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A Study on Materials Management of Anglo French Textiles in Pondicherry

INTRODUCTION:

Material management contributes a major part and plays an important role in cost accountancy, which mainly aims at the maximization of profit by reducing the cost on overheads. Material management is the integrated functioning of purchasing and allied activities so as to achieve the maximum co-ordinations and optimum expenditure in the area of materials.Of the three main spheres of production process namely – material, labour and expenses, material management is given a considerate importance, as the importance of materials management can be realized when it is said that purchases accounts for nearly 50% of an organization’s annual expenditure; that nearly 80% of the working capita is tied up in the inventory and the inventory carrying cost is almost 25% a year; that materials represent 40 to 60% of the sale price as 60 to 80% of the production cost of a product and that even a saving of 5% in material cost will substantially increase the profit margin of and enterprise.

   Objectives of Materials Management

The main objectives of materials management are as follows

1. Procurement of materials at low prices.
2. Ensuring high rate of inventory turnover.
3. To ensure continuity of supply.
4. To maintain the consistency of quality.
5. To minimize the acquisition and storing cost.
6. Lower administration cost.
7. Maintenance of supplier relations.
8. Development of new materials and sources.
9. efficient report keeping and prompt reporting
10. Development of personnel.

The study aims to find out how the above activities are carried out in Anglo French textiles, Pondicherry.

                                                Objective of the study:

The study is undertaken with the following objective in view:

1. To study the material purchase procedure adopted in AFT.
2. To study the stores maintenance and various material issue procedures adopted in AFT.

Methodology of the study:

The methodology of this study mainly consisted of the field visit and study conducted in the premises of the AFT, along with the clarifications and explanation given by the most efficient and eminent of the AFT.

And also in support of the explanation and clarifications, secondary data were provided by these officials, which provided a base for further analysis of the facts and in their support.

                                    Limitation of study:

This study mainly includes the study of the present practices and procedures followed in AFT, it does not go in derail or relate to the practice or procedures followed earlier on it does not assume the same the same amount of efficiency on deficiency in the further days also.  Secondly this study also suffers from other inherent limitation of analyzing of secondary data which is not always 100% reliable.

Thirdly all data of AFT could not be disclosed for this study for some confidential managerial reasons.

History of the mill-profile of Anglo French Textiles:

The AFT is a unit of Pondicherry Textiles Corporation, which is a government of Pondicherry undertaking and is situated on the cuddalore road, pondicherry-4.  It is the largest composite textile mill in the south India. The AFT as incorporated ltd., in England in 1898 and proudly celebrated its centenary in 1998. In the beginning Africa and Madagascar were the prominent buyers from the AFT.  The dyed cloths exported then were popularly known as “Sendura” clothes. The mill was equipped with 44,256 spindles and 1000 looms at that year.  When the French left the Pondicherry, the mill was managed by the Compton company ltd., and then late C.S. Ramachari took over the mill.  The mill flourished under his guidance and management.  The mill was expanded with additional machine and the export of cloth received great attention. Unfortunately, there was a persistent labour, unrest, which brought down the performance of the mill.  This situation gave way to selling of the mill was facing financial crisis due to mismanagement.This dominated into stoppage of operations in the mill ultimately the mill ceased to function from July 1983 and remained closed up to 1986.  After 3 years.  The company was reopened in 1989 and was taken over by the Pondicherry textile corporation ltd., a govt. of Pondicherry undertaking. The first M.D.after the take over Mr.P.M.Nair who decided that AFT should be leading cotton mill in the fiercely competitive textile world.  Thus, AFT transformed itself from “debt-crippled” co. into a very dynamic form “where quality is by design and excellence are obsession”.

THE MILL AT PRESENT

AFT is a composite textile mill, since it comprises all the processing the raw cotton, product of yarn and fabrics.  Its function include blowing, carding, drawing, roving, spinning, winding, weaving, dyeing, printing, packing etc ., it is equipped with 62,240 spindles and 1613 looms with 3 units that is “A” unit (old mill-spinning, weaving, processing, printing).  “B” unit (new mill- weaving) “C” unit (canvas mill-shuttles looms and Russian looms) and spinning.

