UNIT – I

INTRODUCTION

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 INTRODUCTION
Every enterprise needs inventory for smooth running of its
activities. It serves as a link between production and distribution
processes. There is, generally, a time gap between the recognition of a
need and its fulfillment. The greater the time gap, the higher the
requirement inventory. It also provides a cushion for future price
fluctuations.

The investment in inventories constitutes the most significant part

of current assets / working capital is most of the undertakings. Thus, it is
very essential to have proper control and management of inventories,
the purpose of inventory management is to ensure availability of
materials in sufficient quantity as an when required and also to minimize
investment in inventories.

The investment in inventory is very high in most of the

undertakings engaged in manufacturing whole-sale and retail trade. The
amount of investment is sometimes more in inventory than in other
assets. In India, a study of 29 major industries has revealed that the
average cost of material is by paise and the cost of labour and
overheads is 36 paise in a rupee. In industries like sugar, the raw
materials cost is as high as 68.75 percent of the total cost. About 90
percent part of working capital is invested in inventories, it is necessary
for every management to give proper attention to inventory
management. A proper planning of purchasing, handling, storing and
accounting should forma part of inventory management. An efficient
system of inventory management will determine (a) What to purchase
(b) How much to purchase (c) From where to purchase (d) Where to
store etc.,

There are conflicting interests to different departmental heads

over the issue of inventory. The finance manager will try to invest less in

2
inventory because for him it is an idle investment, whereas production
manager will emphasize to acquire more and more inventory as he
does not want any interruption in production due to shortage of
inventory. The purpose of inventory management is to keep the stocks
in such a way that either there is over stocking nor under-stocking. The
over-stocking will mean a reduction of liquidity and starting of other
production processes; under-stocking, on the other hand will result in
stoppage of work.

NEED OF THE STUDY

For the purpose of the study, sponge Iron India Limited is
selected as, being it is a monopoly. Sponge Iron manufacturing unit in
the country at the time when it was established in 1980 as a public
sector unit, specially to meet raw materials requirements of mini steel
plants. It seems that one of the important problems faced by public
enterprises is ineffective control measures specially out dated and
unused inventory control measures. Therefore, it is felt quite appropriate
to make a micro study on inventory control methods and policies of the
SIIL so as to find out the responsible factors that caused for high
inventory cost.

OBJECTIVES OF THE STUDY.

 To know about the sponge Iron India Limited.

 To analyse the Inventory management policies of the SIIL unit to

assess their significance in the production programme.

 To analyse existing Inventory control system in SIIL.

 To examine the effectiveness of Inventory management on the

overall profitability of SIIL.

 To know the Inventory levels viz.

Minimum stock level

Maximum stock level , etc.,
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 To draw inference and to offer suggestions where ever it is felt
appropriate.

SCOPE OF THE STUDY:-

The study is confined to the various inventory levels. The
techniques of material control and the effectiveness of inventory
management on the overall profitability of SIIL has been studied.

RESEARCH METHODOLOGY:
Methodology is a systematic procedure of collecting information
in order to analysis and verify a phenomenon. The collection is done
through two principle sources Viz….

1) Primary Data
2) Secondary Data

1) Primary Data:-
It is the information collected directly with out any reference. In
this study it was mainly through interviews with concerned officers and
staff, either individually or collectively. Some of the information had
been verified or supplemented conducting personal with observation.

The data includes:-

 Interviews with Sponge Iron India Limited employees.
 Organization Chart has been drawn through observation.

2) Secondary Data:-
The secondary data was collected from already published source such
as Pamphlets, annual reports, returns and internal records.

The data includes :

Methodology under study as been collected from the annual
reports of sponge Iron India Limited, in house magazines, Publication,
Books, Journals on Management and Websites.

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PERIOD OF STUDY:-
A period of consecutive five years i.e. from 2015 to 2019 has
been considered for the purpose of the study.

LIMITATIONS OF THE STUDY:

 The study was conducted with the data available and the analysis
was accordingly.
 The analysis is made on the basis of secondary data.
 Time is the main constraint in completing the study with in the
stipulated period allowed. It become difficult to analysis and study
the performance of SIIL.
 The availability of data pertaining to 5 years is one of the
constraints.
 As there is more dependency on secondary data realistic
conclusion may not be possible to be made.
 The study was conducted with in the selected unit of Sponge Iron
Plant, Palvoncha.
CHAPTER DESIGN:-
With as the backdrop it is proposed to study selected aspects of
Inventory Management in Sponge Iron of India Limited (SIIL) the
present. Study is confined to SIIL and it is divided into five chapters.

 The very fast chapter deals with introduction of study.

 Second chapter presents about profile of the organization.

 Third chapter organization for Inventory Management.

 Fourth chapter deals with the Inventory control Methods of SIIL.

 Fifth chapter presents conclusions and suggestions

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 UNIT – II
ORGANIZATION PROFILE

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 BACK GROUND OF THE SPONGE IRON INDIA LIMITED

Sponge Iron India Limited (SIIL), an undertaking of government of

India and the government of Andhra Pradesh, has successfully set up
and commissioned south East Asia’s first sponge iron plant of 30,000
tones per annum capacity at Palvoncha, Khammam District, Andhra
Pradesh in June 1980 with the assistance of United Nations
Development Programme (UNDP). The capacity of the Plant
subsequently expanded to 60,000TP. Taking note of the successful
operation of the plant in establishing of sponge iron from Lump iron ore
and non-cooking coal locally available. Government of India sanctioned
in 1982 a scheme for doubling the capacity to 60,000 tones ore per
annum by the addition of second kiln of similar capacity.

The second unit was implemented with the in-house engineering

expertise and 95% of the plant and machinery was procured from
indigenous sources by suitably modifying the designs and adopting
them to Indian equipment. The expansion unit was completed on
schedule and went into regular operation by November 1985. Both the
units are presently operating at full rated capacity, producing high
quality sponge iron which is being use by many electrical Arc furnace
(EAFS) all over the country for production of steel.

Since the commencement of operations of the first unit in 1980

and with the addition of the second unit in 1985, the company’s
performance has been extremely satisfactory, operations both the units
at near rated capacity. The financial performance of the company has
also been sound with profits being generated from very first year of
operation.

Subsequently in 1987 the company set up a cold briquette plant

for producing high quality/high density sponge briquettes out of sponge

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iron fines of 1 mm to 3 mm size fraction which were at that time being
considered as waste , as (EAFS) find it difficult to use the same unless
agglomerated.

Based on the experience gained in the operation and successful

implementation of the expansion unit designed and engineered by SIIL.
The company has acquired capability of rendering consultancy services
in the field of establishment of coal based sponge iron plant. In this
direction the company has been rendering such services to various
clients in India and abroad. Talking into account of extensive laboratory
and test facilities available with the company, UNIDO had accorded
recognition to SILL as consultant in this field.

SUBMERGED ARC FURNACE FACILITY FOR MANUFACTURE OF

HIGH GRADE PIG IRON:-
For the direct reduction process using lump iron ore, it is
necessary that the fed raw materials i.e. Iron ore and coal are crushing
and – screening to the required size. In the crushing and screening
operations, considerable quantities of fines (both iron and ore and coal)
are generated. While the entire quantity of coal fines is being utilized in
the kiln by the special coal injection system developed by the company.
Iron ore fines do not find ready use and are required to be dumped for
every turn of sponge iron produced approximately 0.6 to 1.0 tonne of
iron ore fines being dumped as waste similarly during sponge iron
production, about 250 Kgs of unburnt and partially burnt coal in the form
of char and about 50 Kgs of sponge iron fines (below 1 mm size)’ are
generated per tonne of prime sponge iron produced which also do not
have any commercial use and are presently being dumped as waste.

In order to utilize the iron are fines the iron ore fines that are
generated during the crushing operations, it is proposed to install a
submerged Arc furnace (SAF) for production of 45,000 TPA of high

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grade pig-iron , low in phosphorous content. For reduce to metallization
level of 75-80% in the rotary kiln and the pre-reduced fines would then
be smelted in the SAF. A trial campaign was undertaken at SIIL plant,
which had established that iron ore fines, could be successfully reduced
to the above levels of metallization without any difficulty. The process
of pre-reduced material would also improve the production levels of the
kiln, since the metallization levels being aimed at are lower.

Low phosphorous Pig-Iron finds a extensive use in the

manufacture of casting. There has been a recurring shortfall in the
country between the industries requirements and the availability of low
phosphorous, from the domestic suppliers. As a result sizeable
quantities of low phosphorous Pig – Iron and presently being imported
year after year expanding precious foreign exchange.

