQ Technique:

EOQ is the quantity of any item that should be ordered in order to keep inventory

cost, carrying cost and ordering cost to the minimum. This technique controls the

quantum of inventories as well as of the order.



JIT Technique:

JIT focuses on ordering inventories as and when the need arises. It focuses on

reduction in investment in inventories and in carrying cost. It improves return on

investment as the amount blocked in inventories is minimized. However, the success

of JIT technique depends on faster communication with suppliers and the seat lead-

time of various items. This technique is successful when the organization has easy

geographical approach and is near to the sources of input materials.

Various levels of materials

1) Minimum stock level

2) Maximum stock level

3) Re-ordering level

4) Danger level

Techniq

ues of

inventor

y

manage

ment

FSN

ABC

JIT

EOQ



Minimum stock level:

This represents the minimum quantity of stock that should be held at till times; stock

level is normal not allowed facing below this level. This level of stock is a buffer

stock for use during emergencies. Fall stock level below minimum level will indicate

potential danger to this business. Thus extra efforts have to be taken to expedite the

supply.

Minimum stock level= (Reorder level-Normal consumption)

The following factors are to be considered in fixing the minimum level

1) Nature of items of materials.

2) Minimum time required for delivery.

3) Rate of consumption of materials.

4) Stock-out costs which includes loss of contribution margin, loss of Goodwill

etc.

Maximum stock level:

Maximum level indicates maximum quantity of an item of material. It is that level

above which stocks are not allowed to rise. Maximum level is calculated as, Re-order

level+ Re-order quantity minimum consumption * minimum Re-order period

In fixing minimum stock level the factors to be considers are:

1) Maximum requirement of the stock for production at any point of time.

2) Storage space available.

3) Storage and insurance costs.

4) Availability of funds.

5) Price advantage arising out of bulk purchases.

6) Economic order quantity also affects the maximum level.

7) Government restriction on import

8) Possibility of price fluctuation

Re-order quantity (EOQ):

It refers to the quantity to be purchased in a single purchase order. It is nothing but

economic order quantity.



Danger level:

This level is fixed usually below the minimum level emergent purchase actions are

initiated if stock falls below danger level.

RAW MATERIAL HANDLING SYSTEM (RMHS):

RMHS is backbone of industry which supply raw material of require quality

inadequate quantity to respective department.

Functions of RMHS:

1) Receive raw material in adequate quantity.

2) Allocate space for raw material stacking.

3) Effective bedding and blending of incoming raw materials from different

sources to get homogeneous structure.

4) Timely supply of raw material to respective department.

Raw material source:-

Heavy fabrication parts Germany

Machine parts Germany and Europe countries

Sheet metals India

Pneumatics India

Brushes India

Stickers Germany

Ball screws India

Motor drivers Germany and France

MCB Germany

MVCB Germany

Cables India

Stores department:

Homag has stores department in its premises with computerized and duties of stores

department in homage



Indent through indent:

User department should issue the indent for the required material through online

system after issuing, this indent comes under stores section and stores will verify the

stocks and clear the indent and then this indent comes to purchase department.

Checking of purchase order:

When materials come to store, then authority person check the material with purchase

order.

If materials are rejected:

If materials are rejected the remarks should be written in rejection column for what

purpose the materials are rejected and the same will be informed to purchase

department and also to Party supplier, then rejected materials are send to supplier

through purchase department.

Issue note: If material is require for user department, the concern head sign is must

and should require on store issue voucher receipts and they also take sign of the

person who receive the material and authority person of store also sign on store issue

voucher i.e. store keeper. The same is to be posted to register and they reduce the

stock and value of materials.

Verifying of stock materials:

They verify stock monthly, quarterly, half yearly, yearly and they also verify stocks

occasionally as per requirement, stock report should be submitted to accounts

requirements at year ending.



DATA ANALYSIS AND INTERPRETATION

Ratio Analysis:

For any firm future corrective action, analysis of past performances of the firm we

front is essential. This requires knowledge and use of certain tools and techniques that

may help management to spot out problem areas and take future action. Among many

tools, ratio analyses are simple but effective tool available to management. Ratio is

the relation between two variables. However ratio has to make sense these variables

should have logical relationship to each other. Ratio analysis involves calculations

and interpretation of ratios. Ratio analysis can be used by management as a powerful

tool to verify the level of comparison of inventory held by management in business as

against its operation the extent of liquidity present in asset structure.

