PROJECT REPORT

ON

INVENTORY MANAGEMENT

IN

TATA STEEL,WEST BOKARO DIVISION

UNDER THE GUIDANCE OF SUBMITTED BY

MR.MUKESH JATIA MANAGER (PURCHASE) TATA STEEL, WBD

ACKNOWLEDGE

Any accomplishment requires the coordination of many people, so this work is also not so different.

I am grateful to the management of TATA STEEL, west Bokaro division, especially to Mr. C K De Bhowmik (Sr. manager-training), who provided me the golden opportunity to conduct my project. I am grateful to Mr. Mukesh jatia, my project guide who has given me the project on Inventory management at TATA steel, west bokaro division.

I am thankful for his whole hearted support, encouragement and timely suggestion without this kind cooperation, it was impossible for me to carry out this project.

All necessary guidance and assistance when required were obtained from Mr. Vinod Kumar and Mr. Kumar Sunil (Head Purchase) and associates inspite of their busy schedule for me to carry out the project. Their help and cooperation are gratefully acknowledged.

I am also thankful to all department heads, especially to Mr. Malay sinha (Sr. manager- purchase and stores) who have made available the facts and findings at the time of survey which was related with my study.Last but not the least, I am grateful to all the accounts staff. I also owe thanks to all those people who have helped me directly or indirectly in collection of my data and preparation of the report. I would like to express my heartfelt words for people without whom the concept of this project was a far- fetched dream.

PREFACE

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The project assigned to me was to perform the study of INVENTORY MANAGEMENT IN WBD and the study of environment in which it operates, for which I underwent eight weeks summer training, this training is an integral part of PGDM curriculum. The project has been prepared to summarize West Bokaro activities and highlight the crucial system of inventory at WBD.

This project presents a framework for evaluating inventory that have been developed by professional accountants. This project explains the rationale behind the principles and suggests ways and means to improve these systems in practice.

I have tried to present it in single way so that it is user friendly and interesting for users.

Illustrations, formats, graphs, diagrams have been used whenever required to add glory. I shall thanks to all those who have guided me in completion of the project. I would highly appreciate to receive suggestion from the readers to further improve the project.

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CONTENTS

SL.NO. PARTICULARS PAGE NO.

1. OVERVIEW OF TATA STEEL ,WBD 5-19

2 FINANCIAL IMPLEMENTATION 20

3 COMPUTERISED WORKING 20

4 BUSINESS PHILOSOPHY 20

5 INVENTORY MANAGEMENT AND CONTROL

21-65

6 CONCLUSION 66

7 SUGGESTIONS 67

8 REFFERENCE 68

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OVERVIEW OF TATA STEEL LTD.,

WEST BOKARO DIVISION

INTRODUCTION

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TSL A BRIEF PROFILE

The TATA STEEL was established in 1907 at Jamshedpur. This is one of the India’s best known symbols of industrial growth. It represent country’s single largest, integrated steel works in the private sector with a market share value of about 13% .The company is India’s single largest exporter of high quality value added steel products. It is the producer of one of the cheapest HR coils in the world. A blue chip company, TATA STEEL LTD as successfully raised $100 million through euro bonds.

The company offers a diverse range of products and services. These include HR/CR coils and sheets, tubes construction bars, forging quality steels rods, structural, strips, and bearings steel plants and material handling equipment etc. For the production of steel and other purposes clean coal is needed at the head quarter plant at the Jamshedpur. TSL WEST BOKARO colliery supplies coal to (TATA) Jamshedpur steel plant. It has started its production from 1907 and is now completed 100 years.

This plant is another division of TATA iron and steel company ltd.It is situated at west bokaro division that is present at Ramgarh dist. In Jharkhand state. It is situated at about 200 kms. From Jamshedpur were it supply its clean coal. The total work forse of the plant is around 3643 persons the whole plant is around 17.4sqkms.

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OVERVIEW OF TATA STEEL LTD., WEST BOKARO DIVISION

TATA STEEL was established in the year 1907 by jamshed ji tata. TATA

STEEL is Asia’s first largest integrated private sector steel company.

West Bokaro Division is a captive open cast coal mine of Tata steel ltd.

Coal contain high % of ash i.e., known as raw coal. The primary objective

is to-:

Extracted raw coal is transferred to the coal washeries for washing and

washed coals are then transferred to the Jamshedpur plant as per annual

budget plan decided by the company.

Primary product is the clean coal and secondary products are the middling,

tailing and rejects.

LOCAT ION

West Bokaro is located about 200 Km north of Jamshedpur, in the Ramgarh

district of jharkhand state. It is about 26 KMs NE of Ramgarh towns.

Geographically, it is located west of Lugu hill. There are several other coal

mines, owned by M/S central coal field ltd (CCL) around west Bokaro. The

rain-fed Bokaro River flows through the property. Total area of the

leasehold is 4300 acres and contains an estimated reserve of about

200 million tones of medium coking coal. The loading station, at Chainpur ,

is situated 4kms to the south.

ORGANISATION

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West Bokaro came into existence in 1948, as an independent coal company,

managed by M/S Anderson wright under the managing agency system.

