CHAPTER ONE:

INTRODUCTION

[1]

LITERATURE REVIEW

COMPANY’S PROFILE

NTPC Limited is the largest power generating company of India. A public sector company,

it was incorporated in the year 1975 to accelerate power development in the country as a

wholly owned company of the Government of India. At present, Government of India holds

89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs,

Domestic Banks, Public and others. Within a span of 32 years, NTPC has emerged as a

truly national power company, with power generating facilities in all the major regions of

the country.

[2]

NTPC's core business is engineering, construction and operation of power generating

plants. It also provides consultancy in the area of power plant constructions and power

generation to companies in India and abroad. As on date the installed capacity of NTPC is

29,144 MW through its 15 coal based (23,395 MW), 7 gas based (3,955 MW) and 4 Joint

Venture Projects (1,794 MW). NTPC acquired 50% equity of the SAIL Power Supply

Corporation Ltd. (SPSCL). This JV company operates the captive power plants of

Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33%

stake in Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture company between

NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding Co. Ltd. The

present capacity of RGPPL is 1480 MW.

NTPC's share on 31 Mar 2009 in the total installed capacity of the country was 19.1% and

it contributed 28.50% of the total power generation of the country during 2008-09.

[3]

NTPC has set new benchmarks for the power industry both in the area of power plant

construction and operations. It is providing power at the cheapest average tariff in the

country. With its experience and expertise in the power sector, NTPC is extending

consultancy services to various organizations in the power business.

NTPC is committed to the environment, generating power at minimal environmental cost

and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive

afforestation in the vicinity of its plants. Plantations have increased forest area and reduced

barren land. The massive afforestation by NTPC in and around its Ramagundam Power

station (2600 MW) have contributed reducing the temperature in the areas by about 3°c.

NTPC has also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization

Division to manage efficient use of the ash produced at its coal stations. This quality of ash

produced is ideal for use in cement, concrete, cellular concrete, building material.

A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has been

established in NTPC with the assistance of United States Agency for International

[4]

Development. (USAID). Cenpeep is efficiency oriented, eco-friendly and eco-nurturing

initiative - a symbol of NTPC's concern towards environmental protection and continued

commitment to sustainable power development in India.

As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-

economic status of the people affected by the projects. Through its Rehabilitation and

Resettlement programmes, the company endeavors to improve the overall socio-economic

status of Project Affected Persons.

NTPC was among the first Public Sector Enterprises to enter into a Memorandum of

Understanding (MOU) with the Government in 1987-88. NTPC has been Placed under the

'Excellent category' (the best category) every year since the MOU system became

operative.

Recognizing its excellent performance and vast potential, Government of the India has

identified NTPC as one of the jewels of Public Sector 'Navratnas'- a potential global giant.

Inspired by its glorious past and vibrant present, NTPC is well on its way to realize its

vision of being "A world class integrated power major, powering India's growth, with

increasing global presence".

[5]

VISION, MISSION AND CORE VALUES

Vision

A world class integrated power major, powering India's growth with increasing global

presence.

To be a premium metals major, global in size and reach, with a passion for excellence.

Mission

Develop and provide reliable power related products and services at competitive prices,

integrating multiple energy resources with innovative & Eco-friendly technologies and

contribution to the society.

To relentlessly pursue the creation of superior shareholder value by exceeding customer

expectations profitably, unleashing employee potential and being a responsible corporate

citizen adhering to our values.

Core Values – BCOMIT

Business ethics

Customer Focus

Organizational & Professional Pride

Mutual Respect & Trust

Innovation & Speed

Total Quality for Excellence

[6]

NTPC act as a consultant

The Consultancy Wing of NTPC, with an ISO 9001:2000 accreditation, undertakes all the

Consultancy and turnkey project contracts for Domestic and International clients in the

different phases of Power plants viz. construction supervision, Project management, FQA,

Inspection services, O&M, RLA/R&M of various power utilities. With the string of

achievements behind it, NTPC has emerged as the acknowledged leader in engineering,

construction, O&M, RLA/R&M and management of power projects.

NTPC is registered as a consultant with several leading international development and

financial institutions such as The World Bank, The Asian Development Bank, the African

Development Bank, and UNDP.

At NTPC, we offer consultancy services related to infrastructure sector business such as:

Fossil fuel based thermal power plants

Combined cycle power plants

Cogeneration plants

Water supply and treatment

Environment engineering and management

NTPC as Consultant

[7]

As a result of the phenomenal success achieved by NTPC in executing its own power

projects, many utilities from India and abroad started approaching NTPC to gain from the

rich experience gained by NTPC. With this in view NTPC formally established its

Consultancy Wing in 1989.

Since then NTPC Consultancy has secured 435 Nos. orders from Domestic &

International Clients.

Some of the important aspects regarding our capabilities and experience, which place

NTPC in a unique and superior position amongst the fraternity of International Consultants,

are presented below:

International Cell

The International Cell offers a wide range of consulting services from concept-till-

commissioning of power projects and beyond.

NTPC launched a separate International Cell to meet the varied needs of IPPs

(Independent Power Procedures) and other International clients who are looking for a

world class service in power sector. The International Cell is fully backed by NTPC’s three

decades of experience and expertise. The Cell is especially tuned to meet the requirements

of International clients in terms of quick response, flexible service options and to deliver

value for money.

[8]

Services are offered in the coal, oil and gas fired thermal power plants in the areas of:

Feasibility Studies

Pre-feasibility; Feasibility; Soil Investigation; Economic and Financial Analysis;

Tariff Analysis; Socio-economic and Environmental Impact Assessment;

Rehabilitation and Resettlement; Technical and economic due diligence of Power

plants.

Engineering Services

Preliminary and detailed design engineering; Optimization; Preparation of drawings

and specifications; cost estimates; Design review and approval of shop/

manufacturer’s drawings; Testing, Commissioning, Operation and Maintenance

procedures; Equipment selection; Quality Assurance and Control & Inspection

reports; Owner’s Engineer/ Lender’s Engineer Services.

[9]

Operation and Maintenance Services

Plant Operational and Pre-start up checks; Development of Operation and

Maintenance Management Systems; Plant Performance Analysis and Optimization;

Condition monitoring of Critical Equipment; Fuel Management; Materials

Management; Spares management; Reporting on various plant operational

parameters; Supervision of overhauling.

Project Management – Planning Services

Planning, scheduling and budgetary control of project implementation;

Coordination and monitoring of costs, resources, schedules and progress.

Project Management – Site Supervision Services

Co-ordination with design office and equipment suppliers/ contractors; Ensuring

adherence to design drawings & specifications; Review and approval of

construction methods and safety requirements and codes and standards;

Implementation of safety procedures; Field quality assurance reporting; Reporting

with respect to Insurance claims; Troubleshooting at site; Witnessing and reporting

on Performance Guarantee tests set-up and results; Certification of plant

performance and commencement of commercial operation; Review and approval of

project completion reports and as built drawings; training of O&M staff.

Contract Management

Administering of : Supply Contracts; Supply and Supervision contracts; Supply and

Commissioning contracts; Turnkey contracts; Engineering Procurement and

Construction management contracts; Operation and Maintenance (O&M) contracts.

Procurement Services

Bidding documents for procurement within the framework of guidelines issued by

financing agencies like World Bank, Asian Development Bank, JBIC, KFW etc.;

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Pre-qualification documents; Invitation and evaluation of bids; Negotiations and

award of contracts.

Other Services – Renovation and Modernization Services

Life Extension and Residual Life Assessment Studies; Renovation, Up-gradation

and Modernization Services ; Troubleshooting of old plants; Technologies for

Improving Efficiency.

Other Services – Human Resources Development and Training Services

Human Resource development policies and procedures, Recruitment services,

Induction and Management Development Training, Simulator Training, etc.

Rich International Experience.

NTPC has a rich experience of executing power sector related projects abroad. Some of the

projects are:

Turnkey supply and installation of 400 kV & 132 kV Transmission lines for

Dubai Electricity & Water Authority, Dubai

Turnkey supply and installation of 132 kV Sub-stations for Dubai Electricity &

Water Authority, Dubai

Turnkey execution of 21 sub-stations for Asian Development Bank assisted 7 th

Power Project for Nepal Electricity Authority, Nepal.

Feasibility Studies for Mchuchuma Mining-cum-Power Project of about 400

MW for National Development Corporation, Tanzania.

[11]

Preparation of Procurement plan for IDA funded National HIV / AIDS

Prevention Project of Ministry of Health, Nutrition & Welfare, Govt. of Sri

Lanka.

Executive training to ALBA Engineers for ALBA Bahrain

Training to Technical personnel of Oman Refinery Company for Petroleum

India International (PII).

Deputation of experts to Nigeria to act as shift charge engineers for gas fired

project AFAM at Nigeria from Steag encotec, India.

Status assessment of Kipevu Power Station of KenGen. Kenya.

Energy audit of power plants of Saudi Electricity Company in Kingdom of

Saudi Arabia from YBAK of Saudi Arabia.

Deputation of Metallurgical expert to Mangalore and USA for technical

discussion with M/s General Electric in connection with failure of one of the

Barge mounted Gas turbine belonging to GMR Energy Ltd. in India.

Deputation of expert for assistance in due diligence of 683 MW Sidi Krier

Power project Egypt.

GROWTH PLANS

Over the last three decades, NTPC has spearheaded development of thermal power

generation in the Indian power sector. In this process, it has built a strong portfolio of coal

and gas/liquid fuel based generation capacities.

The Indian power sector is witnessing several changes in the business and regulatory

environment. The legal and policy framework has changed substantially with the enactment

of the Electricity Act 2003. To meet the twin objectives of ensuring availability of

[12]

electricity to consumers at competitive rates, as well as attract large private investments in

the sector, a new Tariff policy has also been issued. The power sector thus offers a mixed

bag of challenges and opportunities to players and NTPC would continue to review its

business strategy and portfolio in light of these changes. 

Growth of the Generation Business

Developing and operating world-class power stations is NTPC’s core competence. Its scale

of operation, financial strength and large experience serve to provide an advantage over

competitors. To meet the objective of making available reliable and quality power at

competitive prices, NTPC would continue to speedily implement projects and introduce

state-of-art technologies.

Total capacity portfolio

India’s generation capacity can be expected to grow from the current levels of about 120

GW to about 225-250 GW by 2017. NTPC currently accounts for about 20% of the

country’s installed capacity and almost 60% of the total installed capacity in the Central

sector in the country. Going forward, in its target to remain the largest generating utility of

India, NTPC would endeavour to maintain or improve its share of India’s generating

capacity. Towards this end, NTPC would target to build an overall capacity portfolio of

over 66,000 MW by 2017. 

