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CHAPTER-1 1.1 INTRODUCTION
Every business needs adequate liquid resources in order to maintain day-today cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity. Increased production tends to engender a need to hold additional stocks of raw materials and work in progress. Increased sales usually mean that the level of debtors will increase. A general increase in the firm’s scale of operations tends to imply a need for greater levels of cash.
Then we should know, why should the managers of a business pay special attention to working capital? Management must ensure that a business has sufficient working capital. Too little will result incash flow problems highlighted by an organization exceeding
INVETORY MANAGEMENT its agreed overdraft limit, failing topay suppliers on time and being unable to claim discounts for prompt payment. In the long run, abusiness with insufficient working capital will be unable to meet its current obligations and willbe forced to cease trading even if it remains profitable on paper. On the other hand, if an organization ties up too much of its resources in working capital it willearn a lower than expected rate of return on capital employed. Again this is not a desirable situation. The three components, which put affects on working capital, are as: 1. Inventory 2. Receivable 3. Cash Operating cycle
For a manufacturing company like; steel industry; cement industry and many other manufacturing companies, Inventory management is the most crucial part for the organization. Inventories which may classified as: 1. Raw material 2. Work-in-progress
INVETORY MANAGEMENT 3. Finished goods
Whereas receivable and cash management can be done after sales but inventory management must be done before sale. It requires appropriate forecasting of production and sales. As it is based on forecasting, so it becomes difficult task for any financial manager for any organization. Inventory Management must be designed to meet the dictates of market place and support the company’s Strategic Plan. The many changes in the market demand, new opportunities due to worldwide marketing, global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process for Inventory Control. Inventory Management system provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities and communicate with customers.
Inventory Management does not make decisions or manage operations; they provide the information to managers who make more accurate and timely decisions to manage their operations.
The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to
INVETORY MANAGEMENT Managers who make more accurate and timely decisions to manage their operations. The basic building blocks for the Inventory Management system and Inventory Control activities are: 1) Sales Forecasting or Demand Management 2) Sales and Operations Planning 3)Production Planning 4)Material Requirements Planning 5)Inventory Reduction If we see for TATA STEEL, company is maintaining more than 5% inventories in their hand. Also the company consuming raw material more than 20% of sale value in the last year. So inventory management is one of the essential for the organization. 1.2 MAJOR TYPES OF INVENTORY Raw material Raw materials are inventory items that are used in the manufacturer's conversion process to produce components, subassemblies, or finished products. These inventory items may be commodities or extracted materials that the firm or its subsidiary has produced or extracted. They also may be objects or elements that the firm has purchased from outside the organization. Even if the item is partially assembled or is considered a finished good to the supplier, the purchaser may classify it as a raw material if his or her firm had no input into its production. Typically, raw materials are commodities such as ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food items. However, items such as nuts and bolts, ball bearings, key stock,
INVETORY MANAGEMENT casters, seats, wheels, and even engines may be regarded as raw materials if they are purchased from outside the firm. Work-in-process Work-in-process (WIP) is made up of all the materials, parts (components), assemblies, and subassemblies that are being processed or are waiting to be processed within the system. This generally includes all material—from raw material that has been released for initial processing up to material that has been completely processed and is awaiting final inspection and acceptance before inclusion in finished goods. Any item that has a parent but is not a raw material is considered to be workin-process. A glance at the rolling cart product structure tree example reveals that work-in-process in this situation consists of tops, leg assemblies, frames, legs, and casters. Actually, the leg assembly and casters are labeled as subassemblies because the leg assembly consists of legs and casters and the casters are assembled from wheels, ball bearings, axles, and caster frames. Finished goods A finished good is a completed part that is ready for a customer order. Therefore, finished goods inventory is the stock of completed products. 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.
INVETORY MANAGEMENT 1.3 HISTORY OF INDIAN STEEL SECTOR Steel is an important indicator to analyze the economic development of a country. The steel industry is highly scientific and technology oriented. Technological advancement is very important for the overall health of the steel industry. Indian Steel Industry
During Ancient Period The history of iron and steel making in India goes back by several centuries. It dates to 480 BC when archers in India used arrows tipped with steel. The iron pillar of Dhar near Indore in Madhya Pradesh dates back to about 321 AD, the iron pillar of Kutab Minar near Delhi dates back to about 400 AD and the iron beams of Sun temple of Konark in Orissa dates back to 13th century. These pillars are a testimony to ancient India's expertise in the making of steel.
Before Independence The roots of the Indian Steel industry in modern times can be traced to the year 1874, when a company called Bengal Iron works at Kulti near Asansol in West Bengal produced iron. One of the most important landmarks in the history of Indian steel industry was the commencement of the Tata Iron and Steel Company at Jamshedpur in the state of Bihar in 1907.The other prominent steel manufacturers before independence were Indian Iron and Steel Company (1922),Mysore Iron and Steel Works(1923) and Steel Corporation of Bengal (1937).
INVETORY MANAGEMENT India found it difficult to sustain development in steel sector after independence on its own due to the lack of technological development. The high cost of developing technology in this sector proved to be a major hindrance. That's when the government decided to go for synergy with other countries for technology transfer. Some of the prominent steel plant set up then was in Rourkela in collaboration with West Germany and in Bokaro in collaboration with Russia. These steel plants came under the purview of public sector enterprises.
Post Liberalization The post liberalization scenario in the Indian Steel industry has witnessed a monumental shift. Some of the salient features are: • • The need for license for increasing capacity has been abolished. Steel industry has been removed from the list of Industries under the control of state sector. • • • Foreign equity investment in steel has gone up to 74%. In January 1992 the price and distribution controls were removed. Policies like convertibility of rupee on trade account, freedom to mobilize resources from overseas financial markets and restructuring of existing tax structure have immensely benefited the industry.
Future trends • It has to be said that the global recession has affected the Indian steel industry especially stainless steel, but the steel industry is trying to offset
INVETORY MANAGEMENT the negative effect of the recession by focusing on transportation and construction projects which are usually funded by the government. • India is the only country globally to record a positive overall growth in crude at the steel production 1.01 per cent for period January
-March 2009. It is estimated that
India's steel consumption will grow at nearly 16% annually till 2012. • The National Steel Policy has forecasted the demand for steel would reach 110 million tons by 2019-2020.
1.4 SCENARIO OF PRESENT STEEL INDUSTRY IN INDIA
The Indian steel industry have entered into a new development stage from 2005-06, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 5th largest producer of steel.
It has been estimated by certain major investment houses, such as Credit Suisse that, India’s steel consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 40 kg – compared to 150 kg across the world and 250 kg in China.
The National Steel Policy has envisaged steel production to reach 110 million tonnes by 2019-20. However, based on the assessment of the current ongoing projects, both in Greenfield and Brownfield, Ministry of Steel has projected that the steel capacity in the county is likely to be 124.06 million tonnes by 2011-12. Further, based on the status of MOUs signed by the private producers with the various State Governments, it is expected that India’s steel capacity would be nearly 293 million tonne by 2020
Steel industry was delicensed and decontrolled in 1991 & 1992 respectively. • Today, India is the 7th largest crude steel producer of steel
in the world.
In 2008-09, production of Finished (Carbon) Steel was 59.02
Production of Pig Iron in 2008-09 was 5.299 Million Tonnes. Last 5 year's production of pig iron and finished (carbon)
steel is given below:
INVETORY MANAGEMENT (in million tonnes) Category Pig Iron Finished Carbon Steel 2005-06 2006-07 2007-08 2008-09 3.228 40.055 4.695 44.544 4.993 55.416 5.314 58.233 2009-10 5.289 59.02
(Source: Joint Plant Committee) Demand - Availability Projection • Demand – Availability of iron and steel in the country is projected by Ministry of Steel annually. • • Gaps in Availability are met mostly through imports. Interface with consumers by way of a Steel Consumer Council exists, which is conducted on regular basis.
Interface helps in redressing availability problems, complaints related to quality.
Steel Prices • Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are determined by the interplay of market forces. • There has been an up-trend in the domestic steel prices since 2006-07 and the trend accentuated since January this year. • Rise in raw material prices, strong demand in the international and domestic market and up-trend in the global steel prices have been some of the reasons cited by the industry for increase in the steel prices in the domestic market.
The mismatch in demand and supply is considered to be the main reason on the demand side for the rise in steel prices. Honorable Steel
INVETORY MANAGEMENT Minister has held discussion with all major steel investors including Arcellor-Mittal, POSCO, Tata Steel, Essar, Ispat and also SAIL, RINL to explore the possibility of expediting the ongoing as well as envisaged steel projects.
The Government also took various fiscal and other measures for stabilizing the steel prices like exempting pig iron, non alloy steel and steel making inputs like zinc, ferro-alloys and met coke from customs duty; withdrawing DEPB benefits on export of various categories of steel products and bringing back railway freight on iron ore from classification 180 to 170 for domestic steel producers.
In May 2008, the Government imposed 15% export duty on semifinished products, and hot rolled coils/sheet, 10% export duty on cold rolled coils/sheets and pipes and tubes and 5% export duty on galvanized steel in coil/sheet form in order to further curtail rising prices and increase supply of steel in the domestic market.
Imports of Iron & Steel • • Iron & Steel are freely importable as per the extant policy. Last five years import of Finished (Carbon) Steel is given below:Year 2005-2006 2006-2007 2007-2008 (Partly estimated) 2008-09 2009-2010 (Partly estimated) Qty. (In Million Tonnes) 2.109 3.850 4.436 6.581 5149
(Source: Joint Plant Committee) Exports of Iron & Steel
INVETORY MANAGEMENT 1. Iron & Steel are freely exportable. 2. Advance Licensing Scheme allows duty free import of raw materials for exports.
Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under this scheme exporters on the basis of notified
entitlement rates, are granted due credits which would entitle them to import duty free goods. The DEPB benefit on export of various categories of steel items scheme has been temporarily withdrawn from 27th March 2009, to increase availability in the domestic market.
Exports of finished carbon steel and pig iron during the last five years and the current year is as :
Exports (Qty. in Million Tonnes) Year 2005-2006 2006-2007 2007-2008 (Prov.estimated) 2008-2009 2009-2010 (Prov.estimated) 4.627 3.482 0.560 0.350 Finished (Carbon) Steel 4.381 4.478 4.750 Pig Iron 0.393 0.440 0.350
(Source: Joint Plant Committee)
CHAPTER-2 Company profile Present scenario of TATA steel The Tata Steel Group has always believed that mutual benefit of countries, corporations and communities is the most effective route to growth. Tata Steel has not limited its operations and businesses within India but has built an imposing presence around the globe as well. With the acquisition of Corus in 2008 leading to commencement of Tata Steel's European operations, the Company today, is among the top ten steel producers in the world with an existing annual crude steel production capacity of around 30 million tonnes per annum and employee strength of above 80,000 across five continents. The Group recorded a turnover of Rs.147, 329 Crores (US$ 28,962 million) in 2009 - 2010. The Company has always had significant impact on the economic development in India and now seeks to strengthen its position of pre-eminence in international domain by continuing to lead by example of responsibility and trust. Managing a global workforce and setting global benchmarks is primarily about managing diversity. In a process of inclusive growth, every person contributes to the blueprint of the future and is truly committed to the stated objectives. And one of the key requisites for successful diversity management is a shared vision.
HISTORICAL ACHIEVEMENT OF TATA STEEL
INVETORY MANAGEMENT Below is a chronological list of major business decisions in the history of Tata Steel ltd. ➢ 1907 The Tata iron and steel company was formed at Mumbai. ➢ 1917 During the year 1, 50,000 equity shares were issued at par and 26,250 deferred shares were issued at a premium of Rs.370 per share. ➢ 1973 With the effect from 1st April, the wholly owned subsidiary, West Bokaro Ltd. was amalgamated with the company. ➢ 1983 During the year Indian tube company Ltd. was amalgamated with the company. During the year Tata steel agreed to purchase the bearing manufacturing plant of Metal box India of Kharagpur. ➢ 1985 With the effect from 1st October, Indian Tube co ltd. was amalgamated with TISCO.
INVETORY MANAGEMENT On 2nd March, 300000 tonnes capacity bar and rod mill costing about Rs.78 crores was commissioned under the second phase of modernization. On 11th August, approval were received for investment of Rs. 16 crores in the capital of Tata Timken ltd. , a company promoted by Tata steel. ➢ 1988 During the period the company, installed a new sinter plant with a capacity of 1.3 million tones per annum. ➢ 1992 During the year company privately placed with UTI, LIC, Army group insurance fund and GIC and its subsidiaries 17.5% non-convertible debenture worth Rs.185 crores. ➢ 1995 30,018,246 no. of equity shares allotted to Tata sons ltd. and their associate companies on exercise of warrant held by them. ➢ 1997 Tata steel’s international trading division was awarded the prestigious ISO-9002 certification by the Indian Register Quality System (IQRS).
INVETORY MANAGEMENT Tata steel, the flagship of Tata group, has entered into understanding with Tata International to export 30% of production at Tata steel major’s new 1.2 million tones cold rolling in Jamshedpur. Tata steel has tied up with the POSCO-Hyundai steel processing venture located in Chennai for getting its cold rolled coil process. Tata steel has launched its largest branded steel product. Tata Tiscon, a specially construction grade steel, which will be available in the retail market. ➢ 2001 Tata SSL has become a subsidiary of Tata Iron and steel company, following a successful open offer to the shareholder of TSSL. ➢ 2002 TISCO entered into a power distribution business. TISCO has began distribution power in Jamshedpur. ➢ 2008-09 Jamshedpur plant’s crude steel making capacity from 6.8 mtpa to 9.7 mtpa, at an estimated cost of Rs.13,900 crore. The scheduled date for completion of the project is April 2011.
Projects and operations: India
INVETORY MANAGEMENT The Tata Steel Group’s growth and globalization strategy is driven by its business expansion while maintaining profitability and mitigating risks. The Tata Steel Group over the years has focused on enhancing raw material security and announced major joint ventures in various parts of the globe. Tata Steel’s Indian operations are one of the most competitive assets in the global steel industry and therefore, capacity expansion in India is one of the key strategies for Tata Steel. The Indian operations draws its greatest strength and its competitive position as one of the lowest cost producers of steel in the world from the quality and yield of its raw material units. The mines have successfully offered raw material security and have partially insulated Tata Steel from the volatility of the global markets. The Company has, therefore, continuously modernized and expanded its raw material facilities right from the 1950s, when it had launched its two million tonne expansion programme. In the financial year 2009-10, the Company commissioned its 1.8 million tonnes of crude steel making capacity at Jamshedpur, which will be further augmented by 3 million tonnes through the ongoing brown field expansion, by 2011. The 3-mtpa expansion at Jamshedpur will enable Tata Steel to strengthen its market share in the Flat Products segment and simultaneously reduce the operating costs over a large volume of production. The long-term strategy is to continue to pursue capacity expansion in India through Greenfield projects as well. Therefore the India growth strategy remains a fundamental part of the longterm strategy of the Tata Steel Group.
INVETORY MANAGEMENT Seraikela Plant Greenfield Project Project Highlights:
Setting up a 12 million tonnes per annum Greenfield integrated steel plant in the state.
The Greenfield project is to be set up in two phases. The first phase of 6 mtpa is likely to be set up within 36 months to 54 months from the date of obtaining all statutory clearances. Capacity: 12 mtpa integrated steel plant. Project Update: Tata Steel is awaiting the R&R Policy from the State
Government for its Greenfield project. Press Releases •
Telemedicine centre inaugurated at Tata Main Hospital. Tribal cultural centre, Tata Steel organized the award ceremony for Jyoti Fellowship and Moodie Endowment.
Graduation ceremony of trainees at Tata Steel’s technical training centre in Seraikela.
Jharkhand honors Tata Steel Sports Persons. Jamshedpur Plant
Brownfield Project Project Highlights MoUs with the Government of Jharkhand was signed in 2005 for:-
Expansion of Tata Steel's existing plant at Jamshedpur from 5 mtpa to 10 mtpa.
Co-operation in the area of Human Resource Development through Industrial Training Institutes.
The project includes the development of iron ore mines and other raw materials sources including coal and logistic linkages for this plant.
Project Update: The first phase which entails reaching a crude steel capacity of 6.8 mtpa has essentially been completed. The capacity of the Jamshedpur plant is expected to become 10 mtpa by December 2011.
Chhattis garh Jagdalpur Plant (Bastar) Project Highlights
MoUs with the Chhattisgarh government was signed on June 04, 2005.
The integrated steel plant will have an ultimate capacity of 5 mtpa of steel with 2 mtpa in the first phase.
INVETORY MANAGEMENT • The project also includes development of captive iron ore mines to meet the iron ore requirements of this plant. Capacity: 5 mtpa Greenfield integrated steel plant. Project Updates: The process of acquiring land is under progress. The Company has also applied for environmental clearances and other licenses.
1. Greenfield Project at Kalinganagar
Project Update: Preliminary work focusing on land acquisition, rehabilitation and resettlement work is in progress. The order for equipment and services has been placed in accordance to the stipulations in the MoUs signed with the Orissa State Government. A grant for the mining lease of iron ore has been sought. Capacity: Greenfield Steel Plant of capacity 6mtpa.
2. Port Project at Dhamra
The Dhamra Port Company Ltd. is a 50:50 joint venture between Tata Steel Ltd. and Larsen and Toubro for the development of a deep water port in Dhamra, Orissa.
3. West Bengal
Haldia Plant Project Highlights: Hoogly Met Coke and Power Company Ltd. (incorporated in 2005), is a 100% subsidiary of Tata Steel. The Company was set up to
INVETORY MANAGEMENT produce low ash metallurgical coke primarily to meet Tata Steel’s requirement at its Jamshedpur plant and also to supply hot gases to Tata Power for electricity generation by adopting heat recovery route. Capacity: 1.2 mpta of coke. Project Update: Capacity of plant is likely to be increased to 1.6 mtpa in 2009.
1. Tuticorin Mines
MoUs with the Government of Tamil Nadu signed on June 27, 2002. Titania project involves mining, mineral separation and value addition i.e. pigments production in phases subject to techno- economic viability.
Prospecting license over 80 sq.km area granted by the Government of Tamil Nadu in the districts of Tirunelveli and Tuticorin with due approval from Government of India.
The feasibility study conducted with the help of Consortium Partners comprising Outokumpu Finland's physical separation division based in USA, Outokumpu-Lurgi, Germany, Pincock Allen and Holt, USA, a resource and mining consulting company and L&T.
INVETORY MANAGEMENT • Environmental Impact Assessment of the project carried out and Environmental Management Plan drawn with the assistance of MINMEC Consultancy. Capacity: 60,000 tonnes per annum of titanium di-oxide. Press Releases
Tata Steel committed to its Titanium-dioxide project in Tuticorin and Tirunelveli.
Tata Steel signs MoUs with Tamil Nadu Government for its Titanium Oxide project.
“TATA COLONY” at Koottappanai Village, Tirunelveli, inaugurated.
Tata Relief Committee initiative for Tsunami affected victims of Tamil Nadu.
Projects and operations: International The Tata Steel Group’s growth and globalization strategy is driven by its business expansion while maintaining profitability and mitigating risks. The Tata Steel Group over the years has focused on enhancing raw material security and announced major joint ventures in various parts of the globe. 1. Australia
2. Bowen Basin Project
Location: Bowen Basin in Central Queensland. Project Highlights
INVETORY MANAGEMENT • Tata Steel has a joint venture with Vale in Australia for a Coking Coal Mine.
