To examine the effectiveness of inventory management and its cost control at Hindal co
TABLE OF CONTENTS: SL. NO. 1.
CHAPTERS
PAGE NO.
Introduction
1–6
2.
Company Profile
7 – 36
3.
Inventory Analysis
37 – 54
4.
Inventory Ratio Analysis
55 – 73
5.
Inventory Practices at Hindalco Industries Ltd.
74 – 78
6.
Findings & Suggestion
79 - 82
Conclusion Bibliography Annexure
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To examine the effectiveness of inventory management and its cost control at Hindal co
Introduction to Inventory Management Importance of Inventory Management Objectives of the Study Scope of study Sources of data Tools used Limitations of study
INVENTORY MANAGEMENT CONCEPT: Introduction: Inventory Management is very important area of production management and plays a vital role in the economic operations of a concern. It has been defined a Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co variety of ways and most of the definition stress the importance of control element in achieving cost effectiveness. Irrespective of the range of particular discipline which may have to be applied within the functional fields in meeting the needs of individuals situation. According to Prichard and Eagle, inventory management can be defined as “the sum total of those activities necessary for their aquition storage, sales, disposal or use of inventory. Inventory management, impact is an integral part of production, planning and control which, according to Charles A. Kepke, may be defined as the co-ordination of series of function according to a plan which will economically utilize plant, facilities and regulate the orderly movement of goods through their entire manufacturing cycle, from procurement of all materials to the shipping of finished goods at pre-determined rate. The scope of inventory management is not restricted to technique of regulating the movement of inventories and it rather converts the entire range of functions, which affects the flow, conversion, quality and cost of inventories. It can be inferred from the above definitions of inventory management that there are two guiding principles in inventory management. •
Adequate inventory has to be maintained to avoid the stock out and causing consequent production held up and the customer’s dissatisfaction
•
Excessive investment in inventory items must be avoided as it increases the carrying and results in loss of profit. In view of these principles it may be inferred that for manufacturing concern, inventory management is the significant aspect of production and financial planning and control.
IMPORTANCE OF INVENTORY MANAGEMENT:Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co Investment in inventory normally accounts for about 1/3 value of the total assets and for an average manufacturing concern, cost of inventory represents about one half of the product cost. Because inventory constitutes such a significant part of product cost 7 since the cost is controllable, proper planning, purchasing, handling, accounting and control of inventories is of great significance. Inventory management is now great significance in a view of imperative need for productivity growth. Optimal utilization of all available resources and avoidance of all types of waste especially in case of raw materials is required for an ambitious programmer of economic growth. The importance of inventory management lies in the fact that many significant effort for the reducing the materials cost will go along way in improving the profitability and rate return on investment. Following are the benefits of optimum inventory management:
It provides a check against the loss of materials through carelessness or pilferage. Inventory management ensures an adequate supply of materials, stores, spares etc. Minimizes the stock out and shortages an avoids a costly interruption in operations.
It reduce length of manufacturing cycle to the minimum.
It enables the management make cost and consumption between operations and periods.
OBJECTIVES OF THE STUDIES: The major objective of the study is to examine the effectiveness of inventory management and its cost control. Some of the other objectives of the studies are: To study the working of Hindalco Industry Ltd., Belgaum Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co ďƒ˜ To study the inventory management based on the ratios ďƒ˜ To study the inventory management and its effective control through various techniques.
SCOPE OF THE STUDY :Inventory management being a very important concept in all the company’s having a void coverage often calls for the managerial attention. In the modern times inventory management has become the integral part of the all companies. So all the firm give special importance for inventory management. The major objective of the study is to examine the effectiveness of inventory management system adopted by Hindalco Industry Ltd., Belgaum.
The study mainly focuses on the techniques used by this
company to control the inventory. The study also covers other areas like the financial ratios for the period of 2001 to 2006.
SOURCES OF DATA:Sources of Data can be understood as the sources of the means from which the information is collected. Data originally collected in the process of the investigation are known as the primary data, those collected by the other persons is known as the secondary data. The sources from which the original investigation is known as the primary sources. On the other hand the sources did itself collected the data but took from other primary source is known as the secondary data. The information for this project is collected from both primary and the secondary sources. The information is collected from the secondary sources like internet, annual records, so these are the main sources of data from which the information is collected for the preparation of this project.
TOOLS USED: Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co •
Inventory turn over ratio: it indicates the number of times obtained by dividing the cost of sales by the average sales.
Where, Inventory turn over ratio = Cost of goods sold divided by average inventory. Cost of goods sold •
= Sales – Gross Profit
Inventory conversion period. This ratio indicates number of days taken to convert the inventory.
Where, Inventory conversion period = 365 /inventory turn over ratio •
Duration of Raw Materials Stage: This indicates the number of days taken for the production unit to convert the raw materials to finish goods.
Where, Duration of raw materials =
•
average raw materials . Average raw materials consumed per day
Raw Material Turn over Ratio:
This ratio indicates may help in determining stock holding policy in respect of raw materials. It is also helpful in finding out the consumption pattern of raw materials. Where, raw material turn over ratio =
Cost of goods sold Average raw material
Raw material consumed
=
Opening stock of materials+purchases–closing stock of materials
Average Raw materials
=
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Opening stock + closing stock Page 6
To examine the effectiveness of inventory management and its cost control at Hindal co 2 •
Inventory to current assets ratio. This ratio express the relation between the stock and the current assets. It
lights as how much amounts per rupee of current assets are represent by stock. Where, Inventory to current assets
=
Inventory Current assets
•
Inventory to Capital Employed Ratio: This ratio indicates how much capital utilized to invest in inventories other
than the other assets, Where, Inventory to capital employed =
Inventory Total Capital Employed
•
Inventory to Total Asset Ratio: This ratio indicates the significance of this ratio is it reflects the portion
inventory as percentage of total assets, which helps the management utilization of remaining resources profitability. Where, Inventory Total assets =
Inventory Total Assets
Limitations of the Study: The collection of information and methods are mentioned above are subject to variation from time to time the project duration of 60 days only to inventory management.
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To examine the effectiveness of inventory management and its cost control at Hindal co One limitation which could be mention here is, as there are some techniques of cost control. 
It was not possible to collect information regarding the some techniques used the company. But important techniques were considered for the study.

Data regarding inventory cost control is not available for this study

Only five years data is used for the analysis of the study .
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To examine the effectiveness of inventory management and its cost control at Hindal co
HINDALCO INDUSTRIES Hindalco Industries Limited, a flagship company of the Aditya Birla Group, is structured into two strategic businesses — aluminium and copper — and is an industry leader in both segments. A non-ferrous metals powerhouse, close to global scale, it ranks among India's top 10 companies in terms of market capitalization. Hindalco commenced its operations in 1962 with an aluminium facility at Renukoot in eastern Uttar Pradesh. Over the years, it grew into the largest integrated aluminium manufacturer in the country. With an eye to build size and scale, Hindalco acquired in FY 2000 a majority stake in Indian Aluminium Company Limited (Indal) -
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To examine the effectiveness of inventory management and its cost control at Hindal co having a major presence in downstream aluminum products and a leader in special alumina from Alcan of Canada. In August 2004, the boards of Hindalco and Indal approved a Scheme of Arrangement wherein all the assets of Indal other than the foil unit at Kollur in Andhra Pradesh were to be demerged into Hindalco. This has come into effect retrospectively from 1 April 2004. Hindalco is Asia's largest primary producer of aluminium, and among the most cost-efficient producers globally. In India, Hindalco enjoys a leadership position in primary aluminium and downstream products. Smelters are located at Hirakud, Orissa, with a captive power plant and coal mines, and at Alupuram, Kerala. Rolled product manufacturing facilities are located at Belur and Taloja and an extrusion plant at Alupuram.
The company's R&D centers are located at Belgaum, Renukoot and Taloja. The government of India’s Department of Scientific and Industrial Research (DSIR) has recognized these. Hindalco's units are ISO 9001 and 14001 certified, while several have also attained the OHSAS 18001 - the occupational health and safety certification. On the export front, the company has been accorded a 'Trading House' status by the Indian government. As a member of the Aditya Birla Group, Indal is a part of a $6 billion corporation, with a market cap of $5 billion. The Group’s multi-cultural, multi-lingual workforce of 72,000 employees belongs to 20 different nationalities and its products and services reach across more than 100 countries. Its flagship companies include Hindalco, Grasim, Indian Rayon and Indo Gulf.
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To examine the effectiveness of inventory management and its cost control at Hindal co Indal along with Hindalco and its Copper Division forms a non-ferrous metals powerhouse of global size and scale, with the Hindalco-Indal combine providing opportunities for synergy and strong market position.
INDIAN ALUMINIUM COMPANY, LIMITED (INDAL):(Now part of Hindalco industries) India’s foremost aluminium producer and a member of the country’s leading business house – the Aditya Birla Group. A partner to Hindalco, India’s largest aluminium producer, together forming a non-ferrous metals powerhouse. With technical know-how acquired from its original promoter, Alcan Aluminium Limited, Canada (now Alcan Inc.), Indal has brought aluminium to touch every aspect of modern day industry and life in India.
