a project report on inventory management. Uploaded by ranjanachoubey Download as DOCX, PDF, TXT or read online from Scribd. Flag for inappropriate . Download as DOC, PDF, TXT or read online from Scribd M.B.A. IIIrd Sem. Roll. No. This project gives us information and report about company's Inventory. Project On Inventory Management - Free download as Word Doc .doc) or read online for free. I here by declare that this project report entitled “A study on inventory management in 0ABECFB/Global_Energy_Forum_NALCO. pdf.
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A Project report submitted to Jawaharlal Nehru Technological University, I hereby declare that the project entitled “A study on Inventory management at Sujana MBA at Gokaraju Rangaraju Institute of Engineering and Technology, affiliated. for the time MBA-II course that I am pursuing at the P.V.G Institute Of INVENTORY MANAGEMENT TECHNIQUE practice and prepares fieldwork. Thus the sole. INVENTORY MANAGEMENT APEX AUTO LTD., EXECUTIVE SUMMARY G C T M Industry in India has traveled are less, now India is one of the main cotton.
In one group or bin, sufficient quantity is kept to meet the current requirements over a designated period of item. Carrying cost increases. As such, the funds position of the lending bank remains intact. Inventory represents a large investment by manufacturing concern: Lead time 4.
So all the firm gives special importance for inventory management. The major objective of the study is to examine the effectiveness of inventory management system adopted by Akash industry; the study mainly focuses on the techniques used by the company to control the inventory. The study also covers other areas like the financial ratios for the period of to Interaction with personnel of the company 2.
Direct Observation in Inventory Secondary Data: Balance Sheet 2. Turnover Statements 3. Monthly Inventory Statements 4. Company Records 5. Internet Tools Used: MS-Excel has been used for calculations. Small businesses that specialize in metal are called fab shops. Steel fabrication shops and machine shops have overlapping capabilities, but fabrication shops generally concentrate on the metal preparation, welding and assembly aspect while the machine shop is more concerned with the machining of parts.
A fab shop will bid on a job, usually based on the engineering drawings, and if awarded the contract will build the product. Fabrication shops are employed by contractors, OEM's Original Equipment Manufacturers and VAR's Value-added Reseller Typical projects include; loose parts, structural frames for buildings and heavy equipment, and hand railings and stairs for buildings. Manufacturing engineers will program CNC machines as needed. This is done with a variety of tools. The most common way to cut material is by Shearing metalworking ; Special band saws designed for cutting metal have hardened blades and a feed mechanism for even cutting.
Abrasive cut-off saws, also known as chop saws, are similar to miter saws but with a steel cutting abrasive disk.
Cutting torches can cut very large sections of steel with little effort. Burn tables are CNC cutting torches, usually natural gas powered.
Plasma and laser cutting tables, and Water jet cutters, are also common. Plate steel is loaded on a table and the parts are cut out as programmed. The support table is made of a grid of bars that can be replaced. Some very expensive burn tables also include CNC punch capability, with a carousel of different punches and taps.
Fabrication of structural steel by plasma and laser cutting introduces robots to move the cutting head in three dimensions around the material to be cut. The cut plate is placed in the press and a v-shaped die is pressed a predetermined distance to bend the plate to the desired angle. Wing brakes and hand powered brakes are sometimes used. Tube bending machines have specially shaped dies and mandrels to bend tubular sections without kinking them. Rolling machines are used to form plate steel into a round section.
English Wheel or Wheeling Machines are used to form complex double curvature shapes using sheet metal.
Machining Fab shops will generally have a limited machining capability including; metal lathes, mills, magnetic based drills along with other portable metal working tools.
Welding Welding is the main focus of steel fabrication. The formed and machined parts will be assembled and tack welded into place then re-checked for accuracy.
A fixture may be used to locate parts for welding if multiple weldments have been ordered. The welder then completes welding per the engineering drawings, if welding is detailed, or per his own judgment if no welding details are provided. Special precautions may be needed to prevent warping of the weldment due to heat. Straightening of warped steel weldments is done with an Oxy-acetylene torch and is somewhat of an art.
Heat is selectively applied to the steel in a slow, linear sweep. The steel will have a net contraction, upon cooling, in the direction of the sweep. A highly skilled welder can remove significant warpage using this technique.