The organizational structures of AFT are as:

                                                Chairman

                                                Joint M.D

Functional executives    company secretary        administrative

Senior manager general manager                        personal               officer

(Works)                       (Marketing)                              administrator      administration

Senior manager           manager                                   manager               administration

(Home sales)                                                         officer

Assistant manager         manager                                 Dy.Manager          manager

                                        (Exports)                                                             (Accounts)

Supervisor                                                                     labour officer        manager

                                                                                                                      (Costing)

Workmen                                                                       welfare officer       manager EDP

                                                                                       Safety officer          manager

                                                                                                            (Internal audit)

Employee’s strength

unit

workmen

Staffs & Officers

A- unit

3505

550

B- unit

1035

65

C - unit

670

32

Total

5210

647

There are more than 100 categories of workmen because of varied and complex processes. Also the staffs are under different categories and grades as per the need and nature of occupation.

The following list shows the strength of workmen and those who have undergone the training so far in some departments.

Department

Strength

Trained

1.spinning

1094

853

2.Weavinf preparatory

696

467

3.Weaving (A&C)

1002

825

4.Weaving (B)

663

102

5.Processing

391

54

6.Warehouse

709

84

Total

4555

2384

Evaluation of Material Management

Evaluation of Material management of A.F.T can be done through the ration analysis.

Ratio analysis:

Accounting ratio is the relationship expressed in mathematical term between related figures.

Ratios help the firm to analyses its performance and to take corrective measures in ccase of any deviation.

Inventory turnover ratio:

(Rs.In crores)

Year

Sales

inventory

Inventory turn-over ratio

2001 - 2002

71.95

29.63

2.43

2002 – 2003

66.78

21.77

3.07

2003 – 2004

70.11

25.94

2.70

2004 – 2005

75.93

30.89

2.46

2005 - 2006

71.94

27.26

2.64

            Inventory turn-over ration is the ration between inventory and sales in the year 2002-2003 high inventory turn-over ratio because of sales increasing on the basis of inventory.  In the 2001-2002 year inventory turn- over ratio is less when we are comparing with other four years.  One important reason for declining that ratio is mill failed to attained decided level of sales.  And the respective authorities not care for utilizing inventory the efficient manner in.   The year 2001-2002 to 2002-03 inventory turnover ration increasing high rate because of management took necessary action for optimizing sales by way of utilizing inventories.   After 2002-03 inventory turnover ration decreasing 3.07 to 2.70 from 2004-05 to 200 2.46 increasing at low rate.  2005-06 Inventory turnover ratios at low rate.

Stores and spares to inventory:

                        (Rs.In crores)

Year

Stores and spare parts

Inventory

Percentage

2001 - 2002

1.62

29.63

5.47

2002 – 2003

1.96

21.77

9.00

2003 – 2004

1.92

25.94

7.40

2004 – 2005

2.15

30.89

6.96

2005 - 2006

2.68

27.26

9.83

It is the ratio between spare parts and store with inventory.  Highest ratio was 2005-06 amount 9.83 and lowest ratio was 5.47 the range between is ratio 4.36. In the year 2003-04 and 2004-05 the ratio is where decreasing and remaining year’s ratio are increasing.  Inventory to current assets:

                        (Rs.In crores)

Year

Inventory

Current assets

Percentage

2001 - 2002

29.63

69.00

42.94

2002 – 2003

21.77

58.71

37.08

2003 – 2004

25.94

56.48

45.93

2004 – 2005

30.89

60.10

51.40

2005 - 2006

27.26

53.52

50.93

Inventory current asset ratios study the relation ship between inventories to current assets.  In the year 2004-2005 ratio is inventory current asset ratio is high 51.40, the company more than 50% of current asset invested in inventory.  The lowest ratio was 37.08 in the year 2002-03, that year company invest current assets in the firm of inventory is less than 40%, the remaining portion  of current assets company invested to others components of current assets.  That year company invested current asset amount to other current assets

