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A PROJECT REPORT ON

__________________________________________________
AT
_____________________________________________
HYDERABAD
A PROJECT REPORT SUBMITTED TO

OSMANIA UNIVERSITY
HYDERABAD
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE IN
BACHELORS OF BUSINESS ADMINISTRATION
SUBMITTED
BY
_________________________________
_______________________________
VILLA MARIE PG COLLEGE FOR WOMEN;
SOMAJIGUDA- 82
2014-2016

DECLARATION

I the undersigned solemnly declare that the report of the summer training work entitled
study on _____________________________________________ is based on my work
carried

out

during

the

course

of

my

study

under

the

supervision

of

________________________________

_____________________________________&

Mrs_______________________________, Faculty, Department of Management. Villa Marie


Degree College
I assert that the statements made and conclusions drawn are an outcome of the project
work. I further declare that to the best of my knowledge and believe the project report does not
contain any part of any work which has been submitted for the award of any other degree/
diploma/ certificate in this university or any other university.
_______________________
(Signature of the student)
DATE:
PLACE:

ACKNOWLEDGEMENT

I am extremely grateful to Principal Dr. Y. Philomena and the Department of B.B.A for giving
me the opportunity of learning through this research project. It has been an excellent and
rewarding experience, and has immensely increased my knowledge.

I wish to express my sincere gratitude and appreciation to my project guide and mentor,
Ms.____________________, Head of Department, Department of Business Administration, for
her support, guidance and encouragement.

I would also like to extend special thanks to my family and friends who have been a constant
source of support and encouragement. Without them, this project would not have been
materialized.

_______________________
(Signature of the student)
DATE:
PLACE:

TABLE OF CONTENTS

Chapter No.

Description

Chapter I

Introduction
Introduction
Need of study
Scope of study
Objectives of the study
Research Methodology
Data Collection
Limitations of the study

Chapter II

Review of literature

Chapter III

Company Profile

Chapter IV

Data Analysis and Interpretation

Chapter V

Findings and Conclusions

Chapter VI

Suggestions and Recommendations


Bibliography
Annexure

Abstract

Inventory management is big issue today, it gives one company competitive edge over other
companies. The word inventory refers to any kind of resource having economic value and is
maintained to fulfill the present and future needs of an organization. Fred hansman defined
inventory as an idle resource of any kind provided such a resource has economic value.
Inventory of resources is held to provide desirable service to customers and to achieve sales
turnover target. Investment in large inventories adversely affects firms cash flow and working
capital as investment in inventory represents substantial portion of total capital investment in
any business. It is in therefore essential to balance the advantage of having inventory of
resources and the cost of maintain it so as to determine an optimal level of inventory of each
resource so that total inventory cost is minimum. Holding of stock is expensive so controls are
needed to ensure that stock level remains as low as possible. Stocks should be controlled using
rational policies to balance between holding cost and demand. One such policy is ordering
ECONOMIC ORDER QUQNTITY for stock replenishment at this point holding cost reduces
significantly and total annual inventory cost is lowest. Though maintaining exact EOQ is
sometime not possible working in the vicinity of it results in lower total annual inventory cost.
Holding cost is straight line that is it directly varies with ordering quantity (according to classic
EOQ model) is fairly true if product is non perishable, but in real life situation and specially in
the case of perishable item it is a curve, we will see it through data provided by Spensers mall
through examples and regression analysis. This happens because in case of perishable items
holding cost is not constant again threat of spoilage forces companies to adopt mark down
policy.

Chapter I
Introduction

In corporate finance, economic order quantity (EOQ) is the order quantity that minimizes
the total holding costs and ordering costs. It is one of the oldest classical production scheduling
models. The framework used to determine this order quantity is also known as Wilson EOQ
Model, Wilson Formula or Andler Formula.

EOQ applies only when demand for a product is constant over the year and each new order is
delivered in full when inventory reaches zero. There is a fixed cost for each order placed,
regardless of the number of units ordered. There is also a cost for each unit held in storage,
commonly known as holding cost, sometimes expressed as a percentage of the purchase cost of
the item.
We want to determine the optimal number of units to order so that we minimize the total cost
associated with the purchase, delivery and storage of the product.
The required parameters to the solution are the total demand for the year, the purchase cost for
each item, the fixed cost to place the order and the storage cost for each item per year. Note that
the number of times an order is placed will also affect the total cost, though this number can be
determined from the other parameters.

Objective of study:

To develop EOQ model ,calculate EOQ of an item and show that at this point total annual
inventory cost is minimum and to show that holding cost is not constant it varies with time in
case of perishable items that is it is not straight line but a curve at Parle Agro, Hyd.

Scope of the Study:

I have visited Parle Agro Industry, Hyderabad. I find out economic order quantity by classic
EOQ model.EOQ provides information about how much to order, it is the point where trade off
between annual holding cost and annual order cost and total inventory cost is minimum. In real
life holding cost in not constant as assumed by classic EOQ model where it is a straight line, it
is actually a curve. We show through regression analysis the dependability of holding cost on
number of days.

Need of the Study:

Small businesses require an efficient inventory system to maximize profit. The Economic Order
Quantity model is a commonly used element of a continuous review inventory system. It is
based on a formula that calculates the most economical number of items a business should order
to minimize costs and maximize value when re-stocking inventory. Small business owners
should evaluate the advantages and disadvantages of this inventory model before implementing
it, as it is crucial and it is the reason for choosing the topic.

Research Methodology:

In view of the objectives of the study an expletory research is one. Which cargely interprets the
already available information, and it lays particularly explains on analysis and interpretation of
the existing and available information. It makes use of secondary dated.

SOURCES OF DATA:

The study is based on secondary data and discussing with the officials of the company the
secondary data consists of the annual reports of Parle Agro. Yarning other reports are collected
from the company's magazines, published book and from web sites.

LIMITATIONS OF THE STUDY:

The information used is primary from historical annual reports available to the public and
the same does not indicate the current situation of the firm.

Detailed analysis could not be carried for the project work because of the limited time
gone.

Chapter II
Review of Literature

Small businesses require an efficient inventory system to maximize profit. The Economic Order
Quantity model is a commonly used element of a continuous review inventory system. It is
based on a formula that calculates the most economical number of items a business should order
to minimize costs and maximize value when re-stocking inventory. Small business owners
should evaluate the advantages and disadvantages of this inventory model before implementing
it.

Minimizes Storage and Holding Costs

Storing inventory may be expensive for small business owners. The main advantage of the EOQ
model is the customized recommendations provided regarding the most economical number of
units per order. The model may suggest buying a larger quantity in fewer orders to take
advantage of discount bulk buying and minimizing order costs. Alternatively, it may point to
more orders of fewer items to minimize holding costs if they are high and ordering costs are
relatively low.

Specific to the Business

Maintaining sufficient inventory levels to match customer demand is a balancing act for many
small businesses. Another advantage of the EOQ model is that it provides specific numbers
particular to the business regarding how much inventory to hold, when to re-order it and how
many items to order. This smooths out the re-stocking process and results in better customer
service as inventory is available when needed.

Complicated Math Calculations:

The EOQ model requires a good understanding of algebra, a disadvantage for small business
owners lacking math skills. Additionally, effective EOQ models require detailed data to
calculate several figures. For example, the key formula of the model calculates the square root
of 2DS/H, where D is the number of units purchased annually, S is the fixed ordering charge,
and H is the holding cost per unit. Rent or mortgage payments, utility costs and property taxes
are required just to calculate H.

Based on Assumptions:

The EOQ model assumes steady demand of a business product and immediate availability of
items to be re-stocked. It does not account for seasonal or economic fluctuations. It assumes
fixed costs of inventory units, ordering charges and holding charges. This inventory model
requires continuous monitoring of inventory levels. The effectiveness of the basic EOQ model
is most limited by the assumption of a one-product business, and the formula does not allow for
combining several different products in the same order.

