A Study on Materials Management of Anglo French Textiles in Pondicherry

INTRODUCTION:				Orders are placed with parties covering all details i.e.,
Material management contributes a major part and				complete description of material, quantity, rate,
plays an important role in cost accountancy, which				taxes, packing and forwarding expenses, transport
mainly aims at the maximization of profit by reducing				and delivery schedule. Copies of orders are sent to
the cost on overheads. Material management is the				the stores, indenting Department, Internal Audit, and
integrated functioning of purchasing and allied				Purchase and to the Dealing Assistant in purchase.
activities so as to achieve the maximum				Maintaining record of orders and follow up of orders
co-ordinations and optimum expenditure in the area				to ensure timely delivery:
of materials.Of the three main spheres of production				The Dealing Assistant of Purchase Department will
process namely – material, labour and expenses,				follow up with the timely delivery and passing of
material management is given a considerate				bills. The bills will be entered on the order sheet i.e.
importance, as the importance of materials				Bill no., Date, Amount and Quantity. These bills will
management can be realized when it is said that				be sent to the Stores Accounts Department.
purchases accounts for nearly 50% of an				The stores will maintain a record of the material
organization’s annual expenditure; that nearly				received and will raise a Goods Received Advice (G
80% of the working capita is tied up in the inventory				.R.A.). This will be forwarded to the concerned
and the inventory carrying cost is almost 25% a				department who will verify the material and will enter
year; that materials represent 40 to 60% of the sale				their remarks on the quality received. They will then
price as 60 to 80% of the production cost of a				return the G.R.A. to the Stores. The stores will
product and that even a saving of 5% in material				forward the G.R.A. the Stores Accounts Department
cost will substantially increase the profit margin of				who Bill correlate the bill with the G.R.A. and send the
and enterprise.				same to internal audit for verification.
Objectives of Materials Management				Procedure of purchase
The main objectives of materials management are as				Procuring of materials is done through indents. The
follows				indent are classified in two categories,
				‘’want sheets’’.
1. Procurement of materials at low prices.				‘Want sheets’ are drawn up by the
2. Ensuring high rate of inventory turnover.				department of and is based on the stock position
3. To ensure continuity of supply.				which is maintained through Bin cards.
4. To maintain the consistency of quality.				‘A’ Forms – this is drawn up by the
5. To minimize the acquisition and storing cost.				department of their immediate consumption which is
6. Lower administration cost.				not maintained on stock level by Stores.
7. Maintenance of supplier relations.				These Indents carry the complete specification of
8. Development of new materials and sources.				the material along with the material Code. The
9. efficient report keeping and prompt reporting				Material Code is to identify the material which is also
10. Development of personnel.				easily accessible in computerizing.
The study aims to find out how the above activities				Whenever a particular brand is mentioned on the
are carried out in Anglo French textiles, Pondicherry.				Indent manufacturers or Authorized Dealers are
� Objective of the study:				approached. By doing this quality material at the
The study is undertaken with the following objective				best prices are ensured. For those Indents that do
in view:				not mention the brand, enquiries are floated which
				consist of the complete description of the material
1. To study the material purchase procedure adopted				along with the quantity specifying the last date of
in AFT.				receipt of quotations to those parties who are in a
2. To study the stores maintenance and various				position to supply good quality material.
material issue procedures adopted in AFT.				On receipt of the quotations the same is tabulated
Methodology of the study:				and based on the lowest quotation and Approval is
The methodology of this study mainly consisted of				put forth to the purchase committed for sanction of
the field visit and study conducted in the premises of				purchase.
the AFT, along with the clarifications and explanation				The approval specifies the present purchase i.e.
given by the most efficient and eminent of the AFT.				material, quantity, rate, taxes and delivery schedule
And also in support of the explanation and				as well as details of the previous purchase made.
clarifications, secondary data were provided by these				After obtaining the sanction of the committee, the
officials, which provided a base for further analysis of				order is placed. The order consists of a number and
the facts and in their support.				the date along with all the details of the purchase i.e.
