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A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT 2) 7+( 5(48,5(0(176 )25 7+( $:$5' 2)  0%$ '(*5( ( 2) %$1*$/25( 81,9(56,7< SUBMITTED BY 0V%+$9$1 $ $  Reg. No – 02XQCM6016 UNDER THE GUIDANCE OF 'U1$*(6+ 6 0$/$9$//,  0(121 PRINCIPAL AUDITOR GUIDE)
(INTERNAL CO-GUIDE)   

0U9,12'  INTERNAL (EXTERNAL 

03%,5/$ ,167,787( 2) 0$1$*(0(17  (ASSOCIATE BHARATIYA VIDYA BHAVAN) BANGALORE – 560001 2002-2004

DECLARATION
I here by certify that this project report entitled “Construction Of Internal Control System With Respect To Materials And Stores At INDITAL Construction Machineries Limited”, has been prepared by me under the able guidance and supervision of Dr. Nagesh S Malavalli, Principal, M.P. Birla Institute of Management , Associate Bhartiya Vidya Bhavan, Bangalore. This project report was prepared by me in partial fulfillment of the requirement for the award of MBA Degree. I also declare that this project report has not been submitted to any other University or Institution for the award of any Diploma or Degree.

Date: 13/09/2004 Place: Bangalore BHAVANA A Reg. No.: 02XQCM6016

ACKNOWLEDGEMENT

This Project report has been made possible through the direct and indirect cooperation of various people to whom I wish to express my deep sense of Gratitude. I am extremely grateful to my Guide Dr. Nagesh S Malavalli, for his valuable advice and guidance throughout, which has enabled me in the successful completion of this project and whose constant backing and support made my project a knowledgably and insightful experience. I also wish to express my profound thanks and gratitude to Mr. Vinod Menon, for providing me the opportunity to undertake the project at INDITAL Construction Machineries Ltd. I express my sincere thanks to all the staff of INDITAL Construction Machineries Ltd. who took off their valuable time without which this project could not be completed. I would also like to thank my friends and family members for their continuous support and assistance they have given me.

Guide’s Certificate
This is to certify that Project titled “Construction of Internal Control System with respect to Materials and Stores “at INDITAL Construction Machineries Ltd. has been prepared by Ms. Bhavana A bearing the registration number 02XQCM6016 under my guidance. This has not formed a basis for the award of any Degrees/Diploma by any other University Date: 13/09/2004 Place: Bangalore Dr. Nagesh S Malavalli (Principal)

CONTENTS
Page No. CHAPTER 1 CHAPTER 2 CHAPTER 3 CHAPTER 4 CHAPTER 5 CHAPTER 6 CHAPTER 7 CHAPTER 8 CHAPTER 9 Executive Summary Introduction Company Profile Review of Literature Materials Requisition Planning Methodology Study and Analysis Proposed Model Summary and Conclusion 01 04 08 19 29 34 37 42 55

Chapter 1 Executive Summary .

Materials management is a function responsible for coordination of planning. Materials management is the management of the flow of materials into an organization to the point. was established in the year 1989 by qualified technocrats. purchasing. trace the materials to a particular work order. The company proposes to adopt a proper documentation procedure for the movement of materials between departments. sourcing. where. For an effective internal control of materials. moving. for internal control of . The methodology adopted was to interact with the concerned authorities and to study the current procedure adapted by the company. storing and controlling materials in an optimum manner so as to provide predetermined services to the customer at a minimum cost. The problem faced by INDITAL is to control the internal movement of materials and avoid mismanagement of the same. well experienced in the manufacture of construction and material handling equipments. those materials are converted into the firm’s end product(s). INDITAL started operations with the primary objective of development and manufacture of State-of-art Mobile Cranes and Material Handling Equipments. so that it is easy to track the movement of goods.. it is necessary that all the departments should coordinate and work in cooperation of other departments. It will also facilitate to create accountability on the materials.INDITAL Construction Machinery Ltd.

an appropriate tailor-made procedure for internal control of materials and stores is proposed. The major loop holes identified were that Bin cards were not maintained. . The procedure was evaluated and possible loop holes were identified. Henceforth. Quality control department verbally intimates the purchase department regarding the acceptance or rejection of goods. no document is maintained for return of goods from production department to stores.materials and stores.

Chapter 2 Introduction .

Continuity of supply. receiving and inspection. Reduced materials obsolescence. Reduced lead time. purchasing. viz. stores. Elimination of buck-passing. sourcing. The amount spent on materials is increasing in relation to the expenditure on other inputs. 6. 4. 8. inventory control. Some of these reasons are as follows: 1. 3. 5. scrap and surplus disposal. Importance of Materials Management: The significance of an efficient materials management system needs no emphasis. 9. 2. storing and controlling materials in an optimum manner so as to provide predetermined services to the customer at a minimum cost. Reduced transportation costs. Improved supplier relationship and better records and information. This has necessitated integrated materials management function. It will facilitate the accomplishment of the following objectives: 1. 11. Better inter-departmental co-operation. purchasing. 7. . Personnel Development. 10.BACKGROUND OF THE STUDY Materials Management Is a function responsible for coordination of planning. moving. materials planning. Less duplication of efforts. Faster inventory turnover. which demands an ability to bring together conflicting and yet interrelated functions. Lower prices for materials and equipment. Materials occupy a significant place among the M’s of an industrial enterprise because of several reasons.

