&216758&7,21 2) ,17(51$/ &21752/  6<67(0 :,7+ 5(63(&7 72 0$7(5,$/6 $1'  6725(6 

A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT 2) 7+( 5(48,5(0(176 )25 7+( $:$5' 2)  0%$ '(*5( ( 2) %$1*$/25( 81,9(56,7< SUBMITTED BY 0V%+$9$1 $ $  Reg. No 02XQCM6016 UNDER THE GUIDANCE OF 'U1$*(6+ 6 0$/$9$//,  0(121 PRINCIPAL AUDITOR GUIDE)
(INTERNAL CO-GUIDE)

 0U9,12'  INTERNAL (EXTERNAL

 03%,5/$ ,167,787( 2) 0$1$*(0(17  (ASSOCIATE BHARATIYA VIDYA BHAVAN) BANGALORE 560001 2002-2004

DECLARATION
I here by certify that this project report entitled Construction Of Internal Control System With Respect To Materials And Stores At INDITAL Construction Machineries Limited, has been prepared by me under the able guidance and supervision of Dr. Nagesh S Malavalli, Principal, M.P. Birla Institute of Management , Associate Bhartiya Vidya Bhavan, Bangalore. This project report was prepared by me in partial fulfillment of the requirement for the award of MBA Degree. I also declare that this project report has not been submitted to any other University or Institution for the award of any Diploma or Degree.

Date: 13/09/2004 Place: Bangalore BHAVANA A Reg. No.: 02XQCM6016

ACKNOWLEDGEMENT

This Project report has been made possible through the direct and indirect cooperation of various people to whom I wish to express my deep sense of Gratitude. I am extremely grateful to my Guide Dr. Nagesh S Malavalli, for his valuable advice and guidance throughout, which has enabled me in the successful completion of this project and whose constant backing and support made my project a knowledgably and insightful experience. I also wish to express my profound thanks and gratitude to Mr. Vinod Menon, for providing me the opportunity to undertake the project at INDITAL Construction Machineries Ltd. I express my sincere thanks to all the staff of INDITAL Construction Machineries Ltd. who took off their valuable time without which this project could not be completed. I would also like to thank my friends and family members for their continuous support and assistance they have given me.

Guides Certificate
This is to certify that Project titled Construction of Internal Control System with respect to Materials and Stores at INDITAL Construction Machineries Ltd. has been prepared by Ms. Bhavana A bearing the registration number 02XQCM6016 under my guidance. This has not formed a basis for the award of any Degrees/Diploma by any other University Date: 13/09/2004 Place: Bangalore Dr. Nagesh S Malavalli (Principal)

CONTENTS
Page No. CHAPTER 1 CHAPTER 2 CHAPTER 3 CHAPTER 4 CHAPTER 5 CHAPTER 6 CHAPTER 7 CHAPTER 8 CHAPTER 9 Executive Summary Introduction Company Profile Review of Literature Materials Requisition Planning Methodology Study and Analysis Proposed Model Summary and Conclusion 01 04 08 19 29 34 37 42 55

Chapter 1

Executive Summary

INDITAL Construction Machinery Ltd., was established in the year 1989 by qualified technocrats, well experienced in the manufacture of construction and material handling equipments. INDITAL started operations with the primary objective of development and manufacture of State-of-art Mobile Cranes and Material Handling Equipments. The problem faced by INDITAL is to control the internal movement of materials and avoid mismanagement of the same. The company proposes to adopt a proper documentation procedure for the movement of materials between departments. Materials management is the management of the flow of materials into an organization to the point, where, those materials are converted into the firms end product(s). Materials management is a function responsible for coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide predetermined services to the customer at a minimum cost. For an effective internal control of materials, it is necessary that all the departments should coordinate and work in cooperation of other departments, so that it is easy to track the movement of goods, trace the materials to a particular work order. It will also facilitate to create accountability on the materials.

The methodology adopted was to interact with the concerned authorities and to study the current procedure adapted by the company, for internal control of

materials and stores. The procedure was evaluated and possible loop holes were identified. Henceforth, an appropriate tailor-made procedure for internal control of materials and stores is proposed.

The major loop holes identified were that Bin cards were not maintained, Quality control department verbally intimates the purchase department regarding the acceptance or rejection of goods, no document is maintained for return of goods from production department to stores.

Chapter 2

Introduction

BACKGROUND OF THE STUDY

Materials Management Is a function responsible for coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide predetermined services to the customer at a minimum cost. This has necessitated integrated materials management function, which demands an ability to bring together conflicting and yet interrelated functions, viz. materials planning, purchasing, receiving and inspection, stores, inventory control, scrap and surplus disposal.

Importance of Materials Management:

The significance of an efficient materials management system needs no emphasis. It will facilitate the accomplishment of the following objectives: 1. Lower prices for materials and equipment. 2. Faster inventory turnover. 3. Continuity of supply. 4. Reduced lead time. 5. Reduced transportation costs. 6. Less duplication of efforts. 7. Elimination of buck-passing. 8. Reduced materials obsolescence. 9. Improved supplier relationship and better records and information. 10. Better inter-departmental co-operation. 11. Personnel Development.

