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(A GOVT. OF INDIA UNDERTAKING UNIT)

SUMMER PROJECTWORKING CAPITAL MANAGEMENT

OF

BOKARO STEEL PLANT (BSL)

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SUBMITED TO:- SUBMITED TO:-

Mr. R.B.SHARMA MOKIM ANSARI

(Jr.Manager ,F&A) Rill No:- 95342239695

Bokaro Steel Plant YEAR:-(2009-2011)

SAIL

ACKNOWLEDGEMENT

At the very outset, I wish to express my heartly gratitude to all those who extended their help,

guidance and Suggestion and without their help it was not possible for me to complete this

Project Report.

I am deeply indebted to my guide Mr. R.B.Sharma (Jr. Manager), Miss Poonam (Dy.

Manager), Mr. Jitendra Kumar (Dy. Manager), Mr. S.K.Roy (Dy. Manager), U.S.Bhaskar

(Dy. Manager), & Mr.Vishal Jain (Jr. manager) for his valuable and enlightened guidance as

well as freedom he had offered to me during the project work.They ever prepared to feed

Necessary information and guidance.

I am also thank full to all the employee who provide the practical information about the

production process, practical show the working criteria of the plant.

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CERTIFICATECERTIFICATE

This is to certify that the project entitled WORKING CAPITAL MANAGEMENT at

BOKARO STEEL PLANT has been carried out by MOKIM ANSARI from 07th June to 17th

July 2010, under my supervision in partial fulfillment of his Master of Business

Administration at SWAMI VIVEKANAND COLLEGE OF MANAGEMENT, RAM

NAGAR BANUR, CHANDIGARH.

I am satisfied with his sincere performance and study conducted by him in BOKARO STEEL

PLANT.

I recommend to submit the project report. I wish him all success in life.

This is also certified that the project work is original and has not been submitted to any other

place.

DATE: Mr. R.B.SHARMA

(Jr. Manager, F& A)

Bokaro Steel PlantBokaro Steel Plant

SAILSAIL

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DECLARATION

I Mokim ansari ,, Roll No. 95342239695 hereby declare that A PROJECT ONWORKING CAPITAL MANAGEMENT IN BOKARO STEEL LIMITED, SAIL

submitted to SWAMI VIVEKANAND COLLEGE OF MANAGEMENT RAMNAGAR

BANUR, Affiliated to punjab technical university,Approved by A.I.C.T.E. Ministry of H.R.D.

Government of India in partial fulfillment for the award of Degree in MASTER OF BUSINESS

ADMINISTRATION (MBA) and that the project has not previously formed the basis for the

award of any other Degree, Diploma, Associate-ship, Fellowship or other title.

.

MOKIM ANSARI

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INDEX

Contents page no.

1. Executive summary 5

2. Introduction

Global Steel Scenario and Indian Steel Industry 6Global Steel Scenario and Indian Steel Industry 6

SAIL 12

BSL 13

3. Review of literature 34

4. Research Methodology 37

5. Working Capital Overall View

Cash Management 38

Inventory Management 48

Receivable Management 61

6. Financial Statements and Ratio Analysis 66

7. Flow chart of sales process followed in BSL 79

8. Conclusions 81

9. Suggestion 82

10.Bibliography ` 83

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EXECUTIVE SUMMARY

Steel Authority of India Limited (SAIL) is the leading steel making company in India. It is fully

integrated iron and steel maker, producing both basic and special steel for domestic construction

engineering, power, railway automotive and defense industries and for safe in export markets.

Bokaro Steel Plant The fourth integrated plant in the public sector taking shape in 1965 in

collaboration with the Soviet Union.

It was originally incorporated as a limited company on 29 thJanuary 1964, and was later merged

with SAIL first as a subsidiary and then as a unit through the public sector iron & steel

companies act1978. Working capital management is concerned with the problem that arises in

attempting to manage the current assets, current liabilities and the interrelationship between them.

Its operational goal is to manage the current assets and current liabilities in such a way that a

satisfactory level of working capital is maintained.

The working capital ratio is calculated as:

Positive working capital means that the company is able to pay off its short-term liabilities.

Negative working capital means that a company currently is unable to meet its short-term

liabilities with its current assets (cash, accounts receivable and inventory).

Working capital also gives investors an idea of the companys underlying operational efficiency.

Money that is tied up in inventory or money that customers still owe to the company cannot be

used to pay off any of the companys obligations.

To measure efficiency we have used ratio analysis as a technique and the main ratio we have

used are liquidity ratio and activities ratio. One more tool we have used is calculation of

operating cycle which shows\how effectively the firm is using its resources or how much time its

take to convert its investment back into cash. By looking previous data we came to know BSL

have done a great job in this field operating cycle by 30% in just three financial years.

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GLOBAL STEEL SCENARIO AND INDIAN STEEL INDUSTRYGLOBAL STEEL SCENARIO AND INDIAN STEEL INDUSTRY

INTRODUCTIONINTRODUCTION

Though evidences indicate that iron and steel have been used by for almost 6000 years, the

modern form of iron and steel industry came into being only during the 19th century. The growth

and development of Iron and Steel Industry in the world until the Second World War was

comparatively slower. But the industry has grown very rapidly after the Second War was. World

production of steel, which was only 28.3 million tones (MT) in 1900, rose to 695 MT by 1992.

The oil crisis of the seventies affected the entire economy of the world including the steel

industry. The position started improving after 1983 and peaked at 780 MT in 1989. It starred

declining till 1994 (723MT), picked up again to 755.8 in 1995. The World Steel production is

around 1132 MT in 2005, registering a growth of 6% over 2004.

HISTORICAL BACKGROUNDHISTORICAL BACKGROUND

The antiquity of mans use of iron attested by references to that metal both in fragmentary writing

& inscriptions that survived ancient civilization of Babylon, Mexico, Egypt, China, India, Greece

& Rome. However, it is believed that most of the iron used by prehistoric people might have

been obtained by fragment of meteorites and it remained a rare metal for many centuries.

For many years after man learned how to extract iron from its ores, the product probably was so

relatively soft and unpredictable, that bronze continued to be preferred for many tools and

weapons. Eventually iron replaced the nonferrous metal for these purposes when man learned

how to master the difficult arts of smelting, forging, hardening and tempering iron. Archeological

findings in Mesopotamia and Egypt have proved that iron or steel has been in the service o

mankind for nearly 6000 years. The origin of the methods used by early man for extracting iron

from its ores is unknown. Some have suggested that many learned the method accidentally.

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Iron, in the beginning was smelted by charcoal made from wood. Later coal was discovered as a

great source of heat. Subsequently, it was converted into coke, which was found to be ideal for

smelting of iron. Iron kept its dominant place for 200 or more years after the Saugus works that

was the first successful Iron Works in America founded in 1646, with the advance of Industrial

Revolution, iron formed the rails for newly invented railroad trains. It was also used to amour the

sides of the fighting ships. About the mid 19th century the new age of steel began with the

invention of Bessemer process (1856) making steel available in large quantities at reasonable

cost.

INDIAN HISTORYINDIAN HISTORY

Indian history is also replete with references to the usage of iron and steel. Some of the ancient

monuments like the famous iron pillar near New Delhi or the massive beams used in the Sun

Temple at Konark bear ample testimony to the technological excellence of the Indian

metallurgists.

The history of iron in India goes back to the ancient era. Our ancient literary sources like Rig

Veda, the Atharva Veda, the Puranas and other Epics are full of references to iron and its uses in

peace and war. According to one of the studies, iron has been produced in India for over 3000

years.

GLOBAL SCENARIOGLOBAL SCENARIO

WORLD STEEL PRODUCTION REPORT

ISSB Monthly World I & S Review

WORLD STEEL REVIEW, JUNE 2008

Production of crude steel for the 66 countries reporting to the IISI in April was estimated to be

116.4 million tones, an increase of 5.6% over April 2007. The total of the 4 months to date was

457.3 million tones, 5.7% above the January to April period in 2007. Excluding China, which

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accounted for 37% of world production in the first four months of 2008, the rise in April was

only 2.9%, with the four months total only up by 3.7%. Global trade in steel was 440 million tons

in 2007 (including internal EU trade), 5% higher than in 2006. China increased its exports by one

third to 68 million tones, almost double the Japanese total.

In the European Union 27, crude steel production was flat in April at 18.2 million tones

compared to April 2007, and fell by 0.7% in the 4 month to date to 71.6 million tonn4es. Monthly

production in Germany decreased by 1.3% in April, and by 1.9% in the January to April period to

16.1 million tones. Steel production in France fared even worse dropping by 9% in the month,

and by 7.9% in the four months to date to 6.5 million tones.