Steel weldments are occasionally annealed in a low temperature oven to relieve residual stresses. Any additional manufacturing specified by the customer is then completed.
The finished product is then inspected and shipped. Road Dharwad- , India Fax: Basically this company is heavy fabrication Company. They are manufacturing back hoe Loader components and excavator Components Type of organization: Promoted by Mr.
Atul Taunk in with a modest capital outlay of Rs. Achieved by producing thousands of dynamically stressed machined components for the construction equipment industry The raison deter of Apex is that the emerging scenario in post liberalized India indicated that the nation was poised to go in for massive infrastructure building: This would put immense pressure on manufacturers of earth- moving equipment.
Apex eases the load on them by supporting the industry with precision engineered sub-assemblies and major assemblies that can go directly into their equipment, such as revolving frames, main frames, booms, arms, dozers, buckets, and so on. As a case in point, we're proud to have been entrusted with the single share of business for all major fabrications that go into the making of TATA Hitachi's top selling excavators, the EX Over the last 5 years, we have fabricated more than 10, components of this particular model alone.
Aristotle - Greek inventor of the Science of Logic - recommends studying the theory of 'The 4 Becauses' before making your choice Why Apex for your Machined fabrication? The 1st because deals with what is it made of? Apex uses only prime quality steel sheets and plates procured from leading players in the industry - Tata Steel and SAIL. The 2nd because deals with how is it made? Apex has state of art Material Processing facilities including Indias largest laser cutting machine.
And excellent Production Engineering systems set up by a highly experienced and technically qualified team of engineers. The 3rd because deals with what is made? Based on our customer's drawings and design, Apex manufactures dynamically stressed machined fabrications conforming to all the specifications laid down by the customer. The 4th because deals with why is it made thus?
Apex follows the first three precepts so that the end customer gets a world-class product which will withstand the ultimate test of time. By the highly qualified internal engineering department 2.
All their manufacturing units are engineered to product specific and managed by effective and efficient internal engineering department. There is an independent quality audit team in process control system in all the factories, which has given quality production consistently.
However, they have a rigid control on their quality control system where by they ensure that all the raw materials are produced as per their quality standard level before it gets dispatched to their factories. They have a lab situated in the major procurement centers, such as in Dharwad and Jamshedpur to support their quality control team to carryout the various quality tests at all level onwards to ensure that the product is produced according to their quality in-house.
A thorough Inspection by In-house Quality Control team and pre-shipment Inspection by buyer representative for all their products helps company to maintain zero-quality claims position with all their buyers. All the buyers as of today have been working with them since decades and they started with them on continues basis with enhanced volume. This has given them huge confidence as the confidence level of their buyers is very high in their products, quality, timely deliveries and commitment towards work.
Personnel Department This department is almost like a human brain, since it is the human beings that operate it. This department is concerned with implementation of the plans, with the welfare of the plant, with the industrial relations and above all safety and security of the plant and the work force is its prime concerns. This department looks after the subsidiaries like recruitment selection training and induction, canteen, community development disciplinary actions etc.
Recruitment is process of searching the prospecting candidate, stimulating and encouraging them to apply for the job. The above meaning says that every organization want skilled workers so Apex Auto Ltd Unit II also recruit candidates as follows , they firstly check the organization culture which type of employees needed in organization and they also check employment condition in unit.
They are searching the candidates in two ways one is Advertisement and the other is manual searching. Stores Department The raw materials are stored separately under material cell in production department; as per the demand this department does the work of receiving and issuing of materials.
Purchase Department Against the approved purchase requisition the department purchases of raw material semi finished goods and Accessories and other needs of the various departments. In order to make the work efficient it has the system of sub contractors. So the purchase department does the creation of sub contractors and vendors.
This department is guided by the main motto the plant and other departments working. Dispatch Department The dispatch of materials and finished goods is done in a very efficient way. From our very inception at Jamshedpur in and at Dharwad in , our infrastructural facilities have been meticulously planned out with an eye towards satisfying the exacting standards of world class players in the Earth Moving Industry.
