Inventory Management

A PROJECT REPORTON INVENTORY MANAGEMENT IN RASHTRIYA ISPAT NIGAM LIMITED VISAKHAPATNAM STEEL PLANT A Project Report submitted in Partial Fulfilments for the award of the degree “MASTER OF COMMERCE” Submitted By CH.SATYAM NAIDU Regd.No.111250406007 Under the guidance of Sri DSR Murty, B.Sc., AICWA Asst. Manager (F&A) Facilitated by HR Dept of RINL Visakhapatnam 2011-2013 O.R.M.Rao M.L.S.VARMA A.G.M (HR) Asst.Mgr (HR) DECLARATION I, CH.SATYAM NAIDU declare that this project report entitled “A STUDY ON INVENTORY MANAGEMENT IN VISAKHAPATNAM STEEL PLANT” has been prepared by me during the period of 2 weeks from 04-06-2012 to 16-06-2012 under the guidance of Sri DSR Murty, B.Sc., AICWA, Asst. Manager (F&A) is the result of my own work and has not been submitted to any other institute or university earlier. Place: Visakhapatnam (CH.SATYAM NAIDU) Date: CERTIFICATE This is to certify that Mr.CH.SATYAM NAIDU(M.com) student of “MAHA RAJAH P.G COLLEGE” has completed the project report entitled “A STUDY ON INVENTORY MANAGEMENT IN RASHTRIYA ISPAT NIGAM LIMITED, VISAKHAPTNAM STEEL PLANT” in Finance & Accounts Department from 04-06-2012 to 1606-2012 under my guidance. (DSR Murty) Asst. Manager (F&A) Place: Visakhaptnam Date: Finally.M. I also express my sincere thanks to O.Varma HRD. I would like to thank my parents for their encouragement and support. Manager(F&A).S. CH.ACKNOWLEDGEMENT I am very thankful to Sri DSR Murty.R. RINL/VSP & Student Coordinator for accepting my request for doing the project work in their esteemed organisation. Asst.SATYAM NAIDU . Visakhapatnam steel Plant for providing his guidance and sparing his valuable time as my project guide in completing my project successfully in time. Rashtriya Ispat Nigam Limited.Rao AND M.L. Availability Projection Pricing &Distribution Chapter-III: COMPANY PROFILE            Introduction Background Mission Vision ISO Policy Objectives Core values Quality Policy Environmental policy Energy policy OSHAS policy .INDEX Chapter-I: INTRODUCTION          Introduction Meaning of Inventory Nature of Inventory Inventory Management Objectives of inventory management Methodology Objectives of the study Significance/Need/Importance of the study Limitations Chapter-II: INDUSTRY PROFILE IN THE COMPANY          Introduction Pre-Independence Post-Independence Major Steel Industries in India Global Scenario Market Scenario Production Scenario Demand. FINDINGS AND SUGGESTIONS  Findings  Suggestions .IV: Inventory Management of Stores and spares in Visakhapatnam  Inventory of Stores and Spares  Accounting of Stores and spares Chapter-V: THEORITICAL ASPECTS OF INVENTORY MANAGEMET AND INVENTORY CONTROL  Introduction  Inventory Management And Inventory control  Essentials of Good Inventory Management Chapter –VI: Practical Study Analysis and Interpretation      Inventory management in vsp steel plant Comparative Analysis Ratio Analysis of Stores and Spares Value Analysis Interpretation Chapter-VII: SUMMARY.         HR policy Customer policy IT policy VSP Technology : state of the Art Major Departments Functions of various departments of RINL \ VSP Inputs and Basic Infrastructure Corporate Strategic Management(CSM) Achievements & Awards Chapter. CHAPTER – I Introduction . making it indispensable for furthering and achieving continual growth of the economy.. In order to fulfill his requirement. Keeping in view the importance of steel. In this light of experience. many methods of inventory management or control are practically not possible to implement.Introduction Steel comprises one of the most important inputs in all sectors of economy. However. Steel is a versatile material with multitude of useful properties. The reason is the concept of inventory management is not completely reached the practicing managers. The organization is required to identify and fulfill his requirement to the extent possible. In production and marketing front. the integrated steel plants with foreign collaborations were set up in the public sector in the post-independence era. the customer is god to the organization. an attempt made to study the concept of inventory management and inventory controls keeping in view the concepts and methods of inventory management followed at Visakhapatnam Steel Plant. The level of steel consumption’s has long been regarded as an index of industrialization and economic maturity attained by country. many organizations are yet to establish their command in procuring right quality materials in right quantities in right time. His satisfaction is goal and objective of organization. . organization has been successfully adopting latest technologies and methods to attract the customers. Economy of any country depends on the strong base of the iron and steel industry. Also. Now-a-days many organizations recognized this fact and adopting customer oriented policies and methods in achieving his satisfaction. infrastructure or consumables.be it construction. In the words of Mahatma Gandhi. manufacturing. the organization is required to make available right product in right time at right place. 1. The basic decoupling function of Inventories has two aspects: (a) Inventories are necessary because it takes time to complete an operation and to move the product from one stage to another – in process and movement of inventories. The American Production and Inventory Control Society states that “Inventories are stock keeping items which are held in a stock point and which serve to decouple successive operations in the process of manufacturing a product and getting it to the consumer”. which are necessary to manufacture a product and to maintain the equipment and machinery in good working order. . The quantities as well as the value of the every item are also mentioned in the list. (b)Inventories employed for organizational reasons. Inventory is detailed list of those moveable items. Thus. such as to let one unit schedule its operations more or less independently of another.2 MEANING OF INVENTORY The Institute of Chartered Accountants of India defined Inventory as “tangible property held (I) for sale in the ordinary course of business or (II) in the process of production for sale or (III) for consumption in the production of goods or service for sale including maintenance supplies and consumables other than machinery spares”. Raw materials are those basic inputs that are converted into finished products through the manufacturing process. The job of finance manager is to reconcile the conflicting viewpoints of the various functional areas regarding the appropriate inventory levels in order to fulfill the overall objectives of maximizing the owner’s wealth. which are available for sale. Finished goods represent final or completed products. The term ‘inventory’ refers to stocks of the products of a company in manufacturing for sale and components that make up the product. Purchase. On average inventories are approximately 60 percent of current assets in public limited companies in India. considerably amount of funds is required to be committed in them. It is therefore. Work in process inventory consists of items currently being used in the production process. work in progress and finished goods. 1. production and marketing functions are mainly concerned with the management of inventories. absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investments in them. Inventory management is related to overall objective of the firm. The store inventory is anticipation of raw materials. These functions try to have large stocks . Inventory as a current assert differs from other current asset the views of concerning the appropriate level of inventory would differ among the different functional areas.1.3 NATURE OF INVENTORY The major current asset is inventory.4 INVENTORY MANAGEMENT Inventories constitute the most significant part of the current assets of any organization. Because of the large size of inventories maintained by ferrous. production and inventory policies.of inventories to facilitate production or marketing of the products.  To coordinate the sales. . It requires large investment in the inventories and may increase the cost of product by way of interest on such investment. receipt and issue of materials and developing the forms for recording these transactions.e. maximum and minimum levels of Inventory  To establish timing schedules. Inventory Management ensures proper coordination of activities and policies regarding procurement.  To arrange for the procurement.  To provide proper storage facilities. Thus.  To assign responsibilities for carrying out inventory control functions and  To supervise and reporting of overall activity of inventory management/control.  To decide the minimum safety levels of inventory. It is the prime responsibility of Finance function to have a proper management and control over the investment in inventories.. i. The Inventory Management includes the following areas of management as:  To decide about the size of Inventory. procedures and reordering sizes while procuring the inventories. of Hence. For this purpose. the Finance function has to take care of maximum and minimum levels of stock of inventories in the business to have continuity in production process. production and marketing materials/products in order to achieve better inventory control. so that it should not be a loss for the business. 6 METHODOLOGY The information for the study is obtained from two sources namely. In large organizations. Advising the production manager. receiving and storing material 3. . Arranging for purchasing of materials.Inventory management includes inventory control. which are likely to affect long-range stocking and purchasing policies 6. equipments etc 7. 1. but inventory control does not mean inventory management. 4. Consulting with engineers about current &proposed product design 1. in establishing production and material control 2. Preparing budgets to accomplish objectives.5 OBJECTIVES OF INVENTORY MANAGEMENT Inventory Management has become very significant management in the present day of manufacturing industry. Keeping effect with trends. Introducing control through comparison of performance against standards 5. Establishing policies and programs for purchasing. The basic duties of the person in change of inventory management are listed below : 1. inventory management is kept under the direct control of manager materials engineering. process of The basic managerial objectives of inventory management are  To avoid over investment or under investment in inventories and  To provide right quantity of materials in right quality at proper time and at proper value. some of the information has been verified or supplemented with personal observation.1. RINL/VSP. Asst. Primary Sources 2. It is mainly through interactions with concerned officers & staff. These sources include. the annual reports published by the company and other magazines.  Store Keepers Secondary Sources: This data is from the number of books and records of the company. Sri DSR Murty. Manager (F&A) of Stores Accounts Section. either individually or collectively.7 Objectives of the study The .  Thorough interactions with the various department Managers of VSP. Secondary Sources Primary Sources : It is the information collected directly without any references.  Guidelines given by the Project Guide. secondary data is obtained from the following : a) Stores Ledger b) Bin Cards c) Stores Accounts Records d) Other books and Journals and e) Annual Reports of the company 1. 1. To conduct a study on existing practices of Inventory Mgt at VSP. 2. To determine the inventory status of VSP and analyse them. 3. To determine the monetary value of various issues involved in Inventory Mgt. 4. To suggest various control systems of inventory. 5. To determine an effective inventory control system. 1.8 Significance / Need / Importance of Study The scope of Inventory management is very wide that various techniques of inventory control management like EOQ (Economic Order Quantity) Model, ABC Analysis, XYZ Analysis, FSN Analysis, HML Analysis, SDE Analysis, VED Analysis, etc., which helps to reduce cost and to maintain the inventory effectively. 1.9 Limitations of Study a) The project covers the area of stores and spares under inventory management system of the company. It does not deal with other inventories like raw materials, finished goods and work in progress. b) The project deals with ABC Analysis of consumption, XYZ Analysis of inventory, FSN Analysis of inventory and other important concepts of Inventory Management at VSP. c) As the details of Inventory are maintained confidentially, the project deals with fewer areas of Inventory. d) As the time spent is only two months, it is not possible to go into detail of item wise study in depth. e) The collection of information is mainly through secondary data. CHAPTER-II INDUSTRY PROFILE IN INDIA sheets. rods or pipes as needed by the intended user. James Erskin founded the Bengal iron works. In the period of pre independence. - 1916 .5 million tones per year. nails. spikes. Growth of Steel Industry: 2. Formation of TISCO. which was raised to 9 million tones of target.2 Pre-independence 1830 - - Josiah. The consumption of steel is regarded as the index of industrialization and the economic maturity any country has attained. Jamshedji Tata initiated the scheme for an integrated steel plant.Introduction Steel is an alloy of iron usually containing less than 1% carbon is a versatile material with multitude of useful properties used most frequently in the automotive and construction industries. - TISICO was founded. Tata iron & steel company started production. This is the result of the bold steps taken by the government to develop this sector. The production of steel in significant quantity started after 1990. steel production was 1. wire. Marshall Health constructed the first manufacturing plant at port Move in Madras presidency. The growth of steel industry can be conveniently started by dividing the period in to pre and post independence era. Steel can be cast into bars strips. The development of steel industry in India should be viewed in conjunction with the type and system of government that had been ruling the country. Bhilai and Durgapur steel plant started. TISCO stated its expansion program. each at Visakhapatnam and Hospet . 1969-74 .2.First Five Year Plan. of India accepted setting up two more steel plants in south. - Govt. was born on 19th January. Recession Period - The entire expansion program was actively executed during this period. Bhilai and Durgapur. In January 1964 Bokaro steel plant came into existence. Third Five Year Plan - During the third five year plan the three steel plants under HSL. TISCO & HSCO were expanded as show. One (Karnataka). - No new steel plant came up .3 Post-independence 1951-56 . Second Five Year Plan - A bold decision was taken up to increase the ingot steel output India to 6 Million tons per year & production at Rourkela.Fourth Five Year Plan - Licenses were given for setting up of many mini steel plants and re-rolling mills. 1954 with the decision of setting up three steel plants each with one million tone input steel per year in at Rourkela.The Hindustan steel Ltd. The total installed capacity from 6 integrated plants was 106 Mt. . 1973.- SAIL was formed during this period on 24th January. Eight Five Year plan - Vishakhapatnam steel plant started its production modernization of other steel plants is also duly envisaged. 1991-96 . . Rourkela. Durgapur.1979 - Annual Plan - The erstwhile Soviet Union agreed to help in setting up the Visakhapatnam steel plant. 2002-07 . 1997-02 .Ninth Five Year Plan - Visakhapatnam steel plant had foreseen a 7% growth during the entire plan period. - Scheme for modernization of Bhilai Steel Plant.9 % Visakhapatnam steel plant high regime targets achieved the best of them. - Progress on Visakhapatnam steel plant picked up and rationalized concept has been introduced to commission the plant with 3. Sixth Five Year Plan - Work on Visakhapatnam steel plant was started with a big bang and top priority was accorded to start the plant.0Mt liquid steel capacity by 1990.Tenth Five Year Plan - Steel industry registers the growth of 9. 1985-91 . TISCO were initiated.Seventh Five Year Plan - Expansion work of Bhilai and Bokaro Steel Plants completed. Jindal Steel and Power Ltd. the public sector steel industry has been restructured to meet challenges and a separate fund has been established for modernization and future development of the industry. Metallurgical and Engineering Consultants India Ltd. Industrial Development in India has reached a high degree of self-reliance. 3.569. 