INTRODUCTION OF THE STUDY

Inventories constitute about 60% of the current assets of public limited companies in India. The manufacturing companies hold

inventories in the form of raw materials, working in progress, finished goods. Inventory represents investments investment of a firms funds. The objectives of inventory management should be the maximization of the values of the firm. The firm should therefore consider costs, return and risk factor in establishing its inventory policy. In most inventories a small proportion of the items accounts for a very substantial usage and a large proportion of items accounts for a small usage. ABC analysis based on this empirical reality, advocates in essence a selective approach to inventory items accounting for the bulk of usage value. Purpose of business is defined by Prof.Peter F. Drucker as To create the customer. Logically, objective of inventory management is

then to provide maximum Customer service, this however, cannot be done with out regard to the competitive capability of business, as it is only this capability that ensures continues existence and growth of

business.

Competitive capability demands that that inventory

management ensures maximum plant efficiency and minimum inventory investment. Maximum customer service will usually result in increased market penetration, increased business and added profits; maximum plant efficiency will permit stable production rate, as also economics in cost of manufacture minimum inventory investment will release limited and scarce funds for other areas like research and development capital equipment, advertising, marketing programme and the like. Inventory management must balance these objectives which are obviously in conflict with each other for any company. The purpose of inventory management can be defined as providing optimum customer service consistent with efficient plant operation at minimum inventory investment. The main purpose of this study is to understand how the inventory plays a vital role in an organization, to understand the importance given to the inventory management in an organization, to study various methods of inventory management. For this apart from theoretical aspects, the organization of Bharath Heavy Electricals Limited (BHEL) has been chosen as a case study. 2

RESEARCH METHODOLOGY OBJECTIVE OF THE STUDY The main objective of the project work is to study and analyze and preparation INVENTORY MANAGEMENT in Bharath Heavy Electricals Limited (B.H.E.L.) The objectives are: 1. 2. 3. 4. 5. 6. 7. Purchasing procedure of the inventories. Classification of inventories. Codification of inventories Analyze the records of stock levels. Analyze the JIT system of BHEL. Analyze the two bin system. Analyze the inventory turn over ratio.

SCOPE OF THE STUDY The study mainly deals with the techniques of inventory control adopted, systematized in the Bharath Heavy Electricals Limited (BHEL). The effort of this study would be to understand the systems in the Bharath Heavy Electricals Limited (BHEL), while dealing with the theoretical concepts in the inventory management field.

SOURCES OF THE DATA To attain the objective of studying the inventory of BHEL. information has been collected in two ways: 1. 2. Primary data Secondary data The

Primary Data : In Primary data the analysis of purchasing procedure, inventory data, inventory turn over ratio, stock levels, ABC analysis, Twobin system, JIT has made possible by the discussions with various administrative executives and other concerned people of BHEL. Secondary Data : The Secondary data has been collected from annual reports of organization, internet (www.bhel.com) and books. METHODOLOGY Inventory management Techniques is studies in detail. Various techniques of Inventory Management is studies in detail. Inventory Management Techniques such as ABC Analysis,

NEED FOR INVENTORY MANAGEMENT In this competitive business world each and every business organization need inventory management system for determining what to order, when to order, where and how much to order so that purchasing and storing costs are the lowest possible without affecting production and sales. Thus, inventory management control incorporates the determination of the optimum size of the inventory-how much to be order and when after taking into consideration the minimum inventory cost. The over all inventory management includes design and inventory control organization with proper accountability establishing procedure for inventory handling disposal of scrap, simplification, standardization and codification of inventories, determining the size of inventory holdings, maintaining record points and safety stocks, economic order quantity, ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL. LIMITATIONS OF THE STUDY This study is limited to 45 days of the project work. It is limited to study of Inventory Management on Bharath Heavy Electricals Limited (BHEL).

COMPANY PROFILE
PART-4 Industry Background BHEL is one of the pioneers in engineering industries in the world. The vital role played by BHEL today in the country is the mark of its continuous efforts to improve the service in the nation by consultancy, manufacturing and offering services in power sector. The success story of BHEL however goes back in 1956 when its first plant was setup in Bhopal. The three major plants in HARIDWAR, HYDERABAD AND THRICHIRAPALLI followed this. These plants have been the core of BHELS efforts to grow, diversify, and become one of the most integrated power and industrial equipment manufacturers in the world. The company now has 14 manufacturing units, 8 service centers and 4 power sectors regional centers, besides project sites spread all over India and abroad. BHEL manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian Economy viz., Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewable Energy, oil business etc. Its products have been established an enviable reputation for high quality and reliability. This is due to the emphasis

placed all along on design, engineering and manufacturing to international standards by acquiring and adopting some of the best technologies developed in its own R&D centers. BHEL has acquired ISO 9000 certification for quality management and ISO 14001 certification for environment management. BHEL caters to the needs of different sectors by designing and manufacturing according to the needs of its clientele in power sector. ABOUT B.H.E.L RAMACHANDRAPURAM UNIT As a member of the prestigious BHEL family, BHEL Hyderabad has earned a reputation as one of its most important manufacturing units, contributing its lions share in BHEL Corporations overall business operation. The Hyderabad unit was setup in 1963 and started its operations with manufacture of turbo-generator sets and auxiliaries for 60 and 110 MW thermal utility sets. Over the years it has increased its capacity range and diversified its operations to many other areas. Today, a wide range of products are manufactured in this unit, catering to the needs of variety of industries

like fertilizers & chemicals, petrochemicals & refineries, paper, sugar, steel, etc., BHEL Hyderabad unit has collaborations with world renowned MNCs like M/S General Electric, USA, M/S Nuovo pignone, etc. COMPANYS VISION, MISSION AND VALUES VISION: A world class, innovative, competitive and profitable engineering enterprise providing total business solutions. MISSION: To be the leading engineering enterprise providing quality products systems and services in the field of energy, transportation industry, infrastructure and other potential areas. VALUES:: Meeting commitment made to external & internal customers.

