ACKNOWLEDGEMENT

I wish to express my sincere thanks to Elecon Engineering Co. Ltd. for allowing me to work in an open and free manner in their organization.

I am also thankful to my project guide, Mr. ________________ for his continuous support throughout my project work without which, the true and accurate understanding of the project would not have been possible.

I am deeply indebted to Mr. K.N Acharya (Manager, Store and Inventory ) who consistently guided and, advised me during my project work and all the staff of store department for providing me necessary information.

Last but not least, I would like to express my gratitude to my parents and friends for their unconditional love and support.

PREFACE

I have made this report as an essential part of curriculum of MBA. The title of project is Inventory management System at Elecon Engineering Co. Ltd.- EP division

In the course of my training I have had the golden opportunity of seeing the practical application of whatever theoretical knowledge was imparted to me in a class room studies. I have had the good fortune in interacting with the executive and employee of Elecon Engineering Co. Ltd. who were very warm and cordial in their conduct toward me.

My report mainly focuses on Inventory management. I hope that the finding of the project work must conform to the companys expectation & suggestion made on that basis must be useful for effective inventory management at Elecon Engineering Co. Ltd.

TABLE OF CONTENT

Chapter No. 1

2 3

Content Executive Summary Company Profile Introduction Product Profile Core industry sector served New advancement Vision Mission Quality certification Group Companies Brief history of Gear Division Product of gear division Information about EP division sub division of gear division Objective and research Methodology Conceptual framework of inventory management Introduction Definitions Functions of inventory Classification of inventories Risk of holding inventory Inventory costs Techniques of inventory management Inventory management at Elecon EP division Inventory management Store Function Inventory Receipt Section Custody Section Material Planning and Inventory Control Section Valuation of Inventory Inventory control techniques at Elecon Findings Suggestions Bibliography EXECUTIVE SUMMARY

Page no.

5 6 7

Inventory management assumes significant importance in a highly integrated supply chain and the module facilitate accomplishment of organizational objectives including

cost efficiency and enhanced consumer loyalty by rendering superior visibility and streamlined processes.

To be competitive today, it is essential to decrease the overall production cycle times, reduce inventories and build those products that is most in demand. It means focusing on good expediting and rescheduling, reduced supplier lead time, improved turnaround rated, reduced cost to carry inventory.

Inventories constitute the principal item in the working capital of the majority of trading and industrial companies. In inventory, we include raw materials, finished goods, work-in-progress, supplies and other accessories. To maintain the continuity in the operations of business enterprise, a minimum stock of inventory required. Management of inventory records and relevant details is an important area of concern for every organization, whether it is large or small. And also calls for efficient planning and maintenance. No matter the viewpoint, effective inventory management is essential to supply chain competitiveness.

Businesses require timely and accurate information on inventory location, movement, and valuation. Inaccurate inventory counts can cost you sales and delay shipments past the promise date. Out-of stock items as well as overstocked items in inventory can be devastating to business. Additionally, an overstated or understated inventory valuation can result in incorrectly reported assets within financial statements. Properly used, the Inventory Management module can help bring about

the formulation of new or improved purchasing policies, sales policies, pricing methods, and even enhanced customer service.

Project starts with introduction of the company, its vision, values and product profile. Second chapter is about the objective and research methodology. Third chapter is about conceptual framework of inventory management, its control techniques and costs associated with it. Fourth chapter deals with the inventory management at Elecon Engineering Co. Ltd. Companys store management system, inventory ratios etc. are studied in this chapter.

CHAPTER -1 COMPANY PROFILE

Introduction

Established in 1951, Elecon Engineering Co. Ltd, India, pioneered breakthrough innovations in the manufacture of material handling equipment, industrial Geared Motors (Products of PBL) and reducers, mining equipment, casting processes etc. Elecon is one of the largest manufacturers of MHE and Industrial gears in Asia. Elecon's recent acquisition of Benzlers - Radicon Group of businesses from David Brown Gear Systems Group adds to the expertise in manufacturing customized gearboxes for Steel Mills, High speed Turbines, satellites for Indian Space Research Program and Naval aircraft carriers.

During the span of 6 decades, Elecon has encompassed all the major core sectors through its supplies of highly sophisticated equipment bearing ample testimony of the symbolic mark of Elecon's unbeatable technology. Elecon has thus with its marketing network and execution capabilities, made its presence felt through consistent and satisfactory performance of its equipment and successful delivery of projects in core sectors as fertilizer, cement, coal, power generation, mining, chemical, steel, port mechanization, minerals & metals processing, etc.

Elecon has expanded its skills and expertise to execute EPC contracts and has successfully executed several EPC projects in India. Elecon has transformed into a fully integrated EPC company in areas of its specialization.

Product Profile Elecon is the first company in India to have manufactured sophisticated equipment for Bulk Material Handling and have their footprints in every industrial sector and customer in India. Its product range includes design, engineering, manufacture, supply, erection and commissioning of:

Wagon tipplers Bucket wheel stacker/reclaimers Barrel-type blender reclaimers

Crawler-mounted trippers Stationary and shiftable conveying systems for open cast lignite mines

Fertilizer reclaiming scrapers Limestone Single and pre-homegenizing twin bucket and blending plants

Integrated coal handling plants for power stations Underground mining conveyors Open-cast conveying systems Ferrous and non-ferrous foundry products

wheel

bridge-type reclaimers

Core Industry Sectors Served

Coal handling Plants for Thermal Power Projects Overburden and Coal/Lignite handling System for Open Cast Mines Raw material handling, Crushing and Blending system for Cement Plants Ore Handling and Stockyard Equipments for Steel Plant Product & Bag Handling Plants Cross Country Conveyor System Wagon Loading and Unloading System (Bulk) Bagging, Handling and Truck/Wagon Loading (Fertilizer, Cement, Sugar) Ship Loader and Un-loaders handling bulk / bags at the Port Terminals

New Advancements
Pipe Conveyors: With the ever increasing use of pipe conveyors as an acceptable form of bulk solids transportation, especially when environmental, operating and maintenance costs are of primary importance, has come the added advantage, of suppliers breaking new ground in the innovation stakes.

With Co.s collaboration with CKIT, one of the leading engineering services company for providing conveying solutions, Co. is now executing a 7.5 kms Cross country pipe conveyor project for Manikgarh cements and a complex downhill conveyor project for NMDC.

High Speed Rollers: Elecon is a pioneer in developing the technology to manufacture high speed rollers in house. Co.s roller shop is equipped to produce 30,000 rollers/ month in total and 12,000 high speed rollers/month in specific. Elecon is already supplying High speed rollers up to belt speeds of 7.5 m/s to its clients.

Yard Management and Manless machines: Elecon with its partners have developed the capability of automated stockyard systems and unmanned yard equipments. Co. has the capability to undertake specialized projects of stockyard management with built-in capability to provide Monitoring of stock pile equipment, programming of stacking and reclaiming, monitoring stockpile composition, monitoring of stacking & reclaiming, preparation of material balances and analyses, build-up of stockpiles with specific blends, historical balances, future planning and hot spot control.

Co. also has capabilities to undertake specialized projects to provide wireless solutions for, manless operation of machines, alternate control methodology for wagon tippler by using Profibus on Energy Chain, particular solutions for stacker reclaimer (depth of cut control), on line intelligent health monitoring & predictive maintenance management system for mechanical, structural, electrical, instrument, machines parameter sub systems.

