Page 1

INVENTORY MANAGEMENT Submitted in the partial fulfillment for the requirement For award of the degree of MASTER OF BUSINESS ADMINISTRATION

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PREFACE There has been a great flux in the subject matter of financial management . About three- decade ago , the scope of financial was restricted to the raising of funds whenever needed & little significance used to the financial decision & problem solving. The modern thinking in the financial management gives great importance to management decision –making policies. Today financial manager occupies a key position in top management and plays a dynamic role in solving complex management problem. The basic purpose of this project is to have a through and deep understanding of financial position of the firm .A number of books had been consulted for writing theory; data had been collected from the balance sheet and other source. I have tried to minimize the printing mistake and put the contents in short & crisp. I welcome the critical suggestion and any mistake found in the project.

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ACKNOWLEDGEMENT Behind every study there stands a myriad of people whose help and contribution make it successful. Since such a list will be a prohibitively long, I may be excused for important omissions. The guidance, help and co-operation of my supervisor xyz AO, Finance Deptt. BHEL, Hardwar is gratefully acknowledged with profound gratitude.

I am also thankful to all others in Finance Department, H.E.E.P., BHEL, Hardwar, who provided me with all the required information for my project. Last not the Least, my special thanks to our

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DECLARATION I hereby declare that the study entitled ‘’INVENTORY MANAGEMENT” in the context of H.E.E.P. BHEL” being submitted by me in the partial fulfilment of the requirement for the award of MASTERS IN BUSINESS ADMINISTRATION is a record of my own work. The study was conducted at Finance Department, H.E.E.P. BHEL. The matter embodied in this project report has not been submitted to any other University or Institution for the award of degree This project is my original work and it has not been presented earlier in this manner . this information is purely of academic interest.

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OBJECTIVE OF THE STUDY

The project work is done to fulfill the requirement of our M.B.A degree course. It is an integral part of the curriculum of this program. The main objective of this project is to have deeper insight in to the financial position of the company and make analysis of items of the Balance sheet and profit & loss a/c. This will help to know about the past and present trend as well as predict about the future. It will help to make inter firm comparison and act according to this. What strategy a company has to make and in what filed more expenditure is to be made , can be analyzed with the help of the project. In addition to the knowledge, this project report provides the financial position of the unit for the current financial years for various areas. It is also tells about the various policies and accounting adopted by the firm.

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COMPANY'S OBJECTIVES

BUSINESS OBJECTIVE: GROWTH: To ensure a steady growth by enhancing the competitive edge of BHEL in existing business, new areas and International operations so as fulfill national expectations from BHEL.

PROFITABILTY: To provide a reasonable and adequate return on capital employed, primarily through improvements in operational efficiency, capacity utilization and productivity, and generate adequate internal resources to finance the company's growth.

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CUSTOMER FOCUS: To build a high degree of customer confidence by increasing value for his money through international standards of product quality, performance and superior services.

PEOPLE-ORIENTATION: To enable each employ to achieve his potential, improve his capabilities, perceive his role and responsibilities participate and contribute positively to the growth and success of the company. To invest in human resources continuously and be alive to their needs.

TECHNOLOGY: Achieve technological excellence in operations by development of indigenous technologies and efficient absorption and adaptation of imported technologies to suit business needs and priorities, and provide the competitive advantage to the company.

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IMAGES: To fulfill the expectations, which stakeholders like Govt. as owner, employees, customers, ant the country at large have from BHEL.

THE CORPORATE STATEMENTS

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VISION: Earlier: "A world class, innovative, competitive and profitable engineering enterprise providing total business solution".

Now: "A world class engineering enterprise committed to enhancing stake -holder value".

 As stake holder interest is becoming prime it was essential that whatever company does, it should enhance stake-holder value.  World class to innovative and profitable  Profitable to competitiveness in an open market situation  Hence

world

class

takes

care

of

innovation

profitability

and

competitiveness  Providing total business solutions is the action part and hence taken to mission statement.  The main objective of mission is to such an extent that every stake holder prefers to be associated with BHEL in BHEL would be his preferred destination.

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MISSION: Earlier To be the leading Indian engineering enterprise providing quality products systems and services in the field of energy, transports, industry infrastructure and other potential area. Now: To be an Indian multi-national engineering enterprise providing total business solution through quality products systems and services in the field of energy industry , transportation, infrastructure and other potential area.

ďƒ˜ Multinational has been added to reflect BHEL globalization aspirations to start assembly/service centers outside India. ďƒ˜ Leading has been taken care of by the work "world class in the vision stmt. Hence "leading" word from mission statement has been dropped.

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VALUES Earlier  Meeting commitments made to external and internal customers.  Foster learning creativity and speed of response  Team playing  Respect for dignity and potential for individuals.  Loyalty and pride in the company  Zeal to excel  Integrity and fairness in all matters

Now:  Strike adherence to commitments  Foster learning, creativity and team work.  Ensure speed of response  Respect for dignity and potential for individual  Loyalty and pride in the company  Zeal to excel and zest for change  Integrity and fairness in all matters  Most of them have been rephrased.

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ďƒ˜ "Zest for change" has been added as change has been integral with success and the rate at which change is needed is very high compared to earlier period.

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BHEL – AN OVERVIEW

The first plant of what is now known as BHEL was established more than 40 years ago at Bhopal and was the genesis of the heavy electrical equipment industry in India. `BHEL is, today the largest engineering and manufacturing enterprise of its kind in India, with a well recognized track record of performance, earning profits continuously since 1971-72 .It achieved a sales turnover of Rs-21401 Cr. with a pre-tax profit of Rs 4430Cr. in 2007-2008. BHEL caters to core sectors of the Indian economy viz. Power Generation and Transmission, Industry, Transportation, Telecommunication, Renewable Energy, Defence etc. The wide network of BHEL’s 14 manufacturing divisions, 4 power sectors regional centers, over 100 project sites, 8 service centers and 4 regional offices, enables the company to be closer to its customers and provide them with suitable products, systems and services efficiently and at competitive prices. Having attained ISO 9000 certification, BHEL is now well

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on its journey towards TOTAL QUALITY MANAGEMENT .On the environmental management front, the major units of BHEL have already acquired the ISO-14001 certification. The company’s inherent potential coupled with its strong performance over the years, has resulted in it being chosen as one of the “NAVRATNA” PSE’s.

Board of Directors (As on 21.07.2008) 8


CHAIRMAN & MANAGING DIRECTOR Shri. K. Ravi Kumar Chairman & Managing Director NOMINEE OF GOVERNMENT OF INDIA Naresh Chaturvedi Additional Secretary & Financial Advisor Ministry of Heavy Industries & Public Enterprises, Udyog Bhavan, New Delhi – 110011. Dr. Surajit Mitra Joint Secretary Ministry of Heavy Industries & Public Enterprises Deptt. of Heavy Industry, Udyog Bhavan, New Delhi-110011.

INDEPENDENT & NON-EXECUTIVE DIRECTORS Vineet Nayyar Director Sanjay M Dadlika Director Ashok K Aggarwal Director

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Manish Gupta Director Shekhar Datta Director Raman Singn Sidhu Director WHOLE-TIME FUNCTIONAL DIRECTORS SK Jain Director (HR) Ramji Rai Director (ER&D) AK Mathur Director (IS&P) K Ravi Kumar Director (Power) CS Verma Director (Finance) COMPANY SECRETARY NK Sinha

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PRODUCT PROFILE

POWER SECTOR – Generation and transmission  Steam Turbine – Generator Sets and Auxiliaries  Boiler and Boiler Auxiliaries  Once-through Boilers  Nuclear Power Generation Equipment 

Hydro Turbine- Generator Sets and Auxiliaries

 Mini /Micro Hydro Generator Sets  Gas Turbine –Generator Sets  Waste Heat Recovery Boilers  Heat Exchangers  Condensers  Regenerative Air Pre –Heaters  Electrostatic precipitators  Bag Filters  Valves  Pumps  Electrical Machines

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 Piping Systems  Power, Distribution and Instrument Transformers  Switch Gear  Control Gear  Distributed Digital Control for Power Stations  Bus Ducts  Rectifiers  Porcelain Insulators, Ceralin

INDUSTRY SECTOR 

Industries / Transportation /Oil and Gas /Telecommunication / Renewable Energy

 Steam Turbine –Generator Sets  Gas Turbine- Generator Sets  Diesel Engine - based Generators  Industrial Steam Generators  Heat Recovery Steam Generators  Fluidized Bed Combustion  Marine Turbines  Industrial Heat Exchangers  Centrifugal Compressors

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 Industrial Valves  Reactors  Columns  Pressure Vessels  Pumps  Industrial Valves  Fabric Filters  Electronic Control Gear and Automation Equipment  Thruster Equipment  Power Devices  Energy Meters  Transformers  Switchgear  Insulators  Capacitors  Broad Gauge, AC/DC Locomotives  Diesel –Electric Shunting Locomotives  Traction Motors and Control Equipments  Electric Trolley Buses  AC/DC Electric Multiple Units

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 Drives and Controls for Metro Systems  Battery Operated Passenger Cars  Oil Rigs and Oil Field Equipment  X-Mass Trees and Well Heads  Cathodic Protection Equipment  Digital Switching systems  Rural Automatic Exchange 

Simulators

 Wind Electric Generators  Solar Powered Water Pumps  Solar Water Heating Systems  Photo Voltaic Systems  Defense Equipment  Reverse Osmosis Desalination Plants

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SYSTEMS AND SERVICES  Turnkey Utility Power Stations/EPC Contracts  Captive Power Plants  Co-generation Systems  Combined Cycle Power Plants  Modernization and Renovation of Power Stations and RLA Studies  Switchyards and Substations  HVDC Transmission Systems  Shunt and Series Compensation Systems  Power System Analysis  Consultancy Services  Construction Services

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MAJOR COMPETITORS OF BHEL

1. ELECTRO CONSULT

ITALY

2. ABB

SWITZERLAND

3. BEEHTEL

USA

4. BLOCK & NEATCH

USA

5. GENERAL ELECTRIC

USA

6. RAYTHEON 7. WESTINGHOUSE 8. CNMI & EC 9. SANGHAI ELECTRIC CO

USA USA CHINA UK

10.GEC-ALSTHOM

UK

11.ELECTRIM

POLAND

12.FRANCO TOSI

FRANCE

13.FUJI

JAPAN

14.HITECHI

JAPAN

15.MITSUBISHI

JAPAN

16.TOSHIBA

JAPAN

17.ROLLS ROYCE

GERMANY

SIEMENS

GERMANY 8


B.H.E.L. IN INDIA # REGIONAL OFFICES (POWER SECTORS)

*********************************** 1. NOIDA (NORTHERN REGION) 2. KOLKATA (EASTERN REGION) 3. NAGPUR (WESTERN REGION) 4. CHENNAI (SOUTHERN REGION)

# BUSSINESS OFFICES

******************* 1. BANGLORE 2. BHUBANESHWAR 3. CHANDIGARH 4. CHENNAI 5. GUWAHATI 6. HARIDWAR 7. JABALPUR 8. JAIPUR 9. KOLKATA 10. LUCKNOW 11. MUMBAI 12. NEW DELHI 13. PATNA 14. RAIPUR 15. RANCHI 16. SECUNDERABAD 17. THIRUVANANTHAPURAM 18. VADODARA

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# MANUFACTURING UNITS

***********************  HEAVY ELECTRICAL EQUIPMENT PLANT HARDWAR DIVISION.

CENTRAL FOUNDARY FORGE PLANT HARDWAR DIVISION.