[13]

Fuel / Energy mix for capacity addition

Currently, coal has a dominant share in the power generation capacities in India. This is

also reflected in the high share of coal-based capacities in NTPC’s current portfolio. With

high uncertainties involved in Domestic gas/ LNG, both in terms of availability and prices,

NTPC would continue to set up large pit-head coal based projects, including few integrated

coal cum power projects. To reduce the dependence on fossil fuels, there is a need to push

for renewable sources of power in the sector. NTPC would avail of opportunities to add

hydropower to its portfolio subject to competitive tariffs. A first step in this direction has

already been taken with the investment in Koldam Hydro Power Project. NTPC would

continue to closely monitor developments on nuclear front also and be open to setting up

around 2000 MW of Nuclear power generation capacity, possibly through a Joint Venture.

As a leader in power generation, NTPC would also consider other energy sources such as

biomass, cogeneration, fuel cells, etc for future development thereby reducing the

dependence on thermal fuels.

While a decision on the fuel/energy mix for NTPC in the future would be largely governed

by their relative tariff-competitiveness, the fuel mix in 2017 may be different from the

existing portfolio, though not very significantly.

Diversification along the Value Chain

NTPC has achieved the distinction of being the largest thermal generating company in

India. In the past, this focus was adequate as the industry was highly regulated with limited

diversification opportunities. Over last few years, the country has been facing acute

shortages, both in coal and gas, severely affecting optimum utilisation of its power stations

and these shortages are likely to continue in future as well. This is in spite of the fact that

[14]

India is one of the largest producers of coal in the World. To safeguard its competitive

advantage in power generation business, NTPC has moved ahead in diversifying its

portfolio to emerge as an integrated power major, with presence across entire energy value

chain. In fact, to symbolise this change, NTPC has taken on a new identity and a new name

“NTPC Limited”. NTPC has recently diversified into coal mining business primarily to

secure its fuel requirements and support its aggressive capacity addition program. In

addition, NTPC is also giving thrust on diversification in the areas of power trading and

distribution. Diversification would also allow NTPC to offer new growth opportunities to

its employees while leveraging their skills to capitalise on new opportunities in the sector.

Establishing a Global Presence

To become a truly global company serving global markets, it is essential for NTPC to

establish its brand equity in overseas markets. NTPC would continue to focus on offering

Engineering & Project Management Services, Operations & Maintenance services, and

Renovation & Modernization services in the international market.

Establishing a successful services brand would be a precursor to taking higher investment

decisions in different markets. Going forward, NTPC would continue to evaluate various

options for strengthening its presence in global markets including setting up power

generation capacity, acquisition of gas blocks etc.

[15]

POWER PLANT OPERATIONS

The operating performance of NTPC has been considerably above the national average.

The availability factor for coal stations has increased from 85.03% in 1998-99 to 92.12% in

2007-08, which compares favorably with international standards. The PLF has increased

from 75.2% in 1998-99 to 92.24% during the year 2007-08 which is the highest since the

inception of NTPC.

It may be seen from the table below that while the installed capacity has increased by

62.34% in the last ten years, the employee strength went up by only 4.23%.

[16]

Description Unit 1998-99 2008-09 % of increase

Installed Capacity MW 16,847 27,350 62.34

Generation MUs 97,609 2,00,863 105.78

No. of employees No. 23,585 23,674 4.23

Generation/employee MUs 4.14 8.48 4.83

The table below shows the detailed operational performance of coal based stations over the

years.

OPERATIONAL PERFORMANCE OF COAL BASED NTPC STATIONS

  Unit 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09

Generation BU 109.5 118.7 130.1 133.2 140.86 149.16 159.11 170.88 188.67 200.863

PLF % 76.60 80.39 81.8 81.1 83.6 84.4 87.51 87.54 89.43 92.24

Availability

Factor% 89.36 90.06 88.54 81.8 88.7 88.8 91.20 89.91 90.09 92.12

The energy conservation parameters like specific oil consumption and auxiliary power

consumption have also shown considerable improvement over the years.

INVENTORY MANAGEMENT: AN INTRODUCTION[17]

Materials Management in general and inventory control in particular are of great

importance to the manufacturing industry because materials are vital input to the

production system. Since materials in general contribute more than 50% to the cost of

production, their availability in right quantity and quality at proper time at a reasonable cost

(procurement as well as storage) require a careful and specific attention furthermore there

has to be an organized and efficient way of storage, unkeep issues and utilization of the

material resource. In the context inventory control assumes a great importance.

In the beginning inventory control was an intuitive process based on experience and

judgement but later it developed into a more scientific activity, particularly since the start

of 20th century. The concepts of selective inventory control, economic lot sizes and the

EOQ came into being. Techniques were then developed with overall production schedule in

background resulting in the concept of aggregate inventory management. However these

techniques could not cope with the dynamic nature of inventory management in the context

of modern manufacturing environment. These techniques had to work without proper

means of huge inventory data processing and were based on some short cut approximation

methods with assumptions, which were not appropriate in real life situations in

manufacturing industry. But with the availability of computer capable of handling

information in large volumes at high speed the individual manufacturing inventory items

requirement can now be pin pointed in terms of both quantity and timing. As such the

traditional inventory control techniques have been rendered obsolete in dynamic

manufacturing environments techniques like Material Requirement Planning' and' Just

in Time' inventory control have emerged as more appropriate and effective. JIT techniques

are a recent development, which originated in and is widely applied in Japan. It still in trial

or investigation stage in other countries. Material Requirement Planning called MRP in

short is the inventory control technique, which is widely used in almost all industrial

advanced countries.

[18]

Present study reviews various inventory control techniques in an engineering industry,

which is manufacturing transformers. MRP, which is based on Master Production Schedule

and implemented with the help of EDP on computer, has been found to be quite successful

in present day manufacturing environment and is highly systematic. It saves a good amount

of time, money and space as well as operational difficulties. In this work it is endeavored to

develop a comprehensive set of recommendations duly supported by appropriate PPC

information/data for implementing MRP. Relevant production data and information on

store, purchase and inventory control has been collected and processed to work out a

requisite frame work for developing and needed MRP system which, with suitable

modification and alternative/additional data can be extended to other sections of production

system also. Inventory serves many functions. People associated with each function would

prefer an inventory policy that first satisfied their pet function. Efficient Inventory

Management is therefore the one, which develops policies for keeping inventory at the

optimum level so that need of each function is satisfied and the inventory cost is

minimized.

INVENTORIES

The dictionary meaning of inventory is 'stock of goods'. An inventory may be defined as a

[19]

stock of goods or services, which are held for the purpose) or non-consumptive type.

Inventories form an alternative to the of future production or sale. The goods or services

may be a consumptive production or purchase in future. Thus inventory on one side is

stock of goods and services but on the other hand it is locked capital. Inventory serves as a

cushion between the production and consumption of goods necessitated by the

technological demands of production and transportation and customer needs. Inventories

can be categorized into several types. These are generally classified as Raw Material and

Supplies Inventories, Production Inventories, and MRO Inventories, In Process Inventories,

Finished Inventories, Material in transit inventory and Dealer stock. Figure 1.1 illustrates

the various types of inventories in a classified manner.

INVENTORY CONTROL

Inventories are generally justifiable and there are obvious economic reasons for their

existence. Since there are several costs associated with the inventories, an effective

inventory management boils down essentially to setting a balance between the opposing

cost factors. Inventory control

1. Ensures adequate supply of materials to Production means controlling the inventories in

the organization. It is a technique of maintaining stock items at desired levels, whether they

may be a raw material, goods in process or finished products.

OBJECTIVES OF INVENTORY CONTROL

The primary objectives of inventory control are:

[20]

1. To minimize idle time caused by shortage of raw materials spares etc.

2. To keep down capital investment in inventories, inventory carrying costs and

obsolescence losses.

The two objectives are in conflict with each other and the efficiency of inventory

management lies in balancing them to arrive at optimum overall results.

BENEFITS OF INVENTORY CONTROL

Following are the main benefits of inventory control:

1. Minimizes stock outs and shortages.

2. Ensures economy in purchase.

3. Reduces the possibility of excess items being stocked. Thus saving capital from

being unnecessarily locked up.

4. Eliminates duplication in ordering.

5. Keeps inventory carrying costs at lowest level.

6. Permits better utilization of available stock.

7. Provides a check against losses of material through pilferage, spoilage etc.

8. Facilitates proper accounting of material.

9. Locates and disposes inactive or obsolete items of store.

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10. Financial

11. Operation and periods.

Enables make and consumption the management to cost comparisons between perpetual

inventory values provides a reliable basis for preparing statements.

Simplifies procedures for paper work and record keeping. Increase profitability.

FACTORS INFLUENCING INVENTORY DECISIONS

There are both internal and external factors, which influence decisions on inventory in an

organization. The external factors arise from market, conditions, credit availability and

government regulations. . Market conditions can be viewed frame two angles. Firstly

there is the dynamic "nature of prices and availability. To combat this we adopt efficient

forecasting and planning techniques. Secondly there is the finite time lag between the

placing of an order and obtaining the materials, known as lead time which is defined as the

period that elapses between recognition of a need and its fulfillment. Inventory level

increases with increase in lead-time. It is comprised of administrative lead-time,

manufacturing lead-time, transporting lead time and inspection lead-time. Generally there

is variation in demand rate and lead-time. In order to compensate for uncertainties in either

lead time or demand rate, additional stocks may be carried to reduce the risk of stock out

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during the lead time interval. This additional stock is known as safety stock or buffer stock,

which is held in excess of expected demand. There is direct relationship between safety

stock and service level.

[23]

COSTS ASSOCIATED WITH INVENTORIES

The problem of balancing the costs of less than adequate inventories versus more than

adequate inventories is a complex one due to numerous costs involved. The major tangible

costs associated with inventories are ordering costs or set up costs, carrying costs,

purchase cost, under stock costs and overstocking cost.

COST INVOLVED IN HOLDING STOCKS

The various costs associated with the stock can be classified into following groups:

1. INVENTORY CARRYING COSTS

Inventory carrying costs represent the expenses of holding the stocks of goods. These

include opportunity costs of funds invested in inventories, insurance, taxes, storage and

cost of deterioration and obsolescence. These carry cost move in that proportion to the size

of inventory.

2. ORDERING COST:

These costs are in the form of procurement expenses which are incurred as and when we

have to place purchase order. These include costs incurred in the following activities:

requisitioning, purchase ordering, transporting, receiving, inspecting, and storing.

The ordering cost increase in proportion to the number of _Order placed.

[24]

3. STOCK OUT COST:

These costs arise when there is equal to the storage in production facilities. It may be in the

shape of lost sales or lost good will.

NEED FOR CODIFICATION

In inventory control, basic thing is that the controller should be able to identify the various

items of inventory in an unambiguous manner. Codification is the strategy adopted to

achieve this. Codes can be made of letters or numerals or both. Number of digits usually

ranges from seven to fourteen. The digits are split into group of the digits signify

classification based on material, type of product and availability.