Following are the components. The below showing is the manufacturing process of Excavators Boom. Then the stores department sends materials to production department for production 2. After that back up bars are join at the bottom of both 20mm Bkt plates. So this process finishes boom and bracket assembly. Firstly bottom lugs are joined to each other and then those lugs are attached to the bottom of the prepared component. After joining the bottom lugs the top lug is joined to the top of prepared component with required dimension or space so as to complete this process.
In this stage they check total length of the component. Total length should be mm if there less difference of 4mm then there is no problem it must not exceed 4mm, then they also check centre point of the component and top lug distance to the boom and bracket, and bottom lug distance of the components if there is any problem found then they go for rectification of the component.
In Robot welding processed components are weld by Robot machine.
Firstly they set the programs to the robot for welding the components. Every component has is its own welding program according to the standard drawing of the components, after installation of the Ex — 70 program the welding process of EX- 70 boom starts, Mig welding wire is been used by the robot to weld the component. In machining process they have two type of jobs one is milling and the other is boring, in this process they are using two type of machines one SHW that means hidden control machine and the other is Fanuc control machine.
To reduce heat in the process they are using coolant oil because it helps to reduce the heat for insert ware and tear and it helps to smooth milling and boring of the component in machining they are having there stages 1.
Rough stage 2. Semi finish 3. Finish Stage In Ex- 70 boom components are having mainly four bores boss bore must have the size of 75mm and lug bore must have the size of 55mm and bracket must have 60mm. Bore dial gauge 2. Micrometer 3. Vernier 4.
Measuring scale etc DRESSING Dressing is the very important stage in manufacturing process in this process they clean the components by using grinding machine and sander machine to remove spatters chips etc, here they also fit some items to prepare components to according to standard diagram.
Blow Holder area 2. Proper penetration 3. Porsity etc DISPATCH After completion of all this processes the quality assurance department checks the quality of the component and after checking they finally dispatch the product so this complete the manufacturing process of EX boom model.
Apex Auto Limited is in the service of gaints in the field of Excavator manufacturing Co. The term inventory refers to the stockpile of the products a firm is offering for sale and the components that make up the product.
The assets which firms store as inventory in anticipation of need are: These represent inputs purchased and store to be converted into finished products in future by making certain manufacturing process on the same. These represent semi-manufactured products which need further processing before they can be treated as finished products. These represent the finished products ready for sale in the market. They may be in the form of cotton waste, oil and lubricants, soaps, brooms, light bulbs etc.
Normally, they form a very minor part of total inventory and do not involve significant investment. Let us have a look on Different Inventory Management Views.
Means emphasis role of Inventory Management in different Sectors. The reason behind of dividing these views is: Let us see the Meanings of each view one by one. Physical Inventory Management Meaning: Usually, the company is faced with the following conflicting objectives in the area of inventory management: To carry maximum inventory in order to facilitate efficient and smooth production and sales operations.
To minimize investment in inventory for maximize the profitability. Both over-investment and under investment in inventories is undesirable as both involve the consequences. The over-investment involves the consequences like: Risk of liquidity. The inventories once purchased and stored are normally difficult to dispose off at the same value. The under-investment involves the consequences like: If sufficient stock of raw material and work in process is not available, it may result into frequent interruptions in production.
If sufficient stock of finished goods is not available it may not be possible for the company to serve the customers properly and they may shift to the competitors. Thus, it can be said that the objective of inventory management is to minimize the investment in inventory without affecting production or sales operations. Inventory, as a current asset, differs from the other current assets because only financial managers are not involved.
Two-Bin System: Under this system, the inventory items are grouped into two categories. In one group or bin, sufficient quantity is kept to meet the current requirements over a designated period of item. Financial Inventory Management Meaning: The selection of a suitable method assumes significance in view of the fact that it has a direct bearing on the cost of goods sold and consequently on profit. Therefore, the method should be selected in the light of probable effects on profits over a period of years.
It may not be out of place to mention that once a method is selected, it must be used consistently and cannot be changed from year to year.
The discussion here of the methods to value inventory should, therefore be viewed in this perspective. The merit of FIFO method is that the physical flow of materials matches the flow of cost. Under the LIFO method, the cost of goods sold and the value of closing inventory can be determined only after the final lot of the year has been received. This is because of the assumption underlying the valuation of inventory, according to this method.