Materials occupy a significant place among the Ms of an industrial enterprise because of several reasons. Some of these reasons are as follows: 1. The amount spent on materials is increasing in relation to the expenditure on other inputs.

2. Materials offer considerable scope for reducing costs and improving profits. 3. Materials form an important part of current assets in an organization. 4. Improving return on investment depends on the effective utilization of materials 5. Materials add value to a product. 6. Materials contribute to the quality of the end product. 7. Materials management assumes responsibility for whatever happens in purchasing, storing, inventory or any other area connected with materials. 8. Conservation of materials and their availability for posterity is one of the planks of social responsibility of business. 9. The efficiency of any organization depends upon the availability of right materials, in right quantity, at right time and at the right price. 10. Materials, supplies and equipment are the life-blood of any functioning industrial concern, government agency or commercial operation. 11.The relationship between man and materials is indivisible.

STATEMENT OF THE PROBLEM

The problem faced by INDITAL is to control the internal movement of materials and avoid mismanagement of the same. The company proposes to adopt a proper documentation procedure for the movement of materials between departments.

OBJECTIVES OF THE STUDY

To evaluate the procedure currently adopted to control the internal movement of materials. To identify the loopholes in the existing system and provide necessary corrective actions to implement a better control on the internal movement of materials To construct an effective Internal Control System with respect to Materials and Stores.

Chapter 3

Company Profile

INDITAL CONSTRUCTION MACHINERY LTD., was established in the year 1989 by qualified technocrats, well experienced in the manufacture of construction and materials handling equipments. INDITAL started operations with the primary objective of development and manufacture of State-of-the-art Mobile Cranes and Material Handling Equipments. INDITAL, has since inception stressed on product quality. All equipments produced are tailor-made to the Industrys rigid specifications. This has resulted in Sophisticated Material Handling products, produced exactly as per the standards with pinpoint accuracy. INDITALs products consistently help customers cut costs, add efficiency, reduce down time and increase speed of operations. INDITAL has the products and knowledge to add increased value to the customers material handling operations and applications. Within the companys business, the resource of marketing, research, design, engineering, systems and production share a common goal to enhance the quality of the products and service in the market place while advancing the state of Material Handling Equipment making technology. At INDITAL, product and service combine to give its equipment their total value. This value, along with INDITALs commitment to advanced manufacturing technologies is the customers guarantee that the future of Material Handling Equipments belong to the company with new ideas and the knowledge to develop them.

COLLABORATOR INDITAL derives its strength from the excellent Design base it has established with initial support from a leading Italian Design firm specializing in Cranes,

Container Handling Equipments and Fork Lifts Trucks for leading European Manufacturers, whose products are known World over for their steady performance and quality. With 15 years hands on experience in this field, INDITAL has established itself as an innovative company with the capability to design and develop the most sophisticated Material Handling Equipments with particular specialization on customer designed equipments. INDITAL has achieved this capability through years of active and close working with Material Handling Companies, understanding their needs, and developing turnkey solutions. With this background, INDITAL is now famous for the quick succession with which it has been introducing new products in the country. This tie up with MTS Engineering has thus enabled INDITAL to design and produce the most modern equipments with State-of-the-art technology. Mr. Claudio Fontanini heads m/s MTS Engineering, Italy, who is considered an authority in the design of Material Handling Equipments and in particular Heavy Fork Lifts, Container handling Equipments. Mr. Claudio Fontanini who holds several patents to his credit is also on the board of INDITAL as the Technical Director. This has further strengthened the capability of the Company and INDITAL is now famous for quick succession with which it has been introducing new products in the country.

INFRASTRUCTURE INDITALs reputation as an innovative Material Handling Equipment producer is without question. Its state-of-the-art production facilities offer superior quality. Its research and technological skills are unparalleled. Its people are among the experts in the industry. And its dedication to customers remains steadfast.

INDITAL manufactures its Mobile Cranes and Container Handling Equipments in its modern factory at Peenya, about 15 km from Bangalore. The factory situated in a 10,000 sqm plot has stateof-the-art Fabrication Facilities and modern assembly shops covering about 5000 Sqm

TEAM It is often been said that Its not just what we make- its what we know. With the experience gained in manufacturing hundreds of equipments, INDITAL has learnt plenty. Today INDITALs greatest strength has been its workforce. It has a dedicated team of trained and experienced experts in the field of Engineering, Design, Quality Control and Manufacturing, with whom it has been able to turn out World Class products. All these experts are engaged in tackling the frequent changes in the Material Handling Industry and the challenges presented by changes in the technology.