Complete Capabilities in Aluminium: INDAL's facilities cover a wide range of operations: bauxite mining, alumina refining, aluminium smelting with captive power generation to downstream rolling of sheet, foil and other semi fabricated products. With technological expertise of over 60 years of experience in the aluminium industry in India, INDAL is a market leader in the upstream range of standard and Speciality alumina products in India, providing applications for refractors, ceramics and electrical industries. In the downstream segment, INDAL is the largest manufacturer of rolled products in India with the widest range of extrusions, meeting the requirements of different industrial applications such as building, transportation, consumer durables, packaging and telecommunication.
Creating and Adding Value: Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co Established in 1938, Indal operates across the value chain from bauxite mining to alumina refining, smelting and rolling. A nationwide spread of plants, mines and offices gives Indal the advantage of being in proximity to various regional markets within and outside the country.
The Company’s plants and mines are certified with ISO 9001, ISO
14001 and OHSAS 18001 certifications for quality, environment, safety and health. Indal enjoys a leading market position in India for Speciality alumina chemicals and value-added products of aluminium sheet, foil and extrusions. The Indal units comprise two smelters, one located at Hirakud, Orissa, with a captive power plant and coal mines, and the other at Alupuram, Kerala, two sheet plants at Belur, West Bengal, and Taloja, Maharashtra, and an extrusions unit at Alupuram. The Company's two DSIR recognized R&D centers are located at Belgaum and Taloja.
SUBSIDIARIES & JOINT VENTURES: Utkal Alumina International Limited (UAIL): The joint venture company is a subsidiary of Indal, which holds 55% equity, while the balance is held by Alcan Inc. of Canada. The proposed alumina refinery is to be set up in Doragurha in the Rayagada district of Orissa, to produce one million tone per annum of alumina, sourcing bauxite from the rich reserves at Baphlimali, in Rayagada, Orissa. Suvas Holdings Private Limited (SHPL): A subsidiary in which Indal holds 51% equity stake, based on an MOU with Laxmi Organics Industries Limited (LOIL) and SHPL; with the intent to operate mini hydel power plants in Maharashtra for captive consumption at the Taloja Sheet and Kalwa Foil Plants. The Power Project is subject to endorsement of its viability by an ongoing feasibility study.
Some recent milestones:
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To examine the effectiveness of inventory management and its cost control at Hindal co •
In April 2005, the company entered into MoUs with the Orissa and Jharkhand governments for setting up a Greenfield alumina facility and aluminium facility respectively, in the states.
•
In August 2004, the boards of Hindalco and Indal approved a scheme of arrangement in which all assets of Indal other than the foil unit at Kollur in Andhra Pradesh were to be demerged into Hindalco. This came into effect from 1 April 2004.
•
In FY 2002, Hindalco acquired the copper business of Indo Gulf Corporation Limited, a Group company. Over the last two years, with a strategic intent to achieve vertical integration, the copper business of Hindalco has acquired two captive copper mines in Australia — Nifty and Mt. Gordon.
•
In FY 2000, Hindalco acquired a majority stake in Indian Aluminium Company Limited (Indal), an Alcan Canada Group Company, which had a major presence in downstream aluminium products and is a leader in Speciality alumina chemicals.
SHARE HOLDERS PATTERN:CATEGORY Promoters
NO. OF
PERCENTAGE OF
SHAREHOLDERS
SHAREHOLDERS
53066724
74.62
UTI & Mutual Funds
3445869
4.85
Bank & Financial
5538870
7.79
FII’s
768050
1.08
NRI / OBC’S
128174
.18
GDR’S
304658
.43
Corporate’s
1509401
2.12
Individual’s
6145767
8.64
Industries
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To examine the effectiveness of inventory management and its cost control at Hindal co State Govt. Total
204469
.29
71111982
100
Hindalco Industries Key Products & their Locations: company
key products and
locations
Hindalco
brands alumina
Renukoot (Uttar Pradesh),
Industries
chemicals
Muri (Jharkhand),
primary
Belgaum (Karnataka) Renukoot (Uttar Pradesh),
aluminium
Hirakud (Orissa),
extrusions
Alupuram (Kerala) Renukoot,
rolled products
Alupuram Belur,
Ltd.
capacities
country
114,5000 tpa India
424,000 tpa
21,700 tpa 170,000 tpa
Taloja, wire rods
Renukoot Renukoot,
50,000 tpa
aluminium foil
Alupuram Silvassa
11,000 tpa
(Dadra & Nagar Haveli), Kalwa aluminium wheels Silvassa
300,000 tpa
(Dadra & Nagar Haveli)
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To examine the effectiveness of inventory management and its cost control at Hindal co *Indal
foil rolling
Kollur (Andhra Pradesh)
3,000 tpa India
(subsidiary of Hindalco)
SOME ACHIVEMENT’S OF HINDALCO AS FACTFILE •
India’s largest aluminium producer.
•
Market share of 48 per cent.
•
One of the lowest-cost producers of aluminium in the world.
•
Over 58 per cent of sales in value-added products.
•
Fully integrated aluminium plant at Renukoot, UP.
•
Aluminium wheels plant at Silvassa, in Dadra & Nagar Haveli.
•
Foil plants at Silvassa and Kalwa.
•
Foil unit of Indal at Kollur ISO 9001:2000 and 14001 certified .
•
Alumina refining capacity of 114,5000 tpa.
•
Aluminium metal producing capacity of 424,000 tpa.
•
Captive power generation of 887.2 mw.
VISION “To be a premium metals major, Global in size and reach, With a passion for excellence”
MISSION “To relentlessly pursue the creation of superior Shareholder value by exceeding customer Expectations profitability, Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co Unleashing employee potential and being a Responsible corporate citizen adhering to our Values”
SOCIAL VISION “To actively contribute to the social and economic Development of the communities in which We operate and beyond. In so doing build a better, sustainable Way of life for the weaker sections of society And help rise the country’s Human Development Index.”
VALUES Integrity: Honesty in every action. Commitment: On the foundation of integrity, doing whatever it takes to deliver, as promised Passion: Missionary Zeal, arising out of an emotional engagement with work. Seamlesssness: Thinking and working together across functional silos, hierarchy levels business and geographies. Speed: Responding to stakeholders with a sense of urgency. Babasabpatilfreepptmba.com
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QUALITY POLICY We, at Hindalco Industries Limited, are committed to pursue and sustain excellence through continual improvement in all our activities. To achieve these goals, we shall: •
Meet and exceed the expectations of customers with speed, ensuring reliable and consistent customer service.
•
Associate with Suppliers to ensure high quality of inputs through proactive partnership.
•
Improve effectiveness of Quality Management System with emphasis on inprocess control.
•
Foster teamwork, educate, train, motivate and involve employees in achieving the Quality Objectives.
•
Establish viable modernisation of manufacturing facilities and encourage technological innovations.
•
Provide value for money and be globally competitive.
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ENVIRONMENTAL & ENERGY POLICY We, at Hindalco Industries Limited – a premier name in Aluminium & Copper, operating across the process chain form mining to semi-fabricated products – stand committed to continually strengthen our energy efficiency and environmental performance in order to achieve Sustainable Development. To achieve this, we shall
•
Institutionalise an Energy & Environmental Management System across all production & operational activities, which can be monitored through periodic audits.
•
Comply with all applicable legislations and go beyond wherever technoloeconomically viable.
•
Enhance material efficiency, achieve high process/equipment productivity and adopt pollution prevention practices.
•
Adopt energy efficient and cleaner technologies; appropriate to the region in which we operate and in line with our future growth and diversification plans.
•
Promote use of non-conventional and renewable every, waste heat recovery and incorporate technological interventions to reduce Green House Gases (GHG) from our operations.
•
Reduce open land storage of wastes, and take active measures to promote industrial recycling and re-use.
•
Work in partnership with regulatory authorities, relevant suppliers, contractors and stakeholders to meet the requirements of the policy.
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OCCUPATIONAL HEALTH & SAFETY POLICY We, at Hindalco Industries Limited, value people as our most important resource and are committed to achieve excellence in health and safety management by providing a safe and healthy work environment, at all locations. To achieve these goals, we shall: •
Inculcate a sense of responsibility related to occupational health & safety, amongst all levels of employees.
•
Use safe and better technology for ensuring and upgrading health and safety standards.
•
Develop, sustain and continually improve safe work practices and standards to safeguard employees, contractors, community and assets.
•
Comply with all prevalent statutory and regulatory requirements related to occupational health and safety.
•
Promote and enhance safety awareness and consciousness amongst all employees, through training and development.
•
Monitor and review health and safety management systems and working conditions, periodically.
This policy shall be made available to all employees, suppliers, customers, community and other stakeholders.
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CORPORATE SOCIAL RESPONSIBILITY POLICY We, the employees of Hindalco Industries Limited are committed to realise our Groups Social vision to actively contribute to the socio-economic development of the underprivileged communities around us for a better, sustainable way of life and thereby help raise the country’s Human Development Index. While adopting the principles of Sustainable Development, we shall strive to work in partnership with the community, government and other stakeholders. We shall fulfil our responsibility as a good corporate citizen through a comprehensive plan, which will focus on: •
Health, Sanitation and Family Welfare.