6. Hindustan Steel Works Construction Ltd.Eleventh Five Year Plan Cost of schemes/project original approved by Government of India is Rs. At present the production of steel industry country is 34Mt. 7. and the steel industry occupies a primary place in the strategy for future development. RINL. Steel Authority of India ltd. National Mineral Development Corporation Ltd. Our steel industry has amply demonstrated its ability of adopt to the changing scenario and to survive in the global market that is becoming increasingly competitive. Rashtriya Ispat Nigam Ltd. This has been possible to a large extent due to the adoption of innovative operating practices and modern technologies. Bharat Refectories Ltd. The global steel industry has witnessed several revolutionary changes during the last century.2007-12 . It is now being proposed that Indian steel . The changes have been in the realms of both technology & business strategy. JVL and many others. 5.4 The major steel and related companies in India 1.9.18 crores 2. Sponge Iron India Ltd. 4. 9. Tata Iron Steel Company Metal Scrap Trade Corporation Ltd. The ultimate object of all these changes is to remain competitive and open global market. TISCO. 8. The Indian steel industry is growing very rigorously with the major producers like SAIL. 2. India occupied 8th position (42Mt).  China remained the world largest crude steel producer in 2005 also (275Mt) followed by Japan (96Mt) and USA (81Mt). It also set subsidies for the steel industry of a ceiling of 0.  Other significant recent developments in the global steel scenario have been: Under the auspices of the OECD (Organization for Economic Co-operation & Development) the negotiations among the major steel producing countries for a steel subsidy agreement (SSA) held in 2003 with the objective to agree on a complete negotiating test for the SSA by the Middle of 2004. 2.industry should Gear up to achieve a production level of about 100 Mt by the year2000.5 Global scenarios As per IISI  In March’ 2005 world Crude steel output was 928Mt when compared to march 2004 (872Mt).  Japan remained the largest exporter of semi finished and finished steel products in 2002 followed by Russia and Ukraine.5%.6 Market scenarios The year 2004-05 was a remarkable one for the steel industry with the world crude steel production crossing the one billion mark for the first . ∙The change in percentage was 6.  USA remained the largest importer of semi finished and finished products in 2002 followed by China and Germany.5% of the value of production to be used exclusively for Research & Development 2. 44 6.  Pig iron production in 2003-04 was 5.193Mt. The last five year production performance is as under:(In Million tons) YEAR 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 PIGIRON 3.44 5.40 .39 4.85 Mt during the year 2003-04  The annual growth rate of crude steel production in 2002-03was 8% and in 2003-04 was 6%.  Sponge iron production was 80. The world GDP growth about 4% lends supports to the expectations the steel market is all set for strong revival after prolonged period of depression . 2. The draft national steel police envisage production of 60 Mt by 2012 and 110Mt by2020. the Indian steel industry all set for north ward movement.67 39.39 3.00 FINISHEDSTEE L 29.7 Production scenarios: Steel industry was de-licensed and decontrolled in 1991&1992 respectively.  India is the 8th largest producer of steel in the world. With the nations focus on infrastructure development coupled with the growth in the manufacturing sector.The Indian economy also become robust with annual growth rates of 7-8 % this will provide a major boost the steel industry.15 30.12 41.09 9.27 30.28 3.84 31.63 33.18 4.08 5.52 SPONGEIR ON 5.  In 2003-04 finished steel production was 36.44 8.93 0.time in the history of the steel industry. and annual growth rate of 6-7%.76 3.221Mt.00 0. All this should therefore augur well for the Indian steel industry. 8 DEMAND-AVAILABILITY PROJECTION  Demand-Availability of iron and steel in the country is projected by ministry of steel annually.00 0.00 29.  Open market prices are generally on rise. complaints related to quality.  Price increases of late have taken place mostly in long products than flat products. Defense.  Interface with consumers by way of Steel Consumer Council exists.74 39.  Allocation to priority sectors is made by Ministry of steel.2007-08 2008-09 4. which is conducted on regular basis.08 0.9 PRICING & DISTRIBUTION  Price regulation of iron & steel was abolished on 16-01-1992.  Interface helps in redressing availability problems.95 2. viz. Railways.  Government has no control over prices of iron & steel. Exporters of Engineering Goods and North Eastern region.  Distribution controls on iron& steel removed except 5 priority sectors. 2.95 5.  Gaps in availability are met mostly through imports. Small Scale Industries Corporations. . CHAPTER –III COMPANY PROFILE . Its properties can be manipulated to any extent by proper heat treatment techniques. 3. The huge iron pillars at the entrance of New Delhi suggest that the history of iron and steel industry in India is well over 2000 years old. It is only metallic item. which can be conveniently and economically produced in tonnage quality. such as small items as nails. The economy of any nation depends on a strong base of Iron and Steel Industry in that nation.. History has shown that the countries having a strong potential for Iron and Steel Industry have played a prominent role in the advancement in the civilization in the world. ships. boilers. Steel Industry is both a basic and a core Industry. needles etc. Steel is versatile and indispensable item. Steel is such a versatile commodity that every object we see in our day-to-day life had use. History shows that. It has got very good strength coupled with malleability. . 2. Its properties can be changed over a wide range.Introduction:Steel comprises one of the most important resources of the economy. because of the proper use of the iron and steel reserves they had. automobile parts. railway materials. to surgical instruments. The great investments that has gone into the fundamental research in Iron and Steel Technology has helped both directly and indirectly many modern fields of today’s science and technology. 1. The versatility of steel can be traced mainly of three reasons. Steel comprises one of the most important inputs to all sectors of the economy. the strongest of civilizations have evolved quickly in the course of time. pins. agricultural implements. Nepal. Middle East. The details of those are tabulated below. its production is significant quantities only after 1900. 460 cores worth of Pollution Control and Environment Control Equipments and converting the barren landscape by planting more than 3 million plants has made the Steel Plant. which can boast of 3 to 4° C lesser temperature even in the peak summer compared to Visakhapatnam City. VSP plans to make a continuous presence in the export market. before it actually set up VSP/RINL. Steel Township and surrounding areas into a heaven of lush greenery. China and South East Asia. cleaner and cooler place. This has made Steel Township a greener. 1 2 3 4 STEEL PLANT COLLABORATED BY Durgapur steel plant Bhilai steel plant Bokaro steel plant Rourkela steel plant Britain Erstwhile USSR Erstwhile USSR Germany Visakhapatnam Steel Plant profile:- . of India has recognized the importance of steel in Indian industry and established the following steel plants.Iron and Steel making as a craft has been known to India for a long time. USA. Sl. RINL-VSP was awarded "Star Trading House" status during 1997-2000. The govt. Having established a fairly dependable export market. Myanmar. VSP exports Quality Pig Iron & Steel products' to Sri Lanka. However. No. VSP by successfully installing & operating efficiently Rs.  ‘Tempcore’ and ‘Stelmor’ cooling process in LMMM & WRM. The foundation was laid by the then Prime Minister Mrs. To operate the plant at international levels and attain such lab our productivity. The plant was dedicated to the nation on 1st August 1992 by the then Prime Minister. 897.656Mt of saleable steel. .  Comprehensive pollution control measure.4 million tones integrated Steel Plant at Visakhapatnam.  Suppressed combustion—LD gas recovery system. However.  Bell less top changing system in Blast Furnace.To meet the growing domestic needs of steel. The Project was estimated to cost Rs.  100% slag granulation at the Blast Furnace cast house. Visakhapatnam steel plant technology: State-of-the-art: 7m tall Coke Oven Batteries with coke dry quenching.  100% continuous casting of liquid steel. Visakhapatnam Steel Plant is one of the most modern Steel Plants in the country. on completion of Construction of the whole Plant in 1992.Narasimha Rao.V. Indira Gandhi on 20th January 1971.0 MT of liquid steel and 2.28 cores based on prices as on 4th Quarter of 1981. large-scale computerization and automation etc. the organizational manpower has been rationalized.  Extensive waste heat recovery systems.3. An agreement was signed with erstwhile USSR in 1979 for cooperation in setting up 3. The plant has a capacity of producing 3. P.  Biggest Blast Furnaces in the country. are incorporated in the Plant. Government of India decided to set up an integrated Steel plant at Visakhapatnam. the cost escalated to around 8500 Cr.. Unlike other integrated Steel Plants in India. New Technology. . Major sources of raw materials Raw Materials Iron Ore Lumps & Fines BF Lime Stone SMS Lime Stone BF Dolomite SMS Dolomite Manganese Ore Boiler Coal Coking Coal Medium Coking Coal (MCC) Source Bacheli, Chattisgarh/Gua, Jharkand Jaggayyapeta, AP UAE Madharam, AP Madharam, AP Chipurupalli, AP Talcher, Orissa Australia Gidi/Swang/Rajarappa/Kargali Water supply Operational water requirement of 36 Mgd is being met from the Yeleru Water Supply Scheme. Power supply Operational Power requirement of 180 to 200 MW is being met through captive Power Plant. The capacity of the power plant is 286.5 MW. Visakhapatnam Steel Plant is exporting 60MW power to Andhra Pradesh State Electricity Board. Major Units Annual Capaci ty Units (3.0 MT Stage) Department (‘000 T) Coke Ovens 2,261 4 Batteries of 67 Ovens & 7 Meters. Height 2 Sinter Machines of 312 Sq. Meters. grate Sinter Plant 5,256 area each Blast Furnace 3,400 2 Furnaces of 3200 Cu. Meters. volume each Steel Melt Shop 3,000 3 LD Converters each of 133 Cu. Meters. Volume and Six 4 strand bloom casters LMMM 710 4 Strand finishing Mill 4 Strand high speed continuous mill with no WRM 850 twist finishing blocks MMSM 850 6 STAND FINISHING MILL Main Products of VSP Steel Products Blooms Billets Channels, Angles Beams Squares Flats Rounds Re-bars Wire Rods By-Products Nut Coke Granulated Slag Coke Dust Lime Fines Ammonium Coal Tar Sulphate Anthracene Oil HPNaphthale ne Benzene Toluene Zylene Wash Oil Vision To be a continuously growing world class company We shall   Harness our growth potential and sustain profitable growth. Deliver high quality and cost competitive products and be the first choice of customers.    Create an inspiring work environment to unleash the creative energy of people. Achieve excellence in enterprise management. Be a respected corporate citizen, ensure clean and green environment and develop vibrant communities around us. Mission To attain 16 Mt liquid steel capacity through technological up-gradation, operational efficiency and expansion; augmentation of assured supply of raw materials; to produce steel at international Standards of Cost & Quality; and to meet the aspirations of stakeholders. Objectives ● Expand plant capacity to 6.3 million ton by 2011-12 with the Mission to expand further in subsequent phases as per the corporate plan. Revamping existing Blast Furnaces to make them energy efficient to contemporary levels and in the process increase their capacity by 1 Mt, thus total hot metal capacity to 7.5 Mt ● Be amongst top five lowest cost steel producers in world by 200910. ● Achieve higher levels of customer satisfaction. ● Vibrant work culture in the organization. ● Be proactive in conserving environment, maintaining high levels of safety Core values and addressing social concerns.  Customer Satisfaction. environmental legislations.  Creativity & Innovation Quality Policy Visakhapatnam Steel Plant Employees are committed to meet the needs and expectations of our customers and other interested parties. which encourages teamwork and active involvement of all employees with their involvement. To accomplish this. To accomplish this. maintain and continuously review the environmental management system.  Comply with all the relevant regulations and other requirements.  Achieve quality of the products by following systematic approach through planning.  Continuously improve the quality of all materials.  Continuous Improvement. Environment Policy Visakhapatnam Steel Plant carrying out its operations without harming to the environment.  Maintain an enabling environment. they will  Supply quality goods and services to customers delight. processes and products. . documented procedure and timely review of quality objectives. they will  Document.  Concern for Environment. Commitment. implement. To accomplish this. To accomplish this.  Maximize the use of cheaper and easily available forms of energy.  Comply with the relevant occupational health and safety legislations. implement. they will:  Monitor closely and control the consumption of various forms of energy through an effective Energy Management System. OSHAS Policy Visakhapatnam Steel Plant is committed to occupational health and safety of employees and contract workers. Energy Policy Visakhapatnam Steel Plant is committed to optimally utilize various forms of energy in a cost-effective manner to effect conservation of energy resources. regulations and other requirements. maintain and periodically review the occupational health and safety management system including the policy. Ensure continual improvement in the environmental performance and prevention of pollution by minimizing the emissions and discharges.  Maintain a high level of environmental consciousness amongst employees. the will. .  Document.  Adopt appropriate energy conservation technologies. innovativeness.  Identify development needs of the employees on a regular basis. Ensure continual improvement in the environment performance and prevention of pollution by minimizing the emissions and discharges. which nurtures employee’s potential for the prosperity of the organization. Human Resource Policy Visakhapatnam Steel Plant is committed to create an organizational culture.  Review the environmental objectives and targets on a continuous basis. efficiency.  Prepare employees through appropriate development programs for taking up higher responsibilities in the organization.  Provide inputs to the employees for developing their attitude towards work and for matching their competencies with organizational requirements. they will. provide the necessary training and continually evaluate and monitor the effectiveness of the training so that the quality of the training also gets updated. . To accomplish this. skills.  Facilitate the employees for continuous development of their knowledge base.  Maintain a high level of environmental consciousness amongst employees. self-expression and behavior so that they contribute positively with commitment for the growth and prosperity of the organization while maintaining a high level of motivation and satisfaction.  Create an environment of learning and knowledge sharing by providing the means and facilities and also access to the relevant information and literature. maintain and upgrade suitable cost-effective IT hardware. Towards this.T. I. etc. software and other IT infrastructure and ensure high levels of data and information security Major Departments Raw Material Handling Plant .  Install. the customer-satisfaction. decision-making. RINL shall:  Follow best practices in process Automation & Business Processes through IT by in-house efforts / outsourcing and collaborative efforts with other organization / expert groups / institutions of higher learning. productivity.  VSP will strive to meet more than the customer needs and expectations pertaining to products.Customer Policy  VSP will endeavor to adopt a customer-focused approach at all times with transparency. quality.  