As the name LIFO suggests, the use of inventory is valued on the basis of the inverse sequence of receipts. This matching of current costs with current revenues is the essence of the argument for the LIFO method.
Average Cost Method: According to average cost method, each purchase is added to inventory and an average cost determined. Materials are charged into cost of sales at this average until another lot is received, when a new average unit inventory cost is calculated.
There are so many other than these above methods but most wide usefully methods are these three so here we discussed those three methods only.
Excluding the cost of merchandise, the costs associated with inventory fall into two basic categories: These costs are an important element of the optimum level of inventory decisions. It is also called as setup cost. They are involved in maintaining or carrying inventory. The cost of holding inventory may be divided into two categories.
Those that Arise Due to the Storing of Inventory: The main components of this category of carrying costs are i storage cost, that is, depreciation, insurance, maintenance of the building and utilities; ii insurance of inventory against fire and theft; iii deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence and price decline; iv serving costs, such as labour for handling inventory, clerical and accounting costs.
The Opportunity Cost of Funds: This consists of expenses in raising funds interest on capital to finance the acquisition of inventory. If funds were not locked up in inventory, they would have earned a return. This is the opportunity cost of funds or the financial cost component of the cost.
The carrying costs and the inventory size are positively related and move in the same direction. If the level of inventory increases, the carrying costs also increase and vice-versa.
Total Cost: The sum of inventory increases, the carrying costs represent the total cost of inventory. This is compared with the benefits arising out of inventory to determine the optimum level of inventory.
How much inventory should be bought in a lot? Should the quantity to be purchased be large or small? Such inventory problems are called Order quantity problems. The firm knows with certainty the annual usage consumption of a particular item of inventory.
The rate at which the firm uses inventory is steady over time. The orders placed to replenish inventory stocks are received at exactly that point in time when inventories reach zero.
Order Point: Reorder Point: This is the point at which to order inventory-expressed equation-ally as: Lead Time in days X daily usage. Lead Time: It is the time normally taken in receiving delivery after placing orders with suppliers. Safety Stock: Collateral Strength. Inventory Position 3. Agreement papers of all authorized persons like Debenture holders, Shareholders etc. All required documents. From this statement it can judge the financial strength of the Company.
While analyzing of Financial Strength of the Company, Inventory is also having its own emphasis role. Because if company is having less inventory than its requirement then company will get less finance from Banks and visa- versa. So here high inventory means, high in the sense company should have sufficient inventory according to its order.
Not more than its order. Let us have a look on some Inventory related Ratios and also some important financial ratios those, which are related to Inventory. The financial statement provides a summarized view of the financial position and operations of a firm. The analysis of financial statement is, thus an important aid to financial analysis. Tasks of Financial analyst is to: In brief, financial analysis is the process of selection, relation and evaluation. Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account.
Financial analysis can be under taken by management of the firm, or by parties out side the firm, viz. The nature of analysis will differ depending on the purpose of the analyst. Ratio Analysis related to Inventory Ratio analysis is a powerful tool of financial analysis. Ratios help to summarize large quantities of financial data and to make qualitative judgment about to form a qualitative judgment the focus of financial analysis is on the key figures in the financial statements and the significant relationships that exist between them.
Liquidity Ratios b. Activity Ratios c. Profitability Ratios A. Liquidity Ratios: Liquidity refers to the ability of the firm to meet its obligations in the Short run, usually one year. Liquidity ratios measure the ability of the firm to meet its current obligations. Liquidity ratios by establishing a relationship between cash and other Current assets to Current obligations provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it does not have excess liquidity.
Therefore it is necessary to strike a proper balance between high liquidity and lack of liquidity. Following are some of the important liquidity ratios: Current Ratio 2. Quick Ratio 3. Net working Capital Ratio B. Activity Ratios: Activity ratios are concerned with measuring the efficiency in asset management. Sometimes, these ratios are also called efficiency ratios or asset utilization ratios.
The efficiency with which, assets are converted into sales. For this reason, such ratios are also designated as turnover ratios. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. An activity ratio may, therefore, be defined as a test of the relationship between sales and various assets of a firm. Several activity ratios can be calculated to judge the effectiveness of asset utilization.
