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CHAPTER ONE: INTRODUCTION

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LITERATURE REVIEW

COMPANYS PROFILE

NTPC Limited is the largest power generating company of India. A public sector company, it was incorporated in the year 1975 to accelerate power development in the country as a wholly owned company of the Government of India. At present, Government of India holds 89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs, Domestic Banks, Public and others. Within a span of 32 years, NTPC has emerged as a truly national power company, with power generating facilities in all the major regions of the country.

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NTPC's core business is engineering, construction and operation of power generating plants. It also provides consultancy in the area of power plant constructions and power generation to companies in India and abroad. As on date the installed capacity of NTPC is 29,144 MW through its 15 coal based (23,395 MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects (1,794 MW). NTPC acquired 50% equity of the SAIL Power Supply Corporation Ltd. (SPSCL). This JV company operates the captive power plants of Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33% stake in Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture company between NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding Co. Ltd. The present capacity of RGPPL is 1480 MW.

NTPC's share on 31 Mar 2009 in the total installed capacity of the country was 19.1% and it contributed 28.50% of the total power generation of the country during 2008-09.

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NTPC has set new benchmarks for the power industry both in the area of power plant construction and operations. It is providing power at the cheapest average tariff in the country. With its experience and expertise in the power sector, NTPC is extending consultancy services to various organizations in the power business. NTPC is committed to the environment, generating power at minimal environmental cost and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive afforestation in the vicinity of its plants. Plantations have increased forest area and reduced barren land. The massive afforestation by NTPC in and around its Ramagundam Power station (2600 MW) have contributed reducing the temperature in the areas by about 3c. NTPC has also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization Division to manage efficient use of the ash produced at its coal stations. This quality of ash produced is ideal for use in cement, concrete, cellular concrete, building material. A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has been established in NTPC with the assistance of United States Agency for International [4]

Development. (USAID). Cenpeep is efficiency oriented, eco-friendly and eco-nurturing initiative - a symbol of NTPC's concern towards environmental protection and continued commitment to sustainable power development in India. As a responsible corporate citizen, NTPC is making constant efforts to improve the socioeconomic status of the people affected by the projects. Through its Rehabilitation and Resettlement programmes, the company endeavors to improve the overall socio-economic status of Project Affected Persons. NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in 1987-88. NTPC has been Placed under the 'Excellent category' (the best category) every year since the MOU system became operative. Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector 'Navratnas'- a potential global giant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realize its vision of being "A world class integrated power major, powering India's growth, with increasing global presence".

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VISION, MISSION AND CORE VALUES

Vision A world class integrated power major, powering India's growth with increasing global presence. To be a premium metals major, global in size and reach, with a passion for excellence. Mission Develop and provide reliable power related products and services at competitive prices, integrating multiple energy resources with innovative & Eco-friendly technologies and contribution to the society. To relentlessly pursue the creation of superior shareholder value by exceeding customer expectations profitably, unleashing employee potential and being a responsible corporate citizen adhering to our values. Core Values BCOMIT

Business ethics Customer Focus Organizational & Professional Pride Mutual Respect & Trust Innovation & Speed Total Quality for Excellence

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NTPC act as a consultant


The Consultancy Wing of NTPC, with an ISO 9001:2000 accreditation, undertakes all the Consultancy and turnkey project contracts for Domestic and International clients in the different phases of Power plants viz. construction supervision, Project management, FQA, Inspection services, O&M, RLA/R&M of various power utilities. With the string of achievements behind it, NTPC has emerged as the acknowledged leader in engineering, construction, O&M, RLA/R&M and management of power projects. NTPC is registered as a consultant with several leading international development and financial institutions such as The World Bank, The Asian Development Bank, the African Development Bank, and UNDP. At NTPC, we offer consultancy services related to infrastructure sector business such as:

Fossil fuel based thermal power plants Combined cycle power plants Cogeneration plants Water supply and treatment Environment engineering and management

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NTPC as Consultant As a result of the phenomenal success achieved by NTPC in executing its own power projects, many utilities from India and abroad started approaching NTPC to gain from the rich experience gained by NTPC. With this in view NTPC formally established its Consultancy Wing in 1989. Since then NTPC Consultancy has secured 435 Nos. orders from Domestic & International Clients. Some of the important aspects regarding our capabilities and experience, which place NTPC in a unique and superior position amongst the fraternity of International Consultants, are presented below: International Cell The International Cell offers a wide range of consulting services from concept-tillcommissioning of power projects and beyond. NTPC launched a separate International Cell to meet the varied needs of IPPs (Independent Power Procedures) and other International clients who are looking for a world class service in power sector. The International Cell is fully backed by NTPCs three decades of experience and expertise. The Cell is especially tuned to meet the requirements of International clients in terms of quick response, flexible service options and to deliver value for money.

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Services are offered in the coal, oil and gas fired thermal power plants in the areas of:

Feasibility Studies Pre-feasibility; Feasibility; Soil Investigation; Economic and Financial Analysis; Tariff Analysis; Socio-economic and Environmental Impact Assessment; Rehabilitation and Resettlement; Technical and economic due diligence of Power plants.

Engineering Services Preliminary and detailed design engineering; Optimization; Preparation of drawings and specifications; cost estimates; Design review and approval of shop/ manufacturers drawings; Testing, Commissioning, Operation and Maintenance procedures; Equipment selection; Quality Assurance and Control & Inspection reports; Owners Engineer/ Lenders Engineer Services. [9]

Operation and Maintenance Services Plant Operational and Pre-start up checks; Development of Operation and Maintenance Management Systems; Plant Performance Analysis and Optimization; Condition monitoring of Critical Equipment; Fuel Management; Materials Management; Spares management; Reporting on various plant operational parameters; Supervision of overhauling.

Project Management Planning Services Planning, scheduling and budgetary control of project implementation; Coordination and monitoring of costs, resources, schedules and progress.

Project Management Site Supervision Services Co-ordination with design office and equipment suppliers/ contractors; Ensuring adherence to design drawings & specifications; Review and approval of construction methods and safety requirements and codes and standards; Implementation of safety procedures; Field quality assurance reporting; Reporting with respect to Insurance claims; Troubleshooting at site; Witnessing and reporting on Performance Guarantee tests set-up and results; Certification of plant performance and commencement of commercial operation; Review and approval of project completion reports and as built drawings; training of O&M staff.

Contract Management Administering of : Supply Contracts; Supply and Supervision contracts; Supply and Commissioning contracts; Turnkey contracts; Engineering Procurement and Construction management contracts; Operation and Maintenance (O&M) contracts.

Procurement Services Bidding documents for procurement within the framework of guidelines issued by financing agencies like World Bank, Asian Development Bank, JBIC, KFW etc.; [10]

Pre-qualification documents; Invitation and evaluation of bids; Negotiations and award of contracts.

Other Services Renovation and Modernization Services Life Extension and Residual Life Assessment Studies; Renovation, Up-gradation and Modernization Services ; Troubleshooting of old plants; Technologies for Improving Efficiency.

Other Services Human Resources Development and Training Services Human Resource development policies and procedures, Recruitment services, Induction and Management Development Training, Simulator Training, etc.

Rich International Experience. NTPC has a rich experience of executing power sector related projects abroad. Some of the projects are: Turnkey supply and installation of 400 kV & 132 kV Transmission lines for Dubai Electricity & Water Authority, Dubai Turnkey supply and installation of 132 kV Sub-stations for Dubai Electricity & Water Authority, Dubai Turnkey execution of 21 sub-stations for Asian Development Bank assisted 7th Power Project for Nepal Electricity Authority, Nepal. Feasibility Studies for Mchuchuma Mining-cum-Power Project of about 400 MW for National Development Corporation, Tanzania. [11]

Preparation of Procurement plan for IDA funded National HIV / AIDS Prevention Project of Ministry of Health, Nutrition & Welfare, Govt. of Sri Lanka.

Executive training to ALBA Engineers for ALBA Bahrain Training to Technical personnel of Oman Refinery Company for Petroleum India International (PII). Deputation of experts to Nigeria to act as shift charge engineers for gas fired project AFAM at Nigeria from Steag encotec, India. Status assessment of Kipevu Power Station of KenGen. Kenya. Energy audit of power plants of Saudi Electricity Company in Kingdom of Saudi Arabia from YBAK of Saudi Arabia. Deputation of Metallurgical expert to Mangalore and USA for technical discussion with M/s General Electric in connection with failure of one of the Barge mounted Gas turbine belonging to GMR Energy Ltd. in India.

Deputation of expert for assistance in due diligence of 683 MW Sidi Krier Power project Egypt.

GROWTH PLANS
Over the last three decades, NTPC has spearheaded development of thermal power generation in the Indian power sector. In this process, it has built a strong portfolio of coal and gas/liquid fuel based generation capacities. The Indian power sector is witnessing several changes in the business and regulatory environment. The legal and policy framework has changed substantially with the enactment of the Electricity Act 2003. To meet the twin objectives of ensuring availability of [12]

electricity to consumers at competitive rates, as well as attract large private investments in the sector, a new Tariff policy has also been issued. The power sector thus offers a mixed bag of challenges and opportunities to players and NTPC would continue to review its business strategy and portfolio in light of these changes.

Growth of the Generation Business Developing and operating world-class power stations is NTPCs core competence. Its scale of operation, financial strength and large experience serve to provide an advantage over competitors. To meet the objective of making available reliable and quality power at competitive prices, NTPC would continue to speedily implement projects and introduce state-of-art technologies. Total capacity portfolio Indias generation capacity can be expected to grow from the current levels of about 120 GW to about 225-250 GW by 2017. NTPC currently accounts for about 20% of the countrys installed capacity and almost 60% of the total installed capacity in the Central sector in the country. Going forward, in its target to remain the largest generating utility of India, NTPC would endeavour to maintain or improve its share of Indias generating capacity. Towards this end, NTPC would target to build an overall capacity portfolio of over 66,000 MW by 2017.

