Training report full

“REALISATION THROUGH STRATEGIC
PLANNING OF INVENTORY MANAGEMENT”
Undertaken at
FABLAS IMPEX PRIVATE LIMITED
A summer training report submitted in partial fulfilment
for the award of degree of
MASTERS OF BUSINESS ADMINISTRATION
Under the kind supervision of:-
MR. ZAFARUDDIN
(Manager- Finance & Accounts)
Submitted By:-
GAGAN VARSHNEY
(12MBA-08)
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF MANAGEMENT STUDIES AND RESEARCH
ALIGARH MUSLIM UNIVERSITY
ALIGARH
(2013-2014)

Realisation through strategic planning of Inventory Management Fablas
Department of Business Administration, AMU Aligarh 2
Declaration
I, Gagan Varshney, hereby declare that I have pursued my summer internship in Fablas
Impex Private Limited and worked on the topic Realisation through Strategic Planning of
Inventory Management.
I further declare that this project report has been written and prepared by me and no part of
this report has been published or submitted to any other institution for the award of any
Degree or Diploma.
Gagan Varshney
12MBA-08

Executive Summary
Inventory occupies 30–80% of the total current assets of the business concern. It is also very
essential part not only in the field of Financial Management but also it is closely associated
with production management. Hence, in any working capital decision regarding the
inventories, it will affect both financial and production function of the concern. Hence,
efficient management of inventories is an essential part of any kind of manufacturing process
concern.
Fablas Impex Private Limited is a Delhi‐based organization and has been in the Cleaning
Aids business for over a decade. It is among the leading manufacturers, supplier and exporter
of cleaning aids and cleaning tools, such as- various types of Scrubbers and Scrub pads. The
Company‘s function is to market these products made & packed by Fablas. Its main work is
to repackage the products and sell them through its channel. Fablas is authorized Distributor
of MAPA‐SPONTEX for all India.
Main Raw Materials are: Non-Woven Abrasive Pad to make various scrub pads; PU Foam
Sheet to make Scrub and Sponge products; Stainless Steel Scrubber Wire for making
scrubbers.
Products are packed with the help of following packing materials: Blister, Inner, Label,
Outer, Laminate, Tape, etc.
Procurement process in Fablas is as follows:
1. Sale forecast of three months, including one current month,
2. Different buffer stock for current month is set for each product,
3. Then total gross requirement of finished goods is estimated,
4. After deducting opening stock, Net requirement is calculated,
5. Requirement of raw material is found by converting the requirement of finished goods
with the help of their respective Bills Of Materials,
6. Net Requirement is calculated,
7. A scheduled purchase order is placed to the supplier,
8. Scheduled production is started,

During planning, emphasis is given on the sales projection and estimation of buffer stock.
Reasons for difference between actual and forecasted value are also discussed. Lead Time of
Procurement, Minimum Order Quantity, Reliability of Supplier and Cost of Material are
considered for fixing of buffer stock.
Company has its head office and a warehouse in New Delhi; and factory is in Meerut. Three
or four days‘ stock is kept at the warehouse. FIFO method is used for valuation of inventory.
‗BUSY‘ software is used for all the accounting and inventory related work. To use any
software effectively, regular and accurate update of data is needed. For this, company must
try to improve the communication between factory and head-office so that a more accurate
data can be received from factory and better planning can be made accordingly.

Acknowledgement
First of all, I am highly indebted and grateful to the Almighty for giving me strength, ability
and perseverance to carry out this work.
I wish to record my deep sense of gratitude and profound thanks to my supervisor Mr
Zafaruddin (Finance & Accounts Manager, Fablas Impex Pvt. Ltd.), for his supervision as
well as for providing necessary information regarding the project.
I would like to express my sincere thanks to Mr Nadeem Anwar (HR & Operation Manager)
who gave me the privilege to undergo my training in this organization. I am very much
thankful to Mrs Viji Mohan (Sr. Accountant), under whose guidance I could get the basic
idea of everyday office working process. I would also like to thank the employees working in
the organization for giving me such attention and time.
I owe profound gratitude to our institute, i.e., Department of Business Administration,
Aligarh Muslim University for all their support and cooperation. I owe special gratitude to
our Prof. Javaid Akhtar and Prof. Parvaiz Talib whose lectures helped me in completing this
project.
My heartfelt appreciation extends to my friend Abdul Hannan for his invaluable support.
I would also like to convey my due thanks to my parents & sister, who always encouraged
me.
Gagan Varshney

Table of Contents
Certificate
Declaration
Executive Summary
Acknowledgement
Table of Content
Chapter 1 Profile of Company……………………………………………………… 08
1.1 Introduction to Fablas…………………………………………………….. 09
1.2 Product Categories………………………………………………………... 10
1.3 Product usage……………………………………………………………... 10
1.4 History of Fablas………………………………………………………….. 11
1.5 Organisation Chart………...……………………………………………… 12
1.6 Distribution & Logistic Channel………………………………………….. 13
1.7 Vision, Mission & Values………………………………………………… 14
1.8 Market Place…………………………………………………………….… 15
1.9 Market Presence…………………………………………………………… 16
1.10 Indian Cleaning Industry…………………………………………………. 17
Chapter 2 Literature Review………………………………………………….……. 20
2.1 Introduction to Inventory…………………………………………….…… 21
2.2 Meaning of Inventory…………………………………………………….. 21
2.3 Classification of inventories……………………………………………… 21
2.4 Purpose of keeping the Inventory………………………………………… 22
2.5 Introduction to Inventory Management…………………………………… 23
2.6 Meaning of Inventory Management………………………………………. 24
2.7 Need of Inventory Management…………………………………………. 24
2.8 Objective of Inventory Management…………………………………….. 25
2.9 Inventory Cost…………………………………………………………… 26
2.10 Mechanics of Inventory Control………………………………………… 28
2.11 Techniques of Inventory Management…………………………………... 29
2.12 Valuation of Inventory…………………………………………………… 34
2.13 Role of Warehouse in Inventory Management…………………………... 36
Chapter 3 Research Methodology…………………………………………………. 38
3.1 Scope of the study……………………………………………………….. 39
3.2 Objective of the Study…………………………………………………… 39
3.3 Type of the research design……………………………………………… 40
3.4 Type of data used………………………………………………………… 40
3.5 Source of data……………………………………………………………. 40
3.6 Duration of Study………………………………………………………… 40
Chapter 4 Inventory Management Process at Fablas……………………………. 41
4.1 Composition of Inventory at Fablas……………………………………… 42
4.2 Procurement process at Fablas…………………………………………… 45
4.3 Production Process at Fablas…………………………………………….. 52
4.4 Order processing & fulfilling process at Fablas…………………………. 54
4.5 Storage facility…………………………………………………………… 54
4.6 Recording of Inventory Data…………………………………………….. 55

Chapter 5 Analysis & Interpretation……………………………………………… 56
5.0 Four year scenario……………………………………………………….. 57
5.1 Inventory Turnover Ratio……………………………………………….. 58
5.2 Percentage of inventory over current asset……………………………… 59
5.3 ABC analysis……………………………………………………………. 60
5.4 Aging schedule………………………………………………………….. 62
5.5 Lead time of procurement……………………………………………….. 63
5.6 Use of software………………………………………………………….. 63
5.7 Recording of Inventory…………………………………………………. 63
5.8 SWOT Analysis…………………………………………………………. 64
Chapter 6 Conclusion……………………………………………………………… 65
Chapter 7 Recommendations……………………………………………………… 67
Chapter 8 Limitations……………………………………………………………… 69
Bibliography

Chapter: 1
Company Profile

1.1 Introduction: Fablas Impex Private Limited is a Delhi‐based organization and has
been in the Cleaning Aids business for over a decade. It is among the leading manufacturers,
supplier and exporter of cleaning aids and cleaning tools. The Company‘s function is to
market these products made in under Fablas R&D Department with a deep supervision of
Internal Quality Control Department.
Fablas is authorized Distributor of MAPA‐SPONTEX for all INDIA.
MAPA‐SPONTEX is Number One brand of Europe and a part of TOTAL group lubricants
under their consumer brand ―JARDEN‖, very well know brand of the World.
Company is also manufacturing the products exclusively for the companies under their brand
name like: Lakeland (UK), G.G.T.E (QATAR), Modicare India, Uniliver India, Wal‐
Mart, Carborandum (CUMI), etc.
The Company enjoys a good market share in their product categories. And it is dealing with
all leading Supermarkets of INDIA like WAL‐MART, CARREFOUR, METRO Cash‐n‐
Carry, SPAR (MAX Hyper), AUCHAN ELIANCE FRESH, HYPER, and SRS‐VALUE
BAZAR, etc.
Fablas is considered Market Leader in INDIA with a huge infrastructure with consignees
distributors and wholesalers with satisfactory services to its valuable retailers and consumers
with adequate Sales & Marketing Teams. It is exporting its products to thirteen countries, and
is increasing more and more.