Economic order quantity (EOQ) is an equation for inventory that determines the ideal order
quantity a company should purchase for its inventory given a set cost of production, demand
rate and other variables. This is done to minimize variable inventory costs, and the formula

takes into account storage, or holding, costs, ordering costs and shortage costs. The full

equation is as follows:

where :
S = Setup costs
D = Demand rate
P = Production cost
I = Interest rate (considered an opportunity cost, so the risk-free rate can be used)

BREAKING DOWN 'Economic Order Quantity - EOQ':

The EOQ formula can be modified to determine different production levels or order interval
lengths, and corporations with large supply chains and high variable costs use an algorithm in
computer software to determine EOQ.

How Inventory Impacts Cash-Flow Planning:

EOQ is an important tool for management to minimize the cost of inventory and the amount of
cash tied up in the inventory balance. For many companies, inventory is the largest asset
balance owned by the company, and these businesses must carry sufficient inventory to meet
the needs of customers. If EOQ can help minimize the level of inventory, the cash savings can
be used for some other business purpose.

Factoring in a Reorder Point:

One component of the EOQ formula calculates a reorder point, which is a level of inventory
that triggers the need to place an order for more inventory. By determining a reorder point, the
business avoids running out of inventory and is able to fill all customer orders. If the company
runs out of inventory, there is a shortage cost, which is the revenue lost because the company
does not fill an order. Having an inventory shortage may also mean the company loses the
customer or the client orders less in the future.

Example of Using EOQ:

EOQ takes into account the timing of reordering, the cost incurred to place an order and costs to
store merchandise. If the company is constantly placing small orders to maintain a specific
inventory level, the ordering costs are higher, along with the need for additional storage space.
Assume, for example, a retail clothing shop carries a line of mens jeans and the shop sells
1,000 pairs of jeans each year. It costs the company 5 per year to hold a pair of jeans in
inventory, and the fixed cost to place an order is 2. The EOQ formula is the square root of: (2 X
1,000 pairs X 2 order cost) / ( 5 holding cost), or 28.284 with rounding. The ideal order size to
minimize costs and meet customer demand is slightly over 28 pairs of jeans. A more complex
portion of the EOQ formula provides the reorder point.

EOQ applies only when demand for a product is constant over the year and each new order is
delivered in full when inventory reaches zero. There is a fixed cost for each order placed,
regardless of the number of units ordered. There is also a cost for each unit held in storage,
commonly known as holding cost, sometimes expressed as a percentage of the purchase cost of
the item.

We want to determine the optimal number of units to order so that we minimize the total cost
associated with the purchase, delivery and storage of the product.

The required parameters to the solution are the total demand for the year, the purchase cost for
each item, the fixed cost to place the order and the storage cost for each item per year. Note that
the number of times an order is placed will also affect the total cost, though this number can be
determined from the other parameters.
Variables

= purchase unit price, unit production cost

= order quantity

= optimal order quantity

= annual demand quantity

= fixed cost per order, setup cost (not per unit, typically cost of ordering and shipping
and handling. This is not the cost of goods)

= annual holding cost per unit, also known as carrying cost or storage cost (capital cost,
warehouse space, refrigeration, insurance, etc. usually not related to the unit production
cost)

The Total Cost function and derivation of EOQ formula

Classic EOQ model: trade-off between ordering cost (blue) and holding cost (red). Total cost
(green) admits a global optimum. Purchase cost is not a relevant cost for determining the
optimal order quantity.
The single-item EOQ formula finds the minimum point of the following cost function:
Total Cost = purchase cost or production cost + ordering cost + holding cost
Where:

Purchase cost: This is the variable cost of goods: purchase unit price annual demand
quantity. This is P D

Ordering cost: This is the cost of placing orders: each order has a fixed cost K, and we
need to order D/Q times per year. This is K D/Q

Holding cost: the average quantity in stock (between fully replenished and empty) is
Q/2, so this cost is h Q/2.

To determine the minimum point of the total cost curve, calculate the derivative of the total cost
with respect to Q (assume all other variables are constant) and set it equal to 0:
Solving for Q gives Q* (the optimal order quantity):
Therefore:
Economic Order
Quantity

Q* is independent of P; it is a function of only K, D, h.


The optimal value Q* may also be found by recognizing that
where the non-negative quadratic term disappears for which provides the cost minimum
Example

Suppose annual requirement quantity (D) = 10000 units

Cost per order (K) = 2

Cost per unit (P)= 8

Carrying cost percentage (h/P)(percentage of P) = 0.02

Annual carrying cost per unit (h) = 0.16

Economic order quantity = = 500 units


Number of orders per year (based on EOQ)
Total cost
Total cost
If we check the total cost for any order quantity other than 500(=EOQ), we will see that the cost
is higher. For instance, supposing 600 units per order, then
Total cost
Similarly, if we choose 300 for the order quantity then
Total cost
This illustrates that the economic order quantity is always in the best interests of the firm.
Quantity discounts

An important extension to the EOQ model of Wilson is to accommodate quantity discounts.


There are two main types of quantity discounts: (1) all-units and (2) incremental.[4][5] Here is a
numerical example:

Incremental unit discount: Units 1100 cost 30 each; Units 101199 cost 28 each;
Units 200 and up cost 26 each. So when 150 units are ordered, the total cost is 30*100
+ 28*50.

All units discount: an order of 11000 units costs 50 each; an order of 10015000 units
costs 45 each; an order of more than 5000 units costs 40 each. So when 1500 units are
ordered, the total cost is 45*1500.

Design of optimal quantity discount schedules


In presence of a strategic customer, who responds optimally to discount schedule, the design of
optimal quantity discount scheme by the supplier is complex and has to be done carefully. This
is particularly so when the demand at the customer is itself uncertain. An interesting effect
called the "reverse bullwhip" takes place where an increase in consumer demand uncertainty
actually reduces order quantity uncertainty at the supplier.

Other extensions
Several extensions can be made to the EOQ model developed by Mr. Pankaj Mane, including
backordering costs and multiple items. Additionally, the economic order interval can be
determined from the EOQ and the economic production quantity model (which determines the
optimal production quantity) can be determined in a similar fashion.

A version of the model, the Baumol-Tobin model, has also been used to determine the money
demand function, where a person's holdings of money balances can be seen in a way parallel to
a firm's holdings of inventory.
Malakooti (2013) has introduced the multi-criteria EOQ models where the criteria could be
minimizing the total cost, Order quantity (inventory), and Shortages.

In the era of recession every firm is trying to cut their cost and inventory cost plays a vital role
in this. Managing inventory properly is an important means of controlling costs and, thereby,
improving the profitability of firm. Since a higher quantity is not best and a lower quantity is
not best there must be some Economic order quantity (EOQ) which minimizes the total
variable costs of inventory. Total variable costs are usually computed on an annual basis and
include two components, the costs of ordering and holding inventory.

Annual ordering cost is the number of orders placed times the marginal or incremental cost
incurred per order. This incremental cost includes several components: - The costs of preparing
the purchase order, paying the vendor's invoice, and inspecting and handling the material when
it arrives. It is difficult to estimate these components precisely but a ball-park figure is good
enough.

The holding costs used in the EOQ should also be marginal in nature. Holding costs include
insurance, taxes, and storage charges, such as depreciation or the cost of leasing a warehouse.
Some of the firms also include the interest cost of the money tied up in inventory.
In classic EOQ model as the quantity increases holding cost increases proportionally i.e. it
remains linear to the function of time but in real life the cumulative holding cost is a convex
function of time curve because the handling and holding costs together increases with

cumulative increase in cost per day because of wastage, pilferage and obsolescence. This
happens in the case of perishable goods, such as milk and produce, sold in small to medium size
grocery stores, because these products are perishable, meeting a constant demand over time
with an aging product may require markdowns in their prices or removal of spoiled products.
The use of either practice can be molded as convex holding costs with time.
Elements of Inventory Cost:Many inventory decision rules involve economic criteria. Thus, it is very important to
understand the cost of inventory, which may be broken down into the following details.