TATA Steel acquired the company in 1956 to meet its requirement of

metallurgical grade coal for iron making. Subsequently, in 1976, West

Bokaro was made a Division of Tata steel.In 1974, when coal mines were

nationalized , West Bokaro was exempted as it produced coal only for

captive consumption of steel works. The coal industry in India is highly

regulated with only a few private players allowed to produce coal for captive

use in the area of steel, cement and power industry. The business objective

of West Bokaro Division is to produce clean coal at optimum cost for

captive use in the steel plant of TATA Steel at Jamshedpur. The surplus

clean coal produced , if any, are sold in the market after getting due

permission from ministry of coal.

West Bokaro division is located in a remote socially backward area about 70

km from Ranchi and 50 km from Hazaribagh in Jharkhand state . The

remote location and the social pressure from the surrounding community

compels the division to not only establish its own township, civil and

healthcare facilities but also maintain good liaison with the district

administration for exigencies.

WORKING HIERARCHY AT WEST BOKARO DIVISION

General Manager is the overall head at the division , he formulate the all

types of policies to the low level.

Under the general manager different departmental heads are present for

example- HR/IR DEPT.,ACCOUNTS DEPT.,COAL BENEFICATION

DEPT.etc.

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These departments help the organization to work or run effectively and

efficiently , because all the works are divided among the departments and

each department know what work they have to perform.

MINES &WASHERIES OF WEST BOKARO DIVISION:-

MINES

A mine is the surface land which is rich in coal . Raw coal is extracted from

mine and sends to washeries. There are two types of mines.

1. Under ground mines

2. Open cast

OPEN CAST MINES

In open cast mining first the upper layer is removed by drilling, blasting and

transporting. Drilling machines, Exacavator and rare dumpers are used in

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GENERAL MANAGER

HR/IR DEPT. ACCOUNTS DEPT.COAL

BENEFICIATIONDEPT.

this process. Layer of coal is the drilled, blasting and transported. Drilling

Machines, Dozer, Payloader and Bottom dumpers are used for this purpose.

OVER BURDEN

COAL

OVER BURDEN

COAL

COAL:-

OVER BURDENREMOVAL

DRILLING BLASTING

COAL BENEFICIATION

DISPATCH CLEAN COAL , MIDDLING , TAILING SECONDARY PRODUCTS

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LOADING (PAY LOADER+ BULDOZER)

DUMPING IN DUMP HOPPER OF CHAINPUR

Coal is a non renewable fossil fuel that was formed by a series of natural

geochemical process, from plant remains which accumulated together with

other sediments the sea floor in shallow gradually subsiding basins of

sedimentation. Coal Reserve is about 192 million tones.

Coal is produced by three different qualities serving three different

purpose :-

1) Clean coal (14% ash content )for captive use of steel production at

Jamshedpur.

2) Middling Coal (38-40% ash content ) for power plant at Jamshedpur.

3) Rejects (65-68% ash content) for domestic power generation.

Washeries

Washery is a plant which cleans the impurities of raw coal and gives desire

types of clean coal. There are two types of washery.

1. Washery ii

2. Washery iii

During washing the coal , company get by product like :-

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1. middling coal

2. tailing coal

3. rejection coal

company sale these by product to del credre agents.

1. NARESH KUMAR

2. GOEL AGENCY

3. G.S. ATMAL

4. CHANDRA ENTERPRISES

5. TYCOON INDUSTRIES

6. HINDALCO INDUSTRIES LTD.

7. RENUSAGAR

8. HINDALS

9. HINDUSTAN COPPER LTD.

10.BIHAR CAUSTIC LTD.

11.TATA POWER LTD.

Tata steel has primary and secondary product:-

Tata steel ltd.

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Steel plant

Iron (raw) coal

Nawamundi west bokaro jharia imported(Australia) (sources)

(Orissa) 50% 30% 20% (purchase)

Low high very high (burning capacity)

Raw iron for steel manufacturing and coal is use in blast furnace for

steel making because without coal operation is not possible.

MINING OPERATION

Mining operation at West Bokaro consists of opencast mines.

Firstly the rocks are drilled and filled by the gun powder and blasting is

done. After that by the help of SHOVELL MACHINE and EARTH

MOVING EQUIPMENT Over burdens are dumped to the different place

from the mining area and the mining process continues.

OVER BURDEN means unnecessary rock, stones and dust which are not

related with production process.

Here, they extract the raw coal and send it to the washeries for washing and

getting the clean coal.

During the mining process lots of dust blew with air so, for controlling them

At WBD Company give water to the working areas by the help of water

tankers. It is necessary because dust can cause respiratory problems to the

workers.

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During the work it is very compulsory for every worker to work with safety

equipments like goggles, helmets,shoes etc

PRODUCTIONPROCESS

Raw coal is extracted from the quarry and sends to washery for washing after the washing process is over; the washed coal (clean coal) is dispatched to the Jamshedpur plant.

QUARRY

DESPATCH

WASHERY

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MAIN PRODUCTS/SERVICES AND DELIVERY MECHANISM

The primary product of West Bokaro is the metallurgical grade coal (also called clean coal), for coke ovens, which converts coal into coke for use in the Blast Furnaces. The type of coal deposit in West Bokaro is that of medium grade metallurgical coal containing a very high percentage on non- combustible material called “ash”.In order to make it suitable for use in the blast furnace, coal ,after mining ,is washed in the coal beneficiation plants to lower down the ash content from an average of ash X% to y%. While washing coal ,certain secondary products (middling, tailings, rejects) are also generated , which are taken care of by the secondary products department.It is always the effort of our coal beneficiation plants to maximize the yield of the clean coal since maximum value creation is in producing clean coal.

