A PROJECT REPORT ON INVENTORY MANAGEMENT IN SINGARENI COLLIERIES COMPANY LIMITED Submitted By I.Sushma H.

NO:141109672044
Project report submitted in partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

ICBM-School of Business Excellence

(affiliated to Osmania University) Upperpalli X Roads,Right of pillar No: 179, Rajendra Nagar,Hyderabad-500048 (2010-2011)

DECLARATION

I here by declare that this project work entitled INVENTORY MANAGEMENT in SINGARENI COLLIRIES COMPANY LIMITED is an original and genuine work done by me. I also state that it is not submitted else where in part of full a part from myself submitting it from the context of an academic endeavour and partial fulfillment for the award MBA degree by Osmania University as a part of the academic curriculum.

I.SUSHMA

ACKNOWLEDGEMENT

I take this opportunity to express my gratitude to SINGARENI COLLIERIES COMPANY LIMITED (SCCL), Kothagudem who gave me this opportunity to carry out the work in the organization. I am very much thankful to Mr.R.PEDDI RAJU Project Manager SCCL, for giving me full information and for helping me in the completion of the project. I thank ,Head of the Department,ICBM-SBE,Hyderabad for his encouragement to complete my project work. I Sincerely praise the efforts of Mr.Ramesh Babu, ICBM-SBE,Hyderabad for guiding and supporting me in completion of this project.

I.SUSHMA

INDEX
CHAPTER
Chapter-1 Chapter-2 Chapter-3 Chapter-4

CONTENTS
Introduction Inventory Management Need of Inventory Management Objectives of the Study Methodology of the study Limitations of the study Time period Review of literature Review of related literature Organisation profile Introduction Origin History Operational Areas Milestones Technology and Output Manpower in SCCL Vision Mission Gloom to Glory Strengths Weakness

PAGE NO.

Inventory management in SCCL Introduction Material Management Cycle Stores Organisation Stores Categorisation Organizational setup & Resposibilities

Store Keeping Standardisation,classification & codification Analysis of inventory management in SCCL Inventory control procedures Inventory Carrying cost Inventory Levels Chapter-5 Chapter-6 Analysis Conclusions Suggestions BIBILOGRAPHY

CHAPTER-1 Introduction

INTRODUCTION
INVENTORY MANAGEMENT: Conversion of raw materials into finished goods is the main unction of every production firm.Required raw materials if purchased and stocked in advance, ensures smooth production process. But, how much should be purchased? How to stock it? How to release the stock? What costs are involved? How to control the costs of acquiring and storing materials? All these issues call for Materials Management. Materials management involves Materials acquiring-purchasing, receiving and storing, inventory control, disposal of surplus and control on scrap. Effective materials management is key to a firms profitability. An ideal materials management ensures efficiency in accountability coordination and performance in the department. Further, it is computerized to save time and efforts.

MEANING AND NATURE OF INVENTORY:In accounting language, inventory may mean the stock and stores etc. Definitions:Material management is the flow of materials into an organization to the point where those materials are converted into the firms end product(s). Bailey & Farmer. of finished goods only. In a manufacturing concern, it may include raw materials, work-in-progress

INVENTORY INCLUDES THE FOLLOWING THINGS:A. Raw material:- Raw material form a major input into the organization. They are required to carry out production activities uninterruptedly the quantity of raw material required will be determined by the rate of consumption and the time required for replenishing etc., to affect the stock of raw materials. B. Work in Progress :-The work in progress is that stage of stocks, which are in between raw material and finished goods. The quantum of work in progress depends upon the time taken in the manufacturing process. The greater the time taken in manufacturing the more will be the amount of work in progress. C. Consumables:- These are the materials, which are needed to smoother the process of production. These materials do not directly enter production but they act as catalysts. Consumables may be classified according to their consumption and criticality. Generally consumables stores do not create any supply problem and the form a small part of production cost. There can be instances where these materials may account for which they value raw materials. The fuel oil may form a substantial part of cost. D. Finished goods:- These are the goods, which are ready for the consumers the stock market. of finished goods provides a buffer between production and

E. Spares:- The stocking policies of spare differ from industry to industry some industries like transport will required more spares than the other concerns. The costly spare parts like engine, maintenance spares etc. are not discarded after use, rather they kept in ready position for further use. All decision about spares are based on the financial cost of inventory on such spares and the cost may arises due to their non-availability. BENEFITS OF HOLDING INVENTORIES:- Although holding involves blocking of firms funds and the cost of storage and interrupted production and smooth running of business. In the absence of inventories a firm will have or mark purchases as soon as it receives order. It will mean loss of time and delays in execution of orders which sometimes may causes loss of customers and business. inventories

handling, every

business enterprise has to be maintain certain level of inventories of facilitate un-

A firm also needs to maintain inventories to reduce ordering cost and avail quantity discounts etc.

There are their main purposes of holding inventories. THE TRANSACTION MOTIVE:-which necessitates the holding of inventories for material? THE PRECAUTIONARY MOTIVE:-which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials? the unpredictable changes in demand and supplies of

THE SPECULATIVE MOTIVE:- This includes keeping inventories for taking advantage of prise fiuctuvations,saving re ordaring costs and quality discounts.

RISK AND COSTS OF HOLDING INVENTORIES:-

The holding of inventories involves blocking of firms fund and incurrence of capital and other costs.

The various costs and risks involve in holding inventories are. Capital Costs:-Maintianing of inventories results in blocking of firms financial resourses.The firm has therefore to arrange for additional funds to meet the costs of inventories. The funds may be arranged from own resources of from outsiders. But in both the case, the firm insures the cost .in the former case, there is an opportunity cost of investment while in the later case. The firm has to pay interest to the outsiders. Storage and Handing Costs:-Holding of inventories also involves coast on storage as well as handing of materials. The storage of cost include the rental of the go down, insurance charges etc., Risk of Price Decline:- There is always a risk of reduction in the prices of inventories by the supplies in holding inventories. This may be due to increased market supply, competition or general depreciation in the market. Risk of Obsolescence:- The inventories may become obsolete due to improved technology, changes in requirements, changes in customer tastes etc.,

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Risk Determination in Quality:- The quality of materials also deteriorates while the inventories are kept.

OBJECTIVES OF INVENTORY MANAGEMENT

Definition of inventory management: Inventory management is concern with the determination of optimum level of investment for each components of inventory and the efficient use of components and the operation of components and the operation of an effective control and review of mechanism. The main objectives management is operational and financial. The operational objective mean the materials and the spares should be available in sufficient quantity so that work is not disrupted for want of inventory. The financial objectives mean that the material and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. The following are the objectives means that investment in inventory should not remain idle and minimum working capital be locked in it. The following are the objectives of inventory management: To ensure continuous supply of materials, spares and finished goods so that production should not suffer at any tie and the customers demand also be met. To avoid both over-stocking and under-stocking. To maintain investment in inventories at the optimum level as required by the operational and sales activities. To keep material cost under control so that they contribute in reducing the coast of production and overall costs.

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To eliminate duplication in ordering or replenishing stocks. This is possible with help of centralizing purchases. To minimize losses through deterioration pilferage wastages and damages. To ensure perpetual inventory control so that materials show in stock ledgers should be actually lying in the stores. To ensure right quality goods at the reasonable prices. Suitable quality standards will ensure proper quality of stocks. The price analysis; the cost-analysis will ensure payment of proper prices.