•
Primary & Adult Education.
•
Sustainable Livelihood through income generation, agriculture based programmes including Watershed Development.
•
Women’s Empowerment through self-help Groups.
•
Infrastructural Development & Support.
•
Expousing Social Causes.
With the overall aim of building long term socio-economic self reliance among the communities in which we operate.
Strategic Objectives The Company recognizes that the conduct and effectiveness of an organization are mainly anchored to the quality of its workforce. In order to fulfill its purpose and to Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co achieve its objectives the company requires commitment and dedication of its employees who place high value not only in the interest of the company but also in the interest of other individual entities The objectives are: •
To operate at a level of profitability, which will ensure the long term economic viability of the company by providing a return on equity, which compares favorably with other industries of similar capital intensity and risk which will enable the company to attract adequate to support its growth.
•
To aspire towards a high level of operating, technical and marketing excellence, and to make the optimum use of assets, which will ensure a strong competitive position in the markets served by the company.
•
To strive to satisfy customers by integrating there needs into the company products and services with efficiency and professionalism and to give the best value to them by promoting quality products.
•
To improve the process of managing the company affairs through proper planing, timely implementation of plans and regular performance reviews.
•
To sustain an organization of able and committed employees and to provide them with opportunities for growth and advancement.
•
To foster a culture of innovation with the application of new ideas and methods to solve business problems and seize opportunities.
•
To recognize and seek to balance the interest of shareholders, employees, customers, suppliers, government as well as the public at large.
•
To uphold the highest standards of integrity in the conduct of all phases of business.
SECRET OF SUCCESS: The Board of Directors of Hindalco and Indal in their respective meetings today have approved a scheme of arrangement between the two Companies, which entails the Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co demerger of all the businesses of Indal with the exception of the business pertaining to the foil plant at Kollur, into Hindalco. The scheme of arrangement is subject to necessary approvals, and will take effect retrospectively from 1 April 2004 when sanctioned by the courts. According to Mr. Kumar Mangalam Birla, Chairman of the Aditya Birla Group, “Hindalco owns nearly 97 percent equity in Indal. I believe that the time is opportune to take this strategic stake to its logical conclusion. We would like to bring the maximum focus and harness all possible synergies to attain even higher levels of growth and enhance stakeholder value.” Over the last four years, both Hindalco and Indal have worked in tandem for the growth and development of the aluminium sector. Both Hindalco and Indal have posted path-breaking results. Such a move would help in leveraging their combined strength even further said Mr. D. Bhattacharya, Managing Director, and Hindalco.
Future outlook The company’s business strategy is to ensure profitable growth in the future will be through: Realization of synergy gain with Hindalco to ensure better market position, combining Indal’s strengths in Alumina and down stream segments with Hindalco’s advantage in primary metal. Higher assets utilization across plant location, particularly leveraging the benefits of the upgraded rolling mills as well as taking steps to optimize use of idle physical infrastructure assets and enriched product mix for higher returns from existing assets. Strengthening of exports with an emphasis on consolidating Indal’s presence in existing market while tapping new regions for export of value added product viz., especially alumina and downstream sheet, foil and extrusions. Cost control efforts including better logistics, higher operating efficiencies and improved working capital management.
Strategic growth plans Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co All capex plans pertaining to Indal, for which a sum of Rs.2000 crore has been earmarked, will be undertaken as planned under the aegis of Hindalco. Among these are: •
The expansion of its metal capacity to 100,000 MT per annum,
•
Its power generating capacity to reach 267.5 MW at Hirakud,
•
Ramping up the alumina plant at Muri to 500,000 MT per annum and
•
Enhancing the special alumina chemical capacity to 127,000 MT per annum at Belgaum.
TAKE A VIEW OF HINDALCO INDUSTRIES BELGAUM. HISTORY OF THE PLANT (Belgaum works) The INDAL plant at Belgaum was established in 1968 and started operations on the 7th November 1970. It is situated about 6 Kms., from Belgaum City, beside the National Highway. It has a total area of 1400 acres. This was the only unit of INDAL, which started with both the facilities - Alumina Plant and Smelter Plant. The main products of this unit are Alumina Hydrate, Calcined metallurgical grade alumina and Special grades of aluminas and Hydrate. The Alumina Plant was set up with a capacity of 1,60,000 tons of Alumina per year and Smelter Plant had a capacity of 73,000 tons of metal per year. Due to the hike in the power rates, the potlines in the Smelter had to be de-energized in 1995. The subsidiary of Smelter plant – Carbon Paste and Block Plant is still in operation. Owing to increased demand of hydrate, aluminas and Speciality chemicals in the export market, the Alumina Plant was expanded in several stages and currently operates at about 3,40,000 T of Hydrate (as Alumina) per annum. The Specials plant – a branch of Alumina plant manufacturing specialty grades of hydrate and Alumina is being operated at 60 KT per annum. The raw material-Bauxite is brought from Durgmanwadi Mines 120 Kms from Belgaum. About 70% of the total
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To examine the effectiveness of inventory management and its cost control at Hindal co production are exported. The Carbon Paste and Block Plant is operated using imported raw materials (Carbon Pitch Coke) from Korea. Marketing of Hydrates and Aluminas is a major business objective, both at the domestic and International Levels. The non-metallurgical grade Aluminas, also termed as ‘Special Alumina Chemicals’, find wide usage in diverse industries such as high-grade refractors, zeolite, alum, plastics, paper, industrial ceramics and high-tension insulators.
PRODUCTS OF HINDALCO – BELGAUM: CHEMICALS (Aluminium Capacity 14,01,000 TPA) The chemicals units comprise bauxite mining at lohardaga (Jharkhand), Durgmanwadi (Maharashtra), the alumina refineries at Muri (Jharkhand) and Belgaum (Karnataka), including facilities for specialty grade alumina chemicals. ALUMINUM Metal & Power (Metal capacity 1,10,10,000 TPA captive power 67.5 MW) Indal’s smelters are located at Hirakund (Orissa) & Alupuram (Kerala). SHEET Indal’s sheet rolling mills are located at Bellur (West Bengal) and Taloja (Maharashtra). The continuos caster at Hirakund (Orissa) Provides Comcast coils for cold rolling at Bellur. FOIL & PACKAGING The foil plant is located at Kalwa (Maharashtra) is equipped with the latest microprocessor based gauge control system to ensure world class rolling of foil and state of the art converting equipment. EXTRUSIONS
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To examine the effectiveness of inventory management and its cost control at Hindal co Indal’s extrusions unit based at Alupuram (Kerala) offers the widest range of alloys and shapes in India. PRODUCTS The main products of Alumina Plant, Special Products & Carbon Paste & Block Plant are as under:
Aluminium Hydrate
Calcined Alumina
Vanadium Sludge
Various Grades of Alumina & Hydrate produced as Special Products.
Carbon Paste & Blocks.
SPECIAL PRODUCTS Alumina can be broadly divided into two types-Metallurgical and NonMetallurgical Grades. Metallurgical grade alumina is being used for the production of aluminium.
While Speciality grade hydrate & alumina is used for various other
applications like fusion, grinding media, tiles, refractory, high tech ceramics, filler in SMC/DMC compound, Alum, Glass etc.
The Belgaum Works is divided into the following Departments: Alumina operations and production Specials Alumina R&D Alumina mechanical Boiler house Machine shop Garage PPC CPBP Civil & pump house Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co EPD Alumina electrical E & I Smelter R&D Smelter mechanical Smelter electrical Smelter sales GM office HR Accounts Purchase Traffic Stores Exim Dispatch Systems W.C.M BRDC Corporate In all there are around 777 employees, who include the management, workers these all are full time enrolled people. MARKETING Indal (Now part of Hindalco) has no marketing division at Belgaum works, all of Indal (now part of Hindalco) units the units work independently, and for the sales and marketing there are separate centers which co-ordinate with all the units and look into the sales and marketing of the products. The sales office is in Bangalore, Delhi, and Hydreabad. FINANCE (ACCOUNTS DEPARTMENT)
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To examine the effectiveness of inventory management and its cost control at Hindal co This department handles all financial transactions, costing and billing operations negotiation process, maintaining and preparing various invoices, payments and receipts are the to major areas of operation done by this department. In addition taxation cash loan normal and statuary payments expenses, this section handles advances and other operations relating to banks. OPERATIONS The main operations are based in the CPBP, Alumina and special products. These departments are the core for the manufacturing of Alumina carbon block, carbon paste and special products. These departments comprise of smaller departments and each of these 3 major departments has a department head. The majority of the people are working in Alumina, CPBP and Special products departments, and the work is carried out in shifts. RESEARCH AND DEVELOPMENT: INDAL’s (now Hindalco) R&D centers at Belgaum and Taloja are recognized by the department of Scientific and industrial research (DSIR). The Belgaum R & D center carries out studies on ores, alumina and specially grades and carries out overseas assignments in collaboration with ALCAN. The R & D lab has the status of “Center of Excellence” for predicting organic behavior in refineries. A joint technical development program with ALCAN is under execution in the field of raw materials. Both the R & D centers have attained ISO 9001 & 9002 certification, with the Belgaum R&D center having recently adopted the revised ISO 9001:2000 standard. Over the last five years, about rupees 560 million has been spent on R &D – a testimony to INDAL’s commitment towards developing new applications for alumina/aluminum, optimizing manufacturing process and ensuring environmental friendliness. HUMAN RESOURCE DEPARTMENT Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co Belgaum works has a separate HR Department, which looks into the daily administration and also into the specific and nitty gritty of the company, it is the bridge between the production, employees, management and the outside world. This department is concerned with implementation of the plans, with the welfare of the plant, with the industrial relations and above all safety and security of the plant and the work force is its prime concerns. This department looks after the subsidiaries like recruitment selection training and induction, canteen community development disciplinary actions ESI, welfare, security, guesthouse medical facility etc. INTERNATIONAL TRADE DEPARTMENT Indal’s alumina, chemicals, sheet, foil, extrusions & carbon products all complete in export markets, particularly across the Indian Ocean, from East Coast of Africa across the middle cost, south East Asia and the far east. New market in Europe, U.S.A. China, Japan & Australia are also being explored.
