1

A Project Report

On

“INVENTORY MANAGEMENT”

IN

NEULAND LABORATORIES LTD

Project Work Submitted In Partial Fulfillment of the Requirement for the Awar

d of Degree In

BACHELOR OF BUSINESS ADMINISTRATION

Submitted By

MD. ASIF UDDIN

(H.T.No:072111903)

Under The Guidance Of

Mr. SAJID PASHA

CHAITANYA DEGREE COLLEGE (AUTONOMOUS)

Kishanpura, Hanamkonda, Warangal-506601

KAKATIYA UNIVERSITY

YEAR 2011-2013

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DECLARATION

I MD. ASIF UDDIN, hereby declare that work entitled “A PROJECT REPORT ON I

NVENTORY MANAGEMENT” is original work done by me in NEULAND LABORAT

ORIES LIMITED, HYDERABAD. This declaration is being submitted to Chaitanya Degr

ee College, for the partial fulfillment of (B.B.A.) BACHELOR OF BUSINESS ADMINIS

TRATION (2010-2013). This report in full or part as not been submitted to any other Univer

sity/Institution for the award of any degree/diploma.

DATE: - MD. ASIFUDDIN

PLACE: - WARANGAL. (H.T.NO.072111903)

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ACKNOWLEDGEMENT

It is great for me to record here my deep sense of gratitude to wards Mr. RAMRED

DY, Manager, NEULAND LABORATORIES LIMITED, HYDERABAD. For giving this

opportunity to do my project works in this organization.

I sincerely praise the efforts of Dr. VEERA VENKATAIAH, Principal of Chaitan

ya Degree College, (AUTONOMOUS), Kishanpura, Hanamkonda, Warangal, who enco

urage me in successful completion of my work.

I am very grateful to Dr. V. RAJESHWARI, Head of the Department of Business Man

agement, CHAITANYA DEGREE COLLEGE, (AUTONOMOUS), Kishanpura, Hanamkon

da, Warangal. For her guide support and advice.

I would like to express profound gratitude to Mr. SAJID project guide for this exceptio

nal guidance and her encouragement in completing this project work

I am also grateful to all staff of NEULAND LABORATORIES LIMITED, Hydera

bad. For their support in bringing out this project successfully

Last and not least my special thanks to my beloved family and friends to their support

in successful completion of the project.

MD. ASIF UDDIN

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C O N T E N T S

Chapter No. Title

Page No.

Chapter – I

INTRODUCTION

Chapter – II

COMPANY PROFILE

Chapter – III

THEORETICAL FRAMEWORK

Chapter – IV

DATA ANALYSIS

&

INTERPRETATION

Chapter – V

CONCLUSIONS & SUGGESTIONS

BIBLIOGRAPHY

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INTRODUCTION TO THE TOPIC

INTRODUCTION:

Every enterprise needs inventory for smooth running of it’s activities. It serves as a lin

k between production and distribution process. There is generally, a time lag between the rec

ognition of a need and its fulfillment. The greater the time lag, the higher the requirements for

inventory, it also provides a cushion for future price fluctuations.

The investment in inventories constitutes the most significant part of current assets/ w

orking capital in most of the undertaking. Thus, it is very essential to have proper control and

management of inventories.

The purpose of inventory management is to ensure availability of materials in sufficie

nt quantity as and when required and also- to minimize investment in inventories.

MEANING AND NATURE OF INVENTORY:

In accounting language, inventory may mean the stock of finished goods only.

In a manufacturing concern, it may include raw materials, work- in- process and stores etc.

INVENTORY INCLUDES THE FOLLOWING THINGS:

a) Raw Material: Raw material form a major input into the organization. They are

required carry out production activities uninterruptedly. The quantity of raw materials

required will be determined by the rate of consumption and the time required for

replenishing the supplies. The factors like the availability of raw materials and

government regulations etc. Too affect the stock of raw materials.

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b) Work in Progress : The Work in progress is that stage of stocks

which are in between raw materials and finished goods. The quantum of work in prog

ress depends upon the time taken in the manufacturing process.

The greater the time taken in manufacturing the more will be the amount of w

ork in progress.

c) Consumables : These are the materials which are needed to smother the process of pr

oduction . These materials do not directly enter production but they act as catalysts. C

onsumables may be classified according to their consumption and criticality. Generall

y consumable stores do not create any supply problem and firm a small part of produc

tion cost. There can be instances where these materials may account for much value th

an the raw materials. The fuel oil may form a substantial part of cost.

d) Finished goods: These are the goods which are ready for the consumers. The stock of

finished goods provides a buffer between production and market.

The purpose of maintaining inventory is to ensure proper supply of goods to customer

s.

e) Spares: The stocking policies of spares differ from industry to industry Some industri

es like transport will require more spares than the other concerns. The costly spare par

ts like engines, maintenance spares etc. are not discarded after use, rather they are kep

t in ready position for further use.

All decisions about spares are based on the financial cost of inventory on such

spares and the costs may arise due to their non- availability.

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BENEFITS OF HOLDING INVENTORIES:

Although holding inventories involves blocking of a firms funds and the costs of stora

ge and handling, every business enterprise has to be maintain certain level of inventories of fa

cilitate un- interrupted production and smooth running of business.

In the absence of inventories a firm will have to make purchases as soon as it receives

order. It will mean loss of time and delays in execution of orders which sometimes may caus

es loss of customers and business.

A firm also needs to maintain inventories to reduce ordering cost and avail quantity di

scounts etc.,

There are there main purposes of holding inventories.

i) The transaction motive: Which necessitates the holding of inventories for meeting the

unpredictable changes in demand and supplies of materials.

ii) The precautionary motive :Which necessitates the holding of inventories for meeting t

he unpredictable changes in demand and supplies of materials.

iii) The speculative motive: which induces to keep inventories for taking advantage of pri

ce fluctuations, saving in re-ordering costs and quantity discounts.

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RISK AND COSTS OF HOLDING INVENTORIES:

The holding of inventories involves blocking of a firm’s funds and incurrence of a cap

ital and other costs.

The various costs and risks involved in holding inventories are:

i) Capital Costs: Maintaining of inventories results in blocking of the firms finan

cial resources. The firm has therefore to arrange for additional funds to meet th

e cost of inventories.

The funds may be arranged from own resources of form outsiders. But in both the cas

e, the firm incures a cost. In the former case, there is an opportunity cost of investment while

in the later case, the firm has to pay interest to the outsiders.

ii) Storage and handing costs: Holding of inventories also involves costs on

storage as well as handling of materials. The storage of costs include the rental of the go

down, insurance changes etc.

iii) Risk of price decline: There is always a risk of reduction in the prices of inven

tories by the suppliers in holding inventories. This may be due to increased ma

rket supply, competition or general depression in the market.

iv) Risk of obsolescence : The inventors may become obsolete due to improved te

chnology, changes in requirements,

change in customer tastes etc.

v) Risk determination in quality : The quality of materials also deteriorate while t

he inventories are kept.

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OBJECTIVES OF INVENTORY MANAGEMENT:

Definition of inventory Management: Inventory management is concerned with the de

termination of optimum level of investment for each components of inventory and the efficie

nt use of components and the operation of components and the operation of an effective contr

ol and review of mechanism.