WASTE HEAT RECOVERY BASED POWER GENERATED PLANT:-

In the Rotary Kiln process the waste gases generated are passed
through an after burning chamber before they are cooled and cleaned in
a venture type scrubber and let off through the stack. The hot waste
gasses leaving after combustion chamber of the rotary kiln are at
temperature of about 100 to 900 degree centigrade and carry
considerable amount of sensible heat which cold be utilized for power
generation through waste heat recovery boiled and steam turbine
generation system.

Taking into account the quantum of waste gasses that would be

generated and the minimum sensible heat that would be available, it is
anticipate that about 5MW of electric power could be generated which
would be adequate to meet the energy requirement of the Submerged
Arc Furnace….

Fluidized bed combustion boiler of 15th capacity was set up during

1997.

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SPONGE IRON:
 It is the product obtained upon direct reduction of iron ore with
coal as reductant and fuel.
 Has got its name since the products microscopic structure
appears to be like honey comb.
 It is used as a substitute material for steel scrap in making steel
through electric arc furnace.
 Production process does not involve change of state.

THE SIIL ROUTE OF SPONGE IRON:-

Raw Materials:-
The raw materials used in SIIL plant are iron ore , non-cooking
coal and limestone. A small quantity of fuel oil is also used for the initial
heating of the kiln. The plants are capable of processing various
combinations of iron ore and non-cooking coal drawn from any location.

RAW MATERIAL PROCESSING AND HANDLING:-

At SIIL , the raw materials are fed to a ground level ‘hopper ’ by
dump trucks and conveyed to the crushing plant through a vibratory
feeder and conveyer.

Iron ore :- Which is received in the size range of up 100 MM is

crushed in a cone crusher to a size of 5 to 20 MM depending upon the
basic characteristics of the materials . The crushed iron ore is washed
in a ‘scrubber’ and screened to remove the fines.

Coal :- Is crushed between 0 to 15 MM size range in an impactor. The

coal fines of below 3 MM are used in the burner through discharge end
of the kiln.

Limestone:- Is crushed to a finer size , up to 3 MM , the range being

based on the extent of de-sulphurization required. The prepared raw
materials are conveyed to the stock house.

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STOCK HOUSE:
The stock house has capacity of storage two days requirements
of coal, one and half days stock iron ore and about a weeks
requirement of limestone.

ROTARY KILN AND COOLER:-

The principle equipment in the reduction plant is a rotary kiln of 3
meters diameter and 40 meters long , and a rotary cooler of 2.2 meters
diameter and 20 meters long. Metered quantities of prepared raw
materials are delivered to the rotary kiln through weigh feeders, iron ore
and coal along with limestone travel from feed end of the kiln to their
discharge end since the kiln is inclined and rotate at speeds ranging
from 0.3 to 0.9 rpm.

MANUFACTURING PROCESS:-
At the start of operations, the kiln is heated by burning fuel
oil/coal from discharge end. Thereafter, the evolved in the chemical
reactions inside the kiln is utilized to maintain chemical reaction inside
the kiln is utilized to maintain a temperature of about 1000 degree
centigrade inside the kiln. Air is admitted into the kiln through air tubes
which are fed from electrically driven fans located on the kiln shell. The
temperature inside the kiln is measured by thermo couples. Air
admission is regulated so a to maintain a uniform temperature profile
inside the kiln.

The raw materials are crushed and screened in raw material

preparation plant and stored in a day bin. The processed raw materials
are conveyed to the rotary kiln, which is maintained at 1000 centigrade.

The air required for combustion inside the kiln is supplied through
shell fans mounted on kiln. Part of coal is burn from the discharge end
to maintain the temperature in kiln. One which is present inside travels

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from one end to the other end in the kiln and its rotary motion and in
process gets reduced to sponge iron due to presence of carbon in coal.

The exhaust flue gasses from the furnace flow through the high
efficiency venture scrubber and the clean and cool gasses vented
through the 40 m high stack. The kiln out put consists of hot sponge
iron and char flow through the rotary cooler where the product is cooled
by indirect spray of water. The cooled product is screened and
magnetically separated and sponge iron and char are stored separately.
Kiln off gasses flow through dust setting chamber and then venture
scrubber where water is sprayed for the settlement of dust. The
contaminated water is sent to a thickener where the solids are allowed
to settle and separated water is recycled again to scrubber. The slurry
is pumped to sludge ponds after neutralization.

All Kiln off gasses before entering wet scrubber they are flown
through waste heat recovery boiler, where the sensible heat 01 the
gasses is utilized for generating the steam of approximately 12 tph at
440c and 48bar pressure from kiln. This steam combined with steam
generator through the fluidized bed boiler of approximately 15tph (at
440c and 48 bar) and sent to the turbine for generating.

SIGNIFICANCE OF THE TECHNOLOGY:-

As against the traditional technology of producing steel in coke
oven/blast furnace route, direct reduction process to produce Sponge
iron using non-cooking coal in a Rotary kiln and subsequently meeting
the same in EAFS has gained prominence and has received
considerable attention in the quantitatively and qualitatively. However
this technology option requires a strong electric power supply grid for
meeting the highly fluctuating power requirements of the, EAFS for steel
making. This is of particular relevance of our country where sustained
and adequate availability of electric power is s major constraint. Also

12
due to the fact that Indian iron Ores contain a high percentage of silica
and Alumina, the sponge iron thus produced contains a high proportion
of gangue constituents which need to be removed in steel making,
leading to higher slag volumes and lower yields. This imposes
percentage of sponge iron that can be used along with the scrap for
steel making in EAFS. Further, most of the high-grade iron ores are
fragile in nature contributing the generations of fines during transport
and in processing into the sponge iron by direct reduction technology.
Hence there exists a need to explore alternative and more
attractive/economical technologies for steel making using the direct
reduction process. Where by highly fragile ores could be effectively
utilized. The present proposal initially envisages establishment of the
technology for manufacture of high-grade pig Iron using the specially
designed SAF. The pig iron thus produced could be consumed directly
or subjected to further treatment for making high quality steel. Therefore
besides establishing the technology for producing high grade (low
phosphorous) pig iron, which is very much demand in the country, there
above scheme would pave the way for developing a new route of steel
making. By this development, the future steel production in the country
could also be based on Direct Reduction Submerged Arc Furnace route
where by relieving dependents on metallurgical coal whose resources
are depleting. Also it would not impose a major pressure on the power
requirement for operating the SAF could be met from. In plant power
generation, using the waste heat in kiln off gases of the reduction plant.

The project has been sanctioned by government of India on the

17th February, 1989 at, an estimated cost of Rs.16.20 Crores. The
implementation schedule is 30months. The unit when it goes into
regular operation would provide employment to about 500 people
directly and more than 1200 persons indirectly in the tribal areas of
Palvoncha in Khammam district, Andhra Pradesh.

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DIVISIONAL HIERARCHY:-
The sponge Iron India Limited has been divided into various
divisions and departments.

Works Division
Commercial Division
Financial and Accounts Division
Personnel and administration Division
The functions performed and carried out by the above mentioned
divisions and their subdivisions are discussed as follows.

WORKS DIVISION:-
The works division takes care of all the activities happening in the
plant. The works division has two important departments. They are:-

 Operations department
 This department takes care of all the operations in the plant like
various processes, this consists of only technical people.
 Maintenance department;
 It takes care of all repairs and replacements in the plant.

COMMERCIAL DIVISION:-
The commercial division takes care of all the commercial
activities in the company. The commercial activities in the company has
divided mainly three departments.

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 They are:

Purchase Department:-
The department takes care of procurement of spares for repair of
all the machines under repair.

Stores Department:-
This department takes care of the custody of the material
purchased by the purchase department.

Sales and Marketing Department:-

This department takes care about the sale of the product and play
an importance role in identifying the buyers.

The division also has one contractors cell which care of the
purchase of the required raw materials from the respective mines.

FINANCE AND ACCOUNTS DIVISION:-

The finance and accounts division takes care of the flow of
money in the organization. This division has mainly three departments
they are:

Finance Department:-
This department takes care of either inflow or out flow or money.

Accounts Department:-
This department maintains all the account of financial flow.

Electronic Data Processing Department:-

This department takes care of the management information
system reports.

PERSONNELAND ADMINISTRATION DEPARTMENT (P&A):-

The personnel and administration department takes care of the
employees. This division has mainly three departments they are:-

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Personnel Department:-
This department take care of the selection and training of the
employees.