However, Italian crude steel production increased by 7.2% in April, and by 1.5% in the year to

date to 11.2 million tones. Spanish production rose by 1% in April, while the year to date was up

2.5% to 6.4 million tones. In the UK, production fell by 10.3% in April, bringing the 4 months

total down 0.8% to 4.8 Million tones. In the rest of Europe Turkish production increased by 2.7%

in April and by 8.2% in the four months to 9.2 million tones.

The four months total for Serbia was up 14.1% to 664 thousand tones. Crude steel production in

the CIS countries only rose by 0.3% in April, with Russian production down 0.4%, bringing the

year to date for the CIS up 3.0% with Russia four month total up 3.6% to 25.3 million tones.

Ukrainian steel production increased by 2.7% in April, with the year to date total up 3.3% to 14.7

million tones. Kazakhstan steel production fell by 12.4% in the four months to 1.3 Million tones.

In 2007 the Ukraine overtook Russia as the third largest exporter of steel after China and Japan,

and it has remained third into 2008. In the first four months of 2008 Ukraine exported to 10.9

million tones of steel, up 6.2% on the same four months in 2007. Exports of semis rose by 13.5%

to 4.6 million tones, with hot rolled plate lengths up 20.7% to 1.6 million tones. Exports of hot

rolled wide coil fell slightly to 1.1 million tones. The large increase in semis was primarily insemis over 0.25% carbon, with some increase in slabs until 0.25% carbon. The rise in plate

exports was mostly in plate over 10mm thick, with some increase in the 4.75 to 10mm range.

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In terms of markets, the Middle East was the destination for 20% of total Ukrainian exports in the

first four months of 2008, up 48% from the previous year. The next largest market was the EU 27

at 17.5%, with Italy by far the largest recipient, although the EU total was down 12% from 2007.

The other CIS countries received a further 15% of Ukrainian exports, with the tonnage to the Far

East more than doubling to 14% of the total. Turkey remained the largest single market at 1.3

million tones, followed by Russia at one million tones.

On the North American continent US steel production increased by 1.1% in April, bringing the

year to date total up 6.5% to 33.8 million tones. Canadian steel production rose by 3.7% in April,

while the four months total was up 3.0% to 5.6 million tones. Mexican steel production, however,

increased by 10.5% in April, with the year to date total up 10.4% to 6.3 million tones.

Crude steel production in South America showed an increase with Brazilian production up 7.1%

in April and by 7.8% in the year to date to 11.5 million tones. Steel production in Venezuela fell

by 2.1% in April, while the four months total was down 13% to just under 1.5 million tones.

Argentinean production, however, rose by 5.9% in April, while the year to date total was up 9.9%

to 1.9 million tones.

In Africa and the Middle East, South African production rose by 0.5% in April, although the year

to date total was down 2.6% to 3 million tones. Egypts steel production, however, increased by

1.7% in April, while the four months total was 14.% up at 2.3 million tones. Iranian production

increased by 3.1% in the month, although the year to date total was down 1.1% to nearly 3.4

million tones.

Turning to the Far East, Chinas steel production increased by 10.2% in April to 44.7 million

tones, and by 9.1% in the four months to 1679.8 million tones. Japanese crude steel production

was up 4.2% in April, while the January to April total increased by 4.4% to 41 million tones.

South Korean production fell by 0.4% in April with the year to date total at 17.5 million tones,

3.7% up on the same period in 2007. In India, production showed a rise of 12.7% in April,

bringing the four months total up by 7.7% to 19 million tones. Crude steel production in Taiwan

was up 12.2% in April, while the year to date total was up by 11.2% to 7.6 million tones.

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Japanese steel exports increased by 15.7% to 13.4 million tones in the first four months of 2008

compared to 2007. Hot rolled coil exports were 3.1 million tones, up 15.4%, semis were 1.8

million tones, up 16.2%, and galvanized steel exports were just below 1.8 million tones, up

10.5%. Some 84% of Japanese exports in 2008 went to other far eastern countries with 3.5

million tones to South Korea, up 19%, 2.3 million tones to China, up 12%, 1.5 million tones to

Thailand, up 9%, and 1.3 million tones to Taiwan, up 18.5%. These four countries a counted for

64% of Japanese exports, the same percentage as in the previous year.

OUTLOOK FOR THE INDIAN ECONOMY

After witnessing rapid strides during the years after the liberalization process was set in motion,

Indias GDP grew at an average rate of 5.2 % during the period 199899 to 200203. However,

there was a break from the trend in 200304, during which the economy is estimated to have

grown at more than 8%. The economy of India, measured in USD exchange rate terms, is the

twelfth largest in the world, with a GDP of around $1 trillion (2008). It recorded a GDP growth

rate of 9.0% for the fiscal year 2007 2008 which makes it the second fastest high emerging

economy, after China, in the world. The economy is expected to continue on a high growth path

with continued macroeconomic stability.

Over the years there has been a downward trend in interest rates accompanied by moderate

inflation and adequate liquidity in economy. In April 2003, the Bank Rate was reduced to 6%,

which was a 30 years low. Commercial Banks have also resorted to subPLR lending. With sub

PLR lending and reduction in maximum spread over PLR, lending rates have effective come

down Infrastructure development has been a focus area for the Government in recent years. In the

road and highway network, India is witnessing development of multiplelane, safe and well

designed interstate highways. Recently the Government has announced a planned outlay for the

rural road and highway network development. The Golden Quadrilateral Project is an ambitious

project that would connect the four major metros via state of the art highways. The EastWest

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and North South corridors would link up the remotest parts of the country. The Government is

also planning to facilitate investments in seaports and airports in a major way.

STEEL DEMAND SCENARIO

Indias steel production is likely to surpass the domestic requirement by 201112, easing pressure

on prices of the alloy, which has been adding to the spiraling inflation.

We shall achieve 124 million tons of steel capacity by 201112, well exceeding the requirement

that would be to the tune of about 110 million tons at that point of time, Steel Minister Paswan

said.

Steel prices shot up by over 50 percent since January, adding to the woes of the UPA

government, which is battling a sevenyear high inflation of 8.75 percent in its last year. The

annual demand for steel in India has been rising by about 13 per cent, but production is growing

by over 6 percent, according to official sources. Last fiscal, the countrys crude steel production

stood at 53.9 million tons, of which about 5 million tons were exported. To bridge the demand

supply mismatch, India had to import nearly 7 million tons of steel. Steel Secretary R S Pandey

while endorsing India becoming a net steel importer from being a net exporter till a few years

ago, said the trend is likely to continue for some time as increase in capacity takes at least three to

four years.

As per official figures, countrys finished steel import went up by over 300 percent from 1.6

million tons in 200203 to nearly 7 million tons in 200708 (provisional). In view of the growing

demand, the government plans to scale up steel production to over 290 million tons by 2020. It

has also envisaged that the sector will see an investment of Rs. 8, 70,640crore by that time.

Going by an estimate of Rs. 4,000-crore outlay per million tones of additional capacity, an

investment of Rs. 2, 76,000crore is likely to take place by 2012 and Rs. 8, 70,000crore by 2020.

As of now, both domestic and foreign steel players have signed 193 memoranda of understanding

with states for setting up new units with a total planned capacity of around 243 million tons and a

total proposed investment of over Rs. 5, 14,000crore.

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Private and public sector steel companies have also embarked on capacity expansion, Steel

Authority of India Limited plans to take up its hot metal production to 26.13 million tons by 2010

from the present 12.84 million tons. Private steel majors including Tata, JSPL, ISPAT and JSW

Steel have also lined up expansion of their existing production strength.

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Satisfaction Customer

Aspiration Unlimited

Improvement Continual

Leadership Market

VISION

To be a respected world class corporation and the leader in Indian steel business in quality,

productivity, profitability and customer satisfaction.

CREDO

We build lasting relationships with customers based on trust and mutual benefit.

We uphold highest ethical standards in conduct of our business.

We create and nurture a culture that supports flexibility, learning and is proactive to change.

We chart a challenging career for employees with opportunities for advancement and rewards.We value the opportunity and responsibility to make a meaningful difference in people's lives.

BACKGROUND & HISTORY

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A Rich Heritage

The Precursor

SAIL traces its origin to the formative years of an emerging nation - India. After independence

the builders of modern India worked with a vision - to lay the infrastructure for rapid

industrialization of the country. The steel sector was to propel the economic growth. Hindustan

Steel Private Limited was set up on January 19, 1954. The President of India held the shares of

the company on behalf of the people of India.