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Fuel / Energy mix for capacity addition Currently, coal has a dominant share in the power generation capacities in India. This is also reflected in the high share of coal-based capacities in NTPCs current portfolio. With high uncertainties involved in Domestic gas/ LNG, both in terms of availability and prices, NTPC would continue to set up large pit-head coal based projects, including few integrated coal cum power projects. To reduce the dependence on fossil fuels, there is a need to push for renewable sources of power in the sector. NTPC would avail of opportunities to add hydropower to its portfolio subject to competitive tariffs. A first step in this direction has already been taken with the investment in Koldam Hydro Power Project. NTPC would continue to closely monitor developments on nuclear front also and be open to setting up around 2000 MW of Nuclear power generation capacity, possibly through a Joint Venture. As a leader in power generation, NTPC would also consider other energy sources such as biomass, cogeneration, fuel cells, etc for future development thereby reducing the dependence on thermal fuels. While a decision on the fuel/energy mix for NTPC in the future would be largely governed by their relative tariff-competitiveness, the fuel mix in 2017 may be different from the existing portfolio, though not very significantly.

Diversification along the Value Chain NTPC has achieved the distinction of being the largest thermal generating company in India. In the past, this focus was adequate as the industry was highly regulated with limited diversification opportunities. Over last few years, the country has been facing acute shortages, both in coal and gas, severely affecting optimum utilisation of its power stations and these shortages are likely to continue in future as well. This is in spite of the fact that [14]

India is one of the largest producers of coal in the World. To safeguard its competitive advantage in power generation business, NTPC has moved ahead in diversifying its portfolio to emerge as an integrated power major, with presence across entire energy value chain. In fact, to symbolise this change, NTPC has taken on a new identity and a new name NTPC Limited. NTPC has recently diversified into coal mining business primarily to secure its fuel requirements and support its aggressive capacity addition program. In addition, NTPC is also giving thrust on diversification in the areas of power trading and distribution. Diversification would also allow NTPC to offer new growth opportunities to its employees while leveraging their skills to capitalise on new opportunities in the sector.

Establishing a Global Presence To become a truly global company serving global markets, it is essential for NTPC to establish its brand equity in overseas markets. NTPC would continue to focus on offering Engineering & Project Management Services, Operations & Maintenance services, and Renovation & Modernization services in the international market. Establishing a successful services brand would be a precursor to taking higher investment decisions in different markets. Going forward, NTPC would continue to evaluate various options for strengthening its presence in global markets including setting up power generation capacity, acquisition of gas blocks etc.

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POWER PLANT OPERATIONS

The operating performance of NTPC has been considerably above the national average. The availability factor for coal stations has increased from 85.03% in 1998-99 to 92.12% in 2007-08, which compares favorably with international standards. The PLF has increased from 75.2% in 1998-99 to 92.24% during the year 2007-08 which is the highest since the inception of NTPC.

It may be seen from the table below that while the installed capacity has increased by 62.34% in the last ten years, the employee strength went up by only 4.23%.

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Description Installed Capacity Generation No. of employees Generation/employee

Unit MW MUs No. MUs

1998-99 16,847 97,609 23,585 4.14

2008-09 27,350 2,00,863 23,674 8.48

% of increase 62.34 105.78 4.23 4.83

The table below shows the detailed operational performance of coal based stations over the years.

OPERATIONAL PERFORMANCE OF COAL BASED NTPC STATIONS Unit 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 Generation BU 109.5 118.7 130.1 133.2 140.86 149.16 159.11 170.88 188.67 200.863 PLF % 76.60 80.39 81.8 81.1 83.6 84.4 87.51 87.54 89.43 92.24 Availability % 89.36 90.06 88.54 81.8 88.7 88.8 91.20 89.91 90.09 92.12 Factor The energy conservation parameters like specific oil consumption and auxiliary power consumption have also shown considerable improvement over the years.

INVENTORY MANAGEMENT: AN INTRODUCTION

Materials Management in general and inventory control in particular are of great importance [17]

to the manufacturing industry because materials are vital input to the production system. Since materials in general contribute more than 50% to the cost of production, their availability in right quantity and quality at proper time at a reasonable cost (procurement as well as storage) require a careful and specific attention furthermore there has to be an organized and efficient way of storage, unkeep issues and utilization of the material resource. In the context inventory control assumes a great importance. In the beginning inventory control was an intuitive process based on experience and judgement but later it developed into a more scientific activity, particularly since the start of 20th century. The concepts of selective inventory control, economic lot sizes and the EOQ came into being. Techniques were then developed with overall production schedule in background resulting in the concept of aggregate inventory management. However these techniques could not cope with the dynamic nature of inventory management in the context of modern manufacturing environment. These techniques had to work without proper means of huge inventory data processing and were based on some short cut approximation methods with assumptions, which were not appropriate in real life situations in manufacturing industry. But with the availability of computer capable of handling information in large volumes at high speed the individual manufacturing inventory items requirement can now be pin pointed in terms of both quantity and timing. As such the traditional inventory control techniques have been rendered obsolete in dynamic manufacturing environments techniques like Material Requirement Planning' and' Just in Time' inventory control have emerged as more appropriate and effective. JIT techniques are a recent development, which originated in and is widely applied in Japan. It still in trial or investigation stage in other countries. Material Requirement Planning called MRP in short is the inventory control technique, which is widely used in almost all industrial advanced countries. Present study reviews various inventory control techniques in an engineering industry, which is manufacturing transformers. MRP, which is based on Master Production Schedule and [18]

implemented with the help of EDP on computer, has been found to be quite successful in present day manufacturing environment and is highly systematic. It saves a good amount of time, money and space as well as operational difficulties. In this work it is endeavored to develop a comprehensive set of recommendations duly supported by appropriate PPC information/data for implementing MRP. Relevant production data and information on store, purchase and inventory control has been collected and processed to work out a requisite frame work for developing and needed MRP system which, with suitable modification and alternative/additional data can be extended to other sections of production system also. Inventory serves many functions. People associated with each function would prefer an inventory policy that first satisfied their pet function. Efficient Inventory Management is therefore the one, which develops policies for keeping inventory at the optimum level so that need of each function is satisfied and the inventory cost is minimized.

INVENTORIES The dictionary meaning of inventory is 'stock of goods'. An inventory may be defined as a stock of goods or services, which are held for the purpose) or non-consumptive type. Inventories form an alternative to the of future production or sale. The goods or services may be a consumptive production or purchase in future. Thus inventory on one side is stock of [19]

goods and services but on the other hand it is locked capital. Inventory serves as a cushion between the production and consumption of goods necessitated by the technological demands of production and transportation and customer needs. Inventories can be categorized into several types. These are generally classified as Raw Material and Supplies Inventories, Production Inventories, and MRO Inventories, In Process Inventories, Finished Inventories, Material in transit inventory and Dealer stock. Figure 1.1 illustrates the various types of inventories in a classified manner. INVENTORY CONTROL Inventories are generally justifiable and there are obvious economic reasons for their existence. Since there are several costs associated with the inventories, an effective inventory management boils down essentially to setting a balance between the opposing cost factors. Inventory control 1. Ensures adequate supply of materials to Production means controlling the inventories in the organization. It is a technique of maintaining stock items at desired levels, whether they may be a raw material, goods in process or finished products. OBJECTIVES OF INVENTORY CONTROL The primary objectives of inventory control are: 1. To minimize idle time caused by shortage of raw materials spares etc. 2. To keep down capital investment in inventories, inventory carrying costs and obsolescence [20]

losses. The two objectives are in conflict with each other and the efficiency of inventory management lies in balancing them to arrive at optimum overall results.

BENEFITS OF INVENTORY CONTROL Following are the main benefits of inventory control: 1. 2. 3. Minimizes stock outs and shortages. Ensures economy in purchase. Reduces the possibility of excess items being stocked. Thus saving capital from being unnecessarily locked up. 4. 5. 6. 7. 8. 9. 10. Eliminates duplication in ordering. Keeps inventory carrying costs at lowest level. Permits better utilization of available stock. Provides a check against losses of material through pilferage, spoilage etc. Facilitates proper accounting of material. Locates and disposes inactive or obsolete items of store. Financial

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11.

Operation and periods.

Enables make and consumption the management to cost comparisons between perpetual inventory values provides a reliable basis for preparing statements. Simplifies procedures for paper work and record keeping. Increase profitability.

FACTORS INFLUENCING INVENTORY DECISIONS There are both internal and external factors, which influence decisions on inventory in an organization. The external factors arise from market, conditions, credit availability and government regulations. . Market conditions can be viewed frame two angles. Firstly there is the dynamic "nature of prices and availability. To combat this we adopt efficient forecasting and planning techniques. Secondly there is the finite time lag between the placing of an order and obtaining the materials, known as lead time which is defined as the period that elapses between recognition of a need and its fulfillment. Inventory level increases with increase in lead-time. It is comprised of administrative lead-time, manufacturing leadtime, transporting lead time and inspection lead-time. Generally there is variation in demand rate and lead-time. In order to compensate for uncertainties in either lead time or demand rate, additional stocks may be carried to reduce the risk of stock out during the lead time interval. This additional stock is known as safety stock or buffer stock, which is held in [22]

excess of expected demand. There is direct relationship between safety stock and service level.

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COSTS ASSOCIATED WITH INVENTORIES The problem of balancing the costs of less than adequate inventories versus more than adequate inventories is a complex one due to numerous costs involved. The major tangible costs associated with inventories are ordering costs or set up costs, carrying costs, purchase cost, under stock costs and overstocking cost. COST INVOLVED IN HOLDING STOCKS The various costs associated with the stock can be classified into following groups: 1. INVENTORY CARRYING COSTS Inventory carrying costs represent the expenses of holding the stocks of goods. These include opportunity costs of funds invested in inventories, insurance, taxes, storage and cost of deterioration and obsolescence. These carry cost move in that proportion to the size of inventory. 2. ORDERING COST: These costs are in the form of procurement expenses which are incurred as and when we have to place purchase order. These include costs incurred in the following activities: requisitioning, purchase ordering, transporting, receiving, inspecting, and storing. The ordering cost increase in proportion to the number of _Order placed.

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3. STOCK OUT COST: These costs arise when there is equal to the storage in production facilities. It may be in the shape of lost sales or lost good will.

NEED FOR CODIFICATION In inventory control, basic thing is that the controller should be able to identify the various items of inventory in an unambiguous manner. Codification is the strategy adopted to achieve this. Codes can be made of letters or numerals or both. Number of digits usually ranges from seven to fourteen. The digits are split into group of the digits signify classification based on material, type of product and availability. There are seven type of codification system in use at present. Some important ones are: 1. 2. 3. 4. 5. Alphabetical systems Mnemonic systems Visual coding systems Numerical system Decimal system

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6. 7. 8.