The main objective of inventory management are operational and financial.

The operational objective mean that the materials and spares should be available in su

fficient quantity so that work is not disrupted for want of inventory.

The financial objective mean that the materials and spares should be available in suffi

cient quantity so that work is not disrupted for want of inventory.

The following are the objective means that investments in inventory should not remai

n idle and minimum working capital be locked in it.

The following are the objectives of inventory management:

1) To ensure continuous supply of materials, spares and finished goods so that

production should not suffer at any tie and the customers demand should also be met.

2) To avoid both over-stocking and under-stocking of inventory.

3) To maintain investment in inventories at the optimum level as required by the

operational ad sales activities.

4) To keep material cost under control so that they contribute in reducing the cost of

production and overall costs.

5) To eliminate duplication in ordering or replenishing stocks. This is possible with the

help of centralizing purchases.

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6) To minimise loses through deterioration pilferage wastages and damages.

7) To ensure perpetual inventory control so that materials show in stock ledgers should

be actually lying in the stores.

8) To ensure right quality goods at reasonable prices. Suitable quality standards will

ensure proper quality of stocks. The price analysis, the cost-analysis and value

analysis will ensure payment of proper prices.

9) To facilitate furnishing of date for short-term and long-term planning and control of

inventory.

Finance is regarded as the lifeblood of a business enterprise. This is, because in the m

odern money-oriented economy, finance is one of the basic foundation of all kinds of econom

ic activities. It is the master key, which provides access to all the sources employees in manuf

acturing and merchandising activities, It has rightly been said that business needs money bege

ts more money only when it is properly managed. Hence efficient management of every busin

ess enterprise is closely linked with efficient management of finance

Inventory is the third major current asset after cash and receivables.

The cost of money used to buy and carry inventories is about 15 percent for many fir

ms and storage, insurance, pilferage and obsolescence amount to another 10-15 percent. With

these high costs, holding excess inventories can literally ruin a company. On the other hand,

inventory shortages can lead to lost sales, to production interruptions, and to customer ill will.

Excess or shortage of inventory is going to affect the company’s profitability. So pr

oper control should be exercised so that required level of inventory is maintained for smooth

running of production process.

Objectives of the Study

1.To examine the organization structure of inventory management in the stores of M/S Neula

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nd Laboratories Ltd.,

2.To discuss the various inventory control techniques followed by Neuland Laboratories.

3.Assessing the efficiency of Inventory Management in Neuland Labs.

4.In the light of findings make some suggestions inorder to improve its inventory managemen

t.

Scope of the Study

Inventory Management deals with many aspects of inventory like

- How much to order?

- When to order?

- How much safety stock is needed?

- Pricing of raw materials and valuation of stocks.

- Inventory control techniques and many more.

The study mainly deals with the techniques of inventory control(precisely ABC a

nalysis and EOQ model). The sample is taken considering the various categories of materi

als that the production department deals in.

METHODOLOGY: -

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The methodology in this content involves the process of collection of data from prima

ry and secondary sources and interpreting the same by using the analytical tools and techniqu

es utilizing the consequent finding to put forward liable and insightful suggestions to the com

pany.

Primary Data:

A large part of primary data was collected in the course of my interaction with the pe

rsonnel concerned departments and also developed in consultation with costing manager, mat

erial manager and officers. The data collected was regarding various aspects of inventory ma

nagement like lead-time, ordering cost, carrying cost and working of online computerized sto

res system.

Secondary Data:

Secondary data was collected from Neuland labs annual reports, manuals, purchase re

gisters and stores records.

LIMITATIONS OF THE STUDY: -

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Some information is highly confidential so it is very difficult to get the data from the or

ganization.

The result realized are applicable to this firm only the major constraints on this endeavo

r. Where the policy of time and information, the scope of the work is confined to the inventor

y management rather than material management as a whole.

The endeavor suffers from all those limitations experienced by ventures of stimulates in

nature.

Neuland Laboratories Limited

The reliable resource partner

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It has been 23 years since Neuland set out in its strengths of unique competencies in p

harmaceutical chemistry and on a vision, which recognized ethics, transparency and long-ter

m bonds; an approach that has become the cornerstone of its growth. Translating every little

strength into an opportunity, Neuland has grown to become one of the most reliable API sour

ce for the pharma Industry. Today, the company is the preferred partner to leading pharma m

ajors in around 70 countries with close to Rs.1010 million turnover.

From a single product to a global player with a diversified product mix and multi-loca

tional facilities, Neuland has established its strengths and competencies. Unmatched quality,

timely delivery and strict adherence to standards like CGMP and ICH guidelines lend more f

lexibility to Neuland's profile. It is Neuland's commitment to such practices that has enabled l

ong- term relationships with customers in India and around the World.

Manufacturing Facilities

Neuland has two world-class API manufacturing facilities close to the city of Hyderab

ad, capable of handling complex and hazardous reactions. The manufacturing facilities compl

y with stringent guidelines & requirements of Good Manufacturing Practices (GMP) and are

successfully inspected/approved by international health and regulatory agencies.

A few key features of the facilities include:

More than 11 production blocks covering 2,800 to 4,500 Sq. Mts. of production area,

and a mini-plant for scaling up of new products.

Total reactor volume ranging from 151,000 to 375,000 litres.

Capable of handling broad spectrum of reactions and wide range of process

parameters.

Facilities have been inspected by US FDA, EDQM, BfArM (Germany), TGA

(Australia) and PMDA (Japan).

TGA cGMP and WHO GMP approved and ISO 9001:2000 certified; OHSAS and

ISMS Certified.

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Manufacturing base typically consists of high value and high volume facility.

kilo-labs facility for scale up activities

These features ensure an effective structural methodology at workplace which includes m

anufacturing of quality products, rational and effective use of available resources, minimizati

on of waste along with good safety and hygiene standards.

Safety aspects have been given utmost importance, in all aspects including plant installati

on, equipment, systems and trained personnel to ensure smooth productivity. Combination of

a dedicated team and world class production techniques guarantee delivery of products to cus

tomers across the globe.

Unit-I

Bonthapally

In keeping with its commitment to provide assured quality, the manufacturing facility at

Bonthapally (Unit I) adheres to stringent guidelines & requirements of Good Manufacturing

Practices (GMP) and is approved by international health and regulatory agencies such as US

FDA, TGA (Australia), PMDA (Japan) and WHO.

A key feature of the manufacturing process is the supervision and the involvement of a co

mmitted team which with the help of latest production techniques and calibrated planning gua

rantees on-time delivery of products.

Unit-1 is situated at Bonthapally Village in Medak District which is approximately 35 kilo

meters from the Hyderabad Airport. It is developed on a total area of 11.2 acres and has seve

n production blocks including the kilo labs and other supporting departments such as quality

assurance & quality control (QA&QC) and Regulatory Affairs (RA).

The facility was inspected by the US FDA in 1997 (and re-inspected in 2008), cGMP

approval in 2004, EDQM approval in 2005. PMDA (Japan) has also audited and approved the

facility in 2008.

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The facility is certified by the following management systems:

ISO 9001 certified for its quality systems

ISO 14001 certified for its environment management

OHSAS 18001 certification for occupational health systems

Highlights of Unit-1

Consists of small volume high value production facility with vessels ranging between

20 liters to 3000 liters.