Expanding Horizon (1959-1973)

Hindustan Steel (HSL) was initially designed to manage only one plant that was coming up at

Rourkela. For Bhilai and Durgapur Steel Plants, the preliminary work was done by the Iron and

Steel Ministry. From April 1957, the supervision and control of these two steel plants were also

transferred to Hindustan Steel. The registered office was originally in New Delhi. It moved to

Calcutta in July 1956 and ultimately to Ranchi in December 1959.

A new steel company, Bokaro Steel Limited, was incorporated in January 1964 to construct and

operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela Steel Plants were

completed by the end of December 1961. The 1 MT phase of Durgapur Steel Plant was

completed in January 1962 after commissioning of the Wheel and Axle plant. The crude steel

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production of HSL went up from .158 MT (1959-60) to 1.6 MT. The second phase of Bhilai Steel

Plant was completed in September 1967 after commissioning of the Wire Rod Mill. The last unit

of the 1.8 MT phase of Rourkela - the Tandem Mill - was commissioned in February 1968, and

the 1.6 MT stage of Durgapur Steel Plant was completed in August 1969 after commissioning of

the Furnace in SMS. Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela

and 1.6 MT at Durgapur, the total crude steel production capacity of HSL was raised to 3.7 MT

in 1968-69 and subsequently to 4MT in 1972-73.

Holding Company

The Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing

industry. The policy statement was presented to the Parliament on December 2, 1972. On this

basis the concept of creating a holding company to manage inputs and outputs under one

umbrella was mooted. This led to the formation of Steel Authority of India Ltd. The company,

incorporated on January 24, 1973 with an authorized capital of Rs. 2000 crore, was made

responsible for managing five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and

Burnpur, the Alloy Steel Plant and the Salem Steel Plant. In 1978 SAIL was restructured as an

operating company.

Since its inception, SAIL has been instrumental in laying a sound infrastructure for the industrial

development of the country. Besides, it has immensely contributed to the development of

technical and managerial expertise. It has triggered the secondary and tertiary waves of economic

growth by continuously providing the inputs for the consuming industry.

JOINT VENTURES

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SAIL has promoted joint ventures in different areas ranging from power plant to e-commerce.

The important joint ventures of the company, among others, are:-

COMPANY LOCATION JV PARTNER EQUITY PROFILE

NTPC-SAIL

Power Company

Pvt. Ltd

NEW

DELHI

NTPC 50:50 Operates & manages the captive power

plants of durgapur, Rourkela & Bhilai

Bokaro Power

supply company

Pvt. Ltd

BOLARO DVC 50:50 Manages 302MW power generation

660tonnes per hour steam generation

facilities at Bokaro steel plant.

M- Junction

services Ltd.

KOLKATA TATA Steel 50:50 Promotes e-commerce activities in

steel and related areas.

SAIL & MOIL

Ferro Alloys Pvt.

Ltd.

BHILAI MANGANESE

ORE (INDIA)

LIMITED

50:50 Production of ferro -manganese and

silicon Manganese at Bhilai with

furnace operation at Nandini/ Bhalai

Bhilai jaypee

cement limited

SANTNA &

BHILAI

Jaiparkash

Associates Ltd.

26:74 To set up and operate a cement plant of

2.2 million tones per annum capacity at

split location at satna & Bhilai, using

slag generated during blast furnace .

Bokaro jaypee

cement Ltd.

BOKARO Jaiparkash

Associates Ltd.

26:74 To set up and operate a cement plant

of 2.1 million tones per annum

capacity, utilizing generated slag

during Blast furnace operation at BSL.

MEMORANDUM OF UNDERSTANDINGS

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Larsen & Toubro Ltd.

to set up, develop, manage and own captive/independent power plant (s) at

suitable location/s to meet future power requirements of SAIL. The scope of

agreement also includes exploration of opportunities to own captive thermal

coal blocks to cater to the power plant requirements.

Shipping corporation ofIndia.

to promote a Joint Venture Company, which shall primarily provideshipping related services to SAIL for imported coking coal and also

participate in world wide dry bulk shipping trade.

Government of Kerala to increase production from the existing facilities at Steel Complex Limited

(SCL), Calicut and also set up, develop & manage a 50,000 TMT Rolling

Mill along with its balancing facilities and auxiliaries at SCL, Calicut.

POSCO to collaborate in a wide range of strategic business and commercial areas of

mutual interest.

Rashtriya Ispat NigamLtd. (RINL)

to jointly explore and develop low silica limestone mines in the Sultanate ofOman.

Mineral Exploration

Corporation Ltd. (MECL)

for exploration by MECL at all SAIL mines for assessing the reserves and

quality of ore available. It has already started exploratory work in Gua and

Chiria mines.

Heavy Engineering

Corporation (HEC)

for equipment/spares required for modernization/expansion.

Bharat Earth Movers

Limited (BEML)

for supply of crucial equipment.

Rajasthan State Mines &

Minerals Limited

(RSMML)

for long-term supply of low-silica limestone.

IIM, Ahmedabad and

Management

Development Institute

(MDI), Gurgaon

Knowledge sharing.

Indian Railways

for procurement of high power locomotives

PRESENT & FUTURE

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SAIL Today

SAIL today is one of the largest industrial entities in India. Its strength has been the diversified

range of quality steel products catering to the domestic, as well as the export markets and a large

pool of technical and professional expertise.

Today, the accent in SAIL is to continuously adapt to the competitive business environment and

excel as a business organization, both within and outside India.

SAIL - Into the Future

Modernisation and Expansion Plan of SAIL Corporate Plan-Expansion Plan, 2010

The Corporate Plan, 2012 was reviewed by Honble Minister of Steel in Jul06, wherein it was

decided to take up the Expansion of Integrated Steel Plants and Special Steel Plant in one go

based on Composite Project Feasibility Report (CPFR).

By that time Expansion of IISCO Steel Plant and Salem Steel Plant was already approved in-

principle based on the Techno-Economic Feasibility Report (TEFR) of MECON. For theExpansion of other four integrated Steel Plants, MECON was assigned the job of Preparation of

CPFR in Aug06. The CPFR for the four integrated steel plants was prepared by MECON.

In principle approval has been accorded by SAIL Board for the expansion plans of IISCO Steel

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Plant (Jul06), Salem Steel Plant (Jun06), Bokaro Steel Plant (Dec06), Bhilai Steel Plant

(Apr07), Rourkela Steel Plant (May07) and Durgapur Steel Plant (Jul07).

Plant-wise Capacity Envisaged After Expansion (Mtpa)

Plant Hot Metal Crude Steel Saleable Steel

BSP 7.5 7.0 6.53

DSP 3.5 3.0 2.83

RSP 4.5 4.2 3.8

BSL 7.44 7.00 6.53

ISP 2.91 2.5 2.37

SSP - 0.18 0.34

ASP - 0.48 0.43

VISL 0.33 0.23 0.22

Total 26.18 24.59 23.13

Objective of Growth Plan

100% production of steel through Basic Oxygen Furnace (BOF) route

100% processing of steel through continuous casting

Value addition by reduction of semi finished steel

Auxiliary fuel injection system in all the Blast Furnaces

20

Item 2006-07

(Actual)

Capacity as per

Expansion Plans

2010

Hot Metal 14.61 26.18

Crude Steel 13.51 24.59

Saleable Steel 12.58 23.13

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State-of-art process control computerization/ automation

State-of-art online testing and quality control

Energy saving schemes

Secondary refining

Adherence to environment norms

The investment for modernization and expansion programme of SAIL is

estimated at about Rs.54,333 crores.

Plant ExpansionSustenance/

on-goingTotal

BSP 11,262 1,716 12,978

DSP 5,549 114 5,663

RSP 7,668 1,121 8,789

BSL 8,952 2,167 11,119

ASP 49 49

SSP 1,902 - 1,902

VISL 121 121

ISP 12,743 494 13,237

MINES 195 195

OTHERS 280 280

TOTAL 48076 6257 54,333

% 88 12 100

Plant-wise Expenditure in Expansion (Rs. Crore)

Plant2007-08 2008-09

TotalActual RE Actual

BSP 12.66 35.95 66.63 79.29

DSP - 10.00 16.09 16.09

RSP - 20.00 36.85 36.85

BSL 12 11.17 28.92 40.92

ISP 72.69 340.00 495.70 568.39

SSP 3.26 40.00 35.75 39.01

ASP - - - -

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VISL - - - -

TOTAL 100.61 457.12 679.94 780.55

BOKARO STEEL PLANT - A PARTNER IN NATION BUILDING

Bokaro Steel Plant - the fourth integrated plant in the Public Sector - started taking shape in 1965

in collaboration with the Soviet Union. It was originally incorporated as a limited company on

29th January 1964, and was later merged with SAIL, first as a subsidiary and then as a unit,

through the Public Sector Iron & Steel Companies (Restructuring & Miscellaneous Provisions)

Act 1978. The construction work started on 6th April 1968.

