A STUDY ON

INVENTORY MANAGEMENT
IN
HINDUSTAN SHIPYARD LIMITED
VISAKHAPATNAM

A Project report submitted to AMBEDKAR UNIVERSITY

In partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED

M.KALYANI

Regd. No: 1109502013

Under the Esteemed Guidance of

Mr. V.MAHESH

Head of the Department of Management Studies

GAYATHRI COLLEGE FOR P.G COURSES

(Affiliated To AMBEDKARUNIVERSITY)
Munasabpeta Srikakulam

1
DECLARATION
I hereby declare that this project report entitled “A STUDY
INVENTORY MANAGEMENT” with reference to “HINDUSTAN
SHIPYARD
LIMITED, VISAKHAPATNAM” has been prepared by year 2012 in the month
of MAY and JUNE and JULY is partial fulfillment for award of degree of
MASTER OF BUSINESS ADMINISTRATION OF AMBEDKAR
UNIVERSITY
I also declare that this project is a result of my own effort and that it has
not been submitted to any other university for the award of any degree or diploma.

M.KALYANI

2
 ACKNOWLEDGEMENT

I would like to express my sincere thanks to Mr.V.MAHESH,

Head Of The Department for his constructive co-operation and valuable guidance
throughout the course and also during the project work.
I am grateful to my project counselor Mr. MADHU, MBA lecturer
for his valuable guidance and suggestions to complete this project report
successfully.
I am grateful to Mr.U.S.PRAKASH RAO, M.com, P.G.D.P.A
(Account officer),
HINDUSTAN SHIPYARD LIMITED, VISAKHAPATNAM for giving me an
opportunity to work on this project.
I express my thanks to our parents and friends who helped and
supported to us to a great extent to complete this project and last but not least we
thankful to all mighty.

M.KALYANI

CONTENTS
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CHAPTER 1 .

 INTRODUCTION
 SCOPE OF THE STUDY
 NEED FOR THE STUDY
 OBJECTIVES OF THE STUDY
 METHODOLOGY
 LIMITATIONS
 CHAPTERISATION

CHAPTER 2

 INDUSTRIAL PROFILE
 ORGANIZATIONAL PROFILE

CHAPTER 3

 CONCEPTUAL FRAME WORK OF INVENTORY

MANAGEMENT
 INVENTORY MANAGEMENT

TECHNIQUES CHAPTER 4

 AN OVER VIEW
 ANALYSIS AND

INTERPRETATION CHAPTER 5

 SUMMARY
 FINDINGS
 SUGGESTIONS
 CONCLUSION
 BIBLIOGROPHY
 ANNEXURES

4
 CHAPTER – I

 INTRODUCTION
 SCOPE OF THE STUDY
 NEED FOR THE STUDY
 OBJECTS OF THE STUDY
 METHODOLOGY
 LIMITATIONS
 CHAPTERISATION

5
INTRODUCTION

Inventory is the most important asset in any company. The term inventory
refers to the stockpile of the products a firm is offering for sale and the components
that make up the product. The word inventory was first recorded in 1601. The
French term inventaire, or “detailed of goods,” dates back to 1415. In other words,
inventory is composed of assets that will be sold in future in the normal course of
business operations. The assets which firms store as inventory in anticipation of
need are (i) raw materials, (ii) work-in-progress (semi-finished goods) and (iii)
finished goods. The raw material inventory contains items that are purchased by
the firm from others and are converted into finished goods through the
manufacturing (production) process. They are an important input of the final
product. The work-in-process inventory consists of items currently being used in
the production process. They are normally semi-finished goods that are at various
stages of production in a multi- stage production process. Finished goods represent
final or completed products, which are available for sale. The inventory of such
goods consists of items that have been produced but are yet to be sold. Inventory
allocation and mix presents the biggest risks and potential rewards for company
perform an Inventory management means keeping track of goods, which the
company buys, or purchase, process and store as a part of their business. The cost
of buying or purchasing and holding inventory can be very high. It can account for
up to 80% of the final price of goods or services in some industries. Good
6
inventory management involves minimizing

7
inventory costs. It will also help in determining whether a company is working
profitably or is it making a loss. By keeping a poor track of inventory a company
can make a loss in some areas of operations without even knowing it. Inventory
management involves more than just record keeping as it affects the operational
structure of any business.

The views concerning the appropriate level of inventory would

differ among the different functional areas. The job of the financial manager is to
reconcile the conflicting viewpoints of the various functional areas regarding the
appropriate inventory levels in order to fulfill the overall objective of maximizing
the owner’s wealth.

In the ancient days, the business process used to take place by the exchange
of goods that is the goods that are needed urgently was taken from other business
people by giving our goods, which are required for them. The business process of
exchanging that is importing and exporting of goods and services is done by means
shipping because other transport such as trains and carriage aircrafts were not
available, at that time. As the world became globalization, shipping transport plays
a major source and vital role in the shipping industry. Business in this world has
taken a major role in the life of human beings. Progress and growth of every
human being depends upon the business, by this we know how important it is. In
the olden days the business was carried out by exchange of goods and services
from one country to another country is done through ships
Hindustan Shipyard Limited was the pioneer ship building industry
situated in the eastern coast of Visakhapatnam, harbor almost midway between
Calcutta and Chennai.

8
The main activities of Hindustan Shipyard Limited are:
1. Ship Building
2. Ship Repair
3. Off shore platform construction
Hindustan Shipyard Limited is a tailored made company .it makes
products according to the customer’s requirements or specifications. Inventory
constitute the main significant part of the current assets in majority of companies in
India .On an average, inventories are approximately 60% of current assets in public
limited companies in India .As large size inventory are maintained by the firms, a
considerable amount of funds in the firm is neglected, the management of
inventories will be jeopardizing in its long run profitability and may fail ultimately
.It is possible for a company to reduce its levels of inventories to a considerable
degree. Example 10%-20% without any adverse effect or production and sales. By
using simple inventories it carries a favorable impact on company’s profitability.

Meaning and Definition of Inventory Management: -

Every enterprise needs inventory for smooth running of its activities. It
serves as a link between production and distribution processes .The greater the time
lag, the higher the requirement for inventory, it also provides a caution for future
price fluctuations. Inventory management is required at different locations within a
facility or within multiple locations of a supply network to protect the regular and
planned course of production of production against the random disturbance of
running out of materials or goods.

9
  Involves a retailer seeking to acquire and maintain a proper merchandise
assortment while ordering, shipping, handling, and related costs are kept in
check.
 Systems and processes that identify inventory requirements, set targets,
provide replenishment techniques and report actual and projected inventory
status.
 Handles all functions related to the tracking and management of material.
This would include the monitoring of material moved into and out of
stockroom locations and the reconciling of the inventory balances. Also may
include ABC analysis, lot tracking, cycle counting support etc.
 Management of the inventories, with the primary objective of determining.
controlling stock levels within the physical distribution function to balance
the need for product availability against the need for minimizing stock
holding and handling costs.

Inventory Management objectives

 To Find and track down all the processing data's in an inventory system
repository.
 Define a procedure by which assets are identified and maintained in the
Inventory System.
 Provide all necessary personnel (data entry, update and deletion).
 Restrict access of certain members
 Complete range of reports that will satisfy informational requirements.
 To file the Inventory Management System within the Standards and
Procedures Manual.
 To provide coaching to personnel responsible for supporting the Inventory
Management System

10
 The investment in inventories constitutes the most significant part of current
assets and working capital in most of the undertakings. Thus it is very essential to
have proper control and management of inventories .The purpose of inventory
management is to ensure availability of materials in sufficient quantity as and when
required and also to minimize investment in inventories. The investment in
inventory is very high in most of the undertakings engaged in manufacturing
wholesale and retail trade. The amount of investment is sometimes more in
inventory than in other assets.

Advantages of Inventory Management: -

1. Inventory allows customers to be served quickly and conveniently.
2. Inventory can be used so that a company can buy in bulk, which is
usually cheaper.
3. Inventory allows operations to meet unexpected surges in demand.
4. Inventory is insurance, if there is an unexpected interruption in
supply from outside the operation or with in the operation.
5. Inventory allows different parts of the operations to be decoupled.
This means that they can operate independently to suit their own
constraints and convenience while the stock of items between them
absorbs short- term differences between supply and demand.
6. Reduces cost and provide detailed reports for reference or checking
purposes
7. Increase Account Saturation and Maintenance
8. Provides a flexibility to suit individual needs of customers
9. Customer’s profitability improvement and demonstrating that
product price is only part of the cost of doing business with a
supplier.
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10. Manages item specifications and stock levels

12
 11. Management of cycle and physical counting
12. Multiple warehouse support
13. Support a multi-bin system
14. Serial/Lot trace ability from raw materials to finished product
15. Item/document note system
16. Auto create purchase orders for reorder point items

Disadvantages of Inventory Management: -

1. It is expensive.
2. Keeping inventory means the company has to fund the gap between
paying for the stock to be produced and getting revenue by selling it.
This is known as working capital. There is also the cost of keeping
the stock in warehouses or containers.
3. Items can deteriorate while they are being kept; clearly this is
significant for the food industry whose products have a limited life.
However it is also an issue for any other company because stock could
be accidentally damaged while it is being stored.
4. Products can become obsolescent while they are being stored. Fashion
might change or commercial rivals may introduce better products.
5. Stock is confusing, large piles of inventory around the place need to be
managed. They need to be counted, looked after and so on.

In India a study of 29 major industries has received that the average

cost of materials is 64 paisa and the cost of labor and overheads is 36 paisa in
rupee. About 90% of working capital is invested in inventories. An efficient system
of inventory management will determine
a) What to purchase?
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 b) How to purchase?
c) From where to purchase?
d) Where to store?

The purpose of inventory management is to keep the stock in such a way

that neither it is overstocking nor under stocking. The overstocking will mean a
reduction of liquidity and starving of other production processes under stocking
will result in stoppage of work. The investments in inventory should be kept in
reasonable limits. Nature of inventories: -
The dictionary meaning of inventory is “stock of goods or list of goods”. In
accounting language it may mean “stock of finished goods only”.
1. Raw material: -
Raw material from a major input in the organization, they are required to
carry and production activities uninterruptedly. The quantity of raw materials
required will be determined by the rate of consumption and the time required for
replenishing the supplies. The factors like the availability of raw materials and the
government regulations etc to affect the stock of raw materials.
2. Work in process: -
The work in process is that stage of stock, which is in between raw materials
and finished goods. The raw materials enter the process of manufacturing but they
are yet to attain final shape of finished goods.
3. Finished goods: -
These are the goods, which are ready for the consumers. The stock of
finished goods provides a buffer between production and market.

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SCOPE OF INVENTORY MANAGEMENT
1. To obtain the materials and suppliers in the required quantity at the
2. Lower cost at the proper time and to meet the continuous production program.
3. To keep the inventories as low as possible, consistent with the
market Conditions.
4. Forecast market and economic conditions of supply and availability of
Materials.
5. Work with the potential suppliers for finding new materials.
6. Product research and development.
7. Participation in the make or buy decision of the company.
8. Maintain proper records.
9. Ensure a continuous supply of materials to facilitate
uninterrupted 10.Production.
11.Minimize the company cost and time.

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NEED OF INVENTORY MANAGEMENT
1. To study the basic concepts of inventory management.
2. To study the detail description of how inventory management is being
implement in companies.
3. To analyze the effect of inventory management in organization.
4. To study the step-by-step process of inventory management and its
practical application in organizations.
5. It is the responsibility of the firm’s management to reduce the cost
of inventory management.
6. To know the areas from where the high turnover can be achieved.
7. To access various techniques in order to analyze the inventory
managements in organizations.
8. To study how supply continuity can be maintained.
9. To study how quality of purchases can be maintained.
16
 10. To know how cordial relations can be maintained with suppliers.
11. To study how actually are the scenario of inventory management
in organizations.

OBJECTIVE OF THE STUDY

1. To give an overview on Inventory Management.
2. To give brief details about organization and company.
3. To study the theoretical frame work of Inventory Management with
reference to HSL.
4. To analyze and interpret the Inventory turnover, Work in progress turnover,
Inventory to Working Capital, and Inventory holding Periods by using ratios.
5. To come up with the suggestions and recommendations on Inventory
Management.

Need to hold inventory Management: -

The question of managing inventories arises only when the company’s holding
inventories, maintaining inventories involves tying up of the company funds

17
incurrence of storage and handling cost. If it is expensive to maintain inventories,
then, why do companies hold inventories?

There are three general motives of holding inventories: -

1. Transitive motive: -
It emphasizes the need to maintain inventories to facilitate smooth
production and sales operations.

2. Precautionary motive: -
It necessities holding of inventory to guard against the risk of
unpredictability changes in demand and supply force and other factors.
3. Speculative motive: -
It influences the decision to increase and reduce inventory level to take advantage
of price fluctuations. A company should maintain adequate stock of materials for
continuous supply to the factors for an uninterrupted production. It is not possible
for a company to produce raw materials whenever it is needed. A time lag exists
between demand for materials and its supply. Also there exists uncertainty in
procuring raw materials.

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METHODOLOGY

The methodology of collecting data is an important part of the study. The sources
of data can be divided into two parts.

1. Primary Data:
Information of the primary data for the study is collected by
personal interaction with the officers and persons of various levels who involved
the inventory management of M/s. Hindustan Shipyard Limited Visakhapatnam.