� Limitation of study:				material code, description, unit code, quantity, rate,
This study mainly includes the study of the present				delivery schedule, taxes, payment terms and
practices and procedures followed in AFT, it does not				transport of freight from destination or door
go in derail or relate to the practice or procedures				delivery. A total of one plus five copies are taken.
followed earlier on it does not assume the same the				The original to the Supplier. The copies of offers will
same amount of efficiency on deficiency in the				contain the indent number, date and the approximate
further days also. Secondly this study also suffers				total value of the order. These copies are given to
from other inherent limitation of analyzing of				the Internal Audit, Stores, Department, Dealing
secondary data which is not always 100% reliable.				Assistant for purchase and the last copy will carry
Thirdly all data of AFT could not be disclosed for this				particulars of the full file i.e. indent, enquiry, quotations
study for some confidential managerial reasons.				and approval. This will be filled in the master file in
History of the mill-profile of Anglo French Textiles:				the Purchase Department.
The AFT is a unit of Pondicherry Textiles				Payment terms:
Corporation, which is a government of Pondicherry				The quotations from the parties will contain various
undertaking and is situated on the cuddalore road,				payment terms.
pondicherry-4. It is the largest composite textile mill				1. Proforma invoice.
in the south India. The AFT as incorporated ltd., in				2. Bank.
England in 1898 and proudly celebrated its centenary				3. Direct.
in 1998. In the beginning Africa and Madagascar were				3.4.1 Proforma invoice:
the prominent buyers from the AFT. The dyed				On receipt of an order the party will arrange to
cloths exported then were popularly known as				deliver a proforma invoice. This will be sent to the
“Sendura” clothes. The mill was equipped				account department for payment. The party on
with 44,256 spindles and 1000 looms at that year.				receipt of payment will dispatch the material. If the
When the French left the Pondicherry, the mill was				material is rejected by the department the purchase
managed by the Compton company ltd., and then				assistant will write to the party giving details of the
late C.S. Ramachari took over the mill. The mill				rejection and will inform them that the rejected
flourished under his guidance and management. The				material will be returned only after receipt of
mill was expanded with additional machine and the				replacement. The stores periodical reminders will be
export of cloth received great attention.				sent to the party until replacement is received.
Unfortunately, there was a persistent labour, unrest,				Bank.
which brought down the performance of the mill.				On receipt of the order the party will draw the
This situation gave way to selling of the mill was				documents through bank usually giving a grace period
facing financial crisis due to mismanagement.This				of thirty days to clear the documents form bank. If
dominated into stoppage of operations in the mill				the documents are not cleared with the stipulated
ultimately the mill ceased to function from July 1983				time the party will charge overdue interest at 24%
and remained closed up to 1986. After 3 years.				per annum from the date of invoice. The bankers
The company was reopened in 1989 and was taken				will hand over the documents on payment including
over by the Pondicherry textile corporation ltd., a				the lorry receipt. On producing the same to the
govt. of Pondicherry undertaking. The first M.D.after				carriers the material will be received. If the material
the take over Mr.P.M.Nair who decided that AFT				is rejected the same procedures will followed as
should be leading cotton mill in the fiercely				mentioned in the proforma invoice.
competitive textile world. Thus, AFT transformed				Direct.
itself from “debt-crippled” co. into a very				The party will send the invoices along with the
dynamic form “where quality is by design and				dispatch documents directly to the company. The
excellence are obsession”.				lorry receipt will be given to the carriers for obtaining
THE MILL AT PRESENT				delivery of the material. If the material is rejected
AFT is a composite textile mill, since it comprises all				the party would be informed the reason for rejecting
the processing the raw cotton, product of yarn and				and the material returned for replacement. The
fabrics. Its function include blowing, carding, drawing,				payment terms will differ from 30 days to 90 days
roving, spinning, winding, weaving, dyeing, printing,				credit.
