INTRODUCTION The ongoing economic reforms in the country have opened have new vistas by the encouragement being

given to that is Big industrial houses by motivating them to expand their market for the past protected economy. Medium scale industries by forcing them to face the competition from big industrial houses and others. Small scale industries by relaxing all the government protection by way of grant, etc. MNCs (multinational companies) by providing opportunities to them by brining the expertise in the world market. Export oriented units by devaluating the Indian rupee in 1991 and exports more profitable. Inviting foreign industrial houses to set-up their shops in India by providing various opportunities like FIPB (foreign investment promotion board) under the chairman-ship of principal secretary to the prime-minister. By creating more lucrative avenues to NRIs. All the above mentioned factors provide a great future for a student\management, particularly in the field of finance because he\she is essential for any organization, either at the inception stage or for an established firm. The financial management student will play a positive role before a firm is established because he has to provide details of the market, their financial status, the scope for growth, liaison with bank for capital investments, etc. For an established firm he\she plays a vital role to enable the management (Board of directors) to know the financial status and growth position of the firm from time to time. I have chosen ULTRA TECH CEMENT LIMITED, one of their cement production unit established as Tadipathri (Ananthapur Dist) in Andrapradesh, which is under profitable steps, achieving recorded quality products and noted exports.

INDUSTRY PRO FILE 1

Cement Industry has been decontrolled from price and distribution on 1st March 1989 and de licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The Committee on Infrastructure also reviews its performance. The industry is subject to quality control order issued on 17.2.2003 to ensure quality standards. Capacity, Production and Exports: India today boasts 129 large plants and over 300 mini cement plants with a capacity of 165 million tones and production of 134 million tones (2004-05). It ranks second in the world among cement producing countries, with per capita consumption at 118Kg compared to the world avg. of around 317. Per capita consumption is 366 Kg in Thailand, 626 Kg in China, 606 Kg in Malaysia and 1216 Kg in South Korea. This indicates a huge potential for increase in consumption. The Cement Corporation of India, which is a central public sector undertaking, has 10 units. Besides, there are 10 large cement plants owned by various state Governments. Keeping in view the past trends, a production target of 133 million tons has been set for the year 2004 05. During the Tenth Plan, the Industry is expected to grow at the rate of 10% per annum and is expected to add capacity of 40 52 million tons, mainly through expansion of existing plants and use of more fly ash in the production of cement. A part from meeting the domestic demand, the cement Industry also contributes towards exports. The export of cement and clinker during the last three years is as under:-

Export of Cement (In million tons)

Year 2001 02 2002 03 2003 04 2004 05 (Apr Jan)

Cement 3.38 3.47 3.36 3.31

Clinker 1.76 3.45 5.64 4.82

Total 5.14 6.92 9.00 8.13

Overview of the performance of the Cement Sector: The Indian Cement Industry not only ranks second in the production of cement in the world but also produces quality cement, which meets global standards. However, the Industry faces a number of constraints in terms of high cost of power, high railway tariff; high incidence of state and central levies and duties; lack of private and public investment in infrastructure projects; poor quality coal and inadequate growth of related infrastructure like sea and rail transport, ports and bulk terminals. In order to utilize excess capacity available with the cement Industry, the Government has identified the following thrust areas for increasing demand for cement: (i) (ii) (iii) and (iv) Construction of concrete roads in rural areas under Prime Ministers Gram Sadak Yolanda. Technological advancements: Indian cement industry is modern and uses latest technology. Only a small segment of industry is using old technology based on wet and semi-dry process. Efforts are being made to recover waste heat and success in this area has been significant. India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement, etc. Production of these varieties of cement conforms to the BIS Specifications. It is worth mentioning that some cement plants have set up dedicated jetties for promoting bulk transportation and export. Infrastructure driven demand push: Housing development programs; Promotion of concrete highways and roads; Use of ready mix concrete in large infrastructure projects;

The bulk of cement demand is from housing and commercial development of which metros account for a significant amount. It is estimated that Mumbai, which consumes almost six million tones, along with Pune, accounts for 45 percent of Maharastras cement consumption, Bangalore consumes four million tones and Chennai around 3 million tones, these are really the growth clusters. Today bulk of the demand is driven by housing and commercial construction and as infrastructure picks up, for example, Bangalore international airport, Hyderabad airport and modernization of Mumbai and Delhi airports. Another large consumer has been the roads sector. The off take was good when the NHDP programme was launched but there was a lull last year. Once again new orders have been placed and in 2006, the industry will pick up. The estimate is that from roads, demand is not more than 4-5 million tones but it makes a difference in the growth numbers. Narrowing demand-supply gap: The industry has a capacity of 165 million tons and in Jan 2006, dispatches were at almost 100%. On an overall basis, the industry does not do more than 90-92% because of constraints such as transport and raw material. The industry has been adding capacity of 6-7 million per annum by Brownfield expansion and de-bottlenecking which is expected to partly cater to the requirement because it is growing by around 20 million tons per annum. Challenges before the industry: Energy costs account for half of the cost of production of cement. Last year saw a 15-16% increase in coal prices and then diesel prices went up pushing up transportation costs. Freight problems: The importance of freight for the cement industry cannot be emphasized enough. While in the last few months railways have been steadily losing freight to road sector they have been confined cement to market-is around Rs.350-400 a ton or Rs.20 and bag that could go as high a Rs.800 for long leads. This would only easy the first level of sale and additional costs are involved to take it further. Another issue, which will hit the industry hard, is that of logistics and a Supreme Court judgment on carrying capacity for trucks. Accordingly, a state govt. has been directed to enforce the discipline that trucks only carry a specified load. Many states and already 4

implementing this and there is already an increase in freight rates and in some cases, it has gone up by 50%. Also, the requirement for trucks to carry the same freight has nearly doubled and in many places the industry is being forced to move to railways. High taxes : While the railways have had capacity to meet the requirement, it is expected that in March the commencement of peak season for the procurement of food grains, the railways would be constrained to provide adequate number of wagons. So fright rates are up, railways cannot provide wagons and tucks are unlikely to be viable so there could be a serious dislocation of supplies going forward. According to the cement manufactures association total taxes and duties on cement come to around Rs.900 a ton or Rs. 45 a bag. So at a price of Rs.150 a bag in the market, taxes and duties account for one third: which is high for such a basic product? This includes excise duty, sales tax and royalty on limestone. The importance of limestone can only be underscored as for every ton of cement produced. 1.5tons of limestone is required. For limestone, royalty is on a per ton basis at Rs. 40 whereas for most minerals it is a percentage of the pithead cost. Effectively we are paying Rs.70 a ton for limestone as royalty. VAT is at 12.5% without any justification and it should be in 4% category, excise is at Rs.408 per ton when it should be around Rs.200. Export Advantages: From a modest beginning if 1.6 lakh tons in 1989-90, Indian exports of cement/clinker have grown rapidly at about 30-40% and this year exports will cross 10 million tons.

Major cement producers market shares Acc -12.8%

Abuja -10.7% Grasim-10.4% Ultra tech-9.5% India cement-6.0% Jaypee-4.1% Lafarge-3.2% Madras-3.2%

Overall, the industry is in a better state today than 2 years ago. Cement prices even today are way below global levels. So setting up Greenfield capacities is not attractive, as prices will not give attractive returns on investment. That is a minor reason why there is no Greenfield capacity coming up. It has to be born in mind that one third of the prices is accounted for by taxes and duties and nearly 20-25% by the freight component. So what produces earn at the factory gate is among the lowest in the world. This year 2006 has commenced on a good note and in fact, December was a very good month wit dispatches at 12.5 million tons and January dispatches were in excess of 13 million tons. This means capacity utilization is in the nineties which is healthy and will actually lead to firming up of prices. It looks like sales could be 137 million a ton for 2005-06(125 million tons in 2004-05) and so far growth has been 10%. There are enough reasons to believe it will sustain.

