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Bharat Heavy Electrical Limited (BHEL) is Established in the late 50 s! t"day! a name t" rec#"n $ith in the ind%strial $"rld& It is the lar'est en'ineerin' and man%(act%rin' enter)rise "( its #ind in India! and "ne "( the leadin' internati"nal c"m)anies in the )"$er (ield& BHEL "((ers "ver *+0 )r"d%cts and )r"vides systems and services t" meet the needs "( c"re sect"rs li#e, -"$er! .ransmissi"n! Ind%stry! .rans)"rtati"n! N"n/ 0"nventi"nal Ener'y 1"%rces! and Oil 2 3as E4)l"rati"n 2 .elec"mm%nicati"n& With *5 6an%(act%rin' 7ivisi"ns! a $ide s)read Re'i"nal 1ervices Net$"r#! and -r"8ect 1ites all "ver India 2 abr"ad and $ith an e4)"rt )resence in m"re than 50 c"%ntries! BHEL is tr%ly India s Ind%strial ambassad"r t" the $"rld& All ma8"r 6an%(act%rin'! Erecti"n and 1ervice %nits "( BHEL have been a$arded I1O 9000 certi(icati"n& BHEL s Bh")al )lant is the c"m)any s "ldest %nit $ith %)dated 2 state/"(/the/art man%(act%rin' (acilities& .he )r"d%ct ran'e at Bh")al incl%des Hydr"! 1team! 6arine 2 N%clear .%rbines! Hydr" 2 .%rb" 3enerat"rs! .rans("rmers! 1$itch'ears! 0"ntr"l'ears! .rans)"rtati"n E:%i)ments! 0a)acit"rs! B%shin's! Electrical 6"t"rs! Recti(iers! Oil 7rillin' Ri' E:%i)ments! Battery -"$ered Vehicles and 7iesel 3eneratin' sets& .his %nit have been rec"mmended ("r I1O/*500* certi(icate ("r its Envir"nmental 6ana'ement 1ystem& BHEL Bh")al;s stren'th is e4isted in its em)l"yees& 0"m)any invests in H%man Res"%rce c"ntin%"%sly and is alive t" their needs& .he )lant;s $ell established t"$nshi) is s)read "ver an area "( ar"%nd <0 s: #ms and )r"vides '""d Health (acilities! 1)"rts 2 Recreati"nal -ar#s

=%ncti"ns "( (inance 7e)artment

=inance 7e)artment is s%))"sed t" l""# a(ter basically $hether e4)enses are '"in' as )er b%d'et "r n"t& Any e4)enses ta#in' )lace cann"t ta#e )lace %nless c"nc%rred by =inance 7e)artment& All )%rchase "rders have t" (irst c"nc%r by (inance& A(ter )r"c%rement bill )r"cessin' and acc"%ntin' is t" be d"ne by (inance& .hey have t" d" st"res c"/"rdinati"n ("r )ricin' "( materials& .hey are als" en'a'ed in ("rei'n )%rchased bills and iss%e "( 0 ("rms& .hey are inv"lved in st"res veri(icati"n& All administrati"n matters s%ch as estimati"n "( vari"%s e4)enses ((inali>ati"n "( b%d'ets)& 0"m)%ter c"/"rdinati"n ("r desi'n and )r"vin' "( (inance systems and data entry mana'ement and c""rdinati"n "( )r"vident (%nds! #ee)in' rec"rds "( $"r#ers time and calc%lati"n "( their $a'es! salary! administrati"n and billin' mana'ement and acc"%ntin' "( t"%r all"$ance and L.0 are bein' d"ne by them they als" mana'e $"r# and miscellane"%s (%nds! maintain the b""#! )re)are vari"%s ty)es "( (inancial b%d'ets! )re)arin' timely 6IRs! en'a'ed in sales (inance! c"stin' and che:%e secti"n is inv"lved in cash )lannin' and iss%e "( che:%es t" the )arties&

BHEL s Ob8ectives
*& B%siness 6issi"n,

." maintain the leadin' )"siti"n as s%))lier "( transmissi"n! %tili>ati"n and c"nservati"ns "( ener'y! ("r a))licati"n in the areas "( electric )"$er! trans)"rtati"n! "il and 'as e4)l"rati"n and ind%stries& ?tili>e c"m)any s ca)abilities and res"%rces t" e4)and b%siness int" allied areas and "ther )ri"rity sect"rs "( the ec"n"my li#e de(ense! c"mm%nicati"n and electr"nics&

<& 3r"$th,
." ens%re a st%dy 'r"$th by enhancin' the c"m)etitive ed'e "( BHEL in e4istin' b%siness! ne$ areas and internati"nal ")erati"ns s" as t" (%l(ill nati"nal e4)ectati"ns (r"m BHEL&

@& -r"(itability,
." )r"vide a res)"nsible and ade:%ate ret%rns "n ca)ital em)l"yed )rimarily thr"%'h im)r"vements in ")erati"nal e((iciency! ca)acity! %tili>ati"n and )r"d%ctivity and 'enerate ade:%ate internal res"%rces t" (inance the c"m)any s 'r"$th&

5& 0%st"mer ="c%s,

." b%ild a hi'h "( c%st"mers c"n(idence by )r"vidin' increased val%e ("r his m"ney thr"%'h internati"nal standards "( )r"d%ct :%ality! )er("rmance and s%)eri"r c%st"mer service&