Alfa Numerical system Kodak systems Brisch systems

STANDARDISATION AND SIMPLIFICATION To optimize the number of stock items and to reduce inventory, standardization and simplification measures are essential. Uniform standards for similar items are adopted. Unnecessary variety is reduced, most economical sizes; grades, shapes, colors and parts are standardized. Indian standard codes can be referred to for this purpose.

TRADITIONAL METHODS OF INVENTORY CONTROL In the beginning inventory control was an intuitive process but later it developed into more scientific ones, particularly since the start of 20th century. The concept of economic lot size and EOQ came into use. Then came the concept of aggregate inventory management to control the overall inventory level, in consonance with production schedules: The following techniques are categorized under traditional method of inventory control. 1. 2. 3. Selective Inventory control technique Mathematical Models for inventory control. Aggregate Inventory Management. [26]

SELECTIVE INVENTORY CONTROL TECHNIQUES The selective inventory control techniques classify the stock items on the basis of their consumption value, criticality, availability and cost. Highly critical components or high consumption value items are put under higher degree of control. Lesser control is exercised over majority of items, which have low consumption value and are not critical. The selective inventory control techniques are useful for multi item inventories. They help the manager to effectively apply his energy to problem areas, thus resulting in optimal use of efforts. Following are some of the selective inventory control techniques currently in use. Sino. NOMENCLATURE BASIS . MAIN USERS Purchase Management, 1 ABC Classification Annual consumption value Inspection, Stores management, Inventory control, Traffic and material handling

2.

HML classification

Unit Price

To control Purchase

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(high, medium, low) XYZ classification of material Value of 3. VED classification (Vital, Essential, Desirable) 4. FSN classification Criticality items in of the items To review inventories and their use

Inventory control of spare parts

Consumption To control obsolescence and to (Fast, Slow, Non moving) pattern of item determine stock level of consumption. Of the above classification methods ABC classification is the most important and is widely used. The items are classified on the basis of annual consumption value. 10% of the items contributing about 70% value of consumption are called items. 20 % of items contributing about 20% of consumption values are called B class items and remaining 70% items contributing remaining 10 % value are called C class items. Careful attention is paid to the control of A items, Control on B items is moderate and control on C items is comparatively relaxed.

MATHEMATICAL MODELING FOR INVENTORY CONTROL

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The solution of inventory problem with mathematical models is to find appropriate levels of holding inventory, ordering sequence and the quantity that have to be ordered so that the total cost incurred is minimized. The demand and supply conditions that act within and without impose constraints on the decision-making process. The demand can be fully known, partially known or completely unknown. These three situations are termed as demand being certain; demand being risky and demand being uncertain respectively. On supply side there are two distinct possibilities: 1. The supply being static if only a single supply is possible during the entire consumption period. 2. Supply being dynamic if more than one supply can be obtained during the consumption period. These states of nature of demand and supply conditions can be combined to form six different practical situations, namely: 1. Supply station -demand certain 2. Supply station-demand risky 3. Supply station-demand uncertain 4. Supply dynamic-demand certain 5. Supply dynamic-demand risky 6. Supply dynamic-demand uncertain [29]

A. SUPPLY STATIC SITUATIONS With supply station only a single supply is possible during entire consumption period. Obtaining News papers to be sold in particular time, ice cream for one day fair, purchase of high fashion items. Replacement orders are either not possible or extremely expensive. For demand certain situation simply orders has to be placed taking lead-time and shelf life into consideration. For demand risky situation, the level of risk can be expressed in terms of probability distribution based on past expressed in terms of probability distribution based on past experience. For demand uncertain situation decision-maker has to use subjective probabilities and improve the solution based on past experience. Static inventory models although practical and of interest are not widely applicable as dynamic models.

B. DYNAMIC MODELS Economic Ordering Quantities: Important assumptions in EOQ models are listed below: 1. 2. Demand and lead-time are known and constant. Replenishment is instantaneous at the expiry of the lead-time.

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3. 4.

Item cost doesn't vary quantity order i.e. there are no quantity discounts. Ordering and carrying cost expressions include all relevant costs and these are constants.

5.

Uniform demand in small increments. Many mathematical models for inventory control were developed by researchers. Mathematical models based on concept of EOQ techniques provide the total minimum inventory cost by balancing inventory carrying and ordering costs. Total-cost of stocking inventory is the sum of purchase costs, cost of ordering and cost of carrying inventory i.e.

T.C. = CoD/Q + CC Q/2 + PD Where T.e. = Total cOst Co = Ordering cost D = Demand in units on annual basis Cc = Cost to carry a unit inventory in stock for a given period. P = Unit purchase cost. Q= Lot size and Q j 2 is average inventory. Differentiating the total cost with reference to Q gives the slope of T.C. curve. Setting the first derivative equal to zero, identifies the point where T.C. is minimum. Thus Qo = sqrt 2CoDjCc is obtained. This is known as economic ordering [31]

quantity equation. It is often referred to as Wilson Formulas. It is classical mathematical inventory model. The quantity cost curve and idealized structure of inventory are shown in fig. 1.3 and 1.4. Some simple extensions of the classical model are in use after relaxing some assumptions. The following are the general models in use.

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1. EOQ MODEL WITH SHORTAGE PERMITTED Here the basic equation is transformed as under: Qo = sqrt (2 CoDjCc).* sqrt (Cc+Cs)jCs Cs is the shortage cost. 2. EOQ MODEL WITH QUANTITY DISCOUNTS In this the basic equation becomes Qo = sqrt (2CoD j KCc) K is unit cost. "4LOT SIZE OF PRODUCTION RUNS ERL = sqrt(2CoDjCc(1-djp)) Where ERL is economic run length, P is production per day and d is demand per day. Ratio I-djp represents that portion of production which goes into inventory.

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UNCERTAINTIES IN INVENTORY MANAGEMENT In simple inventory management models both demand and supply lead times have been assumed constant. But variability in demand and supply lead time is a reality. The effect of demand and supply lead time variation is taken care of by carrying larger inventories called buffer stocks or safety stock. , EOQ models answer the question of how to order but these don't address the question of when to order. The later is the function of the reorders point models which identify the reorders point (ROP) in terms of quantity. The reorder point occurs when the quantity on hand drops to pre specified amount. That amount generally includes expected demand during lead-time and an extra cushion of stock which serves to reduce the probability of experiencing a stock out during lead time. There are four determinants of the reorder point quantity: 1. The rate of demand. 2. The length of lead-time. 3. The extent of demand and lead time variability. 4. The degree of stock out risk acceptable to the management. According to above determinants the reorder models have been worked out.

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1. CONSTANT DEMAND RATE AND CONSTANT LEAD TIME When both demand and lead-time are constant than there is no risk of a stock out created by increased demand and lead time longer than expected. In such case ROP is equal to the product of usage rate and lead-time. 2. VARIABLE DEMAND RATE AND VARIABLE LEAD TIME Under normal circumstances one or other or both demand rate and lead time tend to exhibit some variability. In order to compensate for uncertainties, in either demand rate or lead-time, additional stocks are carried to reduce the risk of a stock out during lead time interval. This additional stock is known as buffer stock or safety stock. ROP = Expected demand during lead-time + Safety stock. INVENTORY SYSTEM FOR MANAGERIAL CONTROL AT NTPC With inventory models attempts have been made to isolate variable and parameter to understand the behavior of inventories under a wide variety of condition and various degrees of models completely. Managerial inventory system attempt to apply models in operating situation in a practical way to deal with the total inventory control problem. The following are the common inventory systems. 1. FIXED ORDER QUANTITY SYSTEMS Here fixed quantity is ordered when the ordered point is reached.

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2. FIXED ORDER INTERVAL SYSTEM Inventory is reviewed periodically and the variable quantity order is issued so that quantity on hand and quantity on order go up to a specified level. 3. OPTIONAL REPLENISHMENT ORDER Stock levels are periodically reviewed but orders are placed only when inventories fall to a predetermined level. 4. PHYSICAL CONTROL SYSTEM/TWO BIN SYSTEM Material is stored in two bins. Regular issues are made from first bin. When the first bin is exhausted issues are made from second bin and simultaneously an order equal to EOQ is placed.

AGREGATE INVENTORY MANAGEMENT Almost every traditional technique discussed earlier deals with one item. For taking important decisions management should know about the total system rather than individual items. The need for giving aggregate evaluation of inventory to the management was therefore felt. Aggregate inventory is a concept and set of techniques used for manipulating and controlling the inventories in toto. The overall inventory investment level becomes subject to direct management control through certain policy variables such as carrying costs [36]

and services level. Under conventional approach to aggregate inventory management, the two inventory categories most susceptible to control by means of varying a policy variable is lot size inventory and safety stock. AGGREGATE LOT SIZE INVENTORY The standard EOQ equation is EOQ = sqrt ( 2CoD j Cc) Shows the total lot size of inventory can be increased if lower value of carrying cost is used and reduced if larger value is employed. In aggregate lot size inventory, carrying cost is considered a management policy variable to control the cycle stock of lot size inventory. LOT SIZE INVENTORY MANAGEMENT INTERPOLATION TECHNIQUES It is a technique developed for handling EOQ's in an aggregate and dealing with the problem of constraint of EOQ equation. It provides a means to calculate directly the proper lot size for a family of items to meet some constraints. It is a two phase techniques. In the first phase trial economic lot sizes are calculated for each item in the chosen group using standard EOQ equation and using reasonable inventory carrying cost. The total set up hours required for these EOQs are then compared with total set up hours required for present lot sizes. Then limit order quantities are calculated with the help of formulas A & B Limit formula A = Ccb = Cca = ( Hbjha)2 Limit formula B = M = HajHb Where Hb = Total set up hours for present quantities. [37]

Ha = Total set up hours for trial order quantities. Cca = Inventory carrying cost for trial order quantities. Ccb = Inventory carrying cost used for limit order quantities. The result is usually to reduce the total inventory very substantially with no change in set up hours (operating conditions). In the second phase as series of alternatives are presented for the family of items, showing the effect of lot size inventory when more orders are placed or more time is spent on setting up machines. The number of alternative is varied to suit any desired condition.