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The Plant is hailed as the countrys first Swadeshi steel plant, built with maximum indigenous

content in terms of equipment, material and know-how. Its first Blast Furnace started on 2nd

October 1972 and the first phase of 1.7 MT ingots steel was completed on 26th February 1978

with the commissioning of the third Blast Furnace. All units of 4 MT stage have already been

commissioned and the 90s' modernization has further upgraded this to 4.5 MT of liquid steel.

The new features added in modernization of SMS-II include two twin-strand slab casters along

with a Steel Refining Unit. The Steel Refining Unit was inaugurated on 19th September, 1997

and the Continuous Casting Machine on 25th April, 1998. The modernization of the Hot Strip

Mill saw addition of new features like high pressure de-scalers, work roll bending, hydraulic

automatic gauge control, quick work roll change, laminar cooling etc. New walking beam

reheating furnaces are replacing the less efficient pusher type furnaces.

A new hydraulic coiler has been added and two of the existing ones revamped. With the

completion of Hot Strip Mill modernization, Bokaro is producing top quality hot rolled products

that are well accepted in the global market.

Bokaro is designed to produce flat products like Hot Rolled Coils, Hot Rolled Plates, Hot Rolled

Sheets, Cold Rolled Coils, Cold Rolled Sheets, Tin Mill Black Plates (TMBP) and Galvanized

Plain and Corrugated (GP/GC) Sheets. Bokaro has provided a strong raw material base for a

variety of modern engineering industries including automobile, pipe and tube, LPG cylinder,

barrel and drum producing industries.

People - The moving force

Bokaro Steel values its people as the fulcrum of all organizational activities. The saga of BokaroSteel is the story of Bokaro erecting a gigantic plant in the wilderness of Chhotanagpur, reaching

milestones one after another, staving off stiff challenges in the liberalized era, modernizing its

facilities and innovating their way to the top of the heap.

Directions

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Bokaro Steel is working towards becoming a one-stop-shop for world-class flat steel in India.

The modernization plans are aimed at increasing the liquid steel production capacity, coupled

with fresh rolling and coating facilities. The new facilities will be capable of producing the most

premium grades required by the most discerning customer segments.

Brand Bokaro will signify assured quality and delivery, offering value for money to the

customers.

BOKARO STEEL PLANT FACILITIES

Raw Materials & Material Handling Plant

The Raw Materials and Material Handling Plant receives, blends, stores and supplies different

raw materials to Blast Furnace, Sinter Plant and Refractory Materials Plant as per their

requirements. It also maintains a buffer stock to take care of any supply interruptions.

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Slabs from CCS and Slabbing Mill are processed in the state-of-the-art Hot Strip Mill. The fully

automatic Hot Strip Mill with an annual capacity of 3.363 million tonnes has a wide range of

products - thickness varying from 1.2 mm to 20 mm and width from 750 mm to 1850 mm. The

mill is equipped with state-of-the-art automation and controls, using advanced systems for

process optimisation with on-line real time computer control, PLCs and technological control

systems.

Walking Beam Reheating Furnaces provide uniform heating with reduction in heat losses,

ensuring consistency in thickness throughout the length. High-pressure De-scaling System helps

eliminate rolled-in scale. Edger in the roughing group maintain width within close tolerance. The

roughing group has a roughing train of a Vertical Scale Breaker, one 2-high Roughing Stand and

four 4-high Universal Roughing Stands. The finishing group consists of a Flying Shear, Finishing

Scale Breaker and seven 4-high Finishing Stands. Hydraulic Automatic Gauge Control system in

the finishing stands ensures close thickness tolerance. The Work Roll Bending System ensures

improved strip crown and flatness. The rolling speed at the last finishing stand is between 7.5-

17.5 meters per second. The Laminar Cooling System is a unique feature to control coiling

temperature over a wide range within close tolerance. The Hydraulic Coilers maintain perfect coil

shape with On-line Strapping system. On-line Robotic Marking on the coil helps in tracking its

identity.

Hot Rolled Coil Finishing

All the Hot Rolled coils from the Hot Strip Mill are received in HRCF for further distribution or

dispatch. HR Coils rolled against direct shipment orders are sheared and finished to customer-

required sizes and dispatched to customers. The material is supplied as per Indian specifications

and many international/ foreign specifications. The shop has two shearing lines with capacities of

6, 45,000 Tonnes/ year and 4, 75,000 Tonnes/ year respectively.

Cold Rolling Mill

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The Cold Rolling Mill at Bokaro uses state-of-the-art technology to produce high quality sheet

gauge material, Tin Mill Black Plate and Galvanized Products. Cold rolling is done to produce

thinner gauge strips of very smooth and dense finish, with better mechanical properties than hot

rolling strips. Rolling is done well below re-crystallization temperature without any prior heating

of the material. The products of CRM are used for deep drawing purposes, automobile bodies,

steel furnitures, drums and barrels, railway coaches, other bending and shaping jobs and coated

steels. The CRM complex comprises of two Pickling Lines (including a high speed Hydrochloric

Acid Pickling Line with re-generation facilities), two Tandem Mills, an Electrolytic Cleaning

Line, a Continuous Annealing Line, Bell Annealing Furnaces, two Skin-Pass Mills, a Double

Cold Reduction Mill (DCR), Shearing Lines, Slitting Lines and a packaging and dispatch section.

The 5-stand Tandem Mill is capable of rolling sheet gauges up to 0.15 mm thickness. It has

sophisticated Hydraulic Automatic Gauge Control, computerized mill regulation and optimisation

control.

Hot Dip Galvanizing Complex

The Hot Dip Galvanizing Complex integrated with the CRM produces zinc-coated Cold Rolled

strips resistant to atmospheric, liquid and soil corrosion. The Continuous Coil Corrugation Line

in the HDGC produces corrugated sheets and the Galvanized Sheet Shearing Line produces

galvanized plain sheets for a variety of applications. The first shop of Bokaro Steel to get the

ISO-9001 certification way back in 1994, this complex has maintained a high-standard of coating

quality and its SAILJYOTI branded products enjoy a loyal market.

This complex made certain innovations for higher productivity to help re-build earthquake

ravaged Gujarat.

Services - a valuable support network

The service departments like Traffic, Oxygen Plant, Water Management and Energy

Management provide invaluable support to this gigantic plant. Bokaro Steel has a vast networked

of railway tracks and over 40 diesel locos to smoothly run its operations. The Oxygen Plant

provides Oxygen, Nitrogen and Argon for processes like steelmaking and annealing. Water

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Management looks after the huge water requirements of the plant and the township, providing

different grades of water and taking care of recycling needs. Energy Management juggles the

supply and demand of by-product gases and their demand as process fuel.

Maintenance Departments

Bokaro has centralised maintenance departments for large-scale electrical and mechanical

maintenance, in addition to shop-based maintenance wings for running repairs and maintenance.

These facilities are capable of executing massive capital repairs, supported by the fabrication

facilities of the auxiliary shops.

Auxiliary Shops

To meet its needs for maintenance and repairs, Bokaro has a cluster of engineering shops such as

Machine Shop, Forge Shop, Structural Shop, Steel Foundry, Ingot Mould Foundry, Cast Iron and

Non-Ferrous Foundry, Electrical Repair Shop and Power Facilities Repair Shop in addition to

shop-specific Area Repair Shops. Most of the repairs and maintenance requirements of the plant

are met in-house.

The auxiliary shops and maintenance wings of Bokaro Steel, aided by in-house design teams,

have executed a number of highly sophisticated procurement-substitution, productivity

enhancement and quality improvement jobs, saving revenues and enhancing equipment

availability.

The expertise and operational scale of these departments, along with the service departments,

makes Bokaro a truly integrated plant, housing many virtual enterprises within Bokaro Steel.

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BOKARO STEEL PLANT - Community

Peripheral Development

Bokaro Steel is striving to reach the glow and warmth of its furnaces to people living at the

periphery of this thriving steel city. All villages and residential settlements within a radius of 20

kilometers are covered under the peripheral development programmes that benefit some 3 lakh

persons. In recent years, the stress has been on developing basic and infrastructure facilities like

roads, bridges, and schools, primary health centres, wells, pumps etc. and renovating the existing

facilities.

Regular health camps are organized to reach immunization and free medicines to people. Free

medicines are also supplied to Asha Dan, a hospital for the lepers, and to government hospitals in

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the event of natural calamities.

