INTRODUCTION

ABOUT JK AT GLOBAL LEVEL: JK Organization was founded over 100 years ago and ranks, among the largest private sector groups in India in terms of assets and sales. J.K organization has a distinguished record of having pioneered several new products and processes through out the world. The group has multi-business, multi product and multi location operations at a multi national level. JK owes its name, to the two great visionaries- Late Lala Juggilal Singhania and his son Late Lala Kamlapat Singhania as they conceived an industrial entity. A dynamic personality with a broad vision, inspired by the cause of the Swadeshi movement of Mahatma Gandhi, and driven by the zeal to set up an Indian enterprise, Lala Kamlapat Singhania founded J.K. Organization in the 19th century with its headquarters at Kanpur (U.P.) ushering in a new industrial era in India. J.K. Organization is continuously striving to achieve excellence in its products and processes. Success of J.K. Organization is based on the use of latest technology, continuous research & development and innovation. The Group has set up several R&D institutions for specific industries. The Group's exports span over 60 countries across 6 continents comprising of products like tyres, paper, woolen textiles, readymade apparels, rubber products, engineering products etc. It has global presence with manufacturing operations and outsourcing arrangement in different parts of the world. Innovation and passion to perform has always been the driving force at J.K Organization. In the border-less global business scenario, all the major businesses of J.K. Organization are continuously upgrading their scale of operations. This is a continuous process in line with the passion for growth. J.K. Organization constantly scans the business opportunities that emerge all through the world and focuses on areas in which the group can leverage its strength. The Company is implementing TPM with the help of Japan Institute of Plant Maintenance.

The Company has an export footprint for high value branded products in the Middle East, South East Asia, SAARC and various African countries. JK Paper has also been consistently exporting its products to markets such as Sri Lanka, Bangladesh and several West Asian Countries. Nearly 50% of the exports is of branded products. The Company has made, on 30th March 2006, an international offering of unsecured Foreign Currency Convertible Bonds (FCCBs) due 2011 aggregating to US $5 million; and (ii) 77,00,000 Global Depository Receipts (GDRs) @ US $ 1.544 per GDR aggregating to about US $ 12 million. The said FCCBs and GDRs will be listed on the Luxembourg Stock Exchange. Most of the Group's plants have ISO 9001 certification and some also have earned QS 9000 and ISO 14001 certifications, which include caring for environment. it's no surprise that the Group has bagged various awards for betterment of the environment and exports. It is the first Indian Paper Mill to receive the Sword of Honour from British Safety Council and ISO 9001 Certification by DNV Norwegian agency.

ABOUT JK AT NATIONAL LEVEL: JKPM Incorporated in the year 1938, JK Corp Limited, started its operation with a board mill at Bhopal for manufacture of straw board. Since then the activities of the company have been diversified from time to time. In the year 1962, JK Corp Ltd. set up this integrated Pulp and Paper Mill in the backward district of Rayagada in Orissa. In 1982, the activities of JK Corp Ltd. were further diversified when it set up a most modern cement plant by the name Lakshmi Cement. In 2001 JK Paper Ltd. was formed by amalgamating the JK Paper Mills at Rayagada and the Central Pulp Mills at Songadh, Gujarat, to become Indias 2nd largest producer of quality paper with a turnover exceeding Rs. 650 crores. The company is also commissioning a modern Recovery Boiler at its CPM Unit, which would result in higher chemical recovery and increased pulp production. These projects along with other modernization programs would cost around Rs. 100 crores and would result in reduced cost and higher production. The projects are scheduled for commissioning during the financial year 2004-05. JK Paper Ltd., India's largest producer of branded papers is also a leading player in the Printing and Writing segment. It operates two paper plants in India, JK Paper Mills in Rayagada, Orissa, with a capacity of 125,000 tonnes per year and Central Pulp Mills, located at Songadh, Gujarat, with a manufacturing capacity of 55,000 tonnes per year. Both the manufacturing units of the Company are ISO 90012000 compliant. A plant to manufacture 60,000 tonnes per year of industrial packaging board in Gujarat is under implementation. About 40% of Paper produced by the Company is sold under various brand names, JK Copier, JK Excel Bond, JK Bond, JK Savannah, JK Copier Plus and JK Easy Copier. Being the largest selling branded copier paper in India, JK Copier is the Company's flagship brand. The other major product is JK Maplitho, a superior uncoated Writing and Printing paper. The Company sells through a nationwide distribution network of approximately 100 distributors and 2500 dealers.

JK Paper enjoys highest Operating Margins and Highest Net Sales Realisation (NSR) in over 90% of the products it sells, amongst the paper mills across India. It is the only Company in the industry with such a large share of branded products in its portfolio. The Company passionately believes in Environment & Safety and has introducing cleaner and environment-friendly technologies. JK Paper Mill at Rayagada has been adjudged as the Greenest Paper Mill in India. Both the units of the Company are ISO 14001 certified for their eco-friendly operations. The Company's plantations, driven by in-house research programme, have covered more than 45,000 hectares of land over the years. By providing farmers high quality plant species through the Company's plantation research centre, it is helping the farmers to improve their economic well being. Very large number of farmers in the states of Orissa, Chhattisgarh, West Bengal, Andhra Pradesh, Gujarat and Maharashtra are benefiting from this programme. The plantation with its superior quality plants contribute towards a strong base for high quality raw materials. J K Paper is highly committed to enhancing the well being of society at large. The Centre for Science and Environment, an independent organization, has, in an initiative supported by UNDP and the Ministry of Environment and Forests in July '99, ranked J K Paper as the No.1 in green rating among Indian paper manufacturers. This distinction has spurred J K Paper towards achieving global standards in environmental protection. J K Paper's efforts towards enhancing the well being of the society can be viewed fewer than two broad heads i.e. Nature and People. The Prime Minister of India, Dr. Manmohan Singh, when he was a Finance Minister and chairman of the project advisory panel and emphasizes the importance of the project, " Being environment friendly is not only a moral obligation, it also makes good economic sense.... Ultimately a country like India cannot be governed by ever expanding regulations.... We must develop a more participatory style of management and regulations, which rely more and more on self-performance and selfimprovement. And ratings can help in inducing that change in mindset."

All in all, as the green rating project drew to a close, only one pulp and paper mill was found to have a commendable environment policy. This mill, which also enjoys an ISO 14001 certification, was JK Paper. J.K. (EAST ZONE) GROUP COMPANIES

BRIEF DETAILS OF J.K. (EAST ZONE) GROUP COMPANIES

JK PAPER LIMITED JK Paper Limited was formed in 2001 by amalgamating JK Paper Mills at Rayagada and Central Pulp Mills at Songarh, Gujarat, to become Indias 2nd largest producer of quality paper with a turn over exceeding Rs. 650 crores. It is a leader in writing, printing as well as coated varieties of paper. JK CORP LIMITED (LAKSHMI CEMENT) JK Corp Limited (formerly Straw Products Ltd.) belongs to Eastern Zone and is one of the major companies of JK Organization. Before 2001, JK Corp Limited comprised of 2 units viz. JK Paper Mills & Lakshmi Cement. In 2001, JK Paper Mills became a part of JK Paper Ltd. The company turnover is around Rs.450 Crore. Received the DMA Watson Wyatt Award for Most Innovative Human Resource Practice (2002) JK INDUSTRIES LIMITED JK Industries Limited is another flagship company of our group. In the last 10 years the turn over of the company has increased four-folds. JK Industries Ltd. comprises the following Divisions: JK TYRE In 1977 JK Industries set up a modern Automotive Tyres & Tubes Plant at Jaykaygram near Udaipur in Rajasthan in technical collaboration with General Tire Co., USA and another plant in 1991 at Banmore in Madhya Pradesh. The two Plants together have a manufacturing capacity of nearly 30 lakh tyres per annum. The company turnover is around Rs.2250 crore.JK Tyre is the largest four-wheeler tyre producer in India. JK Tyre is the pioneer of Steel Radial Technology in India. JK AGRI GENETICS LIMITED

J.K. Agri-Genetics Manufactures hybrid and high yielding seeds at Hyderabad. It has tie up with the leading companies of the world to produce genetically superior seeds for the growth of Indian agriculture. It has a robust pipeline of products in several crops viz. cotton, jowar, maize, rice, tomato, sunflower, okra, hot pepper, sorghum, pearl millet, bhendi. The production of hybrid seeds is carried out in an area of 10000 ha. The company turnover is around Rs.38 crores. JK SUGAR LIMITED A 4300 TPD Cane Crushing Capacity Sugar Mill at Meerganj, Uttar Pradesh, was commissioned in 1996. The plant has adopted the most modern design and has installed a baggage based cogeneration plant of 9 MW, of which 4MW is fed into the upseb Grid. Plans are being formulated for expansion of the Mill. Continued emphasis is on co-generation of power. The company turnover is around Rs.113 crores. FENNER (INDIA) LIMITED Fenner India Limited started its operation in 1929. The company is engaged in a host of quality of products ranging from Power Transmission and Engineering products, Automotive Products, Conveyor Belting, and Industrial Electronics to Material Handling Systems. The products are used in more than 35 countries worldwide. Majority of the airports in Indias have Fenner Baggage Handling systems. The company has a gross turnover of about Rs.425 crores. With modern units located at Madurai, Hyderabad and Chennai, the company is on the threshold of major growth. Fenners acquisition of spinning units in Karur and Salem marks its diversification into the field of Cotton Textiles and installed few wind Mills. JK DAIRY & FOODS LIMITED JK Dairy & Foods Ltd is located in the middle of the milk rich area of Gajraula, about 110 Kms East of Delhi, the plant has latest equipment from leading suppliers all over the world. The companys turnover is around Rs.68 crores. Is a supplier to HLL, SKB, Perfetti, Amrit Banaspati, Tata Tea. Keeping in view the necessity to have high standards of hygiene, the civil work is also of high quality. 7

The dedicated team of professionals and experts has helped make JKDF one of the first dairy processing company in India to get coveted ISO 9002 accreditation and the products synonymous with quality. Its products include dairy powder, dairy creamer, butter(ghee), skimmed milk powder. JK PHARMACHEM JK Pharmachem is the leading Fermentation Company manufacturing Pencillin G & Bio Catalysis enzymes. Market share is 23%. The company has a gross turnover of about Rs.120 crores. Therefore THEY BELIEVE GENERATING REVENUE IS NOT THE ULTIMATE END OF BUSINESS FOR THEM, CREATION OF WEALTH IS MORE APPROPRIATE OBJECTIVE. THE WEALTH OF SOCIAL INFRASTRUCTURE. THE WEALTH OF SUPPORT AND CARING FOR PEOPLE OF INDIA.

