COMPANY PROFILE OF JAYPEE GROUP

The Jaypee Group is a well-diversified infrastructure industrial group of India with a turnover of over Rs.4000 cores that commenced its operation in 1972 as a partnership firm then known as Jaypee Associates Limited (JAL), under the visionary leadership of Shri Jaiprakash Gaur. In August 1986, the construction company and the cement division were merged into the Jaiprakash Associates Limited. The group has been discharging its responsibilities to the satisfaction of all its shareholders and fellow Indians, summed by its guiding philosophy of Growth with a Human Face. This is the main objective of the company, which means that the company not only wants its growth, but at the same time they work for their employees growth also. The group is well diversified conglomerate with active interest in the areas of civil engineering, design & construction for hydropower & river valley projects, development of private hydro power projects, cement manufacturing, hospitality, business development and management of golf resort, expressways and highways, real estate development information technology and educational institutes. VISION OF THE COMPANY:To be amongst most trusted power utility company by providing environment friendly power on most cost effective basis, ensuring prosperity for its stakeholders and growth with human face. MISSION OF THE COMPANY: To achieve excellence in every activity we undertake. To ensure most cost effective power for sustained growth of India. To inculcate value system across the organization for ensuring trustworthy relationship with associates and stake holders. To be committed towards the safety and health of employees and the public. The main motto of the company is Work for Safe, Healthy, and Clean & Green Environment.
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BUSINESS CONCERNS OF JAYPEE GROUP

Civil Engineering

Private Hydro Power

Hospitality

Cement Division Information Technology

Thermal Station

Transmission Lines 2

Social Work

A) The Cement Division of JAL :The Jaypee Group is the fourth largest cement producer in the company. It is located at Rewa, Madhya Pradesh (has 2-plants and a grinding & a blending unit), with an aggregate production capacity of 7-million tones per annum. This is the single largest complex of cement at one location in India. Several new projects are coming up in this division, which wills tale the capacity about 24 MTPA by 2009. JAIPRAKASH ASSOCIATES LIMITED - CEMENT DIVISION As JIL (Jaiprakash Industries Limited) and JCL (Jaypee Cement Limited) were two separate companies in the group, carrying on the engineering & construction (E&C) and cement manufacturing & marketing business respectively. With a view to consolidate the construction and cement operations under one company, The Jaypee Rewa Plant group merged the JIL into JCL with the approval of the scheme of Amalgamation from the High Court of Allah bad on March 11, 2004. The merger was effective from April 1, 2004. Subsequently, the name of the merged entity has been changed to Jaiprakash Associates Ltd. (JAL). VISION OF THE CEMENT DIVISION:To be dynamic & vibrant, responsive to change scenario and flexible enough to absorb environment & physical fluctuation. Harness the inherent strength of available human resources and materials has the capacity to learn from success and more then anything else, ensure growth with human face. MISSION OF THE CEMENT DIVISION:To ensure growth for improving the quality of life with human face and contribute to growing national economy, maximizing benefits to their customers and the nation at large by serving the core sectors of the economy. WORKS IN PROGRESS- Presently the Company is executing works of the following projects:

S. No.

Name

of

the

project Location of the Contract Price/ Power Project Estimated Project (Base Generati cost ng Value) Capacity of the Project (MW)

under execution

(Rs.In crores)

1. 2. 3. 4. 5.

Works Pertaining to: Baglihar-I & II, HEP Teesta V HEP Karcham Wangtoo HEP Omkareshwar HEP Civil works including

Jammu

& 2,152 686 4,150 880 168

900 510 1,000 520 Railway Line

Kashmir Sikkim Himachal Pradesh Madhya Pradesh Jammu &

tunnels etc. in Zone-III of Kashmir 6. Laole-Quazigund section Turnkey construction of Andhra Pradesh Srisailam Left Bank Canal Tunnel Scheme including Head Regulator etc. of Alimineti Madhava Reddy 7. Project Taj Expressway (165 Km) Uttar connecting Noida & Agra (NCR) and related activities Pradesh 20,000 1,925

Irrigation Tunnels

Expressw ay Real Estate Project 1,600 &

8.

Turnkey execution of 1600 Arunachal MW Siang Lower Hydro- Pradesh electric Project on BOOT basis Turnkey execution of 500 Arunachal MW Hirong Hydro-electric Pradesh Project on BOOT basis

5,000

9.

1,500

500

10.

Zirakpur-Parwanoo

Punjab, Haryana 412 Himachal

Highway Project with toll collectio n concessio n period of years 20

Highway From Km 39,860 & to Km 67,000 Of NH 22 Pradesh on BOT basis

Projects being executed in Joint Venture with JAL being the LeaderS. Name of the project Location the project of Contract Price/ Estimated Project (Rs. 11. Sri Rama Flood Sagar Andhra Flow Pradesh crores) 187 Power Generating Capacity of cost the In Irrigation Canal Project

No. under execution

(Base Value) (MW)

Project

Canal Package - 2 12. Polavaram Right 13. Main Project Andhra Canal Pradesh 254 301 Irrigation Canal Irrigation Canal 282 Lift Irrigation 112 Project Irrigation Canal

Package - 4 Veligonda Feeder and Andhra Teegaleru Canal Pradesh Lift Andhra Project Pradesh Project - 2 Rajiv Sagar Irrigation

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15.

(Dummugudem) GNSS Main Canal Andhra from Km. 119,000 to Pradesh Km. 141,350 including construction of CM & CD works Total

38,009

5,030 MW

The progress of work on all projects is generally satisfactory. The group produces Ordinary Portland Cement (OPC) (grades 33, 44, 53, IRST-40) and Pozzolana Portland Cement (PPC) under the brand names Buland, Buniyad and Tiger .Its cement division has three modern, computerized process control cement plants namely, Jaypee Rewa
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Plant (JRP), Jaypee Rewa Plant (JBP) with an aggregate capacity of 7.0 MTPA. With its plans of adding capacities in different regions of the country, the group is poised to be a 24 MTPA cement producer by the year 2009. These will be attained with the help of following plant: Jaypee Sidhi Plant Location Baghwar Sidhi (M.P.) Dalla Cement Plant Location U.P. Chunnar Cement Plant Location U.P. In Satna and Bhilai Slag Cement plant is going to be installed there. In Himachal Pradesh also the Cement Plant are under construction. The two plants (JRP, JBP) have received the ISO 9002 & ISO 14000 & ISO 14001 certification from the world-renowned crediting agency BVQI. They are also the largest exporter of cement and clinker to Nepal from last 6 years. EXISTING OPERATING UNIT OF JAL (CEMENT DIVISION):A) Jaypee Rewa Plant:

Jaypee Rewa plant has 2 units with an aggregate capacity of 3.2 million tones per annum Unit-I of 1 million tones capacity was commissioned in 1986 and Unit-II and 1.5 million tones capacity was commissioned in 1991. B) Jaypee Rewa Plant: Jaypee Rewa Plant, the second plant with the capacity of 2.2 MTPA (Million Tones Per annum) commissioned in 1996. This plant is exempted from paying the excise duty on its production for 10 years from the date of its commencement. C) Jaypee Cement Blending Unit, Sadwa, Allahabad (JCBU): Jaypee Cement Blending unit (JCBU) of 0.6 MTPA capacities was commissioned in December. 2002 at the Village Sadwa-Khurd, District Allahabad, (UP). This is situated on Allahabad - Rewa road at a distance of 28 KM from Allahabad. D) Jaypee Ayodhya Grinding Operations (JAAGO):
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The latest addition in cement manufacturing capacity came through Jaypee Ayodhya Grinding Operation (JAAGO) having 1.0 MTPA capacity. With a view to the locally procured Fly Ash from NTPC - Tanda, this plant was commissioned in August 2004 at Tanda in U.P. E) Bhilai Jaypee Cement Limited (BJCL): Incorporated in the state of Chhattisgah as a Joint Venture with steel Authority of India Ltd, (SAIL). The said company is to produc e 2.2 MTPA of cement at Bhilai and Satna F) Jaypee Cement Limited (JCL): JCL recently acquied Gujarat Anjan Cement with a capacity of 1.2MTPA at Bhuj, Gujarat. The company is also exploring further opportunities of setting up / acquiring new / existing cement plants in India G) Gujarat Anjan Cement Limited (GACL): This Company, a subsidiary of Jaypee Cement Limited is setting up a cement of 1.2 MTPA capacities at village Vayor, Taluka Abdasa, Distt. Kutch in Gujanrat. The company is having the need of the limestone to meet that requirements they have established their Captive Limestone Mines. The three mining centers they have to meet their requirements are as follows: Naubasta Limestone Mine Jaypee Limestone Mine Bankuiyan Limestone Mine The systematic and scientific mining operations of Jaiprakash Associates Limited are supported with the help of Holder Bank Management Consultancy (HMC), Switzerland by state-of-the art computerized programming the Computer Aided Deposit Evaluation (CADE) & Quarry Scheduling Optimisation (QSO). MANAGEMENT OF WORK:All the operations of cement is computerized through an ERP (Enterprise Resource Planning) Software containing modules for Inventory, Purchase, Finance, Sales & Distribution, Costing, Excise & Taxation, HR &
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Payroll and MIS. These modules are fully integrated and any entry made in one module is readily available in another module. This ERP is working on an online entry concept, where all the transaction points are feeding real time data on to the Central Server available at Sahibabad.

