SlideShare a Scribd company logo
1 of 29
CIA 3
Inventory control
 Inventory control includes control over raw materials, spare
parts, consumables, partly finished goods, and finished goods.
The following are the common techniques of inventory control:
1. Determination of various stock levels of materials
2. Economic Order Quantity
3. ABC Analysis
4. Perpetual Inventory System
5. Fixation of material cost standard
6. JIT Technique
7. VED Analysis
8. Inventory Turnover Ratio to review slow and non-moving
materials.
9. Preparation of material budget
Determination of various levels of
materials
In order to ensure that the optimum quantity of materials
is purchased stocked neither less nor more, the store
keeper applies scientific techniques of material
management. Fixing of certain levels for each item of
materials in one of techniques.
 These levels are not permanent but require revision
according to the change in the factors which determine
these levels. The following levels are generally fixed.
 (a) Re-order Level
 (b) Maximum Level
 (c) Minimum Level
 (d) Average Level
 (e) Danger Level
Reorder level
This level is that level of material at which it is necessary to
initiate purchase requisition for fresh supplies. This is
normally the point lying between the maximum and the
minimum levels. Fresh orders must be placed before the
actual stocks touch the minimum level.
The following factors are taken into account for fixing the
Re-order level:
(i) Rate of consumption of material
(ii) Lead time, i.e., time required to receive the delivery of
fresh purchase.
(iii) Re-order quantity
(iv) Minimum level
Maximum level
The maximum level is that level of stock which can be held at any time.
The purpose is to avoid over-stocking and thereby using working
capital in a proper way. This level is fixed after taking into account the
following factors:
(i) Rate of consumption
(ii) Lead time
(iii) Availability of capital
(iv) Storage capacity
(v) Cost of maintaining stores including insurance cost
(vi) Nature of commodity
(vii) Possibility of price fluctuation
(viii) Possibility of change in fashion, habit, etc.
(ix) Restrictions imposed by Govt., local authority or trade associations
(x) Re-order level it
(xi) Re-order quantity
Minimum level
 This is the level below which the stock of an item
should not fall. This is known as safety or buffer stock.
An enterprise must maintain minimum quantity of
stock so that the production is not hampered due to
non-availability of materials
Average level
 Average level can be calculated by applying the
following formula:
(Maximum level + Minimum level )/2
Danger level
 Usually stock should not be lower than the minimum
level. But if for any reason, stock comes down below
the minimum level, it is called danger level. When the
stock reaches danger level, it is necessary to take
urgent action on the part of the management for
immediate replenishment of stock to prevent stock-
out situation. The danger level can be calculated by
applying the following formula:
 Danger Level = Average consumption x Maximum Re-
order period for emergency purchases
Economic order quantity
 The economic order quantity, known as EOQ,
represents the most favourable quantity to be ordered
each time fresh orders are placed.
 The quantity to be ordered is called economic order
quantity because the purchase of this size of material
is most economical. It is helpful to determine in
advance as to how much should one buy when the
stock level reaches the re-order level. If large
quantities arc purchased, the carrying costs would be
large.
IMPORTANCE OF SAFETY
STOCK IN TODAY’S
BUSINESS WORLD:
Is required to be considered in some conditions
Demand of items may fluctuate at any point of
time
And also suppliers always need some lead time to
supply the goods
Lead time can easily be provided to supplier by
placing order before inventory become zero.
EXAMPLE:-
Lead time is 10 days , so order can be placed 10 days before
it becomes zero. Let the uniform consumption of inventory
be 50 units per day therefore during the 10days of lead time
500 units will be consumed . Hence ROL can be fixed at
500 units.
A Stock out may occur sometime due to either excessive
consumption or due to undue stretching of lead time
We know stock out is undesirable for the various reasons so
to avoid it extra stock is maintained throughout the year.
This is called as Safety Stock
 Inventory decreases at constant rate
First Order Second Order
Re order level
MAOL
Q
0
Lead Time
500 units
Goods Received
Lead time being provided by fixing a reorder level
10days
I
n
v
e
n
t
o
r
y
L
e
v
e
l
Inventory decreases at constant rate
First Order Second Order
Re order level
MAOL
Q
0
I
n
v
e
n
t
o
r
y
L
e
v
e
l
Lead Time
500 units
Goods Received
L
Excessive consumption of inventory during the lead time, leading
to stock out
10days
7 days
Inventory decreases at constant rate
Second Order
Re order level
MAOL
Q
0
I
n
v
e
n
t
o
r
y
L
e
v
e
l
Lead Time
500 units
Goods Received
L
Safety Stock avoids a stock out caused by excessive consumption
of inventory during lead time
7 days
800 units Safety Stock
Inventory decreases at constant rate
Second Order
Re order level
MAOL
Q
0
I
n
v
e
n
t
o
r
y
L
e
v
e
l
Lead Time
500 units
Goods Received
L
Undue stretching of lead time by the supplier, leading to stock out
800 units Safety Stock
10 days
Stock out
Goods Received
EXAMPLE:-
To keep pace with Changing demands of the customers
retail chain outlets Like Shoppers stop manage a staggering
3,00,000 SKU at each outlet. Ensuring the availability of
each SKU across 21 outlets in the country is a supply chain
challenge. That is why SS has four RDC’s at Delhi Mumbai
Bangalore & Kolkata. Over four hundred vendors supply
the DC’s. SS has to decide as to how much inventory the
RDC should carry and how much inventory Stores should
carry. They will cannot risk non availability of a product as
it will affect their reputation. On the other hand carrying to
much inventory at Either Distribution centers or the stores
multiplies the Inventory carrying cost and also the problem
of obsolescence.
When Asked How it manages the supply Chain?
Sanjay Badhe The Director of operations in SS replied;
“ There is no one in India that offers logistics, so we
