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M.P.Birla Institute of Management

Associate Bharatiya Vidya Bhavan





Student Declaration

I hereby declare that the internship report titled “Industrial Training

Report and Analysis of the Company ,ABB (Asea Brown Boveri),
Bangalore” submitted to Bangalore University in partial fulfillment of the
requirements for the award of the degree of Masters of Business
Administration, is my original work and not submitted for the award of any
other degree/ diploma/ fellowship or other similar titles or prizes.

Place: Bangalore
Date: 15-12-2003

Registration #: 02XQCM6016

This is to certify that the internship report titled “Industrial Training

Report and Analysis of the Company, ABB (Asea Brown Boveri)
Bangalore” has been prepared by Ms. BHAVANA A, bearing registration
number 02XQCM6016, under my guidance. This has not formed a basis for
the award of any Degree/Diploma by Bangalore University or any other

DATE: 15-12-2003
(Internal Guide)

At the very outset, I take this opportunity to express my sincere regards and

gratitude to every individual linked with my Project Work..

I would like to thank Mr. N.S.Malavalli, Principal, M P BIRLA

INSTITUTE OF MANAGEMENT for giving me an opportunity to

undertake the study.

I take the privilege to thank Mr.Gopal Krishna B S, Finance Executive,

ABB India and Mr. Ananthanarayanan, , Business Controller, ABB for

giving me an opportunity to take up the study.

I am grateful to Mr. H K Aravind for his insightful guidance and support

in completion of the project.

I would also like to thank staff of ABB, Peenya for sharing their valuable

knowledge with me.

Last but not the least, I wish to express my gratitude to all those who have

lent a helping hand, directly or indirectly, for the successful completion of

the project.


Company Profile 1
History 2
Business Focus 3
ABB India 4
Business Segments 6
Product Profile 9
Vision & Mission 11
ABB & Technology 14
ABB & Global Research 15
Environmental Policy of ABB 16
Social Policy of ABB 17
A Financial Overview 18
Organization Structure 22
Personnel Policy 41
Systems 42
Project Undertaken 43
Conclusions & Recommendations 59
List of Charts & Graphs

i. ABB Network in India 5

ii. Revenue 18

iii. Profit 19

iv. Return on Capital Employed 20

v. Employee & Productivity 21

vi. Organization Structure-Overview 22

vii. Organization Structure-CEO 23

viii. Organization Structure-CFO 24

ix. Organization Structure-Business areas 25

x. Organization Structure-ABB India 27

xi. Organization Structure-Capacitors Unit 30


ABB is a global automation ad power technology company, in business for more

than 100 years. The history of ABB goes back to the late 19th century and is a
long and illustrious record of innovation and technological leadership in many
industries. Having helped countries all over the world to build, develop and
maintain their infrastructures, ABB has in recent years shifted from large-scale
solutions to alternative energy and the advanced products in power and
automation technologies that constitute its Industrial IT offering.

ABB’s entire global organization is built around their main customer group in
order to serve individual customers more efficiently and create more value for

ABB operates in more than 120 countries and has office in 87 of those countries
to give its global and local customers the support they need to develop and
conduct their business successfully.

1883-Ludvig Fredholm established Elektriska Aktiebolaget in Stockholm as

manufacturers of Electrical Lighting and Generators.
1890-Elektriska Aktiebolaget merges with Wenstroms and Granstroms Elektriska
Kraftbolag to form Allmanna Svenska Elektriska Aktiebolaget, later
shorterned to Asea.
1891-Charles E.L. Brown and Walter Boveri established Brown, Boveri & Cie
(BBC) in Baden, Switzerland, which was the 1st company to transmit High-
Voltage AC Power.
1932-Asea builds the world’s largest Self-Cooling Transformer and expands fan
business by acquiring AB Svenska Flaktfabbriken
1988-Asea and. BBC merges to form ABB (Asea Brown Boveri Ltd.) one of the
largest Electrical Engineering Companies in the world.
A new simpler ABB – Simplification of structure for enhanced operational
efficiency, cost rationalization and core competency focus.
ABB is a leader in Power and Automation technologies that enables utility and
industry customers to improve performance while lowering environmental impact.
The ABB Group of Companies operates in more than 100 countries and employs
about 139,000 people.
In 2002, ABB simplified its organizational structure with the key objective of
levering its domain expertise and building on a clear Market Leadership in Power
and Automation Technologies. This reorganization will enable the company to
serve its utility and industry customers across the value chain with our world–
class products, systems and solutions, faster and more efficiently.

Simplification is done in the following manner –

 7 Divisions to 3 Divisions
 13 Business Areas (Automation Technology) to 6 Business Areas
 7 Business Areas (Power Technology) to 6 Business Areas

Strategy- Build on our leadership in power and automation technologies for utility
and industry customers.

Culture- Shared Intentions- “our ABB”, open communication and dialogue, fast
decisions, execution, disciplined culture, acting in the overall interest of ABB.

Structure-Slimmer structure reduces complexity and reflects focused portfolio.