Administration Department:-
This department takes care of the allotment of accommodation to
the employee and their establishment.

Industrial Relation Department:-

This department takes care of the employees and their safety
regarding the environmental conditions.

THE COMPANY RECEIVED FOLLOWING AWARDS IN THE FIELD

SHOWING BELOW:-
 1982 – Productivity and best Industrial relation award from Govt. of
Andhra Pradesh.
 1983 – Productivity and best industrial relation award from Govt. of
Andhra Pradesh.
 1983 – Best industrial relation award to employees union.
 1983 –Best technological development in Research and
Development – By an industrial organization from APCCI.
 1985 – Best productivity and best industrial relation award from
Government of Andhra Pradesh.
 1985 – National safety Award from National Safety Council.
 1992 – Indira Gandhi memorial best Industrial award.
 1993 – Awards for its outstanding contribution towards Harmonious
industrial relation and Labour Welfare.
 1993 – 33rd All Indian National Unity Award.
 1997 – Commendation certificate for its outstanding towards
Harmonious Industrial relation and Labour Welfare.
 Merit certificate for excellency in the achievement of MOV target in
the year 2003 – 2004 from Ministry.

16
 UNIT – III
THEORETICAL FRAMEWORK

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 INVENTORY MANAGEMENT
MEANING AND NATURE OF INVENTORY:-
The dictionary meaning of inventory is ‘stock of goods’. The word
‘Inventory ’ is understood differently by various authors in accounting
language it may mean stock of finished goods only. In a manufacturing
concern , it may study it form the usage side or from the ‘side of point of
entry’ in the operations. Inventory includes the following things:

a) Raw Material: Raw material from a major input the organization.

The are required to carry out production activities uninterruptedly.
The quantity of raw materials required will be determined by the
rate of consumption and the time required for replenishing the
supplies. The factors like the availability of raw materials and
government regulation, etc. to affect the stock of raw materials.
b) Work–in– Progress:- The work – in progress is that stage of
stocks which are in between raw materials and finished goods.
The raw materials enter the process of manufacture by they are
yet to attain a final shape of finished goods. The quantum of
work-in-progress depends upon the time taken in the
manufacturing process. The greater the time taken in
manufacturing, the more will be the amount of work in progress.
c) Consumables:- These are the materials which are needed to
smoothen the process of production. These materials do not
directly enter production but they act as catalysts, etc.
Consumables may be classified according to their consumption
and criticality. Generally , consumable stores do not create any
supply problem and form a small part of production cost. There
can be instances where these materials may account for much
value than the raw materials. The fuel oil may form a substantial
part of cost.

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d) Finished Goods:- These are the goods which the ready for the
consumers. The stock of finished goods provides a buffer
between production and market. The purpose of maintaining
inventory is to ensure proper supply of goods to customers. In
some concerns the production is undertaken on order basis, in
these concerns there will not be a need for finished goods. The
need for finished goods inventory will be more when production is
undertaken in general without waiting for specific orders.
e) Spares: - Spares also form a part of inventory. The Consumption
pattern of raw materials, consumables, finished goods are
different from that of spares. The stocking policies of spares are
different from industry to industry. Some industries like transport
will require more spares than the other concerns. The costly
spare parts like engines, maintenance spares etc, are not
discarded after use, rather they are kept in ready position for
further use. All decisions about spares are based on the financial
cost of inventory on such spares and the costs that may arise due
to their non-availability.
PURPOSE / BENEFITS OF HOLDING INVENTORIES:-
Although holding inventories involves blocking of a firm’s funds
and the costs of storage and handling. Every business enterprises has
to maintain a certain level of inventories to facilitate uninterrupted
production and smooth running of business. In the absence of
inventories a firm will have to make purchases as soon as it receives
orders. It will mean loss of time and delays in execution of orders which
sometimes may cause loss of customers and business. A firm also
needs to maintain inventories to reduce ordering costs and avail
quantity discounts, etc. Generally speaking, there are three main
proposes or motives of holding inventories:

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 i) The Transaction Motive which facilities continuous production
an timely execution of sales orders.
ii) The Precautionary Motive which necessitates the holding of
inventories for meeting the unpredictable changes in demand and
supplies of materials.
iii) The Speculative Motive which induces to keep inventories for
taking advantage of price fluctuations, saving in re-ordering costs
and quantity discounts, etc.

RISK AND COSTS OF HOLDING INVENTORIES:-

The holding of inventories involves blocking of a firm’s funds and
incurrence of capital and other costs. It also exposes the firm to certain
risks. The various costs and risks involved in holding inventories are as
below:

a) Capital costs:- Maintaining of inventories results in blocking of

the firm’s financial resources. The firm has , therefore, to arrange
for additional funds to meet the cost of inventories. The funds
may be arranged from own resources or from outsiders. But in
both the cases, the firm incurs a cost. In the former case, there is
an opportunity cost of investment while in the later cases, the firm
has to pay interest to the outsiders.
b) Storage and Handling Costs:- Holding of inventories also
involves costs on storage as well as handling of materials. The
storage costs include the rental of the godown, insurance
charges, etc.
c) Risk of Price Decline:- There is always a risk of reduction in the
prices of inventories by the suppliers in holding inventories. This
may be due to increased market supplies, competition or general
depression in the market.

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d) Risk of Obsolescence:- The inventories may become obsolete
due to improved technology, changes in requirements, change in
customer’s tastes, etc.
e) Risk Deterioration in Quality:- The quality of the materials may
also deteriorate while the inventories are kept in stores.

INVENTORY MANAGEMENT:-
The investment in inventory is very high in most of the
undertakings engaged in manufacturing, whole – sale and retail trade.
The amount of investment is sometimes more in inventory than in other
assets. In India, a study of 29 major industries has revealed that the
average cost of materials is 64 paise and the cost of labour and
overheads is 36 paise in a rupee. In industries like sugar, the raw
materials cost is as high as 68.75 per cent of the total cost. About 90
per cent part of working capital is invested in inventories. It is
necessary for every management to give proper attention to inventory
management. A proper planning of purchasing, handling m storing and
accounting should from a part of inventory management.

An efficient system of inventory management will determine (a)

what to purchase (b) how much to purchase (c) from where to purchase
(d) where to store, etc.

There are conflicting interest of different departmental heads over

the issue of inventory. The finance manager will try to invest less in
inventory because for him it is an idle investment, whereas production
manager will emphasize to acquire more and more inventory as he
does not want any interruption in production due to shortage of
inventory. The purpose of inventory management is to keep the stocks
in such a way that neither there is over –stocking. The over-stocking
will mean a reduction of liquidity and starving of other production

21
processes; under-stocking, on the other hand, will result in stoppage of
work. The investments in inventory should be kept in reasonable limits.

OBJECTIVES OF INVENTORY MANAGEMENT:-

The main objectives of inventory management are operational
and financial. The operational objectives mean that the materials and
spares should be available in sufficient quantity so that work is not
disrupted for want of inventory. The financial objective means that
investments in inventories should not remain idle and minimum working
capital should be locked in it. The following are the objectives of
inventory management:
1) To ensure continuous supply of materials, spares and finished
goods so that production should not suffer at any time and the
customers demand should also be met.
2) To avoid both over – stocking and under – stocking of inventory.
3) To maintain investments in inventories at the optimum level as
required by the operational and sales activities.
4) To keep material cost under control so that they contribute in
reducing cost of production and overall costs.
5) To eliminate duplication in ordering or replenishing stocks. This
is possible with the help of centralizing purchases.
6) To minimize losses through deterioration, pilferage, wastages and
damages.
7) To design proper organization for inventory management. A clear
cut accountability should be fixed at various levels of the
organization.
8) To ensure perpetual inventory control so that materials shown in
stock ledgers should be actually lying in the stores.
9) To ensue right quality goods at reasonable prices. Suitable
quality standards will ensure proper quality of stocks, the price-

22
 analysis , the cost – analysis and value- analysis will ensure
payment of proper prices.
10) To facilitate furnishing of data for short - term and long terms
planning and control of inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANGEMENT:-

Effective Inventory management requires an effective control
system for inventories. A proper inventory control not only helps in
solving the acute problem of liquidity but also increases profits and
causes substantial reduction in the working capital of the concern. The
following are the important tools and techniques of inventory
management and control:

1) Determination of Stock Levels.