INTRODUCTION TO INVENTORY MANAGEMENT

Inventory Management involves the control of assets being produced for the purposes of sale in the normal course of the companys operations. Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is generally a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher the requirements for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It is also provides a cushion for future price fluctuations. The important of inventory management has greatly increased in recent times as 60% of the total cost of production relates to inventory. Inventory management boils down to maintaining an adequate supply of something to meet the expected demand patterns subject to budgeting considerations. At the same time unnecessary investment should be avoided. Inventory control became very much necessary for the long run profitability of the company. The investment in inventories constitutes the most significant part of current assets or working capital in most of the undertakings. Thus it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. Most of the manufacturing companies spend more than 60% of the money for materials. Materials include raw material bought out finished components, semi finished, components, spare parts, consumables and work in progress. Even a small saving in material will had to heavy reduction in production cost. departments at right time, right quantity, and at a right quality. of purchase of various materials used in the industry. Inventory Inventory management deals with purchasing, stocking and issuing of materials to various management involves controlling the quantity, kind, location, movements and timings

The most significant reason for the importance of material management is that 50% to 60% of the total cost of production relates to materials. In materials management the costs relating materials are divided into two segments viz., the cost of materials which is the price tat we pay for obtaining the goods and second, the cost on materials which are the costs which we incur on materials other than price that we pay for it. In the nineties the materials manager will be deeply involved in quality management and inventory management. One will appreciate that the quality of the final product is primarily dependant on the quality of raw materials used. Another interesting development that is taking place is that quality is no longer confined to the production floor but is board room issue. The area is little more complicated. Today inventories are no longer considered as disease which we can cure. Standard medicines or techniques like ABC analysis, EOQ, purchasing etc. Inventory is today identified as a symptom of a disease, and it is, therefore, necessary to identify the disease which gives rise to these symptoms before attempting control over it. Inventory of finished goods will pose a greater danger in the year to come because of shortening life cycles of products. It is great pity that corporate management spends of 50% of their time on personnel problems which costs the company 7% of the total expenditure while hardly any attention is paid to the management of inventories which accounts for 60% of costs. A wit gave the reason Materials cannot shout and make noise as the unions do; the inventory manager will have to do the shouting on behalf of the in articulating materials. Inventories are components of the firms working capital. However, the importance of inventory management to the company depends upon the extent investment in inventory.

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NEED AND SIGNIFICANCE OF THE STUDY

As part of the two year Master Degree in Business Administration, being offered by Andhra University every student has to fulfill the criteria of submitting the report of 8 weeks practical training in an organization. The basic idea is to familiarize the M.B.A. student with real work environment so as to equip them fully with knowledge and skills both theoretical and practical. The scope of the study is confined to one of the key areas of FINANCE i.e. INVENTORY MANAGEMENT, which plays a vital role in the manufacturing organization. The study concentrates on the methods and techniques followed by the JK PAPER MILLS for its INVENTORY MANAGEMENT and its relative merits and demerits. The present study also concentrates on the importance of the INVENTORY MANAGEMENT and the study appraises the company success in meeting requirements of the organization.

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OBJECTIVES OF THE STUDY

The main objectives of the study is To study the importance of the INVENTORY MANAGEMENT with emphasis on JK PAPER MILLS To study the various aspects of inventory of JK. To study the procurement procedures of inventory. To evaluate inventory levels and the techniques those are being followed at JKPM. To study the inventory control techniques.

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METHODOLOGY

The main emphasis of the study is on the inventory management at JKPM. This methodology of the study runs as stated below. The data collected from two ways. PRIMARY DATA SECONDARY DATA

PRIMARY DATA: The original data collected specifically for a current research is known as primary data. This is the information that must be collected for the first time. It may be done by observation and survey. The data was collected through discussion with stores & yard manger and purchase manager. SECONDARY DATA: The information that already exists is called as secondary data. It is collected from company records, magazines, souvenirs, annual reports and web sites of the company

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FRAME WORK OF THE STUDY

The present study is dived into five chapters as described below: Ist CHAPTER consists of introduction, need and significance of the study, objectives, methodology, limitations and frame work. IInd CHAPTER consists of brief overview of industry, organization, company profiles. IIIrd CHAPTER describes about the theoretical study of inventory management, techniques of inventory management, and valuation of inventory. IVth CHAPTER deals with the practical study of inventory management at JK PAPER MILLS Vth CHAPTER deals with the summary, suggestions and bibliography.

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LIMITATIONS OF THE STUDY

Every study will be bound with some limitations. The below mentioned are the constraints under which my study was carried out. One of the factors constructing the study was the lack of availability of ample information The time given for the study is short to collect the sufficient data and study the practical operations of the mill in the field of inventory. The study is based on only the information let out by the public documents such as reports of the organization. To the extent that the executives could spare their time, they gave us the information by way of discussion for the purpose of data collection. Most of the information has been kept confidential and as such is not passed on as part of policy of the organization. Most of the inventory data is being controlled and not being let out for the others as they are said to be the controlled copies. So I had to manage the study under limitations which as such did not pose any problem to me.

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ORGNIZATION PROFILE OF JKPM

PAPER INDUSTRY PROFILE WHAT IS PAPER? Paper has played a vital role in the development of mankind since times immemorial, as a means of communication as the most versatile material for packing of goods as a medium of preserving knowledge for progeny. Paper is defined as A MAT OF CELLULOSE FIBERS ARRANGED IN CRISES CROSS FASHION WITH HYDROGEN BOND AND OTHER FORCES. INTRODUCTION: Paper is derived from the word PAPYRUS. Today paper includes a wide range of products with very different applications: Communication, Cultural, Educational Artistic Hygienic Sanitary as well as storage and transport of all kinds of goods. Its almost impossible to imagine a life without paper. There is degree of consensus that the art of making paper was first discovered in china and its origin in that country is traced back to second century. In about AD 105 Tsailun, an official attached to imperial court of china, created a sheet of paper using mulberry and other baste fibers along with fishnets, old rags and hemp waste. Chinese considered paper a key invention and kept this a closely guarded secret for five centuries until the technology slowly made it way west ward. The Arab captured chine city containing a paper mill in the earls 700s and from this stated their own paper making industry (Early 700s). Invention of printing in 1450s brought a vastly increased demand for paper. Paper was first made in England in 1496. The first US Mill was built in 1690, the Rittent House Mill, German town, Pennsylvania. Paper has been found to have necessary use besides being a stationary and it may use besides being a stationary and it may perhaps be true that equipped with this 16

powerful art craftsmans has been for the centuries discovering new usage and benefits paper has been found to be the most essential product as a writing aid over which our attention is focused at the movement, it has much to talk about. Indeed it involves itself in a wide range of activities from WHITE HOUSE OFFICALS releases to kinder garnet copy writing from toilet issue paper to the currency notes and many more. Another big example of use of paper is none other than my project work without which this would which this would not have happened. In spite of good achievement to its credit in the development of the economy, India is record is dismal in the scripts on leaves and metals later on which the development of the paper sheets, it becomes possible for everything known to us in the form of books, records and reports. Long back people used to write on walls, wooden plants, leaves of palm etc, but then paper was invented in china and was called PAPYRUS. Since then the world has got as excellent media for writing printing and several other purposes. A material that has been playing such an important role in our day to day life initiated the research of this project to take up this product paper is playing a vital role in day to day life of every individual. Though the computers have existed and many programs have been done to do paperless job works. But it is not possible to go out of paper or to not need it any instance of time. This is the reason why ht researcher chose paper as the product. From economic point of view paper industry in all over the world is facing problems of hardwood and bamboo being prime raw materials for the industry need cutting of the forest. Along with cutting, plantations of the trees are to be carried out. But it takes time for growing of trees factories are facing raw material problem. They are leading to closure of the company only few companies are doing well. For this substitute raw materials are being constantly being worked for. The company which is fittest able to survive and cope with the conditions and among them in India is JK PAPER.