Materials ‘add value’ to a product. ♦ To identify the loop–holes in the existing system and provide necessary corrective actions to implement a better control on the internal movement of materials ♦ To construct an effective Internal Control System with respect to Materials and Stores. inventory or any other area connected with materials. supplies and equipment are the life-blood of any functioning industrial concern. Improving return on investment depends on the effective utilization of materials 5. OBJECTIVES OF THE STUDY ♦ To evaluate the procedure currently adopted to control the internal movement of materials. The efficiency of any organization depends upon the availability of right materials. 4.2. 9. STATEMENT OF THE PROBLEM The problem faced by INDITAL is to control the internal movement of materials and avoid mismanagement of the same. 6. 10. The company proposes to adopt a proper documentation procedure for the movement of materials between departments. . in right quantity. 7. 11. 3. Conservation of materials and their availability for posterity is one of the planks of social responsibility of business. government agency or commercial operation. storing. Materials.The relationship between man and materials is indivisible. Materials management assumes responsibility for whatever happens in purchasing. Materials form an important part of current assets in an organization. 8. Materials offer considerable scope for reducing costs and improving profits. Materials contribute to the quality of the end product. at right time and at the right price.

Chapter 3 Company Profile .

This has resulted in Sophisticated Material Handling products. the resource of marketing. has since inception stressed on product quality. systems and production share a common goal to enhance the quality of the products and service in the market place while advancing the state of Material Handling Equipment making technology.INDITAL CONSTRUCTION MACHINERY LTD. along with INDITAL’s commitment to advanced manufacturing technologies is the customers’ guarantee that the future of Material Handling Equipments belong to the company with new ideas and the knowledge to develop them. COLLABORATOR INDITAL derives its strength from the excellent Design base it has established with initial support from a leading Italian Design firm specializing in Cranes. research. was established in the year 1989 by qualified technocrats. . reduce down time and increase speed of operations. INDITAL has the products and knowledge to add increased value to the customer’s material handling operations and applications. well experienced in the manufacture of construction and materials handling equipments.. Within the company’s business. INDITAL started operations with the primary objective of development and manufacture of State-of-the-art Mobile Cranes and Material Handling Equipments. This value. All equipments produced are tailor-made to the Industry’s rigid specifications. INDITAL’s products consistently help customers cut costs. engineering. design. add efficiency. product and service combine to give its equipment their total value. At INDITAL. produced exactly as per the standards with pinpoint accuracy. INDITAL.

Container handling Equipments. This tie up with MTS Engineering has thus enabled INDITAL to design and produce the most modern equipments with State-of-the-art technology. Mr. INFRASTRUCTURE INDITAL’s reputation as an innovative Material Handling Equipment producer is without question. This has further strengthened the capability of the Company and INDITAL is now famous for quick succession with which it has been introducing new products in the country. Its research and technological skills are unparalleled. who is considered an authority in the design of Material Handling Equipments and in particular Heavy Fork Lifts. Its people are among the experts in the industry. . Mr. Italy. Its state-of-the-art production facilities offer superior quality. INDITAL is now famous for the quick succession with which it has been introducing new products in the country. and developing turnkey solutions. whose products are known World over for their steady performance and quality. And its dedication to customers remains steadfast. Claudio Fontanini who holds several patents to his credit is also on the board of INDITAL as the Technical Director. With 15 years hands on experience in this field.Container Handling Equipments and Fork Lifts Trucks for leading European Manufacturers. INDITAL has achieved this capability through years of active and close working with Material Handling Companies. Claudio Fontanini heads m/s MTS Engineering. understanding their needs. With this background. INDITAL has established itself as an innovative company with the capability to design and develop the most sophisticated Material Handling Equipments with particular specialization on customer designed equipments.

All these experts are engaged in tackling the frequent changes in the Material Handling Industry and the challenges presented by changes in the technology. Quality Control and Manufacturing. work with customers at their sites to solve their most difficult challenges The Operating Managers. Once INDITAL’s products are in use. With the experience gained in manufacturing hundreds of equipments. Supervisors. It has a dedicated team of trained and experienced experts in the field of Engineering. its service team. INDITAL’s Sales Team with the active support from its State-of-the-art Design group is ready to develop products to new specifications. INDITAL has learnt plenty. Today INDITAL’s greatest strength has been its workforce. And solve the customer’s handling problems. Resting with them are the tools and the know-how to manufacture the best quality Material Handling Equipments in the world.its what we know”. about 15 km from Bangalore. EXPORTS .000 sqm plot has stateof-the-art Fabrication Facilities and modern assembly shops covering about 5000 Sqm TEAM It is often been said that “Its not just what we make.INDITAL manufactures its Mobile Cranes and Container Handling Equipments in its modern factory at Peenya. with whom it has been able to turn out World Class products. Design. The factory situated in a 10. Technical Staff and Mechanics are well aware of the contribution they are making to INDITAL’s products and the impact they have on exceeding customer expectations.