Furthermore, it obtain advantages which are available for Private Ltd company with the
Government, Banks, Financial Institutions, Business promotion organisations, FICCI,
Chamber of Commerce & Industries, Export promotion council, CII, Govt. business ,CSD &
PMO. Nevertheless, the knowledgeable and experienced Management remain unchanged and
there is an existence of well‐defined roles & responsibilities among its respected Directors. It
is registered with EAN to provide internationally Barcode on its products (8901580).
1.2 Product Categories:
These are the main product categories produced by the company:
 Stainless Steel Scrubbers
 Scrub Pads & Scrub Sponge
 Multipurpose Sponge Cloth
 Multipurpose Sponge & Scrubber
 Steel Wool Pads & Rolls
 Miscellaneous Scrubber
1.3 Product Usage:
 Domestic
 Personal Care
 Industrial
 Institutional
 Hotels & Restaurants

1.4 History:
This Company was promoted by two brothers namely, Mr Seraj Akthar Siddiqui and Mr
Feroz Akhtar Siddiqui.
The Promoter Mr Feroz A. Siddiqui & Mr Seraj A. Siddiqui have vast experience over 30
years in the Industry widely travelled / visited entire country & world and are great visionary.
With opening of economy in year 1991 they realized the potential of business opportunities
available and hence the emergence of Expansion of business. They explored on Country level
as well as International Market to become a well-known Industrialists.
Formerly they started this business by door-to-door selling in 1977 with ―Steelwool‖ and
shop-to-shop at an early age of 20s. They initially started as a proprietorship of company
known as S.S. Corporation in 1992 and setup a Whole Sale & Retail shop counter at world
known market ―Sadar Bazar-Delhi‖ then became Manufacturer as S.S. Industries in 1997 &
Later on form a Marketing company as Sera International in 2001, therefore all companies
merged into a Private Limited: ‖Fablas Impex Private Limited‖ in year 2004 in order to
become True Professionals in the Industry.
They have a vast technical experience in plant & machinery, raw materials, consumables and
packaging material to be used in the industry. These are the only person to take initiative to
form this company /industry into an organized setup.

1.5 Organisation Chart of Fablas Impex Pt. Ltd.:

1.6 Distribution & Logistic Channel:
Domestic:
With complete setup of Distribution for manufactured and Trading Products , ―FABLAS‖ is
been considered by commodity / Industry as a Market Leader in INDIA with a huge
infrastructure with 23 Consignees , 278 Distributors and 1,66,800 Retailers, 3500 CSD Stores
and more than 295 stores of Modern Trade, with satisfactory services to our valuable end
consumers with Adequate Sales & Marketing Teams.
Export:
Company is exporting its products to Europe, Gulf, and African countries.
Expansion of Company: To explore more Fablas has tie-up with world known Company
―BASF‖ for its innovated product ―Melamine Sponge‖ as Authorised Distributor of India.
And Company has also tied-up for Joint Venture with world known company and Number
One in Europe: MAPA-SPONTEX . It is initially as Co-Branding and in second stage a Joint
Venture.

1.7 Vision, Mission & Values:
Vision
To ensure that we get to enjoy a place of prominence & attain clear leadership in the existing
products and the new products which we want to produce & sell.
Mission
To grow in sales & profits by enhancing product quality, retail distribution, Marketing inputs,
customer service, organisational controls & employee Commitment in doing so we will focus
on our current brands and become Market leaders.
Values
In pursuing our mission we will focus on the following values
 Employees
 Customers (internal/external)
 Good citizenship
We believe that commitment to this mission & values will enable the company to grow &
provide superior returns to our employees & business partners.

1.8 Market Place:
Exports: Products have been exported to these countries:
UK Saudi Arabia Bhutan
France Australia Burma
South Africa Kuwait Columbia
Sri Lanka Oman Egypt
Pakistan Afghanistan Nepal
UAE Bangladesh New Zealand
Iran Qatar Iraq
Mexico Somalia Uzbekistan
Indonesia Ethiopia Djibouti
Import: Materials have been imported from these countries:
UK Saudi Arabia Bhutan
France Australia Burma
South Africa Kuwait Columbia
Sri Lanka Oman Egypt
Pakistan Afghanistan Nepal
UAE Bangladesh New Zealand
Iran Qatar Iraq
Mexico Somalia Uzbekistan
Indonesia Ethiopia Djibouti
Domestic: Basically, Fablas is a Delhi based Indian companies.
India

1.9 Market Presence:
Products are available in all over India in the FMCG retail outlets, & self-service stores in the
following Brand names.
Retail Trade:
The distribution of the products is done through approx. 130 distributors & whole sellers
situated in all major towns. Fablas has strong brands built all through the years with assured
quality, customer service, strong distribution & display of the products.
At present Fablas products are available in approx. 80000 outlets all over India.
Northern India accounts for 60% sales of Fablas followed by East-18%.West-8%,South-12%.
Modern Trade:
Fablas products are also present in prominent self-service stores like, Spencer‘s, Food World,
Sabka Bazar, Big Bazaar (Gurgaon). As an organisation Fablas is focusing on modern trade
business & wants to be part of the business by 2007.
Market Displays in the Retail outlets.
Institutional Business:
Fablas also sell Branded/Unbranded/Bulk products to the Business to Business/Special
customers as per the requirements. Some Customers are
 Hindustan Lever Ltd
 Modicare
 Hindustan Glass
 BPL Display devices Ltd
 Hindustan Latex Ltd
 Prime Minister‘s Office
 A2Z Distributors
 Jubilant Retails
 Metro Cash & Carry
Exports:
Fablas also exports the unbranded/exclusive brand products to 23 countries in the world &
became one of the largest exporters in this category.

Major Suppliers:
 EMGEE
 Hindustan Packers
 BASF (Germany)
 MAPA-SPONTEX (France)
Rival Companies:
 3M India limited
 Jyoti India Pvt Ltd
 Gala Household Product Pvt Ltd
1.10 Indian Cleaning Industry
The way, the global cleaning industry bounced back in the year 2010 after a spell of slow
business in the previous year, is indicative of the fact that it was able to redesign its service
and product offerings to suit the financial and functional capability of the end users.
Compared to other countries, it has now been proved that, India recovered faster. Indian
cleaning industry registered an overall growth and could meet the demands from all the
sectors. Further consolidation led to mergers, joint ventures and take-overs. The year also saw
the awareness for green cleaning catching up, though not so much the implementation in its
full sense. There is still a lack of clarity on the green cleaning concept – in terms of lifecycle
cost and usage. This is perhaps one challenge Indian cleaning industry will grapple with in
this year too.
While in the year 2011, the Indian Cleaning industry will continue to tackle the existing
issues like the need for cleaning standards, lack of trained cleaning workers, low margin
contracts and uneven wage structure, it will also have to take up on itself the task of
educating the clients to understand their requirements and ask for the correct solutions –
green or otherwise.

1.11 Products:
These are some products that are manufactured by Fablas:

1.12 Some Products produced by SPONTEX and distributed by FABLAS:

Chapter: 2
Literature Review

2.1 Introduction to Inventory:
Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60% of current assets in
public limited companies in India. Because of the large size of inventories maintained by
firms, a considerable amount of feuds is required to be committed to them. It is therefore,
absolutely imperative to manage inventories efficiently and effectively in order to avoid
unnecessary investment. A firm neglecting the management of inventories will be
jeopardizing its long run profitability and may fail ultimately.
It is possible for a company to reduce its levels of inventories to a considerable degree e.g. 10
to 20 per cent, without any adverse effect on production and sales, by using simple inventory
planning and control techniques. The reduction in excessive inventory carries a favourable
impact on a company‘s profitability.
2.2 Meaning of Inventory:
―Inventories are stock of the product a company is manufacturing for sale and components
that make up the product.‖
2.3 Classification of Inventories:
Inventories can be classified into five major categories.
1. Raw Material: It is basic and important part of inventories. These are goods which have not
yet been committed to production in a manufacturing business concern. They are converted
into finished product though the manufacturing process.
2. Work in Progress: These include those materials which have been committed to production
process but have not yet been completed. They need more work before they become finished
products for sales.
3. Consumables: These are the materials which are needed to smooth running of the
manufacturing process.
4. Finished Goods: These are the final output of the production process of the business
concern. It is ready for sale to consumers.