2. Secondary Data:

19
 The secondary data is required for the study of annual report
published by M/s. Hindustan shipyard limited, Visakhapatnam from. And also data
required for the study is collected from magazines, newspapers and Internet.

LIMITATIONS OF THE STUDY

The limitations of this study are as follows:
1. The study is conducted with the limited data available and analysis was done
accordingly.
2. The study is conducted with the time period and analysis made accordingly.
3. As the data provided to using very limited and then department of matter is not
possible.
4. Most of the data collected was historical
5. There was no scope for gathering the entire financial information as it is
confidential.
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6. Keeping inventory mean the company has to find the gap between pain for the
stock to be produced and getting revenue by selling it

CHAPTER – II

 INDUSTRIAL PROFILE
 COMPANY PROFILE

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CHAPTER-2

INDUSTRIAL PROFILE-SHIP BUILDING INDUSTRY

 INTRODUCTION TO INDUSTRY

 ECONOMIC CONDITIONS

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  MAJOR SHIP BUILDERS

 GROWTH OF SHI BUILDING

INTRODUCTION TO INDUSTRY

The shipbuilding industry is involved in the

construction and modification of ships. This is carried out in a specialized
facility called a shipyard. The industry builds ships for commercial as
well as military purposes.

History:-

23
 The shipbuilding industry can be traced back to 2,500
BC, when ancient Egyptians assembled wooden planks to build ships.
Greeks started using multiple masts for increasing the speed. The
shipbuilding industry across the world progressed during the ‘Middle
Ages.’ Chine was home to some of the biggest seaports of the world,
including Guangzhou and Guangzhou.
During the nineteenth century, the use of iron in
shipbuilding increased. In 1843, Islamabad Brunel built the ‘Great
Britain,’ the first ship made completely of iron. Steel replaced wrought
iron in the latter part of the century due to its easy availability. However,
the use of wood for building decks continues until today.

Modern shipbuilding manufacturing techniques

Modern shipbuilding makes considerable use of
prefabricated sections. Entire multi-deck segments of the hull or
superstructure will be built elsewhere in the yard, transported to the
building dock or slipway, and then lifted into place. This is known as
“block construction”. The most modern shipyards pre-install equipment,
pipes, electrical cables, and any other components within the blocks, to
minimize the effort needed to install components deep within the hull
once it is welded together. This was first introduced by Alstom chantiers
de I’Atlantique when they built the largest ocean liner in the world
canard’s RMS Queen Mary 2.
Ship design work, also called naval architecture, may be
conducted using a ship model basin. Modern ship, since roughly 1940,
have been produced almost exclusively of welded steel. Early welded
steel ships used steels with inadequate fracture toughness, which resulted
in some ships suffering catastrophic brittle fracture structural cracks.
Since roughly 1950, specialized steels such as ABS steels with good
properties for ship construction have been used. Although it is commonly
accepted that modern steel has eliminated brittle fracture in ships, some
controversy still exists. Brittle fracture of modern vessels continues to
occur from time to time because grade A and grade B steel of unknown
toughness or fracture appearance transition temperature (FATT) in ships’
side shells can be less than adequate for all ambient conditions.

24
 ACTIVITES OF SHIPYARD:-

 SHIP BUILDING

 SHIP BREAKING

 SHIP REPAIRING

Ship Building
Global ship building is estimated to be a USD 20billion
industry and is presently dominated by Korea, Japan and China, which
together account for around 75 per cent of the world output.
Fortunes of shipping and shipbuilding industries to be linked to
each other or at least move in tandem. For nearly three decades in the post
world war 11 era, both the industries were dominated by European nations
and united states. However, high labor costs in the yards of Europe and USA,
one of the major determinants in this cost competitive industry, has led to a
gradual shift of the center of shipbuilding to these Asian nations over the last
two decades.
Similar progress was observed in Indian shipbuilding industry,
as per the research carried out by i-maritime Consultancy the order book of
the Indian shipyards, which was hovering around Rs 1,500Crores in 2002,
has reached a value close to Rs 13,700crores by September 2006, with nine
times increase in just four years.
The Indian shipbuilding, which was totally domestic till late
90’s, has become export oriented. ABG shipyard was the first to build and
export a newsprint carrier for a Norwegian client in 2000 and established
India’s competitiveness in building and delivering ships of the International
standards. Today six years down, out of the 199 ships on the order book,
close to 124 are for exports.
India has a long history and tradition of shipbuilding that can be
traced back to the Harappa civilization. However, since the beginning of the
20th century, it had been on a declining scale and presently, rated capacity of
country’s shipbuilding yards is minuscule vis-à-vis world’s capacity.
However, some private sector yards are showing increasingly
better performance. ABG shipyards, one of the leading private sector
shipyards
25
of the country, has recently executed an order of newsprint carriers for
Norway-based Lys lines and got another order of delivering five 10,000-dwt
dry cargo vessels from a German ship-owner. Both Norwegians and Germans
are known to demand the best of quality products.
Looking at the prospects of Indian shipbuilding industry, it has
been observed that cost competitiveness remains the significant advantage of
domestic shipbuilding industry considering the two major parameters of
shipbuilding Viz. Steel fabrication and labor. China is emerging as a major
shipbuilding nation leveraging on these advantages and posing serious threats
to Korea and Japan. Considering this, it can be said that a proper strategy
taken in the right direction could leverage the competitive benefit and lead
the Indian shipbuilding industry towards better prospects.

Ship Breaking

Ship Breaking or ship demolition involves breaking up of aged

ships for scrap. Ships purchased on the basis of their light displacement
tonnage (LDT) are demolished in ship breaking yards and sent to steel re-
rolling mills for reuse as raw-material for production of steel. Currently, the
international ship demolition market is centered on the Indian subcontinent.
While a large number of tankers find their way to scrap yards in Pakistan and
Bangladesh, Indian ship breaking yards attract mostly dry and general cargo
vessels.
Ship breaking industry in India is mostly concentrated at Along
in Gujarat, Which the world’s largest ship is breaking yard catering to nearly
90 per cent of India’s ship breaking activity. However, sporadic activity also
takes place in other locations like Sachana, Gujarat, Mumbai and Calcutta.
The ship breaking activity at Along includes a total of 170 yards of which 50-
70 are operational and around 50,000 people are involved directly in the
business of scrapping. The total tonnage of ships broken in India has varied
from a low of 0.65 million 1dt in 1991-92 to a high of 2.79 million 1dt in
1997- 98.Financing is an important aspect of the industry as scrapping
normally involves an intermediary ‘cash buyer’. Earlier state Bank of
Saurashtra and Dena Bank took active role in the ship breaking industry,
However, of late; Most banks have become reluctant to finance ship
scrapping projects.
Ship scrapping industry in India suffers from government
apathy. In spite of the fact that re-rolling accounts for about 60 per cent of the
national production of bars, rods and structural and ship scrapping supplies
nearly 200,000tons of scrap every year to the re-rolling mills, the sector
26
remains largely disorganized as well as unrecognized.

27
 In the recent past, the ship scrapping industry attracted
considerable attention on the issues relating to environmentalists across the
world particularly Greenpeace and Basel Action Network have drawn
international attention to the poor working environment prevailing at the
Indian ship scrapping yards particularly at Along and opened up fronts
everywhere by calling for legal action against scrappers, building up public
opinion against scrapping and physically blocking the ships meant for
scrapping. The environmental issue could become the single largest factor
that could determine the structure of the ship breaking industry in future.
Looking at the prospects of the breaking industry in India it has
been observed that competition from neighboring countries is expected to
become tough in the near future. China has also come back to the scrapping
industry in recent years with a bang by capturing a significant volume of
tonnage sent for scrapping. Pakistan and Bangladesh are likely to pose
serious threat to Indian ship scrapping yards. Considering all the hurdles
faced by the Indian ship scrapping industry, ample scope for improvement
has remained and Indian ship scrapping industry is expected to take all
possible actions to keep the industry vibrant.

Ship Repair
Ship repairing is a service, consisting of a number of smaller
services on various parts and components of the ship. While the repairing
activity is adjunct to shipyards and ports, the extent and complexity of these
services vary.
Ship repairing in India started long back. The first dry dock was
built at Bombay port in 1750 and second at Calcutta port in 1781. For about
two decades immediately after the Independence, the Indian ship repair
industry made a booming business. The potential size of the ship repair
industry in India is around Rs.44 billion, Which includes repairing by Indian
and foreign vessels calling at Indian ports.
However, only a small percentage of this business equivalent to
Rs 10-12 billion is executed by the Indian ship repairing industry.
In India, major shipyard carry out both ship repair and ship
building activities. The industry is controlled by 10 large and 30 to 40
medium and small sized shipyards apart from Naval Dock yards and Defense
shipyards. The attempts to set up exclusive ship repair facilities in the private
sector failed to perform.

28
 The growing fear of pollution and stricter norms and
regulations, ship repairing services are in demand. Indian shipyards have the
competitive advantage like low labor costs, Availability of trained and skilled
labor force and proximity to international shipping routes required for getting
success in the business. However, the industry is in a dismal state, not
withstanding such advantages and has not been able to cater to the needs of
the Indian merchant fleet adequately due to following reasons.
 Lack of new investments in machinery/equipment

 Deterioration of existing machinery/equipment

 Usage of obsolete methods and systems

 Lack of suitable training for up gradation of skills

 Life emphasis on professional management techniques

 Supply bottlenecks for raw-material and spares

 Over dependence on public sector

 Cumbersome government procedures

 Extremely low labor productivity

While there has been success in the field of ship breaking and
ship building industry in India both of which are labor intensive, ship
repairing industry can also replicate the scenario provides it utilizes its
inherent competitive advantage.

 The ship building industry –riding the economic wave

The global economic recession and the decline in sea-borne

trade led to over-capacity of ships globally ultimately affecting the
performance of the shipbuilding industry during 2009. The global
shipbuilding order book declined from 367.2 million GT as on December
31,2008 to 303.5 million GT as on December 31,2009 primarily led by the
slow growth of new-build orders aggregating 18.2 millions GT during CY09
as against 90.7 million GT during CY08. The vessels delivered during CY09
compared to 64.2 million GT of deliveries during CY08.

29
 The record scrapping volume particularly in the dry vessel
segment and y-o-y decline in vessel prices in the range of 20-30% provides
no respite to the Dwindling global shipbuilding order book, especially in
case of major shipbuilding nations such as South Korea, China and Japan
thereby requiring their respective governments to take corrective measures
in terms of restructuring of yards facing financial crisis and also offering
monetary and non-monetary incentives to boost the industry’s prospects.
However, the Asian shipbuilders continue to dominate the global order book
accounting for 95.1% of the total as on December 31,2010. Of the same, in
continuation of the trend during 2008, the market share of the South Korean
shipbuilders remained the highest at 37%. The share of the Chinese and
Japanese shipbuilders stood at 36.1% & 16.8% respectively.
The Indian shipbuilders occupied 5th rank globally accounting
for 1.44% of the global order book with 2.2 million GRT of vessels on order
as on December 31,2009. The Indian shipbuilders specialize in the
construction of offshore vessels. However, the expansion of shipyards to the
extent of constructing bigger vessels such as dry bulk carriers has enabled
the Indian shipbuilders to attract new-build orders in the said vessel segment.
Importantly, the Indian yards reported no major instance of order
cancellation during CY09 as compared to their peers in South Korea and
China, primarily owing to no speculative orders being placed with the Indian
yards and majority of the orders being received from repetitive clients.
We expect the shipping fleet to be in over-capacity during
CY10- CY13 based on a combined mix of factors such as world fleet size,
world GDP-current prices and the historical trend of sea-borne trade. In spite
of the new-build vessel prices declining by 20-30% on y-o-y basis, we
expect increased demand for second-hand vessels as compared to new-
builds. The said demand is expected to be driven by relatively lower prices
of second- hand vessels with younger fleet on offer.

 Major ship Builders

The world shipbuilding industry is largely dominated by Asian

players, such as South Korea, China and Japan. In 2008, South Korea’s
production level was higher than that of entire world combined. The nation’s
top shipbuilding companies include Hyundai Heavy Industries, Daewoo
shipbuilding and Marine Engineering and Samsung Heavy Industries. The
world’s biggest shipyard launches a new vessel every four days.

30
 The shipbuilding industry is $100 billion. The industry is vital
to the economy as it supports trade and other ancillary services.
South Korea is the world’s largest shipbuilding nation with a
global leader in the production of advanced high-tech vessels such as cruise
liners, super tankers, LNG carriers, drill ships, and large-sized container
ships. In the 3rd quarter of 2011, South Korea won all 18 orders for LNG
carriers, 3 out of 5 drill ships and 5 out of 7 large-sized container ships.
South Korea’s shipyards are highly efficient, with the world’s
largest shipyard in Ulsan operated by Hyundai Heavy Industries slipping a
newly-built, $80 million vessel into the water every four working days. South
Korea’s “big three” shipbuilders, Hyundai Heavy Industries, Samsung Heavy
Industries, and Daewoo shipbuilding & Marine Engineering, dominate global
shipbuilding, with STX shipbuilding, Hyundai samho heavy Industries,
Hanjin Heavy Industries, and Sungdong shipbuilding & Marine Engineering
also ranking among the top ten shipbuilders in the world. In 2007, STX
shipbuilding further strengthened South Korea’s leading position in the
industry by acquiring Aker yards, The largest shipbuilding group in Europe.
In the first half of 2011, South Korean shipbuilders won new orders to build
25 LNG carriers, out of the total 29 orders placed worldwide during the
period. China is an emerging shipbuilder that briefly overtook South Korea
during the 2008-2010 global financial crises as they won new orders for
medium and small-sized container ships based on their cheap prices, although
its current production is limited mainly to basic vessels.
Japan lost it’s once industry leading position to South Korea in
2003 and its market share has since fallen sharply. The European nations
combined output has fallen to a tenth of South Korea’s, and the output of the
United States and rest of the world have become negligible.