Item Cost - This is the cost of buying/producing the individual inventory items. Item cost may
be lowered by mass production due to the economies of large scale. Item cost of a bulk
purchase is often lowered by a bulk (trade) discount.
Cash (settlement) discounts may not be taken into account because an early payment decision is
usually not within the inventory management system.
Freight cost (also import duties and so on) may be part of the item cost if it varies with the
number of items purchased. The item cost can usually be estimated, with good accuracy,
directly from historical records.

Ordering/Setup cost -The ordering cost is associated with ordering a batch or lot of items.
Ordering cost does not depend on the number of items ordered; it is assigned to the entire
batch. This cost includes: typing cost and postage of the purchase order, bank charges on letter
of credit and bill process, expediting the order, receiving and inspection costs, and so on.
Transportation cost and handling charges may be included if they are fixed per order of
purchase.
Similarly, for a manufacturing concern, setup cost is those costs associated with placing an

order of a batch of items to be produced irrespective of the number of items in the batch. It
includes: paperwork of the production order, costs required to set up the production machine for
a

run,

chasing

the

order,

and

so

on.

The ordering/setup cost can also be determined from company records. However, difficulties
are sometimes encountered in separating fixed and variable cost components. The ordering cost
should include only the fixed costs for each order irrespective of its size for decision making
purposes.

Holding (or Carrying) Cost -The holding cost is associated with keeping items in inventory
for a period of time. It is typically charged as a percentage of the item cost per unit time. The
holding

cost

usually

consists

of

three

components:

(a) Opportunity cost of capital When items are carried in inventory, the capital invested is not
available

for

other

purposes.

(b) Cost of storage This cost includes variable space cost, insurance, wages, protective
clothing/containers,

and

so

on.

In theory, only variable costs are included because fixed costs remain unchanged for different
sizes of reorder quantity when we, say, consider the economic order quantity.
(c) Costs of obsolescence, deterioration and loss Obsolescence costs, including possible
rework or scrapping, should be assigned to items which have a high risk of becoming out of
fashion. Perishable goods should be charged with deterioration costs which include costs of
preventing deterioration. The costs of loss include pilferage and breakage costs associated with
holding

items

in

inventory.

The holding cost is more difficult to determine accurately. The opportunity cost of capital
cannot be directly derived from historical records but may only be estimated on the basis of
current financial considerations. Costs of storage, obsolescence and etc can be estimated from

company records plus special cost studies; however, it is difficult to separate the fixed and
variable components and only to include those variable ones into the holding cost. The effect of
price level changes is the most difficult one for estimation.

Stockout Cost - It reflects the economic consequences of running out of stock. There are two
cases here. First, items are backordered. Second, the sales are lost. In cases, the cost of
administration on backorders, the loss of profit from the sales forgone, and the savings on
holding less inventory may be calculated. However the loss of goodwill or future business
associated with both cases is very difficult to calculate and is often handled indirectly by
specifying an acceptable stockout risk level.

EOQ MODEL: - The economic order quantity model is a classic independent demand
inventory system that provides many useful ordering decision .the basic question the correct
order size to minimize total inventory cost . this issue revolves around the trade off between
annual holding cost and annual order cost . the EOQ model seeks to determine an optimal order
quantity where the sum of annual order cost and the annual inventory holding cost is minimized
.
Assumptions of the economic order quantity model
1 the demand is known and constant.
2 delivery times is known and constant
3 replenishment is instantaneous
4 prices is constant
5 the holding cost is known as constant
6 ordering cost is known and constant
7 stock outs are not allowed

Derivation of EOQ: The economic order quantity can be can be derived easily from the total
annual inventory cost formula using simple calculus the total inventory cost is the sum of the
annual purchase cost , the annual holding cost and the annual order cost. The formula can be
shown as
TAIC =APC+AHC+AOC =(R*C) + (Q/2*h*C) + (R/Q*S)
TAIC = total annual inventory cost
APC= annual purchase cost
AHC = annual holding cost
AOC =annual order cost
R = annual demand
C =purchase cost per unit
S = cost of placing one order
h = holding cost rate, where annual holding cost per unit = h*c
Q= order quantity
Q is the only known variable in the TAIC equation. The optimum q can be obtained by taking
first derivative of TAIC with respect to Q and then setting it to equal to zero.
Ex d(TAIC)/dQ= 0 +(1/2 *h*c) +(-1*R*S*1/Q^2)
= hc/2- RS/Q^2
Now setting it equal to zero
Hc/2 RS/Q^2 = 0
Hc/2 = RS/Q^2
Q^2

=2RS/hc

EOQ = (2RS/hc)^1/2
The second derivative of TAIC is

Ex

d^2(TAIC)/Dq^2=0-(-2*RS/Q^3) = (2RS/Q^3) IS GREATER THAN OR EQUAL TO

ZERO. Implying TAIC is at its minimum.

Chapter III
Company Profile

Parle Agro is a company that has always believed in Innovation, Quality and Taste. It has
launched fantastic product that have been extremely successful across the country. Their brands
Frooti, Appy, N-joi, Appy Fizz and Bailley are leaders in their categories and are household
names in India.

They have always been a pioneer in whatever they have done.

Frooti- The first tetra pak in India & the first National Mango Drink.

Appy- First apple Nectar and First beverage in all black tetra Pak.

N-Joi- The first real fruit and dairy fresh milk product available in India.

Bailley- The First Packaged Drinking Water to be accepted in airlines for in flight
consumption.

Appy Fizz- Appy Fizz, a connoisseurs delight, is a gently bubbling sparkling apple
drink.

As one of the leaders in the Beverage industry, Parle Agro remains at the forefront of the
many innovations, which the industry is seeing today. Plans are afoot to launch many new
products, which will continue to refresh the Indian consumer.

PARLE AGRO BUSINESS STATEMENT

We are in the business of refreshing India with our products, refreshing the market with
new categories and refreshing ourselves through innovation.

Parle Agro Vision:

Our vision is to be the leaders in our business. We will stand apart from the competition by being the first in the market to innovate, to introduce new products and create new
categories.

PARLE AGRO MISSION

We will be the leaders in our business by maintaining high quality, introducing new and
innovative products, reaching every part of India, remaining customer-centric, constantly
upgrading our knowledge and skills.

PRODUCTS

Parle Agro brings to their consumers the magic of premium fresh fruit drinks
conveniently packed and available all through the year. Fruit beverages are wholesome, easy to
digest, highly refreshing with natural nutritional values as compared to synthetic and aerate
drinks. Parle Argos fruit drinks are popular with teens and children not only in India, but also
in many countries across the world.

FROOTI:

Indias first real fruit drink in Tetra Pak is available in three delicious varietiesMango, Chatpatta Aam, Frooti Gauve. Frooti mango is made from premium Indian mangoes.

Fun loving and Bindaas that is what Frooti, Indias national mango drink is all
about. Launched in November 1985, Frooti started a revolution in Indias beverage market by
becoming the first drink to be sold in cool and convenient Tetra Pak packaging. It was an instant
hit with consumers, continues to dominate as the favorite mango drink of Indians. As they say,
refreshment doesnt get any better then a fresh and cool Mango Frooti.