B) Civil Engineering :The subsidiaries name which is involves in field of engineering is Jaiprakash Engineering Ltd (J.E.L.) and Jaypee Ventures Ltd (J.V.L.) .The Company is currently executing various projects in hydropower/ irrigation/ other infrastructure fields and has had the distinction of executing simultaneously 13 hydropower projects spread over 6 states and the neighboring country Bhutan for generating 10,290 MW of power. This is the only engineering company in India to be assigned CR1 grade by the credit rating agency (ICRA) and the Construction Industry development Council (CIDC).

C) Private Hydro Power :Jaiprakash Hydro Power Ltd (J.H.P.L.), Jaiprakash Power Ventures Ltd (J.P.V.L) and Jaypee Karcham Hydro Corporation Ltd (J.K.H.C.L.) are the three subsidiaries of JIL for the development of Baspa-II, Vishnuprayag respectively. and the Karcham-Wangtoo Hydroelectric Projects

D) Hospitality :The group owns and operates five Five Star Deluxe Hotel through Jaypee Hotels Ltd (J.H.L.), as subsidiary company and is significant player in north of Indian. The not only tap of the opportunity in tourism sector but also to propagate rich heritage of Indias culture, tradition and value they interred into this sector. The hotels of Jaypee Group are as follows:

Hotel Siddharth: A five star deluxe hotel at New Delhi. Hotel Vasant Continental: A five star deluxe hotel at New Delhi. Hotel Residency Manor : A five star deluxe hotel at Mussorie Hotel Jaypee Palace: A five star deluxe hotel at Agra.
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Jaypee Greens Ltd: A Golf resort at Greater Noida but now it is merged in Jaypee Associated Ltd.

E) Information Technology :Focus is consistently placed on automation techniques that increase the productivity and profitability of the enterprise with reduced costs across various functional heads. The Software development centre is at Sahibabad. IT is an enabler in this context. With this vision in mind JIL Information Technology Limited (JILIT) was born. It specializes in the following fields:

Hardware & Networking Multimedia Services & Software Enterprise Resource Planning

F) Thermal :The Group in the recent years in order to diversify from the hydropower sector has taken up the task of exploiting the rich coal resources that exist within the state of Madhya Pradesh. To this effect to company has formed a Joint Venture company with Madhya Pradesh State Mining Corporation Limited (MPSMCL) to undertake coal production and sale of coal from coal block/blocks, which might be allotted to MPSMCL. The joint venture has been formed in the name and style of MADHYA PRADESH JAYPEE MINERALS LIMITED. Transmission System :The Jaiprakash Hydro-Power Limited (JHPL), subsidiary of Jaiprakash Associates Limited will venture into the development of transmission systems with the Power Grid Corporation of India Ltd (PGCIL). The Memorandum of understanding between PGCIL and JHPL has been signed with the purpose of formation of a Joint Venture company to lay a 230 km (approx.) long transmission system to evacuate power from the 1000 MW Karcham-Wangtoo Hydro Electric Project in Himachal Pradesh.

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DEPARTMENTAL PROFILE
Finance and account department The Finance and accounts departments works as a judicious manager in distribution of available funds in an optimal manner for the organization as a whole on daily, monthly and annual basis and also a conscious book keeper for the company going through every transaction having financial implication with complete thoroughness without acceptance of liability. It also looks after the information requirements of the company and various statutory authorities in compliance of the applicable statutory provisions. The onus of ensuring companys various assets adequately insured is also with this department. This Department is bifurcated on functional basis into sections as under: FINANCE AND ACCOUNTS DEPARTMENT

FINANCE

ACCOUNTS

SALES M.I.S

GENERAL

INSURANCE

RAW MATERIAL & STORE ACCOUNTING

PERSONNEL ACCOUNTING

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GENERAL ACCOUNTS: This section is divided into two different subsections, viz. 1. Raw Material & Stores Accounting etc. 2. Personal related accounting. The responsibility of each subsection is as under: RAW MATERIAL & STORES ACCOUNTING Raw material accounting. Stores and Spares accounting. It involves valuation of computerized Goods Received Notes received from Stores, in the computerized Stores system, for dully-passed bills. Reconciliation of inter-office accounts. Maintenance of Raw Materials, Stores and Spares Suppliers Ledgers and their account reconciliation. Timely compliance of provisions related to tax deducted at source on accounts maintained by this section. Preparation of details for monthly consumption of raw materials., stores and spares and getting the consumption vouchers passed and entered in the system. Preparation of quarterly financial statements in compliance with applicable statutory provisions. Getting the accounts audited by internal auditors. Preparations of annual financial statements and getting in audited by statutory auditor. Preparation of cost audit report getting it audited by cost audited.

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INTRODUCTION OF THE TOPIC

Material management is concept which aims at a company wide, integrated approach towards the management of materials in an Industrial undertaking-Its objective is primarily COST-REDUCTION and EFFICIENT handling of materials at all stages and in all parts of the undertaking. It is body of knowledge which helps the manager to improve the productivity of capital by reduceing material cost, preventing large amount of capital being locked up for long time periods, and IMPROVING THE CAPITAL TURNOVER RATIO. It covers the whole range of functions involved in converting raw materials and ancillary supplies into finished products. MATERIAL MANAGEMENT : The fast developing Indian economy has placed before the materials manager a tremendous challenge and responsibility. The task is really herculean when we recognise that more than Rs. 15,000 crores worth of materials and components per annum go into the production channels of which imports alone constitute about Rs. 3,000 crores. The challenge he faces is all the more thugh as the money tied up in inventory aggregates Rs. 15,000 crores, of which obsolete materials lock up funds to the tune of Rs. 2,500 crores.* The largest Central Purchasing Organisation in the country, namely, the Directorate General of Supplies and Disposal, buys over Rs. 1,200 crores worth of materials per year. In many organisations, materials form the largest single expenditure item. An analysis of the financial statements of a large number of priveat and public sector organisations indicates that materials account for nearly 60 per cent of the total expenditure. Materials form an important part of the current assets in any organisation. The Return on Investment (ROI) depends a great deal on the manner of utilisation of materials. The relationship is represented below: Profit Sales Sales Fixed Assets + Current Assets
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ROI =

Fixed assets constitute capital already sunk and the only scope for improving the return on investment lies therefore in the effcient management of materials which constitute the bulk of the current assets. Therefore, in this context, the control of materials assumes great importance. OBJECTIVES OF MATERIALS MANAGEMENT : Materials management is a staff function and has to support the objectives of the undertaking as a whole. Maintaining continuity of productive operations by ensuring uniform flow of materials. Reducing material cost by systematic use of scientific techniques. Releasing working capital for productive purposes, by efficient control of inventories. Increasing the competetiveness of end products by ensuring right quality at right price. Import substitution, economic use of foreign purchases for saving forign exchange. Establishing good buyer-seller relationships. Ensuring low department costs and high efficiency. Setting high ethical standards. SCOPE OF MATERIAL MANAGEMENT : Materials management as the function responsible for the co-ordination of planning, sourcing, pruchasing, moving, storing and controlling materials in an optimum manner so as to provide a pre-decided service to the customer at a minimum cost. PRODUCTION CONTROL : It is not a usual practice, generally is under P.P.C. function of production department. It was in use at GEC (USA) they are manufacturing a large number of items for which large number of items are required to be purchased, from their sub contractors.