VSP greatly values its relationship with customers and would make efforts at strengthening these relations for mutual benefit. thus ensuring the quality of product and services at least cost. Policy  RINL/VSP is committed to leverage Information Technology as the vital enabler organizational in improving efficiency. and thus adding value to the business of steel making. transparency and cost-effectiveness.. and value for money and satisfaction. which is received from RMHP Department. This unit is provided with elaborate unloading. stacking & reclaiming facilities viz. Single/ twin boom stickers. Raw Material Handling Plant serves a vital function.VSP annually requires quality raw materials viz. Ground & Track Hoppers. The following are the parameters of Coke Ovens: Number of batteries 4 Number of ovens in batteries Coal handling capacity of 67 ovens Dimensions of oven 31. coking and non coking coals etc. Vibrating screens. The following are the important raw material handled by the RMHP Department. To handle such a large volume of incoming raw materials received from different sources and to ensure timely supply of consistent quality of feed materials to different VSP consumers. Wagon Tipplers. In VSP peripheral unloading has been adopted for the first time in the country. Dolomite). wheel on boom and Blender reclaimers. Iron Ore fluxes (Lime stone. Stock yards Crushing plants. Coke is a hard porous mass obtained by functional distillation of coal in absence of air at a temperature above 125oC for a period of 16-18 hours. to the tune of 12-13 Million Tones for producing 3 Million Tones of Liquid Steel. Coke Oven Department The main function of this department is to convert the coal in to coke. The Raw Material Handling Plant (RMHP) Department procures the different raw materials from various sources. blending. It is used as a fuel and reducing agent for reduction of iron ore in blast furnace.6 tones 16m length x 7m . a number of coal chemicals are being extracted in coal chemical plants. . benzyl and ammonia based products. The coal is not consumed directly because coke helps in reducing the pollution.height Besides coke production. The coal chemicals are tar. dolomite and limestone makes Sinter Cakes and put it for reuse.Sinter Plant Department Sinter is a hard and porous lump obtained by agglomeration of lines of iron ore. This department by not wasting the powder and small pieces of iron ore coal manganese. . Blast Furnace Pig iron/hot metal is produced in blast furnace. limestone and metallurgical waster. This increases the productivity of Blast Furnace. coke. The furnace is named as blast furnace as it is running with blast at high pressure with a temperature of 1150oC. improves the quality of pig iron and decreases the consumption of coke rate. sinter and 627Kgs. sinter coke and limestone.Raw materials required for iron making are iron ore. For production of pig iron/hot metal there are two blast furnaces named Godavari and Krishna. iron ore. For one tone of hot metal production. Steel Melt Shop . 1390Kgs. 310Kgs. of coke with some other additives. They are of the largest and most modern furnaces in the country. etc. The cast blooms are heated and rolled in to various long products of different specifications at three high capacity sophisticated high-speed rolling mills. the steel is subjected to homogenization treatment and cast in to blooms in continuous casting machines. after the conversion of hot metal in to steel. silicon. these impurities will be removed in steel making by oxidation process.Hot metal produced in blast furnace contains impurities like carbon. sulphur. Wire Rod Mill:- . These blooms have to reduce in size and properly shaped to fit for various jobs.. There are three LD converters to convert hot metal in to steel. Rolling is one of the mechanical processes to reduce larger size sections in to smaller cones. phosphorus. Rolling Mills:- Blooms cannot be used as they are in daily life. and having high ductility. steel is first routed through.5 mm to 12.000 tonnes per annum. Argon rinsing station.WRM is a stand mill and is fully automated with computers. if needed. The mill product mix includes rounds and ribbed wire in the sizes of 5. Wire Rod Mill is fully automated & sophisticated mill. JIS. The mill produces rounds in 5. uniform grain size. high-speed continuous mill having a capacity of 8. wire rods are made in coil having maximum weight of 1200 Kgs. Medium Merchant & Structural Mill (MMSM): . Medium & High carbon grade meeting the stringent National & International standards viz.7 mm dia.5 . However. The billets are rolled in 4 strand.14 mm range and rebars in 8. The mill consists of 2. 10 & 12 mm sizes. 50. The mill is equipped with standard and Retarded Stelmore controlled cooling lines for producing high quality Wire rods in Low. IRUT (Injection Refining & Up temperature) / ladle Furnaces.5 stands and a capacity of 850. to homogenize the steel and to raise its temperature. excellent surface finish. DIN.000 Tonnes of Wire Rod Coils. BS etc. BIS. Liquid Steel produced in LD Converters is solidified in the form of blooms in continuous Bloom Casters. flats. The mill is designed to produce 8. angles (equal & unequal). T bars.50. The feed material to the mill is 250 x 250 mm size bloom. IPE beams I HE beams (Universal beams) .000 tons per annum of various products such as rounds. which is heated to rolling temperatures of 1200 °C in two walking beam furnaces. channels.This mill is a high capacity continuous mill. squares. The short fall of power is availed from APSEB grid.6 KV for further distribution.Gas Expansion Turbines (BF / ces)* . shutdown or other reasons. The entire plant is configured as 5 electrical load blocks (LBSS 1 to 5) and step-down substations are provided in each block with 220 KV transformers to step down to 33/11/6. . The agreement with APSEB provides for exporting of surplus power to APSEB. Traffic Department:A steel plant of the size of VSP has to handle around 60 to 65 MT traffic comprising of incoming traffic in the form of raw materials and outgoing traffic in the form of finished or saleable steel. In case of partial outage of captive generation capacity due to break down.Back pressure Turbines (C&CCD)* . The captive generating capacity comprises of .5 MW) . Power from APSEB is received at Main Receiving Station thro' 220KV overhead distribution lines.AUXILIARY FACILITIES Power Generation & Distribution: The average power demands at all units of VSP when operating the full capacity will be 221 MW. The captive generation capacity of 270 MW is sufficient to meet all the plant needs in normal operation time.2x12 MW (*Power availability from BPT & GET is around 22MW) Power plant also meets the Air Blast requirements of Blast Furnaces thro' 3 Turbo blowers each of 6067 NM 3 / hr capacity. and also the in process traffic such as cast pig iron.TPP -247. hot metal.2 x 7.5 MW .5 MW (3x60 MW + 1 X 67. mill scrap. special bolts. Structural shop 3. various spares are made. In the Structural shops the fabricated structural of about 4500 Tonnes are produced annually and the input consisting of sheets. Engineering shops & Foundry (ES & F) Engineering Shops are set up to meet the requirements of Ferrous & Non Ferrous spares of different departments. In steel foundry. This complex is divided into 1. The shop will require 300 Cu. steel casting up to maximum piece weight of 10T is produced. Utility Equipment Repair Shop (UERS). The machining section has over 100 major machine tools including lathes. 2600 Tonnes of iron castings and 200 tones of non-ferrous castings are produced annually.Of this 50% is transported by belt conveyors. nuts etc. channels. . Per year of wooden patterns.m. The Wood working Shop manufactures patterns for foundries. and also of forge shapes such as crusher hammer heads. Steel ingots up to 1. VSP has the distinction of having peripheral unloading system for the 1st time in Steel Industry. milling. Foundry 4.3 Tonnes for forging are also produced. boring. slotting. The Forge shop is designed for production of shafts. In Foundry Iron castings up to a weight of 5 tons and non-ferrous casting up to a weight of 1 ton are produced. angles beams etc. 45% by Rail Transport and 5% by Road. Wood Working Shop and 6. planning. coupling flanges etc. Central machine shop 5. Forge Shop 2. In the Central Machine Shop. shaping. grinding and other machines. plates. 2) Procures and arranges spare PCB’s for the equipment of PLC’s and drive controls for motors in the plant and also for UPS systems. Coils etc. of Gas Expansion Turbo.T motors.. 2 no's of Back Pressure Turbo Generators of 7. There are 810 such large rotating electrical machines spread throughout the plant including 3 Nos. Electro Technical Laboratory 1) Repairs all the defective electronic PCB’s. Distribution transformers. DC Motors. testing etc. L. which are taken out from the equipment during their functioning. 3) Involves in the plant modernization activities and up gradation of equipment. HT Motors. a) Repairs. Maintenance and condition monitoring of all rotating Electrical machines of the plant. Welding Machines. The services provided are as mentioned below. The job includes transportation. Overhauling and re-erection with precision alignment. of the plant. Tower lights and Weigh Bridges throughout the plant.Generator of 12 MW each. Electrical Repair Shop (ERS): ERS is a central repair shop to carry out repair activities like overhauling.5 MW each and 2 Nos. Lifting magnets. of 60 MW Turbo-Generators.5M TG in TPP. ..Central Maintenance Electrical:Maintenance of all H. of various types of AC Motors.T motors and DC motors of above 200KW. rewinding. 1 No of 67. Control Transformers. b) Maintenance of Electrics of all streetlights. Submersible pumps. BF.The Main Functions of ERS are: a) Overhauling of motors b) Rewinding of motors. c) Testing of Electrical equipment d) Emergency Site Repairs e) Performance assessment of electrical motors Utilities Department:Utilities dept.. Chilled water plants and Acetylene plants. pumps. Quality Assurance and Technological Development (QA &TD) The QA & TD dept. gaseous nitrogen and gaseous argon. Compressor Houses 3. in addition to Central . The QA & TD labs are provided at major department like CO&CCP. Chilled Water plants (2 No's) produce chilled water required for use in the ventilation and air conditioning system in areas such as office rooms. Semi finished products and finished products. for instruments and controls. Consists of 1. coils etc. SP. has been set up to take care of activities pertaining to Quality Control of Raw Materials. magnets. Air Separation Plant 2. The ASP is designed to meet the maximum daily demand of gaseous oxygen. SMS. transformers. electrical control room etc. Compressor Houses produce Compressed Air required for the operation of pneumatic devices. Acetylene plant produces Acetylene gas required for general purpose cutting and welding. and Rolling Mills etc. pneumatic tools and for general purpose in the various production units of Steel Plants. Laboratory. The main activities of this shop is Roll pass Design. Roll shop & Repair shop: Roll shop & Repair shop is in the complex of Rolling Mills catering to the needs of mills in respect of roll assemblies. grooving of rolls. elimination of the use of different templates. Geographically this dept. higher productivity. In Calcining plant limestone & dolomite are calcined for producing lime & calcined dolomite. guides few Maintenance spares and roll pass design. Calcining & Refractory Material Plant: CRMP consists of two units . is in three areas as roll shop-1. For the first time in the country. which are used for refining of steel in the converters. use of standard tool for any groove turning.. QA & TD carries out analysis. are some of the advantages of CNC lathes over the conventional one. The department monitors the process parameters for production of quality products. easier to incorporate groove modification etc. testing and final inspection including spark testing of finished products and assigns grades to them. Plant Design Major functions of this unit are : 1. Development of detailed Manufacturing Drawing and Replacement Specification drawings . VSP has adopted CNC technology for grooving of steel rolling mill rolls. assembly of rolls with bearings. High constant respective accuracy.Calcining Plant & Brick Plant. preparation of guides and their service and manufacture / repair of mill maintenance spares. Roll shop-II and Area Repair Shop. 2. Suggesting New Designs and engineering study and Analysis 3. Standardization detailing by doing elaborate . FUNCTIONS OF VARIOUS DEPARTMENTS OF RINL/VSP: Directorate of Operations Production Planning and Control:  Formulation of long term production plans and infrastructure support. This involves detailed planning for product mix and value added steel along with Marketing Dept.Works Contracts Department  Obtaining administrative approval on receipt of proposal from indenting departments.  Preparing COM/Board Note for decisions at those forum Participating in claims and arbitration proceedings and legal cases pertaining to contracts  Registration of agencies under various categories & classes of works periodically.  Formulation of Annual and Monthly production plan. Inputs and Basic Infrastructure:- . Techno-economic and Quality:Formulation of techno-economic norms and energy management parameters and reviewing the same against targets periodically. tendering and awarding of work  Converting tender committee meetings and preparing recommendations forwarding work.  Analyzing Plant performance against targets on a periodic basis and taking necessary corrective actions. Projects planning: Long and short term planning for all developmental schemes of capital nature comprising modernization and technology up-gradation.  Expansion of Plant Capacity from 3.  Indigenous development of technology involving laboratory investigation. Medium Coking Coal (MCC).0 Mt liquid steel to 6. Iron Ore Fines and Iron Ore Lumps etc. . Spares requirement and ensuring preparedness before taking up the repairs.. Mn Ore and Sand at VSP Captive Mines. Repairs and Maintenance Planning:  Planning of major Capital Repairs. BF grade dolomite. Mn Ore and Sand from Captive Mines.  Formulation of Annual Inward and Outward traffic movement plan for raw materials and finished products in consultation with Marketing and Material Management Depts.  Development of new grades and products in coordination with marketing dept.3Mt. Dolomite.  Monitoring of production and dispatch of Limestone. Boiler Coal. Modifications and Replacement (AMR) schemes. Research and Development: Identification of Technological Improvement scopes for various processes and plan for adoption of them by acquiring design and know-how capability. Mines planning: Formulation of annual and monthly production plans for BF limestone. Shutdowns.  Planning and implementation of Additions. Long term and short term planning for procurement of raw materials like Imported Coking Coal (ICC). Project Division Design & Engineering Department  Liaisoning with Consultants and Government Authorities in connection with designs. specifications.  Preparation of drawings.  Control of the Budget and Spares.  Operation of Consultancy contracts. Consumables & Raw Materials Inventory.  Systems and Procedures: Streamlining the contract management system to ensure consistency of approach and adoption of sound principles of contract management. Budget plan and control: Identification of Budget requirement under various heads.  Assisting indenting departments in technical discussion with parties and preparation of technical recommendation. approval of drawings and Liaisoning work for various types of clearances.  Identification of IT enabled projects for various processes and implements them.  Ensuring the implementation and maintenance of quality management system requirements for ISO 9001:2000 Certificate.  Monitoring pollution control activities of the Plant and interaction with the State and Central Pollution Control Board. design and specification for AMR and Non-AMR jobs. . IT-Security Policy and IT-Vision.  Layout clearances of various facilities coming in the Plant and Township.Information Technology: Formulation of Organizational IT-Policy. design. consultants and suppliers in terms of contract and handing over the unit to works department for operation. .  Preparation of contractor’s bills. processing of extra items and closure of contracts.  Liaisoning with suppliers.  Arranging PAT/FAT will all concerned departments like works.Construction Department  Exercising supervision of work at sites both for quality and quantity checks. MM department. Design & Engineering Department and Stores in connection with progress of work at site.  Preparing COM/Board Note for decisions at those forms.  Preparation of various types of reports for information of Government and different levels of Management.  Interaction with departments and consultant for updating the schedules and networks for Project Monitoring. Directorate of Finance & Accounts  Making arrangement for long-term fund requirements.  Maintaining records with regard to the cost of products produced by the company.Contracts Department:  Awarding of contract from the point on receipt of administrative approval from indenting departments.  