INDITALs Sales Team with the active support from its State-of-the-art Design group is ready to develop products to new specifications. And solve the customers handling problems. Once INDITALs products are in use, its service team, work with customers at their sites to solve their most difficult challenges The Operating Managers, Supervisors, Technical Staff and Mechanics are well aware of the contribution they are making to INDITALs products and the impact they have on exceeding customer expectations. Resting with them are the tools and the know-how to manufacture the best quality Material Handling Equipments in the world. EXPORTS

INDITAL has exported its equipments to Italy, Kuwait, Iraq and Bangladesh. INDITAL is confident of exporting more of its equipments, particularly Container Handling in the coming years.

PRODUCTS MOBILE CRANES During 1989, INDITAL launched its first product: An 8 Ton capacity, 100% Pick and Carry Cranes, which was later upgraded to 12 Tons. These were primarily meant for the Granite and general purpose Material Handling Industry. These Cranes ushered in a revolution in the material handling industry, which had seen so far only tractor based, cranes. During March 1992, INDITAL introduced the HC-18. This 18 ton capacity Pick and Carry Mobile Crane was again the first for India. This model introduced for the first time in India the concept of Power Shift Transmission for a 100% Pick and Carry Crane. With this feature and the Hydrostatic Steering, the HC-18 became a favorite with the operators with lesser strain and fatigue being experienced by them. Today, this model has established itself as a forerunner and the Benchmark in the industry. REACH STACKERS With the experience gained from the manufacture and successful working of its 10 ton, 12 Ton and 18 ton Pick and Carry Cranes, in the most demanding and difficult Indian conditions, INDITAL ventured with confidence into the Container Handling Sector. The field of Container Handling essentially requires 100% Pick and Carry equipment like Top Lift Trucks or the Reach Stackers. The latter being very similar to its currently produced models, INDITAL started manufacturing the Reach Stacker during the later 1992.

This prestigious order was secured inspite of stiff Global Competition from established World Giants in the field. Excellent technical support was received from Mr. Claudio Fontanini, which enabling INDITAL to manufacture the first

Reach Stacker to be produced outside Europe. In February 1993, the Reach Stacker was commissioned at the Inland Container Depot (ICD) of the Container Corporation of India (CONCOR) at White Field, 20 km from Bangalore. Ever since, the equipment has been working exceedingly well and is handling an average of 3000 TEUs a month. It has been found that this machine has a peak handling capacity of 6000 TEUs a month on a 16 hour/day basis. This Reach Stacker employed the latest design in the field of Container Handling and was specially designed keeping in mind the 24-hour a day, 30 days a month work expected from the machine. The design was also customized taking into consideration the adverse and dusty climatic conditions of India, and tough operating parameters.The response after the successful working of the Reach Stacker has been so great that INDITAL is now manufacturing the equipment in greater numbers both for the Indian market as well as for export. Enquiries have been pouring in from all major Indian ports, Container Terminals and also from the Middle East and Far East. Today INDITALS Reach Stackers have been successfully working in many ports, various ICDs of CONCOR, many private container Freight Stations, and several Contractors working for ports like Mumbai Port Trust, Calcutta Port Trust, Cochin Port Trust, Kandla Port Trust etc.,

SIDE LIFT & FORK LIFT TRUCKS In 1996 INDITAL launched Indias first 5 high Stacking Side Lift Trucks. These machines meant for empty Container Handing, which were fitted with a telescopic side spreader to accommodate both 20` and 40` long containers. Designated as the ECT series, these machines have now become very popular in Container Terminals where space is at a premium. These trucks are now available up to 6 high stacking levels.

During early 1998, INDITAL launched its FLT series of 10-ton/12 ton capacity Fork Lift Trucks. These were custom designed for India with performance levels on par with the best European equipments. These machines have become a favorite with Material Handling Contractors and can be seen successfully working all over India. Several variants of FLT-12 with attachments for Container Handling / Tyre Handling/ Log Handling etc., have been introduced. PUSHBACK TRACTOR Ground Support Equipments Having firmly established itself in the Fork Lift, Mobile Crane and Container Handling Industry, INDITAL during 2003 entered the Airport Ground Support Equipment Industry. With the first development order coming from M/s Jet Airways, a leading private airline in India, INDITAL successfully launched its PBT-12 Aircraft Push Back Tractor in September 2003. This high power tractor was primarily designed to handle the new generation Aircrafts acquired by Jet Airways. The equipment has been working quite successfully and INDITAL is gearing up to manufacture more such Tractors in the future.

QUALITY
INDITAL operates a Quality Management System, which complies with the requirements of ISO 9001-2000 and is certified for Design, Manufacture and supply of Material Handling and Earth Moving Equipments. Strict quality control is established right from the raw material stage to the finished product. Only the best possible raw materials and components find their way into an INDITAL product. Quality, Innovation and Customer Satisfaction have been one of the primary strengths of INDITAL on which it plans to build its future.

Reliability is a key benefit in doing business with INDITAL. The Companys goal is to surpass all quality and service expectations. Control of INDITALs product quality is a major concern right up to the shipping stage. Special transporting precautions preserve the high quality of INDITALs products. Appropriate safety measures, rust protection etc., guarantee that the quality processed into the products remain intact upon delivery. No one is tougher on the INDITALs products than the people who make them.