-e")le Orientati"n,
." enable each em)l"yee t" achiever his )"tential! im)r"ve his ca)abilities! )erceive his r"le and res)"nsibilities and )artici)ate and c"ntrib%te )"sitively t" the 'r"$th and s%ccess "( the c"m)any& ." invest in

h%man res"%rces c"ntin%"%sly and be alive t" there needs&

A .echn"l"'y,
." achieve techn"l"'ical e4cellence in ")erati"ns by devel")ment "( indi'en"%s techn"l"'ies and e((icient abs"r)ti"n and ada)tati"n "( im)"rtant techn"l"'ies t" s%it b%siness needs and )ri"rities and )r"vide a c"m)etitive advanta'e t" the c"m)any&

B Ima'e,

." (%l(ill the e4)ectati"n "( st"c#h"lders li#e '"vernment as "$ner! em)l"yees! c%st"mers and the c"%ntry at lar'e have (r"m BHEL&


7ecember *95A, Scope of setting up Heavy Electrical industry in India. Project revived by the ministry of production.

A%'%st *95<,

A%'%st *95<,

GadKari Committee formed of e amining feasibility of state o!ned Heavy Electrical Industry. Gad"ari committee recommends establishing of state o!ned factory Collaboration agreement entered !ith EI# $K for %& years 'HE( registered& )oundation stone laid Production started in 'hopal 'rea" even reached *erger !ith 'HE( and IS+ ,--% certificate. ./* assessment underta"en that

Dan%ary *955,

N"vember *955,

<9thA%' *95A, *5th N"v& *95+, *st D%ly *9A0, *9B< E*9B@, *st Dan *9B5,

<@rd t" <+th *99+, is the first among all the 'HE( units.


Hydr" sets,
Hydro turbines of Kaplan# )rancis and pelton types !ith matching generators# values and au iliaries# reversible pump storage sets# mini micro

hydro sets# reversible pump turbine# and butterfly valves. .hermal 1ets, Steam turbines and generators up to 0%-*1#nuclear turbine of 023*1 !ith matching condensers and Heat E changers and marine turbine for propulsion of naval frigates# moisture separator reheater for &--*! nuclear turbines.

Po!er transformers up to 4--K5# instrument transformer up to 4-- K5 and reactors up to 4--K5.

Indoor metal clad oil circuit brea"ers for %% K5 vacuum circuit brea"ers upto22 K5.

a) Controlgear for industrial applications !ith air brea"s vacuum contractors. b) .raction controlgear# controlgear e6uipment for rail!ays and other traction

c) Control relay panels for po!er stations and transformer tap changers


a) b) c) d) e) *edium voltage and high voltage ratings up to 4--K5 systems. 7on 8 PC' applicators. Coupling capacitors up to 4--K5 class. Surge capacitors for protection. Electrical machines.

.racti"n E:%i)ment,
a) 03--904-- Hp 'G type !:*0 diesel electric locomotives !ith dc b) c) d) e)

traction generators as !ell as alternators rectifier sets. %2;-9%0&- HP *G type <:*4 diesel electric locomotives. %4-- HP'G type 1:s3 diesel electric shunting locomotives. =-- HP 'G type 1:S;d diesel electric shunting locomotives. 40-- HP %&-- 5:C type1CG0 locomotives.

() ') h) i) 8)

%&-- 5 'G :C multiple units for 'ombay suburban. 0& K5 'G electric multiple units for Calcutta# :elhi and madras. =&- 5 :C metro rail!ays for Calcutta. 3-- 5 :C tramcars for Calcutta. :iesel multiple units for Indian rail!ays.

Recti(ier and electr"nic e:%i)ment,

a) Po!er rectifier e6uipment. b) .hyristor converter for speed control of :C motors industrials drives. c) Po!er electronic e6uipment for po!er station and also for traction e6uipment.

6ADOR 6AN?=A0.?RIN3 -LAN.1 AN7 .HEI. -RO7?0.1


Hydr" 1ets! N%clear .%rbines! .hermal 1ets! 6arine .%rbines! A0 6"t"rs 2 Lar'e Electric 6"t"rs! -"$er trans("rmers! .racti"n 6achines 2 0"ntr"ls ("r .racti"n and Ind%strial A))licati"ns! 7iesel 3eneratin' 1ets! 1$itch 3ear! 0a)acit"rs! Ind%strial .%rbines&


-"$er trans("rmers! =rei'ht L"c" .rans("rmers! .rans("rmers! Instr%ment .rans("rmers! 7ry .rans("rmers! A&0& L"c"s! 7iesel Electric 1h%nters etc&



.hermal sets! 3as .%rbine 3enerat"r 1ets! 0"mbined 0ycleG0"'en -lants! Ind%strial .3 1ets! 0"m)ress"rs! Oil Ri's! 6ills! 1$itch'ear! Heat E4chan'er etc&


.hermal 1ets! N%clear 3enerat"rs! Hydr" 1ets! Ind%strial 6achines! 0"ntr"l -anels! Li'ht .rainer Aircra(ts! 3as .%rbines! 7e(ense E:%i)ment! Electric Arc =%rnances ("r meltin' 1teel etc&


?tility 2 Ind%strial B"$lers! 3enerat"rs! 1teamless 1teel .%bes!