Fosters learning, creativity & speed of response. Respect for dignity & potential of individuals. Loyalty and pride in the company. Team playing. 8

 Zeal to excel. Integrity and fairness in all matters. SWOT ANALYSIS The strengths, weakness, opportunities and threats which are experienced by BHEL as a growing concern, have been summed up in the following lines. Strengths: Vast pool of trained manpower. Excellent state of all factors. Good working condition. Rapport between management and union. Products manufactured to international standards. Low labour cost and low manufacturing cost.

Weakness: Excess manpower. System implementation inadequate. No financial parlage. Inadequate compensation payable to employees.

Opportunities: Growing power sector machinery. Liberalisation has opened up the market. Navaratna company status. Dominate players in domestic market. Export potential growing.

Threats : Liberalisation Entry of MNCs / private sector More compensation. MNC wearing away good employees with good attractive salaries. Govt. Taxation policy against manufacturing sectors. Dumping of goods. Attractive credit policy by FFI and MNC.

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PRODUCT PROFILE

Figure-1

BHEL manufactures a wide range of Power plant equipments and also caters to the industry sector. THE PRODUCTS PROFILE INCLUDES

Gas Turbines Steam Turbines Compressors Turbogenerators Pumps Pulverizers Switchgears Solar Water Heating Systems Oil Rigs Electrics for Urban Transportation System

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GAS TURBINES

Figure-2

BHEL - the largest Gas Turbine manufacturer in India, with the state-of-art facilities in all areas of Gas Turbine manufacture provide complete engineering in-house for meeting specific customer requirement.

With over 100 machines and cumulative fired hours of over four million hours, BHEL has supplied gas turbines for variety of applications in India and abroad. BHEL also has the worlds largest experience of firing highly volatile naphtha fuel on heavy duty gas turbines.

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STEAM TURBINES

Figure-3

BHEL has the capability to design, manufacture and commission steam turbines of up to 1000 MW rating for steam parameters ranging from 30 bars to 300 bars pressure and initial & reheat temperatures upto 6000C. Steam Turbines are manufactured under technical collaboration with Siemens, Germany covering the whole rang of requirements for Drive, Cogeneration, Captive Power, Utility and Combined Cycle applications. BHEL, today, is fully equipped to provide comprehensive service to clients covering system engineering, equipment design, and turnkey erection and commissioning.

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COMPRESSORS

Figure-4

BHEL made its foray into Centrifugal Compressors in the year 1970 with technical collaboration from Nuovo Pignone, Italy and since then has been catering to the Fertilizer, Refinery, Petrochemical and other process industries. BHEL today, has built up a cumulative experience of more than 30 million hours of operation for various applications. BHEL offers CENTRIFUGAL compressors for pressures as high as 350Kg/Cm2 and flows upto 350,000 Nm3/Hr. BHEL has the unique capability of offering the Compressor with any kind of drive being a manufacturer of Gas Turbine, Steam Turbine as-well-as Motors and can offer the Compressor station fully tested as per the requirements.

14

BHEL offers total package of Compressor with its drive and all the associated auxiliaries which includes inter-stage coolers, separators, lube oil and sealing systems, anti-surge control systems, instrumentation and controls and process gas and cooling water piping for supporting the compressor for continuous and trouble free operation. Compressors are made as per API Standards/Specification as

API 610 Centrifugal Pumps API 611 Auxiliary Steam Turbines API 612 Drive Steam Turbines API 613 Gearbox API 614 Oil Systems API 616 Drive Gas turbines API 617 Centrifugal Compressors API 670 Instrumentation API 671 Couplings API 672 Packaged, Integrally Geared Compressors API 676 Positive Displacement Pumps IS 325 Auxiliary Electric Motors

15

ASME PTC 10 Performance Test ASME Sec. VIII & IX Heat Exchangers

TURBO GENERATORS

Figure-5

BHEL presently has manufactured Turbo-Generators of ratings upto 560 MW and is in the process of going upto 660 MW. It has also the capability to take up the manufacture of ratings upto 1000 MW suitable for thermal power generation, gas based and combined cycle power generation aswell-as for diverse industrial applications like Paper, Sugar, Cement, Petrochemical, Fertilizers, Rayon Industries, etc. Based on proven designs and know-how backed by over three decades of experience and 16

accreditation of ISO 9001, the Turbo-generator is a product of high-class workmanship and quality. Adherence to stringent quality-checks at each stage has helped BHEL to secure prestigious global orders in the recent past from Malaysia, Malta, Cyprus, Oman, Iraq, Bangladesh, Sri Lanka and Saudi Arabia. The successful completion of the various export projects in a record time is a testimony of BHEL's performance. PUMPS

Figure-6

BHEL started manufacture of Pumps during the mid-sixties under technical collaboration with M/s Sigma Lutin, Czechoslovakia, to meet the requirements of 60 MW, 110 MW and 210 MW thermal power stations, the scope of which was widened to meet the requirements of power plants upto 500 MW, with the help of another collaboration with M/s Weir Pumps, U.K. BHEL has also made some in-house product development to

17

gain spin off benefits from the above collaboration as well as to develop new pumps to meet the requirements of Combined Cycle Power plants. BHEL has undertaken a design up-gradation and retrofit of the existing 200 KHI Boiler Feed pumps Inside Stators with energy efficient hydraulics and cartridge design internals under technical tie-up with M/s Sulzer Pumps, Germany; and recommended the upgraded 200 KHI-S Boiler Feed pump to all customers of 110 MW & 210 MW Power Stations operating with the earlier Czech design for increase of pump availability and reliability and also considerable reduction in operational costs.