OTHER VARIOUS DEPARTMENTS: ♦ Commercial Department
Stores Department
Purchase Department
Accounts Department
Dispatch Department
♦ Accounts Department ♦ Other departments are: Babasabpatilfreepptmba.com
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Traffic Department
Exports Department
Project Department
EPD Department
Legal Cells
Systems Department
Environment Department
Work Managers Office
Engineering Department
♦ Production Department: (BAYER’S PROCES)
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ORGANISATION STRUCTURE
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To examine the effectiveness of inventory management and its cost control at Hindal co Indal’s organization is structured into Strategic Business Units (SBU’s) each responsible for its own production, technology development and marketing, drawing upon centralized service functions in Corporate Finance, Human Resource Development, Corporate Affairs, Planning & Monitoring, Legal, Engineering Projects & Materials Management, Secretarial & Investor Services and Infocom. The heads of each business and function along with the Chief Operating Officer constitute the Management Committee. This Committee formulates strategic plans and policies to take the business forward and monitors/reviews implementation of the Company’s Strategic Business Plans.
ORGANISATION STRUCTURE Babasabpatilfreepptmba.com
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WORLD CLASS MANUFACTURING ACTIVITIES: WCM
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To examine the effectiveness of inventory management and its cost control at Hindal co WCM is a competitive strategy that aims for shareholder’s value creation enough focus on sustainable and superior QCEIP performance and other parameters. The objective of our WCM initiative is to successfully compete with any organization in which every employee from top to bottom is working towards making that organization the best in its particular field. It is based on the idea that each person is an expert in his or her own job, and by synergizing the collective thinking power, creativity and job knowledge of everyone in the organization, we can accomplish this objective. One cannot seek cultural change in a business like manner. It is not something that can be bought or installed like computer software. Developing a culture is like planting a garden.
It takes time.
It requires vision, planning and systematic & disciplined
application of skill & effort. We could understand that the task is by no means easy, as part of the problem is duality of WEM philosophy that stresses both on Instrumental and the inspirational.
The inspirational is essential for sustaining the initial flush of
enthusiasm. Main Purposes of WCM Workshop are:
Build up the Top Management Will, thus getting a Commitment form them.
To introduce and proliferate the concepts, tools and techniques of World Class Manufacturing at all levels.
Develop Leads (known as Champions of Change) to further proliferate the WCM Concepts in plant once the Conference Cum Workshop is over.
Establish a common language amongst the Champions of Change.
Develop a Culture for Excellence involving People, and creating a Mindset for doing quality work in all that we do, everytime, and all the time.
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WCM Model for Excellence and Competitive Advantage To examine the effectiveness of inventory management and its cost control
8 Information, Systems/BPR, Technology and Cash Flows
Quality & Quantity Cost Delivery Innovations & Intellectual Capital Productivity & Pride
7 Liaison, Team Force and Skill Development
6 Quality First: Six Sigma/SQM & Best Practices
t io n & C o m p I n s p ir a e t i t io n m s-
1 Waste (MUDA) Elimination
2 Work Environment 3 (5S) JIT / Supply Chain Management
Tea
u lt u r e & P a s d se t , C s io n n i M
io n , S t r a t e g y & L e a s s i der n , M at Hindal co sh i si i o p V
4 Equipment Effectiveness/ TPM
5 Customer Driven: Internal and External
S h a re h o l d e r ’s V a l u e
WCM (WORLD CLASS MANUFACTURING) A main aspect of the company, it is moving towards building a WCM unit in the organization. Below is the WCM model of the company. ZERO DEFECTS ZERO LOSSES ZERO BREAKDOWNS ZERO POLLUTION ZERO ACCIDENTS ZERO CUSTOMER COMPLAINTS Babasabpatilfreepptmba.com
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EIGHT DIMENSIONS: 1. Waste Elimination (MUDA): Waste is anything which customer does not look for or pay for. Any activity, which is not adding any value to business, is considered as MUDA. 2. Work Environment (5s): It stands for good house keeping concepts and is considered the basis for continuous productivity and quality improvements Respect Standards and cultivates good habits. The 5s Stands for:
Sorting
Systematic Arrangement
Spick & Span
Serene Atmosphere
Self Discipline
3. Just In Time: The prime goal of just in time is the achievement of Zero Inventories not just within the confines of a single organization but ultimate through. 4. Equipment Effectiveness / TPM: It is an innovative approach to maintenance that Optimized Equipment Effectiveness, Minimizes waste promote, Zero Accidents, Zero Breakdowns & Zero Pollution- through team activities involving all levels of employees. 5. Customer Driven (Internal & External): This dimension ensures customer delight, both internal as well as external in enables understanding of customer expectations of our products / services.
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To examine the effectiveness of inventory management and its cost control at Hindal co 6. Strategic Quality Management (SQM): It is the process of establishing long-term quality goals and defining the approach to meet these goals. It is centered on quality based on the participation of all its members and aiming at long-term success through customer’s satisfaction and benefits to the members of organization and society. SQM is developed, implemented and led by the upper management.
Here, we
integrate quality into strategic planning. 7. Liaison and Understanding: Liaison is co-ordination/communication between the two extreme ends, liaison needs proper scheduling to achieve the satisfaction of your customer liaison and understanding therefore is most essential. The need for liaison and understanding is to meet the immediate demand of the market. 8. Information, Systems, Technology & Cash Flow: Keeping upto date with information from various sources the suppliers, customers, competitors, employees and other stake holders is extremely necessary for managing the business systems for effective manufacturing, continuous up-gradation of technology and effective cash flow are the basic requirements and WCM. AWARDS & RRECOGNISATION
1987:
Nathaneal V Davis Alcan Safety Owl for best Safety performance.
1996:
National Award for Energy Conservation (Aluminium Sector) from ministry of Power, Government of India.
2001:
National Energy Conservation Award for Belgaum.
2003:
Greentech Gold Award for Environment Management.
2004:
Greentech Gold Award for Safety.
MAJOR PLAYERS
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To examine the effectiveness of inventory management and its cost control at Hindal co 5The Industry is oligopolistic in nature with three players in the sector
National Aluminium Co Ltd. (NALCO),
Hindalco Industries Ltd. (HINDALCO),
Sharat Aluminium Co Ltd. (SALCO),
The Indian Aluminium Co Ltd. (INDAL) & The Madras Aluminium Co Ltd. (MALCO)
INDAL, which is popularly known as Indian Aluminium Co Ltd., is one of the 20 largest public Ltd. Co., in India. Indal engaged in all phases of the Aluminium Industry from bauxite mining through smelting to manufacture of a wide range of finished aluminium product. th
CUSTOMERS HUB HYDRATES:
Asian Bentonite, Indonesia, Malaysia, Philippines, Korea
Oman Chemicals
IOSK Singapore
Thai Acids: Bangkok – Thailand
Ta-Shain: Taiwan Kel Chemicals: Kenya
ALUMINA: New Co. Ag.Switzerland
Hydro Aluminium: Stabckk (Norway)
Gerald Metals: Switzerland Glencore AG: Zurich (Switzerland)
CARBON PASTE & BLOCK PLANT: Balco
Nalco
V.B.C. Ferra Alloys: Andhra Pradesh
Iran Ferro Silices: Iran
SWOT Analysis of Hindalco Industries Limited, Belgaum Works STRENGTH: Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co Integrated Operations from Bauxite Mining, Alumina Refining & Specials. Dominate Player in Domestic Market in Specialty Alumina & Hydrates. Established Export Presence in 30 Countries. Highly Competent, Committed & Skilled Operatives & Technical Personnel. Among the Best in Specific Energy Consumption in Alumina Industry. WEAKNESS: Non-Global Scale of Operations. High Exposure to Furnace Oil as majors Source of Energy Input. High Cost of State Grid Electrical Energy & Supply interruptions. Higher Cost of Logistics & Inward and Outward Material movement 100% by Road. Alumina Quality More Suited to HSS Technology, which is getting phased out. There is not proper inventory control system. OPPORTUNITIES: Growing Speciality Alumina & Hydrate Market. Changes In Speciality Market Structure with two Major Global Players Vacating the Market. Growing Metallurgical Alumina Demand. Lower Investment Cost for Brownfield Expansion. They adopts sophisticated software then their company will be increase its profitability THREATS: Inadequate Bauxite Reserves for operations both at current level & for Expansion. Cyclical Metallurgical Alumina Prices Causing Wide Fluctuations in Profitability. Cyclical & Rising Furnace Oil Prices. Social & Environmental Issues Related to Red Mud Disposal & Storage.