Indian ship building Industry

Shipbuilding, which includes shipyards, marine equipment

manufacturers, and large number of service and knowledge providers, is an
important and strategic industry in a number of countries around the world.
Shipbuilding is a globalized, technology-based, and capital intensive
industry. The industry is influenced by developments in the shipping industry
and the market dynamics. One of the unique factors of the shipbuilding
31
industry is sold

32
 before the construction begins and each ship is custom made for the owner. it
may take around 1 to 3 years for the delivery of a new ship. The buyer orders
a ship in anticipation of its future use and sometimes it is done with an
advance charter agreement which makes it important for the shipyard to
deliver the ship within the specified time. This feature makes delays in
shipbuilding unacceptable at times, and thus the buyers prefer to place order
with established shipyard that have a good track record.
Major shipyards in India
S.no NAME YEARS OF YEARS OF
FOUNDATION REGISTRATION

1 HSL-VIZAG 19 1956
2 CSL-COCHIN 19 1973
3 HOOGLY SHIPYARD 19 1901
KOLKATA
4 MDL-MUMBAI 19 1934
5 GRES-KOLKATA 1984 1931
6 GOA SHIPYARD-GOA 1857 1967

INDIA PORTS, MARITIME TRASPORTATION, AND INLAND

WATERWAYS

The linkages between international trade and the transport

network are obvious. An efficient transport system can boost trade and greater
volume of trade can, in turn, create demand for investment in the transport
network. It is now widely acknowledged that efficiency in the transport sector has
major spillover effects on the competitiveness of both goods and services.
Competition and increased efficiency in maritime transport services, resulting in
lower freight rates, contribute directly to a country’s international competitiveness.
Similarly, the development of air transport services is crucial for the sustainable
development of trade and tourism. This sector acts as an economic catalyst by
opening up new market opportunities, moving products and services with speed
and efficiency. The quality of the transport network has direct implications for the
inflow of foreign direct investment
In the past, the requirement of large-scale investment, long
gestation periods, uncertain returns, associated externalities together with social

33
objectives such as consumer protection, welfare and equity have resulted in
government monopoly in transport services. In many developing countries, the
government owned, operated and financed the transport sector and success and
failure in the provision of such services was largely a story of government’s
performance. This picture is rapidly changing with globalization and the
liberalization of national economies.
Increased commercialization and growth of international trade
has led to considerable pressure on the operating environment of the existing
transport infrastructure, forcing it to adapt new, improved and more reliable
technology. Commercialization has also enhanced competition among trading
nations to increase their share in the world’s trade. For instance, with increasing
size and sophistication of ships, container ships now make only a few calls in three
or four harbors at each end of the trade while the rest of the traffic is served by
small feeder ships.
This has increased the competition among neighboring harbors
to develop as “hub” ports catering to large container ships. Governments all over
the world are finding it increasingly difficult to finance the investment required to
sustain the growth of transport infrastructure. On the other hand, globalization has
given birth to large multinational corporations and alliances that have the
willingness.
Financial strength and technical know-how to operate and
manage t advanced transport network. This has created a unique situation where by
countries, which were once closed-door, are opening-up their corridors for
privatization and foreign investment. The Indian aviation and maritime transport
sectors have not been an exception to this trend. Prior to the 1990s, The
Government was the main provider of these services and there were various
restrictions on private participation.
During that period, the performance of these sectors was
marked by monopoly-induced in efficiency and low productivity. In fact, in both of
these transport services, India’s share in world trade had been steadily declining. In
the 1990s, When India embarked upon an ambitious reform programmed, the
demand- supply gap in transport infrastructure became more pronounced. The need
of the hour was to rectify the infrastructural bottlenecks to sustain the reform
programmed. It is at this juncture that the Government announced various reform
measures in air and maritime transport services, including privatization.
It was expected that privatization would increase efficiency
through competition, reduce the financial constraints and speed up the process of
adaptation of new technologies. The following section will provide a broad
overview of maritime and air transport services in India. It will critically analyze
the policies and developments in these sectors since the 1990s. The subsequent
34
section will

35
suggest various regulatory, fiscal and other reforms which could facilitate the
privatization process and improve the overall efficiency, productivity and global
competitiveness of the sectors.

Growth of ship Building in India

Ship building is a branch of heavy engineering industry

It is an assembly industry. It draws boilers, engines, electrical goods, glass, rubber,
nuts and bolts etc. manufactured by other industries.
The industry manufactures ship of a variety of sizes and
for a variety of purposes ranging from fishing vessels, cargo ships, oil tankers,
cruise liners to ferries. Boats, sailing boats, etc. are also made by this industry.
The industry also manufactures naval ships ranging
from mine layers, mine sweepers, destroyers, destroyers, frigates, tugs to air craft
carriers, gun boats, submarines etc.
Ship building is a highly expensive, Technical, time
consuming, scientific and sophisticated industry. It exists in a few economically
sound and technically advanced countries only the industry has developed on
account of:

 Growing international trade relationships among the countries of the

World

 Development of Iron and Steel and various other industries connected

with fitting and trimming of the ships.

 National security and race for naval supremacy in the world has
boosted construction of ships of different sizes and for different
purposes for the use of the navy.

 Availability of capital.

 Advancement in marine architecture and marine technology.

Kolkata, Visakhapatnam, Mumbai, Kochi and Moraga are ship building centers. In
these shipyards, ships of a variety of sizes and purpose are built. These include
boats, fishing boats, fishing vessels, barges, cargo ships and warships.

36
 1. The Hindustan shipyard Ltd. Visakhapatnam set up by M/S Scindia
Steam Navigation company in 1941 was taken over by the Indian
Government in 1952 and named Hindustan Shipyard.

The yard has constructed over 150 ships so far.

2. The Cochin Shipyard Ltd. Kochi started work in 1976.
3. The Garden Reach factory, Kolkata has specialized in the
construction of naval boats, harbor crafts, tugs, barges, dredgers etc.
It is on the eastern bank of Hooghly.
4. Hooghly Dock and port Engineers Ltd. Was set up in 1984. It has 2
units in Howrah district in West Bengal.
(a) Salkia
(b) Nazirganj
These units manufacture a variety of ships like dredgers, tugs, fishing
trawlers, offshore platforms for the ONGC etc.
5.The Meagan Dock, Mumbai constructs dredgers, frigates, destroyers
etc. for the Indian Navy.
Besides there are three dozen small ship yards in the country engaged
in manufacturing of small sized vessels for the domestic shipping companies. Goa
shipyard makes fiber glass boats, trawlers, barges and dredgers.
Repair shipyards. These are 17 such yards in India.
They carry out ship repair work.

37
CHAPTER 2

COMPANY PROFILE-HINDUSTAN SHIPYARD LIMITED

 HISTORY AND BACKGROUND

 VISION AND MISSION

 OBJECTIVES

 MILESTONE ACHIEVEMENTS OF HSL

 ACTIVITES OF HSL

HISTORY AND BACKGROUND

One of the important components of Visakhapatnam economy, the

Hindustan Shipyard limited, Visakhapatnam is credited with the establishment of
one of the most significant shipyards in the city. The first president of India
Dr. Rajendra Prasad laid the foundation of the shipyard in 1941. The shipyard was
nationalized in 1961, and renamed Hindustan Shipyard limited. In 2009, HSL was
transferred from the Ministry of shipping to the Ministry of Defense. The shipyard
played a critical role in the development of nuclear-powered.

38
 One of the major shipbuilding establishment of the country, HSL is an
ISO 9001:2000 organization. It maintains a separate safety department to ensure
safe working environment and a training centre to impart human resource
development lesson’s and technical trainings. The esteemed organization provides
housing, medical and educational facilities not only for its employees but for the
general public as well.
A government of India undertaking, HSL was built to facilitate an
efficient shipyard to serve customers better. Mr. Ajit Thiwari is the current
managing director of HSL Visakhapatnam. Covering a sprawling area of 46.2
hectares, the Hindustan Shipyard is equipped with latest technologies. The
shipyard has top of the line storage and logistic facilities plasma cutting machines,
modern cranes, separate quality checking department, vigilant cell, welding
machines and every other necessary components required to run a modern
shipyard. The ship repairing unit of the shipyard has facilities like water jet
cleaning, grit blasting, dynamic balancing, hydraulic elevators etc.,
The shipyard is relatively compact at 46.2 hectares(0.462 km2). It is
equipped with the plasma cutting machines steel processing and welding facilities,
material handling equipment, cranes logistics and storage facilities. It also has
testing and measuring facilities. It also conducts major overhauls of Indian Navy
Submarines, and is being equipped to construct nuclear powered submarines.

VISION:
To become a world class defence shipyard to construct naval ships and
submarines for the Indian navy and coast guard and to meet the repair requirements
of such vessels and other government vessels.

MISSION:
To upgrade the shipyard, acquire advanced technologies in war ship and
submarine construction in a phased manner from 2010to2025 and take up projects
planned by Indian navy and Indian coast guard for meeting its long terms needs.

OBJECTIVES:

 To incorporate “Best practices” in all key activities of the yard such as

production, efficiency, customer satisfaction, marketing, Human Resources,
purchasing and planning.

 To develop the technological capabilities in the area of ship design and ship
construction and render ‘Ship Building’ more viable.
39
  To secure new ship building orders from indigenous and export market &
construct vessels for National Maritime and Defense Sector.

 To expand ship repair facilities.

 To undertake retrofitting of normal refit, short refit & medium refit and
modernization of special class sub marines such as 877 EKM submarine.

 To work out cost effective funding arrangement for ship building and major
ship projects.

 To effect economy in expenditure.

Board of directors

1. RA dm. N.K.MISHRA,NM,IN(Retd.) Chairman & Managing director

2. Shri RAKESH MAHAJAN director Finance & Commercial

3. Cmde. K.S.SUBRAMANIAN,NM,IN(Retd) Director(shipbuilding)

4. Dr. DEVISINGH Independent director

5. Shri GYANESH KUMAR, IAS Director

6. VAdm. N.N.KUMAR,AVSM,VSM,IN Director

HSL being an old & premier shipyard of the country has been
striving towards better productivity and optimum utilization of resources. The total
income of the company during the year is Rs. 637.87 Crores as compared to Rs.
651.16 Crores for the previous year. your company recorded a profit of Rs. 54.99
Crores as against Rs. 2.32 Crores of previous years due to accounting of Rs. 452.68
Crores grant in aid received from Government of India as financial Restructuring
Package.
The major highlights of the year 2010-11 are as follows
40
 The Ministry has sanctioned RS.824.90 Crores as financial
Restructuring package and the same has been implemented successfully.
The company concluded contracts for an order value approx. Rs. 798
Crores with Coast Guard, Indian Navy and Kandla port Trust. However the order
value is not sufficient for the yard to sustain. The company desperately needs to
secure high value orders from Indian Navy after its transfer of Administrative
control from Ministry of shipping to Ministry of Defence.
Some of the noteworthy achievements during the year are as
follows
1. Two 53 K bulker vessels were delivered to M/s. GML.

2. Six vessels of different categories were launched /floated.

3. Keels were laid for five new vessels.

4. Repair of ONGC jack up rig is at advanced stage of completion and targeted

to be delivered by the end of Nov 2011.

5. Repair of twenty three vessels was undertaken during the year 2010-11
including two warships viz. INS KUMBHIR & INS SANDHAYAK.

The present shipbuilding order book position comprises 24 vessels

out of which 14 vessels are at various stages of their construction. The focus of the
yard during the next couple of years will be on completion of the orders of M/s.
GML & five IPVs for Indian Coast Guard. The other orders would also be attended
to with renewed planning & production norms to keep the workshops & workmen
optimally utilized. However, I regret to inform that with present order book most
workshops will remain idle in near future unless some high value orders are
secured by HSL.

Grading vide memorandum of understanding

The performance of the company for the year, based on self appraisal
is “GOOD” in terms of the MOU signed with the Ministry of Defense.

TRANSFER TO MINISTRY OF DEFENCE

Considering the strategic location of HSL and requirements of
defence, the president of India transferred the administrative control of Hindustan
Shipyard limited from the ministry of shipping to the Ministry of Defence with
effect from 22nd February, 2010 under Government of India (Allocation of
Business) Rules, 1961 vide notification No.1/22/1/2010-Cab, Dated 22nd
41
February,2010. The

42
shipyard would now play a major role as a Defence yard and undertake
construction of Hi-tech Warships and Submarines.