There are seven type of codification system in use at present. Some important ones are:

1. Alphabetical systems

2. Mnemonic systems

3. Visual coding systems

4. Numerical system

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5. Decimal system

6. Alfa Numerical system

7. Kodak systems

8. Brisch systems

STANDARDISATION AND SIMPLIFICATION

To optimize the number of stock items and to reduce inventory, standardization and

simplification measures are essential. Uniform standards for similar items are adopted.

Unnecessary variety is reduced, most economical sizes; grades, shapes, colors and parts are

standardized. Indian standard codes can be referred to for this purpose.

TRADITIONAL METHODS OF INVENTORY CONTROL

In the beginning inventory control was an intuitive process but later it developed into more

scientific ones, particularly since the start of 20th century. The concept of economic lot size

and EOQ came into use. Then came the concept of aggregate inventory management to

control the overall inventory level, in consonance with production schedules: The

following techniques are categorized under traditional method of inventory control.

[26]

1. Selective Inventory control technique

2. Mathematical Models for inventory control.

3. Aggregate Inventory Management.

SELECTIVE INVENTORY CONTROL TECHNIQUES

The selective inventory control techniques classify the stock items on the basis of their

consumption value, criticality, availability and cost. Highly critical components or high

consumption value items are put under higher degree of control. Lesser control is exercised

over majority of items, which have low consumption value and are not critical. The

selective inventory control techniques are useful for multi item inventories. They help the

manager to effectively apply his energy to problem areas, thus resulting in optimal use of

efforts. Following are some of the selective inventory control techniques currently in use.

Sino.NOMENCLATURE

BASIS . MAIN USERS

1 ABC Classification

Annual

consumption

value

Purchase Management,

Inspection, Stores management,

Inventory control, Traffic and

material handling

[27]

2.

HML classification

(high, medium, low)

XYZ classification

Unit Price

of material

Value of

items in

storage

To control Purchase

To review inventories and their

use

3. VED classification

(Vital, Essential, Desirable)

Criticality

of the items

Inventory control of spare parts

4. FSN classification

Consumption

To control obsolescence and to (Fast, Slow, Non moving) pattern of item determine stock

level of consumption. Of the above classification methods ABC classification is the most

important and is widely used. The items are classified on the basis of annual consumption

value. 10% of the items contributing about 70% value of consumption are called items.

[28]

20 % of items contributing about 20% of consumption values are called B class items and

remaining 70% items contributing remaining 10 % value are called C class items. Careful

attention is paid to the control of A items, Control on B items is moderate and control on C

items is comparatively relaxed.

MATHEMATICAL MODELING FOR INVENTORY CONTROL

The solution of inventory problem with mathematical models is to find appropriate levels

of holding inventory, ordering sequence and the quantity that have to be ordered so that the

total cost incurred is minimized. The demand and supply conditions that act within and

without impose constraints on the decision-making process. The demand can be fully

known, partially known or completely unknown. These three situations are termed as

demand being certain; demand being risky and demand being uncertain respectively.

On supply side there are two distinct possibilities:

1. The supply being static if only a single supply is possible during the entire consumption

period.

2. Supply being dynamic if more than one supply can be obtained during the consumption

period.

These states of nature of demand and supply conditions can be combined to form six

different practical situations, namely:

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1. Supply station -demand certain

2. Supply station-demand risky

3. Supply station-demand uncertain

4. Supply dynamic-demand certain

5. Supply dynamic-demand risky

6. Supply dynamic-demand uncertain

A. SUPPLY STATIC SITUATIONS

With supply station only a single supply is possible during entire consumption period.

Obtaining News papers to be sold in particular time, ice cream for one day fair, purchase of

high fashion items. Replacement orders are either not possible or extremely expensive. For

demand certain situation simply orders has to be placed taking lead-time and shelf life into

consideration. For demand risky situation, the level of risk can be expressed in terms of

probability distribution based on past expressed in terms of probability distribution based

on past experience.

For demand uncertain situation decision-maker has to use subjective probabilities and

improve the solution based on past experience. Static inventory models although practical

and of interest are not widely applicable as dynamic models.

[30]

B. DYNAMIC MODELS

Economic Ordering Quantities:

Important assumptions in EOQ models are listed below:

1. Demand and lead-time are known and constant.

2. Replenishment is instantaneous at the expiry of the lead-time.

3. Item cost doesn't vary quantity order i.e. there are no quantity discounts.

4. Ordering and carrying cost expressions include all relevant costs and these are

constants.

5. Uniform demand in small increments. Many mathematical models for inventory

control were developed by researchers. Mathematical models based on concept of

EOQ techniques provide the total minimum inventory cost by balancing inventory

carrying and ordering costs. Total-cost of stocking inventory is the sum of purchase

costs, cost of ordering and cost of carrying inventory i.e.

T.C. = CoD/Q + CC Q/2 + PD

Where T.e. = Total cOst

Co = Ordering cost

D = Demand in units on annual basis

Cc = Cost to carry a unit inventory in stock for a given period.

[31]

P = Unit purchase cost.

Q= Lot size and Q j 2 is average inventory.

Differentiating the total cost with reference to Q gives the slope of T.C. curve. Setting the

first derivative equal to zero, identifies the point where

T.C. is minimum. Thus Qo = sqrt 2CoDjCc is obtained. This is known as economic

ordering quantity equation. It is often referred to as Wilson Formulas. It is classical

mathematical inventory model. The quantity cost curve and idealized structure of inventory

are shown in fig. 1.3 and 1.4. Some simple extensions of the classical model are in use

after relaxing some assumptions. The following are the general models in use.

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1. EOQ MODEL WITH SHORTAGE PERMITTED

Here the basic equation is transformed as under:

Qo = sqrt (2 CoDjCc).* sqrt (Cc+Cs)jCs

Cs is the shortage cost.

2. EOQ MODEL WITH QUANTITY DISCOUNTS

In this the basic equation becomes

Qo = sqrt (2CoD j KCc)

K is unit cost.

"4LOT SIZE OF PRODUCTION RUNS

ERL = sqrt(2CoDjCc(1-djp))

Where ERL is economic run length,

P is production per day and d is demand per day.

Ratio I-djp represents that portion of production which goes into inventory.

[33]

UNCERTAINTIES IN INVENTORY MANAGEMENT

In simple inventory management models both demand and supply lead times have been

assumed constant. But variability in demand and supply lead time is a reality. The effect of

demand and supply lead time variation is taken care of by carrying larger inventories called

buffer stocks or safety stock. ,

EOQ models answer the question of how to order but these don't address the question of

when to order. The later is the function of the reorders point models which identify the

reorders point (ROP) in terms of quantity.

The reorder point occurs when the quantity on hand drops to pre specified amount. That

amount generally includes expected demand during lead-time and an extra cushion of stock

which serves to reduce the probability of experiencing a stock out during lead time. There

are four determinants of the reorder point quantity:

1. The rate of demand.

2. The length of lead-time.

3. The extent of demand and lead time variability.

4. The degree of stock out risk acceptable to the management.

According to above determinants the reorder models have been worked out.

[34]

1. CONSTANT DEMAND RATE AND CONSTANT LEAD TIME

When both demand and lead-time are constant than there is no risk of a stock out created

by increased demand and lead time longer than expected. In such case ROP is equal to the

product of usage rate and lead-time.

2. VARIABLE DEMAND RATE AND VARIABLE LEAD TIME

Under normal circumstances one or other or both demand rate and lead time tend to exhibit

some variability. In order to compensate for uncertainties, in either demand rate or lead-

time, additional stocks are carried to reduce the risk of a stock out during lead time interval.

This additional stock is known as buffer stock or safety stock.

ROP = Expected demand during lead-time + Safety stock.

INVENTORY SYSTEM FOR MANAGERIAL CONTROL AT NTPC

With inventory models attempts have been made to isolate variable and parameter to

understand the behavior of inventories under a wide variety of condition and various

degrees of models completely. Managerial inventory system attempt to apply models in

operating situation in a practical way to deal with the total inventory control problem. The

following are the common inventory systems.

1. FIXED ORDER QUANTITY SYSTEMS

Here fixed quantity is ordered when the ordered point is reached.

[35]

2. FIXED ORDER INTERVAL SYSTEM

Inventory is reviewed periodically and the variable quantity order is issued so that quantity

on hand and quantity on order go up to a specified level.

3. OPTIONAL REPLENISHMENT ORDER

Stock levels are periodically reviewed but orders are placed only when inventories fall to a

predetermined level.

4. PHYSICAL CONTROL SYSTEM/TWO BIN SYSTEM

Material is stored in two bins. Regular issues are made from first bin. When the first bin is

exhausted issues are made from second bin and simultaneously an order equal to EOQ is

placed.

AGREGATE INVENTORY MANAGEMENT

Almost every traditional technique discussed earlier deals with one item. For taking

important decisions management should know about the total system rather than individual

items. The need for giving aggregate evaluation of inventory to the management was

therefore felt. Aggregate inventory is a concept and set of techniques used for manipulating

and controlling the inventories in toto. The overall inventory investment level becomes

subject to direct management control through certain policy variables such as carrying

costs and services level. Under conventional approach to aggregate inventory management,

[36]

the two inventory categories most susceptible to control by means of varying a policy

variable is lot size inventory and safety stock.

AGGREGATE LOT SIZE INVENTORY

The standard EOQ equation is EOQ = sqrt ( 2CoD j Cc) Shows the total lot size of

inventory can be increased if lower value of carrying cost is used and reduced if larger

value is employed. In aggregate lot size inventory, carrying cost is considered a

management policy variable to control the cycle stock of lot size inventory.

LOT SIZE INVENTORY MANAGEMENT INTERPOLATION TECHNIQUES

It is a technique developed for handling EOQ's in an aggregate and dealing with the

problem of constraint of EOQ equation. It provides a means to calculate directly the proper

lot size for a family of items to meet some constraints. It is a two phase techniques. In the

first phase trial economic lot sizes are calculated for each item in the chosen group using

standard EOQ equation and using reasonable inventory carrying cost. The total set up hours

required for these EOQ’s are then compared with total set up hours required for present lot

sizes. Then limit order quantities are calculated with the help of formulas A & B

Limit formula A = Ccb = Cca = ( Hbjha)2

Limit formula B = M = HajHb

Where Hb = Total set up hours for present quantities.

Ha = Total set up hours for trial order quantities.

[37]

Cca = Inventory carrying cost for trial order quantities.

Ccb = Inventory carrying cost used for limit order quantities.

The result is usually to reduce the total inventory very substantially with no change in set

up hours (operating conditions). In the second phase as series of alternatives are presented

for the family of items, showing the effect of lot size inventory when more orders are

placed or more time is spent on setting up machines. The number of alternative is varied to

suit any desired condition.