Tata Steel on December 14, 2005 signed agreements to buy a 5% interest in the Carborough Downs Coal Project located in Queensland, Australia.
Tata Steel and Vale, along with other joint venture partners (Nippon steel, JFE and POSCO) have undertaken a large scale expansion of the Carborough Downs Coal Mine near Moranbah in Central Queensland in Australia.
The Carborough Downs coal project is majority owned and operated by a subsidiary of AMCI Holdings Australia Pty Ltd.
The project life is currently estimated to be 14 years and approximately 58 million tonnes of raw coal is expected to be mined during this period.
There is a further potential resource of 100 million tonnes of raw coal in the unexplored areas and deeper seams.
The clean coal envisaged to be produced would be low-ash coking coal and PCI coal, highly suitable for steel making.
Tata Steel also signed an off take agreement for a proportion of the production over life of the project.
The first raw coal production started in August 2006 and the mine is currently producing around 1 mtpa.
Capacity: Mining capacity of 58 million tonnes of raw coal for 14 years. Project Updates
INVETORY MANAGEMENT • Commissioning of the large scale and new mining equipment (Long wall), which will be one of the largest in Australia, is expected by mid 2009. • The second phase of expansion has been undertaken, at the end of which the company is expected to produce 3.7mtpa of coking coal and PCI coal. Press Releases
Tata Steel's investment for the expansion of production at Carborough downs coal mine in Australia.
Tata Steel acquires stake in Australian coal mines.
1. Canada 1. Iron ore project
Location: Northern Quebec, Labrador and Newfoundland provinces. Project highlights: • Tata Steel, through its subsidiaries, signed a Heads of Agreement memorandum with New Millennium Capital Corporation, Canada. • • The aim was to develop iron ore projects in the region. Tata Steel holds a 19.9% stake in NML with an option to acquire an 80% equity interest in NML’s Direct Shipping Ore project.
The agreement also provides exclusivity to Tata Steel in the Labmag taconite iron ore property.
Tata Steel will have 100% off take rights to the produce of the mine at the time of production commencement.
INVETORY MANAGEMENT • The iron ore from this project will serve Tata Steel’s European facilities.
Capacity: The DSO resource is estimated to be approximately 100 million tonnes. The LabMag deposit consists of 3.5 billion tonnes of proven and potential mineral reserves. These reserves are contained in the 4.6 billion tonnes of measured and indicated resources and 1.2 billion tonnes of inferred resources. Project Update: Tata Steel, along with NML is trying to work out an economically viable solution to advance the project. The feasibility study for the DSO project is progressing and production is expected to commence in 2011.
1. Ivory Cost 1. Nimba Iron ore Project
Location: Nimba Iron ore deposits in Ivory Coast. Project Highlights:
Tata Steel Limited and SODEMI (State Owned Company for Mineral Development), on December 11, 2007 entered into Joint Venture agreement for the development of Mount Nimba Iron ore deposits in Ivory Coast (West Africa).
The project will be implemented by a joint venture company – Tata Steel Cote d’ivoire, wherein Tata Steel will have a major shareholding (75%).
The Mt. Nimba deposit spread over 3 countries – Liberia, Guinea and Ivory Coast is one of the biggest iron ore deposits in West Africa.
INVETORY MANAGEMENT • The initial phase will involve exploration and detailed feasibility assessments followed by construction of the mine and beneficiation facilities. • The iron ore from this project will be supplied to Tata Steel Group facilities especially those located in the United Kingdom and The Netherlands. Capacity: To be assessed. Project Update: The project is in its initial phase that involves exploration and detailed feasibility assessments followed by construction of the mine and beneficiation facilities. Press Releases: Tata Steel’s joint venture in Ivory Coast for Mount Nimba Iron Ore.
Mozambique 1. Key coal exploration tenements Location: Key coal exploration tenements (the Benga and Tete licensees) held by Riversdale in Mozambique. Project Highlights • Tata Steel and Riversdale Mining Ltd. Australia signed a joint venture agreement on November 30, 2007.
Under the terms of agreement, Tata Steel will pay AUD100 million (approximately 88.2 million USD) to acquire 35% of Riversdale's Benga and Tete licenses.
The JV comprises two licenses (the Benga and Tete licenses) and covers an area of 24,960 hectares (approximately 96.7 square miles).
The coking coal derived from this project will be supplied to the Tata Steel Group's facilities in Europe, Asia and elsewhere.
The Government of Mozambique has approved the mining contract for the tenements, which is a signal for the Benga Coal project to commence.
Capacity: Potential to extract 720 million tonnes by open-cut methods from a major coal resource in the Benga License. Project Update: The feasibility study for the project is in progress. Press Releases
Tata Steel Signs MoUs with Riversdale Mining Limited. Tata Steel signs JV with Riversdale Mining for Mozambique Coal Project
The Netherlands Operations: The IJmuiden Steelworks is Corus’ largest and most costefficient steel making facility, with a production capacity of 7.6mtpa. Projects: A number of capital expenditure schemes are in progress at IJmuiden. Among them is a €20m pilot plant that is being jointly funded with ULCOS, the European Commission and the Dutch government. The 60,000tpa pilot plant is intended to prove the commercial and technical
INVETORY MANAGEMENT viability of a new iron making process called Hisarna. If successful, the project will considerably reduce the carbon dioxide emissions of the existing integrated steelmaking process. Hisarna would also be more energy efficient than existing technology and use cheaper and more abundant raw materials.
1. Oman 1. Limestone Project
Location: Uyun region in the Salalah province. Project Highlights
Tata Steel Limited and the members of the Al Bahja Group, a leading business house of Oman signed a Joint Venture Agreement on January 16, 2008 – Tata Steel has a 70% stake in the joint venture.
The project envisages mining of limestone in the Uyun region (limestone is the key raw material for producing good quality steel), which lies in the Salalah province of Oman and has large deposits of limestone.
Capacity: To be assessed.
Updates: Exploration and feasibility studies are in progress. Press Releases: Tata Steel’s joint venture in the Sultanate of Oman for Uyun limestone.
Tata NYK Shipping Pvt Ltd. Tata NYK Shipping Pte Limited is a Singapore based 50:50 joint ventures between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK line), Japanese shipping major.
INVETORY MANAGEMENT Project Highlights • The JV was set up to cater to ship bulk cargo such as coal, iron ore and steel. • The shipping firm would handle the Tata Steel Group’s requirements for moving raw materials and steel. • The Company would ensure a strategic control over logistics in the future.
Tata NYK has entered into a long term charter for 8 Supramax / Panamax vessels.
Orders have been placed for building two new Supramax vessels. The Company handled a total of 4.48 million tonnes of cargo in FY 09.
• Project Update: As part of its long-term strategy, the Company plans to enter into a long term carter for capsize vessels in 2009. NatSteel Holdings NatSteel, a 100% subsidiary of the Tata Steel Group, is headquartered in Singapore and has presence in Vietnam, Thailand, Australia, China, Malaysia, Philippines and Singapore. The Singapore operations comprise steel making and rolling operations of capacity 7, 50,000 tonnes per annum and have a well-established downstream business. The downstream business comprising direct sales to contractors uses 45 knowledge-centric services and consists of a cut and bend facility and products like mesh, cages and couplers which benefits the customers in terms of higher yields, higher productivity, and
INVETORY MANAGEMENT lesser space requirement and just in time steel in desired sizes. The downstream facility in Singapore, produces over 4, 00,000 tonnes per annum of cut and bends bars, mesh, pre-cages, bore pile cages etc., and is the largest single location facility in the world.
Of the two units operating in China, one is a rolling mill at Xiamen producing about 5,00,000 tonnes of bars and rods and the other is a wire drawing plant at Wuxi, with a capacity of 1,00,000 tonnes per year. In the Xiamen city, the market share is about 25%.
1. South Africa
Tata Steel (KZN) (PTY) Ltd. TSKZN is a South Africa based subsidiary of Tata Steel, in the business of producing Ferro Chrome and Charge Chrome. Project Highlights • The ground-breaking ceremony of Ferro Chrome Project was held at Richards Bay on August 21, 2006. • A Ferro Chrome Plant was commissioned at Richards Bay in 2008 to produce High Carbon Ferro Chrome, for global consumers.
The proposed plant in South Africa will manufacture High Carbon Ferro Chrome with a Chrome content of +64%, and the annual production capacity will be 134,500 Metric Tonnes Per Annum (mtpa) in Phase I.
TSKZN commenced commercial production on 1st July, 2008 and in the first year it has achieved a production of 63,479 mtpa of saleable grade Charge Chrome.
Capacity: 1, 51,000 tonnes per annum. Project Update: The Ferro Chrome used in the manufacture of stainless steel will be exported to Tata Steel’s customers in Asia, Europe, the USA and in other parts of the world.
1. United Kingdom
Corus Corus, the European arm of the Tata Steel Group, is headquartered in London in the United Kingdom. Corus’ crude steel capacity in the UK is in the region of 13mtpa. Operations: Corus produces carbon steel by the basic oxygen steel making method at three integrated steelworks in the UK at Port Talbot, Scunthorpe and Teesside (currently mothballed), and special and alloy steels through the electric arc furnace method in Rotherham. In addition, there are a number of downstream rolling, coating and processing facilities.
Performance: Liquid steel production in 2008-09 at 16 million tonnes was 20% lower than that of 2007-08. Turnover for the period was Rs.1,09,570 crore (US$ 21,539m).
INVETORY MANAGEMENT Projects: A number of capital expenditure schemes are in progress in the UK. Among them is the £60m BOS gas recovery plant at Port Talbot, which is expected to significantly reduce natural gas and electricity purchases and materially reduce carbon dioxide emissions at the site through the utilization of gas generated inside the Basic Oxygen Steel plant.