PULVERIZERS

Figure-7

BHEL manufactures mills for pulverized coal fired Thermal and Industrial boilers. BHEL till date has manufactured over 1200 bowl mills and over

18

100 tube mills, operating in different coal fired Thermal power stations in India. BHEL has absorbed technology from world leader M/s. Combustion Engineering USA for bowl mills. The specific range - 583 XRP/XRS to 1043 XRP covers the-state-of-the-art mills required for the Indian market and are supplied as Industrial boilers as-well-as Utility boilers of 60 MW, 110 MW, 120 MW, 210 MW, 250 MW & 500 MW capacity. To meet the requirement of very high ash content coal with high moisture, BHEL in collaboration with M/s Stein Industry, France of the ALSTHOM group, manufactures Ball Tube Mills for Tower-type Boiler aswell-as conventional Boiler. These are horizontal mills that grind coal by impact and attrition. They do not lose any of their grinding characteristics with time, and provide constant fineness throughout the service life of their wear parts. They are the only mills truly adapted to both, very abrasive high -ash coals and very low volatile coals which require very fine grinding

19

SWITCHGEARS BHEL is involved in the design, commissioning and service of a wide range of Switchgears catering to various applications like power station auxiliaries, power distribution, process industries, rural electrification, open cast mines, electric traction and other special applications. BHEL started manufacturing circuit breakers in 1965 in collaboration with ASEA, Sweden and to keep pace with the technological advancement and to meet customer requirements, SF6 technology was introduced in 1981 in collaboration with Siemens, Germany for manufacture of 145 kV to 420 kV class circuit breakers. BHEL also introduced Vaccum Circuit Breakers in the range of 3.3 kV to 33 kV and the present range also includes the indigenously developed and successfully tested 'Gas Insulated Switchgear' for 36 kV range. Over 750000 Circuit Breakers of different media (Air, Oil, Vaccum and SF6) with variety of operating drives (spring & hydraulic), supplied by BHEL are rendering trouble free service all over the country and abroad. The switchgear designs are fully type tested as per the I.E.C and I.S standards.

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SOLAR WATER HEATING SYSTEMS

Figure-8

BHEL a pioneer in the field of design manufacturing and installation of solar water heating systems (SWHS) in the country till date have installed systems covering more than 74,000 m2 of absorber area of capacity over 37 Lakh liters per day. The largest over SWHS of 40000 LPD for space heating is in use at Dr. Willmar Schwabe India Pvt. Ltd. Noida. Solar water heating systems are environmental friendly, pollution free equipments, harnessing the abundantly available Sun's energy. They find application at homes, hostels, hotels, and hospitals (swimming pool, bathing, washing, cleaning and cooking); in industrial process heating (Textile, Food processing, Pharmaceutical, Dyeing, Breweries, Metal Plating industries); Milk dairies and chilling plants; space heating in central air conditioning systems; pre-heating of boiler feed water.

21

In the BHEL make Solar Collector, stabilized efficiency values up to 65% is assured under normal circumstances over a long period without degradation. OIL RIGS

Figure-9

BHEL started manufacturing oil field equipment in collaboration with M/s US Steel Engineers and Consultants USA (National Oilwell), M/s Skytop Brewster USA, M/s Branham Industries USA, M/s IRI International, USA. After successful absorption of technology, BHEL now has the capability to manufacture conventional deep drilling rigs up to a depth of 9000 meters, mobile rigs to a depth of 3000 meters and well servicing rigs to a well depth of 6100 meters. BHEL is authorized by the American Petroleum Institute (API) for manufacturing products under specification API 4F, API 7K and API 8A.

22

BHEL also undertakes refurbishment, upgradation and renovation of the existing rigs with the customers to provide better flexibility of operation for faster drilling, and higher availability of rigs. BHEL, since the first order for oil rigs in 1977, has manufactured and supplied 84 nos. drilling and well servicing rigs to both M/s ONGC Ltd. and M/s Oil India Ltd., that are deployed for drilling and well servicing operations. In addition BHEL has upgraded 3 nos. rigs by installing Independent Rotary Drive system. BHEL offers services for refurbishment and modernization of the rigs and rig equipment of both BHEL make and also others. This includes Total inspection of rig equipment Major overhauling of rig equipment Supply of spares (for BHEL make rigs) Refurbishment of rig equipment Repairs on mast and substructures and reassessment of the structure Upgradation of rigs

23

Supply and installation of Independent Rotary Drive system on the conventional drilling rigs ELECTRICS FOR URBAN TRANSPORTATION SYSTEM

Figure-10

25 KV AC, 50 HZ, single phase, broad gauge/meter gauge, Electrical Multiple Units with DC Drives.

1500V DC, broad gauge/meter gauge, Electric Multiple Units with DC Drives.

25 KV AC/1500 VDC broad gauge Electrical Multiple Units with 3 phase drive.

Diesel Electric at Multiple Units Metro Railway. Tram Cars 24

Some of the other products manufactured by BHEL are: THERMAL POWER PLANT: Steam turbines, boilers and generators of up to 500 MW capacities to manufacture boilers and steam turbines with super critical steam cycle parameters and matching generators up 660 MW unit facilities available for 1000MW size. HYDRO POWER PLANT: Mini/Micro hydro sets Spherical, butterfly, rotary values auxiliaries for hydro station. BOILERS: Heat recovery steam generators, pressure vessels chemical recovery boilers for paper industry ranging from capacity of 100 to 100t/day of dry solids. POWER DEVICES: High power capacity silicon diodes, Thyristor devices and solar Photovoltaic cells. AVIATION:

25

Light aircraft SYSTEM AND SERVICES: Power generation system Transmission system Transportation system Industrial system PIPING SYSTEM Constant load hangers, clamp and hanger components, variable, spring hanger for power station up to 850 MW capacities combined cycle plants, industrial boilers and process industries. TRANSFORMERS: Power transformers for voltage up to 400 KV HVDC transformers and reactors of up to + or 500 KV CAPACITORS: Power capacitors for industrial and power systems of up to 250 KVA rating for application up to 400 KV Coupling/CVVT capacitors for voltages up to 400 KV 26