INDITAL is confident of exporting more of its equipments. Kuwait.INDITAL has exported its equipments to Italy. particularly Container Handling in the coming years. . Iraq and Bangladesh.

Claudio Fontanini. the HC-18 became a favorite with the operators with lesser strain and fatigue being experienced by them. cranes. INDITAL launched its first product: An 8 Ton capacity.PRODUCTS MOBILE CRANES During 1989. this model has established itself as a forerunner and the Benchmark in the industry. The field of Container Handling essentially requires 100% Pick and Carry equipment like Top Lift Trucks or the Reach Stackers. INDITAL ventured with confidence into the Container Handling Sector. This prestigious order was secured inspite of stiff Global Competition from established World Giants in the field. 12 Ton and 18 ton Pick and Carry Cranes. With this feature and the Hydrostatic Steering. which enabling INDITAL to manufacture the first . INDITAL started manufacturing the Reach Stacker during the later 1992. Excellent technical support was received from Mr. in the most demanding and difficult Indian conditions. These were primarily meant for the Granite and general purpose Material Handling Industry. The latter being very similar to its currently produced models. This model introduced for the first time in India the concept of Power Shift Transmission for a 100% Pick and Carry Crane. Today. which had seen so far only tractor based. This 18 ton capacity Pick and Carry Mobile Crane was again the first for India. REACH STACKERS With the experience gained from the manufacture and successful working of its 10 ton. During March 1992. INDITAL introduced the HC-18. which was later upgraded to 12 Tons. 100% Pick and Carry Cranes. These Cranes ushered in a revolution in the material handling industry.

and several Contractors working for ports like Mumbai Port Trust. In February 1993. Calcutta Port Trust. various ICD’s of CONCOR. Designated as the ECT series. The design was also customized taking into consideration the adverse and dusty climatic conditions of India. 20 km from Bangalore. These machines meant for empty Container Handing. 30 days a month work expected from the machine. these machines have now become very popular in Container Terminals where space is at a premium. Today INDITAL’S Reach Stackers have been successfully working in many ports. Cochin Port Trust. Kandla Port Trust etc. Ever since. This Reach Stacker employed the latest design in the field of Container Handling and was specially designed keeping in mind the 24-hour a day. the equipment has been working exceedingly well and is handling an average of 3000 TEU’s a month..The response after the successful working of the Reach Stacker has been so great that INDITAL is now manufacturing the equipment in greater numbers both for the Indian market as well as for export. Container Terminals and also from the Middle East and Far East. the Reach Stacker was commissioned at the Inland Container Depot (ICD) of the Container Corporation of India (CONCOR) at White Field.Reach Stacker to be produced outside Europe. It has been found that this machine has a peak handling capacity of 6000 TEU’s a month on a 16 hour/day basis. SIDE LIFT & FORK LIFT TRUCKS In 1996 INDITAL launched India’s first 5 high Stacking Side Lift Trucks. . and tough operating parameters. These trucks are now available up to 6 high stacking levels. Enquiries have been pouring in from all major Indian ports. which were fitted with a telescopic side spreader to accommodate both 20` and 40` long containers. many private container Freight Stations.

This high power tractor was primarily designed to handle the new generation Aircrafts acquired by Jet Airways. INDITAL successfully launched its PBT-12 Aircraft Push Back Tractor in September 2003. Only the best possible raw materials and components find their way into an INDITAL product. The equipment has been working quite successfully and INDITAL is gearing up to manufacture more such Tractors in the future. INDITAL during 2003 entered the Airport Ground Support Equipment Industry. Mobile Crane and Container Handling Industry. QUALITY INDITAL operates a Quality Management System.. Several variants of FLT-12 with attachments for Container Handling / Tyre Handling/ Log Handling etc. These were custom designed for India with performance levels on par with the best European equipments. Strict quality control is established right from the raw material stage to the finished product. PUSHBACK TRACTOR Ground Support Equipments Having firmly established itself in the Fork Lift. Quality.During early 1998. INDITAL launched its FLT series of 10-ton/12 ton capacity Fork Lift Trucks. Innovation and Customer Satisfaction have been one of the primary strengths of INDITAL on which it plans to build its future. Manufacture and supply of Material Handling and Earth Moving Equipments. have been introduced. . These machines have become a favorite with Material Handling Contractors and can be seen successfully working all over India. which complies with the requirements of ISO 9001-2000 and is certified for Design. a leading private airline in India. With the first development order coming from M/s Jet Airways.