To facilitate furnishing of date for short-term and long-term planning and control of Inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of liquidity but also increases profits and causes substantial reduction in the working capital of the concern. 1. Determination of stock levels: Carrying of too little of inventory is detrimental to the film. If the inventory level is too little, the firm will face frequent stock outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie up of capital. An efficient inventory management requires that a firm should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock out if which may result I loss or sale of shortage of production.

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2. Minimum stock level: It represents the quality below its stock of any item should not be allowed to fall. Lead-Time: a purchase in firm requires sometimes to process the order and the Time is also required by the supplying firm to execute the order. The time taken in processing the order and then executing it is known as lead-time. Rate of consumption:-It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past experience and production plans. Nature of material:- The nature of material also affects the minimum level if a material is required only against the special order of the customer teen minimum stock level cal be required for such material. Minimum stock level can be calculated withy the help of the following formula. ( Minimum stock level = reordering level (normal consumption X normal re-order period) b) Re-ordering level:When the quantity of material reaches at a certain figures then fresh order is sent to get material again. The order is sent before the materials reach minimum stock level, Re-ordering maximum level. ( Re-ordering level = maximum consumption X maximum re-order period) c) Maximum level:- It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit it will be over-stocking. level is fixed between minimum level and

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Over stocking will mean blocking of more working capital, more space for storing the materials, more wastage of materials and more changes of losses from obsolescence. (Maximum stock level = record level + recorder quantity (minimum consumption minimum re order period) D) Danger stock level:It is fixed below minimum stock level. The danger stock level indicates emergency of stock position and urgency of obtaining fresh supply at any cost. E) Average stock level:This stock level indicates the averages stock held by the concern. (Average stock level = minimum stock level +1/2 x reorder period) 2) Determination of safety stocks:Safety stocks are a buffer to meet some unanticipated increase in usage. The demand for material may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock out. In order to protect against the stock out arising out of usage flucturations, firms usually maintain some margin of safety stocks. Two costs are involved in the determination of the stock that is opportunity cost of stock outs and the carrying cost. 3) Economic Order Quantity( EOQ):The quantity of material to be ordered at one time is known as economic order quantity. The quantity is fixed in such a manner as to minimize the coct of ordering and carrying cost. (Total Cost Of Material = Acquisition + Carrying Cost+ Ordering Cost) Carrying Cost:

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It is the cost holding the materials in the store Ordering cost; It is the cost of placing order for the purchases of materials. EOQ can be calculated with the help of following formula EOQ=Square root of 2CO/1 Where C= consumption of the material in units during the year O=Ordering cost I= Carrying cost or interest payment on the capital ABC analysis (Always better control analysis):Under ABC analysis the materials are divided into 3 categories viz A,B,C. Almost 10% of items contribute to 70% of value of consumption and this category is called A category. About 20% items controlbute about 20% of value of consumption and his is known as category B materials. Category C covers about 70% of items which contribute only 10% pf value of consumption. VED analysis (Vitally Essntial Desire) The VED analysis is used generally for spare parts. Spare parts classified as vital (V) essential (E) and desirable (D). The vital spares are must for running the concern smoothly and these must be stored adequately the E type of spares are also necessary but their stocks may be kept at low figures. CLASSIFICATION AND CODIFICATION OF INVENTORIES:The inventories should first be classified and then code numbers should be assigned for their identification. The identification of short names is useful for inventory

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management not only for large concerns but also for small concerns. Lack of proper classification may also lead to reduction in production. Generally materials are classification accordingly to their nature such as consumption materials consumer stock, spares,lubricants etc, After classification the materials are given code numbers. The coding may be done alphabetically or numerically. The later method is generally used for coding. The class of materials is assigned two digits and then two or three digits are assigning to the categories of items divided into 15 groups. Two numbers will be categories of materials in that class. The third distinction is needed for the quality of goods and decimals are used to not this factor. Valuation of inventories-method of valuation: FIFO method LIFO method Base stock method Weighted average method

CRITERIA FOR JUDGING THE INVENTORY SYSTEM:While the overall object of the inventory system is to minimize the cost to the at the risk level acceqtable of management, the more proximate criteria for judging the inventory system are: Comprehensibility Adaptability

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 Timeliness Areas of improvement: Inventory management in India can be improved in various ways. Improvements could be effected through: Effective computerization: Computers should not be used merely for accounting purpose but also for improving decision-making. Review of classification. ABC and FSN classification must be periodically reviewed. Improved Co-ordination: Better co-ordination among purchase, production marketing, and finance departments will help in achieving greater efficiency in inventory management. DEVELOPMENT OF LONG TERM RELATIONSHIP:Companies should develop long term relationship with vendors. This would help in improving quality and delivery. Disposal of obsolete/surplus inventories: Procedure for disposing obsolete/surplus inventories must be simplified. Adoption of challenging norms: Companies should set benchmarks with global competitors and use ideas like JIT to improve inventory management.

The reasons for keeping stock:There are three basic reasons for keeping an inventory: Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this "lead time". Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.

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Economies of scale - Ideal condition of "one unit at a time at a place where user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale. INVENTORY COST:Inventory cost represents the following:-

a) The total value of stores and spares and capital spares b) Stores in transit an under inspection and c) Stock of finished products. Normally, there are certain problems in maintaining optimum level of inventory problems of inventory can be resolved by the cost implication. Costs which are relevant for consideration, are discussed in the following lines: Basically, there are four costs for consideration in developing an inventory model. 1).The cost of placing a replenishment order. 2).The cost of carrying inventory 3).The cost of over stocking 4).The cost of under stocking The cost of ordering and inventory carrying cost are reviewed as the supply side cost and help in determination of the quantity to be ordered for each replenishment.

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The under stocking and over stocking costs are viewed as the demand side costs and help in the determination of the amount of variations in demand and the delay in supplies which the inventory should withstand. Understocking:This cost is incurred when an item is out of stock.It includes cost of lost production during the period of stock out and the extra cost per unit which might have to be paid for an emergency purchase.

Overstocking:This cost is the inventory carrying cost (which is calculated per year)for a specified period of time.The time varies in different context it could be the lead-time of procurement of entire lifetime of machine.

Cost of ordering includes:1) 2) etc Paper work cost, typing and dispatching an order Follow up costs-the follow up required to ensure timely supplies

includes the travel cost for purchase follow up ,the telephones, telex and postal bills

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3) 4) 5)

Costs involved in receiving of the order, inspection, checking and Any set up cost of machines charged by the supplier, either directly The salaries and wages of the purchase department.

handling in the stores. indicated in quotations are assessed through quotations for various quantities

Cost of inventory carrying: This cost is measured as the percent of the unit cost of the item. This measure gives basis for estimating what actually cost a company to carry a stock. This cost includes:1) Interest on capital. 2) Insurance and tax charges. 3) Storage costs-labour cost, provision of storages areas and facilities like bins, racks etc. 4) Transport bills and hamali charges. 5) Allowances for deterioration or spoilages. 6) salaries of stores staff Objectives of the study: To examine the organization structure of inventory management in the stores of SCCL. To discuss pattern,levels and trends of inventories in SCCL. To understand the various inventory control techniques followed by stores in SCCL.