AGGREGATE SAFETY STOCK INVENTORY

The better desired service to the customer, the higher the finished good, inventory must be

kept in a business. A balance has to be a struck between customer service and inventory

investment. The reserve stock; required for each service level is calculated from annual

forecast figures, order quantity, mean absolute deviation and unit cost of item. A curve is

then plotted showing reserve stock inventory required for various levels of services. The

curve shows the rapid increase in reserve stock as the required level of customer service is

increased. Using such a curve, a reasonable level of customer service can be selected and

required reserve stock can be determined to attain that service level. The service ratio

corresponding to point selected is then used to calculate reserve stocks 4for each item in the

family. The service versus investment curve for a .group of items is then drawn and the

inventory investment required for .entire product line is shown in relation to the customer

[38]

service. Using these curves the management can see the service versus investment

alternatives that are available and they can determine the reasonable level of inventory.

DRAW BACKS OF TRADITIONAL METHODS WITH RESPECT TO

MANUFACTURING ENVIRONMENT

Due to heavy information processing constraints, the conventional methods of inventory

control suffered from imperfections. These represented the best that could be done under

the circumstances. Some unrealistic assumptions, short cut approximations were made to

make these techniques workable. With the availability of computer capable of handling

information in volumes at a very high speed, this constraint has been removed. With the

help of computer the need of individual manufacturing inventory item can be pin pointed in

terms of both quantity and timing. All the old techniques, which were based on short cut

approximation method, can no longer deliver goods. The relevance "and applicability of the

conventional inventory management concepts to manufacturing inventory is discussed

below:

1. The concept of stock replenishment doesn't fit into manufacturing inventory. It is in

conflict with basic management objectives of low inventory and high return on investment.

Stock replenishment system is based on the principle of having inventory items in stock at

all the time so as to make them a valuable at the time of need. It is intended to compensate

for the inability to determine the precise quantity and time of need in the short term future.

But in manufacturing, the inventory item should be available at the time of need rather than

[39]

to carry it just so that it would be available when and if needed. Through the use of

computer aided modern methods it is possible to pin point the quantity and timing of need

of an item. So the stock replenishment techniques are not suitable in a manufacturing

environment nowadays.

2. Reorder point techniques forecast demaI1d during replenishment lead-time and attempt

to provide some safety stock to compensate for fluctuation in demand. These techniques

are not able to determine specific timing of future demand environment and misinterpret

the observed demand behavior. These techniques result in unnecessarily high overall

inventory level and inventory imbalance.

3. Since EOQ is determined solely on the basis of ordering cost, unit cost, carrying cost,

and annual usage it is totally insensitive to the timing of actual, discrete demand arising

during the period, that the EOQ is intended to cover. After precisely determining and

positioning future requirements for an inventory item along a time axis, it can be seen that

EOQ calculation does not balance the quantity and timing of actual requirements. Let us

take a demand for ten week period as

20-0- 20-0-0-0-0-0- 20-0

The EOQ of this item may turn out to be 50. It will be more than for first 3 week

requirement but is less than 9th week requirement. 10 pieces are too carried unnecessarily

for six weeks without meeting the 9th week demand. EOQ would be still 50 if the ten week

demand is altered as under:

[40]

20-0-40-0-0-0-0-0-0-0 OR 20-0-0-0-0-0-0-0-0-40

In the first case it doesn't meet first three weeks requirement and in the second case 30

items are unnecessarily carried for nine weeks that too without meeting the requirement of

tenth weeks.

The derivation of EOQ formula is based on the assumption of gradual inventory depletion

at a steady rate which allows carrying cost to calculate for an average inventory of one half

of the ordering quantity. In manufacturing environment this assumption is highly

unrealistic.

Inventory control problem in EO models have been assumed as basically mathematical

problem. But in actual practice it is a problem of massive data processing. With the invent

of computer data processing has become easy. Safety stock serves to compensate for

fluctuations in demand. In stock replenishment (systems safety stock is calculated on every

inventory item and the sum of safety stock for all items represent a good portion of

inventory. But in material requirement planning systems safety stock is not calculated on

individual items as their, demand is certain it is only calculated for end items whose

demand) can show variability.

For order point system future demand is forecast based on past history of demand. These

forecasts are used to replenish the stock levels. These forecasts are generally erroneous. In

MRP system, past demand for component is irrelevant. The ordering philosophy is based

on actual, requirements generated from master production schedule.

[41]

Statistical forecasting where order point depends on addresses only the problem of

individual item demand magnitude but for the purpose of manufacturing, component

inventory represents matched sets. When components are forecast and ordered,

independently of each other their inventories will

Tend not to match assembly requirements and) cumulative service level will significantly

lower then the service level of parts taken individually. This is a group of components at

needed at one time for making an assembly.

MODERN INVENTORY CONTROL TECHNIQUES OF NTPC

Material Requirement Planning and Just in Time techniques have taken care of most of the

draw-backs which were being experienced with traditional inventory control techniques for

managing inventories in manufacturing environments. These techniques termed as modern

inventory control techniques are primarily meant for manufacturing environment. JIT

philosophy is of recent origin and is being widely applied in Japan. Under these techniques

component parts are manufactured only when required by down steam work center, thus

right amount of parts are made at the right time and title inventory is kept to virtually near

zero. JIT techniques are being considered and tried in other industrialized countries too

now.

The success of JIT techniques in Japan is due to unique physical and philosophical typical

[42]

production of Japanese characteristics system/ culture. These include the ability to virtually

freeze master production schedules, to cross train the highly skilled and very disciplined

Japanese workers, to utilize high degree of automation and riobotics and to profit from

close proximity and reliability of material and parts suppliers. These characteristics enable

Japanese firms to reduce system variability to the extent that demand -can be estimated

very accurately and production parameters such as machine processing times and

utilization approach very stable levels. These factors are not I exhibited in manufacturing

$systems in other countries. JIT techniques are at trial stage in industrially advanced

countries and have not found their way in developing countries, as yet. MRP items are

widely used for controlling manufacturing inventories in industrially advanced countries.

PURCHASE PROCEDURE OF NTPC

Functions of the purchase department of NTPC are: &Receiving requisition for purchase:

Ascertaining the sources of supply and selecting the supplier

Placing formal purchase order and going to follow up delivery

Receiving and checking the materials

Checking the invoice and passing the same for payment.

When the purchase department receives requisition for purchase it understands that it is the

time to purchase, i.e., it comes to know when to purchase, what to purchase and how much

[43]

to purchase. When it explores the sources of supply it knows where to purchase and at what

price to purchase.

The routine functions are:

a. Receiving Purchase Requisition

Purchase department receives purchase requisition from various sources, namely:

(i) From store-keeper in respect of materials reguarly stored. Store keeper sends the

requisition as soon as the stock reaches the ordering level metnioend in the Bin Card

( ii) From the productin control department in respect of any special material required for a

special job. A bill of material is prepared by the planning and drawing department and on

the basis of this requisition is sent. Alternatively, the planning and drawing department

prepares a bill of material a copy of which is sent to the store, and the store keeper on this

basis sends the requisition.

(iii) From the plant engineer or work manager in respect of materials for special

maintenance or construction.

(iv) From any other department in respect of materials the stock of which is not normally

maintained, for example office stationery, first-aid materials, fire kings etc.

Every purchase requisition must be in prescribed form and prepared in triplicate and duly

signed by the person authorised to do so. A valid purchase requisition authorities the

purchase department to purchase.

[44]

Original of the three copies is sent to the purchase department, the duplicate is sent to the

production control department and the triplicate is retained by the department making the

requisition as office copy.

[45]

INVENTORY MANAGEMENT AND CONTROL

Inventory is a detailed list of movable goods such as raw material general supplies and

equipment etc. and gives the quantity and value of each item. Inventory control may be

defined as the systematic location, storage and recording of goods and materials in such a

way that desires supplies can be made to the mine at minimum cost. Inventory control is

needed to maintain a reserve (store) of goods that will ensure mining operation according

to a production plan. Losses from improper inventory control included purchases in excess

than what needed & the cost of slowed production resulting from material not being

available when wanted. Proper inventory control reduces such losses to a great extent.

Function of inventory control

To run the stores effectively: This includes layout storing media (bins, shelves &

open space etc.) Utilization of storage space, receiving and issuing procedures.

To ensure timely availability of material and at the same time avoid build up of

stock levels.

To have technical responsibility for the state of material: this includes methods of

storing, maintenance procedure, studies of deterioration and obsolescence.

[46]

To have a stock control system: physical verification records (especially at the time

of stock taking) ordering policies and procedure for the purchase of goods.

Maintenance of the supply of specified raw material: general supplies component

parts in sufficient quantities to meet the demand of production.

Protecting the inventory from losses: due to improper handling and storing of goods

and unauthorized removal from stores.

Pricing all materials supplies: to the mine so as to estimate material cost.

ADVANTAGE OF A GOOD INVENTORY CONTROL.

A good inventory control has several uses and adds a great deal of flexibility to the

different mining operation.

It makes the operation independent of each other: If proper inventory is not stored

there could be many delays and inefficiency. For example if one activity has to be

completed before a second activity can be started it could stop the entire process.

Having some stored inventory between each process, it could act as a buffer.

[47]

Storing resources in inventory can be a safeguard against inflation if cash is placed

in a bank; one may get around 8% returns. On the other hand some materials have

increase in price over 30% per year. Thus it may be a better investment to keep the

financial reserve in inventory. Of course one has to consider the cost of holding or

carrying the inventory.

When the demand or supply for an inventory item is irregular storing certain

amounts in inventory is absolutely necessary.

Another important use of inventory is to avoid shortages or stock outs. If the

inventory is repeatedly out of stock many mining operation may suffer resulting in

great loss of production.

Another use of inventory is to take the advantage of quantity discounts. Many

suppliers offer discounts for large orders purchasing in large quantities can

substantially can reduces the cost of materials or products. These are however some

of the disadvantage of buying in large quantities. One will have higher storage cost

[48]

and higher cost due to spoilage , damaged stock , theft, insurance etc. further by

investing in more inventory less cash will be available to reinvest else where.

It insures against delays in deliveries. Even if the deliveries are delayed, the

company can maintain continuity of its mining operation by the reserves stock in its

mining operation by the reserves stocks in its inventory. The delays in delivery may

arise due to scarcity of materials in the market.

IMPORTANT QUANTITY STANDARD USED AS A TOOL TO CONTROL

INVENTORY.

There are five important quantity standards used as tool to control inventory.

The maximum stores: It is the upper limit of the inventory and represents a reserve

or margin of safety to be used in case of emergencies.

The minimum stores: It is the lower limit of the inventory and represents a reserve

or margin of safety to be used in case of emergency.

[49]

The standard order: It is the quantity to be purchased at any time. Repeat order

for a given material or product is always for this quantity.

The ordering point: This represents the quantity required to ensure against

exhaustion of the supply during the time interval between the placement of an order

and delivery.

Lead or procurement time: It is the time which takes the stock to reach from

reorder point to minimum stock level.