had to develop our own logistics department. We have
linked every office in the country via leased lines & V-
SAT”.
Typically SC consist of multiple items and stock points
where each stock point has a customer and a supplier.
Given the supply and demand characteristics of
suppliers and customers a decision maker at a stock
point makes essentially two decisions:
1. How much to order
2. When to order
Every participant in a supply chain , whether retailer,
wholesaler, manufacturer or vendor, prefers to reduce
inventories and yet maintain customer services so as
not to lose customer because of non availability of
goods.
Huge inventories are drain on resources. As it blocks
money and increase cost of operation.
So reduction of inventory in supply chain is the need
of the day.
In the past the zero inventory slogan had attracted a
lot of attention from financial controller of firms for
some time because it gives them a illusion that it was
possible to work with a zero inventory and improve
financial performance.
Factors influencing credit policy of
a company
 Competitive conditions
 Stability of demand in the industries product
 Type of customers – capital
 Product’s shelf life, variations in demand, cost/price
 Type of merchandise – liberal credit policy if merchandise
has high profit margin, or in case of intense competition
 Profit margin- Higher the gross profit margin, the credit
manager should be more tolerant of the credit risk
 Geographic distribution of customers
Credit policy of TATA STEEL
TATA STEEL has a body known as credit control committee, which formulates
and gives the final approval for many credit policy matters. The credit
guidelines as they have emerged today are combined efforts of finance and
marketing department. The credit control committee is headed by Sr.V.P &
E.D (F&A) and consists of all product and sales
manager from various divisions along with G.M (F&A) and other concerned
executives as its members. The committee meets at least in two months. The
annual limit of credit sale is provided by Sr.V.P (F&A) in consultation with
other management officials. The committee then discusses in detail about the
breakup of the above lump into the credit limits for different sales offices and
also for various customers i.e. both regional and party wise credit limit is set by
the body. Hence the basic purpose this committee is to set the standard
and also have the overall control of the credit situation, thereby keeping the
financing of the working capital cost effective and preventing any liquidity
problems from arising. As a general rule, credit is allowed to customer who
takes large and repeated orders. One time customers are not entertained for
credit.
Credit terms has 3 components
 Credit period
 Credit limit
 Cash discount
 Credit terms of Tata steel
The credit terms, i.e. the credit period and cash discount, followed
by TATA STEEL are as follows:
CREDIT PERIOD: the credit period is decided on the basis of the
type of the product and is generally of fixed nature. However,
special customer may be allowed a variance in the set credit
period depending upon the volume of sales and customer
relationships.
 INTEREST CHARGED: interest free credit is allowed for 30 days in
most cases. A every 30 days extension there is a 1% rise in interest rate
for secured credits. The rate of interest for unsecured credit is1% more
than the corresponding rate under secured credit .there is a penal
interest of 3% over the applicable rate of interest.
CASH DISCOUNT: Cash discount of 2% has also been allowed for certain
products in different division. The discounts had a positive response
from certain customers who had working capital problems i.e. whose
inventory turnover have also ignored the discounts and debtor’s
turnover is low or whose operating cycle is long
Time period Secured credit Unsecured credit
After 30 days 18.5 19.5
After 60 days 19.5 20.5
After 90 days 20.5 21.5
 COLLECTION EFFORT: A constant touch with the
customers is the best way of reminding him about his
payment schedule in a polite but firm manner. A daily,
weekly and monthly report regarding the total sale is
done to keep a track on debtors and cash position. Tata
steel’s collection efforts were not up to the mark that is
the reason why outstanding of greater than six months
were increasing continuously which has now improved
to a great extent
Process of credit policy in TATA
STEL
Sales center wise allocation of sublimits
Individual firm or company wise credit limit (in case the entities has different firms and
companies)
Recommended credit as pre the % of net growth
Sanctioned credit limit (specifying the structure and amount)
If yes then recommended credit limits
Structure of credit i,e secured (%) or unsecured (%)
Risk classification of the entity
Should we extend credit to this entity
Definition of 'Leverage'
1. The use of various financial instruments or borrowed
capital, such as margin, to increase the potential return of
an investment.
2. The amount of debt used to finance a firm's assets. A
firm with significantly more debt than equity is considered
to be highly leveraged.
Leverage is most commonly used in real estate transactions
through the use of mortgages to purchase a home.
WHAT IS CAPITAL LEVERAGE??
 A company or institution can use its own funds plus
borrowed funds for investment. This is also known
as leverage capital.
 A simple example of using leverage capital is the
business of a bank
FINANCIAL LEVERAGE
 Meaning
 Example:
If a company has $200,000 US Dollars (USD)
in capital and borrows $400,000 USD, the leverage
ratio is two to one. If the company invests $600,000
USD, then the return on the investment needs to be at
a higher percent than the company owes the bank. A
bank loan at five percent would require an investment
return of more than five percent to be profitable for
the company.
RATIO’S
 Financial leverage ratio’s
Total Liabilities
Total Assets
 Capitalisation ratio
Long-Term Debt
Long-Term Debt + Owners' Equity
 Debt-equity ratio
Total Debt
Total Equity
 Interest Coverage Ratio (Times Interest Earned)
EBIT
Interest Expense
 Long-term Debt to Net Working Capital
Long-term Debt
Current Assets - Current Liabilities
THANK YOU