Corporate Governance
Your company constantly endeavors to adopt and maintain the highest
standards of ethics in all spheres of its business activities. Your company firmly
believes in the fundamental principles of corporate Governance like honesty,
integrity, accountability, transparency and legal/statutory compliances, to protect,
promote and safe guard the interests of all stakeholders. It also strives to carry out
its business obligation with good corporate values duly discharging its duties for
maximum level of transparency in decision making to avoid conflict of interests. It
also accords due importance to adherence of adopted corporate values and
objectives and discharging social responsibilities as a responsible corporate citizen.

Infrastructure up gradation & modernization

The yard infrastructure is required to be upgraded to increase its
capacity and efficiency for construction of sophisticated defense vessels in future.
This up gradation has been planned to be undertaken in two phases. In first phase
the existing infrastructure facilities would be refurbished and or renewed. Budget
estimates for the phase-1 modernization is Rs. 457.36 Crores. In the second phase
the yard infrastructure would be augmented so as to make the yard capable of
constructing modern warship, submarines and amphibious vessels etc. Both the
proposals are under active consideration at Ministry of Defense.

Future outlook:-
HSL is strategically located on the east coast of India. The yard
has been transferred from ministry of shipping to ministry of defense in
february2010.The yard has been identified for construction of war ships and
submarines. The present order book will be completed by Aug 2013 and thereafter
HSL will construct mainly defense vessels. The surplus capacity, If any, available
would be utilized for commercial vessels.
In coming years there is a plan to modernize the infrastructure in
order to make this yard viable for construction of high value orders from navy
vizag, warship, submarines and other amphibious ships. with the capacity
improvement and modernization of the yard HSL will grow as one of the major
defense shipyard in the country.

Human resource development

Considering the large attrition rate of the existing workforce of the
company in coming years, Your company has started inducting the young
43
workforce

44
to fill up the organizational gaps. Your company has inducted 15 management
trainees recently and will continue to induct more in coming years depending upon
the requirements. The skill development is one of the high priority areas to hone
the skills required for construction of complex warships and submarines. Hence,
your company continues to impart training to new entrants and existing employees
as well to increase the productivity. Further, recently your company has revised the
pay scales of the staff and workmen of the company in order to boost their morale
which will result in higher productivity. However while approving the wage
revision: Your Company could not arrange the payment of arrears due to staff &
workmen as the financial health of the company did not permit such payments.
This is a major issue of the Unions as the wage for Officers was undertaken prior
to wage revision of staff & workmen and their arrears have been paid.

Capital Structure:-
The authorized equity share capital of the company as on 31
March2011 stood at Rs 304.00crores against which the paid up equity share capital
as on 31 March2011 is Rs 301.99Crores

Financial Restructuring:-
The ministry has sanctioned Rs824.90Crores towards financial
restructuring package as mentioned below:
 An amount of Rs 452.68 crores (rupees four hundred fifty two crores and
sixty eight lakhs)has been given as grants in aid for clearance of old
outstanding liabilities towards banks ,employee arrears tax arrears and other
liabilities
 The existing government loan with interest and government guarantee fee
against loan from SBI amounting to Rs.372.22crores (Rupees three hundred
seventy two crores and twenty two lakhs)has been converted as loan in
perpetuity without interest.

PERFORMANCE HIGHLIGHTS:

financial parameters:-
The directors are pleased to inform that the company has recorded a
profit before tax (PBT)of Rs.165.18crores during the year 2010-2011.This increase
in PBT is due to accounting of grant-in-aid of Rs.452.68crores as income which
has been received from government of India towards financial restricting.
Value of production:-

45
 The Company achieved a value of production of Rs.603.84crores
during the financial year 2010-2011.

MEMORANDUM OF UNDERSTANDING:-
In term of the parameters finally arrived at the memorandum of
understanding signed with government for the year 2010-2011,performance of the
company is expected to be rated as “GOOD”.
DIVISION WISE PERFORMANCE
SHIP BUILDING:-
Your Company had achieved a turnover of Rs.258.49 Crores during
the year 2008-09 on the shipbuilding front. Your Company had achieved a
production of 63772 DWT during the year 2008-09 which is 85% of the installed
capacity. The shipbuilding Division of your company achieved a value of
production of Rs. 243.08 Crores for 2009-10 as against Rs.258.49 Crores of the
previous year. The shipbuilding division of your company achieved a value of
production of Rs.243.19crores for 2010-2011 as against Rs243.08crores of the
previous year.
MAIN EVENTS:-
Following are the major events recorded by the shipbuilding division
during the year2010-2011
SI. Events Date Descriptions of vessel Owner
no
1 Fresh contracts 27Aug2010 3 no 50 TBP Tugs Indian navy
concluded
23 8 no. inshore patrol Coast Guard
Mar2011 vessel
24Mar2011 2 no.50-TBP Tugs Kandla port
trust
2 Delivery 12Apr2010 First (of 6 no)53000 GML, Chennai
DWT Bulker
05-Feb2011 Second(of 6 no)53000 GML, Chennai
DWT Bulker
3 Floating/Launching 03May2010 Floating of second (of 6 GML, Chennai
no)53000 DWT Bulker
15May2010 Launching of third (of Coast Guard
5 no)inshore patrol
vessel

46
 14Jul2010 Launching of first (of 2 Visakhapatnam
no)50 TBP Tug port trust
(VPT)
04Nov2010 Launching of second VSP port trust
(of 2 no)50 TBP Tug (VPT)
06Nov2010 Launching fourth (of 5 Coast Guard
no)inshore petrol
vessel
31Mar2011 Floating of third (of 6 GML, Chennai
no)53000 DWT Bulker
4 Keel Laying 27Dec2010 First(of 3 no)50-Ton Indian navy
BP Tug
27 Dec2010 Second (of 3 no)50- Indian navy
Ton BP Tug
30Dec2010 Fourth(of 6 GML, Chennai
no)53000DWT Bulker
30Dec2010 Fifth (of 6 GML, Chennai
no)53000DWT Bulker
05Mar2011 Third(of 3 no)50-TBP Indian navy
Tug

Order book position as on 31 May2011:-

HSL is presently having an order book of 24 vessels of
which,14 vessels are under various stages of construction the value of the above
shipbuilding order is Rs 1108.21 crores.
The details of order book position are as follows:-
SI. Yard no Type of the No. Owner (Rs in Contractual Anticip
no vessel of c delivery ated
vesse r)Balan date Deliver
ls(qty ce y date
) contrac
t value
1 11138to111 53000 DWT 4 GML, 237.29 Jul2009- Sep201
41 Diamond series Chennai Jan2011 1-
bulk carriers Aug201
3
2 11154to111 Inshore patrol 5 Indian 34.07 Mar2008- Aug201
58 vessels coast Mar2009 1-
guard Jul2012
47
48
3 11160&111 50-T bollard 2 VSP port 39.13 Mar2011- Aug201
61 pull Tugs trust Jul2011 1-
Oct201
1
4 11162to111 50-Ton bollard 3 Indian 155.40 Oct2012- Oct201
64 pull Tugs navy Jun2013 2-
Jun2013
5 11165to111 Inshore patrol 8 Indian 551.12 Aug2013- Aug201
72 vessels coast May2015 3-
guard May201
5
6 11173to111 50-T bollard 2 Kandla 91.20 Mar2013- Mar201
74 pull Tugs port trust Jun2013 3-
Jun2013
Total 24 1108.2
1

Production physical performance:-

The ship building production in DWT and capacity utilization
achieved during the year 2010-11 are presented below. The figures for same
parameters for previous year are also shown for comparison.
SI. Description unit 2010-11 2009-
no 10
1 Installed capacity(at 3.5 DWT 75250 75250
standard pioneer ships per
annum)
2 Actual production achieved DWT 61853 67572
3 Capacity utilization percentage 82% 90%
4 Productivity achieved M.hrs/DW 42.5 27.20
T

SHIP REPAIRS:-
During the year, the ship-repair division undertook repairs on 53
vessels of various types belonging to Indian Navy, Dredging Corporation of India
Ltd., shipping Corporation of India Ltd., Visakhapatnam port trust and 27 foreign
vessels and also miscellaneous repair works. The ship repair division achieved a
Turnover
49
50
of Rs.201.65 Crores inclusive of the repair works on INS Sindhukirti. The ship
repair turnover has increased by 32.88% in 2008-09. This could be achieved by
utilizing the Dock facilities to the optimum level. The ship Repairs Division of
against Rs.144.13 Crores of the previous year. Ship repair division has undertaken
belonging to Indian Navy, DCI, SCI, ONGC, VPT etc.
During the year ship repair division has undertaken repairs of 22
vessels (including 8 foreign flag)of various types belonging to Indian navy,
DCI,SCI,ONGC,VPT etc. and also miscellaneous works. The repair dock was
utilized to its optimum level. Your company achieved a ship repair turnover of
Rs277.38crores during the year2010-11and is committed to increase its revenue
from ship repairs in coming years.

Ship repair income (Rs in crores)

2007-08
2008-09
2009-10
2010-11

RETROFIT
Your company has signed a contract on 3rd October, 2005 with Indian
Navy for MR-cum-modernization of INS sindukirti and the total refit is jointly
undertaken by HSL, naval Dockyard (Visakhapatnam) & Rosoboron export (ROE).
Subsequently 8 contracts were concluded with ROE for logistic
support and material supply to carry out the medium refit.

51
 The major works on submarine that were completed under this refit
contract is enumerated below:
 Defect survey on entire hull structure completed and pressure hull repairs
commenced.
 Chemical cleaning & defect survey on piping spools of various systems
completed & pipe manufacturing commenced.
 Spares & yard material to take up repair works on Engineering equipment
and hull structure have been received.
 HSL welders were trained to take up pressure hull repairs and welding of
Titanium piping spools.
 Basic design for modification of keel block for leveling of Submarine has
been completed.
 Sonar Dome insulation renewal undertaken first time in India.
 Major infrastructure for submarine repairs has been set up.

The value of production on account of submarine Repairs was Rs.

99.31 Crores for 2009-10 as against Rs.57.52 crore of the previous years. The
value of production on account of submarine repairs at the retrofit Division was
Rs.83.27 crores.
MAJOR WORKS DURING THE YEAR 2010-11

 Repair contract of Jack up Rig “SAGAR RATNA” of ONGC, worth Rs

450 Crores is at an advanced stage of completion and targeted to be
delivered by the end of Nov 2011.
 INS Sandhayak and INS kumbhir repair orders of Rs 75 crores is
presently in progress.

MODERNISATION:-

The yard is required to be modernized to increase its capacity and

efficiency for construction of sophisticated defense vessels in future. The
modernization is planned in two phases.
(a) Phase-1-in the first phase, the existing infrastructure facilities need to be
refurbished/renewed as identified.
52
(b) Phase-2-in the second phase of modernization in order to construct sophisticated
naval vessels.

DRAWING &DESIGN OFFICE:

The design works for ongoing projects such as inshore patrol

vessel, yard crafts, Dry dock gate and bulk carriers etc. Have been carried out using
Tribon M3 software in the CAD/CAM center. The capacity of design office is also
planned to be augmented to cater for design of warships and submarines.

IMPLEMENTATION OF INFORMATION TECHNOLOGY

Your company has successfully implemented the following tasks under IT:
 Database holding various enterprise data pertaining to the ERP application
i.e., purchase, inventory,
Finance, HR & payroll etc., was upgraded with higher version to enhance
the security, scalability, reliability of the data.
 To enrich the network facility in the yard, various technical
recommendations were obtained by conducting the survey in association
with various reputed network firms.
 The following jobs were undertaken during the year 2008-09 is under
progress:

1. The applications i.e., provident fund loan, provident fund contribution,

pay arrears, family pensions, medical reimbursements etc lying under
payroll application which are placed on the legacy system platforms are
being customized and migrated to ERP package for enhanced level of
usage in terms of ease of use, online interface and integration with
enterprise modules.
2. Introduction of web-enabled employee attendance regulation system with
RFID readers at various yard entry points which enables centralized and
real-time storage of attendance data and enquiry of the same from all

53
 computers which are connected over yard LAN for effective monitoring
of time keeping management for effective usage of production man days.
3. Provides of internet for more no. of employees in the yard and for
customers in customer servicing centre by placing the highly network
security unified threat tools and proper analyzer tools to monitor the
security and usage of internet service.
4. Enrichment of HINDI version in HSL website with more content which
is in English version.

OPERATING RESULTS:
The summarized financial results of the company for the year 2010-
2011 are presented below. The profit shown is due to receipt of
Rs.452.68crores.Grant-in-aid from government of India for clearing old
outstanding liabilities reflected as extra-ordinary items in the statement given
below.
Description Rs.in crores
Ship Ship Retrofit Un Total
Buildings Repairs Allocation
Total income 247.85 286.02 91.18 12.83 637.88
Profit/loss before (170.02) 64.07 (28.20) (131.32) (265.47)
depreciation, interest
&incometax&extra-
ordinary
items(PBDIT)
Depreciation 5.07 0.46 1.35 0.80 7.68
Interest & finance 2.39 5.29 0.42 6.25 14.35
charges
Extra-ordinary - - - 452.68 452.68
items(grant in aid
from )GOI
Profit/loss before (177.48) 58.32 (29.97) 314.31 165.18
tax(PBT)
Deferred tax asset 110.19
54
written off

55
 Net profit after tax 54.99

CONTRIBUTION TO CENTRAL EXCHEQUER:-

Your company’s contribution to the national exchequer during the

year 2010-2011 by way of income tax, customs duty & excise duty is
Rs.104.64crores.