ORGANIZATIONAL PROFILE
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JK ORGANIZATION AN OVERVIEW JK Organization was founded over 100 years ago and ranks, among the largest private sector groups in India in terms of assets and sales. J.K organization has a distinguished record of having pioneered several new products and processes in India. The group has multi-business, multi product and multi location operations. JK owes its name, to the two great visionaries- Late Lala Juggilal Singhania and his son Late Lala Kamlapat Singhania as they conceived an industrial entity. A dynamic personality with a broad vision, inspired by the cause of the Swadeshi movement of Mahatma Gandhi, and driven by the zeal to set up an Indian enterprise, Lala Kamlapat Singhania founded J.K. Organization in the 19th century with its headquarters at Kanpur (U.P.) ushering in a new industrial era in India. Equipped with tenacity of purpose, perseverance, and foresightedness, he achieved success in his mission and in a short span of time, between 1921 and 1937, a series of Industries with diversified interests were set up by him Kamla Ice Factory, JK Jute Mills Co. Ltd, JK Cotton Manufacturers, JK Iron and Steel Co. Ltd. against the tough opposition of British Industrialization and an alien Government. He died at an early age of 53 on 31st May 1937 and left the legacy of his spirit of patriotism, swadeshism and the aptitude for planning and social service to his three illustrious sons- Sir Padampatiji, Lala Kailashpatiji and Lala Lakshmipatiji, who along with other family members have contributed the best of their services to the growth of the organization, in a team spirit. JK ORGANIZATION has been a forerunner in the economic and social advancement of India. It has always aimed at creating job opportunities for a multitude of countrymen and to provide high quality products. It has strived to make India self-reliant by pioneering the production of a number of industrial and consumer products, by adopting the latest technology its own know-how. Besides serving the nation, it has also undertaken industrial ventures in several other countries.

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JK ORGANIZATION is an association of industrial and commercial companies, employing nearly 50,000 persons engaged in the manufacture of a variety of products and in diverse field of commerce. JK Organization comprising more than 50 in number, the groups companies are mostly public limited, where it has controlling interest ranging from 35% to 80% and the number of public shareholders aggregate over 7, 00,000. JK ORGANIZATION is headed by Shri Hari Shankar Singhania, an eminent Industrialist who enjoys reputation of a high order in the country, as well as abroad. He was the President of the International Chamber of Commerce, Paris for 1993 & 1994. Apart from heading apex bodies of Commerce and Industry, he is holding top positions in the premier Professional Bodies in India and abroad. In honor of his contribution to the society, Government of India has bestowed the prestigious National PADMA BHUSHAN award to Shri Hari Shankar Singhania on 26-01-2003. He has been honored with the nations third highest civilian award for distinguished service of high order in trade and industry. JK ORGANIZATION has made many forays into several fields such as: Paper and Boards, Cement, Automotive Tyres and Tubes, Pharmaceuticals, Agrochemical, Hybrid seeds, Cosmetics, Audio Magnetic Tapes, V.Belts, Conveyor Belting, Automotive Belts, Material Handling Systems, Sugar, Dairy & Food Products. JK ORGANIZATION has achieved a number of important technological break-through and has an impressive record of FIRSTS in India, prominent among them being: 1949- First in India to manufacture Steel Engineering Files. 1962- First Indian Paper Mill to receive ISO-9001 certification. 1969- First in India to set up continuous Rayon plant. 1977- First in India to produce Steel Belted Radical Tyres for passenger cars, trucks and buses.

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1980- First in the world to make Steel Radical Tyres for 3 wheelers. 1984- First to produce White Cement in India using dry process technology. 1989- First in India to produce magnetic tapes with cobalt technology. 1994- First Tyre industry in world to receive ISO-9001 Certification for entire operation. 1994- First in India to produce Aluminum Virgin Metal from Indian Bauxite. (The company was nationalized in 1973)

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JK EMBLEM

The Hand and Hammer of JK Organization came into use in the beginning of 1943. This symbol was chosen by Late Lala Lakshmipat Singhania, third son of Late Lala Kamlapat Singhania, the founder of JK Organization. The circle denotes industry. 24 teeth in the circle symbolize round the clock activity. The hand and hammer signify labour and tool. The hard grip of the hand stands for the strength and workmanship. This emblem signifies the strong belief of the organization in the capability of its employees.

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JK PAPER LIMITED VISION To set benchmarks in the Indian Paper Industry in Quality of Products, Services, People, Profitability, Growth, Innovation and Environmental Management to contribute to the Development of the nation. CORPORATE MISSION To achieve growth and leadership through the JK brand equity, customer obsession, technological innovation and cost leadership, with a clear focus on environment, while continuously enhancing shareholder value. JK PAPER LIMITED MISSION To grow the paper business to 5 lakh tonnes by 2006 and establish leadership through the JK Brand Equity and customer focus, continuously enhancing shareholder value. MANAGEMENT OBJECTIVE: To provide 100% support to our customers through continuous improvement of specific, measurable, attributable, result oriented and time bound programs in terms of service systems and manpower. JK PAPER LIMITED - STRATEGIC OBJECTIVES: Sustained growth-optimizing production potential in least possible time. Leadership in niche market and customer oriented marketing. Internationalization of business. Cost competitiveness with international bench-marking

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POLICIES AT JKPM
QUALITY POLICY: To provide Customer Delight both internal and external through our products and services at Lowest Cost by Continuous Improvement in processes, productivity, quality and management systems. ENVIRONMENTAL POLICY: JK Paper Mills, Rayagada, Orissa (India) are committed to: Comply with applicable Environmental Legislations Prevention of Pollution Continual improvement in environmental performances JK Paper Mills shall improve Environmental Performance by: Afforestation through social and farm forestry supported by clonal technology Cleaner technologies and processes Reducing pollutants in discharged water Reducing particulate emissions Solid waste management Conservation of resources TOTAL PRODUCTIVE MAINTENANCE POLICY: In JK Paper Mills continuous pursuit on organizational excellence by maximizing overall plant effectiveness and achieving total customer satisfaction, we are committed to: Achieve zero breakdowns, zero defects and zero accidents. Continuous reduction in cost of production.

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Involve all employees in systems and process improvement through teamwork. Create a clean and safe working environment.

SAFETY AND HEALTH POLICY: JK Paper Mills are committed to: Adhere legislation and government regulations related to safety and health in manufacturing activity. Foster safety and health awareness among its employees through preventable measures, continuous development, awareness and improvement in the work environment. Give top priority to proactive steps like: Safety audits Work permit systems Health check Engineering and process up gradation Improved work practices Test preparedness and emergency response Full participation of employees

ENERGY CONSERVATION POLICY: JK Paper Mills are committed to reduce the energy consumption and cost by: Optimization of plant and equipment efficiency Elimination and prevention of all types of losses such as water, power, steam, coal, compressed air Maximizing minimization Increasing the co-generation of steam and power Improved utilization of natural resources leading to environmental benefits condensate recovery &use, process heat recovery, waste

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 Energy conservation through total emploee involvement. JK Paper Mills believe that

ENERGY SAVED IS PROFIT EARNED

CORE VALUES OF JK ORGANIZATION: Caring for people Integrity including intellectual honesty, openness, fairness and trust Commitment to excellence. What JK Organization Stands For Dynamic and successful business organization A socially valued enterprises Business integrity

FUTURE GROWTH AREAS In the border-less global business scenario, all the major businesses of J.K. Organization are continuously upgrading their scale of operations. This is a continuous process in line with our passion for growth. J.K. Organization constantly scans the business opportunities that emerge in India and focuses on areas in which the group can leverage its strength.

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PROFILE OF JK PAPER LTD JK Paper is an independent company of the JK Organization, a leading Indian conglomerate with diversified business interest. JK Paper was among the first in India to set up integrated manufacturing facilities of international standards. and recorded a turnover of Rs 6,255 million in 2001-2002. The Companys world class pulp mill is the largest in the country and occupies a place of pride in the Indian Pulp & Paper Industry. The companys commitment to continuously raise quality benchmarks resulted in JK Paper Mills becoming the first integrated pulp and paper plant in India to receive the ISO 9001 certification & is now aiming at attaining the TPM Award. Currently, the group ranks amongst Indias top Industrial Houses with assets in excess of Rs 50 billion. The Group has diverse business operations in India and abroad, automotive tyres and tubes, cement, sugar, audio magnetic tapes, dairy and other agri-products. It employs nearly 17,000 people and has over 2,90,000 public shareholders across its major public limited companies. JK Paper has one of the strongest distribution networks in the paper industry and has a national reach through its 4 regional offices, 13 warehouses, 95 wholesalers and over 1,600 dealers. The company exports paper to several countries including, Sri Lanka, Bangladesh and several West Asian nations. Branded copier paper accounts for nearly 50% of the exports.

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PLANT LOCATION - JAYKAYPUR Jaykaypur is located on the slopes of the Eastern Ghat Plateau in the Southern part of Orissa bordering the state of Andhra Pradesh and its geographical position 8325 East longitude and 19 10 North Latitude. Its average height above the mean sea level is 758 feet. The township has a population of about 25,000 and has a self-sufficient marketing complex, including Employees Multi purpose Co-operative Society, a subpost & Telegraph Office, a Branch Post Office, a Police Out post and has two Banks viz., state Bank of India and Indian Overseas Bank. The Township has two Schools and places of worship of al major faiths. Singapur Road Railway Station (SPRD) on the Raipur- Waltair Section of south eastern Railway Station and is at a distance of 2 KM from the Mills and all passenger and Express trains halt here. JAYKAYPUR 765 017, DIST.RAYAGADA, ORISSA (INDIA) The nearest town in Rayagada, which is the district headquarters and is located at distance of about 10 KM from the Mills. Rayagada District has a predominance of tribal population. Therefore, the villages in and around the Mills are inhabited mostly by the adivasis, who too are assimilating the industrial culture and are thus coming into the national mainstream.