THEORITICAL REVIEW
MEANING AND NATURE OF INVENTORY Inventory can be referred to as sum of the value of raw materials fuels and lubricants, spare parts, maintenance consumables, semi processed materials and finished goods, stock at any given point of time. In large companies inventory place a most significant part of the current assets. The business has about 15 to 30% of inventories in total assets. Inventory is composed of assets that will be sold in feature in the normal course of business operations. The assets which firms stores as inventory is anticipation of need are raw materials, work in progress and finished goods. MEANING OF INVENTORY MANAGEMENT Inventory management consists of maintaining for a given financial investment an adequate of something in order to meet and accepted pattern of demand. Inventory considers control over costs of inventory on one hand an handle the size of inventory on other hand. Controlling investments in inventories constitute crucial part in current assets.

27

An efficient inventory controlling system will decide, What to purchase When to purchase How to purchase Size of purchase And from where to purchase (Suppliers) The main purpose of inventory management is to ensure 1. 2. 3. Required quantity of availability of raw materials Minimize the investments in inventories Maintain reasonable stock levels not excess or not under stocks.

INVENTORY CONTORL Inventory control is the system devised an adopted for controlling investments in inventory. It involves inventory planning and decision making with regard to the quantity and time of purchase, fixation of stock levels, maintenance of stock records and continuous stock taking.

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OBJECTIVES OF INVENTORY CONTROL Inventory control includes not only of the physical stocks but also of the funds invested on it. That twin objectives of inventory control are, To maintain a balanced inventory. 1. To keep the amount invested in inventory as low as possible without hampering either flow of the production or deliveries of finished goods. To avoid both under stocking and over stocking of inventory. To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralized

purchasing. To ensure continues supply of materials, spares and finished goods so that production should not suffer and any time and customers demand should also be met. To design proper structure for inventory management. A clear cut accountability should be fixed at various levels of the organizations.

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To ensure right quality goods at reasonable prices. Suitable quality standards will ensure proper quality of stocks. The price analysis, the cost analysis will ensure paying of proper prices.

To facilitate furnishing of data for short term and long term planning and control of inventory.

MATERIAL CONTROL 1) 2) 3) 4) Definition of Material Control Objectives of Material Control Deference between Materials Control and Inventory Control Material Purchasing and Purchasing Procedure.

INTRODUCTION The Primary Objective of cost accounting is cost control. This is achieved by exercising effective control over element of cost of the three elements of costs, i.e., material cost, wage cost and expenses, direct material cost is the largest single item of expenditure and substantial proportion of the costs of an organization.

30

The term material includes physical commodities used to make the final end product. The raw materials and supplies are equivalent to cash and they make up and important part of cost of manufacturing in many cases. MATERIAL CONTROL Material Control refers to managerial functions which are directed to ensure that required quantity and quality of material is provided at the proper time with the minimum amount of capital. Material Control is affected by co-ordination and control activities related to Related to Material Planning. Related to Material Sourcing. Related to Material Purchasing. Related to Stores and Material Handling.

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DEFINITION OF MATERIAL CONTROL The Term Material Control means The regulation of the function of an organization relating to the procurement, Storage and usage of materials in such a way as to maintain an even flow of production without excessive investment in material stock Material control involves the control of the three important functions. They are : 1. 2. 3. Procurement or Purchase Control Storage or Stock or Inventory Control and Issue or Usage or Consumption Control.

OBJECTIVES OF MATERIAL CONTROL : The Twin Objectives of Material Control : a. Avoidance of production delay by maintaining an even flow of production. b. Preventing excessive investment in material stock.

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Other than these two objectives the other objectives are as follows: 1. To effect purchases of materials of the right quantity consistent with the standards prescribed in respect of the finished products.

2.

To make available assured supply of materials so as to keep the cycle of production going without any interruption.

3.

To Procure materials on the most favorable terms with a due to effect maximum economy in the cost of buying.

4.

To ensure effective utilization of materials.

5.

To prevent over stocking of materials and consequent locking up of working capital.

6.

To prevent losses during up of storage of materials.

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DEFERENCE BETWEEN MATERIALS CONTROL AND INVENTORY CONTROL The terms materials and inventory are used interchangeably, but they are not identical. The latter is a wider term covers items like sundry supplies, maintenance stores, tools, jigs and other components, work in progress and finished goods. The term material control and inventory control are not interchangeable. Material control refers to managerial

function which are directed to ensure that required quantity and quality of material is provided at the proper time with the minimum amount of capital. Material control is wider term than inventory control, besides inventory control material control includes control of production and planning, purchase procedure, control of transportation and usage control etc., where as inventory control referred to as some of the value of raw materials and fuels and lubricants, spare parts, maintenance consumables, semi-processed materials and finished goods stock at any given point of time.

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ACTIVITY RELATED TO MATERIAL PLANNING

Identification of Materials Quantity and Quality of Materials Classification and Codification of Materials

Every Enterprise needs inventory for smooth working activities. Inventory serves as a link between production and distribution process of any organization. Generally a time lag between the recognition of a need and its fulfillment. The greater the time lag the higher the requirement for inventory. The fluctuations in demand and supply of goods also necessitate the need for inventory. In large companies inventory plays a most significant part of the current assets. The average business has about 15-30% of total

inventories in total assets. The main purposes of inventory management are to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. 35

A systemized inventory management will determine a. b. c. d. e. What to purchase When to purchase How to purchase Size of purchase and From where to purchase (Vendors)

MATERIAL PURCHASING AND PURCHASING PROCEDURE Purchase of material is one of the important function of material management. At times more than 50% of the total product cost is material. Functions of Purchase Department 1. Deciding the items to be purchased based on demand. 2. Selection of sources of supply. 3. Collection the price information. 4. Placing the ordered. 5. Follow-up the ordered. 6. Checking the invoices. 36