Bokaro Steel pitched in with its share in the relief of victims of natural calamities like the Orissa

cyclone, Gujarat earthquake and Bihar floods.

For a number of years, Bokaro Steel has been sponsoring a First Aid camp during Shravani Mela

for the Kanwariyas walking with holy water from Sultanganj in Bihar to Deoghar in Jharkhand -

a holy journey of some 100 kilometers.

Community Care

In a uniquely sensitive gesture of social care, Bokaro Steel has adopted children belonging to the

primitive Birhor tribe that has a very limited population. These children live under the love and

care of Bokaro Steel, getting free board, lodging, dresses and education. They are getting

developmental opportunities of the modern world, without having to shun their own cultural

moorings.

Encouraging Ancillaries

The ancillaries under the Bokaro Industrial Area Development Authority symbolise the spill-over

of economic activities due to Bokaro Steel. The Plant aids these industrial units by providing

testing facilities, technical support for modernization and up gradation, and preferential

procurement orders in their areas of strength that match Bokaro Steel's requirements.

To keep them abreast of the prevailing quality assurance standards, Bokaro Steel has been giving

free consultations to these units for developing their ISO 9001 QA Systems.

Bokaro Mahila Samiti

Founded in 1964, Bokaro Mahila Samiti is a leading philanthropic organisation of the spouses of

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steel men, giving succor to needy people and creating opportunities for skill enhancement and

self-employment. The Samiti runs a number of schools for poor children and for uneducated

elderly and a children's library. The training centre and Udyog Kendra with wings for making

spices, flour, safety gloves, soap, shawls, apparel and embroidered clothes, provide livelihood to

a number of women. Free medical consultation for neonates and their mothers and mobile

dispensary play a key role in providing primary healthcare to needy persons. The Samiti

organises aid drives for lepers, victims of natural calamities, children from poor families and

other resource-constrained people.

BOKARO STEEL PLANT - PRODUCT BASKET

Mill Capabilities

Shop Products Facility Annual

Capacity

(,000

Tonnes)

Thickness

range (mm)

Width

range

(mm)

Length

(metre)

HSM HR Coils/ Sheets/ Plates Continuous Mill 3955 1.6 -16 900-1850

HRCF HR Sheets/ Plates Shearing Line-I - 5-10 1800 2.5-12

HR Sheets/ Plates Shearing Line-II 1.6-4 1500 1.5-4.5

HR Coil Slitting Line

CRM 1660

CR Coils/ Sheets CRM-I complex 0.63-2.5 700-1850

CR Coils/ Sheets CRM-II complex 0.63-1.6 650-1250

CR Coils/ Sheets, TMBP DCR Mill 100 0.22-0.8 650-1040

GP Coils & Sheets GC

Sheets

HDGL 170 0.3-1.6 650-1250

By-products

Nitration-grade Benzene

Nitration-grade Toluene

Light Solvent Naphtha

Anthracene Oil

Extra-hard Pitch

Hard-medium Pitch (solid/ liquid)

Pitch Creosote Mixture

BF Granulated Slag

Liquid Nitrogen

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Still Bottom Oil

Hot Pressed Naphthalene

Ammonium Sulphate Phenol Fraction

Special Grades of Steel

Special Steel Grades Application

SAE 1541 Automobile Industry

MC 11 Cycle Industry

SPC 370/390 Cycle Industry

C 15 Cycle Industry

API X-42, X-46, X-52, X-56, X-60 (SAILAPI) Pipe Line

SAILCOR (corrosion resistant) Railways

SAILMEDSi (Medium Silicon Steel) Heavy Electrical Winding

SAILPROP Propeller Shaft

Strapping Steel (for internal use only) Strapping Finished Products

Full-hard Galvanised Coil Extra hard roof of housesCold Rolled Medium Electrical Steel Transformer core

Extra-low Carbon Extra Deep Drawing (HR & CR) White goods

DMR 249A Grade Steel Defence Research Development Organisation

(DRDO) for fabrication of Submarine parts

(import substitution)

E460/E500/E550 Floating bridges for Defence. For M/S BEML;

for making. (import substitution)

IS8500 Fe 540B high strength low alloy steel with

UTS value in excess of 540 Mpa

Kolkata fly-over

Low Carbon, Low Manganese, High Strength

Structural Steel without microalloying (Carbon 0.10%)

Structural purposes. Thermo-mechanically

Controlled Processing.

REVIEW OF LITERATURE

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Working Capital management is the management of assets that are current in nature. Current

assets, by accounting definition are the assets normally converted in to cash in a period of one

year. Hence working capital management can be considered as the management of cash, market

securities receivable, inventories and current liabilities. In fact, the management of current assets

is similar to that of fixed assets in the sense that is both in cases the firm analyses their effect on

its profitability and risk factors, hence they differ on three major aspects:

1. In managing fixed assets, time is an important factor discounting and compounding

aspects of time play an important role in capital budgeting and a minor part in the

management of current assets.

2. The large holdings of current assets, especially cash, may strengthen the firms liquidity

position, but is bound to reduce profitability of the firm as ideal car yield nothing.

3. The level of fixed assets as well as current assets depends upon the expected sales, but it

is only current assets that add fluctuation in the short run to a business.

To understand working capital better we should have basic knowledge about the various aspects

of working capital. To start with, there are two concepts of working capital:

Gross Working Capital

Net working Capital

Gross Working Capital: Gross working capital, which is also simply known as working capital,

refers to the firms investment in current assets: Another aspect of gross working capital points

out the need of arranging funds to finance the current assets. The gross working capital concept

focuses attention on two aspects of current assets management, firstly optimum investment in

current assets and secondly in financing the current assets. These two aspects will help in

remaining away from the two danger points of excessive or inadequate investment in current

assets. Whenever a need of working capital funds arises due to increase in level of business

activity or for any other reason the arrangement should be made quickly, and similarly if some

surpluses are available, they should not be allowed to lie ideal but should be put to some effectiveuse.

Net Working Capital: The term net working capital refers to the difference between the current

assets and current liabilities. Net working capital can be positive as well as negative. Positive

working capital refers to the situation where current assets exceed current liabilities and negative

working capital refers to the situation where current liabilities exceed current assets. The net

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Production Policy: As stated above, every business has to cope with different types of

fluctuations. Hence it is but obvious that production policy has to be planned well in advance

with respect to fluctuation. No two companies can have similar production policy in all respects

because it depends upon the circumstances of an individual company.

Firms Credit Policy: The credit policy of a firm affects working capital by influencing the level

of book debts. The credit term is fairly constant in an industry but individuals also have their role

in framing their credit policy. A liberal credit policy will lead to more amount being committed

to working capital requirements whereas a stern credit policy may decrease the amount of

working capital requirement appreciably but the repercussions of the two are not simple. Hence a

firm should always frame a rational credit policy based on the credit worthiness of the customer.

Availability of Credit: The terms on which a company is able to avail credit from its suppliers

of goods and devices credit/also affects the working capital requirement. If a company in a

position to get credit on liberal terms and in a short span of time then it will be in a position to

work with less amount of working capital. Hence the amount of working capital needed will

depend upon the terms a firm is granted credit by its creditors.

Growth and Expansion activities: The working capital needs of a firm increases as it grows in

term of sale or fixed assets. There is no precise way to determine the relation between the amount

of sales and working capital requirement but one thing is sure that an increase in sales never

precedes the increase in working capital but it is always the other way round. So in case of

growth or expansion the aspect of working capital needs to be planned in advance.

Price Level Changes: Generally increase in price level makes the commodities dearer. Hence

with increase in price level the working capital requirements also increases. The companies

which are in a position to alter the price of these commodities in accordance with the price level

changes will face fewer problems as compared to others. The changes in price level may not

affect all the firms in same way. The reactions of all firms with regards to price level changes

will be different from one other.

RESEARCH METHODOLOGY

Research Design:

Data Collection: Data has been collected through secondary approach.

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Data Sources

The research involved gathering Secondary data. Lot of data has been pooled from Bokaro

Steel Plant to use in the study.

Scope of the Study

The data has been collected from the secondary sources comprising Annual Reports of the firm,

other journals and periodicals.

Apart from conducting this research work on the basis of this information, various techniques of

financial management e.g., comparative statement and ratio analysis etc. were used in the present

study. To present a broad view so far the purpose of the analysis and to make it easy tounderstand the problem/concept of a few graphs and tables shall also be presented. In each

chapter, the analysis has been compared with actual management practices of the company under

study. The project is strictly on financing the companies for their day to day transactions. The

broad parameters being current assets ratio, quick test ratio etc.