Inventory Turnover 2. Assets Turnover 3. FIFO Method: Under this method, as noted earlier, inventory is valued on the assumption of chronological cost flow. The vale of inventory as show in the balance sheet would reflect the current cost, if FIFO method were used. LIFO Method: According to this method, obviously, the inventory figure would not appear in the balance sheet at the Current Cost. It will reflect rather the cost of raw materials purchased in the past year.
Assuming rising prices, the inventory value based on the LIFO method would tend to be undervalued. For example inventory purchased as early as six years or more. In that situation, the inventory figure included in the balance sheet would be actually the price paid on the purchase of inventory six years ago. This would imply that the balance sheet would not reflect the current worth of the inventory.
That the inventory value will not be correct is another way of saying that the balance sheet will present a distorted picture of the affairs of the firms. The modified method will, thus, serve the needs of correct income determination as well as correct asset measurement. This increase in profit is termed as liquidation profit, which is equal to the difference between the current cost of inventory and the cost of inventory purchased in the past.
Logistics is the Organization of Services and Supplies. In fully export-oriented business this is one of the main department, where this department gets an approval to sell their goods in foreign countries.
And also their main intention is to maintain all documents of those that are related to the exporting of their products. Logistics Inventory Management: Yes, already we have observed about the meaning of Inventory Management in the Organization. But in fully export oriented business; Inventory Management is a very important concept.
One public sector unit: Nalco and two private groups: Hindalco is the largest producer of aluminium and Nalco is the low cost aluminium producer. The strength of Indian aluminium industry is the vast bauxite reserves through out the country. Though these industry are energy intensive, every Plant has each of its captive power plant for continuous supply of power. Growing economy provides good and better opportunities for these industries. It is the first Aluminium company to achieve ISI certification for all the four production units: The present capacity of its bauxite mines is MT, of alumina plant is MT, of aluminium plant is MT and captive power plant is MW.
Going through financial performance of the company it can be found that it is a constant profit generating company. The company achieved a turnover of Rs crores against the turnover of Rs crores during the previous year the profit after tax stands at Rs crore as against Rs crore in the previous year. Nalco has finished the first phase of expansion and is working for the 2 nd phase of expansion after which the capacity of bauxite mines would be MT, alumina Refinery would be MT, aluminium smelter would be MT and captive power plant would be MW.
The research conducted in about the inventory control techniques applied in Nalco Smelter Plant, Angul and its effectiveness.
The inventory of this plant increased from Rs The research objective is to study and understand the inventory of all materials, and analyzing the effectiveness of various techniques used in Nalco.
Finally recommending methods and strategies to control the inventory. Keeping inventory of sufficient stocks will help to face lead times component, demand and supply fluctuations and any unforeseen circumstances in the procurement of materials.
Though to have inventory is must, inventory is such a thing that will pile up and creep into the area of profits to turn them as losses and can put the company in red. It is therefore, necessary to have control over inventory to save the company from piling up of inventories and to avoid losses. Better said than done is the world that suits the inventory control.
The objectives of inventory control are: Optimization can be achieved and efforts need to be made to improve input output ratio of materials by scientific methods of determining. But in a manufacturing industry the inventory can be classified into four broad categories: It contains materials purchased from market like raw materials; Ready made parts, component, spares and also special parts and components manufactured in their own industry and kept in stock for self consumption for use in manufacture.
Contains materials purchased from vendors to maintain the production process and these maintenance, repair and operating inventory do not form part of the finished products. Work in progress Inventory: This contains manufactured good kept in stores, warehouse or retail outlets, Stock Yard for sales to consumers.
To put this into a diagram, the Constituent of Inventory is as follows: These are two fundamental things on which inventory control depends. Many factors govern these fundamental things. The prime factors that govern these two fundamental things are: Requirements 2. Quality in stock or on order 3. Lead time 4. Necessity for stocking an items 2. Time for reordering the items 3.
Quality per order to be order. Continuous and periodical review is required in the evaluation of inventory management and treats it as a continuous process as costs, source of supply, availability of materials; consumption will vary in the course of time making the previous assessment invalid.