The main product of West Bokaro is clean coal and it is dispatched to Jamshedpur through the rakes supplied by the railways.

MAJOR TECHNOLOGIES, EQUIPMENTS, FACILITIES

The division has opencast mines and washeries . The coal from the mines is produced using shovel- dumper combination and other support equipments. The operations and the maintenance practices in the mines are at par with the best in the industry. The coal washeries also use modern technology to produce clean coal .Coal is an exhaustible resource. The investments made by the company at West Bokaro are only with the objective of sustaining the requirements of clean coal for its blast furnaces.

The key production processes at West Bokaro division are mining (including drilling, blasting, hauling, dumping and allied activities such as road making and pumping), Coal Beneficiation and Despatching (including Ropeways, overland conveyors and loading complex ). The key production processes are supported by mine planning (using state of the art mine planning software), Quality Assurance, Power Engineering Engineering Shops and other services include Garage and water supply. The division also maintains its Township and medical facilities, including a Hospital and dispensaries.

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EMPLOYEES

Employees of West Bokaro Division are very efficient. Division gives lots of facilities to the employee .

Safety seminars and training programmes are conducted to educate workmen, including contractors employees regarding safety precaution and safe methods of working. The division has its own well-managed hospital and 5 dispensaries to take care of its employees and surrounding population.Periodical medical examination is conducted for all employees as per the requirements of Mines Rules. Total no. of employee of WBD is 3643.

SAFETY PLEDGE

On this day ,I re-dedicate myself to work safely and in a manner that upholds the health of all being of our environment

I shall observe ,in words &spirit all rules and procedure and develop habits condusive achieving zero accident.

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KEY PRODUCTS/SERVICE REQUIREMENTS AND END USE

The steel works consumes almost the entire quantity of the clean coal produced. Only some surplus quantity of clean coal is sold after getting the government clearance. The Division takes care of the entire thermal coal (middlings) requirement of the company. Tailings, Deshalled Rejects and a small portion of the middlings are disposed in the open market, primarily to brick kilns, rhrough secondary products and Del Credre Agents.The difference in the requirements and expectation of key customer groups and market segments is dependent on the criticality of the usage. For e.g the quality parameters for clean coal are critical for coke quality and hot metal quality and hence the demand of the customers is also more stringent. On the other hand, the tailings are used mainly in the brick kilns where the quality parameter are not so stringent.

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PRODUCTS END USE

1. RAW COAL Fed to washery

2. CLEAN COAL Steel making

3. MIDDLINGS Thermal power house

4. TAILINGS Brick kilns

COAL BENEFICIATION Raw coal, as mined by the opencast method. Raw coal has to be crushed before processing in the washeries , to ensure optimum liberation of ash .

There are Raw Coal Crushing Plants.

Process for getting clean coal from the raw coal :-

. Crushing . Coal washing . Despatching

CRUSHING . Primary crushing plant

PRIMARY CRUSHING PLANT

Raw coal mined at quarry are dumped into the primary crushing plant. In the primary crushing plant raw coal is crushed into the small pieces by the help of crusher and it is send to the washery for washing.

COAL WASHING

Raw coal is beneficiated, at washery,to produce clean coal, middling, tailing and reject. Here, the raw coal which is crushed in the primary crusher plant is washed to get the clean coal.

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DESPATCHING

Ground stockpiles have been provided, at washery, for clean coal, middling and rejects. From the product stockpiles of the washeries, clean coal and middlings are transported, 4 km. away,to the rail head, at chainpur,through the BC and monocable ropways. The monocable ropeways transported only middlings.

The BC ropeways transported both clean coal and middlings. Chainpur has modern moving loaders of 1000 TPH capacity each, which load clean coal and middlings into railways wagons, at the quick loading complex for dispatch to the steel works.

FINANCIAL IMPLEMENTATION

There are certain limitations as far as financial accounting is concerned. Being a cost center BALANCE SHEET and PROFIT AND LOSS ACCOUNTS are not prepared at WBD but consolidated as a whole on the company level.

COMPUTERISED WORKING

WBD has ERP package (enterprise resource planning) SAP. SAP is integrated software more emphasis on organizations transaction. SAP has different module to simplify an automatised financial accounting operations with proper control. By the help of computer works become easier and took less time in the completion.

BUSINESS PHILOSOPHY

The key aspects of our business philosophy are:- . To meet the planned requirement of CSI at optimal cost. . Improved quality of raw materials for improving productivity of Blast furnace.

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. Ensure security of raw materials for assured and consistent supply to Jamshedpur. . Ensure safety of employees manage environment and community.

AWARDS AND RECOGNITION

World steel dynamics has ranked TATA STEEL as world’s best steel maker (for two consecutive years) in its annual listing in February 2006.TATA STEEL has been conferred the prime minister of India’s trophy for the best integrated steel plant 5 times. It has been awarded Asia’s most admired knowledge enterprise award in 2003 and 2004.

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INVENTORY MANAGEMENT AND CONTROL

INVENTORYMANAGEMENT

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INVENTORY

The physical stock of items that a business or industry keeps in hand for efficient running of its affairs is known as inventory.

Companies hold inventories in the form of raw materials, work-in –process and finished goods. Inventories represent investment of a firm’s funds. The objective of the inventory management should be maximization of the value of firm.