2) Determination of Safety Stocks.
3) Selecting a proper System of Ordering for Inventory.
4) Determination of Economic Order Quantity.
5) A.B.C. Analysis.
6) V E D Analysis
7) Inventory Turnover Ratios
8) Aging Schedule of Inventories
9) Classification and Codification of Inventories.
10) Preparation of Inventory Reports.

1. DETERMINATION OF STOCK LEVELS:-

Carrying of too much and too little of inventories is detrimental to
the firm. If the inventory level is too little, the firm will face frequent
stock-outs involving heavy ordering cost and if the inventory level is too
high it will be unnecessary tie – up of capitals. Therefore, an efficient
inventory management requires that a firm should maintain an optimum
level of inventory where inventory costs are the minimum and at the

23
same time there is no stock – out which may result in loss of sale or
stoppage of production. Various stock levels are discussed as such.

(a) Minimum Level:- This represents the quantity which must

be maintained in hand at all times. If stocks are less than the
minimum level then the work will stop due to shortage of
materials. Following factors are taken into account while fixing
minimum stock level:

Lead Time:- A purchasing firm requires some time to process the

order and time is also required by the supplying firm to execute
the order. The time taken in processing the order and then
executing it is known as lead-time. It is essential to maintain
some inventory during this period.

Rate of Consumption:- It is the average consumption of materials

in the factory. The rate of consumption will be decided on the
basis of past experience and production plans.

Nature of Material:- The nature of material also affects the

minimum level. If a material is required only against special
orders of the customer then minimum stock will not be required
for such materials. Minimum stock level can be calculated with
the help of following formula:

MINIMUM STOCK LEVEL – RE – ORDERING LEVEL – (NORMAL

CONSUMPTION X NORMAL RE-
ORDER PERIOD):-
(b) Re- ordering Level:- When the quantity of materials reaches
at a certain figure then fresh order is sent to get materials again.
The order is sent before the materials reach minimum stock level.
Re-ordering level or ordering level is fixed between minimum
level. The rate of consumption, number of days required to

24
 replenish the stocks and maximum quantity of materials required
on any day are taken into account while fixing re-ordering level.
Re – ordering level is fixed with the following formula:

RE-ORDERING LEVEL = MAXIMUM CONSUMPTION X MAXIMUM RE –

ORDER :-
(c) Maximum Level:- It is the quantity of materials beyond which
a firm should not exceed its stocks. If the quantity exceeds
maximum level limit then it will be overstocking. A Firm should
avoid overstocking because it will result in high materials costs.
Overstocking will mean blocking of more working capital, more
space for storing the materials m, more wastage of materials and
more chances of losses from obsolescence. Maximum stock
level will depend upon the following factors:

1) The availability of capital for the purchase of materials.

2) The maximum requirements of materials at any point of time.
3) The availability of space for storing the materials.
4) The rate of consumption of materials during lead time
5) The cost of maintaining the stores.
6) The possibility of fluctuations in prices.
7) The nature of materials. If the materials are perishable in nature,
then they cannot be stored for long.
8) Availability of materials. If the materials are available only during
seasons then they will have to be stored for the rest of the period.
9) Restrictions imposed by the Government. Sometimes,
government fixes the maximum quantity of materials which a
concern can store. The limit fixed by the government will become
the limiting factor and maximum level cannot be fixed more than
this limit.

25
10) The possibility of change in fashions will also affect the maximum
level. The following formula may be used for calculating
maximum stock level:
MAXIMUM STOCK LEVEL = RE – ORDERING LEVEL + RE – ORDERING
QUANTITY – (MINIMUM CONSUMPTION
X MINIMUM RE-ORDERING PERIOD)
(d) Danger Level:- It is the level beyond which materials should not fall
in any case. . If Danger level arises then immediate steps should be
taken to replenish the stocks even if more cost is incurred in arranging
the materials .If materials are not arranged immediately there is a
possibility of stoppage of work .Danger level is determined with the
following formula :

DANGER LEVEL = AVERAGE CONSUMPTION X MAXIMUM RE-

ORDER PERIOD FOR EMERGENCY PURCHASES.
(e) Average stock level:-
The average stock level is calculated as such :
Average stock level = minimum Stock Level +1/2 re-order
quantity

2. Determination of Safety stock:-

Safety stock is buffer to meet some unanticipated in usage. The
usage of inventory cannot be perfectly forecasted. It fluctuates over a
period of time. The demand for materials may fluctuate and delivery of
inventory may also be delayed and in such a situation the firm can face
a problem of stock-out. The stock-out can prove costly by affecting the
smooth working of the concern. In order to protect against the stocking
arising out of usage fluctuations firms usually maintain some margin of
safety or safety stocks. The basic problem is to determine the level of
quantity of safety stocks. The costs are involved in the determination of
this stock i.e. opportunity cost of stock-outs and the carrying costs. The

26
stock-outs of raw materials cause production disruption resulting into
higher cost of production. Similarly, the stock-outs of finished goods
result into the failure of the firm in competition as the firm cannot
provide proper customer service. If a firm maintains low level of safety
frequent stock-outs wills occur resulting into the larger opportunity
costs. On the other hand, the larger quantity of safety involve higher
carrying costs.

3. Ordering Systems of Inventory:-

The basic problem of inventory is to decide there-order point. This
point indicates when an order should be replaced. The re-order point is
determined with the help of these things:

a) Average consumption rate, b) duration of lead tine, c)

economic order quantity, when the inventory is depleted to lead time
consumption, the order should be placed. There are three prevalent
systems of ordering and concern can choose any one of these:

a) Fixed order quantity system generally known as economic order

quantity (EOQ) system:
b) Fixed period order system or periodic re-ordering system or
periods review system:
c) Single order and scheduled part delivery system

4. Economic Order Quantity (EOQ):-

A decision about how ,much to order had great significance in
inventory management. The quantity to be purchased should neither be
small nor big because of buying and carrying materials are very high.
Economic order quantity in the size of the lot to be purchased which is
economically viable. This is the quantity of materials which can be
purchased at minimum costs. Generally, economic order quantity is the
point at which inventory carrying costs are equal to order costs. In
determining economic order quantity it is assumed that cost of
27
managing inventory is made up solely of two parts i.e., ordering cost
and carrying costs.

A) Ordering Costs. These are the costs which are associated with the
purchasing or ordering of materials. These costs include:

1) Costs of staff posted for ordering of goods. A purchase order is

processed and then placed with suppliers. The labour spent on
this process in included in ordering costs.
2) Expenses incurred on transporting of goods purchased
3) Inspection costs of incoming materials
4) Cost of stationery, typing, postage, telephone charges etc.,

These costs are also known as buying costs and will arise only
when some purchase are made. When materials are manufactured in
the concern then these costs will be known as set-up costs. These
costs will include costs of setting up machinery for manufacturing
materials, time taken up in setting, costs of tools, etc.,

The ordering costs are totaled up for the year and then divided by
the number of orders placed each year. The planning commission of
India had estimated these costs between Rs.10 to 20 Rs. 20 per order.

(B) Carrying Costs:- These are the costs for holding the inventories.
These costs will not be incurred if inventories are not carried.
These costs include:

1) The cost of capital invested in inventories. An interest will be paid

on the amount of capital locked – up in inventories.
2) Cost of storage which could have been used for other purposes.
3) The loss of materials due to deterioration and obsolescence. The
materials may deteriorate with passage of time. The loss of

28
 obsolescence arises when the materials in stock are not usable
because of change in process or product.
4) Insurance cost.
5) Cost of spoilage in handling of materials.
The planning Commission of India had estimated these costs
between 15 per cent to 20 per cent of total costs. The longer the
materials kept in stocks, the costlier it becomes by 20 per cent every
year. The ordering and carrying costs have a reverse relationship. The
ordering cost goes up with the increase in number of orders placed. On
the other hand, carrying costs go down per unit with the increase in
number of units, purchased and stored. It can be shown in the diagram
given on the next page:

The ordering and carrying costs of materials being high, an effort

should be made to minimize these costs. The quantity to be ordered
should be large so that economy may be made in transport costs and
discounts may also be earned. On the other hand, storing facilities,
capital to be locked up , insurance costs should also be taken into
account.

Assumptions of EOQ. While calculating EOQ the following

assumptions are made.

1) The supply of gods is satisfactory. The goods can be purchased

whenever these are needed.

2) The quantity to be purchased by the concern is certain.

3) The prices of goods are stable. It results to stabilize carrying

costs.