Participating in claims and arbitration proceedings.  Release of payments to suppliers/providers of goods and services.  Accounting of all minority transactions and preparation of financial statement of the company and getting the same audited as required under law.  Conducting commercial discussions with parties. Project Monitoring Department: To monitor the physical and financial progress of all the works executed by Construction department.  Arranging Tender Committee meetings and preparing recommendations for awarding work.  Release of salaries to the employees. .  To monitor the progress of works executed by D&E as well as Contracts department. coordination with Standing Councils.  Official Language implementation Legal Affairs  Legal Affairs deals with all legal matters including arbitration. Legal Advices etc. Income Tax and other statutory payments.  Suggestion Scheme.  Employees’ induction.  Making working capital arrangements.  Organizing for payment of Central Excise. Stock Verification and Statutory compliance. . procedures and the Delegation of Powers. According concurrence to proposals for investments & expenditure as per the policies.  Replies to parliamentary questions. Sales Tax.  Incentive Scheme.  Employees’ welfare  Corporate Social Responsibility (CSR). policy & rules  Industrial relations.  Submission of periodical reports to banks as per their sanctioned terms.  Service matters.  Conduct Internal Audits. Directorate of Personnel Personnel Department  Manpower Planning. Management Services  Quality Circle.  Plant Specialized Training.  Induction and Orientation. It takes up strategic tasks of the organization.  Plant Practice Lectures.  Training on Motivation and Attitude. The Department is engaged in formulation of VMO (Vision. It has also developed the Corporate Plan of RINL. Training & HRD  Leadership Training. Corporate Strategic Management (CSM) CSM is a “think tank” of the organization. Mission & Objectives) of the organization and developing the strategy to achieve VMO. .  Team Building  Skill Training. Reward Scheme.  Procedural Orders etc.  Management Development. It has various wings which interalia includes Knowledge Management Cell (KM Cell).  Basic Engineering Lectures. CHAPTER – IV INVENTORY MANAGEMENT OF STORES AND SPARES IN VISAKHAPATNAM STEEL PLANT . Receipt. As regarding raw materials concerned. . the Raw Material Department procure the materials through Materials Management Department (here after referred as MM Dept) for use by production departments and are accounted by Raw Material Accounts Section of Finance Department. The finished goods produced at various by production department are sold by marketing departments and accounted by Sales Accounting Section of Finance Department. stock position. Handling and Accounting of Inventory of Stores and Spares in VISAKHAPATNAM STEEL PLANT The inventories in Visakhapatnam Steel Plant are consisting of finished goods. the procedure for procurement. stock of raw materials. stock of stores and spares and working progress.Procedure for Procurement. receipt. handling and accounting of stores and spares is detailed below:  Procurement Automatic Recoupment Cell (AR Cell) of Stores Department prepares indents in respect of materials. which are of meant for common use by various user departments of company. etc. The various user departments prepare the indents for procurement of materials. budgetary position. restricted to inventory of stores and As the present study is spares. which are not procured by AR Cell considering their usage. CSD follows detailed procedure sections consisting of Collection cell. etc indicating ownership of materials and other dispatch particulars from suppliers and scrutinizes documents are in accordance with terms of AT terms. Railway Receipts (RR). acceptance of tender) placed on the on such supplier. i.e. Inventory Control Cell. Dispatch Cell. AR or Stock cell. The various functions and procedure followed by CSD is given hereunder:  Collection cell Collection cell receives the advance documents..  Receipt and handling of Stores and Spares The materials in respect of stores and spares. Finance Department and other concerned sections. Central Stores Department (CSD). terms and conditions (hereafter referred as AT. the indents are forwarded to MM Dept for initiating procurement action. through its CSD stores them and issues for For these activities. In case of of full small consignments. An order indicating rate. budgetary requirement. Disposal Stores etc. MM Dept invites tenders from various suppliers as per laid down procedure and finalizes the lowest supplier. whether such Collection Cell advices the transporters to deliver the consignments to the premises of CSD as per terms wagon/truckloads on of the supply/transport door delivery terms in respect basis. The copy of order is sent to user department. Receipt Stores. etc are received by CSD from suppliers. stock position. etc. Custody Stores. On approval.The indents in respect production departments are scrutinised by Spare Part Cell of Works Department as to their technical requirements. CSD also identifies the surplus and scrap materials and disposes them. The indents so prepared needs to be approved by competent authority. consumption. like Lorry Receipts (LR). Discrepancy Receipt Stores. Claims cell. it assigns the collection agencies for collection of . minor raw materials. etc. Collection Cell negotiates with the transporters for reduction of demurrage charges. Collection Cell makes payments from imprest in respect of payments made by it towards freight. if any from Purchase Department and verifies catalogue number. It obtains open delivery/shortage certificate for damaged condition. Collection Cell receives the Cheques for making payment in respect of Lubricants and oils and arranges for their collection on handing over of such Cheques to the suppliers. Collection cell receives daily reports from collection agency in respect of materials delivered to the CSD or its sub-stores by collection agency and from various Receipt Stores in respect of materials delivered on full wagon/truck load basis. where demurrages are attributable to CSD and informs Traffic Department with due remarks. It verifies delivery schedule and plans the space for bulk goods.consignments from transporters’ go-downs normally within three days after receiving the documents and within one day for emergency consignments. Receipt . Receipt Stores Receipt Stores receives the copies of ATs along with amendments. Collection cell also arranges dispatch of material on the dispatch advice received from dispatch cell. where demurrage is not attributable to stores. Collection Cell receives bills from unauthorized transporters for carrying consignments forwards to Purchase Department for scrutiny and payment. After collecting the lubricants and oils. Collection cell surrenders RRs to Railways based on unloading reports from Receipt Stores and collect due slips for wagons not received in the same RR. demurrages. arranges for recovery from handling contractors. accounting unit in AT with reference to details available in Catalogue Master. the same will be delivered to major users directly through sub-stores after receiving Stores Issue Note for raising regularizing GARN. Collection Cell receives details of demurrage charges from Traffic Department. After unloading is completed. the materials are stored in the respective Custody locations. After receiving intimation from Traffic Department. In respect of consignments booked in full wagon loads. railways hands over the wagons to Traffic Department. In case of other items. incomplete supply and quality problems. Delivery Challan / Invoice Copy and Inspection Report. DRS categorizes the rejected material into (a) breakages/damage. Receipt Stores indicates details of materials received along with discrepancies. DRS receives the GARN along with AT copy. At the time of taking wagons from Railway. DRS receive and tally the material with GARN. Discrepancy Receipt Stores (DRS) On rejection of materials by inspection agency. DRS also receive the material from custody stores under dispatch note for the materials rejected subsequent to GARN at Custody Stores. Receipt Stores prepares a rejected GARN and hands over the material to DRS in respect of breakages/damages at the time of receipt. collection agency. which can be covered with insurance and (b) all other DR cases and initiate the . Traffic Department verifies condition of seals/lashes of the wagons and reports the damaged/ tampered/duplicate seals/lashes. receipt stores shall inform to Traffic Department for drawing out the wagons. etc. if any by signing the delivery book maintained with Railways and passes the Discrepancy Delivery Message to all the concerned. DRS deal with the cases of Receipts Stores for general items and spares. In case of bulk materials. Receipt Stores assigns unloading to handling contractor. Receipt Stores ascertains the ownership of wagons and acknowledges the placement of wagons. trucks. the respective Custody Stores deal with the DR cases.Stores receive the consignment through wagons. wrong supply. (b) rectifications required to be carried out to put the material in use and (c) materials is to be rejected altogether and also the action to be taken against the supplier for suspension of future business relations. DRS send a list of rejected cases to the members of the MRB in advance.actions for clearing the DR stores. DRS issues materials to various user departments out of the rejected materials for emergency needs after obtaining suitability certificate and approval from competent authority. Valuation of both receipt and issue would be done as per the usual practice. Claims Cell Collection Cell/Receipt Stores send a non-receipt report for all road consignments to Claims Cell indicating the insurance clause as per terms . DRS takes the approval of competent authority for accepting the material and prepares the accepted GARN. In case of emergency requirement of plant. MRB meets at regular intervals and reviews every DR case within 45 days from the date of rejection and decides whether (a) the deviation is marginal and material can be used with marginally reduced efficiency. DRS take up with the supplier for replacement/rectification. Whenever materials are issued to department out of rejected lot due to urgency. DRS shall issue the materials against SIN. receipt are regularized immediately by raising GARNS under a separate identified series with remarks that these GARNS are not meant for release of payment to the supplier in order to enable accounting of both issues and receipts. DRS sends a communication to the bill passing section for release of payment appropriately clearly liking reference of GARN and also MRB decision. DRS advise Finance Department for recovery/withholding the payment. Based the decision of MRB. In case of breakages/damages. etc. Subsequently after settling the issue of rejection by way of rebate etc. 500. Where insurance is responsibility of supplier. where the insurance is to be borne by company is not forwarded to Claim Cell. Claims Cell lodges the claims along with necessary documents required with Insurance Company through Finance Insurance Claims Section and follows up for their settlement. However. (c) deduction of payment in the supplier’s bill and (d) settlement through MRB. Inspection Note for damages. arranges for packing the material. Discrepancy Report for damages or repair charges valuing less than Rs. rectification or modification on placement of ATs for such jobs and for returning empty gas cylinders along with a dispatch note. Where insurance is responsibility. informs to Insurance Company through Finance Insurance Section for coverage of transit risk and hands over the materials to Collection Cell. Dispatch Cell certifies the condition of materials. (b) rectification/replacement by supplier and clearance by Inspection. The claims are withdrawn on (a) settlement of claim by Insurance Company. etc to Claims Cell. from Receipt Stores for returning excess supplies/samples for testing to suppliers. Collection Cell hands over the material to transporter receives LR/RR from . etc for claiming damages immediately after completion of inspection along with documents like. Claims Cell lodges the claims in respect of non-receipt/shortage/transit damages with the suppliers and follows up for repair/replacement/reimbursement. Invoice/Delivery Challan. from Custody Stores for reconditioning of materials or returning of materials against quality complains to suppliers and from user departments for reconditioning. Shortage/Open Delivery/Assessment Delivery Certificate. Dispatch Cell Dispatch Cell receives the materials from DRS for dispatching the rejected material to suppliers. Receipt stores shall send discrepancy report in respect of shortages.of AT. and e) quantity for damage shall tag the material. updates the received quantity in Bin Card. c) unit code. b) description. note down the location on the GARN copy. Custody Stores transfers these materials along with balance stock to the supplier received under same GARN to DRS for taking suitable action by DRS. If Bin Card does not exist. d) quantity for shortage/excess. where physical balance does not match with bin card balance. 1 Physical discrepancies (a) Storage losses (b) Pilferage loss (c) Loss on account of Fire. Whenever a continuation card is to be opened after completion 40 lines.transporter and sends the LR/RR to Dispatch Cell for their action. Dispatch Cell forwards original LR/RR to the supplier along with a copy of dispatch note. Custody Stores Executive shall authorize opening of a new Bin Card and ensures no duplicate card. Custody Stores arranges the material in racks. For adjustment of stock balances. Custody Stores Executive will tally the balance at line number 40. for rectifying the error/discrepancy in ground balance with respective bin card balance for the following reasons. Custody Stores raises Stock Adjustment Voucher (SAV). etc (d) Excess/storage verification 2 Existence of Duplicate Bin Card 3 Rectification of Errors in Catalogue Number on stock (a) Error in posting transaction quantity (b) Posting in wrong bin card . Custody Stores Custody stores receives accepted material against GARN and gives acknowledgement to Receipt Stores after checking a) catalogue number. (c) Wrong issue . Stock Cell Stock Control or Automatic Recoupment (AR) Cell procures general consumables with standard specification and items generally required by more than one unit of a plant.Primarily the Custody Stores groups of respective Storehouse are responsible for accounting and custody of material.50. (Class B) annual consumption value less than Rs. AR committee is a standing committee constituted with the approval management. which directly affect the production and (b) other items AR items.1. AR items are categorized as per value into (Class A) annual consumption value more than Rs.000 to 50. Custody Stores is required to get verified its stocks of materials by Stock Verification Section of Finance Department. AR Cell places AT for these items directly on the under rate contracts with copies to (a) . Custody Stores verifies the items at the time of each transaction and in case of discrepancy. Custody Stores associates with stock verifier and got verifies the material and certifies the physical stock on a Joint Stock Verification Report.and (Class C) annual consumption value less than Rs. Before acknowledging the discrepancies during stock verification.000/. which are included in AR list as decided by AR committee. Stock verification shall be carried out by (1) Stock Verification Section of Finance and (2) Internal Stock Verification of Stores Department.00. Most of the AR items shall be covered under rate contracts. the same is brought to the notice of Custody Stores Executive.000/-. AR Cell ensures availability of all vital items all the time.00.000/Custody Stores informs stock position of AR items to AR Cell twice a week. AR items are grouped as (a) vital items. Custody Stores verifies the discrepancies and gives the reasons within 5 days of completion of stock verification.1. Custody Stores offers the stocks for verification to the stock verifier. Items contributing to 20% value of stock.Finance (b) Receipt stores and (c) Inspection agency. Deliveries shall be staggered monthly/quarterly based on the projected annual requirement and actual consumption. Delivery corrections in respect of Class B items are under taken once in a quarter. Inventory Control Cell scrutinizes general stores indents and rationalized spares and advice for suitable procurement action. Cell identifies the slow-moving and non-moving materials. Slow moving items are items other than insurance items which do not fall under the category of non-moving or fast moving items. The position of the item at the beginning of financial year shall be considered for analysis. Items contributing to 10% value of stock. It also identifies the . Inventory Control Cell Inventory Control Cell prepares inventory status and circulates to all user departments at least once in quarter. General items which have not been issued even once during the last 5 (five) years shall be considered as non-moving items. It also carries out X Y Z analysis and circulates list of X and Y items half yearly to user departments. Non-moving inventory should not include Insurance An item shall be removed from non-moving list only when existing stock becomes nil and it is not declared as surplus item. X Y Z Inventory Control Items contributing to 70% value of stock. Supplier under rate contract is required to keep enough stock of AR items. inventory. Items which had at least one issue per year in the last 3 (three) years are considered as Fast Moving items. Vital items and Class A items are reviewed monthly and suppliers are advised with modified delivery schedule. general stores items. . which can be standardized in consultation with SPC. AR Cell Spare Part Cell All General Stores items All rationalized Mechanical and Refractory Engineering Electrical spares Refractory items Dept RS&RS Rolls and Roll Guides First three Class of Material digits Next two Sub Class of digits Next four Material Serial Number of digits Next one digit Last digit item Source Code Check Digit Source Code Source of Supply of 0 1 Material Indigenous Imported (other than 2 3 5 Russian) Reconditioned Russian Insurance item- 6 indigenous Insurance item- 7 imported Insurance itemreconditioned Check digit is calculated with the principle that each digit in the catalogue number is multiplied by its positional value starting from the source code. It carries out ABC analysis of general stores items and monitor consumption pattern on a quarterly basis and furnishes report to user department and Purchase Department. Disposal Stores verifies thoroughly material received. which are replaced. unloads in an earmarked lot. (e) turnings and borings generated from workshops. and ensures that one type/lot of materials is unloaded at only one location. Storehouses are identified with Department Codes for easy identification of spares meant for particular department. 