The firm should therefore consider:a) Costb) Returnc) Risk factors in establishing its inventory policy.

NATURE OF INVENTORY

Stocks of manufactured products and the material that make up the products.Components:

Raw materials

Working -in -process

Finished goods

NEED FOR INVENTORIES

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Transcation motive- for facilitating smooth production and sales operation.

Precautionary motive- to guard against the risk of unpredictable changes in usage rate and delivery time.

Speculative motive- to take advantage of price fluctuation.

OBJECTIVE OF INVENTORY MANAGEMENT

Ensure a continuous supply of raw materials to facilitate uninterrupted production.

Maintain sufficient stock of raw materials in period of short supply and anticipate price changes.

Maintain sufficient finished goods inventory for smooth sales operations and efficient customer service.

Minimize the inventory costs.

Control inventory investment by maintaining optimum inventory.

ADVANTAGE OF INVENTORIES

It enables immediate start of production as soon as orders are

received. It will help timely delivery to customers.

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Buying materials in optimum quantity is profitable as discounts are available on bulk purchases.

A good industry keeps a ready stock of material for immediate sale.

Where customer satisfaction is and after sales service is the h

Sometimes it is difficult to procure material immediately due to unforeseen reasons like strikes, lock-outs etc. In this case inventories can come to rescue of user.

Building up of inventories is profitable as prices generally rise afterwards.

Risks of closing down of plants are minimized due to non-availability of materials.

More products can be manufactured easily.

INVENTORY SYSTEM IN TSL, WEST BOKARO DIVISION

TYPES OF INVENTORIES INVENTORY

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FINISHED GOOD INVENTORY RAW MATERIAL

IN THE FORM OF CLEAN COAL

ROPEWAY CONVEYER SPARE BY PRODUCTS CABLE BELTS PARTS

MIDDLING TAILING REJECTS

Basically there are two departments in TATA Steel, west bokaro for maintaining inventory. These are:

Store department

Purchase department

STORE DEPARTMENT

The main function of store department are as follows:

a) To study the requirement of each item of inventory by considering annual consumption, opening stock, lead time consumption .(required stock or consumed stock during lead time ,i.e consumption during period between issue of purchase order and receive delivery of that item),average stock, maximum stock and minimum stock.

b) After studying the requirements if department feel that there is need of any particular item, then it prepares material requisition form and send to purchase department to purchase that item.

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c) After purchasing by purchase department, the concerned party deliver that item to store and receive and make a enquiry from point of view of quantity and quality. After being satisfied, it prepares the goods receipt note for the quantity received. d) After issuing goods receipt number , it transfers the received item to concerned godown for carrying purpose .

e) When departments (quarries, washeries, PCP, Dispatch section etc.) demand for any item through material issue requisition.

f) Store department maintains average stock, and maximum Stock to avoid excessive carrying cost and to facilitate production process by supplying material and other inventoryitem continuosly.

STORE AND STORE KEEPING/MANAGEMENT

INTRODUCTION

Store-keeping is the function of receiving, storing and issuing of materials. It involves supervision of clearance of incoming supplies, to ensure that they are maintained in good condition , safety and readiness for use when required while they are in storage and issuing them against authorized requisitions.

STORE ORGANISATION IN WEST BOKARO

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For proper storage of the inventory or the raw materials, there is one warehouse in the organization known as the CENTRAL STORE.

SOME FEATURE OF CENTRAL STORE

1. Spread in large area.

2. Adequate space.

3. Proper utilization of space.

4. Use of safety appliances, like helmet, shoes, gloves etc.

5. Proper ventilation.

STORING AND STORAGE FACILITIES . Storing means placing materials in their proper places according to established methods. . Commonly used equipments for materials in the store are: Open type racks,

Box pallet,

Bins

Godrej

. Various material handling equipments available are: Shelf trolley

Two wheel hand truck

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Mobile crane . Specialized technique of identification is there

Tagging or labeling : Identification tags must be there at time of Receiving of goods.

Coding: coding is done for the items by using the UMC no.

. Proper location identity is there with bin no. or rack no. which is also there in the bin card.

ORGANISATION OF STORE The organization of store department is shown below:

Head (purchase and store)

Senior manager(purchase&store)

Material manager

Senior store keeper

Assistant store keeper

clerk

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worker

DIFFERENT SECTION OF CENTRAL STORE

1. RECEIPT SECTION2. GENERAL SECTION3. LEDGER SETION4. EME SECTION5. OLD STORES

FUNCTION OF RECEIPT SECTION

The functioning of the receipt section can be depicted from diagram as follows:-

Receipt of material

Receipt of challan

Verification

Inspection

Preparation of GRN

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Entry is made To respective go downs

WORKING OF RECEIPT SECTION

Receipt of materials starts when the supplier or party sends the goods .The party comes with the copies of challan. One is used for the gate pass the rest two are handover the party.Each material received is properly tagged with the quantity in it, which is further used for identification of good.

The goods are received with the use of descriptive code in the respective software.As soon as the material is received in an industry, it must be subjected to proper verification and inspection. Inspection is carried out before goods are stored in the stores. When a supplier sends the goods, he may also sends a delivery note or invoice.The material is received by various means like door delivery, bank document.On the receipt of materials, the store keeper checks whether the conditions of the orders have been compiled with or not. After due verification of goods by the store keeper, it is sent for inspection, if required for certain materials. The inspector inspects the material in the presence of the store keeper. If the material is found in order according to the specifications in the challan , it is taken on charge by the store keeper and goods receipt number(GRN),is prepared for the accepted materials and entry is made for them by using descriptive code in the respective software. Defective goods are never taken on stores charge but returned to the supplier for replacement as per agreed terms and conditions.

