A STUDY REPORT ON
RENUSAGAR POWER DIVISION A SUMMER TRAINING REPORT ON MATERIAL MANAGEMENT (INVENTORY MANAGEMENT,)
PREFACE Stock control is the operation of continuously arranging receipts & issues so that stock balances are adequate to support the current rate consumption with due regards to economy. It is the mean by which material of the correct quantity & quality is made to be available as & when required in storage & ordering costs, purchase price & work in economy. It is imperative to manage efficiently & effectively in order to avoid unnecessary investments in them. The study pattern used in this study is face-to-face interaction. Experts of different departments have been consulted. Most of the data has been gathered from stores department of the company. The various aspects covered during the interaction phase were need & features of inventory control, PARTA system, supply chain management etc. An attempt is made to cover each & every macros of functioning of inventory cell.
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ACKNOWLEDGEMENT I am very highly indebted to my parents and teachers who have groomed me to stand the challenges of a professional career and permitted to undergo summer training at HINDALCO INDUSTRIES LIMITED, (Renusagar Thermal Power Plant). I am grateful to training division HINDALCO INDUSTRIES LIMITED, (Renusagar Thermal Power Plant) for providing me opportunity to undertake this learning work during our summer training. I am thankful to Shri XYZ (Management services), Shri XYZ (TTMDC), XYZZ (Store) My Project Guide Mr. XYZ (Assistant Manager, ICC) & Mr. XYZ (Programmer, MS) cooperation, guidance and hearty support in training as well as in preparation of this report. I am also hearty thankful to the entire staff member of TTMDC, Management Services and Inventory Control Cell who always have been a source of inspiration.
Date: Place:
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TABLE OF CONTENT Page no.
S.NO. Description 1. 2. 3. 4. a) b) c) d) e)
Preface Acknowledge objective of the project
Material Management
3 4 6 7- 20 7 8-11 12-15 16-19 19-20 21-23
Definition
22
objective of the Material management
22
Function & Scope of Material Management
23 24-37 25-26 27-29 30-31 31-34
Introduction RPD location Map Company Profile & Plant Detail of Renusagar RPD Vision, Mission, TTMDC Hindalco Vision, Mission, Group Value Men Power strength
5. A. B. C.
6. Concept Inventory Management a) b) c) d)
What is inventory, Need, Control of Inventory Types of Inventory Objective of Inventory control,& Causes of High Inventory at Renusagar Selective Inventory Control, Classification
e) f)
Inventory Turn over Ratio & It's Improvement Abbreviation
Theoretical Perspective
7. a) b) c) d) e) f) g) h) i) j) k)
Enterprise Resource Planning(ERP) System For PR processing & PR Screening Criteria For Insurance Items Identification of Obsolete Items Comparative ITOR Ratio JIT Concept, Deployment Some Formula For Inventory Reduction Financial & Inventory Analysis PARTA Supply Chain Management at RPD Vendor Development & Rating
CENTRAL STORES
8. I. II. III.
Receipt Section Bill Section Issue Section
Others
9. a) b)
Graphical Representation Ash Disposal Area
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35-36 37 38-82 38-40 41-43 43-44 45-48 48-51 51-55 56-65 65-70 71-74 75-79 80-82 83-88 85 86 87 92-109 92-98 99-100
c) d) e)
101-102 103-104 105-107 108-109 109
Green Belt Strength Of Present System Questionnaires of Inventory
CONCLUSION
10. a)
Bibliography
OBJECTIVES OF THE PROJECT TO GET A PRACTICAL INDUSTRIAL EXPOSURE. THE TASK IS TO ANALYZE THE INVENTORY MANAGEMENT SYSTEM OF HINDALCO INDUSTRIES LTD. & TRACE OUT THE DRAWBACK OF THE CURRENT SYSTEM & GENERATING AN IDEA TO TOUCH HIGHER LEVEL OF COMPETENCY IN CONTROLLING THE INVENTORY. TO ANALYZE THE CURRENT ERP SYSTEM IN MANAGING THE INVENTORY. TO ANALYZE THE MAJOR PROJECT TO MINIMIZE THE INVENTORIES AND KEEP SURPLUS & OBSOLETE ITEMS TO MINIMUM AT RPD. TO ANALYZE THE INDUSTRIAL SUFFICIENCY IN MANAGING THE INVENTORY. TO ANALYZE THE MATERIAL REQUIREMENT PLANNING PROCEDURE. TO ANALYZE THE CURRENT PROCEDURE OF VENDOR DEVELOPMENT & RATING.
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LOCATION OF RENUSAGAR POWER DIVISON
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Company Profile Particular
Details 7
Company Name Establishment year
: Hindalco Industries Ltd. : Incorporates in 1958 but Commercial production began in 1962. : Century bhavan, 3 rd floor, Dr. Annie Besant road, worli Mumbai -40025 : Renusagar Power Plant P.O.-Renusagar Dist. – Sonebhadra, U.P. : Rs. 18.5 thousand crore & Asset Valued at Rs. 8.5 thousand crore. : 746 MW Captive Power Plant.
Address of Registered Office Address of company
Turn over of the company Generation Telephone No. Fax No. Website
: : : : : :
Types of Company Nature of Business ABG Business
05446-277161/62/63 05446-277164/278596 http:// WWW.hindalco.com http:// WWW.adtyabirla.com Power Generation Plant Produced Electricity for own Plant, Consumption.
: Electricity (Also Produced Aluminum, copper, cement, Carbon black, textiles, Fertilizers Chemicals, Mining Insulator, Gas, Software, BPO, Finance insurance, Telecom, Retail) : Mr. Nishant Kumar Gupta : Mr. S.R.Singh : 1. Raw material consists of Coal & HSD. 2. spares parts stores 3. Consumable stores 4. CAPEX/ one- time / special Sanction spares stores
Contact Person HOD of Stores Types of stores under main Stores
Manpower statement:1.
Technical Staffs
732 8
2. Commercial Staffs 3. Total HOD’s 4. Temporary manpower / Contract Workman (As per requirement) 5. No. of Department 6. Total Department with section
243 28 2000-4000 52 60
Total strengthStaff : Workers: List of Machinery:Installed Capacity in MW Number of Units Unit Description:a. Boiler b. Turbine Production capacity
975 1790
2765 : 742 : 10
: 11 Nos. : 10 Nos. : 742 MW
Fact File about the Company (Hindalco Industries Ltd.):1. 2. 3. 4. 5. 6. 7.
India’s Largest & lowest cost aluminum producer Largest Producer of White cement in India Fastest Growing Copper Company in India World Leader in Viscose Staple Fiber Leading Private sector Mutual Fund & Insurance Company. Successful Forays in to Software & BPO World’s Third Largest Producer of Insulator.
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PLANT DETAILS OF RENUSAGAR POWER DIVISION RenuSagar Power Division is a division of Hindalco Industries Ltd. for Generating and supplying uninterrupted Power exclusively to the interact Alumina Complex at Renukoot, UP. RenuPower is located at RenuSagar, Almost at the pithead of Singrauli Coal Mines of Northern Coal Fields Ltd. In the vicinity of Govind Vallabh Pant Sagar (popularly known as Rihnad Lake) in the district of Sonebhadra of the State Uttar Pradesh, India. The Total installed capacity of plant is about 742 MW and comprises of 10 T.G. Set 11 Boilers. RenuSagar Power Plant is one of the most efficiently Operating at a plant load Factor of around 90%. Milestones in the construction of the Power plant TG Commissioned On
Boiler Commissioned On
No. of Sets
Date of Commissioning
No. of Boiler
Date of Commissioning
T.G. No.-1
04.10.1968
Boiler No.1
17.06.1967
T.G. No.-2
09.09.1967
Boiler No.2
21.11.1967
T.G. No.-3
02.11.1981
Boiler No.3
08.06.1982
T.G. No.-4
09.04.1983
Boiler No.4
01.02.1983
T.G. No.-5
31.03.1989
Boiler No.5
18.09.1981
T.G. No.-6
23.03.1997
Boiler No.6
06.05.1991
T.G. No.-7
27.03.1998
Boiler No.7
28.03.1997
T.G. No.-8
31.03.1998
Boiler No.8
27.03.1998
T.G. No.-9
29.11.2002
Boiler No.9
31.03.1998
T.G. No.-10
31.03.2003
Boiler No.10
31.03.2003
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Plant Overview Sr.No.
Unit
1. 2. 3.
TG# 1 TG# 2 TG# 3
4.
TG# 4
5.
TG# 5
6. 7. 8. 9.
TG# 6 TG# 7 TG# 8 TG# 9
10.
TG# 10
Make Capacity(MW) Turbo Generator 67.5 GE(USA) 67.5 GE(USA) 77 SIEMENS/ BHEL (Consortium) 77 SIEMENS/ BHEL (Consortium) 68 BERGMANN BORSIG 74 ABB(GERMANY) 74 ABB(GERMANY) 77 GE (USA) 80 SIEMENS (GERMANY) 80 SIEMENS (GERMANY)
Boiler CE(USA) CE(USA) CE(USA) CE(USA) BHEL BHEL BHEL BHEL BHEL BHEL
Unique Features of Renusagar • First captive power plant for Aluminum Industries established and commissioned way back in 1967. • Power plant established at the pithead of Coal Mines of Northern Coal Fields Limited enabling coal transportation by ropeway. • Renusagar Power Plant consistently opening at a Plant Load Factor of above 90% for last three decades and is comparable to the best work – wide. • First Training Centre of the country recognized by Central Electricity Authority, Govt. of India. Technical Training and Management Development Centre (TTMDC) has been organizing structured training programs for introduction and orientation level training for new entrants, skill development programs for all levels, workers general development programs, TPM and WCM training programs and managerial effectiveness programs for staff.
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RENUSAGAR POWER DIVISION ABOUT RENUSAGAR POWER DIVISION INTRODUCTION Renusagar power division is the power division of M/S HINDALCO industries limited (HIL), at Renusagar and its power output is being fully utilized for the production of aluminium and other prefabricated products at HINDALCO, Renukoot. Therefore, the installed capacity of Renusagar is directly related to the production capacities at HINDALCO. As HINDALCO is increasing its aluminium productions, it has become necessary to augment the power capacity of its thermal plant at Renusagar. M/S HINDALCO industries limited (HIL) has an integrated aluminium complex with a manufacturing capacity of 2,42,000 tonnes per annum of primary aluminium metal and 4,50,000tonnes per annum of alumina at Renukoot. HINDALCO is also producing rolled and extruded aluminium products with an annual production capacity of 80,000 and 13,700 tonnes per annum respectively and properzie redraw rods with an annual capacity of 40,000 tonnes per annum. Renusagar power plant is ranked one among the best-operated captive power plant with highest generation, plant load factor and utilization factor and lowest specific oil consumption and D.M. water consumption. Renusagar power division, a captive power plant of Hindalco Industries Limited having installed capacity of 742 MW with 10 TGs (ranging from 68 MW to 84 MW) and 11 PF fired Boilers is a Coal based thermal power plant located at Renusagar in Sonebhadra district of U.P. The units have been commissioned in phases with first unit being installed in 1967 and the latest being installed in 2003. The TG cycle is based on regenerative principle with 5 heaters in operation for each TG cycle. Being technology receptive, we have always advocated for latest efficient and reliable technology in the field for improving the plant performance and during successive expansion we have moved away from PLC based control to DCS based control system, cross flow cooling towers to counter flow cooling towers, Regenerative air preheaters to Tubular air preheaters etc. PERFORMANCE As the aluminum smelter need continuously and steadily power supply, high plant availability and operation at rated capacity, is the permanent importance for Renusagar power plant availability factor (PAF) and plant Load Factor (PLF) 13
of around 95% and more consistently for over two decades (against the national average of 55%) right from its inception. 11 It has dispelled the misconception that such a high PAF and PLF cannot be achieved by the thermal power plant using a low-grade coal. CONTRIBUTION IN THE FIELD OF POWER SECTOR It is the credit of RENUPOWER that despite the fact it uses high ash (35%) and abrasive coal, high PAF and high PLF has been achieved by it. Consistently modification in the ID Fans, dust collectors and indigenous methodology of prolonging the life of pressure port tubes was a trend-setter, its result oriented approach to bring down tube leakage to less than per bottle per annum, has world wide acclaim. Renusagar is an acknowledged leader to the thermal power plant. It adopted modern touch techniques from initial stages itself and was able to limit its planned overhaul duration by restrain to PERT/CPM. ENERGY CONSERVATION Renusagar is conscious of energy conservation has made concentrated effort to reduce and limits its auxiliary power and oil consumption per unit generated has been maintained at less than 0.8 ml per Kwh. Against the national average about 11 ml per Kwh for its size of units.