17 for metric ton. 02 for pair. 03 for dozen. refractories. wood and other packing materials. 01 for numbers. etc declared as surplus. Different unit codes like. After obtaining approval. (c) spares procured and available in stock in respect of equipments. surplus/unserviceable. (a) scrap/cut pieces of steel items generated during fabrication and returned to CSD. etc are used for accounting of items in stores. A lot is normally formed of the same type/quality of material. (d) non-moving items which are declared as surplus.the sum of these products is divided by 11 and the remainder is designated as ‘Check Digit’. The SRN is entered in the Day Book. However the remainder is 10 the check digit shall be 0. pipes. the . which are declared as The concerned Department takes action for declaring the above items as surplus/obsolete by obtaining approval of competent authority as per approved delegation of powers and after taking recommendations from departmental committee constituted to declare such items as surplus/obsolete. Lot Register and in Bin Card. old automobiles and electrical/electronic materials. Disposal action is normally taken in respect of items like. etc. weights. (b) construction equipment and other materials like steel. Disposal Stores Disposal stores receive all scrap and surplus material through Store Return Note (SRN). two officers. . the name of the customer and the same shall be dropped in the specific tender box thereafter. one from Finance Department and another from CSD open the tenders. The intending customers deposit the tender in the separate tender boxes kept in the CSD. Thereafter. the same is put in a cover and sealed by an Executive who receives such tender in the first instance duly super scribing the tender number. The tender box sealed immediately after the time specified for receipt of tenders in the invitation to tender. If a tender is received without indication of tender number and opened in normal course in office.concerned Department sends the material along with SRN to Disposal Stores for disposal. All the tenders are opened in the presence of authorised representative of customers. date. CSD ensures all tenders received by post are dropped in the relevant box before closing time. SAV for adjustment of balance of stock. SIN/DNS. In addition to the above Bin Master data extracted by System Department. (e) Reconciliation of provisional labiality for suppliers. value and account codes of documents processed in the earlier months for processing as given below: S. STVS. (b) Review (a) of odd balances in priced stores ledger (c) Capitalization of issues. SRN for returning the materials and STV for transferring materials at the beginning of the year and circulates to the concerned operating persons including SAS. (g) Review of SAVs rose for shortage/excess. The adjustments are based . and SAVS in accordance with stores procedure order and posts them in the Bin Cards or Bin Master in on line. SIN or DN for issue or despatch of materials. at the end of each month SAS provides data in respect of adjustments made to the quantity. (f) Material sent for repairs/replacement/rectification/ on loan basis. Docume nt type 1 2 3 4 5 GARN SAV SRN STV SIN/DN Card Code adopted for raising documents / adjustments by CSD SAS 31 32 33 34 35 34 36 34 38 37 SAS makes value or quantity adjustments for various jobs like Preparation of material issues to contractors. carrying out above jobs. (h) Reconciliation of priced stores ledger and bin cards/ master and (i) Scrutinizing and accounting of documents and (j) for making any accounting adjustments.Accounting of stores and spares CSD decides an issue control series for raising documents like GARN for receipt of materials. SRNS. CSD raises the documents like GARNS.No. stores account section passes After various adjustments for incorporation in monthly data. (d) Insurance spares accounting. 1 Monthly or Cumulative Inventory cum Consumption 2 3 4 5 6 7 8 Report Priced Stores Ledger Monthly Transactions Data in a soft copy Voucher-wise Statement Account Code Summary report Material Group wise Statement Journal Voucher Detailed Report Journal Voucher Summary Report . etc for that transaction to clear rejected transaction edit. SAS verifies the reasons and assigns the correct value/account code/responsibility code/unit code. After processing the data. System rejects the new catalogues operated by central stores department through SIN/DNS/SAVS which do not exist in PSL. etc. workings for capitalization of materials. Normally. etc. copies of bin-cards in case of reconciliation of Bin Master and PSL. Wherever the transaction value is zero or in case of wrong account code/ responsibility code/unit code. wrong responsibility code. The transactions are rejected because of (a) Non-pricing of GARNS (b) Non-availability of catalogues in PSL and (c) the value of any transaction is zero for any reason (d) wrong account code. These adjustments are entered in adjustment data registered on daily basis and incorporated in the monthly transaction data. SAS obtains the value of GARN’S for non-priced GARN’S from purchase bills section and works out the rates for each item to dbase package and updates in system. After receipt of the rejected edit in soft copy from System Department. System Department informs the monthly consumption value to stores account section checks for abnormalities before giving clearance for generation and to forward the following reports to SAS for preparation of Monthly or Cumulative Inventory cum Consumption Report and other following reports. SAS will not make any quantity adjustments except for adjustment of mismatches in PSL–Bin Master Quantities.on input like PSL extracts. correspondence from CSD. wrong unit code. The respective bill passing sections debits amounts to the SOH account on their payment and SAS credits the amount charged to consumption to SOH account. SAS calculates the Stores Overheads (SOH) percentage based on the total SOH value balance lying at the year beginning and total opening stock of stores and spares. SAS prepares and circulates a Cumulative/ Monthly Inventory cum Consumption Statement for information of Heads of Departments. insurance and other like amounts incurred by the company. The various jobs for accounting of inventories/consumption done by SAS are listed below: Calculation of Stores Overheads percentage SOH means freight inward. where these amounts may not be recognised against each receipt of materials.9 1 Reports required for Costing Section Variance Report 0 SAS transfers the Journal Voucher Data to Financial Package by a merging program. Based on the Cumulative/Monthly Inventory cum Consumption Statement. Odd balances are such balances where (a) quantity is ‘zero’ and value is ‘non zero’. to Budget Section for preparing working results and to Cash Section for furnishing information to Banks on moving stocks. based on which cash credit/loan is utilized. This SOH percentage is informed to System Department for applying consistently on all issues of materials while charging to consumption from July to June of each year. so that all the transactions reflected in Priced Stores Ledger are carried to Section Ledger directly at the end of each month. (b) quantity is ‘non . Review of Odd Balances SAS arrives at the monthly inventory balances based on the transaction data furnished by System Department and reviews the odd balances in the inventory at the end of each month. identifies difference in value of issue and receipt and passes adjustments for such differences. replacement and rectification but not received back and GARNS for the material received. Insurance Spares Accounting SAS obtains list of transactions in respect of GARNS. if any are passed. for which material is not dispatched for further reconciling and for taking obtain for recovery of material in respect of material issued and for sending the material in respect of GARNS. (d) quantity is ‘negative’ and value is ‘positive’. Replacement or Rectification and receives back them subsequently. . Verification of Material Issued for Repair. SAS reconciles the above account on monthly basis. SAS verifies for the reasons and passes appropriate adjustments. (c) quantity is ‘negative’ and value is ‘negative’. STVS. The receipt value SAS values the issues and stock adjustments on FIFO basis and identities the difference in value based on FIFO and PSL value (monthly weighted average). SAVS. differences in SOH by way of Journal Voucher. and (e) quantity is ‘positive’ and value is ‘negative’. if necessary for rectification of odd balances. Based on the control number series. SRNS and other adjustments passed by SAS in respect of insurance items from System Department on monthly basis. along with SOH of materials is capitalised. For identification of these issues and receipts. Necessary Journal Voucher for accounting of insurance spares and adjustments for adjustment total value of insurance spares shown in PSL and value shown in Section Ledger. a separate control number series of SIN/DN and GARNS are used.zero’ and value is ‘zero’. Replacement or Rectification and their subsequent receipt CSD issues various materials for Repair. SINS/DNS. SAS clears the SAS informs to CSD the store house wise and catalogue wise dispatch notes raised for material issued for repair. the issues and receipts are accounted to ‘Material Issues on Loan Account’ by System. SAS verifies whether all the documents are received or not as per the first and last control numbers.Documents Review by Stores Account Section CSD sends documents in respect of GARNs with control number above 8000. In respect of GARNS. on adjustment is passed to rectify the discrepancy and entered in the adjustment data register. another negative STV raised or not. STVs and SINs/DNs with control number above 50. in case of any discrepancy is found. Where STV is raised for transfer of material from one group to another group.000 to SAS on day-to-day basis from various individual stores. SAS verifies whether quantities mentioned in the SRN are correctly posted in the ledger or not. Wherever. After receipt of the IOM indicating first and last control number of documents. SAS verifies whether quantities mentioned in the SIV is correctly posted in the ledger. SAS verifies the GARNS whether all are priced correctly or not. SAS identifies the GARNs in respect of materials received under works/operation contracts and transfers the amount to Works/Operation Bills sections through Inter Section Adjustment Account. SRNs. a Journal Voucher is to be passed for adjustment of balances of the material groups in Sectional Ledger. which are not correctly priced. Stores account section files all the above documents in the order of the month/card code/stores house/serial number wise. in case of transfer from one storehouse to other storehouse within the plant. the adjustments are passed by SAS. During the verification of the documents. SAS verifies whether for each positive STV. all SAVs. SAS verifies whether quantities mentioned in the SIN/DN are correctly posted in the ledger or not. appropriate adjustments are passed and entered in the adjustment data register. the same are entered in an Adjustment Data Register and the same were fed in Materials Package in . SAS ensures all DDs are received in respect of each delivery order issued by Disposal Stores. CSD raises a Dispatch Note (DN) for accounting of issue of materials in Bin Card and Delivery Challan cum Invoice evidencing the delivery of materials to customer. delivery order to SAS for depositing them with bank. Disposal Stores issues Delivery Order (DO) to the customer. etc the balance if any refundable. SAS prepares and sends the receipt voucher along with demand drafts to cash section for realisation. Disposal Stores raises a Delivery Completion Report (DCR) received from customer invoice value. In case of new customer.System and transmits the data to System for incorporation in the monthly transaction data. On receipt of full amount in respect of each lot auctioned/ tendered from customer. Disposal Stores makes available monthly invoice data at the end of month to Stores Accounts Section. forward them along with on IOM indicating the details of advance received. ground rent. surplus or obsolete items. details are updated in Customer Master Data Base in System. on receipt of demand draft (DDS)/ Bankers Cheques from customers towards sale of scrap. The Journal Vouchers prepared by SAS are fed in Finance Package for processing of Section Ledger Data. Disposal Stores sends the copies of DO. The duly filled-in “C/G” Forms shall be forwarded to Sales Tax Section of F&A Department on quarterly basis based on the monthly . DN. SAS verifies for any missing numbers and whether sales tax is correctly charged as per destination indicated in invoice and generates a journal accounting voucher for accounting of sales in the System. On completion of deliveries in respect of each delivery order. On receipt of monthly invoice data. DC cum Invoice and DCR to SAS. recoveries in respect of late payment charges. On delivery of materials. Disposal Stores Collects the C/G forms from the customers in respect of CST sales. Accounting of Scrap Sales Disposal Stores. From the monthly invoice data. Stores Accounts Section prepares and forwards monthly sales tax returns to sales tax section of F&A department. SAS creates provision for the value of SAVs not raised in respect of shortages/excess where the same are reflected in the Stock . Stores Accounts Section will refund the available balance amount against a particular DO after affecting the recoveries like ground rent. reconciliation of PSL–Bin Master. SAS creates provision for the values of SAVs raised in respect of shortage/excess. etc. Based on the information furnished by Works Department. works out the value of PSL-Bin Master cases and creates a provision. etc. where approval is pending and shown in material under investigation. reconciliation of PLS Account. capitalisation. insurance spares accounting. Works Department and System Department. review of materials issued on loan. On receipt of DCR from Disposal Stores. At the end of each month sub ledger is generated in respect of transactions pertaining to scrap sales. SAS reviews all odd balances and ensures that PSL contains only positive quantities and values in respect of all items of stocks of stores and spares. the same will be followed up with customers by Disposal Stores. late payment charges. SAS works out value of the inventory with shop floor and passes necessary entry for reversing consumption and increasing the stock value. SAS completes all the routine monthly jobs like. Wherever C/G forms are yet to be received. SAS ensures all items including insurance spares are capitalised and necessary entries/ adjustments are passed for effecting capitalisation. Based on the information furnished by System Department. review of SAVs raised for shortage/excess.invoice data and monthly sales tax returns which in turn submits the same to Sales Tax Authorities. SAS furnishes the details of capitalisation and insurance spares to Corporate Accounts Section for providing depreciation. documents review. Annual Accounting Jobs As a part of annual accounts closing. SAS calls for certain information from CSD. Based on the information furnished by CSD. by making a Payment Voucher and forward to Cash Section for making refund by way of Cheque to the Customer directly. SAS reconciles the PSL-Bin Master. the difference will be transferred to provisions no longer required account. SAS prepares schedules for various accounts and notes to accounts and get them audited. SAS creates a provision for the 100% value of surplus/ obsolete materials. Thus the stores and spares are procured. SAS creates a provision for 20% value of non-moving items of stock of stores and spares. . All the above provisions are created by charging to revenue in case they are in excess of earlier provisions made. Based on the information furnished by CSD. otherwise. received and accounted in the company in a systematic manner with lot of internal controls built-in in the system.Verification Report. which are commensurate with the scale of production. Based on the information furnished by System Department/ CSD. CHAPTER.V THEORITICAL ASPECTS OF INVENTORY MANAGEMENT & INVENTORY CONTROL .  