Seven production blocks covering 2,500 square meters of production area, kilo lab

and 4 ware houses (including explosive warehouse).

Built up area of the plant is approximately 45,325 sq mts.

Total reactor volume of 100,500 liters.

Capable of handling broad spectrum of reactions and a wide range of process

parameters.

Products manufactured include:

Anti-Asthmatics, Cardiovasculars, Anti-Fungal, Anti convulsants, Anti emetic, Central N

ervous System (CNS), Fluoroquinolones, Corticosteroids, Anti Psychotic, Anti bacterial and

Anti-parkinson.

Services

Following is an illustrative list of reactions that are handled at Neuland’s facilities on a co

ntinuous basis:

Bromination

Diazotization

Friedel Craft Reactions

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Hydrogenations

Mannich Reactions

Grignard Reactions

Metal Hydride Reactions

Oxidation

Cryogenic Reactions

Hydrofluorination

Methylation

Resolution of Racemic mixtures

Stereo-specific synthesis

Micheal Addition Reaction

Silylation Reaction

Unit - II

P a s h a m y l a r a m

Unit-II situated at Pashamylaram is about 45 kilometers from Hyderabad airport. The fa

cilities are built in a total area of 36,800 sq.mts and consist of three main production blocks, e

ngineering workshop and four warehouses.

Highlights of Unit-II

Inspected by US FDA in 1999, 2002 and 2005.

Inspected by BfArM (Germany) in 2007

TGA cGMP and WHO GMP approved.

High volume facility with dedicated production blocks for range of products.

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Three blocks covering 1,968 sq. mts of production area.

Total Reactors Volume of 300,000 liters.

Product line includes Fluoroquinlones, Anti-Ulcerants, and Prostaglandins.

Why Neuland

Absolute assurance of quality of service and reliability of delivery.

Innovative solutions for the most cost-effective routes of manufacturing.

Creation of approximately 200 in-house manufacturing processes.

Extensive experience in several new and complex routes of synthesis at varied scales

of manufacturing.

Neuland does not manufacture generics in conflict of the customer’s business.

Neuland’s reliable and unique project management system – Neuland Guar

D

Neuland GuarD- the reason why our clients continue working with us Neuland’s unique proj

ect management approach has helped clients overcome the difficulties involved in outsourcin

g projects to a foreign manufacturer. At Neuland, we use the Neuland GuarD approach which

ensures that our clients receive highest standards of transparency, flexibility and reliability.

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The project planning is done using the principles of Critical Chain Project Management (

CCPM), which emphasizes on resource availability and flexibility to maintain overall project

timelines rather than focusing on rigid scheduling of individual tasks.

Upon receiving an order or contract from the client, we start resource planning by

dividing the project in to several meaningful tasks. Each project has a team leader (at

PhD level) and all the tasks are allocated to specific task managers with mapping to

specific resources (lab space, chemicals, financial budget, etc.)

The project team meets to create the project plan (in a Microsoft Project template),

with the collective objective of completing the project within target timelines. Using

the principles of CCPM, the buffers are allocated at the end of the project rather than

the end of each task which encourages each task manager to complete their tasks as

soon as possible.

Once the project plan has been prepared and signed off by the entire team, the

template is uploaded onto our online project management portal, which makes the

project live and available to the entire team (including the customer) for online

updates.

With the help of GuarD, Neuland’s team members as well as clients can log in at any time

to check the current status of their project. Critical information such as latest task updates, ex

pected time of task completion, challenges being faced in each task, etc are candidly updated.

All users can make comments/ updates. However, detailed experimental data or confidential

information is not fed into the system and is circulated via periodic reports.

Contract Manufacturing Overview

Neuland’s Contract Manufacturing Services derives its strength from its proven expert

ise in manufacturing at varied scales, a deep understanding of complex chemistry and the co

mpany’s manufacturing facilities that are compliant with the guidelines of the leading regulat

ory authorities like USFDA, PMDA, EDQM and TGA.

For more than twenty-five years, Neuland has been at the forefront of aiding and accel

erating the drug substance development and manufacturing process.

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Neuland offers integrated and versatile GMP manufacturing facilities capable of handl

ing complex reactions tuned to ensure seamless transfer the processes from small-scale throu

gh validation to commercial manufacturing thus helping our customers expedite the discover

y –to-market timelines.

Services Offered / Medicinal Chemistry Support

Neuland has established itself as one of the world's leading providers of medicinal che

mistry support services including synthetic chemistry. With proven expertise in handling com

plex chemistry, and a highly successful track record, Neuland is the superior choice for your

medicinal chemistry outsourcing needs. Neuland Laboratories Research Center employs 170

scientists with Ph.D, Post doctoral and proven industry experience recruited from the top che

mistry schools in India, the US and Europe.

Neuland Laboratories is established in offering the following services:

Synthesis of chemical libraries

Synthesis of scaffolds, building blocks

Reference compounds

For each collaborative project, Neuland assembles an integrated project team combining r

elevant skills headed by an experienced project manager who provides efficient project mana

gement. With the help of a sophisticated project management tool, Neuland maintains comple

te transparency by providing access to the customers for regular monitoring of their on-going

project and provide the feedback on timely basis.

Custom Synthesis

Neuland provides custom synthesis services in rapid scale-up of compounds from mill

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igrams to multi kilo scale (non-GMP/cGMP) through medicinal chemistry. Broadly the servic

e includes scale-up, process optimization, process validation, analytical methods development

and validation, structural elucidation, impurity profile studies. Customer support services inc

lude material supply and documents support for IND filing (CMC part in the IND).

Process Research

Neuland Laboratories provides support for process chemistry in design and development of n

ovel synthetic routes for NCEs. The objectives include,

increase yield

increase purity

reduce number of steps

avoid usage of dangerous/harmful/costly reagents/materials

reduce cycle time, and

increase batch size

Neuland has scaled-up more than 300 processes from gram scale to commercial scale and file

d more than 400 DMFs worldwide.

Quality Assurance & Regulatory Affairs

Neuland has in place an efficient TQM program that covers R&D, raw material sourci

ng, manufacturing, testing, packaging, and dispatch. Quality teams are trained by Internationa

l experts and all testing is doneas per ICH guidelines. Neuland's commitment to quality a con

fidence in its capabilities are reflected in the high quality of work acknowledged. In its drug

documentation. The top management is totally committed to ensure an effective implementat

ion of the Quality Management System. Neuland's list of approvals by the international regul

atory authorities indicates the company's acceptence in the world market.

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Neuland has already filed DMFs for most of its products to the USFDA. Applications

are also being submitted to the Council of Europe, HPB canada, and TGA Australia for vari

ous products. Neuland is a dependable supplier commited to integrating supply schedules sea

mlesslywith customer's manufacturing programs.

Research & Development

Neuland's R&D facility was recognised by the Department of Science & Technology

, Government of india in1992.The strengths of Neuland's R&D are evident in the that manu

facturing technologies for all existing products were developed in- house. Recent achievemen

ts include process development for Pirbuterol, Flecainide acetate, and Citalopram.

Neuland has an excellent track record in contract

Manufacturing and development. The capability to produce milligram to multi- kil

ogram quantities of complex organic compounds is proven. Neuland works in close partnersh

ip with clients, under strict confidentially to bring products early to the market. Neuland also

offers analytical services to its customers.