Renusagar Vision “To be one of the best operated and maintained Captive Power Plant, with
enviable Plant Load Factor, to supply uninterrupted power to Hindalco Renukoot at lowest cost.”
Renusagar Mission “To pursue creation of value at all levels of plant Operations for our
customers, Shareholders, Employees and Society at large.” 14
Training & Development center (Renusagar)
All the training/ development related activities for employees at RPD is managed by the State of the Art Technical Training & Management Development Centre (TTMDC) recognized by Central Electricity Authority, Ministry of Power, Govt. of 15
India. To cater to the Functional/ Technical training requirement of its employees TTMDC strives to create multiple learning opportunities for development. TTMDC VISION “TO CREATE A LEARNING ORGANIZATION TO MATCH THE TECHNOLOGICAL CHANGES AND FACE FUTURE CHALLENGES.” TTMDC MISSION “To develop TTMDC as a resource center and centre of excellence in power sector Development.”
Hindalco Vision “To be a premium metals major, global in size and reach, with a passion for excellence.” Hindalco Mission “To relentlessly pursue the creation of superior shareholder value by exceeding customer expectations profitably, unleashing employee potential and being a responsible corporate citizen adhering to our values.” Hindalco Safety Policy Commitment to achieve heath of safety excellence by providing health and safety wok environment.
THE ADITYA BIRLA GROUP: Taking India to the World
Group Vision: To be a premium global conglomerate with a clear focus on each business. 16
Group Mission: To deliver superior value to our customers, shareholders, employees and society at large. Values we Value: In the words of our chairman Mr. Kumar Mangalam Birla: “Great and lasting businesses are never built on quick sands of opportunism. For us, at The Aditya Birla Group, if by living our values means, perhaps growing at a pace slower than we would otherwise have liked, so be it. For us, the key to Enduring leadership lies in knowing what we stand for and in living by that. In essence, our values provide us with a moral compass, our roots, as well as our wings.”
GROUP VALUES The Purchase and Stores manual has been developed on the foundation of following group values – INTEGRITY Integrity is honesty in every action. The Material Management team should act and take decisions in a manner that are fair, honest and follows the highest standards of professionalism. ‘Integrity’ should be the cornerstone for all the deals, be it with customers, employees, suppliers, partners, shareholders, the communities or the government. COMMITMENT Commitment is “Doing whatever it takes to deliver as promised”. Each one of the material management team should take ownership for their work, teams and the part of the organization they are responsible for. Through 17
this value they shall build an even sharper results oriented culture that is high on reliability and accountability. Their commitment is likely to make them a formidable leader and competitor in every market that they are in. PASSION Passion is a missionary zeal arising out of an emotional engagement with work, which inspires each one to give his or her best. All of the material management team is expected to be energetic and enthusiastic in the pursuit of their goals and objectives. Material Management team should recruit and actively encourage employees with a ‘Fire in the belly’. With this Value, they would build a culture of innovation and breakthrough Thinking leading to superior customer satisfaction and Value creation.
SEAMLESSNESS Seamlessness is understood as thinking and working together across functional silos, hierarchy levels, across business lines and geographies. Each one of the material management team shall demonstrate high level of teamwork through sharing and collaborative efforts and garner the synergy benefits from working together. Before the material managers can truly benefit from a borderless world, they need to build a borderless organization. They should visualize free flow of knowledge and information across the Group.
SPEED Speed is looked upon as responding to internal and external customers with a sense of urgency. They should continuously seek to crash timelines and 18
ensure expeditious completion of their tasks. Through this Value they would build an agile and proactive organization that is prompt to respond to the present and future needs of their customers. GROUP VALUES
MEN POWER STRENGTH AT RENUSAGAR SCHEDULE FOR MEDICAL CHECKUP OF STAFF Sl.No DEPARTMENT . Department 1 2 3 4 5 6 7 8 9 10 11 12 13
OPERATION CIVIL ENGG CHEM.LABORATORY STORES DEPTT BOILER MAINTENANCE D&D ENGG HOSPITAL COAL HANDLING (O) D&D DESIGN INSTRUMENTATION GEN.ELECT. MAINT D&D (CIVIL & STRU.) AERIAL ROPEWAY (L/S)
2008-09 Officer & Workm Staff en 268 445 52 29 48 12 41 19 40 68 38 0 37 8 37 152 33 6 31 43 31 52 22 5 22 41 19
Badli
Total
48 38 7 17 12 0 4 59 6 4 6 2 66
761 119 67 77 120 38 49 248 45 78 89 29 129
14 15 16 17
SECURITY DEPTT COAL CO-ORDINATION PURCHASE DEPTT AERIAL ROPEWAY (U/S)
21 21 20 20
74 0 5 41
21 0 0 82
116 21 25 143
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
TUBINE MAINT TIME OFFICE ACCOUNTS MANAGEMENT SERVICES GEN.MECH.MAINT COAL MILL MAINT AUTOSHOP ESP (O&M) CHP (MAINT) TECHNICAL SERVICES ASH PLANT MAINT HR-(EMPLOYEE RELATION) TTMDC HR-(HR & PERSONNEL) INFORMATION TECHNOLOGY WORKSHOP SAFETY & ENVIROMENT CANTEEN J.P. (POWER) OFFICE SUPER BAZAR RURAL DEVELOPMENT TELEPHONE & FAX SR. VP (D) OFFICE LAND & LIAISON SANITATION PURCHASE (KOLKATA OFFICE) MAINTENANCE OFFICE GUEST HOUSE A.V.P. (F&C) OFFICE TRANSPORT (LV) FIRE FIGHTING DAIRY FARM CENTRAL DESPATCH PURCHASE (DELHI OFFICE) HORTICULTURE GENERAL TECHNICAL
19 19 18 17 16 16 15 14 14 13 13 12 11 11 9
46 2 3 2 42 20 88 1 20 1 9 0 8 2 1
16 2 0 0 7 17 46 0 16 0 9 0 0 0 0
81 23 21 19 65 53 149 15 50 14 31 12 19 13 10
8 7 7 6 5 5 4 4 4 3 3
37 0 0 1 2 0 0 0 0 2 0
12 0 0 0 0 0 0 0 0 5 0
57 7 7 7 7 5 4 4 4 10 3
3 3 3 2 2 2 2 1 1 1 1075
1 12 1 16 13 0 1 0 2 1 1334
0 9 0 2 6 0 0 0 0 0 519
4 24 4 20 21 2 3 1 3 2 2928
33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53
MEN POWER STRENGTH AT RENUSAGAR 20
1 2 3 4 5 6 7
STRENGTH OF STAFFS) STRENGTH OF WORKMEN STRENGTH OF TECHNICAL STAFF STRENGTH OF COMMERCIAL STAFF STRENGTH OF HODS STAFF STRENGTH OF DEPARTMENTS TOTAL NO OF SECTIONS
1041 1847 735 346 35 35 54
Material management 21
Materials managementDefinition: A process encompassing acquisition, shipping, receiving, evaluation, warehousing and distribution of goods, supplies and equipment Each step is vital.
Objective of materials managementPrimary Objective of materials management 1. Low prices- to be lowest - includes transportation: enhances profit 2. High inventory Turnover- value of inventories to be low in relation to sales. Reduces storage costs 3. Low cost acquisition and possession- reduced handling and storage costs. 4. Continuity of supply- alternative sources, , captive suppliers, flexible suppliers 22
5. Low payroll costs- Low operating costs of material management personnel 6. Favorable supplier relations- supplier development
Secondary objectives of Materials management1. New materials and products- working closely with Design and research departments for development of new materials and products 2. Economic make-buy- Coordinating and assisting other departments in Make-Buy decisions 3. Standardization- coordinating with Design departments in reducing no. of items. 4. Product improvement- Contribution towards product improvement by giving appropriate inputs and assisting Design department. 5. Interdepartmental Harmony- Success of materials management department depends on the success of other departments. hence relations are to be harmonious
Materials management functions:1. Material planning and programming 2. Purchasing and outsourcing 3. Inventory control 4. Storekeeping and warehousing 5. Codification 6. Standardization and evaluation of all products 7. Transportation and material handling 8. Inspection and quality control 9. Cost reduction through value analysis 10. Disposal of surplus / obsolete material 11. Distribution 23
Scope of Material Management:The scope of material management includes decision on purchasing raw material, management & control of work in progress items, stores and the shipping and distribution of finished products. The materials flow is divided in to three different overlapping functions – Production control, inventory control & the material handling function.
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INVENTORY MANAGEMENT
WHAT IS INVENTORY? -
Inventory means stock of materials and control means regulate or check
-
Inventory (dictionary) meaning is list of stock goods.
-
Scientific definition of is Inventory is idle resources of any kind having economic value
-
Inventory is detailed list of moveable good which gives the quantity and value of each items or moveable goods with quantity and value. 25
-
From material management angle inventory is stock to meet future demands of production, repairs, maintenance and construction.
Inventory is defined as the sum of the value of (stock at any given point of time)a)
Spares Parts
b) Fuels & Lubricants c)
d)
Semi-processed material
g)
Work in progress Inventory h)
Consumables &
Tools
-
e) Finished products
f) Raw Materials
Shop Floor Inventory
Inventory control basically deals with a)
When would an order be placed (order level)
b)
How much should be ordered (order quantity)
c)
When to order
d)
How much to keep in stock without effecting generation
What is Need of inventory? To improve inventory management techniques it is necessary to maintain inventory with minimum investment (Blockage) but consistent with adequate service level.
Why control inventory? Materials account for 30% of the cash outflow of most organization. Inventories are the single largest asset in balance sheet in many manufacturing companies. If the inventory is not properly controlled, it results in obsolescence. 26
The finance manager considers inventory as locked-up but the users always claims for more capital, complaining of stock out. Inventory has to be controlled in order to optimize the cost of acquiring the items. An important factor to be considered in controlling the inventories is to reduce the lead-time concept. Application of scientific techniques in inventory control increases the morale of young executives.
-
What are types of Inventory? a)
Maintenance Spares
b)
Overhauling Spares
c)
Insurance Spares
d)
Rotate able Spares (For Example: Equipment removed, Repaired and kept for use in future).
TYPES OF INVENTORY 1.
INSURANCE INVENTORY
Insurance/Essential inventory are those spares of vital equipment / machineries which are normally not required for routine maintenance, but may be required for unforeseen breakdown causing stoppage of production or causes unsafe working conditions or significant energy losses, directly or indirectly. Normally these items have high degree of reliability having the same life cycle as equipment itself and are of high value and long lead-time. 2.
CRITICAL INVENTORY 27
Routine spares of vital equipment, having reliability lower than insurance spares, non-availability of which could cause stoppage of plant or reduce production level or cause unsafe working conditions or significant energy losses. A spare of equipment having standby is supposed to come into operation instantaneously in the event of stoppage of the main equipment. Maximum holding period = 3 years Review frequency = Once in a year 3.
NON-CRITICAL INVENTORY
All other spares required for normal maintenance, but do not fall into critical category as above i.e. Non availability of which would not cause stoppage of plant or reduction in production level or unsafe working conditions or significant energy losses. It has low consequential losses and has short procurement leadtime. Maximum holding period = 2 years Review frequency = Once in a year 4.
AUTO INDENTING/STORES/ROL/ROQ ITEMS
a) b) c) d) e)
5.
This activity decides when inventory replacement is required and calculates inventory replacement quantities. This category consist of Regular consumption items Fast moving items Hug consumption annual movement items Multi-user department items Generally low value and low lead time items Maximum holding period = 1 years Review frequency = By 31st January every year (based on No. of issues)
OBSOLETE INVENTORY
Material and equipments which are not damaged and have economic value but are no longer required by the company due to technological changes/replacement of equipment/machine/other reasons. 6.
SURPLUS INVENTORY
Items which do not have immediate use, but they have a usage value in future. These items are in excess of the unit’s storage norms and are not likely to be used 28
within a reasonable period. Reasonable period will depend on the inventory carrying cost, realizable value, shelf life etc. and is to be decided by the individual unit. 7.