Plant Profile

UltraTech Cement Limited was formed effective July 2004, with the demerger of Cement Division from Larsen & Turbo Limited, and was taken over by the Aditya Birla Group and got merged into A.V.Birla Group of Industries. UltraTech Cement Limited: UltraTech Cement Limited is a technology driven company with leading edge capabilities in fields related to infrastructure and basic industries. In terms of main stream criteria viz., sales, profit, assets and market capitalization, UltraTech Cement Limited ranks among top ten in India's private sector. The company is also ranked high by less tangible yardsticks such as intellectual capital and brand-worth. UltraTech Cement Limited & its subsidiaries, has manufacturing facilities at 10 locations in India and 3 Terminals including one at Srilanka. Almost all the factories have secured ISO-9001, 14001, 18001 (OHSAS) and other certificates of the highest order. UltraTech Cement Limited's distribution and services out-reach underlines its strong customer orientation. The network extends to virtually every district in the country. A concern for the environment is an integral part of the company's vision. UltraTech Cement Limited is committed to growth in consonance with the ecology and the needs of the communities it serves.UltraTech Cement Limited is India's largest cement producer, with a manufacturing capacity of over 16 million tones per year. UltraTech Cement Limited manufactures and markets Ordinary Portland Cement 43 grade / 53 grade Portland Blast Furnace Slag Cement Portland Pozzolana Cement Rapid hardening Portland cement Sulfate resistant cement

UltraTech Cement plants are located at: 1. Awarpur cement works. Awarpur, Maharashtra

2. Hirmi cement works. Hirmi , Madhya Pradesh 3. Gujarat cement works. Kovaya, Gujarat 4. Andhra Pradesh cement works. Tadpatri, Andhra Pradesh

UltraTech Cement grinding units are located at: 1. Jarsuguda, Orissa 2. Arakkonam, Tamilnadu 3. Durgapur, West Bengal UltraTech Cement Limited Subsidiaries:
Cement Plants:

1. Narmada Cement Company Limited Grinding Units: 1. Magdalla, Gujarat 2. Ratnagiri, Maharashtra UltraTech Cement Terminals are located at: 1. Navi Mumbai, 2. Mangalore Terminal 3. UltraTech-Ceylinco Mumbai Karnataka Srilanka

Gujarat

Andhra Pradesh Cement works: The UltraTech Cement Limited, Andhra Pradesh Cement Works is located at 360 kms. South of Hyderabad in the state of Andhra Pradesh in South India. Along with the grinding unit at Arakkonam it has a capacity of 3.6 million tones of cement per annum. The plant is ideally suited to cater to the markets in Andhra Pradesh, Karnataka, Tamilnadu and Kerala. UltraTech Cement Limited selected TADIPATRI for setting up its Andhra Pradesh Cement Works (APCW) because there is a huge limestone deposit and the quality of limestone is considered to be extremely good. Also, other corrective/additive materials such as iron ore, latrite and gypsum required in cement production are available nearby. In addition, Tadpatri is well connected by railway line and roads. The Chennai-Mumbai railway lines run close to UltraTech Cement Limiters plant.

A peculiarity of UltraTech Cement Limiters APCW is that its mines fall in Kurnool district while the plant is in Anantapur District. The cement plant's installed capacity is 2 million tones per annum (Mtpa). APCW project started with a prospecting license in March 1992 followed by a mining lease in June 1993. When various formalities were completed, action shifted from the drawing board to the project site with the first association commencing in November, 1995.Due to excellent co-operation from the Government of AP. APCW did not face much problems while setting up the plant. This Plant has been set up with the coordinated efforts of all its business groups, which minimized the problems during the execution stage. Even the acute shortage of power in the state did not hamper the construction activities. The construction was completed totally with the help of diesel generating sets. In view of the expected power shortage, APCW is provided with two diesel generator sets of 24.6 MW (i.e., 2x12.3 MW) which is around 60% of total power requirement of the plant. Plant Capacity: Even though the plant has started with an installed capacity of 6,000 TPD, later on the capacity has been enhanced to 8000 TPD APCW caters to the cement users in the southern part of India. It is ideally located as far as the market is concerned. Unique features of APCW: Only cement plant in Ultra Tech Cement Limited with a split location of entire main plant on top of a hillock and the packing down the hill. 1. 2. 3. 4. 5. One of the plants using minimum energy for cement manufacturing. Only plant where the entire cement loading rake of 40 wagons can be placed on one stretch constructed on engine on load concept. The RCC chimney at the plant is the tallest in the Indian cement Industry. It has two raw mills having a roller diameter of 5m a TOX 50 mill; these are the two biggest mills in the country. First unit to implement computerized billing for cement loading. Cement Machinery: Complete range from crushing to packing plants are supplied by Larsen & Toubros Machinery Division, in Collaboration with F.L.Smitdth & co., Denmark. 10

 Presently the largest capacity of 8000 TPD in a single line production in India. Vertical roller mills for raw materials and cement grinding Fuel-efficient pro-processing systems High pressure roller presses for cement mill for cement grinding Modern Duo flex burner for efficient flame control. Hydraulic drive coo lax cooler with new generation CIS cooler inlet. Efficient Pollution control equipments like ESPs, Bag Houses and Reverse air Bag house at appropriate locations CEM scanner for kiln refractory management QCX for meal blending and quality control Fuzzy logic system for plant optimization Cool scanner for monitoring coo lax cooler The plant is certified by DNV of Netherlands as an ISO 9001, ISO 14001 and OHSAS 18001 company. APCW manufactures Ordinary Portland Cement, Portland Pozzolana Cement and Portland Blast Furnace Slag Cement, which is distributed through a wide network of Authorized Stockiest. Man power: Based on requirement of individual departments, Head of that department is asked to give information to man power planning department regarding the number of persons required. The departmental heads assess their requirements based on the available departmental job description to ensure role clarity and to avoid role ambiguity. The Central Personnel Dept. carries out the recruitment process.The total employees in APCW are 345 covering all departments. There are nearly 500 contract labor working every day on casual basis.

Grades of Employees:

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Employees Wage Board Employees Monthly Rated Daily Rated Supervisory (S) Officers Deputy Manager, Senior Managers AGM-Sr.DGM JGM,GM,VP

Grades I to VII E to A S1 to M1 M2 to M4 M5 to M7 M8 to M10 M11 to M13

Details of Manpower AET / SET- wise (updated upto 30.07.2005) Sl.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Total 03 38 23 18 84 20 32 37 23 23 11 20 10 03 345

AET / SET V.Ps. Office HR SET Finance & IT SET SCM SET Mines AET Raw Mill AET Kiln AET Quality AET Cement Mill AET Pkg. & Desp. AET Despatch SET CPP AET CTC AET WCM Cell TOTAL

THE NEED OF THE STUDY The need of controlling inventory is expressed as below : To improve customer services. Permits purchase and transaction economies. Transaction economies. Production economies Hedge against price fluctuations.

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 Hedge against demand uncertainties. Hedge against price changes Protects against demand and lead time uncertainties

SCOPE OF THE STUDY The study focuses on inventory management in Andhra Pradesh cement works unit, Tadipatri, Ananthapur (Dist)

0BJECTIVES OF STUDY The objectives of the study are

To study the present inventory management practices and procedures To see how for these accomplish the set objectives To suggest any possible changes and improvement

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LIMITATION

ULTRATECH CEMENT LIMITED is a big company comprises a high manpower, changes in area of technology, competition, accountability, and social responsibility, profitability. Therefore the primary constrained in under taking this study with reference to time availability for making study in such a large area. Accordingly with in time constraint it has been possible to gather basic data about the organization and observation could be made on empirical basis. 14

The second constraint is that the limited time available for interviewing of officials of ULTRA TECH CEMENT LTD, as there were preoccupied with important assignments. However the company has maintained better limitation with regards to finance and materials management and proved that it is maintaining international bench marking in inventory index factor. The Need of Controlling inventory is expressed as below: 1. To improve customer Services. 2. Permits purchase and transaction economics. 3. Transportation economics. 4. Production economics. 5. Hedge against price fluctuations. 6. Hedge against demand uncertainties. 7. Protects against demand and lead time uncertainties. Scope of the Study The Study focuses on Inventory Management in Andhra Pradesh Cement works unit, Tadipatri, Ananthapur (Dis). Objectives of Study The objectives of the study are To Study the present inventory management practices and procedures. To see how for these accomplish the set objective. To suggest any possible changes and improvement.

Methodology A Study on inventory management was under taken at Ultra Tech Cement Limited Andhra Pradesh Cement Works Unit.