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The last step in the function of receipt is transfer of goods to the respective stores.

USE OF BIN CARD IN THE STORES

On the receipt of goods in the stores, a bin card is prepared for every received item.

BIN CARD- It is a card that is the representative of a particular type of item, which is specific to a particular work, where the material is placed.

It shows all the records of materials entering or leaving the stores.

As soon as the material is received, it is entered in bin card and it is issued, then again entry is made. These cards are maintained by the store keeper to ascertain the quantity of any material in stock.It also reminds the store- keeper about minimum stock so that he can inform the purchase section for purchase of another lot of material, when the level comes down to ordering quantity.

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A bin card must furnish the following information:-

. Description of material- UMC no. and rack no.

. Location . Receipt information- Date, Quality and rack no.

. Issue information Date, Quantity and rack no.

. Balance . Signature of the store officer.

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FORMAT OF BIN CARD

Date GRN/Regn .no

CH No Receive Issue Balance IP Rate Initial

Where –GRN – goods received note

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FUNCTION OF GENERAL SECTION

General section is for the storage of general materials. Some of the general materials stored here are:

Electrodes

Welding spare

Pipe spares

Pins

V Belts

Gland packing

Electrical switch

Fans

Stationary items

Other small items and light fittings etc.

All the materials are identified with their UMC number. (Unit measure code)

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ISSUE OF STORES

The store keeper issues the material on receipt of requisition slip. This is called the Material Requisition Form which is an authority issued to the store keeper by the operating department to issue the material.

Before issue of materials, the store keeper checks that it has been signed by proper authority.

A requisition must furnish the following details:

1. Description of the item required.

2. Quantity of item required.

3. Work order number and chargeable head.

4. Dated initials of the person receiving material

5. Section requiring the material.

FUNCTION OF LEDGER SECTION

The major functions of ledger section are as follows:

1. Identing and costing.

2. Procurement of stock for different sections.

3. Making of purchase requisition in the respective software.

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4. Determination of quantity to be ordered .

This is done by taking into account the GB(Ground balance), LYC(Last year consumption),YBL(Year before last)

5. It does the future planning, determination of Reorder level and maintaining safety stock.

6. Keeping the record of stock in the different section of stores.

7. It also follows up with the party and preparation of the pending list.

8. Preparation of delivery schedule.

FUNCTION OF EME SECTION

1. EME Section stores the earth moving equipments, called the spare section.

2. It stores the heavy equipments, which are used for mining activity.

3. It stores costlier items, bearings, spare parts required for heavy vehicles like trucks etc.

4. Automatic batteries are also stored.5. There is a section for obsolete and dead stock also which are kept

for display to parties.

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OLD STORES

1. In the old stores the material of the respective departments are

stored.

DDI SECTION

1. It is direct department inventory section.2. It does not keep the stock as such and give direct delivery to the

concerned department .3. It prepares the purchase requisition for its material itself.

PROVISION FOR QUALITY INSPECTION

Quality inspection is concerned with quality of received, stored, issued and sold. Quality control inspection is to ensure the conformance of products to the specification of the organization.

Inspection is carried out for the materials in the ware house premises at the time of receipt from the authorized person .There arise two possibilities.The item is accepted without any inspection , this depends upon whether item has been inspected earlier or is a quality marked or from a reliable supplier. Or the inspection is done on the basis of sampling inspection and then acceptance / rejection /rectification criteria can be done.

INVENTORY VERIFICATION AND AUDIT

The stores controller has the physical custody of the materials and is responsible for their safe upkeep.

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There can be any major discrepancy in the stock figure. To guard against such possibility, there must be constant review and stocks update the accounts and reconcile the physical and book balance. The magnitude of this problem will increase as the no. of transactions increase because error can be committed in each transaction and this can accumulate to major discrepancies. The verification process enables the management to identify areas needing tighter controls.

Stock verification can be defined as the process of counting, weighing or measuring the stock of materials that is held and making a record of these figures. The primary purpose of this physical verification is an assurance that the inputs, outputs and the stock on hand have been accounted for accurately. The procedure also helps to identify slow moving items.

In the organization there is provision for internal audit which does the annual reviews of the stock.

MOVING AND NON MOVING ITEMS

Non moving items – The items which have been there in the stock and haven’t been stocked out for several years due to obsolescence or any other reason are called the non moving items.

Following is the diagram showing the no. of non moving items for different no. years in the stores of west bokaro division.

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No. of Non moving items in west bokaro:

No. of years Number Value(Rs)

More than 3 yrs 485 50,13,000

2-3 yrs 55 4, 06, 907

1-2 yrs 164 23,76,237

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To control the non moving items, these items are regularly been identified through periodic review and audit and they are being converted into Direct Department Inventory and these type of inventories are continuously being minimized.

Moving items- The items which constantly been stocked out from the stores are called the moving items.

Any system designed to handle the information requirements for inventory will have to keep a constant track of the physical flow of materials.