5. Packaging Material: Packaging material includes those items which are used for packaging
of perfumery product i.e. cap of the bottle, pump, coller, liver, box etc.
Stock of raw materials and work in progress facilitate production. While stock of finished
goods is required for smooth marketing operation. Thus, inventories serve as a link between
the production and consumption of goods.
2.4 Purpose of keeping Inventory:
Inventory is the physical stock of goods maintained in an organization for its smooth running.
For example, why does every car or a truck carry a spare tyre? It is because, in case of any
puncture, the rider can change the tyre and immediately be on his way. He need not have to
be stranded for a more stretched time. To avoid similar circumstances in business, companies
carry inventory both for raw materials and finished goods.
All firms (including JIT operations) keep a supply of inventory for the following reasons:
1. To maintain independence of operations. A supply of materials at a work center allows
that center flexibility in operations. For example, because there are costs for making each
new production setup, this inventory allows management to reduce the number of setups.
Independence of workstations is desirable on assembly lines as well. The time that it takes to
do identical operations will naturally vary from one unit to the next. Therefore, it is desirable
to have a cushion of several parts within the workstation so that shorter performance times
can compensate for longer performance times. This way the average output can be fairly
stable.
2. To meet variation in product demand. Usually demand is not completely known, and
hence a safety or buffer stock must be maintained to absorb variation.
3. To allow flexibility in production scheduling. A stock of inventory relieves the pressure
on the production system to get the goods out. This causes longer lead times, which permit
production planning for smoother flow and lower-cost operation through larger lot-size
production.
4. To provide a safeguard for variation in raw material delivery time. When material is
ordered from a vendor, delays can occur for a variety of reasons: a normal variation in

shipping time, a shortage of material at the vendor‘s plant causing backlogs, an unexpected
strike at the vendor‘s plant or at one of the shipping companies, a lost order, or a shipment of
incorrect or defective material.
5. To take advantage of economic purchase order size. There are costs to place an order:
labor, phone calls, typing, postage, and so on. Therefore, the larger each order is, the fewer
the orders that need be written. Also, shipping costs favour larger orders—the larger the
shipment, the lower the per-unit cost.
6. Many other domain-specific reasons. Depending on the situation, inventory may need to
be carried. For example, in-transit inventory is material being moved from the suppliers to
customers and depends on the order quantity and the transit lead time. Another example is
inventory that is bought in anticipation of price changes such as fuel for jet planes or
semiconductors for computers. There are many other examples.
2.5 Introduction to Inventory Management:
We can say that Inventories are one of the main ingredients for any physical distribution
system. We cannot distribute any product without any inventory. However, costs and
investments are involved in inventories. They also directly influence the movement and
transportation and cost. If inventory policy of a company dictates maintenance of large
stocks, then transportation characteristic will be FTL (Full truck Load) shipments. This would
result in economies of scale. The logistics manager is responsible for all these costs.
Responsibility lies in him for making decisions concerning the size, depth or location of these
inventories, the lot size, route and mode of transport. His primary objective should be in
optimizing distribution costs. He has to find an economical balance between transportation
and inventory cost where inventories represent an important alternative to creating time and
place utility in the product.
Inventory management can be defined as the sum total of those related activities essential for
the procurement, storage, sale, disposal or use of material. This can be understood by
answering the following questions -when is a refrigerator not a refrigerator? In terms of
physical distribution, a refrigerator is not a refrigerator when it is in Delhi, whereas when the

demand is in Chandigarh. Furthermore, if the colour required is grey and the refrigerator is
blue then also the refrigerator is not a refrigerator. To conclude, utilities are created in goods
when the right product is available at the right place, at the right time, at the right quantity
and is available to the right customer. Inventory management deals itself with all these
problems, placing importance on the quantities of goods needed.
Inventory managers have to keep stock when required and utilize available storage space
resourcefully, so that the stocks do not exceed the available storage space. They are
responsible in maintaining accountability of inventory assets. They have to meet the set
budgets and decide upon what to order, when to order, how to order so that stock is available
on time and at an optimum cost. Inventory managers have acknowledged that some of these
objectives are contradictory; but their job is to achieve a economic balance between these
conflicting variables. But to achieve this economic balance, a clear understanding of many
interconnected variables is required -functions, types of costs, problems and the like. The
following sections provide an insight into these variables. Further, it elaborates upon various
aspects of inventory control in physical distribution system.
2.6 Meaning of Inventory Management:
A proper planning of purchasing of raw material, handling, storing and recording is to be
considered as a part of inventory management. Inventory management means, management
of raw materials and related items. Inventory management considers what to purchase, how
to purchase, how much to purchase, from where to purchase, where to store and when to use
for production etc.
2.7 Need of Inventory Management:
Inventory occupies 30–80% of the total current assets of the business concern. It is also very
essential part not only in the field of Financial Management but also it is closely associated
with production management. Hence, in any working capital decision regarding the
inventories, it will affect both financial and production function of the concern. Hence,
efficient management of inventories is an essential part of any kind of manufacturing process
concern.
The basic financial aim of an enterprise is maximization of its value. At the same time, a

large both theoretical and practical meaning has the research for determinants increasing the
firm value. Most financial literature contains information about numerous factors influencing
the value. Among those factors is the net working capital and elements creating it, such as the
level of cash tied in accounts receivable, inventories and operational cash balances. A large
majority of classic financial models proposals, relating to the optimum current assets
management, were constructed with net profit maximization in view. In order to make these
models more suitable for firms, which want to maximize their value, some of them must be
reconstructed. In the sphere of inventory management, the estimation of the influence of
changes in a firm‘s decisions is a compromise between limiting risk by having greater
inventory and limiting the costs of inventory. It is the essential problem of the corporate
financial management.
2.8 Objectives of Inventory Management
The objective of Inventory Management is to replace a very expensive asset called
―Inventory‖ with a less expensive asset called ―information‖. In order to accomplish this
objective, the information must be timely, accurate, reliable and consistent. When this
happens, you carry fewer inventories, reduce cost and get products to customers faster.
The major objectives of the inventory management are as follows:
 To efficient and smooth production process.
 To maintain optimum inventory to maximize the profitability.
 To meet the seasonal demand of the products.
 To avoid price increase in future.
 To ensure the level and site of inventories required.
 To plan when to purchase and where to purchase
 To avoid both over stock and under stock of inventory.
Thus, increasing return on inventory (ROI) and return on assets (ROA).

2.9 Inventory Costs:
1. Order Cost or Procurement Cost: Procurement cost is the total cost incurred during the
ordering of an item. These costs are not connected with the quantity ordered but primarily
with physical activities required to process the order. For the most part, order cost is
primarily the labour associated with processing the order; however, you can include the
other costs such as the costs of phone calls, faxes, postage, envelopes, etc.
2. Carrying Cost: Also called Holding cost, carrying cost is the cost associated with having
inventory on hand. It is primarily made up of the costs associated with the inventory
investment and storage cost. Below are the primary components of carrying cost-
- Interest. If you had to borrow money to pay for your inventory, the interest rate would
be part of the carrying cost. If you did not borrow on the inventory, but have loans on
other capital items, you can use the interest rate on those loans since a reduction in
inventory would free up money that could be used to pay these loans. If by some
miracle you are debt free you would need to determine how much you could make if
the money was invested.
- Insurance. Since insurance costs are directly related to the total value of the
inventory, you would include this as part of carrying cost.
- Taxes. If you are required to pay any taxes on the value of your inventory they would
also be included.
3. Out-of-Stock Cost: These are incurred when a customer places an order and the order
cannot be filled from the inventory to which it is normally assigned. These costs are
divided into two main categories:
- Lost Sales Costs: These occur when the customer, faced with an out-of-stock
situation, chooses to withdraw his order for the product. The cost is the profit that
would have been made if the sale had occurred and the cost of negative effect that the
Cost of
Inventory
Procurement
Cost
Inventory
Carrying
Cost
Out-of-Stock
Cost
Over Stock
Cost