HEAVY POWER EQUIPMENT PLANT HYDERABAD DIVISION.

HIGH PRESSURE BOILER PLANT TRICHY DIVISION.

HEAVY ELECTRICAL PLANT BHOPAL DIVISION.

TRANSFORMER PLANT JHANSI DIVISION.

ELECTRONICS DIVISION, BANGLORE.

INDUSTRIAL VALVES PLANT, GOINDWAL.

BOILER AUXILIARIES PLANT, RANIPET.

ELECTRO PROCELAIN DIVISION, BANGALORE.

INSULATOR PLANT, JAGDISHPUR.

COMPONENT FABRICATION PLANT , RUDRAPUR

HEAVY EQUIPMENT REPAIR PLANT , VARANASI .

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# SERVICE CENTRES

****************** 1. 2. 3. 4. 5. 6. 7. 8.

CHANDIGARH KOLKATA NAGPUR NOIDA PATNA SECUNDERABAD VADODARA VARANASI

CUSTOMERS OF BHELs PRODUCTS

DOMESTIC:1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13)

PUNJAB STATE ELECTRICITY BOARD(PSEB) HARYANA STATE ELECTRICITY BOARD (HSEB) UTTAR PRADESH STATE ELECTICITY BOARD(UPSEB) NATIONAL THERMAL POWER CORPORATION(NTPC) APPOLO TYRES ABB NATIONAL HYDEL POWER CORPORATION(NHPC) ANDHRA PRADESH STATE ELECTRICITY BOARD(APSEB) BALCO WEST BENGAL STATE ELECTRICITY BOARD(WBSEB) BIHAR STATE ELECTRICITY BOARD(BSEB) INDIAN OIL CORPORATION(IOC) MADHYA PRADESH STATE ELETRICITY BOARD(MPSEB)

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14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) 31) 32) 33) 34) 35)

SAIL BCCL ORISSA STATE ELECTRICITY BOARD(ORSEB) KARNATAKA STATE ELECTRICITY BOARD(KSEB) BIRLA CEMENT BIRLA TYRES BOKARO STEEL PLANT GRASIM INDUSTRIES GOA SHIP YARD HARYANA STATE ELECTRICITY BOARD(HSEB) HIMACHAL PRADESH STATE ELECTRICITY BOARD(HPSEB) DLW, VARANASI INDIAN NAVY DELHI VIDYUT BOARD DEPTT. OF ATOMIC ENERGY ESSAR OIL SIEMENS, NEW DELHI ONGC L&T KIRLOSKAR JK CEMENT SCOOTER INDIA LTD.

INTERNATIONAL: 1) M/S EBARA CORPORATION, JAPAN 2) M/S ZEECO INCORPORATION, USA 3) SIMMCO INTERNATIONAL 4) SIEMENS, GERMANY 5) SIEMENS, SINGAPORE 6) BAIJI PROJECT, IRAQ

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7) KYCR COIL INDUSTRIES LTD., BANGLADESH

AWARDS AND ACHIEVEMENTS –BHEL

1. 20 out of 26 thermal power stations which received “Meritorious Rewards for the 1996-97” instituted by Ministry of Power, are equipped with BHEL sets. 2. Success in achieving the over all goals set out in MOU signed with Govt. of India for 1998-99 and the performance qualified the company for placement in ‘excellent’ category for 10th year in succession. 3. Best organization award for excellence in “Value Engineering” (1991) by society of Indian Value Management. 4. Also has been honored a number of times with National Safety Awards for the largest accident free period. 5. “SCOPE” award for excellence and outstanding contribution to the PSEs’ management in 1996-97. 6. British Safety Council Award to the electronic division , Bangalore. 7. EEPCs’ “Top Exporter Award” –1998-99 amongst public and private sector companies in India for 11th year in succession. 8. “Best Contractors’ Camp Award” at Hubara in Oman for Health, safety and environmental standards set by Shell.

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9. BHEL, Hardwar has won productivity awards at National level, instituted by National Productivity Council in the field of power generation, transmission & distribution and equipment manufacturing. 10.A large number of BHEL employees have been honored with the coveted Prime Minister’s “SHRAM VIR”, “SHRAM SHREE”, “SHRAM DEVI”, and “VISHWAKARMA” National Awards. 11.Best material handling award by National Material Handling Council, Jamshedpur. 12.INSSAN Award for excellence in suggestion scheme (1991) by Indian Suggestion Scheme Association.

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CURRENT INFORMATIONS OF BHEL During 2006-07

25-Jul- BHEL to set up eco-friendly Co-generation power plant 2007 at IOC’s Gujarat Refinery; Wins Rs.4,310 Million EPC contract against International Competitive Bidding 19-Jul- BHEL set to become sole supplier in the world for 2007 high-rating Disc Insulators for 800 kV Ultra High Voltage Direct Current Transmission Lines 9-Jul- BHEL’s Participative Culture Pays Rich Dividends; 2007 Employees’ Improvement Projects Rewards Scheme Leads to Savings of Rs.1,770 Million in 2006-07 3-Jul2007

BHEL bags ICWAI National Award for Excellence in Cost Management 2006

29-Jun- Union Minister for Heavy Industries and Public 2007 Enterprises reviews power projects under execution by BHEL in Maharashtra; Move aimed at expediting commissioning in view of critical power situation in the state 25-Jun- BHEL once again outbids Chinese company; Wins 2007 Rs.1,060 Million contract for Turbo Blower Package from RINL

18-Jun- BHEL bags Rs.1,390 Million order for supply of 2007 Transformers 13-Jun- BHEL - A STAR PSU 2007 12-Jun- BHEL WORKS 24x7 TO MEET NATION’S POWER 8


2007

AGENDA

2-Jun2007

BHEL’s globalisation thrust gets recognition; EEPC's Top Export Award conferred on BHEL for the 17th consecutive year

30-May- BHEL EXCELS ON ALL COUNTS; BHEL's 2007 Turnover surges 29%; Net jumps 44% to Rs.24,150 Million in 2006-07

21-May- BHEL's power generating sets achieve all-time high 2007 PLF & generation; substantially boost country's power generation in fiscal 2006-07 14-May- BHEL to invest Rs.32,000 Million on Expansion drive 2007 to meet the country’s Power forecast in the Eleventh Plan 10-May- BHEL sets sights on becoming a US$10 Billion 2007 company by 2012; Unveils Strategic Roadmap to further accelerate growth momentum 30-Apr- BHEL identifies overseas business as major growth 2007 plank; Targets Seven-fold increase in overseas business by 2012 27-Apr- BHEL employees win maximum number of Prime 2007 Minister's Shram awards 16-Apr- BHEL Doubles R&D spend, Trebles Turnover from 2007 Products developed in-house to Rs.25,100 Million in just two years 8


29-Mar- BHEL establishes fourth World-class Centre of 2007 Excellence; Aimed at Consolidating Strengths in Crucial Technology Areas 22-Mar- Power Stations equipped with BHEL Equipment set 2007 new benchmarks; Win Maximum Meritorious Productivity Awards 15-Mar- BHEL establishes state-of-the-art Instrument 2007 Calibration Centre for enhancing precision and accuracy of testing of thermal sets 8-Mar- BHEL awarded ‘MoU Award for Excellence in 2007 Performance’ by the Prime Minister

27-Feb- BHEL pays all-time high 125% interim dividend for 2007 fiscal 2006-07 26-Feb- BHEL outbids European MNCs and Indian majors; 2007 Bags World Bank-funded 400 kV Turnkey Substation contract in Maharashtra 23-Feb- BHEL Commissions 250 MW Thermal Unit in 2007 Maharashtra; Six Million units of Power to be added to the State Grid – Takes BHEL sets tally in Maharashtra to 88% of installed thermal capacity 10-Mar- First BHEL-built 500 MW set marks two decades of 2007 Establishment of Technology for 500 MW sets in India 8-Feb2007

BHEL demonstrates its International Competitiveness; Secures Order for 520 MW Hydro Electric Project in Himachal Pradesh

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6-Feb2007

Equipment performance pays rich dividends;BHEL wins Mega Contract for equipment to generate 1500 MW of power in Maharashtra

1-Feb2007

BHEL once again outbids Chinese; Wins turnkey order for Asian Development Bank-funded Project in Bangladesh

30-Jan- BHEL’s power generating sets achieve record 2007 generation in first nine months of 2006-07 24-Jan- BHEL wins mega turnkey contract for 2x500 MW 2007 Mejia TPS 8-Jan2007

BHEL bags Rs.3,800 Million Renovation & Modernisation contract from PSEB

21-Dec- BHEL to set up eco-friendly Co-generation power plant 2006 at Haldia Refinery 7-Dec2006

BHEL commissions 600 MW Western Mountain Gas Turbine Power Project in Libya, on turnkey basis

4-Dec2006

CMD, BHEL Honoured

27-Nov- BHEL writes another success story; Gets third 2006 consecutive Captive Power Plant order from Hindustan Zinc 16-Nov- BHEL becomes the first PSU to win the CII-Exim 2006 Business Excellence Prize 24-Oct- BHEL showcases technological strengths at 'Powergen 2006 India & Central Asia 2006'

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23-Oct- BHEL pays all-time high 145% dividend for fiscal 2006 2005-06 12-Oct- BHEL wins Rs.9,500 Million highest-value captive 2006 power plant order 5-Oct2006

BHEL achieves significant breakthrough with first commercial order for indigenously developed first-ofits-kind in the world Controlled Shunt Reactor

20-Sep- BHEL wins Rs.12,240 Million contract for 2x250 MW 2006 Harduaganj TPS 18-Sep- BHEL & its employees win two National Safety & 2006 three Vishwakarma National Awards

5-Sep2006

BHEL enters the ‘Limca book of Records 2006’

31-Aug- Three Manufacturing Plants and Two Power Sector 2006 Divisions bag the CII-Exim commendation for business excellence. 1-Sep2006

Mr. C.P. Singh appointed as Director (Engineering, Research & Development), BHEL.