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Inventory Management Description of Inventory Control Effective Cost Control Techniques
INVENTORY MANAGEMENT: In modern competitive one of the burning problem of every business and industries that of cost control and cost reduction. An all pervasive effort for cost control and cost reduction is of paramount, importance for survival and growth of every industrial enterprises. This is why inventory management as a scientific device for Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co controlling inventory cost and eliminating wastage, is now regarded as an integral part of industrial management. Inventory management does not involve any human factor, as it concerns itself not with men but with inventory.
Meaning of Inventory:
The dictionary meaning of inventory is stock of goods, of a list of goods; various authors understand the word inventory differently. In accounting language it may mean stock of initial goods only. In a manufacturing concern, it may include raw materials; work in process and stores etc. To understand the exact meaning of the word ‘inventory’ we May study it from the usage side or from the side point of entry in the operations. Inventory includes the following things. 1. RAW MATERIALS
Raw material form a major input into the organization. They are required to carry out production activities uninterruptedly.
The liquidity of raw
materials required will be determined by the rate of consumption and the time required for replenishing the supplies. The factors like the availability of our materials and the government regulations, etc. to affect the stock of raw materials.
2. WORK IN PROGRESS The work in progress is that stage of stocks, which are in between the materials and initial goods. The raw materials enter the process of manufacture but them yet party in a final shape of initial goods. The quantum of work in progress depends upon the time taken in the manufacturing process. The greater the time taken in a manufacturing the more will be the amount of work in progress.
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To examine the effectiveness of inventory management and its cost control at Hindal co 3. CONSUMABLES: These are the materials, which are needed to smoothen the process of production. These materials were not directly enter production but they act as catalysts etc.. Consumables may be classified according to their consumption and criticality. Generally, consumables stores to not create any supply problem and form a small part of production costs. They can instances where these materials may account for much value than the materials. The fuel oil may form a substantial part of cost. 4. FINISHED GOODS There are the goods, which are ready for the consumers. The stock of initial goods provides a buffer between production and market. The purpose of maintaining inventories to ensure proper supply of goods to customers. In some concerns the production is undertaken on order basis, in these concerns they will not be need for finished goods the need for finished goods inventory will be more when production is undertaken in general without waiting for specific orders. 5. SPARES Spares also form of part of inventory. The consumption pattern from materials, consumables, finished goods are different from that of spares. The stocking policies of spares for different from industry to industry. Some industries like transport will require more space than the other concerns. The costly spare parts like engines, maintenance spares etc. are not discarded after use, rather they are kept in ready position for further use. All decisions about spares are based on the financial cost of inventory on such and the cast that may arise due to their non-availability.
PURPOSE-BENEFITS OF HOLDING INVENTORIES: Although holding inventories involves blocking of firms funds and the cost of storage and handling, every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business. In the Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co absence of inventories a firm will have to make purchases as soon as it receives orders. It will mean loss of time and delays in execution of orders, which sometimes may cause loss of customers and business (stock out). Therefore also needs to maintain inventories to reduce ordering costs and avail liquidity discounts etc.. Generally speaking, there are three main purposes or motives of holding inventories. 1. THE TRANSACTION MOTIVE: Which facilitates continuous production and timely execution of sales orders. 2. THE PRECAUTIONARY MOTIVE : Which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials. 3. THE SPECULATIVE MOTIVE: Which induces to keep inventories for taking advantage of price fluctuations, saving in the ordering costs and quantity discounts etc.
RISK AND COST OF HOLDING INVENTORIES: The holding of inventories involves blocking of a firm’s funds and incurrence of capital and other costs. It also exposes the firm to certain risks; the various parts risks involved in holding inventories are as below 1. CAPITAL COSTS Maintaining of inventories result in blocking of the firm's financial resources. The firm has therefore to arrange for add both the cases the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the latter case; the firm has to interest to the outsiders 2. STORAGE AND HANDLING COSTS Holding of inventory is also involves costs on storage as well as handling of materials. The storage costs include the rental of the godown, insurance initial funds Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co to meet the cost of inventories. The funds may be arranged from own resources or from outsider. But in charges etc 3. RISK OF PRICE DECLINE There is always a risk of reduction in the prices of inventories by the suppliers in holding inventories. This may be due to increased market supplies, competition or general depression in the market. 4. RISK OF OBSOLESCENCE The inventories may become obsolete due to improve technology, changes in requirements, change in customers taste etc. 5. RISK DETERIORATION IN QUALITY The quality of the materials may also deteriorate while in the inventories are kept in stores.
INVENTORY MANAGEMENT: The investment in inventory is very high in most of the undertakings increased in a manufacturing wholesale and retail trade. The amount of investment is sometimes more in inventory than in other assets. In India, a study of 29 major industries has revealed that the average cost of materials is 64 paise and the cost of labour and overhead is 36 paise in a rupee. In industries like Sugar, the materials cost is as high as 68.75% of the total cost.
About 90% of part of working capital is invested in inventories.
It is
necessary for every management to give proper attention to inventory management. The proper planning of purchasing handling, storing and accounting should form a part of inventory management. An efficient system of inventory management will determine (a) what to purchase (b) how much to purchase (c) from where to purchase (d) where to store etc.
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To examine the effectiveness of inventory management and its cost control at Hindal co There are conflicting interests of different departmental heads over the issue of inventory. The finance manager will try to invest less in inventory because for him it is an idle investment, whereas production manager will emphasis to acquire more and more inventories as he does not want any interruption in production due to shortage of inventory. The purpose of inventory management is to keep the stocks in such that neither there is over stocking nor under-stocking.
The over stocking will mean a
reduction of liquidity and targeting off other production processed: under stocking on the other hand will result in stoppage of work on the investment in inventory should be kept in reasonable limits.
OBJECTS OF INVENTORY MANAGEMENT: The main objectives of inventory management or operational and finances the operational objectives mean that the materials and the spares should be Honorable in the sufficient liquidity is so that work is not disrupted for want of infantry. The finance object means that investments in inventories should be remain idle and minimum working capital should be locked in it the following are the objectives of inventory management.
1. To ensure continuous supply of materials spares and finished goods so that production should not suffered at any time and the customers demand should also be met. 2. To avoid both over stocking and under-stocking inventory. 3. To maintain investments in inventory is at the optimum level as required by the operational and sales activities. 4. To keep material cost and control so that they contribute in reducing cost of production and overall costs. Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co 5. To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralizing purchases. 6. To minimize losses through deterioration, pilferage, wastages and damages. 7. To design proper organization for inventory management. A clear-cut accountability should be fixed at various levels of the organization. 8. To ensure perpetually inventory control so that materials shown in stock ledgers should be actually lying in the stores. 9. To ensure right quality goods at reasonable prices. Suitable quality standards will ensure property quality of stocks. To the price analysis will ensure payment of proper prices. 10. To facilitate furnishing of data for short-term and the long-term planning and control of inventory.
PURPOSE-BENEFITS OF HOLDING INVENTORIES Although holding inventories involves blocking of firms funds and the cost of storage and handling, every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business. In the absence of inventories a firm will have to make purchases as soon as it receives orders. It will mean loss of time and delays in execution of orders, which sometimes may cause loss of customers and business (stock out). Therefore also needs to maintain inventories to reduce ordering costs and avail liquidity discounts etc.. Generally speaking, there are three main purposes or motives of holding inventories. 1. THE TRANSACTION MOTIVE: Which facilitates continuous production and timely execution of sales orders? 2. THE PRECAUTIONARY MOTIVE : Which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials.
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To examine the effectiveness of inventory management and its cost control at Hindal co 3. THE SPECULATIVE MOTIVE: Which induces to keep inventories for taking advantage of price fluctuations, saving in the ordering costs and quantity discounts etc?
RISK AND COST OF HOLDING INVENTORIES: The holding of inventories involves blocking of a firm’s funds and incurrence of capital and other costs. It also exposes the firm to certain risks; the various parts risks involved in holding inventories are as below
1. CAPITAL COSTS Maintaining of inventories result in blocking of the firm's financial resources. The firm has therefore to arrange for add both the cases the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the latter case; the firm has to interest to the outsiders 2. STORAGE AND HANDLING COSTS Holding of inventory is also involves costs on storage as well as handling of materials. The storage costs include the rental of the godown, insurance initial funds to meet the cost of inventories. The funds may be arranged from own resources or from outsider. But in charges etc 3. RISK OF PRICE DECLINE There is always a risk of reduction in the prices of inventories by the suppliers in holding inventories. This may be due to increased market supplies, competition or general depression in the market. 4. RISK OF OBSOLESCENCE The inventories may become obsolete due to improve technology, changes in requirements, change in customers taste etc. Babasabpatilfreepptmba.com
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5. RISK DETERIORATION IN QUALITY The quality of the materials may also deteriorate while in the inventories are kept in stores.