15

The Primary data was collected by the method of interviewing responsible officers of different departments in the company. Some information was also collected by observation method. The Secondary data was collected from various reports such as annual reports Documents, Charts, SAP, etc., the company. The analysis sought during the personal discussions with the concerned people and perception during the visits to the important areas of services. In making observations, identifying problems and suggesting certain remedies, much emphasis was given on the basis of opinion gather during the personal discussion and with the personal experience gained during the Academic Study of the MBA Course. Meaning of Inventory: The dictionary meaning of the word inventory is detailed list of movable goods. but in management inventory is used to designate the aggregated of those items of tangible property, which are held for sale ordinary course of business thus the inventory means stock of items kept in reserve for certain period of times. It includes raw materials, work in progress or semi finished goods and spares parts for the maintenance of equipment, etc., Raw Materials: These are the basic inputs, which are converted into finished product through manufacturing process. Raw materials, inventories are those units, which have been purchased and stored for future production. Work in Progress: Materials issued to the stop floor which have not yet become finished products, they are value added materials to the extent of labor cost incurred. Finished goods: Finished goods are those which are ready for sale. Classifications of Inventory: Classification of inventory is the first step to determine optimum inventory levels. As already seen one way is to classify them as raw materials. Machinery spares, semi

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finished, work in progress and finished goods. Another way to classify each of the above as ABC, VED or MUSIC3D categories. Types of controls & Their Uses: ABC value of consumption to control raw materials. HML unit price of materials mainly to control purchse. VED criticality of the items to determine the stoking levels of spare parts. FSN consumption pattern to control obsolescence of the components. XYZ inventory value of items to review the inventories in stores their uses etc at scheduled intervals. Factors to be considered when determining optimum stock levels include: What are the projected sales of each product? How widely available are raw materials, components etc? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers? Remember that stock sitting on shelves for long periods of time ties up money. For better stock control, try the following: Review the effectiveness of existing purchasing and inventory systems. Know the stock turn for all major items of inventory. Apply tight controls to the significant few items and simplify controls for the trivial many. Sell off outdated or slow moving merchandise it gets more difficult to sell to longer if kept. Consider having part of the product outsource to another manufacturer rather than make it yourself. Review the security procedures to ensure that no stock is going out the back door. Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and interest charges. Meaning of inventory control: Inventory control is a system, which ensures the provisions of the required quality of inventories of required quality at the required time with the minimum amount

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investment. Thus the function of inventory control is to obtain the maximum inventory turnover with sufficient stock to meet all requirements. Need to hold inventory control: 1. Demand inventories have a tendency to grow beyond economic limits, tie up funds and increase the cost of maintenance or carrying cost. 2. Non-availability of inventory involves cost of stock outs, reordering costs and additional transit cost. 3. Central core idea for material management is inventory control. 4. To minimize the locking of funds or working capital commitments. 5. To determine the working capital operating cycle is essential. Depending up to the OC the company requirements for locked up funds will follow. The length of OC is depends upon the nature of business, production policies, manufacturing process, terms of purchase and condition of sales and demand. Purchase of Inventory Control The need of controlling inventory is expressed as below. 1. To improve customer services. 2. Permits purchase and transaction economies. 3. Transportation economies. 4. Production economies. 5. Hedge against price fluctuations. 6. Hedge against demand uncertainties. 7. Hedge against price changes. 8. Protects against demand and lead time uncertainties.

Inventory Typically Exists at three levels

Operations

Raw Materials

Working in Progress

Finished Goods

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Consumables Spares

Factory influencing Inventory Control

To control the inventory 1. How much to buy at one time? 2. When to buy this quantity? Following four fundamental factors govern for this questions: 1. Requirements break down time wise. 2. Quantity in stock or on order. 3. Procurement time or lead time this is the total length of time require to obtain materials. This can be internal lead time. E.g.: Administrative lead time i.e. internal lead time. E.g.: Suppliers lead time. 4. Obsolescence. The factors to consider when establishing the control levels are: Average consumption or production requirements. Reordering periods the time between raising an order and receiving delivery of goods. Storage space available; Market conditions; Economic order quantity (including discounts available for quantity). Likely life of stock bearing in mind the possibility of loss through deterioration or obsolescence; and The cost of placing orders including generating and checking the necessary paperwork as well as physical checking and handling procedures.

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The key issue for a business is to identify the fast and slow stock movers with the objectives of establishing optimum stock levels for each category and, thereby, minimize the cash ties up in stocks. Control policies should include designating responsibility for raising and authorising orders, signing delivery notes and authorising payment of invoices. Four basic levels to be established for each line / category of stock which are us: Maximum level achieved at the point a new order of stock is physically received; Minimum level the level at point just prior to delivery of new order (sometimes called buffer stocks those held for short term emergencies). Reorder level point at which a new order should be placed so that stocks will not fall below the minimum level before delivery is received; and the Reorder quantity or Economic order quantity the point at which must be reordered to replenish to the point delivery arrives up to the maximum Costs of Carrying too little inventory are: Stockout Costs: Lost sales and delayed service. Ordering Costs: Freight and administration and loss of quantity discounts. Costs of Carrying too much inventory are: Opportunity cost of foregone interest. Warehousing costs Damage and pilferage Obsolescence Insurance Carrying costs can be minimized by making frequent small orders but this increase ordering costs and the risk of stock outs. Risk of stock outs can be reduced by carrying Safety Stocks" (at a cost) and re-ordering ahead of time. The best ordering strategy requires balancing the various cost factors to ensure the department incur minimum inventory costs. The optimum inventory position is known as the Economic Reorder Quantity (ERQ). There are a number of mathematical models for calculating ERQ. Analytical review of inventories can help to identify areas where 20

inventory management can improved. Slow moving items, continual stock outs, obsolescence, stock reconciliation problems and excess spoilage are signals that stock lines need closer analysis and control. However, it is important to keep an overall perspective. It is not cost effective to closely manage a large number of low value inventory lines, nor is it necessary. A usual feature of inventories is that a small number of high value lines account for a large proportion of inventory value. The 80/20 rule (PARETO) predicts that 80% of the total value of inventory is represented by only 20% of the number of inventory items. Those high value lines need reasonably close management. The remaining 80% of inventory lines can be managed using broad brush strategies. In Summary: There is trade Off to be made between carrying costs, ordering costs, and stock out costs. This is represented in the Economic Reorder Quantity (ERQ) model. Inventories should be managed on a line by line basis using the 80/20 rule. Analytical review can help to focus attention on critical areas. Inventory management is part of the working capital management strategy. Once these controls are implemented an efficient system of recording receipts and issues is vital exercise full control of inventories. Meaning of Material Planning: It is a process of acquiring , and maintaining a proper inventory with related cost of inventory management. Maintaining inventories for the purpose of: Operational smoothness, which they can effect by uncoupling successive stages of production. The materials Department is expected to provide this operational convenience with a minimum possible investment in inventories. The solution ties in exercising a selective Inventory control and application of inventory control techniques. Factors Related to Materials Planning: 1. Macro: etc 2. Macro: Corporate objectives, plant capacity utilization, lead times, Seasonally and communication system Techniques of material Planning There are 3 areas General economic trend, import policy, credit policy, rooms fixed by govt.

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Quantity : Prices : Sources :

Based on budgeted production with flexibility provision for capitalization and probability of saving through technology a adjustments. Forecasting techniques like moving average method time series etc. watch on policy changes. Effectualizing with existing supplies, vendor rating and development as exercise

Meaning for Spares: Spares parts means a part or sub-assembly or assembly for substitution i.e. ready to replace identical or similar part or sub assembly. It becomes faulty or worn out and includes an accessory in the same regard keeping the machines in fit conditions calls for right spare part at right time in right quality. Reasons for Holding Spares Parts 1. Random and unpredictable pattern of equipment failure 2. Long lead time required for procurement. 3. Non- availability of special raw material 4. High tendency for obsolescence 5. Non - available and improper information system 6. Uneconomic to manufacture, as demand is small. Factors Influencing Spare Part Inventory Control Inventory Carrying cost under stocking cost Importance of items Lead time Service level Critically of the item Stores: The store is the custodian of the spares. It receives, bins and issues materials. To this extent, Stores will responsible for housekeeping prevention of material receives, and keeps proper control / document of materials. There are 16000 items of spares.

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Valuing Rs.15Cr., which are insured upto Rs. 3 Cr. The need for holding those inventory was that to take care that they were readily available, which were of high value items and production cannot stop. Type of Spares: 1. General consumables 2. Bearing 3. Mechanical Goods 4. Instrumentation goods 5. Electrical goods 6. Mines 7. Production 8. D.G. Sets These types are used for group codification of 15 digits and classified for identifying the inventory department wise also these are kept in stores in bin rack system of 1-12 blocks for easy locationalisation. Control of Spares: The area is classified into restricted and unrestricted area. In the restricted area, the goods are inspected first by the user only as per purchase order as there is suppliers guarantee and if goods are fund of defective quantity then they are rejected with NBDN (non Billable Delivery Note) without any invoicing and thus material outward. If the spares found of right quality they are then sent to unrestricted area. In the unrestricted area only issuer issues the spares from stores as per the initiator department who gives the purchase requisition and BDN (Billable Delivery Note) which includes scrap material and stock transfer to other works units. LEAD TIME ANALYSIS: Definition: Lead time is very important for the management of materials, be it Raw materials or in progress materials, finished goods, consumables, Spare parts or service spares. Significance of lead-time: The lead-time is very important for the management of materials, be it Raw materials or in-progress materials, finished goods, consumables, Spare parts or service spares.