29-Aug- BHEL on expansion drive to meet country’s power 2006 capacity addition plans.

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23-Aug- BHEL holds Conclave of Liaison Officers & SC/ST 2006 Welfare Associations. 20-Sep- BHEL bags Rs.12,240 Million contract for 2x250 MW 2006 Parichha TPS. 10-Aug- BHEL bags EEPC's Top Export Award for the 16th 2006 consecutive year 11-Aug- CMD, BHEL honoured with Distinguished Fellow 2006 Award - 2006. 3-Jul2006

BHEL wins Rs.8,420 Million contracts for two Power Projects in Rajasthan.

10-Jul- BHEL proves international competitiveness; wins 2006 contract for 250 MW Thermal Power Plant from Tata Power Company 20-Jul- BHEL once again wins contract in Ethiopia, beating 2006 Chinese companies 1-Aug- BHEL to set up 490 MW Power Plant for NTPC at 2006 Dadri 27-Jul- BHEL commissions 500 MW thermal set at 2006 Vindhyachal STPS 29-Jun- BHEL bags contracts for two Projects in Afghanistan. 2006 26-Jun- BHEL once again beats Chinese; Wins contract for 2006 ADB-funded Project in Bangladesh. 22-Jun- BHEL bags contracts for two Hydro Power Projects 2006 from APGenco.

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12-Jun- BHEL bags major order for 110.6 MW Captive Power 2006 Plant. 5-Jun2006

BHEL bags order for Lift Irrigation Scheme in Andhra Pradesh.

18-May- BHEL achieves Rs.11,510 Million turnover through 2006 products developed in-house. 9-May- BHEL secures single-largest export order for 2006 transformers from Egypt. 5-May- BHEL's power generating sets achieve all-time 2006 generation; boost country's power supply in fiscal 200506. 10-Apr- BHEL wins Rs.12,000 Million order for Lignite Based 2006 Power Project. 20-Feb- BHEL commissions India’s largest Solar-Diesel Hybrid 2006 Power Plant in Lakshadweep. 14-Feb- BHEL secures USD 457 million turnkey contract for 2006 500 MW Power Plant in Sudan. 9-Feb2006

BHEL to set up 90 MW Captive Power Plant in West Bengal.

2-Feb2006

BHEL commissions 110 kWp stand alone Solar Power Plant in Sunderbans.

16-Jan- BHEL machines to power Bhilwara Group’s 3rd Hydro 2006 Power Plant. 12-Jan- BHEL bags EEPC's Top Export Award for the 15th 2006 consecutive year.

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2-Jan2006

BHEL writes another success story; equipment performance pays dividends; machines to power Asia's largest CPP.

SALIENT ACHIEVEMENTS:  Played pro-active role in arranging interaction of TBG professionals with UPCL in the area of Transmission business.  Insured speedier response to customer queries.  Securing single order of more than Rs 2 crore value after ensuring that BHEL , Bhopal make 11 kV VCBs are type tested 8


at 95 kVp impulse test. It shall enable new supplies for hilly areas.  Coordinated erection and commissioning of 2x40 MVA and 1x160 MVA power transformers within one month of receipt at respective sites.  Total support to manufacturing units from order stage to cash collection and thus obviating the need for visit of unit representative.  ROD-Hardwar office recommended by DNV for ISO 14001 & OHSAS 18001 certification.  Business support to various units/regions of BHEL for Non ROD products:  Market intelligence 

Offer preparation and tender opening

Attending pre-bid meetings

Joint inspection

Verification of bills

Payment follow up 8


Collection of payment

NCES

 Rs 25 lacs old outstanding from ROD_Lucknow in 2001-2002  Rs 9.57 lacs got released in 2002-2003  Rs 10.42 lacs got released in 2003-04 MOU for sale of solar Lanterns in Uttaranchal signed with UREDA.  Total support to manufacturing units from tender stage to cash collection and thus obviating the need for visit of unit representative. CUSTOMER ORIENTATION

 Facilitated interaction between customer and concerned BHEL units/division for techno-commercial requirements.  Enhanced speed of response for customer's problem/queries (interim reply within 48 hours). 8


 Development of rapport with customer by way of regular interaction.  Technical support for preparation of Tender specifications.  Senior officials of UPCL i.e. Director (operations) GM (Transmission) visited out office and were made aware of BHEL’s total presence in the power/industry sector as this main ROD customer was operationally involved with only transformers and circuit breakers. Officials from test divisionUPCL , Roorkee also were made aware of quality conscious environment in BHEL.

BHEL AT A GLANCE (Financial Information)

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Rupees (In Million) 2007-08 Turnover

2006-07 CHANGE (%)

21401

18739

14.2

8323

7182

15.9

Employee (Nos.)

43636

42124

3.6

Profit Before Tax

4430

3736

18.6

Profit After Tax

2859

2415

18.4

Dividend

746

600

24.4

Dividend Tax

127

93

36.8

1986

1722

31.7

Total Assets

29352

22280

31.7

Net Worth

10774

8788

22.6

95

89

6.3

0.01

0.01

0.0

220.1

179.5

22.6

- Earnings

58.4

49.3

18.4

- Economic Value Added

1810

1657

9.2

Value Added

Retained Earnings

Total Borrowings Debt : Equity

Per Share (in Rupees) : - Net worth

(US $ in million) Turnover

5419

4344

24.8

Profit Before Tax

1122

866

29.5

724

560

29.3

Profit After Tax

Conversion Rates (Rates as on 31st March) : 1 US $ = Rs. 39.49 for 2007-08 1 US $ = Rs. 43.14 for 2006-07

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SHARE PRICE INFORMATION Month Ă‚

Y Year 2007-08 High Low

y Year 2006-07 High Low

Year 2005-2006 High Low

April

2593.80

2145

2444

2200

830

755

May

2922.50

1351

2485

1600.10

950

789.25

June

1544

1301

2046

1531.20

897.5

832

July

1899

1520.10

2067

1730.25

1039

841.5

August

1900

1540

2307.90

2026

1144

971

September

2089.20

1856

2414.70

2185.25

1244

1060

October

2750

1970

2498

2259

1318

1080

November

2925

2380

2556.50

2367

1498.5

1115.05

December

2870

2348

2668

2232

1489

1316

January

2626

1800

2595

2105

1815

1185

February

2366

1850

2572

2107

2050.5

1780

March

2235

1765

2321.35

1940

2280

1990

"Share price information data is provided for information only and is not intended for trading purposes. BHEL shall not be liable for any errors or delays in the information provided, or for any actions taken in reliance thereon."

----------------- SWOT ANALYSIS ------------------

-S-T-R-E-N-G-T-H- (S): -

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• Low cost producer of quality equipment due to cheap labour and fully depreciated plants. • Flexible manufacturing set up. •

Entry barrier due to high replacement cost of its manufacturing facilities.

• Comprehensive turnkey experience from product design to commissioning.

-W-E-A-K-N-E-S-S-E-S- (W)

• High working capital requirement due to its exposure to cash starved SEBs (State electricity boards). • Inability to provide project financing.

-O-P-P-O-R-T-U-N-I-T-I-E-S- (O) :-

• High expected growth in power sector (7000 MW/ p.a. needs to be added).

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• High growth forecast in India’s index of industrial production would increase demand for industrial equipment such as motors and compressors.

-T-H-R-E-A-T-S- (T):-

• Technical suppliers are becoming competitors with the opening up of the Indian economy. •

Fall in global power equipment prices can affect profitability

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******

OVERVIEW OF HEEP, HARDWAR

BHARAT HEAVY ELECTRICAL LIMITEDA CORPORATE GIANT

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BHEL was established nearly 40 years ago to become the most important symbol of Heavy Electrical Equipment industry in India and rank amongst the first few in world. It is the largest heavy engineering and manufacturing enterprise of its kind in India with well- recognized track record of performance, making profits continuously since 1971-72. The Company achieved a turnover of Rs.105200 Million and Profit before Tax Rs. 16060 Million. BHEL caters to core sector of Indian economy viz. • Power Generation • Transmission, • Industry, • Transportation, • Telecommunication, • Renewal Energy Defense etc. The wide network of BHEL’s, 14 manufacturing divisions, 4 Power sector regional centers, over 150 project site and service centers and 15 regional offices enable the company to be closer to its customer and provide them with suitable products, system and services at competitive prices. Having attained ISO 9001, 14001certification, BHEL is now on its journey towards TQM .The Company inherent potential coupled with its strong performance over the years has resulted in it being chosen as on of the Navratna PSUs which enjoy the support from the government their endeavors to become global players. with its prudent financial management. BHEL occupies an all-important niche as evident by its ranking by CII amongst top eight PSUs based on financial performance. Recently in survey conducted by business India, BHEL has been rated as 7th Best Employer in India.