Limitation of the Study

The present study is limited to Bokaro Steel Plant. The authenticity of the suggestions and recommendations depend upon the rationality of

the data provided to me.

Have to rely upon the data supplied.

Executives are not ready to part with the information beyond a limit.

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WORKING CAPITAL- OVERALL VIEW

CASH MANAGEMENT

Cash is the important current asset for the operations of the business. Cash is the basic input

needed to keep the business running on a continuous basis It is also the ultimate output expected

to be realized by selling the service or product manufactured by the firm. The firm should keep

sufficient cash, neither more nor less. Cash shortage will disrupt the firms operations while

excessive cash will simply remain idle, without contributing anything towards the firms

profitability. Thus a major function of the Financial Manager is to maintain a sound cash

position.

Cash is the money which a firm can disburse immediately without any restriction The term cash

includes currency and cheques held by the firm and balances in its bank accounts. Sometimes

near cash items, such as marketable securities or bank time deposits are also included in cash.

The basic characteristics of near cash assets are that they can readily be converted into cash. Cash

management is concerned with managing of:

i) Cash flows in and out of the firm

ii) Cash flows within the firm

iii) Cash balances held by the firm at a point of time by financing deficit or inverting surplus

cash.

Sales generate cash which has to be disbursed out. The surplus cash has to be invested while

deficit cash has to be borrowed. Cash management seeks to accomplish this cycle at a minimum

cost. At the same time it also seeks to achieve liquidity and control. Therefore the aim of Cash

Management is to maintain adequate control over cash position to keep firm sufficiently liquid

and to use excess cash in some profitable way.

The Cash Management is also important because it is difficult to predict cash flows accurately,

particularly the inflows and that there is no perfect coincidence between the inflows and outflows

of the cash. During some periods cash outflows will exceed cash inflows because payment for

taxes, dividends or seasonal inventory etc., build up. On the other hand cash inflows will be more

than cash payment because there may be large cash sales and more debtors realization at any

point of time. Cash Management is also important because cash constitutes the smallest portion

of the current assets, yet managements considerable time is devoted in managing it. An obvious

aim of the firm now-a-days is to manage its cash affairs in such a way as to keep cash balance at

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a minimum level and to invest the surplus cash funds in profitable opportunities. In order to

resolve the uncertainty about cash flow prediction and lack of synchronization between cash

receipts and payments, the firm should develop appropriate strategies regarding the following

four facets of cash management.

1. Cash Planning: -Cash inflows and cash outflows should be planned to project cash

surplus or deficit for each period of the planning period. Cash budget should prepared for this

purpose.

2. Managing the cash flows: -The flow of cash should be properly managed. The cash

inflows should be accelerated while, as far as possible decelerating the cash outflows.

3. Optimum cash level: -The firm should decide about the appropriate level of cash

balances. The cost of excess cash and danger of cash deficiency should be matched to determine

the optimum level of cash balances.

4. Investing surplus cash: -The surplus cash balance should be properly invested to earn

profits. The firm should decide about the division of such cash balance between bank deposits,

marketable securities and inter corporate lending.

The ideal Cash Management system will depend on the firms products, organization structure,

competition, culture and options available. The task is complex and decision taken can affect

important areas of the firm.

Functions of Cash Management:

Cash Management functions are intimately, interrelated and intertwined Linkage among different

Cash Management functions have led to the adoption of the following methods for efficient Cash

Management:

Use of techniques of cash mobilization to reduce operating requirement of cash

Major efforts to increase the precision and reliability of cash forecasting.

Maximum effort to define and quantify the liquidity reserve needs of the firm.

Development of explicit alternative sources of liquidity

Aggressive search for relatively more productive uses for surplus money assets.

The above approaches involve the following actions which a finance manager has to perform.

1. To forecast cash inflows and outflows

2. To plan cash requirements

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securities so that they earn a return.

3. Speculative motive: -It refers to the desire of a firm to take advantage of opportunities

which present themselves at unexpected movements and which are typically outside the normal

course of business. The speculative motive represents a positive and aggressive approach. Firmsaim to exploit profitable opportunities and keep cash in reserve to do so. The speculative motive

helps to take advantage of: opportunity to purchase raw materials at a reduced price on payment

of immediate cash; chance to speculate on interest rate movements by buying securities when

interest rates are expected to decline; delay purchases of raw materials on the anticipation of

decline in prices; etc.

4. Compensation motive: -Yet another motive to hold cash balances is to compensate banks

for providing certain services and loans. Banks provide a variety of services to business firms,

such as clearances of cheques, supply of credit information, transfer of funds, etc. While for someof the services banks charge a commission of fee for others they seek indirect compensation.

Usually clients are required to maintain a minimum balance of cash at the bank. Since this

balance can not be utilized by the firms for transaction purposes, the bank themselves can use the

amount for services rendered. To be compensated for their services indirectly in this form, they

require the clients to always keep a bank balance sufficient to earn a return equal to the cost of

services. Such balances are compensating balances. Compensating balances are also required by

some loan agreements between a bank and its customer.

Cash Management: Objectives

The Basic objective of cash management is twofold:

(a) To meet the cash disbursement needs (payment schedule);

(b) To minimize funds committed to cash balances. These are conflicting and mutually

contradictory and the task of cash management is to reconcile them.

Meeting the payments schedule:A basic objective of the cash management is to meet the

payment schedule, i.e. to have sufficient cash to meet the cash disbursement needs of the firm.

The importance of sufficient cash to meet the payment schedule can hardly be over emphasized.

The advantages of adequate cash are : (i) it prevents insolvency or bankruptcy arising out of the

inability of the firm to meet its obligations; (ii) the relationship with the bank is not strained; (iii)

it helps in fostering good relations with trade creditors and suppliers of raw materials, as prompt

payment may also help their cash management; (v) it leads to a strong credit rating which enables

the firm to purchase goods on favorable terms and to maintain its line of credit with banks and

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other sources of credit; (vi) to take advantage of favorable business opportunities that may be

available periodically; and (vi) finally the firm can meet unanticipated cash expenditure with a

minimum of strain during emergencies, such as strikes , fires or a new marketing campaign by

competitors.

Minimizing funds committed to cash balances:The second objective of cash management is to

minimize cash balances. In minimizing cash balances two conflicting aspects have to be

reconciled. A high level of cash balance will, ensure prompt payment together with all the

advantages, but it also implies that large funds will remain idle ultimately results less to the

expected. A low level of cash balances, on the other hand, may mean failure to meet the payment

schedule that aim of cash management should be to have an optimal amount of cash balances

Cash Management Techniques & Processes

The following are the basic cash management techniques and process which are helpful in better

cash management:

Speedy cash collection:In managing cash efficiently the cash in flow process can be accelerated

through systematic planning and refined techniques. These are two broad approaches to do this

which are narrated as under:

Prompt payment by customer:One way to ensure prompt payment by customer is prompt billing

with clearly defined credit policy. Another and more important technique to encourage prompt

payment the by customer is the practice of offering trade discount/cash discount.

Early conversion of payment into cash:Once the customer has makes the payment by writing its

cheques in favor of the firm, the collection can be expedited by prompt encashment of the

cheque. It will be recalled that there is a lack between the time and cheque is prepared and mailed

by the customer and the time funds are included in the cash reservoir of the firm.

Concentration Banking:In this system of decentralized collection of accounts receivable, large

firms which have a large no. of branches at different places, select some of these which are

strategically located as collection centers for receiving payment for customers. Instead of all the

payments being collected at the head office of the firm, the cheques for a certain geographical

areas are collected at a specified local collection centers. Under this arrangement the customers

are required to send their payments at local collection center covering the area in which they live

and these are deposited in the local account of concerned collection, after meeting local expenses,

if any. Funds beyond a predetermined minimum are transferred daily to a central or disbursing or

concentration bank or account. A concentration banking is one with which the firm has a major

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account usually a disbursement account. Hence this arrangement is referred to as concentration

banking.

Lock-Box System:The concentration banking arrangement is instrumental in reducing the time

involved in mailing and collection. But with this system of collection of accounts receivable,processing for purposes of internal accounting is involved i.e. sometime in elapses before a

cheque is deposited by the local collection center in its account. The lock-box system takes care

of this kind of problems, apart from effecting economy in mailing and clearance times. Under

this arrangement, firms hire a post office box at important collection centers. The customers are

required to remit payments to lock-box.

The local banks of the firm, at respective places, are authorized to open the box and pick up the

remittance received from the customers. Usually the authorized bank picks up the cheques

several times a day and deposits them in the firms account. After crediting the account of thefirm the banks send a deposit 4epo slip along with the list of payments and other enclosures, if

any, to the firm by way of proof and record of the collection.

