“A STUDY ON INVENTORY MANAGEMENT WITH A

REFERENCE TO ‘BHEL-HPVP’ AT VIZAG”

Introduction:

Inventory management refers to the process of ordering, storing, and using a

company's inventory. These include the management of raw materials,
components, and finished products, as well as warehousing and processing such
items. For companies with complex supply chains and manufacturing processes,
balancing the risks of inventory gluts and shortages is especially difficult. To
achieve these balances, firms have developed two major methods for inventory
management: just-in-time and materials requirement planning: just-in-time (JIT)
and materials requirement planning (MRP). Inventory management systems are
central to how companies track and control inventories. Having the ability to
measure inventory in a timely and accurate manner is critical for having
uninterrupted business operations because inventory is often one of the largest
current assets on a company's balance sheet. Two inventory management systems
exist: perpetual system and periodic system. Each system has its pros and cons, and
companies may choose based on their own needs for inventory control and
available company resources. The term inventory refers to the goods or materials
used by a firm for the purpose of production and sale. It also includes the items,
which are used as supportive materials to facilitate production.

There are three basic types of inventory:

Raw materials, work-in-progress and finished goods. Raw

materials are the items purchased by firms for use in production of finished
product. Work-in-progress consists of all items currently in the process of
production. These are actually partly manufactured products. Finished goods
consists of those items, which have already been produced but not yet sold.
Inventory constitutes one of the important items of current assets, which permits
smooth operation of production and sale process of a firm. Inventory management
is that aspect of current assets management, which is concerned with maintaining
optimum investment in inventory and applying effective control system so as to
minimize the total inventory cost.

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Meaning of inventory:

Inventory is a list for goods and materials, or those goods and materials
themselves, held available in stock by a business. It is also used for a list of the
contents of a household and for a list for testamentary purpose of the possessions
of someone who has died. In accounting inventory is considered an asset.

Types of inventories:

Inventories play a major role in a business or depending on nature of the

businesses. The inventoriesmay be classified as under-

Raw Materials:-

Materials and components scheduled for use in making a product. These are the
basic inputs, which are converted into finished products through manufacturing
process. Raw material inventories are those units, which have been purchased and
stored for future production.

Work in process / Progress:-

Materials and components that have begun their transformation to finished goods.
Materials issued to the stop floor, which have not yet become finished products
they are value added materials to the extent of labour cost incurred.

Finished Goods :-

A finished goods is a completed part that is ready for a customer order. These
goods have been inspected and have passed final inspection requirements so that
they can be transferred out of work-in-process and into finished goods inventory.
From this point, finished goods can be sold directly to their final user, sold to
retailers, sold to wholesalers, sent to distribution centers, or held in anticipation of
a customer order.

Stores & spares:-

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The level of four kind of inventory depends upon the nature of the business.
Supplies include office and cleaning materials like soap, brooms, oil, light, blubs
etc. these materials do not directly enter production, but are necessary for
production process.

Need or inventory control:

Transaction motive:-

Every firm has to maintain some level of inventory to meet the day-to-day
requirement of sales, production process, customer demand etc. In the finished
goods as well as raw material are kept as inventories for smooth production
process of the firm.

Precautionary motive:-

A firm should keep some inventory for unforeseen circumstances also like loss due
to natural calamities in a particular area, strikes, lay outs etc so the firm must have
some finished goods as well as raw-materials to meet circumstances.

Speculative motive:-

The firm may be made to keep some inventory in order to capitalize an opportunity
to make profit due to price fluctuations.

Basic reasons to keeping an inventory:

There are three basic reasons for keeping an inventory....

Time:

The time lags present in the supply chain, from supplier to user at every stage,
requires that you maintain certain amount of inventory to use in this “lead time”.

Uncertainty:

Inventories are maintained as buffers to meet uncertainties in demand, supply and

movement of goods.

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Economies of scale:
Ideal condition of “one unit at a time at a place where user needs it, when he needs
it “principle tends to incur lots of costs in terms of logistics. So bulk buying,
movement and storing brings.

Inventory management:

Inventory management is primarily about specifying the size and placement of

stocked goods. Inventory management is required at differ locations within a
facility or within multiple locations of a supply network to protect the regular and
planned course of production against the random disturbance of running out of
materials or goods. The scope of inventory management also concerns the fine
lines between replenishment lead time, carrying costs of inventory, asset
management, inventory forecasting, inventory valuation, inventory visibility,
feature inventory price forecasting, physical inventory, available physical space for
inventory, quality management, replenishment, returns and defective goods and
demand forecast.

Inventory management involves:

Inventory management is the active control program which allows the management
of sales purchases and payment. System and processes that identify inventory
requirements, set targets, provide replenishment techniques and report actual and
projected inventory status.
Inventory management helps providing a good understanding ground and the
capacity to control financial costs. The Inventory management will control
operating costs and provide better understanding.

Economies of Scale in Procurement:

Buying raw materials in larger lot and holding inventory is found to be cheaper for
the company than buying frequent small lots. In such cases one buys in bulk and

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holds inventories at the plant warehouse. Take advantage of Price Increase and
Quantity Discounts. If there is a price increase expected few months down the line
due to changes in demand and supply in the national or international market,
impact of taxes and budgets etc, the company’s tend to buy raw materials in
advance and hold stocks as a hedge against increased costs. Companies resort to
buying in bulk and holding raw material inventories to take advantage of the
quantity discounts offered by the supplier. In such cases the savings on account of
the discount enjoyed would be substantially higher that of inventory carrying cost.
Reduce Transit Cost and Transit Times. In case of raw materials being imported
from a foreign country or from a far away vendor within the country, one can save
a lot in terms of transportation cost buy buying in bulk and transporting as a
container load or a full truck load. Part shipments can be costlier.

In terms of transit time too, transit time for full container shipment or a full truck
load is direct and faster unlike part shipment load where the freight forwarder waits
for other loads to fill the container which can take several weeks. There could be a
lot of factors resulting in shipping delays and transportation too, which can hamper
the supply chain forcing companies to hold safety stock of raw material
inventories. Long Lead and High demand items need to be held in Inventory. Often
raw material supplies from vendors have long lead running into several months.
Coupled with this if the particular item is in high demand and short supply one can
expect disruption of supplies. In such cases it is safer to hold inventories and have
control.

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Objectives of the Study:

The objectives of inventory management are mentioned below-

1.To supply the required materials continuously:
There should be a continuous available of materials in the factory or finished goods
for trade.The main objective of inventory management in to maintain required
inventory so that production and sales process run smoothly.

2. To minimize the risk of under and over stocking of material:

If a company keeps inventory without proper analysis, there will be a chance of
overstocking, which will increase the cost of carrying the inventory or under
stocking of inventory that create problem in smooth operation of a business. So
one of the main objectives of the inventory management is to minimize the risk
caused due to under and over stocking of inventory.

3. To maintain systematic record of inventory:

Management needs different information regarding inventory for planning and
decision-making. A systematic recodes of inventory helps provides such
information to the management. It also assists to evaluate the current inventory
management policy.