Unless the material flow in an organization is accounted for at every stage , and is regulated by appropriate documentation there is every possibility of flow becoming turbulent and uncontrollable. The data on physical movements is used to set consumption norms, control excess consumption and enable an early decision in obsolescence. The data on sales forecast, environment changes, and material availability will enable the appropriate setting up of buying policies and inventory levels.

PURCHASE DEPARTMENT

The main function of purchase department is purchasing. The indenting or ledger section of store department sends the material purchase requisition to purchase department for purchasing any item and purchase department has to purchase it .

The main steps involved in the functioning of store department are:

a) Enquiry

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b) Quotation

c) Negotiation

d) Order placing

Section in purchase department

1. General item group: The items which are of general nature, the purchase of such items is handled by general item group.

2. Civil group: The items which are used in construction process like cement, bricks, rod, sand etc. purchased by civil group.

3. Excavation group or EME space: The items which are used in machines and heavy vehicles like different types of spares of machines and vehicles itself are purchased by excavation group.

PURCHASING SYSTEM

MATERIAL REQUIREMENT TO DEPARTMENT

INITIATION OF PURCHASE REQUISITION BILL OF MATERIALSFROM DIFFERENT DEPARTMENTS

VERIFICATION BY STORE DEPARTMENT If goods are not available

SELECTING THE REPUTED VENDORS

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CALLI NG OF QUOTATION

PLACING THE ORDER

RECEIVING OF GOODS ALONG WITH CHALLAN

VERIFICATION OF GOODS AND INVOICES

INSPECTION OF MATERIAL

PREPARATION OF GRN

KEEPING THE MATERIAL IN STORE

EXPLANATION OF PURCHASING SYSTEM

Purchasing of items start with the material requirement to the departments. They initiate a purchase requisition detailing the material requirement to the store department. If the required material is available in the store, then it is

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issued after proper verification of the material requisition form by the store department i.e it should be authorized and signature should be there. Entry is made in both in the bin card and in the respective software.

When goods required are available in the stores, then order is placed after certain essential steps.

Reputed vendors or suppliers are selected and are called for the quotation. They give their quotations which are studied to select the most appropriate one. Order is placed by issuing purchase order.

Receiving the order, the concerned party delivers the goods to the store department with the copies of challan. The goods are verified and inspected. Goods receipt number is prepared after receiving them and then sent to the concerned godown. And then requirement of the department is fulfilled by issuing them the goods.

ORDERING SYSTEM

THE PROCESS

The ordering system, for the materials operates in a systematic way as follows:

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The ledger section of the central stores does the periodic review for the materials to be ordered, i.e determines the reorder level and point (time and quantity to be ordered)

In this periodic review, the parameters that are taken into account are:GB (ground balance)

LYC(last year consumption)

YBC(year before consumption)

On the basis of the above three order already given, ledger section estimates an average quantity to be ordered. For example :

LYC YBC AVG. CONSUMPTION IN ORDER GB ORDER QTY

200 300 250 100 50 100

A purchase requisition is prepared.

Purchase requisition is the internal communication document, Which contains the details of requirement of materials

A PURCHASE REQUISITION HAS THE FOLLOWING IMPORTANT DETAILS IN IT.

1. PR NO.

2. Department

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3. Run date

4. Request date

5. Requisitioner

6. Description of the material

Material group Class of material

Quantity

7. Delivery date

8. General instruction to vendor

9. Creation date

10. Created by: ( personal no.)

11. Release status-Approved/ Not Approved

12. Release date

13. Approved by: (personal no.)

A format of a purchase requisition form is shown below:

Purchase requisition form

PR NO …….

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Deptt………..

Doc. Type……

Purchase group………..

Requisition……………..

No. of material Description UMO rate dept value Dept. Doc.

………… ……… ………… …… ……..

Description of material

Material group ………..

Class …………

Quantity ………..

Delivery date ………..

General instruction to vendor ………………..……………………………………………………………………………………………

The purchase requisition, then goes to the senior manager (store and purchase), for approval

The senior manager checks it and finding it appropriate approves it for release. The senior manager is authorized for

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the order estimate upto the certain amount, the approval of head(purchase and store) is required, then only it can be released.

After, the approval, the department goes for Party enquiry(calling the reputed vendors, for their quotation)

For this, a tendor inviting the quotations is prepared by the staff, which is called the RFQ(Requisition For Quotation).

This is done in the system , which automatically gets communicated to the various parties (vendors) , to which the department has line up, as soon as the RFQ gets released. And thus they are invited for quotation.

Format of RFQ is shown below.

Purchase deptt. (RFQ)

CODE 34666 RFQ This is not an order………

RFQ No………………..

RFQ Date……………...

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RFQ Due ………………

CONT…………………

Item no 3545236

Brief Description of item

Delivery date……

The RFQ Contains the following details :

1. RFQ NO.

2. RFQ Date

3. Code

4. Condition for the quotation

5. Item no.

6. Brief description of the item

7. Delivery schedule

8. Delivery date

The different parties invited through RFQ, go for the quotations.

A format of the quotation form is shown below:

Quotation form

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Reference no 01.45.73435

Date ……………

WBD ……………

……………………

……………………

Dir sir…………….

Sub……………….

Ref.your RFQ

……………………………………..

……………………………………..

1 Item no……. , Material no ………, Price ………

Condition

Delivery date………….

Payment term…………

Mode of payment……..

A quotation from a party must furnish the following details.