More Related Content

What's hot

36421186 ranjana-project-report-on-inventory-management
36421186 ranjana-project-report-on-inventory-management36421186 ranjana-project-report-on-inventory-management
36421186 ranjana-project-report-on-inventory-managementGautham Kulkarni
 
Lide of cost accounting
Lide of cost accountingLide of cost accounting
Lide of cost accountingRythmicman
 
Inventory management
Inventory managementInventory management
Inventory managementHpm India
 
Inventory management report show
Inventory management report showInventory management report show
Inventory management report showJill NightRaid
 
Literature review r
Literature review rLiterature review r
Literature review rAYM1979
 
Inventer control analysis
Inventer control analysisInventer control analysis
Inventer control analysismohit2340
 
Project report inventory
Project report inventoryProject report inventory
Project report inventoryRaj Aman
 
Chapter005instructor 121001021959-phpapp02
Chapter005instructor 121001021959-phpapp02Chapter005instructor 121001021959-phpapp02
Chapter005instructor 121001021959-phpapp02ABHINAV MUKERJI
 
0601075 inventory management
0601075 inventory management0601075 inventory management
0601075 inventory managementSupa Buoy
 
Store and storekeeping_materials_invento (1)
Store and storekeeping_materials_invento (1)Store and storekeeping_materials_invento (1)
Store and storekeeping_materials_invento (1)nassorokingome1
 
Final working capital important
Final working capital importantFinal working capital important
Final working capital importantAnkit Naik
 
Purchasing and Supply Management
Purchasing and Supply ManagementPurchasing and Supply Management
Purchasing and Supply ManagementZamri Yahya
 
Working Capital Management Rev 4 0
Working Capital Management Rev 4 0Working Capital Management Rev 4 0
Working Capital Management Rev 4 0John Lafare
 

What's hot (19)