Inventory to net working capital:

                        (Rs.In crores)

Year

Inventory

 Net Working capital

Percentage

2001 - 2002

29.63

37.61

78.78

2002 – 2003

21.77

30.10

72.33

2003 – 2004

25.94

26.85

96.61

2004 – 2005

30.89

14.74

209.57

2005 - 2006

27.26

07.15

381.26

            Networking capital means current assets – current liabilities.  Networking capital to inventory ration is show relation ship between networking capital and inventory.  After 2003-04 the ratio increasing at very high in the year 2005-06 is highest ratio amount 381.26.  The 2002-03 in inventory net working capital ration 72.33 that Year Company invested less amount then after company invested there amount more than 75%.  From 2001-02 to2002-03 the ratio flow decreasing 78.78 to 72.33.

Inventory to work in progress:

                        (Rs.In crores)

Year

Inventory

Work in progress

Percentage

2001 - 2002

29.63

3.03

977.89

2002 – 2003

21.77

2.57

847.08

2003 – 2004

25.94

3.50

741.14

2004 – 2005

30.89

3.27

944.65

2005 - 2006

27.26

3.31

823.56

           

            Raw material spare parts, working progress and finished goods are the important components of inventory.  Inventory to work in progress is the ratio reflect inventory to working progress.  From 2001-02 to 2003-04 this ratio reflect decreasing than they identify there problem and maid solution that is the result of in the year 2004-05 nut they can’t continue that result more than one year that is in the year 2005-06 the ratio is decreasing.

Inventory to finished goods:

            (Rs.In crores)

Year

Inventory

Finished goods

Percentage

2001 - 2002

29.63

24.47

121.09

2002 – 2003

21.77

16.37

132.99

2003 – 2004

25.94

18.93

137.03

2004 – 2005

30.89

23.87

129.41

2005 - 2006

27.26

20.22

134.82

Of the converting raw material into working progress company can spent there resource for converting that work in progress into finished goods.  Inventory to finished goods ratio is the ratio between inventory and finished goods in the year 2004-05 company inventories to finished goods ratio is decreasing from 137.03 to129.41 remaining year company ratio is increasing.  The highest ratio was 137.03 for the year 2003-04 and lowest ratio is 121.09 for the year 2001-02.

Material management –A theoretical Review.

Material management is the integrated functioning of purchasing and allied activities so as to achieve the maximum co-ordinations and optimum expeditor in the area of materials. Of the three main spheres of production process namely – material, labour and expenses, material management is given a considerate importance as the importance of materials management can be realized when it is said that purchases accounts for nearly 50% of an organization’s annual expenditure; that nearly 80% of the working capital is tied up in the inventory and the inventory carrying cost is almost 25 a year; that materials represent 40 to 60% of the sale price as 60% to 80% of the production cost of a product and that even a saving of 5% in material cost will substantially increase the profit margin of an enterprise.

Definition

According to dream S.Ammer, the material management would embrace all activities concerned materials except those directly concerned with designing or manufacturing the product or maintaining the facilities equipment and tooling.  It would embrace the activities performed by major department such as purchasing, production control, receiving and inspection, stores and physical distribution.

Objectives of materials management

The main objectives of materials management are as follows.

1. Procurement of materials at low prices.
2. Ensuring high rate of inventory turnover.
3. To ensure continuity of supply.
4. To maintain the consistency of quality.
5. To minimize the acquisition and storing cost.
6. Lower administration cost.
7. Maintenance of supplier relations.
8. Development of new materials and sources.
9. Efficient report keeping and prompt reporting.
10. Development of personnel.

Components of materials

In a manufacturing concern, materials include raw materials. Stores and spares, WIP and finished goods.