packing etc ., it is equipped with 62,240 spindles and				Stores maintenance in the unit
1613 looms with 3 units that is “A” unit (old				Every manufacturing concern should buy and stock
mill-spinning, weaving, processing, printing).				items which are needed frequently. In Anglo French
“B” unit (new mill- weaving) “C” unit				textile two business activities are very significant
(canvas mill-shuttles looms and Russian looms) and				namely.
spinning.				1. Purchase
The organizational structures of AFT are as:				2. Sales
� Chairman				Purchase activity is concerned with the purchase of
� Joint M.D				raw materials i.e. Stores and spares of moving and
Functional executives company				non-moving items which we have already seen in
secretary administrative				chapter iii. Since these two activities of cotton
Senior manager general				purchase and stores purchase control the financial
manager				condition of the organization there should be a proper
personal officer				accounting procedure of purchase of raw material
(Works)				and store materials.
(Marketing)				The purchase department deals with the purchase of
				raw materials pares and stores material, but the
administrator administration				purchased materials value, stock and consumption are
Senior manager				maintained by an auxiliary wing of accounts
� manager				department. This wing is called stores account
administration				section. it deals mainly with an effective material
(Home				management in order to make its function a
� officer				success. Records of all purchase, issues and stock
Assistant manager				position are maintained by the stores account
� Dy.Manager manager				department. The department comes under the
�				accounts section in the head office and is controlled
�				by senior accounts officer Pondicherry textiles
(Accounts)				corporation limited (P.T.C)
�				Structure:
� labour officer manager				Section in charge (1)
� (Costing)				Supervisors (3)
�				Junior supervisors
welfare				Clerks (1)
officer manager EDP				Attender (1)
� Safety				Works performed by these 11 employees are:
officer manager				Ledger
�				� -6
(Internal				Sundry creditor’s stores
audit)				ledger -1
Employee’s strengthunitworkmen				Claim ledger and
Staffs & Officers				correspondence -1
A- unit				Vouchers and C
3505				� -1
550				�
B- unit				-attender (1)
1035				Procedure:-
65				Bin card
C - unit				The store keeper of the general store maintains a
670				bin card for each and every item. The bin card is
32				purely is quantitative record of receipts, issues and
Total				stores on hand. it contains the information about
5210				description of materials, bin number, material code,
647				location code, maximum level, minimum level, ordinary
There are more than 100 categories of workmen				level etc.,
because of varied and complex processes. Also the				The general store maintains a
staffs are under different categories and grades as				6months stock position of the quantity of the stores
per the need and nature of occupation.				and spares materials in the bin card for all the 3 main
The following list shows the strength of workmen				units A unit, B unit, C unit. These 3 units have many
and those who have undergone the training so far in				main departments which have a sub store maintaining
some departments.				stock for 1 week.
Department				The main departments:
Strength				A unit: Spinning
Trained
1.spinning				Weaving preparatory
1094
853				Weaving plain
2.Weavinf preparatory
696				Warehouse
467
3.Weaving (A&C)				Processing (dye house)
1002
825				Engineering
4.Weaving (B)
663				Security
102				B unit: Weaving auto
5.Processing				looms
391
54				Warehouse.
6.Warehouse				C unit: Spinning
709
84				Projectile looms
Total				The materials used y these main departments are
4555				divided into:
2384				1. Stores items
Evaluation of Material Management				2. Spares items
Evaluation of Material management of A.F.T can be				Stores items:
done through the ration analysis.				The items used for the machinery are spares items
Ratio analysis:				e.g. pickers, shuttles etc.
Accounting ratio is the relationship expressed in				Spares items
mathematical term between related figures.				The items used for the machinery are spares items
Ratios help the firm to analyses its performance and				e.g. Bolts and nuts, wheels etc.
to take corrective measures in ccase of any				The main departments intimate their requirement of
deviation.				material by raising a sheet called want sheet and sent
Inventory turnover ratio:				it to the general store. The general store checks
(Rs.In crores)				the issues and balance in the bin card. if the item is
Year				little or nil they correspond it to the purchase section
Salesinventory				which sent quotations for the materials in the want
Inventory turn-over ratio				sheet to 2 or 4 suppliers who quotes the lowest
2001 - 2002				price.