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HISTORY OF JK PAPER LTD Incorporated in the year 1938, JK Corp Limited, started its operation with a board mill at Bhopal for manufacture of straw board. Since then the activities of the company have been diversified from time to time. In the year 1962, JK Corp Ltd. set up this integrated Pulp and Paper Mill in the backward district of Rayagada in Orissa. In 1982, the activities of JK Corp Ltd. were further diversified when it set up a most modern cement plant by the name Lakshmi Cement. In 2001 JK Paper Ltd. was formed by amalgamating the JK Paper Mills at Rayagada and the Central Pulp Mills at Songadh, Gujarat, to become Indias 2nd largest producer of quality paper with a turnover exceeding Rs. 650 crores. It is the first Indian Paper Mill to receive the Sword of Honour from British Safety Council and ISO 9001 Certification by DNV Norwegian agency. The company is conscious of the need to constantly update technology of existing plants and machineries and in this direction there are regular schemes of modernization and renovation from time to time. The companys strategy continues to be to offer more and more value added products, continuously modernize and upgrade its plants for achieving better efficiencies, improved quality of products and internationally recognized environmental standards. Towards this end, the company is implementing an Offline Coated Paper Project with a capacity of 46,000 TPA at JKPM Unit. This plant will utilize contemporary blade coating technology and coupled with the companys high quality base paper, will be able to offer the product in the upper segment of the market. The company would thus become the second largest coated paper producer in India. The company is also commissioning a modern Recovery Boiler at its CPM Unit, which would result in higher chemical recovery and increased pulp production. These projects along with other modernization programs would cost around Rs. 100 crores and would result in reduced cost and higher production. The projects are scheduled for commissioning during the financial year 2004-05.

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J.K.Paper Mill was expanded in phases and at present has 5 paper machines with an installed capacity of 1,00,000 TPA with plans to expand the capacity further to 1.6 lakhs TPA during the next five years. Besides the new paper machine, imported cutter for automatic cutting and packaging of paper was commissioned during the year 1994-1995. The Mill manufactures quality writing, printing and business communication papers and paperboards using primarily hardwood and bamboo procured locally found in and around Orissa. The mill undertook a massive modernization Program during 1997-98 with an investment of Rs.300 crores. J.K.Paper Mills have continuously upgraded the technology by modernizing and renovating the plant, machinery and equipment to face the present day challenges of Eco-friendly manufacture. The state-of-the-art blade coating plant is expected to be commissioned during the year. The Central Pulp Mill, a unit of JK Paper Ltd. is one of the largest integrated Pulp and Paper Mill in Western India. The mill was incorporated in 1960 with its registered office at Pune. The mill began commercial production on April 01, 1968 with an installed capacity of 30,000 tones per annum for production of pulp. The capacity of mill was enhanced to 40,000 tones per annum by undertaking balancing scheme. Due to heavy investments and unfavorable market conditions CPM faced financial problems and was referred to BIFR in 1987 as having negative worth.

30

JK PRODUCTS RANGE: SURFACE SIZED MAPLITHO AND SURFACED SIZED SUPER HIGH BRIGHT MAPLITHO JK COPIER SURACE SIZED PULP BOARD

Supper grade of writing & printing Paper with high finish and brightness. A Paper most suited in all Xerox

Machines. & Super grade of Bpard for Printing & brightness. A superior variety Bond and Writing and Printing.

SURFACE SIZED SUPER HIGH BRIGHT Parching with high finish and PULP BOARD CHANCELLOR BOND

JK BOND WOOD FREE PRINTING

A normal grade of Bond Paper A Writing and Printing Paper with good finish and brightness meant for export market.

ARIMAIL A lower grammar Writing & Printing Paper used for Bills Books as well as Airmail. JK LASER PRINTING TITANIUM DIOXIDE LOADED TISSUE PAPER OPAQUE PRINTING PAPER WHITE OFFSET BOARD Suitable for Laser Printer A better grade food packaging paper. A common food packaging A high bright board supplied to Cigarette Industries. Catering labels and quality printing VARNISHABLE MAPLITHO YELLOW PRINTING jobs with varnishing.

Used for Yellow Pages in Telephone Directory as well as for other quality printing.

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WAX MATCH TUSSUE OFFSET PRINTING (NATURAL SHADE) BLACK CENTERED ART BOARD INVORY BOARD

Used for Match Sticks of better quality. A Paper used for Coating Base. For Playing Cards. A Superior Coated board used for Visiting Cards and Invitation Cards.

ENAMEL BOARD

A Superior coated board used for Visiting.

CHROMO PAPER

A Coated Board used for printing Magazine covers.

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JK PRODUCTION CAPACITIES: CENTRAL PULP MILLS Installed capacity (paper) Actual production achieved in the year 2002-2003 51,740 Tons 1,06,521 Tons JK PAPER MILLS

47,000 annum

Tons

per 90,000 Tons per annum

Pulp production Capacity

44,000 annum

tons

per 1 Lakh tons per annum 15,290 tons per annum

Market pulp production Capacity (ADMT)

13,617 tons per Actual Production:2002-03(ADMT) annum

33

PHASES AT JKPM OPERATIONAL EXCELLENCE: J.K. Paper has undertaken an integrated operational improvement Program named Operational Excellence with the objective of improving the profitability of the organization. This program is driven by a team of J.K. Paper executives and is supported by consultants from McKinsey & Company. Operational Excellence encompasses streams of Manufacturing, Purchasing and Marketing. This program aims to achieve an accelerated pace of development by identifying improvement opportunities in various streams as part of a concerted and focused effort. As a result, it aims to build capabilities within the organization to be able to maintain this rapid pace of continuous improvement in future also. In Phase 1, the team has generated about a thousand ideas through brainstorming, interaction with experts around the world, research on the internet and reading technical journals. It has then evaluated each of these ideas rigorously in a fact-based manner and is currently in the process of implementing 110 ideas. Excepting 7/8 ideas, all other ideas have been successfully implemented as on today. In Phase 2, the team has about 450 ideas and evaluated. After short listing and evaluation, final syndication has been done and finally 64 ideas were accepted for implementation. All these ideas are in the final stage implementation. In Phase 3, ideas were taken up from the CPM unit and 39 ideas were finally accepted for implementation. Currently, Phase 4 is in progress at JKPM. This phase is still under ideas generation stage.

34

EMPLOYMENT, MANPOWER AND CATEGORIES OF EMPLOYEES JK Paper Mills provide direct employment to about 1400 persons. In addition, about 1000 persons on an average are engaged intermittently for material handling, waste disposal and other additional jobs at the Mills. The various categories of employees working in the Mills are as follows; 1. 2. 3. 4. 5. Officers Supervisory Staff Workman (Staff) Sub-ordinate Staff Workman (Operatives) Apart from permanent employees, for casual and extra jobs there is a pool of casual mazdoors. Various jobs like loading and unloading and civil construction works are done through contract labour. To have a trained, developed and educated manpower for future needs and requirements, there are various categories of Trainees like Management Trainees, Executive Trainees, Staff Apprentices, Trade Apprentices and Craftsman Trainees.

35

CLASSIFICATION OF JOBS OF WORKMEN (OPERATIVES) The jobs of Workman (Operatives) are classified into 7 grades A to G Different trades of Workmen (Operatives) are distributed into these 7 grades. A and B grades represent unskilled workers; C, D and E grades represent semi-skilled workers and F and G grades represent skilled and highly skilled workers. Except the workers working in Finishing House and Feeding jobs, stitching and stacking of paper Reams and Reels, who are paid on piece rate basis, all other workers are time rated wage earners on daily basis. Wages are distributed monthly. SHIFT TIMINGS: The Mills runs in 3 Shifts and General Shift m the timings of which are as follows: A Shift B Shift C Shift GENERAL SHIFT 7.00 A M 1.30 P M to to 11.30 A M 5.00 P M 6.00 A M 2.00 P M 10.00 P M to to to 2.00 P M 10.00 P M 6.00 P M

Commencement and finish of shift period is indicated through blowing of siren and siren also blows 30 minutes before the commencement of each shift. ATTENDANCE: The names of all regular employees are borne on the muster roll. All

employees, except workmen, are expected to mark their attendance by entering the attendance-recording card inside the Card Reader at the beginning and end of the Shifts. Workers attendance is marked on the basis of the token system.

36

HOLIDAYS AND LEAVE: Weekly off day is given as per provisions of the factories Act. Generally, for those working in General Shift, Sunday is the Weekly off day. The Mills observes Festival and National Holidays as follows: (1) Pongal (6) May Day (2) Republic Day (3) Maha Shivaratri (7) Ratha Jatra (8) Independence Day (4) Holi (5) Utkal Divas

(9) Gandhi Jayanti

(10) Dassera (11) Diwali PAYMENT DAYS: Payment of salaries and wages for the month to Mills employees is as given below: For Officers, Staff, Sub-ordinate - 5th Day of the following month For workers - 10th Day of the following month Withdrawal of salaries and wages through Bank is encouraged. Wages to Contractors employees is disbursed by the respective Contractors on 7th Day of the month. In case scheduled days fall on Sunday or Holiday, Salaries /Wages are paid on the day proceeding such Sunday/Holiday.