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To access the performance of inventory management of the SCCL by selected accounting ratios. To know the inventory control techniques of SCCL.

Methodology of the study:The study is based on secondary data. The secondary data has been collected from annual reports, manuals, purchase, registers, storage records of the organization. But, it was supplemented by with interaction with the concerned personal with regard to some primary data. Limitations:The study has the following limitations: 2009-10. Time Period:The study was carried in Singareni collaries company limited kothagudem for a period of 6 weeks. There may be approximations. The study is purely based on secondary data. The study is limited only for a period of 5 years i.e., from 2005-06 to

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CHAPTER-2 Organisational Profile

INTRODUCTION OF COAL MINING IN INDIA

Man had blessed with abundance of natural resources, including mineral wealth that play a vital role in the development of a country and promote the economic growth when explored and made best use of them.

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Man knows coal, which is one of the important materials, since ages and this natural wealth have put to diverse use In the modern world. Coal regarded as the fuel of growth. The coal is an important input for power generation and many other industries like iron and steel, railway, shipping and construction industries etc, a vital infrastructure fro the economic development. Despite the development of alternative fuel material in many industries. Thus coal industry plays an important role In the industrial development of any country, like India. The world coal consumption is projected to go up from 4.7 billion tonnes in 1999 to 6.4 billion tonnes by 2020. primarily in India and china , which are expected to account for 75% of the increased consumption. In India , coal mining was started in 1774 and still significantly under the government control and ownership with coal India limited ( CIL) , along with its following subsidiaries are become number one coal producer in India. Eastern Coal fields India limited (ECFIL) sanctrica, west Bengal. Bharath Cooking coal limited (BCCL) - Dhanbad, Bihar Central Coal fields limited (CCL) Ranchi, Bihar Northern Coal fields limited (NCFL) Singrauli, Madhya pradesh Western Coal fields limited (WCFL) Nagpur, Maharastra.

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Mahanadi Coal fields limited (MCL) Sambalpur. Orissa. Central mining planning & design institute limited (CMPDIL) Ranchi, Bihar.

SINGARENI COLLERIES COMPANY LIMITED

ORIGIN:A remarkable little adventure gave a birth to this giant corporate entity that us today the Singareni Collieries Company Limited. Way back on a dark night in 1870, a group of pilgrims who on their way to have a darshan of lord Rama at Badrachalam temple (near singareni village) has lit a fire to prepare for the meal. One of the supporting stones on their makeshift stove, caught fire. The incident was immediately reported to the local government. This led to an extensive survey by Dr. William king, an eminent geologist, which confirmed the revolutionary discovery of mammoth of coal in the Godavari valley. The rest, as they say, is history: The year 1886 witnessed the formation of they Hyderabad Deccan Company private limited and it acquires the mining rights for exploiting the coal

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reserves.

The first commercial operation commenced at Yellandu ( khammam

District) in Andhra pradesh in 1889. In 1921 the company was re-christened the Singareni colleries company limited: and its scrip listed on the London stock exchange. The mining rights for exploiting the coal reserves were acquired by the Hyderabad Deccan company. Which was incorporated at London Stock exchange. Hence the first extracting of coal was started at yellandu in 1886 by Hyderabad deccan company. The company became government company after nizam purchased its shared from London stock exchange in 1945. With this, SCCL became the fiorst ever government managed coal company in India. Later in the year 1949, SCCL came under the control of indai and Andhra pradesh as a joint venture with equity ratio of 49% and 51% respectively. The SCCL is engaged in coal mining in four districts of Andhra Pradesh namely, Khammam, karimnagar, adilabad and wrangal. In overall India it spreads to 6% of geographical area producing 10% of total coal.

The operation areas of SCCL are as follows:

Khammam District Adilabad District

Kothagudem, yellandu,Sattupalli and managuru Bellampalli, Mandamari Srirampur,Goleti,Kairiguraand Ramagundam I, II, III.

Dorli
Karimnagar District Warangal district

Bhoopalpally.

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The coal reserves stretch over 350 square kms. Of pranahis Godavari valley of above districts of Andhra Pradesh with proven deposits of 8,575 million tones of coal. SCCL now operates 36 under ground mines and 14 open cast mines in these four districts.

MILE STONES OF TECHNOLOGY INTRODUCTION:

1948: 1951: 1953: 1954: 1975: 1979: 1981: 1983: 1986: 1989: 1994: 2002: Introduction of machine mining (shuttle car) Electric coal drills Electric cap lamps Frame Proof mining machinery Open cast mining Side Dumps Loaders(SDLs) Load haul dumpers Merchandised long wall. walking dragline in open cast mines and computes introduction French Blasting gallery technology Input crushing & conveying technology in opencast mining. Surface miner technology.

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Vision, Mission and Principles Guiding Sustainable Development

Vision: Vision shall bring into view untapped potentials and unutilized opportunities that await exploitation as well as problems and challenges that may impede progress. The vision must identify catalytic forces that can be harnessed. It must express aspitations, determination and commitment for self realization. Though planning and prediction over long time horizon is difficult, desired end results must be dreamt and strategies to accomplish them shall be drawn. Vision needs a subtle blend of humility and courage to dare. Vision is realizable only when it neither has lofty optimism nor extreme pessimism.

The vision of Singareni is,

To produce coal qualitatively and cost effectively in a socially and environmentally sustainable manner, valued by customers, employees, and the community.

TO achieve this vision,

It aims

to achieve a best safety performance.

Adopt best environmental practices strive to bring BACKthe nature to

the best possible original extent,

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Attain sustainable competitive advantage in the marketplace Align production to meet market demand And, continuously improve operational performance.

SCCL MISSION:
o o To retain strategic role of a premier coal producing company in the To strive for the self-reliance by optimum utilization of resources and To exploit the available mining blocks with maximum conservation

country and excel in a competitive business environments. earn adequate returns on capital employed.
o

and utmost safety by adopting suitable technologies and practices and constantly upgrading them against international bench marks. o product. o To emerge as a model employer and maintain harmonious industrial To emerge as a responsible company through good corporate relations with the legal and social frame work of the state.
o

To supply reliable and qualitative coal in adequate quantitites and

strive to satisfy customers needs by sharing their experience customizing our

governance, by laying emphasis on protection of environment & ecology and with due to regard for corporate social obligations.

GLOOM TO GLORY:
The SCCL was receiving budgetary support from both government of India and government of Andhra Pradesh till some time age, but they later

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abandoned. Also the pricing of coals was decided by government of India keeping its impact on the major sectors like power, railways, cement, and etc. the prices were not revised regularly also hike in input cost due to periodical revisions of national coal wage agreements (NCWA), stores and interest were also not fully compensated by government. The frequent strikes by the workers, law and order problems, low productivity, apart from un-remunerative coal price vise- aversa cost of production during the period 1989-90 to 1991-1992 affected the financial health of the company and refer to BIFR in may 1992. But due to liberal financial package extended by the Govt of India in consultation with Govt of A.P and sustained efforts made by the management of SCCL and trade unions, a modest financial turn around was achieved. The company earned profit of rs 17.76 crores and 26.64 crores in 1993-94 respectively. By March 1994, SCCL became out of the BIFR purview. The company for success took following remedial measures/reforms. Unifying trade unions through path breaking elections. High pitch communication drive harnessing media, launching literacy Focused multi-faceted workers welfare programme. Establishing outsourcing of non-core and ancillary activities. Innovative programmes launched( dial your GM, Fields visits, Fuel supply agreements-technology infusion for quality testing, work Focus on safety, environment protection and labour welfare.

programmes.

interactions, follow ups). force visits to client sites. The process of turning around a sick company which commenced in 1997-98 reached its logical conclusion when sccl, totally wiped out its accumulated losses and entered the financial year 2003-04 with a net profit of 80.45 crores after issuing dividend of 86.70 crores

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Mining Success and Honors:

SCCL Multi faceted achievements are landmarks that stand testimony to its efficiency. The company has deservedly won many awards prominent them are: 2001 -02: Best management award in the state National safety award Best payroll saving award in the state.