People- Leadership based on respect for values, trust and accountability – say
what we mean, mean what we say.

“Thinking Global, Acting Local”

ABB in India serves utility and industry customers with the complete range of
ABB’s offerings. The company has a vast installed base, extensive local
manufacturing at 8 units and a countrywide marketing and service presence. As
a strategic thrust to our standard products business, ABB has developed a
national channel partner network, which ensures geographical reach and
penetration for our products and services.

In order to leverage India’s intrinsic technology strengths and the vast pool of
highly qualified software professionals, ABB has set up a dedicated global R&D
Center in Bangalore, which focuses on software development and Industrial IT
development and deployment. It also helps maintain and support a range of
software intensive products and acts as a partner for ABB R&D centers as well
as business areas within the group.
 3200 employees
 8 manufacturing facilities
 25 marketing offices
 4 service centers
 3 training centers

ABB has streamlined its divisional structure to focus on two core businesses:
Power Technologies and Automation Technologies. ABB is a recognized global
leader in all its businesses

The businesses of the ABB Group is organized into 3 Business Segments, which
are as follows-
 ABB Power Technologies serves electric, gas and water utilities as well as
industrial and commercial customers, with a broad range of products,
systems and services for power transmission, distribution and automation.
ABB is the World’s largest supplier in the field of Power Transmission.
ABB has the widest global presence and the most complete product range
available. The Power Transmission Segment provides Products and
Services like
 Air and Gas Insulated Switch Gear Products
 Solution and High Current Systems
 Power Transformers and Reactors
 Products and Solutions for Power Cables
 High Voltage Direct Current Systems.
ABB also provides a complete range of equipment for Power Distribution, from
Transformers and Switchgears to complete Distribution Systems. It provides
products for distribution of Electrical Energy including Medium-Voltage
Switchgears, Apparatus and Prefabricated Factory Assemblies. It also provides
Solutions and Systems for Distribution of Energy to Rural, urban and Industrial
consumers as well as for Airport Installations.
 ABB Automation Technologies blends a robust product and service
portfolio with end-user expertise and global presence to deliver solutions
for control, motion, protection, and plant integration across the full range
of process and utility industries.
ABB’s Automation Business Segment provides a wide variety of products,
systems used in almost all industries as well as solutions for particular
applications and industries. It provides Automation Power Products like
Drives, Motors and Power Electronics, Instrumentation and Control
Products like Field Devices for Sensing, Controlling and Actuating,
Analyzers, Metering Equipment, Control and Information Systems, Diesel
Engine Supercharges etc..

 ABB Oil, Gas and Petrochemicals supplies a comprehensive range of

products, systems and services to the oil- and gas-industries, from
onshore and offshore exploration technologies to the design and supply of
production facilities, refineries and petrochemicals plants.
ABB serves as a supplier and business partner for Oil, Gas and
Petrochemicals Companies. World’s Fossil Reserves are finite. But they
will not run out in the foreseeable future if we use them wisely and replace
them with renewable energy sources wherever possible. Advanced,
innovative technology is required to make their use sustainable.
ABB provides such technology for all parts of the Oil and Gas Industries,
Onshore and Offshore, as a supplier of Equipment and Systems, Turkey
Projects, Services and Technology Licensing. ABB’s offer of Petroleum
Industries include-
 Refineries
 Gas Processing Plants
 Sub-sea production Systems
 Petrochemical Plants
 Offshore Drilling Equipment
 Floating Production Systems

Product Guide:
 Building Systems and Services
 Control Systems
 High Voltage Capacitors
 Instrumentation
o Actuators and Positioners
o Analytical Instruments
o Control Valves
o Flow Measurement
o Interface Products
o Pressure and Level
o Measurement
o Process Control
o Recorders and Indicators
o Temperature measurement
 Low Voltage Products
 Medium Voltage Products
 Motors and Drives
 Oil and Gas
 Robotics
 Transformers
 Valves and Actuators
Service Guide:
 Asset Assessment
 Consulting
o Eutuch Process
o Solutions
 Environmental Services
 Installation and Commissioning
 Maintenance and Field Services
 Optimization
 Performance Services
 Spare Parts and Repairs
 Training
 Financial Services

To be as the most capable and reliable partner while build future
 We want our customers to become “Front Runners”
 We want to become “Main Partners” on the road to Excellence, by offering
Innovative, “Best in Class” level products and services by fostering the
growth of resources that will play responsibility roles in the companies
within the ABB Group.

Mission Statements:
 We supply competitive, top-market level Consultancy Service.
 We support change projects including the implementation step and getting
the planned results.
 We optimize all companies Processes.
 We promote Know-how at International level.
 We sustain the implementation of “Global Process”.
 We foster the growth of resources that will play managerial roles.

We create value:

 By making our customers more competitive in a networked world.

We strive to help our customers gain competitive advantage from technology
advances and developments in their markets. We do this by creating
comprehensive industrial IT offerings that combine World Class products
and services with superior domain know-how and collaborative commerce.