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HEAVY

ELECTRICAL

EQUIPMENT

PLANT,

HARDWAR: Heavy Electrical Equipment Plant, Hardwar of this Multi-unit corporation with its 7467 strong highly skilled technicians, engineers, specialists and professional experts is the symbol of Indo Soviet and Indo German Collaboration. It is one of the four major manufacturing units of the BHEL With turnover of 1400.25 crores and PBT of Rs. 180.35crores. HEEP is engaged in the manufacture of Thermal and Nuclear Sets up to 1000MW, Hydro Sets up to HT Runner dia 6300mm, associated Apparatus Control gears, AC& DC Electrical machines and large size Gas Turbine of 60-200 MW. HEEP Hardwar contributes about 44% of India’s total installed capacity for power generation with total capacity of Thermal, Nuclear & Hydro Sets of over 45000MW currently working at a Plant Load Factor of 76% and Operational Availability of 86%..

HISTORICAL PROFILE:

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The construction of heavy electrical equipment Plant commenced in Oct.”1963”after indo-soviet technical co-operation agreement in Sept.”1959” The first product to roll out from the plant was an electric motor in January 1967.This was followed by first 100 MW Steam Turbine in Dec.1969, and first 100MW Turbo Generator(TG) in August 1971.The plant’s “break even” was achieved in March 1974. BHEL went in for technical collaboration with M/s Siemens, Germany to undertake design and manufacture to large size thermal sets Upto a unit rating of 1000 MW in the year 1976.First 200 MWTG set was commissioned at Obra in 1977.The continuum of technological advancement subsequently saw the commissioning of 500 MW TG Set in 1984 .The technical cooperation of Gas Turbine manufacture was also signed with M/s Siemens Germany. First 150 MW ISO rating gas Turbine was exported to Germany in Feb”1995”.Our 250 MW thermal set up at Dahanu Plant of BSES made a history by continuous operation for over 150 days and notching up a record plant load factor greater than 100%.

KEY COMPETITORS: Power Sector Giant of the World viz. Siemens Germany, ABB, General electric of USA etc. are the major competitors of HEEP. All these are the MNC’s and enjoy huge financial and R&D backup.

CORPORATE CITIZEN:

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HEEP Hardwars Strategic plans and its policy & strategy are commensurate with BHEL Corporate / strategic Plan . As first PSU to adopt Corporate Planning as a process . Board meetings for long –range development , BHEL has always guided other PSU’s in their Corporate planning process .Board meeting , monthly Management Committee meetings, Annual Revenue Budget exercise , Mid term reviews , Apex TQ council reviews, Personnel Heads Meet, Quality Heads Meet , Technology Meets , Product committees meetings, Inter-Unit Quality Circle Meets etc. are the some of crore strengths of BHEL Corporation’s vast network. KEY CUSTOMERS AND SUPPLIERS The Power supplier of the country National Thermal Power Corporation, NHPC, NPC, and other IPPs and various State electricity Boards, are the key external customers of HEEP Hardwar. HEEP has a long standing-relationship with its customers. Power Sector-Regions, Power Sector Technical Services and other sister unit of BHEL are the key Internal customers. Manufactures of Casting and Forging, ETS, Steels including alloy steels, component of the product nonferrous and insulating materials, equipment etc. are its suppliers. Some of the key suppliers are Collaborators M/s Siemens Germany, sister unit CFFP, SAIL, near by Ancillaries developed by BHEL etc. To further strengthen the relations, one to one long term cooperation meetings are being held by BHEL with its 200 major suppliers on regular basis

MAJOR MILE STONES

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1975

Job Redesign concept launched for FIRST time in India.

1978

Well documented Suggestion Scheme launched.

1982

Launched Productivity Movement & Quality Circle. Concept

1993

Accreditation of ISO 9001 quality System.

1995

Adopted EFQM model of TQM for achieving Business Excellence.

1997

BHEL one of the 9 PSE’s declared “Navratna” by Govt. of India.

1997

National Productivity Award for HEEP by the President of India.

1998

Certificate of Merit by National Productivity Council for Outstanding performance for 2nd consecutive year.

1999

Accreditation of R Stamp from National Board of Boiler and Pressure Vessel Inspector, USA.

1999

AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine Combustion Chambers

1999

INSAAN Award for Excellence in Suggestion for 9th consecutive year

1999

Accreditation of ISO 14001-Enviornment management system

2000

CII Site Visit for CII-EXIM Business Excellence Award-2000

2001

Top Management TQM Workshop at Rishikesh and HRDC

2001

INSAAN Award for excellence in Suggestion for 11th consecutive year

2001

Launching of QTM & RCA at HEEP Hardwar by CMD

2002

Launching of delivery Index, Turnover Index and Manufacturing Index

2002

Accreditation of ISO 9000-2k

2002

JBE Workshop of Apex TQM Group at Tehri to evolve Business policy and CSF 8


2003

Commendation for Strong Commitment to Excel in CII-EXIM Bank Award

2004

Commendation for Significant Achievement in CIIEXIM Bank Award.

2005

Award given by Institute of Cost and Works Accountants of India for "Excellent Work in the field of Management Accounting and Cost Concepts".

BHEL bags EEPC's Top Export Award for the 15th consecutive year.

BUSINESS POLICY:

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“In-line with Company’s Vision, Mission and values, we dedicate ourselves to sustained growth with increasing positive Economic Value Addition and Customer focused business leadership in the Power and Industry Sector.

CRITICAL SUCCESS FACTORS: • Increase Orders of Spares/Services to 230 Cr. • Decrease Capital employed by Rs. 120 Cr. • Saving in Material Cost by 16 Cr. i.e. 5%- Rs. 4 Cr. • Decrease in indirect material +miscellaneous expenses by 5%- Rs. 4 Cr. • Effective implementation of QTM/RCA/CTQ • Strengthening Internal customer concept • Development of an Incentive Scheme • Reward Scheme including EXCEL Awards • Effective implementation of PMS • Effective Contract Management • Technology Up gradation ‘Excellence triangle’ for each Critical Success Factor is now being drawn comprising improvement projects. These projects will be centrally registered under On-line Central Registration system to be developed for it. While CSF Champion will take the total stock of position in the improvement projects undertaken in his respective CSF, progress of individual projects will be reviewed by Area TQ Council (ATQC) and Functional TQ Council (FTQC). One of the major strengths of HEEP Hardwar is its free, open and consistent work culture for making continuous improvement evident from the participation of employees in Suggestions and Quality Circles. To recognize their efforts

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various productivity drives and competition are organized through out the year and Executive director awards the winners in the special Award Distribution Functions. The journey to excellence is unending .It is a continuous search with commitment and belongingness. Sky indeed is not the limit for perfection. The transition has strongly experienced a silent internalization with a blend of commitment of the existing human resource for creating benchmarks for excellence. The emergence of role models and clear-cut driving force at the top provide an anvil to unleash the potential, which remain unexplored in search of “Attitude to perform”. The surge has started and is getting communicated down the . BHEL today through TQM is on march towards excellence.

HEEP Product profile • Thermal and Nuclear sets –( Turbines , generators , condensers

and

Auxiliaries of unit capacity upto 1000 MW) • Hydro sets including Spherical and Disc Valves • Electrical Machines –( for various industrial applications , pump drives and power station auxiliaries , unit capacity up to 20000 KW AC/DC) • Control Panels –( for thermal/ hydro sets and industrial drives) • Large size Gas turbines (unit rating ;60-200MW) • Defence products (SRGMs)

PRODUCT CAPACITY RATINGS * Thermal Sets

Upto 1,000 MW

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* Hydro Sets

Maximum hydro runner Turbine diameter 6,600 manufacturing Upto 115 MW

* Gas Turbines

60,200 MW 150 ratings

* Light Aircraft

Two Seater

* AC / DC Machines

5, 20,000 KW

* Apparatus and Control Gears

to match with the power equipment

* Steam Turbines for combined

various combinations

Cycle power plant * Heat Exchangers / condensers

Manufacturing Upto 800 MW ratings

* Medical Equipment

Linac (for cancer treatment)

* Super Rapid Gun Mount

Naval Guns

KEY CUSTOMERS AND SUPPLIERS

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The Power supplier of the country National Thermal Power Corporation, NHPC, NPC, and other IPPs and various State electricity Boards, are the key external customers of HEEP Hardwar. HEEP has a long standing-relationship with its customers. Power Sector-Regions, Power Sector Technical Services and other sister unit of BHEL are the key Internal customers. Manufactures of Casting and Forging, ETS, Steels including alloy steels, component of the product nonferrous and insulating materials, equipment etc. are its suppliers. Some of the key suppliers are Collaborators M/s Siemens Germany, sister unit CFFP, SAIL, near by Ancillaries developed by BHEL etc. To further strengthen the relations, one to one long term cooperation meetings are being held by BHEL with its 200 major suppliers on regular basis.

TOTAL QUALITY FOCUS: To face the increased competition from MNC’s (due to liberalization policy of Government) in early 90’s and to enter European market we moved towards ISO 9000 Certification. Concept of Business Excellence through EFQM Model was launched in entire BHEL on pilot scale in Oct.”1995” In 1997 HEEP launched TQM in the entire Plant and since then Self-Assessment is done every year in September. Based on feedback Report of Assessment, critical success factors are identified and TQ action plans are drawn. The philosophy of ISO 9001 ,TQM and ISO 14001 has been integrated BHEL Hardwar for ultimately achieving “BUSINESS EXCELLENCE”.HEEP Hardwar plant is accredited for ISO 9001 and ISO 14001 and is now on march towards TQM.5-S was launched in March 1999 in a big way and now it has become a way of life in the organization. In 2000 HEEP applied for CII-EXIM Business excellence award and site visit was conducted but CII team in Seot.”2000.Cii feedback has gone a log way in

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carrying out further improvement plans and giving a structured thrust to TQM movement In July 2001, Unit’s TQ Council reviewed the TQ Action Plans 2001-02 for its effectiveness and impact on accelerating the pace of improvement and consequent TQ Score. Executive Director laid the challenge of achieving the TQ score of 650.With an objective to bring awareness about he CII-EXIM Business Excellence Model amongst the Sr. Executives, the first ‘Top Management TQM Workshop’s held at Rishikesh during oct.2001Executive Director who is TQ Assessor also, himself steered the Workshop with assistance from some experienced TQ Assessor of HEEP. It followed by second Top Management TQM