7. Maintenance of purchase records. 8. Maintenance of vendors relations. PURCHASE PROCEDURE Purchasing procedure start with the initiation of purchase requisitions and ends with the receipt of materials in the stores. CENTERIZED PURCHASING It is most important and relevant to large organizations operating deferent plants may or may not be located at different places. For a single place organization decentralization might be feasible on a very limited place. But where BHEL, is a multiple plants operating organization. In BHARAT HEAVY ELECTRICALS LIMITED Centralized purchasing procedure is following to purchase of materials. Centralized purchasing avoids duplications of efforts and working at cross purpose from one plant to another. Centralized purchasing permits consolidation of order of materials commonly used for two or more plants. The ultimately results in greater buying power, favorable contracts and trade agreements.

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Easier to maintain the quality of purchased parts / items through centralized testing and inspection. It is also

possible to conduct testing and inspection facilities. Centralized purchasing permits to avail facilities like quantity discounts and cash discounts thus its helps to reduce cost. It is beneficial to vendor also in case the size of order constituted major proportion of his total production capacity.

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PURCHASING ACTIVITIES OF INVENTORY IN BHARAT HEAVY ELECTRICALS LIMITED SL.NO. PROCESS SUB ACTIVITY Ordering 1. MATERIAL PROCUREMENT PROCESS Execution Closing SAP TRANSPORT BILL PASSING 2. Bill Passing SAP 3. VENDOR AIDED MATERIAL RECEIVED AND DISPATCHED VENDOR AIDED RECONCILIATION PROCESS REJECTION Material Transfer Document Entering SAP Reconciliation SAP Vendor Aid Material Transfer Debit Receiving Document 5. PRE-EN PROCESS Security Meetings and Closures NON MOVING IDENTIFICATION AND DISPOSAL Identification through Non moving EN finalized and disposal approve from finance and dispatch Identifying quotation comparison information record and P.O. Information gather compilation Bill Entering

4.

6.

7.

STATIONARY PURCHASING

8.

MANAGEMENT

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INFORMATION SYSTEM

schedule updation

9.

LOGISTICS

Material collection and dispatch

Table -1

In BHEL., the materials as purchased on monthly basis from the various vendors. Schedule made on monthly basis, for every month the suppliers list is prepared and purchase the require quantity of materials from the selected vendors. In further purchasing procedure process, i.e., for next month material management department look after previous month

performance of vendors the performance like, time of delivery, quantity discounts, term of payment, mode of delivery, quantity of materials and good will of the suppliers in the market. On the basis of these factors vendors list is prepared

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VENDORS (OR) STORES SUPPLIERS OF BHEL (MARCH 2007)

41

16. 17. 18. 19. 20.

APPOLLO TYRES GREAVES COTTON LTD. GURUNANAK AUTO ENTERPRICE LTD. BHUSHAN STEEL AND STRIPS LTD. MAKE SPIRING PVT. LTD.

WAJODIA DIST. RANIPET GORAYA SAHIBABAD THANE.

Table -2

When the vendors list is prepared for a particular month purchase order placed before the vendor for purchasing of the materials. After the purchase of the supplies from the different vendors inventory is checked, the damaged or spoiled materials segregated vendors vise from their materials are packed, through transport the rejected materials sent back to the respective vendors. Other than the rejected materials are kept in the stores 1, 2, 3 ------on the basis of classification of materials. From the stores department stores are sent to the production plant, in production plant the raw materials are converted into finished products, the produced finished products dispatched from the organization to the market.

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STORES DEPARTMENT Efficient store-keeping and inventory control in dispensable to the control of material cost. Goods are received into the stores after

inspection and they are held and issued to production as and when required. The store department rendering service departments and the accounts departments. FUNCTIONS OF THE STORE KEEPER The main function of store keeper are receipt, storage, and issue of materials. There are a few other function which are identical to these. They are: 1. Receive materials into the stores after checking them with the content of the goods received note and the inspection report. 2. 3. Store the material in the allotted places. Maintain stock records entering their receipts, issue and balances. 4. Employ location coding and stores coding for easy identification of every item of stores. 5. 6. Maintain the store department neat and tidy. Protect the materials and preserve them in good condition.

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7. 8. 9. 10. 11.

Issue materials only against authorized requisitions. Maintain stock levels in respect of every item of stores. Make a physical verification of materials at periodical intervals. Initiate purchase requisitions for the replenishment of stocks. Receive back surplus materials returned and make re-entries of the received back materials.

TOOLS AND TECHNIQUES OF INVENTORY CONTROLS 1. 2. 3. 4. 5. 6. 7. 8. CLASSIFICATION OF INVENTORY. CODIFICATION OF INVENTORY. JIT ANALYSIS. TWO BIN SYSTEM. KANBAN MILK RUN CONCEPT DETERMINATION OF STOCK LEVELS INVENTORY TURNOVER RATIOS.

CLASSIFICATION OF INVENTORY. Classification of inventory is of two kinds : a. Made to stock b. Made to order

44

In BHEL., made to stock procedure is following for the classification of inventory. MADE TO STOCK ABC Classification This is also referred as Always better control approach are the Alphabetic approach. ABC Concept of classifying goods in and

inventory is very commonly used for exercising effective inventory control. Under this techniques the items in inventory are classified

according to the value of usage. The higher the value item have lower safety stocks, because cost of production is very high in respect of higher value items. The lower value items carry higher safety stocks. The annual conception analysis of BHEL would indicate that handful of top high value items, less than 10% of the total number will account for a substantial portion of above 75% of the total consumption value and such vital few items called A items. Large number of bottom items over 70% of the total number account for only 10% of the consumption value and referred to as C category items. The items that lie between the top and the bottom are referred as B category items.