 By offering our employees opportunities to learn, grow and share in the

value created by their efforts.
We reward creativity, flexibility and results-oriented actions that help
make our customers successful. Through adoption of common business
processes we realize energies and creativity to focus on serving our

 By achieving returns that meet or exceed the expectations of our

We generate the growth that creates investor confidence by managing for
value. The power of being close to the market and understanding how we
can create more value for our customers will generate the financial strength
needed in fast changing capital markets.

 By living our commitment to sustainability.

We strive for a balance in the economic, environmental and social impact of
our business and we actively contribute to economic progress,
environmental stewardship and sustainable development in the communities
and countries in which we operate.

ABB’s strategy
In the short to medium term, this is our strategy for sustainability:

 To ensure that all operating units implement environmental management

systems and continuously improve their environmental performance; and
to encourage them to set an example by going beyond mere compliance
with local environmental standards and laws

 To continuously improve the eco-efficiency of all our products, systems

and services, and publish this information in environmental product

 To share the most advanced and eco-efficient technologies with

developing countries
 To apply our social policy, including occupational health and safety
policies, throughout the Group, and develop procedures and indicators to
improve social performance continuously

 To favor and encourage suppliers who have environmental and social

policies similar to our own

 To apply resources to common efforts that foster economic,

environmental, social and educational development

 To analyze and reduce the environmental impact of our transportation of

goods and people

 To use ABB’s communications resources to raise awareness of

sustainability matters, particularly among our own employees

Towards a new consensus

Strategies and policies can take us some of the way. But to make real progress,
we need to implement our policies and help shape the environment in which we
are active.
In short, it is not enough for ABB alone to place a premium on sustainability.
Our customers, our suppliers, in fact, all our stakeholders must agree on the
value of sustainability.
More, we must constantly strive to transform sustainability into customer values.
This is the true challenge before us. Gradually, subtly, every company,
government, stakeholder and individual must come to agree that sustainable
policies are the only acceptable policies.
Sustainability is everyone’s business.

ABB has been recognized as a Technology Leader for over a century, with
many pioneering breakthroughs to its credit. The company invests about 7% of
its Group’s Turnover in research and order related development, which is
weaved into a fabric of its business offering. The company has an excellent
track record when it comes to “intensity of innovation”, with around 75% of their
business being based on products developed in the past five years. The
ultimate aim of their technology initiatives is to make their utility and industry
customers more competitive while reducing environmental impact.

In today’s competitive business environment, all business are seeking radical

productivity and efficiency improvements through increased automation and
integration of manufacturing and business processes. ABB is spearheading this
effort through its open architecture based Industrial IT platform aimed at real-
time, seamless integration of plant operations and business processes across
the entire value chain. The company combines its knowledge of the industry
and business processes with world-class products, systems and services. This
domain competence has been gained through years of experience across
industries and in all parts of the world. ABB is also “information enabling” its
products, which forms an integral part of the automated manufacturing
processes of many industries.

ABB is unique in their approach to R&D. The work is organized via Research
labs in Business Areas and Corporate Research Centres. Currently it has about
1200 researchers and scientists working in Corporate Research Centres. They
also have Research Centres located in Sweden, Switzerland, Germany, Norway,
Finland, Italy, 2in the US ad the latest additional is an Indian Centre, which is
their 1st Research Centre in Asia.

Combined they have over 6000 scientists and engineers working in R&D in their
Divisions and in Corporate Research Centres. All of these are working hard to
invent new technologies, which will ensure a continued successful partnership
with their customers. Additionally, the fresh and innovative thinking arising from
synergies with over 70 universities and research institutes is an important factor
in keeping ABB a world Technology Leader.

ABB is a signatory to the International Chamber of Commerce Business Charter

for Sustainable Development, and in 1992 adopted the 16 principles of the
Charter as its group-wide environmental policy.

The 16 Principles are as follows-

o Corporate priority

o Integrated management

o Process of improvement

o Employee education

o Prior assessment

o Products and service

o Customer advice

o Facilities and operations

o Research

o Precautionary approach

o Contractors and suppliers

o Emergency preparedness

o Transfer of technology

o Contributing to the common effort

o Openness to concerns

o Compliance and reporting


ABB’s social policy was adopted in February 2001. It draws on four sources: the
United Nations’ Universal Declaration of Human Rights, the International Labor
Organization’s fundamental principles on rights at work, the OECD Guidelines
for Multinational Enterprises and the Social Accountability 8000 (SA 8000)
standard, an auditable standard for the protection of workers’ rights developed
by the Council on Economic Priorities Accreditation Agency.
o ABB in society

o Human rights

o Protection children and young workers

o Freedom of engagement

o Health and safety

o Employee consultation and communication

o Equality of opportunity

o Mobbing and disciplinary practices

o Working hours

o Employees

o Suppliers

o Community involvement

o Business ethics



(Rs. In Millions)

12000 10558
10000 8934
7934 8068
1998 1999 2000 2001 2002
Profit After Tax

(Rs. In Millions)

900 813.5
700 653.3
600 540.1
500 377.3 372
1998 1999 2000 2001 2002
Return on Capital Employed (%)

25 21.8
20 18.4

15 13.6


1998 1999 2000 2001 2002
Employees and Productivity

 Number of Employees

5000 4726

4000 3606 3642

3356 3235



1998 1999 2000 2001 2002

 Revenue per Employee (Rs. In Thousands)

3000 2899
2500 2402
2000 1890
1998 1999 2000 2001 2002

ABB is not only unique at its business front but also in its Organizational
Structure. The Company follows Matrix Form of Organizational Structure.