Data analysis:

To analyze the inventories and its turnover periodically and to know how inventory is

relate to other aspects like current assets, sales and working capital. From this

inventory analysis we can come to know that how store management is effectively use

all raw materials.

So the inventory management related ratios are as follows,

1) Inventory turnover ratio

2) Inventory Holding Period

3) Inventory to current assets

4) Inventory to working capital

5) Inventory to sales

6) Average consumption raw material per day



1. Inventory Turnover Ratio =Cost of Goods Sold/average inventory

Table 4.1

Year 2010-2011 2011-2012 2012-2013

Cost of goods sold 55,789.467 64,340,582 86,439,723

Average inventory 42,897,213 40,455,685 24,775,190

Inventory turnover ratio 1.30 1.59 3.488

Graph 4.1

Analysis:

The above graph shows that inventory turnover ratio of Homag, in the year 2010-2011

it was 0.136, in the year 2011-2012 it was 0.156 and in the year 2012-2013 it was

3.837

Interpretation:

The higher inventory turnover will be show a good inventory management. And low

inventory implies excessive inventory levels than warranted by production and sales

activities. In comparatively 2011-2012 and 2010-2011 are turnover quite same, but in

2012-2013 it shows improvement. It shows increase in sales

0

0.5

1

1.5

2

2.5

3

3.5

4

2010-2011 2011-2012 2012-2013

Inventory Turnover Ratio

Inventory Turnover Ratio



2.Inventory Holding Period= 360/Inventory Turnover Ratio

Table4.2

Year 2010-2011 2011-2012 2012-2013

No. Of Days 360 360 360

Inventory turnover ratio 1.30 1.59 3.488

Inventory Holding Period 276days 226 days 103 days

Graph 4.2

Analysis:

The above graph shows that Inventory Holding period of Homag, in 2010-2011 it was

276 days and in the year 2011-2012 it reduce to 226 days and finally in the year 2012-

2013 it was reduced to 103 days

Interpretation:

The inventory holding period should be less, the fewer inventories holding period

shows the good inventory turnover it has high during the year 2010-2011 and 2011-

2012 due to the start up, but it was comparatively good in the year 2012-2013.

0

50

100

150

200

250

300

2010-2011 2011-2012 2012-2013

Inventory Holding Period

Inventory Holding Period



3. Inventory to current assets= inventory/current assets

Table4.3

Years 2010-2011 2011-2012 2012-2013

Average Inventory 42,897,213 40,455,685 24,775,190

Current assets 61,725,534 64,916,424 6,07,85,648

Ratio 0.694 0.623 0.407

Graph 4.3

Analysis:

The above graph shows that the inventory to current assets in Homag. In the year

2010-2011 it was 0.694, in the year 2011-2012 it was 0.623 comparatively slight

decreases and in the year 2012-2013 it was 0.407

Interpretation:

The inventory to current assets ratio should be less than the company’s liquidity will

be good. The inventory will be considered as a company’s current asset, so the

company has to maintain the less ratio of inventory to current asset. In homag the

inventory to current asset is less, it was decreased in 2011-2012 and 2012-2013

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2010-2011 2011-2012 2012-2013

Inventory To Current Assets



4. Inventory to working capital=inventory/working capital:

Table 4.4

Years 2010-2011 2011-2012 2012-2013

Inventory 42,897,213 40,455,685 24,775,190

Net working capital 16,321,765 17,142,585 26,176,198

Ratio 2.6282 2.359 0.9664

Graph4. 4

Analysis:

The above graph shows that the inventory to working capital in homag. In the year

2010-2011 it was 2.6282, in the year 2011-2012 it was 2.359 and in the tear 2012-

2013 it was 0.9664.

Interpretation: The inventory to working capital ratio shows the, how the company

utilizing the inventory with using the working capital. This ratio should be less than

its current assets it shows the company is utilizing a good inventory with less

utilization of the working capital.

In homag it was high in the year 2010-2011 and 2011-2012 but it was 0.9964 in 2012-

2013 so it shows the company using high working capital for the utilization of the

inventory.