Slowing disbursements:A basic strategy of cash management is to delay payments as long as

possible without impairing the credit rating/standing of the firm. In fact, slow disbursement

represents a source of funds requiring no interest payments. There are several techniques to delay

payment of accounts payable namely (1) avoidance of early payments; (2) centralized

disbursements; (3) floats; (4) accruals.

Avoidance of early payments:One way to delay payments is to avoid early payments. According

to the terms of credit, a firm is required to make a payment within a stipulated period. It entitles a

firm to cash discounts. If however payments are delayed beyond the due date, the credit standing

may be adversely affected so that the firms would find it difficult to secure trade credit later. But

if the firm pays its accounts payable before the due date it has no special advantage. Thus a firm

would be well advised not to make payments early i.e. before the due date.

Centralized disbursements: Another method to slow down disbursements is to have centralized

disbursements. All the payments should be made by the head office from a centralized

disbursement account. Such an arrangement would enable a firm to delay payments and conserve

cash for several reasons. Firstly it involves increase in the transit time. The remittances from the

head office to the customers in distant places would involve more mailing time than a

decentralized payment by a local branch. The second reason for reduction in operating cash

requirement is that since the firm has a centralized bank account, a relatively smaller total cash

balance will be needed. In the case of a decentralized arrangement, a minimum cash balance will

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have to be maintained at each branch which will add to a large operating cash balance. Finally,

schedules can be tightly controlled and disbursements made exactly on the right day.

Float: A very important technique of slow disbursements is float. The term float refers to

amount of money tied up in the cheque that have been written, but have yet to be collected andencashed. Alternatively, float represents the difference between the bank balance and book

balance of cash of a firm. The difference between the balance as shown in the firms record and

the actual bank balance is due to transit and processing delays. There is time lag between the

issue of a cheque by the firm and its presentation to its bank by the customers bank for payment.

The implication is that although a cheque has been issued cash would be required later when the

cheque resented for encashment. Therefore, a firm can send remittance although it does not have

cash in its bank at the time of issuance of cheque. Meanwhile, funds can be arranged to make

payments when the cheque is presented for collection after a few days. Float used in this sense is

called cheque kitting.

Accruals:Finally, a potential tool for stretching accounts payable is accruals which are defined as

current liabilities that represent a service or goods received by a firm but not yet paid for. For

instance, payroll, i.e., remuneration to employees, who render services in advance and receive

payment later. In a way they extend credit to the firm for a period at the end of which they are

paid, say, a week or month. The longer the period after which payment is made, the greater the

amount of free financing and the smaller the amount of cash balances required. Thus, less

frequent payrolls, i.e. monthly as compared to weekly, are important sources of accruals. They

can be manipulated to slow down disbursements.

Determining the optimal level of cash balance:

Cash balance is maintained for the transaction purposes and additional amount may be

maintained as a buffer or safety stock.

The Finance manager should determine the appropriate amount of cash balance. Such a decision

is influenced by trade-off between risk and return. If the firm maintains small cash balance, its

liquidity position becomes week and suffers from a paucity of cash to make payments. But a

higher profitability can be attained by investing released funds in some profitable opportunities.

When the firm runs out of cash it may have to sell its marketable securities, if available, or

borrow. This involves transaction cost.

On the other hand if the firm maintains a higher level of cash balance, it will have a sound

liquidity position but forego the opportunities to earn interests. The potential interest lost on

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YEARS CASH & BANK

BALANCE (IN LAKHS)

TOTAL CURRENT

ASSETS (IN LAKHS)

% OF CASH & BANK BALANCE

TO CURRENT ASSETS

2007 3790 182611 2.08

2008 4108 186244 2.21

2009 4400 183588 2.40

2010 4660 231202 2.02

Figure 1: Composition of Cash & Bank Balance in Total Current Assets

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MANAGEMENT OF INVENTORY

Inventories are the stock of the product made for sale by the company or semi finished goods or

raw materials. Inventory of finished goods which are ready for sale is required to maintainsmooth marketing operation. The inventory of raw material and work in progress is required in

order to maintain an unobstructed flow of material in the production line. These inventories serve

as a link between the production and consumption of goods.

The aspect of management of inventory is especially important in respect to the fact that in

country like India, the capital block in terms of inventory is about 70% of the current assets. It is

therefore, absolutely imperative to manage efficiently and effectively in order to avoid

unnecessary investment in them. Although to maintain low inventories may prove to be profitable

but to maintain very low inventories may prove risky on the contrary.

This aspect of management if tackled in a proper way may prove to be a boon its effective and

efficient management would result in the maintaining of optimum level of inventories. At this

level the profitability of the organization will not be jeopardized at the cost of inventory.

Now from the above stated facts it is clear that maintaining of optimum level of inventory

involves huge cost, so why should keep the inventories at all. Basically there are three main

reasons for which inventories are stocked and they are:-

1. Transaction Motive:This motive lays emphasis on maintaining of inventories in order to

maintain a smooth and unobstructed supply of materials for the sales and production operations.

2. Precautionary Motive:This motive emphasizes on the stocking goods in order to guard

against the uncertainties of future i.e. unpredictable changes in the forces of demand, supply and

other forces.

3. Speculative Motive: This motive influences the decisions regarding the increase or

decrease in the level of inventory in order to take advantage of price fluctuations.

A company should maintain adequate stock of materials for a continuous supply to the factory for

an uninterrupted production. It is not possible for a company to procure raw material

instantaneously whenever needed. A time lag exists between demand and supply of material.

Also, there exists an uncertainty in procuring raw material in time at many occasions. The

procurement of materials may be delayed because of factors beyond companys control e.g.

transport disruption, strike etc. Therefore, the firm should keep a sufficient stock of raw material

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at a time to have streamline Other factors which may incite us to keep stock of inventories is the

quantity discounts, expected rise is price.

The work in process inventory builds up because of the production cycle. Production cycle is the

time span between the introduction of raw material in to the production and the emergence offinished goods at the completion of production cycle. Till the production cycle completes, the

stock of work in process has to be maintained.

Efficient firms constantly try to make the production cycle smaller by improving their production

techniques.

The stock of finished goods has to be held because production and sales are not instantaneous. A

firm cannot produce immediately when goods are demanded by customers. Therefore to supply

finished goods on regular basis, their stock has to maintain for sudden demand of customers, in

case the firm sales are seasonal in nature, substantial finished goods inventory should be kept to

meet the peak demand. Failure to supply products to customer, when demanded, would mean loss

of the firms sales to the competitors.

The basic objective in holding raw material inventory is separate purchase and production

activities and in holding finished goods inventory is to separate production and sales activities. If

raw material inventory is not held, purchase would have to be made regularly at the time of

usage. This would mean production interruptions and high cost of ordering.

A sufficiently large inventory has to be maintained of finished goods so as to meet the fluctuatingdemands. If a close link is maintained between the sales and the production department then an

organization can do with a small inventory also. In the process, inventory is also necessary

because production cannot be instantaneous. But it should be seen that the size of production

cycle should be small.

Objectives Of Inventory Management

In the modern business world there is practically nothing that is done without objective. The

objective is also one that would help the organization in reaching its goals in a better way. Hence

it can be inferred that the importance given to management of inventory in the business world is

not devoid of a concrete reasons behind it.

The two main reasons behind all this are, firstly, to maintain a inventory big enough that the

production and sales operation are carried on without any hindrance and secondly, to minimize

the investment in inventory, in order to maximize the profits. Both, excessive as well as

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inadequate inventory level is not good. They are the two danger points that a company should try

to avoid and should always try to maintain optimum level of inventory. The excessive investment

in the inventory has the following drawbacks:

Unnecessary tie up of firms fund and loss of profit. Excessive carrying cost.

The risk of liquidity.

The over investment of funds in inventory eat up the precious funds which could have been put to

some profitable use. The carrying cost incurred, can not be ignored, this is the cost of storage,

handling insurance, recording and inspecting. These all costs incurred in order to have large

inventories impair the profitability of the firm. Another danger of carrying excessive inventory is

the deterioration, obsolescence and pilferage of raw materials.

Maintaining inadequate inventory is also dangerous. The consequences of under investment ininventory are

Production hold ups;

Failure to meet commitment

If the inventory of finished goods is not adequate than the demand of customer is peak periods

may be left unmet and it the under investment is in the area of raw materials that is likely that the

production process may be held up frequently.

The aim of inventory management thus should be to avoid excessive and inadequate level of

inventory and to maintain sufficient inventory for smooth production and sales operation efforts

should be made to place an order at the right time to right source to acquire right amount at the

right price and for right quantity. The aspects of a effective inventory management should take

care of are

Ensure continuous supply of material to facilitate uninterrupted production.