Human Resources

Behind Neuland's success is the skill and the outstanding

Achievements. of its workforce. Dedication and commitment make for the right fuel f

or the company to surge ahead. Out of the 500 employees that form Neuland’s strength, 300

are college graduates, 60 out of them in Quality Control & Assurence, and 25 in R&D and pr

ocess Improvement team.Every team member at Neuland is trained regularly to enhance sk

ills and to ensure consistent quality standards. These practices not only help the company in

maintaining the best practices but also give its workforce a sense of ownership.

Focus On Clean Environment

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Neuland ranks among the few Indian companies to have made very High investment

s for effluent treatment and environmental protection.

These include secondary treatment plants and incinerators. Regular Environment audi

ts and additional investments are aimed at reaching the Most eco-friendly operational standar

ds. with Neuland , customers are dealing with an environmentally responsible supplier. With

over 3% of its turnover dedicated to maintaining and improving it’s clean operation's status,

Neuland has established itself as a partner who enhances customer's performance score card

s.

Board Of Directors:

Dr.D.R.RAO , The Chairman & Managing Director, is the Chief Promoter and lar

gest shareholder of Neuland. He has a Masters in Science from Andhra University, Post Grad

uate Diploma in Technology from IIT Kharagpur and a Ph.D., in Organic Chemistry from Th

e University of Notre Dame, U.S.A. He has authored eight research publications. Prior to pro

moting Neuland in 1984, Dr.Rao has held senior positions in R & D, Production, and Quality

Assurance at Glaxo India for about ten years. He is a member of Royal Society of Chemistry.

He takes keen interest in environmental issues and is Chairman of Common Effluent Treatm

ent Plant at Patancheru, Medak District, Andhra Pradesh.

Mr. S.B.BUDHIRAJA, a non-executive Director, has vast industrial experience. He was the

Managing Director (Marketing) of Indian Oil Corporation, the largest corporate in India and a

past President of the Institute of Management Consultants of India. He brings with him consi

derable industrial experience.

Mr. HUMAYUN DHANRAJGIR, a non-Executive Director, is one of the most respected p

ersonalities in the pharmaceutical industry. He has held several senior positions in Glaxo Indi

a, including Managing Director and Executive Vice-Chairman. He is a past President of Orga

nization of Pharmaceutical Producers of India. Presently, he is the Managing Director of Kod

ak India. Neuland gains from his invaluable insight into the pharma industry.

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Mr. P.V.MAIYA, a non-executive Director, is a successful banker. He was General Manager

in State Bank of India and Executive Director of ICICI. He set up ICICI Bank and retired as i

ts CMD. He was associated later with Central Depository Services India Limited as its MD.

Neuland often draws on his rich field experience.

Mr. D.SUCHETH RAO, Executive Director and Chief Operating Officer, is a Mechanical E

ngineer by profession and has an MBA in Corporate Finance from University of Notre Dame,

USA. He started his career as a Production Group Leader in Cummins Inc USA and later we

nt on to become Greenbelt in SIX SIGMA . His background primarily consists of exposure to

various fields of business such as Marketing, Finance, Manufacturing, Operations and Infor

mation Technology.

Dr. BANDARU S. REDDY, a non-executive Director, is a Research Professor at Susan Cull

man Laboratory for Cancer Research, the Rutgers University USA. He serves on the editorial

board of Nutrition & Cancer, and International Journal of Oncology. He has over 400 publica

tions to his credit.

Mr. S.K.MURTHY, alternate director to Dr. B.S.Reddy , is a well-known consulting engine

er with four decades of experience in several fields of engineering. He is a member of the Inte

rnational Federation of Hospital Engineers, and of the Illumination Engineering Society of N

orth America.

Mr. G.V.K.RAMA RAO, one of the promoters, is a non-Executive Director. He is a practici

ng advocate.

Mr. N.BALAKRISHNA IYER, represents the State Bank of India. He is a retired banker wi

th nearly four decades of experience in the baking industry. He retired as the Managing Direc

tor of State Bank of Hyderabad.

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Neuland's Laboratories Limited Product List

Anti-Asthmatics

Cardiovascular

Fluoroquinolones

Anti-Ulcerent

Anti-Fungal

Anti-Depressant

Anti-Psychotic

Business Strategy

The spirit of research and professionalism pervades Neuland’s corporate culture. Fro

m inception, Neuland has strived to offer the best in quality to customers in the pharmaceutic

al industry backed by its manufacturing capabilities and competence to deal with complex ch

emistry. Neuland will continue to differentiate itself by offering products and services that are

not only superior in quality but also reliable.

Neuland today supports some of the successful companies in the pharmaceutical indus

try in both research and manufacturing. The core strategy of Neuland is never to compete wit

h its customers. In doing so, Neuland focuses purely on a service provider model, whether in

manufacture of APIs, contract research or contract manufacturing services. As a result of this

strategy, Neuland’s customers are never in a situation where they find themselves competing

26

with Neuland, either in the drug development space or the generics space.

Corporate Fact sheet

26 years of successful presence in the pharmaceutical industry

Focused on manufacture of APIs, contract research and contract manufacturing

2 US FDA inspected manufacturing facilities

Over 400 DMFs worldwide; with a presence in over 85 countries

40,000 sq. ft. state-of-the-art R&D facility at Hyderabad

Over 1000 employees

Approximately 170 scientists working in R & D with 22 Ph.Ds

Listed on the Bombay Stock Exchange and National Stock Exchange

US FDA, TGA, EDQM, German Health Authority, ISO 14001, ISO 27001 and

OHSAS 18001 Certified

Corporate Social Responsibility

Neuland is proud to be a responsible corporate citizen. We have assumed a degree of r

esponsibility for the cause of society apart from enhancing shareholder value. Corporate socia

l responsibility has been placed in a position of crucial significance through a strong mutual r

elationship between our businesses and the society. This ethos makes us revisit our facilities,

s t an d a r d s , w o r k p r ac t i c e s an d r eq u i r em en t s f r o m a w i de r p e r s p ec t i v e .

Our activities for the cause of society have emerged in response to both the needs as e

xpressed by the community and an assessment of the situation by our management. The key t

hrust areas we work relate to education, health, capacity building and development of commu

nity & its assets.

Neuland’s contribution includes providing funds for creating infrastructure & facilities to

27

nearby schools, providing funds towards teacher’s salaries, enabling drinking water supply b

y constructing a water tank to cater to the drinking water needs of nearby village. A few speci

fic initiatives taken by the Company are detailed below:

Closely associated with a charitable organization called “AMMAVODI” – A home for

destitute women.

Regular contributions towards primary education, development of cement concrete

roads as well as building a school in villages neighboring the Company’s production

facilities.

Constructed an overhead drinking water tank with a capacity of 100,000 litres for the

benefit of the villagers adjoining the Bonthapally plant.

APIs - An Overview

The Company’s core business and operational expertise for over 25 years since inception

has been manufacturing of Active Pharmaceutical Ingredients (APIs). Neuland has earned the

identity of a Preferred & Reliable source in the pharmaceutical industry primarily due to:

Consistency in product quality;

Knowledge and ability to deal with niche chemistry; and

On-time delivery performance.