37

DEPARTMENTS AT JKPM
PULP MILL STOCK PREPARATION PAPER MACHINE PAPER FINISHING PLANT FINISHING HOUSE SODA RECOVERY QUALITY CONTROL CENTRAL LABORATORY PULP AND PAPER LABORATORY WATER SERVICE ENVIRONMENTAL AND POLLUTION CONTROL MECHANICAL ENGINEERING ELECTRICAL ENGINEERING INSTRUMENTATION PLANNING AND DESIGNING POWER HOUSE CIVIL DEPARTMENT TECHNOLOGICAL DEVELOPMENT HRD AND PERSONAL TOWNSHIP AND TRANSPORT WORKS OFFICE ACCOUNTS

STORES AND YARD

SALES AND STOCK SECURITY DISPENSARY SAFETY AND MANAGEMENT SERVICES

38

SOCIAL FORESTRY BY JK: The member unit of JK Organization has been planting trees and saplings for increasing the Green Cover. JK Paper Mills alone plants more than 1.5 lakh trees per year. Seedlings are distributed every year by JK Paper Mills to the farmers who are willing to green their land with trees. The company has helped farmers with plantation in about 50,000 acres of degraded wastelands in Orissa and Andhra Pradesh. This plantation program has seen the development of fast growing, high yielding Eucalyptus clones involving an area of 17431 hectares, benefiting 13666 farmers and generating 90,00,000 man days of employment for tribal. Similarly CPM also continued to contribute towards the socio-economic development of the rural population in the backward districts of Gujarat by providing free seedlings to the local farmers and imparting direct and indirect employment opportunities to the local community. Until now social forestry scheme of CPM has benefited 14381 farmers in 196 villages of five districts of Gujarat and Maharashtra with 87 lakhs plants in 2620 hectares. Besides, it also gives job opportunity of 1500 man days to raise one lakh seedlings and 450 man days to plant 1 hectare. CPM has introduced high yielding JK super clones under Social Forestry Program. Others 1. The mills provided approach roads for the villagers. 2. JK Paper contributed a sum of Rs 57,000 in the year 1997 to the Lions Club of Rayagada for the construction of Multipurpose Community Hall at Rayagada. 3. For the construction of Lord Sri Jagannath Temple at Rayagada, the mills have contributed Rs 7.5 lakhs for the completion of the construction work of the temple.

39

SOCIAL OBJECTIVE: WE BELIEVE GENERATING REVENUE IS NOT THE ULTIMATE END OF BUSINESS FOR US, CREATION OF WEALTH IS MORE APPROPRIATE OBJECTIVE. THE WEALTH OF SOCIAL INFRASTRUCTURE. THE WEALTH OF SUPPORT AND CARING FOR PEOPLE AROUND US. SOCIAL, CULTURAL & WELFARE HIGHLIGHTS: The following highlights mark the social, cultural and welfare activities in an around Jaykaypur: The Mills, in association with the Lions Club of Rayagada and Seva Kendra The Mills is association with the Lions Club of Rayagada and Seva Kendra a social service organization of Jaykaypur the Government officials and the people in neighboring villages have involved themselves closely with social, welfare work. Eye Treatment Camps are being held at Jaykaypur / Rayagada annually since 1978 for which major assistance in the form of men, money and materials is rendered by the Mills. Besides, a number of Health check-up and immunization camps, Hearing Conservation Camps, dental Camps and Medical Treatment Camps, exclusively for babies and school children are being held periodically or annually buy difference services institution like the Lions Club of Rayagada, Jaycees, Mahila Mandal and Mahila Vikas Kendra of Jaykaypur, Gopabandhu ubak Sangh etc., with the active cooperation and monetary assistance from the Mills. Educational Institutions of the neigh boring villages as well as Rayagada got liberal donations in both cash and kind on different occasions. Both Rayagada College and Womens College of Rayagada owe a lot to the Mills for their growth. The Mills have contributed generously over the years to the District Red Cross Organization, particularly for the Blood Bank opened at Rayagada in 1983.

40

 For the women-folk in Jaykaypur, there is Mahila Mandal and Mahila Vikas Kendra promoting recreational and cultural activities through Mahila Silpa Kala Kendra, training is imparted to ladies in Tailoring embroidery. Nritya Sadan imparts training to boys and girls of the colony in music and dance. The habit of small savings among the employees is given due encouragement. This has resulted in cent percent coverage under small Savings Scheme and award of the Bachat Shield to the Mills in 1978. The Mills were also awarded the Second Best prize in District Koraput under Pay roll Savings Group. A cable and Antenna Television (CATV) system has been installed in the industrial township to add to the cultural, educational and social facilities to the residents of Jaykaypur. RECREATION: Jaykaypur Club and the Manoranjan Kendra provide relaxation and recreation in the form of sports and games both indoor and outdoor, reading room, library etc. A Ladies Tailoring Class is also run for the useful utilization of the leisure of the housewives. For the Ladies, there are Mahila Mandal and Mahila Vikas Kendra, which besides providing recreation to its members devotes itself to the cause of social upliftment. The Mills also patronize the following five cultural institutions for the township, who conduct various cultural and entertainment programmes from time to time. 1. Kalinga SanskrutikII Parishad 2. Kala Mandir 3. Raja Pathagar 4. Andhra Kala Samithi 5. Friends Library

41

There is also a Seva Kendra, which is engaged in philanthropic activities and upliftment of the down trodden. For small children, there is a School of Music and Dance known as Nritya Sadan.

SPORTS AND GAMES: Cricket and Valley ball Tournaments are regularly by the Mills in which distinguished local and outside teams participate. Football matches are also conducted from time to time. CO-OPERATIVE SOCIETY: There is Multi-purpose Co-operative Society, which discharges the following functions for the benefit of the employees. a) Running of Consumer Section with controlled commodities and other daily necessities. b) Running of Cloth Sales Section. c) Advancing loans for purchase of utility goods through hire-purchase scheme. d) Provides cash loans to members. e) Encourages thrift habit amongst members and Running Flour Mill. These tournaments, besides providing exciting pastime, aim at fostering esprit-de-crops amongst the employees.

42

MILE STONES The various achievements of J.K. Paper Mills:

Only integrated mill in India to achieve less than 100 meter cube of water consumption per ton of paper. Highest chemical recovery (more than 95%). Excellent fiber recovery system (more than 95%) Absorbable Organic Halide (AOX) level 0.5 to 1 kg per ton of paper, so far the best in the country and comparable with international levels. Highly efficient Electro Static Precipitators (ESP) in all the boilers. Pioneer in Social and Farm Forestry. Supplied in excess of 90 million saplings and covered over 27,000 hectares under plantation. Stood 2nd all over India and was awarded 3 leaves Award by CSE Awarded outstanding Performance by State Safety Council, Govt. of Orissa for Safety, Health, and Hygiene & Environment Management. Largest manufacturer of branded copier paper in India. First to introduce surface sized map litho in India. First to introduce airmail paper from bamboo pulp in India. Established India's largest and most modern pulp mill in 1998. It is a state-of-the-art pulp mill with an annual capacity of 1, 27,000 MT. First integrated pulp and paper mill in India to have got ISO 9001 certification. First to introduce laser paper in India. First to introduce international quality consumer packaging for JK Excel Bond of 100 sheets & 250 sheets packs.

43

JK ORGANIZATIONAL CHART I
CHIEF EXECUTIVE (W) S.K.MISHRA

VICE PRESIDENT (COML) S.K.AGARWAL

GM (COML) C.DALAKOTI

GM (MFG) D.P.DUBEY

GM (CTS)
A.K.HARI CHANDAN

GM (PD) M.V.RAO

GM (ENGG.) M.C.GOEL

GM (P&D) V.K.OSWAL

GM (P&A) M.R.KUMAR

CMO K.G.N.KUMUNDAN

SR MGR (IE) T.V.SAGAR

SR.MGR (HRD) T.K.DAS

44

JK ORGANIZATIONAL CHART II
CHIEF EXECUTIVE (W) S.K.MISHRA VICE PRESIDENT (COML) S.K.AGARWAL GM (COML) C.DALAKOTI

DGM (SALES & IC)

DGM (Stores&Yard )

SR.MGR (CC) DM (CC) DM (SALES)

SR.MGR A/C

SR.MGR PUR

DM (Stores )

DM (Yard )

DM LIAISON

DM (IC) AM (C&S) AM A/C (6) 45 AM (3) AM PUR

JK ORGANIZATIONAL CHART III

CHIEF EXECUTIVE (W) S.K.MISHRA G.M.ENGG.

DGM (P.M\C-M)

DGM ENGG. MECH.

DGM INST

SR MGR (P. M\C - M

SR MGR (ELECT)

SR MGR (CVL)

SR MGR SAFETY & PLG MGR (INST)

MGR (ED)

MGR (ELECT)

DM(2)

DM (E) P.M./C

DM (E) PD

DM PMILL-M(2) AM (C)

DM (WS-M) (2) AM INST (2)

AM(2)

AM (E) P.M./C

AM (E) FBL

AM (E) P.W./S

AM SAFETY(2)

46

CONCLUSION:
JK Paper in leadership through quality. It has been setting quality bench marks from its inception, and continues to do so. Its major brands include JK Copier, JK Easy Copier, JK Evervite, JK Excel Bond, JK Bond, JK SHB Map litho, CPM Parchment and JK MICR. Its marketing volume is to the tune of 1, 60,000 MT per annum. J K Paper has one of the largest distribution networks in the paper industry. With close to 100 wholesalers, over 1700 dealers, 10 warehouses and 4 regional offices spread across country, it has achieved unparalleled service levels. JK Paper has also been consistently exporting its products to markets such as Sri Lanka, Bangladesh and several West Asian Countries. Nearly 50% of the exports are of branded products.