0

0.5

1

1.5

2

2.5

3

2010-2011 2011-2012 2012-2013

inventory to working capital

inventory to working capital



5. Inventory to sales= inventory/sales

Table4.5

Year 2010-2011 2011-2012 2012-2013

Inventory 42,897,213 40,455,685 24,775,190

Net sales 10,321,860 6,340,582 95,079,555

Ratio 4.155 6.380 0.260

Graph4. 5

Analysis:

The above graph shows that the inventory to sales in homag, In the year 2010-2011 it

was 4.155, in the year 2011-2012 it was 6.380 but in the year 2012-2013 it was 0.260

Interpretation:

In inventory to sales ratio it shows that, how the inventory is related to the sales. So

the ratio should be more. In homag inventory to sales ratio has been decreased yearly,

it shows the company has low sales and it is strong more inventories for a longer

period of time

0

1

2

3

4

5

6

7

2010-2011 2011-2012 2012-2013

inventory to sales

inventory to sales



6. Average consumption of raw material per day=total material

consumed during the year/no. of days in year

Table4.6

Year 2010-2011 2011-2012 2012-2013

Cost of raw material 1,209,987,231 1,267,768,763 1,405,925,864

Number of days in

year

360 360 360

Avg.consumption per

day (in Rs)

3361075.641 3521579.89 3905349.22

Graph4.6

Analysis:

The average raw material consumption per day in 2010-2011 was 33 lacks, in the year

2011-2012 it was 35 lacks and in the year 2012-2013 it was 39 lacks

Interpretation:

The average consumption of raw materials in terms of Rs shows that in the year 2010-

2011 was low and gradually it starts increases till the year 2012-2013. Here average

3000000

3100000

3200000

3300000

3400000

3500000

3600000

3700000

3800000

3900000

4000000

2010-2011 2011-2012 2012-2013

Average consumption of raw material per day

Average consumption of rawmaterial per day



consumption of raw material implies the raw material consumed per day production.

As it increased the production increases the consumption of raw material.

Years 2010-2011 2011-2012 2012-2013

Inventory Turnover

Ratio

1.30 1.59 3.488

Inventory Holding

Period

276days 226 days 103 days

Inventory To Current

Assets

0.694 0.623 0.407

Inventory To

Working Capital

2.6282 2.359 0.9664

Inventory To Sales 4.155 6.380 0.260

Average Consumption

of raw material per

day(Rs)

3361075.641 3521579.89 3905349.22



1. ABC ANALYSIS:

Table 4.7

Exact value: A=90,142,000 B=116,000,000 C=128,760,000

Exact percentage: A=79.27% B=17.37% C=3.36%

Analysis:

The most costly and valuable items are Classified as ‘A’ i.e. 79.27% in Homag, and

average consumption value are classified as ‘B’ i.e. 17.37% and rest are in the

category of ‘C’.

S.No Items Annual usage Rank Group

Rank

Descending

order

CUM %of items

1 Heavy fabrication parts 6,00,00,000 1 1 6,00,00,000 6,00,00,000 A

2 Machine

Parts

18,00,000 4 2 4,20,00,000 10,20,00,000 B

3 Sheet metals 8,40,000 5 3 2,24,40,000 12,44,40,000 C

4 Pneumatics 4,80,000 7 4 18,00,000 12,62,40,000 C

5 Brushes 2,88,000 8 5 8,40,000 12,70,80,000 C

6 Stickers 1,92,000 9 6 7,20,000 12,78,00,000 C

7 Motor drivers 2,24,40,000 3 7 4,80,000 12,82,80,000 C

8 MPCB 4,20,00,000 2 8 2,88,000 12,85,68,000 C

9 MCB 7,20,000 6 9 1,92,000 12,87,60,000 C

8825000 8825000



2. FSN ANALYSIS

Table 4.8

Group Items Group

1 Heavy Fabrication S

2 Machine Parts F

3 Sheet metals F

4 Pneumatics S

5 Brushes F

6 Stickers F

7 Ball screws N

8 Motor drivers S

9 MPCB N

10 MCB S



Graph 6

Group F-inventory ranging between 1 Week to 2 week.

Group S-2 week to 5 week.

Group N-Above 5week

Interpretation: 40% of the items are Fast moving group, 40% of the items are Slow

moving group and 20% of the items are Non-moving group.