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Demand of raw materials is directly related to the demand of the finished products, which is market driven. In present competitive conditions, a demand must be met, otherwise the sale is lost forever. In the same manner, a shortage of spare parts or consumables is not Tolerated due to the pressure on maintenance engineers to keep the equipment available to operations at all times. This situation of getting the material at any cost to meet estimated demand will increase the indirect cost. The only way to meet such a situation efficiently will be to create the inflows just before the demand occurs or to work on just in time inventory model. Components of Lead Time: 1. Internal lead time: 1. Administrative lead time 2. External Lead Time: Manufacturing lead time Transit lead - time. Administrative lead time: The administrative lead time covers the duration from recognition of need till the purchase order is triggered off. This consists of elapsed Time between each pair of the following activities, taken successively: Identifying the need for an item, raising the purchase request, Getting the approval, floating the enquiries, getting the quotations, Evaluating the quotations, getting the approval and placing the orders. Inspection Lead time: This is elapsed between the receipt of material and the acceptance of material. Manufacturing lead time: These two components of lead time are out side the control of buying organization. If it is an off the shelf item, then the manufacturing lead time is zero. But if it is a manufactured item, then the lead time will be more. Transit Lead Time: Transit lead time or getting the item from supplier to buyers plant is another uncontrollable lead time component. The mode of transport decides the lead time. Wastage control & Scarp Management Wastage control one of the major function of material management is conservation on material. Wastage in an organization:

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1. Avoiding wastage 2. Unavoidable wastage 3. Causes of wastage in an organization 4. Wastage in purchasing 5. Wastage during production (Wrong specification / Size / Shape / defective machines) 6. Planning & Design storage (wrong sales forecast / wrong specifications). Scrap Management: 1. Disposal of Items By entering into annual order. By putting the scrap to public auction. 2. New light on scrap accumulation Too much scrap. Too much Little Scrap. 3. Social responsibility involved in disposing of scrap Re examine possibility of usage by design Request associate company Consider Sale to an actual user Consider Sending back or resale to the original supplier Consider sale to other 1. At any price 2. At scrap value. Inventory Verification Procedure Objective: To ensure physical Verification of Inventory has been conducted at reasonable internal and to aims that the procedures of physical Verification of Inventory followed be reasonable and adequate in relation to size and nature of the business, and to align that the system and process to ensure that proper records of inventory are maintained and whether any material discrepancies were noticed on physical verification and if so, whether the same has been properly reported and dealt with in the books of accounts. Criteria for physical Verification:

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Frequency / minimum coverage of physical verification of Stores and spares for the financial year is given under. A Class items thrice in a year B Class items - twice in a year C Class items once in a year Criteria for Identification of A B and C class: A Class items value Rs. 50000/- and above. B Class items value Rs. 10000/- to Rs. 50000/C Class items value Rs. 10000/Categories of items: 1. Obsolete Items: Non usable in future due to technological changes /replacement of equipment / Machine. It has been decided to write off to the extent of 95% value of such items in the year of identification. It is also proposed that in future whenever any Capex proposals are moved for modification / replacement of the equipment / machine, the value of stores and spares inventory, which is going to be converted as obsolete inventory should also be determined and same to be approved for write off as above along with block proposal. Such write off value should also be considered as part of the cost of proposed Capex proposal for the purpose of evaluating the proposal. 2. Surplus Inventory: Full or part quantity out of a present stock that is not likely to be consumed in next 3 years i.e. current stock more than estimated consumption of next 3 years. The excess stock to be treated as Surplus Inventory. Unit has to make necessary efforts to realize the value of such surplus stocks by transferring to other units where it can be consumed / returning back to suppliers at realizable value / sale to any other parties.

26

 Value of surplus quantity of Inventory to be written off to the extent of 50% in the year of declaring surplus, assuming that we can fetch 50% value on disposal of such item in market. Slow Moving: Some issues in the previous / current year, but stock quantity is more than the last one years issue quantity multiplied by 3. All such items having stocks more than 3 times of one years consumption are to be treated as slow moving items e.g. last one years consumption is 5 nos and current stock is 20 nos., the total stock of 20 nos of such item to be treated as slow moving. All slow moving items are to be critically examined and if covered by the definition of obsolete / surplus inventory, then same is to be transferred to the respective heads and write off to be done as stated above. In case of others, no provision is required in anticipation that the same shall be used for further requirement. If it is not consumed, then in future period it will automatically move to surplus or non moving category and write off shall be done accordingly. 3. Non Moving: No issues in last three years. To be reviewed critically, In case of obsolete or surplus inventory, same has to be transferred to the respective heads and to be written off as per above guidelines. If not obsolete or surplus, the same should be written off to the extent of 25% and same has to be reviewed on yearly basis as to whether it has become surplus or obsolete. 4. Insurance Spares: High Value, High Lead Time, Critical, Non availability of which will lead to plant stoppage. To be dealt with as per Accounting Standard 2 and no provision / written off is required unless the material is transferred from Insurance category to other categor

27

FLYASH AVERAGE INVENTORY TREND Month Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar 2003-04 0.77 0.99 1.00 1.77 1.97 2.01 2.58 3.17 2.13 3.64 4.20 1.92 2004-05 1.78 2.57 4.61 3.63 1.93 5.34 6.66 5.08 3.20 2.24 2.22 4.43 2005-06 6.87 4.42 2.69 3.02 4.47 5.44 7.57 7.76 3.31 0.43 1.43 2.46

9 8 7 6 5 4 3 2 1 0
Ap r M ay Ju ne Ju ly Au g Se p O ct No v De c Ja n Fe b M ar

2003-04 2004-05 2005-06

FLYASH AVERAGE INVENTORY

28

Avg inv Doc

2003-04 2 10

2004-05 4 16

2005-06 4 14

Doc, 16 16 14 12 10 8 6 4 2 0 2003-04 2004-05 2005-06 2 4 4 Doc, 10 Avg inv Doc Doc, 14

OBSERVATION: It is observed from the graph that the curve is going up and down. The flyash was used in the cement called PPC, so the call for the flyash is made when there is the demand for PPC cement. The estimation of the quantity of flyash is made from the reports of the marketing department.

COAL AVERAGE INVENTORY TREND MONTH 2003-04 Apr-03 72.67 May-03 71.42 2004-05 271.27 260.19 2005-06 614.04 480.09 29

Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04

23.92 101.74 179.18 110.34 34.62 131.15 159.91 48.57 49.21 129.70

108.87 216.93 352.75 384.97 480.09 436.92 463.21 578.14 633.15 585.85

228.43 416.11 540.08 492.47 378.47 402.95 637.63 718.28 618.23 414.40

800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00

Ap rMa 03 y-0 Ju 3 n-0 Ju 3 lAu 03 gSe 03 p0 Oc 3 t-0 No 3 vDe 03 c-0 Ja 3 n-0 Fe 4 bMa 04 r-0 4

2003-04 2004-05 2005-06

COAL AVERAGE INVENTORY

Avg Inv Doc

2003-04 93 4

2004-05 398 17

2005-06 495 21

30

500 450 400 350 300 250 200 150 100 50 0 93 Doc, 4 2003-04 Doc, 17 2004-05 398

495

Avg Inv Doc

Doc, 21 2005-06

OBSERVATION: it is observed from the graph that the cost of raw materials purchased was raised in the monsoon times and lowered in summer. The purchase of the inventory of coal mainly depends upon the seasonal variation. In the months of April and May the stock will be bought in abundance and will be stored for summer. The cost of the inventory coal is mainly due to the safety stock that was stored. Another for more inventories is the government policy of issuing coal. The consumption of coal in the Ultra Tech will worth up to 25 lakhs per day. So if the inventory of coal is controlled the total cost of inventory will be reduced a lot. The inventory of the coal has variations due the scarcity in its availability and increase of demand of the coal in the recent years.