47

IMPORTANCE OF INVENTORY MANAGEMENT

INTRODUCTION: Inventories constitute the largest component of current assets of large majority of the companies. In every country inventories occupies approximately 60% of current assets of manufacturing organizations in India. Thus every organization has to maintain a large amount of inventories in their current assets for that they have to invest considerable amount of funds in inventories. It, is therefore imperative to mange inventories efficiently and effectively in order to avoid unnecessary investment. If a firm neglects the management of inventories it will affect the long run returns of the organization. The company has to plan the inventory levels without effecting the production and sales. Efficient inventory control, therefore, can significantly contribute to the overall profit-position of the organization. Inventories are stock of the product a company manufacturing for sale and components that make up the product. Inventory could be the raw materials, work in progress, finished products, fuels and lubricants, spare parts, maintenance consumables and other indirect materials at any given point of time. The operational definition of inventory would be the amount of raw materials, fuels, lubricants, spare parts and semi-processed materials to be stocked for the smooth running of the plant. Though inventory is usable resource, it is also an idle resource, unless it is managed efficiently and effectively. NATURE OF INVENTORIES Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exists in manufacturing company are: RAW MATERIALS: Raw materials are those basic unfabricated materials which have undergone no conversion whatsoever since their receipt from the suppliers. These are basic inputs that are converted into components, parts and products through manufacturing

48

process. Raw materials inventories are those units, which have been purchased and stored for future productions. WORK IN PROGRESS: Work in progress inventories is semi-manufactured products. They represent products that need more work before they become finished products for sale. Raw materials become work in progress at the end of first operation and remain in that classification until they become piece parts or finished goods. Work in progress can be found on the conveyors, trucks, pallets in and around the machines, and in temporary areas of storage waiting to be worked upon or assembled. FINISHED GOODS: Finished goods are the completely manufactured products, which are ready for sale. Products usually leave work in progress classification and enter into the classification of finished goods at the point of final inspection when they are ready for delivery to the customer or to finished goods store. Stock of raw materials and work in progress facilitate production, while stock finished goods are required for smooth marketing operations. OTHER TYPES OF INVENTORY ARE: FLABBY INVENTORY: It comprises of finished goods, raw materials and stores held because of poor working capital management and inefficient distribution. PROFIT MAKING INVENTORY: It represents stocks of raw materials and finished goods held for realizing stock profit.

49

NORMAL INVENTORY: It is based on a production plan, lead time of supplies and economic ordering levels. Normal inventories fluctuate primarily with change in production plan. Normal inventory also includes a reasonable factor of safety. EXCESSIVE INVENTORY: Even an efficient management may be compelled to build up excessive inventory for reasons beyond its control, as in the case of a strategic import or as a measure of government price support of a commodity.

IMPORTANCE OF HOLDING INVENTORIES:

A company should maintain adequate stock of materials for a continuous supply to the factory for an uninterrupted production. Maintaining inventories involves tying up of a companys funds and incurrence of storage and handling costs. There are three general motives for holding inventories: TRANSACTIONS MOTIVE: It emphasizes the need to maintain inventories to facilitate smooth production and sales operations. PRECAUTIONARY MOTIVE: The necessity of holding inventory to guard against the risk of unpredicted demand and supply forces and other factors. SPECULATIVE MOTIVE: It influences the decision to increase or reduce inventory levels to take advantage of price fluctuations. Other than the above, many situations demand maintenance of adequate levels. They are: To avoid uncertainty in procurement of raw materials whenever needed

50

 To facilitate uninterrupted production To obtain quantity discounts of bulk purchasing To accumulate raw materials in anticipation of price rise Stock of goods should be maintained while work in progress Stock of finished goods has to be held as production and sales are not instantaneous To minimize carrying cost and time OBJECTIVES OF INVENTORY MANAGEMENT The aim of the inventory management thus, should be to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for the smooth production and sales operations. Efforts should be made to place an order at the right time with the right source to acquire the right quantity at the right price and quality. An effective inventory management should: Maintain a large size of inventory for efficient and smooth production and sales operations. Economy in purchasing Ensure a continuous supply of raw materials to facilitate uninterrupted production. To utilize the capital effectively Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service. Reduction of risk of loss Maintain a minimum investment in inventories to maximize profitability. Maintain sufficient stock of raw materials in periods of short supply and anticipate price changes. Minimize the carrying cost and time. Control investment in inventories and keep it at an optimum level. To reduce administrative workload To provide administrative simplicity To meet a high percentage of demand without creating excess stock levels

51

 To maintain the total volume of replenishment work-load within the constraints of acceptable personnel complement To keep all the expenditure within the budget authorization To decide which items to stock and which items to procure on demand To contribute to the nation's economic well-being To provide, on item-by-item basis for re-order points and order such quantity as would ensure that the aggregate results con1irm with the constraints and objectives of inventory control INVENTORY MANAGEMENT TECHNIQUES In managing inventories, the firms objective should be in consonance with the shareholder, wealth maximization principle. To achieve this principle the organizations should maintain appropriate levels of inventory. Unsound inventory control results in unbalanced inventory and inflexibility-the firm may sometimes run out of stock and sometimes may pile up unnecessary stocks. This increases the level of investment and makes the firm unprofitable. To manage inventories efficiency answers should be sought to be following question: How much of an item to order when the inventory of that item is to be When to replenish the inventory of that item? The first question, how much to order, relates to the problem of determining economic order quantity (EOQ), and is answered with an analysis of costs of maintaining certain level of inventories. The second question, when to order, arises because of uncertainty and is a problem of determining the re-order point. ECONOMIC ORDER QUANTITY: Every organization will think about how much to order, when ordering the inventories, to solve this problem economic order quantity will fix the appropriate order size. The economic order quantity is an optimum quantity of

replenished?

52

materials to be ordered after consideration of the following categories of costs.

ORDERING COSTS: The term ordering cost is used incase of raw materials (or supplies) and includes the entire costs of acquiring raw materials. They include costs incurred in the following activity: Requisitioning Preparation of purchase order Costs of receiving goods Inspecting costs Documentation processing costs Transport costs Storing costs Intermittent costs of chasing orders, rejecting faulty goods Additional costs of frequent or small quantity orders Where goods are manufactured internally, the setup and tooling costs associated with each production run. CARRYING COSTS: Costs incurred for maintaining given levels of inventory are called carrying costs. They include: Storage costs (rent, lightening, heating, refrigeration, air conditioning etc.) Stores staffing, equipment maintenance and running costs Stores handling costs Staff services costs (Administrative Costs) Audit, stock taking or perpetual inventory costs Required rate of return on investment in current assets Obsolescence and deterioration costs

53

Insurance and security costs Costs of money tied up in inventory Pilferage and damage costs Costs incurred in providing special facilities like fencing racks

STOCK OUT COSTS: The stock outs costs are associated with running out of stock which includes the following: Lost contribution through the lost sales caused by the stock out Loss of future sales because customers go elsewhere Loss of customer goodwill Cost of production stoppages caused by stock outs of work in progress or raw material Labour frustration over stoppages Extra costs associated with urgent, often small quantity replenishment purchases The EOQ is optimum size of the order for a particular item of inventory calculated at a point where the total inventory costs are at a minimum for that particular stock item. It is an optimum size of either a normal outside purchase order or an internal production order that minimizes total holding and ordering costs of inventory. Stock costs are difficult to incorporate in this model. Since they are based on qualitative and subjective judgment, the ordering costs are the costs of placing a separate order multiplied by the number of separate orders placed in the period. The carrying costs can be calculated based on the assumptions that annual cost of carrying a particular stock item on average, half of the stock in hand all the time in addition to the safety or buffer stock. The fewer the orders, the lower is the cost ordering, but the greater the size of the order the greater the cost of carrying. The safety or buffer stock has no bearing on the EOQ) only on the timing of orders. Assumptions of EOQ model - to be able to calculate a basic EOQ certain assumption are necessary:

54

That there is a known constant ordering cost & stock holding cost That rate of demand is known and constant That there is a known constant price per unit, i.e., there are no price discounts That replenishment is made instantaneously, i.e., the whole batch delivered at once.

Carrying costs vary with inventory size. This behavior is contrary to that of ordering costs, which decline with increase in inventory size. The economic size of inventory would do depend on trade off between carrying costs and ordering costs.

A = Annual Consumption B = Buying Cost per Order C = Cost per Unit S = Storage and Other Inventory Carrying Cost FIXATION OF INVENTORY LEVELS Various levels of inventory are fixed to see that no excess inventory is carried and simultaneously there will not be any stock outs. The following inventory levels are fixed for each item of stock. RE ORDER LEVEL: Reorder level is the level of stock availability when a new order should be raised. The stores department will initiate the purchase of material when the stock of material reaches at this point. This level fixed between the minimum and maximum stock levels and the following formula is used for this purpose: REORDERLEVEL = MAXIMUM USAGE) X (MAXIMUMLEADTIME)

55

MINIMUM STOCK LEVEL: Minimum Stock level is the lower limit below, which the stock of any stock item should not normally be allowed to fall. Their level is also called safety stock or buffer stock. The main object of establishing this level is to protect against stock out of a particular stock item and in fixation of which average rate of consumption and time required for replenishment, i.e., lead time are given prime consideration. MAXIMUM STOCK LEVEL: Maximum level represents the upper limit beyond which the quantity of any item is not normally allowed to rise to ensure that unnecessary working capital is not blocked in stock items. Maximum sock level represents the total of safety stock level and economic order quantity. Maximum stock level can be expressed in the formula given below: MAXIMUM STOCK LEVEL = REORDER LEVEL + ECONOMIC REORDERING QUANTITY -(MINIMUM USAGE * MINIMUM LEAD TIME)

56

DANGER LEVEL: Danger level of stock is fixed below the minimum stock level and if stock reaches below this level, urgent action for the replenishment of stock should be taken to prevent stock out position. DANGER LEVEL = AVERAGE CONSUMPTION * LEAD TIME FOR EMERGENCY PURCHASES AVERAGE STOCK LEVELS: AVERAGE STOCK LEVELS = (MINIMUM STOCK LEVEL + MAXIMUM STOCK LEVEL) / 2 (OR) MINIMUM STOCK LEVEL+ 1/2 ROQ

SELECTIVE INVENTORY CONTROL: ABC ANALYSIS: This technique popularly known as "Always Better Control" is a basic analytical management tool which enables top management to place the efforts where the results will be greatest. This technique tries to analyze the distribution of any characteristic by money value of importance in order to determine priority. This technique tries to segregate all items into 3 categories on the basis of their annual usage. They are: A B C Items in class A constitute the most important class of inventories so far as the 57

proportion in the total values of inventories is concerned. Items in class B constitute an intermediate position while those in items C are quite negligible.