Vision: Create global presence in power transmission by innovating and developing products to enhance value and satisfaction of Customers. Mission:

We are committed to Be present in all the leading & emerging markets of the world by expanding, collaborating and associating with other partners and consolidating our presence in already penetrated markets.

Remain "Always A Step Ahead in Technology" by Continuously investing in research and development to cater to new applications, industries and segments as well as improvementofourexisting product ranges.

Empower human resources to promote entrepreneurship, team spirit leading to value enhancement for our Customers and Stakeholders.

Follow environment friendly practices to protect environment and continuously review and improve products and processes throughout the supply chain.

Upliftment of society at large and well being of our employees.

QUALITY CERTIFICATION: ISO 9001:1994 (TUV management service) Elecon Engineering Co. Ltd. (MHE Division) ISO 9001:2008 (TUV Rheinland) - Elecon Engineering Co. Ltd. (Gear Division) EN 292-1-1991 (Bureau Veritas) Elecon Engineering Co. Ltd. (ProductWorm gearbox, SNU size 3,3.54,4 & 5 Ratio 11 for each size )

GROUP COMPANIES: Eimco Elecon Power Build Ltd EMTICI Engineering Ltd. Prayas Engineering Ltd.

Elecon Information Technology Ltd. Radicon & Benzlers

BRIEF HISTORY OF GEAR DIVISION:

Gear Plant having an area spread over 1,73,098 Sq. Meters 1975 - 1985 : Collaboration with WGW (TGW) Thyssen Getribe Works for Sprial Bevel & Helical Gearboxes, today it is designated as "ET" series.

1985 -1992 : Collaboration with Renk AG, Germany for A) High Speed Gearboxes B) Bucket wheel & Slewing Planetary Gearboxes C) Marine Gearboxes D) Vertical Roller Mill Gearboxes

1999 - 2002 : Collaboration with PIV, Germany for Posired - II - Sprial Bevel & Helical - Bevel drives Gearboxes today it is designated as "EP" series. 1992 onwards we have tie up with Renk AG, Germany on.. project to project basis. We had collaboration with SIME France for Hydrokinetic Fluid Couplings from for various sizes up to COR/CORP 870.

1998 : Developed Lift Gear Box - TM 500 Model for M/S. Kinetic Transportation Products Ltd. (Indian counter part of Hyundai Elevator Co., Korea)

1999 : Developed Lift Gear Box - G140 Model for M/S. Bharat Bijlee Ltd.

2000 : Developed Lift Traction Machine - W140 Model for M/S. Schindler India Pvt. Ltd.

2003 : Developed Elevator Traction Machine Model - L 127

2004 : Developed Elevator Traction Machine Model - L 163

2005 : Developed Elevator Traction Machine Model - L 115

2008 : Collaboration with M/S. Haisung Industrial System Co. Ltd., South Korea

Co. signed collaboration with Renk AG, Germany w.e.f. April 07 for Vertical Roller Mill Gearboxes for KPAV type upto size 200 & output torque 1040 KNM.

Products of gear division: Helical and Bevel Helical Gear boxes Worm Gear boxes Elevator Traction Machines (Lift Gear boxes) Couplings Wind Mill Gear boxes High Speed Gear boxes Planetary Gear boxes Marine Gear boxes Geared Motors Custom built Gear boxes Vertical Roller Mill Drive (VRM)

Elecon has expertise in providing customized gear boxes

for Steel Mills, High Speed Turbines, Sugar Mills, Marine vessels, Coast Guard Ships, Plastic Extrusions, Antena Drives and for Satellites in the Indian Space Programme.

Information about EP- Division for sub division of gear division of Elecon 1999 - 2002 : Collaboration with PIV, Germany for Posired - II - Sprial Bevel & Helical - Bevel drives Gearboxes today it is designated as "EP" series. EP-Series is totally new developed gear program with the latest technology. EP-Series is an intelligent gear concept because it answer the purpose with fewer but more versatile parts (High degree of standardization and the use of common parts size to size givens optimum availability and short delivery times) The sizes encompass smaller ranges and also the permissible torque with increasing size are smaller bands. It offers more advantages owing to faster delivery times, more variable and universal possible application and greater standardization of the series. Construction types- 1 to 4 stage helical gears, 2 to 4 stage bevel helical gears & 19 sizes follow, the modular concept. Construction and structural shapes - for horizontal, vertical and standing design

CHAPTER -2

OBJECTIVE AND RESEARCH METHODOLOGY

OBJECTIVE OF THE STUDY Following were the objectives of the study:a) To study inventory management system of EP division of Elecon Engineering Co. Ltd. b) Maintaining adequate inventory so as to avoid production held up leading to customer dissatisfaction loss of revenue and increase in cost for emergency purchase. c) Avoiding excessive investment in inventory and consequently reducing carrying cost. d) Relieving Management in taking inventory decisions for each and every item of inventory. e) To evaluate the performance of each component of inventory management of EP division. To calculate the ratios related to inventory. f) To understand the problems faced by company in handling inventory.

g) To design and calculate safety stock, the reorder point and minimum and maximum level of inventory. h) To study and come out with any solution for improvement of inventory management in EP division.

RESEARCH METHODOLOGY

RESEARCH DESIGN

A research design is a framework to prepare plan or study. It is useful as a guide to collect the data and analyzing it. It is a blue print that is followed in completing the

study. Research design is the conceptual structure within which the research will be conduct.

Type of Research: The study exploratory in nature

SOURCES OF DATA COLLECTION: Primary data was collected through interview of store manager, finance manager and other official staff of the store department.

Secondary data was collected through balance sheet, profit and loss account, assistant ledger book MRN, company manual, website, journals, etc.

DATA ANALYSIS It was done with the help of simple percentage and graphical method. Pie and Bar chart was used to present data in graphical manner. Ratios of inventory were calculated to study efficiency of inventory management is concerned. The data was analysed for last 2 years.

LIMITATION

1.

This project is restricted to study purpose only and can be used keeping in view the object that is made for.

2.

The respondent in the project may not reveal important / confidential information pertaining to the company policy and for this the project should be used keeping in view the said limitation.

3.

Finding of the study was based on the assumptions that respondents have given correct information.

4.

Ratios of inventory were calculated for last 2 years only.

CHAPTER -3 CONCEPTUAL FRAMEWORK OF INVENORY MANAGEMENT

INTRODUCTION
In financial parlance, inventory is defined as the sum of the value of raw materials, fuels and lubricants, spare parts, maintenance consumables, semi-processed materials and finished goods stock at any given point of time. The operational definition of inventory would be: the amount of raw materials, fuel and lubricants, spare parts and semi-processed material to be stocked for the smooth running of the plant. Since these resources are idle when kept in stores, inventory is defined as an idle resource of any kind having an economic value.

Inventories are maintained basically for the operational smoothness, which they can affect by uncoupling successive stages of production, whereas the monetary value of inventory serves as a guide to indicate the size of the investment made to achieve this operational convenience.

The materials management department is expected to provide this operational convenience with a minimum possible investment in inventories. The objectives of inventory, operational and financial, needless to say, are conflicting. The materials department is accused of both stock-outs as well as large investment in inventories. The solution lies in exercising a selective inventory control and application of inventory control techniques.