Inventory
InventoryInventory
Inventory
 
36421186 ranjana-project-report-on-inventory-management
36421186 ranjana-project-report-on-inventory-management36421186 ranjana-project-report-on-inventory-management
36421186 ranjana-project-report-on-inventory-management
 
Lide of cost accounting
Lide of cost accountingLide of cost accounting
Lide of cost accounting
 
Final
FinalFinal
Final
 
6
66
6
 
Inventory management
Inventory managementInventory management
Inventory management
 
Inventory management report show
Inventory management report showInventory management report show
Inventory management report show
 
Literature review r
Literature review rLiterature review r
Literature review r
 
Inventer control analysis
Inventer control analysisInventer control analysis
Inventer control analysis
 
Project report inventory
Project report inventoryProject report inventory
Project report inventory
 
Principles of purchasing
Principles of purchasingPrinciples of purchasing
Principles of purchasing
 
Week 4 inventory fassam
Week 4 inventory   fassamWeek 4 inventory   fassam
Week 4 inventory fassam
 
Chapter005instructor 121001021959-phpapp02
Chapter005instructor 121001021959-phpapp02Chapter005instructor 121001021959-phpapp02
Chapter005instructor 121001021959-phpapp02
 
0601075 inventory management
0601075 inventory management0601075 inventory management
0601075 inventory management
 
Store and storekeeping_materials_invento (1)
Store and storekeeping_materials_invento (1)Store and storekeeping_materials_invento (1)
Store and storekeeping_materials_invento (1)
 
Final working capital important
Final working capital importantFinal working capital important
Final working capital important
 
Purchasing and Supply Management
Purchasing and Supply ManagementPurchasing and Supply Management
Purchasing and Supply Management
 
Working Capital Management Rev 4 0
Working Capital Management Rev 4 0Working Capital Management Rev 4 0
Working Capital Management Rev 4 0
 
Stores Management
Stores  ManagementStores  Management
Stores Management
 

Similar to Case study

3 Inventory Management And Risk Pooling
3 Inventory Management And Risk Pooling3 Inventory Management And Risk Pooling
3 Inventory Management And Risk Poolingpirama2000
 
WORKING CAPITAL CYCLE
WORKING CAPITAL CYCLEWORKING CAPITAL CYCLE
WORKING CAPITAL CYCLEJumanul Haque
 
Receivables and inventory mgt
Receivables and inventory mgtReceivables and inventory mgt
Receivables and inventory mgtVivek Krishnan
 
Basic Concept of Inventory Control, Safety Stock
Basic Concept of Inventory Control, Safety StockBasic Concept of Inventory Control, Safety Stock
Basic Concept of Inventory Control, Safety StockRaja Adapa
 
1. Suppose a firm decides to minimize its holdings of current asse.docx
1. Suppose a firm decides to minimize its holdings of current asse.docx1. Suppose a firm decides to minimize its holdings of current asse.docx
1. Suppose a firm decides to minimize its holdings of current asse.docxjackiewalcutt
 
Inventory Management Project
Inventory Management ProjectInventory Management Project
Inventory Management ProjectMOHD ARISH
 
Inventory management and Receivables (ABC, EOQ Model)
Inventory management and Receivables (ABC, EOQ Model)Inventory management and Receivables (ABC, EOQ Model)
Inventory management and Receivables (ABC, EOQ Model)noopurVirmani
 
Cash conversion cycle
Cash conversion cycleCash conversion cycle
Cash conversion cycleAasim Mushtaq
 
Purchasing & Stock Slides
Purchasing & Stock SlidesPurchasing & Stock Slides
Purchasing & Stock SlidesRobbieA
 
Methods and techniques of inventory control | business management
Methods and techniques of inventory control | business managementMethods and techniques of inventory control | business management
Methods and techniques of inventory control | business managementvibhasharma78
 
Warehouse.pptx
Warehouse.pptxWarehouse.pptx
Warehouse.pptxfqhMh
 
Chapter 2 inventory management in lean operations
Chapter   2 inventory management in lean operationsChapter   2 inventory management in lean operations
Chapter 2 inventory management in lean operationsAdnanAbbas47
 

Similar to Case study (20)

3 Inventory Management And Risk Pooling
3 Inventory Management And Risk Pooling3 Inventory Management And Risk Pooling
3 Inventory Management And Risk Pooling
 