4.To reduce losses, damages and misappropriation of materials:

Inventory management aims to reduce or remove the losses and misappropriate of
materials. This is done by maintaining the proper stocks of materials with utmost
care.

5.To minimize the cost associated with inventory:

The proper maintenance of the information regarding inventory helps to make
decisions like whether to take discounts or not, the size of order to be placed, when
to order etc. the total cost associated with inventory may be minimized by
analyzing the lot size to be acquired, the offer of discount on variable lot size and
the timing of order. Such analysis helps to reduce the unnecessary inventory in
inventories.

6.To make stability in price:

An effective inventory management system minimizes the effects of regular price
fluctuation. This is turn helps to gain the stability is selling price.

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Need for the study:

Most of the organizations have raw material inventory warehouses attached to the
production facilities where raw materials, consumables and packing materials are
stored and issue for production on JIT basis. The reasons for holding inventories
can vary from case to case basis.
Meet variation in Production Demand Production plan changes in response to the
sales, estimates, orders and stocking patterns. Accordingly the demand for raw
material supply for production varies with the product plan in terms of specific
SKU as well as batch quantities.
Holding inventories at a nearby warehouse helps issue the required quantity and
item to production just in time. Cater to Cyclical and Seasonal Demand Market
demand and supplies are seasonal depending upon various factors like seasons;
festivals etc and past sales data help companies to anticipate a huge surge of
demand in the market well in advance. Accordingly they stock up raw materials
and hold inventories to be able to increase production and rush supplies to the
market to meet the increased demand.

Scope of the Study:

The scope of inventory control is as follows-

1. Determination of economic order quantity:

Economic order quantity or economic lot size refers to that number ordered in a
single purchase or number of units should be manufactured in a single run, so that
the total costs — ordering or set up costs and inventory carrying costs are at the
minimum. So, the determination of E.O.Q. is also within the scope of inventory
control.

2. Formulation of policy:

The policies of investment procurement, storage, handling, accounting, storages

and stock outs, deterioration, obsolescence etc. are to be formulated under the
scientific system of inventory control. What, when and how much of purchasing
and fixation of minimum and maximum levels is also to be determined for a given
period of time.

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3.Determination of lead time:

By lead time is meant the time that lapses between the raising of an indent by the
stores and the receipt of materials by them. Lead time is of fundamental
importance in determining inventory levels.

4. Effectiveness towards running of store:

The determination of policies of the location, layout and materials and storage
handling equipments certainly help in the effective working of stores organisation.

5. Organisation structure:

After determining of inventory policy, the next step is to decide the location, layout
and types of storehouse. It facilitates the movement of materials and thus minimise
the storage and handling cost of stores.

6. Determination of safety stock:

Safety stock is defined as the difference between the amount stocked to satisfy
demand during a certain time interval and the mean expected demand for that
period. It is for the purpose of providing protection against depletion. If demand
remained constant and lead tin-; is invariable, there would be no fear of shortages
and no need for safely stocks.
The exact quantity of safety stock of an item depends upon its lead time, usage
value, and variability of lead time demand, carrying charges and the importance of
its stock out cost. Again, determination of buffer stock reserve stock is included in
the management of inventory.

7. Minimum material handling and storage cost:

Stores organisation activities are arranged in such a manner that the east of
bringing in the store house and issuing from the store house if the various stores,
will minimise the storage and materials handling cost of stores.

RESEARCH METHODOLOGY

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The analysis of the project was based on the available information. Any
information about the topic is called the data. The data was gathered from various
sources i.e., Primary and Secondary sources.

Type of Data:
• Primary Data
• Secondary Data

a) Primary Data:

Any information that is collected afresh and for the first time is called Primary
data. The primary data happen to be original in character. The Information is
gathered from concerned employees. The employees and manager of the financial
department have provided the information needed for the study.

b) Secondary Data:

Information which has already been collected by somebody else or some other
agency with definite purpose and which has already been processed is called
secondary data. The secondary data for the study have been gathered from the
1. Balance sheets,
2. Profit and loss accounts,
3. Annual reports,
and other books and manuals of the BHPV-HP&VP LTD

1.6 Chapterisation:

The framework of this research exercise has been structured to gain insights into
the above purpose and thus includes five chapters, namely, the Introduction,
Literature Review, Research Methodology, Theoretical Overview of Study
Subject, Analysis and Discussion, Summary, Findings, Suggestion, Conclusion,
and Future Research. The thesis of the study is organized into five major chapters.
A brief outline of each of them is given below:

Chapter I: Chapter I deal with the introduction of the study. It includes the
introduction, scope, need of the study, research methodology, objectives and
limitations of the study.

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Chapter II: Second chapter focuses on industry and company profiles of BHEL.

Chapter III: Third chapter provides a detailed discussion of the theoretical frame
work of the study.

Chapter IV: Fourth chapter deals with data analysis and Interpretation of data
collected from the study region.

Chapter V: Fifth chapter summarizes the findings of the study, suggestions and
conclusions of the study

Limitations of the Study:

Every study is conducted under certain limitations. The study relates only to
financial data and other areas are not taken into consideration. The study covers
only for a period of five years. So the analysis will be made on this basis.

The limitations of the study are:

1. The major limitations of the project are that time period is limited i.e. period
of 2months. So the complete analysis of the organization cannot be done
within the span.
2. It is totally based on the secondary data so it was not possible to get cent
percent correct information.
3. It is collected from magazines, books, reports of which may not be fully
informed, because it fully confidential matters.
4. The research was made according to the information available from related
departments and through annual reports published.
5. The current data will not be available.

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 6. Manipulation of the data is not possible because it is base on secondary data
of which is record before hand so that if any changes have observed cannot
be made.
7. The time is limited of which complete awareness of the organization will not
be possible.

Industry Profile:

BHPV got merged with BHEL (Bharat Heavy Electricals Ltd), a Maharatna
Company, New-Delhi .

Marketprofile:-

In addition to BHPV legacy products such as process plants, combustion systems,

boilers, cryogenic equipments for refineries, fertilizer plants, steel pants etc, with
the takeover of the company by BHEL, the company diversified into
manufacturing equipments required for power generation plants in and abroad.

Customerprofile:-

BHPV’S clientele includes- Public, Private, Co-operative Sector organizations in

almost all the core sector of economy such as all the fertilizer plants, petroleum
refineries and steel plants in India and abroad. Now, with the diversification all
major power plants in India. Other major customers are from paper, chemicals,
defense, and space sectors.

Competitor profile:-

In the area of process plant: L&T, GR Engg , Lloyds steel, ISGEC, John
Thomson, Godrej etc

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In the area of cryogenics: ICCP, INOX, Shanghai’s oxygen, L&T, Linde,
VJU, Essar, LINDE, Air products, Kobe,

Hitachi, HOPM, Praxair

In the area of combustion system: ISGEC, Babcock Thermax, Ignifluid boilers,

ABL L&T KTI, Thermaxetc

Heavy engineering industry in india:

Heavy Industry in India comprises of the heavy engineering industry, machine tool
industry, heavy electrical industry, industrial machinery and auto-industry. These
industries provide goods and services for almost all sectors of the economy,
including power, rail and road transport. The machine building industry caters the
requirements of equipment for basic industries such as steel, on-ferrous metals,
fertilizers, refineries, petro-chemicals, shipping, paper, cement, sugar,etc.