Raw materials

Goods which are actually put into the production process in a manufacturing firm are called raw materials.  They are purchased and stocked in order to enable a smooth and uninterrupted production.

Work-in-progress

WIP inventories, also called on process inventories, are materials or semi finished goods buying usually on the factory floor.  They are inevitable in any production system.

Stores and spares

Stores and spares are materials which are needed to smoothen the process of production.  They do not directly enter production but act as catalysts to production.

Finished goods

The goods which are ready for consumers are called finished goods.  It serves s a buffer production and market.

Materials cycle

Materials management is basically concerned with the flow of raw materials within the manufacturing operation and flow of finished goods within the business operations.  It is a circulatory flow and hence its gets repeated within the stipulated interval of either time or process.

The circulatory flow of materials is described as materials cycle.  It consists of the following stages.

1.      materials planning

2.      sourcing

3.      purchasing

4.      receiving and inspection

5.      storing

6.      issuing

Materials planning

Different types of materials are required in different quantities and at different times.  The techniques of materials planning helps in predicting the material requirements.  Based on sales forecast and production plants, materials’ planning is done.

Sourcing

Most of the firms receive the raw materials from outside sources.  The firms should take efforts in order to explore mere and more sources.  So that materials are guaranteed and are made available at competitive terms and conditions.

Purchasing

Purchasing stage looks after the procurement of raw materials and replenishment of the existing materials.  The important facts of purchasing are identification of specific needs, selection of supplier on the basis of scientific scrutiny, negotiations with selected suppliers.  Settlement of terms and placing of orders.

Receiving and inspection

On the receipt of the consignment from the supplier, the receiving section unloads the materials at the delivery bay, the contents are compared with packing slip and purchase order.  The condition of the materials is also verified to note that they are not received in damaged conditions.

Storing

The time of receipt and the time of issue of most of the materials are not the same.  In between such time gap, the materials are properly stored and preserved.  Storing function includes provision of storage space containers and location of store room and materials.

Issuing

Materials are stored with a view them as and when required by the production departments.  Materials represent the monetary value so they are issued only against the materials requisition.  On the basis of requisition materials are issued to respective departments and then entries are made.

Purchase procedure in the unit:

Raw material (cotton) purchase and stores procedures

Cotton is considered the important raw material in AFT here; there is a separate section in the purchase department, which functions for the purchase of cotton as and when required.

The procedures for purchase of stores and then distribution are same as that of purchase of stores and issue of stores and spares.

Here, the purchase section has the responsibility to maintain all the appropriate records relating to cotton, unlike of spares and stores.  It has separate general store.  It is also done in the same way as general store of spared and stores.

Stores and spares purchase procedure:

                        Determination of purchase budget

Based on the previous years consumption of stores and spares, an appropriate amount is allotted for the current year.

Receipt of purchase requisition (indents)

The indents are dividend in two categories:-

Want sheet: - This is based on the stock position which is maintained by the stores department from the bin card system. 

A FORM:

This is non regular indent which is drawn up by the concerned department for their requirement which is not covered under the stock position.

These indents are sent to the purchase for processing. 

The want sheet is raised by the stores department based on the stock position of the last three months consumption and quantity of three months requirements and is incorporated on the want sheet with staggered delivery.

Inviting tenders/quotation-

The indents are dividend based on the category of the material.

Tenders are floated to various parties when the value of the material exceeds over a lakh.

The quotations are received in sealed covers addressed to the managing Director.  It is opened in the presence of the purchase committee.  Based on the lowest quotations the order is finalized.

For all other indents, enquiries are sent out and based on the lowest the orders are placed after getting the approval of the purchase committee.

Placing orders

Orders are placed with parties covering all details i.e., complete description of material, quantity, rate, taxes, packing and forwarding expenses, transport and delivery schedule.  Copies of orders are sent to the stores, indenting Department, Internal Audit, and Purchase and to the Dealing Assistant in purchase.