Workshop

steered

again

by

Ed

was

held

at

HRDC

on

Oct’29,2001.Subsequantly the third Top Management TQM Workshop was held in Nov’2001,where-in Sr. Counselor, CII deliberate the detail on Best practices of TATA STEEL-the winner of ‘CII-EXIM Business Excellence Award 2000’.Simultaneously ,TQ Assessors training program for the select group of young managers(to be developed as Think Tanks)was organized in Nov’2001.To give further boost Apex Group was formed. Apex Group developed “Roadmap to Business Excellence” based on Criteria Linkage of CIIEXIM Business Model and the initiatives taken at Hardwar was drawn by the group and it was widely circulated amongst the employees through special issue of Hardwar Current in April 2002. To be a responsible corporate citizen and to meet exacting international standards in occupational health, safety and environment, BHEL continued re-certification of all its units/ divisions for OHAS-18001 Occupational Health and Safety Management System as well as ISO-14001 Environmental Management System. BHEL' journey in Total Quality Management (TQM) received a boost when all Four major division of 8


BHEL viz. Trichy, Hardwar, Bhopal and Hyderabad along with Power Sector Northern Region received the coveted CII- EXIM commendation certificates. Other significant achievements included: - 'IMC Ramakrishna Bajaj National Quality Award 2004' to BHEL's Ranipet plant making it the first PSE to win this award. - BHEL's Hyderabad plant was adjudged the 'Best Organization in promoting Quality Circles' for the second consecutive year by QCFI chapter convention. For contribution to the Renewable Energy sector, the SESI2004: PVSEC Award for Applications', was conferred on BHEL's Electronics Division, by solar Energy Society of India.

OVERVIEW OF FINANCE FUNCTIONS 8


Role of finance functionFinance function is the backbone of any organization. The finance function plays a very critical role in the maximization of shareholders who provide the funds to the company. This

objective is being achieved by the finance

department, which provides the carious information on the financial parameters such as cash flows, profitability, cost and margin, assets, working capital and shareholder value for the purpose of efficient utilization of resources resulting in better profitability of the company. The importance of the finance functions cannot be undetermined in any organization as many companies have perished not due to bad production management but due to poor financial management. Finance function acts like radar of the ship, which guides the direction of the ship and saves it from the perils of the sea. In the same way finance department provides timely and relevant information to various levels of management for the purpose of decision making. The various activities undertaken by the finance department achieve the aforesaid objectives, may be summarized as follows Maintenance of account books, cost records.  Preparation of salary bills and other related payment to employees: PP, bonus, TA, departmental advances of PF accounts etc.  Preparation of Profit & Loss a/c and Balance Sheet.  Generation of various MIRs for management use: MIRs relating to turnover, profitability, cash requirements , inventory.

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 Coordination with company auditors, Govt. auditors, cost auditors and tax auditors.  Decisions relating to purchase and sales.  Investment decisions : capital investment decisions and working capital management decisions.  Financing decisions: decisions relating to financing-mix or capital structure or leverage.  Dividend policy decisions.

FINANCE FUNCTIONS IN HEEP, HARDWAR 1. SALES SECTION Sales accounts section will deal mainly with the following items :(i)

Scrutiny and vetting of estimates / quotation for sale of products / services, wherever financial concurrence is required.

(ii)

Scrutiny and vetting of agreements for sales of products and services

(iii)

Invoicing for sale / advance or progressive payment / erection income and other.

(iv)

Maintenance of subsidiary records like sales journals / sales day book, sundry debtors ledgers, advances from customer ledger etc.

(v)

Payments, recovery and accounting of sales tax, excise duty.

(vi)

Accounting of claims on carriers/ insurance companies for missing items / damages on outward consignments.

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(vii) Scrutiny , payments and accounting of bills of carriers and insurers and other miscellaneous claims relating to the outwards consignments. (viii) Calculation and scrutiny of data for payments of royalties to the collaborators. (ix)

Review and reconciliation as well as follow up of recovery of outstanding dues from the customers in coordination with the commercial department.

2. STORES SECTION For the convenience of performance of various function it is divided in to further three sections which are as follows :a) Stores bills. b) Stores review. c) Foreign payment. They deal mainly with the following items of works: (i)

Payment of suppliers bills including bills for advances -indigenous and foreign.

(ii)

Pricing of stores receipt vouchers including fixed assets vouchers and fixed assets receipt vouchers.

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(iii)

Maintenace of accounts of advances to suppliers,claims recoverable ,claims for short suppliers ,rejections and rectifications of materials and sundry creditors.

(iv)

Opening of letter of credit and arranging payments to foreign suppliers under foreign credit / deffered payment agreements.

(v)

Payment of bills for ocean freight ,port trust dues ,custom duty,local agents commission and clearing agents bills,transit insurance bills ,bills of contractors for transport /handling etc. and accounting of such payments are made at regional offices.

(vi)

Maintenance of accounts of material issued on loan and materials issued to subcontractors.

(vii) Keeping account of earnest money and security deposits received from tender and suppliers. (viii) Adjustment of stores in transit to be made at the close of the year.

3. WORKS SECTION Works section of the company is dealing with the following functions:

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(i)

Payments of contractors bills including bills for advance.

(ii)

Maintenance of accounts of contractors with regard to security deposits, earnest money, progressive payments.

(iii)

215 maintenance of accounts of materials issued on loans to contractors.

(iv)

All accounting work related to capital expenditure in progress on erection of plant & machinery and building.

(v)

All other miscellaneous work relating to hiring of various facilities.

(vi)

Payments and accounting of all expenditure related to revenue particularly with regard to expenditure incurred on repair and maintenance of plant and machinery, building and roads.

4. COST SECTION Cost- section of the company is divided into following two sections viz, PRODUCT COST & CENTRAL COST and these deals with the following functions :(i)

Determination of periodic profits including inventory valuation.

(ii)

Determination of pricing policy of the company.

(iii)

Work related to capital expenditures of the company.

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(iv)

Developing variance Management Information report for different parts of management for purpose of cost control and reduction.

(v)

Valuation of work in progress and finished goods.

(vi)

Interaction with management of top management link for achieving cost control and cost reduction and thereby improving bottom line of the company.

(vii) Preparation of cost sheet of different product and their analysis for future planning.

5. PAYROLL SECTION This section deals mainly with the following functions : (i)

Preparation of monthly wage bills.

(ii)

All account work related to personal payments and disclose profit and loss account of the company.

(iii)

Dealing with income tax authority with regard to personal taxation of employee.

(iv)

Dealing with other statutory authority such as P.F. Commissioner, ESI (employee state insurance).

(v)

To ensure correct payment of salary and wages and other benefits to employees in, telephone and miscellaneous payments.

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(vi)

Preparation of monthly wage bills.

(vii) All account work related to personal payments and disclose profit and loss account of the company. (viii) Dealing with income tax authority with regard to personal taxation of employee. (ix)

Dealing with other statutory authority such as P.F. Commissioner, ESI (employee state insurance).

6. BOOKS AND BUDGET SECTION This section deals mainly with the following:(i)

Preparation of operating budget for the company as a whole.

(ii)

Co-ordination with various functions of organisation with regard to generation and submission of important MIR's to corporate office.

(iii)

Preparation of annual accounts of the company .

(iv)

Coordination with company auditors with regard to company accounts.

(v)

Maintenance and accounting of fixed assets accounts. Preparation of long term profit plans based on broad objectives of the company.

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INTRODUCTION TO INVENTORY MANAGEMENT

INTRODUCTION

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Inventories constitute the most significant part of current assets of a large majority of companies in India. To maintain a large size of inventory, a considerable amount of fund is required to be committed to them. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e.g.10% to 20%, without any adverse effect on production and sales, by using inventory planning and control techniques. The reduction in ‘excessive’ inventories carries a favorable impact on a company’s profitability.

WHAT IS INVENTORY A company’s merchandise ,raw materials, and finished and unfinished products which have not yet been sold is called Inventory. The term ‘inventory management’ is used in two ways – unit control and value control. Production and purchase officials use this word in term of unit control whereas in accounting this word is used in term of value control. As investment in inventory represents in many cases, one of the largest assets item of business enterprises particularly those engaged in manufacturing, wholesale trade and retail trade. Sometimes, the cost of material used in production surpasses the wages and production overheads. Hence, the proper management and control of the capital invested in the inventory should be the prime responsibility of accounting department because resources invested in 8


inventory are not earning a return for the company. Rather, on the hand , they are costing the firm money both in terms of capital costs being incurred and loss of opportunity income that is being foregone.

NATURE OF INVENTORIES

Inventories are stock of the product a company is manufacturing for sale and components that make up the product.

VARIOUS FORMS IN WHICH INVENTORIES EXIST IN A MANUFACTURING COMPANY:1)Raw materials: Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions. 2)Work-in-process: Work-in-process inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale. 3)Finished goods:

Finished goods inventories are those completely

manufactured products which are ready for sale.

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Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth marketing operations.

OBJECTIVE OF INVENTORY:Inventories represent investment of a firm’s funds. The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore consider: (a)

costs,

(b)

return, and

(c)

Risk factors in establishing its inventory policy.

Two types of costs are involved in the inventory maintenance: 1-Ordering costs: - Requisition, placing of order, transportation, and staff services. Ordering costs are fixed per order size increases. 2-Carrying costs: - Warehousing, handling, clerical and staff services, insurance and taxes. Carrying cost increases. The firm should minimize the total cost (ordering cost + carrying cost). The economic order quantity (EOQ) of inventory will occur at a point where the total cost is minimum. The following formula can be used to determine EOQ: EOQ=(2AO/C)^1/2

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Where, A=Annual requirement. O=per order cost. C=per unit carrying cost. WHEN SHOULD THE FIRM PLACE AN ORDER TO REPLENISH INVENTORY? The inventory level at which the firm places order to replenish inventory is called reorder point. It depends on (a) the lead time and (b) the usage rate. Under perfect certainty about the usage rate, the instantaneous delivery (i.e. zero lead time, the reorder point will be equal to: Lead-time *Usage rate +Safety stock. The firm should strike a trade-off between the marginal rate of return and marginal cost of funds to determine the level of safety stock. A firm, which carries a number of items in inventory, which differ in value, can follow a selective control system. A selective control system, such as the A-B-C analysis, classifies inventories in to three categories according to the value of item:

A-Category consists of highest value items, B- Category consists of high value items,

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C-Category consists of lowest value items. More categories of inventories can also be created. Tight control may be applied for high-value items and relatively loose control for low-value items.