Performance of Industry:

Industrial sector registered a growth of 5.8per cent for the period April-July2011-
12 as compared to 9.7per cent in the corresponding period of 2010-11.The growth
in the manufacturing, mining and electricity sectors duringApril-July, 2011-12
over the corresponding period of 2010-11 have been 1.1 per cent, 6.0 per cent and
9.4 per cent respectively, which moved the overall growth in the General Index to
5.8 per cent Capital goods sector has registered a growth of 7.6 per cent during
April-July 2011-12 as compared to the growth of 23.1 per cent during
corresponding period of 2010-11.Consumer goods, Basic goods and intermediate
goods recorded growth of 4.6 per cent, 7.9 per cent and 0.8per cent, respectively
during April-July 2011-12 as compared to 10.0 per cent 5.2 per cent and 10.1 in
same order. The consumer durables sector recorded a growth of 4.2per cent in
April-July 2011-12 as compared to 18.4 per cent in the corresponding period of the
year 2010-11.The Consumer non-durables sector grew at 4.9 per cent during 2011-
12 as compared to 3.8 per cent in 2010-11.

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Sub-Sectors of Heavy Industry:

Heavy Industry deals with the following 19 Industrial Sub-sector:

Boilers
(ii)Cement Machinery
(iii)Dairy Machinery
(iv)Electrical Furnace
(v)Freight Containers
(vi)Material handling Equipment
(vii)Metallurgical Machinery
(viii)Mining Machinery
(ix)Machine Tools
(x)Oil Field Equipment
(xi)Printing Machinery
(xii)Pulp an Paper Machinery
(xiii)Rubber Machinery
(xiv)Switchgear and Control Gear
(xv)Shunting Locomotive
(xvi)Sugar Machinery
(xvii)Turbines & Generator Set
(xviii)Transformers
(xix) Textile Machinery

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BHPV: ( an overview)

Introduction:-

 Incorporation of the Company : 1966

 Primary Objective :
 .
 Technical Collaboration provided by : SKODA, Czechoslovakia.
 Commencement of Construction : 1968
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  Completion of Construction
 Commencement of Production
 Initial Project Cost
 Initial Product Mix
 Installed Capacity : 23, 210 M.T.
 Turnover for the year 2016-17 :
 Productionfacilities:
 Factory Area
 Total Covered Area
 Covered area of Production Shops
 Power Requirement
 No. of Ancillary Units
Company profile:
: 1971
: 1971
: Rs. 17.5 crores
: HeatExchangers,columns,
Pressure vessels,Technological
o Structures, Piping etc.
Rs. 108 crores
: 197 Acres
: 90,000 sq. Meters
: 56,000 sq. Meters
: 3,000 KW from APSEB
: Around a Dozen
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HEAD OFFICE: BHEL House, New Delhi
PLANT: HPVP, Visakhapatnam

Bharat Heavy Electricals Limited (BHEL) is a Central Public Sector Undertaking

having its registered office in New Delhi and 17 plants all over India. In addition,
other profit centre’s such as Erection service units with head quarters at Chennai,
Nagpur, Kolkata and Noida covering all four regions of the country. Similarly
International Operations Division is at New Delhi to look after international
services. It had centralized R&D centre at Hyderabad, which is also a profit centre
itself.It manufactures equipments required for power generation plants, power
transmission plants, power distribution units and power storage units. It covers
Thermal, Hydro, Nuclear, Solar, Renewable and all other types of power related
plants. The scope of the company generally includes design, engineering,
manufacturing, supply and commissioning power plants. It full fills A to Z needs
of types of power generation, transmission, distribution and storage companies.
There is no power plant in India without the contribution from BHEL. In fact, it
has its foot prints all over the world. It is among one of the Fortune 500 companies
at one point of time or other. In addition to the above, the company also diversified

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into other areas like industry sector, defence sector, locomotives, metro rails,
refineries, steel plants, transport sectors.

The unit HPVP is now extending its manufacturing base to power plant customers
while retaining its legacy products and its customers. It is basically job order/ shop
production industry. According to customer specifications and requirements its
scope include design, engineering, manufacturing, supply and commissioning of
capital equipment required for refineries, fertilizer units, steel plants and all types
of process industries. Fore seeing the country’s need for fabricating equipment of
an exclusive factory with the main object of reducing dependence on foreign
suppliers and become self sufficient ourselves. Thus the birth of erstwhile BHPV
in the year 1966 to meet the demands of process equipment for core industry like
Fertilizers, petrochemicals, petroleum and other chemical industries initially.

BHPV using different types of materials manufactured and supplied several built
equipments such as pressure vessels, heat exchangers, columns, internal trays etc.
After executing some important orders, HPVP gained full confidence of
customers which cleared the way to enter the line of cryogenic field, pulp
cooking plant, evaporation plant and industrial boilers on a total turnkey basis
which of later years helped in augmenting turnover of the company and increasing
profitability.Licensed installed capacity is 23210MT. The initial capital outlay is
Rs.17.5 crores. The product mix included heat exchangers, columns, and pressure
vessels, Storage vessels, piping etc. During the year of it commercial production
i.e. 1971-1972 the turnover was just Rs 5 lakhs. In 1996-97 it has recorded on
turnover of Rs 29998 lakhs i.e. all time high. Last Five year performance is
produced here under.

Si Year Licensed Achieved T/o (Rs-

Capacity Crs)
1 2008-09 23210 MT 5876 MT 84
2 2009-10 23210 MT 5100 MT 104
3 2010-11 23210 MT 12289 MT 137
4 2011-12 23210 MT 8335MT 156
5 2012-13 23210 MT 11551MT 240
6 2013-14 23210 MT 10180MT 156
7 2014-15 23210 MT 3871 MT 70
8 2015-16 23210 4110 MT 82
9 2016-17 23210 5200MT 108

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Technology & Market Issues:

Now, the company is under expansion program with about Rs 200 cr new
machineries are coming up for installation shortly.

Product Diversification

The company has undertaken several EPC contracts on EPC/LSTK basis at various
locations in India and abroad. The Company R&D Department has developed
technology for manufacture of compact Heat Exchanger for the light Combat
Aircraft (LCA) under the funding by Aeronautical Development Agency (ADA).
BHPV now with the technology acquired from BHEL (Holding Company),
diversified into power plant equipment, namely HRSG Boilers, Dearators etc.