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TRANSPORTATION : As on date, incoming material transportation is managed by materials manager and outgoing material transportation is with marketing or transportation department. But, there is an increasing trend to place both incoming and outgoing materials transportation under materials manager in many undertakings. MATERIAL HANDLING : To reduce material handling cost one should make the materials department responsible for this function throughout the undertaking. This enables materials manager to keep a close control over handling costs and reduce them year by year. SCRAP DISPOSAL : Important fucntion of disposal of scrap and surplus is best done by the materials manager or the purchase officer who is familiar with market trends of all materials. This function is invariably intrested to him. Q.C. & INSP. Department to work in close co-operation with materials dept. for INSP. of Incoming materials. IMPORTANCE OF MATERIALS MANAGEMENT : Materials account for 60 to 64% fo the sales value of a produce hence small change in material costs can result in large sum of money saved or lost. The balance 36% accounts for wages and salaries, overheads and profits. Inventory carrying costs, briefly comprises of, interest charges ont he cost of inventory, storage and handling costs, cost of insurance, and physical deterioration and obsolescence costs. All these amounts to stleast 20% of the materials costs. These are hidden costs generally covered by overheads. So the total material cost will amount to be : 64% + ( 20% of 64 or 12.8%) = 76.8 say 77% of the sales revenue. Hence, the inventories should be controlled to the minimum possible.
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ADVANTAGES IN INTEGRATED MATERIALS MANAGEMENT CONCEPT : Organsiation which have gone in a big way for the integrated materials management usually enjoy the following advantages:

Better Accountability : Through centralisation of authority and responsibility for all aspects of materials function, a clear cut accountability is established. Various user departments can direct their problems with regard to materials to one central point so that action can be taken immediately. This helps in evaluating the performance of materials amangement in an objective manner. Better Corrdination: When a central materials manager is responsible for all functions, the departments under the materials manager create an identity which is connon. This results in better support and cooperation in the accomplishment of the materials function. The user departments also find that they have to apporach one department for discussing and solving their materials problems. This creates an atmosphere of trust and generally better relations between the user depatments and the materials management department. Better Performance : As all the inter-related function are integrated organisationally, promptly speed and accuracy results in communication. Need for materials is promptly brought to notice by materials planning. Purchase department is fed with stock levels and order status by stores and inventory control departments. All this calls for judicious decisions leading to lower costs, better inventory turnover, reduced stock-outs, reduced lead times and a general reduction in paper work.

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ORGANISATION AND CONTROL : The integrated materials management concept requires central coordination of all these inter-related activities. Therefore the internal structuring of the various functions well as the relationship of the materials management division with the other divisions-technical, finance and marketing-in the overall organisation becomes critical. The materials management function ought to be headed by a competent professional who must be a member of the top management team as managing materials is a critical function. MATERIALS MANAGEMENT IN THE OVERALL COMPANY ORGANISATION :JRP HEAD OF DEPARTMENT

Head of Stores

Head of Purchase

Head of Raw material

Head of Finance

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Inventory management
Inventory management involves buying the right quantity of the right quality at the right price and at the right time. The objective of Inventory Management is to ensure optimum procurement and stocking of materials, so that there are neither any stock-outs nor any excess inventory being carried at any point of time. The goal of the effective inventory management is to minimize the cost of direct and indirect that are associated with holding inventories, managing the inventories or stock in any company is vital process in a firm. The cost of capital blocked in inventory for meeting the requirements and the demands is substantial. This part of working capital needs to be effectively managed to avoid the enormous losses. Inventory consist of two major aspects that are right quantity and right quality to be managed rightly because the cost involved in the proper handling of stock is a large investment of the firm that needs to be managed appropriately. A company invest more than a half of its working in inventory. For example Jaypee invest more than Rs 59,967Lacs on inventory. This is the reason for effective management of inventory in any company. INVENTORY : AS ESSENTIAL REQUIREMENT Inventory is a part and parcel of every facet of business life. Without it, no business activity can be performed, whether, it being a service organization like hospitals, and banks etc. or manufacturing or trading organizations. Irrespective of the specific organizational setting, inventories are reflected by way of a conversion process of inputs to outputs. This is illustrated in Figure In fact, inventory is maintained for flow of operations in the production process.

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Random Fluctuations Inputs actual Work-in-Process levels Inventory Material Stock-points Output Land Labour Capital Management Product Inventory Stock-points (Stock-points) to planned levels Material stock Inventory Conversion Process Comparing

Feed back

One can see that there may be stock-points at the input (raw material), conversion (work-in-process), and output (product) stages. Looking at the conversion process where inputs and outputs are based on the market situations of uncertainly, it becomes physically impossible and economically impractical for each stock item to arrive exactly where it is needed, it may be prohibitively expensive. This is the fundamental reason for carrying the inventories. Thus, inventories play an essential and pervasive role in any organization

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CLASSIFICATIONS OF INVENTORY Inventory may be classified into manufacturing, service and control aspects. This is exhibited in figure. A detailed discussion of each of three classification is discussed below. Inventory Classification

Manufacturing Aspect Aspects

Service Aspects

Control

Raw Materials or production Inventory

Work-inC-items Process Inventory

Finished Goods Inventory

Lot size Stocks

Fluctuation Stocks

A-items

B-items

Inventory Inventory

Inventory M.R.O.

Miscellaneous Inventory Stocks

Anticipation Stocks

Risk Inventory 1) Manufacturing Inventory Inventory held by a manufacturing concern is mainly of five types: a) Production Inventory Items going into final product such as raw materials, components and subassemblies purchased from outside form production inventory. b) Work-in-Process Inventory Under this all items in semi-finished form or products at different stage of production. c) Finished Goods Inventory This includes the products ready for dispatch to users or to distributors.

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d)

MRO Inventory Maintenance, repairs and operating supplies like spare parts and consumable stores, which do not go into final product but are consumed in the production process.

e)

Miscellaneous Inventory Items other than these mentioned above, such as scrap, obsolete, and unsolvable products arising from main production, stationery used in office and other items needed by office, factory and sales department, etc.

2) Service Inventory This consists of four classes: a) Lot size This means purchasing in lots. This is resorted to i) Obtain quantity discounts. ii) iii) Reduce transportation and purchase costs. Minimize handling and receiving costs.

It would be uneconomical for a textile unit to by cotton everyday rather than in bulk during the cotton season. b) Anticipation Stocks These are kept to meet predictable changes in demand or in availability of raw materials. The purchase of potatoes in the potato season for sale of roots preservation products throughout the year is an example of this kind. c) Fluctuation Stocks These are carried to ensure ready supplies to consumers or customers in the face of irregular fluctuations in their demands. d) Risk Stocks These are the items needed to ensure that there is no risk of complete breakdown of production. These are items with long lead time for supply but are vital and critical for production. e) Control of Inventory (ABC classification) A good start in examining an inventory control system is to make ABC classification. It is known as ABC analysis which means the Control will
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be Always Better if we start with ABC of inventory. This concept divides inventories into three groupings in terms of percentage of number of items and percentage of total value as given in figures. INVENTORY MANAGEMENT: The dictionary meaning of Inventory Management is Stock of goods. Inventories are the list of the goods and material which are available in Business. COMPONENT OF INVENTORY MANAGEMENT : Manufacturing organization generally divide their goods for sale inventory into following :RAW MATERIAL: Material and component which is use for making product/ finished good. In Jaypee Rewa Plant raw material are gypsum, flyash, lime stone. WORK IN PROGRESS, WIP: Material and component that had began to be transformed into finished goods. FINISHED GOODS: The product which is ready to sale to customer. Cement is the finished good. INVENTORY CONTROLS Inventory controls not only serve the acute problems of liquidity but also increase profits and cause substantial reduction in the working capital of the concern. In JAL the following method is adopted in inventory control, these methods based traditional inventory control system, which adopted by many companies since 18 century. Stock levels Determination of safety stock, System of ordering the inventories, Preparation of inventory Report 1) Stock levels: Carrying out too much and too littlie of inventories is demented to the firms. If the inventory is too little the firm will have face frequent stock outs in evolving heavy ordering cost and if the inventory level is too high it will be
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unnecessary tie-up capital. Therefore