Neuland has 2 US FDA and EU GMP compliant manufacturing facilities with collective c

apacity of 600 KL to produce more than 40 APIs across 10 diverse therapeutic areas.

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The Company’s strengths in synthetic chemistry, process development, controlled supply

chain and project management approach, built into all our operations and product developme

nt programs makes Neuland an ideal API partner for generics.

INVENTORY MANAGEMENT –THEORATICAL ASPECTS

The concept of inventory management as known today is radically different from w

hat it was just a few years ago. Until the last decade, Indian Industry needed maximum produ

ction since there existed sellers’ market for almost all products. Cost was not a serious proble

m that it is today, for there was always somebody ready, willing and able to buy the product a

s soon as it was available. Excess manufacturing costs were simply passed along to the buyer

in the form of higher prices.

In this environment, the emphasis was on the successful production man and it was no

t unusual to find Inventory Management getting a secondary place within the production func

tion.

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Over the last decade or so we have been witnessing slow reversal of this situation as t

he supply is catching up with the demand and the market is turning from sellers’ to buyers’ m

arket. For the first time, Indian Industry is trying to compete in the world wide market which

demand low cost and high quality products. Meeting this kind of competition has become a m

ajor concern of business today and solutionof the problem demands most efficient use of man

ufacturing resources of men, money, materials count for more than half the total money spent

by any business, inventory management has assumed significant importance.

Prof. Peter F. Drucker, has defined the purpose of business as

“To create the customer ”. Logically , objective of Inventory management is then to p

rovide maximum customer service, this however, cannot be done without regard to the compe

titive capability of business, as it is only this capability that ensures continued existence and g

rowth of business. Competitive capability demands that inventory management ensures maxi

mum plant efficiency and minimum inventory investment.

Maximum customer service will usually result in increased market penetration,

increased business and added profits; maximum plant efficiency will permit stable prod

uction rate, as also economics in cost of manufacture minimum inventory investment wi

ll release limited and scarce funds for other areas like research and development capital equi

pment, advertising, marketing programme and the like. Inventory management, must balance

these objectives which are obviously in conflict with each other for any company. Thus, the p

urpose of inventory management can be defined as providing optimum customer service cons

istent with efficient plant operation at minimum inventory investment.

A typical inventory management system is represented in figure.

The principle input to such a system are:

1. Forecast of demand - both long term and short term for the products.

2. Current demand for products.

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3. Measurable characteristics of products and items such as cost, lead time, essentiality set u

p time, and so on.

4. Management policies - as regard carrying charges, level of service and rate of response to

change in customer demand.

Management Policies

Forecasts Inventory Order Point

of Demand Management

System

Inventory

Control System

Order quantity or

Operating level

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Characteristics

(cost, lead time,

bulk essentiality,

set up)

This information forms the basis for various decisions concern the order quantity and

operating level, which in turn form the basis of inventory control system. Inventories are ess

ential for sales, and sales are necessary for profits. Actual inventory control is generally not

under the direct controlof the financial manager. Rather, in manufacturing companies,product

ion people typically have control over inventories, whereas in retail concerns this control is e

xercised by the merchandising people.However, the financial manager is vitally concerned wi

th inventory levels, for he or she has responsibility for tracking factors which affect the

overall profitability of the firm, and, because inventories generally amount to some 20 - 40

percent of the total assets, poor inventory control will hurt the firms profitability.

Inventory management has an effect on the cash conversion cycle.One of the compon

ents of the cash conversion cycle is the inventory conversion period, the average length of ti

me required to convert raw materials into finished goods and then to sell these goods. Natur

ally, the larger the amount of inventories held, the longer inventory conversion period, henc

e the longer cash conversion cycle.

Alternative Reasons for Inventories:

The reasons given above are the logical ones on deliberate decisions. How ever, stock

s accumulate for other, less praiseworthy reasons, typical of which are following :

- Obsolete items are retained in stock.

Poor or nonexistent inventory control resulting in over large orders being out of phase

with production etc.

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- Inadequate or nonexistent stock records.

- Poor liaison between the production control, purchasing and

marketing departments.

Sub-optimal decisions making, example the production department

might increase work-in-progress stocks unduly so as to ensure

long production runs.

Why Firms Hold Inventories

Inventories form a link between the production and sales of a product. A manufacturi

ng company must maintain a certain amount of inventory, known as work-in-process, during

production. Although other types of inventory-in-transit, raw materials and finished-goods i

nventories are not necessary in the strictest sense, they allow firm to be flexible.

Inventory in transit- that is inventory between various stages of or storage-permits eff

icient production scheduling and utilization of production resources. Without this type of inv

entory, each stage of production would have to wait for the preceding stage to complete a uni

t The possibility of resultant delays and idle time gives the firm an incentive to maintain in t

ransit inventory.

Avoid losses of sales

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Which

Helps

Why firm hold inventories

Classification of Inventories

The term inventory refers to the stockpile of the products a firm is offering for sale a

nd the components that make up the product. In other words, inventory is composed of assets

that will be sold in future in the normal course of business operations. The assets which fi

rms store as inventory in anticipation of need are

(i) Raw Materials : The raw material inventory contains items that are purchased by the firm

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

ocess. They are an important input of the final product. The following are the important dete

rminants as regard the level of raw materials to be maintained :

- The quantity representing safety stocks.

- Economy in the matter of purchases.

- Anticipated fluctuating in the prices of the materials in the future.

Gain quantity

Discounts

Firms hold

Inventory to Producing

Reduce order

Costs

Achieve efficient

production

Selling

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- Cost of carrying stocks.

- Funds available for investment in materials.

- Expected quantity of consumption, and

- Management’s efficiency in the purchases and control of the materials.

(ii) Work-in-Progress : The work-in-progress inventory consists items currently being used i

n the production process. They are

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

age production process. The amount of funds tied up in work-in-progress will be directly in

fluenced withthe volume or production process.

(iii) Finished Goods : Finished goods inventory represents final or completed products whic

h are available for sale. The inventory of such goods consists of items that have been produc

ed but are yet to be sold. Finished goods inventories are generally maintained to the mini

mum by providing only to orders. Some manufacturers maintain sufficient stock in anticipa

tion of sales. In seasonal industries, retailers are forced to carry larger stock than the manu

facturers.

Motives in Holding Inventories

Generally three motives are involved in holding inventories

(i) Transaction Motive : It emphasizes the need to maintain

inventories to facilitate smooth production and sales

operations(called transaction inventory).

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(ii) Precautionary Motive : It necessitates the holding of inventor to guard against the risks o

f unpredictable changes in demand and supply forces (called precautionary inventory).

(iii) Speculative Motive : It influences the decision to increase or reduce inventory levels to

take advantage of price fluctuations(called speculative inventory).

Objectives of inventory

The efficient management of inventory should ultimately result in the maximization of the

owner’s wealth. The two conflicting objectives of inventory management are

To maintain a large size of inventory for efficient and

smooth production and sales operation.

To maintain a minimum investment in inventories to

maximize profitability.

Both excessive and inadequate inventories are not desirable.

The goal of the firm is to determine and maintain the optimum level of inventory lies in

between two extreme points of excessive and inadequate inventories.