Variable 1)eed 7rives! -r"'rammable L"'ic 2 7i'ital 0"ntr"llers! 6eters! -h"t" V"ltaicG1"lar )anels! Ins%lat"rs! .elec"m -r"d%cts 2 sim%lat"rs B"iler A%4iliaries E (ans! Air -reheaters& Wind 6ills! 1"lar Water Heaters 2 1"lar Lanterns& Ind%strial Valve


.he BHEL is maintainin' its 0%rrent Acc"%nt transacti"ns $ith the ("ll"$in' *& <& @& 5& 5& A& B& +& 9& 1tate Ban# O( India& 1tate Ban# O( Hyderabad& 1tate Ban# O( 6ys"re& 0anara Ban#& Ban# O( Bar"da& Indian Overseas Ban#& -%n8ab Nati"nal Ban#& H7=0 Ban# Ltd& 7e%tsche Ban#&

*0& 0itiban# N&A& **& 1tandard 0harted 3rinlays Ban#& *<& Ban# O( America& *@& Ban# O( .ravanc"re& *5& I0I0I Ban# Ltd& *5& I7BI BANC L.7&

Visi"n statement "( BHEL

'HE( has defined its vision# mission and values as follo!s.

> !orld class# innovative# competitive ? profitable engineering providing total business solutions&

.o be the leading Indian Engineering enterprise providing 6uality products# systems and services in the fields of energy# transportation# industry# infrastructure# and other potential areas.

*eeting commitments made to e ternal and internal customers )oster learning# creativity and speed of response. @espect for dignity and potential of individuals. (oyalty and pride in the company. .eam Playing. Aeal to E cel. Integrity and fairness in all matters.

0"r)"rate O((ice Ne$ 7elhi











6ADOR 0?1.O6ER1 IN VARIO?1 B?1INE11 1E0.OR1

State electricity board BSE'C 9 Po!er corporations# 7ational .hermal Po!er corporation# 7uclear Corporation# :amodar valley Corporation etc.

State electricity 'oard# 1est 'engal Po!er :evelopment Corporation (td# @astriya Ispat 7igam (td# Indian +rganic ? Chemicals (td # 7ational )ertiliDers (td.

Indian +il Corp# Indian Petro Chemicals (td# Hindustan Petroleum Corp (td# 'harat Petroleum Corp (td C(# @eliance Industries# +il ? 7atural Gas Corp# Gas >uthority +f India (td.


Indian @ail!ays# Port .rust viD# *umbai# Kol"ata# Chennai etc# Steel Plants# Cement Plants# State Electricity 'oards# $rban .ransport >uthorities.

OIL 2 3A1
+il ? 7atural Gas Corporation# +il India (td# Gas >uthority +f India (td# and *aDagon :oc"s (td.


.o manufacture the !ide array of products# 'HE( has developed the re6uired
infrastructure ? s"ills and a commitment to 6uality that enables it to meet stringent re6uirements of various industries. > Highly trained Engineers# .echnical ? *anagerial 1or" force is the driving force of the organiDation.


has a diverse manufacturing based supported by the contemporary and

uni6ue manufacturing facilities li"eE ;--- . Hydraulic press B.iruchyC# ,--- . )orge Press BHarid!arC# $H5 (ab B'hopalC# 'alancing .unnel for rotors up to %---*1.

'HE(Fs range of service e

tended from project feasibility studies at one end to

after 8 salesGservice at the other.


Po!er Sector 'HE( has the capacity to supply unit vise ranging from

%.&*1 to %---*1.





1ENIOR 736




7E-?.F 6ANA3ER









-resident "( India



N"minees "( -OI 6%t%al =%nds and ?.I LI0 Others ="rei'n Instit%ti"nal Invest"rs -rivate 0"r)"rate B"dies Indian -%blic NRIsGO0BsGOverseas Ban# 0"r)"rati"ns Em)l"yees 7irect"rs 2 Relatives .r%st 1hares in transit ."tal

<00 <*5++BB0B A*BB9*5 55AA@5<

0&00 +&+< @&@* *&+B

@BBABA55< <@5505+ 55<B55@ B+@5* +<0+<0 A50 *0050 *<**B*< <55BA0000

*5&5@ 0&9A *&+* 0&0@ 0&@5 0&00 0&00 0&05 *00&00

6EANIN3 O= WORCIN3 0A-I.AL +ne of the most important areas in the dayGtoGday management of the firm is the management of !or"ing capital. 1or"ing capital management is the functional area of finance that covers all the current account of the firm. It is the concerned !ith the ade6uacy of current assets. 1e "no! that there are t!o aspects of financial management that is procurement of funds and utiliDation of funds. Procurement of funds also have t!o aspects# viD. procurement of funds for financing !or"ing capital and for financing fi ed assets.