AGGREGATE SAFETY STOCK INVENTORY The better desired service to the customer, the higher the finished good, inventory must be kept in a business. A balance has to be a struck between customer service and inventory investment. The reserve stock; required for each service level is calculated from annual forecast figures, order quantity, mean absolute deviation and unit cost of item. A curve is then plotted showing reserve stock inventory required for various levels of services. The curve shows the rapid increase in reserve stock as the required level of customer service is increased. Using such a curve, a reasonable level of customer service can be selected and required reserve stock can be determined to attain that service level. The service ratio corresponding to point selected is then used to calculate reserve stocks 4for each item in the [38]

family. The service versus investment curve for a .group of items is then drawn and the inventory investment required for .entire product line is shown in relation to the customer service. Using these curves the management can see the service versus investment alternatives that are available and they can determine the reasonable level of inventory. DRAW BACKS OF TRADITIONAL METHODS WITH RESPECT TO

MANUFACTURING ENVIRONMENT Due to heavy information processing constraints, the conventional methods of inventory control suffered from imperfections. These represented the best that could be done under the circumstances. Some unrealistic assumptions, short cut approximations were made to make these techniques workable. With the availability of computer capable of handling information in volumes at a very high speed, this constraint has been removed. With the help of computer the need of individual manufacturing inventory item can be pin pointed in terms of both quantity and timing. All the old techniques, which were based on short cut approximation method, can no longer deliver goods. The relevance "and applicability of the conventional inventory management concepts to manufacturing inventory is discussed below: 1. The concept of stock replenishment doesn't fit into manufacturing inventory. It is in conflict with basic management objectives of low inventory and high return on investment. Stock replenishment system is based on the principle of having inventory items in stock at all the time so as to make them a valuable at the time of need. It is intended to compensate for [39]

the inability to determine the precise quantity and time of need in the short term future. But in manufacturing, the inventory item should be available at the time of need rather than to carry it just so that it would be available when and if needed. Through the use of computer aided modern methods it is possible to pin point the quantity and timing of need of an item. So the stock replenishment techniques are not suitable in a manufacturing environment nowadays. 2. Reorder point techniques forecast demaI1d during replenishment lead-time and attempt to provide some safety stock to compensate for fluctuation in demand. These techniques are not able to determine specific timing of future demand environment and misinterpret the observed demand behavior. These techniques result in unnecessarily high overall inventory level and inventory imbalance. 3. Since EOQ is determined solely on the basis of ordering cost, unit cost, carrying cost, and annual usage it is totally insensitive to the timing of actual, discrete demand arising during the period, that the EOQ is intended to cover. After precisely determining and positioning future requirements for an inventory item along a time axis, it can be seen that EOQ calculation does not balance the quantity and timing of actual requirements. Let us take a demand for ten week period as 20-0- 20-0-0-0-0-0- 20-0 The EOQ of this item may turn out to be 50. It will be more than for first 3 week requirement but is less than 9th week requirement. 10 pieces are too carried unnecessarily for six weeks [40]

without meeting the 9th week demand. EOQ would be still 50 if the ten week demand is altered as under: 20-0-40-0-0-0-0-0-0-0 OR 20-0-0-0-0-0-0-0-0-40 In the first case it doesn't meet first three weeks requirement and in the second case 30 items are unnecessarily carried for nine weeks that too without meeting the requirement of tenth weeks. The derivation of EOQ formula is based on the assumption of gradual inventory depletion at a steady rate which allows carrying cost to calculate for an average inventory of one half of the ordering quantity. In manufacturing environment this assumption is highly unrealistic. Inventory control problem in EO models have been assumed as basically mathematical problem. But in actual practice it is a problem of massive data processing. With the invent of computer data processing has become easy. Safety stock serves to compensate for

fluctuations in demand. In stock replenishment (systems safety stock is calculated on every inventory item and the sum of safety stock for all items represent a good portion of inventory. But in material requirement planning systems safety stock is not calculated on individual items as their, demand is certain it is only calculated for end items whose demand) can show variability. For order point system future demand is forecast based on past history of demand. These forecasts are used to replenish the stock levels. These forecasts are generally erroneous. In MRP system, past demand for component is irrelevant. The ordering philosophy is based on [41]

actual, requirements generated from master production schedule. Statistical forecasting where order point depends on addresses only the problem of individual item demand magnitude but for the purpose of manufacturing, component inventory represents matched sets. When components are forecast and ordered, independently of each other their inventories will Tend not to match assembly requirements and) cumulative service level will significantly lower then the service level of parts taken individually. This is a group of components at needed at one time for making an assembly.

MODERN INVENTORY CONTROL TECHNIQUES OF NTPC


Material Requirement Planning and Just in Time techniques have taken care of most of the draw-backs which were being experienced with traditional inventory control techniques for managing inventories in manufacturing environments. These techniques termed as modern inventory control techniques are primarily meant for manufacturing environment. JIT philosophy is of recent origin and is being widely applied in Japan. Under these techniques component parts are manufactured only when required by down steam work center, thus right amount of parts are made at the right time and title inventory is kept to virtually near zero. JIT techniques are being considered and tried in other industrialized countries too now. The success of JIT techniques in Japan is due to unique physical and philosophical typical [42]

production of Japanese characteristics system/ culture. These include the ability to virtually freeze master production schedules, to cross train the highly skilled and very disciplined Japanese workers, to utilize high degree of automation and riobotics and to profit from close proximity and reliability of material and parts suppliers. These characteristics enable Japanese firms to reduce system variability to the extent that demand -can be estimated very accurately and production parameters such as machine processing times and utilization approach very stable levels. These factors are not I exhibited in manufacturing $systems in other countries. JIT techniques are at trial stage in industrially advanced countries and have not found their way in developing countries, as yet. MRP items are widely used for controlling manufacturing inventories in industrially advanced countries.

PURCHASE PROCEDURE OF NTPC Functions of the purchase department of NTPC are: &Receiving requisition for purchase: Ascertaining the sources of supply and selecting the supplier Placing formal purchase order and going to follow up delivery Receiving and checking the materials Checking the invoice and passing the same for payment. When the purchase department receives requisition for purchase it understands that it is the time to purchase, i.e., it comes to know when to purchase, what to purchase and how much to [43]

purchase. When it explores the sources of supply it knows where to purchase and at what price to purchase. The routine functions are: a. Receiving Purchase Requisition Purchase department receives purchase requisition from various sources, namely: (i) From store-keeper in respect of materials reguarly stored. Store keeper sends the requisition as soon as the stock reaches the ordering level metnioend in the Bin Card ( ii) From the productin control department in respect of any special material required for a special job. A bill of material is prepared by the planning and drawing department and on the basis of this requisition is sent. Alternatively, the planning and drawing department prepares a bill of material a copy of which is sent to the store, and the store keeper on this basis sends the requisition. (iii) From the plant engineer or work manager in respect of materials for special maintenance or construction. (iv) From any other department in respect of materials the stock of which is not normally maintained, for example office stationery, first-aid materials, fire kings etc. Every purchase requisition must be in prescribed form and prepared in triplicate and duly signed by the person authorised to do so. A valid purchase requisition authorities the purchase department to purchase. [44]

Original of the three copies is sent to the purchase department, the duplicate is sent to the production control department and the triplicate is retained by the department making the requisition as office copy.

[45]

INVENTORY MANAGEMENT AND CONTROL

Inventory is a detailed list of movable goods such as raw material general supplies and equipment etc. and gives the quantity and value of each item. Inventory control may be defined as the systematic location, storage and recording of goods and materials in such a way that desires supplies can be made to the mine at minimum cost. Inventory control is needed to maintain a reserve (store) of goods that will ensure mining operation according to a production plan. Losses from improper inventory control included purchases in excess than what needed & the cost of slowed production resulting from material not being available when wanted. Proper inventory control reduces such losses to a great extent. Function of inventory control

To run the stores effectively: This includes layout storing media (bins, shelves & open
space etc.) Utilization of storage space, receiving and issuing procedures.

To ensure timely availability of material and at the same time avoid build up of stock
levels.

To have technical responsibility for the state of material: this includes methods of
storing, maintenance procedure, studies of deterioration and obsolescence. [46]

To have a stock control system: physical verification records (especially at the time of
stock taking) ordering policies and procedure for the purchase of goods.

Maintenance of the supply of specified raw material: general supplies component


parts in sufficient quantities to meet the demand of production.

Protecting the inventory from losses: due to improper handling and storing of goods
and unauthorized removal from stores.

Pricing all materials supplies: to the mine so as to estimate material cost.

ADVANTAGE OF A GOOD INVENTORY CONTROL.

A good inventory control has several uses and adds a great deal of flexibility to the different mining operation.

It makes the operation independent of each other: If proper inventory is not stored there could be many delays and inefficiency. For example if one activity has to be completed before a second activity can be started it could stop the entire process. Having some stored inventory between each process, it could act as a buffer. [47]

Storing resources in inventory can be a safeguard against inflation if cash is placed in a bank; one may get around 8% returns. On the other hand some materials have increase in price over 30% per year. Thus it may be a better investment to keep the financial reserve in inventory. Of course one has to consider the cost of holding or carrying the inventory.

When the demand or supply for an inventory item is irregular storing certain amounts in inventory is absolutely necessary.

Another important use of inventory is to avoid shortages or stock outs. If the inventory is repeatedly out of stock many mining operation may suffer resulting in great loss of production.

Another use of inventory is to take the advantage of quantity discounts. Many suppliers offer discounts for large orders purchasing in large quantities can substantially can reduces the cost of materials or products. These are however some of the disadvantage of buying in large quantities. One will have higher storage cost

[48]

and higher cost due to spoilage , damaged stock , theft, insurance etc. further by investing in more inventory less cash will be available to reinvest else where.

It insures against delays in deliveries. Even if the deliveries are delayed, the company can maintain continuity of its mining operation by the reserves stock in its mining operation by the reserves stocks in its inventory. The delays in delivery may arise due to scarcity of materials in the market.

IMPORTANT QUANTITY STANDARD USED AS A TOOL TO CONTROL INVENTORY.

There are five important quantity standards used as tool to control inventory.

The maximum stores: It is the upper limit of the inventory and represents a reserve or margin of safety to be used in case of emergencies.

The minimum stores: It is the lower limit of the inventory and represents a reserve or margin of safety to be used in case of emergency.

[49]

The standard order: It is the quantity to be purchased at any time. Repeat order for a given material or product is always for this quantity.

The ordering point: This represents the quantity required to ensure against exhaustion of the supply during the time interval between the placement of an order and delivery.

Lead or procurement time: It is the time which takes the stock to reach from reorder point to minimum stock level.