When above – mentioned conditions are satisfied, economic

order quantity can be calculated with the help of the following formula:

29
 EOQ = 2AS
Where A = Annul consumption in rupees.
S = Cost of placing an order.
I = Inventory carrying costs of one unit.
5. A-B-C Analysis:-
The materials are divided into a number of categories for
adopting a selective approach for material control. It is generally seen
that in manufacturing concern, a small percentage of items contribute a
large percentage of value of consumption and a large percentage of
items of materials contribute a small percentage of value. In between
these two limits there are some items which have almost equal
percentage of value of materials. Under A-B-C analysis ,the materials
are divided into three categories viz., A,B and C . Past experience has
shown that almost 10 per cent of the items contribute to 70 per cent of
value of consumption and this category is called “A” Category. About
20 per cent of the items contribute about 20 percent of value of
consumption and this is known as category “B” materials. Category “C”
covers about 70 per cent of items of materials which continue only 10
per cent of value of consumption. There may be some variation in
different organizations and an adjustment can be made in these
percentages

A-B-C analysis helps to concentrate more efforts on category A

since greatest monetary advantage will come by controlling these items.
An attention should be paid in estimating requirements, purchasing,
maintaining safety stocks and properly storing of “A” category materials.
These items are kept under a constant review so that a substantial
material cost may be controlled. The control of “C” items may be
telexed and these stocks may be purchased for the year. A little more
attention should be given towards “B” category items and their purchase
should be undertaken at quarterly or half – yearly intervals.

30
 Working capital management – II (Cash, Receivables and
Inventory Management)

When A-B-C analysis was not followed the average inventory was
Rs. 66,600 and after following A-B-C analysis the average inventory
came down to Rs. 40,400. Average value of inventory is nearly 1 1/2
times in the earlier situation, than as compared to the second situation.

The VED analysis is used generally for spare parts. The

requirements and urgency of spare parts is different from that of
materials. A-B-C analysis may not be properly used for spare parts.
The demand for spares depends upon the performance of the plant and
machinery. Spare parts are classified as Vital (V), Essential (E) and
Desirable (D). The vital spares are must for running the concern
smoothly and these must be stored adequately. The non-availability of
vital spares will cause have in the concern. The E type of spares are
also necessary but their stocks may be kept at low figures. The
stocking of D type of spares may be avoided at times. If the lead time
of these spares is less, then stocking of these spares can be avoided.

The Classification of spares under three categories is an

important decision. A wrong classification of any spare will create
difficulties for production department. The Classification of spares will
create difficulties for production department. The classification of
spares should be left to the technical staff because they know the need,
urgency and use of these spares.

6. Inventory Turnover Ratios:-

Inventory turnover ratios are calculated to indicate whether
inventories have been used efficiently or not. The purpose is to ensure
the blocking of only required minimum funds in inventory. The Inventory
turnover Ratio also known as stock velocity is normally calculated as
sales / average inventory of cost of goods sold/ average inventory cost.

31
Inventory conversion period may also be calculated to find the average
time taken for clearing the stocks.

Symbolically,
Cost of Goods sold
Inventory Turnover Ratio = Average Inventory at Cost
or
= Net Sales
(Average) Inventory

And, Inventory conversion period Days in a year

=
Inventory Turnover Ratio
We have already discussed these ratios at length in the chapter
of Ratio Analysis.

7) Aging Schedule of Inventories:-

Classification of inventories according to the period (age) of their
holding also helps in identifying slow moving inventories thereby helping
in effective control and management of inventories. The following table
shows aging of inventories of firm.

8) Classification and Codification of inventories:-

The inventories of a manufacturing concern may consist of raw
materials, work in process, finished goods, spares, consumable stocks,
etc. All these categories ma have their sub-divisions. The raw materials
used may be of 3-4 types, finished goods may also be of more than one
type, spares may be of a number of types and so on. For a proper
recording and control of inventory, a proper classification of various
types of items is essential. The inventories should be classified and
then code numbers should be assigned for their identification of short
names are useful for inventory management not only for large concerns
32
but also for small concerns. Lacks of proper classification may also lead
to reduction in production

The inventories may be classified either according to their nature

or according to their use. Generally materials are classified according to
their nature as construction materials, consumable stocks, spares,
lubricants, etc. After classification, the materials are given code
numbers. The coding may be dine alphabetically of numerically. The
latter method is generally used for coding. The class of materials is
assigned two digits and then two or three digits are assigned to the
category of materials in that class. The third distinction is needed for the
quality of goods and decimals are used to note this factor. For example,
a concern as two categories of items divided in to 15 groups. Two
numbers will be used for main category and two in the sub-groups
(because the number is 15 i.e. more then 9) and then decimals will be
used to the quality etc. If mobile oil is to be coded, two digits will be
used in the category, i.e. lubricant oils say 12, two digits will be used for
mobile oil, say 56 and one digit may be used for the quality of mobile oil
say 1. the code of mobile oil will be 1256.1.

The classification and coding of inventories enables the

introduction of the mechanized accounting. It also helps in maintaining a
secrecy of description. It also helps the prompt issue of stores.

9) Inventory Reports:-
From effective inventory control, the management should be kept
informed with the latest stock position of different items. This is usually
done by preparing periodical inventory reports. These reports should
contain all information necessary for managerial action. On the basis of
these reports management takes corrective action where ever
necessary. The more frequently these reports are prepared the less will
be the chances of lapse in the administration of inventories.

33
EOQ:
NOTE: TO ADDRESS THE BASIC RAW MATERIALS
DIFFICULTIES BEING FACED BY THE COMPANY
GOVERNMENT IS CONSIDERING LONG-TERM SOLUTION
LIKE ITS MERGER WITH NATIONAL MINERAL
DEVELOPMENT CORPORATION LTD., WHICH WILL
IMPLEMENTED IN DUE COURSE. THIS WILL SOLVE THE
PROBLEM OF IRON ORE AVAILABILITY FOR THE
COMPANY ONCE FOR ALL.

UNIT – IV
DATA ANALYSIS &
INTERPRETATION

34
 ACTIVITY / TURNOVER RATIOS (OR) STOCK:-
a) Inventory Turnover Ratio (or) stock Turnover Ratio:-
Inventory Turnover Ratio also known as stock velocing is
normally calculated as sales / Average Inventory (or Inventory / cost of
goods sold / average Inventory, in would indicate whether inventory has
been efficiently (or) not.

Inventory turnover ratio indicates then number of times.

Sales
Inventory Turnover Ratio =
Average Inventory

Particulars 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

Sales 5886.21 6197.52 4303.93 5142.57 5573.13

Avg.
367.11 532.84 534.65 656.51 427.71
Inventory
Ratio 16.03 11.63 8.05 7.83 13.03

35
 Inventory Turnover Ratio

20
16.03
15
13.03
11.63
10
8.05 7.83 Ratio

0
2014-15 2015-16 2016-17 2017-18 2018-19

36
INTERPRETATION OF INVENTORY TURNOVER RATIO:-

Initially in the year 2014-2015 company has a very high inventory

Turnover Ratio of 16.03 times which again increased in the year

2015-16 to 11.63 times.

It implies that the company can’t go beyond the above Ratio

which may not a favorable situation.

From year 2018-19 the inventory Ratio has a down fall which

represent an efficiency in Inventory level.

37
 DETAILS OF NON-MOVING ITEMS FOR 2018 – 2019
S.No. Item Code Name of the Item Unit Qty. Rate Value

Grinding Wheel 150x25x16

1 100100007 No 1.00 158.00 158.00
Smooth

2 10200027 6017 ball bearing No 2.00 1326.39 2652.78

Angular contact ball bearing

3 10200408 No 2.00 347.44 694.88
7304
Double row ball bearing with
4 10200540 No 7.00 924.28 6469.96
sleave 1217 K

5 10201108 Tapper roller bearing 31308 No 2.00 1197.96 2395.92

Tapper roller bearing

6 10201158 No 2.00 2250.00 4500.00
30314J2

7 10202676 SLEAVE H212 No 2.00 72.58 145.16

8 10203109 Locating ring FRB 10/170 No 2.00 93.60 187.20

9 10501147 MS Hex rod 30mm Kg 10.00 26.84 268.40

10mm THK water resistant

10 10701021 SFT 8.00 419.67 3357.36
wooden flanks ½ x 6 x 4

11 10803040 GI socket 40mm DIA No 1.00 13.38 13.38

12 10821063 PVC coupling 63mm DIA No 8.00 7.50 60.00

PVC saddle piece 63 x 15mm

13 10824078 No 1.00 47.50 47.50
DIA

14 10844125 Slim seal butter fly valve 125mm No 1.00 2313.00 2313.00

15 10855032 MS coupling 32mm No 51.00 4.39 223.89

16 11010025 OP Lised oil Ltr. 2.00 75.00 150.00

17 11104003 Nylon rope 3mm RMT 12.00 1.50 18.00

38
18 11212020 Split pins 4 x 40 No 3.00 0.49 1.47

39
19 11500005 Oil seal 15 x 30 x 10 No 2.00 6.95 13.90

20 11500025 Oil seal 25 x 45 x 8 No 11.00 7.93 87.23

21 11500045 Oil seal 70 x 100 x 13 No 8.00 20.68 165.44

22 11500049 Oil seal 55 x 80 x 8mm No 1.00 23.12 23.12

Oil seal 1 ⅛ x 1 ½ x ¼
23 11500070 No 4.00 13.10 52.40
(28386/7)