QUALITY ASSURANCE:-

The 3rd surveillance audit transition to ISO 9001:2008

standards was satisfactorily carried out during 19May 2010,21-May2010 and a
new certificate of approval of ISO 9001:2008hasbeen issued by LRQA, The 4 th
surveillance audit was satisfactorily conducted during 08Nov2010,10Nov2010.The
Quality management system of ISO9001:2008 is being maintained through
periodical internal quality audits. The 5th surveillance audit was last undertaken
between21Jun2011to23Jun2011.

INDUSTRIAL RELATIONS

The industrial relations situation in the company during the year was
cordial and harmonious. HS staff and workers union elections were held on 14-11-
09. Management has accorded recognition to the union for a period of 3 years. In
order to motivate employees, HSL has implemented new promotion policy for both
staff and workman to streamline promotions. The wage revision for staff &
workmen is due from 1-1-2009. The management has constituted a wage
negotiation committee and the negotiations have been completed. The MOU is
being processed further for the Board and Government sanction. The industrial
relations were cordial and harmonious during the year 2010-11.

The company under takes the following ship repair activities:

Oil tankers, general cargo vessels, bulk carriers, passenger’s vessels,

port crafts, hand mix bulker, survey vessels, off shore patrol vessels, drill shifts, off
shore supply vessels and drilling platforms for oil sector.

56
ORGANIZATIONAL STRUCTURE

57
 The department can be mainly categorized as follows:-
1. PRODUCTION DEPARTMENT
2. ADMINISTRATION DEPARTMENT
3. SERVICE DEPARTMENT

1. PRODUCTION DEPARTMENT

The production department mainly consists of following sections

HULL SHOP:-
It deals with material preparation like plates used for the construction of
ship.

PRE-FABRICATION:-
It deals with ship parts like the funnel, wheel house and engine roots.

FRECTION DEPARTMENT:-
Assembling the ship parts to make complete ship work

BLACK SMITH DEPARTMENT:-

It deals with railing work, flooring work etc.

STEEL METAL DEPARTMENT:-

It deals with air conditioned works.

RIGGING DEPARTMENT:-
Holding the ship with repairs.

PAINTING DEPARTMENT:-
Plumbing works in trappers.

ENGINEERING DEPARTMENT:-
Facilitating and assembling the main engine.

ADMINISTRATION DEPARTMENT

The Administration department consists of the following sections.

a) ACCOUNTS DEPARTMENT

58
 b) PERSONAL DEPARTMENT
c) INTERNAL AUDIT DEPARTMENT
d) GENERAL AUDIT DEPARTMENT

ACCOUNT DEPARTMENT:-
The following are the sections in accounts department
 COST ACCOUNTS
 BILLS AND INSURANCE
 PROVIDENT FUND
 SALARIES SECTION

Cost accounts deals with compilation of final accounts, budgets and

cost report to ministry, direct and indirect taxation that is central excise, income tax
and sales tax.
Bill and insurance deals with payments bills is passing of bills
and insurance of materials etc.
Pay account deals with the payment of wages, salaries,
provident fund and gratuity and V.R provident fund is allowed.

PERSONAL DEPARTMENT
It consists of the following cells:
 STAFF CELL
 WORKMEN CELL
 EXCUTIVE CELL

Acts which are present in the HSL are:

Promotions leave management, medical requirements, visitors man
agent facilities, general administration shifts, time keeping etc.

INTERNAL AUDIT DEPARTMENT

The department checks the value of inventories and bills

different branches of accounts are a waited annually.
GENERAL DEPARTMENT

59
 This responsible for procurement of the stationary and functional
goods others incidental items.

SERVICE DEPARTMENT

The service department consists of the following sections:-

a. Design office
b. Production, planning department
c. Quality control department
d. Purchase department
e. General stores
f. Bond store
g. Clearance department
h. Maintenance department
i. Civil engineering department
j. Medical and health department
k. Transport department
l. Security department

INFORMATION TECHNOLOGY

In the field of information Technology your company has successfully

implemented the following tasks during the year
 Action is initiated for introduction of e-procurement in HSL and likely to be
implemented by Mar 2012

 Initiated National informatics Center (NIC) mail service in view of more

confidentiality & security for all HSL official correspondence.

 Implemented the network security using group policy.

ENVIRONMENTAL ASPECTS

60
 Your company continues to be environmental friendly and has
fulfilled all the statutory requirements of central and state pollution control boards.
The company is committed to meet all the stipulated for maintaining and
protecting the environment

MILESTONE EVENTS OF HINDUSTAN SHIPYARD LIMITED

 1941 DR.RAJENDRA PRASAD, the then president of Indian National

congress laid the Foundation stone on 21-06-1941 for scindia shipyard at
Visakhapatnam
 1946 Keel for the first steam ship “JALA USHA” was laid on 22.06.1946.
 1948 First steam ship of 8000 DWT, JALA USHA was launched by pandit
JAWAHARLAL NEHRU the first prime minister of India on 14-03-1948
 1953 Switch over of the construction of steam ship to Diesel ships
 1958 Achievement of 100000 GRT
 1961 HSL becomes a fully owned Govt. of India enterprise in July, 1961.
 1962 Awarded certificate of Honour by president of India for 1961-62.
 1971 Commission of dry dock for ship repairs
 1972 Training ship “RAJENDRA” handed over to Smt. Indira Gandhi, P.M.
 1976 Commissioning of wet basin adjacent to dry dock for afloat repairs.
 1983 Laying of foundation stone for building dock on 28-08-1983.
 1983 Inauguration of stage-11 development programmed by MoS & t.
 1985 Inauguration of off-shore platform construction yard by Hon’ble sri
glani zall singh, the president of India on 17-07-1985
 1987 Inauguration of new covered building dock for construction of ships
upto 50,000 DWT by president of India on 05-04-1987
 1987 Delivery of highly sophisticated drill ship “SAGAR BHUSHAN” to
ONGC.
 1992 Float out of the first biggest vessel of 42,750 DWT bulker from the
building dock on 23-09-1992.
 1993 First time oil flown from K.G.basin, through HSL built platforms.
 1993 Delivery of the 100th vessel-M.V.LOK PRATAP on 28-06-1993.

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  1999 first biggest 1200 passenger-cum-cargo vessel “M.V.Swaraj Dweep” to
A&N Admin.
 2000 Delivery of first biggest bulker of 42,750 DWT.
 2004 First major repair of jack up oil rig ‘sagar praghati’ for ONGC
 2005 modernization &medium refit of INS sindhukirti,877 EKM submarine
 2006 INS vagli for Indian navy was successfully completed.
 2007 Launching/floating and delivery of 2 nos. 30,000 DWT bulk carriers.
 2008 second biggest 700 passenger vessel delivered to union territory of
Lakshadweep
 2009 commencement of hi-tech major lay up repairs on jack up oil rig “sagar
ratna” for ONGC
 2010 Transfer of administrative control from MOS to MOD
 2010 Delivery of the first biggest 53,000 DWT bulk carrier M.V. Good pride
to GML
 2011 Delivery of the second biggest 53,000 DWT bulk carrier M.V. Good
precedent to GML
 2011 Modernization of the yard is in progress.

Main engine installation

Out fittin
A SHIP IS BORN
Basic design

62
Detailed design

Working plans

Marking and cutting

Fabrications

Sub-assembly
Main assembly
Keel lying
Block erection
Launching

Dock and sea trails

Delivery of ship

CHAPTER - III

63
  THEORETICAL FRAME WORK OF INVENTORY
MANAGEMENT
 INVENTORY MANAGEMENT TECHNIQUES

CONCEPTUAL FRAMEWORK
64
 Inventory in a wider sense is defined as an idle source of all
enterprises. However, it is commonly used to indicate raw material in process,
finished, packaging spares and others, stocked in order to meet an expected
demand and distribution in future. Even though inventory of material is an idle
resource in the sense it is not meant for the most immediate use, it is almost
necessary to maintain some inventories for the smooth functioning of the
organization.
The benefit of inventory can be best understood if one imagines of
an organization is working on no inventories at all this organization on receiving a
sales order would have to order out the quality of materials required for computer
this order wait till this arrives and start production.

One will think of various disadvantages of this way of fluctuating

customers would invariable have to part every high price meal buy inch. The
production cost would also be high because of facilities to take advantage of
patching. Incase there is excessive receiving at either receipts or at any of the
manufacturing stages, long waiting be inevitable to get fresh suppliers. The load on
the manufacturing shop would vary from the period depending upon the order on
hand in should show a come put would not be able to provide satisfactory
customers service and would fail to take advantage of economics in bulk
procurement and batch manufacturing and this would not stand long in completion
both in the matter of price and customers.
In many organizations materials from the largest used
expenditure items analyze of the financial start of a large number of private and
public sector organization indicates that materials account of nearly 60% of total
expenditure. The various firms in which inventories exist in manufacturing
65
companies are raw

66
materials work-in-progress (semi finished goods) and finished goods. Raw
materials are those basic input materials that are converted in to finished products.

Working process inventories are semi-manufactured products that need

more work before they become finished products for sale, stocks of raw materials
and work-in-processes facilities production which stock of finished goods is
required for smooth marketing operations. These inventories serve as link between
the production and consumption of goods. A manufacturing firm will have
subsequently high levels of all three kinds of inventories which retail of whole
sales, firms will have a very high level of finished goods inventories and no raw
materials and work- in-process inventories, inventories constitute that most
significant part of current assets of a large majority of countries in India. For
example, are an organization inventories are approximately 60% of current assets
in public limited companies in India.

NATURE OF INVENTORIES: -

Inventories are stock of the product a company is manufactured for sale and
components that make up the product. The various forms in which inventories exist
in a manufacturing company are raw materials, work-in-progress and finished
goods.

Raw materials are those basic inputs that concerted in to finished products
through the manufactured process. Raw materials inventory those units, which
have been purchased and stored for future production. Work-in-process inventories
are semi-manufactured products. They represent products the need more work
before they become finished productivity for sale. Finished goods inventories are
67
those completely manufactured products, which are ready for sale Stock of raw
materials

68
and work-in-process facilities production while stock finished goods are required
for smooth marketing operational. These inventories serve as a link between the
production and consumption or goods with in manufacturing firms there will be
difference. Large heavy engineering companies produce long production cycle
products on the other hand inventories of the consumer product companies will not
be large become of short production cycle and fast turn over.

Objectives of Inventory Management:

In the context of the inventory management the firm is face with the
problem of meeting two confliction needs:
1. To maintain a large size of inventory for efficient and smooth production
and sales operations.
2. To maintain a minimum investment inventories to maximize profitability.
Both excessive and inadequate inventories are not desirable, there
are two danger points with in which the firm should be determined and maintain
optimum level of inventory investment. The optimum level of inventory will be the
level between the two degree points of excessive and inadequate inventory. The
firm should always avoid a situation of over investment or under investment in
inventories.

The major dangers of over investment are:

1. Unnecessary tie up of the firm funds and loss of profit.
2. Excessive carrying cost.
3. Risk of liquidity.

69
 The excessive level of inventories consumes funds of the firms, that
cannot be used for any other purpose, this involves opportunities cost. The
carrying cost such as the cost of storage, handling insurance, recording and
inspection also increase in proportion to the volume of inventory. These costs will
impair the firms’ profitability further. Excessive inventories carried out for long
period increases chance of loss of liquidity. This is possible under constitution of
inflation and scarcity, work-in-process is far more difficult to sell. Similarly
difficulties may be faced to dispose off finished goods inventories as time length.
The downward shifts in market and the seasonal factors may be because finished
goods to be sold at low price another danger of carrying excessive inventories is
the physical determination of inventory while in shortage facilities, thus factors are
with in the control of managing unnecessary inventory in inventories can be cut
down maintain as inadequate level of inventories is also dangerous. The
consequences of under investment in inventories are:

1. Production hold upper

2. Failure to meet delivery commitment.
Inadequate raw materials and Work-in-process inventories will result in
frequent production interruption. Similarly it finished goods inventories are not
sufficient to meet the demand of customers regularly they may shift to competition
which will amount to a permanent loss to the firm.

An effective inventory management should be:

1. Ensure continuous raw materials of facilities.

2. Uninterrupted production.
3. Maintain sufficient stock of raw materials in period of short supply and
70
 Anticipate price changes.
4. Maintain sufficient finished goods inventory for smooth sale
operation and efficient customer service.
5. Minimize the carrying cost and time.
6. Control investment in inventories and keep it at optimum level.

Types of Inventories: -
Raw materials: To hold stock of materials, an organization deploys its primary
production section and process to obtain raw material from manufacture stockiest.

Work-in-progress: Work in progress inventories are some manufacture products

that need more work before they become finished products for sale.

Finished Goods: The stock of finished goods provides a buffer between customer
and demand and manufacturing supplies.

Flabby Inventories: It comprises finished goods, raw materials and stores held
because of poor working capital management and inefficient distribution.

Profit Making Inventories: It represents stocks of raw materials and finished

goods held for realizing stock profit.

Safety Inventory: It provides for failure in suppliers unexpected spent in demand

etc., although there may be an insurance cover.

71
Normal Inventory: Based on a production plan, lead time of suppliers and
economic levels. Normal inventories fluctuate primarily with change in production
plan.