[50]

INVENTORY STRUCTURE

GOODS REQUIREMENTS GOODS REQUIREMENTS If not, requirement is send to If not, requirement is send to Central store, Lohardaga Central store, Lohardaga
Supply through Delivery chalan by Supply through Delivery chalan by Lohardaga office Lohardaga office

If in stock, then issued If in stock, then issued

Issuing in receipt register in Issuing in receipt register in Sherengdag Sherengdag

Entry in ledger in receipt side Entry in ledger in receipt side

Issuing of items thro store pass Issuing of items thro store pass slip or requisition slip slip or requisition slip Entry of the above in issue register Entry of the above in issue register head wise head wise Items of issue register goes into Items of issue register goes into issue side of the ledger. issue side of the ledger.

[51]

ECONOMIC PRODUCTION LOT SIZE MODEL


IN V E N T O R Y L E V E L
MAX. INV.

REORDER POINT REORDER LEVEL

0
MIN. INV. TIME

LEAD TIME

[52]

INVENTORY COST:

The evaluation of the most economic quantity to be purchased (known as economic order quantity) involves calculation of two costs.

1. PROCUREMENT COST OR BUYING COST OR ORDERING COST It is the cost of placing an order and includes the cost on Calling quotation

Processing quotation

Placing or sending purchasing order

Receiving & inspecting

Inventory enquiries, verification & payment of bills.

Utilities, phone bills etc for the purchase department.

Salaries & wages of purchase department employees. [53]

2. CARRYING COST

It consists of cost of storing and holding inventory and includes the following cost.

Cost of capital (since inventory is equivalent to locked up working capital)

Cost of storage and handling

Insurance (due to the risk of fire, theft)

Space cost (rent paid for the space)

Obsolescence, spoilage or deterioration cost (if inventory is procured in a large quantity there is always a risk that the item may become obsolete due to changes in design or due to natural ageing process )

Salaries & wages for warehouse employees.

[54]

ECONOMIC ORDER QUANTITY (EOQ)

HERE A= TOTAL ITEMS CONSUMED PER YEAR

Cp= PROCUREMENT OR ORDERING COST PER ORDER

Cc= ANNUAL INVENTORY CARRYING OR HOLDING COST PER UNIT

Q= ECONOMIC ORDER QUANTITY

THEREFORE

EOQ= 2CpA/ Cc

Total cost= ordering + carrying cost = Cp * A/Q + Cc * Q/2 TO minimize the cost taking derivative with respect to q we get EOQ.

[55]

REORDER POINT (determining when to order) The time between the placing and receipt of an order called lead time is often a few days or even a few weeks. Thus when to order decision is usually expressed in terms of a reorder point the inventory level at which an order should be placed.

ROP DEMAND PER DAY * LEAD TIME FOR A NEW ORDER IN DAYS.

The rate o use of a particular raw material from stores is 20 units/year. The cost of a placing and receiving an order is Rs40. The cost of each unit is Rs100. the cost of carrying inventory in percent/year is 0.16 determine. 1. Q 2. ORDER POINT IF THE LEAD TIME IS 3 MONTHS. SOLLUTION: 1. Q = 2ACp/Cc = 2* 20* 40/Cc = 1600/Cc Now Cc= total annual inventory carrying cost/ total no of items consumed in a year.

= 20* 100* 0.16/20 = Rs16

Therefore Q = 1600/16 = 10 ITEMS

[56]

2. ORDER POINT

D = consumption rate = 20/ 12 items/ month Tl = lead time = 3 months.

Qo = reorder point = 20/12* 3 = 5 units

Therefore when stock level reaches 5 items reorder should be placed.

FACTS AND FINDINGS & THEIR ANALYSIS & INTERPRETATION.

NTPC\STORE 1.xls

NTPC\store management.xls

NTPC\form 34.xls

NTPC\shd\Scrap.shs

[57]

NTPC\shd\Scrap (2).shs HYPOTHESIS TESTING ON REQUIREMENT OF FOURTH CONTRACTOR

APRIL VSA VSB 4910

MAY 6990

JUNE 5911

TOTAL 17811

BKB

3420

3700

2834

9954

IRA

2080

1797

1786

5603

TOTAL

10410

12487

10531

33428

= (fo - fe) /fe

[58]

No.s

fo

Fe

(Fo-fe)/fe

1 2 3 4 5 6 7 8 9 total

4910 3420 2080 6990 3700 1797 5911 2834 1786

5546.622 3099.830 1763.546 6653.283 3718.307 2115.408 5611.093 3135.861 1784.044 272.245

12.124 3.066 2.995 3.391 0.010 3.032 2.690 2.72 0.0001 30.0281

From this testing we can conclude that the shrengdag of NTPC Company has 3 contractors to produce and transport the bauxite but from the above. Testing the need of 4 contractor is seems to be desirable for increasing the production & transporting facilities. [59]

NTPC LTD. PURCHASE REQUISITION No................ Date..................... Desired date of delivery... .. . . . . . .. . .. .. . 51. No. Description of Materials Code No. Quantity Required Quantity in Balance and daily consumption Remarks

, Prepared by............ Checked by............ Approved by............

[60]

For use of purchase deptt.

Date

Purchase order No.

Name of supplier

Date

of

Remarks

delivery

Purchase officer the seller into a contract subject to acceptance of the order.

[61]

PLACING

FORMAL

PURCHASE

ORDER

AND

GOING

TO

FOLLOW UP DELIVERY

When selection of the supplier is over the purchase department issues a formal purchase order to the supplier. This order inds the buyer and supplier whenever necessary. When a supplier sends a formal price quotation it becomes an offer when the buyer sends the purchase order it becomes an acceptance. If the order is placed within reasonable time or before the offer lapses or before the offer is revoked such placing of order creates a contract and supplier becomes obliged to deliver the goods and the buyer also becomes obliged to accept delivery of the goods. Before placing purchase order the purchase department ensures that the amount of the order is within the purchase budget limit or the financial allocation for the purpose. If the amount exceeds such limit, prior sanction of the additional amount is obtained from the finance department of the organization. The purchase order is prepared in five copies (or at least three copies in case of small organization) for sending to the - (i) Supplier, (ii) Receiving department, (iii) Department making the purchase requisition, (iv) Accounts department, (v) Purchase order file. Placing a formal purchase order is not enough unless it is "ensured that goods shall be delivered timely. The purchase department shall have to follow it up. A schedule of stipulated dates of supply, serially, is prepared. The supplies are reminded, from time to [62]

time, of their obligation to supply on prescribed data. Mutual cooperation may be required in this respect to ensure timely supply. In case of delay, penalty is imposed as per the terms of contract by the affected party, but such 'cure' often becomes costly and hence 'prevention' is always considered better than 'cure'. The following is a specimen form of a formal purchase order:

NTPC LTD. Purchase Order To Mr....................(Name of Supplier) No............... Date: ............... Ref. No. ............... Purchase Requisition No. """'"

[63]

Dear Sir, Your offer contained in your quotation no....................................Dated...............Is hereby

accepted. Please supply the following materials as per terms and conditions mentioned overleaf: Item No. Code No. Description Quantity Rate Value Delivery date Remarks

Excise Duty Sales Tax Discount Allowed Packaged charged Package to be credited on return Carriage on delivery Terms of payment Purchase Officer I Manager for (NTPC LTD.)

[64]

RECEIVING MATERIALS Materials which are purchased by the purchasing department are received either by the Receiving Department or by the store-keeper himself. A Goods Received Note is prepared to record the goods received. Articles which are not purchased, but are purchased by the factory itself, are mainlyspare parts and components. In this case also Goods Received Note is prepared after proper inspectin so that all materials including space 'parts and components come into the' hands of the store keeper along with a Goods Received Note. STORES REQUISITION Store Requisition is an authorisation for issue of stores. It is prepared in prescribed form and signed by the foreman of the department making the requisition. It is, therefore, as valuable as a Bank cheque. A stores Requisition mentions the name of the department asking for the issue: the job or process for which material is required; the description, code and quantity of material asked for etc. The store keeper issues the material against the stores requisition and then the stores requisition is passed on to (he cost office where the material issued is priced. The store keeper makes entry in the Bin card and the cost office makes entry in the . stores ledger on the basis of the same stores requisition. The cost office also prepares materials statement periodically on the basis of stores requisitions served during any period for the purpose of material accounting.

[65]

NTPC LTD. Stores Requisition Department.............. JOB or process.......... No....... Date.......

Description

Code

Quantity

Rate

Value

Remarks

Prepared by.......... Authorized by........... Store man......... Cost Office....

Received by.............................Priced by.... Bin No.....................................Checked by..... Stores Ledger Folio.....

[66]

INVENTORY SYSTEMS IN NTPC Control system have grown up out of the need for management to avoid as far as possible having to take decision on purely routine matter such as what stores to order or the size and timing of a production order. In such a situations, there. are usually many thousands of items to be attended to and a great deal of calculations to be done to decide what is the best policy to pursue at a particular time. Development of inventory control policy involves the consideration and evaluation of numerous conflicting factors and in all aspects makes the same demand on a manager as most other types of decision making. Whatever policy is adopted will represent a balance between opposing interests and the balancing of these interests which compels a manager first to state and understand his objectives and then to try to analyze how they may best be achieved. Before one can begin to consider what stocks and what items should be kept in what manner, it is necessary to consider the reasons for which stocks are held. The figure below shows in a much simplified from the place of stocks in a manufacturing process. Manufacturing operations are sheltered from influence and the uncertainties of the outside world by stocks. Within the company, one group of manufacturing operation is separated from another by further stocks, so that a breakdown in one part can be isolated.

[67]

TOOLS USED FOR INVENTORY CONTROL: INVENTORY LEVELS The summarized description about the various control level is given below: a) Minimum Level: The minimum level is the level below which available supplies should never drop. The exact quantity which they represents is determined by the rate at which an items is used, its importance in the process, the normal procurement time and whether substitutes are available. Ideally, a new shipment should arrive just as stock reaches this minimum. Slight variations in usage or delivery time will prevent such exact operation practice. For this reason, minimum are not set at zero, the difference between zero and established quantity is a safety to guard against the shortages. b) Reorder point: The reorder point is the quantity level at which a replenishment order should be issued to ensure that fresh supply arrive in sufficient time to keep the item from running out of stock. Thus a reorder point will logically consist of the following elements: 1. The average volume of the use during the normal procurement time. 2. An additional quantity or the safety factor to cover any unanticipated increase in the rate of war in procurement time.