Maintaining record of orders and follow up of orders to ensure timely delivery:

The Dealing Assistant of Purchase Department will follow up with the timely delivery and passing of bills.  The bills will be entered on the order sheet i.e.  Bill no., Date, Amount and Quantity.  These bills will be sent to the Stores Accounts Department.

The stores will maintain a record of the material received and will raise a Goods Received Advice (G .R.A.).  This will be forwarded to the concerned department who will verify the material and will enter their remarks on the quality received.  They will then return the G.R.A. to the Stores.  The stores will forward the G.R.A. the Stores Accounts Department who Bill correlate the bill with the G.R.A. and send the same to internal audit for verification. 

Procedure of purchase

Procuring of materials is done through indents.  The indent are classified in two categories, ‘’want sheets’’.

‘Want sheets’ are drawn up by the department of and is based on the stock position which is maintained through Bin cards.

‘A’ Forms – this is drawn up by the department of their immediate consumption which is not maintained on stock level by Stores.

These Indents carry the complete specification of the material along with the material Code.  The Material Code is to identify the material which is also easily accessible in computerizing.

Whenever a particular brand is mentioned on the Indent manufacturers or Authorized Dealers are approached.  By doing this quality material at the best prices are ensured.  For those Indents that do not mention the brand, enquiries are floated which consist of the complete description of the material along with the quantity specifying the last date of receipt of quotations to those parties who are in a position to supply good quality material.

On receipt of the quotations the same is tabulated and based on the lowest quotation and Approval is put forth to the purchase committed for sanction of purchase.

The approval specifies the present purchase i.e. material, quantity, rate, taxes and delivery schedule as well as details of the previous purchase made.  After obtaining the sanction of the committee, the order is placed.  The order consists of a number and the date along with all the details of the purchase i.e. material code, description, unit code, quantity, rate, delivery schedule, taxes, payment terms and transport of freight from destination or door delivery.  A total of one plus five copies are taken.  The original to the Supplier.  The copies of offers will contain the indent number, date and the approximate total value of the order.  These copies are given to the Internal Audit, Stores, Department, Dealing Assistant for purchase and the last copy will carry particulars of the full file i.e. indent, enquiry, quotations and approval.  This will be filled in the master file in the Purchase Department.

Payment terms:

The quotations from the parties will contain various payment terms.

1.      Proforma invoice.

2.      Bank.

3.      Direct.

3.4.1 Proforma invoice:

On receipt of an order the party will arrange to deliver a proforma invoice.  This will be sent to the account department for payment.  The party on receipt of payment will dispatch the material.  If the material is rejected by the department the purchase assistant will write to the party giving details of the rejection and will inform them that the rejected material will be returned only after receipt of replacement.  The stores periodical reminders will be sent to the party until replacement is received.

Bank.

On receipt of the order the party will draw the documents through bank usually giving a grace period of thirty days to clear the documents form bank.  If the documents are not cleared with the stipulated time the party will charge overdue interest at 24% per annum from the date of invoice.  The bankers will hand over the documents on payment including the lorry receipt.  On producing the same to the carriers the material will be received.  If the material is rejected the same procedures will followed as mentioned in the proforma invoice.

Direct.

The party will send the invoices along with the dispatch documents directly to the company.  The lorry receipt will be given to the carriers for obtaining delivery of the material.  If the material is rejected the party would be informed the reason for rejecting and the material returned for replacement.  The payment terms will differ from 30 days to 90 days credit.

Stores maintenance in the unit

Every manufacturing concern should buy and stock items which are needed frequently.  In Anglo French textile two business activities are very significant namely.

1. Purchase

2. Sales

Purchase activity is concerned with the purchase of raw materials i.e. Stores and spares of moving and non-moving items which we have already seen in chapter iii.  Since these two activities of cotton purchase and stores purchase control the financial condition of the organization there should be a proper accounting procedure of purchase of raw material and store materials.