24 11500145 Oil seal 70 x 90 x 10mm No 2.00 25.00 50.00

25 11500201 Oil seal 30 x 47 x 7 No 16.00 9.90 158.40

26 11500204 Oil seal 80 x 62 x 8 No 5.00 16.20 81.00

Oil seal 212x287x37

27 11503221 No 4.00 27.50 110.00
(54x73x10)

28 11503220 External circlip 20mm No 16.00 0.82 13.12

29 11722155 Lead ingot Kg 50.00 46.00 2300.00

30 11722165 Wool Lead Kg 10.00 59.95 599.50

31 12401016 Brass hexagonal rod 16mm Kg 12.65 35.04 443.26

CRC 2-26 self sprayin

32 12500090 No 2.00 88.00 176.00
aerosal (300G CAP)

33 12502172 Valve insert No 2.00 247.00 494.00

34 12502173 Vale Lead No 8.00 14.94 119.52

35 12503020 Grease nipples 10mm No 49.00 1.14 55.86

Straight type TC sigle elmet

36 13205020 No 3.00 2606.05 7818.15
0.450 1A

37 13601033 SS410 Grade rod 32mm Kg 140.00 45.76 6406.40

40
38 13601052 SS410 Grade rod 50mm Kg 170.00 30.86 5246.20

39 13801012 Tape set 12mm SET 1.00 500.00 500.00

40 13801014 HSS Hand tape M 14 SET 1.00 670.00 670.00

41 13801016 HSS Hand tape M 16 SET 1.00 670.00 670.00

36mm ¾ SQ drive heavy

42 13822136 No 1.00 445.33 445.33
duty socket

43 13843015 Nipple M18 x M18 No 5.00 147.20 736.00

44 13843016 Release screw No 4.00 293.25 1173.00

45 13843017 Release screw guide No 2.00 170.50 341.00

46 13843018 Main section 3 core No 2.00 719.50 1439.00

47 13843019 Mian section single core No 2.00 506.50 1013.00

48 13900010 HSS drill bit 1 mm No 4.00 8.50 34.00

49 13900020 HSS drill bit 2 mm No 4.00 9.25 37.00

50 13900090 HSS drill bit 9 mm No 2.00 63.50 127.00

51 13900130 HSS drill bit 13 mm No 1.00 165.00 165.00

52 13900140 HSS drill bit 14 mm No 2.00 184.00 368.00

53 13900200 HSS drill bit 20 mm No 1.00 286.00 286.00

54 13907081 Air/Water hose 40 mm RMT 3.00 217.09 651.27

55 13923020 Pawl spring for CP9 No 1.00 13.00 13.00

Pick of gear 80 teeth for

56 14001090 No 1.00 856.53 856.53
lathe

41
 2 x 10 cyllinder oxygen gas
57 14200225 manifold system on turn key No 1.00 15000.00 15000.00
basis

58 14200260 Gas filling valve M 125 x ⅝ No 1.00 750.00 750.00

59 14203313 CO2 empty cyllinder No 1.00 10968.00 10968.00

8 mm wire rope sling 1Mtr.

60 14401007 No 2.00 145.00 290.00
Long
8 mm wire rope sling 2Mtr.
61 14401008 No 2.00 145.00 290.00
long
Single wire rope pulley
62 14403010 100mm suitable for 16 mm No 3.00 379.60 1138.80
wire rope

63 14404028 D shackle 19 x 22 mm No 1.00 109.20 109.20

64 14411011 Nerloc nut PN039 No 2.00 8.00 16.00

65 14411012 Circlip PN 046 No 4.00 3.00 12.00

66 14411080 Load Chain RMT 10.40 220.00 2288.00

67 14411082 Load Chain RMT 10.40 220.00 2288.00

24 V 26/10 W DBLE filment

68 15002119 No 14.00 8.27 115.78
DBLE contact bulb PT

69 15206010 Jeep rear axle shaft 19 teeth No 2.00 787.12 1574.24

70 15601018 Cyllinder head gaskit No 3.00 35.02 105.06

71 15901042 Selaing ring top 02024050 No 6.00 51.57 309.42

Compression spring
72 16301009 No 1.00 109.00 109.00
J180512

73 16301050 Gear shafter kit 322527 No 1.00 2822.37 2822.37

74 16301051 Bearing kit type - I 322531 No 1.00 640.00 640.00

42
 Gas kit cyllinder head C8
75 16401003 No 2.00 4898.03 9796.06
3921394
Gas kit rachet cover
76 16401010 No 6.00 20.67 124.02
3902666

77 16401022 O - Ring 3231650 No 1.00 1359.00 1359.00

78 16401152 Seal K6 P No. 3900207 No 1.00 28.92 28.92

79 16401153 Gas kit K7 P No. 3905685 No 1.00 5.00 5.00

80 16401229 K4 Gas kit 3905443 No 6.00 58.83 352.98

81 16402005 O - Ring 0700003028 No 1.00 39.57 39.57

82 16403012 Kit 7079905030 No 1.00 8581.00 8581.00

83 16403052 O - Ring 705-17-02381 No 2.00 677.00 1354.00

84 16404024 K7 Gas kit 3904044 No 1.00 1.42 1.42

85 16407052 Washer 3758111174 No 4.00 66.00 264.00

86 16450021 Diaphram ASSY 6833527 No 1.00 3006.10 3006.10

87 16450022 Seal ring ASSY 23017249 No 1.00 202.54 202.54

88 16450023 Oil Seal 677316 No 1.00 233.45 233.45

89 16450024 Gas Kit IRANS HO 6835141 No 1.00 588.45 588.45

90 16450026 Gas Kit oil pump 6777316 No 1.00 190.81 190.81

91 16450027 Gas Kit oil pump 6743543 No 1.00 194.01 194.01

92 16450095 Seal ring 23016564 No 1.00 368.85 368.85

93 16450096 Seal ring 6773483 No 1.00 467.97 467.97

43
94 16450097 Shaft 7021321650 No 1.00 4633.91 4633.91

95 16450098 O - Ring 0700012012 No 8.00 36.24 289.92

Filling (Grease nipple)

96 16450202 No 2.00 431.60 863.20
4192012640
Filling (Greese nipple)
97 16450203 No 2.00 353.60 707.20
41920126430

98 30500048 100 Pair telephone cable RMT 23.00 50.00 1150.00

99 30602067 Main body bush No 1.00 330.70 330.70

10
30500016 Gear wheel for AVR VIRAC No 1.00 440.00 440.00
0
10 70V motor operated pot R1
30500055 No 1.00 40052.00 40052.00
1 500 OHMS 24V DC
Control transformer I.P.0-
10
30500058 110-440 VAC OP 60V 100 No 1.00 2413.00 2413.00
2
MA 16VA 500 MA
Control transformer I.P.
10
30500059 0-110-440 VAC OP 60V 100 No 1.00 2413.00 2413.00
3
MA 16VA 500 MA
Control transformer I.P.
10
30500060 0-55-110VAC OP 30V 30VA No 2.00 2413.00 4826.00
4
30 VA
Control transformer I.P.
10
30500061 0-110-440 VAC OP 16V 16V No 2.00 2413.00 4826.00
5
16V10VA
10 Current Transformer 0-5-1/0-
30500062 No 2.00 3257.50 6515.00
6 2A 2VA