2003 -2004:

Best workers welfare activity award from FAPCCI Golden peacock environment management award from world Coal India award for fly ash utilization from ministry of env & Golden peacock innovation management award from world

environment management foundation. forests, power, science, & technology. environment management foundation.

Important Events In The Life Of SCCL

Year 1889 1948 Milestones Commencement of mining operations. Introduction of Machine Mining(Shuttle cars,Ls).

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1951 1951 1952 1953 1975 1981 1983 1984 1985 1986 1989 1991 1994 1995 2009

Introduction of Incentive Schemes. Introduction of Electrical Coal Drills. Introduction of Electric Cap Lamps. Introduction of Flame Proof Mining Machinery. Commencement of Open cast Mining Projects. Introduction of latest underground machine. Introduction of Long Wall Face Machinery. Introduction of First 132/33 KYA substation. Singareni coal work graded from c to g grade. Introduction of Walking Dragline in CC mines. Introduction of French Blasting Gallery Techniques. Computerised Information System. Introduction of In-pit crushing in OCP mines. Open casting of developed pillars and go ap aran SAP introduction

AWARDS: Singareni Collieries Company Limited(SCCL) has been awarded Infraline Energy Excellence Award 2007 under company category-Black Diamond Award for coal sector development on 12th October 2007 at New Delhi.

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SCCL received Indira Gandhi Vriksha Mitra Award-2004 for outstate made in the field of afforestation and waste land development on 5th june 007 at New Delhi.

Environmental Excellence Award for 2005-06 from Society for Research and Initiatives for Sustainable Technology Institute(SRISTI),New Delhi. Environmental Excellence Award from Green Tech Foundation in 2005-06. Golden Peacock Innovation Mnagement Award 2005 from the Institute of Directors,New Delhi. Golden Peacock Environment Management Award from World Environment Foundation,New Delhi. National Fly Ash Utilization Award 2005 jointly instituted by the Ministry of Environment and Forests,Power Technology,Government of India. The second Best Corporate Film Award 2005 by Public Relations Society of India,Hyderabad for Shramika Bandham. Three of the fourteen National Safey Awards(Mines) instituted by the Directorate General of Mines Safety,Government(pertaining to 2001). Best Worker Welfare Activity Award for 2002-03 by the Federation of Andhra Pradesh Chambr of Commerce and Indusries. Best Management Award for 2001-02 by the Government of Andhra Pradesh.

PRODUCTION PROJECTIONS:

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Operating Region

PRODUCTION (MT) IN THE TERMINAL YEAR OF 1X Plan 2001 505 16.1 12.4 34.0 52% X Plan 2006-07 605 17.6 12.5 36.6 48% 52% X1 Plan 2011-12 8.0 13.3 13.8 35.1 44% 56% X11 Plan 2016-17 8.7 11.4 15.1 35.3 29% 71%

Bellampalli Ramagundam Kothagudem Total

Open Cast 48% Under ground

SCCL strengths and Barriers:-

Strengths:

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Quick and smooth adoption of new technologies SCCL is a pioneer in adopting blasting gallery (BG) technology (FRENCH) input crushing & conveying technology (Germany) and (UK & China ) performance is very encouraging.

Barriers:Limited financially viable reserves, amenable for open cast mining, high stripping ratios in projects. Difficult geo-minig conditions like steepness, existence of clay bands incompatible roof and low grade of coal.

Production Of SCCL:(figures are in crores tonns)

Year

Target

Actual

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360.00 2005-06 375 2006-07 380 2007-08 415 2008-09 503.90 2009-10

361.00 377 406 445.46 504.24

Targeted Production for the Year 2010-11 is 513.00 lakh tonnes

Coal Prices :Grade Coal of Useful heat value Basic Price per Tonne(RS) per kilo calorie/per kilogram A Exceeding 6200 ROM Coal 2607.5 Steam/Round Slack Coal 2841.54 coal 2623.1 Crushed ROM Coal 2677.74

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B C D E F G Washery Grade-D Washery Grade-E Washery Grade-F

2 Exceeding 5600 but 2213.6 not exceeding 6200 4 Exceeding 4940 but 1838.8 not exceeding 5600 8 Exceeding 4200 but 1491.6 not exceeding 4940 0 Exceeding 3360 but 1128 not exceeding 4200 Exceeding 2400 but 681 not exceeding 3360 Exceeding 1300 but 503 not exceeding 2400

2447.64 2054.88 1689.60 1334.46 831 653

4 2229.2 4 1853.2 8 1504.8 0 1141.2 6 691 513 2390.00 1676.63 1472.47

2283.84 1903.68 1551 1189.56 726 548

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CHAPTER-4 INVENTORY MANAGEMENT IN SCCL

Introduction : The thrust areas of this Millennium for improving efficiency of any business activity are considered to be Service functions. Globalisation has resulted in high competition. Improving quality and reducing cost have become real needs for the success of any Organisation. High degree of competition has forced Organisations to look beyond the operational levels to reduce cost of production to withstand global competition. Need

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for higher productivity has percolated not only to the operational level but also to the product design and other managerial effectiveness resulting in introduction of higher level technologies and automation. In High-tech scenario, as Machine controlled elements are more dominant than the human elements, Management Service functions have become need of the hour, to reduce overall cost of production. Further, developments in information Technology and Internet facilities have helped to maximise resources utilisation and achieve higher service levels. Logistics /Materials Management is considered one of the vital service functions that helps in bringing down the working capital requirement and hence, the cost of production through reduction of interest burden. Also, it would help to make available capital for alternate productive purposes.