The purchase department deals with the purchase of raw materials pares and stores material, but the purchased materials value, stock and consumption are maintained by an auxiliary wing of accounts department.  This wing is called stores account section.  it deals mainly with an effective material management in order to make its function a success.  Records of all purchase, issues and stock position are maintained by the stores account department. The department comes under the accounts section in the head office and is controlled by senior accounts officer Pondicherry textiles corporation limited (P.T.C)

Structure:

Section in charge (1)

Supervisors (3)

Junior supervisors

Clerks (1)

Attender (1)

Works performed by these 11 employees are:

Ledger maintenance                                        -6

Sundry creditor’s stores ledger                       -1

Claim ledger and correspondence                   -1

Vouchers and C forms                                     -1

Fitting                                                               -attender (1)

Procedure:-

Bin card

The store keeper of the general store maintains a bin card for each and every item.  The bin card is purely is quantitative record of receipts, issues and stores on hand.  it contains the information about description of materials, bin number, material code, location code, maximum level, minimum level, ordinary level etc.,

            The general store maintains a 6months stock position of the quantity of the stores and spares materials in the bin card for all the 3 main units A unit, B unit, C unit.  These 3 units have many main departments which have a sub store maintaining stock for 1 week.

The main departments:

A unit:                   Spinning

                             Weaving preparatory

                             Weaving plain

                             Warehouse

                              Processing (dye house)

                              Engineering

                              Security

B unit:                   Weaving auto looms

                              Warehouse.

C unit:                   Spinning

                               Projectile looms

The materials used y these main departments are divided into:

1. Stores items

2. Spares items

Stores items:

The items used for the machinery are spares items e.g. pickers, shuttles etc.

Spares items

The items used for the machinery are spares items e.g.  Bolts and nuts, wheels etc.

The main departments intimate their requirement of material by raising a sheet called want sheet and sent it to the general store.  The general store checks the issues and balance in the bin card.  if the item is little or nil they correspond it to the purchase section which sent quotations for the materials in the want sheet to 2 or 4 suppliers who quotes the lowest price.

The suppliers deliver the materials according to the purchase order by personal, lorry, railway or post.

General stores receive the materials according to the purchase order by personal, lorry, railway or post.

General stores receive the materials from the dispatch clerk and prepare a goods received advice note (G.R.A.) where they mention the.

·        Material code of the materials

·        Number of the quantity received

·        Description of the materials

·        Name of the supplier

·        Lorry way bill no. and date

The original and duplicate GRA are sent to the main department.  The head of the department verifies the materials and give the remarks to the general store which posts the material quantity in the bin card as receipt and sends the original GRA to stores account section.  The suppliers also sent their invoice particulars in the order sheet and sent the same to stores accounts section.

Goods received advice note.

Goods received advice note is the recorded evidence which confirms the receipt of stores and spares materials from the suppliers with remarks about the quantity and quality by the technical authorities concerned of a particular department to which department materials are to be utilized.

Passing of invoices and GRA form.

Invoices are received from the material purchase department.  The general stores retain the duplicate goods received advice note GRA and the original is sent to the stores accounts department with a remark whether the goods have been accepted or rejected.  the invoice and GRA note is checked for verification of lorry waybill number, unit, quantity received etc.  if the goods are approved by the department the invoices are linked to the G.R.A. using material code for every items and entries are made in the purchase day books and sent for payment.

Purchase daybooks.

Purchase daybook is the daily record of the invoice value.  The stores account department maintains a separate purchase purchase daybook for each department, month wise.

16 purchase day books are maintained by the department.

Name of the purchase daybooks.

 

Stores                                                                     spares

Spinning                                                                Spinning

Weaving preparatory                                             weaving preparatory

Weaving plain                                                        weaving plain

Weaving auto                                                         weaving auto

Bailing

Processing                                                              Processing

Engineering                                                            engineering

General

Capital daybook

Local daybook

Foreign daybook

Invoices sent by the suppliers are of two kinds.

Direct bills

Paid bills

Direct bills:

The suppliers sent the materials directly to the general stores and ger the cost of the materials paid by cheque through their invoices.