Synergy of Business between BHEL and BHPV:

In addition to improvement in present business of BHPV, the take-over by BHEL

will have the following advantages:

BHEL to enhance the capabilities & capacities of HPVP to build upon its strengths
in the existing business of supplying process equipment to sectors like Oil,
Petrochemicals, Fertilizers etc. In addition, BHEL plans to enhance HPVP’s
capabilities & capacities in the area of industrial boilers, heat exchangers,
condensers etc. In capital investment of around Rs. 200 Crs is envisaged for the
up-gradation of required facilities. Expected growth in the market for HPVP’s
products , especially in process equipment and cryogenics. As per Industry
analysis, orders worth Rs. 1000 Crs per annum are expected in the next five years
from oil Refineries and Petrochemical projects to flow to the engineering &
fabrication industry.

With a market share of HPVP of 15% – 18% in the past in this segment, HPVP can
become more confident in addressing this market overcoming its financial
constraints by participating in some of the tenders with BHEL support. As such,
BHPV’s financial weakness would be mitigated once its restructuring is completed
and BHEL takes over its functioning. The Captive Power Projects (CPP) and
Industrial boilers market segment is expected to grow from around Rs. 1800 Crs in
2007-08 to an estimated level of Rs. 2400 Crs in next five years based on projected
12 % industrial growth in the coming years. BHPV can target a share of 25% –
30% of this market, provided market expectations on delivery and price are
fulfilled. Currently, the Trichy unit of BHEL is constrained in targeting the
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industrial boilers market due to heavy load of boiler orders from the utility
segment. In this regard, BHPV can be developed as a dedicated center for
industrial boilers by BHEL. The sales turnover from this segment has been
projected to reach to level of Rs, 800 Crs by the fifth year after functional take
over by BHEL, based on factors like increased volume, better financial
capabilities leading to lower working capital borrowing costs etc.

RESOURCES

PRODUCTION FACILTIES

Factory Area : 197 Acres

Total Covered Area : 90,000 sq. Meters
Covered area of Production Shops : 56,000 sq. Meters
Power Requirement : 3,000 KW from APSEB
No. of Ancillary Units : Around a Dozen

IMPORTANT MACHINERY

The maximum crane lifting capacity is 120 tones, but loads up to 250 tones can be
lifted with improvisation. Maximum Rolling capacity is 60mm in cold condition
and 170mm in hot condition. BHPV has the largest heat treatment furnace in India,
the size being Meters width, 5.5 meters height and 36.5 meters long. One more
furnace of 200 Ton capacity and 15mtrs. Bogie length has been added. Other
critical equipment available with BHPV are Deep Drawing Hydraulic Press of
1600T capacity Single Spindle CNC Deep hole Drilling Machine with Gun
Drilling attachment and 2Nos. CNC drilling machines which can employ
conventional drills. Another CNC Deep hole drilling machine has been installed
recently by HMT.A number of Welding Rotators of capacity up to 250 Tones.
Welding equipment such as manual Arc, Sub merged Arc, TIG, MIG, Plasma
including the latest high productive welding equipment such tune head
submerged arc welding, and Bi-cathode TIG welding .Tube fining Machine. A
number of vertical and horizontal boring machines with a maximum capacity of 5
meters dia and 200mm spindle dai respectively. Different types of Non-destruction
Testing Equipment. Well equipped Physical and Chemical Laboratories.
Metrology section etc.

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As a part of expansion following machinery including automatic / semi-automatic
machinery added to the plant in 2013-14...

 Tube Edge Preparation Portable Machine

 Recon. And retro. Of 20&10 MM Thk Pl Shearing M/c
 Recon. And retro. Of double column planning M/c
 Recon. and retro. of 10 MM Thick Plate Shearing M/c
 2x1000 KVA DG set with Synchronizing panel
 Gouging Power Sources Rating 950A - Current rate 300-1200 Amps
 Gouging Power Sources Rating 950A - 100% Duty Cycle Current rate 300-
1200 Amps
 Gouging Power Sources Rating 950A - Current rate 300-1200 Amps Model
CPRA-1200T Make ESAB20 Ton Powered Movement Trolley
 20 Ton Battery Operated Platform Truck
 Ultrasonic Thickness measurement gauges
 350 AMP Welding Power Source
 20ton Gantry Crane
 CNC Pipe Champering M/c 660MM
 Mooned rolled stand
 UT Testing equipment
 Planetary Gear box
 Shaft sliding hub- 1
 Reconditioning of Flame cutting machine
 150T Drum Rotator
 100T Drum Rotator
 Pipe Sizing Band Saw
 4 Ton Transloaders
 4 Ton Battery Operated Transloaders
 Portable Tube Champering M/c
 Recon. and retro. of 2 burner Furnace
 Recon. and retro. of 3 burner Furnace
 Recon. and retro. of Tilting Furnace
 Shaft sliding hub- 2
 Nozzle Opening Machine, Mode No CBZ (CBO 2002)

 Many more machines are coming up in 2014-15 valuing about Rs 170 Cr.

MANPOWER (As on 1st May, 2017)

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Workmen / Staff : 702
Supervisors : 79
Executives : 220

Total : 1001
Apprentices : 30
Contract Labour : 295

EMPLOYEE WELFARE AMENITIES

 Township Area - 151 Acres

 No. of Quarters - 1192
 20 bed Hospital
 Protected Water Supply
 Underground drainage system
 English medium school with CBSE Syllabus
 Telugu medium school with AP State Syllabus
 Special school for mentally handicapped children.
 Vocational training centre for mentally handicapped
 Community center for cultural activities & sports – open air theatre facilities
 KalyanaMandapam.

By absorbing know-how from various world renowned collaborators, BHPV

upgraded its status from a mere fabricator of process equipment to that of an
engineering company of international repute.

PROJECTS OF NATIONAL IMPORTANCE EXECUTED/UNDER

EXECUTION

 IOCL, Panipat Hydro cracker reactors-3Nos

 IOCL, Panipat
 IOCL, Panipat
 IOCL, Mumbai
 IOCL, Chennai
 SAIL, Bokaro
 NRL, Numaligarh
 HPCL, Vizag
 HPCL, Vizag
Reactor, Regenerator & Office Chamber
Reformer & WHR Package
150 MT Capacity LPC bullets
Spheres
Argon Recovery unit
Air Fin coolers/SS Clad Vessels, Spheres etc
CDU Heater with APH System/VDU Heater
Clad/CS Columns/CS heat Exchangers
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  HPCL, Vizag Co-boiler
 HPCL, Vizag Revamping of 50TPH oil & gas fired boiler
 HPCL, Mumbai 50 TPH Boilers
 BPCL, Mumbai Nitrogen Plant
 Hyundai,New Delhi Cryo Nitrogen plant
 SAC, Ahmedabad 505m Dia thermal vacuus system
 Technimont, Mumbai Nitrogen plant
 OFL, Paradeep Waste Heat LP boilers
 RINL, Vizag Buffer Vessels
 SAIL, Bhilai Buffer Vessels
 TISCO Buffer Vessels
 IOCL, Paradeep Power Plant Boilers
 JSPL, Paradeep Power Plant Boilers

As a part of total quality management program, HPVP

has acquired ISO 9001 certification during the year 1993-94, particularly to boost
up its exports and to be competitive in the international market.Re-certification of
ISO 9001 has been obtained in September, 1996. In recognition of high standards
of our quality, confederation of Indian industry (CII), Southern Region, AP
presented the Quality Award.