[68]

c) Standard Order Quantity: The standard order quantity is that amount of material which will be requisitioned each time available balance drop to the reorder point. The objective in setting reorder quantity should be to achieve the lowest overall inventory cost consistent with uninterrupted operation of the plant. Order quantity is determined by considering such things as vendors discounts, rate of use, price, storage and handling cost and the danger of deterioration and obsolescence. It may be pointed out here that the rate of use doesn't mean the desired rate but the practical rate. When some component raw materials needed to manufacture an item at scarce, it is important that order of the other component raw material be geared to the one in shortest supply. Unless this is done, inventories become unbalanced and excessive.

d) Maximum Level: When the system is working properly, the maximum level is the sum of the minimum level and standard order quantity. Having laid down these levels and quantities they should be reviewed periodically or occasionally because the assumption on which they are based, e.g. procurement time and rate of use may change. e) Economic Order Quantity: [69]

When we stock items, they take up space and since we have invested money on them, which could. be used elsewhere, we loose interest on them so long as they lie with us. Space also means cost. Similarly, their custody means several other charges such as custody staff, handling, insurance, depreciation while in stock and possible wastage and obsolescence if the period of stock is long enough and custody ineffective. All these costs are known as inventory carrying costs. Logically it means that we should purchase as and when required. This 'hand to mouth' existence, it would be appreciated, is not possible in trade or industry, particularly the latter. Adhoc purchases also mean certain costs. Costs are incurred on processing of purchase orders, frequent transportation, handling, inspection etc. these are the known ordering costs. These two types of costs are opposed to one another in their economic effect on the business. One of the primary tasks of inventory management is to balance those costs. This is done by bringing in the concept of economic Order Quantity as shown in the figure below. It should avoid shortages as well as overstocking. Inventory carrying cost and ordering cost are opposed to each other. Conditions keep on changing and requirements also do not follow a set pattern. This requires the consideration of the policy of providing a cushion against stock out. This cushion is called safety stock. LEAD TIME When material is obtained either from an outside source or from an internal manufacturing department there is always a finite interval of time between deciding to place an order and its subsequent fulfillment. This is the interval defined as 'Lead Time' . the lead time can be [70]

assumed to be made up of two points: a. An internal part b. An external part The internal part of lead time may also be divided into two parts: a. Serving time or administrative time which consists of the time taken to place the order b. Receiving and inspection lead time which consists of time taken to receive and inspect the goods and pass them into the appropriate store. The external part of the lead time consists of the time taken to execute the order. This includes the time required by the supplier to get the material ready if they are not in stock and for shipping or transporting them from supplier goodown to buyers receiving section. INVENTORY CONTROL SYSTEMS In many cases the decision maker may have no idea whatever of variation to expect between the two variables of demand and lead time. If this is the case we are confronted with decision making under uncertainty. The problem of inventory control varies because of uncertainty about the rate of demand and the length of procurement lead time. If certainty exist i.e. these two factors viz. demand and lead time are relatively constant and predictable in advance, a fixed quantity of an item would be recorded at fixed intervals. As soon as one shipment is exhausted , another would arrive. A saw tooth marked in the figure below demonstrate how inventory items can be [71]

greater or less than anticipated due to external and internal factors, such as weather change and power failure. Similarly the lead time can also vary from favorable to unfavorable due to the suppliers and/ or the transportation carriers. If inventory is not available when needed due to any internal or external factors, a stockout occurs. The graph of inventory carryinK cast and stockpot cost is shown in the figure below. The situation can lead to noticeable degrease in profits and possible losses. DETERMINATION OF SAFETY STOCK AND ORDER LEVEL In many practical situation, it is observed that neither the consumption rate of material (commodity) is constant throughout the year nor is the lead time. The variation in demand and lead time cause both shortages and surpluses as shown in the figure below. To face these uncertainties in consumption rate and lead time, extra stock is maintained to meet out the demand if any. This extra stock is termed as Safety Stock. For determining the safety stock we approximate the estimated maximum and normal lead time. If'S' denotes the safety stock, '1' is the difference of the maximum and normal lead time, 'r' is the, consumption rate during the lead time than S=LR For example, suppose for an item the monthly consumption is 200 units and normal lead time is 15 days and the maximum lead time is estimated as 2 months then the safety stock is given by [72]

S= (2-1/2)*200 300 units Now if we don't maintain a safety stock then the total requirement for inventory during the lead time will be LR. This consumption implies that as soon as the stock reaches a level LR we place an order for Q quantity. This policy of ROL results in shortages about half the time. To avoid this we add a safety stock and place an order when stock reaches S+ LR i.e. ROL= S+LR for example suppose that for an item the monthly consumption is 100 units, normal lead time is 15 days and the safety stock is of 150 units then ROL= 150+(1/2*100) = 200 units c. It does not depend upon the importance of the item and d. The limits of ABC categorization are not uniform but will depend upon the size of the under taking, its inventory as well as the number of items controlled.

CODIFICATION FOR BETTER CONTROL RESULTS Modification is one of the best methods for unique identifications of stores. A code is then employed to identify each stores item exactly. [73]

There are many different types of such codes in use, and most of them are specially designed to suit the need of the business they serve. They may be based upon the nature of the items, the purpose for which the items are employed, or on any other basis which is regarded as suitable according to local circumstances. COMPUTERS AND INVENTORY CONTROL The previous sections have dealt mainly with the theoretical methods which are available to help with the problem of inventory control. Theoretical methods, to be of any real help, have to be put in to practice and it must be recognized that some of these methods could not easily be applied by hand in the environment of a busy store, ware house or manufacturing units. For instance a certain amount of historical information is required to operate such methods as exponential smoothing and by and large the more sophisticated the approach used the more information must be kept. This information must be accurate. An error in the recording of a figure usually appears as an abrupt discontinuity in what may otherwise be a steady trend, and the forecasting methods discussed will take action to allow for this, either by recommending excessive orders or none at all.. The method also involve a fair amount of arithmetic, which must be carried through accurately, or the same type of trouble will occur. If as can easily happen, the same type of error is made repeatedly, a systematic error will be introduced into the ordering pattern, which may be difficult to detect until it becomes blatantly obvious. an error of this type could [74]

waste thousands of rupees in stock, holding costs or loss of sales. The rate at which such calculations could be done is also relevant. In cases where a large number of stock movements occur in a short time it might well be impossible to carry out calculations by hand in the time available. Even in less dynamic environments a sudden surge of activity can give rise to an increase in the number of mistakes made. Nevertheless, a good forecasting technique coupled with accurate calculations of the correct ordering levels can save tens of thousands of rupees per annum in even quite small concerns and this is a powerful reason for trying to overcome the difficulties. This is where a computer can help. The intelligent use of a computer or visible record machine can overcome all of these difficulties and provide much more information and more comprehensive checks than a manual system could provide. Where other aspects of business activity such as production scheduling, accounting and invoicing are carried out on computer stock, control by computer brings further advantages. These other systems are able to make use of the file of information about products which the stock control systems must have as its basis and take over a correspondingly larger part of the clerical work of the company. Computer hardware information storage and It is not proposed to discuss in depth how computers work but it is relevant for a moment to consider some of their principal properties and limitations. [75]

A typical computer configuration on which stock control can be performed consists of the following items of hardware: a. A central processor capable of between 5000 and 50000 multiplication's per second which performs calculations and controls all other units by reference to a program stored in the immediate access memory. b. An immediate access memory (core store) holding between 32000 and 200000 characters of information typically, the program and workspace areas for a stock file updating program would occupy 60000 characters. c. A number of peripheral units, in configuration used for stock control the following peripherals would be necessary, providing long term (for backing) storage and means of entering information and recording results.

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AUTOMATION - REQUIREMENT OF STOCK CONTROL SYSTEM


Whatever hardware is used there is a trade off between cost and speed of response. A large premium has to be paid for instant response. Of course if the computer facilities for immediate access already exist and marginal costing is used. It is much easier to justify online processing. There are two largely independent aspects of data processing in connection with inventory control. The first involves the keeping up of up to date records of stocks and this performs a similar function to bin cards or a cardex file. For this purpose the storekeeper needs either instant response or if the stocks are slow moving can afford to use a stock list produced some time earlier say daily. In this case stock transactions are keyed in and processed by the computer in a daily or weekly cycle. The other aspect concerns the frequency with which re-ordering and analysis are required. One of the most convenient methods of recording, and one which lends itself well to batch processing on a computer, is the fIxed review period method. In this method the length of the review period must be added to the safety stock in calculating the quantity to order and this means that review period should not be too great to avoid an unacceptable increase in stock levels over the ROL method. Nevertheless, it is perfectly possible to maintain acceptable stock levels in many industries with a review period as long as two weeks. In the company under study this period is of one week. [77]

Clearly if batch processing is. to be employed a strict control must be kept on the way in which each stock movement is booked into and out of the stores. If some movements are not recorded, the reports generated by the computer will become less and less accurate. This is the main reason why some computer based stock control systems have fallen into dispute in the past and forms the best illustration of why it is necessary for the stock keeper to feel that the system is for help to him rather than being a hindrance. This can only be achieved by involving him in the system at the design stage and once the system has been implemented, insist on strict application of the rules embodied in the system by everyone in senior management who may occasionally be tempted to cut corners to please customers. It is possible to build certain safeguards into stock recording and control systems to prevent this progressive deterioration occurring. Frequent stock checks are one method. It will normally be possible to carry out stock checks much more frequently when a computer system is used since most of the day to day arithmetic is being done by the computer. The computer can be made to print stock check lists on a cyclic basis, the frequency depending on turnover of the item concerned, and once the stock check has been done, to print the discrepancies found. This helps to encourage accuracy and discourage pilferage. In certain environment, such as retail stock control it is even possible to dispense with direct recording of movements out of stock altogether and instead perform a daily or weekly stock check as just described. In this case the computer can both replenish stocks and if it also does accounts, check the invoices entered, providing a useful check against pilferage. [78]

INPUT The movements which must be input to the computer for stock control are precisely those which are required to be recorded in a manual system. The principal ones are: a. Receipts into stock. b. Issues c. Physical stock values as found from check d. Purchase or works orders placed In addition, information must be given to the computers to enable it to set up and maintain the files holding details for the parts which can be stocked. This enables the computer to check that movements don't refer to non existent parts, and to supply details such as descriptions of parts on output documents. Examples of this type of information are: a. Part number and description b. Cost, wholesale and retail price c. Reorder quantity (if relevant) d. Recorder lead time e. Safety stock f. Preferred and alternative suppliers g. Lost sale history [79]

OUTPUT A wide variety of information can be obtained from a computer based stock control system, and care is needed in selecting the way it is to be presented. It may be quite feasible to produce a complete listing every day of every part stocked showing all outstanding orders, but it is more than probable that the information needed cannot be found quickly amongst the vast quantity of paper produced, only a tiny proportion of which will ever be used. Some of reports which can be produced at various frequencies, in addition to the stock list are: a. b. c. d. e. f. g. h. Input rejection lists List of movements List of shortages List of orders to be placed Stocks to be checked Stock check discrepancies Price list Valuation list

BENEFITS OF COMPUTER BASED INVENTORY CONTROL SYSTEM Despite the large amount of work that must go into the successful introduction of a computer

[80]

based inventory control system, the computer can provide a number of stock benefits. The main benefits are: a. b. c. Accompanied by an improvement in service level. Reduction of clerical work if the computer system is carefully designed. Stock check frequency can be increased, leading to reduction in pilferage and more accurate valuation of stocks. d. e. Exceptional cases can be highlighted and dealt with fast. If an on line system is used up to the minute information on stock availability can be combined with automatic verification of customer information and instant credit control. f. g. Forecasting procedures previously impractical can be applied to reordering. Better manual procedure.