Paid bills:

The suppliers first receive the stock of the materials through their invoices and then supply the materials to the general stores.

Direct bills passing:

In direct bills if the materials are rejected or any shortage or breakage of materials is notice, value of such rejections, shortages, breakage is deducted from the invoice before passing the bgill for payment. 

Paid bills passing:

In case if invoices are drawn through bank or payment has already been made by VVP, RPP claim is made through the purchase section on the party or on the insurance company for the part of the quantity of the materials damaged or fully rejected.

Accepted invoices are entered in the debit side of the purchase daybook and rejection and claim entries are entered in the credit side.

Procedure for the passed bills:

After entering the bills in the purchase day books department wise, the stores account departments forward the bills to the internal audit section for verification.  They check the bills and sent it back to the stores account section for preparation of C forms and vouchers.

C forms issued by the government of the stated are received by this department C forms are issued only for (purchase made outside Pondicherry state.  if C forms are sent central sales tax is 4% OTHERWOSE IT IS 10% on the value of the goods.  the mill sends one C forms, for the same party in the same accounting year for bills not exceeding Rs.100,000/- in total.

Imperfect cash book:

Imp rest cashbook is also maintained in stores accounts section.  Petty cash of Rs.50,000/- is given to the general stores to purchase items required urgently.  Every month the balance is checked.

Stock register:

It is a book containing loose sheets in different colors each of which is meant for an item material, the register shows the same details which a bind card shows but in addition to that it contains goods on order and goods reserved columns.

Stores ledger:

Stores ledger or consumption ledger is an important record in materials control system forming a part and parcel of perpetual inventory system.  it is a record for the receipt issues and stock of the stores and spares materials both in quantity and value wise.  All receipts and stock are priced on some bases.  There is a separate ledger sheet for each material.  The stores account department maintains separate stores ledger for every main department as like the purchase daybook. 

There are more than 40 ledges and more than 15,000 items for the stores and spares materials.

Materials requisition order:

Material requisition order is one by which a particular department receives the required stores and spares materials from genera stores.

Procedure for working the stores ledger:

            Various departments send material requisitions order to general stores department.  They deliver the required items and enter the issues in the bin card and send the MROs to the stores accounts section.  the stores account department posts the receipts from the purchase daybook and issues from the MROs items wise in the stores ledger and show the balance of stock position.

Generally stores ledger is maintained by three bases

·        Running average method

·        First in first out method

·        Last in first out method

But AFT maintains stores ledger on the basis of first in first out method.  Under this method materials issued are charged at actual cost in the chronological order on the assumption that consignments received earlier have been issued first.

The stores accounts section arrives month wise stock position of every materials for quantity and value.  If there is enough stock for issues closing stock is arrived as under.

Opening stock + new receipt = new stock

New stock-issues/consumption = closing stock.

In case if there is no enough stock for the issues because of some delay in accounting the receipt in the purchase day book, issues are made from the last months average.  This is called over-posting.  After posting the receipts in the next month the department adjusts the over posting by plus or less adjustment.

Adjustment issues:

Plus adjustment issues:

Sometimes there will be stock in the general tore department but the bill might not have been accounted, o they issue some material by taking last months average as the value of the quantity. Then after posting the receipt they adjust the correct value.

In cases, where issue is les than purchase cost, they make an additional adjustment issue.  This is called plus adjustment issues.  A specimen of the same is given below:

                                    Plus adjustment issues

RECEIPTS

ISSUES

STOCK

Date

GR no.

Unit

Value

Date

MRO

Unit

Value

Unit

Value

Feb ’98

4/722

5

70.00

Jan ’98

Add

Adj

Issues

9010

5

67.50

2.50

5

70.00

5

70.00

5

70.00

Less adjustment issues:

If issue is more than purchase cost, they make less Adjustment in issues.  A specimen of the same is given below:

                       

RECEIPTS

ISSUES

STOCK

Date

GR no.