stock out may have on future sales. The higher is the degree of substitutes available in
the market, the higher is the cost. The lost costs are intangible and difficult to measure
and usually estimated on the basis of personal perceptions of executives.
- Back order costs: Back order costs assume that a customer will wait for his order to
be filled so that the sales is not lost, only delayed. But these back-orders create
clerical and sales costs for order- processing additional transport, which have to be
incurred to fulfil these back-orders out of course of normal distribution channel.
These costs are fairly tangible and therefore measurement is simple.
4. Over stock costs: Another category in which a company can incur is the cost concerned
with the circumstances when the company is left with some stock on hand even after the
demand for the product has terminated. The interpretation of this cost is proportional to
whether the inventory is static or dynamic.
- Static inventory is one which is replenished only once a year for example, a merchant
who wishes to sell specialized diwali crackers, with very short shelf life, has a very
limited sales season. The season is only a few days long and thus the replenishment of
stock will have a next to zero salvage value. Thus if he has too much stock he will
suffer loss equal to cost of over stock. This will be the cost of over stock for a static
stock.
- Dynamic stock is one which can be replenished throughout the season for example; a
departmental store which has dynamic stock will have a different over stock value.
Cyclical Counting
Many companies prefer to count inventory on a cyclical basis to avoid the need for shutting
down operations while stock is counted. This means that a particular section of the warehouse
or plant is counted physically at particular times, rather than counting all inventory at once.
While this method may be less accurate than counting the whole, it is much more cost
effective. Cyclical counting is preferred because it allows for operations to continue while
inventory is taken. If not for this practice, a business would have to shut down while counts
were taken, often requiring the hire of a third party or use of overtime employees. Cyclical
counting usually utilizes the ABC rule, but there are other variations of this method that can
be used. The ABC rule specifies that tracking 20 percent of inventory will control 80 percent
of the cost to store the goods. Therefore, businesses concentrate more on the top 20 percent
and counter other goods less frequently.

Warehouse staff can now schedule counting of inventories based on these categories. The
―A‖ category is counted on a regular basis while ―B‖ and ―C‖ categories are counted only
once a month or once a quarter.
2.10 Mechanics of Inventory Control
Inventory control is a means for maintaining the right level of supply and reducing loss to
goods or materials before they become a finished product or are sold to the consumer.
Inventory control is one of the greatest factors in a company‘s success or failure. This part of
the supply chain has a great impact on the company‘s ability to manufacture goods for sale or
to deliver customer satisfaction on orders of finished products. Proper inventory control will
balance the customer‘s need to secure products quickly with the business need to control
warehousing costs. To manage inventory effectively, a business must have a firm
understanding of demand, and cost of inventory.
Inventory control consists of finding answers to three questions
» Should this item be stocked at all?
» If so, when to order it?
» How much to order?
Though these are the questions the inventory control tries to answer more stress is upon the
last two questions.
When to Order?
General levels of stock should be related to sales and production policies of the firm, in the
same way specification is related to technical needs.
How much to order?
This is a concept which tries to balance inventory and ordering cost. Practically, the two costs
have inverse relationship .If the order quantity is larger, the order cost will be low but the
inventory carrying cost will be high. The point at which the sum of two costs minimum is the
optimum point.

2.11 Techniques of Inventory Management:
Inventory management consists of effective control and administration of inventories.
Inventory control refers to a system which ensures supply of required quantity and quality of
inventories at the required time; and at the same time prevent unnecessary investment in
inventories. It needs the following important techniques.
Inventory management techniques may be classified into various types:
A. Techniques based on the order quantity of Inventories
Order quantity of inventories can be determined with the help of the following techniques:
1. Determination of Stock Level: Stock level is the level of stock which is maintained
by the business concern at all times. Therefore, the business concern must maintain optimum
level of stock to smooth running of the business process. Different level of stock can be
determined based on the volume of the stock. . The various levels of stocks are:
i) Deficiency Level: This means stock in hand is inadequate to meet the needs. Existence of
this level indicates actual or potential out-of-stock situation. Orders are placed through a
faster alternative source of supply.
ii) Exhaust bin level: This is a point popularly known as out of stock. At this point, the
storage bin is empty. Emergency measures are taken to stock the bin.

iii) Buffer stock or minimum stock level: This is the level at which any further demands
upon the bin will necessitate withdrawls from the reserve or buffer stock, especially when
demand is immediate and fresh deliveries will take time to arrive. Usually the goods are
ordered through normal channels as soon as the inventory reaches this level.
iv) Danger warning level: It is the point of no return. After this point, a stock–out is
inevitable if delay occurs. A computer program can readily include warning levels. The
level should be such that if there is a possible delay, the processing should reveal this in time.
v) Reorder Level: The reorder point determines when a re supply shipment should be
initiated. If the reorder point is set too low, stock out position might occur and if it is set too
high over stock costs will be high. Moreover, high reorder point will lead to increased
investment in inventory and increased inventory carrying cost .A number of systems has been
designed to establish the reorder point. The basic reorder point formula is
R = D x T
Where,
R = Reorder point
D = Average daily demand
T = Average performance cycle length.
In this kind of system, an order of predetermined amount is made when the stock of an item
falls below the reorder point. The above approach is satisfactory as long as both D and T are
certain. But when there is an element of uncertainty in any of these elements, then an
inventory buffer is necessary .This is called SS (Safety Stock). Therefore,
R = (D x T) + SS
Safety Stock: It is also called Buffer Stock. Safety stock implies extra inventories that can be
drawn down when actual lead time and/ or usage rates are greater than expected. Safety
stocks are determined by opportunity cost and carrying cost of inventories. If the business
concerns maintain low level of safety stock, it will lead to larger opportunity cost and the
larger quantity of safety stock involves higher carrying costs.
vi) Maximum stock level: This is the level above which the stock should not be permitted to
rise. If permitted, it would increase the risk of loss due to deterioration, evaporation and
obsolescence. It also will increase the capital tied up in the inventories.

Thus, when to order will be dependent upon the level of stock is in the bin. But knowing the
level of stock is not enough. Efficient inventory control dictates that inventory level should
be controlled.
Under the modern concept, inventory should be concerned with such matters as flow, lead
times, storage costs, and acquisition costs, material handling equipment, preservation and
packaging.
Lead Time: Lead time is the time normally taken in receiving delivery after placing orders
with suppliers. The time taken in processing the order and then executing it is known as lead
time.
2. Economic Order Quantity (EOQ)
EOQ is the most useful techniques for determining ―how much to order‖? This method aims
at determining the right quantity so as to ensure that the sum total of the two costs, i.e.
carrying cost and procurement cost are at the minimum point possible. The result of this
effort is the ―purchase of right quantity ― .EOQ is that quantity at which the cost of procuring
the annual requirements of an item and the inventory carrying cost are equal, i.e the total of
the two costs is minimum.

Mathematically, EOQ is represented by the equation
EOQ = √2AO/UC
Where
A = Annual Consumption in units.
O = Order or Procurement cost per order.
C = Inventory carrying cost expressed as percentage (of value)
U = Unit price
B. Techniques based on the classification of Inventories
1. A-B-C analysis
It is the inventory management techniques that divide inventory into three categories based
on the value and volume of the inventories. Items are categorized based on three levels:
 A Category: Top valued 20 percent of goods, whether by economic or demand value
 B Category: Midrange value items
 C Category: Cheaper items, rarely in demand
Hypothetical Example: Suppose, 10% of the inventory‘s item contributes to 70% of value of
consumption and this category is known as ‗A’ category. About 20% of the inventory item
contributes about 20% of value of consumption and this category is called category ‗B’ and
70% of inventory item contributes only 10% of value of consumption and this category is
called ‗C’ category.
Inventory Breakdown between Value and Volume
ABC analysis can be explained with the help of the following Graphical presentation.
Category Volume (%) Value (%)
A 10 70
B 20 20

C 70 10
Total 100 100
2. Aging Schedule of Inventories
Inventories are classified according to the period of their holding and also this method helps
to identify the movement of the inventories. Hence, it is also called as, FNSD analysis—
Where,
 F = Fast moving inventories
 N = Normal moving inventories
 S = Slow moving inventories
 D = Dead moving inventories
This analysis is mainly calculated for the purpose of taking disposal decision of the
inventories.
3. VED Analysis
This technique is ideally suited for spare parts in the inventory management like ABC
analysis. Inventories are classified into three categories on the basis of usage of the

inventories.
 V = Vital item of inventories
 E = Essential item of inventories
 D = Desirable item of inventories
4. HML Analysis
Under this analysis, inventories are classified into three categories on the basis of the value of
the inventories.
 H = High value of inventories
 M = Medium value of inventories
 L = Low value of inventories
C. Techniques on the basis of Records
1. Inventory Budget: It is a kind of functional budget which facilitates the estimated
inventory required for the business concern during a particular period. This budget is
prepared based on the past experience.
2. Inventory Reports: Preparation of periodical inventory reports provides information
regarding the order level, quantity to be procured and all other information related to
inventories. On the basis of these reports, Management takes necessary decision regarding
inventory control and Management in the business concern.
2.12 Valuation of Inventories:
Inventories are valued at different methods depending upon the situation and nature of
manufacturing process. The methods a company uses to value the costs of inventory have a
direct effect on the business balance sheets, income statements and cash flows. Three
methods are widely used to value such costs. They are First-In, First-Out (FIFO), Last-In