This value. rust protection etc. INDITAL faces the future with pride and confidence and is poised to bring out the following products and that too in a quick succession.. Research and Development and New Plants. Appropriate safety measures. guarantee that the quality processed into the products remain intact upon delivery. along with INDITAL’s commitment to advanced manufacturing . Airport Handling Equipments SUPPORT At INDITAL. RESEARCH & DEVELOPMENT INDITAL is investing a substantial amount of time and money in its expansion activities.Reliability is a key benefit in doing business with INDITAL. The Company’s goal is to surpass all quality and service expectations. which has been INDITAL’s trademark: • • • • • Level Luffing Wharf Cranes Pick and Carry Hydraulic Mobile Cranes Light Duty Earth Moving Equipments. Control of INDITAL’s product quality is a major concern right up to the shipping stage. Special transporting precautions preserve the high quality of INDITAL’s products. Terminal Tractors. product and service combine to give its equipment their total value. No one is tougher on the INDITAL’s products than the people who make them.

Mobile Cranes First Indigenous Producer of Aircraft Push Back Tractor with greater than 8000 Kilograms Draw Bar Pull • • • • • • . Fork Lift Trucks.technologies is the customers’ guarantee that the future belongs to the company with new ideas and the knowledge to develop them. Gradually INDITAL extended its operational area to the neighboring countries. As a consequence INDITAL’s products were initially launched in India. INDITAL is all set to tap the growing global market WHY INDITAL? • • India's largest Container Handling Equipment manufacturer. India's first manufacturer of SIX High Stacking Empty Container Handler. INDITAL has also preferred to grow gradually while catering to customer satisfaction. with a firm footing in the domestic market. 3 different types of Side Lift Truck for Empty Container Handling Capabilities to manufacture Non-standard capacity in Reach stackers. Has a range of Reach Stackers to suit every application and budget. Today INDITAL is supported by a strong sales and service team catering to the various clientele. India's only manuf acturer of Pick And Carry Cranes in the 18-32 categories. • The only manufacturer in India having the indigenous design capability to manufacture Fork Lift Truck up to 50 tons capacity. Now. INDITAL manufactures the widest range of Container Handling Equipments in India.

Chapter 4 Review of Literature .

materials-in-process (i. packing materials. solids. semi-finished goods). humidity.INTRODUCTION Materials are of many types. scrap and waste and rejects or rework are used in manufacturing organizations. flame and vibration affect the layout of facilities for handling.e. the size of the organization. raw materials. Materials Handling is defined as the art and science of moving. finished goods. purchased components. light. The scope of materials handling within an organization depends on the type of the product manufactured. For example. The characteristics of the materials to be used in production are determined by product design decisions. storing and processing these materials. fluids.. These materials are of various size. heavy materials. The layout of facilities is directly affected by the nature of these materials. dust. .. viz. the value of the product and the value of the activity being performed and the relative importance of materials handling to the enterprise. cold. maintenance and repairs supplies. packing and storing of substances in any form. and specific features. flexible and inflexible materials and materials requiring special handling to protect them from conditions such as heat. shape. large and bulky materials.

Importance of Material Handling 1. Materials handling system and plant layout enhance effectiveness of each other. involves a much broader consideration of all materials handling activities involving the movement of materials from all sources of supply (vendors). There are three perspectives about materials handling. These movements do not add value to the product but they do add to the cost. • Plant-wise concern for overall flow of materials focuses on the interrelationship between all handling problems and the possibility of establishing an overall materials handling plan. wherein the emphasis is on the movement of material from one location to another within the confines of the individual plant. They are: • The traditional point of view. A good plant layout enables an operation to use the most efficient handling method. Efficient Materials Handling is important to manufacturing operations. 2. it is hardly practicable in a manufacturing process. Objectives of Materials Handling Even though the best solution to the material handling problem is no handling. Efficient operation of appropriate materials handling methods reduces costs and enables maximum capabilities to be derived from a given production facility. all handling activities within and around the plant and the handling activities involved in the distribution of finished goods to all customers of the firm. Materials handling is an important part of the design of a production facility and can hardly be treated as separate. • The systems point of view. Materials sent by vendors must be unloaded and moved through various departments. Hence the main .

Contribute to better quality by avoiding damage to products by insufficient handling.objective of material handling is to reduce the number of handlings as well as the overall cost of material handling equipments and reducing the distances through which the materials are handled. Although there are no hard and fast rules. Increased storage capacity through better utilization of storage areas. they do provide effective guidelines for the efficient movement of materials in most facility layout. Reduction in manufacturing cycle time through faster movement of materials and by reducing the distance through which the materials are moved. Reduction in manufacturing cycle time results in reduced workin-progress inventory costs. which are the core of the materials handling system. minimizing backtracking Related production processes should be arranged to provide for direct material flows . • • • • Contribution towards the better control of the flow of materials through the manufacturing facility. Materials Handling Principles Certain principles have evolved to guide facility layout to ensure efficient handling of materials. Other objectives of materials handling are as follows: • • Lower unit materials handling costs. The material handling principles that provide a framework for selecting specific materials handling equipment or devices. Improved working conditions and greater safety in the movement of materials. are enlisted below: • • Materials should move through the facility in direct flow patterns.