It is seen that a very small percentage of the items say 15 to 20 percent account for 75 to 80 percent of the total material usage and large number of items say 75 to 80 percent of the total items account to 15 to 20 percent of the monetary value. ABC analysis divides the total inventory list into three classes using the rupee volume. The A items consist of approximately 15 percent of the total items, B items the next 35 percent and C consist of remaining 50 percent items. The numbers are just indicative and actual break up will vary from situation to situation. CLASSIFICATION:

A
Very tight control Very low safety stock Frequent ordering Weekly control reports Maximum follow-up

B
Moderate Low safety stock Once in 3 months Monthly control reports Periodic follow-up

C
Loose High safety stock Bulk ordering (once in 6 months or one year) Monthly control reports Follow-up in exceptional cases Group posting Can be fully delegated

Individual posting Small group posting Must be handled by senior Can be handled by middle officers management

VED ANALYSIS:

58

This is also a classification system but unlike ABC analysis in this system the classification inventory is made on the basis of seriousness of the situation. The cost of shortage depends upon the seriousness of the situation. The VED system is a widely used classification technique to identify criticality of various items for inventory control. This technique is based on the assumption that a firm need not exercise same degree of control on all items of inventory. On the basis of criticality, the various items of inventory are categorized into three categories: V VITAL E ESSENTIAL D DESIRABLE Highly critical items like vital requires much closer attention by senior management compared to that of less critical items. The reorder level depends on the criticality of the items. For vital items relatively more inventory is maintained compared to that of desirable inventories. The items falling into the criticality level 'E' are essential but not as much important as 'V' items. JUST IN TIME INVENTORY MANAGEMENT (JIT): It is also called zero-inventory operation. Just in Time is actually a philosophy which can be installed after eliminating all unwanted operations and waste. It is a continuous process. It seeks to eliminate raw material stock and finished stock. It eliminates carrying costs altogether and making the industry highly competitive. It begins by identifying the problems and forcing firms to tackle them, the main tactic used to reveal such problems in inventory reduction. The major focus is on the idea of producing in response to need rather than as a consequence of plans and forecast instead of purchasing inventory into the system. In order to make products they turned the process round and used the pull from the market place or the next operation as a way of making the system more directly responsive and eliminating unnecessary waste due to over production and so on. It attempts to minimize inventories through small incremental reduction rather than prescribed particular techniques or methodologies. VALUATION OF INVENTORIES

59

According to Accounting Standard-2 the valuation of inventories' is given by the Institute of Chartered Accountants of India. Items such as expenses revenues, or book debts can be' recorded in the books of accounts with a fair degree of accuracy. However, an element of subjectivity is involved in the measurement of items such as depreciation or inventory value Methods of valuing the inventory may vary between different business and even between different undertakings within the same trade or industry Taking all these significant aspects into account, this standard deals with, 1. The determination .of value at which inventories are carried until related revenues are recognized. 2. Ascertainment of cost thereof, and 3. The circumstances in which carrying amount of inventory is written down below cost Valuation of inventory is of critical importance The reasons include: Individual items may not be of significant value but taken together, would Rapid turnover exception being rare or seasonal turnover Susceptible to obsolescence and spoilage, slow or fast moving Held at different places Physical condition

constitute a significant portion of total assets.

It may involve varying degrees of estimation Inventory is the second largest item after fixed assets in financial statements of manufacturing concerns. It affects both the results of operations as well as the financial position as reflected in Balance Sheet.

INVENTORIES:

60

Defined as: Inventories are assets, Held for the purpose of sale in the ordinary course of business In the process of production for such sale In the form of material or supplies to be consumed in production process or in

rendering of services. Inventory includes the following: Goods purchased and held for resale Finished goods produced for sale Work in progress generally Materials, maintenance supplies, consumables and loose tools awaiting use in production process MEASUREMENT: The critical part of the study is that inventories should be valued at the lower of (a) Cost and (b) Net realizable value COST: The following elements that constitute cost of inventories should be kept in mind. Cost includes: Cost of purchase, net of trade discounts, rebates, duty drawbacks. Cenvat credit availed etc. Cost of conversion Other costs incurred in bringing the inventories to their present location and

conditions But cost doesn't include 61

Selling and Distribution costs Abnormal wastage, storage costs

COST FORMULAE: In as much as cost do not remain static and vary from time to time., several types of cost formulae can be used. In inventory valuation, therefore, the question that is crucial is, with reference to the flow of production, which inventory has been sold and which continued to remain in inventory. In this backdrop, inventory valuation depends on cost flow assumptions such as LIFO, FIFO, Base Stock method etc., but the standard favored only three methods are as follows... Specific Identification Method First In First Out Weighted Average Cost Method

SPECIFIC IDENTIFICATION METHOD: This method is also known as Specific Price Method. This is also known as actual cost method because specific job bears the actual cost of material bought for the job. When using- this method, units in inventory are specifically identified and each unit cost is identified with a particular invoice. The advantage of this method is that cost charged to jobs is factual and not notional. Cost of items forming part of inventory, that are not ordinarily interchangeable as also goods or services produced and segregated for specific projects, should be assigned by specific identification of their individual costs. This formula has to be applied whenever materials are purchased and set aside for specific job or work order. This could be a cumbersome or impracticable exercise. When the items are many and interchangeable. FIRST IN FIRST OUT METHOD:

62

This method is based on the assumptions that the materials. Which are purchased first, are issued first? Issues of materials are priced in the sequence of incoming order of purchases. The flow of cost of materials should also be in the same order. Issues are priced on the same basis until the first lot received i.e. exhausted, after which the price of the next lot received becomes the basis of cost for issues.Thus the materials issued are priced at the cost pertaining to the earliest lot, and as a corollary the inventory in hand is valued at a price representing recent purchases.It merely denotes that cost incurred for the 'earliest purchase' is first used for accounting purpose. It is a common practice for most business houses to sell or issue oldest merchandise or materials first so that when FIFO is used for inventory valuation, there is an agreement between cost flow assumption and the physical flow goods. The ending inventory thus would consist of goods recently produced or purchased. The FIFO method is most successfully used when Size of raw materials is very large and cost is high Materials are easily identified as belonging to a particular purchase Not more that two or three different receipts are on material card at one time Price of materials does not fluctuate widely, so that clerical labour involvement is minimized. Material are subject to deterioration and obsolescence

63

WEIGHTED AVERAGE COST METHOD: This is calculated by dividing the total cost of material in stock by the total quantity of material in stock. Under this method, costs are averaged after weighing by their quantities. The weighted average cost is determined, either at periodical intervals or each time when fresh materials are arrived on purchase. The average cost at any time is, thus, balance value figure divide by the balance unit figure. This method evens out the effect of widely varying prices of different lots of purchases, which makes up the stock. There will be no' profit or no loss arising out of pricing issues. NET REALIZABLE VALUE (NRV): NRV is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

RATIO ANALYSIS OF INVENTORY MANAGEMENT

ACTIVITY RATIOS: Funds of creditors and owners are invested in various assets to generate profits. The better the management of assets the larger the amount of sales. Activity ratios are employed .to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called as turnover ratios because they indicated the speed with which assets are being converted or turned over into sales. Several activity ratios can be calculated to judge the effectiveness of asset utilization. INVENTORY TURNOVER RATIO: Inventory ratio indicates the efficiency of the firm in producing and selling its products. It is calculated by dividing the cost of goods sold by the average inventory

64

If cost of goods figure is not available, we need to compute the Inventory Turnover Ratio as sales divided by the average inventory or year end inventory.

COMPONENTS OF INVENTORY:

The inventory turnover indicates how rapidly the inventory is turning through sales. Generally, a high inventory is indicative of good inventory management. A low inventory turnover implies excessive inventory levels than warranted by production and sales activities or a slow moving or obsolete inventory. A high level of sluggish inventory amounts to unnecessary tie up of funds reduced profit and increased costs. If the obsolete inventories have to he written off, this will adversely affect the working capital and liquidity position of the firm. However a relatively high inventory turnover should be carefully analyzed.