This process also helps in standardization of materials for procurement by using near equivalents and eliminating material, which are discontinued as a regulation, which will remove obsolescence. This cushion should not be suicidal to any organization. The following scientific techniques and methods are being used in control of inventory. Inventory Management Techniques 2. Standardization 3. Selective Inventory Control 4. Just In Time 5. Perpetual inventory system 6.
Inventory turnover ratio 2. Economic Order Quantity If the firm is buying raw materials, it has to decide lots in which it has to be purchased on replenishment. If the firm is planning a production run, the issue is how much production to schedule.
These problems are called order quantity problems, and the task of the firm is to determine the optimum or economic order quantity.
The term ordering cost is used in case of raw materials and includes the entire costs of acquiring raw materials. Cost incurred for maintaining a given level of inventory is called carrying cost. Economic Order Quantity is given by the formula: Reorder Point The reorder point is that inventory level at which an order should be placed to replenish the inventory. To determine reorder point: Safety stock The demand for material may fluctuate from day to day.
The actual delivery time may be different from the normal lead time. If the actual usage increases or the delivery of inventory is delayed the firm can face problem of stock out, which can be costly.
So, in order to guard against the stock out the firm may maintain a safety stock. And because of the reduction in variety the advantages are low order cost, low inventory, less storage stocks, conservation of materials, variety reduction, less paper work, easy follow up with suppliers, less number of orders.
The importance of this field has been recognized since the days of F. Taylor, who first drew attention to this fundamental need in any organization. Just as work study is necessary preliminary to work simplification, and a basic technique for production control, quality control, materials handling, estimated cost control, etc. A high degree of control on inventories of each item would, therefore neither be practical considering the work involved, nor worthwhile since all items are not of equal importance.
Hence, it is desirable to classify or group items to control, commensurate with importance. This is the principle of selective control as applied to inventories and the technique of grouping is termed as selective technique. Selective inventory means variation in the methods of inventory control from items to item and this differentiation should be on selective basis by classification.
A company has to stock thousands of items of raw materials, standard parts, stores and spares, sub contract items, tools, stationery etc. In any company manufacturing, there are number of items which are consumed or traded it may run into thousands.
It is found after number of studies for different companies that — Value of consumption of No. Of items Grade items value in Rs. C items these are large number of items which are cheap and inexpensive and hence insignificant. Very strict control 1. Moderate control 1. Loose control. Follow up and expediting Expediting in exceptional cases 4.
Minimum value analysis 5. Although fast moving does not necessarily mean that these items are consumed in large quantities. Thus, stores department whose concerned with the moving of items would like to know and classify that the items are storing in the categories FSN. So that they can manage operate and plan stores activity accordingly. For example, for efficient operations it would be necessary that fast moving items as far as possible should be stored as near as possible to the point of issue.
So that it can be issued with minimum of handling. Also such items must be stored at the floor level avoiding storing them at high heights. Similarly, if the items are slow moving or issued once in a while in a given period of time they can be stored in the interior of the stores and even at the higher heights because handling of these items becomes very rare.
Further it is necessary for stores in charge to know about non moving items for various reasons: They mean unnecessary blockage of money and affecting the rate of returns of the company. Further they also occupy valuable space in the stores without any usefulness and therefore it becomes necessary to identify these items and go into details and find reasons for their non moving and if justified to recommend to top management for their speedy disposal so that company operations are performed efficiently.
Also inventory control to some extent can also be exercised on the basis of FSN analysis. For example, fast moving items can be controlled more severely, particularly when their value is also high. Similarly, slow moving items may not be controlled and reviewed very frequently since their consumption may not be frequent and their value may not be high.
Similarly arrangement can be made for y and z items accordingly. We should review inventory control procedure for each and every high item because stock should be maintained to take care of lead time consumption and also to provide safety stocks.
For high value items lying in stores we should review the reasons for long lead time as well as demand variations and see whether lead time consumption and safety stocks can be reduced.
Thus proper inventory control procedures can be developed on the basis of XYZ analysis. Thus proper selective control methods should be selected to control the materials and prevent from facing loss, taking advantage and knowing what exactly is to be done.