1. Reference no.

2. RFQ no.

3. Vendor code

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4. Item no. and material no.

5. Any specification of material ; size, ratio etc

6. Quantity

7. Price (whether inclusive of excise duty or sales tax)

8. Offering from the party ; any discount etc.

9. Details about packing, forwarding, transportation, charges etc.

10. Delivery Period

11. Mode of payment

12. Validity

13. Any guarantee etc.

The quotation are carefully studied.

A comparative statement is prepared in the form of table to compare the relative price and data. Normally, lowest rate is accepted if it conforms strictly to the specifications.

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Finally, purchase order is placed, to the selected vendor and follows up action taken for timely supply of materials.

If the organization feels for still lower prices or any other terms and conditions, negotiation may be done with the supplier for the most advantageous terms of purchase. Party gives the final quotation with all the requisites. At last, a final purchase order is prepared and issued.

A purchase order has the following details:

1. Order no.

2. Order date

3. Vendor code

4. Address of the vendor

5. Quotation no.

6. Order validity

7. Contract conditions

8. Price

9. Term of payment

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10. Service tax applicability

11. Delivery terms

12. Brief description of the service or material

13. General instructions

14. Authorized signatory, etc.

The ordering system can be summarized in the form of flow diagram as follows:

Review by ledger section

Material requirement to department

Preparation of PR

Issue of PR to manager for approval

PR approval by the manager

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Generation of RFQ to selected parties

Quotation by party

Comparison of quotation

Selecting the best supplier

Preparation of purchase order Placing the order

INVENTORY TREND FOR LAST 4 YEARS IN WEST BOKARO

The effectiveness of the inventory control in west bokaro can be visualized in the following bar chart which gives the data of the inventory trend for the last four years, i.e. 2005-08. The figures are given in terms of value. (In Rs. Crores)

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Considering the trend shown in the bar chart above, we see that the inventory is being continuously decreased for the last 2 years. Observing the trend, we found that in the year 2006 inventory increased by 2.53% from the year 2005 and then it decreased by approx 36% in 2007 and decreased by 26.89% in 2008.

The high inventory during the year 2005 and 2006 shows the improper management and loose inventory control of the management. The high inventory during the year 2005 and 2006 shows the improper management and loose inventory control of the management .

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This high inventory was the main reason for blocking of working capital and the funds. This hampered the production schedule in the organization. Management realized the disadvantages of high inventory and started working on it. Converting the inventory items into direct department inventory was one of the effective inventory control measures. It reduced the inventory both in terms of value and volume.

DISADVANTAGES OF HIGH INVENTORY

1. Much of working capital is tied up. It increases cost of production.

2. Bigger the inventory, more the insurance charges.

3. Many items are likely to be damaged and deteriorate with passage of time.

4. When the design changes, all the inventories become obsolete and surplus.

5. Large inventories require more storing capacity. It also requires more handling and bigger records.

6. Chances of pilferage and misplacement are more.

7. Sometimes cost of material decreases. It causes loss to the organization.

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DEAD STOCK

What is dead stock?

According to the company policy, those items are declared as dead stocks which are there in the stock for more than(5years) the prescribed number of years as decided by the management.

Storage of dead stock

Once the dead stocks are identified (by periodic reviews and audit), they are being listed by the secondary product office. They are stored separately in the stores department and kept for display to parties. They are properly given a location and identification number so that they can easily be located in the stock.

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Disposition of the dead stock

For the disposition of the dead stocks, listing of dead stocks is done and this list is sent to the Kolkata office for bidding. Kolkata company, metal junction (party), does bidding for the specific items of dead stock. Generally that bid is accepted which has the highest bid and then the advance is made to the party and thus stock out is done for these items.

Trend of dead stock in last three years

Below is the bar chart given showing the trend of dead stock in west bokaro.

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Observing the bar chart above and analyzing the trend of dead stock, we find that the dead stock is continuously being decreased. In the year 2006-07, it has been deceased by 17.74% and drastically by 82.35% in 2007-08.

This trend shows that provision for disposing and minimizing of dead stock has been taken care of to a great extent

PRODUCTION AND CONSUMPTION PATTERN

The production trend of raw coal and clean coal can be visualized in the following diagram.

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Considering the chart above, we find that the production of raw coal shows an increasing trend, i.e it has been increasing since 2003 increased by 2.5% in 2004-05, by approx 1.22%in 2005-06 and by 10.84% in 2006-07.

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Bar chart above depicts the trend of production of clean coal. In the year 2005-05, it has been increased by 7.69%, decreased by 3.57% and again increased by 0.74%

STORE CONSUMPTION TREND

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The above diagram showing the store consumption trend depicts the decreasing status in the consumption of stores. It has been decreased by 10% in 2004-05, by 7.4% in 2005-06 and 20% in 2006-07

CONCLUSION

Analyzing the above pattern of production and consumption in west bokaro, we can come to the findings that as the production of raw and

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clean coal increased , the consumption of stores has been decreased as we compare the trends year by year parallel.

This shows the effectiveness of the inventory control and proper management of stores that even if the store consumption has decreased, it hasn’t hampered the production process and it has still been increased. Minimization of inventory is there.

INVENTORY VALUATION

Inventory valuation is one of the important tasks of the store department to know the value of inventory in possession to the stores. It helps in following functions.

Order placing

Preparation of purchase requisition.

Knowing the current rate of inventory items etc.