Ha Tinh Project Project Highlights
A proposed steel complex with an estimated capacity of 4.5 million tonnes per year.
Tata Steel signed a MoUs with Vietnam Steel Corporation (VSC) on May 29, 2008 to develop a steel complex in Ha Tinh. Another MOU was signed to set up a cold rolling mill in Ha Tinh province.
Tata Steel is partnering with VSC in establishing a steel complex in Ha Tinh province, which will be phased over 10 years. On the successful completion of the study and financial closure, Tata Steel will have a stake of minimum 65% and VSC will have a stake of 35% in the Steel complex.
Tata Steel will also have a stake of 30% in Thach Khe Iron Ore Joint Stock Company, which would undertake mining in the Thach Khe iron ore mine.
Capacity: A proposed steel complex with an estimated capacity of 4.5 million tonnes per year.
INVETORY MANAGEMENT VNSteel Overview: Established in 995 by a merger of Metal Corporation and Steel Corporation, VNSteel is Vietnam’s largest steel company and has various manufacturing plants and a distribution system across the country. The total capacity of VNSteel including that of its joint ventures is around 2.2 million tonnes with a product mix ranging from crude steel, high quality construction steel to sheet and plate products serving other economic sectors. Project Updates: The Company has completed the feasibility study for the steel complex, to be developed in 3 phases. Tata Steel, in collaboration with VNSteel and VICEM has also completed the detailed project report for Phase1, which is the cold rolling mill. Press Releases • JV between Tata Steel, Vietnam Steel Corporation and Vietnam Cement Industries.
Vietnam Steel Corporation and Tata Steel sign a MoUs. Vietnam Steel Corporation and Tata Steel sign a Memorandum of Cooperation.
Vietnam Prime Minister visits Tata Steel.
LEGENDARY HEROES OF THE TATA STEEL Here is the story of some heroes/ tycoons who thought to build India. They believe building India means not only earning money but also to increase the wealth o the country’s people. It is the story of struggle, anxiety, adventure and achievement. JAMSHETJI NUSSERWANJI TATA The founder of TATA Steel began with a textile mill in central India in 1870’s. At the age of 43, Jamsetji read a report by a German Geologist Ritter Von Schwartz on the availability of iron ore in Chanda district in central provinces, which gave him the idea of giving India a steel plant. SIR DORABJI TATA J. N. Tata had exhorted to his sons to pursue and develop his life’s work his elder son, through his endeavors in setting up TATA steel and TATA power. Sir Dorabji Tata was instrumental in transforming his father’s grand vision into reality. He was the first chairman of gigantic Tata. JEHANGIR RATANJI DADABHAI TATA The late chairman of the TATA group pioneered civil aviation on the subcontinent in 1932 by launching TATA airlines, now known as Air India. Under his control, the number of TATA venture grew from 13 to 80, encompassing steel, power generation, hotel, consultancy services,
information technology etc.
INVETORY MANAGEMENT RATAN TATA Mr. Ratan N Tata is the present chairman of TATA group of sons, with his efficient leadership TATA group is soaring new heights, from Corus take over to brands like Jaguar and Land Rover. BOARD OF DIRECTORS AS ON 25 JUNE 2009
• • • • • •
MR. Ratan N. Tata (Chairman) Mr. B. Muthuraman (Vice Chairman) Mr. James Leng Mr. Nusli N. Wadia Mr. S. M. Palia Mr. Jacobus Schraven Dr. Anthony Hayward Mr. Andrew Robb Mr. Suresh Krishna Mr. Ishaat Hussain Dr. Jamshed J. Irani Mr. Subodh Bhargava Mr. Kirby Adams Mr. H.M. Nerurkar
• • •
• • •
• • • • • • • •
Mr. B. Muthuraman(Managing Director) Kirby Adams (Chief executive officer) H.M Nerurkar Kaushik Chatterjee Jean-Sebastien Jacques Arun Baijal Manzer Hussain Avneesh Gupta R. P. Singh Marjan Oudeman Anand Sen Scott MacDonald Varun Jha Phil Dryden Abanindra M. Misra Frank Royle Om Narayan Tor Farquhar Radhakrishnan Nair Partha Sengupta Hridayeshwar Jha N. K. Misra Binay Kumar Singh
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Santi Charnkolrawee T. V. Narendran V. S. N. Murty Helen Matheson Sandip Biswas Lim Say Yan Bimlendra Jha Dr. Debashish Bhattacharjee
TOP COMPETITORS OF TATA STEEL
Jindal Steel SAIL Essar steel
SOME OTHER MAJOR PLAYER IN THIS INDUSTRY •
• • • • • •
Saw pipes Uttam steel ltd Ispat industry ltd Mukand ltd Mahindra Ugine steel co.ltd Usha ispat ltd Kalyani steel ltd
INVETORY MANAGEMENT •
Electro steel casting ltd Sesa Goa ltd NMDC Llyod steel industry l
2.6 VISION AND MISSION STATEMENT OF TATA STEEL
Vision We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship ➢ We make the difference through: ➢ Our people, by fostering team work, nurturing talent, enhancing leadership capability and acting with pace, pride and passion. ➢ Our offer, by becoming the supplier of choice, delivering premium products and services, and creating value for our customers. ➢ Our innovative approach, by developing leading edge solutions in technology, processes and products. ➢ Our conduct, by providing a safe working place, respecting the environment, caring for our communities and demonstrating high ethical standards.
Mission Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to strengthen India’s industrial base through the effective
INVETORY MANAGEMENT utilization of staff and materials. The means envisaged to achieve this are high technology and productivity, consistent with modern management practices. MAJOR BRANDs OF TATA STEEL
Brands The Tata Steel Group’s Brand building endeavors have always been directed at building assurance, reliability and superior product quality in every segment. Outstanding performance by the Company’s different divisions have surpassed their own brand standards and created higher quality parameters for each other. Galvano™ is Galvanized Plain (GP) steel offering available in sheet and coil forms for all customer segments like white goods, panels, bus bodies etc. Galvano™ meets the diverse and specific needs of the general engineering segment. Unlike the ordinary spangled and crushed spangled products available in the market, Galvano™ is a Zero spangled product with unmatched surface finish and mechanical properties.
Tata Agrico, a division of Tata Steel is the pioneer manufacturer of superior quality agricultural implements in the country under the brand name 'Agrico'. Since 1925, it has been the leading brand in shovels, powrahs, crowbars, kudalies, pickaxe and hammers. These implements cater to the needs of Agricultural, Horticulture Industry, maintenance of roads, dams, railway- tracks, collieries etc. in India
INVETORY MANAGEMENT and abroad. The Agrico products are the first in India to be manufactured with ISO: 9002 Certification. All Tata Agrico implements are guaranteed against manufacturing defects and are distributed all over the country through a network of consignment agents and distributors. The Agrico division recently expanded its product offerings by launching three new products and many more variants in the existing category.
Tata Bearings manufactures a wide variety of bearings and auto assemblies, like Ball Bearings, Tapered Roller Bearings, Magneto Bearings, Double Row Angular Contact Bearings, Clutch Release Assemblies, Fan Support Assemblies and Cylindrical Roller Bearings. It is the only Bearings Manufacturer in India to win TPM Award from Japan Institute of Plant Maintenance, Tokyo and is amongst the largest bearing manufacturers in India. Tata Pipes has matured into a fully bloomed brand since 1996. A deeply thought out branding exercise was undertaken in order to unleash the power of the ‘Tata Pipes' Brand. Tata Pipes are manufactured with the HFIW process in the Long Products Division's high-tech facility at Jamshedpur.
Tata Shaktee is Tata Steel’s flagship brand in the field of galvanised corrugated sheets. Since Tata Shaktee was launched in Feb 2000, the brand has been consistently delivering on its promises of longevity and strength. Tata Shaktee is the only
INVETORY MANAGEMENT brand, which produces 4 ft wide GC sheets called "Tata Shaktee Wider GC Sheets".
Tata Steelium is another brand of the Flat Products Division of Tata Steel. Apart from providing a certain level of quality the name also assures the customer of the genuineness of the product. It goes a long way in meeting the challenge of gaining a sustainable competitive edge in the marketplace. The brand has acquired new customers in retail untapped areas and made an aggressive entry into the retail segment through exclusive shops called Steelium zones. Customer relationship building programmes are undertaken with a view to increasing market share. Tata Tiscon is the first Thermo Mechanically Treated (TMT) rebar in the country. Every Tata Tiscon rebar is made from pure steel, with the most advanced TMT technology from Tempcore, Belgium. Tata Tiscon is available for both residential and project applications. It has the best combination of strength, ductility and unparalleled quality consistency. Tata Tiscon forms an unbreakable and unshakeable bond with cement (atoot jod), and together they lend a strong foundation for building construction. Tata Tiscon became the first rebar in India to be awarded the ‘Superbrand' status in the construction rebar category. Retail sales have received a boost through new marketing initiatives and consumer schemes launched as a result of continuous monitoring of consumer sales.
INVETORY MANAGEMENT Tata Steel Wire Division is the leading producer of steel wires under the brand name Tata Wiron, with a 30% market share of the organized wire market in India. It manufactures a wide range of wires catering to the needs of the various industry segments such as automobile, infrastructure, power and general engineering. The products are well established across the markets of Europe, USA, Middle East Asia, Australasia, South Asia and Far East Asia. Tata Wiron GI wires have a distinct brand identity of being a valued business partner for its consumers.