When applied to material in VED analysis we try to identify material according to their criticality to the production, which means the material, without which the production will come to stop and so on from this point of view material classified into three categories. Vital categories of the items are those items for the want of which the production will come to stop. For e. Power in the factory. Essential group of items are those items because of non availability of which the stock out cost is very high.
Desirable group of items are those items because of non availability of which there is no immediate loss of production and stock cost is very less and it may cause minor disruption in the production for a short time. H stands for high price, L stands for low price and M stands for medium price.
Since price is more concerned of purchase department mostly purchase department people analyses the material according to HML analysis. HML analysis must be carried out from any one of the following objectives or some of the objective as the case may be. Now days organizations are becoming more and more interested in getting potential gains from making smaller and more frequent purchase orders. In other words, they are becoming interested in just in time purchasing system.
Just in time purchasing recognizes too much carrying costs associated with holding high inventory levels. Therefore, it advocates developing good relations with suppliers and making timely purchases from proven suppliers who can make ready delivery of goods available as and when need arises.
EOQ model assumes a constant order quantity whereas JIT purchasing policy advocates a different quantity for each order if demand fluctuates. EOQ lays emphasis on ordering and carrying costs but inventory management extends beyond carrying and ordering costs to include purchase costs quality costs and stock out.
Just in time purchasing takes into consideration all these costs and move— outside the assumptions of the EOQ model. Advantages of JIT purchasing 1. Investment in inventory is reduced because more frequent purchase orders of small quantities are made. Carrying cost is reduced as a result of low investment in inventory.
A reduction in the number of suppliers to be dealt with is possible. Only proven suppliers who can give quick delivery of quality goods are given purchase orders. As a result of this reduction in negotiation time is possible. The use of long—run contracts with some suppliers with minimal paper work involved is possible. Quality costs such as inspection cost of incoming materials or goods , scraps and rework costs are reduced because JIT purchasing assures quick and frequent delivers of small size orders which results in low level of inventories causing minimum possible wastage.
Therefore, JIT purchasing is frequently applied by organizations dealing in perishable goods. Bind cards and the stores ledger help the movements of the stock on the receipts and in maintaining this system as they make a record of to physical movements of the stocks on the receipts and issues of the materials and also reflect the balance in the stores.
Thus, it is a system of ascertaining balance after every receipt and issue of materials through stock record to facilitate regular checking and to avoid closing down the firm for stocktaking. To ensure the accuracy of perpetual inventory records i. Bin card and stores ledger , physical verification of the stores is made by bin cards or stores ledger may differ from the actual balance of stock as ascertained by physical verification.
It may be done to the following avoidable and unavoidable causes. This growth was primarily led by China, which grew at a phenomenal India too, registered a strong double digit growth in in line with buoyant economic growth.
The strong industrial growth, infrastructure initiatives and electrification drive resulted in good demand for aluminium. Automobile and transportation sectors also supported the aluminium demand.
Globally, Aluminium production increased in line with the consumption. The primary aluminium production for the year was Higher aluminium prices in the early part of the year also led to some capacity restarts which further supported the production.
The depreciating dollar resulted in a sharp fall in domestic aluminium realizations as the prices are dollar denominated. Continuing with the stated policy of import duty reduction, the government cut the customs duty on aluminium. During FY08, crude prices also witnessed a sharp surge.
The rising crude prices resulted in higher prices for its derivatives. The soaring crude also had a cascading effect in terms of higher transportation costs and higher prices of alternate energy sources like coal. All these led to a significant cost push for the aluminium industry. In , the global aluminium demand is expected to remain strong in spite of a marginal slow down in the demand growth rate. The Chinese demand though expected to remain strong; the growth rate is expected to decline marginally from CY07 levels.
The US demand weakness will continue. In India, the demand is expected to increase in line with economic growth rate. Over medium term, thrust on power sector spending will spur the aluminium demand.
Aluminium production is expected to keep pace with growing demand with new capacities coming up in Middle East and Asia. However, globally, in the recent past, the aluminium industry is witnessing production cut downs due to power shortages in various parts of the world.
The cost push witnessed by the industry in is expected to continue with crude prices still continuing with its northward journey. The rising costs and supply constrains will determine the floor for the prices. A reasonably strong demand along with supply constraints and rising cost is expected to keep the prices strong.