GYPSUM AVERAGE INVENTORY TREND Month Apr May June July Aug Sep Oct Nov Dec Jan 2003-04 10.34 10.87 9.65 7.55 8.18 11.11 10.46 13.26 12.67 7.48 2004-05 10.54 10.80 15.36 15.57 8.47 8.24 10.95 16.69 20.71 8.82 2005-06 20.53 17.66 16.34 14.21 11.52 19.68 16.99 14.89 25.34 22.84

31

Feb Mar

11.80 13.59

5.90 16.54

17.03 21.48

3 0 .0 0 2 5 .0 0 2 0 .0 0 1 5 .0 0 1 0 .0 0 5 .0 0 0 .0 0 A p r M a y J u n e J u ly A u g S e p O c t N o v D e c J a n F e b M a r

2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6

GYPSUM AVERAGE INVENTORY

Avg inv Doc

2003-04 11 5

2004-05 12 6

2005-06 18 19

32

20 18 16 14 12 10 8 6 4 2 0 2 0 0 3 -0 4 2 0 0 4 -0 5 11 12

18

D oc, 19

A vg in v Doc, 5 Doc , 6 Doc

2 0 0 5 -0 6

OBSERVATION: It is observed from the graph that the stock was raised between the period October and December every year. Gypsum was maintained almost constant in the period 2003-04, but lot of variation is found from 2004-06. The primary reason for this is the seasonal variations at Chennai. In 2003-04&2004-05 the average inventory and doc of gypsum is less compared to 200506, this is because in 2003-05 there was a restriction in keeping inventory. The company has to maintain inventory as per norms. Moreover due to increase in demand in cement during the year 2005-06, the company started increasing the inventories to keep production.

HFO AVERAGE INVENTORY TREND

Month Apr May June July Aug

2003-04 19.44 19.64 1.16 1.73 1.73

2004-05 1.09 1.87 0.98 1.11 1.91

2005-06 76.76 64.41 99.96 106.42 94.15

33

Sep Oct Nov Dec Jan Feb Mar

180.00 160.00 140.00 120.00 100.00 8 0.00 6 0.00 4 0.00 2 0.00 0.00

1.40 1.36 1.84 6.86 6.61 0.84 0.10

1.13 62.44 75.77 62.63 90.81 72.56 81.80

110.43 124.83 155.68 151.06 114.57 98.69 69.86

2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6

A p r M a y J u n e J u ly A u g S e p O c t N o v D e c J a n F e b M a r

HFO AVERAGE INVENTORY

Avg Inv Doc

2003-04 5 1

2004-05 38 5

2005-06 106 14

34

120 100 80 60 38 40 20 0

106

A vg In v Doc

D oc , 14 5 Doc, 1 2 0 0 3 -0 4 Doc, 5 2 0 0 4 -0 5 2 0 0 5 -0 6

OBSERVATION: It is observed from the graph that the cost of fuel almost remained zero in the period 2003-04 and considerably continued up to October of 2004. But from November 2004, the cost started increased considerably. The reason for the hike of price is the withdrawal of the vendor. The government price of the fuel is also a factor for considerable change of the prices. There was a great variation the years 2004 and 2005 due to the trade off between the discount and inventory carrying cost

HSD AVERAGE INVENTORY TREND Month Apr May June July Aug Sep Oct 2003-04 3.83 2.81 3.08 5.13 6.72 5.78 5.15 2004-05 5.96 5.64 5.19 5.63 5.68 4.30 4.37 2005-06 10.08 8.79 11.91 13.94 16.82 14.70 8.72

35

Nov Dec Jan Feb Mar

4.99 4.99 4.97 4.70 5.31

4.97 4.30 4.19 5.12 9.98

7.72 11.95 11.44 8.05 7.54

1 8 .0 0 1 6 .0 0 1 4 .0 0 1 2 .0 0 1 0 .0 0 8.00 6.00 4.00 2.00 0.00 A p r M a y Ju n e Ju ly A u g S e p O c t N o v D e c Ja n F e b M a r 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6

HSD AVERAGE INVENTORY

Avg inv Doc

2003-04 5 6

2004-05 5 5

2005-06 11 8

36

12 10

11

Doc, 8 8 D oc , 6 6 4 2 0 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6 5 5 Doc, 5 A vg in v Doc

OBERVATION: It is observed from the graph that the cost was constant almost from 2003 to February 2005. From then the prices started rising. It is also observed that in the season of monsoon the price of stock is high when compared to other seasons. Although the quantities are same due to the price hikes there is a variation the inventory

SLAG AVERAGE INVENTORY TREND Month Apr May June July Aug 2003-04 11.11 11.07 9.10 14.94 21.69 2004-05 34.09 38.98 39.43 33.53 16.16 2005-06 55.70 41.35 43.29 43.87 32.86 37

Sep Oct Nov Dec Jan Feb Mar

17.98 9.90 13.16 18.76 13.68 6.52 14.47

17.51 20.18 38.61 60.22 73.77 81.88 69.02

24.33 25.80 25.58 18.45 11.81 10.68 10.61

9 0 .00 8 0 .00 7 0 .00 6 0 .00 5 0 .00 4 0 .00 3 0 .00 2 0 .00 1 0 .00 0 .0 0 A p r M a y J u n eJ u ly A u g S e p O c t N o v D e c J a n F e b M a r 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6

SLAG AVERAGE INVENTOY

Avg inv Doc

2003-04 14 4

2004-05 44 14

2005-06 29 13

38

45 40 35 30 25 20 15 10 5 0 14 D oc , 4

44

29 A vg inv D oc , 14 D o c , 13 D oc

2 00 3-04

20 04-0 5

20 05 -0 6

OBSERVATION: It is observed from the graph that the cost of the slag has considerably being reduced by the end of 2005. The cost has hiked at the end of 2004. The whole of the change in the cost was due to many changes in the production process that were applied by Ultra tech. In 2004-05 the average inventory of slag is increased compared to 2003-04 and 2005-06, the reason for this is in 2004-05 the company go for production of more slag cement.

ALUMINUM LITERATE AVERAGE INVENTORY TREND Month Apr May June July Aug Sep Oct 2003-04 22.56 27.59 17.01 18.87 32.91 31.00 29.76 2004-05 51.99 59.95 45.86 36.93 31.87 14.73 31.98 2005-06 82.10 100.33 107.91 96.35 73.32 48.43 23.88

39

Nov Dec Jan Feb Mar

50.42 52.17 32.65 34.22 42.29

63.23 56.51 44.36 42.85 55.84

38.43 41.72 14.06 13.02 52.30

120.00 100.00 80.00 60.00 40.00 20.00 0.00

Au g Se p Oc t No v De c Ap r M ay Ju ne Ju ly Ja n Fe b M ar

2003-04 2004-05 2005-06

ALUMINUM LITERATE AVERAGE INVENTORY

Avg inv Doc

2003-04 33 9

2004-05 45 11

2005-06 58 17

40

60 50 40 30 20 10 0 Doc, 9 Doc, 11 33 45

58

Avg inv Doc Doc, 17

2003-04

2004-05

2005-06

OBERVATION: It is been observed from the graph the stock was more in the seasons was more in the monsoon seasons. In the year 2005-06 the stock was more in the month July. The reason for excess stocking is the seasonal variation at the place where the laterite is available. So the stock building is occurring. In the year 2003-04 the average inventory of aluminum laterate is less compared to 2005-2006, this is because there is unavailability of material during 2003-04. In the year 2005-2006 there is scarcity of materials, expecting future demand, the company increased the stocks.

IRONE ORE AVERAGE INVENTORY TREND Month Apr May June July Aug Sep 2003-04 4.33 6.64 7.78 7.00 5.80 5.71 2004-05 8.12 7.96 7.57 10.00 11.11 7.61 2005-06 7.65 11.25 12.44 11.42 7.85 5.17 41

Oct Nov Dec Jan Feb Mar

6.36 8.15 8.56 4.98 6.79 8.83

8.93 16.98 18.68 15.15 9.80 5.22

4.01 3.02 5.43 14.36 15.98 9.00

20.00 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00
Au g Se p Oc t No v De c Ap r Ma y Ju ne Ju ly Ja n Fe b Ma r

2003-04 2004-05 2005-06

IRONE ORE AVERAGE INVENTORY 2003-04 7 10 2004-05 11 14 2005-06 9 13

Avg inv Doc

42

Doc, 14 14 12 10 8 6 4 2 0 2003-04 2004-05 2005-06 7 11 Doc, 10 9 Avg inv Doc Doc, 13

OBSERVATION : It is observed from the graph the cost of iron ore was more from the period 2004-2006 when compared with 2003-04, The primary reason for the increase in the iron ore cost is due to the change of the supplier. Earlier the iron ore was bought from the Ballery, but with change in supplier between 2004-05 there was a increase in the cost and inventory has gone up.