Frooti is a natural mango drink, which means it contains actual fruit pulp. Its all year
availability ensures that you can enjoy the taste of the beat-grown mangoes conveniently
throughout the year. Tetra Pak technology ensures that the drink is preservative free and retains
its good quality and freshness.
Frooti is available in wide range of pack sizes varying from 65ml Tetra Pak for kids to a
to 2L PET bottle for home consumption. However, the classic 200ml Brik pack remains as one
of the most popular packs that helped Frooti gain identity and popularity in the initial days of its
launch. The recently launched conical Tetra Pak at rs.2.50 is a value for money pack and
appeals to anyone looking for just a sip of their favorite drink.
Frooti, being one of the favorite Indian beverage brands has a wide appeal extending
across age groups and lifestyles. Frooti consumers vary from the kid next door to the hip
youngster at a rave party, to the housewife who wants to provide her family with the best
quality drink. Overall, Frooti is a fun drink for any time consumption.

With its recent pack change, diverse pack and price offerings and international looks,
Frooti continues to refresh and woo the Indian audiences.

A broad preference chart is given below:

SKU
Brik pack

Content

MRP

TG

200ml

Rs.10

kids

Slim pack
PET

200ml
250ml

Rs.10

Teens & Young Adults

Rs.12 Teens Young Adults &on


the go usage

PET

500ml

Rs.18

Teens Young Adults

& on the go usage


PET

1000ml

TCA

65ml

Rs.30

Home consumption

Rs.2.50

LowerSECs,Kids,
Adults

N-Joi:

Indias first real fruit and milk drink is available in two varieties, made from premium
alphonso mangoes and hand picked strawberries along with easy to digest cows healthy milk.
N-Joi contains no

preservatives. It is full of nutritional goodness and delicious filler. Aimed at young working
adults, N-Joi provides consumer with quick refreshing nourishment in their hectic; first paced
stressful life.

First Real Fruit & Dairy Fresh Milk drink launched in 2002 in a Tetra-Pak giving
the consumer a delicious mix of fresh fruits with the goodness of real milk. Its a modern new
drink ideal for teen and young adults who have fast paced lifestyle.

Perfect replacement to breakfast and an ideal accompaniment for a sandwich or a snack


for who has a racy lifestyle, full of stress with no time for either breakfast or a snack.

N-Joi is a rich source of vitamins, minerals and other vital nutrients. Excitingly different
from flavored milk drinks available in the market.

SKU (Tetra pak slim)

content MRP

N-Joi Mango 200ml

27 packs in a case Rs.15

N-Joi Strawberry 200ml

27 packs in a case Rs.15

PARLE BAILLEY:

Popularly known as the fastest growing packaged water brand Parle Bailley Aqua is
produced at 17 manufacturing units provide the discerning Indian consumer fresh and pure
packaged water.
Water, water everywhere, but not a drop to drink from the Rhyme of the Ancient
Mariner is perhaps a fitting description of the dilemma faced by a lot of Indians today. Access
to safe drinking water is a challenge faced by most in Indias cities and villages. It was this
pressing need that led Parle Agro to introduce Bailley its brand of packaged drinking water in
1993. Recognized today as one of the leading packaged drinking water of India, Bailley

provides a safe and suitable alternative to tap water, in a country where the availability of
reliable drinking water is a serious issue.
Bailley today features amongst the top 3 packaged drinking water brands in India. It is
known for its consistent quality and was one of the first packaged drinking water brands in
India to be certified by ISI. Before being bottled, Bailley undergoes 100% UV treatment,
followed with stringent quality tests to ensure that every customer gets the purest water. It has
been rated as one of the most natural packaged drinking water brands available in India today.
With a range of pack sizes, Bailley seeks to address the consumption needs of reliable drinking
water across a host of age groups

and occasions. The latest advertising campaign Jitne Badi Pyaas, Utna Bada Bailley also
highlights this. Currently Bailley is available in 300ml,1 liter and 2 liter PET bottles, and 5 liter
and 20 liter bulk jars for in-home and office consumption. Bailey is also the only brand of
packaged drinking water to be available in 200ml PET bottles for in flight consumption across
major domestic airlines in India.
The label design for Bailley in attractive and eye catching blue make the brand look premium
and exclusive. Bailleys consumption spans age groups and social classes and is especially
popular among adults who seek a better quality of life and a healthier lifestyle. A nationwide
availability driven by a strong Franchisee and Distribution network make it the trusted brand of
millions of consumers.

APPY:

This deliciously light and refreshing apple drink is made from orchard fresh apples. A
favorite with the young generation as a tasty healthy, nourishing drink.

Appy an apple nectar is one of Indias great refreshing beverage, making a big splash in
the Indian market.
Initially introduced in 1986 as an apple drink, Appy was relaunched as an apple nectar in
1993. The brand has seen phenomenal

success since then & has gained popularity amongst the teens & young adults who are looking
to discover unique & mature flavor of a crisp apple.

Appy is classy, refreshing apple nectar made of juicy rich apples, which rejuvenates the
taste buds, & lends its consumers a touch of class. It is a light and refreshing drink with a
distinctly different and crisp taste of best grown apples. The golden yellow color of the drink is
compared to champagne. The drink is free of preservatives & is a suitable drink for any
occasion. Appy is also a rich source of vitamins; minerals & iron nutrients and is perfect for the
health conscious consumer.
Appys all black pack and graphics break the clutter & make it stand out amongst
other juice brands in the market. The pack graphics and the color cue in a premium image to the
consumers of the brand. The pull-tab on the pack adds value to the consuming experience.
Appy is currently available in 200ml Tetra Pak priced at Rs.10.
Consumers across India, particularly teens, fondly associate Appy with special times with
friends. Appy is also seen as a perfect companion to enliven every moment of joy & happiness.
Its an exceptional drink that makes you celebrate life.
Appy is a bold brand that embodies young values & attitude. Its taste appeals to teens &
young adults who are looking to get most out of

their life & most out of their drink. Appy continues to build a loyal following amongst its target
group who love them. It complements their personality & sets them a breed apart. Its
invigorating taste & radical pack has revitalized the beverage category.

APPY FIZZ:

Tantalize and refresh your taste buds with Appy Fizz a perfect blend of exotic apples,
with a zing that gives you a light crisp taste of the best-grown apples in India.
Appy Fizz, a connoisseurs delight, is a gently bubbling sparkling apple drink. Its fullbodied flavor embodies a delectable experience to be savored to the very end. The sparkling
golden color of the drink adds to the premium ness & lends the drink the look of the premium
champagne.
Appy Fizz is available in 300ml & 500ml PET bottles with distinctive champagne like
appearance. These are light to carry & easy to dispose off!
Appy Fizz is sure to add bliss across seasons as it is or as a mixer in your favorite
cocktails or mock tails.
Appy Fizz is different from regular drinks available in the market. It is a non synthetic
caffeine free drink, which has got benefit of real fruit content along with slight zing to liven up
every sip.
Its light tingling fizz and crisp apple taste in every sip would keep you wanting more.

V3 HEALTH & FITNESS STUDIO

V3 Health & Fitness Studio established on OCTOBER 2003 is a womans world. A


space for every woman, where the mind & body are trained to be a healthy place to live in. here
the lifestyle makes one statement VERVE VIGOR VICTOR!

V3 believes in quality of life. For that quality you must balance the mind and body. At
V3 and you will find constant movement in thought keeping your mind young and full of
vitality (VERSE) you find a source of endless energy and strength humming thorough your
body (VIGOR) and creating symmetry within it making you a VICTOR.

A variety of group exercise activities are performed on an hourly basis. Classes start
from early morning to late evening. The group exercise studio holds classes that range from
slow paced low impact classes such as Tai Chi and yoga, to danced based classes such as
Bollywood Dhamaka, Jazzercise and Aero-dance to body conditioning classes such as group
weight training and traditional step Aerobics class.