Board of


Chief Executive Officer

Chairman and Chief Finance Officer

ECM For Human Resources

ECM For Power Technologies

ECM For Automation Technologies

ECM-Executive Committee Member



Reporting to CEO

Corporate Communications

Group Internal Audit

Legal Affairs and Compliance

Research and Development


Reporting to CFO

Chief Information Officer

Group Controlling

Corporate Finance and Taxes

Investor Relations

Finance Advisory

Risk Management

Mergers& Acquisitions and New Ventures


Reporting to ECM
Human Resources

Sustainability Affairs


Automation Technologies

Drives, Motors and Power Electronics

Low-Voltage Products and Instrumentation

Robotics, Automotive and Manufacturing Industries

Control Platform and Enterprise Products

Petroleum, Chemical and Consumer Industries

Paper, Minerals, Marine and Turbo charging

Power Technologies

Distribution Transformers

Power Systems

Medium-Voltage Products

High-Voltage Products

Power Transformers

Utility Automation Systems


Oil, Gas and Petrochemicals

Downstream Upstream

ABB India

Automation Power
Technology Technology

Business Business
Areas Areas

Business Business
Units Units

Automation Technologies

The Automation Technologies division serves customers across the industry

spectrum in the automotive, chemicals, consumer, electronics, life sciences,
manufacturing, marine, metals, minerals, paper, petroleum, turbo charging and
utilities. ABB’s competitive edge is its unparalleled domain expertise and cutting
edge technologies which include a comprehensive portfolio comprising Industrial
IT-based measurement, control, instrumentation, process analysis, drives,
motors, power electronics, robots, software, low-voltage products, field
maintenance and asset management services.
ABB offers complete solutions, fully integrating industrial processes that are
backed by world-class platforms. The offering includes complete electrical,
process control & automation and a broad range of software applications.

We are committed to harnessing the power of information technology, Internet

and e-commerce to deliver faster and more effective solutions, moving ahead
along with our customers, into the knowledge based economies of the future.

Power Technologies

The Power Technologies division serves electric, gas and water utilities as well
as industrial and commercial customers, with a broad range of products, services
and solutions for power transmission and distribution. The portfolio includes
transformers, switchgear, breakers, capacitors and cables, as well as high- and
medium-voltage applications.

ABB’s solutions facilitate the flow of electrical power from generating stations,
transmitted through cross-country power lines. ABB’s distribution systems further
help to bring electric power from high-voltage substations to end-users. ABB
delivers end-to-end solutions, playing a key role in electrification and energy
projects- both new and retrofit – for urban and rural utilities as well as for
industrial and commercial customers.

ABB has pioneered several technologies in India including the introduction of self
blast SF6 technology, first HVDC back-to-back converter station, first SVC, first
HVDC transmission line, first 400 kV switchyard, India’s first IPP, turnkey
substation for the first barge mounted IPP and many more.
ABB India has also delivered several turnkey substation solutions up to 400KV
for central and state power utilities across the country and beyond. Recent
international successes include significant orders in Syria, Bhutan and Iceland.
Our focus on technological innovation helps us provide state-of-the-art products
and solutions to our customers, making them more efficient and competitive.

As part of our global optimization philosophy, ABB India’s state-of-the-art

manufacturing facility in Vadodara has been designated as a global sourcing
base for 72.5 kV outdoor circuit breakers. The Nashik unit has also been named
a global focused feeder factory for 11 kV and 33 kV outdoor vacuum/SF6 circuit
breakers, Magnetic Actuators and indoor HPA SF6 breakers. Several other
products and components manufactured in India are increasingly being exported
across the world. As part of our strategic business thrust on projects and
services we have broken new ground in international markets winning significant
orders, thus consolidating our position globally.
Organizational Structure of
The Capacitors Unit
(A Business Unit under Power Technologies Division)
At Peenya Factory, Bangalore.