an efficient inventory

management

requires that firm should maintain an optimum level of inventory where inventory cost are the minimum and at the same time there is no stock out which may result in loss of sale or stoppage of production . a) Minimum Level: The quantities which must be maintained in the hand at all time, it is calculated in JAL by there own formula: Minimum level = Last year consumption 12 The last year consumption of any particular stock divide by 12 months, Thus JAL able to calculate their minimum level, which is one month on the basis of time, Quantity according to use. b) Lead Time: JAL require some time to process the order and time is also required by the supplying firm to excite The order, this lead time is on average basis is 15 days as per information provided by official of JAL. c) Rate of Consumption: It is an average consumption of material in the factory; In JAL the average inventory consumption is 3 months. d) Nature of Material: The nature of material also affects the minimum level like coal before the monsoon season we required to make large stock of coal, which is major fuel for production of cement. e) Re-ordering Level: When the quantity of any material reaches a certain figure then fresh order is placed to get the material again. The order is sent before the material reach minimum stock. Reordering level is or ordering level is fixed between minimums level and maximum level. The method which is adopted by JAL is measure re-ordering level: Re-ordering Level = Last year consumption of inventories 5 The period, which is, define for re-order level In JAL is 2 months & 15 days.
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f) Maximum Level: It is the quantity of materials beyond which firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be the over stocking. So JAL store department takes high care of these things, procure the opportunity cost is well being way. Overstocking will mean blocking of more capital. In JAL maximum level depends upon the following factors: (1) The availability of capital for the purchase of materials. (2) The possibilities of fluctuation of prices. (3) Availability of materials. if the material are available only during the seasons then they will have to stored for rest of of the period. (4) The maximum requirements of material at any point of time. (5) Restrictions imposed by the government. Some times government fixes the maximum quantity of material. The limit fixed by government will become the limiting factor and maximum level cannot be fixed more than this limits. (6) The possibility of changing the fashions will also affect the maximum level. In JaiPrakash Associates ltd, calculation of the maximum level is done by using the following formula: Maximum Level = Last year consumption of inventories 3 In Jai Prakash Associates ltd. the maximum period for store keeping is 3 month. g) 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 for arranging the materials. 2) Determination of Safety Stocks: Safety stock is used to meet some unanticipated increase in usage. The usage of inventory cannot be perfectly forecasted. It fluctuates over period of time. Thus optimum level of safety stock involves a trade off between the cost of stock-outs and the carrying cost of safety stock.
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3) Ordering Systems of Inventory: The basic problem of inventory is to decide re order point. In Jaypee Associates ltd. they determined with the help of this things: (a) Average consumption rate, (b) Duration of lead-time, (c) Economic orders quantity. When the inventory is depleted to lead time consumption the order should be placed in following order: (1) (2) (3) (4) (5) (6) (7) (8) (9) Preparation of Master Indent form by the respective department of JAL Then purchase requisition released by purchase department (PR formation). Then purchase department placed orders to suppliers after negating the price (P.O. formation) Formation of Good received & its registration will take place. Then Valuation of inventory (Goods received by P.O.) takes place. Then costing process takes place To payment of party (to party accrual A/C) Registration of bill Final payment of bill to supplier takes place. This is a process in Jai Prakash Associates ltd. 4) Inventory Reports: From effective inventory control, the management should be kept informed with latest stock position of different items. This is done by preparing periodical inventory reports. a) Economic Order Quantity: A decision about how much to order has great significance in inventory management. The quantity to be purchased should neither be small nor big because costs of buying and carrying materials are very high. Economic order quantity is 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
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costs are equal to order costs. The whole inventory management in JAL considers the two basic points related with EOQ are: b) Ordering costs: These are the costs which are associated with the purchasing or ordering of materials. These costs include: Cost of staff posted for ordering of goods .A purchase order is processed and then placed with suppliers. The labor spent on this process is included in ordering costs. Inspection costs of incoming material. Cost of stationery, typing postage, telephone charges, etc. These costs are known as buying costs and will arise when some purchase are being made. c) Carrying costs: These are the cost for holding the inventories; these costs will not be incurred if inventories are not carried. These costs include: The cost of capital invested in inventories. An interest will be paid on the amount locked up in inventories. Cost of storage, which could have been used for other purpose. Insurance cost. Cost of spoilage in handling material. All these factors are always been considered in JAL for proper inventory control. OTHER PURPOSE OF KEEPING STOCK ARE: Avoiding lost sales. Gaining quantity discounts. Reducing order costs/reorder cost at times of price fluctuations ie speculative motive. Achieving efficient production runs. Reducing risk of production shortage ie precautionary motive. Transaction motive facilitates continue production and timely execution
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of sales.

INVENTORY CONTROL.
INVENTORY NORMS FOR STORES & SPARES Inventory norm is defined as the permissible upper limit of inventory holding including quantities for which payments have been made in part or in full in advance of receipt and acceptance. Guiding Factors for Fixation of Inventory Norms The factors which influence optimum inventory levels are the uncertainties involved in forecasting processing time for procurement, manufacturing and transportation, variability associated with the future consumption pattern, the future, market availability and the service level promised to be provided to the end user. Keeping the above guiding factors in view, following inventory norms have been proposed for adoption in Jaiprakash Associates Limited. These will need review thereafter on the basis of working experience expected to be then available. INVENTORY NORMS FOR SPECIFIED CATEGORIES OF STORES AND SPARES. 1. 2. 3. 4. 5. 6. 7. 8. 9. Fuel Spares (Excluding Insurance and Unit replacement spares) Loose Tools Chemicals, Gases & Explosives Oil & Lubricants Stores other than spares (Consumables & Gen. Stores) Scrap Validity of Inventory Holding Norms Review of Norms 10 Days usage 12 months usage Indigenous 24 months imported. 6 months usage 1 month usage 3 month usage 3 month usage 6 months arising (at least two disposals in a year) From 2006 to 2007. April 2008.

The Inventory holding norms, as suggested above need to be reviewed (preferable once in three years) for further improvement in the light of the experience that would then have become available.
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It is conceded that for groups of items, (specially under 2 spares) which have necessarily to be imported both the lot quantity inventory and the safety stocks caused by uncertainties in lead time and consumption during the lead time would justify a norm nearer to 24 months usage instead of the 18 months usage as shown above. MONITORING OF INVENTORY NORMS On the basis of transaction data showing the inventory status for 7 categories of items for which norms as above have been fixed shall be generated. Whenever on analysis of such computer reports marked deviation is found, on inventory holding of particular group(s) of Stores and Spares with respect to norms, reason there to shall have to be established and recorded in proper format. Further, corrective actions proposed to be taken for bringing down the inventory holding to the norms. S&P Department shall further monitor the progress of implementing the corrective action suggested. INVENTORY TURNOVER RATIO. In order to effectively monitor the inventory trends under specified categories of stores & spares every year (both for planning as well as at the final stage) as on the beginning/closing of financial year, as the case may be, the following methodology for computation of inventory Turn-over Ratio shall be followed: COMPUTATION OF INVENTORY TURNS OVER RATIO: AVERAGE INVENTORY = (OPENING BALANCE INVENTORY + CLOSING BALANCE INVENTORY)/2 INVENTORY TURNOVER RATIO = COST Of GOODS SOLD / AVG. INVENTORY C.G.S = COST OF PRODUCTION + OPENING FINISHED GOODS CLOSING FINISHED GOODS + DEPARTMENT EXPENSES

Mar ' 07 Inventory Turnover Ratio Fixed Assets Turnover Ratio 3.83 0.82
28

Mar ' 06 3.61 0.86

Mar ' 05 8.51 0.90

Mar ' 04 9.81 0.96

10 9 8 7 6 5 4 3 2 1 Mar ' 04 Mar ' 05 Mar06 Mar ' 07

Graphical representation Inventory Turnover Ratio. Interpretation: the value of these ratios is being decreasing in following years which indicates about the changing strategies of the company regarding its Inventory handling and maintaining policies. INVENTORY CLASSIFICATION FOR SELECTIVE INVENTORY CONTROL The single most important objective of S&P Department is to provide a specified level of service with minimum investment in Inventory, in cement division the total No. of items run into several tens of thousands. Controlling receipts and thus regulating the stock of all these items would normally be a laborious task. Investment on inventory leads to locking up to capital, it is therefore, more relevant to determine the items or groups of items that merit comparatively lower levels of concentration from the angle of optimizing on scarce man hours for effecting controls. Hence materials must be classified according to their importance for control purposes and greater attention & time spent on selective basis on the more important items. The importance of an item can be judge by several criteria such as consumption value, criticality for continuity of plant operation, market availability etc. Several such parameters have to be considered in devising a suitable strategy for selective control.
29

IN

JAYPEE

FOLLOWING

TECHNIQUIES

ARE

USE

FOR

MANAGING THE INVENTORIES : I.U.C. CLASSIFICATION All the spares shall be classified into the following three categories based on the type of utilization foreseen at the time the equipment is initially acquired. (i) (ii) (iii) Insurance (I) Unit Assembly (U) Consumables (C)

Insurance Spares Items of spare parts which are not normally required for routine maintenance but would cause long shut down of vital equipment or entire plant in case of non-availability when needed for use are termed as Insurance spares. These items are generally characterized by irregular consumption not easily susceptible of being closely foreseen, are of high reliability of performance and high value. Unit Assembly As per the Cos. Maintenance policy, certain assemblies/sub-assemblies are replaced as complete units to release defective assemblies for repair in order to cut down on costly idle time of equipment. Such sub-assemblies (nominated in advance under competent sanction) which are to be replaced as complete units for quick repair of equipment will be classified as unit assemblies. Consumables All spares which require replacement due to wear & tear on their inherently short lift are called consumables. These will comprise of: Fast moving wearing spares. Slow moving wearing spares The above classifications i.e. IUC shall be done by Plant Maintenance Head at the stage of ordering initial spares along with equipments in consultation with operations Head.