1or"ing Capital and Inventory

)inancial strength of an organiDation can be considered in terms of profitability and li6uidity. In the field of li6uidity it is necessary to measure that the funds are ade6uate for the level of business. In the efficiency side !e have to see ho! these funds are used. )inance *anager !ho had right 6uality money for li6uidity concern# right 6uality !hether o!n or borro!ed# @ight time to preserve solvency and from right source and at the right price. .he current assets of the organiDation converts in put to out put !hich are being sold brings money to the organiDation from !hich day the business commitments are met. Current liabilities are made up of borro!ing from ban"s and deposits from public# !hich are short term in natureH capitals invested for current assets are compared !ith the inventory available for the gro!th of the industry. It is needful for an organiDation to e pect return from its investments in inventory. Even sale of rupee has material contents# labour# and overheads# interest and profit. .he percentage !ill vary from product to product. (abour can be considerably constant including overheads. *aterial and interest are varied. Hence it is necessary for an organiDation to maintain the profit v9s inventory factor. .here are t!o factors !hich influence inventory. %.Internal factors 0 E ternal factors E ternal factors are mar"et conditions and internal factors are born in the internal functioning of the firm.

WORCIN3 0A-I.AL 0F0LE, / .he !or"ing capital cycle refers to the length of time bet!een the firms paying cash for materials# etc. Entering into the production process9stoc" and the inflo!s of cash from debtors BsalesC. 1+@KI7G C>PI.>( C<C(E

C>SH @>1 *>.E@I>(S LABO?R OVERHEA7 :E'.+@S S.+CK 1IP

Inventory *anagement

Inventory is defined as the sum of the value of ra! materials# spare parts# maintenance consumables# semiGprocessed materials# and finished goods at any given point of time. Since these resources are idle !hen "ept in the stores# inventory is defined as an idle source of any "ind having an economic value.

Inventory *anagement
It is the process of balancing the cost of carrying the inventory against

the cost of running out of Inventory. Hence Inventory *anagement can be defined as the procurement of right material in right 6uality at right time for right price. Inventories constitute the most significant part of current assets of a large majority of companies in India. +n an average inventories are appro imately 3-I of current assets in public limited companies. 'ecause the large siDe of inventories maintained by firms# a considerable amount of fund is re6uired to be committed to them. It is possible for a company to reduce its level of inventories to considerable degree for e ample %-I to 0-I !ithout any adverse effect on production ? sales by using simple inventory planning and control techni6ues. 'hel is a registered company under companies act %,&3. It follo!s all the rules ? regulation of company act as !ell as >ccounting standard issued by the Institute of chartered >ccountants of India BIC>IC.

7ature of Inventory
Inventories are stoc" of the product a company manufacturing for sale and components that ma"e up the product. >s per >ccounting Standard 0# .he various forms of inventories are as follo!s. @a! 8 *aterials 1or" in Process )inished Goods Spares ? Stores

@>1 *>.E@I>( E @a! materials are those inputs that are converted into finished product through the manufacturing process. .hese are purchased and stored for future production.

1+@K I7 P@+G@ESS E 1or" in Process inventories is semi8manufactured products. .hey represent products that need more !or" before they become finished product for sale. .hese are the part finished can be from the point of vie! of material# labour# overhead or combination of this. S.+@ES ? SP>@ESE Spares also form part of inventory. .he consumption pattern of ra! material# consumables# finished goods are different from that of spares. .he stoc"ing policies of spares are different from industry to industry. Some industries li"e transport

!ill re6uired more spare then the other concern . .he costly spare part li"e engine# maintenance spare etc. are not discarded after use# and rather they are "ept in the ready position for future use. >ll decisions about spares are based on the financial cost of inventory on such spares and the costs that may arise due to their nonG availability. )inished Goods E )inished Good inventories are those products# !hich are ready for sale. Stoc" of ra! materials and !or" in process facilitates production# !hile stoc" of finished goods is re6uired for smooth mar"et operations.

7eed )or .he Inventory

.here are three general motives of for holding inventory. .ransaction *otive Precautionary *otive Speculative *otive .ransaction motive emphases the need to maintain inventories to facilitate smooth production ? sales operations. Precautionary motive necessitates holding of inventories to guard against the ris" of unpredictable changes in demand ? supply forces ? other factors. Speculative motive influences the decision to increase or reduce inventory levels to ta"e advantage of price fluctuation. > company should hold ade6uate stoc" of material for a continuous supply to the factory for an uninterrupted production. It is not possible for a company to procure ra! material !henever it is needed. .he procurement of materials may be

delayed because of such factors as stri"e# transport disruption or short supply. .herefore in order to meet the uncertainties the company should maintain sufficient stoc" of ra! material. .he other factors# !hich necessitate purchasing and holding of ra! material inventories# are 6uantity discount and anticipated price increase. 1or" in Process inventory maintained because of the production cycle. Production Cycle is the time span bet!een introduction of ra! martial in production ? to finished product at the completion of production cycle.