MATERIALS MANAGEMENT MODULE Objective: To provide the requisite materials at the right time, Right place and at an optimum cost. Order Status details Production Plan Bill of materials details Production Cycle Time Procurement Lead time Stage of Material Requirement ROL for Non-Project Materials Part No. Name and Code. Details of Equivalent Part No’s Details of Shelf Life Items Details of items pending inspection Details of insurance claims Details of Dispatch advices Vendor directory and Rating Approval of PC/MPC Concerned CFA Purchase order details Technical Acceptance exists or not Budget Provision Receipt of Materials Issue of Materials Utilization of Customer Store Re-classification details Stock Transfer details Stock Verification Not Advances O/S details BOI Procured Against Indents BOI Utilized Against HAL Fab items Babasabpatilfreepptmba.com
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Production Hold up details Hours planned for subcontract Cumulative loading for sub-contract Details of established sources Bill of Material Utilization Factor (P Factor) Price Catalogue Details Vendor price catalogue and Discount Details Items planned for Indigenization Planned time for completion
INVENTORY CONTROL: Inventory control includes performing one or more wide various of staff or administrative functions such as 1. Initiating, developing, installing or administrating a control program. 2. Developing long range material support plans 3. Analyzing, evaluating, revising new inventory management systems. 4. Providing guidance on or conducting surveys of supply and inventory management function. Responsibility of inventory specialists: Controlling and authorizing finding for material so that the proper kind, quality and quantity is available at the correct time and place. Maintaining records and controls over material in stock, planned for distribution system. They decide upon inventory level Kinds and fixation of inventory level: The various levels fixed for effective inventory control are as follows MINIMUM LEVEL:
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To examine the effectiveness of inventory management and its cost control at Hindal co It represents the quantity below which the inventory of any item should not be allow to fall, in other words an enterprise must maintain minimum quantity of stocks. The following factors should be considered in order to fix minimum stock level •
Reorder level
•
Lead time
•
Average rate of consumption of material
Where, Minimun level =Reordr level-Aerage consumption*lead time Maximum level It represents the level beyond, which the stock in hand is not allowed to exceed .This is because of the cost involved in holding more than required stock. RE ORDER LEVEL: When the quantity of materials reaches at a certain figure the fresh order is tended to get materials again. The order is sent before the materials reaches minimum stock level. The reordering level or ordering level is fixed at between the minimum level and maximum level. The rate of consumption, number of days required replacing the stocks and maximum quantity of materials required on any day are taken into account while fixing the reordering level. The ordering level is fixed with the following formula. Re order level = maximum consumption X maximum Re-order period. MAXIMUM LEVEL: It is the quantity of materials beyond which the firm should not exceed its stocks if the quantity exceeds maximum level limit then it will be over stocking. Your firm should avoid over stocking because it will result in high material costs. Over stocking will mean blockading of more working capital, more space for storing the materials, more Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co wastages of materials and more chances of losses from obsolescence. Maximum stock level will depend upon the following factors. 1.
The availability of capital for the purchase of materials.
2.
The maximum requirements of materials at any point of time.
3.
The availability of space for storing the materials.
4.
The rate of consumption of materials storing lead-time.
5.
The cast of maintaining the store.
6.
The possibility of fluctuation in prices.
7.
The nature of materials. If the materials or perishable in nature then they cannot miss told for long.
8.
Availability of materials.
If the materials are available only during
seasons then they will have two bestowed for the rest of the period. 9.
Restrictions imposed by the government sometimes government fixes the maximum quantity of materials, which a concerned can store. The limited fixed by the government will become the limiting factor and maximum level cannot be fixed the more than this limit.
10.
The possibility of changing in fashions will also affect the maximum level.
Maximum stock level = reordering level + reordering quantity - (minimum consumption X minimum reordering period) SAFETY LEVEL: The consumption rate of materials and lead time don’t remain constant and therefore to guard against the uncertainty, an extra stock is always maintained which is known as safety stock. A safety stock of materials is maintained as insurance against stock depletion due to increase usage or unusually long delivery times, which cause the stock to fall below minimum level. The main objective behind keeping safety stock is minimizing stock out cost.
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To examine the effectiveness of inventory management and its cost control at Hindal co INVENTORY CONTROL TECHNIQUES: Inventory control techniques are employed by the inventory control. Organization within the frame work of one of the basic inventory model, viz., fixed order quantity systems or fixed order period system. Inventory techniques represent the operations aspects of inventory management and help to realize the objective of inventory management and its control. Several techniques of inventory control are in use and it depends on the policy of the firm product, the techniques most commonly used are: 1. Always Better Control (ABC) Classification 2. High, Medium and Low (HML) Classification 3. Vital, Essential and Desirable (VED) Classification 4. Scare, Difficult and Easy to obtain (SDE) 5. Fast moving, Slow moving, and Non moving (FSN) 6. Economic Order Quantity (EOQ) 7. Max – minimum System 8. Two bin System 9. Material Requirement Planning (MRP) 10. Just In Time (JIT) 11. Distribution Logistics (DL) a) ABC Analysis: It is one the widely used techniques for the control of inventory. Objective of ABC control is to vary the expenses associated with maintaining appropriate control according to the potential savings associated with the proper level of such a control. A may account for more than half the total value usage in the inventory. These items required very careful management and special careful estimates of future usually class C items which in total account for only a few percent of the total value of usage very little effort should be devoted to forecast the requirement of items. The inter mediate class B items justify a reasonable but routine effort in forecasting demands and managing inventory.
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To examine the effectiveness of inventory management and its cost control at Hindal co b) HML Analysis: Since the total annual usage is considered in case of ABC Analysis, quite a few items which fall in B category although the unit cost (cost per unit) is quite high. If controls are exercised on the basis of ABC only, the importance of these items will be much less than A or B items even though the inventory or transaction of one unit of these items will mean quite a lot money. Therefore, it is necessary that the unit cost is also considered in order to find out the importance of items on the basis of unit cost. Limits of units costs are fixed for high costs items (H), medium costs items (M) and low cost units (L) and all items are segregated into H, M and L categories depending on there unit cost. This analysis is quite useful in deciding the safety stock in relation to the availability of the material. c) VED Analysis: The materials classification on the items is called VED analysis. VED stands for vita, Essential and Desirable. Vital items which render the requirement or the whole line operation in the process totally and immediately inoperative, unsafe and if these items go out of stock or not readily available, results in losses of whole production of whole period. E-Essential items which reduce the equipment’s, performance but not render it inoperative, results or unsafe, non-availability of items may result in temporary loss of production or dislocation of production work replacement can be done without any delayed, without affecting the equipment’s performance seriously, temporary repairs sometime possible. D-Desirable items which are mostly non –functional and don’t effect the performance of the equipment.
d) FSN Classification : Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co Materials can be classified on the basis of movement as fast moving slow moving and non moving –FSN according to their consumption patterns. FSN analysis is specially useful to combat obsolete items whether spare parts, raw material or component. Cut –off points of three classes are usually in items of number of issues in previous few years depends on the peculiarities of an individual concern. e) SDE Analysis: SDE stands for scarce, difficult and easily available items in the local market. Scarce items are generally in short supply; usually these are raw material, spare parts and imported items. Difficult items are not available in local markets, and have to be produced from for off cities or items for which there are a limited a number of supplies or items for which quantity suppliers are difficult to get. The SDE analysis proves to be very useful, in industrial situations where certain materials are in scare supply, and gives proper guidelines for deciding inventory policies.
f) XYZ Analysis: For the effective management of stores, the stock can be split as high valued, middle value or low valued – XYZ classification. This technique helps in identifying the items, which are being extensively stocked. ‘X’ items are those whose inventory values are high while ‘Z’ items are those whose values are low. Understandably ‘Y’ items fall in between these tow categories. XYZ classification may be used in the conjunction for the better results. g) Minimum-Maximum Techniques : The Minimum –maximum system is often used in connation with manual inventory control system. The minimum quantities is established in the same way as any re-order point.
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To examine the effectiveness of inventory management and its cost control at Hindal co The effectiveness of minimum-maximum system is determined by the method and precision with which the minimum. h) Two Bin Technique: One of the oldest system of inventory control is the two bin system, stock of each item is separated into two bins. One bin contains stock, just enough to last from the data a new order is placed until it is received in inventors. The other bin contains quantities of stock, enough to satisfy probable demand during the period of replenishment i) Material Requirement Planning (MRP): MRP is a new solution to an old problem having stock of materials a lowers on hand when heeded without carrying excess inventory. j) E.O.Q. Model : There are two basic questions relating to inventory management 1. What should be the size of the order 2. At what level should the order be placed. To answer this question the economic order quantity model is helpful. General E.O.Q. includes 3 types of costs, that are carrying cost, ordering cost & shortage cost.