First-Out (LIFO) and Average Cost. Inventory can be calculated based on the lesser of cost or
market value. It can be applied to each item, each category or on a total basis.
FIFO: FIFO operates under the assumption that the first product that is put into inventory is
also the first sold. An example of this in action can be made when we assume that a widget
seller acquires 200 units on Monday for Rs.1.00 per unit. The next day, he spots a good deal
and gets 500 more for Rs.75 per unit. When valuing inventory under the FIFO method, the
sale of 300 units on Wednesday would create a cost of goods sold of Rs.275. That is, 200
units at Rs1.00 each and 100 units at Rs.75 each. In this way, the first 200 units on the
income statement were valued higher. The remaining 400 widgets would be valued at Rs.75
each on the balance sheet in ending inventory.
LIFO: LIFO assumes instead that the last unit to reach inventory is the first sold. Using the
same example, the income statement and balance sheet would instead show a cost of goods
sold of Rs.225 for the 300 units sold. The ending inventory on the balance sheet would be
valued at Rs.350 in assets. When this method is used on older inventories, the company‘s
balance sheet can be greatly skewed. Consider the company that carries a large quantity of
merchandise over a period of 10 years. This accounting method is now using 10-year-old
information to value its assets.
Weighted Average: Average Cost works out a weighted average for the cost of goods
sold. It takes an average cost for all units available for sale during the accounting period and
uses that as a basis for the cost of goods sold. To site our example again, we would calculate
the cost of goods sold at [(200 x Rs.1) + (500 x Rs.75)]/700, or Rs.821 each. The remaining
400 units would also be valued at this rate on the balance sheet in ending inventory.
Specific Identification: A less commonly used, but important method to valuation is
called specific identification. This method is used for high-end items that are more easily
tracked. In some cases, this method can be used for more common items, but less value is
realized from this accounting method is such cases. This is because powerful and detailed
tracking software is required to employ specific identification on large numbers of goods.
Inflationary effects on valuation: No matter how you look at it, you are still coming up with
700 widgets that cost you a total of Rs.575. This would all be well and good if the value of

money remained static. However, market conditions change causing inflationary changes.
When this happens, your accounting method can have a strong impact on how healthy the
business looks on income statements and balance sheets. The affects cash flow when
businesses seek credit to pay for on-going operations.
Rising Prices: When prices are rising, using FIFO will show a greater value on the balance
sheet, thereby increasing tax liabilities but also improving credit scores and the ability to
borrow cash for on-going operations. Older inventory is being used to determine the cost of
goods sold and newer inventory is being used to report assets. LIFO decreases the value on
the income statement, but can reduce the level of depreciation you are able to take on assets.
This is good for taxes but bad for borrowing. Industries most likely to adopt LIFO are
department stores and food retailers. The method is rarely used in defences.
2.13 Role of Warehouse in Inventory Management:
Storage involves proper arrangement for preserving goods from the time of their production
or purchase till the actual use. When this storage is done on a large scale and in a specified
manner it is called ‗warehousing‘. The place where goods are kept is called ‗warehouse‘. The
person in-charge of warehouse is called ‗warehouse-keeper‘.
Warehousing refers to the activities involving storage of goods on a large-scale in a
systematic and orderly manner and making them available conveniently when needed. In
other words, warehousing means holding or preserving goods in huge quantities from the
time of their purchase or production till their actual use or sale.
Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the
time gap between production and consumption of goods.
The effective and efficient management of any organization requires that all its constituent
elements operate effectively and efficiently as individual SBUs / facilities and together as an
integrated whole corporate.
Across the supply chains, warehousing is an important element of activity in the distribution
of goods, from raw materials and work in progress through to finished products .It is integral

part to the supply chain network within which it operates and as such its roles and objectives
should synchronize with the objectives of the supply chain. It is not a ‗Stand-alone‘ element
of activity and it must not be a weak link in the whole supply chain network.
Certainly the old concept of warehouses as go downs to store goods has been out-dated.
Warehouses perhaps better referred to as distribution centers; exist primarily to facilitate the
movement of materials to the end customer. There are exceptions such as Strategic stock-
holding, but in all commercial applications; effective and more efficient movement of
materials to the customer is the key, even if some inventory has to be held to achieve this.

Chapter: 3
Research Methodology

3.1 Scope of the Study:
Inventory occupies around half of the current assets at Fablas. So any mismanagement in
inventory will adversely affect the profitability of the company. In order to maximise the
profit of the company, it becomes essential to manage inventory such that a given level of
profit can be achieve with minimum investment in the inventory. This can be getting only by
bringing the efficiency in all the processes related to inventory management. So there is a
need of making better policies in this regard.
The main problem with the company is that if it makes more expenditure on the management
of the inventory, it will increase the carrying cost of inventory and shall vanish the positive
impact of reduction in ordering cost. Hence total cost might be increasing instead of diminish.
This study provides a detailed process of inventory management in the company. So it will
certainly help the policy maker to understand the related process, in finding discrepancies and
formulating the better policy as per the real requirement of the company. Moreover, it will
also help outsider or new employee to understand this main working process of the company.
3.2 Objective of the Study:
 To learn how the company keeps all the data of inventory perfectly.
 To study how finance department of the company works.
 To find out the composition of the inventory
 To study the various inventory ratios
 To analyse the inventory management technique used in the company
 To study the inventory control technique of the company

3.3 Type of Research Design:
The type of research design used is Descriptive. Descriptive research design is a scientific
method which involves observing & describing the behaviour of a subject without
influencing it in any way.
Unstructured Approach was undertaken to explore and thoroughly understand the nature of
the phenomenon.
3.4 Type of Data Used:
Primary data has been used in describing the various processes related to inventory
management. Secondary data has been used in analysing composition of inventory, sales
volume of previous months and other balance sheet parameters.
3.5 Sources of Data:
Most of the data was collected through unstructured and personal interaction with the
employees and authorized members of Fablas.
3.6 Duration of Study:
Two months.

Chapter: 4
Inventory Management at
Fablas

4.1 Composition of Inventory at Fablas:
(A) Finished Goods
These are the finished goods which are repackaged by Fablas:
Scrubbers:
No-1 Active SS Scrubber No.1 Chama Cham SS Scrubber
No-1 Magnum SS Scrubber-S15 No-1 Magnum Twin SS Scrubber
No-1 Magnum SS Scrubber D10 No-1 Magnum SS Scrubber D20
Britex SS Scrubber D10 Britex SS Scrubber D15 Britex SS Scrubber D20
Scrub Pads:
Scrub n Bright S Pad 7.5x7.5cm Scrub n Bright S Pad 7.5x10cm
Scrub n Bright S Pad 10x12.5cm Scrub n Bright S Pad 10x15cm
Scrub n Bright S Sponge 7.5x10cm Scrub N Bright 7.5x10cm Money Saver Pack
Hamara Bright S Pad 7.5x7.5cm Hamara Bright S Pad 7.5x10cm
Hamara Bright S Pad 8x13cm Hamara Bright S Pad 10x15cm
Hamara Bright S Sponge 7.5x10cm
Wipes & Others:
Wipe n Shine Single Sponge Mop Wipe n Shine Eco Sponge Mop
Wipe-n-Shine Multipurpose Wipes (30x25x30cm)
Mighty Mesh Polyster Scrubber Britex Non Scratch Cleaner
Wah Multipurpose Sponge Magic Cleaner Melamine Sponge
Body Scrubber Poly Pack Back Scrubber Poly Pack
Flora Bathroom Wiper (27''x12'') Flora Floor Wiper (39''x16'')
Tidy Home Fruit & Vegetable Bag

(B) Raw Materials
These are the major materials which are packed to make finished products:
Non-Woven Abrasive Pad: Non-Woven Abrasive Pad is the green pad made up of
petroleum product. Either they are purchased in the small cut shape of given size, or in the
form of sheet and cut by machine in the factory. These pads/sheets are purchased from
Saharanpur, Uttrakhand. Two types of green pads are used:
1. Simple (Polyester with Alox)
2. With anti-bacterial treatment (Nylon with Alox)
Former is used to make economy product: Hamara Bright; and latter is used to make
premium product: Scrub N Bright.
PU Foam Sheet: These foam sheets are used to make ‗Scrub & Sponge scrub pads‘. Such
products have two layers, each one of green pad and this foam.
Stainless Steel Scrubber Wire: Wires are used to make scrubber. Either rolled wire in the
form of balls, is imported from China; or wires are purchased domestically and rolled in the
form of ball using machine in the factory. Selection of any one process is done on the basis of
cost and situation. These wires are made up of Stainless Steel, and are of two types:
1. Magnetic: it is attracted by magnet and gets rust easily.
2. Non-Magnetic: it does not attract by magnet and its life is more.
Magnetic wire is used to make economy products, like Britex SS Scrubber. Non-Magnetic
wire is used to make premium scrubbers.
(C) Packing Materials
These are some main materials used to pack the above described products:
Blister: It is transparent hard PPC plastic used to pack scrubbers with the help of warm air
and pressure.
Inner: It is a small cardboard bag containing some units of the product.
Label: It is made up of card. Scrubbers are packed in between Label and Blister.