Excessive Inventory: Even an efficient management may be compelled to build

up excessive inventory for reasons beyond its control as in the case of strategic
impact as a measure of government price support of a commodity.

ADVANTAGES OF INVENTORY MANAGEMENT: -

QUICK SERVICE: Customers desire a prompt fulfillment of orders. A girl will

have to make goods available for sale. In the event of its not being able to office
quick service to customers, the latter are likely to get then orders executed the
competition, a firm is in a position to the advantage of trade discount by placing
bulk orders with suppliers.

REDUCTION IN ORDER COST: Each other increase certain cost if the number
of orders is reduced it is possible to economize on these costs or the procedure
involves each other need not be repeated each time.

EFFICIENT PRODUCTION RUNS: Inventories help a firm to make sufficient

long runs and these by achieve efficient production, which increase in the
production run, is possible to reduce the run it is possible procedure the set up
costs of operations.

PROTECTION AGAINST SHORTAGE: Adequate inventory protect a firm

against shortage that would result in production stoppage and considerable losses.
72
INVENTORY MANAGEMENT CONTROL: -

In management inventories the fill objective should be in consonance with

the shareholders wealth maximization principle. To achieve this, the firm should
determine the optimum level of inventory make the firm feasible inefficient
inventory control results in unbalanced inventory and inflexibility the firm may
some time run out of stock and sometimes may file up unnecessary stocks. This
increases the level of investments and makes the firm unprofitable. To manage
inventories efficient answers should be sought to the following two questions:
1. How much should be ordered?
2. When should it be ordered?

The first question is how much to order, relates to the problem if determining
economic order quantity and is answered with an analysis of costs to maintain
certain level of inventories. The second question when to order arises became of
uncertainness and is a problem of determining the order points.

73
INVENTORY MANAGEMENT TECHNIQUES

RE-ORDERING LEVEL:
It is the point at which if stock of a particular material in store approaches,
the storekeeper should initiate the purchase requisition for fresh supplies of that
material. This level is fixed somewhere between the maximum and minimum
levels in such a way that the difference of quantity of the material between the re-
ordering level and the minimum level will be sufficient to meet the requirements
of production up to the time the fresh supply of the material is received.
Re-ordering level = Minimum level + Consumption during the time required
to get the fresh delivery. (Or)
Re-ordering level = Maximum consumption x Maximum re-order period

MINIMUM LEVEL OR SAFETY STOCK LEVEL:

This represents the minimum quantity of the material which must be
maintained in hand at all times. The quantity is fixed so that production may not be
held up due to shortage of the material.
Minimum stock level = Re-ordering level – (Normal
Consumption x Normal Re-order Period)

MAXIMUM LEVEL:
It represents the maximum quantity of an item of material which can be held
in stock at any time. Stock should not exceed this quantity. The quantity is fixed so
that there may be no overstocking.
Maximum stock level = Re-ordering level + Re-ordering quantity –
(Minimum consumption x Minimum re-ordering period)

74
DANGER LEVEL:
This means a level at which normal issues of the material are stopped and
issued are made only under specific instructions. The purchase officer will make
special arrangements to get the materials which reach at their danger levels so that
the production may not stop due to shortage of materials.
Danger level = Average consumption * Max. Re-order period for emergency
purchases

AVERAGE STOCK LEVEL:

Average stock level = Minimum stock level + ½ of re-order quantity

ECONOMIC ORDER QUANTITY:

One of the major inventory management problems to be involved in how
much inventory should be ordered when inventory is replenished. If the firm is
buying raw materials it has to decide lots in which it has to be purchased on each
replenishment. If the firm is planning are called order quantity problems and the
task of the firm is to determine the optima or economic order quantity. Determine
are optimum inventory levels involves two types of cost:
1. Ordering cost:
The term ordering is used in case of raw materials include the entire costs
of acquiring raw materials, they include costs incurred in the following activities,
requisition purchases ordering, transportation, receiving, inspecting and storing,
ordering cost increases in proportion to the number of orders place. The clerical
and staff cost how ever do not have to vary in proportion to the number of orders
placed. Alternatively, as the number of orders increases the clerical and staff
75
costs also

76
increases. Ordering cost increases with the number of orders. Thus the more
frequently inventories acquired, the higher the firm ordering cost on the other hand
if the firm maintains large inventory levels, they will be few orders placed and
ordering cost will be relatively small. Thus ordering costs decreases with
increasing size of inventories.

2. Carrying cost:
Cost incurred for maintaining a given level of inventory is called
carrying cost. They include storage insurance taxes, determination and obsolesce.
The storage cost comprises cost of shortage costs of storage space incurred in
recording and providing special facility such as fencing lines and racks.
TABLE -3.1
The following table provides summary or ordering and carrying costs
ORDERING COSTS CARRYING COSTS
Requisition Ware housing
Order placing Handling
Transportation Clerical and staff
Receiving and inspecting and storing Insurance
Clerical and staff Deterioration and obsolescence

Carrying cost vary with inventory sizes. This behavior is contrary to that
of ordering cost, which declines with increase in inventory size. The economic size
of inventory would thus depend on trade off between carrying costs and ordering
costs.

ABC ANALYSIS:

77
 ABC analysis is a basis analytical technique for inventory
management, which enables top management to direct the effort where the result
will be the highest. This tool is popularly known as “always better control”.

This analysis classifies the inventories according to the importance of

each component. All components are not off equal importance. The firm should
therefore classify inventories to identify which item should receive major attention.
The high value items are classified as an items and would be under highest control.
“B” items fall in between these two categories and require reasonable attention of
management. “C” items represent relatively least value and would be under simple
control. The normal items in most of the organizations show the following pattern:
1. Category “A” generally consists of 15-25% of inventory, which is of highest
value.
2. Category “B” consists of 20-30% of inventory and accounts for 20-30% of
annual usage value.
3. Category “C” consists of 40-60% of inventory and accounts for 10-15% of
annual usage value.
4. The purpose of ABC analysis: the object of carrying out ABC analysis is to
develop policy guidelines for selective control.

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CHAPTER – IV

 AN OVERVIEW
 FUNCTIONS OF INSPECTION DEPARTMENT
 FUNCTIONS OF STORES DEPARTMENT
 FUNCTIONING OF MATRIALS
ACCOUNTING SECTIONS IN
ACCOUNTING
DEPARTMENT
 INVENTORY NORMS
 ANALYSIS AND INTERPRETATION

79
AN OVERVIEW
Each item has a bin card posting are done manually at present monthly
consumption statement are prepared and circulated to all concerned pre-order
levels based on 3 years history has been fixed for 70% of the items. The material
plans and places his order correspondingly, a minimum-maximum system is being
operated and a minimum stock of 6 months is aimed for B and C category items.
Usually high value items are ordered on the basis of EOQ quantities or as in the
case of regular order are placed and delivery schedule is given to these suppliers.
The delivery may be daily or weekly or monthly depending upon the quantity
consumed. For instance hydrochloric acid is delivered on daily basis. For B and C
class items minimum- minimum systems are adhered to strictly, while as stated
before B & C items are
80
operated on nil stock bases. Usually C items are ordered manually or capitalizing
the spare parts received along with the equipment.
All the indents that are raised by user departments come to the
interruption. Similarly if finished goods inventories are not sufficient to meet the
demand of customers regularly they may shift to competition, which will amount
to a permanent loss to the materials planning section. The indents are checked for
specifications substitute and availability and then cleared for necessary purchase
actions. Capital items are not process through the material planning or
maintenance sections but directly by the process through operation plant executive
after clearance by the finance and the top management. The chairman reviews the
approved budgets frequently and the consumed departments responsible for
adverse variances and questioned.
The follow up actions is required to get the materials as per the
delivery scheduled inspections department will inspect the materials is technical
and quality aspects of the material received. After receiving the materials receipts
report (MMR) along as its inspection report the purchase department will advice
the finance department to arrange the payment for the materials received. If any
irregularities in supplying of materials the actions are sought according to the
terms and conditions of the purchases order. For and rejected materials the
purchase department will have to correspondence with the suppliers and make
necessary arrangements to replacement against the damaged materials.

FUNCTIONS OF INSPECTION DEPARTMENT

The Hindustan shipyard limited materials inspection department is functioning

under the control division, which is directly reported to directory (technical).
Inspection department is equipped with the technically known ledged group
81
persons

82
to inspect materials per the requirement. The incoming materials is received and
brought the clearance owner. The store personnel will change for the inspection of
the materials with coordination of the inspection department. Inspection
department will inspect the materials specifications as per the purchases
order/technical/specifications mentioned by used department drawing and design
office and the classifications certify if any.
The following methods while inspecting the materials are followed:
1. Bulk quantity like bolts and bulbs, paint and consumable etc are inspected at
random only
2. For steel 100% verification is done for above 4.5 mm thickness the
inspection is done at random only.
3. For timber 100% inspection is done.
4. For pipes 100% inspection is done.

Inspection is considered in the following areas

a. Quality as per specifications.
b. Quality as per purchase order of suppliers packing list.
c. Condition of material such as shelf life expiry/working/serviceable
conditions. Etc.
After inspecting the materials the inspection report (IR) which is
containing all details of the material with reasons. Inspection report is prepared is 5
copies which are prepared and submitted to the following departments.
Purchase Department:
For taking necessary arrangements adjustments on the basis of IR
purchases department will correspond the matter with the supplier’s relations,
adjustments, short suppliers, etc., and follow up actions as curtained.

83
1. Stores Department:
For preparing material receipt report (MRR) for the accepted
quantity and accounting the material.
2. Drawing office /user department /project:
Who raised the purchase indent for the intimation about the
procurement?
3. Account Department:
For arranging the payment /adjustments for the accepted quantity
self-office copy for record purpose.

FUNCTIONS OF STORE DEPARTMENT

In Hindustan shipyard limited, store department is sub divided on the
basis of material wise. The organization chart encloses here will give clear view
about the total stores organization in Hindustan Shipyard limited. Normally the
functioning of all stores is similar. The main function is to maintain the proper
stock levels of various stores items for smooth run of the production schedule.
And at the same time the store function should see the huge amount of capital is
not are locked up in the form of inventories. The proper documents, which are
using for the materials in stores, are as follows:

MATERIAL RECEIPT REPORT (MRR):

This is normally prepared by the concerned stores on the basis of
inspection report. MRR has all the details of the materials such as MRR no,
date, material code, description code, unit of measurement, quantity received,
quantity
84
 accepted & p. o no suppliers, name of code, IR no & date etc, MRR will be
prepared in 5 copies for:
a. Concerned Stores: Concerned for the store is bin card.
b. Cost accounts (material section): Cost accounts for accounting the receipts in
precise stores ledger (PSL).
c. Account bills: Account bills for arrangement the payment/ adjustments.
d. Purchase Department: For information and to take necessary follow up
actions as per the purchase order.

Material Requisition (MR):

This is normally written in a prescribed format be the materials user
department. This is prepared in triplicate. Three copies are prepared and sent to
stores department for issue of materials. MR is having the details of materials
code, job no. and signature of the authorized drawer etc. After the issue then
materials the first two copies are taking by the stores department and sending
the third copy along with the issued materials to the user department. Store
department will enter the issued quantity on requisition and in bin cards. The
original MR is sent to cost account department for changing the issue to the
work order.

MATERIAL RETURN NOTES (MRN):

This is similar as material requisition written by the user production
department the MRN is for returning the unusual materials to the store, the
MRN is also containing all the details as MR but it is normally printed in
different colors. In Hindustan Shipyard Limited MR is pink/red color and MRN
is yellow color.

85
FUNCTIONING OF MATRIALS ACCOUNTING SECTIONS IN
ACCOUNTING DEPARTMENT:
The material accounting section is dealing with the maintenance of
inventory record with values. The main functions are as follows:
Receive the MRR and enter in the period stores ledger with providing
the values on the basis of purchase orders. This is done with providing the co-
operation of date processing departments (computer) periodically i.e. for
monthly. The necessary receipts entries will be passed to make the receipt into
the books of accounts while considering the receipts clues. There are some pre-
determined rates as applied for freight, insurance and material handling charges
wherever necessary. These pre-determined rates are on the basis of last year
actually.

VALUATION OF ISSUES:
Receiving and consolidation of all the materials stores and
arranging for issue valuation with the help of data processing departments
(computer).
In Hindustan Shipyard Limited all the issues of all the stores except
bond stores are valued in weighted average systems. For bond stores the issues
are based on the percentage of competition report from production planning
material accounting system passing necessary entries for consumption to make
the issues into account.

MAINTENANCE OF PRICE STORED LEDGERS:

Periodically Prices Stored Ledgers are maintained if any
discrepancies noticed in accounting if receipts and issue adjusting the same
after the intimation received from the concerned stores.
86
 ATTENDING PERPETUAL INVENTORY DISCREPANCIES:
If any discrepancies noticed Perpetual Inventory section, the
necessary physical adjustments are passed yearly.