GOAL
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i) Just in Time : The management of inventory has become very sophisticated in recent years. In certain industry the production process it self lends to just in time (J I T) inventory control. As the name implies, the idea is that the inventories are acquired and Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co inserted in the production at the exact time they are needed. This requires efficient purchasing, very reliable and an efficient purchasing, very reliable and an efficient inventory handling system. One thing that has made this possible is advent of instant information through sophisticated computer networks. The coordination of varies suppliers in an efficient manner is known as supply chain management. j) Distribution Logistics:
An exciting and profit promising way of using systems
logistics in planning and control is the expansion of inventory control to include other factors. This system is referred to here as distribution logistics. In its advance form. It treats the entire logistics of business – ranging from sales forecasting through purchasing and processing materials and inventorying to shipping the finished goods as a single system. The goal is usually to optimize the total cost of the system in operation while furnishing a desire to level of customer service meeting certain constrains such as financially limited inventory levels.
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ďƒ˜ Introduction ďƒ˜ Ratio Application to Inventories
MEANING OF RATIOS: Generally speaking a ratio is simply on require expressed in terms of another and those it is an assessment of one number in relation to the another. Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co An analysis of financial statement with the help of ratio may be termed as “ratio analysis� In other wards ratio analysis implies the process of computing determining and presenting the relationship of items and group o items of financial statement. 1) Inventory Turnover Ratio:
Years
Cost of Good sold
Avg. Inventory
Inventory Turn
01-02 02-03 03-04 04-05 05-06
29219 29074 28357 32015 42868
6094.66 6199.27 5122.71 5977.85 6314.97
Ratio 4.79 : 1 4.68 : 1 5.53 : 1 5.35 : 1 6.78 : 1
S. Ratio No. 01 Inventory turnover
Formula
Interpretation
Ratio
Cost of Goods Sold
The inventory turnover
This ratio indicates the speed
Average Inventory
ratio in the year 2001-
at which the inventory is
02 was 4.79, 2002-03
converted into sales which
it
contributed into sales which
increased in the year
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was
4.38,
but
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To examine the effectiveness of inventory management and its cost control at Hindal co contributed to the profits of
2003-04 and
also
the organization
2004-05. In the last year it was increased
Cost of goods sold
Sales – Gross Profit
means sold means,
to 6.78. A high ratio is a
profit
to
the
organization and a low ratio would be signify Average Inventory:
Opening St*.+Closing St. 2
that inventory doesn’t stays long time.
* St - Stock
GRAPH : 1 GRAPH SHOWING INVENTORY TURNOVER RATIO
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8 6.78
7 6 Times
5
4.79
4.68
2001-2002
2002-2003
5.53
5.35
2003-2004
2004-2005
4 3 2 1 0 2005-2006
Year
2) INVENTORY CONVERSTION PERIOD: Table showing the Inventory conversion Period: Year
Inventory Conversion Period (in days)
2001-2002
76days
2002-2003
78days
2003-2004
66days
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2004-2005
68days
2005-2006
53days
S. No. 01
Ratio Inventory period.
Conversion This
ratio
Formula
Interpretation
365 (days)
Inventory conversion
Inventory Turnover Ratio
period
during
the
indicates the number of
year 2002 was 76
days taken to convert the
days
inventory. This ratio is useful also
helps
it
increased to 78 days
deciding
in
organizations efficiency and
while 2003,
and
it
decreased to 66 days
the
in 2004.
organization is knowing
And it
its own efficiency to
increased to 68 days
improve
in the year 2005.
its
financial
And there after it
area.
decreased to 53 days in 2006.
GRAPH -2 INVENTORY CONVERSTION PERIOD
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90 80
76
78 66
70
68
Times
60
53
50 40 30 20 10 0 2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
Year
3) DURATION OF RAW MATERIAL STAGE: Table Showing Average Raw Materials and Average Raw Materials Consumed per day and Duration:
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Average Raw Materials
Year
(Amount in Lakhs.)
S.
Raw Materials Consumed Per day
Duration (In days)
(amount in Lakhs.)
2001-2002
3571.22
180.00
19
2002-2003
3436.35
197.99
17
2003-2004
3045.83
214.56
14
2004-2005
3700.91
248.81
15
2005-2006
3636.12
317.26
11
Ratio
Formula
Interpretation
No. 03 Duration of raw material
Average raw material
The trend of RM Stage
stage : The number of days
Average raw material
in the 2001 It was 35
taken for the production unit
Consume per day
days. And Then It is
to convert raw material to
decreased to 33 days
finish goods.
and
than
It
was
increased to 48 days and against It was Babasabpatilfreepptmba.com
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To examine the effectiveness of inventory management and its cost control at Hindal co i)
Average raw materials
Opening St.+ Closing St.
decreased to 36 days
2
and 25 days in the year 2004-2005.
ii) Average raw materials
Division
consume per day indicate
concoction decreasing
days for consumption.
the Duration of raw
should
materials Stage since It Extends period from creditors and also the interest cost
GRAPH - 3 4000 3500
DURATION OF RAW MATERIAL STAGE
3000 2500 2000 1500 1000 500 Babasabpatilfreepptmba.com
Page 64
0 2001-2002
2002-2003
2003-2004
2004-2005
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To examine the effectiveness of inventory management and its cost control at Hindal co
4. RAW MATERIAL TURNOVER RATIO
Year
Average Raw Materials (Amount in Lakhs)
Raw Materials Turnover Ratio
2001-2002
3571.22
8.18: 1
2002-2003
3436.35
8.46: 1
2003-2004
3045.83
9.31: 1
2004-2005
3700.91
8.65: 1
2005-2006
3636.12
11.78: 1
S. Ratio No. 04. Raw material Turnover ratio Babasabpatilfreepptmba.com
Formula Cost of Goods Sold
Interpretation Interpretation:
Raw
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To examine the effectiveness of inventory management and its cost control at Hindal co is velocity at which raw material converted into goods ready for sale. If raw material turnover ratio is high then company is efficiency converting into finished goods.
Cost of goods sold :
Average Raw materials
Sales – Gross Proft
material Turnover Ratio in the year 2002 was 8.18:1 times, which is increased to 8.46:1times in the year 2003 and again it increased to 9.31:1 in the year 2004, was decreased to 8.65:1 and again increased to 11.78:1times in the year 2006. It indicates high efficiency to convert the finished goods.
Average Raw Material Opening St. + Closing St. 2
GRAPH - 4
RAW MATERIAL TURNOVER RATIO
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14 11.78
12
Times
10
8.18
8.46
2001-2002
2002-2003
9.31
8.65
8 6 4 2 0 2003-2004
2004-2005
2005-2006
Year
5. INVENTORY TO CAPITAL EMPLOYED: Meaning: This ratio indicates the relationship between the total capitals employed and inventories it shows how much capital utilized to invest in the inventories other than the other assets. The normal manufacturing firms have low ratio of inventory to total capital employed in the organization.
Year
Inventory (in Lakhs)
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Total capital employed
Percentage
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2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
6518.91 5879.64 4365.79 7589.38 5040.56
15,000 16,900 15,300 18,800 19,800
0.4345% 0.3479% 0.2853% 0.4036% 0.2545%
S. No.
Ratio
Formula
Interpretation
05.
The inventory to capital employed ratio: it shows how much capital utilized to invest in the inventories other than the other assets.
Inventory
In the year 2002 & 2005 the ratio of Inventory to Total capital employed were very high i.e0.4345 & 0.4036 times, but there after it went decreasing to 0.2545 times during the year 2006.
Total Capital Employed
Capital Employed Equity Cap. + Preference Cap +Res & Ser + long term borrowings – fixiticious asset
GRAPH -5
INVENTORY TO CAPITAL EMPLOYED:
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0.5
0.4345
0.45
0.4036
0.4
0.3479
In times
0.35
0.2853
0.3
0.2545
0.25 0.2 0.15 0.1 0.05 0 2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
Year
6. INVENTORY TO CURRENT ASSETS RATIO: Year
Inventory (in Lakhs)
Current Assets (in Lakhs)
Percentage
2001-2002
6518.91
9893.67
65.88
2002-2003
5879.64
9156.83
64.21
2003-2004
4365.79
7236.12
60.33
2004-2005
7589.38
10073.25
75.34
2005-2006
5040.56
1098.26
55.40
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To examine the effectiveness of inventory management and its cost control at Hindal co S.
Ratio
Formula
Interpretation
No. 06.
Inventory
to
current
The
inventory
to
asset ratio indicates the
Inventory
current assets ratio in
relationship between the
Current Assets
the year 2002 was
inventory and current
65.88% and in the year
assets. It shows the
2003 was decreased to
percentage of inventory
64.21% and again it
to current assets, which
decreased to 60.33 %
helps the organizations
in the year 2004 but it
in deciding the current
increased of 75.34% in
assets policy, which also
the year 2005. There
affect
after it was decreased
the
position
liquidity of
the
to 55.40%.
organization.