Materials Management Cycle : Broadly, the Inventory Management System comprises of Material Planning Purchasing Formulating delivery schedules Receipts and inspection Storage & issues

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Re-allocation of available stocks among various stores/users Identification of Obsolete and unusable inventory Disposal of used items / scrap

It is needless to say that judicious Planning, Organising, scheduling and monitoring of various activities is essential at every stage to ensure that inventories are maintained at optimal level and avoid stock out situations. In real time, the subject becomes complex, as it has got inter-relationship with the production system, which is dynamic due to both internal and external factors. Thus, integration of Materials Management System with the production system and supply chain management is essential to achieve the desired results. STORES ORGANISATION Organisation of Inventory Management function in SCCL: In a traditional way, the Materials Management function in SCCL is organised as PURCHASE and STORES functions. While the Purchase function is looked after by the Purchase Department, the Stores functions viz Material Planning Formulating delivery schedules Receipts and inspection Storage & issues Re-allocation of available stocks among various stores/users Identification of Obsolete and unusable inventory Disposal of used items / scrap

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are entrusted to the Stores Department. The Stores department is headed by CGM(Stores). Who functions under the control of Director (Operations). Separate stores are established for Machine Mining equipment / spares and Opencast equipment/spares to develop expertise in Spare Parts Management and to meet the local requirements of the projects. In all, there are 12 Stores located in various areas and each stores is under the administrative control of respective CGM/GM. Out of 12 Stores, there are 5 Opencast Stores and 6 Area stores and there is a Central Stores located at Kothagudem to maintain and monitor high value items pertaining to Opencast Projects and Capital items of under ground Mining to avoid duplication of stocks of high value items

Codification and Standardisation :As the stores activities are widely spread geographically across 350 Kms from one end to the other end of the Company, proper classification and codification are the key factors not only for successful implementation of computerisation and also to have clear communication/interaction among the users, stores, suppliers and Purchase Department. If the codification is not unique, computerisation becomes waste and it creates chaos. It would only result in garbage-in and garbage-out in computer jargon. In order to derive full benefit of computerisation, codification has been standardised to ensure that unique Code is maintained at all stores for any given item. Also, Items with alternate Part Nos. have been brought under unique Nos. at each store. item codes. Items maintained with wrong Part Nos. have been corrected for their Part Suitable programs were developed in this direction and

40

continuous efforts are put in to ensure that duplicate Items are avoided exercise has given favorable results to reduce the inventories considerably.

This

In order to make sure that the items and Material Master are maintained with correct Part Nos. an exercise was undertaken to counter-check the Part Nos. maintained in Item/ Material Master with OEM Parts Catalogues. For the items for which, Part Nos. have not tallied with the Parts Catalogue, correct part nos. were identified from the purchase orders and the same are incorporated in the Item as well as Material Master. Wherever the equipment suppliers have supplied Parts Catalogue in a CD, this exercise could be done faster and more systematically. Suppliers were also requested to furnish the list of alternate part nos. using which; items with alternate part nos. have been codified with unique item code. This exercise has helped to obtain correct stock status for better decision-making before placing further orders. In case of imported equipment, this exercise could not be taken up as there is no response from the suppliers. However, all the Purchase Orders for the capital equipment are released with the condition that they must supply soft copy of the Parts Catalogue. By this exercise many of the items, which were lying as non-moving are put to use, by correcting the Part Nos. and nomenclature. Also, another exercise was undertaken to identify to bought out items by OEM (such as bearings, electrical, Hydraulic components etc.), which are referred in the Parts Catalogue with their own part nos. In order to avoid multiple bin cards, some with OEM part nos. and some with original manufacturers part nos. Such items have been brought under unique item code. This has helped to reduce the inventory in case of bearings, auto electrical, Hydraulic components. STORES CATEGORISATION:-

41

Central Stores (CS):The concept of CS was started to optimize inventories. High Value items common to more than one project required to be stocked as float is ordered on CS. The item is diverted to the needy project as and when needed. Similarly capital items and items where buffer stocks are required to be maintained are ordered on CS, which are diverted as and when required. As far as possible stocking of items physically at CS is avoided only diversion of Purchase Order is resorted to. CS is under direct control of CGM (Stores). Area Stores:To cater the materials requirement of various Mines & Departments, Area Stores exist in each Area. Each Area Stores will be under the charge of DGM/SE/DySE who will be assisted by sufficient Executives, Stores Keepers, Clerical staff and Issue Mazdoors. While he will be functionally responsible to the CGM (Stores), he will be administratively under GM/CGM of the Area wherever the Stores is attached to the GM/CGM of that Area. The broad functions of Area Stores will be: 1. Receipts 2. RC suborder placing and supply the required material based on users requirement 3. Custody and stores keeping 4. Issues to Mines & departments on STOs and Reservation 5. Delivery schedules giving as per requirements(JIT) 6. Claims, Insurance and other miscellaneous works 7. Inventory control 8. Material Requirement Planning(MRP) 9. Stock verification

42

The custodial responsibility for the material held in a stores will be transferred to the stores personal employed therein. PIT/Departmental Stores:The Department Officer of Pit Stores will normally be the Pit Manager/Engineer or any other Officer nominated by the GM The stores set up in Workshops, Power Houses, Building Department etc., will be under the direct control of the head of the department concerned. The Mines and Departments will draw their requirements from the Area Stores for direct consumption on weekly or fortnightly basis. Each Mine/Department will have a small stores for charge-off materials of daily consumption, drawn from the Area Stores. The Mine/Departmental Stores will keep the Receipt & Issue Records on a numerical ledger maintained at Pit/Departmental level.

The general Organisational pattern of stores is as under

Director(operations) CGM(Stores) Central stores IMC Inspections Disposal Area stores OCStores

43

DGM(Stores)

Inspection

Store keeper

Fitter/Electrician

Sec.Clerks Issue.Mazdoor

STORE KEEPING :PRINCIPLES OF STORE KEEPING, STORAGE, CARE AND

PRESERVATION OF MATERIAL

44

STORAGE :Every store dept., will be well laid-out and organised to allow smooth flow of receipts and issues, to ensure that no hidden stocks exists or stocks accumulate, to deviate stock verification discrepancies and above all to reduce the cost of inventory by better stores management. The principles of store keeping should be observed while organising a storehouse. PRINCIPLES OF STORE KEEPING :The following principles of Store keeping will be observed by all personnel employed on Store Keeping functions: o Separate Areas for different functions : o (Receipt, Storage & issue) :o undirectional flow of material o Optimum utilisation of spare Floor area and Vertical Space. o Proper lay-out, providing gang-ways for working space, Fire line, use of material handling devices and ventilation. o Proper system of location (Sequential order of codification as far as possible). o Correct accounting. o Security cage for attractive and costly items and restriction of entry to store houses. o Use of dumpage. o Use of mechanical handling devices. o Cleanliness. o Room for expansion.

45

o Bulk stores godowns near receipt section, issue sections near issuebay. o First in First out. o Sacred trust store keeper, a trustee of stores.

STANDARDISATION, INVENTORIES:GENERAL :-

CLASSIFICATION

&

CODIFICATION

OF

Inventories used in S.C.C.Limited consist mainly of General Consumable stores and Spare parts for mining, excavation, drilling and miscellaneous equipment. Among the general consumable stores, engineering materials, mining supplies and general supplies are included. STANDARDISATION:Standardisation is a process of systemization of stores, based on reduction of varieties to control minimum work, leading to economy and efficiency. In other words, standardization is rationalised store keeping and it has great importance in Inventory control, as it leads directly to lower holdings and thereby secure a reduction in material cost, without a corresponding reduction in stock over.