DEFINATIONS

In order to understand the concept of inventory terms are used for managing inventory at a logistical facility, let us first view the definitions:

Inventory level is the actual inventory quantity held at a logistical facility at a particular point of time.

Cycle inventory or base stock refers to the inventory quantity held in stock due to the replenishment time required in the ordering process.

Replenishment time or lead-time is the time elapsed between order placement and order receipt for an inventory item. In case inventory is to be replenished by manufacturing, this id the time elapsed between the work order issue for manufacturing and the completion of manufacturing.

Safety stock or buffer stock inventory is the inventory held due the differences in demand and supply rate of material at each stage in-between supplier, purchase, manufacture, distribution, and customer to avoid stock outs at each stage.

Average inventory is the calculated average of the inventory quantity held at a logistical facility over a period of time.

Reorder point is the pre-decided inventory level, which is reached by a falling inventory level during utilization of inventory, at which point an order is placed for replenishing the inventory in order to avoid a stock out.

Order quantity is the inventory quantity, which is ordered for replenishing depleting inventory.

FUNCTIONS OF INVENTORY

The necessity of holding inventory is due to the following functions of inventory:

Specialization: A firm can either produce all the required variety products at a plant at one location, or, produce different products at separate plant locations. Locating separately will enable the firm to select the location of each different product manufacturing plant based on the particular requirements of that product, thus achieving specialization efficiencies like geographical facilities and economies of scale. This specialization approach creates inventory

at diverse locations. Also, pipeline inventories are created due to transport linkages required between different manufacturing plants and with distribution warehouses.

Balancing supply and demand: Demand depends upon the requirements of customers relating to time and quantity of products, and is not in the control of the producer. Supply, on the other hand is under the producers control, but has to be economized and also paced with the time and quantity requirements of customer demand. In order to ensure that customers are not dissatisfied when they demand the required quantity of products, it is necessary to have adequate inventory of products available at all times. This is the balancing inventory required due to the different rates of manufacturing and consumption. In case of seasonal products when production has to take place for a longer period of time in advance of the season, production throughout the year ensures lower investments in production capacities while increasing inventory. An example is the production of rainwear throughout the year for the sales which will occur only during the rainy season. Another example of balancing is seasonal production during raw material availability and year-round consumption, which also requires inventory. The example of this is seasonal availability of mango fruit and year-round consumption of mango based products.

Economies of scale: Economies of scale are obtained by holding large inventories a) While purchasing, ordering in large quantities provides cost economies and discounts; (b) transportation economies are obtained by transporting in larger quantities; and, (c) during manufacturing, producing in economic batch quantities lower costs.

Overcoming uncertainty: Safety stock of inventory is required to overcome uncertainty of customer demand on the one hand; and, purchasing, receiving, manufacturing, and order processing delays on the other. Either of these may result in shortages of products at the time of customer requirements if adequate safety stock of material is not provided for. If such material stock outs are not frequent occurrences, the customer may look elsewhere leading to a last order at the very least, or a lost customer. This uncertainty results in buffer stocks being created between (a) supplier and purchasing, (b) purchasing and production, (c) production and marketing, (d) marketing and distribution, (e) distribution and intermediary, (f) intermediary and customer, in order to avoid stock outs.

CLASSIFICATION OF INVENTORIES Production inventories: They represent raw materials, parts and components that are used in the process of production. Production inventories include Standard industrial items purchased from outside (also called bought outs) Non-standard items (purchased items) Special items manufactured in the factory itself (also called works made parts or piece parts.

MRO inventories:

They refer to the maintenance; repairs and operation supplies, which are consumed during process of, manufacture but do not become a part of the product.

In-process inventories: They represent items in the semi-finished condition (i.e. items in the partially completed stage)

Goods-In-Transit: They represent such materials, which have been paid for but have not yet been received by the stores.

RISK OF HOLDING INVENTORY The holding of inventory creates the following risks for a firm: The investments committed to a particular inventory combination are not available for alternative uses for the benefit of the firm. The risks in these case is due to the interest cost incurred on this inventory until the investment is recovered, as also the opportunity cost of profit which might have been made in alternative investment. The inventory may be pilfered or lost. The inventory may become absolute and/ or useless. Determination of inventory is another risk for holding inventory.

INVENTORY COST In operating an inventory system manager should consider only those costs that vary directly with the operating doctrine in deciding when and how much to recorder; cost independent of the operating doctrine are irrelevant. Basically, there are five types of relevant costs.

Cost of the item. Cost of procuring the item. Cost of carrying the item in inventory. Cost associated with being out of stock when units are demanded but are unavailable (stock outs). Cost associated with data gathering and control procedures for the inventory system. Often these five costs are combined in one way or another, but lets discuss them separately before we consider combinations.

Cost of Item: The cost, or value, of the item is usually its purchase price: the amount paid to the supplier for the item. In some instances, however, transportation, receiving, or inspection costs, for example, may be included as part of the cost of the item. If the cost of the item per unit is constant for all quantities ordered, the total cost of items purchased during the planning

horizon is irrelevant to the operating doctrine. If the unit cost varies with the quantity ordered, a price reduction called a quantity discount, this cost is relevant. If the facility manufactures the item, the cost of the item is its direct manufacturing cost. Again, constant unit cost mean total costs are irrelevant.

Procurement Costs: Procurement costs are the placing a purchase order or the setup costs if the item is manufactured at the facility. These costs vary directly with each purchase order placed. Procurement costs include costs of postage, telephone calls to the vendor, labor costs in purchasing and accounting, receiving costs, computer time for record keeping, and purchase order supplies.

Carrying Costs: Carrying or holding casts are the costs of maintaining the inventory warehouse and protecting the inventoried items. Typical costs are insurance, security, warehouse rental, heat, lights taxes, and losses due to pilferage spoilage, or breakage. The cost of typing up capital inventory is also considered a carrying cost.

Stock-out Cost:

Stock out cost, associated with demand when stocks have been, takes the form of lost sales or backorder costs. When sales are lost because of stock-outs, the firm loses both the profit margin on unmade sale and its customers good will. If customers take their business elsewhere, future profit margins may also be lost. When customers agree to come back after inventories have been replenished, they make backorders. Backorder costs include loss of good will and money paid to reorder goods and notify customers when goods arrive. As the next example shows, stock-outs can and do occur in the service industries.

Cost of operating the information processing system: Whether by hand or by computer, someone must update records as stock levels change, for system in which inventory levels are not recorded daily, the cost is primarily incurred in obtaining accurate physical counts of inventories. Frequently, these operating costs are more fixed than variable over a wide quantity range. Therefore since fixed costs are not relevant to the operating doctrine, we will not consider them further.

Cost tradeoffs: Our objective in the inventory control is to find the minimum cost operating doctrine over some planning horizon; these costs can be expressed in a general cost equation.