The product will not be worth any more to the consumer simply because it is moved. changes in production system technology. the costs of operating the handling system are elusive. • Mobile equipments should carry full loads all the times Materials Handling Costs The costs of materials handling arise from two sources: the cost of owning and maintaining equipment and the cost of operating the system. . Every effort should be made to reduce materials handling costs. There are three fundamental ways of minimizing the costs. While the cost of owning the equipment generally known since entries are available in the books of accounts. They are as follows: • • • Eliminating the handling itself whenever and wherever possible Mechanizing whatever handling still remains Making the necessary handling more efficient Primary requisite of any action to be taken towards minimizing handling costs is to have a record maintained for them. etc. particularly because they do not add any value to a product. but it will cost the customer more.• • • • Mechanized materials handling devices should be designed and located appropriately so that human effort is minimized Heavy and bulk materials should be moved the shortest distance during processing The number of times each material is handled should be minimized Systems flexibility should be allow for unexpected breakdowns of materials handling equipments. as records are not generally maintained.

Quantity of equipments 7. Frequency 2. Specific requirement of activities 5. Moves 1. Possibility of performance during move 4. Possible Alterations D. Equipment Required 4. Number of operators 5. Volume of production 3.Factors to be considered in planning Material Flow A. Material or Product (Material flowing through the facility) 1. Handling Methods 1. Unit Handled 2. Space requirements 8. Process (Activity Centers) 1. Product vs. Desired Flexibility 3. Number of different parts 4. Number of sub-assembles C. Characteristics a) Receipts b) Shipments 2. Sequence of operations 3. process layout 6. Storage requirements B. Speed . Type 2.

Desired Location of departments F. Number of floors 5. Area 7. Site 1. Location of receiving and shipping E. Possible damage of materials . Rate 4. Size 2. Sources 9. Shape 3. Volume 5. Distance 8. Building 1.3. Miscellaneous 1. Working Conditions 5. Destinations 10. Supervisory Requirements G. Scope 6. Expansion Possibilities H. Movement 3. Safety 4. Number 2. Location of doors 6. Type 4. Ceiling height 7. Cross Traffic 11. Transportation facilities 2. Location of Auxiliary services and activities 2. Personnel 1.

Conveyor systems c. Flexibility 6. type of material handled and the methods. Manual systems b. Mass-production handling System . Material oriented system depends on the type of materials handled: a. Industrial truck systems f. Mechanized or automated systems c. Fork-lift truck and pallet truck systems e. Production Control 5. Underground systems 2. Liquid handling system 3. Equipment oriented systems depending on the type of equipment used: a. Tractor-transfer systems d. Overhead systems b. need or functions performed. Unit handling system b.3. Bulk handling system c. These classifications are: 1. Levels of activity Types of Material Handling Systems The materials handling systems can be classified according to the type of handling equipment used. Job-shop handling systems d. Method oriented systems are as follows: a. Expendability 7. Cost of implementation 4.

Elevating System . Function oriented systems such as: a. Transportation System b.4. Transferring System d. Conveying System c.

Chapter 5 Materials Requisition Planning .

Hence. availability of dependent demand items at a short notice). the items are produced or bought as the case may be to replenish the stock to the maximum level. must co-ordinate the availability of sufficient production capacity with the availability of all raw materials and purchased items from which the end products are produced. A schedule of orders is developed for purchased materials and in-house manufactured items over the planning horizon based on the knowledge of lead items for procurement or in-house production. The gross requirements of these materials are reduced to net requirements by taking into account the materials that are in inventory or on order. there is a need to manage he availability of dependent demand items from which the products are made.e.. However. .e. One approach to manage the availability of dependent demand items is to keep a high stock of all the items that might be needed to produce the end products and when on the other hand stock dropped below a present re-order level.. The technique is known as Material Requirements Planning (MRP) technique. parts and sub-assemblies. fabricated parts and sub-assemblies to ensure high service level (i. needed to produce the end product each time period (week or month) of the planning horizon. this approach is costly due to the excessive inventory of components. materials or purchased items. to produce its end products. An alternative approach to managing dependent demand items is to plan for procurement or manufacture of the specific components that will be required to produce the required quantities of end products as per the production schedule indicated by the Master Production Schedule (MPS). MRP is a system in which the given MPS is exploded into the required amounts of raw materials.A manufacturing company. Dependent demand items are the components i. fabricated parts or subassemblies that make up the end product.

which are as follows: 1.Objectives of MRP: • • • To improve customer service by meeting delivery schedules promised and shortening delivery lead times. Overview of MRP Basically. when they should be ordered and when they should be procured or produced in-house. The MRP technique is used as an inventory control tool. providing reports that specify how many components should be ordered. Order planning or control – when to release orders and for what quantity? 2. 3. To reduce inventory costs by reducing inventory levels. MRP performs three important functions. MRP consists of a set of computer programs that are run periodically (once a week or month) to incorporate the latest schedule of production requirements. Flow chart that provides a general overview of MRP Product structure file MRP Inventory status file Buy Items Make Items Purchase orders Production Activity . To improve plant operating efficiency by better use of productive resources. Provision of a basis for planning capacity requirements and development of broad business plans. Priority planning and control – comparison of expected date of availability with the need date of each item.