RESEARCH & DEVELOPMENT INDITAL is investing a substantial amount of time and money in its expansion activities, Research and Development and New Plants. INDITAL faces the future with pride and confidence and is poised to bring out the following products and that too in a quick succession, which has been INDITALs trademark: Level Luffing Wharf Cranes Pick and Carry Hydraulic Mobile Cranes Light Duty Earth Moving Equipments. Terminal Tractors. Airport Handling Equipments

SUPPORT At INDITAL, product and service combine to give its equipment their total value. This value, along with INDITALs commitment to advanced manufacturing

technologies is the customers guarantee that the future belongs to the company with new ideas and the knowledge to develop them. Today INDITAL is supported by a strong sales and service team catering to the various clientele. INDITAL has also preferred to grow gradually while catering to customer satisfaction. As a consequence INDITALs products were initially launched in India. Gradually INDITAL extended its operational area to the neighboring countries. Now, with a firm footing in the domestic market, INDITAL is all set to tap the growing global market

WHY INDITAL?

India's largest Container Handling Equipment manufacturer. INDITAL manufactures the widest range of Container Handling Equipments in India.

The only manufacturer in India having the indigenous design capability to manufacture Fork Lift Truck up to 50 tons capacity. India's first manufacturer of SIX High Stacking Empty Container Handler. India's only manuf acturer of Pick And Carry Cranes in the 18-32 categories. Has a range of Reach Stackers to suit every application and budget. 3 different types of Side Lift Truck for Empty Container Handling Capabilities to manufacture Non-standard capacity in Reach stackers, Fork Lift Trucks, Mobile Cranes First Indigenous Producer of Aircraft Push Back Tractor with greater than 8000 Kilograms Draw Bar Pull

Chapter 4

Review of Literature

INTRODUCTION Materials are of many types, viz., raw materials, purchased components, materials-in-process (i.e., semi-finished goods), finished goods, packing materials, maintenance and repairs supplies, scrap and waste and rejects or rework are used in manufacturing organizations. These materials are of various size, shape, and specific features. The characteristics of the materials to be used in production are determined by product design decisions. The layout of facilities is directly affected by the nature of these materials. For example, large and bulky materials, heavy materials, fluids, solids, flexible and inflexible materials and materials requiring special handling to protect them from conditions such as heat, cold, humidity, light, dust, flame and vibration affect the layout of facilities for handling, storing and processing these materials.

Materials Handling is defined as the art and science of moving, packing and storing of substances in any form. The scope of materials handling within an organization depends on the type of the product manufactured, the size of the organization, the value of the product and the value of the activity being performed and the relative importance of materials handling to the enterprise.

Importance of Material Handling

1. Efficient Materials Handling is important to manufacturing operations. Materials sent by vendors must be unloaded and moved through various departments. These movements do not add value to the product but they do add to the cost. 2. Materials handling is an important part of the design of a production facility and can hardly be treated as separate. Materials handling system and plant layout enhance effectiveness of each other. A good plant layout enables an operation to use the most efficient handling method. Efficient operation of appropriate materials handling methods reduces costs and enables maximum capabilities to be derived from a given production facility. There are three perspectives about materials handling. They are: The traditional point of view, wherein the emphasis is on the movement of material from one location to another within the confines of the individual plant. Plant-wise concern for overall flow of materials focuses on the interrelationship between all handling problems and the possibility of establishing an overall materials handling plan. The systems point of view, involves a much broader consideration of all materials handling activities involving the movement of materials from all sources of supply (vendors), all handling activities within and around the plant and the handling activities involved in the distribution of finished goods to all customers of the firm.

Objectives of Materials Handling

Even though the best solution to the material handling problem is no handling, it is hardly practicable in a manufacturing process. Hence the main

objective of material handling is to reduce the number of handlings as well as the overall cost of material handling equipments and reducing the distances through which the materials are handled. Other objectives of materials handling are as follows: Lower unit materials handling costs. Reduction in manufacturing cycle time through faster movement of materials and by reducing the distance through which the materials are moved. Reduction in manufacturing cycle time results in reduced workin-progress inventory costs. Contribution towards the better control of the flow of materials through the manufacturing facility. Improved working conditions and greater safety in the movement of materials. Contribute to better quality by avoiding damage to products by insufficient handling. Increased storage capacity through better utilization of storage areas.

Materials Handling Principles

Certain principles have evolved to guide facility layout to ensure efficient handling of materials. Although there are no hard and fast rules, they do provide effective guidelines for the efficient movement of materials in most facility layout. The material handling principles that provide a framework for selecting specific materials handling equipment or devices, which are the core of the materials handling system, are enlisted below: Materials should move through the facility in direct flow patterns, minimizing backtracking Related production processes should be arranged to provide for direct material flows

Mechanized materials handling devices should be designed and located appropriately so that human effort is minimized Heavy and bulk materials should be moved the shortest distance during processing The number of times each material is handled should be minimized Systems flexibility should be allow for unexpected breakdowns of materials handling equipments, changes in production system technology, etc.