Outer: It is big cardboard box, called cartoon. It contains a fixed number of same types of
item. Generally it is called ‗Case‘. A case may have 108 units of a particular item.
Laminate: Printed Laminate Polyester is a bag which is used to pack the products, such as:
Hamara Bright, Scrub N Bright, etc. Company logo ―Fablas‖ is printed on it.
Tape: Self-adhesive Tapes of many colours are used to pack ‗outer‘. Company logo is
printed on each tape.
Besides this, Fablas is the authorised distributer of the products manufactured by Spontex. So
these finished goods are also the part of inventory at Fablas. But their quantity is relatively
small in total inventory.

4.2 Procurement Process at Fablas
Inventory Management starts with the projection of Sales in the upcoming months.
Step 1: Sale forecast
In the starting of each financial year, sales projection of whole year is forecasted just to get a
rough idea of annual sale.
Then, in starting of each month, three months‘ rolling forecast is done. The word Rolling
refers that forecast is subjected to revise each month. In starting of each month, a meeting is
held with Finance Manager, Sales Manager, Area Sales Managers and field force of the
company. Field forces are the employees who go to market to get purchase order from the
customers of company and to collect the payment due on them. They go to 40 to 50 shops per
day. So these field forces are good sources of market information about the company. In this
meeting, three months sales forecast is estimated; one current month and two subsequent
months. This forecast is estimated product wise.
Since products of the company do not have seasonal fluctuation, hence average of sales of
previous three months is taken out and then it is modified as per the decision taken in meeting
after discussing various issues. Sale forecast for next two months is done in advance so that
the company get an idea about the requirements of near future and can accordingly prepare
itself to make purchase planning of raw materials. This helps company in improving its
policy and making itself proactive.
Various things are considered during the projection of sales in the meeting. These are as
follows:
 Sale of previous three months: Actual sales volume of each product of previous three
months is used to get an average. This average is used as a base value for taking further
decision.
 Variation in previous month: Difference between actual and forecasted value of last
month‘s sale is considered. Reasons for these variations are discussed. Broadly two main
reasons for variations are-
- Ill implementation of a policy
- Any emergent situation

 Impact of New Policy: Impact of new policy, if introduced, on sale is considered.
 Market prediction and prevailing situation: This include the impact of policies of other
companies, policies of government and other related factors on company‘s sale during the
month. Foreign exchange rate is also considered for sale of exported items.
Such discussion is done to improve projection. In this manner, a table containing product-
wise sales forecast is prepared. This table is used for further treatment.
Step 2: Setting Buffer Stock of Finished Goods
Next step is to fix a buffer stock of finished goods. This is fixed in terms of days. Different
volume of buffer stock is fixed for different products. Mostly 11 or 14 days‘ buffer stock is
fixed. But it is changed according to their sales volume. Buffer stock of high moving
products is kept of more days. It is kept less for less moving product. Non-moving items are
not given much importance. Hence their buffer stock is not estimated with precision. Also,
production of such non-moving goods is not regular.
Buffer stock for imported goods is kept large because of the factor of uncertainty and long
lead time of procurement in this case.
This buffer stock is made to soak the fluctuations in sales as well as to save from various
uncertainties related with the procurement of raw materials. If there is much sale during a
month then this buffer stock is used to fulfil the need. So buffer stock is reduced. Next month
it is replenished again by doing extra production. If it is found that buffer stock has not been
in use for a long time, then it is reduced next time.
Default buffer stock for local goods is of 15days, and for imported goods it is of 3 months.
Buffer stock is calculated on the basis of sales projection of current month. For example, if
sales projection of a product is 10,000 units and its buffer stock is fixed of 15days, then
buffer stock in terms of unit will be: 10,000 X (15/30) = 5,000 units.
So total gross requirement in the current month will be = 10,000+5,000 = 15,000 units.
In fixing buffer stock for each finished product, these things are considered:

1. Lead Time of Procurement: Generally it is 15 to 30 days for local goods; and 3 months
for imported goods. Lead time is the time between ordering the goods and reaching the
goods to the factory. It includes time taken in order processing and transportation, etc.
2. Minimum Order Quantity: It is also known as Economic Order Quantity. MOQ is the
quantity ordered at which sum of ordering cost and carrying cost is least. Or company
optimises its cost of inventory if it orders this much amount of quantity from supplier.
3. Reliability of Supplier: If supplier succeeds in delivering the goods on time then there
will not be needed to keep much buffer stock. But this is not always true. Hence in order
to avoid the risk associated with the element of ―dependability on supplier factor‖;
company has to increase buffer stock depending upon the level of uncertainty.
4. Cost of Material: If cost of a particular item is high then decision of fixing its buffer
stock is taken under much care. Cost of material has following kinds:
i. Costlier / Cheaper items
ii. High Quality / Low Quality items
Step 3: Gross Requirement of Finished Goods:
Next step is to find out the gross requirement of finished goods during the current month. It is
found by adding the value of buffer stock in terms of units into forecasted value of that
current month.
i.e. For current month,
Gross Requirement of finished goods = Forecast Value + Buffer stock
For Example: Suppose, sale forecast for month of September is 3000 units and buffer stock is
kept of 10 days, then
Buffer stock = 3000 x 10/30 = 1000 units
Gross Req. = 3000+1000 = 4000 units of finished goods for the month of September.
Step 4: Net Requirement of Finished Goods:
Requirement derived above was gross and not the actual one for what we have to arrange the

resources. Since company has opening balances of finished goods in the starting of the
month; therefore this balance is subtracted from the gross requirement. Moreover, there are
some goods in transit, they are also treated like opening balance and are subjected to subtract
from gross requirement to get the actual net requirement of finished goods for the current
month. Hence,
Net Requirement = Gross Requirement – (Opening stock + Goods in transit)
Step 5: Requirement of Raw Materials:
After getting net requirement of finished goods, company needs to produce it. In order to do
so, company need to know the data of raw material required for production/repackaging. For
this purpose, data of net requirement of finished goods is converted into raw materials by
multiplying it with their respected Bills of Materials (BOM).
Example of Bills of material the product- ―Scrub N Bright 7.5x10cm Money Saver Pack‖ for
producing 1case (containing108units/packs) is given as follows:
Raw Materials Quantity
Non-Woven Abrasive Pad 7.5x10cm N 540 pieces
RIB S-nB Money Saver (7.5x10) 109 pieces
Outer 50x33x35cm 1 piece
Self-Adhesive Tape 2‖ Printed 0.02 roll
PP Bag 18‖x28‖ (two layer) 2.25 piece
Sticker for Master Box 1.00 Piece
Suppose, if net requirement for this product is 100 case, then requirement for raw materials
will be as follows:
Non-Woven Abrasive Pad 7.5x10cm N = 540x100 = 54000 pieces
RIB S-nB Money Saver (7.5x10) = 109x100= 10900 pieces
And so on…
This gives us the gross requirement of raw materials to produce given quantity of finished
goods.