This file identifies each component by a unique part number and . etc. BOM File or Bill of Materials File (Product Structure File) – provides the information regarding all the materials. It also includes other information such as lot sizes. and scrap allowances. 2. parts and sub-assemblies that go into the end product. 3. schedule receipts and planned order releases for the item. Production Schedule – specifies what end products are to be produced and when. Inventory Status File – gives complete and up to date information on the on-hand quantities. gross requirements. lead times. The planning horizon should be long enough to cover the cumulative lead times of all components that must be purchased or manufactured to meet the end product requirements.Operation of the MRP system Inputs Processing Outputs Inventory Status F ile Production Order I Schedule MRP Systems Exception Reports Production Schedule BOM File MRP System Inputs 1. safety stock levels.

2. It also modifies the previous planned orders. . Planned Order Schedule – plans the quantity of each material to be ordered in each time period.facilitates processing by exploding the end product requirements into component requirements. Exception Reports – lists the items requiring management’s attention to control. MRP System Outputs 1.

Chapter 6 Methodology .

the problem of generalization exists. journals. LIMITATIONS: As we know every project /study has its own limitations. personal bias cannot be totally eliminated. Henceforth a tailor made mechanism for internal control of materials and stores was proposed. so as to study the existing system adopted by the company with respect to internal control system of materials and stores.The present study has three phases: PHASE – I : EXPLORATORY RESEARCH In the first phase. Despite of the limitation maximum care was exercised to make the study scientific & meaningful. It consists of secondary literature of survey consisting of books. an exploratory research has been undertaken to gain additional background information about the general nature of the research problem. PHASE – II : STRUCTURED INTERVIEW In the second phase. a detailed and structured interview was undertaken with the management and the concerned departments. PHASE – III : ANALYTICAL RESEARCH The process as studied in the second phase was compared against the exploratory research conducted in the first phase and the likely loop holes in the process were identified. legal requirements and process adopted by companies in general. ♦ Since the scope of study is restricted to INDITAL. websites. . In the course of the project various types of limitations have been experienced. ♦ As the data collection is through personal interview.

Chapter 7 Study & Analysis .

The problem statement is to control the internal movement of materials and avoid mismanagement of the same. the purchase department may not be in a better . Format for Purchse Requisition: The Purchase requisition raised by the Production Department against the Work Order received from the Purchase Department does not have a particular format and is prepared in loose sheets. Purchase Order: Sometimes. there is no purchase Order Number to refer to the receipt of goods. As such. Hence. Some of them are listed below as follows: 1. 2. stores will not have any basis to accept the materials arrived. few Purchase orders are raised verbally. Analysis: Since. Purchase department should raise purchase orders verbally only in emergency situations and a confirming Purchase order should be raised to keep track of the materials. As such many loop holes in the existing Internal Control System were identified during the study. which delays the entire process. In such cases. the Purchase Orders are made verbally and no confirming Purchase Orders are made subsequently to support a document for the order placed. Apart from this the document is also prepared for two or three works orders together and does not mention what materials are required for which order. the storekeeper should contact Purchase department to confirm the Purchase order. Analysis: Since the same Purchase Requisition is used for more than one work order.

Stores Ledger is also not maintained. as they are prepared in loose sheets there is always a possibility of loosing the papers by oversight. Quality Control Department: No document is maintained to record the movement of goods between the Quality Department and Stores. Also. This may result in Ordering of materials that are sufficiently available and non-availability of goods when required. This document does not exhibit the receipt and issue of materials on a daily basis. Stock details are recorded in the Purchase Department on a monthly basis. . Sometimes the workers take delivery of goods directly from the Quality Control Department and later fills up the Materials Issue Slip in the Stores. which may go unnoticed and hence affect the production schedule as a whole.position to give preference to those materials that is required for the Work order that should be executed earlier to the other. neither a BIN Card nor a daily Stores Ledger is maintained. Analysis: As. Analysis: Since no document is maintained for the movement of goods from Quality Control Department to stores. 3. 4. Non-maintenance of Bin Card: The Stores does not maintain any Bin Card. The materials returned to the Stores by the Production Department are not recorded. it is difficult to know the level of any material as on any particular day. there is always a possibility of loosing the goods in transit.

Non-maintenance of Materials Rejection Note: The Quality Control Department verbally communicates to the Purchase Department about the rejection of goods. No written document is maintained for the purpose. 6. As the above loop holes were identified and appropriately analyzed. This may result in the Purchase Department personnel ignoring the matter by oversight leading to delay in meeting the Production schedule. the storekeeper issues the materials for Production without appropriate basis for such an issue.5. the existing system adopted at INDITAL was found to be insufficient. Quite a few grounds have been identified and analyzed that make way for mismanagement of materials. which requires the signature of the worker requiring the material and that of the supervisor for the issue of materials. Analysis: As. The worker receives the materials by signing the Materials Issue Slip that is signed by the supervisor at his convenience. Stores have a Materials Issue Slip. no Materials Requisition Note is maintained. Analysis: As. which can be eliminated by adopting a suitable process and procedure for the same. . Materials Rejection Note is not maintained and such rejection is verbally communicated to the Purchase department. Non-maintenance of Materials Requisition Note: Materials Requisition Note is not maintained by the Production Department.