[50]

INVENTORY STRUCTURE

[51]

GOODS REQUIREMENTSGOODS REQUIREMENTS

If in stock, then issuedIf in stock, then issuedIf not, requirement is send to

Central store, LohardagaIf not, requirement is send to

Central store, Lohardaga

Supply through “Delivery chalan” by Lohardaga office

Supply through “Delivery chalan” by Lohardaga office

Issuing in receipt register in Sherengdag

Issuing in receipt register in Sherengdag

Entry in ledger in receipt sideEntry in ledger in receipt side

Issuing of items thro’ “store pass slip” or “requisition slip”

Issuing of items thro’ “store pass slip” or “requisition slip”

Entry of the above in issue register “head wise”

Entry of the above in issue register “head wise”

Items of issue register goes into issue side of the ledger.

Items of issue register goes into issue side of the ledger.

[52]

ECONOMIC PRODUCTION LOT SIZE MODEL

INVENTORY LEVEL

Q REORDER LEVEL

REORDER POINT

0

MAX. INV.

MIN. INV.

LEAD TIME

TIME

INVENTORY COST:

The evaluation of the most economic quantity to be purchased (known as economic order

quantity) involves calculation of two costs.

1. PROCUREMENT COST OR BUYING COST OR ORDERING COST

It is the cost of placing an order and includes the cost on

Calling quotation

Processing quotation

Placing or sending purchasing order

Receiving & inspecting

Inventory enquiries, verification & payment of bills.

Utilities, phone bills etc for the purchase department.

Salaries & wages of purchase department employees.

[53]

2. CARRYING COST

It consists of cost of storing and holding inventory and includes the following cost.

Cost of capital (since inventory is equivalent to locked up working capital)

Cost of storage and handling

Insurance (due to the risk of fire, theft)

Space cost (rent paid for the space)

Obsolescence, spoilage or deterioration cost (if inventory is procured in a

large quantity there is always a risk that the item may become obsolete due

to changes in design or due to natural ageing process )

Salaries & wages for warehouse employees.

[54]

ECONOMIC ORDER QUANTITY (EOQ)

HERE A= TOTAL ITEMS CONSUMED PER YEAR

Cp= PROCUREMENT OR ORDERING COST PER ORDER

Cc= ANNUAL INVENTORY CARRYING OR HOLDING COST PER

UNIT

Q= ECONOMIC ORDER QUANTITY

THEREFORE

EOQ= √2CpA/ Cc

Total cost= ordering + carrying cost

= Cp * A/Q + Cc * Q/2

TO minimize the cost taking derivative with respect to q we get

EOQ.

[55]

REORDER POINT (determining when to order)

The time between the placing and receipt of an order called lead time is often a few days

or even a few weeks. Thus when to order decision is usually expressed in terms of a

reorder point the inventory level at which an order should be placed.

ROP – DEMAND PER DAY * LEAD TIME FOR A NEW ORDER IN DAYS.

The rate o use of a particular raw material from stores is 20 units/year. The

cost of a placing and receiving an order is Rs40. The cost of each unit is Rs100. the cost

of carrying inventory in percent/year is 0.16 determine.

1. Q

2. ORDER POINT IF THE LEAD TIME IS 3 MONTHS.

SOLLUTION:

1. Q = √2ACp/Cc = √2* 20* 40/Cc = √1600/Cc

Now Cc= total annual inventory carrying cost/ total no of items consumed in a year.

= 20* 100* 0.16/20 = Rs16

Therefore Q = √1600/16 = 10 ITEMS

[56]

2. ORDER POINT

D = consumption rate = 20/ 12 items/ month

Tl = lead time = 3 months.

Qo = reorder point = 20/12* 3 = 5 units

Therefore when stock level reaches 5 items reorder should be placed.

FACTS AND FINDINGS & THEIR ANALYSIS & INTERPRETATION.

NTPC\STORE 1.xls

NTPC\store management.xls

NTPC\form 34.xls

NTPC\shd\Scrap.shs

[57]

NTPC\shd\Scrap (2).shs

HYPOTHESIS TESTING ON REQUIREMENT OF FOURTH CONTRACTOR

APRIL MAY JUNE TOTAL

VSA VSB 4910 6990 5911 17811

BKB 3420 3700 2834 9954

IRA 2080 1797 1786 5603

TOTAL 10410 12487 10531 33428

χ² = (fo - fe) ²/fe

[58]

No.s fo Fe (Fo-fe)²/fe

1 4910 5546.622 12.124

2 3420 3099.830 3.066

3 2080 1763.546 2.995

4 6990 6653.283 3.391

5 3700 3718.307 0.010

6 1797 2115.408 3.032

7 5911 5611.093 2.690

8 2834 3135.861 2.72

9 1786 1784.044 0.0001

total 272.245 30.0281

From this testing we can conclude that the shrengdag of NTPC Company has 3 contractors

to produce and transport the bauxite but from the above. Testing the need of 4 contractor is

seems to be desirable for increasing the production & transporting facilities.

[59]

NTPC LTD.

PURCHASE REQUISITION

No................

Date.....................

Desired date of delivery... .. . . . . . .. . .. .. .

51. Description Code Quantity Quantity in Remarks

No. of Materials No. Required Balance and daily

consumption

,

Prepared by............

Checked by............

Approved by............

[60]

For use of purchase deptt.

Date Purchase Name of Date of Remarks

order No. supplier delivery

Purchase officer the seller into a contract subject to acceptance of the order.

[61]

PLACING FORMAL PURCHASE ORDER AND GOING TO FOLLOW

UP DELIVERY

When selection of the supplier is over the purchase department issues a formal purchase

order to the supplier. This order inds the buyer and supplier whenever necessary. When a

supplier sends a formal price quotation it becomes an offer when the buyer sends the

purchase order it becomes an acceptance. If the order is placed within reasonable time or

before the offer lapses or before the offer is revoked such placing of order creates a

contract and supplier becomes obliged to deliver the goods and the buyer also becomes

obliged to accept delivery of the goods. Before placing purchase order the purchase

department ensures that the amount of the order is within the purchase budget limit or the

financial allocation for the purpose. If the amount exceeds such limit, prior sanction of the

additional amount is obtained from the finance department of the organization.

The purchase order is prepared in five copies (or at least three copies in case of small

organization) for sending to the - (i) Supplier, (ii) Receiving department, (iii) Department

making the purchase requisition, (iv) Accounts department, (v) Purchase order file.

Placing a formal purchase order is not enough unless it is "ensured that goods shall be

delivered timely. The purchase department shall have to follow it up. A schedule of

stipulated dates of supply, serially, is prepared. The supplies are reminded, from time to

[62]

time, of their obligation to supply on prescribed data. Mutual cooperation may be required

in this respect to ensure timely supply. In case of delay, penalty is imposed as per the terms

of contract by the affected party, but such 'cure' often becomes costly and hence

'prevention' is always considered better than 'cure'.

The following is a specimen form of a formal purchase order:

NTPC LTD. Purchase Order

To

Mr....................(Name of Supplier)

No...............

Date: ...............

Ref. No. ...............

Purchase Requisition No. """'"

[63]

Dear

Sir,

Your offer contained in your quotation no.................................Dated...............Is hereby

accepted. Please supply the following materials as per terms and conditions mentioned

overleaf:

Item Code Description Quantity Rate Value Delivery Remarks

No. No. - date

Excise Duty

Sales Tax

Discount Allowed

Packaged charged

Package to be credited on return Carriage on delivery

Terms of payment

Purchase Officer I Manager for

(NTPC LTD.)

[64]

RECEIVING MATERIALS

Materials which are purchased by the purchasing department are received either by the

Receiving Department or by the store-keeper himself. A Goods Received Note is prepared

to record the goods received. Articles which are not purchased, but are purchased by the

factory itself, are mainlyspare parts and components. In this case also Goods Received

Note is prepared after proper inspectin so that all materials including space 'parts and

components come into the' hands of the store keeper along with a Goods Received Note.

STORES REQUISITION

Store Requisition is an authorisation for issue of stores. It is prepared in prescribed form

and signed by the foreman of the department making the requisition. It is, therefore, as

valuable as a Bank cheque. A stores Requisition mentions the name of the department

asking for the issue: the job or process for which material is required; the description, code

and quantity of material asked for etc. The store keeper issues the material against the

stores requisition and then the stores requisition is passed on to (he cost office where the

material issued is priced. The store keeper makes entry in the Bin card and the cost office

makes entry in the . stores ledger on the basis of the same stores requisition. The cost office

also prepares materials statement periodically on the basis of stores requisitions served

during any period for the purpose of material accounting.

[65]

NTPC LTD.

Stores Requisition

Department.............

JOB or process..........

No....... Date.......

Description Code Quantity Rate Value Remarks

Prepared by.......... Authorized by...........

Store man......... Cost Office....

Received by...........................Priced by....

Bin No...................................Checked by.....

Stores Ledger Folio.....

[66]

INVENTORY SYSTEMS IN NTPC

Control system have grown up out of the need for management to avoid as far as possible

having to take decision on purely routine matter such as what stores to order or the size and

timing of a production order. In such a situations, there. are usually many thousands of

items to be attended to and a great deal of calculations to be done to decide what is the best

policy to pursue at a particular time.

Development of inventory control policy involves the consideration and evaluation of

numerous conflicting factors and in all aspects makes the same demand on a manager as

most other types of decision making.

Whatever policy is adopted will represent a balance between opposing interests and the

balancing of these interests which compels a manager first to state and understand his

objectives and then to try to analyze how they may best be achieved.

Before one can begin to consider what stocks and what items should be kept in what

manner, it is necessary to consider the reasons for which stocks are held. The figure below

shows in a much simplified from the place of stocks in a manufacturing process.

Manufacturing operations are sheltered from influence and the uncertainties of the outside

world by stocks. Within the company, one group of manufacturing operation is separated

from another by further stocks, so that a breakdown in one part can be isolated.

[67]

TOOLS USED FOR INVENTORY CONTROL: INVENTORY LEVELS

The summarized description about the various control level is given below:

a) Minimum Level:

The minimum level is the level below which available supplies should never drop. The

exact quantity which they represents is determined by the rate at which an items is used, its

importance in the process, the normal procurement time and whether substitutes are

available. Ideally, a new shipment should arrive just as stock reaches this minimum. Slight

variations in usage or delivery time will prevent such exact operation practice. For this

reason, minimum are not set at zero, the difference between zero and established quantity is

a safety to guard against the shortages.

b) Reorder point:

The reorder point is the quantity level at which a replenishment order should be issued to

ensure that fresh supply arrive in sufficient time to keep the item from running out of stock.

Thus a reorder point will logically consist of the following elements:

1. The average volume of the use during the normal procurement time.

2. An additional quantity or the safety factor to cover any unanticipated increase in the rate

of war in procurement time.