PROCEDURE FOR STANDARDISATION:-

46

The implementation of a program as standardization involves a thorough scrutiny of the complete list of commodities stocked, keeping in view the following essential requirements viz.,: The ultimate use of each item. Items having similar characteristics and which can be used as substitutes. Range of sizes actually required, to determine sizes which can be eliminated. Detailed specifications of items required to be retained. Identification is the process of systematically defining and describing all items of stock and fixing their identity by allotment of Code numbers for uniform adoption by all concerned sections. SPECIFICATION :The description of materials apart from laying down the Code number and description of every item also indicates the specifications wherever applicable and prescribed. A specification for an item is a correct description of the item, its dimensions, analysis, performance or other relevant characteristics in sufficient detail to ensure that it will be suitable for the purpose intended. Dimensions are the sizes of the various parts of an article, including the extent of tolerance permitted in these sizes. The dimensions of a typical item can be shown as under: 2-6 long = 0.25 1-6 wide = 0.25 6 deep = 0.10 This means that the length can vary between 26.25 to 25.75 width can vary between 16.25 to 15.75 and the depth can be between 6.10 to 5.90. If any of the dimensions exceed the limits shown above, it should be rejected at inspection.

47

Performance describes the physical ability of an article to withstand certain duties. For example a Tyre should be capable of running 20,000 Miles under load of 2 tonnes and be able to sustain an internal pressure of 85 lbs. Per square inch at a temperature of 150 F without bursting. Adherence to standard specifications will ensure consistency in quality of materials from the point of view of end use of the finished product, facilitate inspections and enable the purchaser to compare the offers of competitors against a standard yard-stick. MECHANICAL RECORDING :For Computerized Stores accounting the allotment of Code Numbers for every stock item is an essential pre-requisite, as it is only Code numbers that all stock items can be introduced into the computer accounting system, together with abbreviated designations. Even manufacturers part Numbers exist, as in the case of Spare parts for equipment and since no uniformity exists in the part numbering system adopted by different manufacturers, Code Numbers will have to be allotted to every item in addition, so as to bring about uniformity in the recording system. However, the part numbers allotted to spare parts by different manufacturers should be shown additionally in the accounting records, so that procurement is arranged on the basis of manufacturers part numbers.

S.C.CO.LTD., CODIFICATION:-

48

Classification of materials into group of similar items adoption of standard nomenclature and codification are essential for proper identification and orderly storage of materials. Scientific classification and codification of materials has the following advantages. Eliminates stocking of same items under different types, nomenclature or by function or end use. Enables proper storage and prompt issue of materials. Eliminates unnecessary varieties & sizes. Facilitates proper procurement & accounting. Facilitates introduction of modern inventory control techniques. Facilitates introduction of computerization for account and reporting. Classification of materials is done taking into consideration the characteristics, end use etc., In the S.C.Co.Ltd., the equipments and materials are classified into 37 Main Classes. A 10 Digit Code has been evolved with the configuration shown below to cover all varieties of items. CODE STRUCTURE:1 2 3 4 5 6 7 8 9 10 xx xx xx xxx x --a) --b) --c) ------ d) e)

Main Class Sub-Class Detailed classification or Special features

49

or Sub-assembly. Sequential Number Check Digit The list of Classification of Inventories used in S.C.Co.Ltd., are as shown below: LIST OF MAIN CLASSES ADOPTED FOR STORES

CODIFICATION:CLASS WISE INVENTORY STATUS AS ON 31-3-2010. (Values in crore rupees) SL.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 MAIN CLASS 10 11 12 14 15 16 17 20 24 30 31 32 33 DESCRIPTION Building material Cap lamps&spares Chemicals-lab materials Consumableselectrical Consumables-general Computer media Electrical appliances Explosures Hardware &fastners Iron & steel Non-ferrous materials Petrol,oils &lubricants Paints & varnishes Mar10 0.67 0.42 2.19 1.13 3.94 0.16 0.07 1.83 2.23 15.44 0.10 8.97 0.12

50

14 15 16 17 18 19 20 21 22 23 24 25

34 35 36 38 40 44 45 61 64 70 72 74

Pipes & pipe fittings Power cables Production stores Sundries Timber Tools,instruments,lab equipments Tubs & tub materials Spares for HEMM Exploration stock Spares for

1.10 0.31 23.35 1.50 2.40 0.82 1.50 106.69 0.70 2.62

automobiles Spares for C.S.Ps 1.03 Spares for 0.02 construction equipment Spares for electrical 1.63 equipment-NFLP Spares for electrical 2.89 equipment-FLP Spares for general 0.39 Spares for 0.23 FEL,FL,Tractors Spares for mining- 3.55 conventional Spares for machine 22.96 mining Spares for power 1.18

26 27 28 29 30 31 32 33 34

75 76 77 78 79 80 82 83 84

house Spares for printing 0.01 press Spares prospecting for 0.64

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35 36 37

85 86 98 TOTAL

Spares for pumpsets 0.64 Spares for W/S and 0.28 Auto W/S Bearings 4.24 217.92

INVENTORY ANALYSIS IN SCCl:

INVENTORY CONTROL PROCEDURE INTRODUCTION:Although the broader concept of Materials Management includes

Inventory Control as a whole, it is usual for the Stores Department to be primarily concerned with stock control or stores inventory control of regular stock items. Inventory Control is the process of deciding what and how much of various items are to be kept in stock. The basic objective of Inventory Control is to reduce investment in the inventories while at the same time, ensuring that stock-outs do not occur and production will not suffer due to non-availability of any material.

52

i .e xe

This involves classification of all items through ABC Analysis, based on consumption pattern, XYZ analysis based on stock value, FSN analysis based on movement of items and other relevant factors to determine the safety stock minimum / maximum levels and economic supply quantities. The main reasons for keeping Inventory are a) Un-interrupted transactions of stores items. b) To procure at an appropriate time at minimum price. c) As a precaution against any eventuality of procurement.

INVENTORY CARRYING COST:This is the hidden cost which normally does not appear in the documents but is accrued on acquisition and maintaining the inventory. The Principal elements of the Inventory carrying cost are detailed below: a) Interest on the investment. b) Storage cost. c) Physical deterioration or its prevention d) Obsolescence cost e) Insurance cost. f) Handling & distribution INVENTORY LEVELS:-

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a) SAFETY STOCK LEVEL:A certain amount of stock is maintained to take any Stock Level. eventualities. There are many sophisticated ways to calculate Safety Stock Level. In Coal Industry the Safety Stock may be taken as part of the total 1) Imported items and Spares 2) Indigenous items and Spares 3) Explosives & POL b) MINIMUM LEVEL :When the stock reaches this level action for procurement should be taken. The consumption during the lead-time of purchase for most of the items it is taken as the same as Safety Stock level but for some Insurance / Imported stores, the level may be higher than the Safety Stock Level. c) MAXIMUM LEVEL :The maximum amount of allowable stock, which can be kept. This level can be determined as stock level and twice the lead time consumption. It should normally vary from 3 to 6 month's consumption depending upon the lead time and Safety Stock level. d) RE-ORDER LEVEL or RE-ORDER POINT :This is represented by Safety Stock and Lead time consumption. It is known as minimum level in stock holding. - 6 Months - 3 Months of storage capacity consumption depending upon the criticality / availability of items: sudden

fluctuation of demand of the item or supply of the item. This is known as Safety The Safety stock acts as a cushion or buffer for absorbing such

54

e) LEAD TIME (L.T.) :It is the time that elapses between submission of requirements for anything and the time taken to satisfy the need by supplying the material. f) LEAD TIME CONSUMPTION (L.T.C.) :The average consumption of any item during the Lead Time is known as Lead Time consumption. 1) Lead Time Stock for Imported items 2) Lead Time Stock for Indigenous items INVENTORY CONTROL :Inventory Control is the most important function of the Materials Management and it forms the nerve center in any Materials Management Organisation. Inventory Control is the process of deciding what and how much of various items are to be kept in stock. It also determines the time and quality of various items to be procured. The basic objective of Inventory Control is to reduce investment in inventories and ensuring that production does not suffer at the same time. Various tools available for Inventory control are: ABC VED SDE HML FSN Analysis Analysis Analysis Analysis Analysis - 6 to 16 Months - 3 to 6 Months