Mobile equipments should carry full loads all the times

Materials Handling Costs

The costs of materials handling arise from two sources: the cost of owning and maintaining equipment and the cost of operating the system. While the cost of owning the equipment generally known since entries are available in the books of accounts, the costs of operating the handling system are elusive, as records are not generally maintained.

Every effort should be made to reduce materials handling costs, particularly because they do not add any value to a product. The product will not be worth any more to the consumer simply because it is moved, but it will cost the customer more. There are three fundamental ways of minimizing the costs. They are as follows: Eliminating the handling itself whenever and wherever possible Mechanizing whatever handling still remains Making the necessary handling more efficient

Primary requisite of any action to be taken towards minimizing handling costs is to have a record maintained for them.

Factors to be considered in planning Material Flow

A. Material or Product (Material flowing through the facility) 1. Characteristics a) Receipts b) Shipments 2. Volume of production 3. Number of different parts 4. Number of operators 5. Storage requirements B. Process (Activity Centers) 1. Type 2. Sequence of operations 3. Possibility of performance during move 4. Specific requirement of activities 5. Product vs. process layout 6. Quantity of equipments 7. Space requirements 8. Number of sub-assembles C. Handling Methods 1. Unit Handled 2. Desired Flexibility 3. Equipment Required 4. Possible Alterations

D. Moves 1. Frequency 2. Speed

3. Rate 4. Volume 5. Scope 6. Area 7. Distance 8. Sources 9. Destinations 10. Cross Traffic 11. Location of receiving and shipping E. Building 1. Size 2. Shape 3. Type 4. Number of floors 5. Location of doors 6. Ceiling height 7. Desired Location of departments F. Personnel 1. Number 2. Movement 3. Safety 4. Working Conditions 5. Supervisory Requirements G. Site 1. Transportation facilities 2. Expansion Possibilities H. Miscellaneous 1. Location of Auxiliary services and activities 2. Possible damage of materials

3. Cost of implementation 4. Production Control 5. Flexibility 6. Expendability 7. Levels of activity

Types of Material Handling Systems

The materials handling systems can be classified according to the type of handling equipment used, type of material handled and the methods, need or functions performed. These classifications are: 1. Equipment oriented systems depending on the type of equipment used: a. Overhead systems b. Conveyor systems c. Tractor-transfer systems d. Fork-lift truck and pallet truck systems e. Industrial truck systems f. Underground systems

2. Material oriented system depends on the type of materials handled: a. Unit handling system b. Bulk handling system c. Liquid handling system 3. Method oriented systems are as follows: a. Manual systems b. Mechanized or automated systems c. Job-shop handling systems d. Mass-production handling System

4. Function oriented systems such as: a. Transportation System b. Conveying System c. Transferring System d. Elevating System

Chapter 5

Materials Requisition Planning

A manufacturing company, to produce its end products, must co-ordinate the availability of sufficient production capacity with the availability of all raw materials and purchased items from which the end products are produced. Hence, there is a need to manage he availability of dependent demand items from which the products are made. Dependent demand items are the components i.e., materials or purchased items, fabricated parts or subassemblies that make up the end product. One approach to manage the availability of dependent demand items is to keep a high stock of all the items that might be needed to produce the end products and when on the other hand stock dropped below a present re-order level, the items are produced or bought as the case may be to replenish the stock to the maximum level. However, this approach is costly due to the excessive inventory of components, fabricated parts and sub-assemblies to ensure high service level (i.e., availability of dependent demand items at a short notice). An alternative approach to managing dependent demand items is to plan for procurement or manufacture of the specific components that will be required to produce the required quantities of end products as per the production schedule indicated by the Master Production Schedule (MPS). The technique is known as Material Requirements Planning (MRP) technique. MRP is a system in which the given MPS is exploded into the required amounts of raw materials, parts and sub-assemblies, needed to produce the end product each time period (week or month) of the planning horizon. The gross requirements of these materials are reduced to net requirements by taking into account the materials that are in inventory or on order.

A schedule of orders is developed for purchased materials and in-house manufactured items over the planning horizon based on the knowledge of lead items for procurement or in-house production.

Objectives of MRP:
To improve customer service by meeting delivery schedules promised and shortening delivery lead times. To reduce inventory costs by reducing inventory levels. To improve plant operating efficiency by better use of productive resources. The MRP technique is used as an inventory control tool, providing reports that specify how many components should be ordered, when they should be ordered and when they should be procured or produced in-house.

Overview of MRP
Basically, MRP consists of a set of computer programs that are run periodically (once a week or month) to incorporate the latest schedule of production requirements. MRP performs three important functions, which are as follows: 1. Order planning or control when to release orders and for what quantity? 2. Priority planning and control comparison of expected date of availability with the need date of each item. 3. Provision of a basis for planning capacity requirements and development of broad business plans.