ZERO VALUE/CHARGED OUT ITEMS
Zero value items are items which have been returned by the user department or charged with new equipments to stores. These items are reusable. The value was booked against first consumption. Hence returned goods to stores do not carry any value. However, only the quantity should be included in the stores ledger. These items should be separately stored. The charge of the same should be considered only for PARTA/Budgeting/MIS purpose.
-
What is mean by Inventory Control? Systematic procurement, Location, Storage and recording in such a way that desired degree of services to operating shops at minimum ultimate cost.
-
What is mean by Large Inventory?
-
a)
Tie-up large amount
b)
Deterioration
c)
Damage
d)
Obsolence
e)
Increased overhead
When to control the Inventory?
Positive approach is to control the inventory from beginning stage (procurement stage or PR stage). -
Inventory is harder to move with longer it sits -
Increase in 20% sale = Reduction in 5% inventory so our aim should be to reduce the inventory.
-
Inventory accounts are a) price (required negotiation) b) Service Level (% of demand fulfilling) c) Lead time (time required from feeling need to availability).
WHY ORGANIZATION CARRY INVENTORY 29
Business constraints
: Government regulations, monopoly of supplier minimum quantity to accept, material availability in seasonal only, Transportation cost, once good will.
Smooth production: Often the demand of an item fluctuates widely owing to number Of factors such as seasonally and production schedule.
Product availability; Many industrial goods are carried to promote delivery to the Customer
Advantages of Production: If machine set-up time and production time is significant saving can be achieved in large lots.
Buying in large quantities: Most of firms offer quantity discount of buying in large Quantities.
Accuracy: Accuracy timeliness is critical factors, material control activities. Include determining material needs
Hedge against long: Organization carry inventory to protect against possible loss of Or uncertain lead time production against long and uncertain lead time.
Safe guard against:
If material is scarce - move stock is kept
OBJECTIVES OF INVENTORY CONTROL a)
To minimize idle time caused by shortage of inventory and non-availability of inventories as per requirement. 30
b)
To keep down capital investment in inventories, inventory carrying cost and obsolescence losses.
c)
Physically verification of inventory items.
CAUSES OF HIGH INVENTORY AT RENUSAGAR a)
Variety of equipments
b)
Project surplus
c)
High lead time/sources of supply are to for flung
d)
Modification/ improvement in design system
e)
Obsolescence of machinery
f)
Rate inflections (increased)
g)
No proper policy to declare insurance spares (high)
h)
Long duration of TG survey
i)
Propriety spare
ABC Analysis is best tool to control the inventory which means – -
Avoid, Bluff, Confusion
-
Always, Better, Control
If inventory is not controlled properly: -
It is an idle resource 31
-
It can wipe out due profit
-
If effects quality (stock makes work careless handling)
-
It is not buffer (thing to exchange)
-
It is not an asset (properly to pay claim)
-
It never optimized (wish or desired)
-
It not only occupies space but also the mind
-
It will not start earring
-
It gathers dust
-
Move inventory carrying cost is spend on it
SELECTIVE CONTROL WHY SELECTIVE CONTROL? Literally thousands of items are kept in inventory by various organizations. Periodic reviews of inventories of these items have to be under taken for effective inventory control. The under-lying idea of such reviews is to keep stocks at a low level but at the same time keep the service percentage high. The problem is how to review such a large number of items. Is it necessary to have the same type of control for each and every item? An equally critical analysis of all items is very expensive and time consuming. Selective control of items with reference to particular function under examination is the solution. Items should, therefore, be classified so that the more important amongst them receive greater attention
CLASSIFICATION METHODS Various methods of classification are adopted as shown below:Sr.No. Title
Function
32
1
ABC
Annual usage value of items
2
XYZ
Inventory holdings of items
3
HML (High, Medium, Low)
Unit prices of items
4
VED (Vital, Essential, Desirable)
Criticality
of
items-
Particularly
components and spares 5
FSN (Fast Moving, Slow Moving, Consumption pattern of the items Non-Moving)
6
SDE
(Scare,
Difficult,
Easy
to Problems in procurement
produce) 7
SOS (Seasonal, Off seasonal)
Availability – whether in particular season or in all seasons.
8
GOLF
(Government,
Ordinary, Source of availability
Local Foreign) 9
Age Analysis
Shelf life of items
SELECTIVE INVENTORY CONTROL SYSTEM Selective inventory control system means that we have various different methods of inventory control from item to item and this differentiation should be on selective basis. The importance of materials can be due to its cost, its criticality, its availability and its consumption. There are a number of methods available for selective control of inventory. Selective control can be divided into eight types:
ABC Classification:
33
ABC stands for always better control or avoid bluff confuse. This method is based on annual consumption value, which is obtained by the multiplication of the unit price by the annual consumption quantity. For example, on an adhoc basis, the items accounting for an annual consumption value of more than Rs. (one) Lacs may be classified as ‘A’ category and below Rs. 10000 may be the ‘c’ category and in between these items will be the ‘B’ category. ‘A’ Items: are the top 10% of the items and accounts for 60% of the consumption value. ‘B’ Items: are the next 30% of the items and accounts for 30% of the consumption value. ‘C’ Items: are the next 60% the items and accounts for only 10% of the consumption value.
H.M.L CLASSIFICATION H.M.L stands for: H – High cost items (all unit cost) M – Medium cost items (all unit cost) L – Low cost items (all unit cost) Unit value is the criteria in HML classification.
V.E.D CLASSIFICATION: VED stand for V- Vital E- Essential D- Desirable 34
S.D.E. CLASSIFICATION: ‘S’ scare items –which are not easily available in the market ‘D’ Difficult items – which are non available in the market. ‘E’ Easy items – which are easily available in local market.
G.O.L.F CLASSIFICATION G.O.L.F stands for Government - open market – local market – foreign sources. Materials are classified according to nature of suppliers.
F.S.N CLASSIFICATION F-S-N stands for ‘F’ Fast moving items having consumption at least once in a year. ‘S’ slow moving consumption in alternative year. ‘N’ non-moving consumption in last 5-6 years.
X.Y.Z CLASSIFICATION: X item is those items whose value is high while Z items are those items whose values are low. Understandably Y items fall in between two categories.
S.O.S CLASSIFICATION Some of items required are seasonal in nature and require special purchasing and stocking strategies. Many commodities especially of agricultural origin and seasonal in character have to be purchased at the best time. Operation research techniques
35
would have to be used to obtain optimum results. The inventory system will have to balance between holding costs and lower prices at which it will be available.
AN INVENTORY TURN OVER RATIO Inventory turnover ratio may be defined as a ratio of Annual consumption (issue) in Rs. divide by the average inventory in Rs.
Annual Consumption ITOR =
x 100 Average Inventory
This ratio is called Efficiency Indicator. IMPROVEMENT IN INVENTORY TURN OVER RATIO PROJECT AN INTRODUCTION TO INVENTORY TURNS OVER RATIO: Inventory turn over ratio is defined as the ratio of annual consumption value divided by average inventory holdings. This ratio is also called efficiency indicator. Hence, higher the inventory turn over ratio the better is financial out look and system is considered more efficient. There is considerable scope for improvement in this sphere. Inventory turn over ratio= Annual issues in Rupees. / Average inventory in Rs. Express as percentage the ratio is to be multiplied by hundred. This ratio is called efficiency indicator Case 1 Suppose an organization requires material worth Rs. 12 crores annually. If purchased in 1 Lot and consumption is 1 crores per month. Average inventory holding will be=6.5 crores Inventory turn over ratio will be 2 approximate.
36
Case 2 Suppose an organization requires material worth Rs. 10 crores annually. If purchased in 2 Lots and consumption is 1 crores per month. Average inventory holding will be=2.5crores Inventory turn over ratio will be 4 approximate In second case capital locked up has been reduced from 5 to 2.5crores and inventory turn over ratio increased to 4 from 2. It shows in second case released capital becomes available and organization has A) Borrow less capital. B) Less interest charges C) Fewer inventories carrying cost Hence, higher the ITOR the better is financial out look and system is more efficient.
How to improve inventory turn over ratio. A. B. C. D. E.
Efficient reduction of inventories. Discourage flabby inventory due to poor maintenance. Discourage profit-making inventory held with speculative. Reduction in critical & non-critical items lying in stock since long period. Identification of obsolete/surplus items and their disposal/utilization.
ITOR in most of industries in India is around = 2 Most efficient one in India is around
=3
ITOR in abroad-developed countries is between 6 to 8. Our target for FY, 2006-07 is => 4
37
ABBREVIATION QCDIP : Productivity
Quality, Cost, Delivery Innovation,
JIT
:
Just in Time
OTIF
:
On Time in full
VIS
:
Visual Information System
PDCA
:
Plan Do Check Act
CMS
:
Condition Monitoring System
:
Life Cycle Cost
:
Excess
LCC MURI MURA :
Unevenness
MUDA:
Waste
SMED
:
Single Minute Exchange of dies
QCO
:
Quick Charge Over
LLF
:
Look, Listen & Feel
PST
:
Problem Solving Tools
JAMS
:
Just a Minute Session
SQM
:
Strategic Quality Management 38
DOL
:
Delay On-line
ERP
39
ERP ERP stands for enterprise resource planning. It is a software solution that helps companies to gain competitive edge by integrating all business process and optimizing the resource available. The traditional application system treats each transaction separately. It is build around strong boundaries of specific functions that they are meant to cater to. ERP stops treating these transactions separately as stand alone activities and consider them to be part of inter linked processes that make up the business. An ERP system stores data generated as a result of diverse transactions that are confined to any departmental or functional boundaries, but are rather integrated to be used by multiple users, for multiple purposes and at multiple places. ERP should not be mistaken as a magic tool that can transform anything overnight. Its successful implementation is a long journey towards enterprise excellence. To support such a diverse system, companies need sophisticated information technology infrastructure and other important enabling tools like workflow, Workgroup, Groupware’ Internet, Intranet, Data ware housing etc. These entire components together from the ERP backbone.
ERP FOR HINDALCO Today business is become an ever-changing phenomenon due to Large-scale production facilities, new product development, technology up gradation, sales strategy, capacity utilization, capacity expansion changing business scenarios, mergers & acquisitions and opening of economies. These increasing business complexities warrant fast response, which in turn requires accurate data. The organization needs to be proactive and plan ahead of time. To do business optimization, HINDALCO on hand requires tools such as extended ERP including and 40
SCM applications, and on the other hand, needs to change itself to a learning organization focusing on its people, skills, core competency culture and practices.
IF DO NOT GO FOR ERP Improved customer service by way of visibility of orders and order status, efficient distribution system and reduced operational expenses are some of the important business benefits which is derived from ERP. In addition ERP initiative provides us an opportunity to re-look at existing processes, remove redundancy by way of systemization and benchmarking, standardization of process across units for seamless integration and provide foundation for e-commerce. Ever since the advent of e-commerce, trade boundaries are becoming a history. Today, a virtual store is a reality. Conducting on Internet business is no longer in choice. Not that is happening only in developed countries, but also in India. In India total value of Internet trade in the last year was Rs. 600 Cr. By the year 2008 it is expected to cross Rs. 50,000 Cr. As per Mckinsey-Nasscom report to be successful e-commerce enabled enterprise, having an Internet site is just not sufficient. We must have our business processes and all the back-end mechanism like production planning, order status & its visibility, predictable delivery date and customer service in place. To sell on Internet we must know details of our stocks lying at any location
SYSTEM FOR PR PROCESSING THROUGH E.R.P. A. Business Requirement:1. All the Purchase Requisitions will be routed through Inventory Control Cell (As defined in the System) 2. The items and values within the sanctioning authority of Sr. Executive President (Refer Order No. Sr.EP/00/81 dt. 29.08.2003) will be processed in sequential order as under:41
2.1. ICC will submit hard copy of PR to Secretary to Sr. Executive President, who will obtain approval from Sr. Executive President. 2.2. Shri Kurien Thomas will retain and maintain a file of such approved PRs and will send a copy to ICC or communicate ICC about the status. 2.3. Routing PR will then be done by ICC.
Note: PR amount above 20 Lacs and items i.e. imported, furnitures, Computers, Telephones, Decorative electrical goods and House hold items/ House hold electrical goods and the like are to be got approved by Sr. Executive President. 3. Procurement of IT related items will be done as per Sr. Executive Presidents Office Order Nos. EP/010/105 dated 21.10.2000, EP/00/44 dated 6.4.2001, SrEP/00/81 dated 29.8.2003 and Director (Whole Time) circular dated 28.12.2001. Hence PR for such items will be released only from IT department for which all requirements will be sent to IT department. 4. The Central Stores will release PR for the ROL item. Apart from revised ROL item (under ERP) following consumable are also added in ROL items:• • • • • • •
B.