30

ABC ANALYSIS For identifying an item as A, B or C, the annual value of consumption in the preceding financial year shall be the basis to start with. Subsequently i.e. after system capability reaches an adequate level, computer shall identify an item as A, B or C based on Moving Average concept to take care of the situation more realistically.

STOCK HOLDING (X, Y, Z) ANALYSIS. For ensuring continuous weeding out of unwanted inventory stock holding analysis i.e. XYZ analysis will be of significant importance. The criteria for declaring an item as X, Y or Z shall be the same as for ABC items on stock value consideration basis. The frequency of generation of reports for X, Y & Z category items shall be same as that for ABC category. The analysis shall be based on stocks held at the end of every Financial Year. However, AX & CX reports based on ABC & XYZ matrix shall also be generated projectwise once in a year.

ANALYSIS BY CRITICALITY FOR OPERATION (VED) Vital (V) This is the most important item production is very hard to go without this item.
31

Essential (E)

This item is less important than vital but more than desirable ie this is booster item.

Desirable (D)

Productivity is possible without this item, there will be not much effect on productivity by replacing this item.

For example: For making cement the most important thing is Lime stone, Gypsum, Flyash, respectively. Analysis by Velocity of usage F(Fast), M(Medium), S(Slow) moving items. The criteria for velocity of movement to determine grouping FMS differ for spares and other items. Analysis by market availability This analysis is carried out on the basis of availability of items in the market. S(Scarce), D(Difficult & E(Easy) availability of items in the market. The various standard categorization / Analysis viz, ICU, VED shall be carried out item-wise in an agreed time frame to build computer master for various types of analysis in this regard.

Diagrammatical representation of techniques employed for classification of inventory. LEAD TIME ANALYSIS Lead time is the estimated time lag between the date, the indent is accepted and registered in purchase wing and the date of physical receipt of
32

material in the Receipt Section of the First consignment approximating in quantum to the EOQ/ELQ. Lead time is sub-divided into the following components:1. 2. 3. Administrative Lead Time Suppliers Lead Time Transportation Lead Time Administrative lead time is an area where stringent control could be exercised by fixing norms for different modes of tendering and circulating the same to the indenting departments for realistic planning in raising the material indents. Suppliers Lead Time This is an area which normally falls in the domain of supplier. It is therefore, very essential that Purchase Department takes cognizance of this fact and ascertains / evaluates the time that is to be provided for manufacturers or stockiest to supply different types of materials also taking into consideration that some of the materials may be available off the shelf. It is therefore, essential to build a data bank of actual lead times encountered. This needs to be updated at least once in a year, before notifying the same to all concerned. Transportation Lead Time It is very essential to build data on the normal transportation time for different modes of transport for different important places from where the consignments are expected to be dispatched. This will also assist Purchase to take decisions for getting the material with a lesser transportation lead time to meet the urgencies of plant operation. REQUIREMENT SYSTEMS For effective control of inventory a system of Automatic Procurement for all AP items shall be adopted. The following system of Recoupment shall be followed.1. Periodical Review System (PRS) Non AP items. 2. Recoup when due system (WDS) AP items. To implement the above two system, Purchase shall lay down the system
33

Administrative Lead Time

applicable to each item and specify the Limits as defined in the subsequent para. Both the above systems call for determination of the Limits to guide decisions on when and How much to recoup. These limits to guide decisions on when and How much to recoup. These limits are specified below together with the principles that should govern their determination. SAFETY STOCK (SS) It is the quantity of an item to be added to the bare requirements as worked out, to cover the incidence of uncertainties in: (a) (b) Estimation of the lead time for the next supply: Supply lead time is consider because it required time to reach the next lot. Estimation of the lead time usage: Usage lead time is consider because one month before the shutting down next lot is order as it require time to reach. For example if any machinery is used upto six month than the next lot should be order before the completion of six month ie in fifth month. Company generally consider one month for the ordering of the safety stock because company generally purchase material from outside market due to scarcity in local market so, it required time to reach. Safety stock shall be fixed by HOD- S&P and user for each item/group of items after VED and ABC analysis based on the one hand and on the costs of stock out and the levels of assurance (Service) desired on the other. REORDER LEVEL (ROL) For the WDS system (i.e. AP Items) ROL = Estimate Lead Time usage + SS. In the event any demands (Indent / PR etc.) have been kept pending for want of adequate stocks, with the intimation of issuing from future receipts (such quantities termed PDI i.e. Pending demand for Issue) the ROL should be further enhanced by the PDI. In the PRS system the SS + PDI quantity needs to be added to the quantity worked out to cover the base requirements upto the commencement of the fixed period. Safety stock takes care of usage during lead time slippage and deviations in projected usage and these are to be determined based on past data/experience.
34

Graphical Representation of Re-order Level Reordering level is has following three levels they are: 1. Minimum reordering level = reordering level- (normal consumption * normal lead time) 2. Maximum reordering level = reordering level + reordering quantity( minimum Consumption *minimum lead time) 3. Reordering level= maximum consumption * maximum lead time ECONOMIC ORDER QUANTITY (ELQ OR EOQ) EOQ/ELQ is defined as the specific quantity of an order (under WDS) or of a consignment (or lot under PRS) which optimizes the total costs made up to Ordering and holding costs. The precise costs for ordering and other associated costs, i.e. costs for placing an order and for holding stocks (i.e. Maintenance of Godowns, Cost of Stores Staff, insurance, losses in storage, obsolescence etc.) applicable.

35

The EOQ/ELQ shall be worked out as follows: ELQ Where C A S I Delivered Unit cost of material. Annual Consumption Value of item Ordering cost per order Inventory carrying cost expressed as a fraction of the value of the Inventory. Or EOQ = 2S IC Since, ordering cost and inventory carrying cost for particular class of item [i.e. (i) Gen. Stores, (ii) Spares (iii) POL, Steel, Cement, Fuels) are constant for any item / group of items as per the table shown above the above formula could be rewritten as under: EOQ = K A

2AS IC

X A

Where K is a constant and A is the Annual Consumption Value. Under the PRS it is necessary to place orders at fixed intervals as may be acceptable to the supplier(s) and the procurement agency or the Purchase Department as the case may be to a previously accepted programme. The recumbent for a period needs to be initiated at least one ROL in advance of the commencement of the period. The quantity for order would be (ROL + estimated usage during the fixed period. (Stock + dues + Expected Receipts from Repair and other sources upto end of the period.) By this we come to know that, as the order quantity (Q) increases, the total ordering costs will decrease while the total carrying cost will increase.

36

It can be seen that the total cost curve reaches its minimum at the point of intersection between the ordering cost curve and carrying cost curve and carrying cost line the value of Q corresponding to it will be economic order quantity Q*. N.B. ( NOTED BELOW) Cost of ordering constitutes salary, stationary, postal expenditure, rent etc. and are to be worked out by respective projects for each mode of tendering. Cost of holding consists of interest, maintenance material handling, rent, insurance, safety & security obsolescence etc. and are again to be worked out by respective projects. Under the WDs of Recoupment, demand shall be initiated when the (stock + dues PDI) fails to be ROL. This could be caused by an issue, or the cancellation of a due or other contingency. would be: ROL + EOQ (Stock + Dues + Other expected receipts during the next L.T.) INVENTORY CONTROL OF AP (AUTOMATIC PROCUREMENT) ITEMS For effective control of inventory trends so as to have optimum inventory holding periodical review (Daily/monthly/quarterly) of all AP items with particular emphasis on A class items shall be carried out. The quantity for recoupment

37

MATERIAL REQUIREMENT PLANNING Material requirement planning plays a crucial role in arranging availability of the material at the appropriate time i.e. just when it is required for actual use and it is therefore, imperative that each Indenting Department takes cognizance of the real requirement of various users by objectively studying the past trends of actual consumption jointly with user estimating future levels of usage in time and quantity as precisely as possible and raises a Material Indent after determining the reasonableness of quantity and phasing of usage in time. The indenting agencies shall be held responsible for the It needs to be emphasised in this inventory trends in the specified areas.

connection that the inventory levels actually attained will tend towards the optimum in direct proportion to the precision with which future usage in quantum and in item is estimated. It has been the universal experience that It needs to be this aspect does not attract adequate attention at this stage.

strongly emphasized that time, effort, inter-departmental debate and sophistication brought to bear on this aspect more than pays for itself in the shape of overall performance not only in the Materials function but also in the O&M area. The requirement panning should take care of the following parameters namely, item-wise annual consumption in the preceding two to three years, anticipated requirement for the next one to two years, anticipated/actual lead times the classification of the items as ABC, VED and ICU in particular, the overall inventory norms and the method of recoupment adopted i.e. Periodical Review System or Recoup when due System etc. The following broad guidelines shall be followed in respect of the frequency of procurement of various types of items under the periodic review system both for construction & Operational requirements.