To maintain sufficient stocks of raw material in the periods of short supply and evident

price rise.

To maintain sufficient inventory of finished goods for smooth sales operation.

Minimize carrying cost and time.

Control investment and keep it to the optimum level.

Before discussing the inventory control technique, here is the discussion of the various terms

such as economic order quantity, carrying cost etc.

1. Economic Order Quantity:It is the inventory level which minimizes the total of ordering

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and carrying cost. Determining economic order quantity involves two types of costs i.e. ordering

cost and carrying cost.

2. Ordering Cost:This is used especially in the case of raw materials and is included in the

cost incurred in acquiring the raw material. It is proportional to the number of orders andinversely proportional to the size of inventory. Apart from the cost of acquired raw material this

also includes requisitioning, purchasing order, transporting receiving, inspecting and sorting cost.

3. Carrying Cost:This is used in the case of all types of inventories. There are the costs

which are incurred for holding a given amount of inventory, they include opportunity cost of

funds invested is inventories insurance, taxes, storage cost and the cost of deterioration and

obsolescence. It is directly proportional to the size of inventory.

4. Reorder Points:Reorder point is the inventory level at which an order must be placed to

replenish the inventory and evade the risk of running out of raw material. To determine the

reorder point under uncertainty we should know the lead time, the average usage, economic order

quantity etc.

5. Safety Stocks:It is difficult to predict usage and the lead time accurately. The demand for

material is never constant. Similarly the actual delivery time may be different firm the normal

lead time. In case of increased usage or delivery delayed, there is bound to be problem of stock

out. Stock out can prove to be costly affair for a company. Therefore in order to guard against the

stock out, the company may keep some buffer stock as a cushion against expected increased

and/or delay in delivery .This buffer stock is called as safety stock.

The various techniques or approaches used in the management of inventory by different firms to

calculate the economic order quantity are here given below: -

1). Trial and Error Approach:This is the technique to resolve the economic order quantity

problem. In this technique we take the annual requirement, purchasing cost per unit, ordering cost

per order and carrying cost per unit for the computation of economic order quantity. We suppose

a constant usage and then considering different sizes of orders and calculate the different total

costs. The order corresponding to the minimum total cost has the economic order quantity.

2). EOQ Model:This is quite an easy approach to calculate the economic order quantity than

the trial and error approach. Here we find the economic order quantity with the help of the

formula

EQ = Sqrt (2AO / C)

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The Standing Committee for AP shall review the list for deletions/ additions of items into list.The item shall be deleted/ added into AP list after the recommendation of the StandardCommittee is approved by Head of Maintenance & Head of Materials. The list for addition/deletion shall be put up to the Standing Committee every year by Stock Control.

Raising Of MPRs

All MPRs for AP items shall be raised through Computer. Since intending is based on anapproved logic, no screening shall be done for AP indents.

All AP items shall be classified into vital & non-vital categories. Vital items are those whichdirectly affect production & shall be identified with the help of users.

The AP items shall be classified into ABC category based on consumption value during theprevious financial year:-

Top 10% = A class

Next 20% = B class

Last 70% = C class

Lead Time is the time taken from MPR to the receipt of materials. Lead time data shall be updated once in every financial year on the basis of last two financial years data.

Safety Stockshall be the stock to take care of variation in demand and supply. Safety stock foreach class of AP items shall be as follows:

AV = 3 months (V= vital)

ANV = 1 month (NV= non-vital)

BV = 4 months

BNV = 3 months

CV = 6 months

CNV = 4 months

Maximum Levelshall be the highest level of Stock permissible for an item under normal course.It is Annual quantity + Lead time consumption + safety stock.

Annual Quantity = Weighted average of last three years consumption with the latest yearconsumption having weight of 50% & previous two years having weight of 25% each.

There are total 39 groups under which all items are classified. There will be CALANDER forMPR raising for each group of items. MPR for one group of items shall be raised at a time.

MPR quantity shall be = maximum level-Stock-Dues in.

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Dues in shall be pending MPR or pending Purchase Order after giving due consideration to baddues in.

Bad dues in shall not be considered for calculation of outstanding supply.

Items of same group, similar nature & same vendor base shall be combined & indented against

single MPR as far as possible.

Continuous Review

Apart from annual review, continuous review of stock and dues in shall be done every 15 days &if the stock falls below the reorder level, MRP shall be raised for the quantity equal to theconsumption between annual review calendar period and current period. Additional requirementfor capital repair etc shall be taken care of.

Follow Up & Review

Status Report shall be obtained from system once a month and information given to purchase for

making available Nil stock and critical stock items.

The vital item shall be reviewed once a week.

The daily position of certain selected vital items shall be monitored for replenishment and toavoid stock out.

There shall be a structured follow-up with Purchase Department.

An annual report of slow moving/ non-moving AP items shall be submitted to standingcommittee on AP for consideration of deletion of these items from AP list.

A weekly report of items having less than Safety Stock shall be send to purchase department fortimely follow up to avoid stock out.

A weekly report of stock out items shall be sent to Purchase Department for intensive follow up.

Bad Dues In: Bad dues in are quantities supply against which are not expected in normal course.In case supplies against had dues in are received, same should be taken care in the next cycle ofplanning. Bad dues in shall not be taken into account while calculating MPR quantity. Followingcases shall be treated as bad dues in:-

1. MPRs more than 12 months old, either part or full.

2. Purchase Order more than 18 months old.

3. Outstanding Purchasing Order quantity > 10% of the original Purchase Order quantity &last supply is more than six month old.

4. MPR& Purchase Order against which supplies are not likely to materialized on account ofany dispute.

In consultation with purchase, the bad dues in shall be reviewed and dropped/ closed/ shortclosed wherever felt necessary.

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Delivery: Delivery schedule shall be decided depending upon nature & criticality of the item.

Estimated Value: Estimated value shall be based upon the last purchase price (LPP) obtainedagainst a normal MPR. LPP against an emergency MPR shall not be considered.

MPRs for Specific Requirement like Capital Repair, planned special repair etc. shall be

received only with the approval of HOD (not below the rank of E7). Approval of Head of Storesshall be obtained for raising MPRs for such requirements.

Proprietary Approval: An item to be procured on proprietary basis shall have the approval ofHead of Maintenance & General Manager (Material Management). The proprietary status afterapproval shall be incorporated into system. Separate approval every time at the time of indentingshall not be required. However, proprietary item shall be reviewed every year by the StandingCommittee on AP item.

Emergency MPR: Emergency MPR shall be raised with the approval of competent authority asper Department of Purchase.

Short Closure Of Purchase Order/ MPR: The outstanding supply against MPR and PurchaseOrder shall be reviewed once in 6 months and closed/ short closed wherever felt necessary.

Release Of Materials: Stock Control shall be the releasing agency unless otherwise specified.Materials shall be released on the basis of consumption trend, stock in hand and any otherrelevant information i.e. special repair etc. The details of releasing agencies are given below:

Group of items Releasing Agency

Safety items

Electrodes, Lifting Tools & tackles

Wire Ropes

Electrical items

Paints

Ammonia Paper

Safety Engg. Deptt.

R & R

Crane Inspection

Standardization Cell (Elec.)

CED

Plant Design

Procurement Process: Being indenter of AP items. Stock Control shall be associated infinalization of cases for procurement in areas like Vendor Selection, Mode of Tendering, TC,Negotiation, TR whenever felt necessary.

Technical Recommendation: For AP items being of Standard specification, Technicalrecommendation by Stock Control shall not be required. However, in case of any doubt orclarification, the cases shall be referred to Stock Control for TR. Help of centralized agencies ormain user may be obtained for TR wherever felt necessary.

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Figure 2: Graphical presentation of EOQ model of Automatic Procurement item

Minimum Level (Safety Stock) = 3 months

Buffer Stock = 6 months

Reorder Level = 9 months of NOMC (No. of Monthly Consumption)

Procurement Lead Time = 6 months

ROLE OF STORE & PURCHASE DEPTT. IN PURCHASING PROCESS

The most important function of public procurement is to maintain transparency which not onlyensure a level of playing field to the suppliers/ contractors but also result in qualitativeimprovement in material/ services received due to increased competition.

CMO (Central Marketing Organization) places an order with specification to Bokaro Steel Plant

as per demand. Now inside plant, Production Planning Control & Sales Co-ordination departmentmakes production planning for different department.

Raising Of Indents or MPR

Now according to production planning, the indents for purchase of materials called MPR(Material Purchase requisition) shall be raised by the department(s) concerned