Ribbon Cassettes Toner Cartridges Ink Cartridges Print Heads Floppy Diskettes Zip Disks Screen Anti Radiation
Process Requirement:-
5. All the Block sanction & special sanction items has to be processed in Oracle with appropriate Task Codes as mentioned below:5.1. Block Sanction • Department has to obtain Task Code from Accounts Department • The entire PR will be raised in G19 organization in Oracle only. 5.2. Special Sanction • Task Code has been fixed which will be 9500 for all the items & PRs. • All the PR will be raised in G02, G05, G08, G11, G14 & G17 organization for units 1-5, 6, 7, 8,9 & 10 respectively in Oracle only. Note: HOD will contact Technical Cell for procuring the item under Block or Specia1Sanction. For rest of the procurement category and organization will be allocated by ICC. 42
6. Before raising PRs end users to ensure correctness in:• Item Description • Unit Cost, Criticality, Legacy code • Organization In case of any discrepancy the same is to be got corrected from ICC before processing PRs.
7. End users to fill in the information viz. Locator, Cost Code & Task Code (if any) at Line level i.e. item wise while raising PRs. 8. The following to be strictly taken care while the PR is in review process:8.1. In case ICC has rejected all the items of the PR with necessary justifications, end users should not reuse the PR. 8.2. If quantity of any PR line has been suggested to be reduced to zero, then the line has to be deleted and may not be reused for any new item. 8.3. If PR for any additional Item(s) are required to be raised it may be done with the help of Fresh PR. In no case it should be added in an existing PR sent to Originator by ICC for review. 9. In order to keep a track of deptt. wise Survey/ Shutdown items Location and cost code combination as suggested in the enclosed sheet to be used. In case, correct combination is not used the PR will be rejected/ sent back to originator by ICC. 10. Alteration of PR after the approval from ICC has to be strictly avoided and end users are requested not to alter any PR lines/Qty after being approved by ICC. Under extreme circumstances, if Supervisor feels need of revision over the received PR by ICC, it will be mandatory on part of Supervisor to re-route the PR through Originator and ICC. 11. End users are further requested not to delete or overwrite the ICC comments in the Long Description. If comments have to be added for their necessary reference, it may be added in the end without changing the existing comments. Cooperation of all concerned is solicited to strengthen the Inventory control activity.
43
FLOW CHART OF PR
SCREENING
Any one can raise the PR & will be originator of the PR
Mention supervisor – Say S1(To whom he wants to send it for approval) z
Originator will save the PR
Now PR in the INBOX of Originator
Originator will route the PR through workflow
PR will reach to INBOX of mentioned supervisor (S1)
PR ON HOLD
HOLD the PR
PR under REVIEW to originator INBOX
Send to originator for REVIEW
PR Cancelled
Cancel the PR
Approve the PR
PR APPROVED Total cost of the all PR line > PR approval . . limit of the . supervisor (S1) (Individual approval limit has to be finalised)
Yes 1
44
No No
CRITERIA FOR INSURANCE ITEMS & PROCEDURE FOR ITS REVIEW Definition of Insurance Spares
Those spares of vital equipment/ machinery which applies to under noted attributes: a) Unforeseen breakdown resulting stoppage of production. b) Causing unsafe working condition. c) Significant energy losses d) High degree of reliability e) Life cycle is almost same as equipment itself f) High value and long lead time g) Management decision, standby scenario, proprietary spares supplied with equipment. h) Vital & Essential spares required for high plant availability factor.
Norms -
Stock minimum 01 No. or 1 set. Quantity can be more in view of batch size consumption and more than 1 installed equipment.
Procurement Once the stock is used, the item is procured through PR made by specific user, by ICC and approved by the Unit Head..
screened
System for Review of Insurance Spares 1. Fixing of Insurance Items as on 30.09.2008. 2. Review of inventory class done on regular basis as it is a part of PR screening process. 3. Procurement of Insurance spares are judiciously planned by users and approval is taken from Unit Head. 4. Review the PR and Closing Stock every month for Insurance Items on regular basis in inventory meeting and items not fulfilling criteria are deleted from Insurance class. 5. Update the Insurance List. 6. The equipment charged out/sold out and its spares lying as Insurance should be charged out or sold out after declaring it obsolete. 7. Any New equipment or spares falls under the definition of Insurance items as suggested by OEM against suspended manufacturing range, may also be kept as Insurance 8. Recommendation by OEMs 9. Update the category on yearly review of total items.
Authority -
Plant head approval is must.
45
Sub: Procedure for Identification of Obsolete Materials
In order to identify the obsolete items/ spares/ equipments and inventories, the following procedure is being followed: GUIDELINE FOR IDENTIFICATION OF OBSOLETE ITEMS:
1.1
Items/Equipments, though in working condition but likely to be removed due to change in design, location etc.
1.2
Equipment all ready sold and its spares are lying in Inventory
1.3
Items / spares procured for large no. of similar Equipments but subsequently equipments sold off to the large extent.
1.4
Equipment declared un-reparable and its spares lying in Inventory.
1.5
Imported items whose Indigenous substitute has been developed.
1.6
Items Procured in excess but it has become almost non moving.
1.7
Items/Equipments, though in working condition but taken out from plant and not to be used in the plant again due to change in design , location etc.
1.8
Items/Equipments, lying in charge out stores in working condition, with unpredictable consumption period.
1.9
Items/Equipments, lying in charge out stores in non - working condition and also not declared as scrap.
1.10 Non- moving Spares lying in Stores since long period except insurance spares. 1.11 Spares or Consumables which self- life has already expired or items are useable.
46
not worth
Defination Minimum Stock (Lower Limit) Or Safety Stock
To avoid stock out position which can result into hampering of production due to
Variation in Rate of Consumption Variation in Lead time
And to guard against above uncertainties extra stock is maintained, this extra stock is called Safety stock/ Buffer stock/ Reserve stock or Minimum stock.
This stock comes handly in case of moving and High moving • Any excessive in process rejections quantity works • Rejection at the time of receipt of goods
Generally for slow lead time items this as cushion.
Minimum or safety stock is = (Max. lead time – Normal lead time) x Consumption rate + a little extra stock Note :
Items for which effect is negligible, minimum stock may be - Nil For vital, critical and scarce items highest safety stock needed to maintain.
47
ROL Ordering Level It is the level at which ordering action is indicated in time for the material to be delivered before the stock falls bellow the minimum quantity (keeping in view rate of consumption and estimated time for procurement). ROL
= Re-order level means the stock position at which efforts should be initiated to process a purchase order (Re-order Activities) for the economic order quantity of spare parts.
ROL
= Demand + Safety (Min.) stock
Where demand means the Average Consumption of the spares during lead-time. Concept of ROL is not applicable to Insurance spares, if any time the Insurance spare is replaced, the decision for its replacement has to be specially taken by the management depending upon the circumstances.
Hastening Stock Level It is the level at which it is estimated that hastening action is necessary to request supplier to make early delivery. Hastening Level:
It falls between minimum inventory and ordering level (ROL).
Maximum Level (Upper Limit) It is the level at which stock should not be allowed to rise. Purpose of this level is to Curb Excess Investments. ďƒ˜
When maximum level is reached, it is the signal to defer or cancel outstanding deliveries, if any.
ďƒ˜
Large quantity in stock should be in the invest of economy.
Maximum Level
=
Minimum Level + Economic order quantity.
Ideal Level
=
Minimum Level + Economic order quantity/2
48
Re-Order Quantity (ROQ) Wear and tear of spares have regular pattern of Consumption and they should be ordered on the basis of ROQ or EOQ. To start with spare parts ROQ quantity should be fixed manually keeping in view monthly consumption, lead time and past experience. ..3.
EOQ =
√2LD/CI Where L is ordering cost, D = Annual consumption level C is price of an item, I = Cost of capital (Inventory holding cost)
While fixing ROQ all factors like Cost, Consumption, price and Inventory holding cost needed to be considered in the interest of economy.
Standard Order Quantity (ROQ) It is the quantity to be purchased at any time. Repeat orders for a given product are always for the same amount, until order is revised. Note:
In setting minimum, maximum, order quantity and order point – economic size of PO, Lock-up in capital, lead time, rate of demand, probable depreciation and obsolescence are required to be considered.
POINTS TO REMEMBER
JIT APPROACH= to manage stock at various inventories. Reservation against work order=Requirement of material is known before the actual use. Principle behind ROL or ROP=Ordered in time such that they arrives before the last remaining items are issued.. Formula= indicates usage or demand and Lead-time. Lead time demand=Average monthly usage x Lead time in days/30.44 Safety stock=2 x standard deviation of lead time x LT x power
49
Comparative Inventory Turn Over Ratio At Renusagar
6.00
5.00
4.80 4.81 4.46
4.50
4.90
4.60
4.25 4.00 4.00
3.90
3.40 3.53 3.25 3.00 3.00
2.60 2.68
2.70 2.67
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
TARGET SET
2.50
2.60
2.70
3.00
3.40
4.00
4.25
4.50
4.80
4.90
ACTUAL
2.54
2.68
2.67
3.25
3.53
3.90
4.46
4.60
4.81
0.00
2.50 2.54
2.00
1.00
0.00 0.00
TARGET SET
50
ACTUAL
IDEAL & ACUTAL REGULAR INVENTORY TREND MONITORING Sl.
Description
Present
No. 1.0 2.0 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.2 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.3 2.3.1
3.0 3.1 3.2 3.3 3.4 3.5
ideal STOCK ITEMS: STORES ROL/ROQ ITEMS P.R. STORES : Critical Spares for normal operation Boiler (AP+BM+CM+CHP) Turbine (GM+TM) Electrical Instrument Rope for ARW Sub-total : Non-Critical Spares for normal operation Boiler (AP+BM+CM+CHP) Turbine (GM+TM) Electrical Instrument Services Sub-total : Miscellaneous Others Sub-total : Total (2.1+2.2+2.3) : INSURANCE SPARES : Boiler (AP+BM+CM+CHP) Turbine (GM+TM) Electrical Instrument Services Sub-total : Total (1.0+2.0+3.0)
101.50
(Amt. Rs. In Lacs) Actual Deprication Balance Stock Stock Value as on 30.06.2009 30.06.20 09 94.57 0.00 94.57
189.00 102.00 55.00 37.00 61.00 444.00
237.36 113.15 38.96 22.07 17.37 428.92
0.08 0.42 0.51 0.03 0.00 1.04
237.28 112.73 38.45 22.04 17.37 427.88
59.00 46.50 36.00 16.00 62.50 220.00
90.55 39.62 58.00 33.16 82.63 303.96
0.00 0.14 0.00 0.00 0.00 0.14
90.55 39.48 58.00 33.16 82.63 303.82
10.50 10.50 674.50
9.79 9.79 742.66
0.00 0.00 1.18
9.79 9.79 741.48
160.00 620.00 245.00 165.00 10.00 1200.00 1976.00
135.58 517.72 235.56 152.41 10.89 1052.16 1889.40
0.63 6.13 0.26 0.37 0.00 7.39 8.57
134.95 511.59 235.30 152.04 10.89 1044.77 1880.83
51
JIT CONCEPT UNDER WCM APPROACH World Class Manufacturing In an ever-changing environment, with falling trade barriers, our mission is to establish ourselves on a global basis, as the First choice of our customers and stakeholders by adding value to their business and exceeding their expectations. Word Class Manufacturing (WCM) programs are meant to promote excellence in manufacturing as a means of delighting our customers, employees and other stakeholders on a sustainable basis.
Just In Time CONCEPT In global environment our customers shall continue to challenge us with Quality at the right cost. This requires our suppliers to be source of competitive advantage by systematically meeting our needs with products at the right price. Just In Time (JIT) is state of mind for achieving competitive excellence by creating an attitude of continuous improvement through 100% involvement to eliminate all waste, institutionalizing only value adding activities with 100 percent quality
Aim of JIT To provide fast, reliable and flexible response to customers requirement at least cost and minimal dependence on inventory.
Objective Rationalization of Inventory is important activity for stores & spare parts management. The main thrust on the activities required are as under : 1. 2. 3.
Reduce inventory of obsolete items, Insurance Items and other stores to the optimum level. Reduce Shop floor Inventory. Increase turnover ratio.