WORKING CAPITAL CYCLE
WORKING CAPITAL CYCLEWORKING CAPITAL CYCLE
WORKING CAPITAL CYCLE
 
Inventory & Risk Pooling.pdf
Inventory & Risk Pooling.pdfInventory & Risk Pooling.pdf
Inventory & Risk Pooling.pdf
 
Pom unit 3
Pom unit 3Pom unit 3
Pom unit 3
 
Fin4.pptx
Fin4.pptxFin4.pptx
Fin4.pptx
 
Notes.pptx
Notes.pptxNotes.pptx
Notes.pptx
 
Receivables and inventory mgt
Receivables and inventory mgtReceivables and inventory mgt
Receivables and inventory mgt
 
Working Capital Management
Working Capital ManagementWorking Capital Management
Working Capital Management
 
Basic Concept of Inventory Control, Safety Stock
Basic Concept of Inventory Control, Safety StockBasic Concept of Inventory Control, Safety Stock
Basic Concept of Inventory Control, Safety Stock
 
1. Suppose a firm decides to minimize its holdings of current asse.docx
1. Suppose a firm decides to minimize its holdings of current asse.docx1. Suppose a firm decides to minimize its holdings of current asse.docx
1. Suppose a firm decides to minimize its holdings of current asse.docx
 
Material management
Material managementMaterial management
Material management
 
Inventory Management Project
Inventory Management ProjectInventory Management Project
Inventory Management Project
 
Inventory management and Receivables (ABC, EOQ Model)
Inventory management and Receivables (ABC, EOQ Model)Inventory management and Receivables (ABC, EOQ Model)
Inventory management and Receivables (ABC, EOQ Model)
 
Cash conversion cycle
Cash conversion cycleCash conversion cycle
Cash conversion cycle
 
Purchasing & Stock Slides
Purchasing & Stock SlidesPurchasing & Stock Slides
Purchasing & Stock Slides
 
Methods and techniques of inventory control | business management
Methods and techniques of inventory control | business managementMethods and techniques of inventory control | business management
Methods and techniques of inventory control | business management
 
Warehouse.pptx
Warehouse.pptxWarehouse.pptx
Warehouse.pptx
 
WORKING CAPITAL.pptx
WORKING CAPITAL.pptxWORKING CAPITAL.pptx
WORKING CAPITAL.pptx
 
Marketing Finance - Working Capital
Marketing Finance - Working CapitalMarketing Finance - Working Capital
Marketing Finance - Working Capital
 
Chapter 2 inventory management in lean operations
Chapter   2 inventory management in lean operationsChapter   2 inventory management in lean operations
Chapter 2 inventory management in lean operations
 

Recently uploaded

Innovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdfInnovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdfrichard876048
 
Technical Leaders - Working with the Management Team
Technical Leaders - Working with the Management TeamTechnical Leaders - Working with the Management Team
Technical Leaders - Working with the Management TeamArik Fletcher
 
The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...
The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...
The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...Operational Excellence Consulting
 
20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdf
20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdf20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdf
20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdfChris Skinner
 
Appkodes Tinder Clone Script with Customisable Solutions.pptx
Appkodes Tinder Clone Script with Customisable Solutions.pptxAppkodes Tinder Clone Script with Customisable Solutions.pptx
Appkodes Tinder Clone Script with Customisable Solutions.pptxappkodes
 
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...ssuserf63bd7
 
NAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors DataNAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors DataExhibitors Data
 
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckPitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckHajeJanKamps
 
Annual General Meeting Presentation Slides
Annual General Meeting Presentation SlidesAnnual General Meeting Presentation Slides
Annual General Meeting Presentation SlidesKeppelCorporation
 
WSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdfWSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdfJamesConcepcion7
 
Entrepreneurship lessons in Philippines
Entrepreneurship lessons in  PhilippinesEntrepreneurship lessons in  Philippines
Entrepreneurship lessons in PhilippinesDavidSamuel525586
 
Memorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQMMemorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQMVoces Mineras
 
Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03DallasHaselhorst
 
Buy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy Verified Accounts
 
Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.Anamaria Contreras
 
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...ssuserf63bd7
 
Guide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFGuide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFChandresh Chudasama
 
Call Us 📲8800102216📞 Call Girls In DLF City Gurgaon
Call Us 📲8800102216📞 Call Girls In DLF City GurgaonCall Us 📲8800102216📞 Call Girls In DLF City Gurgaon
Call Us 📲8800102216📞 Call Girls In DLF City Gurgaoncallgirls2057
 