Flow chart that provides a general overview of MRP

Product structure file

MRP

Inventory status file

Buy Items

Make Items

Purchase orders

Production Activity

Operation of the MRP system Inputs Processing Outputs

Inventory Status F ile

Production Order I Schedule MRP Systems Exception Reports

Production Schedule BOM File

MRP System Inputs 1. Inventory Status File gives complete and up to date information on the on-hand quantities, gross requirements, schedule receipts and planned order releases for the item. It also includes other information such as lot sizes, lead times, safety stock levels, and scrap allowances, etc. 2. Production Schedule specifies what end products are to be produced and when. The planning horizon should be long enough to cover the cumulative lead times of all components that must be purchased or manufactured to meet the end product requirements. 3. BOM File or Bill of Materials File (Product Structure File) provides the information regarding all the materials, parts and sub-assemblies that go into the end product. This file identifies each component by a unique part number and

facilitates processing by exploding the end product requirements into component requirements.

MRP System Outputs 1. Planned Order Schedule plans the quantity of each material to be ordered in each time period. It also modifies the previous planned orders. 2. Exception Reports lists the items requiring managements attention to control.

Chapter 6

Methodology

The present study has three phases:

PHASE I :

EXPLORATORY RESEARCH

In the first phase, an exploratory research has been undertaken to gain additional background information about the general nature of the research problem. It consists of secondary literature of survey consisting of books, journals, websites, legal requirements and process adopted by companies in general.

PHASE II :

STRUCTURED INTERVIEW

In the second phase, a detailed and structured interview was undertaken with the management and the concerned departments, so as to study the existing system adopted by the company with respect to internal control system of materials and stores.

PHASE III : ANALYTICAL RESEARCH

The process as studied in the second phase was compared against the exploratory research conducted in the first phase and the likely loop holes in the process were identified. Henceforth a tailor made mechanism for internal control of materials and stores was proposed.

LIMITATIONS:
As we know every project /study has its own limitations. In the course of the project various types of limitations have been experienced. Since the scope of study is restricted to INDITAL, the problem of generalization exists. As the data collection is through personal interview, personal bias cannot be totally eliminated. Despite of the limitation maximum care was exercised to make the study scientific & meaningful.

Chapter 7

Study & Analysis

The problem statement is to control the internal movement of materials and avoid mismanagement of the same. As such many loop holes in the existing Internal Control System were identified during the study. Some of them are listed below as follows: 1. Purchase Order: Sometimes, the Purchase Orders are made verbally and no confirming Purchase Orders are made subsequently to support a document for the order placed. As such, there is no purchase Order Number to refer to the receipt of goods. Analysis: Since, few Purchase orders are raised verbally, stores will not have any basis to accept the materials arrived. In such cases, the storekeeper should contact Purchase department to confirm the Purchase order, which delays the entire process. Hence, Purchase department should raise purchase orders verbally only in emergency situations and a confirming Purchase order should be raised to keep track of the materials. 2. Format for Purchse Requisition: The Purchase requisition raised by the Production Department against the Work Order received from the Purchase Department does not have a particular format and is prepared in loose sheets. Apart from this the document is also prepared for two or three works orders together and does not mention what materials are required for which order. Analysis: Since the same Purchase Requisition is used for more than one work order, the purchase department may not be in a better

position to give preference to those materials that is required for the Work order that should be executed earlier to the other. Also, as they are prepared in loose sheets there is always a possibility of loosing the papers by oversight.

3.

Quality Control Department: No document is maintained to record the movement of goods between the Quality Department and Stores. Sometimes the workers take delivery of goods directly from the Quality Control Department and later fills up the Materials Issue Slip in the Stores. Analysis: Since no document is maintained for the movement of goods from Quality Control Department to stores, there is always a possibility of loosing the goods in transit, which may go unnoticed and hence affect the production schedule as a whole.

4.

Non-maintenance of Bin Card: The Stores does not maintain any Bin Card. Stores Ledger is also not maintained. The materials returned to the Stores by the Production Department are not recorded. Stock details are recorded in the Purchase Department on a monthly basis. This document does not exhibit the receipt and issue of materials on a daily basis.

Analysis: As, neither a BIN Card nor a daily Stores Ledger is maintained, it is difficult to know the level of any material as on any particular day. This may result in Ordering of materials that are sufficiently available and non-availability of goods when required.

5.

Non-maintenance of Materials Requisition Note: Materials Requisition Note is not maintained by the Production Department. Stores have a Materials Issue Slip, which requires the signature of the worker requiring the material and that of the supervisor for the issue of materials. The worker receives the materials by signing the Materials Issue Slip that is signed by the supervisor at his convenience. Analysis: As, no Materials Requisition Note is maintained, the storekeeper issues the materials for Production without appropriate basis for such an issue.

6.