TECHNIQUES OF INVENTORY MANAGEMENT

1. Economic Order quantity:

The order quantity depends upon the cost of the inventory items, the rate and nature of demand (whether constant or fluctuating), the replenishment time, and the inventory carrying costs and ordering costs for the inventory items. The EOQ can be calculated with the help of a mathematical formula. Following assumptions are implied in the calculation: Constant or uniform demand- although the EOQ model assumes constant demand, demand may vary from day to day. If demand is not known in advance- the model must be modified through the inclusion of safe stock. Constant unit price- the EOQ model assumes that the purchase price per unit of material will remain unaltered irrespective of the order offered by the suppliers to include variable costs resulting from quantity discounts, the total costs in the EOQ model could be redefined. Constant carrying costs- unit carrying costs may very substantially as the size of the inventory rises, perhaps decreasing because of economies of scale or storage efficiency or increasing as storage space runs out and new warehouses have to be rented. Constant ordering cost- this assumption is generally valid. However any violation in this respect can be accommodated by modifying the EOQ model in a manner similar to the one used for variable unit price. Instantaneous delivery- if delivery is not instantaneous, which is generally the case; the original EOQ model must be modified through the inclusion of a safe stock. Independent orders- if multiple orders result in cost saving by reducing paper work and the transportation cost, the original EOQ model must be further modified. While this modification is somewhat complicated, special EOQ models have been developed to deal with it.

These assumptions have been pointed out to illustrate the limitations of the basic EOQ model and the ways in which it can be easily modified to compensate for them.

2. Just In Time: The time-based approach to inventory management came into focus when Toyota Motors Company came out with the concept of kanban in 1950. This lead to the dramatic reduction in WIP quantities tying the inventory closely to the demand from subsequent process or internal customer. Kanban is conceptually a two-bin system, a signal being raised to warrant replenishment. JIT approach became a modern production system seeking to implant concept of stockless production. JIT embraced a variety of manufacturing concepts like reduced lot sizes, quick switch over [SMED], load leveling [response to tact time], group technology, statistical process control [control charts], preventive maintenance and quality circles.

3. ABC Analysis: ABC analysis underlines a very important principle Vital few: trivial many. Statistics reveal that just a handful of items account for bulk of the annual expenditure on materials. These few items, called A items, therefore, hold the key to business. The other items, known as B and C items, are numerous in number but their contribution is less significant. ABC analysis thus tends to segregate all items into three categories: A, B, and C on the basis

of their annual usage. The categorization so made enables one to pay the right amount of attention as merited by the items. A-items: it is usually found the hardly 5-10% of the total items account for 70-75% of the total money spent on the materials. These items require detailed and rigid control and need to be stocked in smaller quantities. These items should be procured frequently, the quantity per occasion being small. B-items: these items are generally 10-15% of the total items and represent 10-15% of the total expenditure on the materials. These are intermediate items. The control on these items need not be as detailed and as rigid as applied to C items. C-items: these items are generally 70-80% of the total items and represent 5-10% of the total expenditure on the materials. The procurement policy of these items is exactly the reverse of A items. C items should be procured infrequently and in sufficient quantities. This enables the buyers to avail price discounts and reduce work load of the concerned departments. Policies of Control for A, B and C Categories: Any sound stock control system should ensure that the each item gets the right amount of attention at the right time. ABC analysis makes this possible with considerably less effort due to its selective approach there are number of ways in which ABC classification can be made use of: Degree of Control: Some one at the senior level should be made responsible for regular reviewing of these items. Up-to-date and accurate records should be maintain for these items. B items should be brought under normal control made possible by goods record keeping and periodic attention. Little control is required for C items.

Ordering Procedure: A items should be subject to frequent review to reduce unwarranted stockouts and possibilities of overstocking. A reasonable good analysis for order points is required for B items but the stocks may be reviewed less frequently. No such computations are necessary for C items. These should be bought in bulk. Staggering of delivery schedules: Staggering of delivery schedules is one of the best strategies to reduce the inventory investment and ensure un-interrupted inflow of materials. Staggered deliveries tend to reduce cost of order writing but increase the cost of inspection and receiving. Annual contract with scheduled deliveries are desirable for A and B class of items. C class of items, however, should be purchased in bulk on single-order-basis. Stock records: Details records of goods ordered, received, issued and goods on hand should be maintained for A category of items. No such detailed records are necessary for C items. Any routine method that ensures goods and accurate records is enough for B category of items. Priority treatment: VIP treatment may be accorded to A items in all activities such a processing of purchases orders, receiving, inspection movement on the shop floor, etc., with an object to reduce lead time and average inventory. No such treatment is necessary for B items. No priority is assigned to C items. Safety Stock:

All items of consumption are equally important from production point of view. Safety stock should be less for A items. The possibility of stockouts can considerably be cut down by closer forecasting, frequent reviewing and more progressing. C items, on the contrary, should have sufficient safety stock to eliminate progressing and to reduce the probability of stockouts. A moderate policy is required for B items, safety stock being neither too high nor too low. Value Analysis: To secure maximum benefits, it is essential to select those items for value analysis which offer the highest scope for cost reduction. The usage classification is a useful step in this direction. Only A and B items are selected for detailed value analysis and the former is given priority over the latter. C items should not be value analyzed

4. HML Analysis: H-M-L analysis is similar to ABC analysis except for the difference that instead of usage value, price criterion is used. The items under this analysis are classified into three groups that are called high, medium and low. To classify, the items are listed in the descending order of their unit price. The management for deciding three categories then fixes the cut-off-lines. For example, the management may decide that all items of unit price above Rs. 1000/-will of H category, those with unit price between Rs. 100/- to Rs.1000/- will be of M category and those having unit price below Rs. 100/- will be of L category. HML analysis helps to Assess storage and security requirements.

 To keep control over consumption at the departmental head level. Determine the frequency of stock verification. To evolve buying policies to control purchase. To delegate authorities to different buyers to make petty cash purchase

5. VED Analysis: V stands for vital, E for essential, D for desirable. This classification is usually applied for spare parts to be stocked for maintenance of machines and equipments based on the criticality of the spare parts. The stocking policy is based on the criticality of the items. The vital spare parts are known as capital or insurance spares. The inventory policy is to keep at least one number of the vital spare irrespective of the long lead-time required for procurement. Essential spare parts are those whose non-availability may not adversely affect production. Such spare parts may be available from many sources within the country and the procurement lead time many not be long. Hence, a low inventory of essential spare parts is held. The desirable spare parts are those, which, if not available, can be manufactured by the maintenance department or may be procured from local suppliers and hence no stock is held usually.

6. S-D-E Analysis: S-D-E analysis is based on the problems of procurement namely: Non-availability

 Scarcity Longer lead time Geographical location of suppliers, and Reliability of suppliers, etc. S-D-E analysis classifies the items into three groups called scarce, difficult and easy. The information so developed is then used to decide purchasing strategies. Scare classification comprise of items, which are in short supply, imported or canalized through government agencies. Such items are best to procure limited number of times a year in lieu of effort and expenditure involved in the procedure for import. Difficult classification includes those items, which are available indigenously but are not easy to procure. Also items, which come from long distance and for which reliable sources do not exist, fall into this category. Even the items, which are difficult to manufacture and only one or two manufacturers are available belong to this group. Suppliers of such items require several weeks of advance notice. Easy classification covers those items, which are readily available. Items produced to commercial standards, items where supply exceeds demand and others, which are locally available, fall into this group. The purchase department employs S-D-E analysis: To decide on the method of buying To fix responsibility of buyers

7. S-OS Analysis: S-OS analysis is based on seasonality of the items and it classifies the items into two groups S (seasonal) and OS (off seasonal). The analysis identifies items which are: Seasonal and are available only for a limited period. For example agriculture produce like raw mangoes, raw materials for cigarette and paper industries, etc. are available for a limited time and therefore such items procured to last the full year. Seasonal but are available throughout the year. Their prices, however, are lower during the harvest time. The quantity of such items requires to be fixed after comparing the cost savings due to lower prices if purchased during season against higher cost of carrying inventories if purchased throughout the year. Non-seasonal items whose quantity is decided on different considerations.