LDO AVERAGE INVENTORY TREND Month Apr May 2003-04 3.31 3.95 2004-05 5.70 5.24 2005-06 5.13 4.98

43

June July Aug Sep Oct Nov Dec Jan Feb Mar

3.52 2.21 0.45 0.00 0.00 3.57 7.34 6.31 6.69 7.26

4.83 4.74 5.14 5.51 5.74 7.66 9.39 6.77 4.31 5.57

3.54 0.38 0.36 3.10 6.07 6.28 3.96 5.82 12.30 12.32

14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00

Ap r M ay Ju ne Ju ly Au g Se p O ct No v De c Ja n Fe b M ar

2003-04 2004-05 2005-06

LDO AVERAGE INVENTORY 2003-04 3 30 2004-05 6 78 2005-06 5 47

Avg inv Doc

44

80 70 60 50 40 30 20 10 0 3 2003-04 6 Doc, 30

Doc , 78

Doc, 47 A vg inv Doc

5 2005-06

2004-05

OBSERVATION : It is observed from the graph the cost of LDO was more from the period 2004-2006 when compared with 2003-04, The primary reason for the increase in the iron ore cost is due to the change of the supplier. Earlier the iron ore was bought from the place where itisavailable, but with change in supplier between 2004-05 there was a increase in the cost and inventory has gone up.

STORES&SPARES AVERGE INVENTORY TREND

Month Apr May June July Aug Sep Oct

2003-04 1387.09 1383.18 1527.63 1545.78 1558.76 1550.47 1591.00

2004-05 1504.36 1526.20 1556.97 1556.49 2136.92 1680.54 1563.20

2005-06 1676.31 1651.93 1631.38 1512.83 1875.99 1492.74 1545.03 45

Nov Dec Jan Feb Mar

1433.29 1377.11 1425.33 1444.03 1619.20

1610.49 1650.24 1672.53 1657.51 1652.12

1683.54 1691.37 1671.77 1646.33 1487.16

2 5 0 0 .0 0 2 0 0 0 .0 0 1 5 0 0 .0 0 1 0 0 0 .0 0 5 0 0 .0 0 0 .0 0 A p r M a y J u n e J u ly A u g S e p O c t N o v D e c J a n F e b M a r 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6

STORES&SPARES AVERGE INVENTORY 2003-04 1487 331 2004-05 1647 291 2005-06 1631 245

Avg inv Doc

46

18 0 0 16 0 0 14 0 0 12 0 0 10 0 0 800 600 400 200 0 2 0 03 -0 4 D o c , 33 1 1 48 7

1 6 47

1631

A vg in v Doc

D oc , 2 91

D o c , 2 45

20 0 4-05

20 0 5 -0 6

OBSERVATION: It is observed from the graph that the spares that are stored in the stores are very much higher in the month of august when compared to other years in the period 2003-06.

TOTAL AVERAGE INVENTORY TREND

Month Apr May June July

2003-04 1547.64 1549.53 1615.13 1716.53

2004-05 1908.26 1939.06 1809.08 1898.21

2005-06 2599.10 2419.38 2199.26 2278.59

47

Aug Sep Oct Nov Dec Jan Feb Mar

1830.97 1750.76 1707.29 1676.13 1659.45 1566.79 1583.84 1856.30

2582.08 2149.12 2222.60 2303.03 2373.49 2516.90 2541.21 2527.07

2736.65 2317.60 2240.64 2426.64 2652.88 2645.98 2509.86 2146.57

3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00

Au g Se p Oc t No v De c Ap r Ma y Ju ne Ju ly Ja n Fe b M ar

2003-04 2004-05 2005-06

TOTAL AVERAGE INVENTORY 2003-04 1672 32 2004-05 2231 41 2005-06 2431 45

Avg inv Doc

48

2500 2250 2000 1750 1500 1250 1000 750 500 250 0 Doc, 32 2003-04 1672

2431 2231

Avg inv Doc

Doc, 41 2004-05

Doc, 45 2005-06

OBSERVATION: We can observe from the graph that there is a variation in the graph these variation and accounted due to various reasons as some of the following prove to be the major they are due to monsoon at the generation point of the material we can observe a huge variation in the months of August and September as this is monsoon period. Due to sudden breakdowns and stoppages of the plants, strikes and various environmental hazards and conditions.

49

Comparison of 2004-2006 DG spares Category of items 2004 Amt ( lacks) 2005 in Amt ( lacks) 2006 in Amt ( lacks) in Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active items 0.75 32.01 7.29 0 80.11 0 0 0.86 0 56.38 3.22 22.68 9.11 0 62.64 0 0 11.7 0 70.38 100 100 -88.3 0 -29.62 0 0 1059.3 0 111.1 100 100 959.3 100 11.1 Reduction compared to 2004 base as 2005 2005 as base Holding compared to Reduction compared to % inventory of % inventory of % inventory of % inventory of

90 80 70 60 50 40 30 20 10 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: There is no slow moving and non moving category of DG spares in the year 2005.And it is found that it is in flucating stage. The surplus category of DG spares is increased by

50

9.11lacs in 2006 from 7.29lacs in the year 2004 and found that it is in furcating trend. There is no Comparison of Bearings Category of items 2004 Amt ( lacks) 2005 in Amt ( lacks) 2006 in Amt ( lacks) in Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active 5.28 57.37 9.83 0 1.88 34.96 4.58 0 1.72 31.11 0 0 35.67 60.94 46.59 0 -64.33 -39.06 -53.41 0 91.49 88.99 0 0 -8.51 -11.01 0 0 Reduction compared to 2004 base as 2005 2005 as base Holding compared to Reduction compared to % inventory of % inventory of % inventory of % inventory of

items 126.28 118.62 98.15 93.93 -6.07 82.74 -17.26 obsolete category of DG spares in all the three years. The active category of DG spares is in fluc stage. It reduced by 62.64lacs in 2006 from 80.11lacs in 2004

140 120 100 80 60 40 20 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: From the above graph we observe that the slow moving bearings decreasing year by year. In 2004 it is 5.28lacs and it decreased to 64% in 2005 and again decreased by 8% in the year 2006.The non moving category of bearings is in decreasing trend. In the year 2004 it is 57.37lacs and decreased by 34.96lacs in the year 2005 and 31.11lacs in the year 2006.The surplus category of bearings are decreased by 4.58lacs in

51

2005 and zero in 2006 compared to 9.83lacs in 2006. So it is found that the non moving and Category of items Comparison of 2004-2006 consumable spares % 2004 2005 2006 inventory Amt ( in Amt ( in Amt ( in lacks) lacks) lacks) Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active items 4.86 4.7 0 0 3.01 2.78 0 0 2.54 3.6 0.02 0.01 61.93 59.14 0 0 -38.07 -40.86 0 0 84.39 129.4 0 0 -15.61 29.4 100 100 of % inventory Reduction compared to 2004 base as 2005 2005 as base of % inventory Holding compared to of % inventory Reduction compared to of

24.15 53.49 59 221.49 121.49 110.3 10.3 surplus category of bearings is in decreasing trend. There is no change in obsolete category of bearings. The active items category of bearings is also in decreasing trend. It reduced by 98.15lacs in 2006 from 126.28lacs in 2004.

70 60 50 40 30 20 10 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: The graph shows that the consumables of slow moving category are decreasing year by year. In the year 2004 it is 4.86lacs and it reduced by 38% in the year 2005 and also reduced 52

to 15% in the year 2006. The surplus and obsolete category of consumables are very less. The active Category of items Comparison of 2004-2006 Electrical spares % 2004 2005 2006 inventory Amt ( in Amt ( in Amt ( in lacks) lacks) lacks) Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active items 1.41 40.25 32.59 0 95.78 2.26 22.55 17.71 0 69.86 1.32 26.16 15.95 0.1 65.41 160.28 56.02 54.34 0 72.94 60.28 -43.98 -45.66 100 -27.06 58.41 116.01 90.06 0 93.63 -41.59 66.01 -9.94 0 -6.37 of % inventory Reduction compared to 2004 base as 2005 2005 as base of % inventory Holding compared to of % inventory Reduction compared to of

items category is increasing year by year. In the year 2004 it is 24.15lacs and it is increased by 53.49lacs in the year 2005 and also increased by 59lacs in the year 2006.

120 100 80 60 40 20 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: In the above graph the slow moving of electrical spares are l.4llacs in 2004 and increased to 2.26lacs in 2005 and decreased by 1.32lacs in 2006.so found that it is in flucating trend. The non moving items of electrical spares are also in flucating f trend. The surplus items of electrical spares is 32,59lacs in 2004 and decreased by 17.71 in the year 2005 and also decreased by 15.59 in

53

the year 2006 and it is found that it is in the decreasing trend. There is no obsolete category of Comparison of 2004-2006 Instrumentation spares % 2004 2005 2006 inventory Amt ( in Amt ( in Amt ( in lacks) lacks) lacks) Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active 3.88 73.79 11.72 0.73 2.46 37.13 6.96 0.04 3.53 39.55 5.66 0 63.4 50.32 59.39 5.48 -36.6 -49.68 -40.61 -94.52 143.4 106.52 81.32 0 84.65 43.4 6.52 -18.68 100 -15.35

Category of items

of % inventory

of % inventory Holding compared to as 2005

of % inventory Reduction

of

Reduction compared to 2004 base

compared to 2005 as base

items 115.52 77.45 65.56 67.04 67.04 electrical in all the three years. The active items are in decreasing trend.