38

S. No.

Class of items

Placement of order Once in a 6 months Once in a year Once in 2 years

Phasing delivery

A Items

Maximum of 3 months requirement to be obtained at a time. To be fixed taking into account inventory norms. A maximum of 6 months. A maximum of one years requirement be obtained at a time. space. Staggered supply is recommended to take care of problems regarding

2 3

B Items C Items

For items under the Recoup when due system of recoupment the frequency of procurement will be determined by the pattern of consumption making Recoupment due when (Stock + dues - PDI) and falls below ROL 1. For spares in particular the method of ordering should be also guided by the factors mentioned in the relevant paras on spare parts in the forthcoming pages. 2. All material indents forwarded to Purchase Department alongwith IIS, wherein stock held, past consumption, pending dues against pending Material indent / Purchase requisition waiting to be covered by orders and Purchase order awaiting compliance with their contract or order ref., last PO ref. etc. MIS FOR INVENTORY MANAGEMENT The overall effectiveness of S&P Department made up by the efficiency levels reached in its component areas like Purchase, Receipts, Storage, Issue, Disposal & Inventory Control is reflected through Management reporting which enables Management to analyse, evaluate and take decisions or remedies like improvement in the methods of working, amendments to existing policy, procedure, staffing etc. It is, therefore, very important that Management at differential levels is apprised at certain frequencies the status on various issues for enhancing the
39

levels of overall performance. With the computerization of stores accounting it is possible to achieve much higher levels of performance and hence computerization of inventory accounting assumes significant importance from the control point of view. SPARE PARTS FORECASTING, PLANNING AND BUDGETING. In a Cement Plant Spare parts account for the major part of not only maintenance expenses but also working capital. Despite the enormous range and value of spares inventory, there is often shortage of some critical spare part or the other which has a crippling effect on Plant availability. This situation is mainly due to the currently unpredictable nature of failure which creates the need for effective management of spare parts. Management of spare parts is thus a complex and far from perfect exercise justifying a constant search for higher levels of efficiency in predicting future usage and ensuring precision in arranging receipts as planned and as contracted for. A systems approach needs to be evolved on Spare parts forecasting, planning and budgeting. The prime objectives of this approach are:i) To ensure availability of spares as and when needed so that the repairs/replacements are made with the minimum disruption in service and plant availability is not reduced for want of spares and the down time of the plant due to shortage of spares is eliminated. ii) To achieve optimum inventory turn-over ratio i.e. out flow/consumption and physical receipt of spares is so matched with actual physical usage that the capital blocked up as inventory is reduced to a minimum. iii) To procure the spare parts of adequate and consistent quality at the lowest total cycle time & cost. A sound information system and data base is the first essential for successfully forecasting the future requirements of spares. planning function. a) b) Spares are normally required for carrying out:Planned Preventive Maintenance. b) Break down maintenance (Unplanned by its
40

Spare parts

forecasting and planning has necessarily to be founded on the maintenance

nature & not amenable to our effective planning). c) Shutdowns. The following factors will be considered for identification and computation of future requirements of spares:1. 2. 3. 4. 1. 2. 3. 4. 5. 6. Failure rates Known or estimated Cost of non-availability Vs. cost of inventory (VED/SDE/ABC analysis). Population distribution Lead times for normal procurement and Crash procurement. Operating conditions / environment. Cumulative operating experience with the equipment. Accessibility of the parts in service Stability of design and inter-changeability Throw away or repairable nature of parts/sub-assembly/assemblies. Development potential (in respect of diversification of approved sources of supply). Behavioral pattern of equipment is available for a number of years to pre-plan preventive maintenance and capital repairs/ overhauling. The requirement of spares needs to be planned at least once in a year for all types of maintenance i.e. preventive, break down to the extent possible on a statistical & probabilistic basis and capital repair and overhauling in the following manner. a) Preventive Maintenance The objective of Preventive Maintenance is to keep the machine nearest to the original condition by programmed & periodical check up & maintenance. The preventive maintenance of various equipments is initially programmed on the basis of the recommendations of the original equipment suppliers and modified as per the norms worked out on the basis of the cumulative experience of Maintenance Engineers. Certain parts are necessarily to be changed during preventive maintenance considering the wear rate / expected life and the forecast of usage can be made with a relatively high degree of
41

c)

Planned

Capital

repairs

overhaul

The identification will also consider other factors like:-

accuracy. These parts are normally fast moving in nature of accuracy. These parts are normally fast moving in nature and carry comparatively shorter lead time. A plan of preventive maintenance will reflect the requirement of these spares and these can be clubbed for better availability and economic procurement and stocking. The list of Preventive Maintenance spares shall be prepared by operation and Maintenance planning Department in consultation with operation Services Department. b) Capital Repairs & Overhaul / Shutdowns During Capital repairs and overhaul many items may be required to be changed depending upon the condition of spares. and outages with causes. out. The history card of the equipment if and when rigorously maintained would reflect the failure rates These items are of normally longer lead time and hence a tentative planning for two to three years ahead is required to be carried A firm requirement of spares is worked out on the basis of more firm capital repair and overhaul schedules. The list of overhauling spares shall be prepared by site Operation and Maintenance Planning department for each such overhaul in consultation where considered necessary with Operation Services Department. c) Break down Maintenance It would be difficult to predict the requirement of spares for breakdowns as the pattern of occurrence is uncertain. available, give a feed back on life availability. But the history cards, if The probable requirement of

spares can be computed by statistical methods but without much accuracy. A tentative assessment should be worked out annually and included in the total requirements in part. The exact percentage of the computed forecast that is to be included will be governed by the factors enumerated in previous para and the professional judgment of the officials responsible for maintenance. A history card will be maintained by the Maintenance planning Department and the same will be reviewed on any yearly basis before taking up the assessment and forecasting of spare parts for the next year. site O&M department. The requirement of O&M spares over & above initial spares as identified by OS will be worked out by To identify the list of spares prepared by OS at the
42

initial stage of project will be taken as a basis for working out further requirements. The guidelines defined on spare parts management policy, for initial identification of spares will be taken into account by site O&M department. The list of spares will be reviewed by site O&M department in consultation with site Materials Management department on yearly basis. The list can be made out on package wise basis like turbine, steam generator and auxiliaries, coal handling plant etc. For working out the requirement, spares are classified into insurance, Unit assemblies, consumables spares including wearing parts. These are further categorized depending upon be consumption value ABC and are also categorized in terms of criticality i.e. vital, essential and desirable. This categorization will be carried out initially by OS in association with O&M. All maintenance materials identified subsequently shall also be classified by OS in consultation with O&M. PLANNING AND FORCASTING OF SPARES Planning and forecasting of spares is best done on dates fixed well in advance (preferably permanently) to facilitate the extremely large degree of coordination needed between a number of expert functions. Planning for each item should be covered at least once a year. This compulsion often dictates the adoption of the PRs rather than the WDS system of recumbent. While carrying out the above review due emphasis shall be given to identify the slow moving and non-moving items to have a better control on inventories. Department should prepare the necessary statement in this regards. BUDGETING In order to provision the matching spare parts required for annual overhaul and regular repair and maintenance of the units, it is desirable that a careful inter-disciplinary review is made in respect of consumption of spare parts during the previous year and proper forecast is made for the coming year to arrive at budget estimates in respect of consumption and procurement. Operation and maintenance budgets are prepared and dovetailed to the general and cash flow budget for proper utilization of cash resources. Budgetary control is necessary to control the cost at Commitment stage itself and this is
43

possible if budget certification is done at the indent stage. Budget for spares ordered with main equipment (i.e. projects in construction phase) will be covered in budget along with main equipment. The Budget will be broken down as under:For A Class For B Class For C Class : : : Item-wise Equipment-wise Major group-wise