Inventory also acts as a buffer stock when raw materials are received late and so many sale-orders are likely to be rejected.  The precautionary motive. the company may have to pay high prices because of piece–wise purchasing.2 WHY ORGANIZATION IS TO CARRY INVENTORY The need and importance of inventory varies in direct proportion to the idle time cost of men and machinery and urgency of requirement. But it is highly uneconomical to keep men and machinery waiting and the requirements of modern life are so urgent that they cannot wait for materials to arrive after the need for them has arisen. which necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. Hence.  Inventory provides service to the customers immediately or at short notice.5. Maintaining of inventory may earn price discount because of bulk purchase.  The speculative motive which influences the decision to increase or reduce inventory levels to take advantages of price fluctuations. wait and so could customers. the organization needs to carry the inventories. materials would not lie in wait for then and no inventories need to be carried.  The transaction motives which emphasis the need to maintain inventories to facilitate smooth production and sale operations. If men and machinery in the factory could.  Due to absence of stock.  Inventory also reduces product costs because there is an additional advantage of batching and doing long smooth runny production run.  Inventory helps in maintaining the economy by absorbing some of the fluctuations when the demand for a items fluctuates or is erratic.  Inventory helps in smooth and efficient running of business. . There are three general motives for holding inventories. 3 Inventory Management and inventory control The concepts of Inventory Management and Inventory Control are different. embezzlement and spoilage due to rust. but inventory control does not mean inventory management. Inventory Management ensures proper coordination of activities and policies regarding procurement. during its storage in the go-downs or at work in the factory.. (A) Operating Objectives (1) Availability of materials The first and the foremost objective of inventory management is to make all types of materials available at all times when ever they needed by the production departments so that the production may not be held up for want of materials. It is therefore advisable to maintain a minimum quantity of all types of materials to move on production on schedule.e. the objectives of Inventory Management are to be understand. in other words uncontrollable wastage. dust or dirt should be avoided. . Pipeline stocks (also called process and movement inventories) are also necessary where the significant amount of time is consumed in the transshipment of items from one location to another. Wastage of materials by leakage. Before understanding these concepts.e. theft. i. should only be permitted. Normal wastage. Any abnormal but controllable wastage should strictly be controlled. (2) Minimizing the wastage Inventory management has to minimize the wastage at all levels i. production and marketing materials/products in order to achieve better inventory control. of Hence. which are discussed under two heads. 5. Inventory management includes inventory control. (5) Control of Production Level Inventory Management have to decide to increase or decrease production level in right time so that inventory is controlled accordingly. (B) Financial Objectives (1) Economy in Purchasing Proper inventory management system brings certain advantages and economies in purchasing the raw materials. it is the responsibility of inventory management to produce sufficient stock of finished goods to execute the orders received from customers. when raw materials are in short supply. (6) Optimum Level of Inventories Proper control of inventories helps management to procure materials in right time in order to run the plant efficiently. (4) Better Service to Customers In order to meet the demand of the customers. But in odd times. Management makes every . Production variations can be avoided through proper control of inventory. An uninterrupted flow of production is to be maintained. It reduces wastage and cost of production and improves the morale of workers. Maintaining the optimum level of inventories keeping in view the operational requirements avoids the out of stock danger.(3) Promotion of manufacturing efficiency The manufacturing efficiency of the enterprise increases if right types of raw material are made available to production department at the right time. proper control of inventory helps in creating and maintaining buffer stock to meet any eventuality. (3) Reasonable Prices Inventory Management has to ensure the supply of raw materials at a reasonably low price. 5. Inventory Management has to ensure neither any deficiency of stock of materials nor any excessive investment in inventories so as to block the capital. from financial point of view. etc is one of the main objective of Inventory Management.attempt to purchase raw materials in bulk quantity and to take advantage of favourable market conditions. is to have an optimum level of investment in inventories. It helps to reduction of cost of production and improvement in quality of finished goods in order to maximize the profits of organization.4 INVENTORY CONTROL Inventory control is a primary part of Inventory Management. ordering and carrying costs. The objectives are - To minimize investment in inventory . It helps reduction of inventory costs in a way that reduces the cost per unit of inventory and thereby reduction of total cost of production. Inventory Management has to set up minimum and maximum levels of inventories to avoid deficiency or surplus stocks. It is concerned with achieving an optimum balance between two competing objectives. but without sacrificing the quality. (2) Optimum Investment and Efficient Use of Capital The primary objective of Inventory Management. (4) Minimizing Costs Minimizing inventory costs such as handling. which could be used in an efficient manner. These includes (1) Min-max plan. (4) ABC Analysis. two piles. (8) Review of Slow and Non-Moving Items. (3) Order Cycling System. Considerations like economic order quantity and identification of high value critical items of stock for special management attention or not cared for under this plan. Under this plan. The method is very simple and based upon the premise that minimum and maximum quantity limits for different items can fairly well defined and established. (5) Fixation of Various Levels. (6) Use of Perpetual Inventory System and Continuous Verifications. which is sufficient to meet its usage during the period between receipt of an order and placing of the next order. the organization adopts various methods of inventory control. a maximum and minimum for each stock item are specified keeping in view its usage. which will bring it to the maximum level. requirements and margin of safety required to minimize risks of stock outs. (2) Two . (7) Use of Control Ratios. or bins are maintained for each item of stock. (1) Min-Max Plan It is one of the oldest methods of inventory control. (2) Two Bin System. The moment stock contained in the first bin is exhausted and the second bin is . The minimum level establishes the reorder point and order is placed for the quantity of material. bundles.- To maximize service levels to the forms customers and its own operating departments.Bin System Under this system. The second bin contains the safety stock and the normal quantity used from order date to delivery date. In achieving the control over inventories. The first bin stocks the quantity of inventory. Since no bin.e. It measures the money value. The schedule periodic review plan does not consider the differences in rate of usage for different items of stock. (3) Order Cycling System In the order cycling system. 30. which is believed to have originated in the general electric company of America and based on Pareto’s law. (4) ABC Analysis With the numerous parts and materials that enter into each and every industrial products and inventory control lends itself. Moreover. first and foremost. i. As a result. the system tends to make procurement and purchasing activities reach their peak around the review dates. Order for replenishing a given stock item is placed to bring it to some desired level. items whose usage has declined will have surplus stock. to a problem of analyze. cost significance of each . there is absence of perpetual inventory record under this bin. a requisition for new supply is prepared and submitted to the purchasing department. an order is placed to replenish for its supply. In the course of a schedule periodic review. quantities in hand of each item or class of stock are reviewed periodically say.tapped. whereas some items whose rate of depletion has increased are exhausted much before the next review date.tag (quantity record of materials) card is maintained. which is often expressed in relation to number of days or weeks supply. The review period will vary from firm to firm and among different material in the same firm. if it is observed that the stock level of a given item will not be sufficient till the next scheduled review keeping in view its probable rate of depletion. Such analytical approach is popularly known as ABC analysis (Always Better Control).. 60 or 90 days. Critical items of stock usually require a short review cycle. The ABC analysis is based upon segregation of material for selection control. technical or other problem and its relative money values in the total investment in inventories. The important steps involved in segregating material or inventory control are as follows: (a) Find out future use of each item of stock in terms of physical quantities for the review forecast period. Under ABC analysis. i. (f) Compute the total cost of each item as a percentage of total costs of all items. lead time. and low value items need to be devoted minimum expense and efforts in the task of controlling inventories.e. the different items of stock are classified into three categories in the order of their average inventory investment or based on their annual rupee usage. The logic behind this kind of analysis is that the management should study each item of stock in terms of its usage. (d) Beginning with the item with the highest total cost.The items having low consumption value are put as C category. arrange different items in order of their total cost as computed under step (iii) above. . (e) Express the units of each item as a percentage of total costs of all items. (c) Determined the total project cost of each item multiplying its expected units to be use by the price for per unit of such item. (b) Determined the price per unit each item. high value items desire very close attention. Category “B” items: .more costly and valuable items are classified as such items have large investment.. Category “A” items: .material item in relation to total cost and inventory value.The items having average consumption value are classified as B items. Critical. Category “C” items: . all items consumed by the organization should be considered together. (A) Maximum Level It is normally a matter of policy. The various factors that should be taken into consideration are: . e) Ordering quantity: The quantity. - More emphasis should be given to the value of consumption and not the cost per unit. they should preferably be considered as one item. If it needs.Important points for ABC analysis: - Whenever the items can be substituted for each other. B. These are a) Maximum level: The represents the minimum quantity above which stock should not be held any time b) Minimum level: The represents the minimum quantity of stock that should held all items c) Danger level: Normal issues of stock or usually stopped at this level and made only under specific instructions. they should be substituted for each other. which is to be ordered. - If it is convenient different items may be classified into only three categories and labeled as A. (5) Fixation of Various Levels Certain stock levels are fixed up for every item of stores so that stocks and purchases can be efficient controlled. percentage of different items may be plotted on chart for better representation. and C respectively depending upon whether they are high value items. average value items or low value items. - While classifying. d) Ordering level: It is the level at which indents should be placed for replenishing stocks. the spare parts and components etc. Capital outlay: investment to be made in stores.  Formula: Maximum stock level = Re. nor the lead-time is constant through the year. So in order to face .  Consumption per annum. maximum level will be fixed for each season.  Certain materials deteriorate if stored over a long period.  Lead Time.  Price advantage arising out of bulk purchases should be availed.  Certain goods are seasonal in nature and can be purchased only during specific period.order level +Re-ordering quantity – (Minimum Consumption *Minimum Reorder Period) (B) Minimum Level The minimum level is also a matter of policy and is based on  Consumption per annum. raw materials and other bulk items is an important consideration. of such products stocked should be limited. This limits the quantity of maximum stock kept.  The economic order quantity.  Production Requirement.  Minimum quantity that could be advantageously purchased.  If certain goods are subject to obsolescence.  Formula: Minimum level = Re-Order level – (Normal Consumption * Normal Re-Order Period) (C) Danger or Safety Level Some times in practical situation.  Storage and insurance cost.  Storage space available.  The lead-time.  