INVENTORY NORMS

Maintain the inventory balance and intimating to the higher levels

for taking necessary steps wherever required intimating to the other level of
management about the non-moving insisting for reducing the non mobbing
surplus materials.
With the entry about department co-ordination the inventory control
management is organization of Hindustan Shipyard Limited. In order to supervise
the endues of the funds and to check in projections the bands are required to get
from the borrowing quietly management information report pertaining operating
system, funds flow statements, peak level balance sheets for the ensuring year in as
much as only 10% variance between actual and projected figures are allowed the
information system will ensure in disciplined and planned approach to credit
planning for inventory control. The maximum level of norms has been given as 4-
10m weeks for raw materials now to 5 weeks for semi finished goods, 3-8 weeks
for finished goods and 3-9 weeks for accounts receivable, depending upon the
nature of industry. In a few cases the finished goods are account receivable has
been combined and variation allowed depending on location of factories, type of
input etc, the norms are to apply by the lending institutions with a flexible
approach. Hindustan shipyard limited is following the inventory norms of BPE
since 1985 approved total inventory norms is Rs.1910 lakhs. The following is the
break up to each store wise.

87
 However the above norms are outdated norms. These norms were fixed for the
full capacity since the ship construction activity to reduce the norms to be
evaluated a fresh. If in a relationship between costs of goods expressing that how
many times stock is purchased during this year. High inventory turnover is more
profit for the organization. It means the efficient utilization of working capital and
the stock inventory in fresh and non-obsolete such company can operate on a small
profit margin with a large-scale volume on low turnover indicates a poor quality of
marketing efficiency and poor management of working capital. Executive
inventory is also for low turnover resulting in heavy loss due to obsolesce. The
problem of spares and management which are different from other classes are
initially presented the categorized of spares, cost of spares, role of maintenance
budget are brought in the content of solving the spares parts problems.

INVENTORY OF VARIOUS NORM

The entire store organization is subdivided in to 4 stores as
1. Bond stores.
2. Steel stores
3. Timber stores.
4. General stores

The functions of different stores are as follows:

Bond stores:
Bond stores are dealing with all the imported materials and specific
materials particularly for ship construction activities. The materials consumption
of bond stores is contributing major share about 60% to 70% of the total material
cost of each ship. These materials are not meant for stocks. They are meant for
88
immediate

89
consumption, This material tailor made items according to the size and design of
the ship. The imported materials are like main engine, diesel generator sets,
electrical equipment main shafts and propellers, radar and communication
equipment were those equipment. In Hindustan shipyard limited premises there is
a customers office to look after all the matters recipes and issue of imported
materials, customers vigilance is required on the ship building materials since they
are all exempted from customs duty they should used for specifies purpose.
Steel stores:
For the procurement of steel there are two indenting departments
1. Drawing design office:
For the material for vessel construction higher value and higher quality
material such as “A” class plates and sections. The material may be both
indigenous and imported.

2. Steel Store:
For the materials of “B” class and “c” class, lesser close items such as flat
etc., this type items is called as standard stock items for these items the steel and
stores is not only raise the purchases indent but fixes the level of maximum,
minimum and recording. The levels are fixed on the basis of present and future
consumption pattern out of total stores around 80% materials is “A” category for
which the design and drawing office will be purchased indent for procurement
according to the ordered vessel. Remaining 205 material is standard stock items for
which steel stores reaps the purchase indent steel stores rises the purchase indent
steel is identified by specific codifications as A, B, C and D, the international
standards specific graded steel is required for the construction of ocean going
vessels and it should by at the grades certified by
90
1. LRS-Lloyds Register of shipping
2. ABS-American Bureau of shipping
Generally still is received in standard sizes of thickness, length, and breadth.
But it is accounted in weightiest i.e. in metric tones; the main suppliers are sail
and foreign countries like Japan, Korea. Etc., and same times very few
materials are procured from local suppliers. If any rejected materials noticed
while inspecting the, material that material is kept separately, on the advice of
purchase department drawing office, that material is handed over to the
suppliers by the steel stores.

Timber Stores:
Timber store is dealing with procurement storing and issue of
timber material such as blue pine, teak Sal wood, pine wood, staging plant,
supporting board, bale wood and also for maintenance work as per the norms of
drawing office estimates and production department requirements. Timber
stores are assisting the purchase department in finalization of the tenders by
study of the following.
1. Quality
2. Delivery period
3. Specification size and standards
4.Sample…etc.,

General Stores:
The function of the general stores is sub divided in to various groups
because it deals with various items of more those 40,000 items. There is a well-

91
organized procedure for accounting of imported materials customs office pro
available with in the premises of Hindustan Shipyard Limited to look after the
matters of imported materials. Since the imported materials for ship
construction is accepted from the customs duty. Hindustan Shipyard Limited is
adopted weighted average cost method for the inventory as well as for the
consumption of steel, timber and general stores. Bond stores material is
accounted specific accounting.
The total functions is divided in the following manner:
1. Receipt section
2. Groups (concerned stores)
3. Inventory control cell

Receipt Section:
Receipts of all the materials of incoming from clearance department of
from suppliers directly. Enter all the details in a separate register as per the
delivery challans. Keep the materials in safe unsteady till the material is
inspected. Intimate and arrange for the inspiring of the materials at the earlier.
The preparation of MMR for accepted quantity as per the inspection report.
Handling over the material along with MRR to the concerned group (store).
Regarding the rejected materials entered in a separate register and kept them
under safe conditions, registered material is handed over to the suppliers on the
advice(rejected return advice) of purchase department.

Group (concerned stores):

The entire general stores activity stocking and issuing is looking after by
10 groups, general stores items are also given 8-digit code starting with 3, 4,
6&7.
92
materials and issuing the materials to the user department. The bin balance are
verified with the priced stores ledgers periodically and if any discrepancies noticed
that will be corrected by intimating sections will pass necessary consumption
statements groups personnel are extending their cooperation to conduct the physical
stock verification of per capital inventory section.

SIZE OF STORES
Hindustan shipyard limited is maintained in 4 board’s heads and their
sizes available for the last 5 years for 1995-1996 to 1999-2000 in the following
statement.
Accumulation of inventory:
The question of managing inventory areas only when the company
accumulates on inventory maintaining inventories involves typing important of the
company funds and storage and handling costs if it expensing to maintain
inventories why do companies accumulate of inventories.
1. “The transaction motive” emphasizes the to maintain inventories to
fascinated smooth production and sales operations.
2. “The precautionary motive” which emphasizes the need to maintain
inventories to guard against the risk of unpredictable changing in demand supplier
force and other factors.
3. “The speculation motive” which influences the decisions in increases or
decrease inventory levels to take advantage of price fluctuating.
At times the industry would like to accumulate raw materials in
anticipation of price rise “A” category consists of highest consumption value of
lesser percentage of items “B” category of moderate values with modern at
consumption of items but the quantity is more in consumption.
Non-moving and Surplus materials analysis:
93
 In Hindustan Shipyard Limited the year period is considered as a period
for non-moving. Surplus materials is the materials which is not having any
requirements in present raw consumption and in after consumption.
The following are the main reason for the surplus inventories in Hindustan
Shipyard Limited:

Excess procurement:
Normally steel and other consumable are procured at 5% excess to the
requirements to the production damages.
 Extra procurement of separates for general maintenance of plant and machinery
subsequently, which is outdated.
 Due to change of design of the product (i.e., shop construction)
 Spare parts of outdated assets etc.,
All the above surplus material is unused raw material. The identification of
surplus material is the important part inventory control cell is reducing disposing
the surplus and non-moving inventory.
STAGE-1:
Searching for alternative use/users. Keeping them in stock to meet the
future requirements. This can be done with coordinates of design and drawing
office/ship repairs department.
STAGE-2:
Intimate to the other public sectors under standing publicity.
STAGE-3:
By calling public tenders and auctions for disposal. Before calling public
tenders the reserve prices are to be fixed for the surplus non-moving items by the
experts committee the fixed reserves prices are to be approved by the chairman and
managing director.
94
PROBLEMS IN INVENTORY
1. Ship building material is tailor made items. Hence the lead-time is differing
from items.
2. Majority of the materials for shipbuilding are imported and international
standardized material. Hence the procurement this may be more due to
various reports and involvement of various authorities.
3. Because of Hindustan shipyard limited is being a public sector the decision
making of inventory is late through they are arrest.
PROBLEMS IN STORAGE
1. Regarding prevention of steel, steel is keeping in open yard, ship building
activities should be carried out at the sea coast, the required steel is exposed
to the nature and moisture is reads to natural decay such as rust etc., (more
decay due to salty atmosphere)
2. It is required a periodic maintenance through scald balding and anti
corrosion, painting.
3. Requiring imported machinery items those are to be maintained in air
condition stores up till installation.
4. The material is not available indigenously. It is to be stored in water. Hence
separate storage facilities are required.
5. High-grade electrodes (standard materials for ship building under ISO 9001)
are to be preserved as standard temp.

95
6. Materials like “rock wool lap pins” is kept in a separate closed area (away
from other materials)
7. Huge materials in size like main engine, lifeboats etc may not possible to
store under any stores. Hence they are to be properly covered with fireproof
trampoline etc.
8. Hindustan Shipyard limited is having closed general stores and conditional
boned stores and other stores.

PROBLEMS IN FINANCE AND ACCOUNTS: -

1. Due to majority of materials are imported all the payments for imported
materials are to be in advance because of the losses Hindustan Shipyard
Limited is facing accurate shortage of working capital to meet the
requirements in items.
2. Regarding accounting of imported materials along with other stock records
it is to be maintained additional register for the statutory requirements with
customs

96
TABLE

ANALYSIS INVENTORY MANAGEMENT

Particulars 2006-07 2007-08 2008-09 2009-10 2010-11

Steel 1199.53 7864.16 8569.50 4156.12 4932.79
Store spares 1227.84 2507.47 2481.22 7882.26 7507.81
Timber 50.57 49.72 51.06 38.01 45.09
Goods in transit, 1550.31 1502.60 6222.65 16999.0 6619.82
loose tools, under 4
inspection etc.
Steel cut pieces 87.35 104.80 130.47 104.82 290.21
Total 4115.60 12028.7 17450.9 29180.2 19395.72
5 0 5
Less: provision 246.49 233.81 233.81 233.81 233.81
between bin cards &
PSL balance
Less: Provision for 101.32 23.72 21.86 19.96 130.44
obsolesce of material

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Work in progress at 3767.79 11781.2 17209.2 28936.4 19041.47
cost 2 3 8
Ship building under 9437.94 13574.0 20006.0 18953.2 14123.77
construction 0 8 8
BALANCE 13205.7 25355.2 37215.3 47889.7 33165.24
3 2 1 6

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INVENTORY LEVEL AT THE END OF FIVE TEARS

Inventory Control

50000
40000
30000
20000
10000
0
2006-07 2007-08 2008-09 2009-10 2010-11

Interpretation:-
With reference to the above chart it can be inferred that there was an increase
during the year 2006-07(13205.73) to 2009-10 (47889.76), then it decreased in the year 2010-11
to (33165.24) at end of the year.

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Inventory Turn over Ratio:
The ratio indicates the efficiency of the firm of selling its product. It is
calculated by dividing the cost of goods sold by the average inventory.
The cost of goods sold is known then the inventory turn over ratio and can be
computed by dividing sales by average inventory of the year-end inventory. The
inventory turn over shows how rapidly the inventory is turning in to receivables
through sales. This ratio signifies the liquidity of inventory. It is used to measure and
discover the possible trouble in the form of over stocking or over valuation.

Inventory turnover ratio= Net sales/Average inventory =

31413.84/14371.72=2.18
TABLE

Year Sales Inventory ITOR

2006-07 31413.84 14371.72 2.18

2007-08 38452.02 19280.47 1.99
2008-09 39581.38 31285.26 1.26
2009-10 61896.05 42552.53 1.45
2010-11 65214.30 40527.50 1.61
ITR

100
 2011
2010
2009
2008
2007

Interpretation:-
With reference to the above chart it can be inferred that there was an decrease of the
inventory turnover ratio from the year 2006-07 (2.18) to 2008-09 (1.26), than it increase from
the year 2009-10 (1.45) to 2010-11 (1.61) at end of the year.
COMPONENTS OF INVENTORY
Inventory consists of two more components
1. Raw material
2. Work in progress
The raw material inventory should be related to materials consumed and work in
progress to the cost of production, materials consumed can be found out as opening
balance of raw materials plus purchase minus closing balance of raw materials. Cost of
production is determined as material consumed plus other manufacturing expenses
plus opening balance and closing balance of work in progress may be related to sales
to know the efficiency with which the firm converts raw materials in to work process
and work in process in to finished goods.

101
RAW MATERIAL INVENTORY TURN OVER RATIO
The ratio indicates the efficiency of the firms raw material
consumed. It is calculated by material consumed. It is calculated by material consumed
divided by average material inventory.

Inventory turnover ratio= material consumed/Average inventory = 19019.22/14371.72

=1.32

TABLE
Year MATERIAL INVENTORY RMITOR
CONSUMED
2006-07 19019.22 14371.72 1.32
2007-08 22255.48 19280.47 1.15
2008-09 26466.04 31285.26 0.85
2009-10 34457.31 42552.53 0.80
2010-11 44151.76 40527.50 1.08

2011
2010
2009
2008
2007

102
Interpretation:-
With reference to the above chart it can be inferred that there was a
decrease of the raw material turns over from the year 2006-07 (1.32) to 2009-10 (0.80),
then it increased in the year 2010-11 to (1.08) at end of the year.
INTERPRETATION: From the above analysis it is clear that the conversion process
of raw material into inventory is very slow. It leads to the delay of inventory
conversion into final sales.