All the classes have one purpose in mind. That is to serve every woman to reach her
goals in fitness both mind and body fitness. To achieve weight loss, toning, muscle definition,
relaxation, de-stressing and aver all better quality of life.

PET DIVISION

Polyethylene Terepthalate or PET is non-toxic food grade plastic, hygienic,


lightweight and sturdy which makes it a good packaging material. Parle Bailley is packaged in
PET bottles and containers. As part of its backward integration, Parle Agro has diversified into
the manufacture of PET preforms in association with Parle International Limited.

The Rs.500 million preforms manufacturing facility is located at silvassa in the


Union Territory of Dadra and Nagar Haveli. Silvassa has a well-developed infrastructure and
support network, with excellent communication facilities, easy accessibility by road and rail,
low cost power and warehousing. The silvassa factory is ISO 9002 certified, with a capacity of
8, 50,000 Pet preforms and 5, 25,000 closures per day.

At Silvassa, Husky and Krauss Maffei machinery are used for preforms injection
moulding. These machines have high level of automation, accuracy and are capable of handling
15 tonnes of raw material per day to produce up to 13 different styles of preforms. The closures
to match the performs are manufactured using hi-tech Arburg and Demag systems.

The Silvassa factory caters to the requirements of reputed customers such as


Hindustan Lever Ltd, Postman, Pearl Polymers Ltd, Atco Healthcare Ltd, DS Foods Ltd of
Pass-Pass fame and customers at Sri-Lanka, Ethiopia, Tanzania, etc. along with Parle Agros
Bailley Franchisees.
ORGANISATION CULTURE

Parle Agros Culture:

They at parle, have a closely-knit culture where the workplace is like an extension of
the family. Parle Agros employees are free to approach their superior or even the top
management with any issue, suggestions or concerns and get a fast and constructive response.

Parle Agros HR policies are prepared and updated from time to time and guide their
employee in the various areas of their work life.
Parle Agro Ltd. has an annual appraisal system, wherein different job related parameter have
been set at different levels (field and non field). This helps Parle Agro to appraise the
performance of their employees as well as identify the training needs.

Over 500 highly

motivated employees make up the team at Parles.


Parle Agros Facilities:

Breakfast and Lunch (Buffet) are provided at the canteen in the companys premises at
very affordable rates. Tea/Coffee vending machines are also a meeting point within the
organization where a few minutes of relaxation can be enjoyed.

FRANCHISEE NETWORK

It has always been Parle Agros endeavor to deliver their products with their freshness
and wholesomeness intact at the same M.R.P. through out India. To achieve this, the franchisee
business concept was developed for the parle group. Parle Agro franchisee has its own
manufacturing unit and distribution system in a defined territory. The franchisee adheres to the
stringent quality norms laid by Parle Agro. The presences of franchisees across the country
ensures fresh stock availability throughout with minimal lead time, thus saving in
transportation, octroi costs and ensuring that the customer gets fresh product with the best
quality every time.

GROWTH

Sure Parle Agro is an organization. But thats to the outside world. To them parleians,
its family. And like any other family, Parle Agros relationship is based on communication and
sharing.
It was for this purpose that parle had launched Agrowth a quarterly magazine that
shares achievements, news and events across all their offices. What is also aimed to do was
inculcate a feeling of oneness and pride among all members of the family.

While Agrowth aims at appreciating performance of employees, it also strives to bring


out their hidden talents. Employees are encouraged to regularly contribute articles, poems,
stories and whatever else they want to share. Agrowth also chronicles important events in every
employees life. Weddings, birthdays and child birth, for example there is also a column that has
inspirational messages and quotes from renowned people.

Every issue of Agrowth brings one chosen employee into lime light. The feature covers
everything theres to know about the chosen one and bestows upon him a celebrity status.

Agrowth isnt distributed in the office. It is sent to the homes of employees. This not only adds
a personal touch to the magazine, but also brings the families of employees into Parle Agro
fold.
In short, Agrowth is both Aspirational and inspirational at once. It entertains, it stimulates and
most important it unites.

EXPORTS

EXPORT Department was established n December 2003. Export sales graph has seen a steep
rise of 547% in the year 2004 over 2003. Currently they have 55% growth (Aug 05) over 2004.
It is their mission to accelerate the upward trend year after year. Earlier only Frooti mango and
preforms was being exported, they exported Frooti green mango, Appy, N-Joi (Strawberry), NJoi (Mango) and also Bailley water in 200ml, 330ml, 1 liter and 2 liters.
Parle Agros Achievements:

Entered in U.A.E and Saudi Arabian market.

Entered U.K market.

Entered Malaysian market.

US market being catered by one buyer-HOS.

Re- Entered in Australia market

Preforms exported to Nigeria.

Frooti Drinks are being exported to:

UK, USA, CANADA, UAE, MALAYSIA, SINGAPORE, AUSTRALIA, NEW-ZEALAND,


MOZAMBIQUE, SAUDI ARABIA AND TANZANIA

Chapter IV
Industry Profile
Agro Industry Scenario
An Introduction
The agro industry is regarded as an extended arm of agriculture. The development of
the agro industry can help stabilise and make agriculture more lucrative and create
employment opportunities both at the production and marketing stages. The broadbased development of the agro-products industry will improve both the social and
physical infrastructure of India. Since it would cause diversification and
commercialization of agriculture, it will thus enhance the incomes of farmers and
create food surpluses.

The agro-industry mainly comprises of the post-harvest activities of processing and


preserving agricultural products for intermediate or final consumption. It is a wellrecognized fact across the world, particularly in the context of industrial development,
that the importance of agro-industries is relative to agriculture increases as economies
develop. It should be emphasized that food is not just produce. Food also
encompasses a wide variety of processed products. It is in this sense that the agroindustry is an important and vital part of the manufacturing sector in developing
countries and the means for building industrial capacities.

The agro Industry is broadly categorised in the following types:

(i) Village Industries owned and run by rural households with very little capital investment and
a high level of manual labour; products include pickles, papad, etc.
(ii) Small scale industry characterized by medium investment and semi-automation; products
include edible oil, rice mills, etc.
(iii) Large scale industry involving large investment and a high level of automation; products
include sugar, jute, cotton mills, etc.
The development of agro-based industries commenced during pre-independence days. Cotton
mills, sugar mills, jute mills were fostered in the corporate sector. During the postIndependence days, with a view to rendering more employment and using local resources, small
scale and village industries were favored.
The increasing environmental concerns will give further stimulus to agro based industries. Jute
and cotton bags, which have begun to be replaced by plastic bags, have made a comeback. It is
the right time to engage in mass production of low cost jute/cotton bags to replace plastic bags.
The agro industry helps in processing agricultural products such as field crops, tree crops,
livestock and fisheries and converting them to edible and other usable forms. The private sector
is yet to actualize the full potential of the agro industry. The global market is mammoth for
sugar, coffee, tea and processed foods such as sauce, jelly, honey, etc. The market for processed
meat, spices and fruits is equally gigantic. Only with mass production coupled with modern
technology and intensive marketing can the domestic market as well as the export market be
exploited to the fullest extent. It is therefore imperative that food manufacturers understand
changing consumer preferences, technology,With modernization, innovation and incorporation
of latest trends and
technology in the entire food chain as well as agro-production, the total
production capacity of agro products in India and the world is likely to
double by the next decade.

India is the second largest producer of food in the world. Whether it is canned food, processed
food, food grains, dairy products, frozen food, fish, meat, poultry, the Indian agro industry has a
huge potential, the significance and growth of which will never cease.