Chapter 8 Proposed Model .

. ‘C’ Class items can be ordered against the Purchase Requisition raised and issued by the Stores. However this system should be adopted only for ‘A’ Class and ‘B’ Class items.The requirement of materials should be arrived at. Purchase Requisition shall be prepared in duplicate. The original is passed on to the Purchase Department while the duplicate is retained as a file copy. for receiving materials Purchase Order can be placed verbally only in case of emergency and the Purchase Department should ensure that a ‘Confirming Purchase Order’ is raised subsequently. by adopting an appropriate Materials Requirements Planning (MRP) which requires the consideration of the following: ♦ Bill Of material for the Work order received ♦ Requirement of the Materials by other projects ♦ Materials already ordered but awaiting receipt ♦ Production and Delivery Schedules ♦ Current levels of Materials in stores ♦ Safety Stock / Minimum Stock ♦ Maximum Stock Purchase order shall be raised on the basis of the Bill of Material prepared for each order received from the customer. (Note: Purchase Requisition is raised only in case of ‘C’ Class items) Purchase Order shall be prepared in a set of three copies for distribution as follows: • • • Original and acknowledgement copy to supplier for acceptance Copy to the purchase department One copy to stores.

No………. Quantity Quantity Quantity Required for Orders Prepared By… … … … … … … … . should be printed on the reverse side of the original copy of the order. indicating detail instructions as to indemnify against dispute with the third party. Description Code No...Denotes File Copy Purchase Order (Stores) To check the materials on receipt . A specimen of Purchase Requisition is given below: Purchase Requisition Date…/…/…….Conditions of purchase. arbitration and the liquidated damages in case of non-supply within schedule time etc. method of settlement of disputes. in Hand Available Required Work Order No. Signature:……………… Flow Chart of Purchase Order Purchase Order *Purchase Order (Purchase) Purchase Order (Supplier) *.

… … … . Stores Receipt: On the receipt of materials from the Supplier./……. and shall prepare a Stores Received Note (SRN).Purchase orders shall be followed up thoroughly by purchase department till the material is received in stores. in three copies.. & Date…………… Quantity Quantity Received By… … … … … … … … … … … … … … … Quantity Checked By… … … … … … … … … … … … Quality Inspected By./…. and shall be accompanied by the Bill Of Material for each order. and replacement received for rejected materials. … … … … … … … … … … … .. accepted after quality inspection. the Storekeeper shall refer to the Delivery Challen to find out Purchase Order concerned.. Carrier’s name:… … … … … … … … … … Challen No.. Supplier’s name:… … … … … … … … … … … … … … … Purchase Order No………………..The copy issued to the Stores for its reference shall mention the Work Order No. Code No. Description Quantity Received Accepted Rejected No. to be circulated as follows• • • Purchase Department Quality Approval File copy A Specimen of Stores Received Note is given below: Stores Received Note Date….

while the first copy is sent to Purchase Department as a record of acceptance of materials ordered and supplied by the vendor. Invoice when received are checked with Priced SRN for issue of Pay Order to the Accounts Department. the storekeeper shall enter the quantity columns. SRN can be checked and priced out by the Purchase Department with reference to Purchase Order. Flow Chart of Stores Received Note SRN *S R N (Stores) SRN (Q.C.) With Seal on Acceptance SRN (Q. ) SRN (Stores) Entry in Bin Card *. When the Quality Control Department accepts the materials.After verification with the specifications given in the Purchase Order and physical counting.Denotes File Copy Entry in Stores Ledger SRN (Purchase) .C. the Inspector puts a seal on the respective copies of SRN and puts his signature. One copy of the SRN is sent to Stores for recording in Bin Card. and send two copies of SRN to Quality Control Department along with sample material for Inspection and approval of quality.

. The original is sent to the Purchase Department through which the supplier is intimated to replace the goods free of cost. Quantity MRN No.. Entry of outsiders. SRN No. other than those employed in the department should not be allowed inside the department. Quantity When Materials are rejected. the Inspector shall preferably inspect the whole lot and immediately raise a Material Rejection Note (MRjN) in three copies. The second copy is sent to the Stores wherein the Storekeeper separates the goods and places them in “Rejected Goods” areas. especially in the Quality Control Department and Stores. Balance Quantity Verified By No.A Specimen of BIN Card is given below: BIN CARD Description:…………………………………………………… Code:………………… Lo cation:……………… Receipt Date Issue Unit:……………….

The worker shall submit this Note to the storekeeper who prepares a Materials Issue .:……… Purchase Order No………………… Supplier’s name: … … … … … … … … … … … … … … … Description Code No. This Note shall mention the name of the worker authorized to receive the materials. and should require the signature of the Supervisor. Work Order No.) M Rj N (Purchase) * Denotes File Copy M Rj N (Stores) A Specimen of Material Rejection Note is given below: Material Rejection Note SRN No.Flow chart of Material Rejection Note M Rj N *M Rj N (Q. Quantity Rejected Reason for Rejection No. he shall approach the Supervisor who issues a Materials Requisition Note (MRN) to that worker. Date…/…/……… Inspected By: … … … … … … … … … Signature:…………………………………… Stores Issues: When a worker requires any material.C.