71.95				The suppliers deliver the materials according to the
29.63				purchase order by personal, lorry, railway or post.
2.43				General stores receive the materials according to the
2002 – 2003				purchase order by personal, lorry, railway or post.
66.78				General stores receive the materials from the
21.77				dispatch clerk and prepare a goods received advice
3.07				note (G.R.A.) where they mention the.
2003 – 2004				· Material code of the materials
70.11				· Number of the quantity received
25.94				· Description of the materials
2.70				· Name of the supplier
2004 – 2005				· Lorry way bill no. and date
75.93				The original and duplicate GRA are sent to the main
30.89				department. The head of the department verifies
2.46				the materials and give the remarks to the general
2005 - 2006				store which posts the material quantity in the bin
71.94				card as receipt and sends the original GRA to stores
27.26				account section. The suppliers also sent their invoice
2.64				particulars in the order sheet and sent the same to
Inventory turn-over ration is the				stores accounts section.
ration between inventory and sales in the year				Goods received advice note.
2002-2003 high inventory turn-over ratio because of				Goods received advice note is the recorded evidence
sales increasing on the basis of inventory. In the				which confirms the receipt of stores and spares
2001-2002 year inventory turn- over ratio is less				materials from the suppliers with remarks about the
when we are comparing with other four years. One				quantity and quality by the technical authorities
important reason for declining that ratio is mill failed				concerned of a particular department to which
to attained decided level of sales. And the				department materials are to be utilized.
respective authorities not care for utilizing inventory				Passing of invoices and GRA form.
the efficient manner in. The year 2001-2002 to				Invoices are received from the material purchase
2002-03 inventory turnover ration increasing high rate				department. The general stores retain the duplicate
because of management took necessary action for				goods received advice note GRA and the original is
optimizing sales by way of utilizing inventories.				sent to the stores accounts department with a
After 2002-03 inventory turnover ration decreasing				remark whether the goods have been accepted or
3.07 to 2.70 from 2004-05 to 200 2.46 increasing at				rejected. the invoice and GRA note is checked for
low rate. 2005-06 Inventory turnover ratios at low				verification of lorry waybill number, unit, quantity
rate.				received etc. if the goods are approved by the
Stores and spares to inventory:				department the invoices are linked to the G.R.A. using
(Rs.In crores)				material code for every items and entries are made
Year				in the purchase day books and sent for payment.
Stores and spare parts				Purchase daybooks.
Inventory				Purchase daybook is the daily record of the invoice
Percentage				value. The stores account department maintains a
2001 - 2002				separate purchase purchase daybook for each
1.62				department, month wise.
29.63				16 purchase day books are maintained by the
5.47				department.
2002 – 2003				Name of the purchase daybooks.
1.96
21.77				� spares
9.00				� Spinning
2003 – 2004				Weaving preparatory
1.92				� weaving preparatory
25.94				Weaving
7.40				� weaving plain
2004 – 2005				Weaving
2.15				� weaving
30.89				auto
6.96				Bailing
2005 - 2006				Processing
2.68				� Processing
27.26				�
9.83				engineering
It is the ratio between spare parts and store with				General
inventory. Highest ratio was 2005-06 amount 9.83				Capital daybook
and lowest ratio was 5.47 the range between is ratio				Local daybook
4.36. In the year 2003-04 and 2004-05 the ratio is				Foreign daybook
where decreasing and remaining year’s ratio are				Invoices sent by the suppliers are of two kinds.
increasing. Inventory to current assets:				Direct bills
(Rs.In crores)				Paid bills
Year				Direct bills:
Inventory				The suppliers sent the materials directly to the
Current assets				general stores and ger the cost of the materials paid
Percentage				by cheque through their invoices.
2001 - 2002				Paid bills:
29.63				The suppliers first receive the stock of the materials
69.00				through their invoices and then supply the materials
42.94				to the general stores.