Marketing Department:
The basic aim of the department is to meet its Order Target as per the budget.
The Company has its Regional Marketing Offices spread across the Country. These
offices tender the prospective orders, quote as per the specifications of the relevant
Manufacturing Unit and bag the orders which are forwarded to the Manufacturing
Unit. For Tendering, Standard Tenders are used that lists the Specialty of ABB. The
functions of the Marketing Department of the Business Unit include-
 Order Handling
o Sending orders based on enquiry
o Studying the customers need by visiting the site
o Assisting in Designing and Manufacturing
o Preparing Production and Dispatch Schedule
o Conducting Seminars for customers for Product Awareness, etc.
 Customer Clearance
o Getting the Drawings Approved
o Re-engineering and Follow-up
 Commercial Aspects
o Checking the Creditworthiness of the customer
o Getting Bank Guarantee
o Preparing Invoice
o Receivables Management on the receipt of Materials Acceptance Statement /
Materials Receipt Certificate from the customer

The Department also carries out Developmental Activities like Training, Product
Development etc..
Technical Department:
 Quality Manager
o Quality Control at the following stages
 Inward Inspection- specifies the parameters for inward inspection
 On Process –
 Material Specifications
 Production Instructions
 Process Modules
 Work Instructions
 Final Inspection – with respect to Final Product
o Instructs in case of Deviation in the Production Process and not involved in the day-
to-day activities
o Vendor Identification – In case of new equipments, with respect to
 Sustainability
 Quality
o Vendor Development – Vendor Rating, every Quarter on the basis of
 Delivery Rating
 Price
 Quality

 Technical Engineer
o Designing
o Re-engineering
o Preparing Bill of Materials (BOM)
Production Department:
 Planner
o Prepares the Purchase Requisition along with the preferred Supplier
o Prepares the Production Schedule
o Participates in Subcontracting
 Inspection
o Inspects the Materials received
o Prepares Material Receipt Advice (MRA) if accepted
o Records the acceptance in the SAP system that alters the Stores Ledger
 Store Keeper
o Accepts the Goods against the MRA
o Issues the Materials to the Production against the Issue List
o Dispatching the Finished Goods
o Physical Stock Taking
 Supervisor
o Carries on Material Planning
o Issues Materials Requisition to Stores
o Issues materials for Production at Plant
o Documentation at the end of each process
o Other Activities
 Supervision
 Operations
 Control
 Stores Data





LV Capacitors- a new range of solutions for quality power

With accountability coming to the power distribution sector there is increased focus
on enhancing operational efficiency. Applications such as motors, transformers,
welding equipment, induction furnaces and lighting consume both reactive and
active power resulting in reduced availability and lower quality of power. This
translates into lower capacity utilization and eventually, additional capital and
running costs.
ABB with its extensive experience and the latest technology has designed and
developed a comprehensive range of products and solutions to improve the power
quality of low voltage networks by eliminating disturbances and improving power
factor. ABB’s highly advanced and cost-effective solutions for improving power
quality while also reducing unnecessary costs.

The dealers of the LT Capacitors, known as ‘Channel Partners’, propagate the

products throughout the country.
The Unit undertakes only the Marketing and Sales activities and Project
Management while executed by the Production Department of the HV Unit.
The functions of the Unit are-
 Order Handling
o Sending orders based on enquiry
o Studying the customers need by visiting the site
o Assisting in Designing and Manufacturing
o Preparing Production and Dispatch Schedule
o Conducting Seminars for customers for Product Awareness, etc.
 Customer Clearance
o Getting the Drawings Approved
o Re-engineering and Follow-up
 Commercial Aspects
o Preparing Invoice
o Receivables Management on the receipt of Materials Acceptance Statement /
Materials Receipt Certificate from the customer




The Department deals in Complicated Systems that require special engineering,

usually tailored, like-
 Harmonic Filters
 Static Var Compensation
The Department undertakes only the Marketing and Sales activities and Project
Management while executed by the Production Department of the HV Unit.

Other Functions are-

 Techno- Commercial Offers
 Negotiations with the customers
 Booking the order
 Systems study at the customers site
 Collecting Design Data
 Designing
 Follow up of the order




The Service and Commissioning Department is basically concerned with After Sale
Services and its activities include-
 Purchases Spares and Components for the customers
 Regular Feedback form the customers
 Assistance in the erection of the equipment
 Providing Service at the Customer’s Site
 Commissioning the equipments at regular intervals



The Controller looks after the overall business and the financial Aspects of the
Business Unit and reports both to the Business Area Manager and the Divisional
Finance Controller. His activities are centralized for the Petty Issues, known as
‘Group Service System’ or ‘GP’.
 Preparation of Full Cost Module(FCM)- Before a Quotation is made, a FCM is
prepared to test the feasibility of the project by considering-
o Overhead Recovery
o Gross and Net Margins, etc.
 Forecasting- This function includes Verifying the Compliance of the targets set as
per the Budget by checking-
o Invoice for Order Target- The rate of converting the orders to invoice
o Receivables for Revenue Target
o Working Capital for EBIT Target
o Capital Employed for Cash Flow Target -Here the Target will be to maintain a
Positive Cash Flow
The Confirmation of the Targets is reported through ‘Rolling Forecast’ to-
o The Country Management every Month
o The Global Management every Quarter
 Receivables Management – Although the Commercial Aspects of receivables
Management are taken care of by the Marketing Personnel, the Controller
aims at “Reducing the Receivables and Collecting More by visiting the
Regional Offices and Meeting the Customers Personally”.
 Inventory Management- The Controller also participates in the Inventory
Management in the matters like, the preparation of Purchase Order to
o Cash Flow Situations
o Prices, etc.
 Costing- The Controller also monitors the Material Cost and the Overhead
Cost incurred at the Production Site for each Job.
 Monthly Closure of Accounts- The Books of Accounts pertaining to the
Business Unit are closed every month, for the purpose of Reporting. The Key
areas of Concentration, among others will be-
o Level of Work-in-progress
o Closing Inventory as per Accounting Standards
o Provision for Future Orders
o Intra and Inter Company Reconciliations
o Matching Revenues to Cost
 Auditing- The Controller is also responsible to get the books audited at the
Business Unit Level. The Audits along with the External Annual Audit
o Quarterly Audit
o Half-Yearly Audit
o Transactional Audit
o Quarterly Audit