Research & development:

Research & Development department was established in 1975 and is well equipped
with high tech equipment to cater to Applies Research and Product Development.
R&D has developed 136 Projects so far. Some of the products commercialized
include:

 Titanium Anodes
 Titanium Air Bottles
 Cryogenic Vats
 Individual Quick Freezing Unit
 Super Insulated Piping.
 Super Insulated Cryogenic Storage tanks
 D.M. Water Plants

22 | P a g e
  A prestigious order for Development of Heat Exchangers for Light Combat
Aircraft (LCA) Phase-II has been received from Aeronautical Development
Agency, Bangalore.
 Some of the Awards received for excellence in R&D include:
 CIS Award for R&D achievement in 1992-93.

Ancilliarisation:

HPVP has developed some ancillary industries in its vicinity to cater to its
requirements. Apart from offering sufficient work load to these industrial units,
HPVP has been assigning work to a number of small sector industries. BHEL
provides material, transportation and inspection services to the Ancillaries to help
them rise to its quality requirements.

PRESENT STRENGTHS

 Financial, Managerial, Technical back-up

 Excellent Design & Engineering capabilities.
 State –of –the – Art Manufacturing facilities.
 Accomplished image as a supplier of Quality Products in domestic &
international markets.
 High degree of customer confidence.
 Technological tie-up arrangements.
 Well trained and qualified work force and Engineers.
 Sound work culture & harmonious Industrial Relations.
 Extensive computerization.
 Capability to supply Projects & Systems on turnkey basis.
 Project Management Skills.

Plans & strategies:

 Togrow as an Engineering,
 Procurement and Construction Company.
 To enlarge Export Business.
 To resort to extensive computerization and Automation for reduction of
cycle time, improvement of quality and reducing costs.
 To forge strategic business alliances with International Companies to derive
technological and marketing advantages.
 To strive for continuous updating of technologies to be on par with
International Companies.
23 | P a g e
  To focus on Human Resources Development.
 To change the work culture to be compatible with market demands.

Collaboration and absorption of technologies:

Some of the significant collaborations BHPV Ltd entered include:-

 M/S BSL, France in respect of field erected cryogenic storage tanks.

 M/S Delas, France in respect of
 M/S ABB LUMMUS, Netherlands for Heat Transfer systems

Case-to-Case tie ups BHPV entered into includes:-

 Evaporators from M/S Ecodyne Corporation, USA.

 Paper and plus digesters from M/S KAMYR AB, Sweden.
 Gas collection modules from M/S KTO corporation, USA
 Large space simulation chamber from M/S HVEC, USA
 Primary reformer from M/S HalderTopos, Denmark
 Waste heat boiler from borgig, Germany
 Feed water heater from deals, France
 Argon recovery unit from M/S L AIR LIQUIDE, France
 Hydrocracker reactors from M/S Korting Hannover, Germany
 Ammonia storage system from M/S KTI, Germany etc.

BHEL- HPVP pictorial view:

HPVP is easily pictured by dividing the organization into the following divisions
to carry out its functions-

 Engineering
 Marketing & Commercial
 Research and development
 Production and Services
 Erection Services
 Material Management
 Quality
 Finance
 Personnel and Administration

24 | P a g e
Production and Services include planning, production technology, welding
technology and production. Production shops are classified as feeder shops and
assembly shops. M.P shop, LMS, HMS, Press shop, Shells shop, and Nozzle shops
will under feeder shops while Valve trays, PV, HE, and CP will come under
assemble shops. HPVP is having a shop floor area of over 56000 sq. m.

Workshops:

Parts that are used for assembling in Production shop are made in feeder shops.
The feeder shops are subdivided into six types, namely-

 MP - Material Preparation
 LMS - Light Machine Shop
 HMS - Heavy Machine Shop
 Press - Bending & Pressing of Plates
 Nozzles - Pipe preparation & Welding
 Shells - Rolling & Welding Operation

Production shops:

The parts made in the feeder shop assembled in production shop. The following
five shops come under production shop.

 PV- Pressure Vessels

 HE- Heat Exchangers
 CP- Cryogenic production
 CSP- I: Combustion system products
 CSP-II : Combustion system products

Salient features of different shops:

Material preparation shop:-

25 | P a g e
Plate material drawn from stores is cut to size and delivered to concerned
production shops. Gas cutting for carbon & low alloy steels can be done up at 50
mm thick, square cut, single bevel cut, with or without nose, double bevel cut with
nose can be directly cut plasma cutting stainless steel plates up to 80 mm thick.

Light machine shop:-

In this shop, all small components machining such as marking holes in tube sheet,
and drilling planning of small items will taken up here. Nozzle to flange welding
done in this shop

Machinery used in light machine shop:-

 Small and medium lathes

 Auto lathe
 Radial drilling machines
 Small horizontal boring
 Medium horizontal boring
 Heavy lathe
 Plane drilling machine
 CNC drilling machine
 CNC deep hole drilling machine (HMT)
 Cylinder grinding machine
 Horizontal surface grinder
 CNC lathe machine

Heavy machine shop:-

Machining, drilling, and surfacing of components which are more largely than the
capacity of L.M.S will be carried out here. The shop is equipped with one
5000mm, one 4000mm, one 2500mm diameter heavy double column vertical
turning and boring machines besides a number of smaller machines. Horizontal
boring machine is capable of bore max. Depth 2000mm.

Machinery used in heavy machine shop:-

 Radial drilling 2no

 Universal drilling 1no

26 | P a g e
  Single column planning 1no
 Double column planning 1no
 Large horizontal boring 2no

Press shop:-

The dished ends required for vessels are prepared with single plate and with petal
construction in this shop. Hydraulics presses upped max capacity of 1600T used
for pressing dished ends, petals of storage spheres and various other parts. Max
diameter of dished ends that can be prepared in the shop is 5000mm and max
thickness that can be handled be ion single stroke is 80mm, while upped 120mm
thick plates are also parade in stages.

Machinery used in press shop:-

 Section bending roll ----------- 1no

 Pneumatic hammer ----------- 1no
 Pipe bending ----------- 2no
 Hydraulic press 250 T ----------- 1no
 Hydraulic press 400 T ----------- 1no
 Hydraulic press 1600 T ----------- 1no
 Bending roll ----------- 1no

Shells section:-

In this shop, plates are rolled to required size and long seam and circumferential
seam welding will be done. Major welding is done by submerged arc welding
process. Max thickness welding done in this shop is 220mm. special narrow gap
welding machines available in this shop which can weld upped 350mm thick with
groove width about 20-24mm.

Machinery used in shell shop:-

1. Plate edge planning 1200x80mm thick -------- 2 no.

2. Plate bending rolls 235x3025mm thick -------- 1 no.

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3. Plate bending rolls 4000x22mm thick -------- 1 no.
4. Plate bending rolls 3000x75mm thick -------- 1 no.
5. Submerged arc welding -------- 3 no.