CHAPTER-3 3.1 RESEARCH METHODOLOGY The study is based on descriptive and applied research. The efficiency of inventory management model at TATA Steel requires a thorough knowledge of iron making process and expertise in identifying the materials. The accounting is as well as in planning the control of inventory is thoroughly studied by ratio analysis. Data collection method I. Primary source • • • • Personal interview Finance and Accounts department Purchase department Plant visit
I. Secondary source • • • • • Concern data Website Annual report Company records Intranet of company
INVETORY MANAGEMENT Presentation of data
Data is presented in the form of tables, diagram and trend lines. Data analysis and interpretation. The data analysis has been done using various inventory ratios.
Limitation of the studies
The study is based on the comparison across companies. This company follows various accounting policies. Hence the choice of accounting for the companies to an extent distort the inter company comparison.
• • •
Ratio alone cannot show whether performance is good or bad. The data is pertaining up to the year 2009. Ratio does not take into account the impact of certain non-financial parameters. The study is limited
ANALYSIS & INTERPRETATION OF DATA
CHAPTER: 4 DATA ANALYSIS AND INTERPRETATION 4.1 INVENTORY MANAGEMENT IN TATA STEEL Inventory management is one of the most important managerial activities. TATA steel has its own mines and querries in India and also in some other countries. The raw material inventory includes materials from its own source as well as purchased from others. Raw material inventory, therefore lies both at works and its place of extraction. These are transported to works both by road and rail. To maintain the minimum required inventory is not an easy task. There are many reasons for each different organization as to what the quantity should be maintained. TATA STEEL’s raw material inventory consist of mainly coal and iron ore, but there are many other things included in it in small quantities. TATA STEEL has its transportation system which helps in carrying the materials from different locations to Jamshedpur works. Each types of production department maintain separate inventory level. TATA steel maintains different types of inventory i.e. raw material, WIP, finished goods, transit inventory, buffer inventory, anticipation inventory and cycle inventory. For valuation of inventory TATA Steel generally uses FIFO method and for ordering, they use EOQ method.
INVETORY MANAGEMENT First in first out (FIFO): A method of valuation of inventory, by which the cost are allocated on the assumption that goods are consumed or sold in the order in which they are received and taken in to stock. Economic Ordering Quantity (EOQ): It is the optimum quantity of goods for which if orders are placed, the aggregate order placing cost and the aggregate inventory carrying cost will be equal and economical. There will not be any loss by either way. For any item of goods, annual requirement in units, cost of placing one order, cost of carrying one unit in inventory for one year are the influencing factors. Any change in one or more of them will change the EOQ of that item. To find out EOQ; the formula is= √2AO/C Where; A= Annual consumption; O= ordering cost, C= carrying cost
Channels of ordering raw material:
INVETORY MANAGEMENT Policies maintained by TATA STEEL for inventories • Finished and semi-finished products produced and purchased by the Company are carried at lower of cost and net realizable Value. • • Work-in-progress is carried at lower of cost and net realizable value. Coal, iron ore and other raw materials produced and purchased by the Company are carried at lower of cost and net realizable value. Stores and spare parts are carried at cost. Necessary provision is made and charged to revenue in case of identified obsolete and non-moving items. • Cost of inventories is generally ascertained on the ‘weighted average’ basis.
4.2 FINANACIAL ANALYSIS OF TATA STEEL RELATED TO INVENTORY Ratio analysis is the major and efficient tool for management to analyze the data. So here some ratios are given which are related to inventories and with analysis. >Raw material conversion period This ratio shows in how many day raw materials is used to manufacturing. To find this ratio, the formula is; Average stock of raw material Total raw material consumed x 365
Where average stock of raw material = (Op. stock of raw mat.+ Cl. Stock of raw mat.)/2 Particulars 200910 Opening stock of raw material Closing stock of raw material 1433.2 6 Average stock of raw material Total raw material consumed 1167.4 1 5709.9 3429.5 3121.4 2368.3 1715.1 811.04 714.03 655.62 445.36 901.56 720.52 707.54 603.7 901.56 200809 720.52 200708 707.54 200607 603.7 200506 287.02
INVETORY MANAGEMENT 1 2 6 4
If we look towards for the year 2005-06, then we can easily observe that, the raw material conversion period is too high than the year 2009-10. This trend is showing that the period for conversion of raw material is decreasing year by year. It very good sign for the company. Because as soon as raw material is used for production the storing cost will be less. So this chart is showing how efficiently TATA steel is reducing it’s storing cost and how fast raw material is used for production.
>WIP conversion period This ratio shows, in how many days the WIP converted into finished products. To find out this ratio, the formula is; Average stock of work-in-process x 365
Cost of production Where average stock of WIP = (Op. stock of WIP+ Cl. Stock of WIP)/2
INVETORY MANAGEMENT Particulars 2009-10 2008-09 2007-08 2006-07 200506 Opening stock of WIP Closing stock of WIP Average stock of WIP Cost of production 71.48 73.17 72.325 18917.7 1 28.94 71.48 50.21 14423.4 7 23.93 28.94 26.44 13300.1 7 32.42 23.93 28.18 11469.7 1 13.76 32.42 23.09 9516.9 7
As we can see in the chart that WIP converted into finished product within a day in the year 2005-06 to 2007-08. But in recent year it is taking more than one day. If we measure this chart, we can say that the efficiency level of TATA steel is reducing year by year to convert WIP to finished goods.
>Finished goods conversion period It refers to the time in which the finished goods are converted into sales or in other way we can say that the time period between production and sales when the finished goods kept in the ware house before the actual sale is made.
INVETORY MANAGEMENT So formula for FGCP is; Average stock of finished goods Cost of goods sold Where average stock of finished goods = (Op. stock of finished goods +Cl. Stock of finished goods)/2 x 365
Particulars Opening stock of finished goods Closing stock of finished goods Average stock of finished goods Cost of goods sold
2010-09 1074.27 1361.85 1218.06 18989
2008-09 1078.08 1074.27 1076.18 14874.23
2007-08 1000.62 1078.08 1039.35 13673.31
2006-07 887.82 1000.62 944.22 12012.39
2005-06 622.13 887.82 754.975 10555.24
From the table and the chart we can easily observed that, though in the year 2006-07 the conversion period increased than the year 2005-06. But fortunately the recession period couldn’t hit the sales for the year 2007-08 to 2009-10. The finished goods were converted into sales even less than only 25 days in the year 2009-10. It shows the efficiency of not only quality of the steel but also the efficiency of marketing department of TATA steel
Raw material to current asset It indicates the percentage of raw materials in the current asset of the company. To find out this; Raw material(closing) Current asset x 100
Particulars Raw material(Closing) Current asset
2009-10 1433.26 10047.48
2008-09 901.56 6636.28
2007-08 720.52 13701.89
2006-07 707.54 4237.6
2005-06 603.7 4083.58
This chart and table can show the one unexpected downfall in the year 200708, which is less than 6%. If we observe carefully then we can see that, in the year 2007-08, the raw material trend is nearly same to other years, but due to huge cash in hand increase the current asset. Which reduce the percentage of raw material to current asset. Finished goods to current asset It indicates the percentage of finished goods in the current assets of the company. Finished goods are such a component of the current assets which can be easily converted into cash. So the formula is; Finished goods(closing) Current asset
Particulars Finished goods(Closing) Current asset 2009-10 1361.85 10047.48 2008-09 1074.27 6636.28 2007-08 1078.08 13701.89 2006-07 1000.62 4237.6 2005-06 887.22 4083.58
INVETORY MANAGEMENT As we saw in the raw material to current assets, which is same as finished goods to current assets. Due to huge amount of cash held in the year 200708, the percentage of finished goods is lesser than the other years. But in the year 2006-07 it is near to 25%. But the percentage is going downwards in the year 2009-10, which is less than 15%. Average inventory turnover ratio It indicates the percentages of inventory with gross sales. The formula is; Average inventory Gross sales Where average inventory = (Op. inventory+ Cl. Inventory)/2 Particulars 200910 Opening inventory Closing inventory Average inventory Gross sales 200809 1732.09 1827.54 1779.82 19762.5 7 1532.34 1732.09 1632.22 17144.2 2 922.91 1532.34 1227.63 15876.8 7 2007-08 2006-07 2005-06 x 100
2047.31 1827.54 2868.28 2047.31 2457.80 1937.43 26843 22191.8
As we can observed that, the trend is showing nearly constant, except the year 2005-06. The inventory level is increasing as well as the gross sales. It shows the constant growth of sales and inventory.
a) >Stock turnover ratio
Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be too high nor too low. The stock turnover ratio measures the number of times a company sells its inventory during the year. The formula for stock turnover ratio is;
Particulars 2009-10 2008-09 14874.23 1937.43 2007-08 13673.31 1779.82 2006-07 12012.39 1632.22 2005-06 10555.24 1227.63
Cost of goods Cost of goods sold Average Average stock
Where average stock = (Op. inventory+ Cl. Inventory)/2
INVETORY MANAGEMENT As we can find out that in the year 2005-06 the ratio was very high as compare to other years. In the year 2006-07 it is even less than 7.5, but after that TATA maintained the consistency on its growth.
b) >Spare parts index
It shows the index of spare parts, which are used to fixed asset. To find out spare parts index, the formula is; Stores and spares parts(closing) Net block of fixed asset x 100
Particulars Stores and spares parts(closing) Net block of fixed assets
2006-07 2005-06 442.66 349.06
This index is showing downwards in recent years. But in the year 2005-06 it is less than 4. And in the year 2007-08 it is more than 4.5. So TATA steel should
INVETORY MANAGEMENT try to reduce this index. But the chart is showing very impressive that index is reducing year by year.