Approach 1.
PR Screening
This is very strong process to control the inventory at PR stage instead of after receipt of material. 2.
Inventory Reduction Stores & Spares are categorized as Critical, Non-Critical, Insurance and auto indent items (Stock replacement). All categories are controlled through parta system (standard pre-fixed by the Management). 52
Perpetual Inventory System
A System to verify physically and survey the health of items/ spares.
Inventory Analysis Inventory analysis tools used are as under: a) ABC e)
b)
XYZ
c)
C/NC
d)
Age
FSN
Inventory Turnover Ratio Calculation and monitoring of Inventory turnover ratio to keep it higher. 3.
Parta System Parta is a strong tool for spares management. MIS are generated accordingly, which gives trend analysis for proper monitoring. It is subjected to increase/ decrease on need basis depending upon the addition/ reduction of new/ old equipments.
4.
Shop floor Inventory Shop floor inventory is also captured which gives proper idea about the fresh items requirement to be procured, considering entire inventory in hand.
5.
Identification of Obsolete Spares Due to change in design, modification, sale of equipment, equipment replaced etc. some items become obsolete/ surplus. These are also reviewed and identified on regular basis for disposal.
53
Deployment 1.0
PR Screening Any PR raised by originator should be screened in respect of:
Quantity Stock Alternate use Category Budget and Business Rule Other mandatory parameters.
2.0
Reduction in Inventory
2.1
Non-Critical Inventory:
a)
g) h)
Strict monitoring from initial stage of PR review. Tracking of inventory with parta. Age analysis of non-critical items on continuous basis. Finding root cause for non-moving inventory and sustainable measures to reduce the same. Items, which are declared as obsolete by user department, with proper justification are transferred into obsolete inventory. Should be level of inventory Min-Max defined within parta for continuous monitoring through forecast. Planning of items for earliest use. Identified items contributing excess stock to be discussed with deptt.
2.2
Critical Inventory :
a)
These are vital equipment/ machining spares or generation spares so scope of reduction is not so high even following actions to be taken to keep inventory within parta limit. Purchase requisitions are screened at initial stage to check the availability and consumption plan etc. Discussion with user department, regarding High value Critical items and inventory forecasting system introduced to keep inventory within parta.
b) c) d) e) f)
b) 2.3
Insurance Spares: 54
a)
b)
Every efforts is made to keep Insurance spares within parta. Existing stock position is intimated to user deptt.
c)
Procurement of insurance spares subject to management policy, so before releasing PR of Insurance Items prior approval from higher authorities to be taken.
2.4
Auto Indent/ROL/ROQ Items:
-
Identification of items for including in ROL/ROQ category, fulfilling following criteria: a) b) c)
Fast moving and huge consumption items Having multi user department. Generally low value
-
Impact of these items is worked out on the basis of ROL calculation. Finalized items are transferred to ROL/ROQ category on need basis. Revision of existing ROL/ROQ of items if seems necessary. Kicking out items if not fulfilling the ROL/ROQ Criteria. Efforts is being made to avoid stock out and excess stock of these items.
2.5
Perpetual Inventory System :
Physical verification of Inventory Following checking’s made: a) Physical balance b) Physical conditions c) Correlation with stock ledger and department regarding the specifications & shelf life of the items. 2.6
Inventory Analysis:
For monitoring of entire stores inventory following analysis are done: ABC Analysis XYZ Analysis Critical/ Non-critical Analysis Age Analysis FSN Analysis 2.7
-
Consumption indicator item wise Stock value indicator item wise
-
On the basis of criticality of items On the basis of shelf life of items On the basis of movement of items
Inventory turnover Ratio:
Inventory Turn Over Ratio may be defined as ratio of Annual Consumption in Rupees as divided by the average Inventory in Rupees. Inventory Turn Over Ratio = Annual Consumption in Rupees Average Inventory in Rupees 55
Expressed as a percentage the ratio is to be multiplied by hundred. The ratio is also called efficiency indicator.
Parta Revision a) Parta (Standard) is used as a tool for spares management. b) Comparison of actual stock against set standards. c) Parta is reviewed with addition of New Units and any New System (as a whole). d)
Obsolete Spares The purpose of adopting the procedure for disposal of obsolete materials is to reduce obsolete spares causing unnecessary increase in inventory. The obsolete items to be identified by originator (HOD & Area Incharge) with adequate reasons on yearly basis. Conditions for identification of obsolete items: • Items/Equipments though in working condition but likely to be removed due to change in design, location etc. • Equipment already sold and its spare are lying in inventory. • Items/spares procured for large no. of similar equipments but subsequently equipments sold off to the large extent. • Equipment declared un-repairable and its spares lying in inventory. • Imported items whose indigenous substitute has been developed. • Items procured in excess but it has become almost non-moving. • Items/Equipments, though in working condition but taken out from plant and not to be used in the plant again due to change in design, location etc. • Spares or consumables whose shelf life has already expired or items are not worth useable. Declaration of obsolete items:
Assessment Committee reviews the recommendation of the originator giving detail about the usefulness of the spares/equipments and possibility of there uses elsewhere. Then, the list of obsolete items for the purpose of disposal is finalized. Inventory Cell updates the records and assigns value of the finalized items.
Shop floor Inventory Monitoring of Shop floor Inventory done for the following reasons: • To reduce the hidden inventory • For systematic records of buffer stock at shop floor 56
• Help Purchase Requisition Screening process, keeping in view total inventory (including shop floor)
Based on the departmental shop floor inventory list, regular Shop floor Inventory Audits should be conducted by Inventory Control Personnel, Observations should be recorded and Corrective Action Plan to be implemented.
Inventory Meetings Inventory meetings to be conducted for:a) b) c) d) e) f) g) h)
Review of department wise existing inventory. Comparison with parta. Reasons for High Value Inventory are ascertained. Bottlenecks if any are discussed. Suggestion for improvement discussed. Reasons for items not drawn at schedule time are discussed. Action plans for consumption in future is ascertained. Responsibility and targets are set.
SOME FARMULAS FOR INVENTORY REDUCTION AND ECONOMICAL PURCHASING & Codification Codification Index =
No.of Stores Items Codified ×100 Total No. of Stores Item
Purchase Section Production Efficiency # # # #
No. of Purchase Made/Month Say X No. of Equated Purchase Made/Month Say Y No. of Staff in Purchase Section Say Z No. of Working Day in the Month Say N
Production Efficiency =
Y NZ
Quantum of Purchase/Rupees of Purchase Cost =
Total Purchase Value Total Expenses Of Purchase Department
Cost Per Order 57
Cost Per Order =
Total Purchase Department Cost Total No. Of PO Placed
Indigenous Context and Imported Contents Value Of Indigenous Spares Purchased Total Purchase Value
Indigenous Context =
*Note:-Higher is better try to reach at 100%.
Imported Contents =
Value Of Imported Spares Purchased Total Purchase Value
*Note:-Lower is better try to reach at 0%. By intensive effort towards Imported Substitution one has to try and achieve Zero Percent (0%) as possible. Every year there must be progressive improvement in both these ratios. Planning Efficiency # Purchase will be complined within time with no regulations. The four ratios are: %age Order Materiali zed In Time ×100 Total No. Of Purchase Order
*Note: - Higher Percentage is better. # Purchase Order not confirms to Quantity =
No. Of Order Rejection Made Total No. Of POs
*Note: Lower Percentage is better. # PO not Materialized =
No. Of Order Not Materiali zed Total No. Of POs
×100
*Note: Lower Percentage is better. # Rush Order Purchases =
No. Of Rush Order Placed Total No. Of POs Placed
×100
Vendors Performance or Vendors Efficiency # Quality Index Q = # Delivery Index D = # Price Index P =
No. Of Lots Accepted No. Of Lots Delivered
×100
No. Of Lots Delivered In Time Total No. Of Lots Delivered
Lowest Acceptable Price Bid Price Bid By Vendor
58
×100
×100
×100
# Overall Vendor Efficiency Index = Q X A + D X B + P X C Where A, B and C are weights allotted by organization and the three characteristics: Quality, Delivery and Price, the sum of these weights must be equal to 1. Inventory Turnover Ratio Inventory Efficiency of an organization is judged by the ratio. We have to maintain low inventory and yet give good service i.e. make more issues. ValueOfAnnualIssues
Inventory Turnover Ratio (ITOR) = ValueOfInventoryHolding The higher the ratio, higher will be the efficiency indicating the effectiveness of techniques used for inventory control. It should however be seen that lower figure is not achieved at the cost of service, the ratio varies from industry to industry. One has to ensure that it is progressively raised. A ratio implies on the average the store is being held for 3 months. Since it is not possible to where cut the ratio often, it is usually calculated at the end of the financial year. This ratio has to be calculated, first it is calculated on an overall manner for all the inventory items thereafter it should be calculated departmental wise or group wise and also for A, B and C items individual ratio will enable the organization to pin point the areas where intensive effort for the inventory are called for. Service Level Percentage Compliance Ratio No. Of Demand Complied Service Level = No. Of Demand Received ×100 *Note: Keep it High. Item Out of Stock Percentage Number Of Items Out Of Stock ×100 OFSP = No. Of Items In Stock *Lower Percentage is better. Idle/Down Time Booking Hrs. Production Schedule Not Met Idle/Down Time Booking = Total Schedule Production In Time ×100 *Higher the figure Lower is the work done.
Lead Time Ratio Lead Time Ratio = *Should be less than 1.
Average Lead Time This Year Average Lead Time Last Year
Work in Progress Inventory 59
The best way to compare the average work in progress inventory with Production achieved during this year. Average Work In Progress Work in Progress Inventory = Total Production Value In Year *The ratio should be brought down progressively year after year. Spare Part Inventory It is compared with the value of capital equipment for which inventory is held. # Ratio Of Spare Parts Inventory First Way =
Value Of Spare Parts Inventory Value Of Capital Equipments Value Of Spare Parts Inventory
×100 Second Way = Total Inventory Both these ratios have to be progressively brought down (Not Exceeding 3% - 4%).
ITOR for Spare Parts =
Value Of Spare Parts Considered Spare Parts Inventory In Hand
Receipt and Inspection Receipt and Inspection = *Higher is better. Cash Discount Cash Discount = *Higher is better.
No. Of Supplier Challan Cleared No. Of Supplier Challan Received
Cash Discount Actually Achieved Cash Discount That Should Have Beeen
Storage Claim with Carriers No. Of Claims Settled In Organisati on Favour # Total No. Of Claims Preferred #
OR
Value Of Claims Settled In Organisati on Favour Total Value Of Claims Preferred
Above Ratio determines how efficient the organization is in the month of preferring its claim and subsequent follow up. Storage Loss: Losses in inventory occur due to deterioration in storage, Obsolescence Pilfirate etc obsolescence, pilferage etc… The index can be: Average Value Of Inventory ×100 *Note: Lower Figure is more efficient. Obsolescence: A large number of NM claims are held in inventory. No. Of NMI In Inventory = Total No. Of Claims In Inventory ×100 Item ratios indicate how alert the organization is in this respect. The lower the ratio the organization is more alert and is taking proper steps to wipe out the Non Meaning Inventory. 60
Scrap Disposal: Scrap should be disposed off promptly
=
Value Of Scrap Disposed Off Value Of Scrap Arising
*Ratio should be higher. Manpower: Manpower and Cost of Manpower in Material Management Organization are defined by two ratios. They are: Total Staff In Material Management Department # Total Staff In Whole Organization #
Wage Bill Of Material Management Department Total Wage Bill Of Organisati on
Inventory Control Manual: Fixation of stocking limits based on LT, Usage, Safety Stock, EOQ. Maintenance of numerical ledger ABC Analysis Value Analysis Surplus and Average Stock Periodical Inventory Statements Calculation of Inventory Turnover Ratio. Etc… Responsibility of Purchase Department Purchase of all materials including construction requirement. Receipt and Inspection. Storage and Design of Warehouses. Issues, Transportation, Preservation. Inventory Control. Disposal of Surplus. Stock Verification. Material Handling. Data Processing etc… Purchase Research Locating New Supplier. Locating Substitute Materials. Import Substitution. Study Behavioral Pattern of important items of stores which should lead to decision regarding the best time. Reduction of Transport Cost. Forecasting General Economic conditions and study their impact on commodities market.