2002 – 2003				Direct bills passing:
21.77				In direct bills if the materials are rejected or any
58.71				shortage or breakage of materials is notice, value of
37.08				such rejections, shortages, breakage is deducted
2003 – 2004				from the invoice before passing the bgill for
25.94				payment.
56.48				Paid bills passing:
45.93				In case if invoices are drawn through bank or
2004 – 2005				payment has already been made by VVP, RPP claim
30.89				is made through the purchase section on the party or
60.10				on the insurance company for the part of the
51.40				quantity of the materials damaged or fully rejected.
2005 - 2006				Accepted invoices are entered in the debit side of
27.26				the purchase daybook and rejection and claim entries
53.52				are entered in the credit side.
50.93				Procedure for the passed bills:
Inventory current asset ratios study the relation ship				After entering the bills in the purchase day books
between inventories to current assets. In the year				department wise, the stores account departments
2004-2005 ratio is inventory current asset ratio is				forward the bills to the internal audit section for
high 51.40, the company more than 50% of current				verification. They check the bills and sent it back to
asset invested in inventory. The lowest ratio was				the stores account section for preparation of C
37.08 in the year 2002-03, that year company invest				forms and vouchers.
current assets in the firm of inventory is less than				C forms issued by the government of the stated are
40%, the remaining portion of current assets				received by this department C forms are issued only
company invested to others components of current				for (purchase made outside Pondicherry state. if C
assets. That year company invested current asset				forms are sent central sales tax is 4% OTHERWOSE
amount to other current assets				IT IS 10% on the value of the goods. the mill sends
Inventory to net working capital:				one C forms, for the same party in the same
(Rs.In crores)				accounting year for bills not exceeding Rs.100,000/- in
Year				total.
Inventory				Imperfect cash book:
Net Working capital				Imp rest cashbook is also maintained in stores
Percentage				accounts section. Petty cash of Rs.50,000/- is given
2001 - 2002				to the general stores to purchase items required
29.63				urgently. Every month the balance is checked.
37.61				Stock register:
78.78				It is a book containing loose sheets in different colors
2002 – 2003				each of which is meant for an item material, the
21.77				register shows the same details which a bind card
30.10				shows but in addition to that it contains goods on
72.33				order and goods reserved columns.
2003 – 2004				Stores ledger:
25.94				Stores ledger or consumption ledger is an important
26.85				record in materials control system forming a part and
96.61				parcel of perpetual inventory system. it is a record
2004 – 2005				for the receipt issues and stock of the stores and
30.89				spares materials both in quantity and value wise. All
14.74				receipts and stock are priced on some bases. There
209.57				is a separate ledger sheet for each material. The
2005 - 2006				stores account department maintains separate stores
27.26				ledger for every main department as like the
07.15				purchase daybook.
381.26				There are more than 40 ledges and more than
Networking capital means current				15,000 items for the stores and spares materials.
assets – current liabilities. Networking capital to				Materials requisition order:
inventory ration is show relation ship between				Material requisition order is one by which a particular
networking capital and inventory. After 2003-04 the				department receives the required stores and spares
ratio increasing at very high in the year 2005-06 is				materials from genera stores.
highest ratio amount 381.26. The 2002-03 in				Procedure for working the stores ledger:
inventory net working capital ration 72.33 that Year				Various departments send material
Company invested less amount then after company				requisitions order to general stores department.
invested there amount more than 75%. From				They deliver the required items and enter the issues
2001-02 to2002-03 the ratio flow decreasing 78.78 to				in the bin card and send the MROs to the stores
72.33.				accounts section. the stores account department
Inventory to work in progress:				posts the receipts from the purchase daybook and
(Rs.In crores)				issues from the MROs items wise in the stores
Year				ledger and show the balance of stock position.
Inventory				Generally stores ledger is maintained by three bases
Work in progress				· Running average method
Percentage				· First in first out method
2001 - 2002				· Last in first out method
29.63				But AFT maintains stores ledger on the basis of first
3.03				in first out method. Under this method materials
977.89				issued are charged at actual cost in the chronological
2002 – 2003				order on the assumption that consignments received
21.77				earlier have been issued first.