Recently uploaded (20)

The Bizz Quiz-E-Summit-E-Cell-IITPatna.pptx
The Bizz Quiz-E-Summit-E-Cell-IITPatna.pptxThe Bizz Quiz-E-Summit-E-Cell-IITPatna.pptx
The Bizz Quiz-E-Summit-E-Cell-IITPatna.pptx
 
Innovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdfInnovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdf
 
Japan IT Week 2024 Brochure by 47Billion (English)
Japan IT Week 2024 Brochure by 47Billion (English)Japan IT Week 2024 Brochure by 47Billion (English)
Japan IT Week 2024 Brochure by 47Billion (English)
 
Technical Leaders - Working with the Management Team
Technical Leaders - Working with the Management TeamTechnical Leaders - Working with the Management Team
Technical Leaders - Working with the Management Team
 
The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...
The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...
The McKinsey 7S Framework: A Holistic Approach to Harmonizing All Parts of th...
 
20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdf
20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdf20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdf
20220816-EthicsGrade_Scorecard-JP_Morgan_Chase-Q2-63_57.pdf
 
Appkodes Tinder Clone Script with Customisable Solutions.pptx
Appkodes Tinder Clone Script with Customisable Solutions.pptxAppkodes Tinder Clone Script with Customisable Solutions.pptx
Appkodes Tinder Clone Script with Customisable Solutions.pptx
 
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
 
NAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors DataNAB Show Exhibitor List 2024 - Exhibitors Data
NAB Show Exhibitor List 2024 - Exhibitors Data
 
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckPitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
 
Annual General Meeting Presentation Slides
Annual General Meeting Presentation SlidesAnnual General Meeting Presentation Slides
Annual General Meeting Presentation Slides
 
WSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdfWSMM Technology February.March Newsletter_vF.pdf
WSMM Technology February.March Newsletter_vF.pdf
 
Entrepreneurship lessons in Philippines
Entrepreneurship lessons in  PhilippinesEntrepreneurship lessons in  Philippines
Entrepreneurship lessons in Philippines
 
Memorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQMMemorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQM
 
Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03
 
Buy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail Accounts
 
Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.
 
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
Horngren’s Financial & Managerial Accounting, 7th edition by Miller-Nobles so...
 
Guide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFGuide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDF
 
Call Us 📲8800102216📞 Call Girls In DLF City Gurgaon
Call Us 📲8800102216📞 Call Girls In DLF City GurgaonCall Us 📲8800102216📞 Call Girls In DLF City Gurgaon
Call Us 📲8800102216📞 Call Girls In DLF City Gurgaon
 