Sea fishing, aqua culture, milk and milk products, meat and poultry are some of the agro sectors
that have shown marked growth over the years. linkages between members of the food supply
chains and prevailing policies and business environments to take advantage of the global
market.
Processed Food Segment
The processing level of the agro industry may be at the primary, secondary or tertiary stage. In
the case of hides and skins, India exports largely semi-processed items whereas in coffee/tea,
the exports are mostly in secondary stage by way of fully processed bulk shipments without
branding/packing. Exports at the tertiary stage mean branding and packaging the product that
are ready for use by the consumer.
A few years ago, companies struggled to sell packaged foods.
But now it is much easier to break into the Indian market
because of a younger population, higher incomes, new
technologies and a growing middle class, estimated at 50
million households. An average Indian spends around 53 per
cent of his/her income on food. The domestic market for
processed foods is not only huge but is growing fast in tandem
with the economy. It is estimated to be worth 90 billion.
Processed Food Manufacturing companies are required to be
persistent and must adapt products to the Indian cultural
preferences.
Many big companies like ITC, HLL, Nestle entered the Indian market a long time ago and have

made a deep penetration in the market. From these success stories we can learn some lessons in
order to capture the higher end of the local market and get a fair share of the export market. The
model is structured around the following:* Large scale investment and adoption of the latest technologies
* Intensive marketing efforts
* Perhaps, a foreign tie-up can be beneficial
* Brand name.
The levels of processing and manufacturing can be classified into three groups, namely manual,
mechanical and chemical or a combination thereof. In choosing the process, the main
considerations are the nature of the raw materials, technology of processing, and packing.
Other Segments
Dairy product is another area where there is enormous potential.
No doubt the country has made tremendous strides in the last 20
years in production and processing of milk and milk products.
But the fact remains that only 15 per cent of all the milk
produced is processed. Today, a large number of people suffer
from diabetic or cardiac ailments and availability of fat free milk,
fat free curd and sugar free food is poor. A simple product like
soya milk is not produced in adequate quantity.
Fish and shrimp have good export potential but there is an immense lack of cold storage and
modern processing facilities. For instance fish production is around six million tonnes a year
and the frozen storage capacity spread over 500 units is only one lakh tonnes.
Another area is herbal medicine. It is being increasingly realized the world over that herbal
drugs do not have any side effects. India has a good number of tried and tested herbal products
in use and what is required is rigorous quality control, proper packaging and a brand name.

The government and modern retailers are addressing these issues with new laws on packaging
and labeling as well as greater investment in the supply chain.
The Progress Ahead*
With modernization, innovation and incorporation of latest trends and technology in the entire
food chain as well as agro-production, the total production capacity of agro products in India
and the world is likely to double by the next decade.

India is the second largest producer of food in the world. Whether it is canned food, processed
food,
food grains, dairy products, frozen food, fish, meat, poultry, the Indian agro industry has a huge
potential, the significance and growth of which will never cease.

Sea fishing, aqua culture, milk and milk products, meat and poultry are some of the agro sectors
that have shown marked growth over the years.
History
Origin of Agriculture
The beginning of 'agro' or 'agriculture' marks the beginning of 'civilized' or 'sedentary' society.
Climate change and increase in population during the Holocene Era (10,000 BC onwards) led to
the evolution of agriculture. During the Bronze Age (9000 BC onwards), domestication of
plants and animals transformed the profession of the early homo sapiens from hunting and
gathering to selective hunting, herding and finally to settled agriculture. Eventually the
agricultural practices enabled people to establish permanent settlements and expand urban
based societies. Cultivation marks the transition from nomadic pre-historic societies to the
settled neolithic lifestyle some time around 7000 BC.

As per the modern definition of agriculture which would be" an aggregate of large scale

intensive cultivation of land, mono-cropping, organized irrigation, and use of a specialized


labor force", the title "inventors of agriculture" would go to the Sumerians, starting ca. 5,500
BC.

Originally fields were cleared of weeds and prepared for planting by hand at great effort,

using primitive hoes or digging sticks


The invention of the scratch plow (also called 'plough') about 6,000 years ago was a

great labor-saving device for humans - the beginning of systematic substitution of other
forms of energy, in this case animal power, for human muscles
The Muslim Farmers in North Africa and the Near East of the Medieval world are

credited with inventions of extensive irrigation based on hydraulic and hydrostatic


principles such as norias, water mills, water raising machines, dams and reservoirs

The Renaissance saw the innovation of the three field system of crop rotation
and wide spread usage of the moldboard plow

The early phase of Industrial Revolution witnessed new agricultural practices


like enclosure, mechanization, four-field crop rotation and selective breeding

The science-driven innovations of 19th and 20th centuries led to the


mechanization of the cultivation, i.e. the use of tractors.

Agriculture in India
Agriculture in India, the preeminent sector of the economy, is the source of livelihood
of almost two thirds of the workforce in the country. The contribution of agriculture
and allied activities to India's economic growth in recent years has been no less
significant than that of industry and services. The importance of agriculture to the
country is best summed up by this statement: "If agriculture survives, India survives".

Indian Agriculture--Water-Management
Indian agricultural production in most parts of the country is
closely related to skillful and wise water-management
practices. Most of the agricultural practices in India confined
to the few monsoon months. During the monsoon season,
India is usually endowed with generous rainfall; although not
infrequently, this bountiful monsoon turns into a terror,
causing uncontrollable floods in parts of the country. In a
matter of antithesis, every few years, the monsoon is erratic
and deficient, leading to drought and the possibility of
famine. This explains the inextricable link between Indian
Agriculture and effective water-management practices known
across different parts of India since the ancient times.
According to the history of the Indian agriculture water-management practices are known to
have either been taken up by the state, or by local village communities since the earliest
times. Regional rulers, or local representatives of the state were generally obliged to allocate
a certain percentage of the agricultural taxes on building and managing water-storage, waterharvesting and/or water-diverting structures which facilitated a second crop, and provided
water for drinking and other purposes in the long dry season.
The British rule witnessed the destruction of century-old water management structures and a
virtual wreckage of the knowledge systems and cultural traditions that had helped build and
preserve these water-management techniques over the centuries in states such as Bihar,
Bengal, Karnataka, Tamil Nadu and others. Owing to this, during the colonial era, famines
were frequent and famine commissions were abundant. The growth rate in food production
during the 1900-1947 period was hardly 0.1 per cent. Most of the important institutional
developments in agriculture emanated from the recommendations of famine commissions.

The great Bengal Famine of 1942-43 provided the backdrop to Indias Independence.

The stagnant performance of agriculture in India during the colonial period was turned into a
sustained growth since 1947, with a stronger performance in India especially in terms of percapita food production.

Indian Agriculture in Independent India


Early Years of Independence
The early years of Independence witnessed
accentuation on the development of infrastructure for
scientific agriculture. The steps taken included the
establishment of fertilizer and pesticide factories,
construction of large multi-purpose irrigation-cumpower projects, organization of community
development and national extension programmes and,
above all, the starting of agricultural universities as
well as new agricultural research institutions across the
length and breadth of the country. However, the growth
in food production was inadequate to meet the
consumption needs of the growing population which
necessitated food imports.
Green Revolution
Policy makers and planners, in order to address the concerns about national
independence, security, and political stability realized that self-sufficiency in food
production was an absolute prerequisite. This perception led to a program of
agricultural improvement called the Intensive Agriculture District Programme (IADP)

and eventually to the Green Revolution. The National Bank for Agriculture and Rural
Development (NABARD) was set up. All these steps led to a quantum jump in the
productivity and production of crops.
White and Yellow Revolution
The Green revolution generated a mood of self-confidence in our agricultural
capability, which led to the next phase characterized by the Technology Mission.
Under this approach, the focus was on conservation, cultivation, consumption, and
commerce. An end-to-end approach was introduced involving attention to all links in
the production-consumption chain, owing to which progress was steady and
sometimes striking as in the case of milk and egg production.
Present Times
Indian agriculture continues
to face internal and external
challenges. While monsoon
dependence, fragmented landholding, low level of input
usage, antiquated agronomic
practices, lack of technology
application and poor rural
infrastructure are some of the
key internal constraints that
deter a healthy growth, while
subsidies and barriers have
been distorting international
agricultural trade, rendering
agri-exports from developing

nations such as India


uncompetitive.