Non-maintenance of Materials Rejection Note: The Quality Control Department verbally communicates to the Purchase Department about the rejection of goods. No written document is maintained for the purpose.

Analysis: As, Materials Rejection Note is not maintained and such rejection is verbally communicated to the Purchase department. This may result in the Purchase Department personnel ignoring the matter by oversight leading to delay in meeting the Production schedule.

As the above loop holes were identified and appropriately analyzed, the existing system adopted at INDITAL was found to be insufficient. Quite a few grounds have been identified and analyzed that make way for mismanagement of materials, which can be eliminated by adopting a suitable process and procedure for the same.

Chapter 8

Proposed Model

The requirement of materials should be arrived at, by adopting an appropriate Materials Requirements Planning (MRP) which requires the consideration of the following: Bill Of material for the Work order received Requirement of the Materials by other projects Materials already ordered but awaiting receipt Production and Delivery Schedules Current levels of Materials in stores Safety Stock / Minimum Stock Maximum Stock Purchase order shall be raised on the basis of the Bill of Material prepared for each order received from the customer. However this system should be adopted only for A Class and B Class items. C Class items can be ordered against the Purchase Requisition raised and issued by the Stores. Purchase Requisition shall be prepared in duplicate. The original is passed on to the Purchase Department while the duplicate is retained as a file copy. (Note: Purchase Requisition is raised only in case of C Class items) Purchase Order shall be prepared in a set of three copies for distribution as follows: Original and acknowledgement copy to supplier for acceptance Copy to the purchase department One copy to stores, for receiving materials

Purchase Order can be placed verbally only in case of emergency and the Purchase Department should ensure that a Confirming Purchase Order is raised subsequently.

Conditions of purchase, indicating detail instructions as to indemnify against dispute with the third party, method of settlement of disputes, arbitration and the liquidated damages in case of non-supply within schedule time etc. should be printed on the reverse side of the original copy of the order. A specimen of Purchase Requisition is given below: Purchase Requisition Date//. No. Description Code No. in Hand Available Required Work Order No. Quantity Quantity Quantity Required for Orders

Prepared By ... Signature: Flow Chart of Purchase Order Purchase Order *Purchase Order (Purchase)

Purchase Order (Supplier) *- Denotes File Copy

Purchase Order (Stores)

To check the materials on receipt

Purchase orders shall be followed up thoroughly by purchase department till the material is received in stores, accepted after quality inspection, and replacement received for rejected materials.The copy issued to the Stores for its reference shall mention the Work Order No. and shall be accompanied by the Bill Of Material for each order.

Stores Receipt:
On the receipt of materials from the Supplier, the Storekeeper shall refer to the Delivery Challen to find out Purchase Order concerned, and shall prepare a Stores Received Note (SRN), in three copies, to be circulated as follows Purchase Department Quality Approval File copy

A Specimen of Stores Received Note is given below: Stores Received Note Date././.. Description Quantity Received Accepted Rejected No. .. Suppliers name: Purchase Order No.. Code No.

Carriers name: Challen No. & Date Quantity Quantity

Received By Quantity Checked By Quality Inspected By...

After verification with the specifications given in the Purchase Order and physical counting, the storekeeper shall enter the quantity columns, and send two copies of SRN to Quality Control Department along with sample material for Inspection and approval of quality. When the Quality Control Department accepts the materials, the Inspector puts a seal on the respective copies of SRN and puts his signature. One copy of the SRN is sent to Stores for recording in Bin Card, while the first copy is sent to Purchase Department as a record of acceptance of materials ordered and supplied by the vendor. SRN can be checked and priced out by the Purchase Department with reference to Purchase Order. Invoice when received are checked with Priced SRN for issue of Pay Order to the Accounts Department.

Flow Chart of Stores Received Note SRN *S R N (Stores)

SRN (Q.C.)

With Seal on Acceptance

SRN (Q.C. )

SRN (Stores) Entry in Bin Card *- Denotes File Copy Entry in Stores Ledger

SRN (Purchase)

A Specimen of BIN Card is given below: BIN CARD Description: Code: Lo cation: Receipt Date Issue Unit:.. Balance Quantity Verified By No.

SRN No. Quantity MRN No. Quantity

When Materials are rejected, the Inspector shall preferably inspect the whole lot and immediately raise a Material Rejection Note (MRjN) in three copies. The original is sent to the Purchase Department through which the supplier is intimated to replace the goods free of cost. The second copy is sent to the Stores wherein the Storekeeper separates the goods and places them in Rejected Goods areas. Entry of outsiders, other than those employed in the department should not be allowed inside the department, especially in the Quality Control Department and Stores.

Flow chart of Material Rejection Note

M Rj N

*M Rj N (Q.C.)