8. M-N-G Analysis: M-N-G analysis based on stock turn over rate and it classifies the items into M (moving items), N (non-moving items) and G (ghost items). M (moving items) is those items, which are consumed from time to time. N (non-moving items) are those items, which are not consumed in the last one year. G (ghost items) is those items that had nil balance, both in the beginning and at the end of the last financial year and there were no transactions (receipt or issues) during the year. Analysis mainly helps to identify non-existing items for which the store keeps bin-cards or waste computer memory or waste computer stationary while preparing stores ledger. Stores department even might have even ear-marked space for these non-existent items.

All pending/ open purchase orders (if any) of such items should be canceled.

9. F-S-N Analysis: F-S-N analysis is based on the consumption figures of the items. The items under this analysis are classified into three groups: F (fast moving), S (slow moving) and N (nonmoving). To conduct the analysis, the last date of receipt or the last date of issue whichever is later is taken into account and the period, usually in terms of number of months, that has elapsed since the last movement is recorded. Such an analysis helps to identify: Active items which require to be reviewed regularly Surplus items whose stocks are higher than their rate of consumption; and Non-moving items which are not being consumed

10. X-Y-Z Analysis: X-Y-Z analysis is based on value of the stocks on hand (i.e. inventory investment). Items whose inventory values are high are called as X items while those inventory values are low are called Z items. And Y items are those which have moderate inventory stocks. Usually X-Y-Z analysis is used in conjunction with either ABC analysis or HML analysis. XYZ analysis helps to identify a few items, which account for large amount of money in stock and take steps for their liquidation/retention.

XYZ when combined with FSN analysis helps to classify non-moving items into XN, YN, and ZN group and thereby identify a handful of non-moving items, which account for bulk of non-moving stock. These can be studied individually in details to take decision on their disposal or retention.

CHAPTER -4 INVENTORY MANAGEMENT AT ELECON EP DIVISION

Inventory management is one of the most important managerial activities. Each types of production department maintain separate inventory level. Elecon Engineering Co. Ltd. maintains different types of inventory i.e. raw material, WIP, finished goods, transit inventory, buffer inventory, anticipation inventory and cycle inventory.

Inventory Management Around 15,000 items of various natures are handled by Stores. Inter departmental linkages also need to be established to ensure continuous availability of material to the user and thereby improve the plant availability. The Stores of an industrial set-up is considered as a measuring point to judge the effectiveness of Material Management Services. The basic objective of the Stores Management is to achieve a system oriented functioning to be followed uniformly within all units of the Elecon and thereby contribute to continual improvement in day to day working. It is also intended to ensure proper handling, preservation and accountable inventories. The Stores management mainly includes the activities like:1. Clearance of Goods from carriers. 2. Receipts and Inspection 3. Warehousing 4. Preservation 5. Issue of Material

6. Inventory Control 7. Codification 8. Stores Accounting 9. Claims and Disposal of Scrap, Surplus & Obsolete Items.

Online Integrated Materials & Financial Accounting System have been introduced for computerized Material Management System.

STORES FUNCTION A. To arrange clearance, receipt, inspection, acceptance and storage of materials. B. To regulate inventory, planning and budgeting through liaison with all associated departments e.g. Purchase, User, FQA, EDP and Finance etc. C. To review the stock positions of AR (Automatic Recoupment) items and prepare indents based on corporate guidelines / norms. For other non-stock items, screening and checking of indents (raised by user), critical analysis is required before forwarding the indents to Purchase wing. D. To Store and preserve the material ensuring proper handling facilities. E. To arrange insurance policies covering various types of risk coverage, lodging of claims and follow up with insurance agencies for early settlement. F. To identify non-moving, surplus and obsolete materials and arrange their disposal. G. To maintain proper up-to-date records of issue, receipt, rejection etc. H. To generate all relevant MIS for circulation as per format.

I. To review the performance Periodically/Annually with that of agreed Standard /Benchmark. J. To carry out Stock Verification Activities on Periodical basis. K. To codify the materials as per functional utility of each item and Corporate guidelines and explore the ways and means for Standardisation of nomenclature / specification to minimize the varieties of items and to put them in to the OLIMFAS for proper accounting and inventory control. While allotting code numbers it is to be ensured that all information regarding the item are available so that the duplication of the code for the same item is totally avoided. The functional interfaces among various departments :-

Tasks involved in the Stores management

 INVENTORY RECEIPT SECTION

This section initiates all prerequisites in smooth transfer of materials on its arrival to the custody section. This section is responsible for getting the goods cleared from different transporting agencies. On receipt of the materials, Unloading

Report (UR), MIS cum SRV are prepared; goods get inspected and finally handed over to the custody section. This section also raises discrepancy and rejection memos whenever damages, rejections and shortfalls are noticed and deals with the concerned authorities that include Insurance Companies, Transporters, Suppliers etc. and makes settlement of claims. This section is further sub-divided into three functional groups for monitoring and control: A) Inventory Clearance and Dispatch Group. (ICDG) B) Inventory Inspection and Inward Group. (IIIG) C) Risk Management Group.(RMG)

A. INVENTORY CLEARANCE AND DISPATCH GROUP

FUNCTIONS.

The function of Clearance and Dispatch group is to arrange receipt of goods and transfer the same to IIIG and performs the following activities in general.

A. To receive Documents: i) Receipt of Purchase Order and Amendments:

A hard copy of P.O and subsequent Amendments if any will be received from purchase section and the same will be kept serially purchase order-wise. The P.O is also available On-line in the Computer. ICDG can view the Purchase Order and Amendments to track the supply position. ii) Receipt of Dispatch Documents: ICDG shall receive dispatch document from various internal / external Agencies e.g. Purchase, Finance (Received through Bank) or directly from Supplier for door delivery /advance intimation.

B. To maintain LR/RR register. Once dispatch documents are received by Goods Receipt section, ICDG shall register LR/RR details in On-line system. Provision for maintenance of manual LR / RR Register may be kept to record data in case the On-line system is down. But the concerned authority shall take care about updating of database when the On-line is available.

C. To arrange clearance of materials from different clearing point of various transport agencies /authorities e.g.

i)

Road Transport / Railway Go-down.

The ICDG shall maintain close and regular contact with Transporter / Railway to get intimation regarding arrival / awaiting clearance of consignments. Information will be collected with reference to RR / LR. The Group shall get the consignment released after presenting the negotiable documents to the Transporters / Railways and on payment of freight, demurrage or any other charges as per terms of order. Collection of consignments shall be done by this Group in case of urgency / as per terms of order or where no Transport contract is existing. (ii) Railway Yard. (iii) R P P (iv) Domestic Airport / Seaport for Imported consignments through T & CC.