Staggered Delivery Schedules

55

 A B C ANALYSIS: The most important of all analysis is the ABC Analysis "Always Better Control:. This involves analysing of the Annual Consumption value the money spent and not the quantity (Consumption in Numbers x Unit rate) goes after the principle "Vital Few - Rival Many" and the criterion used here is consumed. The general pattern of ABC Analysis will be as following: % of Total Items A Items B Items C Items "A" ITEMS :a) Since these items account for over 70% of the total value, they should be ordered more frequently to reduce the capital locked up at a time in form of inventories. Usually 3-4 Orders should be placed in a year for such items or annual Rate contracts should be entered into. b) There would be some items for which the consumption varies 10 20 70 % of Annual Consumption cost 70 20 10

considerably from time to time during a year. For such items the expected future consumption should be estimated in advance and they should then procured on a planned basis, so that only the required quantities arrive a little before they required.

56

c) Annual or 6-months contracts with scheduled deliveries with a specific period of order are essential. As far as possible, two or more suppliers should be selected for each items so that the dependency on one supplier is avoided. Due to strike, fire, lockout or any other eventualities if one supplier fails to supply, the other supplier can be approached. Delivery schedules for such items should be planned in such a way that the items are consumed within a month on its receipt. "B" ITEMS: a) The policies for "B" Items in general are intermediate between "A" and "C" Items. b) Order quantities, re-order points and safety stocks should be fixed for "B Items and revisions once in a year is adequate. c) Annual or 6-months contracts with scheduled deliveries can be used to an advantage for "B" Items. "C" ITEMS: a) Since these items are too many and the value is less the policies are to be aimed to reducing the ordering and stock keeping to an extent possible and ensuring the availability at all times by stocking liberal quantities.

57

b) Stocks to last for 6 months to over one year can be kept since these "C" Items do not involve much capital tie-up. c) Annual orders should be placed to reduce paper work and also to take advantage of quantity discount for bulk purchases.

V E D ANALYSIS :This Analysis is done to consider the vitality of an item and its effect on production and other services. It is specially used for classification of maintenance spares denoting the essentiality of stocking. V E D - Stands for Vital items - when not readily available, - is for Essential items - when not readily available, temporary - denotes Desirable items - which are necessary but do not

production would come to a halt. loss of production or dislocation of production work occurs. cause any immediate loss in production. S D E ANALYSIS: -

58

This Analysis is based upon the availability position of an item. Especially in developing countries where certain items are scare, this analysis is very useful. S - refers to Scarce items - specially imported and those are in short supply D - refers to Difficult items - which are available in indigenous market but cannot be procured easily. Items which are to come from far off places or where there is not much of competition in the market or reliable suppliers are difficult to find. E - refers to items, which are easily available. H M L ANALYSIS :The cost per items (per unit) is considered for this Analysis and all items are classified as: H M L - High cost items - Medium cost items - Low cost items

This type of Analysis is useful for keeping control over consumption at department level and for deciding the Safety Stock in relation to the availability of the material (SDE Analysis). F S N ANALYSIS :-

59

Here the quantity and rate of consumption are Analysed to classify the items as F S N - Fast moving items - Slow moving items - Non-moving items X Y Z ANALYSIS :XYZ Analysis is to stock what ABC Analysis is to consumption. It is the counterpart of ABC in stock. It focuses the attention of the Management on the materials which have been procured at a faster rate than their consumption and hence its procurement policy needs a review or have become obsolete and hence have to be disposed off. "X" Items - Items whose inventory value is 70% of total value "Y" Items Items whose inventory value is 20% of total value. "Z" Items Items whose inventory value is 10% of total inventory value. STOCK-OUT COST :The loss incurred by way of production or other-wise due to nonavailability of items is known as stock-out cost. This may be NIL to anytime, depending upon the essentiality of the material. level as stated earlier. To counteract the stock outs, suitable value of Normal consumption is given while calculating the Safety Stock

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Staggered Delivery Schedule: This forms one of the most important inventory control technique in the context of our organization. Generally in our system Purchase orders are released only once a year with annual requirement as the ordered quantity. Hence the only way to control inventory build up is to stagger the delivery of the supply of the items. Deliveries should be planned in such a way that the item when supplied can immediately put to use especially for A class items. For doing so the lead-time of supply (for first supply only) and actual requirement by the user is to be considered. For B-class items the supplies should be scheduled in such a way that a minimum of 4 schedules are planned for supply in a year or even more if it is other than BVitem. Items that have uniform consumption pattern throughout the year (Other than spares) monthly schedules should be planned. SYSTEM OF INVENTORY CONTROL :The objectives of Inventory Control is a) Economy or provisioning at minimum investment and cost without jeopardizing essential production. b) Insurance against losses due to stock-out of materials. PERIODIC REVIEW SYSTEM :Under this system, the items are periodically reviewed depending upon the essentiality of the items for stocks and the consumption pattern. Necessary action for procurement and delivery are taken after the review is done. INVENTORY CONTROL MEASURES & PROVISIONING: -

61

It is desirable to periodically review the items where stocks have gone beyond the optimum levels to share the inventory of such items. statement of such items at regular intervals in the stores can do this. Over-stocked items list can be generated on the computer every quarter, and wherever SAP has been introduced once in a month. List of such over-stocked items are to be submitted to CGM(S) by all Area Stores. CGM(S) will circulate the list to all other stores for indicating the requirement of these items for their Area with particulars of Average Consumption per month, stock and pending orders. CGM(S) will arrange Inter-area transfers. Action would also be taken by the Purchase Department to stagger the deliveries appropriately and even cancel the purchase orders in the case of such items where over-stocking has been detected. In the case of under stocked-below order level items, action would be taken to replenish the stocks to prevent stock-outs. List of unmoved items should be compiled every six months / one year, in descending order of value. This statement should indicate the quantity on hand and its value, quantity on order and the date of last issue for items which have not moved for 1,2 or 3 years and above. After identifying such unmoved items, further procurement of such items should be stopped, after carrying out the reutilization check by circulating the items within the company. Compiling

INVENTORY CONTROL & PROVISIONING OF SPARE PARTS: -

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This is a very important subject, in as much as, most part of the surpluses that accrue constitute the Spare parts. Only indenting of first set of Spares for the equipment should be done on the basis of the manufacturers recommended lists of Spare Parts, duly trimmed and adjusted so as not to exceed 10% of the total value of the equipment. Here also it would be desirable to order smaller quantities in the initial stage and only after gaining experience by maintaining proper records of consumption for each type of equipment, larger quantities of Spares should be procured. The items covering the last set of Spares will be processed simultaneously along with the equipment in order to ensure availability of full backing of initial Spares for preventive maintenance when the new equipment is put into commission. The Second set of Spares will be provided to cover the maintenance requirements for the third and fourth year of operation of the equipment. The range of Spares required will be based on the manufacturer's recommendations suitably adjusted in the light of experience gained in the first two years of equipment operation and the maintenance scales developed by Engineers. It is very important to build up proper consumption data right from the stage of commissioning the equipment, which should form the basis for all further requirements. The provisioning of subsequent requirements of Spare parts will be done by the users based on the consumption pattern duly projected to cover the anticipated requirements and taking into consideration the actual working conditions and the maintenance scales. ERP SYSTEM (MATERIAL MANAGEMENT MODULE)