[68]

c) Standard Order Quantity:

The standard order quantity is that amount of material which will be requisitioned each

time available balance drop to the reorder point. The objective in setting reorder quantity

should be to achieve the lowest overall inventory cost consistent with uninterrupted

operation of the plant. Order quantity is determined by considering such things as vendors

discounts, rate of use, price, storage and handling cost and the danger of deterioration and

obsolescence. It may be pointed out here that the rate of use doesn't mean the desired rate

but the practical rate. When some component raw materials needed to manufacture an item

at scarce, it is important that order of the other component raw material be geared to the

one in shortest supply. Unless this is done, inventories become unbalanced and excessive.

d) Maximum Level:

When the system is working properly, the maximum level is the sum of the minimum level

and standard order quantity. Having laid down these levels and quantities they should be

reviewed periodically or occasionally because the assumption on which they are based, e.g.

procurement time and rate of use may change.

e) Economic Order Quantity:

When we stock items, they take up space and since we have invested money on them,

[69]

which could. be used elsewhere, we loose interest on them so long as they lie with us.

Space also means cost. Similarly, their custody means several other charges such as

custody staff, handling, insurance, depreciation while in stock and possible wastage and

obsolescence if the period of stock is long enough and custody ineffective. All these costs

are known as inventory carrying costs. Logically it means that we should purchase as and

when required. This 'hand to mouth' existence, it would be appreciated, is not possible in

trade or industry, particularly the latter. Adhoc purchases also mean certain costs. Costs are

incurred on processing of purchase orders, frequent transportation, handling, inspection etc.

these are the known ordering costs. These two types of costs are opposed to one another in

their economic effect on the business. One of the primary tasks of inventory management is

to balance those costs. This is done by bringing in the concept of economic Order Quantity

as shown in the figure below. It should avoid shortages as well as overstocking. Inventory

carrying cost and ordering cost are opposed to each other. Conditions keep on changing and

requirements also do not follow a set pattern. This requires the consideration of the policy

of providing a cushion against stock out. This cushion is called safety stock.

LEAD TIME

When material is obtained either from an outside source or from an internal manufacturing

department there is always a finite interval of time between deciding to place an order and

its subsequent fulfillment. This is the interval defined as 'Lead Time' . the lead time can be

assumed to be made up of two points:

[70]

a. An internal part

b. An external part

The internal part of lead time may also be divided into two parts:

a. Serving time or administrative time which consists of the time taken to place the order

b. Receiving and inspection lead time which consists of time taken to receive and inspect

the goods and pass them into the appropriate store.

The external part of the lead time consists of the time taken to execute the order. This

includes the time required by the supplier to get the material ready if they are not in stock

and for shipping or transporting them from supplier goodown to buyers receiving section.

INVENTORY CONTROL SYSTEMS

In many cases the decision maker may have no idea whatever of variation to expect

between the two variables of demand and lead time. If this is the case we are confronted

with decision making under uncertainty.

The problem of inventory control varies because of uncertainty about the rate of demand

and the length of procurement lead time. If certainty exist i.e. these two factors viz. demand

and lead time are relatively constant and predictable in advance, a fixed quantity of an item

would be recorded at fixed intervals. As soon as one shipment is exhausted , another would

arrive. A saw tooth marked in the figure below demonstrate how inventory items can be

greater or less than anticipated due to external and internal factors, such as weather change

[71]

and power failure. Similarly the lead time can also vary from favorable to unfavorable due

to the suppliers and/ or the transportation carriers. If inventory is not available when needed

due to any internal or external factors, a stockout occurs. The graph of inventory carryinK

cast and stockpot cost is shown in the figure below.

The situation can lead to noticeable degrease in profits and possible losses.

DETERMINATION OF SAFETY STOCK AND ORDER LEVEL

In many practical situation, it is observed that neither the consumption rate of material

(commodity) is constant throughout the year nor is the lead time. The variation in demand

and lead time cause both shortages and surpluses as shown in the figure below.

To face these uncertainties in consumption rate and lead time, extra stock is maintained to

meet out the demand if any. This extra stock is termed as Safety Stock. For determining the

safety stock we approximate the estimated maximum and normal lead time. If'S' denotes

the safety stock, '1' is the difference of the maximum and normal lead time, 'r' is the,

consumption rate during the lead time than

S=LR

For example, suppose for an item the monthly consumption is 200 units and normal lead

time is 15 days and the maximum lead time is estimated as 2 months then the safety stock

is given by

S= (2-1/2)*200

[72]

300 units

Now if we don't maintain a safety stock then the total requirement for inventory during the

lead time will be LR.

This consumption implies that as soon as the stock reaches a level LR we place an order for

Q quantity. This policy of ROL results in shortages about half the time. To avoid this we

add a safety stock and place an order when stock reaches S+ LR

i.e. ROL= S+LR for example suppose that for an item the monthly consumption is 100

units, normal lead time is 15 days and the safety stock is of 150 units then

ROL= 150+(1/2*100)

= 200 units

c. It does not depend upon the importance of the item and

d. The limits of ABC categorization are not uniform but will depend upon the size of the

under taking, its inventory as well as the number of items controlled.

CODIFICATION FOR BETTER CONTROL RESULTS

Modification is one of the best methods for unique identifications of stores. A code is then

employed to identify each stores item exactly.

There are many different types of such codes in use, and most of them are specially

[73]

designed to suit the need of the business they serve. They may be based upon the nature of

the items, the purpose for which the items are employed, or on any other basis which is

regarded as suitable according to local circumstances.

COMPUTERS AND INVENTORY CONTROL

The previous sections have dealt mainly with the theoretical methods which are available to

help with the problem of inventory control. Theoretical methods, to be of any real help,

have to be put in to practice and it must be recognized that some of these methods could

not easily be applied by hand in the environment of a busy store, ware house or

manufacturing units. For instance a certain amount of historical information is required to

operate such methods as exponential smoothing and by and large the more sophisticated the

approach used the more information must be kept.

This information must be accurate. An error in the recording of a figure usually appears as

an abrupt discontinuity in what may otherwise be a steady trend, and the forecasting

methods discussed will take action to allow for this, either by recommending excessive

orders or none at all..

The method also involve a fair amount of arithmetic, which must be carried through

accurately, or the same type of trouble will occur. If as can easily happen, the same type of

error is made repeatedly, a systematic error will be introduced into the ordering pattern,

which may be difficult to detect until it becomes blatantly obvious. an error of this type

could waste thousands of rupees in stock, holding costs or loss of sales.

[74]

The rate at which such calculations could be done is also relevant. In cases where a large

number of stock movements occur in a short time it might well be impossible to carry out

calculations by hand in the time available. Even in less dynamic environments a sudden

surge of activity can give rise to an increase in the number of mistakes made.

Nevertheless, a good forecasting technique coupled with accurate calculations of the

correct ordering levels can save tens of thousands of rupees per annum in even quite small

concerns and this is a powerful reason for trying to overcome the difficulties. This is where

a computer can help.

The intelligent use of a computer or visible record machine can overcome all of these

difficulties and provide much more information and more comprehensive checks than a

manual system could provide.

Where other aspects of business activity such as production scheduling, accounting and

invoicing are carried out on computer stock, control by computer brings further advantages.

These other systems are able to make use of the file of information about products which

the stock control systems must have as its basis and take over a correspondingly larger part

of the clerical work of the company.

Computer hardware information storage and It is not proposed to discuss in depth how

computers work but it is relevant for a moment to consider some of their principal

properties and limitations.

A typical computer configuration on which stock control can be performed consists of the

[75]

following items of hardware:

a. A central processor capable of between 5000 and 50000 multiplication's per second

which performs calculations and controls all other units by reference to a program

stored in the immediate access memory.

b. An immediate access memory (core store) holding between 32000 and 200000

characters of information typically, the program and workspace areas for a stock

file updating program would occupy 60000 characters.

c. A number of peripheral units, in configuration used for stock control the following

peripherals would be necessary, providing long term (for backing) storage and

means of entering information and recording results.

[76]

AUTOMATION - REQUIREMENT OF STOCK CONTROL SYSTEM

Whatever hardware is used there is a trade off between cost and speed of response. A large

premium has to be paid for instant response. Of course if the computer facilities for

immediate access already exist and marginal costing is used. It is much easier to justify

online processing. There are two largely independent aspects of data processing in

connection with inventory control. The first involves the keeping up of up to date records

of stocks and this performs a similar function to bin cards or a cardex file. For this purpose

the storekeeper needs either instant response or if the stocks are slow moving can afford to

use a stock list produced some time earlier say daily. In this case stock transactions are

keyed in and processed by the computer in a daily or weekly cycle.

The other aspect concerns the frequency with which re-ordering and analysis are required.

One of the most convenient methods of recording, and one which lends itself well to batch

processing on a computer, is the fIxed review period method. In this method the length of

the review period must be added to the safety stock in calculating the quantity to order and

this means that review period should not be too great to avoid an unacceptable increase in

stock levels over the ROL method.

Nevertheless, it is perfectly possible to maintain acceptable stock levels in many industries

with a review period as long as two weeks. In the company under study this period is of

one week.

Clearly if batch processing is. to be employed a strict control must be kept on the way in

[77]

which each stock movement is booked into and out of the stores. If some movements are

not recorded, the reports generated by the computer will become less and less accurate.

This is the main reason why some computer based stock control systems have fallen into

dispute in the past and forms the best illustration of why it is necessary for the stock keeper

to feel that the system is for help to him rather than being a hindrance. This can only be

achieved by involving him in the system at the design stage and once the system has been

implemented, insist on strict application of the rules embodied in the system by everyone in

senior management who may occasionally be tempted to cut corners to please customers.

It is possible to build certain safeguards into stock recording and control systems to prevent

this progressive deterioration occurring. Frequent stock checks are one method. It will

normally be possible to carry out stock checks much more frequently when a computer

system is used since most of the day to day arithmetic is being done by the computer.

The computer can be made to print stock check lists on a cyclic basis, the frequency

depending on turnover of the item concerned, and once the stock check has been done, to

print the discrepancies found. This helps to encourage accuracy and discourage pilferage.

In certain environment, such as retail stock control it is even possible to dispense with

direct recording of movements out of stock altogether and instead perform a daily or

weekly stock check as just described. In this case the computer can both replenish stocks

and if it also does accounts, check the invoices entered, providing a useful check against

pilferage.