Production shops:-

PRESSURE VESSEL ASSEMBLY:

This shop had all the attachments that are to be made on the shell as per drawing
such as nozzle, internal, external supports are welded. In this shop mainly vessels
which are used in high pressure application are available in this shop. To obtain the
required thickness, 6mm sheets are wrapped and welded layer by layer.

TYPES OF DISHED ENDS:

Generally three types of dished ends are used, they are:
a) Hemispherical
b) Tory spherical
c) Ellipsoidal

HEAT EXCHANGERS ASSEMBLY:

In this shop heat exchangers are fabricated. Tube bundles and shell assembly I s
fabricated. Tube to tube sheet welding is mostly done with GTAW process. From
medium to high pressure heat exchangers with test pressures as high as
450kg/sq.cm and temperatures ranging from -65 to 900C are handled in this shop.
Titanium lined vessels fabricating was done in this shop.

CRYOGENIC PRODUCTION:

Tanks and vessels for sub-zero temperature supplications are fabricated here. Not
only cryogenic tanks are produced in this section but also vast variety of
equipment, which include: Air separation units of capacity ranging from 50Nm/hr.
and up to 2200TPD produce oxygen, nitrogen & argon are available. Storage tanks
of horizontal & vertical designs starting form 500 liters and above up to 2, 00,000
liters capacity to hold liquid oxygen, nitrogen, argon and other vacuum insulate.
BHEL-HPVP PRODUCTS:

Products manufactured at BHEL – HPVP plant include:-

28 | P a g e
a) PRESURE VESSELS:-

With different kinds of steels like carbon steel, stainless steel, clad steel, Monel
etc. and any combination of there off.

b) COLUMNS:-

Both shop and site fabricated columns with or without internals.

c) HEAT EXCHANGERS:-

From low pressure atmospheric fin coolers to high pressure heat exchangers
employing forged heads channels with test pressure as high as 500kg/sq.cm and
designs like U-tube, kettle type, etc.

d) STORAGE SPHERES:-

Of any size (up to 60m), any thickness (up to 60mm) to handle any fluid or gases
like ammonia, ethylene, propylene, LPG etc.

e) HIGH PRESSURE MULTILAYER VESSLES:-

Ammonia and urea reactors built ply wall design to suit high pressure of the order
of 300kg/sq.cm hydraulic test pressure.

f) CRYOGENIC VESSELS:-

There are double wall construction with stainless inner shell and carbon steel outer
casing with evacuated inter space filled with pearlier (insulating material) for
guaranteed low evaporation rates.

g) AIR & GAS SEPERATION PLANTS:-

These plants are custom built mainly for production of oxygen, nitrogen, argon and
for separation of coke oven gas, converter gas for ammonia production. The design
include simple cycle with purification by absorption or with reversing exchangers
and capacities handling different feed stocks like bamboo, hard woods etc.

h) EVAPORATION PLANTS:-

29 | P a g e
Plants designed for the concentration of solids in different types of spent liquors in
multiple effect evaporation bodies using steam heating. The application includes
paper & pulp and alumina industries.

All the above equipment’s are fabricated according to standard code to ensure the
safety during testing and service. The most commonly used codes are ASME,
BS5500, AD Mark Blotter, IS 2825, TEMA, ANSI, API etc. For fabricating all the
above equipment, welding is the best suited operation in terms of strength and
safety with standing at high pressure.

In B.H.P.V-HP&VP, production is also mostly carried out by welding. It involves

lot of work including preparation of technologies, procedure, conducting tests and
selecting suitable processes and suitable consumables. These works are carried out
by the WT department.

Welding technology:

As BHEL-HPVP plant is a fabrication industry, it is mainly based on welding

technology. All welding operations done in the company are governed by welding
technology department. For its manufacturing techniques welding technology has
been playing a vital role. Welding technology department prepares the procedures
to be followed. Welding technology department will take care of all requirements
of welding in production shops.Its main function is to release the required
technology to shops to follow and perform their job. The other functions are
estimating welding cost, replying to commercial enquiries and replying
constructional problems. The equipment and consumables required to the shop will
also be selected by the same department. The welding technology plays a vital role
in any fabrication industry.

Keeping this fact in mind, BHEL-HPVP plant has already setup a welding
technology department managed by a team of highly qualified and efficient
personnel. This department handles all the welding activities in the
industry.BHEL-HPVP has mastered almost all welding processes including TIG
and MIG. The types of jobs tackled includes high pressure piping, tube to tube
sheet joint, high thickness multilayer welding, fabrication of clad vessels etc.

Welding technology department prepares the procedures to be followed to plan and

carry out the following functions of the welding technology
department.Preparation, revision and Approval of welding procedures

30 | P a g e
specifications and welding datasheets.Procurement and Qualification of the
Welding consumables.Qualification, documentation of welding procedure
qualification records.

Qualification documentation and maintenance of welder or welding operator

records.Studying and solving quality problems related to welding and training of
welders.Release of welding technology documents.

In order to perform planning and execution of the various functions welding

technology is basically divided into five groups so that it may effectively dispense
its duties:

a) Enquiry group
b) Technology group
c) Qualification group
d) Consumables group
e) Trouble shooting group

a) ENQUIRY GROUP:

Enquires or tender invitations received by the commercial departments are sent to

the enquiry group in the welding technology department for feasibility study.
These groups comprises of persons with a considerable experience in the
departments so that they may access whether or not a job can be carried out
successfully. Further, they also estimate the cost of welding consumables so that
the cost of welding can be included in the price to be quoted to the customer, prior
to receiving the sale order.

b) TECHNOLOGY GROUP

This group has got the task of deciding the welding parameters to be used. A
suitable welding procedure specification (WPS) is selected depending upon the
two parts to be joined. Evert WPS is based on a supporting procedure qualification
record (PQR) whose number is mentioned on the WPS. Besides, designing the
welded joint, the consumables group also raises the material indents for the
welding consumables (electrodes) required. These MI’s are forwarded to the
material procurement.

c) QUALIFICATION GROUP:
31 | P a g e
This group acts in response to the request forwarded to them by the technology
group concerning the qualification of any new welding procedure. They conduct
tests, invite the concerned inspectors and record the various readings from various
tests performed on the welded joint, in the quest fo4r qualifying the new procedure.
Secondly, they also perform the task of qualifying the welder in hand. They ensure
that all the welders are given practice in performing their duties.

d) CONSUMABLE GROUP:

This group keeps the track of all the consumables required. It clubs together
requirements received from the technology group.

e) TROUBLE SHOOTING GROUP:

The group shooting group shall take care of smooth execution of welding
operations on various products in production shops and erection sites in association
with production, quality control and production engineering personnel.
This group shall arrange for issue of welding technology Documents to the
concerned. Also the group shall participate in the investigation of the causes of
failure in welds and recommended corrective measures to avoid recurrence.