63

In SCCL, four modules of ERP(SAP) was implemented VIZ., 1.Material Management 2.FICO(Finance and Controlling) 3.Sales and Distribution 4.HR(Human Resource) Material Management module consists of Inventory Management(IM) and purchasing. The total stores transactions are being covered in IM of SAP-MM module.As this ERP SAP is an integrated application,the online time to time latest status will be available,which is useful for correct administrative decisions and also reduces time delays and repetitive data handling were avoided. The online material stock,requisition,balance on order status are available throughout the company to review for procurement action. In SCCL,12 store plants and 60 pit stores plants are configured. The following material types are mainly available, 1. Capital item(ZCAP) 2. Revenue items(ZSTK) 3. Stationery items(ZSTA) 4. Repaired item(ZCOR) 5. Coal item(ZFIN) 6. Medical item(ZMED) 7. MPN mterial items(ZMPN) 8.Scrap item(ZSCR) ZSTK materials are stock transferred from one store plant to another plant on STO(Stock Transport Order) and ZCAP,ZSTA,ZCOR materials are drawn on requisition which is on direct consumption account.

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The stores process like GR(Goods Receipt)/GI(Goods Issued) are made in MIGO transaction code in SAP.All material moment like issues,receipts are based on movement types in SAP.In GR process the stock is updated and value is updated for revenue items and material document,accounting document created.Based on accounting document payment to the vendor is made. The materials requirements are reviewed from time to time in MRP(Material Requirement Planning)and purchase requisition are given.Then PO(Purchase Order) are placed accotdingly with staggered delivery schedules for optimizing inventory levels. For some of the regular equipment spares,there are Rate Contract(RC) available for which the sub order are placed by store plants.The lead time for these type of items will be generally low and stocking of such items is also less which is a better tool for optimum inventory. In addition to the above there are COLG(Customer Operated Located Godown)and depot agreement are also opted by SCCL. COMPUTERISED STORE ACCOUNTING :In a large undertaking having several units detached far away from each other and the headquarters, it becomes very difficult to get the Inventory position at any given time, if the store accounting is done manually. Moreover, timely preparation of control statements to assist proper Inventory control and other material management functions is not possible manually. Therefore, in order to introduce the latest techniques of Material Management in our organization, it is necessary to introduce computerised store accounting in a phased manner. The first step in computerized store accounting is proper codification and classification of stores.

65

THE SINGARENI COLLIRIES COMPANY LIMITED (A Govt.company) TREND OF CONSUMPTION VALUES AS ON 31/03/2010.
(All figures are in lakh rupees) STORE 1050 NAME CENTRAL STORES 2009-10 1256.98 2008-09 7677.59 2007-08 4372.75 2006-07 2286.69 2005-06 4920.09

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1150 1250 1350 2250 2251 2350 2351 2450 3150 3250 3450

KGM STORES YLW STORES MNG AREA STORES RG2 AREA STORES RG-OC3 STORES RG-OC1 STORES RG-OC2 STORES BHP AREA STORES BPAAREA STORES MM AREA STORES SRP AREA STORES

17678.72 8022.05 24058.65 12445.06 25190.03 15753.83 13353.64 10223.04 10982.46 3393.00 18283.54 160641.01

13327.12 4776.20 37411.49 7860.29 19815.39 11654.16 24261.11 5237.79 5430.43 4996.14 11848.07 154295.78

10958.10 3721.01 22883.44 19712.69 12082.11 9427.60 7896.02 3752.95 19872.10 21138.66 9047.33 144864.76

10738.61 5870.18 16242.05 24389.62 13762.54 9574.05 9310.61 3333.60 5245.21 5929.10 7074.41 113756.67

6400.33 5925.01 17056.14 16138.81 14292.38 9990.99 8094.59 3422.62 1017.47 7647.99 7693.85 102600.27

THE SINGARENI COLLIRIES COMPANY LIMITED (A Govt.company) TREND VALUES OF INVENTORY AS ON 31-3-2010 (All figures are in lakh rupees)

67

SLNO 1 2 3 4 5 6 7 8 9 10 11 12 TOTAL

STORE 1050 1150 1250 1350 2250 2251 2350 2351 2450 3150 3250 3450

NAME CENTRAL STORES KGM STORES YLW STORES MNG AREA STORES RG2 AREA STORES RG-OC3 STORES RG-OC1 STORES RG-OC2 STORES BHP AREA STORES BPA-AREA STORES MM AREA STORES SRP AREA STORES

2009-10

2008-09

2007-08

2006-07

2005-06

1588 1491 531 2413 2931 3635 2388 3309 638 581 741 1545 21792

2269 1443 484 1810 3437 3627 1302 2475 503 609 765 1528

1716 2056 595.8 1898 2629 2331 1168 2303 729.6 517.8 988.7 1217

1997 2009 1107 1756 4165 2576 955.5 1852 745.3 298.5 1182 1238

2031 1296 1218 1856 3119 2151 1095 1738 429.8 105.8 990.1 936.5 16966.5

20252 18149.8 19881.3

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Chapter-5 Analysis

69

CHAPTER-6 Conclusions

Conclusions:In this chapter, an attempt is made to give the conclusions at a glance on inventory management of Singareni Colliries Company Limited. The following conclusions have been drawn:

70

Overall,the inventory management in SCCL is upto the mark where by adequate supplies of materials and store,minimization of stocks and avoided costly interruption in operations. 2.It has kept down the investments in inventories,inventory carrying cost and obsolescence losses to the minimum through purchasing economies by the measurement of requirements on the basis of recorded experience. 3.It also enables the management to make cost and consumption comparisons between operations and periods.

Suggestions:a) b) c) Stocks transfers from one store to other stores to be done effectively. Disposal actions for obsolete and non moving items to be take up on Implementation of buy back clause incorporated the earlier equipment

priority.Identification of buyers to be searched. purchase orders has to be taken up with the suppliers and returning of the unconsumed spare parts to be done.Such items are to be identified. d) Orders are released mostly for all the items covered in the op en order to be done immediately on their receipt of agreements.Rate contracts

requirement.Only the items required are to be procured other wise the items procured will not get consumed and become non-moving. e) further action f) Linking up alternate part numbers and elimination o duplicate code numbers so that effective utilization of the available items would be done and unnecessary purchases could be avoided. Utility of the items asking more than 1 lakh has to be reviewed to take

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BIBILOGRAPHY:-

S.NO

AUTHOUR

TITLE OF THE EDITION BOOK

PUBLISHER

PUBLISHING YEAR

72

1 Khan . M.Y,Jain P.K 2 I.M. Pandey . 3 Prasanna . Chandra

Financial management Financial Management Financial Management

3rd

Tata MCGraw Hills Vikas Tata McGraw Hills

2007

8th 6th

2004 2006

VISITED WEB SITES:WWW.SCCLMINES.COM

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