10 Current Transformer 0-5-

30500063 No 1.00 5308.00 5308.00
7 1/1A 15VA 50MZ 1 PHASE

10 On/Off rotary switch two pole

30500064 No 1.00 4826.00 4826.00
8 10 way 12/N/90/SP/PM/10T

Excitor rotary switch two

10
30500065 pole 10 way No 1.00 4826.00 4826.00
9
12/N/90/S.P./PM/10T

44
11 Thyristor bridge 35A
30500066 No 4.00 4826.00 19304.00
0 1200PIV
11 Semi Conductor fuse GSG
30500067 No 6.00 723.83 4342.98
1 1000/16 FH
11 Wire wound RES.R1-R2-1K
30500068 No 1.00 724.83 724.83
2 OHMS 400W
11 Wire wound RES.R1-R2-70
30500069 No 1.00 603.00 603.00
3 OHMS 300W
11 Wire Wound RES.R1-R2-0.5
30500070 No 1.00 724.00 724.00
4 OHMS 60W
11
30500071 Pot 50 OHMS 50 W No 1.00 302.00 302.00
5
11
30500072 RES 2.4K 9 W No 2.00 120.50 241.00
6
11
30500073 Capacitor 0.1 MFD 630V No 4.00 60.25 241.00
7
11
30501005 Shut release 110V D.C. No 1.00 800.00 800.00
8
11 Thrust bearing - 51105F-
30502065 No 1.00 429.52 429.52
9 9136005-33
12 3VA 3 Fuse monitor 16A
30503005 No 1.00 1124.28 1124.28
0 415V
12 PVC AL armoured cable
30702016 RMT 12.00 38.35 460.20
1 2 x 16 Sq.mm.
12 3 x 10 Sq.mm. S1 rub INS
30725010 RMT 50.00 85.00 4250.00
2 CU Cable
12 Copper tubular type
30730070 No 4.00 8.90 35.60
3 crimpling lugs 70 Sq.mm.

12 FLMEX Terminal block fixing

30744016 No 20.00 14.50 290.00
4 on CHNI 16 Sq.mm. CST 16

ESSEN make 12 way

12
30803014 terminal connector 15A No 2.00 19.77 39.54
5
415V 1A.C.
12 BCH MAG coil for 40 A
30902012 No 1.00 150.00 150.00
6 contactor NHD
12 Spare kit for MKI contactor
30909015 No 4.00 135.00 540.00
7 CAT SS90126
12
30903005 ¾ PVC saddle No 317.00 0.50 158.50
8

45
12 MICA wahser 30 x 15 x
32003032 No 79.00 1029.00 81291.00
9 1.5mm
13 Rectifier with heat sink
32252016 No 1.00 47.87 47.87
0 3FMR 60
13
32252030 Flusher card type PRA 4.3 No 1.00 2236.62 2236.62
1
13
32252031 Flusher card type PRA 4.4 No 1.00 2236.63 2236.63
2
13
32253025 47 MFD 350V DC Capacitor No 1.00 95.00 95.00
3
13 15 MFD Capacitor for water
32253027 No 13.00 65.58 852.54
4 cooler
13
32261108 Port sleeve 231100311 No 1.00 639.00 639.00
5
13
32261111 O-Ring 281301005 No 2.00 145.00 290.00
6
13
32261113 O-Ring 281101014 No 4.00 277.50 1110.00
7
13 60V/50V 7/10W INDCTR
32500025 No 12.00 4.87 58.44
8 BULB P1
13 60V 7/10W Indication bulb
32500031 No 80.00 1.83 146.40
9 big size PT
14
32506018 E14 holder with green lense No 2.00 14.50 29.00
0
Carron brushes 1M23
14
32806016 8x16x23 for 1.1KW AEG DC No 22.00 7.20 158.40
1
Motor
14 Carbon bushes for cone
32803034 No 13.00 67.76 880.88
2 crusher motor
14 BARG CU for SHP NGEF
32817026 No 2.00 200.00 400.00
3 Motor
14 Outer grease cup for 15HP
32801345 No 1.00 128.58 128.58
4 BBl Motor
14 Inner bearing cover
32817508 No 2.00 849.93 1699.86
5 AM355L4
14
32817509 Outer bearing cover AM335 No 2.00 1678.50 3357.00
6
14
33005012 3R-3-240 OEW Relays No 6.00 238.66 1431.96
7

46
14 PLA female socket STBL for
33006014 No 1.00 90.00 90.00
8 11 pin relay
Pull chord switch type SW-
14
33500081 43E 10A Res AT 240V 50Hz No 3.00 2620.80 7862.40
9
2No.+2No.
15 Load star 10 A MCH single
33501047 No 4.00 100.69 402.76
0 pole
Single wing Knob for
15
33507041 Siemans programme switch No 17.00 28.34 481.78
1
3L x 0211-3YA
Indicating dall for
15
33507042 programme swithc 3L x 0220 No 12.00 6.00 72.00
2
-1YA
15 FB-25 fuse switch moving
33509021 No 6.00 339.00 2034.00
3 contact L&T
15 Thyristor T30N for weigh
33705034 No 1.00 3289.00 3289.00
4 feeder
15
33705035 T25N 1200 D.C. Thyristor No 1.00 12686.00 12686.00
5
15
40508005 Host gear box shaft No 1.00 3600.00 3600.00
6
15 Safety valve 83524-0803-4088-
40701038 No 1.00 1334.00 1334.00
7 00
15
40706029 Packing 000410020 No 4.00 12.00 48.00
8
15
40707011 Kit solenoid Y2 2910060002 No 1.00 766.00 766.00
9
16 Elect Auto drain valve model
40707016 No 2.00 4450.55 8901.10
0 EDVHD 19511
16 Cooling tower fan blade 600
41705008 No 1.00 4855.50 4855.50
1 mm

16 60 Dia statistically balanced

41705011 No 1.00 23093.20 23093.20
2 hub and blade assembly

16
42309225 Love joy spare spider L225 No 3.00 145.00 435.00
3
16
42316010 Coupling bushes FC 10 No 147.00 1.49 219.03
4
16 Damper valve 200 mm I.D.
42902011 Hand 2.00 2548.00 5096.00
5 with inded plate

47
 Elecon 3NU 50: 1 Foot
16
43101012 mounted worm Reduction No 2.00 11234.50 22469.00
6
gear unit
Elecon 3NU 50: 1 Foot
16
43101013 mounted worm Reduction No 1.00 17580.00 17580.00
7
gear unit
16
43203016 Oil seal 250 x 350 x 50 No 4.00 24.98 99.92
8
16
43203019 Oil seal 3 ½ x 4 ½ x ½ No 7.00 30.16 211.12
9
17
43301005 1ST pinion P.No. 4394 No 3.00 1274.90 3824.70
0
Rubber hode with 550 Bar
17
43701004 working with spring claded No 1.00 1653.00 1653.00
1
3mtr.
Rubber hode with 550 Bar
17
43701007 working with spring claded No 1.00 2478.00 2478.00
2
3mtr.
17 MS SP rocket 1 ¾ pitch x
44101017 No 1.00 800.00 800.00
3 12 teeth
17 Simplex SP rocket 1 potch x
44101022 No 1.00 181.50 181.50
4 19 teeth
17 Simplex SP rocket 1 potch x
44101024 No 2.00 112.00 224.00
5 19 teeth
17 101.6mm pitch x 9 S.P.
44101044 No 3.00 612.44 1837.32
6 rocket
17
44322026 Retaining unit No 2.00 886.80 1773.60
7
17 CI impeller I and II stage for
44343006 SET 2.00 4215.12 8430.24
8 OSM 3 K - pump
17
44343009 Shaft for DSM 3 K - pump No 1.00 2410.00 2410.00
9
18 High pressure pump
44361001 No 1.00 52140.00 52140.00
0 40/11(KSB)
18 Kiln pinion bearing housing
44501066 No 3.00 909.50 2728.50
1 labyrinth ring
18 Labyrinth spacer for cooler
44701015 No 4.00 535.00 2140.00
2 support roller
18 Screen cloth 1000 x 2000 x
45300005 No 9.00 1143.20 10288.80
3 1mm

48
18 Screen cloth 900 x 2000 x 2
45300009 No 6.00 2619.83 15718.98
4 mm Sq. opening
18 Screen cloth 6 x 1500 x
45300030 No 4.00 694.79 2779.16
5 1000mm
18
45308008 V pulley 360/C/3FC screen No 1.00 3453.00 3453.00
6
18
46000140 Canteen tralley wheel No 7.00 1.00 7.00
7
KSB make pump type CPK-
18
60000090 GC-50-250 (S) with FLEX No 1.00 31370.00 31370.00
8
CPLG and gear
18
60003030 Inter cover No 1.00 345.00 345.00
9
19 Gland for break pressur
60003032 No 4.00 107.00 428.00
0 pump
19
60003106 Stuffing Box C1 No 1.00 1575.00 1575.00
1
19 Thrust oil seal bearing T-3-
60020001 No 2.00 3372.25 6744.50
2 2420
19 Spring ID
60020305 No 1.00 81.00 81.00
3 25xL75xW/D6MMx7R