If an item is made to order then no minimum level is necessary. it happens that neither the consumption rate. Hence. week-to-week and hence accurate forecasting is not possible. The ordering level is calculated from the following factors:  The expected usage  The minimum level  The lead time  Formula: Ordering Level = Minimum Level + Consumption during lag period (E) Reordering Quantity or Economic Order Quantity (EOQ): One of the major inventory management problems to be resolved is how much inventory should be added and when inventory should be added. the worst conditions so that minimum a stock is always maintained. the stock reaches the minimum level when the replenishments received. Based on these facts and policies. The order point is to be calculated keeping in mind. Formula: Buffer or Safety stock level = Ordering Level – (Average Rate of Consumption * Re-Ordering Point) (D) Ordering Level: The annual consumption of an item in addition to the time lag between ordering and receiving can be collected from past records. it has to decide number of lots in which it has to be purchased . the ordering level and ordering quantity can be calculated. Material consumption varies from day to day. The ordering level should be so fixed that when an indent is placed at the ordering level.such under taking in meet in out the demands. The desirable safety stock level is that amount which minimizes stock out costs and carrying costs. an extra stock is maintained. A safety or reserve stock is kept to avoid stock out. When inventory is to be replenished and if the firm is purchasing materials. The extra stock is called buffer stock. If the firm is planning a production run. (a) Ordering cost (b) carrying cost (c) Raw material cost. The economic order quantity is the quantity. which minimizes the total of ordering and carrying costs. the issue is how much production to schedule. (a) Ordering Cost These include the fixed cost associated with obtaining goods through placing of an order or purchasing or manufacturing or setting up machinery before starting production. requisition. The problems are called order quantity problems and the task of the firm is to determine the optimum Economic Order Quantity. Formula: Carrying cost = (Carrying Cost per unit (CH)*Quantity to be ordered (Q))/2 (c) Raw Material Cost The cost associated with purchasing of raw materials is called raw material cost. quality control etc.on each of replenishment. Formula: Ordering cost = (Annual Requirement (A) *Ordering Cost per order (O))/Quantity to be ordered (Q) (b) Carrying Cost The cost associated with carrying or holding goods in stock is known as holding or carrying cost. They include cost of purchase. Holding cost assumed very difficulty with size of inventory as well as time is held in stock. Determining an optimum Economic Order Quantity involves three types of costs. follow up. Formula: Raw Material Cost = Annual Requirement (A)*Price per unit (P) . receiving goods. A perpetual inventory usually checked by a Programme of continuous stocktaking and the two terms are sometimes loosely considered synonymous. Chartered Institute of Management Accountants. Inventory orders can be replenished immediately. managerial control and preparation of interim financial statements is easier. London defines Perpetual Inventory System as “The recording as they occur of receipts. whereas continuous stocktaking means the physical checking of those records with actual stocks. It facilities verification of stocks at any time and authenticates the correctness of stock records. . Cost per order is constant regardless of the size of the order. Formula: EOQ =  2AO/CH (6) Use of perpetual Inventory system and Continuous verification The perpetual inventory system records changes in raw materials. The two main functions of perpetual inventory are: - It records the quantity and value of stock in hand. - There is continuous verification of physical stock. The usage/demand is even through the period. Cost of carrying cost is fixed percentage of the average value of the inventory. usually for one year is known. work in progress and finished goods on daily base. There are two distinguishable costs associated with inventories. EOQ Assumptions The forecast/demand for given period. Perpetual inventory means the system of records. issues and the resulting balances of individual items of stock in either quantity or value”. Hence. Perpetual inventory derived its name because it indicates the amount of stock on hand at all time. dormant. Hence. obsolescence can be avoided. makes them disciplined and careful and acts as check against dishonest actions. Continuous stocktaking is hampered. Because of internal check. Hence. Production need not be stopped when stock taking is carried out. Discrepancies and errors are promptly discovered and remedial action can be taken to prevent their reoccurrence in the future.The perpetual inventory method has the following advantages: The inventory of various items can be easily ascertained. stores records are reliable. It reveals the existence of surplus. obsolete and slow moving material and hence remedial action can be taken Limitations: The bin card and stores ledger may not be up to date and hence cannot be effectively controlled. This method has a moral effect on the staff. . Hence. Stock figures are available insurance purposes. Perpetual inventory system is comprised of  Bin card. Hence. Information regarding material on hand eliminates delays and stoppage in production The investment in stock can reduced to the minimum keeping in view the operational requirements. the activities of various departments are checked.  Priced Stores ledger and  Continuous stocktaking. profit and loss account and balance sheet can be easily prepared. management can exercise control over cost. Loss of interest on capital invested in stock. These records give the cost of materials. loss through deterioration. Items are small value may be verified twice or more in a year. (7) Use of Control Ratios . The items to be verified per man-day are selected by classifying the various items into groups depending upon time required. Under this system of verification. the quantity is entered in the bin card from the Goods Received Note in the receipt column and issues to various departments in the issues column. The plan is such that all items are verified in the year. Separate sheets for each item or continuous may be maintained. the items are received / issued. Continuous Stocktaking The stores accounts reveal what the balance should be and a physical verification reveals the actual position. Only after the transaction is recorded. A separate bin card accompanies each item. The bin card is posted as and when a transaction takes place. Additional information regarding quantity on order and quantity reserved may also be recorded. Bulky items are usually verified when stocks are comparatively low. Priced Stores Ledger The stores ledger is maintained to record all receipt and issues transactions in respect of materials the quantities and the values are entered in the receipts issues and balance columns. issues and closing balance of items of stores. The stock verification staffs planed the program and divide the work among themselves.Bin Card A bin card is a quantitative record of receipts. On receipt of materials. The sheets should be serially numbered to obviate the risk of removal or loss. the total number of man-days available for verification is calculated. process or method of design or method of production. Lose due to obsolescence should be eliminated or these items are used in some profitable work. Inventory Turnover Ratio = Cost of material consumed * Days during the period / ((Cost of opening stock+ cost of closing stock)/2) (8) Review of Slow & Non-Moving Items The money locked up in inventory is the money loss to the business. Slow moving stock should be identified and speedily disposed off. This ratio reveals the efficiency of stock keeping.5 ESSENTIALS OF A GOOD INVENTORY MANAGEMENT SYSTEM An efficient and successful inventory management system possesses the following essentials: (1) Classification and Identification of Inventories . If more money is locked up. The speed of moving should be increased. Materials become useless or obsolete due to changes in products. Hence. The percentage of slow moving stores is given by value of slow moving stores divided by value of total inventory. slow moving stocks have a low turnover ratio. management is take effective steps in minimize losses.Inventory turnover ratio helps management to avoid capital being locked up unnecessarily. The turnover of different items of stock can be analysed to find out the slow moving stocks. Capital is locked up and cost carrying have to be incurred. Inventory Turnover Ratio should be as high as possible. lesser is the amount available for working capital and cost of carrying inventory is increase. This ratio will be indicated in the number of days. 5. The following are range of items to be held in stock:  Materials.The inventory include raw materials. ABC analysis of inventory is useful in classification and identification of inventories. short notice when there. should not be maintained in huge quantity provided they are readily available. locating and dealing.  Materials. which are not operationally vital and are used at irregular intervals need not be maintained in huge quantity (2) Standardization and Simplification of Inventories In a proper Inventory Management System. are breakdowns of plants. an appropriate name has been assigned to each item these are divided first into larger and smaller groups. Simplification of inventories refers to the elimination of excess types and sizes of items.  Stores. Standardization refers to the fixation of standards of materials for the use in the production of finished goods and set the specification of components and tools to be used in order to control the quality of goods manufactured. which are not in frequent demand. which are regularly required. In order to facilitate prompt recording. semi finished goods and finished goods and components of several descriptions. Assignment of definite name to each item of stores is necessary for the identification of materials. each item of inventory has to be assigned a particular code for proper identification and has to be divided and sub divided into groups. which may be required at. standardization of materials is necessary. which leads to reduction in inventories and its carrying costs. The following are advantages of standardizing material: It requires lower holding of materials and lower volume of storage place saves through reduced expenditure on storing handling of .  Materials are general stores. After analysis of all stores items and considering the peculiar nature of each item. (3) Adequate Storage Facilities Adequate storage facilities are necessary to have the proper management of inventory. cold.materials. (6) Adequate Inventory Records and Reports An efficient Inventory Management system requires proper inventory records and the reports because various inventory records contain information to meet the needs of purchasing. dryness. dust and dirt. wear and tear. Such information may be about quantity in hand. while fixing the minimum and maximum points. Proper preventive measures should be taken to avoid such deterioration. It ensures the availability of materials during production process. the two opposing costs are balanced i. Any particular information regarding any particular item of inventory may be had from such records. (5) Fixing Economic Order Quantity It is a basic consideration in Inventory Management as how much quantity of a particular item is to be ordered at a time. minimum and maximum limits for each item of inventories are to be fixed. (4) Setting Minimum & Maximum Limits. It provides more efficient purchasing by establishing equivalents between various suppliers. care less handling immethodical stocking etc..e. If this practice is adopted there would be a lesser chance of materials being obsolete. . rust and dust and reduces the wastage of materials due to mishandling. heat. re-order points are to also be fixed before –hand. Stores and spares may be deteriorated through dampness. production. ordering cost and carrying costs. In determining the EOQ. Reorder Points for each item of Inventory In order to avoid over and under investments in inventories. It reduces the wastage due to leakage. It reduces paper work for recording transactions. sales etc. EOQ. operation level. 5. In Inventory Management. production. safety level etc. (A) General Factors These factors include considerations common to thee management of all types of assets-fixed or current.in transit and on plants.(a) general factors and (b) specific factors. unit cost. experienced and devoted employees. sincere and devoted personnel.6 FACTORS DETERMINING OPTIMUM LEVEL OF INVENTORY The inventory includes stock of raw materials. price level variations. qualified. (7) Intelligent and Experienced Personnel Mere maintenance of records and procedure would not give the desired results unless the appointment of intelligent and experienced personnel in purchase. and sales department is not made as because that is no substitute for efficient. stock of work in progress and the stock of finished good and other accessories. Such factors are type and nature of business. reordering points. the control over investment in inventory is also an important factor. anticipated volume of sales. The main objective of the inventory management on one hand is to maintain the adequate stock of goods of proper quantity to meet the requirements of production and sales and on the other hand. availability of funds and the attitude of management. Hence the whole Inventory Management System should be manned with trained. Factor influencing the decision of investment in inventories can be divided in two parts . (B) Specific Factors . for each item of inventory. Reports and statements should be designed to keep the clerical cost of maintaining these records at a minimum. to keep the investment in them at the minimum. but its consumption continues throughout the year in the firm. the investment in such raw material shall naturally be heavier to store the stock in order to streamline the production throughout the year. small or seasonal. there investment in raw material increases in that particulars season. It requires higher investment inventories in off-season. (4) Terms of Purchase.Such factors those. (2) Length and Technical Nature of the Production Process If production process is such that takes much time in its completion. which influence the decision of investment of inventories and includes the following: (1) Seasonal Nature of Raw Material and Demand of Finished Goods If certain raw material is available during a particular season. Similarly seasonal industries purchase raw material in the season and there fore. the investment in inventories is larger. More over if production process is of technical nature. where demand for goods is uneven. ship building industry. Conversely. . The durability and perishable of the finished product are such important factors. (3) Style Factor in the End Product The style factor of end product or nature of finished goods determines the size of investment in inventories. even then it requires heavy investment in inventories. such as. This is true in agro-based industries like sugar etc. the management has to store the finished goods inventory till the demand season approaches for timely execution of orders and therefore has to follow longer production runs more even and efficient production scheduling. The management may have larger investment in inventories in order to avail of the opportunity of favourable terms. and  Average time required for sale of product. here. if the source of material is out side of the country and a ban on imports is feared or supply may be disturbed due to weather.e. conditions of supply. Suppose. raw material is available only on cost terms. But.  Time required in production process.. (5) Supply Conditions Certainty and regularity in supply of raw material are also important factors in determining the size of investment from the viewpoint of operating continuity. it may carry very small stock of raw material.  Time lag between purchase of raw material and the commencement of process. If on the other hand. If. time lag between indenting and availability of raw material. the management will dare not invest heavy amount in inventories. the company relies up on the supplier for regular and speedy supply of raw material.If supply of raw material is available on favourable terms that is long credit. (6) Time Factors Time is also an important factor in determining the size of inventory and affects the inventory management in a number of ways  Bad time i. on the other hand. the management must consider the cost and benefit effect of ordering raw material in bulk. . a great stock of inventory is needed to avoid the risk of being out of stock. concession or rebate available etc. the investment in inventories is larger to maintain the flow of the production. raw materials are purchased on credit.All these exercise their impact on investment in inventories. rationing or revision of excise duty rates. If the cost of carrying stock and the cost of availability of funds is cheaper than the interest payable to the bank. also effects the investment decisions in inventories. there is a tendency to purchase the goods in the open market as and when it is needed. if price level is expected to go down. More over banks advances credit to the firms against their stock of inventories. (9) Management Policies The management policies have significant influence on the investment in work in progress inventories mainly in process goods industry. On the other hand. (7) Price Level Variation If a price increase expected in the near future. the investment in inventories is higher. the investment in raw material is greater in a bid to keep the cost of product minimum. (10) Other Factors Other factors like industry wide strike threats. (8) Loan Facilities Generally. proposed control of raw materials. The longer the time. price control of finished stock etc. . CHAPTER VI PRACTICAL STUDY ANALYSIS AND INTERPRETATION . The major locations/ storehouses are (a) General Stores.423 Crores. Visakhapatnam Steel Plant. (b) Refractories.779 Crores. The following are basic facts about inventory of the company: 1. Visakhapatnam (herein after referred as ‘the company’ and to interpret the same. (k) Ferro Alloys and other Raw Materials. insurance spares of Rs. (l) Scrap and Surplus items. an attempt is made to study the data made available by the officers of Rashtriya Ispat Nigam Limited. 