The possession of an effective computer based inventory control system can not only save a considerable amount of money in stock holding costs, but also forms an essential part of more comprehensive system for order processing and production control.

[81]

RECORD MAINTAINING SYSTEM FOR PROPER ACCOUNTING No issue should be made without supporting paper work and authorization. Some of the methods in common use for issue of stores are briefly discussed as follows: a. Issue on request: This is the simplest method and there are two variations. b. Immediate issue on presentation of an issue note: Immediate issue on presentation of an issue note or requisition slip, is a normal practice allowed in most of the stores. LAYOUT OF STORES FOR SMOOTH RUNNING OF OPERATION Layout means general arrangement of stores, storage equipment and space so as to provide for most efficient receipts, storage and issue of materials. In this day arrangement of store entrance, equipment passage and in general storage space forms pat of the store layout. A very well planned layout of a store of warehouse will have the following advantages: a. b. c. d. e. f. Ease of receive material receipts. Ease of storage. Ease of issue Gives better appearance. Reduce damage and wastage's. Cuts down pilferage and accidents. [82]

g.

Reduce operating expenses and minimum transportation and handling of materials.

h. 1. J.

Adequate capacity, provision of flexibility for future expansion. Efficient utilization of floor space and height. Clear identification of material, quick location of items in case of physical counting.

k.

Creates better impression.

BASIC PRINCIPLES OF LOCATION AND LAYOUT Basic principles of good storehouses location and layout can be listed as under; a. Location and layout should reduce to minimum the total handling cost. Handling cost will be low if location and layout of store allow for easy access and quick receipt storage and issue of materials. It should provide needed protection to the stores against damage, breakage, wastage, deterioration and misplacement, leakage, pilferage. There should be easy identification or location of the store items. It should be flexible enough to allow for further expansion and changed conditions. It should reduce fire risk to the stores and rest of the establishment.

[83]

It should allow for old or first received materials to be issued first i.e. first in first out.

HOUSING OF SCRAP Normally the salvage bay is outside the main stores parameter. This has the following advantage: a. It will not intrude upon valuable storage space. b. It will avoid the possibility of scrap or reject materials getting back into the production line. c. It will permit the collection vehicles to pick up materials without entering the main goods receiving and dispatch bays, they are able to at will without congesting the main bays, and they can spend as long as necessary in sorting and loading.

METHODS OF SALVAGE

a. Materials: This is the most obvious and frequently mentioned salvage operation. It needs little outlay apart from suitable bags or containers to hold the materials. Operating costs are confined to the labor of sorting into appropriate bags or containers. Materials can

[84]

with advantage be segregated at source and then stored in different compartments. Incineration: Some times it is more economical to destroy material by incineration. It however, costs money and the economics should be carefully studied before resorting to this method.

b. Cable stripping: The economics of salvage clearly depends upon the value of the recovered materials. The stripping of waste cables can be highly rewarding where there is any significant copper and lead contents. The equipment however requires fairly high capital investment. Containers and Sacks: There is a good resale value of the containers specially large drums like 200 liters drum and jute sacking. It is worth while to ensure that least damage is caused to these items during handling. Fire Precautions: Following fire precautions should be observed in all store houses for preventing outbreak of fire: Specially inflammable stores should be segregated in separate building or in separate stacks. Storehouse should be properly ventilated. Smoking in storehouses should be forbidden and notices may be pasted to this effect. Appropriate fire preventive equipment should be provided. All such equipment should be [85]

regularly inspected and maintained. Drill to be observed in case of fire should be laid down and all personnel working in the storehouse should be adequately trained for fire fighting.

EVALUATION OF INVENTORIES The main raw material used in Crompton greaves Ltd. is Copper and CRGO(cold rolled grain oriented steel). Proper planning and handling is required for the purpose of achieving the right quality of output. The total inventory (material cost) for manufacturing transformer is between 70 80 % i.e. material to sale ratio is 70 to 80%. So inventory control is most important part for efficient running of the organization.

EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE AT NTPC In this chapter an attempt has been made to evaluate the performance of management of inventory. Ratio analysis is used for making this evaluation. The ratios for the last five years have been worked out and compared to draw conclusions. The various figures required are given below: 2005 Average 1352

2006
1566

2007
1862

2008
2945

2009
3673 [86]

Inventories Total Current Assets Cost Of Goods Sold RATIOS Inventory To Gross Working Capital 0.40 0.38 0.45 0.43 0.53 6409 5923 10789 16767 17940 3367 4131 4117 6512 6925

4.72 Inventory Turnover Ratio 2005 Inventory Conversion Period(days) 77

3.81

5.76

5.69

4.88

2006 97

2007 64

2008 65

2009 75

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INVENTORY TO GROSS WORKING CAPITAL Inventory to gross working capital ratio goes down in the year 2005 as compared to 2006. It increases in the year 2007, but there is an sharp increase in the year 2008. Keeping in view the above position, the firm should keep on going due importance to inventory as to reduce costs.

INVENTORY TURN OVER RATIO This ratio has been decreased from 4.72 in 2005 to 3.81 in 2006 and then increased to 5.76 in 2007. Then it decreased to 5.69 in 2008 but it again decreased to 4.88 in 2009. On going through this ratio we observed that the firm was maintaining its inventory at most minimum level in the year 2005 and 2006 as the inventory turn over ratio was much high as compared to other years.

Steps should be taken to increase the inventory turn over ratio for better management of inventories and reduce the cost of inventory.

INVENTORY CONVERSION PERIOD It refers to the period that manufacturing unit takes to clear a lot of stock. There has been increase in the inventory conversion period for the first year. It increases from 77 days in 2005 to 97 days in 2006. Thus it remain constant in 2008. It is desirable to have short [88]

conversion period because it will help in reducing accumulation of inventories.

The inventory turn over ratio can be further subdivided into the following ratios: Years Raw Material Inventory Turn Over Ratio WIP Inventory 32.44 23.04 38.14 51.47 46.57 2005 3.05 2006 3.12 2007 1.0 2008 2.41 2009 1.57

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Turn Over Ratio Finished Goods Inventory Turn Over Ratio Average Age of R.M Inventory Average Age Of Finished Goods 21 29 21 17 20 120 98 365 151 232 17.49 12.60 17.49 21.47 18.27

RAW MATERIAL INVENTORY TURN OVER RATIO: This ratio varies slightly from 3.05 in 2005 to 3.12 in 2006 and 1.0 in 2007. Again it increased to 2.41 in 2008. But in 2009 it sharply decreased to 1.57. It is better to have a greater raw material turn over ratio. WORK IN PROCESS INVENTORY TURN OVER RATIO: Taking a general view of this ratio over a period of five years it does not see stable and comparable to another year. FINISHED GOODS TURN OVER RATIO: This ratio has decreased from 17.49 in 2005 to 12.60 in 2006. It showed a large amount of finished goods had remained idle for most of the period. [90]

The firm should device methods. to improve this ratio because this ratio adversely affects the other ratios. AVERAGE AGE OF RAW MATRIALS IN INVENTORY The analysis of five years does not reveal any bright picture of raw material in stock. Only in the year 2006 the average age of the raw material in the stock reduced drastically to 98 days. The firm should reduce the average age of raw material in stock for better utilization of material with less investment.

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AVERAGE AGE OF FINISHED GOODS INVENTORY: The period for which the finished goods remain in stores is almost constant except in the year 2008. The decrease in that year was due to less realization of payments. Management should take steps to reduce this period. On the whole the analysis shows that the inventories are not being managed as effectively as it should be. The organization should adopt various techniques like ABC analysis or other inventory models to reduce inventory. Proper care should be taken for handling raw materials and finished goods so that the losses are minimized. This will eventually result in higher inventory turnover. Special attention should be paid to finish goods lying in stores. More attention is required in the inventory control and general stores where raw material and consumable articles - are often found continuously growing. SUGGESTION FOR FURTHER IMPROVEMENT IN INVENTORY SYSTEMS Enterprise Resource Planning is the new concept for controlling business activity. In this all the functions of a business are integrated and the flow of information is very fast. In this all the duplicate activities done by different departments are eliminated and by designing software in such a way that optimum use of resources takes place. For example Marketing, department of a company takes order from customer for certain product. By entering information in Marketing department, Production people come to know their next schedule and Production Plan gets ready. Purchase person come to know, what items are required by Production department in next coming period. In short concept of ERP is to use best [92]

business practices and to make effective use of existing resources. There are few ERP's are in market. SAP is one of the best and leader in ERP and is for big and large corporate / industrial houses. BAAN is another ERP and can be feasible for medium industry. In India local ERP's are also in market and the market is hot these days. ESS has launched its first ERP on internet in the name of Makes in the month of Nov 99. This is the first ERP company which has launched on Internet at a very nominal price. The cost is only RS. 9000 per month. Objective of this company is to cover small and medium business houses at a very nominal/ affordable price. On the other hand total cost involved for implementation of SAP is more than two crores. Hopefully total cost for carrying Inventory could be cut down to minimum 10% after successfully implementation of ERP. Flow charts are explained wide activities of Inventory and Purchase in an ERP. I personally recommend that ERP's would cut down total cost of business by around 10% after carefully selection of suitable ERP package looking at the organization needs and . size of the company. Once the systems are stabilizes, management can take better decision with the help of data available in the computer.