Work Order No……….Note (MIN) in duplicate against the Materials Requisition Note wherein the worker signs on receipt of materials. Description Code No. The Storekeeper shall cancel the materials issued in the Bill Of Material for the respective Work Order and make necessary entries in the Bin Card.Denotes. /…….. No. Quantity Required Worker Taking Delivery: … … … … … … … … Supervisor’s Signature . Flow Chart of Material Requisition Note MRN (Production) MRN (Stores) Flow Chart of Material Issue Note MIN (Stores) *M I N (Stores) MIN (Purchase) * . The Storekeeper shall seal the original MIN and forward the same to the Purchase Department.File Copy A Specimen of Material Requisition Note is given below: Material Requisition Note Date: … /….

A Specimen of Materials Issue Note is given below: Material Issue Note Date:. On the receipt of the materials. Work Order NO……… Quantity Issued Worker’s Signature Storekeeper’s Signature Stores Returns: The left over stock in Production should be sent back to the Stores after the completion of each Work Order accompanied with a Materials Return Note (MRtN) mentioning the materials returned. put the materials in their respective bin. The Storekeeper shall then put a seal on this note and send it to the Purchase Department along with the other MINs for recording in the Stores Ledger. Description Code No. the Storekeeper shall make necessary entry in the Bin Card..…/…. Flow Chart of Materials Return Note M Rt N (Production) M Rt N (Stores) Sealed on Receipt and Recording M Rt N (Purchase) ./…… MRN NO………. their quantity. pertaining to which Work Order and shall be signed by the Production Manager. No.

Balance Amount MRN No. Qty Amt Quantity Other issues at Stores: . A Specimen of Stores Ledger is given below: Stores Ledger Description: … … … … … … … … … … … … Code:………………… Location:……………… Receipt Date SRN No. Production manager’s Signature Stores Ledger: The Purchase Department shall maintain a Stores Ledger wherein different pages are allocated for different items of materials and entries are made on day-to-day basis. Quantity Issued No. …….…/…. Unit:……………….A Specimen of Material Return Note is given below: Material Return Note Date:. Qty Amt Issue Folio No. This book shall also mention the value of the items../…… Work Order NO……… Description Code No.

a Works Book must be maintained where in a separate page is allotted for each Crane and entries are made each day as to the materials that has gone into the Crane. However. when the material is taken to assemble to the final product necessary MRN should be raised in the Production Department. The proposed demarcation can be as follows: • • • Rejected Area Under Inspection Allocated for a particular order.Stores shall demark different locations that store materials that are at different stage in the process. as they are bulky and frequent movement of the same is not preferred. This will ensure that the production schedules are met and the finished product is ready for delivery on schedule. Also. against which a MIN is also raised in the Stores. Specialized Process for ‘B’ Class items: As most of the ‘B’ Class items are Sub-contracted. Specialized Process for ‘C’ Class items: . Specialized Process for ‘A’ Class items: ‘A’ Class items. and are received in less quantities. SRN should be raised and necessary Quality Inspection should be conducted at the factory itself. Here the Work Order Number should be mentioned and can be created as and when required. This will provide as a solid basis for valuing Work in progress as on any day. All these documents should be circulated as usual. can be directly downloaded at the factory instead of Stores so that the frequent handling of the materials is avoided. Work in Progress: At the Production Department. each of these items should be preferably inspected so a better check can be imposed on these items.

These items do not require any Quality Testing and as only Quantity Check is sufficient which can be done at Stores itself. As such it is sufficient if the Storekeeper himself certify the Quality for these items and hence sign for the Quality of these items in the SRN rose for the purpose.‘C’ Class items should be ordered on the basis of PRN raised by Stores which is in turn raised when a particular item has reached a particular level that can be fixed as ‘Reorder Level’. Flow Chart of ‘A’ Class items Directly Unloaded At Factory Quality Inspection At Factory Used For Production At Factory Flow Chart of ‘B’ Class items Unloaded At Stores Total Quality Inspection At Quality Control Department Issued for Production by Stores to Factory .

Flow Chart of ‘C’ Class items Unloaded and Quantity Tested At Stores Issued for Production by Stores to Factory .

Chapter 9 Summary & Conclusion .

. ' Complete documentation of the activities concerning the internal ' Improved Materials Requirements Planning. movement of materials between departments. concerned departments.The problem of controlling the internal movement of materials at INDITAL and avoiding the mismanagement of the same can be resolved considerably by adopting the proposed model that is tailor made for INDITAL. The proposed model is advantageous to the company and ensures the company that there are minimum or rather negligible possibilities for mismanagement of the materials. especially during the internal movements of materials between various departments. The benefits that can be derived by the company by adopting the proposed model are enlisted below: ' Better control on the internal movement of materials between the ' Easy identification of the materials as to the source and destination.