Step 6: Net requirement of Raw Materials:
After getting gross requirement of raw material, we further do calculation to get net
requirement of raw materials. For this, opining stock of raw material is subtracted. Raw
material in transit is also subtracted as it takes only a few days to reach the material to factory
from the suppliers.
Net requirement of raw material = Gross requirement – (stock + in-transit material)
Step 7: Procurement of Materials
Ordering Raw Materials: After knowing the net requirement of raw materials, a scheduled
purchase order is placed to the supplier. This schedule can be change on the permission of
both. Generally, purchase is scheduled on monthly basis; but it can be on weekly basis for
fast moving raw materials. Company tries to minimise the fluctuation in the level of
inventory, otherwise storage cost will be increased.
Ordering Finished Goods: Some products are not packed by company; but they are
purchased in packed form from the supplier. First, available goods are converted into ‗no. of
days it will end‘. On its basis, decision is taken for their purchase.
Receiving Materials: At the time of receiving material at Meerut factory, peoples from user
department check condition of received goods, its prices and documents with the goods (as-
way bill), etc. If they find any discrepancy in the received goods, they immediately aware the
supplier about it through telephone or e-mail; and debit note is issued to the supplier. If they
find impossible to check the whole goods, they immediately inform about this impossibility
to the supplier. Note that user department is a part of storage department of the factory.
Material purchased from within state and outside the state; but within state is preferred. In
intra-state purchase, buyer has to pay 12.5% VAT while in inter-state purchase buyer has to
pay 2% CST (Central Sales Tax) with Form C. ‗VAT paid‘ is adjusted with ‗VAT received‘
on selling the goods and CST is not treated in this manner. Hence local (intra-state purchase)
is preferred.

Process of Issue of Form C: Form C is used to avail the benefit on inter-state sale. It is made
available to Seller by Buyer. First of all, a way bill (issued by government) is send by buyer
to seller. Then seller sends it to the buyer with the goods despatched. If it is found on
checking that bill is not available with the goods being dispatched, a 5 times amount of the
invoice value of the goods is charged as fine by the government. So it is must to send ‗way
bill‘ with the goods. There are different way bills state-wise. In Uttar Pardesh, it is Form
XXXVIII (Form-38). This way bill contains information about the goods, its quantity, etc. On
the basis of this form Buyer fills utilisation of this form and issues Form C to seller. With this
form, buyer has to pay only 2% Central Sales Tax. In the absence of Form C, buyer will have
to pay 12.5% CST. Now, the process has become online. These forms can be downloaded
from www.comtaxup.nic.in.
Step 8: Planning about Production
Eventually, planning is made about the production of the goods. Since production can not
take place in one go; and it may take many days to produce given quantity; therefore a
schedule of production is made. This schedule proposes date-wise production of various
products. Capacity to produce is also considered at the time of making this schedule. Then
production is started according to this schedule. Firstly, those products are produced whose
stock is less in terms of no. of days it will end. Note that when to produce is a very important
question; and it affects inventory management.
This is all the process of procurement at Fablas Impex Private Limited.
At the end of month, actual sale figure is compared with the forecasted figure to find out the
inefficiencies. Main focus remains on the estimation of forecasted value of sale and fixing of
buffer stock limit.
Treatment of ‘Work-in-Process’ inventories: ‗Work-in-process‘ inventories constitute a very
less fraction of total inventory in the company; because duration of production /repackaging
is very less. In one day, around 20 to 25 thousand units can be prepared to sell. Hence, such
semi-finished goods are converted into raw materials by multiplying it with their respected
Bills-of-Materials; and are subtracted from ‗gross requirement of raw materials‘ to find net
requirement of raw materials.

Treatment of Obsolete Inventory:
Three types of obsolete inventory are found:
1. Old Inventory whose value deteriorates with time
2. Defective Inventory which cannot be used further
3. Inventory of deleted finished goods; and such inventory cannot be used to make other
products.
Company tries to sell such inventory at lower prices. Such decisions are taken by calculating
Present and Future Values discounted at a certain rate.

4.3 Production Process at Fablas
The main work of the company is to package the products under its own brand name. Three
groups of materials are used to package/produce the goods:
1. Raw Material / Core Product ,which is to be packed
2. Packing Materials
3. Consumables
Raw Materials:
These are core products which are packed under the brand name of Fablas. Two main raw
materials are:
1. Wire to make Scrubbers
2. Green Pad to make Scrub Pads
Packaging:
Packaging is the main and very important process of the production in the company. All
packing works take place at Meerut factory.
Packing of Scrubbers: They are packed in between one layer of blister and one layer of card
label with the help of warm air and pressure. Company logo is printed on this card label.
Britex is packed in the batch of twelve. Other scrubbers, like- No.1 Active, are packed in
single pack batch.
Packing of Scrub Pad: It is packed in Printed Laminated Polyester (2 layer PP bag). Then
each pack is separated with zigzag cutting.
Packing of Wipes: First, sheet of wipes are purchased from Spontex and are cut into pieces
and then they are packed by the company.
After packing, products are put in a cardboard box, called ‗Outer‘. An outer may contains 108
units. Such an outer is called 1 case. In this order they become ready to sell. Some products
are put in small cardboard box before putting them in Outer. Such small bags are called
‗Inner‘.
Despite of that, some products, such as: Body Scrubber, Back Scrubber, Tidy Home Fruit &
Vegetable Bag, etc., are purchased in already packed form with logo of Fablas. This packing

is done by the vendor (supplier) on the order of the company. Some products like Melamine
Magic Cleaner are imported in the readymade form from Germany; just packing is done by
Fablas.
Consumables:
Consumables are the materials that do not directly enter production but are necessary for
production process and do not involve significant investment, such as: Tape, Stapler pins, etc.

4.4 Order Processing & Fulfilling Process at Fablas:
1. First of all, order is received by employee ‗A‘, either directly from customer
(Distributor/Wholesaler/Retailor) through e-mail, fax, telephone or post; or through Field
Force.
2. On its basis, employee ‗B‘ prepares Invoice in the software of the company. Two kind of
bill are made on the basis of freight: ‗Paid‘ and ‗To Pay‘. In ‗Paid bill‘, freight for
sending the goods is paid by the company to the courier service and then company
charges it wholly or partially from buyer in the bill. In ‗To pay bill‘, company neither
charges freight nor it has responsibility of sending the goods to the destination. Buyer
itself takes care of it. Scrubber is a tax free item, hence separate invoices are prepared for
taxable and non-taxable items.
3. Then this invoice/bill is verified by the authorized person (Finance Manager) of the
company. He also checks and provides necessary and legal documents to be sent with the
goods.
4. Then invoice is sent to warehouse to the employee ‗C‘ for despatching the goods.
Employee ‗C‘ with his assistant and workers loads the vehicle for the destination.
5. At the successful reaching the goods, employee ‗C‘ receives ‗Goods Receipt‘ provided by
the courier company. Goods Receipt (GR.) is a proof of despatching the goods to the
destination. This GR is sent to buyer with the original copy of bill. The photocopy of this
GR is kept in the file of records with the other copy of bill in the head office.
6. Remaining legal documents, such as: proforma for Form C, etc., are send at a later time.
4.5 Storage Facility
Company has a storage facility in the go-down of the factory situated in Meerut. Fast moving
goods and heavy items, if any, are kept near the entry/exit points (Doors).
Company maintains a warehouse near its head office in New Delhi. Here, stock sufficient for
3 or 4 days, are kept; as it take around 1 day to bring the goods from the factory situated in
Meerut, Uttar Pradesh, and company has their own transport vehicles. But in case of slow
moving goods, one month‘s stock is kept at warehouse in Delhi as their sales volume is so

low that it will be costly to bring them separately.
4.6 Recording of Inventory Data:
Production report comes from factory (Meerut) to the head office (Delhi) at daily basis
through e-mail. This report contains detail of production of finished goods taken place on
each day. With the help of this report, data is updated in the books of accounts. Moreover, a
weekly report containing the status of quantity of physical stock is sent to Delhi head office
every Saturday. This weekly report is used to check the weekly closing stock of raw
materials, so that errors can be detected in recording the accounting book. Short names are
used in place of the full name of the products for data recording, for example:
HBSS for Hamara Bright Scrub & Sponge,
HBXL for Hamara Bright EXtra Large (10x15cm),
HBL for Hamara Bright Large (8x13cm),
HBM for Hamara Bright Medium (7.5x10cm),
HBS for Hamara Bright Small (7.5x7.5cm)
Moreover, special codes are used in the format: FA<4-digit number> and FB<4-digit
number>; these four digits are taken from the last four digit of the bar code of respective
product. ‗FA‘ is used for premium products and ‗FB‘ is used for economy products. For
example: FA423 for Luxury Body Scrubber.