The annual budget of spare parts should be prepared and presented indicating the spares consumption budget and spares procurement budget. In line with the costing system, major classification of repair and maintenance can be represented by following three activities: (i) (ii) (iii) Major overhaul / Shut Down Planned Preventive Maintenance. Break down maintenance Normally, budgeting will be done for the former two, under each activity and separate estimates will be prepared for consumption of materials in physical & financial terms. This estimation will be done at each of the cost centre level but in the budget proposal, only cost center-wise details are required to be mentioned. The above data is compiled through detailed working sheet, identifying clearly consumption forecast, cash flow requirement for insurance, unit replacement and consumable items. This exercise should be done by maintenance planning group in association with site Materials Department and Finance. The Material Consumption, especially of spares, can be estimated based on the expected life of various components / spares in the installed equipment, the frequency of break-downs in the past and the requirement of preventive maintenance and major overhauls. Proper and detailed review of consumption patter followed by analysis, will go a long way in better understanding of the consumption trends and hence contribute to the achievement of optimum inventories particularly for insurance and unit replacement assemblies. This exercise will be done by materials
44

department. Purchase Budget Purchase represent materials to be procured and materials for which advances are to be paid during the year. This is to be worked out as under:Purchase Advance). The budget reviews covers revised estimates for the current year and budget estimates for the following years and should be submitted to management. STORE MANGEMENT: The cost of capital blocked in inventory for meeting other future need/demand is substantial. If this part of working/idle capital is not properly managed the subsequent losses may be enormous. The success of business besides other factor depends to a large extent on an efficient storage system. Material pilferage, deterioration and careless handling may be lead to reduce profit. The storage management is concerned with carrying right kind of material in right quantity, neither in excess nor in short supply, providing it quickly as and when required, keeping it safe against any kind of deterioration, pilferage or theft and carry out efficient performance of all these function at lowest possible cost. Purpose of stores operations: To have adequate storage stock for satisfying the immediate service/need of the user. To reduce the quantities of such stock to the indispensable minimum which is compatible with the demand in order to diminish the financial burden of the company. To proportion request to real stock consumption so that the total amount of order (being proportional to real consumption) can be for the stores stock of various sub stores, a sufficiently reliable basis for real ordering schedule of store procurement, which is necessary for timely demand meeting. Instrument of the system : Stock Register/ Computerized inventory system.
45

Closing stock + Consumption (Opening Stock +

Following ordering norms for effective inventory control. Store Receipts and issuance documents. Benefits of effective store management: - Avoidance of excess ordering - Avoidance of excess inventory - Excellent service to user department Store function as Effective and Efficient -Service Centre : Correct demand forwarding to purchase department for release of order for right quantity and quality. Proper store management system should be laid down for effective and efficient functioning. Proper inventory control procedure must be followed. Time to time stock taking to ascertain book stock and physical stock. Any discrepancy noticed should be immediately corrected for correcting indent. ROLE OF STORE : Developing internal and external customer focus mind set. Developing process oriented mind set. Contributing towards value to customer ie. - Highest Quality - Excellent service - Least Cost - Minimum Lead Time - Best Relationship

STORE FUNCTIONS:

46

Receipt Storage

Receiving and accounting of items. Provision of right and adequate storage and preservation to ensure that the stock do not suffer from damage, pilferage, deterioration. Facilitating easy location and retrieval of materials keeping optimum space utilization.

Retrieval

Issue Records House Keeping

Fulfilling the demand of customer by proper issue docket. To maintain proper records and update the receipts and issue of material. Keeping the store clean and in good done satisfactory. order so that the

handling, preservation, stocking, receipt and issue can be

Control

Keeping a vigil on discrepancies, abnormal consumption, accumulation of stock etc and enforcing control measures.

Surplus management Verification

Minimization of disposal of scrap, surplus and obsolescence through proper inventory control and effective disposal of surplus and obsolete material. Verifying the computer balances with the physical quantities and indicating the purchase cycle at appropriate time so as to avoid out of stock situation. To coordinate and cooperate with the interface.

Control coordination

and

47

How to manage the store ? There are three major function preformed in stores: Receiving of material. Storage and preservation of stock. Issuance of stock. Besides, aforesaid major functions, some other functions are also carried out by stores:- Indent/scrutiny of indent and forwarding to purchase department. - Record keeping of all transaction. - House keeping, preventing from spoilage and pilferage. The following methods for pricing materials issues are general used. STORES ACCOUNTING: FIRST IN FIRST OUT: In this method the materials are received first issued first. The material are issued in chronological order. The recently received materials remain stock. When ever a requisition for materials issue is presented to the store keeper he will use the price of the first lot and then of second and third lot etc. when the quantity of first , second lot is exhausted. When price are fluctuating then the cost of different batches of production will be different because issue price of varies lot will be different. This method is suitable for when price are falling because material issue will be priced at earlier figure while cost of replacement will be low. On the other hand, when prices a rising then materials will be issued at lower prices and replacement cost will be higher. This method is useful for materials which are subject to obsolescence or deterioration. LAST IN FIRST OUT: In this method the last received material are issued first and ending inventory consist of earlier required material. This method is also known as replacement cost method because the latest purchases goods will correspondent to the current market price aspect that good were not purchases much earlier. The inventories will be valued at oldest lots on hand and these value will be quite different from current invoice price. Last in first out method is suitable during rises prices because goods will be issued from the latest received lots at prices which are closely related to
48

current market prices. The current cost will also be matched to current income. This method is able to show lower profits because of increases charge to production and closing stock figure will also below as they will be valued at earlier prices. The taxable liabilities will also be low thus enabling the concern to retain more money in the business. AVERAGE COST METHOD: In average cost method of pricing all material in stock are so mixed that a price based on all lots is formed. Average cost may be two types. (a) simple average cost. (b) weighted average cost. SIMPLE AVERAGE COST: In this method the price of all lots are averaged and the material are issued on that average price. WEIGHTED AVERAGE METHOD: In this method the total cost of all the materials is divided by the total number of items in stock. The prices calculated in this way will be used for issue of materials upto the time a fresh purchases has not been made. After a fresh purchases the quantity will be added to the earlier balance quantity and material cost will be added to the earlier cost. A fresh prices is calculated by dividing the changed total cost by the number of unit in stock after the purchases. BASE STOCK METHOD: In this method some quantity of materials is assumed to be necessary for keeping the concern going. The quantity is not issued unless otherwise there is an emergency. This material which is not issued as his kept in stock is known as a base stock. The earlier materials received or kept as a base and are valued at the price on which they were acquired. This method is not an independent method. It is used along with some other methods such as FIFO, LIFO, average price method, etc. after maintaining a base quantity stock, the issues are price at one of the method mentioned above. The purpose of this method is to issue material at current price rate. This aim will be achieved only when LIFO method of pricing the material is used.
49

STANDARED PRICE METHOD: The issue price material is predetermined or estimated in this method. The standard price is based on market conditions, usage rate, handling facilities, storage facilities, etc. THE BIN CARD: The bin card or the stock card is usually attached to each bin, self or other form of containers. The bin card of the item stored in the open yard like coal, are kept at the desk of the store keeper. They are used record of the quantities of each type of material received, issued and on hand each day. They contain only the quantity column and they are not consider in the accounting the price of the material. The prizing is recorded in the store ledger card (which is discussed in the next paragraph) usually the bin card specifies the location, the data description of the material, maximum, minimum and reorder level, date receipt, issue and balance specifying only the quantity etc. BIN CARD Bin no. . . Material code no. .. Level. Store Ledger Folio . .. Minimum Qty. Ordering Max. Qty.

Date

Qty. received

Qty. Issue

Balance

Remarks

Bin Card or Stock Card

50

THE STORE LEDGER: The objective of the store ledger is to keep the proper record of the respective materials specifying their quantity as well as value. It is a record which charges the respective departments or the job at the price of the materials issued to them. Generally, stores ledger is maintained on the losses leaf card basis and separate card kept for each material item. The store ledger card specifies the account number, location, desc- -ription, of the materials, unit measurement, maximum, minimum and reorder level, debit, credit and balance columns under the description of the receipt, issue and the balance specifying both the quantity and the rupee value.