2.57				The stores accounts section arrives month wise
847.08				stock position of every materials for quantity and
2003 – 2004				value. If there is enough stock for issues closing
25.94				stock is arrived as under.
3.50				Opening stock + new receipt = new stock
741.14				New stock-issues/consumption = closing stock.
2004 – 2005				In case if there is no enough stock for the issues
30.89				because of some delay in accounting the receipt in
3.27				the purchase day book, issues are made from the
944.65				last months average. This is called over-posting.
2005 - 2006				After posting the receipts in the next month the
27.26				department adjusts the over posting by plus or less
3.31				adjustment.
823.56				Adjustment issues:
				Plus adjustment issues:
Raw material spare parts, working				Sometimes there will be stock in the general tore
progress and finished goods are the important				department but the bill might not have been
components of inventory. Inventory to work in				accounted, o they issue some material by taking last
progress is the ratio reflect inventory to working				months average as the value of the quantity. Then
progress. From 2001-02 to 2003-04 this ratio reflect				after posting the receipt they adjust the correct
decreasing than they identify there problem and maid				value.
solution that is the result of in the year 2004-05 nut				In cases, where issue is les than purchase cost, they
they can’t continue that result more than one				make an additional adjustment issue. This is called
year that is in the year 2005-06 the ratio is				plus adjustment issues. A specimen of the same is
decreasing.				given below:
Inventory to finished goods:				� Plus adjustment issues
(Rs.In crores)				RECEIPTS
Year				ISSUES
Inventory				STOCK
Finished goods				Date
Percentage				GR no.
2001 - 2002				Unit
29.63				Value
24.47				Date
121.09				MRO
2002 – 2003				Unit
21.77				Value
16.37				Unit
132.99				Value
2003 – 2004				Feb ’98
25.94				4/722
18.93				5
137.03				70.00
2004 – 2005				Jan ’98
30.89				Add
23.87				Adj
129.41				Issues
2005 - 2006				9010
27.26				5
20.22				67.50
134.82				2.50
Of the converting raw material into working progress				5
company can spent there resource for converting				70.00
that work in progress into finished goods. Inventory				5
to finished goods ratio is the ratio between inventory				70.00
and finished goods in the year 2004-05 company				5
inventories to finished goods ratio is decreasing from				70.00
137.03 to129.41 remaining year company ratio is				Less adjustment issues:
increasing. The highest ratio was 137.03 for the				If issue is more than purchase cost, they make less
year 2003-04 and lowest ratio is 121.09 for the year				Adjustment in issues. A specimen of the same is
2001-02.				given below:
Material management –A theoretical Review.
Material management is the integrated functioning of				RECEIPTS
purchasing and allied activities so as to achieve the				ISSUES
maximum co-ordinations and optimum expeditor in				STOCK
the area of materials. Of the three main spheres of				Date
production process namely – material, labour and				GR no.