Case study

  • 2. Inventory control  Inventory control includes control over raw materials, spare parts, consumables, partly finished goods, and finished goods. The following are the common techniques of inventory control: 1. Determination of various stock levels of materials 2. Economic Order Quantity 3. ABC Analysis 4. Perpetual Inventory System 5. Fixation of material cost standard 6. JIT Technique 7. VED Analysis 8. Inventory Turnover Ratio to review slow and non-moving materials. 9. Preparation of material budget
  • 3. Determination of various levels of materials In order to ensure that the optimum quantity of materials is purchased stocked neither less nor more, the store keeper applies scientific techniques of material management. Fixing of certain levels for each item of materials in one of techniques.  These levels are not permanent but require revision according to the change in the factors which determine these levels. The following levels are generally fixed.  (a) Re-order Level  (b) Maximum Level  (c) Minimum Level  (d) Average Level  (e) Danger Level
  • 4. Reorder level This level is that level of material at which it is necessary to initiate purchase requisition for fresh supplies. This is normally the point lying between the maximum and the minimum levels. Fresh orders must be placed before the actual stocks touch the minimum level. The following factors are taken into account for fixing the Re-order level: (i) Rate of consumption of material (ii) Lead time, i.e., time required to receive the delivery of fresh purchase. (iii) Re-order quantity (iv) Minimum level
  • 5. Maximum level The maximum level is that level of stock which can be held at any time. The purpose is to avoid over-stocking and thereby using working capital in a proper way. This level is fixed after taking into account the following factors: (i) Rate of consumption (ii) Lead time (iii) Availability of capital (iv) Storage capacity (v) Cost of maintaining stores including insurance cost (vi) Nature of commodity (vii) Possibility of price fluctuation (viii) Possibility of change in fashion, habit, etc. (ix) Restrictions imposed by Govt., local authority or trade associations (x) Re-order level it (xi) Re-order quantity
  • 6. Minimum level  This is the level below which the stock of an item should not fall. This is known as safety or buffer stock. An enterprise must maintain minimum quantity of stock so that the production is not hampered due to non-availability of materials Average level  Average level can be calculated by applying the following formula: (Maximum level + Minimum level )/2
  • 7. Danger level  Usually stock should not be lower than the minimum level. But if for any reason, stock comes down below the minimum level, it is called danger level. When the stock reaches danger level, it is necessary to take urgent action on the part of the management for immediate replenishment of stock to prevent stock- out situation. The danger level can be calculated by applying the following formula:  Danger Level = Average consumption x Maximum Re- order period for emergency purchases
  • 8. Economic order quantity  The economic order quantity, known as EOQ, represents the most favourable quantity to be ordered each time fresh orders are placed.  The quantity to be ordered is called economic order quantity because the purchase of this size of material is most economical. It is helpful to determine in advance as to how much should one buy when the stock level reaches the re-order level. If large quantities arc purchased, the carrying costs would be large.
  • 9. IMPORTANCE OF SAFETY STOCK IN TODAY’S BUSINESS WORLD: Is required to be considered in some conditions Demand of items may fluctuate at any point of time And also suppliers always need some lead time to supply the goods
  • 10. Lead time can easily be provided to supplier by placing order before inventory become zero. EXAMPLE:- Lead time is 10 days , so order can be placed 10 days before it becomes zero. Let the uniform consumption of inventory be 50 units per day therefore during the 10days of lead time 500 units will be consumed . Hence ROL can be fixed at 500 units. A Stock out may occur sometime due to either excessive consumption or due to undue stretching of lead time We know stock out is undesirable for the various reasons so to avoid it extra stock is maintained throughout the year. This is called as Safety Stock
  • 11.  Inventory decreases at constant rate First Order Second Order Re order level MAOL Q 0 Lead Time 500 units Goods Received Lead time being provided by fixing a reorder level 10days I n v e n t o r y L e v e l
  • 12. Inventory decreases at constant rate First Order Second Order Re order level MAOL Q 0 I n v e n t o r y L e v e l Lead Time 500 units Goods Received L Excessive consumption of inventory during the lead time, leading to stock out 10days 7 days
  • 13. Inventory decreases at constant rate Second Order Re order level MAOL Q 0 I n v e n t o r y L e v e l Lead Time 500 units Goods Received L Safety Stock avoids a stock out caused by excessive consumption of inventory during lead time 7 days 800 units Safety Stock
  • 14. Inventory decreases at constant rate Second Order Re order level MAOL Q 0 I n v e n t o r y L e v e l Lead Time 500 units Goods Received L Undue stretching of lead time by the supplier, leading to stock out 800 units Safety Stock 10 days Stock out Goods Received
  • 15. EXAMPLE:- To keep pace with Changing demands of the customers retail chain outlets Like Shoppers stop manage a staggering 3,00,000 SKU at each outlet. Ensuring the availability of each SKU across 21 outlets in the country is a supply chain challenge. That is why SS has four RDC’s at Delhi Mumbai Bangalore & Kolkata. Over four hundred vendors supply the DC’s. SS has to decide as to how much inventory the RDC should carry and how much inventory Stores should carry. They will cannot risk non availability of a product as it will affect their reputation. On the other hand carrying to much inventory at Either Distribution centers or the stores multiplies the Inventory carrying cost and also the problem of obsolescence. When Asked How it manages the supply Chain?