Importance of Inventory Control

*& ="r ade:%ate c%st"mer service& <& ." ta#e advanta'e "n b%l# )%rchases& @& ." ma#e )"ssible ec"n"mic "n trans)"rtati"n char'es&

5& ." ma#e lar'er )r"d%cti"n $ays )"ssible res%ltin' red%cti"n "( man%(act%rin'& 5& ="r )r"vidin' (le4ibility in )r"d%cti"n )lans t" meet chan'es in demand&
Ho!ever# it is not possible to achieve larger volume of out put by "eeping more inventories. 'ut lac" of inventory may hamper the production. Inventories as a !hole generate higher carrying costs. .he problem then arising of balancing these costs and stri"e on optimum inventory level giving a print of minimiDing total cost for each underta"ing. Introduction of proper control helps in "eeping the investment in inventories as lo! as possible. Hence it is essential to "eep an eye to control it. )or )inance *anager the !ord inventory is fearful and earmar" to him because of funds to invested on them in lines of ra! materials# consumable# spares etc. 'ut !e can identify inventory as purchases of goods stored and used for day to day functioning of organiDation. )or this it follo!s that inventory control is planning and devising procedures to maintain optimum level of the idle resources. .he 6uestion then arises !hy to hold inventory !hen it is an idle resource# primarily the inventory is a hold for transaction purpose. .odayFs inventory is tomorro!Fs consumption. 7ormally there is a time lag bet!een the need and its fulfillment. .his is called lead time# i.e. finite time re6uired for ordering# procurement of materials# 1e normally observed that there is a speculation element in reasons for holding inventory prices may arise of materials may become scarce during certain period of time# hence an aggressive manager !ill increase the inventory to compensate the supply. .he effectiveness of his decision !ill be depending on his forecasting s"ills. )inally inventories are held to decouple the materials department from the production


)unctions of Inventory
.here are three operating functions of inventory. .hese are %. *aterials 0. *anufacturing 2. *ar"eting *aterial subsystem is procurement of materialsH manufacturing subsystems is converting of the material into finished product for mar"eting them. Hence all these three subsystems are interlin"ed and feel on output of one subsystem as input of another subsystem. Inventory# !hich is primarily a stoc" of goods# forms a buffer at these interfaces and enable the smooth transfer of materials from one subsystem to another

CategoriDation of Inventory
Inventory can be segregated to the points of entry in the operations# ra! materials# consumables# bought out components# !or" in process# finished goods# spares. @a! materials are the major inputs of an organiDation# !hich bul" and

converted in to output. .his is also called as buffer bet!een procurement and manufacturing. Consumables are the materials !hich act as catalyst in production process and are not directly found in out put. 'ought out components are those# !hich are procured as finished good and attached to the foods# produced against materials. .his normally happened in engineering industry ..he !or"# !hich is in the progressive stage from ra! material I "no!n as !ord in process. .his can also be called as semi finished stage. )ull forms of ra! material to a finite shape are called as finished goods. Here the input rate is 6uite predictable because of this production programmed# but the consumption of this inventory depends on the mar"et behavior# the consumption process. .he long manufacturing cycle and numerous items# !hich constitute the product# cause all the problems ..he product them made !ill be transported# rectified and commissioned. .he completion factor of spares is differed from industry to industry. Spares may be maintained insurable spares# rot table spares. > portion of the each part in an engine is "ept spare so as to ma"e use the part as and !hen the e isting part of an engine bro"en9Jearo of91ear of.

Cost of +rdering
In an organiDation leadGtime is period of lapse bet!een identifying of need and its fulfillment# hence there is a relation bet!een the lead time and inventory !hich directly proportional. .he activities consume e ecutive and nonGe ecutive time# stationary and communication charges. .his !ill give raise to reordering cost# stationary# typing dispatching orders# reminding# advertisements tenders# telephone#

follo! up# cost insured by goods receiving# inspection and handling# salaries and statutory payments to purchasing personnel# cost of entertaining. .he total cost incurred on all these heads during the year to the number of orders released called the cost of ordering.

Cost of Carrying Inventory

It is c"st inc%rred by carryin' the invent"ry& It is the )ercenta'e "( avera'e "( avera'e c"st "( the (%nds em)l"yed is %sed as a meas%re! c"st "( st"ra'e d%e t" the rents! de)reciati"n char'es inc%rred "n s)ace! salaries and stat%t"ry )ayments t" the st"re )ers"nnel! l"sses d%e t" )il(era'e $aste! brea#a'e etc&

Inventory control Procedure

.here are vari"%s meth"ds available ("r classi(icati"n "( invent"ries& *&

.his is m"stly %sed in m%lti items invent"ry&

It is e4)erienced that ab"%t *0K "( the t"tal n%mber "( items $ill acc"%nt ("r B5K "( the val%e "( 0"ns%m)ti"n ("rmin' LA Items& .hese items are classi(ied 'ivin' ti'htly c"ntr"lled invent"ry system $ith c"nstant attenti"n by Invent"ry A%th"rities&

Ab"%t *5K "( the t"tal n%mber "( items $ill acc"%nt ("r <0K "( the val%e "( c"ns%m)ti"n ("rmin' LB items& .hese items are 'ivin' a m"derate invent"ry c"ntr"l system $ith )eri"dic attenti"n by the invent"ry A%th"rities& Ab"%t B5K "( the t"tal n%mber "( items $ill acc"%nt ("r 5K "( the val%e "( the c"ns%m)ti"n ("rmin' L0 items& .hese are 'ivin' a sim)ler system "( c"ntr"l&

<& Ec"n"mic Orderin' H%antity One "( the ma8"r invent"ry )r"blem %s%ally the (irms enc"%ntered is h"$ m%ch invent"ry sh"%ld be added $hen invent"ry is re)lenished &I( the (irm is b%yin' ra$ materials! it has t" decide l"ts in $hich it has t" )%rchased "n each re)lenishment& I( the (irm is )lannin' a )r"d%cti"n r%n the iss%e is h"$ m%ch t" ma#e& .hese )r"blems are called "rder :%antity )r"blem! and the tas# "( the (irm is t" determine the ")tim%m "r ec"n"mic "rder :%antity& ." determinin' an ")tim%m invent"ry level %s%ally the (irm has t" inv"lve t$" ty)es "( c"sts!