Logistics is handled by a Single Person, whose Functional Responsibilities are as

 To receive Purchase Requisition from the Planner. This clearly states the Materials,
Quantity, Preferred Supplier and the Date by which the materials are required.
 To place the Order
 To ensure the procurement of the Materials in time
 To participate in the Vendor Development Programme

Satisfied Customers and motivated employees are of vital importance to ABB’s

long term competitiveness.

Each Employee shall-

 Understand his / her role
 Have necessary empowerment
 Take Responsibility
 Develop his / her competence- Knowledge, Will and Ability
 Clearly defined objectives for both the individual and the work teams shall
be the corner-stone for their activities
 Respect for, and confidence in, the individual shall characterize their work
environment. This must be safe and stimulating
 The local Unions shall be natural cooperation partners
 Each Manager at ABB shall continually develop his/ her Management
Skills and Leadership so as to be able to assume full responsibility for the
 Planning Discussions shall be held atleast once a year with each
individual employee
 The goal of their learning organization is to achieve a continuous
development and provide career opportunities consistent with abilities
 Ethics, equal opportunities and an open and honest exchange of thoughts
and ideas are the corner-stone of their actions

The company has a SAP system which covers the transactions relevant to
booking of order received from customers, to dispatch of finished product to the
customer to the clearance of Accounts. Thus the system covers the areas like
order handling, engineering, planning, purchasing, quality control, inspection,
stores, manufacturing, servicing and commissioning, and accounting.

The SAP picks up data from the database and uses this data for the purpose of
the above said departments. This system is presently fulfilling all the routine
requirements of the users.


Role of SAP System with respect to Inventory Management are-

 Provides information about the Stock-on-hand and helps in the creation of
Purchase Requisition.
 Provides details about the suppliers to the Purchase Department. Thus a
Purchase Order is raised in the system.
 Maintains a record of Stock-on-hand and tracks the movement of Materials.
 Perpetual Inventory System

The Marketing Department bags the order for the products from the customers.
Once the order is obtained a mail in which the details of the order are explained,
is sent to the Engineering Department. The Department also keeps track of the

The Engineering Department is mainly concerned with order handling and in the
preparation of documents needed for production. The Department prepares all
the Engineering Designs with the assistance of AutoCAD Software Package. The
Designs are sent for Customer Clearance. The necessary alterations are made
in the Drawings, if required, which calls for re-engineering.
The department also prepares a BOM (Bill of Materials) using the MS Excel
Package which is later transferred to SAP. The BOM lists all the materials
required for the said project and the Quantity of each item. The document also
states the Substitute Materials that can be used when the original material are
not available. A copy of BOM, enclosed with the supporting Drawings is
forwarded to each of the following departments –
 Planning or Purchase
 Quality Control/Inspection
 Stores
 Production
The Planning or Purchasing Department decides the Quantity of each material
stated in the BOM with the assistance of the system which considers-
* Safety Stock/Minimum Stock
* Materials already ordered but awaiting receipt
* Requirement of the materials by other projects
* Maximum Stock Level

Thus a PR (Purchase Requisition) is raised for such articles for which the stock-
in-hand is not sufficient to fulfill the requirements. If the item for which the PR is
raised is an earlier supplied item, the Materials Master is checked which contains
a list of Suppliers with the price details. The criteria for selecting the supplier are
*Price, *Quality and *Delivery Time. If the item required is a new item, the Item
Specification is explained to the Vendor, Capacity of the Vendor is Judged,
Quotations for the Products are received. Once the Supplier is selected a PO
(Purchase Order) is raised which is placed with the supplier.
There are three types of PO’s. They are:
1. Stock PO- for those goods that go to the Stores and are accounted in the
2. Miscellaneous or Miss PO- for those goods that go to the Production
directly and are not accounted in the System. This includes consumable
Items like Soaps, Auxiliaries, Grease etc..
3. Subcontract PO- This is raised in case of subcontracting the order,
wherein all the Raw-Materials are supplied to the Subcontractor, who
carries on only labour work on the materials.
The Department also issues an IL (Issue List) to the stores, which is a basis on
which the issues are made by the Stores to the Production.

The Inspection or Quality Control Department receives the goods along with the
DC (Delivery Challan) and carries on a Random Sampling Test with respect to
the Physical Dimensions specified in the design enclosed to the copy of BOM
issued by the Engineering Department. Incase of Chemicals/Electrical
Equipments, the Supplier, himself should test the materials in a Laboratory and a
copy of the Test Results should be enclosed to the DC which usually denotes
the max./min. capacity in terms of percentage, which is cross-checked with the
design specifications or the Planner’s orders.