Company Profile:

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“BHARAT HEAVY PLATE & VESSELS LIMITED” is established in 1966 at
Visakhapatnam, Andhra Pradesh. At present it got merged with “BHARAT
HEAVY ELECTRICALS LIMITED” in August’2013 and is renamed as
BHARAT HEAVYELECTRICAL LIMITED – HEAVY PLATES & VESSELS
PLANT (BHEL-HP &VP). Now it became the 17th unit of BHEL not only that, it
is the first coastal unit of BHEL.
BHPV’s beginnings were humble; it had a turnover of just ` 5 lakhs in 1971-72
when commercial production first commenced. Since then, BHPV has come a long
way and exceeded a turnover of ` 200 crores expanding its product line to include
high technology equipment and systems like Multi-layer Vessels, Turn Key
Cryogenics Plants, Storage and Distribution Systems, Industrial Boilers, Waste
Heat Recovery Systems, Oil and Gas Processing Systems etc.

INTRODUCTION ABOUT HPVP:

After coming as a manufacturing plant in 1966 at Visakhapatnam, Andhra Pradesh

as a Public Sector Undertaking under the Department of Heavy industry (DHI) to
manufacture and supply custom built process plant equipments for Core Sector
Industries like Fertilizers, Oil Refineries, Petrochemicals, Steel Plants, Nuclear,
Space, Defence and Power Sectors with the technical collaboration of SKODA
Export, Czechoslovakia. The Company is located on NH-5 near to Airport,
Railway Station and Sea Port in Visakhapatnam, Andhra Pradesh. The Company is
spread over a total area of 386 Acres.

HPVP is a premier manufacturing unit specializing in design, fabrication, supply

and erection of Heat Exchangers, Columns, Storage Spheres, Reactors and
Strippers, Multilayer Vessels Reactor Regenerator Package, Air Separation Plants,
Purge Gas Recovery Units, Oxygen Plants, Nitrogen Plants, Hydrogen Plants,
Sulphur Recovery Units, Crude Stabilization Units, Mounded Storage Systems,
33 | P a g e
Compact Heat Exchangers, On Board Oxygen generating system etc., to Oil
Refineries, Fertilizer Plants, Steel Plants, Defence sector etc., and has been
contributing to the Nation building during the past four decades. The Company has
good potential to cater to the growing needs envisaged in Power, Oil and Gas,
Nuclear, Defence and other strategic sectors in future. Also, HPVP is highly
reputed for the Quality and reliability of its products and possesses several
National & International Quality accreditations besides ISO 9001:2000
certification.

Erstwhile BHPV started production in the year 1971-72 with a turnover of just
Rs.1.95 Cr and crossed Rs.300 Crs in the year 1996-97. The Company contributed
around Rs. 1000 Crs to the national exchequer during the past 20 years. HPVP
(erstwhile BHPV) is the largest fabricator of process equipment in India for the
petroleum, fertilizer, chemical and allied industries. It is a unit of Maharatna
Central Public Sector Enterprise – Bharat Heavy Electrical Limited.Situated in the
city of destiny, Visakhapatnam on the eastern sea coast of the Deccan plateau,
HPVP is accessible by road, rail, and sea and is well connected to all metropolitan
cities by air.
BHEL-HPVP has been selected for the study. The topic selected is “A study on
financial statements analysis” with reference to BHPV.

Theoretical Frame Work:

34 | P a g e
Operating cycle of inventory management:

Cycle is the time duration to convert sales after the conversion of resources into
invention, into sales there is difference between current assets and fixed assets. A
firm required many years to recover initial invests in fixed assets such plant and
machinery or land buildings or furniture and fixtures etc. On the contrary,
investment in current assets such as inventory and books debts are realized during
the firms operating cycle, which in usually less than a year.
The operation cycle can be said to be the heart of the working capital. The need for
working capital or current assets cannot be over emphasized as already observed.
The main motive of many business firms is to achieve maximum profits, which can
be earned depending upon the magnitude of the sales among other things.
However, sales do not convert in to cash instantly. There is invariable time lag
between sale of goods and receipts of cash. Therefore the need of working capital
in the form of current assets to deal with the problem arising good sold. Therefore,
sufficient working capital requires sustaining sales activity. Technically this is
refer to as the operating the cash cycle. The continuous flow form cash to supplies
to inventory to accounts receivable and back into cash what is called operating
cycle.

35 | P a g e
The operating cycle of manufacturing company has three phases namely

1. Acquisition of resources
2. Manufacturing products
3. Sale of product

1. Acquisition of resources:-
In the phase first operating cycle, include phases of raw materials, fuel & power
etc., which are totally required or manufacturing product.

2. Manufacturing products:-
In the phase 2 of the operating cycle includes conversion of raw material in to
work-in-progress and the work in progress is converted into finished goods.

36 | P a g e
 3. Sale of product:-

In the phase 3 of the operating cycle may sale the product either for credit is made
to customers.

Reasons and benefits of inventory:-

The optimal level to maintaining inventory is subjective matter and depends upon
the features of a particular firm.

Trading firm:-

In case of a trading firm there may be several reasons for holding inventories
because of sales activities that should not be interrupted more over it not always
possible to procure the good whenever there is a sales opportunity there is always a
time gap required between purchase and sale of goods. Thus trading concern
should have some stock of finished goods in order to undertake sales activities
independent of the procurement schedule.

Similarly, a firm may have several incentives being offered in terms of quantity
discounts or lower price etc by the supplier of goods. There is trading concern
inventory helps in a de-inking between sales activity and also to capitalize a profit
of opportunity due to purchase make at a discount will result in lowering the total
cast resulting in higher profits for the firm.

Manufacturing firm:-

A manufacturing firm should have inventory or not only the finished goods, but
also of raw materials and work -in-progress for following reasons.

Uninterrupted production schedule:-

Every manufacturing firm must have sufficient stock of raw materials in order to
have the regular and uninterrupted production schedule. If there is stock out of raw
materials in order to have the regular and uninterrupted production schedule. If
there is stock out of raw material at any stage of production process then the whole
production may come to a half. This may result in custom dissatisfaction as the
goods cannot be delivered in time more over the fixed cost will continue to be
incurred even if there is no production.

37 | P a g e
Further work-in-progress would let the production process run smooth. In most of
manufacturing concerns the work in progress is a natural outcome of the
production schedule and it also helps in fulfilling when some sales orders, even if
the supply of raw-materials have stopped.

Essentials of inventory control:-

The important requirements of inventory control are:

• A firm needs inventory control system to effectively manage its inventory.
• Proper classification of materials with codes, material standardization and
simplification.
• The operation of a system of internal check to ensure that all transactions
involving material and equipment are checked by properly authorized and
independent persons.
• The operation of a system of perpetual inventory so that it is possible to
determine at any time, the amount and value of each kind o material in stock.
• A suitable method of valuation of materials is essential because it affects the cost
of jobs and the value of closing stock of materials.

Costs involved in Inventory:

Every firms maintains inventory depending upon requirement and other features of
firm for holding such inventory some cost will be incurred there are as follows –

Carrying Cost:-

This is the cost incurred in keeping or maintaining an inventory of one unit of raw
materials, work-in-process or finished goods. Here there are two basic cost
involved.