51

OBJECTIVE OF THE STUDY

1. To know the material management of the company. 2. Financial objective of the company towards inventory. 3. To know the valuation method of inventory.
4. To know what steps are taken by the company to reduce or avoide the

over stocking and under stocking and

for this porpose waht

classifciation techniques are used by the company etc.

52

RESEARCH METHODOLOGY
Research methodology is a systematic and scientific method to know the truth and reality behind phenomena. Research methodology is a way to systematically solve the problem. When we talk about research methodology we not only talk about the research methods but we also consider the logic behind methods we use in the context of our research study and explain why we use a particular method or technique and why we are not using others, so that research results are capable of being evaluated either by the researcher himself or the others. The aim of research is a process recording and analyzing the critical and relevant facts about my problem in any branch of human activity. According to Hudson, "All progress is born of inquiry. Doubt is often better than over confidence, for it leads to inquiry and inquiry leads to inventions." In this study Descriptive type of research design has been used.

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COLLECTION OF DATA : The dealing with the real life problem it is often found that data collected at the end are inadequate, and hence, it became necessary to collect data that are appropriate. There are several way to collect the appropriate data, which differ considerably in context of money cost, time and other resources of the disposal of other research. 1. Primary Data :The data that are the current nature of and are collected from the Retailer's, Consumers, agents, distributors at the time of survey are colled as primary data. These data are very important part of data analysis and interpretation. During the summer training I collect the primary data. through interview. Some of the information I got by Dy. G.M. of the company of (Stores and purchases) , Some of by staff members of store department. 2. Secondary Data :Data that are already available i.e. they refer to the data which he already being collected and analyzed by someone else. It may either be published data or unpublished data. During the summer training I collect the secondary data from the compiler of the company, document of store book keeping, some of the MIS information I collect from store record.

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ANALYSIS AND INTERPETATION

GRAPH1: ABC ANALYSIS

INTERPETATION: A. Contributes 70% of annual consumption & number of items restricted around 10% B. Contributes 20% of annual consumption & number of items restricted around 20%
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C. Contributes 10% of annual consumption & number of items restricted around 70%

GRAPH2: HOLDING OF THE COST OF RAW MATERIAL IN THE END OF FY IN CEMENT DIVISION: (ACCORDING TO BALANCE SHEET)

YEAR RS(IN LACS)

2006-07 325

2005-06 399

2004-05 500

2003-04 210

INTERPETATION: According to the Balance sheet of the year 2005-06 & 2004-05 of the company closing stock value of raw material in year 2003-04 it is Rs 210Lacs which increases in 2004-05 upto Rs 500Lacs which falls in 2005-06 upto Rs 399Lacs and in current year (2006-07) it is Rs 325Lacs.

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GRAPH3: HOLDING OF THE COST OF FINISHED GOOD IN THE END OF THE FY CEMENT DIVISION:

YEARS RS(IN LACS) INTERPETATION:

2006-07 1466

2005-06 1546

2004-05 2655

2003-04 1800

According to the Balance sheet of the years 2005-06 & 2004-05 of the company closing stock value of finished good in year 2003-04 it is Rs 1800Lacs which increases in 2004-05 upto Rs 2655Lacs which falls in 2005-06 upto Rs 1546Lacs and in current year it is (2006-07) Rs. 1466Lacs.

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GRAPH4: HOLDING OF THE COST OF WORK IN PROGRESS THE END OF THE FY IN CEMENT DIVISION: (ACCORDING TO THE BALANCE SHEET):

YEARS RS(IN LACS)

2006-07 634

2005-06 770

2004-05 1373

2003-04 1606

INTERPETATION: According to the Balance sheet of the years 2005-06 & 2004-05 of the company closing stock value of work in progress in year 2003-04 it is Rs 1606Lacs which deceasing in 2004-05 upto Rs 1373Lacs which again decreased in 2005-06 upto Rs 770Lacs and in current year ie in 2006-07 it is Rs 634Lacs

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GRAPH5: HOLDING OF THE COST OF STORES AND SPARE PARTS IN THE END OF THE FY IN CEMENT DIVISION: (ACCORDING TO THE BALANCE SHEET):

YEARS RS (IN LACS)

2006-07 8993

2005-06 27544

2004-05 24477

2003-04 24194

INTERPETATION: According to the Balance sheet of the years 2005-06 & 2004-05 of the company closing stock value of spare parts and stores in year 2003-04 it is Rs 24194Lacs which deceasing in 2004-05 up to Rs 24477Lacs which again decreased in 2005-06 up to Rs 27544Lacs and in current year i.e. in 2006-07 it is Rs 8993Lacs.

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GRAPH6: Company (Jaypee) is thinking to increase the production up to 20% in coming 6 months by starting production in there new setup plants (i.e. SIDHI PLANT and DALLA CHUNNAR) which will be added in MRP, due to which it will lead to increase in inventory also. So this graph shows the increase in production as well as the material required to increase the production.

120 115 IN PERCENTAGE 110 105 100 95 90

JUL08

DEC08

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FINDINGS
1. According to the Balance sheet of the year 2005-06 & 2004-05 of the company closing stock value of raw material in year 2003-04 it is Rs 210Lacs which increases in 2004-05 upto Rs 500Lacs which falls in 2005-06 upto Rs 399Lacs and in current year (2006-07) it is Rs 325Lacs. 2. According to the Balance sheet of the years 2005-06 & 2004-05 of the company closing stock value of finished good in year 2003-04 it is Rs 1800Lacs which increases in 2004-05 upto Rs 2655Lacs which falls in 2005-06 upto Rs 1546Lacs and in current year it is (2006-07) Rs. 1466Lacs. 3. According to the Balance sheet of the years 2005-06 & 2004-05 of the company closing stock value of work in progress in year 2003-04 it is Rs 1606Lacs which deceasing in 2004-05 upto Rs 1373Lacs which again decreased in 2005-06 upto Rs 770Lacs and in current year ie in 2006-07 it is Rs 634Lacs 4. According to the Balance sheet of the years 2005-06 & 2004-05 of the company closing stock value of spare parts and stores in year 2003-04 it is Rs 24194Lacs which deceasing in 2004-05 up to Rs 24477Lacs which again decreased in 2005-06 up to Rs 27544Lacs and in current year i.e. in 2006-07 it is Rs 8993Lacs.

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CONCLUSION
In material management the inventory control system of the company is found satisfactory the company maintained a proper re order level of the stock to prevent over stocking and under stocking for controlling purpose the company used all important and effective techniques of control.

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RECOMMENDATION
1) Implementation of JIT ApproachJust in time (JIT) approach should be implemented in Jaypee Plant for inventories other than the vital items, so that the capital blockage can be reduced, at present the traditional approach is being used i.e. procurement of inventory for just in case (JIC), it is required. The JIT approach seeks to eliminate all sources of waste, in production activities, by providing the right part, at the right place, at the right time. Benefits: The JIT system results in much less Inventory lower costs & better quality than the JIC approach. The JIT approach will also reduce the risk of holding the inventory like Risk of deflation, Risk of obsolescence, Risk of deterioration etc. The JIT approach also reduces the Reorder, storage & carrying cost of inventory. 2) Elimination of lead timeJAL require some time to process the order and some time is also required by the supplying firm to give supplies of raw material etc. This lead time on average basis is 15 days. In every inventory this lead time should be eliminated for better and fast production. As the lead time increases the cash conversion period, and hence affects the working capital of the firm. So for reducing the period of cash conversion cycle, the elimination of the lead time could play an important role. Benefits: It will reduce the cash conversion period. It will help in improving the efficiency of the firm. 3) Employees should be given more facilities, so that they feel comfortable in the working environment. Like good food, AC etc facilities. 4) There should be any kind of entertainment (club facilities etc) in the organization for the employees to overcome their stress of work.

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LIMITATION
Although the area, which I have taken for study, was too vast for me to handle but I have tried to justify each and every aspect to the best of my abilities. During the course of making the project, I found difficulty in getting the relevant data for study, although I tried hard to gather it so some of the data is not very up to the mark. The sources of data collection are different so the errors of omissions may present on account of different methodology followed by the sources considered for data collection. Historical data is being used for study; in case of predicted one there is no guarantee.

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BIBLIOGRAPHY
BOOKS : (1) (2) (3) (4) Pandey,I.M.: Financial ManagementVikas Publishing House ,New Delhi. Financial management of R.K. Sharma. Cost accounting Compiler of the company or documents of the company.

WEBSITES: www.google.co.in

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