Rupee exchange rate will continue to have a significant bearing on domestic realizations.
There are only few big players in primary Aluminium market who dominate market and also have a considerable position in export market. In the secondary Aluminium market there are many fabricators who buy Aluminium from the primary Aluminium producers and fabricate into different downstream products. In the downstream there are several companies in small and medium scale. In the secondary fabrication units the product can be divided into three main categories example 1 redrawn wire rods , 2 rolled products and 3 extrusion products.
Each category can again be sub divided into different segments. The majority of aluminium produced in India is consumed in the electrical, transportation, building and construction and packaging industries. Indian demand for primary aluminium increased at a compound annual growth rate of Electrical applications continue to be the largest end use sector in India, consuming approximately Transport is also a major consumer, contributing approximately Indian Aluminium Industry: The Indian aluminum industry is highly concentrated with only five primary plants in the country from three business groups.
National Aluminium Company Limited Nalco. The multi unit, multi location company, NALCO came up with 24lakhs tones per year bauxite mines an alumina refinery to produce 8lakh tones of calcinated alumina per year and tones smelter plant.
Since assured an uninterrupted supply of power is a must for production of aluminium, NALCO has also set up a MW captive power plant close to its smelter plant.
Signing of an agreement to avail commercial euro dollar term loan of million US Dollars and start of project activities followed this. Starting from the commissioning of mines in November , all the units of the projects followed on schedule, without any cost overrun. The annual capacities of the various project segments and those after 2nd phase expansion are given below: But in 97 the profit was dipped due to dip in international aluminium prices.
Though the gross sales, profit and other financial parameters have shown improvement in 98, there has been again dip in the production figure, sales, profit etc. This has prompted the company to appeal government of India for Capital restructuring.
The decline in sales realization and net profit during the year, compared to previous year, is mainly due to lower sales realization from export of alumina, substaintial appreciation of rupee against US dollar. The company has achieved an export earning of Rs. All these have enthused NALCO to invest further in downstream facilities to diversify and spread its operation. The following assumptions have been made for SWOT analysis: Being the leader in primary aluminium market, NALCO has never felt the need for setting up channels of distribution which is now absolutely for downstream products.
Being the leader in an oligopolistic market, the company may find it difficult to market new products where the existing small companies have already established themselves. As such there is cut throat competition in the secondary value added product market. In an industry inventory comprises of raw materials, process materials, general stores, consumables and spares parts, and semi finished and finished goods.
Inventory of input materials are carried to support production and maintenance activities so that the same is available in right quantity, at right point of time. Carrying excessive inventory not only results in blocking up of working capital but also adds inventory carrying cost to it. Inventory carrying cost consists of interest on locked working capital cost of storage, obsolescence and detoriation.
Minimum blockage of funds in inventory optimization can be achieved and efforts need to be improving input output ratio of materials by scientific methods of determining. Nalco smelter plant has the capacity of MT which is powered by captive power plant of capacity MW. Production in such plant is continuous and that is why requires large amount of raw materials, steel and cement, general consumables, pot lining and mechanical, electrical and instrumental spares are required.
On looking at the inventory status for last three years it can be seen that inventory is increasing. Inventory in FY: It further increased to Rs Thus this expansion has lead to increase in production and in turn increase in materials supply and increase in inventory. The work on 2nd phase expansion programme at an estimated cost of Rs crores at March is in full swing.
The annual capacity of aluminium smelter plant and captive power plant is going to increase to MT and MW respectively. Therefore raw materials are ordered in bulk for 1 month, 2 months or 6 months consumption.
Thus the inventory increases t the time of reception of these materials. Stores department taking sum of all the requirements order various items. All these items have a specific code. Even the items with same usage such pen of different company have different code. This can create a duplicate indent. If a particular item is indented by a department with a specific code and item with this code is not available in the stores but store have the items with same usage of different code.
The stores order the item even though it has item with same utility. Thus through duplicate indent the inventory increases.
This mismanagement can cause improper supply of materials and thus can lead to increase in inventory. Thus spares are ordered are kept as inventory and if it is not indented the number of spare increases and thus inventory.
Installing of new machine with better technology can also cause increase in inventory as spares of old machines are left out as well as spares of new machines are also ordered.