140 120 100 80 60 40 20 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: The slow moving category of instrumentation spares are in flucating trend. It is 3.88lacs in 2004 and reduced to 2.46lacs and then increased by 3.53lacs. The non moving items are reduced by 39.55lacs in 2006 from 73.79lacs in 2005. And found that it is in flucating

54

stage. The surplus category of instrumentation is decreasing trend. The obsolete category of Category of items Comparison of 2004-2006 Mechanical spares % 2004 2005 2006 inventory Amt ( in Amt ( in Amt ( in lacks) lacks) lacks) Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active items 88.2 282.54 41.61 0.98 33.13 176.56 15.33 0.05 38.44 157.81 14.25 0.05 37.56 62.49 36.84 5.1 -62.44 -37.51 -63.16 -94.9 116.03 89.38 92.95 100 16.03 -13.62 -7.05 0 -6.41 of % inventory Reduction compared to 2004 base as 2005 of % inventory Holding compared to of % inventory Reduction compared to 2005 base as of

877.94 988.64 925.27 112.61 12.61 93.59 instrumentation reduced to zero from 0.73 in 2004 and the active items is in decreasing trend.

1200 1000 800 600 400 200 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: The above graph shows that the active categories of mechanical spares are very high compared to other items. In the year 2004 the mechanical spares are 877.94lacs, in 2005 it increased by 988.64lacs and decreased by 925.27 in the year 2006 and found that it is in flucating 55

stage. The slow moving category or mechanical spares are also in flucating trend. In the year 2004 it Comparison of 2004-2006 Mines spares Category of items 2004 Amt ( lacks) 2005 in Amt ( lacks) 2006 in Amt ( lacks) in Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active 9.5 15.04 6.54 0 5.35 9.07 3.37 0 19.51 25.53 2.72 0.01 56.32 60.31 51.53 0 -43.68 -39.69 -42.47 0 364.67 281.48 80.07 0 264.47 181.48 19.93 100 Reduction compared to 2004 base as 2005 2005 as base Holding compared to Reduction compared to % inventory of % inventory of % inventory of % inventory of

items 114.43 102.34 97.3 89.43 10.57 95.08 -4.92 is 88.2lacs and it reduced to 64% in the year 2005 and increased to 16% in the year 2006. The surplus items are in decreasing trend. The obsolete categories of mechanical spares are very less.

140 120 100 80 60 40 20 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: There is no obsolete and insurance category of mines spares in all the three years, the active category of mines spares is in decreasing trend. It is decreased to 97.3lacs in 2006

56

from 114.43 in 2004. The slow moving category of mines spares is 9.5lacs in the year 2004 and Non moving inventory % Category of inventory 2004 Amt ( lacks) of % of % of % of 2005 2006 inventory in Amt ( in Amt ( in lacks) lacks) Holding compared to 2004 59.15 60.94 75.65 62.49 60.19 56.02 inventory Reduction compared to 2004 base -43.85 -39.06 -24.35 -37.51 -39.81 -43.98 as 2005 129.4 88.99 111.08 89.38 281.48 116.01 inventory Holding compared to inventory Reduction compared to 2005 base 29.4 -11.01 11.08 -10.62 181.48 16.01 as

CONSUMABLES BEARINGS PRODUCTION MECHANICAL MINES SPARES ELECTRICAL INSTRUMENTATO

4.7 57.37 5.01 282.54 15.07 40.25

2.78 34.96 3.79 176.56 9.07 22.55

3.6 31.11 4.21 157.81 25.53 26.16

N 73.79 37.13 39.55 50.32 -49.68 106.52 6.52 DG SETS 32.01 0 22.68 0 100 0 100 decreased by 5.35lacs in 2005 and increased by 19.51lacs in the year 2006.The non moving category of mines is 15.04 in 2004 and decreased by 9.07lacs and increased by 25.53lacs in 2006.So found that both the slow moving and non moving category of mines are in flucating stage. The surplus and active items category of mines spares are in decreasing trend.

300 250 200 150 100 50 0

AB LE S BE AR IN PR G S O D UC TI M O EC N HA M NI IN CA ES L SP AR ES EL EC IN ST TR RU IC AL M EN TA TO N DG SE TS

2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

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OBSERVATION: From the above, noted that there is a high non moving category mechanical spares in the year 2004 and found it is in the decreasing trend. The next high non moving category of item is instrumentation. It is 73.79 lacks in 2004, and then started decreasing in next two years. Here we found it is in the fluctuating trend. There is non moving category of DG sets in the year 2005, but in 2006 it increases to 22.66 lacks. The electrical, mines and bearings are decreasing year by year. The non moving category of consumables and productions are very less.

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Comparison of obsolete inventory % Category of Inventory of % of % of % inventory Reduction compared to 2005 base 100 0 100 99 100 100 100 100 as of 2004 2005 2006 inventory Amt ( in Amt ( in Amt ( in lacks) lacks) lacks) Holding compared to 2004 0 0 5.15 5.1 0 0 0 0 inventory Reduction compared to 2004 base 0 0 94.85 94.9 100 100 100 0 as 2005 0 0 0 1 0 0 0 0 inventory Holding compared to

CONSUMABLES BEARINGS PRODUCTION MECHANICAL MINES SPARES ELECTRICAL INSTRUMENTATO N DG SETS

0 0 0.97 0.98 0 0.73 0 0

0 0 0.05 0.05 0 0 0.04 0

0.01 0 0 0.05 0.01 0.1 0 0

1.2 1 0.8 0.6 0.4 0.2 0

BE AR IN PR G S O D UC TI M O EC N HA M NI IN CA ES L SP AR ES EL EC IN TR ST IC RU AL M EN TA TO N DG SE TS AB LE S

Series1 Series2 Series3

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OBSERVATION: In the above graph there is no obsolete for DG sets, consumables. Comparison Category of items 2004 Amt lacks) ( 2005 in Amt ( lacks) 2006 in Amt ( lacks) in Holding compared to 2004 Slow moving Non moving Surplus Obsolete Active items 12.02 5.01 0 0.97 6.84 3.79 0 0.05 3.52 4.21 0 0 56.91 75.65 0 5.15 -43.09 -24.35 0 -94.85 51.46 111.08 0 0 -48.54 11.08 0 0 Reduction compared to 2004 base as 2005 2005 as base Holding compared to Reduction compared to 2004-2006 production spares % inventory of % inventory of % inventory of % inventory of

168.81 185.34 113.83 109.79 9.79 61.42 -38.58 Instrumentation spares are zero in the year 2004 & 2006 but in 2005 it is less than one. Production mechanical and electrical spares reduced year by year. In brief there are no obsolete items in the year 2005 the reason is to avoid purchasing of these items.

200 180 160 140 120 100 80 60 40 20 0 Slow moving Non moving Surplus Obsolete Active items 2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSEVATION: The above graph shows that the slow moving category of production items is in decreasing trend. In the year 2004 it is 12.02lacs and it decreased by 6.84 and in the year 60

2006 it is 3.52lacs.The non moving category of electrical spares are in as flucating trend. Slow Moving % Category of 2004 Amt ( Inventory lacks) 2005 Amt in ( lacks) 2006 Amt in ( in Holding Reduction Holding Reduction compared compared compared compared to to 2004 to as to 2005 as lacks) of % of % of % of inventory inventory inventory inventory

2004 base 2005 base CONSUMABLES 4.86 3.01 2.54 -61.93 38.07 84.39 -15.61 BEARINGS 5.28 1.88 1.72 -35.61 64.39 91.49 -8.51 PRODUCTION 12.02 6.84 3.52 -56.91 43.09 51.46 -48.54 MECHANICAL 88.2 33.13 38.44 -37.56 62.44 116.03 16.03 MINES SPARES 9.5 5.35 19.51 -56.32 43.68 364.67 264.67 ELECTRICAL 1.41 2.26 1.32 160.28 -60.28 58.41 -41.59 INSTRUMENTATON 3.88 2.46 3.53 -63.4 36.6 69.69 30.31 DG SETS 0.75 0 3.22 0 100 0 100 There is no surplus category of production spares in all the three years. Obsolete category of production spares are in flucating trend. It come to zero in the year 2006.The active items category of production spares are 168.81lacs in 2004 and it increased to 185.34lacs in 2005 and then it decreased to 113.83lacs in 2006. So it is found that it is in flucating stage.