If the goods received are as per the designs a MRA (Materials Receipt Advice) is
generated in the system which alters the Stock Figures.

Whenever a MRA is prepared, the system cross-checks the Quantity of goods

received as against the PO. If the is any discrepancy, it alerts the user about the

The goods then move to the Stores Department where the stores person
receives the goods and verifies them against the MRA. The stock is put in the
respective Bin Location. Whenever the production department requires the
materials, the stores make the necessary issues on the basis of the IL received
from the Planner. Once the goods are issued, the system is again updated with
the changes.

Once the goods are issued to the Production and the Production Process is
complete, the Production Manager issues the IO (Issue Order) to the Stores and
the Finished Goods move to the stores. The department which is also in charge
of Dispatch of the Final Product to the customer dispatches the Final Product,
along with the Mounting Equipments and other accessories to the customer’s

The product moves out of the factory along with the Invoice and the relevant
Drawings for the Mounting and other internal connections of the Capacitors
Banks and other Manuals. This is, however backed up by Advice and
Consultation for Total Implementation.
Apart from this the department also follows the Perpetual Inventory System, by
taking Physical Stocks every Quarter.

Inventories are stated at the lower of

 Cost
 Net Realisable Value

The cost of various categories of Inventories is arrived at as follows:

o Stores, Spares, Raw-Materials and Components are charged at rates
determined on the Weighted Average Method.
o Work-in-progress and Finished Goods are charged at Full Absorption
Costing Method based on Annual Average Cost of Production. Excise
Duty is included in the value of Finished Goods Inventory.
o Packaging Materials, Loose Tools and Consumables are charged off at
the point of Purchase.

Provision for Obsolescence is made wherever necessary.


1) Target /Maximum Stock Holding:

The SAP System while raising the Purchase Requisition sees to that the
Total Value of the Inventory in the Factory should not exceed the Maximum
Level at any point of time. Here the Total Inventory includes those in Stock,
on Production, already Ordered and To Be Ordered.

2) ABC Analysis:
It is a Selective Approach aimed at keeping the Investment low and at the
same time avoiding stock-outs of Critical items. The high value items, in
terms of money value consumption get segregated for Pinpoint Control and
extensive paper-work is avoided in case of low value items.
ABB does this analysis in the following way:
 The consumption of each of the Raw-material used at the plant is
observed over a period of time. On the basis of their usage, the total
money value of each of the items consumed is extrapolated for a
 The materials are arranged in descending order of the consumption
 The cost of each material is expressed as a Percentage of the Total
Cost of the Raw-materials consumed during the last year.
 The Materials constituting the first 60% by Value will form the A Class
items, the next 30% form B Class items and the Last 10% form the C
Class items.

3) FSN Analysis:
For the purpose of Monitoring and Controlling the Inventories, the Company
classifies the inventory into Fast Moving, Slow Moving and Non Moving
The category is done as under-
 Non Moving Items- It includes Stock which has not at all moved for
the past 6 months.
 Slow Moving Items- It includes Stock which has not at all moved for
the past 3 months.
 Fast Moving Items- It includes the stock which is not included in the
above 2 categories.

The FSN Analysis considers only Quantity of Stock and the Transactions (i.e.
movement of Quantity of Stock) and not the Value of Stock.
The Non Moving and Slow Moving Items are found at 10% each of the Total

A list of these stocks is provided to the Planner and the Engineer, who try to
accommodate these items in the Prospective Projects. Thus efforts are made
to minimize these stocks.

4) Perpetual Inventory System:

The Perpetual Inventory System followed by ABB is as follows-
The Stores Department does not maintain Bin cards (Quantitative Perpetual
Inventory) and Stores Ledger (Quantitative or Valued Perpetual Inventory).
Both are maintained in the system. Each item is given a separate Bin
Location and number. Details about the availability of stock and the value of
the stock are available in the SAP system. The Stores Department has been
given a separate Module in the SAP Package where the relevant information
about the Stock is found. Hence this module satisfies the requirements of an
efficient Perpetual Inventory System.

However, the Perpetual Inventory System is not complete without a

systematic procedure for physical verification of stores. The SAP System
records the balances, the correctness of which can be verified by means of
Physical Verification only. The Stores Department does Physical Stock
Taking in each Quarter.

It may happen that different departments may refer the same materials in
different ways. When such a thing happens, the Purchase Department may
place several orders on the same item and this may lead to unnecessary
blocking of funds. This problem can be avoided if only every item of Inventory is
identified in a unique way. Identifying Inventories is very important for inventory
Control, i.e. Inventories can be controlled only if they are identified. Unique
Identification of inventory helps in avoiding confusions and duplications. It will
help Standardization and application of Cost Reduction Techniques.