[78]

INPUT

The movements which must be input to the computer for stock control are precisely those

which are required to be recorded in a manual system. The principal ones are:

a. Receipts into stock.

b. Issues

c. Physical stock values as found from check

d. Purchase or works orders placed

In addition, information must be given to the computers to enable it to set up and maintain

the files holding details for the parts which can be stocked. This enables the computer to

check that movements don't refer to non existent parts, and to supply details such as

descriptions of parts on output documents. Examples of this type of information are:

a. Part number and description

b. Cost, wholesale and retail price

c. Reorder quantity (if relevant)

d. Recorder lead time

e. Safety stock

f. Preferred and alternative suppliers

g. Lost sale history

[79]

OUTPUT

A wide variety of information can be obtained from a computer based stock control system,

and care is needed in selecting the way it is to be presented. It may be quite feasible to

produce a complete listing every day of every part stocked showing all outstanding orders,

but it is more than probable that the information needed cannot be found quickly amongst

the vast quantity of paper produced, only a tiny proportion of which will ever be used.

Some of reports which can be produced at various frequencies, in addition to the stock list

are:

a. Input rejection lists

b. List of movements

c. List of shortages

d. List of orders to be placed

e. Stocks to be checked

f. Stock check discrepancies

g. Price list

h. Valuation list

[80]

BENEFITS OF COMPUTER BASED INVENTORY CONTROL SYSTEM

Despite the large amount of work that must go into the successful introduction of a

computer based inventory control system, the computer can provide a number of stock

benefits. The main benefits are:

a. Accompanied by an improvement in service level.

b. Reduction of clerical work if the computer system is carefully designed.

c. Stock check frequency can be increased, leading to reduction in pilferage and more

accurate valuation of stocks.

d. Exceptional cases can be highlighted and dealt with fast.

e. If an on line system is used up to the minute information on stock availability can

be combined with automatic verification of customer information and instant credit

control.

f. Forecasting procedures previously impractical can be applied to reordering.

g. Better manual procedure.

The possession of an effective computer based inventory control system can not only save

a considerable amount of money in stock holding costs, but also forms an essential part of

more comprehensive system for order processing and production control.

[81]

RECORD MAINTAINING SYSTEM FOR PROPER ACCOUNTING

No issue should be made without supporting paper work and authorization. Some of the

methods in common use for issue of stores are briefly discussed as follows:

a. Issue on request: This is the simplest method and there are two variations.

b. Immediate issue on presentation of an issue note: Immediate issue on presentation of

an issue note or requisition slip, is a normal practice allowed in most of the stores.

LAYOUT OF STORES FOR SMOOTH RUNNING OF OPERATION

Layout means general arrangement of stores, storage equipment and space so as to

provide for most efficient receipts, storage and issue of materials. In this day arrangement

of store entrance, equipment passage and in general storage space forms pat of the store

layout. A very well planned layout of a store of warehouse will have the following

advantages:

a. Ease of receive material receipts.

b. Ease of storage.

c. Ease of issue

d. Gives better appearance.

e. Reduce damage and wastage's.

[82]

f. Cuts down pilferage and accidents.

g. Reduce operating expenses and minimum transportation and handling of

materials.

h. Adequate capacity, provision of flexibility for future expansion.

1. Efficient utilization of floor space and height.

J. Clear identification of material, quick location of items in case of physical

counting.

k. Creates better impression.

BASIC PRINCIPLES OF LOCATION AND LAYOUT

Basic principles of good storehouse’s location and layout can be listed as under; a.

Location and layout should reduce to minimum the total handling cost. Handling cost will

be low if location and layout of store allow for easy access and quick receipt storage and

issue of materials.

It should provide needed protection to the stores against damage, breakage, wastage,

deterioration and misplacement, leakage, pilferage. There should be easy identification or

location of the store items. It should be flexible enough to allow for further expansion and

changed conditions.

[83]

It should reduce fire risk to the stores and rest of the establishment.

It should allow for old or first received materials to be issued first i.e. first in first out.

HOUSING OF SCRAP

Normally the salvage bay is outside the main stores parameter. This has the following

advantage:

a. It will not intrude upon valuable storage space.

b. It will avoid the possibility of scrap or reject materials getting back into the production

line.

c. It will permit the collection vehicles to pick up materials without entering the main

goods receiving and dispatch bays, they are able to at will without congesting the main

bays, and they can spend as long as necessary in sorting and loading.

METHODS OF SALVAGE

a. Materials: This is the most obvious and frequently mentioned salvage operation. It

needs little outlay apart from suitable bags or containers to hold the materials. Operating

[84]

costs are confined to the labor of sorting into appropriate bags or containers. Materials

can with advantage be segregated at source and then stored in different compartments.

Incineration: Some times it is more economical to destroy material by incineration. It

however, costs money and the economics should be carefully studied before resorting to

this method.

b. Cable stripping: The economics of salvage clearly depends upon the value of the

recovered materials. The stripping of waste cables can be highly rewarding where there is

any significant copper and lead contents. The equipment however requires fairly high

capital investment.

Containers and Sacks:

There is a good resale value of the containers specially large drums like 200 liters drum

and jute sacking. It is worth while to ensure that least damage is caused to these items

during handling.

Fire Precautions: Following fire precautions should be observed in all store houses for

preventing outbreak of fire:

Specially inflammable stores should be segregated in separate building or in separate

stacks. Storehouse should be properly ventilated. Smoking in storehouses should be

forbidden and notices may be pasted to this effect.

[85]

Appropriate fire preventive equipment should be provided. All such equipment should be

regularly inspected and maintained.

Drill to be observed in case of fire should be laid down and all personnel working in the

storehouse should be adequately trained for fire fighting.

EVALUATION OF INVENTORIES

The main raw material used in Crompton greaves Ltd. is Copper and CRGO(cold rolled

grain oriented steel). Proper planning and handling is required for the purpose of

achieving the right quality of output. The total inventory (material cost) for

manufacturing transformer is between 70 80 % i.e. material to sale ratio is 70 to 80%. So

inventory control is most important part for efficient running of the organization.

EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE AT NTPC

In this chapter an attempt has been made to evaluate the performance of management of

inventory. Ratio analysis is used for making this evaluation. The ratios for the last five

years have been worked out and compared to draw conclusions. The various figures

required are given below:

[86]

2005 2006 2007 2008 2009

Average 1352 1566 1862 2945 3673

Inventories

Total Current 3367 4131 4117 6512 6925

Assets

Cost Of Goods 6409 5923 10789 16767 17940

Sold

RATIOS

Inventory To 0.40 0.38 0.45 0.43 0.53

Gross Working

Capital

Inventory

4.72 3.81 5.76 5.69 4.88

Turnover Ratio

[87]

2005 2006 2007 2008 2009

Inventory 77 97 64 65 75

Conversion

Period(days)

INVENTORY TO GROSS WORKING CAPITAL

Inventory to gross working capital ratio goes down in the year 2005 as compared to 2006.

It increases in the year 2007, but there is an sharp increase in the year 2008. Keeping in

view the above position, the firm should keep on going due importance to inventory as to

reduce costs.

INVENTORY TURN OVER RATIO

This ratio has been decreased from 4.72 in 2005 to 3.81 in 2006 and then increased to

5.76 in 2007. Then it decreased to 5.69 in 2008 but it again decreased to 4.88 in 2009. On

going through this ratio we observed that the firm was maintaining its inventory at most

minimum level in the year 2005 and 2006 as the inventory turn over ratio was much high

as compared to other years.

[88]

Steps should be taken to increase the inventory turn over ratio for better management of

inventories and reduce the cost of inventory.

INVENTORY CONVERSION PERIOD

It refers to the period that manufacturing unit takes to clear a lot of stock. There has been

increase in the inventory conversion period for the first year. It increases from 77 days in

2005 to 97 days in 2006. Thus it remain constant in 2008. It is desirable to have short

conversion period because it will help in reducing accumulation of inventories.

[89]

The inventory turn over ratio can be further subdivided into the following ratios:

Years 2005 2006 2007 2008 2009

Raw Material 3.05 3.12 1.0 2.41 1.57

Inventory Turn

Over Ratio

WIP Inventory 32.44 23.04 38.14 51.47 46.57

Turn Over Ratio

Finished Goods 17.49 12.60 17.49 21.47 18.27

Inventory Turn

Over Ratio

-

Average Age of 120 98 365 151 232

R.M Inventory

Average Age Of 21 29 21 17 20

Finished Goods

[90]

RAW MATERIAL INVENTORY TURN OVER RATIO:

This ratio varies slightly from 3.05 in 2005 to 3.12 in 2006 and 1.0 in 2007. Again it

increased to 2.41 in 2008. But in 2009 it sharply decreased to 1.57. It is better to have a

greater raw material turn over ratio.

WORK IN PROCESS INVENTORY TURN OVER RATIO:

Taking a general view of this ratio over a period of five years it does not see stable and

comparable to another year.

FINISHED GOODS TURN OVER RATIO:

This ratio has decreased from 17.49 in 2005 to 12.60 in 2006. It showed a large amount

of finished goods had remained idle for most of the period.

The firm should device methods. to improve this ratio because this ratio adversely affects

the other ratios.

AVERAGE AGE OF RAW MATRIALS IN INVENTORY

The analysis of five years does not reveal any bright picture of raw material in stock.

Only in the year 2006 the average age of the raw material in the stock reduced drastically

to 98 days. The firm should reduce the average age of raw material in stock for better

utilization of material with less investment.

[91]

AVERAGE AGE OF FINISHED GOODS INVENTORY:

The period for which the finished goods remain in stores is almost constant except in the

year 2008. The decrease in that year was due to less realization of payments.

Management should take steps to reduce this period.

On the whole the analysis shows that the inventories are not being managed as effectively

as it should be. The organization should adopt various techniques like ABC analysis or

other inventory models to reduce inventory. Proper care should be taken for handling raw

materials and finished goods so that the losses are minimized. This will eventually result

in higher inventory turnover. Special attention should be paid to finish goods lying in

stores. More attention is required in the inventory control and general stores where raw

material and consumable articles - are often found continuously growing.

SUGGESTION FOR FURTHER IMPROVEMENT IN INVENTORY SYSTEMS

Enterprise Resource Planning is the new concept for controlling business activity. In

this all the functions of a business are integrated and the flow of information is very fast.

In this all the duplicate activities done by different departments are eliminated and by

designing software in such a way that optimum use of resources takes place. For example

Marketing, department of a company takes order from customer for certain product. By

entering information in Marketing department, Production people come to know their

next schedule and Production Plan gets ready. Purchase person come to know, what items

are required by Production department in next coming period. In short concept of ERP is

[92]

to use best business practices and to make effective use of existing resources. There are

few ERP's are in market. SAP is one of the best and leader in ERP and is for big and large

corporate / industrial houses. BAAN is another ERP and can be feasible for medium

industry. In India local ERP's are also in market and the market is hot these days. ESS has

launched its first ERP on internet in the name of Makes in the month of Nov 99. This is

the first ERP company which has launched on Internet at a very nominal price. The cost

is only RS. 9000 per month. Objective of this company is to cover small and medium

business houses at a very nominal/ affordable price. On the other hand total cost involved

for implementation of SAP is more than two crores. Hopefully total cost for carrying

Inventory could be cut down to minimum 10% after successfully implementation of ERP.