100 90 80 70 60 50 40 30 20 10 0
AB LE S BE AR IN PR G O S D UC TI M O EC N HA M NI IN CA ES L SP AR ES EL EC IN ST TR RU IC AL M EN TA TO N DG SE TS

2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

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OBSERVATION: In the above graph, the procurement of slow moving category of mechanical spares are very high in the year 2004.But it reduced to 62% in the year 2005 and then increased in 2006.There slow moving category of DG sets is zero in the year 2005 and it increased to 3.22 lacs in 2006.The major portion of the stock of the slow moving category occupies mechanical spares. In the year 2004 the electrical spares is 1.41lacs and it increased in 2005 to 2.46 lacs and decreased in 2006 to 1.32lacs. The purchasing of bearing and production spares reduced year by year.

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Comparison of surplus inventory % Category of Inventory of % of % of % inventory Reduction compared to 2005 base 100 100 100 -4.05 -19.29 -9.94 -13.06 -959.3 as of 2004 2005 2006 inventory Amt ( in Amt ( in Amt ( in lacks) lacks) lacks) Holding compared to 2004 0 46.5 0 104.93 51.53 54.34 55.55 11.7 inventory Reduction compared to 2004 base 100 -53.5 100 -4.93 -48.47 -45.66 -44.45 -88.3 as 2005 0 0 0 95.95 80.71 90.06 86.94 1059.3 inventory Holding compared to

CONSUMABLES BEARINGS PRODUCTION MECHANICAL MINES SPARES ELECTRICAL INSTRUMENTATO N DG SETS

0 9.83 0 41.61 6.54 32.59 11.72 7.29

0 4.58 0 15.33 3.37 17.71 6.51 0.86

0.02 0 0 14.25 2.72 15.95 5.66 9.11

45 40 35 30 25 20 15 10 5 0
O N M EC HA NI CA M L IN ES SP AR ES EL EC TR IN IC ST AL RU M EN TA TO N S AB LE S BE AR IN G UC TI SE DG TS

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OBSERVATION: In the above graph there is no consumables and production in the category of surplus items. There is no surplus inventory of bearings in the year 2005.There is a high surplus category of mechanical spares in 2004,but in 2005 & 2006 it decreases because of strict material procurement control over the purchasing of mechanical spares. The mines, electrical and instrumentation is in the decreasing trend. DG spares are decreased to 0.86 lacs compared to 2004 and increased to 9.11 lacs in 2006 compared to 2005.

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Comparison of total inventory % Category of Inventory of % of % of % of 2004 2005 2006 inventory Amt ( in Amt ( in Amt ( in lacks) lacks) lacks) Holding compared to 2004 221.49 93.93 109.79 112.61 89.43 72.94 66.93 70.39 inventory Reduction compared to 2004 base 121.49 -6.07 9.79 12.61 -10.57 -27.06 -33.07 -29.61 as 2005 110.3 82.74 95.96 93.59 95.08 93.63 84.65 111.1 inventory Holding compared to inventory Reduction compared to 2005 base 10.3 -17.26 -4.04 -6.41 -4.92 -6.37 -15.35 11.1 as

CONSUMABLES BEARINGS PRODUCTION MECHANICAL MINES SPARES ELECTRICAL INSTRUMENTATO N DG SETS

24.15 126.29 168.81 877.94 114.43 95.78 115.72 80.11

53.49 118.62 185.34 988.64 102.34 69.86 77.45 56.38

59 98.15 113.83 925.27 97.3 65.41 65.56 62.64

1200 1000 800 600 400 200 0

AB LE BE S AR IN PR G O S D UC TI M O EC N HA M NI IN CA ES L SP AR EL ES EC IN ST TR RU IC AL M EN TA TO N DG SE TS

2004 Amt ( in lacks) 2005 Amt ( in lacks) 2006 Amt ( in lacks)

OBSERVATION: The above graph shows that the consumables increased to 59lacs in 2006 compared to 2004&2005. The bearings decreased to 98.15lacs in 2006 compared to 2004 & 2005.The production 65

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spares are decreased to 113.83lacs in 2006 compared to 2004 & 2005.The mechanical spares are increased to 988.64lacs in 2005 compared to 2004 and decreased to 925.27lacs in 2006 compared to 2005.The mines spares, electrical spares, instrumentation spares are decreasing year by year. The DG sets are decreased to 56.38lacs in 2005 compared to 2004 and increased to 62.64lacs in 2006 compared to 2005.

FINDINGS REGARDING RAW MATERIALS The cost of coal purchased was raised in the monsoon times and lowered in summer. The purchase of inventory of coal mainly depends upon the seasonal variation. The consumption of coal in the plant will worth up to 25 lakhs per day. So if the inventory of coal is controlled the total cost of inventory will be reduced. The stock of gypsum was raised between the period October and December every year. But lot of variation is found from 2004.06. The primary reason for this is the seasonal variation at Chennai. In 2003-04&2004-05 the average inventory and doc of gypsum is less compared to 2005-06, this is because in 2003-05 there was a restriction in keeping inventory. The plant has to maintain inventory as per norms. The cost of iron ore was more from the period 2004-06 when compared to 2003-04, the primary reason for the increase in the iron ore cost due to the change of the supplier. The curve of flyash is going up and down. The flyash was used in the cement called PPC, so the call for the flyash is made when there is the demand for PPC cement during the year 2004-05. The cost of the slag has considerably being reduced by the end of 2005. The cost has hiked at the end 2004. The whole of the change in the cost was due to many changes in the production process that were applied by plant. In 2004-05 the average inventory of slag is increased compared to 2003-04 and 2005-06, the reason for this is the plant has produced more slag cement. The stock of aluminum literate was more in the seasons was more in the monsoon seasons. The reason for the excess stocking is the seasonal variation at the place where laterite is available. In the year 2003-04 the average inventory and doc is less compared to 2005-06, this is because there is unavailability of material during

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2003-04. In the year 2005-06 there is scarcity of materials, expecting future demand, the company increased the stocks. The cost of HSD was constant almost from 2003 to February 2005. In the season of monsoon the price of stock is high when compared to other season. Although the quantities are same due to the price hikes there is a variation in the inventory. The cost of HFO was almost remained zero in the period 2003-04 and considerably continued up to October 2004. But from November 2004, the cost started increased considerably. The reason for the hike price is the withdrawal of the vendor. The government price of the fuel is also a factor for change of the price. There was great variation the years 2004 and 2005 due to the trade off between the discount and inventory carrying cost. The cost of LDO is higher in the month of December compared to other months. The cost is hiked due to many factors such as climatic changes, government prices and transportation problems. But the cost is considerably negligible when compared to other raw materials.

PECIFIC SUGGESTIONS Based on the findings and field observations, a few suggestions are offered for strengthening inventory management and control. As compared to 2004 the electrical spares, instrumentation and DG sets are in decreasing trend. So we have to increase these items for reduce expenditure incurred in production process. All the categories of slow moving, non moving and surplus inventories should be reduced for minimizing the carrying cost. Route selection-selection of route is very important to reduce the transportation lead-time and also for fixation of transportation rate. As we have seen that the major fluctuations in the materials are due to the climatic condition the supplier must be capable enough to supply the goods irrespective of the condition prevailing this is possible extending eSAP to the supplier.

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 Access to the supplier to the mines will reduce the fluctuations in the inventory costs. Vendor management is applied for only few materials, by extending it to the faster moving objects like bearings will definitely bring down the inventory costs. Introducing the new trends like JIT for some slow moving materials will definitely show a positive impact on the costs and the variation in the average costs. Following Music 3D technique will reduce the lead times involved in recognizing and coding the materials especially in the spare parts inventory. Implementation of MRP will also help to find out what to order and how much to be maintained in the inventory, which enables the plant, a precise and optimum quantity in the stock. As we have seen that the coal, which is the major raw material in the production process, has undergone certain noticeable variation due to seasonal fluctuations has to be control in order that the total cost involved in maintaining the inventory will come down, which is possible if the supplier is capable of doing so.

Bibliography:

1) KS Menno, Purchasing and inventory Control, 3rd Edition, Wheeler Publishing, Allahabad , New Delhi,1993 2) Joseph G.Monk, Operations Management, 3rd Edition, McGraw-Hill

Inventory Editions, Singapore, 1987.

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3) P.Gopalakrishnan and M.Sundaresan , Materials Management, PHI Pvt ltd,New Delhi, 1999. 4) Tony Wild,Best Practice in Inventory Management, Woodhead Publishing Lt, England, 1997. 5) S D Sharma, Operations Research, 14th Edition, Kedar Nath Ram Nath And Co,Meerut,2003-2004. 6) Donald w.Dobler and DavidN.Burt , purchasing and Supply Management, 6th Editio,Tata McGraw-Hill Publishing limited, New Delhi,1996.

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