D. To receive materials at receipt section itself in case of door delivery. E. To prepare unloading report (UR). F. To maintain accounts for different incidental charges towards Clearance & Dispatch including Imprest account. i) The expenditures on account of payment of freight, wharfage / demurrage, under charges, loading and unloading charges, packing and repackaging charges (in case of packing of any delicate item stores may take necessary help from respective users and FQA.), if any, shall be incurred from Imprest Fund, sanctioned by site GM.

ii) All these expenditures and subsequent recoupment of Imprest shall be recorded in "Imprest Control Register" along with supporting documents duly signed by the Incharge of Goods Receipt Section. iii) Chief of Materials shall approve and authorize ICDG representative to draw the sanctioned Imprest amount and its recoupment and maintenance of records. iv) The carriers will submit their bills with acknowledgement duly signed by the authorized signatory of clearance and dispatch group. Transportation cell of Clearance Group shall verify the bills w.r.t, LR/RR entries available in the on-line system (The print outs of LR/ RR in chronological order has to be maintained strictly by Clearance Group) and shall stamp the bills as "verified" confirming its accuracy and protecting duplicate payment before sending advice to accounts department. G. To obtain Shortage / Damaged certificate from appropriate transporting agencies. H. To handover the material to IIIG. I. To dispatch rejected & other materials for repair or transfer to other Plants. J. To inform Risk Management Group (RMG) for abnormally delayed consignment in transit. K. To obtain sanction of payment of Demurrage / Wharf age charges.

B. INVENTORY INSPECTION AND INWARD GROUP

FUNCTION

After receipt of material from supplier and prior to taking the same in stock, IIIG is responsible for the following activities: A. To receive material from Goods clearance and dispatch Group i) On arrival of material from cartage contractor / ICDG, consignment will be Checked with respect to Unloading Report. ii) After necessary checking of the consignment material will be received and copy of UR to be returned to cartage contractor / ICDG duly acknowledged.

B. To arrange inspection of material. C. To keep material in IIIG custody till it is inspected. D. To hand over material to concerned Custody section / Rejection cell. i) After inspection, the accepted materials are to be handed over to Custody section along with relevant documents. ii) Custody on receipt of material from IIIG will fill up the following in SRV 1. BIN Line No. 2. BIN Balance. iii) IIIG shall distribute the SRVs among the following departments for their action. 1. Finance / Stores Bill Section

2. Purchase 3. Indentor 4. Custody or warehousing 5. Risk Management Group (in case of rejection or excess / shortage)

E. To prepare Discrepancy Memo.

CUSTODY SECTION

Being one of the most important sections of Stores Management System , it consists of various Custody cells which look after Stockyard / Godowns having different group of items such as general stores, Oils, Lubricants & Chemicals, iron, ore, Spares for specific installation / unit, Construction Stores for Electrical, Mechanical and C & I items, Scrap & surplus etc. Activities of each custody cell consist of the following: i) Receipt and Issue. ii) Warehousing and Storage. iii) Preservation. iv) Stock Verification. v) Scrap and surplus Management.

i)

Receipt & Issue

Stores custody section is responsible for receipt, custody, storage and issue of materials. The major functions of this section are: A. Receipt of material from Receipt Section / other Stores Cells / Project sites (Through R & I)etc. B. Receipt of Materials returned from Users. C. Storage and Accounting of Material Receipt and Issue.

Handling Of Documents By Custody (Receipt And Issue Cell) Documents to be Raised cum SRV

Documents to be Received

ii)

Ware Housing And Storage

The functions of Warehousing and Storage are as under: A. Safe custody of all materials (Stores and Equipment) warehoused in the Project Site / Power Station. B. The correct tally of materials with the Kardex, or on computer ledger. C. Correct preparation and posting of all initial documents in the available On-line system. In case of the On-line system gets down the above document should be maintained manually and the same should be re-entered into the On-line system whenever the system is available. D. Periodical identification of Materials in stock (likely to become inactive) and declaration of the same as "Surplus for Sale".

STORING ARRANGEMENT The stock statement maintained by each project / station should be distributed among different enclosures (i.e. "Yards" or "Godown") and are provided with proper handling facilities and modes of access appropriate to the size, shape and weights of the material stocked. Each Yard or Godown shall cover almost all the items in a Main Group of the Material Codification System. Each Yard / Godown or the subsection of the Yard / Godown that can conveniently be locked and secured and operated by a custodian.

Handling And Stacking Of Materials :

No materials (except certain heavy materials) is kept on the floor of the Yard / Godown. These are stacked in the appropriately designed racks. Incase stacking on floor is unavoidable adequate dunnage is invariably used to provide at least 20 mm air space above the floor from the bottom of the material stacked . For satisfactory stacking, the following things should be kept in mind:i) Appropriate dunnage for various kinds of materials (equipment and stores) and optimum air space at the floor of the stack. ii) Optimum stack sizes and stocks construction to minimize deterioration / damage through environmental hazards. iii) Permanent labeling arrangements of each stack.

In order to achieve compact stacking of materials and to facilitate an assessment of the level of existing stock at a glance, a system of stacking is developed with number of rows and layers depending upon the size of the material. In case of small items the packing system is uniform considering quantities in convenient weights or numbers of items. Furthermore wherever possible, graduation marks are to be painted on the bins to indicate certain previously ascertained quantities. This action enables custodian to know the appropriate level of existing stocks at a glance and facilitate him in regulating levels of issue and giving priority of the items needed to be taken up for recoupment and/or expediting action.

PRECAUTIONARY MEASURES DURING RECEIPTS

During any Receipt of Materials in custody Section the following precautionary measures are to be taken invariably. a. The relevant vouchers must accompany all receipts of material. The quantity of materials must be carefully checked with the particulars given in the vouchers. b. A broad comparison is to be made w.r.t. colour, appearance and other visual characteristics of such receipts with the stocks available under the same material code number. In case of significant discrepancy, the same is to be brought to the notice of authorised signatory before acknowledging the receipts. c. In case of materials recovered in the Yard without documents or otherwise, adjustments should be done using Stock Verification Sheet (SVS). d. When an assembly in stock is disassembled and put into stocks as components, this involves the preparation of a certified (adjustment) SRIV and SRVs subject to approval from Head of user department.

MATERIALS PLANNING AND INVENTORY CONTROL SECTION

The prime objective of this cell is to optimize Inventory in totality as well as to reduce the probability of Stock-Out situation. This cell is fully responsible for the Materials Planning and Inventory Control of stock items and will act as a bridge between the user and procurement group so that the stock balancing and availability of goods are maintained.

The Major Functions of this cell are: A. Material Codification and its management. B. Implementation of Computerization. C. Recommendation of Inventory Level (Safety Stock, Economic Order Quantity, Re Order levels etc). D. Planning and Indenting of Automatic Recoupment items. E. Overall Inventory Management. F. Coordination / Liaison with all interface departments. G. Adoption & Formulation of Management Systems and Procedures. H. Generation of MIS(2) to take proactive action. I. Screening of Purchase Requisition from user department. J. Co-ordination with Corporate Materials for Inventory Management (Classification, Codification, Surplus , Obsolete declaration and Scrap Disposal MIS(2) , Insurance Claims MIS(2) Inventory Status etc.) K. Inventory Management - Review and Analysis L. Identification of Surplus and Obsolete items in consultation with User Department.

VALUATION OF INVENTORY

For valuation of inventory Elecon generally uses FIFO method and for ordering, they use EOQ method. First in first out (FIFO): A method of valuation of inventory, by which the cost are allocated on the assumption that goods are consumed or sold in the order in which they are received and taken in to stock. Finished and semi-finished products produced and purchased by the Company are carried at lower of cost and net realizable Value. Work-in-progress is carried at lower of cost and net realizable value. Coal, iron ore and other raw materials produced and purchased by the Company are carried at lower of cost and net realizable value. Stores and spare parts are carried at cost. Necessary provision is made and charged to revenue in case of identified obsolete and non-moving items. Cost of inventories is generally ascertained on the weighted average basis. Work-in-progress and finished and semi-finished products are valued on full absorption cost basis.