4.46 Crores. the company is having inventory balance in 59888 catalogue numbers and the value of such catalogues is Rs. This inventory includes expansion and Coke Oven Battery IV construction stores of Rs. (c) Spares identified with production units/storehouse. (j) Equipments. The materials are stored in different locations identified with storehouses. Priced Stores Ledger/Bin Master contains more than 265000 items having standard specification along with 11 digit Catalogue Numbers. The issues are priced at monthly weighted average rate. (e) Lubricants and Oils. and Ferro Alloys and other minor . (d) Petrol and Diesel. 2. which are codified with storehouse number ranging from 01 to 89. As at the end of year on 31/03/2008. (f) Rolls and Guides.INVENTORY MANAGEMENT AND CONTROL IN VISAKHAPATNAM STEEL PLANT In this chapter. etc. (h) Steel and Pipe yard. (g) Conveyor Belts. (i) Cement. 3. The EOQ concept as explained in Chapter I for determining the reordering quantity is not adopted. like minimum. materials with contractors. reordering level. maximum.26 Lakhs is provided in the books as on 31/03/2008.26 lakhs. 7. . 6. The company adopted the perpetual inventory control system comprising Bin Card. The reordering quantity is determined based on the annual consumption pattern. where approval of competent authority is pending and shortages identified.39 Crores and excludes inventory at mines. Machinery Spares in respect of 904 items amounting Rs. 5.0. Priced Stores Ledger and Continuous Stock Verification. unabsorbed stores overheads and provisions amounting Rs.0. Bin Master and Priced Stores Ledger are completely reconciled from time to time. etc.46 Crores as on 31/03/2008 were capitalised under the head ‘Risk Insurance Spares’ in accordance with Accounting Policy framed in accordance with Accounting Standards 02 and 10 issued by Institute of Chartered Accountants of India. stock in transit/under inspection. but SAVs are not raised on physical verification pending for want verification of records.raw materials of Rs. medical department. present stock and supplies yet to be received. 8. The levels of inventory in respect of each item/catalogue.55 Cores. The difference between physical stock and Bin stock are identified during physical verification are appropriately adjusted in the books with the approval of competent authority. etc are not fixed. Stock Adjustment Vouchers (SAVs) raised on physical verification in respect of shortages amounting Rs. etc amounting Rs. . Non-moving inventories are reviewed on annual basis in a systematic manner and appropriate provisions were made. but with a different name i.2. 34.e. 10. items comprising 20% of value of total inventory are categories as ‘Y’ and items comprising 10% of value of total inventory are categories as ‘Z’. Items comprising 70% of value of total inventory are categories as ‘X’. XYZ analysis for classifying the inventory based on value. slow moving and non-moving inventories in line with procedure Explained at Para 3.8. COMPARATIVE ANALYSIS OF INVENTORY OF STORES AND SPARES WITH OTHER FINANCIALS . The company has also made FSN analysis for identifying fast moving.39 Cores in respect of Non Moving items at 90% of their cost in line with accounting policy as on 31/03/2008.9. The company is made an attempt to use ABC Analysis. The company has made a provision in the books to the tune of Rs. (Rupees in Crores) Year Net Worth Current Assets Working Capital Sales Total Inventories Inventory of Stores & Spares Consumption 200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011 2839 1794 491 3435 1207 440 279 2744 1713 493 4080 1111 384 291 3286 1863 633 5058 858 365 323 4851 2726 1491 6169 706 336 348 6878 6047 4623 8181 1255 321 313 8173 8252 6664 8482 1216 312 339 10445 8344 9150 1208 317 359 8613 326 364 3215 353 501 2451 327 466 13229 7625 3018 1043 3 1041 1 1063 5 1151 7 1761 12885 1044 8 1180 5 1185 9 9551 3254 328 471 11481 12395 7678 5243 . Analysis of inventory of Stores and Spares 14000 12000 net worth 10000 current assets 8000 working capital 6000 sales 4000 total inventories 2000 inventory of stores and space 0 consumption 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 . SLOW MOVING AND NON – MOVING INVENTORY OF STORES AND SPARES (Rupees in Crores) Year Fast Moving Items Value Slow Moving Items Value Non Moving Items Value Insurance Items Value Total Stores and Spares Items Value 200102 8208 83 166900 152 55144 109 1200 39 23145 2 383 200203 8128 89 178752 158 50264 85 1280 45 23442 4 377 200304 8302 87 191770 138 45846 71 1346 47 24726 4 343 200405 8300 108 107705 139 13814 4 63 1537 58 25568 6 368 200506 8084 108 100519 149 15296 4 58 1129 56 26269 8 371 200607 7746 115 99473 248 15905 0 43 1129 52 26739 8 458 200708 7729 139 95990 553 16601 5 40 1134 47 27086 8 779 200809 7669 443 90186 463 17606 6 37 1134 46 27505 5 989 200910 5089 383 27692 262 19177 23 84 9 54 52807 722 201011 4968 287 26208 170 18352 28 84 8 74 50376 559 201112 5028 275 27675 232 16989 22 838 82 50530 611 .STATEMENT SHOWING NUMBER OF ITEMS AND VALUE OF FAST MOVING. . 18 1.14 0.54 20.26 40.76 100 100 2005-06 3.61 74.69 23.49 9.39 0.56 40.34 52.Statement showing Percentage of Composition of Stores & Spares (Fast Moving.41 23.08 22.42 100 100 .44 70.42 11.03 16.35 42.18 100 100 2002-03 3.91 21.42 15.20 54.29 36.55 21.20 36.10 100 100 2006-07 2.15 59.18 1.01 1.68 13.03 30. Non Moving & Insurance Spares) Fast Moving Year Items Value Slow Moving Items Value Non-Moving Items Value Insurance Spares Items Value Total Items Value 2001-02 3.40 36.60 1.36 77.60 53.86 51.11 39.63 0.40 100 100 2009-10 9.60 7.05 52.55 0.23 18.25 29.89 25.35 100 100 2007-08 2.97 41.00 52.40 3.03 100 100 2008-09 9.03 0.48 100 100 2010-11 9.84 35.60 7.16 58.93 100 100 2003-04 3. Slow Moving.43 5.70 100 100 2004-05 3.41 36.54 11.66 13.38 38.42 6.80 53.07 29.70 0.62 3.12 37.97 33.10 37.36 25.46 0.77 37.67 72.00 36.77 54.52 10.01 54.29 5.24 100 100 2011-12 9.54 13.95 45.99 61.25 15.30 3.85 17.60 15.83 28. . 15 112 46957 92.82 241 10417 12.96 61 50642 611 2010-11 2011-12 439 484 .32 69 70932 83.35 91 56635 90.00 75 77429 84.11 38 92062 377 2003-04 3234 3.XYZ Analysis of Inventory of Stores & Spares Year Category X (70% of Value) Item Percent Value Category Y (20% of Value) Item Category Z (10% of Value) Percent Value Item Total Percent Value Items Value 2002-03 3583 3.50 321 5247 8.86 198 54223 96.65 37 76684 368 2005-06 4918 7.22 78 59888 779 2008-09 163 0.87 383 3104 6.52 508 2466 4.89 264 11050 12.29 623 1983 2.37 156 57024 95.86 34 84583 344 2004-05 2374 3.25 262 10465 15.08 122 47080 92.44 72 52393 77.15 46 62825 458 2007-08 247 0.41 545 2617 4.10 258 8630 11.83 73 53072 726 0.98 56 50500 551 0.30 36 67776 371 2006-07 943 1.85 99 55989 989 2009-10 275 0.65 145 50331 94.25 74 65680 85.96 428 3078 6. NO OF ITEMS XYZ Analysis of Stores & Spares XYZ ANALYSIS OF STORES AND SPARES(NO OF ITEMS) 12000 10000 8000 6000 4000 2000 0 CATEGORY X CATEGORY Y CATEGORY Z 1 3 5 7 YEAR 9 11 . where the consumption decreased by Rs.300 Crores in all the years and gradually reducing in each year from Rs.35 Crores. There was a sudden jump in consumption during 200809 from Rs. but still appears to be on higher side. d) The inventory turnover ratio is showing a reduction from 150 to 70 percent of consumption. there is signification reduction in the proportion of inventory of stores and stores to net worth from 15 to 3 percent. e) The other financials like net worth. current assets from 24 to 3 percent. current assets. working capital from 90 to 5 percent and sales from 13 to 3 percent.81% during 2008-09.5% over the period of eight years upto 2007-08 and increased to 4. working capital and sales has shown tremendous increase over the period of six years because of turnaround in the performance of company. A comparative analysis of the data in respect of inventory of stores and spares and other financials based on annual financial statements is made and the following are the observations: a) The inventory is more than Rs.Interpretation 1.364 Crores to 501 Crores. b) The consumption pattern has shown an increase except in the year 2004-05. which a remarkable improvement in inventory management. As a result.440 Crores to 353 Crores over a period of 9 years. c) The ratio of consumption stores and spares to sales has shown a decline from 8% to 3. . .f) The proportion of inventory of stores and spares to total inventories is also reduced from 36 to 11 percent. 2. A comparative study of composition of materials like fast moving, slow moving, non moving materials and insurance spares is made based on data available in Priced Stores Ledger for seven years from 2001-02 to 2008-09. The details are given under: a) The fast moving items are very less in number ranging from 8128 to 7669 during the above eight years. The value of fast moving items increased from Rs.83 Crores to Rs.443 Crores. b) The slow moving items are reduced from 166900 to 90186 items during above seven years. The value of slow moving items increased from Rs.152 Crores to Rs.463 Crores due to classification of capital items and new catalogues as slow moving items. If these are not considered the value is reduced to Rs.133 Crores. c) The non-moving items are reduced from 55144 to 45846 items during first three years, but it was increased to 138144 items abnormally during the year i.e., 2004-05 and to 176066 during the year 2008-09. Perhaps the reason may be more slowly moving items might have turned into non-moving items during those four years. The value of non-moving items was reduced from Rs.109 Crores to Rs.37 Crores during the above eight years. d) The insurance spares were reduced from 1200 to 1134 items and the value increased from Rs.39 Crores to Rs.46 Crores. e) The percentage of fast moving items comprises 2.79 percent of total inventory items. The slow moving and non-moving items comprises 97 percent of total inventory items, which is not a good sign. The percentage of insurance spares was shown a reduction from 0.52 to 0.41 percent during the above seven years. f) The percentage of value of fast moving items was reduced from 22 to 18 percent in the total inventory value during the first seven years, but suddenly increased to 45 percent during 2008-09. The value of slow moving and non-moving items was increased from 68 to 97 percent and the value of insurance spares reduced from 10 to 5 percent during the above eight years. g) Out of 1134 items of insurance spares, only 836 items are having balance stock and other items showing nil stock. h) Out of total value Rs.500 Crores of slow moving and nonmoving spares, a provision of Rs.40 Crores was made towards surplus, obsolete and non-moving spares. 3. The XYZ analysis of inventory for last five years from 2002-03 to 2008-09 was made based on data available in Priced Stores Ledger. The details are given below: a) The category X items comprises 70% value of total inventory, category Yitems comprises 20% of total inventory and category Z comprises 10% of total inventory. b) The category X items decreases from 3583 to 163 during the above seven years period. The value is increased from Rs.264 Crores to Rs.692 Crores. c) The category Y items decreases from 11050 to 1603 and the value increased from Rs.75 Crores to Rs.198 Crores. d) The category Z items decreases from 77429 to 54223 and the value increased from Rs.38 Crores to Rs.99 Crores. e) The percentage of percentage of category category Y X items items is is 0.29 2.86 percent, percent and percentage of category Z items is 96.85 percent. From the above analysis, it can be concluded that a small number or percentage of high value items are fallen under category of slow moving or non-moving items. was one percent. Further, the provision made against these items CHAPTER – VI SUMMARY. FINIDINGS & SUGGESTIONS . Hence. 3. inventory plays crucial role in its profitability. If inventories are slow moving or non-moving. they are to be declared as surplus or obsolete inventory and appropriate disposal action is to be taken in a quick manner. Rs198 Crores of inventory would definitely affect the profitability of company. immediate steps are to be taken for overall reduction of inventory of stores and spares. The company is required to use EOQ to determine reordering quantities for each item. Keeping this. 4. they are idle inventory of no use. 1. FINDINGS AND SUGGESTIONS: For any organisation. maximum. the following few suggestions were made by this study. steps are to be taken review the item wise inventory and where items are not required. As per analysis made in the previous chapter.SUMMARY. It helps the company in saving of carrying costs and ordering costs in maximised manner. The company is required to fix minimum. Further. a small number or percentage of high value items are non-moving or slow moving in the inventory of the company. Pending action for disposal. appropriate action is to be taken for making provision in the books of accounts on a systematic manner . 2. they reduce the profitability of the organisation. 5. As the return on investment is increasing from excellent performance of company and when investment is blocked in the inventory of stores and spares in the form of slow moving and non-moving items. As the slow and non moving inventory comprises 54 percent of total inventory. reordering level in a scientific manner to control the further growth of slow moving or non-moving inventories. there is no stock. Screen Based Computerisation for accounting of inventory of stores and spares is not achieved in many areas. if not developed as in-house package. where the balance of stock is to be maintained at any point of time. etc for procuring the materials. certain inventories like scrap and surplus. This saves a lot investment in the inventory of stores and spares and avoids further stock out situations. Reconciliation of Provisional Liability to Suppliers Account. in case of 230 items. it may a loss to the company. Hence. Accounting of Insurance Spares. At present. Though the inventory of stores and spares is showing a lower proportion in the total current assets or net worth of the company. is to be used for accounting of stores and spares. 10. However. It amounts to Rs. it is not a small figure. 8.300 Crores. 7. It is suggested to consider the total inventory of stores and spares for control purpose. where materials are to be procured by the contractor for fixation. supply cum application contracts. insurance spares. The company shall adopt latest techniques like just in time concept for supply of materials in the time of need. A suitable ERP Package. 6. etc. etc. The company has to exercise a lot of . are not considered while fixing the level of inventory for control purpose. If production is stopped due to the requirement of any such item. particularly reconciliation of Priced Stores Ledger and Bin Master. Inventory Reduction Committees should be formed and headed by maintenance.. Insurance spares are very important items from its definition itself. a minimum stock is to be fixed for such insurance items and is to be maintained always. 9.for write off slow and non moving inventories over a period of 5 to 8 years of their arise. proper control and proper system of inventory management to manage such inventories in a profitable way. . A proper inventory management system helps definitely to achieve this objective of the company and for its continuous improvement. the company may consider the above suggestions for management and reduction of inventories. For this purpose. The provision of right goods or services in right time at right place to the customer improves his satisfaction to a maximum extent. 1992. SC Suri . 1994. 1990.BIBLOGRAPHY Book Financial Management Statistics for Iron & Steel Industry in India 1988. 1996 Indian Steel Perspectives 2025 Author IM Pandey Steel Authority of India RK Sinha.