Presently, ABB operates on a 14 character Codification System. A combination

of Numbers and Alphabets are user for coding, along with an Hyphen in the 11th
position. However, the Alphabets I,O&Q are not allowed due the risk of mixing
with 1&0.

The general norm for Coding is as follows:

The Positions are filled in as follows-

1 2 3 4 5 6 7 8 9 10 11 12 13 14

N – Number
A – Alphabet

Positions 1&2- Country

Position 3&4- Area of Business
Positions 5 onwards- The codes are decided by the Business Units

The Capacitors Unit at ABB, Peenya, Bangalore follows the following criteria-
Position 5- Size of the Paper used for Drawing; usually A4 or A3
Positions 6 to 10- General Category of Articles- like Insulators, films, Foils etc.
Position 11- Hyphen
Positions 12 to 14- Sub-category to the main numbers in the Positions 6 to 10.

Note: While assigning numbers in positions 6 to 10 and 12 to 14, all position

shall be filled in, including leading Zeros. (E.g. – 00001)

However, in case of Order Specific Articles the Coding will be as follows-

Positions 1&2- Area of Business
Positions 3&4-Country

The rest of the position remains the same as Standard Articles. When a
component part numbered under this system is called up again repeatedly for
other new orders, the article shall be treated as Standard Article and re-
numbered according to Standard Items and the will be amended.

Diagram No. 1

Graph Showing the Composition of Total Assets

Loans/Adva Fixed
nces Assets
8% 13%
Cash &
Sundry Bank
Debtors Balances
42% 25%

The above graph shows that the Inventory constitutes 10% of the Total Assets.
Diagram No. 2

Graph Showing the Composition of Current Assets

Loans and
Cash and 12%

The above graph shows that Inventory constitutes 12% of Total Current

1. Raw-Materials Turnover Ratio = Raw-Materials Consumed / Average Raw-

Materials Inventory
(Rupees in Thousands)
Raw-Materials Consumed = 4,672,112
Average Raw-Materials Inventory = 654,219
Raw-Materials Turnover Ratio = 4,672,112 / 654,219
= 7.14 Times

Raw-Materials Inventory Holdings = 365 / Raw-Materials Turnover Ratio

= 365 / 7.14
= 51.10 or 51 Days
It indicates that on an average the company carries 51 days inventories.

2. Work-in-Progress Turnover Ratio = Cost of Production / Average Work-in-

Progress Inventory
(Rupees in Thousands)
Cost of Production = 10,325,620
Average Work-in-Progress Inventory = 426,078
Work-in-Progress Turnover Ratio = 10,325,620 / 426,078
= 24.23 Times

Work-in-Progress Inventory Holdings = 365 / Work-in-Progress Turnover

= 365 / 24.23
= 15 Days
It takes 15 days on an average to convert Work-in-Progress to Finished Goods.
3. Finished Goods Turnover Ratio = Cost of Goods Sold / Average Finished
Goods Inventory
(Rupees in Thousands)
Cost of Goods Sold = 10,776,047
Average Finished Goods Inventory = 74,555
Finished Goods Turnover Ratio = 10,776,047 / 74,555
= 144.53 Times

Finished Goods Inventory Holdings = 365 / Finished Goods Turnover

= 365 / 144.53
= 2.52 or 3 Days
It takes 3 days to convert Finished Goods to a Sale.

This ratio is not of much relevance because most of the Products in the
Capacitors Segment are made to orders. So the efficiency with which the
company converts Finished Goods to Sales is not of any significance as goods
are manufactured only when the order is obtained.

Some items are specific to particular projects. Customer specifications may

change in the midway of production. Such products can not be used for other
projects and therefore lie as Non Moving Items.

The reasons identified for the piling up of Inventories-

a) Some materials have to be ordered as per the Minimum Order Quantity
which may be more than what is required for the project. The excess
material piles up as Inventory.
b) The Planner may order for Safety Buffers because of lack of trust on the
suppliers for On Time Delivery. These Buffers pile up as Inventory.
c) Products in Stock get Out-dated and remain as unused Inventory.

During the project work the Inventory Management Practices at ABB is found
satisfactory. A few conclusions where changes are needed have been drawn
from the study.
 Inventory Holdings were not as per the target levels set, the reasons for
which are explained earlier.
 Non Moving Stock and Slow Moving Stock account for 10% each of the
total inventory which increases the carrying cost of Inventories.
 The products are classified into ABC categories on the basis of their
values alone. Also the categories are not considered while taking
Physical Stock.

 In case of changes in specifications made by the customer at a later date,
the items piles up in the Inventory. This should be avoided by charging the
cost of the product to the customer and disposing the items immediately.
 The Planner should select the best of the Suppliers considering the factor
of Delivering Time, thus avoiding the Buffers pile up as inventory.
 The Minimum Order Quantity Should be reduced.
 If the Non Moving Items that are not likely to be required for further
projects, should be sold or scrapped. Also, action must be taken to
remove Slow Moving Items.
 In case of Physical Stock taking, the ABC materials of stores control
should be adopted. The product should be classified into categories
considering their value as well as the Frequency of Replenishment during
a period.