c) >Inventory conversion period
This ratio shows in how many days inventories are converted into sales. It is major ratio analysis for cash conversion period. Because it is the first component of the cash conversion period. The formula is; Inventories(closing) Particulars Sales/365 Inventories(Closing) Sales 2009-10 2868.28 24315.7 7 2008-09 2047.31 19693.2 8 2007-08 1827.54 17551.0 9 2006-07 1732.09 15139.3 9 2005-06 1523.34 14498.9 5
From this chart we can observed that in the year 2008-09 and 2007-08, the inventory was most efficiently converted into sales. But unfortunately it is very high in the year 2009-10. So it shows the inefficiency for the company
d) >Current ratio
This ratio is used to judge the short term solvency of a company and is worked out by dividing the aggregate Current Assets by its aggregate Current Liabilities. To find out the current ratio, the formula is; Current asset Current Particulars liabilities Current asset Current liability 2009-10 10047.48 8974.05 2008-09 6636.28 6768.78 2007-08 13701.89 5453.66 2006-07 2005-06 4237.6 3808.72 4083.58 3699.99
In the year 2007-08 this ratio is too high due to huge amount cash held in the company. From here we can say that company has huge liquidity but in other sense we can say that company blocked this huge amount of cash without investing. Again it is very good sign for the company, because the recession hit the world in the year 2008-09 and company has huge amount of liquidity to face the crisis moment. Again we can see that the in the year 2008-09 the
INVETORY MANAGEMENT ratio is even less than 1. So 2007-08 heavy cash amount saved in the year 2008-09. Rest of the year maintained the consistency, which is just above 1.
e) >Acid test ratio
It measures the company’s most liquidity against the current liability. Here we exclude the inventory from the current asset. Because inventory is less liquidity than other current assets. So it indicates the coverage of current liabilities with quick realizable assets. The formula to find acid test ratio; Current assets- Inventories Particulars liabilities 2009-10 Current Current assets Inventories Current liability 2008-09 2007-08 2006-07 2005-06 4237.6 1732.09 3808.72 4083.58 1523.34 3699.99
10047.48 6636.28 13701.89 2868.28 8974.05 2047.31 6768.78 1827.54 5453.66
As we have seen in the current ratio, in the year 2007-08 is highest than the others. Here also this ratio is highest than the other due to heavy amount of cash, which shows the most liquidity. Here we can see that the current ratio of the year 2006-07 and 2009-10 was same. But due to less inventory percentage in current assets the acid test ratio is higher than the year 200607. 2006-07 ratio is even less than the year 2008-09. So for the year 2008-09 liquidity is little bit better than 2006-07, after facing the crisis period. And it is slowly moving upwards in the year 2009-10.
f) >Total inventories to total assets
This ratio shows the percentage level of inventories in compare to total asset. The formula is; Total Inventories(closing) Total assets 2009-10 Particulars
Total inventory Total Assets 2868.28
2008-09 2047.31 2007-08 1827.54 25597.5 2006-07 1732.09 14617.16 2005-06 1523.34 12143.3
The percentage level is decreasing year by year to increase the liquidity level. But in the year 2008-09, it is very low because of recession period to increase the liquidity percentage.
Balance sheet of TATA Steel
31st MAR 07 17551.09 727.73
31st MAR 06 15139.39 553.67
Rs in Crores
Particulars MAR 08 Sales and other operating expenses 31st MAR 09 24315.77 31st19691.03 Share capital
31st MAR 05 14498.95
Other income Total Income
7059.92 2739.7 829.42 6506.25
Reserve and Surplus Total share holder's fund Loans
23176.26 30176.26 26946.18 585.73 1033.6
21097.43 27300.73 18021.69 681.8 1071.3
13368.42 14096.15 9645.33 748.94 1107.08 25597.5
9755.3 2516.15 957 1388.71
Deferred tax liabilities Provision for employee separation Total funds employed
Manufacturing and other expenses Depreciation
11852.75 834.61 -175.5 786.5
(-)Expenditure transferred to capital a/c Net financial charges Application of funds
Fixed asset Total expenditure
14482.22 17308.43 42371.78 471.66
11040.56 11571.01 6106.18
9865.05 10101.42 4069.96
12623.56 13298.36 4103.19
Profit before taxes and exceptional
Foreign currency items translation diff a/c
Profit before taxes Current assets (-) Taxes Loans and advances
(-) Current liabilities and tax Profit after provisions Net current assets Miscellaneous expenditure Total assets
7315.61 5707.05 -2113.87 4578.04
-8974.05 5201.74 1311.04 105.07 58741.77
7066.36 3613.7 -2379.33 33348.74
-6768.78 4687.03 30193.66 155.11 47075.52
6261.65 10646.16 -2039.5 3055.73
-5453.66 4222.15 8248.23 202.53 25597.5
5239.96 3002.74 -1733.58 1234.86
-3808.72 3506.38 428.88 253.27 14617.16
5297.28 2701.14 -1823.12 1382.44
-3699.99 3474.16 383.59 214.82 12143.3
4.5 >COST SHEET OF TATA STEEL Rs in crore Particulars Raw material consumed Payment and provision for employee Operation and other expenses (-)Commission (-)Provision for wealth tax Freight and handling charges Excise duty Depreciation Adjustment of WIP (+) Opening stock of WIP (-) Closing stock of WIP COST OF PRODUCTION Adjustment of finished goods (+)Opening stock of finished goods (+) Purchase of finished goods (-)Closing stock of finished goods COST OF GOODS SOLD 18989 14874.23 13673.31 12012.39 10555.24 -1361.85 -1074.27 -1078.08 -1000.62 -887.82 358.87 446.95 450.6 656.08 1305.28 1074.27 1078.08 1000.62 887.22 620.81 71.48 -73.17 18917.71 28.94 -71.48 14423.47 23.93 -28.94 13300.17 32.42 -23.93 11469.71 9.28 -32.42 9516.97 6213.58 -61.49 -1 1251.23 2527.96 973.4 5068.88 -52.53 -0.95 1098.19 2498.52 834.61 4647.28 -64.71 -0.97 1117.45 2210.55 819.29 4038.71 -80.75 -0.8 1004.32 2004.83 775.1 3687.17 -86.18 -0.7 936.68 1377.92 618.78 2008-09 5709.91 2305.81 2007-08 3429.52 1589.77 2006-07 3121.46 1454.83 2005-06 2368.3 1351.51 2004-05 1715.44 1291
4.6 RAW MATERIAL CONSUMPTION OF TATA STEEL Raw material is important for any kind of manufacturing industry. That may be steel industry or may be cement industry or any kind of manufacturing
INVETORY MANAGEMENT industry. Same way, TATA steel is also consuming raw material from various sources. Major part of raw material is taken from its own mines and some from various country i.e. Australia. Australia is major supplier of coal. Below all the details of raw material is given.Here all the details of amount of raw material consumption, value of raw material and price per tonne of raw material are given with charts and analysis. >RAW MATERIAL CONSUMPTION
Types of raw material Iron ore Coal Coke Limestone and Dolomite Ferro Manganese Zinc and Zinc Alloys Spelter, Sulphur and Others
2009-10 9545665 751972 3315206 1949523 18895 22137 1200105
2008-09 8724458 713982 3133450 1729070 15824 19299 784802
2007-08 8486755 1019483 2773807 1863757 16516 20692 798141
2006-07 5986753 841649 2422875 1464970 16844 21327 487102
To produce steel iron ore, coal,coke, ferro manganese, zinc alloys and spelters, sulpphur are required mostly. All these raw material are required tproduce in a systematic manner. In year 2008-09 iron ore and spelters, sulphurs, coke and ferro manganese are purchased more than the others. Whereas, zinc and alloys are purchased more in the year 2007-08. In the last year due to heavy production, raw material consumption is more than others.
Rs in Crore
Types of raw material
INVETORY MANAGEMENT Iron ore Coal Coke 504.52 455.32 3695 445.35 206.85 1873.6 368.29 287.91 1510.7 2 Limestone and Dolomite Ferro Manganese Zinc and Zinc Alloys Spelter, Sulphur and Others 62.99 210.03 877.3 48.52 345.3 529.48 50.94 327 557.84 71.84 159.36 513.79 102.47 134.63 362.03 391.89 318.45 316.76 300.48 217.87 273.53 226.56 1093.71 181.78 92.1 834.65
*Pie charts are showing the percentage of expenses
From the above chart we can see that the expenses percentage on coke is reducing year by year. Whereas, limestone and dolomite expenses percentage is increasing.
Price per Tonnes
Types of raw material Iron ore Coal Coke Limestone and Dolomite Ferro Manganese Zinc and Zinc Alloys Spelter, Sulphur and Others *values are in rupees
2009-10 528.53 6055.01 11145.61 2010.18
2008-09 512.98 2929.57 6066.21 1707.3
2007-08 422.14 4032.45 4821.27 1831.97
2006-07 322.3 2222.3 3942.99 1612.22
2005-06 303.63 1094.28 3444.87 1487.2
33336.86 94877.35 7310.2
43497.21 75966.94 6437.33
60834.71 63126.55 7423.18
154669.65 169438.83 4575.94 7108.03
In the year 2006-07 the entire material rate is hiked. But the ferro manganese price per tonne is showing downwards. It is becoming cheaper year by year. Iron ore is cheapest raw material for TATA STEEL. From coal, coke is prepared. But coal is near to half price than coke. The entire raw material price is increasing except ferro manganese and zinc and alloys.
>Raw material imported 2009-10 4146.75 2008-09 1542.79 2007-08 1592.25 2006-07 1226.82
Rs in crore 2005-06 878.12
INVETORY MANAGEMENT Here we can observe that, importing raw material is increasing year by year. Even in the year 2008-09 more than two times than the last year.