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Under the ABC analysis BHEL using a special concept is XYZ analysis where ABC represents The value of materials XYZ represents The consumption of materials The table explanation % of Items % of Value Category 1 Category 2

10

70

20

20

70

10

46

PURCHASING PROCEDURE OF ABC ITEMS A ITEMS 1 TO 3 DAYS B ITEMS 2 TO 5 DAYS C ITEMS 7 DAYS OR WEEKLY XYZ CLASSIFICATIONS X (Runner Model) Y (Repeater Model) Z (Stranger Model) :::Which is presently manufacturing. It is used in the manufacturing of vehicles. Which are consumed less.

AX ITEMS Daily Consumption AY ITEMS Time taken for 2 to 3 days for consumption AZ ITEMS By taking as per order. ABC analysis helps to concentrate more efforts on A since greatest monetary advantages will come by controlling these items. An attention should be paid in estimation requirements, purchasing, maintaining safety stocks and properly storing of A category materials. These items are kept under a constant review so that a substantial material cost may be controlled. The control of C items may be relaxed and these stocks may be purchased for the year. A little more attention should be given towards B 47

category items and their purchased should be understood quarterly of half yearly intervals. BHEL following classification of inventory in ABC, XYZ analysis to maintain a proper stock level according to the flow of the day to day inventory in the organization. By giving course to the ABC classified inventory it is easy to identify the inventory from the stores department. It helps to save the time to choose from the stores department, in selection of the vendors, material holding cost, estimation in expenditure of working capital, determining in inventory levels and so on. CODIFICATION OF INVENTORY After the classifying all items of stores, it becomes necessary to allot code numbers to the classified items. The object of classification of only to allot a symbol or code number to every item to facilitate easy location and handling. In BHARAT HEAVY ELECTRICALS LIMITED the codification of materials done by allotting the number and alphabets.

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Numbering system for BHEL In BHEL., each and every part of material consists 10 digit code and code is divided into 4 different goods. X First Group First Group The first group will be alphabet (Range A to Z) indicates types of standards Second Group This will be a two digit numeric and will be in line with existing part numbering system and the two digits are the first two digits indicating the vehicles and associated systems / sub systems. Third Group Third Group will be a four digit numerical and will be running serial number for the type of standard applicable Fourth Group This will be a one alphabet will indicate the revision status of the standard. XX Second Group XXXX X

Third Group Fourth Group

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For Example :-

Code for ASSY CLUTCH CABLE is 08 02 BA 0690N

Where : 08 02 B A 069 0 N is is is is is is is Clutch system Sub-System (Sub System) External Controls Mechanical General Running Serial Number BHEL Design Colour Code

JIT JUST IN TIME INVENTORY CONTROL Just in time purchasing in the purchase of materials and supplies in such a manner that delivery immediately precedes the demand of use. This will ensure that stocks are as low as possible. JIT purchasing is

implemented by developing closer relationship with suppliers so that company and suppliers work together operatively. In JIT purchasing,

arrangement is made with supplier for more frequent deliveries of smaller quantities of materials so that each delivery in just sufficient to meet 50

immediate production requirements. JIT systems reduce the investment in raw materials and work in progress stocks. JIT purchasing include savings in factory space, large quantity discount and reduced paper work arising from issuing blanket long term orders to fewer suppliers instead of purchase orders. Direct Online (DOL) method is following in JIT system. In JIT A Class items are purchasing and the time between the purchase of these items are 1 to 2 days. TWO BIN SYSTEM The material inventory is physically separated into two bins. The quantity contained in the first is used between the time on order is received and the next order is placed. During the lead time the quantity contained in the second bin is made use of the second bin contains enough stock to cover the usage between ordering and delivery plus additional units into the second bin to restore the original quantity and the remaining quantity is put in the first bin. This method is most suited to the controlling of low value items i.e., C category items.

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Under Two Bin system in BHEL., KANBAN Cards system is following. C class items are storing in the bins under KANBAN system. KANBAN CARD MODEL (BIN CARD) KAN BAN TYPE PART NO :DESCRIPTION :STORAGE LOCATION :SCHEDULE TO RECEIPT TIME BUYER IN DAYS KAN BAN CARD NO. :BHEL - VSM
Table -3

KAN BAN QTY.

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KAN BAN CARD SCHEDULE OF LOAD KING VEH ASSY (NEF PRTPE 25 STR)
Table -4

I-BIN SL. PART DISCRIPTION NO. IN UNITS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 RUBBER RADIATOR RUB CAB MTG CLAMP BUSH SPHERICAL WASHER PLAIN CLIP P.R. HOLDER BEARING SEAL OIL FR COVER BALL STEEL SPRING IDLER FORK COVER DUST BALL STEEL PIN RETAINER PIN INTER LOCK CHECK BALL PIN SNAP A 97214002 95154T8001 36458T8008 3446261000 3441461500 270422002 3051466300 3211386401 3272014600 3238486400 3238286401 3272036900 3280C0400 3281586400 3282926700 0092310610 250 700 300 1500 5000 300 2000 3000 1000 2000 250 1000 2500 1000 20000 5000 PART NO. QUANTITY

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17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

RING SNAP E TYPE RING SNAP E CLAMP CLAMP GASKET EXHAUST O RING PINDART EL SILENCER SILENCER VINPLATE SPACER MAHINDRA LOGO ASSY BATTERY CABLE CLIP CLIP COMMON TO RUBBER MTG RUBBER EXT MTGA CABLE EARTH PIVOT W/D LEVER RUBBER EXT MTGB CLAMP

0092251210 007540500P 0062151 0062141 0903BA0191N 005110010P 046510818P A97743003 A97743004 A93969006 A95572002 A93769004 A97241008 24210T8000 24045T8000 21491T8000 2013685001 24085T9001 211200402T 20137B5001 2404558011