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Classification of Costs

The first step in the process of building an inventory model is to specify those costs

that rise and those that decline with the size and frequency of orders and the resulting levels

of inventory. The table below lists some typical costs associated with ordering goods and wit

h carrying inventories.

Costs associated with Approximate cost as a

inventories % of inventory value

A. Carrying costs

1. Storage costs 0.50

2. Insurance 1.00

3. Property taxes 4.58

4. Cost of capital tied up 1.25

5. Depreciation and obsolescence 1.67

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B. Ordering costs

1. Costs of placing an order

or production setup costs Varies

2. Shipping and handling costs -

C. Costs related to safety stocks

1. Loss of sales Varies

2. Loss of customer goodwill Varies

3. Disruption of production schedules Varies

Part A involves carrying costs. Obviously, the larger the inventory, the larger will be

storage costs, insurance and property taxes.Warehousing costs are likely to be more related to

the size of the inventory item rather than to the value of the item purchased.However, all ot

her carrying costs vary with the value of the item. It is, general practice to express storage co

sts and carrying costs as a percentage inventory value.

Part B involves ordering costs. Ordering costs are the costs of placing an order if the

items are purchased from others or production setup costs if produced within the firm. Orde

ring costs would also include the related costs of receiving and inspecting the material and t

he costs of paying invoices. Another type of “ ordering cost ” is represented by quantity dis

counts which may be available if size of purchase order is large enough.

Part C involves costs relating to safety stocks. Safety stocks represent the inventories

held by the firm in the effort to avoid running short of goods to meet sales opportunities. If s

afety stocks are inadequate, the firm will incur lost sales and the loss of customer goodwill. If

38

we are considering an inventory production system, running short may require overtime and

other disruptions of production schedules.

Inventory Control Decisions

One of the major concerns of a purchase manager is to reduce the cost of inventory.

At the same time too little of inventory might result in shortage and consequent production h

oldup. Hence one of the major decisions in purchase is the optimum level of inventory and o

ptimumquantity of order. Due to environmental influences beyond the control of manager, th

e performance and activities often do not adhere to planned targets. Control is therefore broug

ht in, through feedback, so that corrective actions are initiated, whenever deviation exceed ac

cepted limits. Inventory control may therefore be defined as application of control theory

in managing inventory with predetermined levels.Inventory is storage of goods and maintaini

ng of stocks. In manufacturing, inventories mean keeping items in stock. Considered under t

his sense, inventory control can be visualized as techniques of maintaining stock keeping ite

ms at desired levels.

A schematic inventory cycle is shown below :-

Inspect&Accept Receiving

Production Issue Stores Supplies

supplies supplies

Department

Demand investment

in

hand

39

Place

Dues order

in

Net order Issue Receive Tender

quantity tenders quotation evaluation

INVENTORY CYCLE

In most manufacturing concerns, inventories are controlled through the following tech

niques or tools :

1. Economic order quantity(EOQ)

2. Determination of stock level

3. Inventory turnover ratio

4. ABC analysis

The scientific inventory management helps the purchase department to determine wh

en to buy and how much to buy. The problem before the management is to balance the follo

wing opposing costs.

Evils of Excess Inventory

40

- Lockup of capital unnecessarily which could be invested in more profitable operati

ons.

- Excess inventory adds to the cost of carrying the inventory, more store space, equip

ment and personnel, insurance, taxes, pilferage.

- Excess inventory invites risk of deterioration and obsolescence.

- Changes in the prices of inventory materials sometime go unfavorable.

Economic Order Quantity (EOQ)

It is also known as reorder quantity or standard order quantity.

One of the most commonly cited sophisticated tools for determining the optimal order

quantity for an item of inventory is the EOQ model. This could well be used to control the fi

rm’s A items. It takes into account various operating and financial costs and determines the o

rder quantity that minimizes total inventory costs.

EOQ refers to the order size that will result in the lowest total of order and carrying co

sts for an item of inventory. If a firm places unnecessary orders, it will incur unneeded order

costs. If it places too few orders, it must maintain large stocks of goods and will have excessi

41

ve carrying costs. By calculating an EOQ, the firm identifies the number of units to order th

at result in the lowest total of these two costs.

Assumptions of EOQ

The major weaknesses of the EOQ model are associated with several of its assumptio

ns, in spite of which the model tends to yield quite good results. The model’s assumptions ar

e as follows –

Demand is known : Although it is difficult to predict accurately the firm’s level of sales for i

ndividual items, the marketing manager must provide a sales forecast. Using past data and f

uture plans, the manager can often make a reasonable accurate prediction of demand. This is

expressed in units sold per year.

Sales occur at a constant rate : This model may be used for goods that are sold in relatively

constant units throughout the year. A more complicated model is needed for firms whose sal

es fluctuate in response to seasonal or other cyclical factors.

Costs of running out of goods are ignored : Costs associated with shortages, delays, or lost

sales are not considered. These costs are considered in the determination of safety level in th

e reorder point system.

Safety stock level is not considered : Because the firm must always be above the safety stoc

k level, the EOQ formula need not consider the costs of maintaining the safety level.

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Graphic Approach

The stated objective of the EOQ model is to find the order quantity that minimizes the

firms total inventory cost. The EOQ can be found graphically by plotting order quantities in t

he x, or horizontal, axis and costs on the y, or vertical, axis. The figure given shows the gene

ral behavior of these costs. The total cost represents the sum of the order costs and carrying

costs for each order quantity. The minimum total cost occurs the point labeled EOQ, where t

he order cost line and the carrying cost line intersect.

total costs

COSTS

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Quantity ordered

Determination of Stock Levels :

The demand and supply method of sock control technique determines different stock

levels viz., maximum level, minimum level, reorder level, danger level, average level etc.

Maximum Stock Level : It represents the quantity above which inventory should not be allow

s to be kept. This quantity is fixed keeping inview the disadvantages of overstocking. Some o

f the disadvantages of overstocking are -

(i) Unnecessary blocking up of working capital

(ii) More storage space requirement which indirectly means more rent, insurance and other c

arrying costs.

(iii) Risk of deterioration in quality, depreciation in quantity due to evaporation and risks of o

44

bsolescence.

(iv)Possibility of financial loss on account of subsequent fall in prices.

Minimum Stock Level : It represents the quantity below which stockshould not be allowed to

fall. This is known as Safety or Buffer stock. The main purpose of this level is to ensure that

production is not held up due to shortage of any material.

Re-order Level: It is the point at which the storekeeper should initiate the purchase requisitio

n for fresh supplies as and when materials in store approach that level. This level is fixed bet

ween maximum and minimum stock levels in such a way that the difference of quantity of the

materials between the reorder level and the minimum level will be sufficient to meet the requ

irements of production up to the time the fresh supply of material is received.

Re-order Quantity: It is the quantity of the replenishment order. In some types of inventory

control systems this is the EOQ, but in some other systems a different value is used.

Danger Level: It means a point at which issues of the material are stopped and issues are mad

e only under specific instructions. When stock of materials reaches the danger level the purch

ase officer should take specialarrangement to get the materials at any cost.

Optimum Stock Level: It is the level of stock that ensures that the requirements of production

are met and that the amount of stock carried at any time is the minimum having regard to all

relevant factors.

Physical Stock Level: The number of items physically in stock at a given time.