Inventory control techniques:

1. ABC CLASSIFICATION

In the year 2010-2011 the total annual value of material is Rs. 201278053. The materials are divided into A category, B category and C category according to annual consumption. The ABC Analysis table is as follows

no

material description

annual

cost per

annual

. 1 steel plates(12,14,18,20,25)mm 2 steel plates(8,16,22,32)mm 3 steel plates(6,10,36,40,45,50,63,65)mm 4 rods(80,100,122)dia 5 chemicals 6 mechanical seal(60,80,100)mm 7 rods(50,180,240,250)dia 8 gear box(as-55,60,35,RR210DNC,110DNC) 9 motors(3,7,5,10)hp 10 accuators and variable frequency drive 11 mildsteel seemless pipes 12 electrodes(E7018) 13 forgings(flanges) 14 rods 15 packaging material 16 standguard and stand drive 17 mechanical seal(50,125)mm 18 hardware 19 paints 20 gearbox(AS-80,90F) 21 motors(5,15,20)hp

consumption unit 1002 702 301 233 59770 240 127 23 251 98 3680 10716 102 63 10738 85 80 121943 17043 34 81 44334 44319 44296 49496 119 27116 49456 23730 21376 49773 955 320 31756 49397 286 33474 34296 20 137 67388 27577

value 44444448 31111113 13333334 11515178 7087018 6584928 6281006 5600280 5365376 4877724 3514400 3429120 3239112 3112011 3071068 2845339 2743680 2438862 2334891 2291192 2233737

22 forgings(nozzles) 23 teflon items(gaskets) 24 electrodes(E7018-1) 25 mechanical seal(40mm) 26 others in boughtout(sight and light glasses,hoses) 27 abbressive material(grit) 28 imported general stores(ceramic crucibles) 29 teflon items(dippipes/sparges) 30 castings(valve bodies) others from general stores(oils, greases, hotmill 31 jars, handgloves,nosemasks, glasses,cap) 32 gearbox(RR310DNC,510DNC) 33 motors 25hp 34 stainless steel seemless pipes 35 castings(rods and plates) 36 electrodes(E316,316L,6013) 37 tantalum 38 teflon items(bushes/nozzles) 39 electrical items 40 imported chemicals 41 oxygen gas 42 flux wires

752 1529 4286 108 270985 36 29 240 425

2892 1200 400 15125 6 43000 53364 6354 3570

2174784 1834803 1714418 1633500 1625908 1548000 1547556 1524960 1517250

97289 90 28 768 3392 385 27 950 5414 1515 6644 7620

15 15581 46704 1525 322 1500 37516 1040 176 610 123 90

1459335 1402345 1307712 1171200 1092224 1027500 1012932 988000 952864 924150 817212 685800

43 castings(nozzles) 44 teflon items(gasket sheets) 45 diesel 46 imported tantalum 47 job bearing 48 castings(sleeves) 49 bearings 50 LPG 51 teflon items(spray ball) 52 shafts 53 teflon items(spacers/seperators) 54 teflon items(tapes/'o' rings) 55 screws and rods 56 material handling 57 grinding machines 58 abbressive material(sand) 59 grinding wheels 60 other in maintence(low value spares, lubricants) 61 hoses and pipes 62 indegnous grind wheels and belts 63 blasting accessories 64 elements seperators

885 500 13606 12 812 40 1166 131 17 20 3072 7702 42 347 12 30 48 1056 159 1981 52 6

770 1350 37 38560 500 9500 250 2221 16256 10412 56 22 3718 435 10115 4000 2284 98 523 42 1502 12147

681450 675000 503422 462720 406000 380000 291500 290951 276352 208240 172032 169444 156156 150945 121380 120000 109632 103488 83157 83202 78104 72882

65 tool bit 66 argon gas 67 imported boughtout(gear box) 68 measuring tapesand scales 69 wind mill spares 70 others in tools(spanners,lowvalue jigggs,fixtures) 71 cutting accessories

33 61 1 103 4 1226 28

2025 950 41764 365 4637 22 574

66825 57950 41764 37595 18548 26972 16072

A Occupies 70% of Annual consumption, i.e., 70% of 201078053 = 140894637. B- Occupies 20% of Annual consumption, i.e., 20% of 201078053 = 40255610. C- Occupies 10% of Annual consumption, i.e., 10% of 201078053 = 20107805

ABC GRAPH FOR THE YEAR 2011-12

50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 annual value no.

The following table shows the A items

annual consumptio no. material description 1 steel plates(12,14,18,20,25)mm 2 steel plates(8,16,22,32)mm steel 3 plates(6,10,36,40,45,50,63,65)mm 4 rods(80,100,122)dia 5 chemicals 6 mechanical seal(60,80,100)mm 7 rods(50,180,240,250)dia gear box(as8 55,60,35,RR210DNC,110DNC) 9 motors(3,7,5,10)hp accuators and variable frequency 10 drive 11 mildsteel seemless pipes 98 3680 23 251 301 233 59770 240 127 n 1002 702

cost per unit 44334 44319 annual value 44444448 31111113

44296 49496 119 27116 49456

13333334 11515178 7087018 6584928 6281006

23730 21376

5600280 5365376

49773 955

4877724 3514400 139714805

The following table shows the B items annual consumptio no. material description 1 electrodes(E7018) 2 forgings(flanges) n 10716 102 cost per unit 320 31756 annual value 3429120 3239112

3 rods 4 packaging material 5 standguard and stand drive 6 mechanical seal(50,125)mm 7 hardware 8 paints 9 gearbox(AS-80,90F) 10 motors(5,15,20)hp 11 forgings(nozzles) 12 teflon items(gaskets) 13 electrodes(E7018-1) 14 mechanical seal(40mm) others in boughtout(sight and light 15 glasses,hoses) 16 abbressive material(grit) imported general stores(ceramic 17 crucibles) 18 teflon items(dippipes/sparges)

63 10738 85 80 121943 17043 34 81 752 1529 4286 108

49397 286 33474 34296 20 137 67388 27577 2892 1200 400 15125

3112011 3071068 2845339 2743680 2438862 2334891 2291192 2233737 2174784 1834803 1714418 1633500

270985 36

6 43000

1625908 1548000

29 240

53364 6354

1547556 1524960

41342941

The following table shows the C items cost per unit annual value

no.

material description

annual consum

ption 1 castings(valve bodies) others from general stores(oils, greases, hotmill jars, 2 handgloves,nosemasks, glasses,cap) 3 gearbox(RR310DNC,510DNC) 4 motors 25hp 5 stainless steel seemless pipes 6 castings(rods and plates) 7 electrodes(E316,316L,6013) 8 tantalum 9 teflon items(bushes/nozzles) 10 electrical items 11 imported chemicals 12 oxygen gas 13 flux wires 14 castings(nozzles) 15 teflon items(gasket sheets) 16 diesel 17 imported tantalum 18 job bearing 19 castings(sleeves) 20 bearings 97289 90 28 768 3392 385 27 950 5414 1515 6644 7620 885 500 13606 12 812 40 1166 15 15581 46704 1525 322 1500 37516 1040 176 610 123 90 770 1350 37 38560 500 9500 250 1459335 1402345 1307712 1171200 1092224 1027500 1012932 988000 952864 924150 817212 685800 681450 675000 503422 462720 406000 380000 291500 425 3570 1517250