expenses, material management is given a				Unit
considerate importance as the importance of				Value
materials management can be realized when it is said				Date
that purchases accounts for nearly 50% of an				MRO
organization’s annual expenditure; that nearly				Unit
80% of the working capital is tied up in the inventory				Value
and the inventory carrying cost is almost 25 a year;				Unit
that materials represent 40 to 60% of the sale price				Value
as 60% to 80% of the production cost of a product				Feb ’98
and that even a saving of 5% in material cost will				4/722
substantially increase the profit margin of an				5
enterprise.				70.00
Definition				Jan ’98
According to dream S.Ammer, the material				Add
management would embrace all activities concerned				Adj
materials except those directly concerned with				Issues
designing or manufacturing the product or maintaining				9010
the facilities equipment and tooling. It would				5
embrace the activities performed by major				75.00
department such as purchasing, production control,				5.00
receiving and inspection, stores and physical				5
distribution.				70.00
Objectives of materials management				5
The main objectives of materials management are as				70.00
follows.				5
				70.00
1. Procurement of materials at low prices.				Stores return Adjustment:
2. Ensuring high rate of inventory turnover.				If the issues is not wanted by the main department
3. To ensure continuity of supply.				they retun it to the general stores, which makes
4. To maintain the consistency of quality.				stores return Adjustment. A specimen of the same
5. To minimize the acquisition and storing cost.				is given below:
6. Lower administration cost.
7. Maintenance of supplier relations.				RECEIPTS
8. Development of new materials and sources.				ISSUES
9. Efficient report keeping and prompt reporting.				STOCK
10. Development of personnel.				Date
Components of materials				GR no.
In a manufacturing concern, materials include raw				Unit
materials. Stores and spares, WIP and finished goods.				Value
Raw materials				Date
Goods which are actually put into the production				MRO
process in a manufacturing firm are called raw				Unit
materials. They are purchased and stocked in order				Value
to enable a smooth and uninterrupted production.				Unit
Work-in-progress				Valuefeb’98
WIP inventories, also called on process inventories,				9010
are materials or semi finished goods buying usually on				5
the factory floor. They are inevitable in any				50.00
production system.				Jan’98
Stores and spares				9010
Stores and spares are materials which are needed to				50.00
smoothen the process of production. They do not				2.50
directly enter production but act as catalysts to				70.00
production.				10
Finished goods				5
The goods which are ready for consumers are called				10.00
finished goods. It serves s a buffer production and				100.00
market.				50.00
Materials cycle				100.00
Materials management is basically concerned with the				Monthly
flow of raw materials within the manufacturing				consumption statement:-
operation and flow of finished goods within the				Stores account department prepares a monthly
business operations. It is a circulatory flow and				consumption statement of both spares and stores.
hence its gets repeated within the stipulated interval				The three main statements prepared are:
of either time or process.				Stores statement
The circulatory flow of materials is described as				Spares statement
materials cycle. It consists of the following stages.				Others Spares statement
1. materials planning				Details of the consumption particular are sent to the
2. sourcing				concerned departments to verify their consumptions
3. purchasing				for the month:
4. receiving and inspection				Stores accounts also take details of purchase
5. storing				statement from the stores ledger and tally with the
6. issuing				stores purchase book.
Materials planning				Inventory stock register:
Different types of materials are required in different				The stock register is maintained by the department
quantities and at different times. The techniques of				from which closing stock at the end of every month
materials planning helps in predicting the material				is arrived. Details shown in the stock register are as
requirements. Based on sales forecast and				follows:
production plants, materials’ planning is done.				Departments
Sourcing				Opening stock
Most of the firms receive the raw materials from				Purchase
outside sources. The firms should take efforts in				Issues
order to explore mere and more sources. So that				Adj.
materials are guaranteed and are made available at				Issues
competitive terms and conditions.				Less Adj.
Purchasing				Stock return
Purchasing stage looks after the procurement of raw				Net issues
materials and replenishment of the existing				Closing
materials. The important facts of purchasing are				Closing stock:
identification of specific needs, selection of supplier on				Closing stock: opening stock + purchase –
the basis of scientific scrutiny, negotiations with				issues – additional Adjustment Issues + Less
selected suppliers. Settlement of terms and placing				Adjustment Issues + Stores Return Adjustment.
of orders.				Net issues: issues + additional adjustment issues
Receiving and inspection				– less adjustment issues – store return.
On the receipt of the consignment from the supplier,				Sundry parties’ stores ledger:
the receiving section unloads the materials at the				To ensure proper payment for the suppliers and in
delivery bay, the contents are compared with				view of audit purpose a regular sundry creditor’s
packing slip and purchase order. The condition of				stores supplier account is being maintained. A
the materials is also verified to note that they are				separated ledger having individual folio for each and
not received in damaged conditions.				every supplier is available with store accounts
Storing				section. Credit entries are taken for individual
The time of receipt and the time of issue of most of				suppliers from stores purchase daybooks, debit
the materials are not the same. In between such				entries are taken from the cashbook maintained by
time gap, the materials are properly stored and				accounts department and monthly review of individual
preserved. Storing function includes provision of				supplier transaction is done. Trial balance is taken to
storage space containers and location of store room				check the overall position of the ledger. Quarterly
and materials.				review of supplier’s transaction is done to check
Issuing				the debit balance lying with the supplier in respect of
Materials are stored with a view them as and when				advance payments given for supply of materials.