Unit

Value

Date

MRO

Unit

Value

Unit

Value

Feb ’98

4/722

5

70.00

Jan ’98

Add

Adj

Issues

9010

5

75.00

5.00

5

70.00

5

70.00

5

70.00

Stores return Adjustment:

If the issues is not wanted by the main department they retun it to the general stores, which makes stores return Adjustment.  A specimen of the same is given below:

                       

RECEIPTS

ISSUES

STOCK

Date

GR no.

Unit

Value

Date

MRO

Unit

Value

Unit

Value

feb’98

9010

5

50.00

Jan’98

9010

50.00

2.50

70.00

10

5

10.00

100.00

50.00

100.00

                        Monthly consumption statement:-

Stores account department prepares a monthly consumption statement of both spares and stores.  The three main statements prepared are:

Stores statement

Spares statement

Others Spares statement

Details of the consumption particular are sent to the concerned departments to verify their consumptions for the month:

Stores accounts also take details of purchase statement from the stores ledger and tally with the stores purchase book.

Inventory stock register:

The stock register is maintained by the department from which closing stock at the end of every month is arrived.  Details shown in the stock register are as follows:

Departments

Opening stock

Purchase

Issues

Adj.

Issues

Less Adj.

Stock return

Net issues

Closing

Closing stock:

Closing stock:  opening stock + purchase – issues – additional Adjustment Issues + Less Adjustment Issues + Stores Return Adjustment.

Net issues:  issues + additional adjustment issues – less adjustment issues – store return.

Sundry parties’ stores ledger:

To ensure proper payment for the suppliers and in view of audit purpose a regular sundry creditor’s stores supplier account is being maintained.  A separated ledger having individual folio for each and every supplier is available with store accounts section.  Credit entries are taken for individual suppliers from stores purchase daybooks, debit entries are taken from the cashbook maintained by accounts department and monthly review of individual supplier transaction is done.  Trial balance is taken to check the overall position of the ledger.  Quarterly review of supplier’s transaction is done to check the debit balance lying with the supplier in respect of advance payments given for supply of materials.

Capital ledger:  capital ledgers are maintained separately to show the purchase of capital goods e.g. Machinery, fans, refrigerators etc.

Comparative statement:

Comparative statements are prepared for analyzing the increase or decrease in consumption.  Once in every 6months, the stores accounts department prepares the statement and sends it to the department concerned indicating the quantity of items consumed.  They check the amount consumed with the standards fixed already.  If they are found to have consumed more they try to reduce their consumption.  The comparative statements are also used for studying the materials and rectifying the defects.

Annual confirmation:

At the end of every year the stores accounts sections sends printed forms stating the balance the company has to pay to that particular supplier.  This is known as annual confirmation and is also send to the supplier to verify the balance account.  The confirmation and the trial balance taken at the close of annual accounts is subject to the approval of statutory Auditors.

Claim register:

Claim register is maintained for the particulars of the claim made against the party.  The claim particulars are posted in the claim ledger from credit side of purchase day book.

Inventory control:

The word inventory is defined as materials lying in storage.  The general stores adopt the following methods of inventory control.

ABC Analysis

It is also known as always better control and is a new technique of stock control.  The basic principle involved in this method is that high value items are more closely related than low valve items.  Under this system, items of materials are given A, B, or C designation depending upon the amount expanded for the particular item during the period.

A item represent large value for few items.

B items are numerous but represent smaller amount of money.

The rest of the items are called C items classified as class a items.  Items costing between Rs.1000/-and Rs.1000/- are classified as class B items.

Items which cost below Rs.1000/- are called calls C items.  Class a items constitute 75% of the value, but form only 5% to 10% of the total quantity.  Class B items constitute 20% of the quantity and the rest of the items form C category.

The general stores department serves the objective of effective control at minimum cost by this approach of ABC analysis.

Perpetual inventory system:

About the Author

Nidheesh K B
Lecturer
Department of Commerce
School of Management
Pondicherry University.
Pondicherry India.

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