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Free Stock: Physical stock plus outstanding replenishment orders minus unfulfilled requirem

ents.

Marginal Stock Level: It is the stock level at which current orders cannot be met.

Revision of Levels: It has been experienced that persons concerned take the levels for granted

once they are fixed. The various factors like lead time, consumption rate affecting the levels

are dynamic and not static. The levels must be revised as and when changes occur in any one

or all of the factors. It is a good practice to review levels periodically, say, at yearly intervals

and revise these, if need be.

Formulation For Determination Of Stock Levels

(i) Maximum Level = Reorder level + Reorder

Quantity ( minimum

Consumption * minimum reorder

period )

(ii) Reorder Level = Maximum consumption * Maximum reorder

period

(iii) Minimum Level = Reorder level - ( Normal consumption *

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Normal reorder period )

(iv) Average Stock Level = Minimum level + 1/2 of reorder

quantity

(v) Danger Level = Maximum delivery time * Maximum rate of

Consumption

Control Through Ratio Analysis

The following financial/business ratios, directly connected with inventory manage

ment, can be applied to appraisal and review the effectiveness of inventory control.

(i) Inventory to working capital ratio,

(ii) Turnover (net sales) to fixed assets,

(iii) Turnover (net sales) to total assets,

(iv) Cost of goods sold to Average stock holdings,

(v) Net sales to Inventory,

(vi) Net sales to Stocks and work in progress.

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Inventory turnover ratio is also another method of exercising control. It is essential to

compare the turnover of different kinds of materials to find out the items which are slow mo

ving, thus helping management to avoid keeping capital locked up in such items. A low ratioi

s an indicator of slow moving stock, which leads to the disadvantages arising out of overstoc

king. On the other hand, a high turnover ratio is anindication of fast moving stock and less in

vestment in stock. If the stock turnover ratio for a particular item(expect for spare parts) is zer

o, it meansthat the item had not been used at all during the period and should be immediately

disposed off otherwise the quality of the item may get deteriorated.

Input-Output Ratio Analysis

The input-output ratio is the ratio of the raw materials put into manufacturing and the

standard raw material content of the actual output.

A standard ratio of input of material and output of material should be determined and

the actual ratio should be compared with the standard ratio, if the actual ratio is higher than th

e standard ratio, the performance will be considered to be below the standard ratio and vice v

ersa. In process industries, it is a valuable report to show the percentage of losses that have oc

curred at each stage. It measures the productivity of capital. This method is also useful to asce

rtain the raw material cost of finished output by multiplying the raw material cost per unit by

this ratio.

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ABC Analysis (Selective Control)

This analysis is also called the Pareto analysis after Vilfredo pareto, the Italian econo

mist.

The question ‘what the system should concentrate its control efforts on’ is normally re

solved by applying the ABC concept to inventory management. J. M. Juran has defined this c

oncept as follows:

“In any series of elements to be controlled, a selected small fraction in terms of numb

ers of elements always accounts for a large fraction in terms of effect. A few percent of the p

urchase orders account for the bulk of scheduling and delivery date failures. A few percent of

the purchase orders account for the bulk of the total effect of all decisions”.

He further goes on to say “It is important to any control system or any management pl

anning that the vital few be separated from trivial many”. This concept is as applicable to inv

entory as it is to any other areas of management. When applied to inventory control, this prin

49

ciple implies that relatively small percentage of total items in inventory account for the major

annual usage in terms of inventory investment. Normally it is found that 20% percent of the i

tems represent as much as 80% of annual usage.This fact provides a basis for concentration o

f control on these relatively few items delegating the control of lesser important items to lowe

r levels of management. This principle is applied to inventory control with the help of

ABC analysis. The steps in computing ABC analysis are inventory are :

1. The items of inventory are ranked, in a descending order, on the basis of their annual c

onsumption value and number them 1 through n.

2. The running cumulative totals of annual consumption values are recorded and expressed

as percentages of the total values of consumption Each number in the list is expressed, 1 thro

ugh n, as a percentage of

3. The cumulative percentages of consumption value are compared against the cumulative p

ercentages of numbers and items are classified into three broad categories : A,B, and C.

As said before, this approach calls for classifying inventories

into three broad categories, A, B, and C.

Category A, represents the most important items, generally consists of 15 to 25 percent o

f inventory items and accounts for 60 to 75 percent of annual usage value.

Category B, representing items of moderate importance, generally consisted of 20 to 30 perce

nt of the inventory items and accounts for 20 to 30 percent of annual usage value.

Category C, representing items of least importance, generally consists of 40 to 60 percent of i

nventory items and accounts for 10 to 15 percent of annual usage value.

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However, there is nothing sacred about this assignment of categories and it will depen

d on management decision in a particular situation.

Advantages of ABC Analysis

The advantages of ABC analysis are :

(a) Individual item analysis or selective method ensures a closer, and stricter control over suc

h items which represent a major portion of total stock value;

(b) It realizes working capital, which would otherwise have been locked up , for a more profit

able channel of investment;

(c) It reduces inventory-carrying costs;

(d) It enables the relaxation of control for the ‘c’ items thus makes it possible for a sufficient

buffer stock to be created;

(e) It enables the maintenance of a higher inventory turnover rate.

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Disadvantages of ABC Analysis

a) In view of the fact the ABC analysis concentrates on money value, the relative

importance of components materials is lost sight of. For example, a bearing or a

rubber seal may be very critical item.

b) Since its cost is small there is no proper control.

Hence stock outs can occur. This is to be prevented

Variants of ABC analysis

VED Analysis

It is the process of listing items under three classes. This analysis is important especi

ally where non availability of less value items can be very critical. This can cause productio

n holdups of entire lines.Where work-in-progress inventory builds up to crores of rupees. The

classifications are done as follows:

V - Vital: Items without which production would come to a halt.

E - Essential: Items without which temporary losses of production or dislocati

on of production work occurs.

D - Desirable: All other items which are necessary but do not cause any immed

iate loss in production.

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Having classified them, selective control is now exercised over them so that stock outs

of vital and essential items are prevented.

Superimposition of VED on ABC

Superimposition of ABC and VED take advantage of both. The analysis is gi

ven below. This yields five groups, which are subjected to selective inventory control.

Superimposition of VED on ABC

Group I - Class A and Vital

Group II - Class A and Essential

A B C

V I II III

E II III IV

D III IV V

53

Class B and Vital

Group III- Class A and Desirable

Class B and Essential

Class C and Vital

Group IV - Class B and Desirable

Class C and Essential

Group V - Class C and Desirable

FNS Analysis

Rapid advancement of technology creates a threat to inventory management bec

ause large number of items might become obsolete during Storage. Change in production mi

x or/and deviations of actual consumption can also result in accumulation of inventory. Thi

s inventory can be categorize as fast moving or slow moving. It is therefore necessary for the

materials manager to keep back of the accumulated inventory to take advance proactive acti

ons. FNS analysis is a technique to facilitate this aspect. In FNS analysis inventory is catego

rized under three heads, viz.,

F - Fast Moving

N - Normal Moving

S - Slow Moving

Other Inventory Control Systems

- Read line method : An inventory control procedure in which a red line is drawn aroun

d the inside of an inventory stocked bin to indicate the reorder point level.