Orderin' 0"sts 0arryin' 0"sts

.he ec"n"mic "rder :%antity is that invent"ry level $hich minimi>es the

t"tal "( "rderin' and carryin' c"sts&

Orderin' c"sts
.he term "rderin' c"st is %sed in case "( ra$ materials and incl%des the entire c"st "( ac:%irin' ra$ materials& .hey incl%de c"sts inc%rred in the ("ll"$in' activities, re:%isiti"nin'! )%rchase "rderin'! trans)"rtin'! receivin'! ins)ectin' and st"rin'& Orderin' c"st increase in )r")"rti"n t" the n%mber "( "rders )laced&

0arryin' c"st
.he carryin' c"sts incl%de st"ra'e (acilities! shi))in' 2 receivin'! Wareh"%sin' ")erati"n! 1ec%rity meas%res! .a4 2 Ins%rance! 0"st "( Obs"lescence! 0"st "( 7eteri"rati"n etc&

@& Re"rder -"int

.he determinati"n "( Ec"n"mic Order H%antity )"int tells %s h"$ m%ch t" "rder and 'ives the n%mber "( "rders in a year b%t it d"es n"t indicate $hen t" )lace the "rder& We can easily minimi>e this by %sin' LLead time $hich $ill )lay the decidin' r"le in the :%esti"n& .he sit%ati"n is m"re c"m)licated $hen $e establish the system! $e $ill have t" ta#e care "( the l"n' lead/time int" s%((icient initial st"c# and then ("ll"$ it %) re'%larly $ith EOH cycles&

-RIN0I-LE1 O= INVEN.ORF 6ANA3E6EN. Invent"ry

decisi"ns hin'e "n the trade/"(( bet$een the c"st "( h"ldin' m"re invent"ry and the c"st "( h"ldin' less& B"th sides "( the trade/"(( can be mana'ed t" red%ce invent"ry c"sts relative c%st"mer service& .he ch"ice "( h"$ m%ch cycle st"c# t" h"ld de)ends "n the trade/"(( bet$een h"ldin' c"sts and set%) "( "rderin' c"sts& Lar'e batches re:%ire m"re invent"ries t" be held! b%t enable the (irm t" ta#e advanta'e "( ec"n"mies "( scale )%rchasin' and t" red%ce set%) c"sts by settin' %) less "(ten&


invent"ry sh"%ld n"t be %sed t" mas# )r"d%cti"n )r"blems& .he

m"re )r"d%cti"n )r"cesses and :%ality are im)r"vedM the m"re invent"ry can be red%ced $ith"%t increasin' the ris# "( sh"rt(alls& Invent"ry )r"vides )r"tecti"n that is needed les and less as )r"cesses are streamlined and :%ality is im)r"ved& A %se(%l anal"'y is t" thin# "( invent"ry as the $ater in river and )r"cess )r"blems as r"c#s& As r"c#s are rem"ved! $ater r%ns m"re (reely! b%t $hen the $ater level is l"$ered! m"re r"c#s bec"me a))arent& When the )r"cess is re)eated en"%'h times! the (l"$s (reely $ith a m%ch l"$er level "( $ater! i&e& m%ch less invent"ry& .he messa'e delivered by this anal"'y is that the cycle "( im)r"vin' the )r"cess and red%cin' invent"ry m%st be re)eated ("r c"ntin%"%s im)r"vement and the (%ll bene(it "( s#ill(%l invent"ry mana'ement& 0%st"mer $aitin' lines may red%ce the val%e "( a )r"d%ct "r service& H%e%es need t" be mana'ed t" balance the direct 2 indirect c"sts "( ma#in' c%st"mers Waite vers%s idle time& 6ana'in' the len'th "( $aitin' lines is im)"rtant beca%se $aitin' is "(ten c"stly t" c%st"mers! red%cin' the val%e "( the )r"d%ct "r service "( them and th%s the reven%es that the (irm an earn& .he idle time "( the server als" c"stly t" the (irm since the $"r#er is bein' )aid $hile idle& 3iven the %ncertainty in b"th service times and arrival times! $aitin' time and idle server time cann"t be entirely eliminatedM the "b8ective is t" ad8%st the L$asted time t" minimi>e the s%m "( the c"sts "( )""r service and idle service&


In n"rmal circ%mstances! )r"(it mar'in de)ends "n e4ternal (act"rs li#e c"m)etiti"n "ver $hich the mana'ement has little c"ntr"l& 1ince the ca)ital t%rn"ver rate is ma4im%m $hen the ca)ital investment is minim%m! the mana'ement may e4ercise c"ntr"l "ver the c"m)etitive trends in the mar#et t" a certain e4tent& .his is )"ssible thr"%'h c"ntr"l "( invent"ries& .he ca)ital in any "r'ani>ati"n is "( t$" ty)es& One is 0a)ital invested in (i4ed assets s%ch as b%ildin'! )lant! machinery etc! is termed as =i4ed 0a)ital and a c%t in this cann"t be e((ective& B%t a red%cti"n in $hat is called W"r#in' 0a)ital! hi'h )ercenta'e "( $hich is l"c#ed %) in the invent"ries! is )"ssible there is de(inite sc")e "( increasin' the )r"(it earnin' ca)acity "( the "r'ani>ati"n&