(IN LAST 5 YEARS) 61
Seniors are doing lots of efforts & middle management and inventory control cell to control interaction with all HODS to reduce inventory further. Stores Inventory has reduced during last 4 (four) years, due to implementation of WCM concept by HINDALCO, Renusagar and reduce the stores inventory. Stores inventory data’s of last 5 (five) years of various stock items, critical & non-critical spares, survey & shutdown spares and insurance spares indicates that inventory is towards decreasing trend continuously. Daily monitoring is being done by Inventory Control cell before approval of purchase requisitions and monthly. What is WCM? The purpose of WCM (World class Manufacturing) is improvement in overall performance on a long-term sustainable basis, creating value for business, creating a work environment, devoid of waste and abnormalities. WCM denotes excellence in every sphere of the corporation activity-matching the best in the world. It has enough focus on • Waste elimination • Just In Time & Stock Reduction • Market orientation & customer drive
62
JIT
Just In Time & Stock Reduction
63
Good
inventory
Management
contributes
significantly
to
the
organizations
performance. Apart from reducing the material procurement, storage and handling cost, it also contributes to good housekeeping and lesser space requirement. Procuring or manufacturing and parts just on time can help preventing wastages, obsolescence and capital locked in inventory. It makes the workplace more organized and result into lesser confusions for managing the work. Just In Time (JIT) concept To create Just-in-time is a state of mind achieving competitive excellence by creating an attitude of continuous improvement, through 100% involvement to eliminate all waste, institutionalizing only value-adding activities with 100% quality-NOTHING ELSE! BENEFIT OF JIT Low stock More Space Short Lead-Time Low Ordering Cost Manpower Energy Maintenance Cost Improved Quality Increased productivity Greater Flexibility Better relations and Control Activities Simplified Scheduling Increased Capacity Better Use Of Human Resources More Product Variety
64
JIT IMPLEMENTATION AT RENUSAGAR At Renusagar, 8 (eight) main committees have been formed for implementation of JIT & WCM. They are: Just In Time (JIT) material handling and logistics. Planned Maintenance 5-S & MUDA (Work Environment) Skill, education & training Early Management of assets Individual equipment improvement
65
Financial Analysis
66
Financial Analysis (Inventory) Introduction Inventories are viewed by most of the business world as a large potential role and not as a measure of wealth as was prevalent in old days. The inventory stocked in excess of demand may lead to drastic price cuts, so as to be saleable before it becomes worthless because of obsolescence. The inventory stocked less than the demand may lead to the business out of the market. There is a constant fear in the minds of businessmen because of uncertainty in the market situations, whether to stock or not to stock. With rather tight monetary market, optimization of resources through proper inventory control becomes one of the major challenges for the material managers in every organization. Widening gulf between theory and practice has become remarkable phenomena in this age of science and technology. When the frontiers of knowledge are widening and the theory is developing at fast rate, the practice is lagging far behind. This is probably true about all branches of knowledge and specially true for inventory management area. The material function in power Industry has a distinct importance as every power plant, along with the transmission and distribution system, is committed to provide the consumers at his premises, the uninterrupted supply of electrical power adequately as and when required ensuring the quality, reliability and economy of supply at the same time with emphasis on overall economy. The entire power system is one line process and failure of any vital component in the process results into partial or total outage of the Industry. Inventories play essential and pervasive role in the power sector.
67
RenuSagar Power Division Accounts as per Accounts Division Profit & Loss A/c Hindalco Industries Ltd. (RenuSagar Power Division) Estimated EBIDTA Business Unit Rs. In Lacs Actual Projected & Budgeted 2007-08 2009-10 6327.17 6284.73 5665.28 5650.31
Details Generation (MU) Sent Out (MU) Net Sales Electricity Charges Recoverable from Employee Bardana Sales (Scrap) Others Total Sales EBITDA Interest Depreciation PBT Important Parameters: Coal Consumption Quantity (MT) Coal Stock Adjustment Total Coal Consumption Rate (Per MT) Heat Rate (Kcal/Kg) CV (Kcal/Kg) Amount Other Expenditure: Stores Repair Maintenance Water High Speed Diesel (HSD) Salary & Wages Contn. Towards Gratuity Fund Welfare Expenses Administrative. Expenses Total Cost
68
101975.03 37.38 423.57 72.34 102508.32 23462.88 1.04 8319.10 15142.74
101705.60 38.40 216.00 101960.00 19536.32 8630.32 10906.00
5768125.00 25000.00 5793125.00 1085.51 2724.00 3027.00 62885.14
5682105.00 5682105.00 1145.14 2711.00 3052.00 65068.07
1169.78 5373.18 237.77 1105.92 6411.13 78.86 1450.52 333.14
1221.88 5974.16 236.65 881.54 6660.24 433.02 1593.79 354.33
87365.58
91054.00
INVENTORY ANALYSIS
69
Problems Studied In the study, efforts have been made to conduct a detailed analysis of inventory management functions in the RPD. For this purpose, detailed research has been conducted as follows: 1. ERP System, Oracle System, Maximo System architecture was studied in detailed. 2. Existing purchase system of the Board was observed. In which organization structure of procurement department, purchase policies, records relating to purchases were analyzed. 3. Detail organization structure of stores of Controller of Stores Department, were studied. Inventories held in the stores, their receiving, issuing procedures, techniques of stores control adopted by the board were analysed. 4. Treatment given to wastages, spoilage and dead inventory by the stores were taken. 5. Existing system of inventory control adopted by the Board was studied. 6. New Inventory control technique applied to improve the efficiency of material management department and to reduce cost of inventory. Research Methodology The relevant data and information have been collected from primary as well as from secondary sources. For collection of information software, pertaining to raw-material management general and purchase control as well as stores control. Level employees of the material Managerial Services, IT, Central stores (Receipt & Issue), Human Resource Development, Rural Development, Finance & Accounts Department of RPD (RenuSagar Power Division). Direct interviews were also conducted from the concerned department, of the board. This helped together actual prevailing conditions 70
of purchasing, maintaining and controlling of materials/components. Moreover the Power Plant was also visited many times to study the Inventory Management Systems in RenuSagar Power Plant Division (RPD).
RenuSagar Power Division (RPD) uses ERP System, Maximo System and Oracle Application as there complete management system of the power division. Taking an instance of management at the main gate the security system to the management at higher level or the management at stores, everything is management by the ERP system. Concept/Theory of Inventory Management: Analysis can be made through these eight techniques for the purpose of inventory analysis. We can classify them and there basis as follows: XYZ Analysis (On the basis of Inventory Holding Cost). ABC Analysis (On the basis of Consumption Cost). VED Analysis (On the basis Criticality or Importance of the Goods). HML Analysis (On the basis Unit Cost). FSN Analysis (On the basis Movement of the Goods). AGE Analysis (On the basis Age of the Spares Being Stored in Stores). SDE Analysis (On the basis Problem in the Procurement of Goods). GOLF Analysis (On the basis Availability of Goods in the Market). Items Classification The overall no. of items used in the RenuSagar Power Division (RPD) is 540 out of which only 142 are the highly consumable items which also include the ROL/ROQ items. The items can be classified in following categories: Spares/Bearing Highly Consumable Items 71
72
PARTA
73
PARTA SYSTEM INTRODUCTION INSURANCE PARTA SYSTEM was introduced by founder chairman of Birla group and is applicable in all Birla concerns. It is one of the tools of (management information system). It is setting targets for revenues and expenditures and comparison of actual against set standards. It is generally prepared for one financial year, but when there is any substantial hike in prices of raw materials and other expenses, it can be revised accordingly. Monthly variances in the expenses and the revenues are disclosed in the monthly MIS report and measures are taken accordingly. PREPRATION OF PARTA CAPACITY (GENERATION/ EXPORT FROM POWER PLANT) For preparing a PARTA, first of all target is to be set of power generation export for which maximum operating capacity of each unit is taken. Presently Renupower plant has 10 units and 11 boilers and their operating capacity are taken more than their rated capacity in PARTA. AUXILIARY CONSUMPTON &TRANSMISSION LOSSES Auxiliary consumption in Renusagar power plant is fixed by engineers base on their experience and as per consumption of equipment in line that comes to about 11.1% at present. SHUT DOWN POINT As per statutory guidelines, each boilers has to undergo & overhauling once in a year and for turbine it is once in five year, and shut down provision for schedule maintenance is also taken while deciding the annual generation & send out. In the PARTA SYSTEM, they do not take transmission losses because they are supplying power at their BUS BARS to their consumer HINDALCO but in other cases, it can be one supplier account in their supplying power up to consumers BUS BAR. Accordingly loses have to be calculated transmission loss i.e. any that should be reduced from the generation and balance is actual sale of power of plant REVENUE Sale price of electricity varies from plant to plant. In this case, after meeting all the expenses including repayment of loan and interest and after adding a certain purchases of return set by govt. on net worth, sale price is taken as 120 paisa. Per unit in the PARTA. GENERATION: Now expenses of coal, water, H.S.D.oil, stores & spares, salary/wages, overheads, insurance and depreciation etc. are to be calculated. Stores and spares, salary & wages, HSD oil expenses can be divided into two parts one for regular operation of the plant and other for survey/shutdown. Survey/shutdown expenses are provided as 74
provision and are to be utilized as and required during the year and at the end of the year adjusted in the profit. COAL Coal is basic raw material for power generation. Coal requirement for the plant is calculated on the basis of power export and heat rate of boiler and TG set and calorific value of coal after considering efficiency. In this case heat rate of turbine and boiler come to 12400 BTU/UNIT and average CV coal is taken as 6200 BTU propound. CV of coal is very important matter as CV should be taken in PARTA.this can be of two basis- one is per coal &other as decided by suppliers. Renusagar power plant is getting coal from Jhingurda colliery, which is declared E grade coal. But for PARTA averages CV of coal is declared by colliery & not on the basis of receive. HSD OIL The second raw materials of power generation are HSD OIL. The PARTA consumption oil is fixed for the normal operation. The average consumption is set out in PARTA are based on past experience & in consultation of technical people. WATER The third major raw material for power generation is water. Water is consumed for generation of steam, ash disposal and for colony. The rate of water is fixed by GOVT., which are presently 229 Rs. STORES&SPARES PARTA for stores spares consumption and operation store are fixed for normal as well as shut down. Store consumption is calculated by engineers seen the previous year consumption &looking life spares.continious effort are taken to reduce the consumption of store & spares through residual life assessment studies &by improving life period stores &spares. SALARY / WAGES & FRINGE BENEFITS For controlling manpower expenditure time to time manpower studies are conducted through engineers. Salary & wages PARTA is based on MANPOWER &AVERAGE SALARY. In the wages entire benefits such as PROVIDIENT FUND, BONUS etc., which come 42-45% of, total wages in PARTA. OVERHEAD EXPENSES Over headed expenses divided into 20-25 category ie.generation expenses telephone welfare, traveling expenses etc. mentioned in PARTA seat. Each head of exp. is divided into various sub head & minimum exp. For each expense are taken in PARTA. Renusagar power plant is having policy for fire, cash & bank, vehicles. Presently it is having an insurance expenses to the extent of 7 Crore. Annual seminars are organized at group level for inter unit comparison of insurance expenses and if any are perceived through insurance company and thus saving in insurance premiums attained. 75
INTREST Actual interest is to be calculated on the cash credit account & longs. SURVEY &SHUT DOWN For annual survey period, dates are to fix in the beginning of the year to arrange store, oil labour, and technical persons to complete the work in time. For survey of boiler 300-400 persons of different category are required. All these expenses are considered in PARTA. GRATUITY CONTRIBUTION It is base on prime reading rate of the bank and as per payment of gratuity act. MERITS OF PARTA SYSTEM It is the main tool for planning and budgeting. It helps the management in monitoring the day-to-day affairs of the company. It is a tool for motivating employees for achieving the set targets. It helps in assessing the overall performance of the unit. It helps in financial working i.e. alluring any expenditure or taking any expenditure or taking any new project etc. It helps in monitoring the cost, as targets are well defined therefore the plant as well as commercial people tries to improve their efficiencies. It helps in reducing the variances. It helps in taking decision regarding payment of advance taxes etc. Since Renupower is the Captive Unit of HINDALCO Industries Ltd., this PARTA system helps in planning the PARTA for its parent unit i.e. HINDALCO Industries Ltd. DEMERITS OF PARTA None LIMITATION OF PARTA It is very difficult to anticipate the plant activities in advance. It has a bearing of certain government and legal regulation so it is very difficult to precisely project any price etc. Due to nature of the plant, it is very difficult to predict the plant Shutdown etc. People do not come out honestly. 76
SUGGESTION Use of Zero base budgeting method.