Cost of Storage:-

It includes cost of storing one unit or raw materials by the firm. This cost may be
for the storage of materials. Like rent of spaces occupies by stock, stock for
security, cost of infrastructure, cost of insurance, and cost of pilferage,
warehousing costs, handling cost etc.

Cost of Financing:-

38 | P a g e
This cost includes the cost of funds invested in the inventories. It includes the
required rate of return on the investments in inventory in addition to storage cost
etc. The carrying cost include therefore both real cost and opportunity cost
associated with the funds invested in the inventories.

The total carrying cost is entirely variable and rise in directly proportion to the
level of inventories carried.
Total carrying cost = (carrying cost per unit) X (Average inventory)

Cost of Ordering:-

The cost of ordering includes the cost of acquisition if inventories. It is the cost of
preparation and execution of an order including cost of paper work and
communicating with the supplier.The total ordering cost is inversely proportion to
annual inventory of firm. The ordering cost may have a fixed component, which is
not affected by the order size: and a variable component, which changes with the
order size.

 . Total Ordering Cost = (No of orders) X (cost per order).

Cost of Stock out:-

It is also called as hidden cost. The stock out is the situation when the firm is not
having units of an item is stores but there is a demand for that item either for the
customers or the production department. The stock out refers to zero level
inventories. So there is a cost of stock out in the sense that the firm faces a
situation of lost sales or back orders. The stock outs are quite often expensive.

Even the good will of firm also be effected due to customers dissatisfaction and
may lose business in case of finished goods, where as in raw materials or work in
process can cause the Production process to stop and it is expensive because
employees will be paid for the time not spine in producing goods.

The carrying cost and the ordering cost are opposite forces and collectively. They
determine the level of inventors in a firm.
Total Cost = (Cost of items purchased) + (Total Carrying and ordering cost)

Valuation of Inventory:-

39 | P a g e
The methods of valuing inventory are combination of the actual cost and
replacement cost plans. The chief advantage of the cost or net realizable value rule
is that it is conservative. Hence the methods of valuation of inventory are quite
independent of system of mincing.

In balance sheet closing stock is shown under current assets and it also credited to
manufacturing or trading accounts. The inventories are valued on the basis as
follows:

Cost of raw materials in stock may include freight charges and carrying cost. But
such cost should not exceed market price.

Work - in - process is generally valued at cost, which includes cost of materials,

labour. And the proportionate factory overhead, as it is reasonable according to
degrees of completion. I

Cost of finished goods wound normally to the total or full cost it includes prime
cost plus appropriate amount of the overhead. Selling and distribution cost is
deducted on the other hand work in progress may be valued at work in progress
may be valued at work cost, marginal cost, prime cost or , even at direct materials.

Purchase & stores procedure:-

In inventory management the purchase department store department plays a major
role to be the effective inventory there must be cooperation of various departments
such as purchase receiving and inspection stores production and stock control
departments.

The main functions of each department are as follows:

Purchase Department:-

It is responsible for purchase of all necessary goods of proper quality to produces,

without interruption to supply the finished goods.
1) It receives purchase requisitions.
2) Invites quotations or tenders from suppliers with desired quality.
3) Issue purchase orders to the selected supplier.
4) Certify the quality and quantity of order received in specified time
5) Approve purchase invoice for payment after checking invoice for paying after
checking prices and extensions if any needed.

40 | P a g e
Material Cost

Materials cost of a job or cost unit can be ascertained by multiplying the quantity
consumed for the job or cost unit by the price of the materials. For ascertaining the
quantity consumed for each job or cost unit we have devised material requisition
which will indicate the quantity required for the job and the job number against
which the material cost will be change directly.
For indirect material issued the material requisition will not indicate the job
number but the cost center number will be indicated for charging to relevant cost
center as indirect materials.
Thus in order to ascertain material cost.
1. Make valuation of purchase.
2. Make use of proper valuation of material issue and closing stock following
different method such as, FIFO, LIFO WEIGHTED AVG. Etc.

The purchase price of material is directly obtained from the suppliers receives and
have to be issued to production before the invoice of materials is received.The rate
per unit, total price of the item as shown in the purchase order plus sundry charges
such as delivery and forwarding charges sales tax, duty etc, may be borne by
suppliers, governments controlled prices by notifications, suppliers, catalogues and
circulars may be valuable guides for obtaining rates of materials.Delivery charges
may be estimated with reference to the kind of transport with charges incurred. The
price may also include sales tax, excise duty, fright etc, so the total cost and rate
per unit can be computed and entered in the stores received registered and posted
to stores ledger for the issue of material to production.In some cases material needs
adjustment for any discount allowed charges for transport containers etc.Discounts
may be like trade discounts quantity discount, cash discounts etc. Transportation
and storage costs may not include the cost of air, sea on land transport and other
stores costs, where the purchaser has to bear the costs. Cost of containers with
regarded may not make a separate charge because of non-refundable and also sales
tax, excise duty, insurance etc., all the items are added to Purchase price.Receiving
and Inspection Department.

a) Receiving all raw materials and other supplies from various suppliers.
b) Verify items by count, weight etc., and report any shortage
c) Inspect materials and supplied as to quality by analyzing them suitably.
d) Inform the purchasing department and accounts department all facts that may
require adjustment with vendor.
e) Analyse and give them the code depending up on the type of materials.
Stores keeping Department
41 | P a g e
a) Check and accept all materials form the received department.
b) Identity each material received with the stock list, check the code number and
place in the respective bins.
c) Issue materials and supplies for use upon presentation of authorized
requirement.
d) Record quantities received and issued on bin lards or stock ledger cards
consisting the perpetual inventory records.
Production Department

Make out materials requirement note i.e. requisition of requisite quantity and
quality of materials at the right moment so the all materials may be available
without delay on production.

1) Check and verify that the materials of requisite quantity and quality have been
received and charged to production.
2) Keep proper records or materials received and their progress through different
operations or progress.
3) Prepare materials return note for excess materials.
4) Prepare materials transfer note to cover any transfer of materials.
5) Prepare report on scrap for reporting to management.
Inventory Control Department
In may be a subdivision of the cost accounting department, although in many
concerns, it is a part of the stores keeping department.
A) It keeps perpetual inventory records.
B) Adjust the stock on receipt of the property authorized adjustment notes.
C) Prepare weekly or monthly, statement of receipts, issue, balance and average
consumption of materials both in terms of quantity and value.

Receipt and issue of inventories:

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Receipt Inventories in to store: After incoming materials have been examined and
approved they are passed on to the appropriate stores together with the goods
received note. Articles are inspected and passed and on the stores in the usual way.
In order to keep the accounting procedure uniform, it is desirable that a goods
received note be prepared for these articles also, the store keeper than places the
inventory in appropriate bin or shelf and make necessary entries in the receipt
column of the Bin Card.

A location code for materials helps in proper store - keeping with greater
efficiency, because stores can be easily identified. It is a part and parcel of stock
control procedure. Location code helps in mechanized accounting and safeguard
against omission in counting as verification.

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