Comparing details Total raw material consumed Cost of production Cost of goods sold Current asset Inventories(Closing) Sales Profit after tax 2009-10 5709.91 18917.71 18989 10047.48 2868.28 24315.77 5201.74 2008-09 3429.52 14423.47 14874.23 6636.28 2047.31 19693.28 4687.03 2007-08 3121.46 13300.17 13673.31 13701.89 1827.54 17551.09 4222.15 2006-07 2368.3 11469.71 12012.39 4237.6 1732.09 15139.39 3506.38 2005-06 1715.14 9516.97 10555.24 4083.58 1523.34 14498.95 3474.16 CGPA 35.077% 18.739% 15.813% 25.243% 17.140% 13.799% 10.618%
>Comparison of various segment related to inventory Here we have calculated the CGPA (compounded growth per annum). For this calculation we have taken the last 5 year data of each segment. This CGPA shows compounded growth or average growth.
INVETORY MANAGEMENT So here we can observed that as raw material consumption price increasing more than 35%, but compare to sales and profit after tax is very high. Cost of production and cost of goods sold is compare to same with each other.
>Revenue generated by TATA Steel, Geographically
Revenue generated by geographical market Region India Others 2009-10 20914.02 3401.75 2008-09 17491.97 2201.31 2007-08 15506 2045.09 2006-07 13160.35 1979.04 2005-06 12187.82 2311.13
*The rupee values are in crore
INVETORY MANAGEMENT TATA STEEL is one of the biggest importers but this company is big seller in international market. Here we can see in a regular basis the revenue in other country is increasing year by year. Even in the year 2008-09 it crossed Rs 3000cr. It is a very good sign for TATA STEEL. Here we can see that revenue in Indian market. It crossed more than Rs 20000cr. It shows not only the improvement of TATA STEEL’s sales but also it is showing how Indian people per capita consumption on steel is increasing. I personally prey that this should increase year after year.
CHAPTER-6 COMPARISON WITH OTHER COMPANIES Here I am doing comparison with three other major players in this sector. As per me, they are • • • JINDAL STEEL ESSAR STEEL SAIL
So first of all, we should understand about that company in brief. JINDAL STEEL In the world of business, the Jindal Organization is a celebrity. Ranked sixth amongst the top Indian Business Houses in terms of assets, the Group today is a US $10 Billion conglomerate.
Jindal Organization, set up in 1970 by the steel visionary Mr. O.P. Jindal, has grown from an indigenous single-unit steel plant in Hisar, Haryana to the present multi-billion, multi-locational and multiproduct steel conglomerate. The organization is still expanding, integrating, amalgamating and growing. New directions, new objectives... but the Jindal motto remains the same- "We are the Future of Steel ".
The group has been technology-driven and has a broad product portfolio. Yet, the focus at Jindal has always been steel. From mining of iron-ore to the
INVETORY MANAGEMENT manufacturing of value added steel products, Jindal has a pre-eminent position in the flat steel segment in India and is on its way to be a major global player, with its overseas manufacturing facilities and strategic manufacturing and marketing alliances with other world leaders. Jindal Organization aims to be a global player. In pursuance of its objectives, it is committed to maintain world-class quality standards, efficient delivery schedules, competitive price and excellent after sales service.
Financial data of Jindal steel Balance sheet Rs. In crore Particulars 31st MAR 10 31st MAR 09 31st MAR 08 31st MAR 07 31st MAR 06
INVETORY MANAGEMENT Sources of funds
Owner's fund Equity share capital Preference share capital Reserves & surplus Loan funds Secured loans Unsecured loans Total Uses of funds 2,105.49 2,857.16 10,377.97 1,783.39 2,079.96 7,619.73 2,115.61 1,392.11 6,004.45 1,780.77 964.6 4,590.08 1,159.51 336.35 2,815.24 5,399.85 3,740.98 2,481.33 1,829.31 1,302.98 15.47 15.4 15.4 15.4 15.4 1
Fixed assets Gross block Less : accumulated depreciation Net block Capital work-inprogress Investments Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets
INVETORY MANAGEMENT Miscellaneous expenses not written Total 10,377.97 7,619.73 6,004.45 4,590.08 2,815.24 3.02 3.14 3.24 0.74 1.01
Profit and loss account Particulars Income 2009-10 2008-09 2007-08 2006-07 2005-06
Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative
7,677.83 5,368.14 3,523.08 2,565.04 2,253.60
3,419.42 1,727.40 1,068.50 773.84 670.87 510.96
181.46 327.76 337.49
132.2 264.73 277.03
90.14 276.47 167.2
79.74 222.18 148.16
50.85 171.87 72.42
INVETORY MANAGEMENT expenses Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnigs before appropriation Equity dividend Dividend tax Profit carried to balance sheet 85.33 62.02 10.55 55.43 8.87 46.19 6.48 46.19 6.33 1,536.48 1,236.96 702.99 572.94 515.7 5,039.97 3,072.23 2,113.27 1,532.23 1,337.46 2,637.86 2,295.91 1,409.81 1,032.81 199.46 57.31 36.08 26.02 916.15 19.34 935.49 92.51 152.48 0.31 690.18 158.11 532.08 -12.48 -3.9
2,837.32 2,353.22 1,445.89 1,058.83 267.89 433.03 0.2 243.02 451.51 0.27 173.19 336.47 0.27 935.96 241.85 694.11 7.78 1.1 108.02 219.17 0.27 731.37 154.91 576.46 -12 8.48
2,136.20 1,658.42 465.4 265.55
1,670.80 1,392.87 -144.78 10.46 -144.57 -11.34
4,584.28 3,239.54 2,136.05 1,528.77 1,057.60
4,498.95 3,166.97 2,071.75 1,476.10 1,005.08
ESSAR STEEL Essar Steel is one of India's largest exporters of flat products, exporting to the highly demanding US and European markets, and to the growing markets of South East Asia and the Middle East.
A number of major client companies have approved our steel for their use, including Caterpillar, Hyundai, Swaraj Mazda, the Konkan Railway, and Maruti Suzuki. Essar Steel has acquired extensive quality accreditations. Our lean team gives us one of the highest productivities and lowest manpower costs among steel plants internationally. Seamless integration A major strategic advantage is our high level of forward and backward integration. We are totally integrated - from raw material to finished products, adding value at every stage of the manufacturing process. Bailadilla facility: Iron ore beneficiation At Bailadilla, where some of the world's richest and finest ore is available, we
INVETORY MANAGEMENT have set up a beneficiation plant of 8 MTPA capacity, which ensures the highest quality iron ore. The iron ore slurry is pumped through a 267 km pipeline (the second longest in the world) to the pellet plant, yielding advantages in quality, cost and real time inventory management. Visakhapatnam facility: Pelletization The slurry is received at our pellet plant at Visakhapatnam, which has a capacity of 8 MTPA, providing vital raw material for the steel plant at Hazira. Hazira facility Our steel complex at Hazira, Gujarat, houses a 5.0 MTPA sponge iron plant, the world's largest gas-based sponge iron plant in single location. The plant provides raw materials for our state-of-the-art 4.6 MTPA hot rolled coil (HRC) plant, the first and largest of India's new generation steel mills. This plant is fed with inputs from four electric arc furnaces and three casters. The complex's sophisticated infrastructure includes independent water supply and power, oxygen and lime plants, a township and a captive port capable of handling up to 8 MTPA of cargo with modern handling equipment like barges and floating cranes.
INVETORY MANAGEMENT Particulars 31st MAR 10 Sources of funds 31st MAR 09 31st MAR 08 31st MAR 07 31st MAR 06
Owner's fund Equity share capital Preference share capital Reserves & surplus Loan funds 1,140.48 43.6 3,554.28 1,140.48 43.6 3,447.25 1,140.48 246.52 3,080.95 581.17 2,204.12 1,246.18 507.98 530.27 686.54
Secured loans Unsecured loans Total Uses of funds
6,317.62 993.77 12,049.75
5,383.11 733.47 10,747.91
6,533.32 409.92 11,411.19
7,355.20 650.46 12,037.13
4,126.32 684.27 6,535.38
Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments Net current assets 9,128.82 549.61 791.31 9,273.89 575.12 515.22 8,889.59 1,107.78 433.43 6,398.45 2,887.36 182.97 3,248.83 589.64 768.38 15,367.85 6,239.03 14,688.87 5,414.98 13,554.19 4,664.60 10,447.54 4,049.09 6,940.24 0.07 3,691.34
Current assets, loans & advances
INVETORY MANAGEMENT Balance sheet
Profit and loss account Particulars Income 2009-10 2008-09 2007-08 2006-07 2005-06
Operating income Expenses Material consumed Manufacturing
INVETORY MANAGEMENT expenses Personnel expenses Selling expenses Administrative expenses Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Adjusted PBT Tax charges Adjusted PAT Nonrecurring items Other non cash adjustments Reported net profit Earnings before appropriation Preference dividend Dividend tax Profit carried to balance sheet 1,859.10 11.5 1.96 1,861.32 436.49 530.18 -874.78 185.2 1,859.10 430.49 1,874.78 436.49 436.49 530.18 530.18 599.9 -874.78 2,637.13 861.63 828.11 947.39 110.32 837.07 -707.01 55.14 2,401.95 890.01 766.52 745.42 383.07 362.35 84.16 -16.02 2,062.02 772.04 631.04 658.94 248.19 410.75 39.77 -14.03 1,533.59 440.01 482.1 611.48 165.94 445.54 172.95 -88.31 1,950.50 570.48 394.29 985.73 204.09 781.64 2.98 -184.72 9,204.75 2,512.65 124.48 8,402.55 2,360.80 41.15 6,085.29 2,002.19 59.83 4,673.63 1,495.03 38.56 4,149.25 1,949.14 1.36 233.07 291.73 269.98 225.8 215.12 265.5 152.8 337.13 151.69 99.75 234.9 171.24 76.09 244.64 317.13
STEEL AUTHORITY OF INDIA Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s second largest producer of iron ore and of having the country’s second largest mines network. This gives SAIL a competitive edge in terms of captive availability
INVETORY MANAGEMENT of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) that transacts business through its network of 37 Branch Sales Offices spread across the four regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer Contact Offices. CMO’s domestic marketing effort is supplemented by its ever widening network of rural dealers who meet the demands of the smallest customers in the remotest corners of the country. With the total number of dealers over 2000 , SAIL's wide marketing spread ensures availability of quality steel in virtually all the districts of the country. SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’s five integrated steel plants. With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organization at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO
INVETORY MANAGEMENT Certified.