Why business houses hold inventories ? There are at least three motives for holding inventories: 1-To facilitates smooth production and sales operation (transaction motive). 2-To guards against the risk of unpredictable changes in usage rate and delivery time (precautionary motive). 3- To make advantage of price fluctuations (speculative motive).

ELEMENTS OF INVENTORY

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There are three basic forms of inventory : 1. STORES INVENTORY : This mainly comprises (a) Direct materials: such as raw material in form of ferrous, non –ferrous, insulating materials , casting-forgings and components. (b) Indirect materials: These are also known as “general stores”, “Maintenance and operating supplies” and the like it includes all the non product items regularly stocked by the company and either consumed in operation of the plant or office or needed to maintain its building and equipment. 2. Stores In Transit: These are item which have been shipped or dispatched from vendor but not yet reached their destination in stores and not yet accounted for in the priced ledger. 3. Production Inventory : a) Work In Progress Inventory: This includes all product materials on which the company has performed some manufacturing, processing or converting operation but which are not yet in finished form ready for sale. b) Finished goods inventory: these include completed the items of modules that are ready for sale. These may be located at a company plant or store for a branch for a commercial warehouse.

MANAGEMENT OF INVENTORIES

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THE NEED AND IMPORTANCE: The need for inventory control in a manufacturing concern can hardly be overemphasized, since in varies constitute the largest component of working capital in most of the organizations, its needs the greatest amount of care and attention for proper control. Its excess or inadequacy, both has adverse effects on liquidity and profitability of a firm. Insufficient and inefficient procedures may lead to unbalanced inventories e.g. some items out of slick and some over slick, resulting in excessive investment. All these insufficiencies will ultimately have an adverse effect on profits. Control techniques, such techniques are applied for reducing the investment in inventories, out adversely affecting the smooth running of production and sales operation. Material Management is an integrated function of the various sections of an organisation dealing with the supply of materials and allied activities in order to achieve maximum coordination and optimum expenditure on materials. INVENTORY MANAGEMENT TECHNIQUES: Altogether the company deals with stock of thousands of items raising a serious problem of how one can keep control of track of all these items also, where it necessary to have some extent of control on each and every item. Different types of analysis each having its own specific advantages and purpose help in bringing a practical solution to the control of inventory. The most important of all such analysis is the ABC analysis.

The others one. 8


VED - analysis SDE - analysis HML - analysis FSN - analysis ABC ANALYSIS It’s a formal way of classifying inventory so that the important ones will be given the most attention. Through this analysis the professional inventory manager will concentrate his efforts on were they will yield the greatest rewards. The ABC of ABC analysis refers to the classes, A, B and C into which the inventory is divided. A is high value items whose rupee volume typically account for 75-80% of the value of the total inventory while representing only 10-15% of the inventory items, the B class is lesser value item whose rupee volume accounts for 15-20% the value of the inventory, while representing 15-20% of the inventory items. The C class is low Value item whose volume accounts for 10-15% of the inventory value but 75-80% of the inventory items. The same degree of control is not justified for all the three classes of items. The class of items requires the greatest attention and the class of items the least attention. Class C items need no special calculations since of they represent a low inventory investment. The order quantity might be a one-year supply a periodic review once year class B items could have CODs developed into a semi-annual review of the variables. Class of items could have EOQs developed a review of the variables each time an order is placed. The major concern of an ABC classification in to direct attention to there inventory items 8


their represent the largest amount expenditure. If inventory levels can be reduced for claim of items it result in a significant reduction in inventory investment.

ABC INVENTORY CLASSFICATION Percent of total class percent of total No. of units in Annual usage value each class

Percentage inventory items 10 15 75

of Category classes A B C

of

value of the total inventory(rupee volume in %) 75 15 10

VED ANALYSIS

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This analysis specially pertains to the classification of maintenance spares denoting the essentiality of blocking spares.

V - stands for vital - items when out of stick or when not readily available, completely bring the production a hault.

E - Is for essential items without which temporary losses of production or dislocation of production week occurs.

D - Denotes desirable items - all other items, which are necessary but do not cause any immediate.

S.D.E ANALYSIS Effects on production. For developing countries and especially where certain items are in scarce supply. This analysis is very useful.

S - Refers to scarce items, especially imported items and those which are very much in short supply. D - Are difficult items which are available in market but no easily available. E - Items are those which are easily available, most local items.

HML ANALYSIS

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The cost per item is considered for this analysis.

H - High cost M - Medium cost L - Low cost

FSN ANALYSIS Materials are classified as: F- Fast moving - the items with other rates of consumption. S - Slow moving- if less than five percent is consumed. N - Non moving items – if less than one percent of the item inventory has been consumed in the past three months, it is termed as non-moving.

Ordering Systems8


The main problem in any ordering system is when to order and how much to order accordingly. Main methods used for overcoming these problems are:-

1. Reorder level system (ROL method) In this method, at first a recorder level is found out taking into consideration the lead-time and also the rate of consumption. To take care of any variation either in the lead-time or in the ratio of consumption of quantity known as a buffer stock or safety slick is provided. 2. Periodic ordering method:The stocks received at fixed intervals of time and orders are placed either for a fixed quantity or a variable quantity.

SAFTEY STOCK The safety stock become necessary in order to avoid 'stock outs' if the rate of consumption increased and/or the lead time gets extended from the values considered for the replenishing systems, Thus, a simple way of establishing the safety stock would be to find out the above two variations that could systematize such a big amount of information. What is required then I a upgrading on the class of information processing technology. In other words the management are as follows.

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1. It enables to establish a well-defined ordering policy. 2. It helps on accurate programme planning. 3. It helps in detection of universal consumption on trends by consumption analysis. 4. It produces derailed machine processed stores ledgers. 5. It picks up important items from a wide inventories require management attention. 6. It produces ABC analysis for effective control of issue and procurement. 7. It highlights pending orders and pinpoints disparity between the last purchase rate and the current purchase. Before and inventory can be put on the computer a large manual efforts is required for assignment of individual codes after the coding structure is selected from either of the systems indicated below. In large inventory of over hundred thousands of items, this effort may take a year pr even longer specially if meaning codes are to be assigned. Is the coding effort can be very expensive and therefore effort can be very expensive and, therefore effort should be made to minimise it by depending the coding structure as simple as possible. So in this present era of computer, computerisation of material management has become a necessity. The safety stock would be to find out the above two variations that could normally occur over a period of time in terms of additional quantity of stock to be maintained.

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Determination of ordering costOrdering cost is the cost which will be incurred by concern because of initializing or placing order for the supply of materials. To find out the ordering cost, at first the following cost are determined for a particular year. 1. Suitable position of administrative staff lost who have been engaged in purchasing activities. 2. Clerical cost. 3. Depreciation on building furniture, and on office equipments. 4. Post telegraphic cost and stationary expenditure. 5. Travel and electricity expenditure. After finding out the total expenditure of all the items, divide that particular amount by the total number of orders placed in that particular year, which will give the order cost in Rs.

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Determination of inventory carrying cost. Inventory carrying cost is the total expenditure incurred by the material management function for carrying the inventory in stock. So find the inventory carrying cost at first the following expenditure for the particular year is fount out. (1) Suitable position of the administrative staff cost. 1 (2) Suitable position of the security cost & electrical cost. (3) Maintenance and depreciation expenditure on building and furniture. (4) Stationary, post, telegraph and electricity expenses. (5) Obsolescence, Insurance and handling charges. OBJECTIVES OF INVENTORY CONTROL; 1. Financial: goal is to keep investment in inventories within the limits of budget available so that composition of working capital is not thrown out of balance. 2. Operating : a) To obtain the best overall balance between production and inventory carrying cost on the one hand and customer service at the other. b) To minimize losses resulting from inventory deterioration & obsolesce 3. Property protection : a) To safeguard an important asset against theft preventable waste all unauthorized use. b) To make certain that within reasonable tolerances the value of this asset is correctly stated in company’s books

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To meet objectives BHEL Hardwar Inventory Control Department has outlined following major objectives: 1. To maintain the investment in Inventories at the lowest point consistent with operating sales turnover & financial requirements of the enterprise as per budget. 2. To ensure an adequate supply of required kind of raw materials parts supplies and other items to maintain the most efficient level of operations to meet the demands of customers. 3. To report and liquidate slow moving, non-moving defective or obsolete items. 4. To ensure the actual existence of physical quantities and values shown in the records. 5. To prevent loss through waste, damage or pilferage. 6. To signal over under-stocked conditions in relation to current and projected demand.

FUNCTION OF INVENTORY CONTROL

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Functions to be performed in the field of Inventory Control are : 1 Setting up norms for carrying Inventory. 2 Determining what items to be stocked. 3 Setting rules for Inventory replenishments. 4 Receiving, storing and issuing inventory items as needed. 5 Maintaining records of inventory quantities and values. 6 Identifying and deposing of slow-moving, non-moving, obsolete or damage inventories. 7 Furnishing summary information on inventory position for control purposes. Locations of position responsible for performing each of these functions in organisation structure greatly vary from company to company.

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INVENTORY MANAGEMENT IN BHEL

8


In BHEL Hardwar

determination of product material or direct

work order material (what?) o be carried in Inventory is more or less automatic result of product design formulation and is given in material forecast for a work order.Indirect materials consumed

in manufacturing

process such as electrodes , brazing alloys, tooling etc. are usually given by process engineering or at times by design departments. Balance great bulk of indirect materials is made up of repair parts and general supplies. Responsibility for specific (what?) items to be carried in inventory rests with Works Engineering. With respect to raw materials and purchased parts, responsibility for determining (when?) and how much to buy is a sign to relevant product manufacturing

i.e.

production

planning

and

material

planning

groups.However a strict budgetary control and allocation to specific work order control on high value items is exercised by Inventory control department organized separately under Material Management,Purchase deparment attached to manufacturing deparment determines (where?) to buy. Determination of indirect material (when?) and how much to buy and (where?) , is done by central group under Material Management by consolidating requirements of all sections and while looking at consumption trends over a No.of years. Again a strict budgetary control and control on high value items for their allocation is exercised by Inventory control group.