SUPPLY CHAIN MANAGEMENT AT RPD
77
SUPPLY CHAIN MANAGEMENT AT RENUSAGAR PRELIMINARY PURCHASE REQUISITION • Experience has proved that no inventory control mechanism can be effective and fruitful unless material procurement is controlled and regulated at the very procurement plan stage itself. At Renusagar, maintenance department prepares the preliminary purchase requisition in the proposal from (rough/hand written) and sends it for review to the inventory control cell. This PR mentions the type of spares or consumables and its criticality in terms of purpose for which it is proposed to be procured. The inventory control cell first determines the PR value on the basis of last procurement rate or quotation and assigns ERP number/ code. It also supplements information in respect of: Stock in stores Pending PR quantity with expected delivery Consumption pattern for past 3 years, and Delivery schedule suitability, considering consumption plan. The industrial engineer associated with the inventory control cell ascertains availability of material or it’s equivalent with other departments and gets same spares for use. He also explores possibility of using alternative material which may be available in stock or purchase value of which would be comparatively lower. MANAGEMENT INFORMATION SYSTEM Inventory control cell prepares following monthly MIS report:
78
Comparative stock statement under- critical, non-critical and insurance for various departments and identifies increase/reduction vis-à-vis previous month as also ideal. Statement on specific items with details, which contributed to increase in the inventory in the particular month along with the consumption plan.
The above report is discussed amongst the HOD’S during MPR (monthly performance review meeting). These are discussed with the president during monthly financial review meeting. Inventory control cell also prepare following quarterly report XYZ ANALYSIS INSURANCE STOCK REVIEW AGE ANALYSIS OF SPARES PERIODIC (ANNUAL) REVIEW FOR REGULAR ITEMS In case of high regularly used data is collected abut their past consumption and unit/ boiler/ department-wise requirement for the next financial year, as projected by the user department. The entire requirement for is consolidated and after deliberation, the composite quantity with phased deliveries is communicated to the purchase department for placement of annual/bi-annual orders. Items covered under the above exercise include: Boiler tubes. Grinding rolls Bearings Ariel ropeway spares etc. Based on the ABC analysis, consumable regular items are reviewed and their ROL/ROQ are revised annually. In certain cases if there is a departure from the norms/practices, ROL/ROQ are reviewed and revised midterm ROL/ROQ formulated for auto-identifying by stores department, cover the following major consumable groups: Battery, types, tubes etc. 79
Oil & lubricants Chemical Steel Welding electrodes & accessories etc. For removing abnormalities and to introduce more effective system, even for low value regular spares and consumables, ROL/ROQ are being determined in place of the prevalent maxima/ minima system.75
FUNCTIONAL FEATURE OF MATERIALS MANAGEMENT AT RENUSAGAR PURCHASE DEPARTMENT The method of purchase can be subdivided into four methods: Comparative bids Annual rate contract Proprietary items Repeat orders The purchase department work involves: Making purchases Vendor development & rating Product development Market development PROCEDURE OF VENDOR DEVELOPMENT • DISCUSSION WITH ORIGNAL EQUIPMENT MANUFACTURES Enquiry floatation. Negotiation & order placement Sample analysis & approval Review & registration. • DISCUSSION WITH ORIGINATOR/USERS 80
Enquiry floatation. Comparison & trill order placement. Sample analysis & approval Review & registration
• BY INFORMATION / APPLICATION FROM MANUFACTURES VENDOR FOR ENLISTMENT Scrutiny of information Identifying of areas of vendor development Scrutinizing the reference Selected vendor send vendor assessment form Vendor evaluation Enquiry floatation Comparison & analysis & approval Review & registration
81
VENDOR DEVELOPMENT & RATING
82
VENDOR DEVELOPMENT & RATING: Vendor development has been done and there rating is done on the basis of quality, price service & lead-time. For new vendors the preliminary survey and revaluation is done in the quietest possible time. VENDORS DEVELOPMENT AND RATING Vendor’s development has been done and their rating is done on the basis of quality, price, service & lead time. For new vendors the preliminary survey and evaluation is done in the quietest possible time Vendor rating plan -
Quality
= 40% points
Price
= 35% points
Service
= 20% points
Lead time = 5% points A)
Quality
40 x No. Of lots accepted
Say “A No. Of lots received B)
Price
35 x lowest quotation
Say “B” C)
Service
Amount quoted 20 x No. of lots delivered on time Say “C” Total no. of lots delivered
D)
Lead Time
5 x lowest lead-time Say “D” 83
Lead-time quoted
Sum : A+B+C+D
=
“x”
If “X” = 100 points, vendor is excellent.
If “X” = 93-99 points, vendor is good.
If “X” = 83-92 points, vendor is satisfactory. If “X” = below 83 points, vendor is Unsatisfactory
VENDOR RATING PLAN QUALITY
-
40%
POINTS
PRICE
-
35%
POINTS
SERVICE
-
20%
POINTS
LEAD TIME
-
5% POINTS
X = 100 point vendor is excellent. X = 93-99 point vendor is good. X = 83-92 points vendor is satisfactory. X = below 83 point vendor is unsatisfactory.
84
CENTRAL STORES
85
CENTRAL STORES The central store is headed by manager (stores) and is supported by two deputy managers. It is divided into two sections viz. running stores & expansion stores. Both these stores are further divided into three sections: Receipt section Bill section Issue section
86
RECIEPT SECTION Receipt of raw material Physical verification & reconciling with challan Tagging of material
If damaged excess/short Damage/excess Report (3 copies)
entry in material receipt Log sheet (3 copies) inspection report i.e. arrival notice
Rejected
approved
Separate tagging
receipt voucher is Prepared
Rejection report is prepared (Action taken as per advice of purchase deptt.)
87
Recorded in rejected register
subsequently accepted after approval from Asst. vice president (F&C)
Delivery note & goods sent to parties Receipt voucher Prepared
BILLS SECTION RECIEPT OF BILLS STAMPING OF DATE OF RECIEPT OF BILLS
ENTRY IN BILLS REGISTER DISTRIBUTION OF BILLS TO THE CONCERNED PERSONS
EXAMINATION OF BILLS WITH RELATED PO FOR RATE AND QUANTITY ORDERED AND WITH RECIEPT JOURNAL FOR ACUAL QUANTITY RECEIVED.
POSTING RATES IN RECIEPT JOURNAL ATTESTING WORK DONE IN RECIEPT VOUCHER AND BILL 88
EXAMINATION BY STORES Dy. SUPDT. APPROVEDS BY MANAGER FOR BILL<Rs.5 LACHS. ENTRY IN BILLS REGISTERS AND SENT TO ACCOUNT DEPARTMENT
ISSUE SECTION RECIEPT OF MATERIAL TAKING RECIEPT OF MATERIAL FROM RECIEPT SECTION AS PER RECIEPT VOUCHER
POSTING RECIEPT, STORING OF MATERIALS, SPECIFING LOCATION ADDRESS IN KARDEX & TAGGING
PRICING OF KARDEX FROM RECIEPT VOUCHER (BASIC COST CONSIDERED, SALES TAX ETC. TAKEN AS OVERHEAD BUT FOR IMPORTED MATERIAL ALL COSTS ARE INCLUDE)
ISSUE OF MATERIAL COLLECTION OF VARIOS DEPARTMENT DULY APPROVED BY AUTHORIZED PERSONS
ENTRY OF SLIPS IN ISSUE REGISTER
ISSUE AGAINST VALID SLIPS 89
PRICING OF ISSUE SLIPS
ADJUSTMENT OF UNDER CHARGE/OVER CHARGE
FUNCTION OF GENERAL SECTION • Checking and posting of issue in consumption register. • Preparation of monthly consumption statement and sending it to accounts department. • Weekly consumption report for Joint president and accounts department. • Monthly stock statement. • On receipt of scrap calculating the approximate weight under the supervision of Sr. stores manager & assistant stores officer. • Preparing comparative chart. • After approval by Asst. Vice President (F&C) and. D.G.M (Accts.) / assistant stores officer selected party required to submit demand draft. • Supervision at the time of loading and weightment. • Supervision at the time of weightment of coal. • Preparation of consumption /receipt statement daily for coal. • Ensuring that all vehicles have loaded the coal in colliery has unloaded the coal at the factory. 90
• Charging the transport of coal in case shortage exceeds 100 tons.
Sub: JIT Material Handling & Logistics Plan in Renusagar Stores As you are aware that Stores Monitoring is very essential job for Thermal Power Plant. It facilitates to know how much to keep stock for making future planning for better services to operating units on lowest cost basis. Optimum utilization of resources is on important aspect in Power generation. Stores Deptt. is on analyzing, fact finding, simplifying and controlling of stock as well as reduction in material handling cost. Hence major challenger are dealing with subordinating staff, enhancement in labors productivity, cost reduction through proper Stores function, Inventory analysis, system development for improvement in existing work procedure, adopting JIT concepts and providing support services to various departments “ON LINE”.
“MATERIAL HANDLING” Material handling in Stores is major challenging Task where the direct cost effect involment is there. Un-necessary movement of material within the plant is wasteful activity. It does not plus (adds) value but adds to delays. We have taken several initiatives in this regard to reduce material handling. “ON LINE DELIVERY OF MATERIALS”
DOL delivery of various items has started and the material is directly being unloaded at site instead of first unloaded at Stores and then again being shifted to site. The same has resulted in reduced material handling as well as faster delivery of material to user department. An illustrative list of material under DOL delivery is as follows: 1. Rope 63 mm, 53 mm, 42 mm & 26 mm dia. 91
2. Cement. 3. Tor Steel. 4. Equipment. – Transformer, BFP Motors, Pumps, Panels, Distribution Boards, Generators, MCC & PCC etc. 5. Building materials – Aggregate, Boulders, Sand & Bricks. 6. Wood & Furniture 7. Sludge – for Brick making plant. 8. Hydrochloric Acid
9. Sulphuric Acid 10.
PAC
11.
Liquid Ammonia
12.
Condenser
The concept has been taken further and recently RPD has taken initiative to further increase the list of items under “Inspection Waivel List”. The concept being introduced is of “Self Certified Vendors”. Self Certified Vendor basically means that reputed, ISO certified vendor who has good manufacturing as well as Inspection facilities in place and hence material procured directly from it does not requires inspection at customer’s end. Ground work is currently on the same.
Departmental Quality Objective Sl.No. Quality Objective
Parameter to Be measured
01. Reduction in left over 24.52 Stock of Expansion
Current Value (FY06-07)
Left over Stock
Target
(07-08)
56.76 lacs
(08-09)
30.52
value
Stage IV & V.
02.
Reduction in inspection inspection time 92
7
5
3
time of material received (days)
ROL Items RPD Stores has work out details of Items transaction more then three times in a years and used by different departments. The Items comes under this category is approx. 1500 and try their best to cover all the items under ROL head gradually. In first step it has been decided to cover approx. 800 Items in this category & list for the same submitted to Inventory Control Cell for updating in Maximo.
Revise Material Arrival Information Earlier, RPD Stores prepare Arrival Information manually based on material received in Stores against individual receipt. But now we have generated report â&#x20AC;&#x153;HINDALCO REQUESTOR WISE RECEIPT DETAILSâ&#x20AC;? and on the basis of this report requester can easily run the report and take out the list of Arrival Items on daily basis. This led to reduce in lead-time as well as improve in delivery.
WASTE Waste is anything other than minimum amount of equipment, materials, parts, space and time, which are absolutely essential to add value to the product. 1. Waste in excess production 2. Waste in waiting 3. Waste in conveyance 4. Waste in processing 5. Waste in inventory 93
6. Waste in motion 7. Waste in defects 8. Waste in tentative placement 9. Waste in communication and administration 10. Waste in untidiness 11. Waste in bottle necks 12. Waste in timings. Team exercise needed on waste identification and elimination.