The objective of every policy


initiative has been to make
Indian agriculture globally
competitive by investing it
with the ability to produce
globally acceptable quality at
globally comparable cost.

Chapter V
Data Analysis & Interpretation

The raw material requirement of Item Type I:

Annual requirement(R) =7200 units

Order cost (s) =Rs. 100 per order

Annual holding rate (h) =20%=0.2

Unit purchase cost (c) =20 Rs per unit

Lead time (lt)

=6 days

EOQ = (2 R S/hc)^1/2=600 unit

Annual purchase cost =R * c = 144000 RS

The annual holding cost =Q/2 *h *c = 1200 RS

The annual order cost = R/Q *s =1200

Total annual inventory cost = 144000 + 1200 +1200 =146400

For lead time of 6 days, reorder point would be =118.35 UNIT=118

Number of order per year = 12

Time between orders =365/12 = 30.41 =30 days (approximately)

We can see that at EOQ annual total cost is lowest, as we reduce order quantity annul holding
cost reduces but annual ordering cost increases as a result annual total cost increases. When we
increase order quantity annual holding cost increases and annual order cost decreases but annual
cost increases, the trade off point is EOQ order where total annual cost is minimum. The graph
shows that we should work in the vicinity of EOQ. . Graph shows that holding cost is a straight
line but in real life where many products are perishable or out fashioned behavior of holding
cost changes because it is no longer constant it grows commutatively.

I have considered a variation of the economic order quantity (EOQ) model where cumulative
holding cost is a nonlinear function of time. we here show how it is an approximation of the
optimal order quantity for perishable goods, such as milk, and produce, where there are
delivery surcharges due to infrequent ordering, and managers frequently utilize markdowns to
stabilize demand as the products expiration date nears. We show how the holding cost curve

parameters can be estimated via a regression approach from the products usual holding cost
(storage plus capital costs), lifetime, and markdown policy.

The model is a variation of the economic order quantity (EOQ) model where cumulative
holding cost is a convex function of time; this is in contrast with the classic EOQ model where
holding cost is a linear function of time. More specifically, the cumulative holding cost for one
unit that has been stored during t units of time is H (t) =ht^y, where h and1 are constants; if
=1 then the problem reduces to the classic EOQ mode with h being the cost to hold one unit
for one time period.

This problem is an approximation of the optimal order quantity for perishable goods, such as
milk and produce, sold in grocery stores such as Parle Agro. . Product demand and cost are
fairly constant over time, however, the cost to stock the product increases over time, as we
discuss below.

Because products are perishable, meeting a constant demand over time with an aging product
may require markdowns in their prices or removal of spoiled product. The use of either practice
can be modeled as convex holding costs with time, as we show through two cases.

The first markdown occurs at roughly half the products sellable lifetime and is typically 10
50% of the products original price.

The second markdown occurs at 75% of products sellable lifetime and is typically 2575% of
the original price.

A second contributor to convex holding cost is spoilage, or variable expected shelf life. Within a
product category, the percentage of individual units that spoil each day increases as the product
ages. spoilage can be approximated by a convex holding cost curve even in the absence of
markdown pricing. In that case, however, the order quantity in the model must be adjusted
upwards to account for spoilage. Most papers on perishable inventory models with deterministic
demand consider that inventory spoils (decays) with time, at different patterns, and that demand
depends on the level of inventory. our application assumes a constant demand rate due to a
markdown policy. We provide a simple methodology to estimate the holding cost curve
parameters given a products lifetime, regular holding (storage + cost of capital) cost, and
markdown policy or spoilage curve.

Model:

Consider a product facing a constant demand rate d. Fixed ordering cost is s replenishment
lead-time is constant, and holding cost per unit increases with the time t that the product has
been in stock according to H(t)= ht^y, where h and 1 are constants. The firms objective is to
choose an order quantity that minimizes average combined ordering and holding costs over an
infinite horizon. With an order quantity of Q, and constant demand rate d, the length of an order
cycle is Q/d . During the first cycle, the inventory level varies with time
I(t) =Q dt
Thus, the average holding cost during the cycle (0, Q/d) is: H =h Q^y/(y +1)d^y-1
And EOQ is Q= ((1+1/y) sd^y/h)^1/ y+1

Equation agrees with the classical EOQ model when y =1

Estimating Holding Cost Parameters:

In this section, we give two examples that show how the parameters and h and y can be
estimated, using linear least squares regression, from the product holding cost h, the products
lifetime T, and a given markdown policy or spoilage curve.

Case I: Mark down policy Consider 500 ML of Appyfiz Toned, whole Apple Juice, with T = 12
days (expiration date), h = 0.01/day, and a markdown policy that decreases the products price
by RS 0.50 on days 5 and 10. the cumulative holding cost curve per unit H(t) is given as a

function of time in Table 1. Notice that at day 5, the cumulative holding cost jumps from 0.04 to
0.55 (0.01 + 0.50), which is a result to the product being marked down; similarly at day 10.

We use convex approximation H(t) = ht^y to the data in table 1 taking log on both side yields

Log H(t) =log h + y log t

Table 1
DAY

COMMULATIVE HOLDING COST

0.01

0.02

0.03

0.04

0.55

0.56

0.57

0.58

0.59

10

1.10

11

1.11

12

1.12

12

12
11
10

10
9
8
6
4
2
0

1
0.01 0.02 0.03
1

Series1
Series2

0.04 0.52 0.55 0.56 0.57


0.58 1.1 1.11 1.12

10

11

12

Using a linear regression where the independent variable is t, and the dependent variable is
H(t), plot shows the cumulative holding cost and its convex approximation curve

Analysis

Y = holding cost
X= no of days

Regression equation
Y = bo +b1 X

Since R^2 =0.890971=90

This implies that 90% of variability in holding cost is explained by the number of days.

We take null hypothesis


Ho= holding cost is not dependent on no of days

Alternative hypothesis
Ha = holding cost is depends on no of days

Now level of significance alpha=.05


From regression table p value is =1.26 *10^-5

When we compare p value with alpha, pvalue is less than alpha, therefore null hypothesis is
rejected. We select alternative hypothesis that is holding cost depends on no of days. When we
calculate holding cost it is increasing. We can see in the plot that holding cost is a curve rather
than a straight line as assumed by classic EOQ model.

Case II: Spoilage

Consider Parle cheese. Pack of 100 gm:

With T = 5 days (expected lifetime), h = 0.01/day, and a cost of 2RS /unit. Average spoilage,
based on historical observations, is 5%, 7.5%, 10%, and 22.5% of the remaining stock of cheese
after the second, third, fourth and fifth days respectively. Thus, cumulative spoilage cost per
unit is (0.05)2RS= RS0.10 for the second day; (0.05 + 0.075)2RS = RS0.25 for the third day,
and so forth. Adding the regular storage cost of RS0.01 per unit per day, we obtain the
cumulative holding cost, shown in Table 2. Notice that at day 6, all cheese will be spoiled.
Running a linear regression between H (T) AND t the plot is a curve.

Day

%spoilage

csc

c st c

H (t)

0.01

0.01

.10

0.02

0.12

7.5

.25

0.03

0.28

10

.45

0.04

0.49

22.5

.90

0.05

0.95

55

2.0

0.06

2.06

Through linear regression y can be calculated and EOQ can be calculated.