INVENTORY HOLDING PERIOD:

The inventory holding period indicates of inventory and finished goods into
sales in a year another words it holds average inventory for some months or days.

Inventory holding period=365/ITR=365/1.453=251.204

TABLE
YEARS Inventory turnover Inventory holding
ratio period in days
2006-07 1.485 365
2007-08 0.524 365
2008-09 0.466 365
2009-10 0.558 365
2010-11 1.453 365
I.H.P

103
 2011
2010
2009
2008
2007

INTERPRETATION: From the above analysis it is observed that the high Inventory
holding period indicating the poor management of inventories to converting into final
product.

WORK IN PROGRESS TO TURNOVER RATIO

The work in progress is the difference between the current assets and the current
liabilities. When it is negative current liabilities exceed current assets. Raw material
consists of inventory. The efficient management of inventory indicates firm’s efficient
performance. The ratio calculated from inventory divided by the net working capital.

Work in progress=cost of production/average work in

progress=89524.53/16538.525=5.413

TABLE
year Avg. inventory Work in progress Inventory work in
progress
2006-07 7157.855 46218.16 6.456
2007-08 19280.475 47386.55 2.457
2008-09 16790.04 55189.35 3.287

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 2009-10 19479.68 66912.24 3.434
2010-11 16538.525 89524.53 5.413

2011
2010
2009
2008
2007

INTERPRETATION: From the above it is clear that the HSL is suffering with low
Working Capital. It is remarkable problem to overcome by managing inventory in an
efficient manner.

105
CHAPTER – V

 SUMMARY
 FINDINGS
 SUGGESTIONS
 CONCLUSION
 BIBLIOGRAPHY
 ANNEXURES

106
 SUMMARY

Hindustan Shipyard Limited Visakhapatnam was established in 1941 in private

sector as SCINDIA’S steam ship navigation company. Its placement is very favorable
to ship construction. It is established adjacent to the natural report to have the
important facilities of the required materials from various countries. Hindustan
Shipyard Limited launches its first vessel “JALA USHA” in 1948.
After building eight ships of the “JALA” series, scindia’s the owner of
Hindustan Shipyard Limited found it difficult to run the shipyard with out the financial
assistance from the government and appealed the government in 1948 for payment of
construction different subsidy. Finally it was decided by the government that it would of
ahead with the cooperation designation of the Hindustan Shipyard Limited was
registered on 21st January 1952 with the government holding is one-third scindia’s
signed on as agree for the above sale on 23rd February 1952. In July 1961 the
government of India also acquired the shares held by the scindia’s because the realized
that it could not keep the industry going since then the Hindustan Shipyard continues to
be fully owned and controlled as Government Company.
Hindustan Shipyard Limited’ s trust towards diversifications into
other fields is evident from its achievements is undertaking turkey projects for off
shore requirements for all sector audits capacity to meet the needs of on-shore
107
projects like

108
process industries, oil refineries, petro chemicals etc. Manufacture of selected
equipment is associated with specialist in the field is one the anvil.

Hindustan Shipyard Limited is having a very good skilled labour force because
equally work generated in the past 50 years Hindustan Shipyard Limited could get the
quality certificate ISO-9001 from CRQA London.

Hindustan Shipyard Limited from the beginning is a non-profit organization but

it was established only with the national interest, it was facing different types of
problems from its inception. Now ship-building activities is indeed depression stage
due to heavy subsidy offered the various countries like Japan, Korea etc the
international shipping price is not compatible by the India Ship builders. To awake the
situation the Indian government is also extended support to the Indian ship builders
through pan passu clauses and subsidy.
Pan Passu clause is the permission of the Indian ship owner for acquiring at
least one ship form the Indian ship builders along with the import and the government
provided subsidy at 30% on the international price for every constructed ship in India
from 1990 to 1994 this subsidy and pan passu clasues were with drawn by the
government due to the implementation of economies reforms with the internal pressure
(political) against 20% subsidiary was provided from 1994 and revised to 30%. It
provides by Hindustan Shipyard Limited is not in position to get the ordered at
international process since 1994.
Hindustan Shipyard Limited is suffering with financial crisis and working
capital shortage. The capital of Hindustan Shipyard Limited is Rs. 115545.70 crores on
31-03-2004. By implementing voluntary retirement scheme Hindustan Shipyard
Limited is reduced the employees by observing that is 31-12-2003 there are 3600
employees and there reduces as 3583 employees as on date. The heavy investment
109
rewired industries like ship building are always requited the financial support from the
government. Hindustan shipyard limited should be view with national interest and with
national unimportance but not with profit or losses. The worldwide commerce not
closed or privatized because of its losses it may be of its private sector. Hindustan
shipyard Limited is the case traveled from private sector to public sector. Hence the
government should take suitable steps to up life the industry. It is not possible to
implement the management techniques to inventory to reduce the cost of tailor made
items regarding other standardized material, Hindustan Shipyard Limited is adopted
the various inventory control techniques such as economic ordering quantity (EOQ)
fixing of various levels of maximum, minimum and reorder levels, ABC analysis and
perpetual inventories to reduce the costs of inventory and material costs.
The entire stores organization is sub divided in to four stores as:
1. Bond stores
2. Steel stores
3. Timber stores
4. General stores
There is a well organized procedure for accounting of import materials customs
office is also available with in the premises of Hindustan Shipyard Limited to look
after all the matters of imported materials. Since the imported materials for ship
construction is exempted from customs duty. Inventory control may be defined as
optimum utilization of materials of production of goods and services. It is further
defined as “The process of deciding what and how much of various items are to be
kept in stock and the time are to been quantity are to be processed Hindustan Shipyard
Limited us getting loss is due to the flack of order under utilization of capacity, excess
man power etc., How ever Hindustan Shipyard Limited is implemented some
diversifications activity such as off shore platform from ONGC and intensified ship
repairs activity including sub marine repairs etc, to reduce the losses.
110
Problems in procurement:-
Ship building material is tailor made items. Hence the lead-time is differing
from items, majority of the materials for shipbuilding are imported and international
standardization materials. Hence the procurement this may haven ore due to various
reports and involvement of various authorities. Because Hindustan Shipyard Limited is
being public sector the decision making inventories are late through they are corrected.
Problems in storage:-
1. Regarding prevention of steel, steel is keeping in open yard, Ship building
activities should be carried out at the sea coast, the required steel is exposed to the
nature and moisture is needs to natural decay such as rust etc. (more decay due to salty
atmosphere).
2. It is required a periodic maintenance through sold balding and anti corrosion,
painting.
3. Requiring imported machinery items those are to be maintained in air condition
stores up till installation.
4. The material is not available indigenously. It is to be stored in water. Hence
separate storage facilities are required.
5. High-grade electrodes (standard material for ship building under ISO 9001) are
to be preserved as standard temp.
6. Materials like “rock wool lapinus” are kept in a separate closed area (away from
other materials).
7. Huge materials in size like main engine, lifeboats etc may not possible to store
under any stores. Hence they are to be properly covered with fire proof trampoline etc.,
8. Hindustan Shipyard Limited is having closed general stores and conditional
boned stores and other stores.
9.

111
Problems in finance and accounts:-
1. Due to majority of materials are imported all the payments for imported materials are
to in advance because of the losses. Hindustan Shipyard Limited is facing accure
shortage of working capital to meet the requirements in item.
2. Regarding accounting of imported material along with other stock records it is to be
maintained additional register for the statutory requirements with customs.

Reasons for achieving lower target:-

Shipbuilding is a “complex” assembly industry. It handles, shapes,
assembles and welds large masses of steel to precision shapes and standards to achieve
a sequential production flow. The industry combines in itself almost all the
processes and technologies of the engineering spectrum and calls for high standards
of engineering practices involving inspection, handling, and installation and proving
of a variety of engines, machinery, electrical and electronic equipment, control
systems and computes.
It involves a complex combination of technology, materials and labor
intensive processes which require highly skilled labor/technicians to work in terms and
undertaken technologically sophisticated tasks to roll out of a final ship. Ships are
building against specific orders place by the shipping companies/owners. Even when
the basic requirements of the ship owners in terms of cargo-carrying capacity, draught,
speed and other characteristics are common there can be large variations in a ship
design as well as in the specifications of ship-borne equipment and systems. Ships
cannot be mass-produced unless they ate of same series, sizes, capacities etc, each
ships are to treat as a separate project. For this reason, ship builders cannot be expected
to achieve complete standardization though attempts ate being made all over the world
to standardize ships to reduce costs. The ship builders have to keep his facilities and
equipment ready to build ships of various types and sizes, according to the owner’s
112
requirements and preferences. The maximum size of a ship that can be built in a

113
particular yard is governed by physical factors such as dimensions and capacity of the
slip ways, building docks, where as access to sea and entrance channel dimension of
port. The hull is fabricated out of steel plates and sections obtained from the steel
mills. All the equipment, machinery and systems in a ship are also brought out. Since
construction of a ship can commence only after reaching complete understanding on
design and construction feature as well as specifications of all ship borne equipment
and systems, shipyard is not in a position to keep ready stock materials. They have to
bring after the contract with the owners is signed. The nature of ship building materials
including steel is such that they cannot be bought off the shelf. The ship builders has to
place orders and avail of the materials. The lead-time is inevitable in Indian conditions.
Another factor which has a bearing on the “lead time” is whether a slipway or dock is
occupied or vacant, on the basis of orders already in hand. Thus forward delivery with
“Lonf lead time” is an important feature of shipbuilding contractors. It is not an
unusual phenomenon to sign a contract for one or more ships with deliveries extending
up to 3 or 4 years in to the future.
All these factors make the ship building industry susceptible to several
problems particularly in the areas of planning and scheduling, cost estimate and cost
control, formulating market strategies, diversifications plans and development
programmers on the basis of long range projections, which may go hay wire due to
unforeseen factors. Apart from the above targets are set after discussions with ministry
and ad-hoc task forces, appointed by department of public enterprises base don market
conditions, constraints capacity etc and this an MOU is signed between ministry of
shipping and Hindustan Shipyard Limited. Other factors with play role in non-
achievements of targets:
1. Lack of adequate working capital for completions projects on hand.
2. Lack of adequate series orders
3. Low technology design charges.
114
 4. Delayed procurement / receipts of materials.
5. Low productivity.

FINDINGS

The following are the findings of my study:

 It is observed that the capacity utilization is increasing year-on-year.
 HSL is suffering with funds paucity for working capital.
 HSL is suffering with sales tax on the constructed ship.
 They implemented ERP but lack of end user training inventory
documentation is not in an efficient manner.
 It is observed that the company is increasing in its financial position year –
on- year from 2007-08 on wards with 628.11 Crs.
 The inventory levels are in an increasing trend till 2010 and then started
decreasing and now they were at 33165.24 lks for the financial year 2010-11
 The net working capital is negative because the current liabilities are more
than currents assets during 2006-07 to 2009-10. But at end with the positive
note increased to 112.03 during the year 2010-11
 The raw material turnover ratio which is having a decrease in the last two
years has increased to 1.05 from 0.80 in 2010-11.
 The inventory holding period has an increase till 2010 to reach 248.27 and it
end up with 223.60 in 2010-11.
 It has been found that due to lack of orders the inventory levels are piling up.

115
 SUGGESTIONS
To improve the returns on investments any business organization has either to
increase its sales revenue or to reduce its capital investment. It is not easy to improve
the sales revenue as well as not easy to reduce the fixed capital investment. The
inventory should be utilized in an optimal way. The following are the suggestions for
improvement for performance of Hindustan Shipyard Limited.

To the management of Hindustan Shipyard Limited: -

1. It is observed that the capacity utilization is very low. Hence the management
may search for other avenues for diversified activities to utilize the capacities
optimally.
2. It is observed that the documentation of inventory management through ERP is
not that much of efficient due to lack of end user training to the employees. So
management may concentrate to reduce the overhead expenditure by using the
cost reduction method so as to reduce the losses. Open steel stores may caused
for rusting of plats and iron rods.
3. Whatever the remaining or closing inventory of one project should be utilized
for the next projects.

116
To the government: -
1. Hindustan Shipyard Limited is suffering with lack of funds for working capital.
The government may provide working capital to meet the day-to-day expenditure.
2. Hindustan Shipyard Limited is suffering with sales tax contributed to further
losses, so the government should take the good decision to reduce sales tax ship
building activity is to be maintained with the national interest subsidy for
shipping should be maintained.

CONCLUSIONS

Government should give helping hand to uplift the shipping industry by

providing adequate financial support of facilities to place domestic ship building

orders in Indian shipyards. In the absence of Government help or subsidy the Indian

Shipyard may have to close down. And the not only suppresses industrial growth in the

country, but also the huge investment made in infrastructure and large manpower

engaged in the shipping and ship building industry directly or indirectly will become

idle and pose social, economical and political problems.

117
BIBLIOGRAPHY

The study gives the valuable input of eminent authors and contains authentic
statements and graphs.

1. Fundamentals of FM - Prasanna Chandra &

I.M.Panday.

2. F.M text & problems - M.Y.Khan & P.K.Jain.

3. ANNUAL REPORTS OF H.S.L. FOR LAST FIVE YEARS.

4. OTHER PRINTED LEAFLETS OF H.S.L

5. GENERAL ARTICLES ABOUT THE SHIP BUILDING INDUSTRY.

6. H.S.L WEBSITE

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119
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