.hus# efficient management of inventories may result in more profit margin since it !ill reduce the operational ? inventory cost resulting in reduction production
-AR.I0?LAR1 R&materaial 2 c"m)"nents 1t"res 2 s)are <005 A!A9* A90 <005 5!9** 5BA <00@ 5!AA5 505 <00< 5!<+* 555

6aterial $ith =abricat"rs


5** *!5+B

5AB <!0@0

+<B *!@<0

1t"res in transit
1%b t"tal
W"r# in )r"'ress =inished 1"c# in Wareh"%se =inished 1t"c# $ith 0%st"mer 1cra)e Others

9!AB5 <5!+90 <!5A* 0 @5* <@*

B!@+5 <*!*++ <!A55 0 A< <5*

+!5AB <<!@@< <!5@5 0 BB *A+

B!9B@ <5!5B0 @!5B5 0 5+ B0

1%b ."tal 3r"ss invent"ry -r"v& N"n m"vin' st"c#

<B!9++ @B!AA< /@+

<5!*@5 @*!5<0 /<A

<5!**< @@!AB9 /*<

<9!0A@ @B!0@A /*A






cost# more competitive capacity# heavy turnover and increase in profitability. KSurplusesF cause financial hardships because they tie up capital and KShortagesF lead to poor operational results. 'ut# satisfactory ? scientific Inventory management eliminates these shortcomings# thus proves its importance.

FEAR EN7 INVEN.ORF O= LA1. =IVE FEAR1 (R1 in la#hs)

AB0 Analysis
.his is also referred to as L>l!ays 'etter ControlM or the alphabetical approach.
AB0 c"nce)t "( classi(yin' (""ds in an invent"ry is very c"mm"nly %sed ("r e4ercisin' e((ective invent"ry c"ntr"l& ?nder this techni:%e items in invent"ry are classi(ied acc"rdin' t" val%e "( %sa'e& .he hi'her val%e items have l"$er c"st "( sa(ety st"c#s beca%se the )r"tecti"n is very hi'h $ith res)ect t" hi'her val%e items& .he l"$er val%e items carryin' hi'h sa(ety st"c#&

.he annual consumption analysis of the organiDation !ould indicate that a handful of top high value items les than %-I of total number !ould account for a substantial portion of about =&I of total value. .hese items are under K>F category. Similarly large number of bottom line items account for about &&I of total 6uantity for only %-I of consumption value are categoriDed as C Category. .he items lying in bet!een the t!o are called ' Category. .hese techni6ues help to e ercise selective control# that is # more attention is given only to less number of items# !here a large amount of capital is bloc"ed. So that less amount of cost is re6uired for large amount of inventory


Ec"n"mic Order :%antity is re(erred t" as he si>e "( the "rder that 'ives ma4im%m ec"n"my in )%rchasin' the materials& In (act the EOH "((ers s"l%ti"n t" invent"ry )r"blems& It hel)s in (indin' a))r")riate levels "( h"ldin' invent"ries& It (acilitates the (i4ati"n "( "rderin' se:%ence and the :%antities s" as t" minimi>e the t"tal materials c"st& It sh"%ld ta#e int" acc"%nt all the (act"rs! $hich in(l%ence adversely he ade:%acy "( invent"ry and its c"nse:%ent c"sts& An inade:%ate invent"ry red%ces it t" the e4tent t" $hich it ens%res sm""th and e((icient ")erati"n "( the material de)t as $ell as that "( he $h"le "r'ani>ati"n&

.he costs# !hich influence the E+/# may broadly be classified into t!o categories from KCost managementF point of vie!. .he categories are %. .he Cost of >c6uiring materials that include the ordering cost#

inade6uate inventory cost. 0. Cost of Holding the material that includes the inventory carrying cost.

.he ="rm%la

E+/ N S/@.B B0/OCpC 9 ScC


E+/ / Cp Sc

represents Economic +rder /uantity represents /uantity of $nits purchased in a given period Bthe period is generally a yearC represents Cost of placing an order# and represents Storage Cost per unit per year.

Orderin' 0"st
It includes all the costs of procurement for a particular item of material. ItFs the same for any order placed for that item# irrespective of 6uantity. It includes

.ime spent in preparing bid re6uests. Evaluating cost estimates submitted by the suppliers Clerical e penses for purchasing the purchase orders .elephone costs to discuss delivery arrangements Percentage of purchasing department overhead >dministrative salary to be charged against a particular order. 0arryin' 0"sts
.he 0arryin' 0"sts incl%des all the c"sts ass"ciated $ith carryin' an invent"ry& It incl%des

Storage facilities Shipping ? receiving 1arehousing operations Security measures .a ? Insurance Interest e penses of capital Cost of +bsolescence Cost of :eterioration or Spoilage of Stored *aterial

Invent"ry Re)"rt ." 6ana'ement

.he main purpose of this report is to inform the management !ith the latest stoc" position of different items. .his report should contain all information also necessary for managerial action. +n the basis of these reports management ra"es corrective action !herever necessary. .he more fre6uently these reports are prepared the less !ill be the chances of lapse in the administration of inventories. '.H.E.( usually prepare monthly reports and each store maintains separate inventory reports.