2500 5000 2500 7500 1000 250 3000 180 210 5500 497 300 861 600 300 600 800 200 1000 800 300

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38 39 40 41 42 43 44 45

STAY MUD GUARD DUST COVER GASTEK BREAK O RING INSUL BODY MTG 2ND U ASSIT GRIP ASSY ASSY TUBE VAC INSUL TUBE

A93781003 A93361005 4628375121 1734218000 95520T8000 S93739001 0606CA7630N 4628375121

150 4000 3000 250 400 300 290 1200

MILK RUN CONCEPT It is a new type of inventory classification using by BHEL. Milk Run Concept is a day-to-day purchasing concept. Here the buyer will purchase the material according the production, which is for the next one day. The buyer will first know the safety control stock and then he tells to the suppliers the estimated trigger value. In milk run concept only quality certified stock will be delivered the purchaser should estimated the lead time and it is compulsory so as to have the control over the lead time. It is direct online system there will be inspection so as to save time and inventory handling cost. A and B class items are considered under the milk run concept. 55

Advantages : Economical transportable lot (minimum transportation cost per piece) No inventory carrying cost at plant and at warehouse. It is direct online system (DOL) Quality certified stock will be delivered and so no inspection is required. DETERMINATION OF STOCK LEVELS Carrying of to much and too little of inventories is determinate to the firm. If the inventory level is too little, the firm will face frequent stock outs involving heavy ordering cost and if the inventory level of inventory where costs are the minimum and at the same time their ID.No.Stock-out, which may result in loss of sale or stoppage of production. Various stock levels are discussed below. MINIMUM STOCK LEVEL This is the lower limit below which the stock of any item should not normally be allowed to fall. This is also technically known as safety or buffer stock. The prime considerations in fixing the minimum stock level or safety stocks are : a. Average rate of consumption.

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b.

Lead time.

Minimum Stock Level = Reordering level -

Normal usage Per period

Average delivery time

Lead-Time : A purchasing firm requires some time to process the order and time is also required by the supplying firm to execute the order. The time taken processing the order and the executing it is known as lead-time. It is essential to maintain some inventory during this period.

Reorder Level :

Reorder level is fixed between the minimum and maximum levels. When stock of a material reaches at this point, the store keeper should initiate action for the purchase of material. The reorder level is slightly more than minimum stock level to guard against

a. Abnormal usage b. Abnormal delay in supply

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c. Reorder level = Maximum consumption X Maximum period required during the period for delivery

MAXIMUM STOCK LEVEL : Maximum stock level represents the upper limit beyond which the quantity of any item is not normally allowed to rise. The main object of establishing this limit is to ensure that unnecessary working capital is not blocked in stores. Theoretically, maximum stock level is the sum total of minimum stock level and economic order quantity.

Maximum level = Reorder Level + Reordering quantity Minimum consumption AVERAGE STOCK LEVEL : The average stock level is calculated as such : Average stock = minimum stock level + of re-order quantity. DANGER LEVEL : This is generally fixed below the minimum stock level. Normal stock should not be below the minimum level. If it reaches the danger level at any point of time, urgent action for replenishment of stock must be taken to prevent stock out.

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DATA ANALYSIS ESTIMATION OF STOCK LEVELS : There are different techniques used in the calculation of the stock levels. Reordering Quantity Reordering Period Weekly usage :Maximum usage Normal usage Minimum usage 900 units 700 units 500 units 2500 units 4 5 weeks

Reordering Level = Maximum consumption X Maximum Reordering Period

= 900 X 5 = 4500 units.

Ex :- Consider Load King for calculation purpose. Calculated of the load king vehicle as 500 units.

Normal Daily consumption Normal Reorder period Reorder level Minimum usage

= 700 units = 4.5 weeks = 4500 units = 500 units

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Minimum Reorder period Maximum Reorder period MINIMUM STOCK LEVEL =

= 4 weeks = 5 weeks

Reorder Level (Normal consumption X Normal Reorder Period)

= = =

4500 (700 X 4.5) 4500 3150 1350 Units

MAXIMUM STOCK LEVEL =Reorder Level + Reorder Quantity (Minimum consumption X Minimum Reorder Period) = = = 4500 + 2500 (500 X 4) 7000 2000 5000 Units

AVERAGE STOCK LEVEL = = = = Minimum stock + of Reordering Quantity. 500 + ( X 2500) 500 + 1250 1750 Units

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Minimum Stock Level Average Stock Level Maximum Stock Level

= 1350 Units = 1750 Units = 5000 Units

INVENTORY TURN OVER RATIO A Ratio which measures the number of times a firms average inventory is sold during a year Kohler. Computation of inventory turn over ratios for different items of materials and comparison of the turnover ratios provide a useful guidance for measuring inventory performance. A high turnover rate indicates that the material in question is a fast moving one. A low turnover rate on the other hand indicates over investments and looking up of working capital on undesirable items.

Inventory or Stock turnover is measured in terms of the ratio of the value of materials consumed to the average inventory during the period. The ratio indicates the number of time the average inventory is consumed and replenished by dividing number of days for which the average inventory is held can be ascertained.

Comparing the number of days in the case of two different materials, it is possible to known which is fast moving and which slow on that basis

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attempt may be made to reduce the amount of capital locked up and prevent over stocking of slow moving items.