Basically there are three methods for doing the inventory valuation. These are:

FIFO method

LIFO method

Weighted average method

This method which is adopted for inventory valuation in west bokaro is the weighted average method of inventory valuation, in which weighted average is taken as the basis for valuating the inventory.

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This method can be explained with the help of a example:-

Suppose:-

10 no. of qty. of any item at the rate of Rs. 100 per item have been procured in the store , i.e.

10 nos. @ Rs. 100 , total value (10*100) = Rs. 1000

And 20 no. of that item afterwards at the rate of Rs. 75 per item. i.e.

20 nos. @Rs. 75 , of total value (20*75) =Rs. 1500

Now , let initially 5 no. have been stocked out of value (5*83.33)= 416.65Thus the value of rest 5 items = Rs. 416.65

Thus total value of 25 items= Rs 2083

Now the valuation of these items is done as=Av. Value= Rs. 2083/25=Rs 83.32

Hence this is the rate at which the further stock out will be done if there is the rate at which the further stock out will be done if there is not any further purchase of that item.

We can control the inventory value by ABC analysis:-

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ABC ANALYSIS:-

ABC analysis is the technique of exercising selective control over inventory items. This technique is based on this assumption that a firm should not exercise same degree of control on all items of inventory. It should rather keep greater control over those items which are most costly as compare to those items which are least costly. According to this approach, the inventory items which are divided into three categories A , B & C.

ABC CLASSIFICATION:-

Class A10 % of units 80 % of value

Class B30 % of units15 % of value

Class C60% of units05 % of value

We can see by a graph of ABC analysis:-

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Here we can see A items are more valuable than B and C items. Therefore when we control over the A items , we controls the inventory and its cost.

High value items in central store as on 7 june 2009

MATERIAL VALUE STOCK UMO STOCKVALUE

Petroleum product 335446 L 86,00,020

Hil 250/2008 pumps 3 No. 12,45,250

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NTD17/25/42MS 9388 No. 1010896

Conveyor Belts 1200MM 250 M 545286

Cable traling5c 300 M 625220

Automotive battery 77 Nos. NA

Cable cu 2 core 15052 M NA

Pan apron 56 Nos. NA

Ikon electronic de 395 Nos. NA

Dunlop conveyer be 252 M NA

Detonaetor exel non 4626 Nos. NA

Breaker block pt.n 7 Nos NA

Hil 150/100e pump 3 Nos. NA

Bottem covers 800m 350 M NA

2520765 Tubless t 9 Nos. NA

Cable al.3 core 506 M NA

Cement ordinary in 2436 Nos NA

Petroleum product 10564 L NA

Wire rope steel un 600 M NA

7,26,928 NOS.

STEP OF MAINTAINING OPTIMUM INVENTORY AND CONTROLLING COST

Following are:-

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1. RATE CONTRACT2. VENDOR MANAGEMENT INVENTORY3. DEPO AGREEMENT RATE CONTRACT

It is a type of contract between organization and certain vendor. In this contract organization is done deal with certain vendor for certain time period and of certain material value. Under this contract organization ensure to the vendor about business volume for certain time period and ask for vendor to maintain inventory up to certain amount and supply material at regular interval according to need of organization. In this contract rate of materials are fixed after proper consent of both the parties.

ADVANTAGES OF RATE CONTRACT

1. It reduces the lead time and ensure timely supply of material. 2. It minimizes un necessary paper work.

VENDOR MANAGEMENT INVENTORY(VMI)

When organization already have a rate contract with the vendor then VMI concept came into existence. In this system organization make aware to the vendor/ supplier about its consumption of material/ group of material for certain time period. It depends upon the volume of business. If vendor find it will get enough business from organization then they maintain inventory on behalf of organization.

ADVANTAGES OF VENDOR MANAGEMENT INVENTORY(VMI)

1 It reduces cost of maintaining inventory.2 Minimize the risk of loss of material.

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DEPO AGREEMENT

In Depo agreement organization make agreement with the manufacturer of original equipment or with the authorize dealer of the material. They provide heavy material or spare parts.

In the West Bokaro Division there are six depos company :-

1. VOLTAS - Voltas supply shovel spare parts2. TIL ( Tractor India ltd.) –It supply dumper spare parts3. HYDREM CREM –It supply hoss4. TELCON – It supply shovel spare parts.5. BEML – It supply dozier spare parts. 6. MRM- It supply drill machine spare parts.

ADVANTAGES OF DEPO AGREEMENT

1. Minimize ordering and carrying cost.

CONCLUSION

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I enjoyed a lot during my training. I also learned many things about the organization from which I was unaware which were important for my personal enrichment.

Inventory management at west bokaro division is an outcome of practical thinking and designed as per specific need of west bokaro division. Visits to the stores and purchase departments were a learning experience for me. The process may not be applicable to all parallel industries. But indeed it was a learning and pleasant experience.

SUGGESTION

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Give more emphasis on rate contract, VMI and depo agreement.

An effort should be made to apply JIT technique.

An effort should be made to dispose of obsolete and non moving items as they are blocking large amount of working capital.

REFERENCES

INTERNET JRD TATA TRAINING CENTRE , LIBRARY MARKETING MANAGEMENT, PHILIP KOTLER INTERVIEW (STAFFS, PURCHASE DEPT.)

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RESEARCH METHODOLOGY, C.R. KOTHARI

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