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- Two bin method : An inventory control procedure in which an order is placed when one

of two inventory stocked bin is empty.

- Computerized inventory control system : A system of inventory control in which a comp

uter is used to determine reorder points and to adjust inventory balances.

- Just-in-time systems : A system of inventory control developed by japanese firms in wh

ich a manufacturing coordinates with production with suppliers so that raw materials or comp

onents arrive just as they are needed in the production process.

- Outsourcing : The practice of purchasing components rather than making them in house.

This is done to reduce the costs.

Inventory Management In India

How are inventories being managed in India? What may be done to improve invent

ory management in India? These questions are addressed below.

Inventory Management Practices

1. Inventory levels in India appear to be high. The reasons commonly cited for this as follow

s :

(a) Purchase executives are severely penalized for stock outs, but they are not questioned fo

r high inventories.

55

(b) Lengthy and cumbersome import procedures in the past forced companies to carry huge

amounts of inventories for imported items.

(c) It pays to keep inventories high because prices rise due to inflation.

(d) Most of the vendors are not reliable in terms of delivery schedules andquality of the mate

rials supplied. Hence, companies carry large safety stocks.

(e) Due to lack of standardization there are a large variety of stores.

2 The most commonly used tools of inventory management in India are

ABC analysis, inventory turnover analysis.

Areas of improvement: Inventory management in India can be improved in various ways.

Improvements can be effected through

- Effective Computerization: Computers should not be used merely for accounting purposes

but also for improving decision making.

- Review of classification: ABC classification must be eriodically reviewed.

- Improved Coordination: Better coordination among purchase, marketing and finance depar

tments will help in achieving greater efficiency in inventory management.

56

- Development of Long-Term Relationships: Companies should develop long-term relations

hips with vendors .This would help in improving quality and delivery.

- Disposal of Absolute/Surplus Inventories: Procedures or disposing obsolete and surplus in

ventories must be simplified.

- Adoption of Challenging Norms: Companies should set Benchmarks with global competit

ors and use ideas.

ABC ANALYSIS:

ABC analysis is calculated on the basis of annual consumption that 70% of total value

of items comes under ‘A’ Category and 20% of the value of the items under ‘B’ Category an

d 10% of total value of items comes under ‘C’ category.

1.Proportion of value of ‘A’ items to the total value of all items :

=(Total value of A items /Total value of all items)*100

= (14760347.75/216793864)*100

= 68.17%

2. Proportion of value of ‘B’ items to the total value of all items :

=(Total value of B items /Total value of all items)*100

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=(43364279.34/216793864)*100

=20.002%

3. Proportion of value of ‘C’ items to the total value of all items :

=(Total value of C items /Total value of all items)*100

=(25627138.05/216793864)*100

= 11.828%

Interpretation:

ABC analysis which is called Always Better Control analysis is the first important step in i

nventory management and it is to adopt a selective approach in laying down the inventory lev

els and the closeness of the control to be exercised.

In Neuland Labs, ABC analysis has been calculated on the basis of 70:20:10 that is t

aking 70% of the total annual consumption value as A category and 20% as B category and th

e remaining 10% as C category.

The total of A items in terms of value comes to Rs 14760347.75 with a proportion of 68.1

7 % of total value.

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The total of B items in terms of value comes to Rs 43364279.34 with a proportion of 20.002

% of total value.

The total of C items in terms of value comes to Rs 23364279.34 with a proportion of 11.82%

of total value.

A category inventories require high care and they should be kept under tight control since

annual consumption is more.

B category inventories require average attention and moderate control.

C category inventories needs less attention as it occupies only 11.82% of value to the annual

consumption value.

INVENTORY TURNOVER RATIO

Particulars 2010 2011 2012

Sales 14706.21 15841.72 17028.93

Inventory 4127.98 3828.29 4082.09

IT Ratio 3.56 4.13 4.17

Interpretation:

Inventory turnover ratio indicates the efficiency of the firm in selling its product. T

he inventory turnover ratio shows how rapidly the inventory is turning into receivables throug

59

h sales. The inventory turnover ratio is steadily rough sales. The inventory turnover ratio is s

teadily increasing which indicates that the stock is fast moving. A consistent ratio of inventor

y turnover ratio indicates good management and control over the inventory.

INVENTORY TO CURRENT ASSETS

Particulars 2010 2011 2012

Inventory 4127.98 3828.29 4082.09

Current Assets 6764.84 6331.11 7658.38

Ratio of Inventory t

o Current Assets

1.63

1.65

1.87

Interpretation:

The ratio of inventory to current asset is increasing from year to year . In 2010,invent

ory is more as compared to 2012.It means the investment in other assets has been increased.

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Analysis of Valuing of Materials

The company for pricing the issues of materials adopts the FIFO method. This method is suit

able in times of falling prices .In FIFO method material is first issued from the earlier consig

nment on hand priced at the cost at which that consignment was placed in the stores.The mat

erials are issued in chronological order.

Under this method it is assumed that the materials or goods first received arc the first t

o be issued or sold. Thus according to this method, the inventory on a particular date is presu

med to be composed of the items which were acquired most recently.

Advantages: The FIFO method has the following advantages:

1) It values stock nearer to current market prices since stock is presmed to be consisting

or

2) The most recent purchases

3) It is based on cost and therefore, no unrealized profit enters into the financial accounts

of the company.

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4) The method is realistic since it takes into account the normal procedure of utilizing or

selling those materials or goods which have been longest in stock.

Disadvantages: The method suffers from the following disadvantages:

1) It involves complicated calculations ad hence increase the possibility of clerical errors.

2) Comparison between different jobs using the same type of materials become

sometimes difficult. A job commenced a few minutes after another job may have to

been an entirely different charge for material because the first job may have to bean a

entirely different charge for materials because the first job completely exhausted the

supply of materials of the particular lot.

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SUGGESTIONS:

1. The company is not following EOQ technique for inventory control .The company

should follow this technique so as to reduce carrying and ordering costs.

2. The company should maintain stock levels,which will be helpful for the company to

know about stock position at a particular time so as to avoid stock out situations.

3. The maintenance of B class items is good and also the same importance should be

given to class A as well as to class C items.

4. The company can use either LIFO or Weighted average methods.

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FINDINGS:

1. The ratio inventory to current assets is increasing from year to year.

2. Inventory turnover ratio is increasing year to year.

3. In 2006 there was high turnover ratio it means that high

inventory turnover ratio.

4. ABC analysis is calculated on the basis of annual consumption

that 70%of total value of itemscomes under A category and

20% comes under B category and 10% under C category.

5. The NEULAND LABS maintained FIFO method.

6. It is keeping pace with the latest happenings .This shows that

the company has been vibrant and dynamic.

7. M/S Neuland Labs Ltd., has been adopting latest technology in

the field of Pharmaceutical Industry.

64

BIBLIOGRAPHY

1. Prasanna Chandra Financial management(Theory and

Practice),

Fourth Edition,

Tata McGraw-Hill Publishing

Company Limited.

2. I.M.Pandey Financial Management,

Eighth Edition,

Vikas Publishing House Pvt Limited.

65

3. M.Y.Khan Financial Management,

P.K.Jain Third Edition,

Tata McGraw-Hill Publishing Co. Ltd.

4.websites: www.neulandlabs.com/

www.google.co.in