Average Inventory

Opening Stock + Closing Stock 2

Inventory turnover ratio

Material consumed Average Inventory

Inventory turnover in number of days

Number of days in a year Inventory turnover ratio

INVENTORY TURN OVER RATIO

YEARS Opening Inventory

2006

2005

2004

2003

2002

2001

49970 (Rs. In Lakhs) Closing Inventory 75983 (Rs. In Lakhs)

45675

46904

55253

51554

43697

49970

45675

46904

55253

51554

Table -5

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INVENTORY TURNOVER RATIO INVENTORY TURNOVER IN NUMBER OF DAYS 365.. 7.296 = 50.027 366.. 7.01 = 52.21 365.. 5.389 = 67.73 365.. 4.24 = 88.05 365.. 4.41 = 82.65 366.. 4.64 = 78.87

INVENTORY

AVERAGE

INVENTORY

YEARS CONSUMED INVENTORY TURNOVER (Rs. in Lakhs) (Rs. in Lakhs) March 2006 March 2006 March 2004 March 2003 March 2002 March 2001 49970 + 75983 2 = 62976.5 45675 + 49970 2 = 47822.5 46904 + 45675 2 = 46389.5 55253 + 46904 2 = 51078.5 51554 + 55253 2 = 53403.5 53697 + 51554 2 = 47625.5
Table -6

RATIO 459537.10 62976.5 = 7.296 335286.52 47822.5 = 7.01 250021.84 46389.5 = 5.389 211723.1 51078.5 = 4.145 235858.13 53403.5 = 4.416 221023.23 47625.5 = 4.64

459537.10

335286.52

250021.84

211723.1

235858.13

221023.23

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INVENTORY TURNOVER RATIO 8 7 % OF INVENTORY 6 5 4 3 2 1 0 5.389 4.64 4.416 4.145

7.01

7.296

200 2001 200 200 200 200 2000 200 2002 2003 2004 2005 1 2 3 4 YEAR 5 6

Chart - 1

INVENTORY TURNOVER RATIO

% OF INVENTORY

8 7.01 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 4.64 4.416 4.145 5.389

7.296

Inventory Turnover Ratio

2005

200 200 1 2

200 3

YEARS

200 4

200 5

200 6

Chart - 2

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Inventory in number of days INVENTORY IN NO. OF DAYS 100 90 80 70 60 50 40 30 20 10 0

78.87 82.65

88.05 67.73

52.21 50.027

Inventory in number of days

2000 2001 200 200 200 2002 2003 2004 2005 200 200 200 6 1 3 YEARS 4 5 2 Chart - 3

INVENTORY IN NUMBER OF DAYS

INVENTORY IN NO. OF DAYS

100 90 80 70 60 50 40 30 20 10 0

78.87 82.65

88.05 67.73 52.21 50.027

2001 2002 2003 2004 2005 2006 YEARS

Chart - 4

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A high turnover ratio indicates that the material in question is a fast moving one and also a low amount of stocks are replacing stocks in large number of installments. In the year 2000, 2001, 2002 the stock turnover ratio is gradually decreasing and the inventory turnover in number of days are in high level. This indicates the inventory faced a bad position in these three years. And from 2004, 2005, 2006 the stock turnover ratio

continuously increased from 5.38 to 7.296 & the inventory in number of days is low level. This position indicates that the stocks are fast moving and get converted into sales quickly.

VEHICLE PRODUCTION AND DISPATCH

VEHICLE PRODUCTION YEAR (QUANTITY IN UNITS) MARCH 31ST 2005 MARCH 31ST 2006 MARCH 31ST 2007 25,797 34,186 33,630
Table -7

VEHICLES DISPATCH (QUANTITY IN UNITS) 25,416 33,766 33,885

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VEHICLE PRODUCTION & DISPATCH

2004 2005

2005 2006
YEARS Chart - 5

2006 2007

The inflow of raw materials and dispatch of finished goods from the organization is in good position. In march 31st 2005 the difference

between the vehicle production and dispatched is 381 and in march 31 st 2006 the close stock in the go down is also dispatched from the organization and as well as in the year 2006 31st march the stored vehicles are dispatched from the company. This indicates that the consuming

storage cost is very low and risk related to preservation of the stock is very less.

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CONCLUSIONS :

The inventory management techniques in Bharat Heavy Electricals Limited is well established over a period of time.

From the various calculations and figures relating to inventory management it is clear that the inventory classification of A items are maintain for 1 3 days, as a result it reduce investment in raw material, reducing the lead time and also the large quantity discount because the stock are kept for 1 3 days.

In the classification of ABC items XYZ procedure is following in BHEL. Plant has launched the different type of KANBAN card system for class C items.

Class A & B items are consider under the just in time philosophy as the procurement time has been reduced up to greater extent by the proper co-ordination of buyer and supplier.

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 There is great improvement in the inventory turnover ratio from 3 years. It is increased from 5.38 to 7.296% this position indicates that the stocks are fast moving and get converted into sales quickly in BHEL.

To days business scenario inventory management is becoming very crucial part of the organization. The system of inventory

management in Bharat Heavy Electricals Limited very effective.

The organization is basically and assembling unit and thus inventory place a most significant role in the decision making process.

Finally we conclude that BHARAT HEAVY ELECTRICALS LIMITED plant the inventory system is very good with Indian techniques

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RECOMMENDATION

For better procurement of inventory the concept of e-commerce, etendering and e-procurement may be introduced.

Manpower needs to be strengthened. It is felt that the section is under-staffed. Highly motivated and adequate staff can bring in a paradigm shift in the section.

Stock and issue records should be maintained in the inventory control department or in the stores department.

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BIBILOGRAPHY:
BOOKS Prasanna Chandra Financial Management (Theory and Practise) 4th edition, Tata Mc.Graw-Hill Publishing Co.Ltd.

IM.Pandey

Financial Management 8th Edition Vikas Publishing house Pvt.Ltd.

M.Y.Khan P.K.Jain

Financial Management Tata Mc.Graw-Hill Publishing Co.Ltd.

V.K. Saxena C.D. Vashist

Cost Accounting

S.P. Iyenger S.N. Maheshwari

Cost Accounting Cost Accounting

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R.P. Thrivadi

Cost Management Accounting

Website

www.bhel.com www.bhelhyderabad.com

Information collected from stores records of Bharath Heavy Electricals Limited, Ramachandrapuram, Hyderabad. And from company websites.

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