Chapter: 5
Analysis and
Interpretation

Analysis
This project work is almost descriptive in nature which was undertaken with the sole
objective of gaining insight into the topic and getting a thorough and deep understanding of
the process of inventory management. Hence, there exists not much scope of quantitative
analysis.
5.0 Four Years Scenario:
Data are hypothetical. Please do not consider it for any other purpose.
Financial Year Closing Stock Annual Sales Current Asset
2008-2009 60,00,000 6,00,00,000 1,50,00,000
2009-2010 62,50,000 10,00,00,000 2,50,00,000
2010-2011 1,47,85,000 13,00,00,000 3,25,00,000
2011-2012 1,51,50,000 15,00,00,000 3,50,00,000
0
2,00,00,000
4,00,00,000
6,00,00,000
8,00,00,000
10,00,00,000
12,00,00,000
14,00,00,000
16,00,00,000
2008-2009 2009-2010 2010-2011 2011-2012
Closing Stock
Annual Sales
Current Asset

5.1 Inventory Turnover Ratio in no. of day at Fablas:
Inventory TO Ratio = Sales / Average Inventory
Years Inventory TO Ratio in no. of day
2009-2010 16.33
2010-2011 12.36
2011-2012 10.02
Interpretation:
Inventory Turnover has reduced over 3 years. This shows better management of inventory
this period.
0
5
10
15
20
2009-2010 2010-2011 2011-2012
Inventory TO Ratio in no. of day
Inventory TO Ratio in no. of
day

5.2 Percentage of Inventory over Current Asset:
Percentage = (Average Inventory / Current Asset)*100
Financial Year Percentage
2009-2010 24.50
2010-2011 32.36
2011-2012 42.76
Interpretation: Inventory constitutes a major part of current asset of the firm; and it is
increasing over the last three years. This shows the increasing significance of inventory
management to the firm. So it becomes essential for the company to manage inventory
efficiently and with much care.
0
5
10
15
20
25
30
35
40
45
2009-2010 2010-2011 2011-2012
Percentage of inventory over current
asset
Percentage of inventory
over current asset

5.3 ABC Analysis:
Fablas uses ABC Analysis of inventories for planning and policy making.
Categories % of total sale % of total items
A 74.53 19.05
B 24.40 61.90
C 01.07 19.05
Total 100 100
A
19%
B
62%
C
19%
Relative composition of
total items
A
75%
B
24%
C
1%
Relative composition of
total sale

Explanation:
Category A: four types of items contribute 74.5% of total sales. These items, in the
decreasing order of sales volume, are:
 No-1 Magnum SS Scrubber S-15,
 Scrub N Bright (all sizes),
 Britex (all types),
 Hamara Bright (all sizes).
Category B: 19 types of items contribute 24% of the total sales. These Items are:
 No-1 Magnum SS Scrubber D10
 No-1 Magnum SS Scrubber D20
 Wipe n Shine Eco Sponge Mop
 Back Scrubber Poly Pack
 Flora Floor Wiper (39''x16'')
 Magic Cleaner Melamine Sponge
 Tidy Home Fruit & Vegetable Bag
 Wipe n Shine Single Sponge Mop
 Body Scrubber Poly Pack
 No.1 Cham Cham SS Scrubber +
SBM
 No-1 Active SS Scrubber
 Mighty Mesh Polyster Scrubber
 No-1 Magnum Twin SS Scrubber
Category C: rest four items contribute only 1.07% of the total sale volume. These items
are:
 Flora Bathroom Wiper (27''x12'')
 Britex Non Scratch Cleaner
 Wah Multipurpose Sponge
 Wipe-n-Shine M.P. Wipes (30x25x30cm).
Interpretation:
Items coming under Category A have a large amount of contribution in the total sale volume.
These items are very less in number and company should pay much attention on their
production and management.

5.4 Aging Schedule: Products are arranged in the descending order of their sales
volume:
Fast Moving Items:
1. No-1 Magnum SS Scrubber-S15
2. Britex SS Scrubber D10
Normal Moving Items:
1. Scrub n Bright S Pad 7.5x7.5cm
2. No-1 Magnum Twin SS Scrubber
3. Mighty Mesh Polyster Scrubber
4. Scrub n Bright S Pad 10x12.5cm
5. No-1 Active SS Scrubber
6. Scrub n Bright S Pad 10x15cm
7. No.1 Cham Cham SS Scrubber +
SBM
8. Scrub n Bright S Pad 7.5x10cm
10. Body Scrubber Poly Pack
11. Scrub N Bright 7.5x10cm Money
Saver Pack
12. Hamara Bright S Pad 7.5x7.5cm
13. Wipe n Shine Single Sponge Mop
14. Hamara Bright S Pad 7.5x10cm
15. Hamara Bright S Pad 8x13cm
Slow Moving Items:
1. Scrub n Bright S Sponge 7.5x10cm
2. Tidy Home Fruit & Vegetable Bag
3. Hamara Bright S Sponge 7.5x10cm
4. Hamara Bright S Pad 10x15cm
5. Magic Cleaner Melamine Sponge
6. Flora Floor Wiper (39''x16'')
8. Back Scrubber Poly Pack
Dead Moving Items:
1. Wipe n Shine Eco Sponge Mop
2. No-1 Magnum SS Scrubber D20
3. No-1 Magnum SS Scrubber D10
4. Wipe-n-Shine M.P. Wipes
(30cX25cx30)
5. Wah Multipurpose Sponge
6. Britex Non Scratch Cleaner
7. Flora Bathroom Wiper (27''x12'')
Besides this, sales volume of Spontex‘s products is quite less, only 1.50% of total sales
volume.

5.5 Lead time of Procurement:
Generally it is 15 to 30 days for local goods; and 3 months for imported goods.
5.6 Use of Software:
Company uses ‗BUSY‘ software for all the accounting works in head office and factory.
Bills of Materials of each product is also feed in it.
Also, ‗Teamviewer‘ software is used for connectivity between factory and head office.
With the help of this software, computers of factory (Meerut) can be access from head
office (Delhi).
5.7 Recording of Inventory:
Production report comes from factory to the head office at daily basis through e-mail.
With the help of this report, data is updated in the books of accounts. A weekly report
containing the status of quantity of physical stock is also sent to Delhi head office every
Saturday.
Company uses FIFO method for the valuation of inventory.

5.8 SWOT Analysis: (with reference to inventory)
Strength:
 Company have warehouse in Delhi.
 Company have their own transport system between Meerut factory and Delhi warehouse.
 No seasonal fluctuation in the demand of the products.
Weakness:
 Erroneous valuation of inventory in factory
 Less trained staff at factory
 No software is used for inventory control
 Company is unable to increase the sale of Spontex‘s products. Due to this, it is not able to
use its investment in such products properly.
Opportunity:
 Company can become self-reliant in the production by investing more in the machineries,
 Company can extend its production line (types of products),
 The absolute cost of inventory is not so high, so company can increase its sale without
much worry.
Threat:
 Rival company: 3M India Limited is more strong and have a wide variety of home
cleaning products.
 Falling Value of Indian Rupee is a big challenge in the way of making strategic policy
related to Import and Export.

Chapter: 6
Conclusion

Conclusion:
 Company repackages the products.
 There is wide range of products made up of few raw materials, just by packing them in
different sizes.
 Inventory Turnover ratio has increased over last 3 years.
 Relative share of inventory in current assets is increasing over last 3 years.
 Purchase Department of the company is responsible for inventory management.
 User Department is responsible for checking the quality of purchased goods. This user
department is a part of store department of the factory.
 In managing the inventory, company focuses on the sales forecast and estimation of
buffer stock.
 FIFO method is used for inventory valuation.
 ABC analysis is used for inventory management.
 ‘Busy‘ software is used for all accounting works in head office and factory.
 ‗Teamviewer‘ software is used for accessing factory‘s computers from the head office.

Chapter: 7
Recommendations

Recommendations:
 Company should employ a trained staff in factory.
 All the data related to production should be entered in factory‘s computers directly. Then
summarized report should be sent to head office at regular basis.
 A minimum necessary level (reorder point) of each raw materials and consumables
should be fixed and feed in the computers; and regular update of production data should
also be ensured so that the computer can give an alert on reaching the material at that
level. This will help the company to know the right time for procurement.
 ABC analysis is suitable so it should be used in more detail for better inventory
management.
 Being much technical may indeed bring the ordering & other cost down but it will
certainly lead to increase the cost of using technology. So company should not be
overwhelming while making technological improvement.
 Steps should be taken out for better management of working capital. This will help the
company in making timely payment to the supplier so that they will be ready to send the
goods at time. This can reduce the lead time of procurement.

Chapter: 8
Limitation

Limitations: This study has some limitations, because of which its scope becomes
restricted-
1. Research is not dynamic in nature as it shows the process at a particular point of time.
2. Study is based on three months‘ sales data only.
3. Mostly data are in rounding off figure so report lacks accuracy.
4. Study may lack some necessary information due to the hesitation of the company in
unveiling them.
5. Duration of study was two months only, not enough to do detailed research.

Bibliography
Books:
 Financial Management by T. Subramanian
 Management Accounting
Websites:
Google
www.ciilogistics.com
www.wikipedia.org
www.fablas.com

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