M Rj N (Purchase) * Denotes File Copy

M Rj N (Stores)

A Specimen of Material Rejection Note is given below: Material Rejection Note SRN No.: Purchase Order No Suppliers name: Description Code No. Quantity Rejected Reason for Rejection No. Date//

Inspected By: Signature:

Stores Issues:
When a worker requires any material, he shall approach the Supervisor who issues a Materials Requisition Note (MRN) to that worker. This Note shall mention the name of the worker authorized to receive the materials, Work Order No. and should require the signature of the Supervisor. The worker shall submit this Note to the storekeeper who prepares a Materials Issue

Note (MIN) in duplicate against the Materials Requisition Note wherein the worker signs on receipt of materials. The Storekeeper shall cancel the materials issued in the Bill Of Material for the respective Work Order and make necessary entries in the Bin Card. The Storekeeper shall seal the original MIN and forward the same to the Purchase Department. Flow Chart of Material Requisition Note MRN (Production) MRN (Stores)

Flow Chart of Material Issue Note MIN (Stores) *M I N (Stores)

MIN (Purchase) * - Denotes- File Copy A Specimen of Material Requisition Note is given below: Material Requisition Note Date: /. /. No.

Work Order No..

Description Code No. Quantity Required

Worker Taking Delivery: Supervisors Signature

A Specimen of Materials Issue Note is given below: Material Issue Note Date:././ MRN NO.. Description Code No. No. Work Order NO Quantity Issued

Workers Signature Storekeepers Signature

Stores Returns:
The left over stock in Production should be sent back to the Stores after the completion of each Work Order accompanied with a Materials Return Note (MRtN) mentioning the materials returned, their quantity, pertaining to which Work Order and shall be signed by the Production Manager. On the receipt of the materials, the Storekeeper shall make necessary entry in the Bin Card, put the materials in their respective bin. The Storekeeper shall then put a seal on this note and send it to the Purchase Department along with the other MINs for recording in the Stores Ledger. Flow Chart of Materials Return Note M Rt N (Production) M Rt N (Stores) Sealed on Receipt and Recording M Rt N (Purchase)

A Specimen of Material Return Note is given below: Material Return Note Date:././ Work Order NO Description Code No. Quantity Issued No.

Production managers Signature

Stores Ledger:
The Purchase Department shall maintain a Stores Ledger wherein different pages are allocated for different items of materials and entries are made on day-to-day basis. This book shall also mention the value of the items. A Specimen of Stores Ledger is given below: Stores Ledger Description: Code: Location: Receipt Date SRN No. Qty Amt Issue Folio No. . Unit:.. Balance Amount

MRN No. Qty Amt Quantity

Other issues at Stores:

Stores shall demark different locations that store materials that are at different stage in the process. The proposed demarcation can be as follows: Rejected Area Under Inspection Allocated for a particular order. Here the Work Order Number should be mentioned and can be created as and when required.

Work in Progress:
At the Production Department, a Works Book must be maintained where in a separate page is allotted for each Crane and entries are made each day as to the materials that has gone into the Crane. This will provide as a solid basis for valuing Work in progress as on any day.

Specialized Process for A Class items:

A Class items, as they are bulky and frequent movement of the same is not preferred, can be directly downloaded at the factory instead of Stores so that the frequent handling of the materials is avoided. However, SRN should be raised and necessary Quality Inspection should be conducted at the factory itself. Also, when the material is taken to assemble to the final product necessary MRN should be raised in the Production Department, against which a MIN is also raised in the Stores. All these documents should be circulated as usual.

Specialized Process for B Class items:

As most of the B Class items are Sub-contracted, and are received in less quantities, each of these items should be preferably inspected so a better check can be imposed on these items. This will ensure that the production schedules are met and the finished product is ready for delivery on schedule.

Specialized Process for C Class items:

C Class items should be ordered on the basis of PRN raised by Stores which is in turn raised when a particular item has reached a particular level that can be fixed as Reorder Level. These items do not require any Quality Testing and as only Quantity Check is sufficient which can be done at Stores itself. As such it is sufficient if the Storekeeper himself certify the Quality for these items and hence sign for the Quality of these items in the SRN rose for the purpose.

Flow Chart of A Class items

Directly Unloaded At Factory

Quality Inspection At Factory

Used For Production At Factory

Flow Chart of B Class items Unloaded At Stores

Total Quality Inspection At Quality Control Department

Issued for Production by Stores to Factory

Flow Chart of C Class items

Unloaded and Quantity Tested At Stores

Issued for Production by Stores to Factory

Chapter 9

Summary & Conclusion

The problem of controlling the internal movement of materials at INDITAL and avoiding the mismanagement of the same can be resolved considerably by adopting the proposed model that is tailor made for INDITAL. The proposed model is advantageous to the company and ensures the company that there are minimum or rather negligible possibilities for mismanagement of the materials, especially during the internal movements of materials between various departments. The benefits that can be derived by the company by adopting the proposed model are enlisted below: ' Better control on the internal movement of materials between the ' Easy identification of the materials as to the source and destination. movement of materials between departments. concerned departments.

' Complete documentation of the activities concerning the internal ' Improved Materials Requirements Planning.