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PROJECT OBJECTIVE

The objective of this research is to get the understanding of the fact that in coming years the usage of different minerals will be used in various sectors to uphold our economic growth, Bauxite will definitely going to play major role to enhance this growth in constant manner. By the facts and projections available we will remain in a favorable position to export these mineral and thus our export will rise. NTPC is one of the largest producer of the bauxite therefore in accordance to this company had to maintain its level in global market scenario. The main idea behind this report is to highlight the present working scenario of the NTPC. To provide the management the inventory of suggestion, to identify the problem area & giving their suggestions & lastly to incorporate the changes required in accordance with the internal & external environment.

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NEED OF THE PROJECT


Need of the project is to know the following things: To highlight the present working scenario of NTPC To provide the inventory suggestions to the management To identify the problem To incorporate the changes required in accordance with the internal and external environment.

SCOPE OF THIS PROJECT


Taking thread from the need of the project, now it is clear that how much valuable this project is and what benefits this project will carter. So the extent of this project is in wider sense. This project will reveal:

That how the NTPC is handling its inventory management in subsequent years.

What policies they adopted to manage their inventories.

How these policies are influencing the profitability of the NTPC.

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CHAPTER TWO: RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY
The Scheme for Research methodology is to evaluate the objective by understanding the primary &secondary data which is available to us through various websites, Journals, reports, articles, and mining department. The methodology Features some of the quantifying parameters which are only measurable by various reports, projected graphs and table available from NTPC. Methodology objective is to take decision by analyzing the primary & secondary data of different reports that we get from the area of NTPC & also from the experience of the employees of the company who all are always ready to support us in any phase

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RESEARCH DESIGN:
Research is an art of scientific, investigation and systematic research for pertinent information on a specific. I have used analytical type of research. Under Analytical research we use facts or information already available and analyses these to make critical evaluation of the material. I have gathered the information from different sources and analyses it is better way. The data for research is collected using the survey technique. Surveys are best suited for analytical research. I undertake survey to learn about peoples knowledge, belief, satisfaction, attitude, value and so on and to measure these magnitudes in the general population.

DATA COLLECTION SOURCES:

Data used for the research work is Primary and Secondary in nature. The Secondary data is the data which is already exist somewhere and Primary data is gathered for a specific purpose and is collected by the researcher for the first time. The data used in this project is Primary data collected from various categories of employees from different departments. Secondary data has been collected using various journals,

[98]

websites, reports, articles and publications like:-

Data available from COMPANY COMPANYS websites Business today

DATA COLLECTION METHODS:


Basically there are two methods of data collection for research, Primary Data Secondary Data Both methods have been used in this project.

DATA COLLECTION INSTRUMENTS:


I had prepared a questionnaire as research instrument for collecting primary data. A questionnaire consists of a set of question presented to respondents for their answers. Because of its flexibility, the questionnaire is the most common instrument used to collect Primary data. I had exercised care in wording and sequence of questions.

SAMPLING PLAN:
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It can be presumed that in such an enquiry when all the items are covered no elements of chance is left and highest accuracy is obtained. This type of enquiry involves a great deal of time, money and energy. Due to the limitation of time and cost not practically feasible to contact each and every respondent in the target segment. Hence quite often, I selected constitutes what is technically called a sample. A sampling plan is a definite plan determined before any data are actually collected for obtaining a sample from a given population.

Sample Size:
Sample size for the questionnaire prepared for respondents was 60.

ASSUMPTIONS OF THE PROJECT:

In simple inventory management models both demand and supply lead times have been assumed constant. But variability in demand and supply lead time is a reality. The effect of demand and supply lead time variation is taken care of by carrying larger inventories called buffer stocks or safety stock. There are four determinants which have been assumed constant that are: The size of demand. The length of lead-time. [100]

The extent of demand and lead time variability. The degree of stock out risk acceptable to the management.

CHAPTER THREE: FINDINGS & ANALYSIS


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ANALYSIS

1. Do you know about the inventory management?

8%

92%

Yes No

Approx. 90% of the respondents may know about the inventory management. Thus, this shows that the response is satisfactory.

2. Is inventory management is necessary in a firm?

[102]

39%

61%

Yes No

From the pie chart shown above, we came to know that more than half of the employees might be thought that inventory management is necessary. But 40% of them might not be thinking so. But overall result is average.

3. Is maximum inventory creates problem for the firm?

25% yes no 75%

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From the responses shown above, more than 70% of the employees might thought that maximum inventory did not create problem for the firm but one fourth of them might thought that it creates problem.

4. Is inventory management help to control process of NTPC?

21%

yes no
79%

From the pie-chart shown above, we came to know that 79% of the total respondent might be thought that inventory control helps to control process of NTPC. But approx 20% might be thought that it did not help to control any process. But the overall result is satisfactory.

[104]

5. Is investment decision important for inventory management?

35% yes no 65%

From the above response we came to know that more than half of the total respondent might thought that investment decision is important. But 40% of them might thought that it is not so important. Overall result is average.

6. Is inventory management focus to face the inventory problem as take the investment decision?

10%

yes no 90%

[105]

According to the response of the respondent, most of the employees i.e. 90% of them might thought that inventory management focus to face the inventory problem as take the investment decision. Thus, the overall result is satisfactory.

CHAPTER FOUR:
CONCLUSIONS &
[106]

RECOMMENDATIONS

CONCLUDING WORDS

From the above analysis regarding the staff & workers it can be concluded that staff & workers both had different needs and aspiration from the company.

Staff needs and aspiration are To get the freedom of taking decision independently. There should not be any hesitation or force from the top management. Proper support from there immediate boss relating to moral boosting out or motivating them towards there development. Proper fooding & lodging facilities should be provided in the area. Better working environment so that they can work with free mind. To arrange programmes of training & development for the self development . [107]

To delegate more responsibility and authority to them. To make head of the each department which helps in decision making. More emphasis should be given to educational facilities.

Things which provide satisfaction to employees are NTPC a brand name. Salary packages Team work Job security

WORKERS POINT OF VIEW TOWARDS THE MANAGEMENT The main problem here we find that the maximum % of workers are illiterate because of which it founds to be very difficult to interact and extract there views from them. But still we made our best effort towards that. Workers needs & aspiration from the management. Increase in their wages structure. Imparting the education facilities to remove illiteracy. Increasing there housing allowances. [108]

There participation in the management decision. To provide training programme for increasing there efficiencies. Proper canteen facilities Drinking water in area Proper rest shelter Latrine & urine facilities Incentive facilities Advances provision

RECOMMENDATIONS

In the years to come, supply cost reduction will be more vital than ever in the highly competitive export markets that lie ahead. The development of minerals markets and the new liberalized environment mean that often small, incremental projects will be favored instead of big projects which could benefit economies of scale but would not fit with the development of mineral & metal markets.

Mining business is going to take of in a very big way in the coming years, NTPC company will be one of the major mining company whose growth will add the value to our country GDP growth rate import options in this part depends upon the energy mix to be used by India. This report cannot be concluded simply by generating the facts and figures, but [109]

moreover it depends on the strategy to use bauxite as a mineral to serve energy hungry India as one option, but the viability of these options still remains in future to deliver.

Along with the glory of NTPC company It is also concluded that shrengdag mine of NTPC division is one of the major operation area of NTPC company serving the company there raw material (bauxite) from the past 30 years but not fulfilling the requirement of area regarding availability of basics needs such as proper fooding & lodging facilities, proper conveyance for service for staff, well maintained road etc.

The company should take corrective action regarding fulfilling the needs of employees & workers so that near in future no one can refuse there child to work in NTPC division . Lastly it is wonderful experience of ours to complete our internship from such a branded company. We gained a lots of knowledge related to the practical & actual working condition which will be helping us through out our professional life & thanks to all shrengdag staff for there full support .

Following specific recommendations regarding. Various system parameters are being made at the culmination of the studies: 1. Planning horizon of 3 months will be most appropriate for the firm. Tentative portion of planning horizon will be in addition to it which can be for another 9 months. [110]

2. 3.

A bucket size of one week is most practicable. Weekly cycle of re-planning will be more suitable.

LIMITATIONS
There were many limitations and shortcoming faced by the researcher while conducting the analysis. These shortcomings could lead to serious imbalances in the organization so it is imperative to find ways to work on them. To reduce or eliminate these shortcomings and it be the perfect system to rely upon and maximum efficiency and output is there in it. Certain gaps we would come to know through analysis, but there are more, which are listed below.

The member of the organization had reservation in revealing many of

the details of the company. There is time limitation, as it is very difficult to study exhaustively in a

limited time period of eight weeks.

[111]

Lack of coordination and communication was experienced while

collecting the data for the present study. Respondents seemed to be over burdened with work so they didnt give

proper attention People are hesitating in answering the question. Employees were not interested in filling open-ended questions.

CHAPTER FIVE: BIBLIOGRAPHY


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BIBLIOGRAPHY

SECONDARY DATA FROM

SHRENGDAG MINE REPORT BOOKS Siddiqui S.A, Financial Accounting, (2005), Laxmi Publication, New Delhi. Pandey I.M, Financial Management,(2005), Vikas Publishing House Pvt ltd,New Delhi.

Tulsian P.C, Financial Accounting, (2003), Pearson Education, Delhi. WEBSITES www.altavista.com www.google.com [113]

www.encarta.com www.wickypedia.com www.domain-b.com

PRIMARY DATA FROM SHRENGDAG MANAGEMENT

APPENDIX

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APPENDIX

QUESTIONNAIRE
4. Do you know about the inventory management?

a) Yes b) No

5.

Is inventory management is necessary in a firm?

a) b) No

Yes

3.

Is maximum inventory creates problem for the firm? [115]

a) b)

Yes No

4.

What is the best inventory status for a firm?

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.

What is the process of inventory control system?

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6.

Is inventory management help to control process of NTPC?

a) b)

Yes No

7.

Is investment decision important for inventory management?

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a) b)

Yes No

8.

What is the problems face in inventory management?

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9.

Is inventory management focus to face the inventory problem as take the investment decision?

a) b)

Yes No

10.

What are the seasonal variations of inventory management in NTPC?

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[117]

11.

What are the various techniques of inventory management?

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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