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In HEEP, Heavy Electrical Equipment Plant the Production industry of BHEL, Hardwar

-- There are different departments which deals

with

Inventory management  Purchase Department  Shipping Deptt.  Receiving Deptt.  Storing Section  Rejection Shell

Process of placing an order in BHEL  User department raise the indent. (Requirement)  Indent will go to purchase department.  Purchase department will raise the Tender.  In Reply, supplier will give their quotations.  Company choose any of them (lowest) & places the order.  On receiving the material the user department will raise Stores Receipt Voucher (STR).

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Receiving and storing is done by Central Stores CSX under Material Management Department. All the records for raw material are maintained PSL (price store ledger) section of Finance Department. These records are maintained online. Issuing Inventory is done by CSX on demand from manufacturing and is controlled by Material Planning.Again some on-Line checks are proposed to be introduced at raising of Store Issue voucher stage itself, for high value items so that induction is controlled strictly as per requirement of production schedule based on lead time for manufacture to keep WIP inventory under control. All the records relating to WIP and Finished Goods are maintained in the cost section of finance department manually. WIP and Finished Goods are valued at Factory cost. Records of Inventory are maintained on a main frame computer centrally arranged having shared access from all functions for their specific use.

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Inventory Record Keeping And Related Procedures How well Inventory records are maintained has a major bearing on the effectiveness of Inventory control program. Mostly information recorded in B.H.E.L. system is: ♦ Name of the part or material ♦ Short description ♦ Identifying No called Material code ♦ Unit of measurement ♦ Location in store (custody) ♦ Bin no. ♦ Opening, received, issue, closing quantity and value. These records are maintained in an online system on main frame computer user departments have shared access for posting and retrieval of information. There is a system for reserving specific items as customer specific which is done by tagging on the item. Posting of withdrawals or issue from inventory is done on specific authorization by a document called Store Issue voucher.

• BHEL produces long production cycle items against the firm orders from customers. Because of this as well as sizeable imported raw materials and compulsory bulk purchase of items like steel and copper in line with availability from SAIL and MMTC, the company has to carry high level of inventories.

8


NEED OF INVENTORY MANAGEMENT • Stiff competition, globalization of trade and liberalization. • Achieving, increasing and positive EVA. • Cost reduction. • Energy conservation. • Conservation of natural resources. • Better, work environment. • Improved health and safety. • Enhanced public image.

BHEL took the following steps to control its inventory:-

STRATEGIES/MEASURES • Formation of specific group in each area to identify the wastage elements and seek participation of all. • Identification of wastage. • Formulation of action plan to eliminate/minimize wastage. • Review of status. • Identification of corrective actions and their implementation. • Highlighting the gains.

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INVENTORY CONTROL

In managing inventories , the firm’s objective should be in consonance with the shareholders , wealth maximization principle . To achieve this , the firm should determine the optimum level of inventory . Efficiently controlled inventories make the firm flexible . Inefficient inventory control results in unbalanced inventory and inflexibility – the firm may sometimes run out of stock and sometimes may pile up unnecessary stocks . This increases the level of investment and makes the firm unprofitable .

Inventory can be controlled in two ways 1. BEFORE PROCUREMENT is decided HOW much should be ordered ? WHEN should it be ordered ? To manage inventories efficiency ,answers to be sought to the following answers , HOW MUCH TO ORDER relates to the problem of determining economic order quantity

and is answered with an

analysis of costs of maintaining certain level of inventories . the second question WHEN TO ORDER ,arises because of uncertainity and is a problem of determining the re-order point .

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There are certain TECHNIQUES adopted by firms ,they are 2. IN STORE it refers to continous stock checking when goods are in stores . This system is adopted by large firms to put check to discripencies and errors made in stores. IN BHEL ,this function is performed by PRICE STORES LEDGER and STOCK VERIFICATION A . PRICE STORES LEDGER ; Price stores ledger relates to goods in stores only . Its major functions includes following; • Inventory control in stores –it relates to control of inventory in stores ,as it accounts for issue of materials to different departments . • Price variation control – it controls price changes to stock ,implies impact of price change of stock in market to cost of material in stores . • Accounting for scrap and surplus stores – Due to changes in design or obsolescence of products etc, some items in stores become surplus . As maintenance of these items in the inventory results in additional expenditure by way of inventory carrying cost , these items are to be reviewed periodically , declared as surplus and disposed off to the

8


best advantage of the company . when it is finally concluded that all these items can not be used in the plant action is taken to enquire from sister division whether these items will be of any use in there plants . The representatives of stores department and of PSL section sit together to fix up the reserve price for disposal. These reserve prices are kept confidential between manager ( stores ) and the executive incharge of PSL . The accounting treatment accorded whenever the materials are declared surplus and charged off to

P & L account or when materials already

declared as surplus and charged off to P& L account are put to alternative use and issued for production or when the surplus materials already declared as surplus are disposed of on sale . BUT ,PSL ‘s major function include receiving GOODS ,after the order have been placed as per requirement by the indenter and then distribute those received goods to different departments for conversion to finished goods . It is regarded as its major function being basic requirement for production . THIS is accomplished as follows under two systems;

Manual System: In almost all the manufacturing divisions, this ledger is maintained on the computer or a data processing machine.Where the priced stored ledger is maintained manually the register will be maintained .The stores Receipts Vouchers will be priced by the stores account section(Stores review or stores bill group) with reference to the purchase order and the bills passed for payments. The priced SRVs are posted in the receipts column of the Priced Stores Ledger both

8


in quantity and value.In respect of other receipts and issue documents,the valuation will be done by PSL section in consultation with the other account sections and departments concerned wherever required.The valuation of issues is generally done on the basis of monthly weighted average price.For this purpose the issue price will be arrived at by adding the opening balance of the month and all the receipts separately in value and quantity and dividing the value by the quantity so arrived at,as illustrated below: If A&B represents the quantities of opening balance and receipts , X & Y represents opening balance and receipts during a month in value and t represents the weighted average issue price’ T=(X+Y)/(A+B) All issues during the month will be priced on the basis of t. At the end of every month the ledger will be closed and the closing balances will be struck. The Priced Stores Ledger will be maintained material code-wise and a consolidated summary of all the materials held in stock class-wise and material codewise will be presented ,for obtaining the class-wise summary and the grand total of all class-wise summaries agreed with the general ledger. NOTE 1: If any other method of pricing the issues like FIFO,LIFO.average price etc, is proposed to be followed in any division, specific prior approval of corporate office should be obtained. NOTE 2: The initial space received with equipments are usually capitalized though these may not be required for immediate use and may be kept in the custody of 8


stores.As the maintenance of Priced Stores Ledger for such items will ensure proper control and as computer system may reject items of ‘nill’ value, it may become necessary to price such spares kept on Priced Stores Ledger at a nominal value. Insuch cases the value adopted will be credited to capital by a contra debit to code 161-‘Production Stores and Spares’.

Computerised System : 1.

Processing and Receipt Documents : All the receipt documents are checked for validation of material code, unit of measurement and location with reference to material master on the computer. The responsibility for correcting error in this respect rests with Stores department . After this validation , SRV’s are routed for pricing on computer. In this respect two further error statements are generated. The first statement refer to those SRV’s for which price factors have been fed by Stores Accounts section (Stores review / Stores Bills group) but for which there is no matching code in the material master. The second error list refers to those SRV’s for which price factors have not been received from the Stores Accounts section (Stores Review /Stores Billing group). The responsibility for corrective action on these two error lists rests with the Stores Review/ Stores Bills group of the Stores Accounts section. The above process of correction helps in completing process cycle on computer in respect of various files which need data from SRV’s. 2. Processing of Issue Vouchers on Computer : Just like receipt vouchers , issue vouchers are also validated with reference to material master regarding material code, unit and location . They are also validated

8


with reference to the stock available in the stock master and if there is no stock to accomodate, They are rejected by the computer. As in the case of receipts, the responsibility for error location rests with the Stores department. After correction , the validated vouchers are further processed in computer. The issue rate is arrived at base on a system of monthly weighed averages after taking into account all the receipts during the month. Thus the issue vouchers are priced on weighted average only after all receipts have been accounted for in particular month. With this ,’ Priced transaction file’ of of computer gets completed in particular month and from there , different tabulation pertaining to current PSL, progressive PSL, documentwise receipts and issues , accounts code -wise receipts and issues , material- wise receipts and issues etc., are received from computer for future work in PSL section. 3 . Processing of Transfer and Other Documents on Computer : The transfer and other documents specified above are priced in the PSL section and fed into the computer. A tabulation for all such documents processed on the computer is obtained at the end of every month. 4. Accounting of Material in PSL : Based on the computer tabulations received for receipts/ issues/ transfer documents necessary accounting adjustments through journal vouchers are effected in the PSL section. 4. Accounting adjustments at the time of Mid- year / Annual Closing of Accounts : 8


At the time of Mid- year / annual closing of accounts, the balances under each of the different stock heads are reconciled with the progressive PSL and the class summary register. After reconciliation is made , the closing balance value in each of the stock heads is cleared and taken to closing stock accounts in the Financial Ledger, The journal entry is effected in Cost Accounts section. 4.2 Acconting of Stock of Durable Tools : At the time of accounts, the values of durable tools in stock is brought to account as stock. The tools are classified as consumable tools and durable tools. The criteria for treating a tool as a durable tool are as follows : (a) the cost of each tool shall be above Rs 10,000; and (b) the life expectancy of the tool shall be more than one year. Description is charged at 20% according to Company’s accounting policy, only in case of durable tools and all other tools including those costing Rs. 10,000/- or below are charged off as consumption of stores and spares in the accounts. As all the tools are charged of as consumption as they do not go to stores, non-stock SRV’s are raised by Stores department. The codification of tools may include identification tools for consumableand durable tools. As and when purchases are made , based on non- stock SRV tabulations, the amounts will be debited to cost ledger account 005,Directly chargeable item- Non production jobs Imported’ and 013-‘Directly chargeable items- Nonproduction jobs- Indegenous’. Based on the departmental

8


number- wise tabulations , the following JV will be proposed in the Cost ledger. Dr. Cr. 000xxx Department concerned aaa 000005 Directly chargeable items-Non production jobs- imported 000013 -do- -Indegenous

bbb ccc

At the time of closing of accounts , alist of durable tools (i.e. tools costing over Rs. 10,000/- each) purchased during the year is taken from the non- stock SRV tabulations (based on code number) and added to the list already available in PSL. This list is compared with the list of durable tools kept by each department . Finally, the depreciatedvalue of durable tools is brought to stock under code 002/010 ‘Material ControlImported/Indegenous’ by crediting the concerned department . The value of the durable tools is brought to Financial Ledger by means of the following JV : Code No. Description Dr. Cr. 163001 Stock of stores and spares- Loose tools xxx 629002 Stock at the cost of the year- Stores and xxx spares -imported 629010 Stock at the close of the year- Stores and xxx spares -Indigenous Again at the commencement of the year, the earlier closing entries are reversed , by credit to 163001-'Stock of stores & spares-Loose tools' and debit to 621xxx-'Stock at the beginning of the year -Stores & 8


spares'.The concerned departments are debited in the Cost Ledger. 4.3 Accounting of Non-stock Items of Stores 4.3.1 In case of medical and stationary stores for which no Priced Stores Ledger is maintained,statements of stock of medical stores and stationary stores are obtained from the Cheif Medical Officer/'Stores department,as at the end of accounting period/year, duly priced and the following adjustments are made in the accounts based on the priced stock statements. Code Cr.