21 LPG 22 teflon items(spray ball) 23 shafts 24 teflon items(spacers/seperators) 25 teflon items(tapes/'o' rings) 26 screws and rods 27 material handling 28 grinding machines 29 abbressive material(sand) 30 grinding wheels 31 other in maintence(low value spares, lubricants) 32 hoses and pipes 33 indegnous grind wheels and belts 34 blasting accessories 35 elements seperators 36 tool bit 37 argon gas 38 imported boughtout(gear box) 39 measuring tapesand scales 40 wind mill spares 41 others in tools(spanners,lowvalue jigggs,fixtures) 42 cutting accessories

131 17 20 3072 7702 42 347 12 30 48 1056 159 1981 52 6 33 61 1 103 4 1226 28

2221 16256 10412 56 22 3718 435 10115 4000 2284 98 523 42 1502 12147 2025 950 41764 365 4637 22 574

290951 276352 208240 172032 169444 156156 150945 121380 120000 109632 103488 83157 83202 78104 72882 66825 57950 41764 37595 18548 26972 16072

A B C

Inventory Turnover Ratio: Inventory turnover ratios are calculated to indicate whether inventories have been used efficiently or not. The inventory turnover ratios also known as stock velocity is normally calculated as sales / average inventory of cost of goods sold/average inventory. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks. Symbolically, Cost of goods sold Inventory turnover ratio = ------------------------------Average inventory at cost Or

Net sales = -------------------------Average inventory

Days/Months in a year And, inventory conversion period = ------------------------------------Inventory turnover ratio

1. STATEMENT SHOWING INVENTORY TURNOVER RATIO:

Particulars Turnover Average Inventory Inventory Ratio

2009-10 425042979 260035731

2010-11 398484821 270449527 1.47

2011-12 321558291 293925381 1.09

Turnover 1.63

Interpretation: In 2009-10 stocks are converted into cash/accounts receivable faster when compared to the years 2010-11 and 2011-12. The turnover ratios is 1.63 in the year 2009-10 was gradually decreased to 1.09 by the year 2011-12. This means the stock has not been sold fast and stayed on the shelf for a longer period. This ratio is decreased because of decrease in the sales and increase in average inventory. An efficient management of inventory lies in higher inventory turn over ratio.

Inventory Turnover Ratio

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009-10 2010-11 2011-12

2. INVENTORY HOLDING PERIOD:

Particulars Turnover Average Inventory

2009-10 425042979 260035731

2010-11 398484821 270449527

2011-12 321558291 293925381

Inventory Holding Period( 221 In days)

225

331

Interpretation: In 2009-10 the inventory holding period is less when compared to the years 2010-11 and 2011-12 respectively. In the year 2009-10 the inventory holding period was 221 days and it was increased to 225 days by the year 2010-11 and further it is increased to 331 days by the

year 2011-12. These mainly because of the sales are gradually decreasing from year to year. The ratio is gradually increasing from year to year.

Inventory Holding Period

350 300 250 200 150 100 50 0 2009-10 2010-11 2011-12

3. INVENTORY TO CURRENT ASSETS RATIO: Inventory Inventory to current asset ratio = ------------------------ *100 Current Assets Year Inventory Current Assets Inventory to Current Assets Ratio 2008-09 2009-10 2010-11 2011-12 267797121 252274341 288624713 299226049 328534407 308149728 344537428 336657938 81.51% 81.86% 83.77% 88.88%

Interpretation:

In the year 2008-09, it was 81.51% and it was increased to 88.88% by the year 2011-12. These means that the inventory is increasing from year to year but all the remaining current assets are not increasing. These means the quick assets are decreasing from year to year as inventory is excluded from the preview of quick assets..

90 88 86 84 82 80 78 76 2008-09 2009-10 2010-11 2011-12 Inventory to Current Assets Ratio

Inventory to Total Assets: Inventory Inventory to total assets = ----------------- * 100 Total Assets Year Inventory Total Assets Inventory to Total Assets Ratio 2008-09 2009-10 2010-11 2011-12 267797121 252274341 288624713 299226049 447862056 421558838 458845760 441873054 59.79% 59.84% 62.90% 67.72%

Interpretation: In year 2008-09 it was 59.79% and it is gradually increased to 59.84% by the year 2009-10 and further it is increased to 62.90% & 67.72% by the years 2010-11 and 2011-12 respectively. The Inventory is increasing from year to year but the other assets are not increasing as the inventory.

Inventory to Total Assets Ratio

70 68 66 64 62 60 58 56 54 2008-09 2009-10 Year 2010-11 2011-12

Value

CHAPTER -5 FINDINGS

Over all the inventory of Elecon Engineeing Co. Limited - EP division is maintained at optimal levels in the present market conditions, but a higher inventory turnover ratio above 1.63 times should be targeted to improve the profitability.

Sales are decreasing according to the study; revenue of the company is decreased during the period 2009 to 2012. Thisimpacts severely on the profitability and liquidity position of the organization. An improvement n the inventory turnover ratio may improve the profitability

During the study period, the inventory to current assets ratio is gradually increasing, which indicates proportion of inventory in current assets is expanding. The requirement for production/sales should be re assessed and an Endeavour to reduce the inventory may improve the prospects of profitability.

The inventory turnover ratio is gradually decreasing from year to year. It is not healthy to the company as more than required inventory leads to blocking of capital. The firm should maintain reasonable stocks with the help of inventory control.

The inventory conversion period is also increasing from year to year. Huge inventory holding leads to blocking of cash, obsolescence, or deficiencies in the product line or marketing effort. Over production or early production of goods even before the customer requires them lead to poor inventory holding period.

According to the ABC Analysis throughout this period, A-items i.e. top 20 per cent of items constituted around 90 per cent total annual consumption in value.

In the last year the closing stock is almost equal to the sales which require correction.

CHAPTER -6 SUGGESTIONS

1.

Always keep optimum stocks to keep production process continues without

interruption keeping in view costs of over stocking vis--vis the benefits of more than required stock. 2. The companys production should be re-scheduled dynamically according to

the marketing forecast to avoid overstocking of finished goods. 3. The company should closely monitor the inventories for optimum utilization,

so that idle inventories can be minimized. 4. Priority in managing the purchase and utilization should be given to materials Plates, Bought outs and Rods. Strict

classified as A which constitutes Steel

control is to be ensured for materials classified as B. 5. Search for alternate suppliers and materials to be used in production to

decrease the cost of holding huge inventory and lead time for procurement of materials. 6. The investment in raw materials should be made with close monitoring and

optimum utilization. 7. Investment in slow moving items may block up the funds therefore the

company may consider using F N S D analysis. (Fast normal slow moving and dead items.). 8. The raw material should be procured from right source at right quantity and at

right cost.

CHAPTER -7 BIBLIOGRAPHY

S.no. 1.

Title Financial Accounting

Author I.M.PANDEY

2.

Cost and Management Accounting

S.P.JAIN & K.L.NARANG

3.

Cost Accounting

R.P.TRIVEDI

4.

Internet websites

www.elecon.com www.google.com