GRAPHICAL REPRSENTATION 94
95
OVERALL INVENTORY TREND AT RENUSAGAR
5000.00 4500.00
4313.04 3713.50
4000.00
4299.50
3500.00
3148.40
3000.00
2603.07
3141.18
2928.78
2500.00
2758.07
2619.94
2000.00 1500.00 1000.00 500.00 0.00 Mar'2002
Mar'2003
Mar'2004
Mar'2005
Mar'2006
Series1
96
Mar'2007
Mar'2008
Mar'2009
Apr'2009
97
COMPARATIVE STOCK OF REGULAR INVENTORY
2200.00
1976.00
2000.00
1976.00
1976.00
1847.72 1761.00
1800.00
1648.57 1600.00
1535.11
1710.00
1821.01 1739.58
1550.00
1485.29
1400.00
1761.00 1761.00
1664.78 1550.00
1758.76
1636.75 1583.84
1410.00 1200.00
1000.00 Mar'1996
Mar'2002 Mar'2003
Mar'2004 Mar'2005
Present Ideal Value
Mar'2006 Mar'2007
Mar'2008 Mar'2009
Apr'2009
Actual Stock Value
Revision of Ideal Parta From Time to Time due to Following Reasons : - Ideal Fixed for 4 Units in FY-1984-85 = 1410.00 - Ideal Fixed for 5 Units & Blr#6 on 17.12.96 = 1550.00 - C & NC Ideal Revised on 17th Oct.'03, due to addition of New Spares for Unit # 7-10 = 1710.00 - Ideal Revised due to addition of haulage rope in INS. Category in the month of June'04 =1761.00 - Internal setup of parta due to ERP Limitation & rope setup in the month of August'07 = 1761.00 - Insurance Ideal Revised in the month of January'08, Due to addition of new Insurance Spares for Unit # 7-10 = 1976.00
98
STOCK ITEMS 130.00 120.00 110.00 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00
117.36
117.38
101.50
93.24
94.28
97.28
M ar'2009
Apr'2009
86.11
84.86 65.74 46.68 M ar'2002
M ar'2003
M ar'2004
M ar'2005
M ar'2006
Present Ideal
M ar'2007
M ar'2008
Stores Stock Items
INSURANCE SPARES 1300.00
1200.00
1200.00
1083.69
1100.00 1000.00 842.07
900.00
1021.44 967.34 916.64
800.00 700.00
1098.26
859.46
783.02
799.08
600.00 M ar'2002
M ar'2003
M ar'2004
M ar'2005
M ar'2006
Present Ideal
99
M ar'2007
M ar'2008
Insurance spares
M ar'2009
Apr'2009
CRITICAL SPARES 460.00
444.00
440.00
412.12
420.00
434.97
400.00 380.00
410.53 395.10
396.83
360.00
381.94
376.24
340.00 Mar'2004
Mar'2005
Mar'2006
Mar'2007
Present Ideal
Mar'2008
Mar'2009
Apr'2009
Critical Spares
BLOCK/ONE TIME SPL. SANCTION 2000.00 1800.00 1600.00 1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00
1780.17 1825.37
1618.26 1256.46 859.35
700.00
759.69
578.64
588.58
598.11
Mar'2002 Mar'2003 Mar'2004 Mar'2005 Mar'2006 Mar'2007 Mar'2008 Mar'2009 Apr'2009
Present Ideal
100
Block/One Time
NON-CRITICAL SPARES
(Amt.Rs. In Lacs)
400.00 350.00
347.82
377.36 290.17
300.00 250.00
279.39
230.50
242.69
200.00
244.65 220.79 219.91
212.72
150.00 Mar'2002 Mar'2003 Mar'2004 Mar'2005 Mar'2006 Mar'2007 Mar'2008 Mar'2009 Apr'2009
Present Ideal
101
Non-critical Spares
CAPEX/PROJECT SPARES (Amt.Rs. In Lacs) 1200.00 1047.58 825.56
800.00
652.30
500.00
600.00 400.00
430.46
200.00
300.88
429.51
183.64
Present Ideal
Ma r'2 00 9
Ma r'2 00 8
Ma r'2 00 7
Ma r'2 00 6
Ma r'2 00 5
Ma r'2 00 4
Ma r'2 00 3
0.00 Ma r'2 00 2
183.95
420.67
Ap r'2 00 9
1000.00
Capex/Project
ASH DISPOSAL AREA
Renusagar Power Division is allotted an area measuring 61.2 Hectares (151.25 acres) for construction of new Ash pond by the Forest Department under Govt. Grant Act after due approval from MOEF on 10 years lease basis. The State Environment Department while recommending the case for transfer the land to Renusagar has imposed a condition to develop a Green Belt of 100 meters on Eastern Side and 50 meters on Southern Side of the pond which was duly adhered. This Green Belt now covers an area of about 36 acres. The construction of embankment of the pond covers an area of approx. 45 acres. The available area of storage of ash out of the land transferred to Renusagar Power Division is about 70 acres. The above land is in the form of a valley and uneven hilly terrain. The volume available for ash storage after construction of the embankment is about 107 Lacs M 3. The quantity of ash produced from all the ten units is around 17.6 Lacs M 3 per year which is average of 36% in the coal consumed in a year. 102
On the basis of average ash content produced, the pond is expected to be full within 12-13 year. Expert consultants of CBRI Roorkee have helped RPD in planning the future requirements of Ash Disposal Area for the future years and 151.25 acres as allotted for new ash pond is the bare minimum to meet the Renusagar Power Division requirement for the total utilization of ash.
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Green Belt We have been conscious to development and maintain greenery within and around our plant and colony area. We utilized around 33 hectare of land in our plant and colony only for the plantation purpose. Where more than Rs. 1lacs trees have been planted and are being maintained by our in - house Horticulture Department. The service rate of tree with in our colony and plant area is above 90%. It has always been our effort to plant more trees to maintain green and healthy environment. As already submitted to your kind self during our expansion program we have the planned for a green belt all around or new ash pond which will cover an area of about 40.5 hectares where we will plant around 35000 trees of various species. We have also planned that after the new ash pond is put into operation and the present ash pond where ash is being stored is dried up, we will put a layer of soil over the ash and will plant the area. We expected to cover about 18 hectare of the land by plantation where about 40000 to 45000 trees will be planted. After the expansion work is completed we have also planned to plant trees around our power plant. About 17 hectares land in the form of strip is expected to be available for plantation all around the plant where about 400 trees will be planted. Thus after completion of our expansion project and operation of the new ash pond we will be able to plant around 120000 trees in our plant and colony premises. A major portion of trees required for additional plantation as above are being developed in our own nursery besides we have also contacted Forest Department and other private nursery for supply of good quality plant of specified species for plantation on this green belt.
GREENERY IN COLONY 105
106
STRENGTH OF PRESENT SYSTEM
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STRENGTH OF PRESENT SYSTEM At RPD various project are being carried out to control the inventory as discussed earlier & the success story of these analysis are quite satisfactory such as: Last three years data of non/slow moving items shows declining trend from 161.62 (in lacs) in 2006-2007 to 111.45 in 2007-2008 to 94.32 in 2008 -2009. In order to keep the stores items as per ROL/ROQ and avoiding stock out position. Purchase requisition is simplified in terms of no. of destination traveled from originator to buyers. Purchase requisition is being sent online, hence tremendous time saving achievement. PR status is updated on-line. PR internal lead-time reduced through ERP system. Assessment committee and disposal committee is formed by RPD management on October 2003. for disposal of obsolete items By the continuous monitoring efforts, shop floor inventory reduced from Rs. 250 lacs to 86 Lacs.
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QUESTIONNAIRE ON INVENTORY Sl.No. Questions 1 How many no. of production units at Renusagar? 2 TGs Overhauling frequency at Renusagar in years? 3 Proprietary spares having no alternative sources 4 FIFO means lost in first out? 5 6
7 8 9 10 11
12 13 14 15
Options 8 10
Answers 10
2
5
5 YEARS
Y
N
Y
Y
N
Factor K is safety factor and it is same for all items Suppose one items falls in Cat `A' will it always remain in same category
Y
N
Y
N
No, First in First out No, depend upon criticality of items No, It can fall in any category
Excess inventory is value adding activity Better planning of procurement would lead to higher inventory Greater lead time means lower inventory Inventory is kept to avoid unforeseen breakdowns Total Lead time is equal to internal lead time
Y
N
Y
N
Y
N
Y
N
Y
N
No, Internal Lead Time + External Lead Time
Music 3D System have 3 dimensional Music 3D combines all selective approach in 6 groups High lead time is equal to 3 months VED Analysis is done on the basis of consumption
Y
N
Yes
Y
N
No, 8 GROUPS
Y
N
No, > 3 months
Y
N
No, Vitality items
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No, Blockage of money NoLess inventory No-Higher inventory YES
of
16
For high value non-critical items policy of JIT procurement should be adopted
Y
N
Yes
17
MIS Stands for material indenfying system
Y
N
18
What is Inventory?
No, Management Information System Idle items in store having economic value
19 20
What is mean by control? What is lead time?
21
Write full form of ROL/ROQ?
22
What is factor k?
23
Stores represent money on which interest is paid? Store stock and inventory terms meaning the same thing Store keeper purchases the materials for an organization Acids should be stored in a separate space Checking or examination of materials is same thing as inspection
Y
N
k is safety factor for inventory required for plant operations. N
Y
N
Y
Y
N
N
Y
N
Y
Y
N
Y
29
An organisation need not hold inventories
Y
N
N- hold for unforeseen break down & lead time consumption.
30
Building up of big inventories is profitable
Y
N
N
25 26 27 28
Regulate, check Time between feeling of requirement to materials receipt in store. ROL- Re-ordering Level, ROQ- Reordering Quantity
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31 32 33 34
35 36 37 38
39 40 41 42 43 44
Longer the lead time lager will be inventory The wages paid to the store staff is part of inventory carrying cost Safety stock is minimum inventory a store must hold at all time Low price item cannot be Cat `A' items
Y
N
Y
Y
N
Y
Y
N
Y
Y
N
No, If depends upon value of item consumption
High value items lying in store since last 4 years is Cat 'A' items Inventory control department need not to maintain any record Forecasting is essential for sound functioning of a firm Negotiation means finalization of purchase and sale contact of goods and services
Y
N
NO ,X items.
Y
N
N
Y
N
Y
Y
N
Y
Import substitutions refers to indigenous source development Inventory turnover ratio should be high Non critical items are generation items. Objective of inventory control is to keep inventory high Low value stock items are called y items fast moving items should be stored need to gate of store room.
Y
N
Y
Y
N
Yes
Y
N
N
Y
N
N
Y
N
No-Z ITEMS
Y
N
Y
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CONCLUSION INVENTORIES CONSTITUTE THE MOST SIGNIFICANT PART OF CURRENT ASSETS OF A LARGE MAJORITY OF COMPANIES IN INDIA.ON AN AVERAGE INVENTORIES ARE APPROXIMATELY 30% OF CURRENT ASSETS IN PRIVATE LIMITED COMPANIES IN INDIA. IT IS POSSIBLE FOR A COMPANY TO REDUCE ITS LEVEL OF INVENTORIES TO A CONSIDERABLE DEGREE e.g. 10 TO 20% WITHOUT ANY ADVERSE EFFECT ON PRODUCTION AND SALES. THE RENUSAGAR POWER PLANT OFFERS INDIA A CHANGE TO LEAP FROG FROM ABOVE DEPRESSION TO AREA OF GLOBAL COMPETITIVENESS AND PROSPERITY AND REGAIN INDIA’S COMMERCIAL VALUE. IN THE LIGHT OF THESE FACT THE STORES OF RENUSAGAR IS MAINTAINING INVENTORY OF NEARLY 35,000 ITEMS. THE STORES HAS BEEN DONE REMARKABLE JOB SO FAR RELATING TO INVENTORY CONTROL FUNCTION BUT WITH THE CHANGING SCENARIOS THE IMPORTANCE OF INVENTORY MANAGEMENT HAS ACQUIRED ENORMOUS DIMENSIONS. DESPITE OF THE FACT THAT INVENTORY MANAGEMENT SYSTEM BEING FOLLOWED IN THE COMPANY HAS STRONG STRUCTURE, IT SUFFERS FROM LACK OF AUTOMATION AND SOPHISTICATED TECHNIQUES. IN NEAR FUTURE DUE TO THE EXPANSION & OTHER STRINGANT MEASURES OF QUALITY PROGRAMME LIKE TPM, WCM, and ISO THE COMPANY SHALL HAVE TO ADOPT LATEST TECHNIQUES OF INVENTORY CONTROL.
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BIBLIOGRAPHY Inventory & working capital management • By – P.Gopal Krishnan Stock control in manufacturing Industries • By –Adin.B. Thomas Purchasing & Supply Management • By – Donald. W.Dobler & • David N.Burt Data & other information • (From Renusagar finance department, inventory control cell and central stores manuals & records)
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