4

4

2

FSN ANALYSIS

F

S

N



CALCULATION OF REORDER LEVEL:

Table 4.9

SS=(max. daily

usage-avg.daily

usage)x lead

time

Avg. daily usage

(Annual demand)

360

Lead time Reorder Level =

Safety Stock +

Average Daily

Usage × Lead

Time

Heavy Fabrication 12 0.833 6 76

Machine Parts 16 1 5 80

Sheet metals 9 0.8 6 59

Pneumatics 7 0.533 5 38

Brushes 6 0.533 4 26

Stickers 12 1.06 4 52

Motor drivers 20 1.83 4 87

MPCB 10 0.66 5 53

MCB 12 0.56 5 62



3) EOQ ANALYSIS:

Table 4.10

S.No Items EOQ=√2AO/C Units

1 Heavy

Fabrication

=√2×300×50/4

87

2 Machine

Parts

=√2×360×35/3

92

3 Sheet metals

=√2×240×37/2.5

84

4 Pneumatics

=√2×192×25/4

49

5 Brushes

=√2×192×15/2

54

6 Stickers

=√2×384×10/1.5

72

7 Motor drivers

=√2×660×70/5.5

130

8 MPCB

=√2×240×50/5.5

69

9 MCB

=√2×204×41/2.5

81



CALCULATION OF MAXIMUM LEVEL OF INVENTORY:

Table4.11

Particulars Safety Stock EOQ Max Stock =

Safety stock +

EOQ

(units)

Heavy Fabrication 13 87 100

Machine Parts 15 92 107

Sheet metals 9 84 93

Pneumatics 7 49 56

Brushes 6 54 60

Stickers 12 72 84

Motor drivers 20 130 150

MPCB 12 69 71

MCB 7 81 88



FINDINGS

1. As per the inventory turnover ratio in the year 2010-2011 and 2011-20112 it was

1.50 & 1.59 but it was increases up to 3.488 in the year2012-2013

2. In the year 2011 and 2012 inventory holding period was 276 days and 226 days

but it was reduced to 103 days in the year 2012-2013. It is comparatively good for

the inventory management

3. Inventory to Current assets ratio should be less then it shows a good inventory

management, as per the company it decreases from year to year in the year 2011

and 2011-2012 it was 0.694 and 0.623 in the year 2012-2013 it was 0.407

4. As per the Company’s working capital ratio is shows good, because in the year

2010-2011 & 2011-2012 it was 2.6282 & 2.359 but in the year 2012 &2013 it

reduces to 0.9964

5. As the inventory to sales in the year 2010& 2011 it was 4.155 & 6.380.because

their net sales is low then in the year 2012 &2013 it was 0.260

6. In the average consumption of raw materials shows good level. In the year 2010-

2011 & 2011-2012 it was 33610.75 & 3521579.89 then in the year 2012-2013 it

increases upto 3905349.22

7. As the ABC Analysis 79.27% of valuable items are considered as ‘A’

Category,17.37% are considered as ‘B’ Category and remaining 3.36% items are

classified as ‘C’ Category

8. In the FSN Analysis 40% of items are considered as Fast moving group, 40% of

the items are Slow moving group and remaining 20% of items are Non- moving

group



SUGGETIONS

1. The Items of Nonmoving group (20%) can be reduced to have more Control

over the inventory

2. It will be better if the firm try to decrease the Inventory Conversion Period

through efficient management of them.

3. The higher turnover ratio indicates efficient management of inventory because

more frequently the stock sold, so efficient steps have to be introduced to

improve the inventory ratio

4. The company should follow the first in first out method in issuing the

materials to the production department.

5. The company is maintaining ABC Analysis which is at satisfactory level and

hence the company can continue to maintain the same method of inventory

technique



CONCLUSION

”Inventory Management is a vast subject and it is very difficult to cover all the

aspects within a short period. However, every effort has been made to cover most of

the important aspects which have a direct bearing on improving the Inventory System

of the Company.

It is investigated in this report that, effectiveness of inventory management should

improve in all the aspects; hence the industry can still strengthen its position by

looking into the inventory should be fast moving so that warehouse cost can be

reduced. And also we can conclude that the finished goods have to be dispatched in

feasible time as soon as manufacturing is completed. And their EOQ level was

satisfactory. And also concluded that The Homag Machinery Bangalore Pvt .Ltd. Rawmaterial

turnover was satisfactory

Finally the success of Inventory System would depend on the efficient Management

of the inventory techniques to proper measures taken to improve

Arjun Synopsis23 (1)

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