Financial data Balance sheet Particulars 31st MAR 10 Sources of funds Owner's fund 31st MAR 09 31st MAR 08 31st MAR 07 31 st MAR 06
INVETORY MANAGEMENT Equity share capital Reserves & surplus Loan funds Secured loans Unsecured loans Total Uses of funds 1,473.60 6,065.19 35,522.89 925.31 2,119.93 26,108.81 1,556.39 2,624.13 21,493.67 1,122.16 3,175.46 16,899.03 1,603.98 4,165.81 16,076.44 4,130.40 23,853.70 4,130.40 18,933.17 4,130.40 13,182.75 4,130.40 8,471.01 4,130.40 6,176.25
Fixed assets Gross block Less : accumulated depreciation Net block Capital work-inprogress Investments Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total 35,522.89 26,108.81 21,493.67 16,899.03 16,076.44 16,057.12 11,550.27 59.48 8,016.98 129.15 3,471.13 215.82 2,323.25 294.93 19,609.72 15,758.74 13,656.77 15,317.67 13,198.12 35,666.84 27,309.01 21,673.75 18,788.80 15,521.37 652.7 538.2 513.79 292 606.71 12,268.83 6,544.24 11,571.31 2,389.55 11,597.71 1,236.04 12,162.14 757.94 12,485.07 366.48 32,728.69 20,459.86 30,922.73 19,351.42 29,912.71 18,315.00 29,360.46 17,198.32 28,043.48 15,558.41
Profit and loss account Particulars Income 2009-10 2008-09 2007-08 2006-07 2005-06
Operating income Expenses Material consumed Manufacturing expenses Personnel
22,042.5 8 3,762.77
16,821.3 9 3,317.74
15,963.1 3 2,925.43
13,903.2 3 2,793.45
11,155.3 3 2,427.11
INVETORY MANAGEMENT expenses Selling expenses Administrative expenses Expenses capitalized Cost of sales 34,857.1 4 Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT 1,285.12 128.02 9,554.95 1,235.48 75.49 11,244.9 2 Tax charges Adjusted PAT Nonrecurring items Other non cash adjustments
28,691.5 3 11,267.1 4
24,684.2 6 9,644.51
21,645.7 1 6,554.77
18,224.9 3 10,489.3 7
11,221.3 3 253.24
12,806.8 3 250.94
10,999.4 7 332.13
1,211.48 128.59 9,327.27
1,207.30 181.44 5,590.57
1,126.95 184.89 9,249.03
3,284.28 6,270.67 -277.12
3,934.65 7,310.27 161.9
3,253.80 6,073.47 53.75
1,694.36 3,896.21 45.64
2,592.37 6,656.66 -14.35
INVETORY MANAGEMENT Reported net profit Earnings before appropriation Equity dividend Dividend tax Profit carried to balance sheet 1,073.90 181.26 20,797.3 1,528.25 258.91 16,561.3 1,280.42 197.98 11,408.2 826.08 115.86 6,919.5 1,363.03 185.24 5,291.4 22,052.4 7 18,348.4 3 12,886.6 3 7,861.47 6,839.66 6,174.81 7,536.78 6,187.79 4,012.97 6,816.97
> Here for comparison the best method is the comparison is ratio analysis of these company and TATA Steel ltd. Ratio analysis Raw material to current asset Finished goods to current asset Stock turnover ratio Average age of stock Inventory conversion period Current ratio Acid test ratio Total inventories to total asset Sales Profit after tax 7.72 47.28 39 1.12 0.79 5% 24315.77 5201.74 7.77 46.97 53.49 0.61 0.34 9.93% 14001.25 4,498.95 5.48 66.6 67.38 1.68 0.89 17.44% 11688.3 1859.1 5.08 71.85 85.61 2.01 1.42 27.46% 43150.08 20,797.3 TATA 14.26 13.55 JINDAL 17.3 17.02 ESSAR 5.72 12.28 SAIL 8.83 33.45
It will easy to understand when it will put into chart. So, all the necessary charts are given below.
If we compare for TATA STEEL with other companies, then we can see that TATA STEEL’s raw material to current asset is neither too high nor too low. It is maintaining a required amount of raw material in hand. Where ESSAR STEEL is maintaining very low amount of raw material in hand.
Here we can see that SAIL is playing a defensive role in case of finished goods. But still TATA steel has limited finished goods to sell. TATA STEEL never tried to block its capital.
Both TATA STEEL and JINDAL STEEL have the good stock turnover ratio. In this case TATA STEEL is far ahead than ESSAR STEEL and SAIL.
As the stock turnover ratio is too high, so the average age of stock is less than 50 days. Where SAIL and ESSAR age of stock is too high. Even SAIL age of stock is more than 70 days. Inventory conversion period is lowest than other company for TATA STEEL. So from here we can conclude TATA STEEL is the fastest converter company for Inventory.
Current ratio of TATA STEEL is in standard position. Where JINDAL steel’s current ratio is less than 1 and SAIL’s current ratio is more than 2. Where SAIL is blocking its working capital there TATA STEEL is keeping appropriate coverage for current liability.
TATA STEEL maintained exact amount of highly liquid money in hand, where SAIL maintained huge amount of highly liquid money. So in this case TATASTEEL is good enough to maintain the highly liquid money.
TATA STEEL has less inventories percentage to total asset than other companies. It is a good sign for TATA STEEL. This company never tried to block its current money. From this chart it is clearly shown that SAIL is always maintaining a defensive position.
Here it is clear that SAIL’s sale and profit is higher than other companies. But if we see TATA STEEL and JINDAL steel, the percentage of profit against sale is high for JINDAL Steel than TATA STEEL. But the sale price of TATA STEEL is less than JINDAL Steel. So, that the sale is higher than JINDAL steel and ESSAR Steel. As SAIL is Government undertaking organization, it is getting lot of subsidiaries and also other facilities from Government. But still TATA STEEL is in second position.
SUGGESTIONS AND CONCLUSION
CHAPTER: 7 CONCLUSION AND SUGGESTION Conclusion During my project, I personally learned a lot of things i.e. how TATA STEEL is working in case production, raw material consumption etc. I also learned about inventory management in TATA STEEL. I am happy to work here for last two months. It gave me nice experience as well as a value addition to my carrier. During this period I found some good points and some which I think will help in improving the performance of the company. These are as follows: My observations:
TATA STEEL is maintaining three major types of inventories i.e. raw material, work-in-process and finished goods.
Cost of inventories is valued under ‘weighted average method’. TATA STEEL has prepared high quality inventory storing house to minimize the cost relating to it.
TATA STEEL’s inventory conversation period is too efficient than its competitors. It is very less than the others.
As per my concern, TATA STEEL is maintaining an appropriate amount of liquidity to cover its current liability while we see its current ratio and acid test ratio. It shows its aggressiveness. It never tried to block its money unnecessarily.
The raw material inventory of SAIL is very low in percentage in comparison to TATA STEEL.
INVETORY MANAGEMENT • TATA STEEL is managing its inventory very cleverly. It is keeping only 5% of its total asset, which is lesser than other competitors. It shows efficiency level of TATA STEEL.
The Compounded Annual Growth Per Annum of the value of raw material consumed is more than 35% but sales value is not increasing that much. But it is far efficient than the others.
All the raw material price is increasing except ferro manganese and zinc alloys.
Raw material conversion period is decreasing year by year. It shows its efficiency level.
Expenses on coke are increasing year by year. Where percentage of expenses on ferro manganese is decreasing.
Import of raw material is the maximum in the year 2008-09. Where in rest of the year TATA STEEL was using own mines for raw material.
Where finished goods conversion period and raw material conversion period is decreasing, there work in process conversion period is increasing.
SUGGESTION • For better inventory control TATA STEEL must apply VED analysis or ABC analysis. • • TATA STEEL must keep eye on its WIP conversion period. TATA STEEL should try to minimize its inventory conversion period and also try to minimize the average age of stock to reduce the cost of inventories.
As sale price per unit is lesser than the competitors it must keep trend increasing mode of sales to reduce the blockage of its price in its inventory.
Try to make same CGPA of closing stock of inventory and profit after tax. Because PAT CGPA is still 5% less than Inventory CGPA.
Cost of production and Cost of goods sold CGPA should tally. Because cost of goods sold CGPA is still less than 3% than Cost of production CGPA.
Inside the plant one quotation is there ‘work must but safety first’. It should be obeyed by all the employees at least who are working in production and inventory maintenance departments.
Try to generate more revenue from other country. TATA STEEL should try for acquisition of more mines in India to reduce the raw material outsourcing or import cost.
* ABC Analysis: It is a part of inventory management in which, the items included in the inventory are classified into different categories as items of
INVETORY MANAGEMENT higher value occupying lesser space, lower value occupying more space and others. *VED Analysis: V=Vital, E=Essential, D=Desirable. It is the one of the major part of inventory management. Inventories should divide according to their importance.
Financial management by Prasanna Chandra
INVETORY MANAGEMENT • Fundamental Financial management by Bringham & Houston
• • • • • • •
www.tisco.com www.sail.co.in www.jindalsteel.com www.essarsteel.com www.wikipedia.com www.steel.nic.in www.economywatch.com
Annual report of TATA STEEL for the year 2005-06, 200607, 2007-08, 2008-09, 2009-10.
Annual report of SAIL, JINDAL, ESSAR steel for the year 2009-10.