R^ 2shows significant relationship. Hence we can see that in case of perishable items holding
cost is not constant. We can compute y and by using EOQ formula we can calculate how much
to order to reduce total annual inventory cost.

Analysis

Y =commutative holding cost


X= no of days

Regression equation is

Yo = bo +b1X

Since R^2 is .849 =.85

This implies that 85% of variability in holding cost is explained by the number of days due to
spoilage.

We take hypothesis
Ho= c holding cost does not depend on no of days due to spoilage

Ha= c holding cost depends on no of days due to spoilage

Now alpha = 0.5


P value

= 0.02

When we compare null hypothesis by alternative hypothesis p value is less than alpha therefore
we select alternative hypothesis that is holding cost depend on no of days due to spoilage. When
we calculate holding cost we can see that it is increasing with no of days.

Food

PRODUCTS

Misc
COSTS (Rs)

Salt
Cereal

Purchase cost

0.20

7.00

0.16

Transportation cost

0.05

1.20

0.01

Total/Ordering cost

0.25

8.20

0.17

The cost of each product is per unit manufactured

The demand for Salt, Dlite Cereal and Misc in the 1st quarter of the year 2015 was
2503, 1058 and 645

Calculations

Annual holding cost rate of each 1kg packet of Salt is at 10%

Annual holding cost rate of each 1kg packet of Dlite Cereal is at 22%

Annual holding cost rate of each Misc is at 8%

Unit cost per packet (C):

Salt - 0.20
Dlite Cereal - 7.00
Misc

-0.16

Annual holding cost per unit cost: Ch

Salt: 0.20 * 0.1 = 0.02


Dlite Cereal: 7.00 *
0.22 = 1.54
Misc:

0.16 * 0.08 = 0.0128

Quarter Annual demand (D)

IC

Salt: 2503

Dlite Cereal: 1058

Misc :

645

Quarter annual Ordering cost per unit

Salt: 0.25

Dlite Cereal: 8.20

Diaper: 0.17

How much to order decision


Q*= 2DCo/Ch

Salt:

Q
=62575

=250.14996

=250

Dlite Cereal:

Q
=26720.848

=163.46513

=163

Misc :

= 41.39180

= 41

QCh

Quarter annual holding cost = Salt

QCh

0.02
= 2.5014996

= 2.50

Dlite Cereal

QCh

= 125.8681501

= 125.87

Misc

QCh

= 0.26490752

= 0.26

Annual Ordering Cost=

Salt

= 2.50

Co

Dlite Cereal

= 53.07

Misc

= 2.65

Total Cost = QCh *

Salt

T.C

2.50 + 2.50

= 5

Co

Dlite Cereal

T.C

= 125.87 + 53.07

= 178.94

Misc

T.C

= 0.26 + 2.65

= 2.91

Determining reorder points to avoid shortages Re-order point: r=dm


r = 14 annual demand * daily lead time

Salt

The lead time to order salt from Fortwell Wholesalers is 2 days were 1 day is for placing the
order and the other day for processing the order and getting it ready for collection.

r = 2503 * (2/120) = 42

Dlite Cereal

The lead time to order antibiotics from the National Foods Harare branch which is 4days
were 1 day is for placing the order and the other 2 days for processing the order and getting
it ready for collection and the last day is for collection.

r = 1058 *(4/120) =
35

Misc

The lead time to order Misc from Fortwell Wholesalers is 2days were 1 day is for placing
the order and the other day for processing the order and getting it ready for collection.

r = 645 *(2/120) =
11

Results

From the calculations done above, the results can be shown in the following table:

Entity

Salt

Dlite Cereal

Misc

Q*

250

163

41

42

35

11

Total Cost

178.94

2.91

Q*- This is the minimum order quantity, meaning that this is the amount of medicinal drugs
per packet of 20 tablets or 50millilitres that the procurement manager needs to order each
time an order for more medicinal drugs is made in order to minimize costs incurred by the
company.

r - This is the reorder point, meaning that each time the stock levels of medicinal drugs get to
this point in the pharmacy, the pharmacist is supposed to inform the procurement manager to
start ordering more medicinal drugs.

Total Cost This is the total of those costs associated with maintaining or carrying a given level
of inventory which depend on the size of the inventory and the costs associated with ordering the
retail products.

With the results shown above it can be seen that Meluleki Sihwede is ordering little salt than the
quantity required to satisfy the demand for the salt. Also there must be some problem with his sales
person that he is not informing the him (Meluleki Sihwede) well in time to reorder the salt when the
stock levels get to 42 packets.

The same applies to Dlite

Cereal Meluleki has been ordering a constant supply of 80 packets

which is approximately half the required amount to cater for the demand of 163

Meluleki is ordering too many packets of the Misc . The demand is at 41 packets yet he is
ordering 150 packets each month hence creating unnecessary holding costs of storing the unsold
diaper packets

Chapter VI
Findings & Conclusion
Findings:

The tradeoff between annual holding cost and order cost occur at EOQ order. If we order more
holding cost will increase though annual order cost decreases but the overall impact is total annual
inventory cost increases. If we order less holding cost will decrease but order cost increases effect
is same total annual inventory cost increases. At EOQ total inventory cost is minimum. again we
find that holding cost is not constant in case of perishable items it is not a straight line as assumed
by classic EOQ model but curve.

Recommendations
The procurement manager needs to continuously monitor the demand for agro products because
although this model is for a constant demand, it is recommended that any changes in the demand
be catered for in order to avoid further losses. The demand is likely to increase because of the
increased customer faith resulting from better efficiency of the company, so the model will have
to be recalculated using the new figures.
The quality analyst will need to be vigilant in keeping up to date with their balances of medicinal
drugs to make sure they do not order before medicinal drugs is needed as it may resulting in
demurrage costs. Keeping up to date with their balances of medicinal drugs will also ensure that
they do not order after there is no more medicinal drugs. They should The procurement officer will
also need to be ready at all times to order more medicinal drugs so as to minimise any delays in
delivery which may cause run outs at the stations because the lead time will have been tempered
with.

Parle Agro can also invest in a Production management system that will manage the inventory of
the company. This will help the logistics and inventory departments to keep track of how many
units are left and be able to keep track of the reorder point.

A manual with the results of this project must then be drafted and released in the
procurement department and the stations so that even when new employees are contracted
by the company, they will know how to manage the inventory to avoid losses

CONCLUSION:

Every unit wants to minimize its inventory cost .inventory is necessary to provide expected level of
customer service ,lack of inventory can will result in lost sale which will reduce profit. But
inventory blocks working capital at the same time perishable item will be spoiled and causes loss. If
inventory is high it blocks cash flow and working capital. inventory cost has three components
material cost ,holding cost and order cost, high inventory results in higher holding cost (specially in
case of perishable materials) and lower order cost, if inventory is low it reduces holding cost and
increases ordering cost ,ramification is increased total inventory cost. ECONOMIC ORDER
QUANTITY is that point at which trade off between inventory holding cost and annual order cost
occur and total annual inventory cost is minimum. In this report we have shown that how EOQ
gives minimum inventory cost (for a non perishable item).

Classic economic order quantity theory assumes constant holding cost but in a real life holding cost
is not constant for perishable goods it increases commutatively and we have shown that its plot is a
curve due to its nature through linear regression y and other factors can be calculated and economic
order quantity can be found which results in lower total annual inventory cost.

Reference:

1 QUANTITATIVE TECHNIQUES

J K SHARMA

2 SUPPLY CHAIN MANAGEMENT

SUNIL CHOPRA

JOEL D WISNER

SUPPLY CHAIN MANAGEMENT


A BALANCED APPROACH

http://www.agriculturalproductsindia.com/agro/agro-scenario.html

https://en.wikipedia.org/wiki/Economic_order_quantity

http://www.investopedia.com/terms/e/economicorderquantity.asp

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