49
 CONSUMPTION OF RAW MATERIALS
2015 2016 2017 2018 2019
Particulars (Rs. In (Rs. In (Rs. In (Rs. In (Rs. In
Lakhs) Lakhs) Lakhs) Lakhs) Lakhs)

Iron Ore 1212.13 1291.98 1476.24 1820.02 2144.42

Coal 1096.17 1101.78 1139.59 1042.71 1265.11

Limestone 7.11 7.80 6.56 7.09 10.62

Others 5.74 0.22 3.05 17.01 18.57

Internal
Handling of
14.66 12.19 14.86 16 18
Raw
Materials

TOTAL è 2335.81 2413.97 2640.30 2902.83 3456.72

CONSUMPTION OF RAW MATERIALS

2015 2016 2017 2018 2019
Particulars
(Qty.) (Qty.) (Qty.) (Qty.) (Qty.)
122740.8 127518.4 114694.7
Iron Ore 109232.07 131290.47
3 7 0

Coal 82807.45 81366.26 74590.87 67611.96 72793.69

Limestone 1396.83 1537.04 1273.05 1337.84 1965.47

TOTAL 206945.1 210421.7 190558.6

178181.87 206049.63
(Tones) è 1 7 2

50
 UNIT – V
FINDINGS, CONCLUSIONS &
SUGGESTIONS

51
 FINDINGS, CONCLUSIONS AND SUGGESTIONS
The following conclusions emerged from the study on
‘EFFECTIVENCESS OF INVENTORY CONTROL IN SILL’’; most of
the conclusions are the result of the empirical study conducted on the
survey of personnel discussions / interviews conducted with the
executives. Appropriate suggestions have been also offered keeping in
view the problem areas.

1) Sponge Iron of India Ltd., (SIIL) an undertaking of Govt. of India

and the Govt. of Andhra Pradesh, has successfully setup and
commissioned South –East Asia’s first Sponge iron Plant of
30,000 tones per annum capacity at Palvoncha in Khammam dist.
Andhra Pradesh in June 1980 with the assistance of United
nation Development organization (UNIDO). The capacity of the
successful operation of the plant in establishing of sponge Iron
from Lump Iron Ore and non – cocking coal locally available.

2) The raw materials used in SIIL plant are iron-ore, non – cocking
coal and lime-stone. A small quantity of fuel oil is also used for
the initial heating of the kiln. The plants are capable of
processing various combinations of iron- ore and no-cocking coal
drum from any location, At SIIL, the raw materials are fed to a
ground level ‘hopper’ by dump tracks and conveyed to the
crushing plant through a vibratory feeder and conveyer.

3) Sponge Iron of Iron Ltd., is headed by the chairmen and

Managing Director, chief Executive responsible for the overall
performance of the company. He is assisted by five General
managers, one each for engineering and production, commercial,
finance, Administration and works. General Managers in turn are
assisted by the Deputy General Managers and Managers in the
Sub functions. Gr. Manager Commercial is responsible for

52
 marketing and stores purchases. There are three Senior or
independent managers who look after these functions.

4) The Stores – SILL will be under the supervision of an officer

nominated by the management, who will be termed as Senior
stores Officer (S .R.O) The Sr. S.O. of stores of SILL will be
directly responsible to the Chief General Manage (*CGM). Sr.
S.O. may however obtain necessary advices regarding inventory
control, replenishment system, procurement of materials ,storage
and preservation procedures etc ., from Chief General Manger ,
Corporate purchase officer, General Manager Materials
management and stores and controller of stores , directly or
through the Chief General manager of the company.

5) There must be a proper control of materials and supplies form the

time orders are placed with suppliers until they have been
effectively utilized in production. Since materials are equivalent
to cash and since thy make up an important part of the total cost,
it is essential that materials must be properly safeguard and
correctly accounted for properly safeguard and correctly
accounted for the proper control of material can make a
substantial contribution to the efficiency of a business. As the
company is envisaging more and more mechanized projects in
near future, as sound inventory management in general and
spare parts in particular is essential for which the company has
initiated as ‘Inventory management Cell ’(IC).

6) In SIIL for codification of materials an eight digit number is used.

First three digits of the number of left indicates the main group of
the material, middle two digits indicate the sub grounds of
material and the last three digits indicate the sub grounds of
material and the last three digits indicate the size of the item.

53
 This numbering can be shown in the list of codification and
classification of materials of SIIL.

7) Issues are made only on the basis of valid authorization and

sanction by the component authority. The authority sanction is in
the form of a stores indent cum voucher (SIV) a form of which is
used in this organization. Issues of materials by SILL are made
in different methods they are:

8) Normal issues are made by the stores to the consuming

department issue on transfer, made on account by one store to
another stores under the order of competent authority as required
by area. In SIIL there is only one store so inter store transfer is
not used. Loan account issues are made by the stores to the
department or an outside party for specified period with the
approval of the competent authority.

9) The material will be returned by the agency before expiry of the

period of the loan. This is carefully followed by section clerk and
stores in charge.

10) All small items of the stores and spares are normally kept in bins.
An identification table showing rack no. or code no and
description of materials are affixed to one or more pieces of the
item in a bin. Heavy items are stored on the ground of godown
as well as at open yard with identification boards showing the
class of code no and description of the stores will be kept in
vicinity of the items. Thus the stocking will be facilitating FIFO.
Identification boards are arranged for stock of oil and grease, iron
and steel materials in open yard.

11) The material stored must be protected from mechanical damage

in adequate of faulty packing from too low level of humidity, heat,
cold or rain from pests like white ants etc., materials require

54
 different types of protection according to their nature and keeping
the material in serviceable condition.

12) SIIL has recorded an average inventory turnover of 11.058 times

higher turnover of 16.03 is recorded in the year 2018-2019. Thus
the overall effectiveness of inventory management appears to be
satisfactory.

13) The properties of the inventory total current assets varied

between 33.81 and 71.46 with an average of 50.39 percent to
total current assets. These wide variations may be indicated like
of a consistent policy determining the size of inventory.

14) On the basis of analysis of competent wise share in the inventory

it may be observed that finished goods occupied a dominant
share in the inventory constituting nearly 50% to total. In the year
1993 stores and spares occupied relatively higher proportion than
the finished goods. Raw materials as an average contributed
25% of inventory. The proportion of stores and spares and raw
materials are not much different in terms of their average
contribution. Work – in – process nearly 20.% to total inventory.

15) The investment in Iron Ore has increased to about 90% in a 5

years period. Though the quantity of iron ore didn’t increase
(rather in some years it recorded a decline). This indicates the
inflation tendency of the iron ore price, which is beyond the
control of the organization. Similar trend is observed in case of
Coal and Lime Stone. Subject to a marginal increase in the
quantity of the respective inventory item.

16) The investment in coal has increased to about 57.93% during the
5year period. And there is a higher increase in the year 2015.
The quantity of coal has also increased during the 5 years period.

55
17) The investment in limestone has increased to 8.75% during the
5 year period. In the year 2015. The quantity also increased but
in the year 2019 decline in quantity is observed.

18) Investment in stores and spares increased and subsequently (i.e.,

more than 25%) over the previous year is from out of five years of
observation. This may indicate increase in investment or
preventive maintenance. Investment in finished goods increased
marginally on the respective previous years in these out of 5
years of study. This may be due to decline sales or holding
conservatives more and more stocks. Works in process also
increased over the respective previous year in three out of five
years of study. Simultaneous increase in all items of inventory
may indicate shift in management policy towards inventory
management form aggressive to conservative.

56
BIBLIOGRAPHY

57
 BIBLIOGRAPHY

NAME OF THE BOOKS, PUBLISHERS AND AUDITORS

 MANAGEMENT ACCOUNTING

 KALYANI PUBLISHERS, 8th  R.K. SHARMA &

EDITION
 SHASHI K. GUPTA

 COST ACCOUNTING
 KALYANI PUBLISHERS, 8th
EDITION
 S.P. JAIN & K.L. NARANG

 FINANCIAL MANAGEMENT PRINCIPLES AND PRACTICE

 S.M. MAHESWARI

 FINANCE MANAGEMENT

 GALGOTIA PUBLICATIONS  R.P. RUSTAGI

 ANNUAL REPORTS OF SPONGE IRON INDIA LIMITED

58