GRAPH – 6
INVENTORY TO CURRENT ASSETS RATIO:
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75.34
80 65.88
70
64.21
60.33
55.4
In percentage
60 50 40 30 20 10 0 2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
Year
7. INVENTORY TO TOTAL ASSETS RATIO : Year
Inventory (in Lakhs)
Total Assets (in Lakhs)
Percentage
2001-2002
6518.91
10,000
65.18
2002-2003
5879.64
10,600
55.46
2003-2004
4365.79
11,100
39.33
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2004-2005
7589.38
12,700
59.75
2005-2006
5040.56
15,600
32.31
SL. No.
Ratio
07.
Inventory to Total Assets indicates the relationship between the Inventory and Total Assets. The Significance of this ratio is it reflects the Portion the Inventory as a percentage of the Total Assets, which helps the management deciding the utilization of remaining resources profitably. Since the inventory will lock up the huge funds and reduces the profitability of the organization. Total Assets:
Formula
Inventory Total Assets
Interpretation
During the year 2002 the rate of inventory to total assets was 65.18% and decreased to a less 55.46% and again it was decreased to 39.33%. It was fluctuating from 59.75and 32.31% during the year 2005 & 2006 respectively.
Fixed Asset + Current Asset
GRAPH – 7
INVENTORY TO TOTAL ASSETS RATIO
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70
65.18 59.75
55.46
60
In percentage
50 39.33
40
32.31
30 20 10 0 2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
Year
8. Inventory to Working Capital Ratio
Year
Inventory (In lakhs)
Working capital ( in lakhs)
Ratio
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
6518.91 5879.64 4365.79 7589.38 5040.56
6613.41 6273.53 4200.55 6046.49 4279.12
0.985 0.937 1.039 1.255 1.177
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S.
Ratio
No. 08. This
ratio
indicate
relationship Inventory
Formula
to
Interpretation
the
In the year 2002 it was
between
0.985 times of the
working
capital and it also indicates
Inventory
working capital, in the
Working Capital
year 2003 it was 0.937
the amount to inventory
times decreased and in
tied up in the corking
the year 2004 it was
capital And it also shows
increased
the efficiency of Inventory
times
Management.
increased in 2005 it
to
1.039
and
then
was 1.255. And there after it is decreased to 1.177 in the year 2006.
Working Capital Current Assets Current Liability
GRAPH -8
Inventory to Working Capital Ratio
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1.4
1.255
1.2
In times
1
0.985
0.937
1.177
1.039
0.8 0.6 0.4 0.2 0 2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
Year
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AT
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INVENTORY MANAGEMENT INTRODUCTION: In Managing inventories the firms objectives should be in consonance with shareholders wealth maximization principles. To achieve this the firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. In efficient inventory control results in flexibility. The firm may run-out of stock and some time may file up unnecessary stocks. This increase the level of investment and makes the firm unprofitable. The Hindalco Industries Ltd. following are the some techniques used for the effective cost control of inventory. ABC Analysis : These important items usually designated as class A may account for more than half the total value usage in the inventory. These items require very careful management and special careful estimates of future usually class C items which in total account for only a few percent of the total value of usage very little effort should be devoted to forecast the requirement of items. The inter mediate class B items justify a reasonable but routine effort in forecasting demands and managing inventory. The ABC approach means of categoring inventory itmes int three class, A, B and C according to potential amount to be controlled. A
- Items, which are the 15%
B
- Items, which are the 20%
C
- Items, which are the 65%
S. No. 1 2.
A Tyres Shells
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B Shaft Slaver Pump Shafts
C Causing belt Loveiay Coupling Page 78
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These are the items which are classified on the bases of its annual consumption. These items indicates A
- These are the items indicates consumption is slow.
B
- These are the items indicates mediate consumption
C
- These are the items indicates high consumption
F. S. N. CLASSIFICATION: Material can be classified on the basis of movement as fast moving, slow moving and non moving items such as Sl. No. 1 2 3 4
F Soars, Oil and Lubricant Cylinders Welding rods
S Guage glass C. I. impeller Rubber packing
N
V. E. D. CLASSIFICATION: The material’s classification based on the items is called V.E.D. Analysis. V.E.D. stands for V= Vital, E = Essential, D = Desirable. Sl. No. 1 2
V Seat Kit Speed Belt
E Piston ring B. Cylinder
D Casing cover Pressure plate
Vital items which render the equipment or the whole line operation in the process totally and immediate in operative, unsafe items go out of stock or not ready available, results in loses or whole production period. E -Essential items which redues the equipments, performance but not render it on operative results. D -Desirable items which are mostly non-functional and did not effect the performance of the equipmen ts.
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FIFO AND LIFO CLASSIFICATION: These are the items which are classified on the bases of its range. Fifo indicates first in first out. Lifo items indicates last in first out. Sl No. 1. 2 3 4 5
Items Fevicol Paints Lubricant Masks V -Belts
Bin Card Systems: The bin card is the name of the materials and code number give to that particular items must be written the received consignment of items were written in the balance column. The Bin Card shows the stock materials of particular itmes.
Specification copy of Bin Card: Hindalco Ltd., Bin Card Mat Code No. Description Suppliers No. Receipt Date Qty. Column
Hindalco Industry Ltd. Location 1, 2, 3 Issue Qty. Column
Total Bin Cards
= 30,000
Present Bin Cards
= 18,000
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Balance Doc No.
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AND
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FINDINGS & CONCLUSION This project can be concluded by saying that inventory management and its cost control is one of the important areas where the companies have to give more importance. Inventories constitute the large part of the current assets of the company. The manufacturing companies hold inventories in the form of raw materials, work in process and the finished goods. There are mainly three motives behinds holding the inventories, the are; •
To facilitate the smooth functioning
•
To guard against the risk of unpredictable changes in the usage rate and delivery period.
•
Take the advantage of price fluctuation. The financial analysis in this project helps in identifying the inventory utilization
of its resources and its profitability. I)
INVENTORY TURNOVER RATIO:
Comparative Statement: Sl
I.
* * *
2004-05
2005-06
Inventory Turnover ratio: This ratio indicates the speed at which inventory is converted into sales Where, Cost of goods sold Inventory 29219 29074 28357 32015 Cost of goods sold
Ratio
2001-02
2002-03
2003-04
42868
Avg. inventory Turnover Ratio Inventory Turnover Ratio
6094.66 4.79
6199.27 4.68
5122.71 5.53
5977.35 5.35
6314.97 6.78
Interpretation : The inventory turnover ratio in the year 2001-02 was 4.79, 2002-03 it was 4.38, but increased in the year 2003-04 and also 2004-05. In the last year it was increased to 6.78. A high ratio is a profit to the organization and a low ratio would be signify that inventory doesn’t stays long time. Babasabpatilfreepptmba.com
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II) INVENTORY TO CAPITAL EMPLOYED: Comparative Statement: Sl.
I
Ratio
2001-02
2002-03
2003-04
2004-05
2005-2006
Inventory to capital Employed Ratio: It indicates how much capital utilized to invest in the inventories than the other assets Where, Inv. Capital Employed =
*
Inventory
*
Total Capital Employed
*
Percentage
Inventory . Total Capital Employed 6508.91
5879.64
4365.79
7589.38
5040.56
150
169
153
188
198
43.45%
34.79%
28.53%
40.36%
25.45
Interpretation: In the year 2002 & 2005 the ratio of Inventory to Total capital employed were very high i.e0.4345 & 0.4036 times, but there after it went decreasing to 0.2545 times during the year 2006. In the last year decreased to 25.45%, it indicates not satisfactory to the company. The company is not utilized all the capital employed properly.
III) INVENTORY TO TOTAL ASSETS RATIO: Comparative Statement: Sl.
Ratio
2001-02
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2003-04
2004-05
2005-2006 Page 84
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*
Inventory to the total assets ratio: It indicates significance of this ratio is it reflects the portion the inventory as percentage of total assets Where, Inventory Total Assets Inventory 6518.91 5879.64 4365.79 7589.38 5040.36
*
Total Assets
10.000
10.600
11.100
12.700
15.600
*
Percentage
65.18%
55.46%
39.33%
59.75%
32.31%
Interpretation: During the year 2002 the rate of inventory to total assets was 65.18% and decreased to a less 55.46% and again it was decreased to 39.33%. It was fluctuating from 59.75 and 32.31% during the year 2005 & 2006 respectively.
IV) A company has been using ABC cost control techniques, but this techniques old process because an ABC having a old materials kept a long period in a stock.
V) The company is not introduce any IT systems for the reduction of men power and time consumption.
SUGGESIONS Babasabpatilfreepptmba.com
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After the analysis, suggestion could be as follows. i)
Inventory turnover ratio of Hindalco Industries Ltd., in the year 2005-2006 is satisfied but company should try ďƒ˜ Minimize inventory ďƒ˜ Keep the level of inventory according to market demand
ii)
They have to implement E.R.P. software.
iii)
The company should follow the E.O.Q. Model.
BIBLIOGRPHY
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Financial Management
:
I. M. Panday
Theory and Practices of
:
B. K. Mishra
Production Management
:
K. Ashwatappa
Web-Site
:
www.hindalco.com
Inventory Management
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