Description

162001 Inventories-Miscellaneous stores

Dr. xxx

7130xx

Medical expenses-Stock of medial stores at the close of the year/ Overhead control xxx 8040xx Printing and stationary/ Overhead control xxx The above entriec are reversed in the following accounting year i.e. in December/April. However in April, this is done by operating code 7110xx-'stock of medical stores at he beginning of the year' instead of 7130xx,in case of medical stores. 5.2.1 For accounting adjustment in the case of other nonstock/directly chargeable items,please see paragraph 4.3.7 and 7.9.1 of Stores Account Manual.

8


5

Reconciliation Work and Corrective Action relating to Problem Areas in Computer Outputs: 5.1 Reconciliation between Bin Card Balance and PSL Balance: As PSL figures are always taken into account for various projections and decision making processes , it is necessary that figures are correct and strictly correspond with the actual physical balances of sores and balances appearing in the bin card. To ensure this, a continuous periodical reconciliation between the figures appearing in the PSL and those in the bin cards should be done in close coordination with the stores department. The physical verification of the stock held by the stores with reference to the bin card balances is done by the stock verification section of the accounts department as well as by the concerned departments to ensure that all the discrepancies between the physical balances and PSL/bin cards are brought to light. It has also been enjoyed in the stock verification manual that the reconciliation between the PSL and the bin cards should precede he stock verification and where stock verification has to be taken up before the reconciliation of PSL and bin cards balances is completed, a suitable watch should be kept in the stock verification section to ensure that no additional discrepancies are thrown up between bin cards balances and the physical balance as a result of reconciliation of PSL balance and the bin card balance/ In this connection a reference is invited to the provisions of para 3.2 to 3.4 of the Stock Verification Manual. To facilitate reconciliation, once in every 3 months / 6 months, for different material codes, a single line coding balance is obtained from the computer and the PSL figures are compared with the bin card balances. In the case of discrepancy, transaction related to particular material code, where discrepancies have been noticed, are inspected thoroughly and necessary corrections effected wherever 8


required. In the case of corrections in the bin card balances, the same will be communicated to the Stock Verification section, especially in the case where stock verification has already been done by that section.

5.2 Check up of High Value Receipts/Issues: The problem relates to accounting of stray mistakes in regard to pricing or in feeding pricing element to computer e.g. rate which is reckoned per MT may be given as per Kg or viceversa. For this purpose tabulated figures of all high value SRV’sare checked up every month both for quality and value. The responsibility of ensuring that all receipts are completely reported to EDP rests with the Stores Review group of Stores Accounts section. 5.3

Reconcilation of Issues : To ensure correctness , the total quantity issued in each major category of materials per tabulation is compared with the ‘quantities issued report’ prepared by Stores department at the end of each month. In case there is any difference, investigations are made so as to ensure proper reporting of issues in the monthly report.

5.4

Irregular Balance ; Special tabulation of PSL is obtained from computer on irregular balances. This tabulation lists out items where the quantity is positive but value is zero or negetive or where quantity is nil but value is positive or 8


positive.All such cases are investigated and corrective action taken every month. 5.5

Quantity Mistakesin Issue Vouchers due to Punching Errors; Major errors are generally reconciled when current PSL is reviewed and minor errors are revealed at the time of reconciliation of PSL balances with bin card balances.If the quantity is puncged wrongly vaoue is also calculated wrongly by the computer . this mistake is corrected through PSL adjustment forms.

5.6

Wrong Purchasing of Material Codes : Because of wrong purchasing of material codes, the transactions relating to one material is wrongly accounted for under another material code. These mistakes are generally revealed at the time of reconciliation of PSL with bin card balances and they are also correctedthrough PSL adjustment forms.

8


SUGGESTIONS BENEFITS OF MODERN TECHNIQUES : These techniques helped in following manner1) Helps in reducing carrying cost of inventory. 2) It helped in reducing the level of working capital blocked in inventory . 3) It helped in reducing the level of work of store keeping department and inventory control department as inventory level is optimum. 4) As more concern is given on wastages it helps in reducing losses. 5) As inventory is kept at optimum level , chances of obsolescence are decreased. 6) Ease in importing goods as , Transchart (Ministry of shipment) is recevied. 7) Auto indenting have helped MPIC official in placing the order.

RECOMMENDATIONS 1) The techniques and methods used should be regularly updated. 2) High value and high cost items should be carefully handled and regular check should be made.

3) With the globalization of economy , proper care should be given to suppliers

8


and customers.

4) It should aim at reducing non value added costs involved in production. 5) Investment should be made in those stock items which are fast moving rather than on those which are non moving.

INVENTORY MANAGEMENT IN BHEL • BHEL produces long production cycle items against the firm orders from customers. Because of this as well as sizeable imported raw materials and compulsory bulk purchase of items like steel and copper in line with availability from SAIL and MMTC, the company has to carry high level of inventories. RS/LACS 2002PARTICULARS

Raw Material & components Material with fabricators Stores &spares Material in transit Finished goods at plant

2004-

2005-

2006-

2007-

ACT.

05 ACT.

06 ACT.

07 ACT.

08 ACT.

7639

5338

10469

11567

10375

10386

99

155

105

306

395

353

2333

2092

1594

1848

2989

3061

1466

3819

3716

9910

8193

9705

2603

2181

1770

2454

1819

03 ACT.

931

2003-04

8


W.I.P Transfer in transit Total Turnover Average inventory Inventory to turnover Days of inventory

18488

23699

38585

42120

38398

36411

1413

1508

2326

2277

4823

3630

32370

39214

58976

67898

67627

65365

101335

97432

140697 164060 200864 235096

42267

45414

37915

35792

49095

33752

1.93

1.78

2.38

2.72

2.99

3.26

139

192

248

215

166

135

holding

Inventory Turnover Ratio = Sales / Average Inventory Days Of Inventory Holding =365 / inventory Turnover Ratio

8


Graphical Representation of Days of Inventory Holding

NO. OF DAYS

DAYS OF INVENTORY HOLDING

350 300 250 200 150 100 50 0

248 192

215 166

139

135

2002- 2003- 2004- 2005- 2006- 200703 04 05 06 07 08

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

YEARS

8


INTERPRETRATION If we see from the above table that the days of inventory holding in the year 2005-06 has come down to 215 days from 248days in the previous year. Inspite of increase in turnover i.e. 164060 in 2005-06 from 140697 in the year 2004-05the days of inventory holding decreases. This indicates that the company is using effective strategy to bring down its inventory level. This makes very less investment in inventory. It is in the interest of every organization to minimize its inventory level.

Following is the process through which the company can achieve the optimum inventory level.

STANDARD INVENTORY LEVEL

TAKING ACTUAL

COMPARISION OF ACTUAL WITH STANDARD

INVENTORY LEVEL ANALYSING REASON OF VARIATION/DEVIATION 8


TAKE CORRECTIVE ACTIONS

VARIATION / DEVIATION

NEED OF INVENTORY MANAGEMENT • Stiff competition, globalization of trade and liberalization. • Achieving, increasing and positive EVA. • Cost reduction. • Energy conservation. • Conservation of natural resources. • Better, work environment. • Improved health and safety. • Enhanced public image.

8


Graph of inventory in BHEL

70000 60000 50000 40000 30000

Inventory in BHEL

20000 10000 0

2002- 2003- 2004- 2005- 2006- 200703 04 05 06 07 08

8


Interpretation By

the

graphical

representation,

we

can

easily

understand that the level of inventory is coming down but in 200506 it increases due to large amount of raw material .It comes down because company takes some effective measures to control the level of inventory. Those steps are following steps to control its inventory: -

8


STRATEGIES/MEASURES • Formation of specific group in each area to identify the wastage elements and seek participation of all. • Identification of wastage. • Formulation of action plan to eliminate/minimize wastage. • Review of status. • Identification of corrective actions and their implementation. • Highlighting the gains.

8


Suggestion: After analyzing the steps taken by the company there are some suggestions to manage the Inventory • There should proper analysis of requirement of raw material. • Order should be placed according to the lead-time. • Wastage should be avoided. • There should be proper coordination between the Inventory Department and Production Department

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BIBLIOGRAPHY .  Intelligent stock market security by N. J. Yasaswy.  The Indian securities market by Tadashi Endo.  The Big Picture : Reflects on Our Economic Times by T.T. Ram Mohan  Financial Accountancy by M .Y .Khan  Research methodology by C.R.Kothari

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References www.google.com www.bhel.co.in www.bhelhwr.co.in www.wickeypedia.com www.answer.com

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PROJECT REPORT ON INVENTORY MANAGEMENT  

Submitted in the partial fulfillment for the requirement For award of the degree of MASTER OF BUSINESS ADMINISTRATION 8

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