required by the production departments. Materials				Capital ledger: capital ledgers are maintained
represent the monetary value so they are issued				separately to show the purchase of capital goods e.g.
only against the materials requisition. On the basis of				Machinery, fans, refrigerators etc.
requisition materials are issued to respective				Comparative statement:
departments and then entries are made.				Comparative statements are prepared for analyzing
Purchase procedure in the unit:				the increase or decrease in consumption. Once in
Raw material (cotton) purchase and stores				every 6months, the stores accounts department
procedures				prepares the statement and sends it to the
Cotton is considered the important raw material in				department concerned indicating the quantity of
AFT here; there is a separate section in the purchase				items consumed. They check the amount
department, which functions for the purchase of				consumed with the standards fixed already. If they
cotton as and when required.				are found to have consumed more they try to
The procedures for purchase of stores and then				reduce their consumption. The comparative
distribution are same as that of purchase of stores				statements are also used for studying the materials
and issue of stores and spares.				and rectifying the defects.
Here, the purchase section has the responsibility to				Annual confirmation:
maintain all the appropriate records relating to cotton,				At the end of every year the stores accounts
unlike of spares and stores. It has separate general				sections sends printed forms stating the balance the
store. It is also done in the same way as general				company has to pay to that particular supplier. This
store of spared and stores.				is known as annual confirmation and is also send to
Stores and spares purchase procedure:				the supplier to verify the balance account. The
Determination				confirmation and the trial balance taken at the close
of purchase budget				of annual accounts is subject to the approval of
Based on the previous years consumption of stores				statutory Auditors.
and spares, an appropriate amount is allotted for the				Claim register:
current year.				Claim register is maintained for the particulars of the
Receipt of purchase requisition (indents)				claim made against the party. The claim particulars
The indents are dividend in two categories:-				are posted in the claim ledger from credit side of
Want sheet: - This is based on the stock position				purchase day book.
which is maintained by the stores department from				Inventory control:
the bin card system.				The word inventory is defined as materials lying in
A FORM:				storage. The general stores adopt the following
This is non regular indent which is drawn up by the				methods of inventory control.
concerned department for their requirement which is				ABC Analysis
not covered under the stock position.				It is also known as always better control and is a
These indents are sent to the purchase for				new technique of stock control. The basic principle
processing.				involved in this method is that high value items are
The want sheet is raised by the stores department				more closely related than low valve items. Under
based on the stock position of the last three months				this system, items of materials are given A, B, or C
consumption and quantity of three months				designation depending upon the amount expanded
requirements and is incorporated on the want sheet				for the particular item during the period.
with staggered delivery.				A item represent large value for few items.
Inviting tenders/quotation-				B items are numerous but represent smaller amount
The indents are dividend based on the category of				of money.
the material.				The rest of the items are called C items classified as
Tenders are floated to various parties when the				class a items. Items costing between Rs.1000/-and
value of the material exceeds over a lakh.				Rs.1000/- are classified as class B items.
The quotations are received in sealed covers				Items which cost below Rs.1000/- are called calls C
addressed to the managing Director. It is opened in				items. Class a items constitute 75% of the value,
the presence of the purchase committee. Based on				but form only 5% to 10% of the total quantity.
the lowest quotations the order is finalized.				Class B items constitute 20% of the quantity and the
For all other indents, enquiries are sent out and based				rest of the items form C category.
on the lowest the orders are placed after getting the				The general stores department serves the objective
approval of the purchase committee.				of effective control at minimum cost by this
Placing orders				approach of ABC analysis.

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A Study on Materials Management of Anglo French Textiles in Pondicherry

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