Essential )eatures +f Good @eport

Proper title 7ame +f @a! material /uantity @emaining Cost of that Product :uration 7e! Purchase Inventory Cost


.he ma8"r #inds "( ra$ material %sed by B&H&E&L are

Steel Copper

Steel is the major ra! material used by the 'HE( than Copper. It nearly accounts 3-I of the ra! materials. So the 'HE( putting steel under K>F Category of >'C analysis. .hat means they are highly monitored materials. *ost of the steel is imported from the outside of the country# because these types steel are not manufactured in India. +nly upto ;-mm thic"ness of steel rods is manufactured in India. 'ut 'HE( has re6uired %--mm to %0-mm thic"ness steel. .he countries from !hich the steel imported are hereunder 1est Germany Japan $.S.> Canada

Copper is another most important ra! materials used by 'HE(. .here are t!o types of copper used in BHEL

CC @ods BContinuous Cast Copper @odsC Copper 1ire 'ar CC rods are thinner# and 6uality is also good. .hese rods are purchase from the follo!ing sources. HC( BHindustan Copper (imitedC Staliead Company 'hilai Steel Plant

Val%ati"n O( Invent"ries
.he value of materials has a direct bearing on the income of a concern# so it is necessary that a method of pricing materials should e such that it gives a realistic value of stoc"s. .he firms follo! the traditional method of valuing materials KCost Price or *ar"et Price !hichever is lessF. 'ut there are different methods of pricing material give different values. If management is interested to sho! more profits then it can choose such a method !hich !ill sho! more stoc" or vice versa. .he follo!ing methods for pricing material issues are generally used.

)irst In )irst +ut method

In this =I=O meth"d the materials! $hich are received (irst are iss%ed (irst& .he materials are iss%ed in chr"n"l"'ical "rder& .his meth"d is s%itable $hen )rices are (allin' beca%se material iss%es $ill be )riced at earlier (i'%res $hile c"sts "( re)lacements $ill be l"$&

Last In =irst O%t 6eth"d

In this (I)+ method he last received materials are issued first. .his method is also "no!n as replacement cost methods because the latest purchased goods !ill correspond to he current price e cept that goods !ere not purchased much earlier. (I)+ method is suitable during rising prices because goods !ill be issued from the latest received lots at prices# !hich are closely related to current mar"et price

Avera'e 0"st 6eth"d

In average cost method of pricing all materials in stoc" are mi ed that a price base on all lots is formed. It may be of t!o types. %. Simple >verage Cost *ethodE In this the prices of all lots in stoc" are averaged and the materials are issued on that average price.

0. 1eighted >verage Cost methodE In this method the total cost of all the materials are divided by the total number of items in stoc". .his method recover the !hole cost of materials. .his method is suitable !hen price fluctuations are fre6uently changed.

Base 1t"c# 6eth"d

In this method some 6uantity of materials is assumed to be necessary for "eeping he concern going. .he 6uantity is not issued unless other!ise there is an emergency. .his material# !hich is not issued as is "ept in stoc"# is "no!n as base stoc". .his method is not an independent method. It is used along !ith some other method such as )I)+# (I)+# and >verage Cost *ethod etc.

1tandard -rice 6eth"d

.he issue price of material is predetermined of estimated in this method. .he standard price base on mar"et conditions# usage rate# storage facilities etc. .he materials are priced at standard price irrespective of price paid for various purchases.

6ar#et -rice 6eth"d

In the mar"et price method the price charged to production are not costs incurred on the materials but latest mar"et prices. .he mar"et prices may either be realiDable prices or replacement prices. .he replacement prices are use for the materials# !hich are "ept in stoc" for use in production# and realiDable prices are used for the goods "ept for resale. 'ut this method of pricing is not been used because of the number difficulties e isted in it. It becomes difficult to select the mar"et price method because different prices are prevail in different mar"ets


6aterials 0"ns&










-ercenta'e O( 6aterial Over .%rn"ver





=indin's, 'y this chart !e came to "no! that material has it o!n importance over turnover. >s !e increase material# the turnover also increases.

1%''esti"n, 1e should give special attention on material consumption.

.he purchase of material should be economical. *aterial management department should be active regarding decision ma"ing. .he scrap percentages of material should be reduced.

Analysis "( Invent"ry -%rchases Over .%rn"ver







1ale "r .%rn"ver

Invent"ry -ercenta'e "ver 1ale









1cra)e Over ."tal 6aterial

<005 <005 <00@ <00<


A5!+59 *!@@B&5< <&0@K

5B!505 *!*A<&A9 <&55K



1cra) 1cra) K "n 6aterial

*!*55&<@ <&A5K



The standard percentage o scrap is !"#$% =indin's, =r"m the ab"ve chart $e came #n"$ that in the year 444444 and 444444 the )ercenta'e "( scra) is bel"$ standard )ercenta'esM In and <00*/<00< scra) )ercent m"re than standard )ercenta'e&