  • 16. Sanjay Badhe The Director of operations in SS replied; “ There is no one in India that offers logistics, so we had to develop our own logistics department. We have linked every office in the country via leased lines & V- SAT”. Typically SC consist of multiple items and stock points where each stock point has a customer and a supplier. Given the supply and demand characteristics of suppliers and customers a decision maker at a stock point makes essentially two decisions: 1. How much to order 2. When to order
  • 17. Every participant in a supply chain , whether retailer, wholesaler, manufacturer or vendor, prefers to reduce inventories and yet maintain customer services so as not to lose customer because of non availability of goods. Huge inventories are drain on resources. As it blocks money and increase cost of operation. So reduction of inventory in supply chain is the need of the day. In the past the zero inventory slogan had attracted a lot of attention from financial controller of firms for some time because it gives them a illusion that it was possible to work with a zero inventory and improve financial performance.
  • 18. Factors influencing credit policy of a company  Competitive conditions  Stability of demand in the industries product  Type of customers – capital  Product’s shelf life, variations in demand, cost/price  Type of merchandise – liberal credit policy if merchandise has high profit margin, or in case of intense competition  Profit margin- Higher the gross profit margin, the credit manager should be more tolerant of the credit risk  Geographic distribution of customers
  • 19. Credit policy of TATA STEEL TATA STEEL has a body known as credit control committee, which formulates and gives the final approval for many credit policy matters. The credit guidelines as they have emerged today are combined efforts of finance and marketing department. The credit control committee is headed by Sr.V.P & E.D (F&A) and consists of all product and sales manager from various divisions along with G.M (F&A) and other concerned executives as its members. The committee meets at least in two months. The annual limit of credit sale is provided by Sr.V.P (F&A) in consultation with other management officials. The committee then discusses in detail about the breakup of the above lump into the credit limits for different sales offices and also for various customers i.e. both regional and party wise credit limit is set by the body. Hence the basic purpose this committee is to set the standard and also have the overall control of the credit situation, thereby keeping the financing of the working capital cost effective and preventing any liquidity problems from arising. As a general rule, credit is allowed to customer who takes large and repeated orders. One time customers are not entertained for credit.
  • 20. Credit terms has 3 components  Credit period  Credit limit  Cash discount  Credit terms of Tata steel The credit terms, i.e. the credit period and cash discount, followed by TATA STEEL are as follows: CREDIT PERIOD: the credit period is decided on the basis of the type of the product and is generally of fixed nature. However, special customer may be allowed a variance in the set credit period depending upon the volume of sales and customer relationships.
  • 21.  INTEREST CHARGED: interest free credit is allowed for 30 days in most cases. A every 30 days extension there is a 1% rise in interest rate for secured credits. The rate of interest for unsecured credit is1% more than the corresponding rate under secured credit .there is a penal interest of 3% over the applicable rate of interest. CASH DISCOUNT: Cash discount of 2% has also been allowed for certain products in different division. The discounts had a positive response from certain customers who had working capital problems i.e. whose inventory turnover have also ignored the discounts and debtor’s turnover is low or whose operating cycle is long Time period Secured credit Unsecured credit After 30 days 18.5 19.5 After 60 days 19.5 20.5 After 90 days 20.5 21.5
  • 22.  COLLECTION EFFORT: A constant touch with the customers is the best way of reminding him about his payment schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total sale is done to keep a track on debtors and cash position. Tata steel’s collection efforts were not up to the mark that is the reason why outstanding of greater than six months were increasing continuously which has now improved to a great extent
  • 23. Process of credit policy in TATA STEL Sales center wise allocation of sublimits Individual firm or company wise credit limit (in case the entities has different firms and companies) Recommended credit as pre the % of net growth Sanctioned credit limit (specifying the structure and amount) If yes then recommended credit limits Structure of credit i,e secured (%) or unsecured (%) Risk classification of the entity Should we extend credit to this entity
  • 24. Definition of 'Leverage' 1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. 2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged. Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.
  • 25. WHAT IS CAPITAL LEVERAGE??  A company or institution can use its own funds plus borrowed funds for investment. This is also known as leverage capital.  A simple example of using leverage capital is the business of a bank
  • 26. FINANCIAL LEVERAGE  Meaning  Example: If a company has $200,000 US Dollars (USD) in capital and borrows $400,000 USD, the leverage ratio is two to one. If the company invests $600,000 USD, then the return on the investment needs to be at a higher percent than the company owes the bank. A bank loan at five percent would require an investment return of more than five percent to be profitable for the company.
  • 27. RATIO’S  Financial leverage ratio’s Total Liabilities Total Assets  Capitalisation ratio Long-Term Debt Long-Term Debt + Owners' Equity  Debt-equity ratio Total Debt Total Equity
  • 28.  Interest Coverage Ratio (Times Interest Earned) EBIT Interest Expense  Long-term Debt to Net Working Capital Long-term Debt Current Assets - Current Liabilities