Flow charts are explained wide activities of Inventory and Purchase in an ERP. I

personally recommend that ERP's would cut down total cost of business by around 10%

after carefully selection of suitable ERP package looking at the organization needs and .

size of the company. Once the systems are stabilizes, management can take better

decision with the help of data available in the computer.

[93]

PROJECT OBJECTIVE

The objective of this research is to get the understanding of the fact that in coming years

the usage of different minerals will be used in various sectors to uphold our economic

growth, Bauxite will definitely going to play major role to enhance this growth in

constant manner. By the facts and projections available we will remain in a favorable

position to export these mineral and thus our export will rise. NTPC is one of the largest

producer of the bauxite therefore in accordance to this company had to maintain its level

in global market scenario.

The main idea behind this report is to highlight the present working scenario of the

NTPC. To provide the management the inventory of suggestion, to identify the problem

area & giving their suggestions & lastly to incorporate the changes required in

accordance with the internal & external environment.

[94]

NEED OF THE PROJECT

Need of the project is to know the following things:

To highlight the present working scenario of NTPC

To provide the inventory suggestions to the management

To identify the problem

To incorporate the changes required in accordance with the internal and external

environment.

SCOPE OF THIS PROJECT

Taking thread from the need of the project, now it is clear that how much valuable

this project is and what benefits this project will carter. So the extent of this project is in

wider sense. This project will reveal:

That how the NTPC is handling its inventory management in subsequent years.

What policies they adopted to manage their inventories.

How these policies are influencing the profitability of the NTPC.

[95]

CHAPTER TWO:

RESEARCH

METHODOLOGY

[96]

RESEARCH METHODOLOGY

The Scheme for Research methodology is to evaluate the objective by understanding the

primary &secondary data which is available to us through various websites, Journals,

reports, articles, and mining department.

The methodology Features some of the quantifying parameters which are only

measurable by various reports, projected graphs and table available from NTPC.

Methodology objective is to take decision by analyzing the primary & secondary data of

different reports that we get from the area of NTPC & also from the experience of the

employees of the company who all are always ready to support us in any phase

[97]

RESEARCH DESIGN:

Research is an art of scientific, investigation and systematic research for pertinent

information on a specific. I have used analytical type of research. Under Analytical

research we use facts or information already available and analyses these to make critical

evaluation of the material. I have gathered the information from different sources and

analyses it is better way.

The data for research is collected using the survey technique. Surveys are best suited for

analytical research. I undertake survey to learn about people’s knowledge, belief,

satisfaction, attitude, value and so on and to measure these magnitudes in the general

population.

DATA COLLECTION SOURCES:

Data used for the research work is Primary and Secondary in nature. The Secondary

data is the data which is already exist somewhere and Primary data is gathered for a

specific purpose and is collected by the researcher for the first time. The data used in

[98]

this project is Primary data collected from various categories of employees from

different departments. Secondary data has been collected using various journals,

websites, reports, articles and publications like:-

Data available from COMPANY

COMPANY’S websites

Business today

DATA COLLECTION METHODS:

Basically there are two methods of data collection for research,

Primary Data

Secondary Data

Both methods have been used in this project.

DATA COLLECTION INSTRUMENTS:

I had prepared a questionnaire as research instrument for collecting primary data. A

questionnaire consists of a set of question presented to respondents for their answers.

Because of its flexibility, the questionnaire is the most common instrument used to

collect Primary data.

I had exercised care in wording and sequence of questions.

[99]

SAMPLING PLAN:

It can be presumed that in such an enquiry when all the items are covered no elements of

chance is left and highest accuracy is obtained. This type of enquiry involves a great deal

of time, money and energy. Due to the limitation of time and cost not practically feasible

to contact each and every respondent in the target segment. Hence quite often, I selected

constitutes what is technically called a sample.

A sampling plan is a definite plan determined before any data are actually collected for

obtaining a sample from a given population.

Sample Size:

Sample size for the questionnaire prepared for respondents was 60.

ASSUMPTIONS OF THE PROJECT:

In simple inventory management models both demand and supply lead times have been

assumed constant. But variability in demand and supply lead time is a reality. The effect

of demand and supply lead time variation is taken care of by carrying larger inventories

called buffer stocks or safety stock.

There are four determinants which have been assumed constant that are:

The size of demand.

[100]

The length of lead-time.

The extent of demand and lead time variability.

The degree of stock out risk acceptable to the management.

CHAPTER THREE:

FINDINGS

&

ANALYSIS[101]

ANALYSIS

1. Do you know about the inventory management?

Approx. 90% of the respondents may know about the inventory management.

Thus, this shows that the response is satisfactory.

2. Is inventory management is necessary in a firm?

[102]

From the pie chart shown above, we came to know that more than half of the employees

might be thought that inventory management is necessary. But 40% of them might not be

thinking so. But overall result is average.

3. Is maximum inventory creates problem for the firm?

[103]

From the responses shown above, more than 70% of the employees might

thought that maximum inventory did not create problem for the firm but one –

fourth of them might thought that it creates problem.

4. Is inventory management help to control process of NTPC?

From the pie-chart shown above, we came to know that 79% of the total

respondent might be thought that inventory control helps to control process of

NTPC. But approx 20% might be thought that it did not help to control any

process. But the overall result is satisfactory.

[104]

5. Is investment decision important for inventory management?

From the above response we came to know that more than half of the total

respondent might thought that investment decision is important. But 40% of

them might thought that it is not so important. Overall result is average.

6. Is inventory management focus to face the inventory problem as take the

investment decision?

[105]

According to the response of the respondent, most of the employees i.e. 90%

of them might thought that inventory management focus to face the inventory

problem as take the investment decision. Thus, the overall result is

satisfactory.

CHAPTER FOUR:

CONCLUSIONS

&

[106]

RECOMMENDATIONS

CONCLUDING WORDS

From the above analysis regarding the staff & workers it can be concluded that staff &

workers both had different needs and aspiration from the company.

Staff needs and aspiration are

To get the freedom of taking decision independently. There should not be any

hesitation or force from the top management.

Proper support from there immediate boss relating to moral boosting out or

motivating them towards there development.

Proper fooding & lodging facilities should be provided in the area.

Better working environment so that they can work with free mind.

To arrange programmes of training & development for the self development .

[107]

To delegate more responsibility and authority to them.

To make head of the each department which helps in decision making.

More emphasis should be given to educational facilities.

Things which provide satisfaction to employees are

NTPC a brand name.

Salary packages

Team work

Job security

WORKERS POINT OF VIEW TOWARDS THE MANAGEMENT

The main problem here we find that the maximum % of workers are illiterate because of

which it founds to be very difficult to interact and extract there views from them. But still

we made our best effort towards that.

Workers needs & aspiration from the management.

Increase in their wages structure.

Imparting the education facilities to remove illiteracy.

Increasing there housing allowances.

There participation in the management decision.

[108]

To provide training programme for increasing there efficiencies.

Proper canteen facilities

Drinking water in area

Proper rest shelter

Latrine & urine facilities

Incentive facilities

Advances provision

RECOMMENDATIONS

In the years to come, supply cost reduction will be more vital than ever in the highly

competitive export markets that lie ahead. The development of minerals markets and the

new liberalized environment mean that often small, incremental projects will be favored

instead of big projects which could benefit economies of scale but would not fit with the

development of mineral & metal markets.

Mining business is going to take of in a very big way in the coming years, NTPC

company will be one of the major mining company whose growth will add the value to

our country GDP growth rate import options in this part depends upon the energy mix to

be used by India. This report cannot be concluded simply by generating the facts and

figures, but moreover it depends on the strategy to use bauxite as a mineral to serve

[109]

energy hungry India as one option, but the viability of these options still remains in future

to deliver.

Along with the glory of NTPC company It is also concluded that shrengdag mine of

NTPC division is one of the major operation area of NTPC company serving the

company there raw material (bauxite) from the past 30 years but not fulfilling the

requirement of area regarding availability of basics needs such as proper fooding &

lodging facilities, proper conveyance for service for staff, well maintained road etc.

The company should take corrective action regarding fulfilling the needs of employees &

workers so that near in future no one can refuse there child to work in NTPC division .

Lastly it is wonderful experience of ours to complete our internship from such a branded

company. We gained a lots of knowledge related to the practical & actual working

condition which will be helping us through out our professional life & thanks to all

shrengdag staff for there full support .

Following specific recommendations regarding. Various system parameters are

being made at the culmination of the studies:

1. Planning horizon of 3 months will be most appropriate for the firm. Tentative

portion of planning horizon will be in addition to it which can be for another 9

months.

[110]

2. A bucket size of one week is most practicable.

3. Weekly cycle of re-planning will be more suitable.

LIMITATIONS

There were many limitations and shortcoming faced by the researcher while

conducting the analysis. These shortcomings could lead to serious imbalances in the

organization so it is imperative to find ways to work on them.

To reduce or eliminate these shortcomings and it be the perfect system to

rely upon and maximum efficiency and output is there in it.

Certain gaps we would come to know through analysis, but there are more,

which are listed below.

The member of the organization had reservation in revealing many of the

details of the company.

There is time limitation, as it is very difficult to study exhaustively in a limited

time period of eight weeks.

[111]

Lack of coordination and communication was experienced while collecting the

data for the present study.

Respondents seemed to be over burdened with work so they didn’t give proper

attention

People are hesitating in answering the question.

Employees were not interested in filling open-ended questions.

CHAPTER FIVE:

BIBLIOGRAPHY[112]

BIBLIOGRAPHY

SECONDARY DATA FROM

SHRENGDAG MINE REPORT

BOOKS

Siddiqui S.A, “Financial Accounting”, (2005), Laxmi Publication, New Delhi.

Pandey I.M, ”Financial Management”,(2005), Vikas Publishing House Pvt

ltd,New Delhi.

Tulsian P.C, “Financial Accounting”, (2003), Pearson Education, Delhi.

WEBSITES

www.altavista.com

www.google.com

[113]

www.encarta.com

www.wickypedia.com

www.domain-b.com

PRIMARY DATA FROM SHRENGDAG MANAGEMENT

APPENDIX

[114]

APPENDIX

QUESTIONNAIRE

4. Do you know about the inventory management?

a) Yes

b) No

5. Is inventory management is necessary in a firm?

a) Yes

b) No

3. Is maximum inventory creates problem for the firm?

[115]

a) Yes

b) No

4. What is the best inventory status for a firm?

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5. What is the process of inventory control system?

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6. Is inventory management help to control process of NTPC?

a) Yes

b) No

7. Is investment decision important for inventory management?

[116]

a) Yes

b) No

8. What is the problems face in inventory management?

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9. Is inventory management focus to face the inventory problem as take the

investment decision?

a) Yes

b) No

10. What are the seasonal variations of inventory management in NTPC?

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[117]

11. What are the various techniques of inventory management?

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[118]