65

A high inventory inventory, which results in frequent stock outs; the firm replenishes its inventory in too many small lot sizes. The situations of frequent stock outs and too many small inventory replacements are costly for the firm. Thus too high and too low inventory turnover ratios should be investigated further. The computation of inventory turnover ratios for individual components of inventory may help to detect the imbalanced investments in the various inventory components. CRITERIA FOR JUDGING THE INVENTORY SYSTEM: While the overall objectives of the inventory system is to minimize the cost of the firm at the risk level acceptable to management therefore approximate criteria for judging the inventory system are: COMPREHENSIBILITY ADAPTABILITY TIMELINESS

COMPREHENSIBILITY: Inventory systems range from the utterly simple to the weirdly complex. Irrespective of how simple or complex a system is, regardless of whether it is automated or manual; it should be clearly understood by all affected parties. The system must be properly explained to all concerned so that its purpose, logic and rationale are transparent. This generates enthusiasm for the system and enchases its credibility. Other wise it is likely to be perceived as mysterious black box of dubious value. ADAPTABILITY: The questions raised in this context are: Is the system responsive to change? Can new products, new situations, and new requirements be handled by the system? A certain degree of flexibility and adaptability must be designed into the system to make it versatile. Of course this cannot be and this should not be carried too far. The system must not provide for every possible and imaginable contingency. If it is

66

developed with this deal, it is likely to be a complex monstrosity. Remember the caveat that the design of nay system should ordinarily take care of about 90 per cent to be handled by hand. TIMELINESS: Inventories may suffer loss in value on account of variety of factors. The more common sources of value decline are: Obsolescence caused by changes in technology and shifts in consumer taste Physical deterioration with the passage of time Price fluctuations because of inherent volatility of certain commodities The inventory system should be capable of inducing timely action. It should provide adequate forewarning which triggers appropriate corrective steps. AREAS OF IMPROVEMENT Inventory management can be improved in various ways. Improvements could be effected though: Effective Computerization Review of Classification of ABC Analysis etc,. Improved Coordination Disposal of Surplus Inventory Adoption of Challenging Norms

67

INVENTORY MANAGEMENT AT JKPM

INTRODUCTION: Unlike in the past, todays business world is highly competitive and also the steep rise in input, costs added fuel to this fire. To meet these challenges organizations are forced to practice some of the scientific management tools. Materials management is one such area which received due importance due to the face that efficient management of the materials will directly result in hefty bottom line of companies profit and loss account out of all functions of materials management, inventory management has been widely accepted and practiced in most of the Indian business organizations with a view to reduce the cost in materials inventory of course without interrupting production operations. As you all will appreciate the fundamental questions to be answered by any inventory management system are: When to place an order For how much quantity

However, it is needless to say that both the questions are to be answered by OPTIMIZING the two main cots involved: CARRYING COST ORDERING COST Consciousness for better inventory management was spread in JKPM by the institution of Managing Directors in 1968. a humble beginning was made in stores department for standardization of specifications in consultation with user departments with a view to have unified specifications reduce variety/no. of items. Further during the middle of 1971 operations research society of Indian was entrusted to study the possibilities for optimal control of inventory.

68

A preliminary survey was made during 1971 under the guidance of Lt. Col. H.S.SUBBA RAO (Retd.). During later part of 1973 a separate section called OPERATIONS RESEARCH ANALYST CELL was formed with a view to study exclusively inventory management taking help from Lt. Col. H.S.SUBBA RAO and stores. ASPECTS OF STUDY: Inventory management covered the following aspects: a. b. c. d. e. CODIFICATION(Standardization and Variety) ABC ANALYSIS USAGE RATE AND LEAD TIME ANALYSIS INVENTORY REPLENISHMENT POCLICY(IRP) DOCUMENTATION

INVENTORY MANAGEMENT STUDIES: As it was mentioned in the beginning inventory management studies were initiated by ORSI and studied by ORA (Operation Research Analyst) during 1970s then HOWARD & FINLEY CONSULTANTS studied INVENTORY ACCOUNTING system during 1980s and SIGMA CONSULTANTS were engaged in late 1980 to analyze machinery spares inventory including departmental stores inventory. Management services department also carries out some inventory management studies time to time in addition to formulation of inventory replenishment policy.

CODIFICATION: Codification of materials through 9 digits was done during 1973-74 during inventory management studies by ORA and with avoided and correct specifications of materials could be achieved to a greater extent. ABC ANALYSIS: 69

In order to exercise selective control ABC Analysis of all 15000 items(except fibrous raw materials) was done based on 1973 consumption usage rate and analysis showed that 92 items were under AB class which contributed and 95% of the total companies consumption value and the rest in C class. Similar study was carried out during 1968. The ABC Analysis was done based on 1984 consumption value. It was found that 265 items contributed to 92.5% of total stores consumption. However due to the fact that our inventory replenishment policies are based on main groups of items hence the same could not be adopted. Moreover most of the AB class items in earlier grouping had fallen under same grouping in present analysis also. The other important factor which was considered before inventory replenishment policy grouping during the inventory management studies was critically and availability of the items. USAGE RATE & LEAD TIME ANALYSIS: Consumption/usage rate and had time are the two important parameter which play viotal role in arriving at inventory replenishment polices. During the inventory management study (1973-75) forecasting of future demand (consumption) was done based on available past data and subjective opinion from stores purchase and user department. Initially lead times were also fixed based on subjective opinion from purchase and stores.

Presently the future demand (known as Anticipated Annual Demand AAD) is arrived at by considering past 3 years consumption and future requirement (any additional) of departments. However incase of chemicals the demand mainly depends on production programme lead time analysis is also carried out time to time to formulate IRP on more realistic way. RELEVANT COST: Two basic cost parameters involved in inventory i.e. 1) Carrying Cost

70

2) Ordering Cost were calculated and fixed at 20% and Rs.25/- (Indigenous) or 100/- (Imported) items respectively. The above costs were revised during 1986 and presently the carrying cost is 25% and Ordering Cost Rs. 60/-(Indigenous) Rs. 250/-(Imported). INVENTORY REPLENISHMENT POLICY: Basically four types of IRP models were suggested for out inventory control system and procurement system during the inventory management study (1973-75). Infact the same models are being followed at present also. Items covered under the policy are 7 AB chemicals (Vital Items) and other AB items and C class items of 26 main groups of items. The four IRP models are RE ORDER LEVEL: This policy is also called CONTINEOUS REVIEW POLICY. This policy is followed for the entire items. In this policy when the total balance (Quantity on Order KAEDEX BALANCE) reaches Re-Order Level procurement action is initiated. Items for which the lead time is large when compared to replenishment cycle, procurement action is to be taken on the basis of replenishment cycle, and procurement action is to be taken on the basis of replenishment cycle until the total balance exceeds the ROL. Every time, the quantity ordered will be equal to the Ordering Quantity. If by any chance safety stock is reached (SS) emergency action is to be taken to replenish the stock. This policy is followed for AB items MODEL:

71

ROL = KA + SS Ci = Unit Price of Item D = Anticipated Annual Demand (AAD) Cp= Procurement/ Ordering Cost Per Day I = Annual Inventory Carrying Cost r = No. of years in which one risk of run out is permitted (8 incase of 7 AB items & 4 in for the rest items)

KM = Normal Maximum Consumption during Normal Maximum Lead Time

KA = Average Consumption during Average Lead Time

n = No. of orders

OQ = Ordering Quantity SS = Safety Stock ROL = Re Order Level, includes the quantities in transit and the physical stock

72

REPLENISHMENT INVENTORY LEVEL POLICY (RIL): This policy is followed for C class items. In this policy replenishment cycle time is decided by the no. of orders per year n. For these items stock position shall be reviewed in normal courses as per the cycle time. If the total balance (i.e. Quantity

on Order) is more than

i.e. more than safety stock + half of the

order quantity then no replenishment creation shall be initiated for other cases order shall be placed for RIL total balance. Sometimes the SS may be reached earlier to the cycle period due to unusual consumption in such cases the procurement action is to be taken for the balance quantity when the level comes down to safety stock or 20% of RIL. This policy is also called PERIODIC REVIEW POLICY. MODEL: No sophisticated model is used rather distribution free analysis (There by chef in quality) is applied and the safety stocks are calculated that the 95% confidence level assuming that the lead time are distributed in a Poisson manner

. Where da = Daily Average Demand

TM = Maximum Lead Time TA = Minimum Lead Time k = 5 (constant) 73

RIL = SS + OQ

AS WHEN REQUIRED POLICY (AWR): There is no regular requirement of these items but one set of the item shall be maintained whenever an item or one set of item is consumed, procurement action is to be taken to replenish the same. This model is followed for items whose consumption is less and sporadic and of course non availability of these items may be pose serious problems to plant working. PURCHASE WHEN REQUIRED (PWR): Normally no stock of such items shall be maintained. But if the user departments require the items for normal maintenance jobs they shall inform stores for procurement through a internal departmental memo.

DOCUMENTATION: Every aspect is being made to enter in the ERP. ERP stands for the ENTREPRENEUR RESOURCE PLANNING. A software developed on the basis of Oracle by J.D. EDWARDS and named it as PEOPLE SOFT WORD

74

VARIOUS COMMITTES IN INVENTORY COST REDUCTION COST APPRAISAL COMMITTEE: This was constituted in 1978 with an object to work out and reduce input raw material and chemical costs with better cost benefits. This committee was not formed on permanent basis VALUE MANAGEMENT TEAMS / COST REDEUCTION SUB COMMITTEE INVENTORY MANAGEMENT: VMT (Middle Level Management) took birth during 1986 one of the teams was constituted to work on inventory control consisting of members from stores planning user department and material supply department. The same was renamed as COST REDICTON SUB COMMITTEE INVENTORY MANAGEMENT in 1989. Aim to reduce inventory to identify the reasons for increase and corrective actions are taken. INVENTORY REVIEW COMMITTEE: This committee has been formed with a view to analyze inventory levels and arrive at some decisions to control the inventory. If critically analysis quarterly inventory statement particularly when the stock crossed maximum recommended level the action plans are drawn and execute the decisions taken in meeting. PURCHASE REQUISITIONS REVIEW COMMITTEE: As a preventive action to control the future piling up inventories items are scrutinized closely while processing. Purchase requisitions review committee has been constituted with a view to fulfill the above objectives for the budgetary control of items. After working of this committee user department have become more cautious in writing purchase requisitions and taking more care in procurement of materials and giving judicious justifications for need of the items.

75

CONSTRAINTS FACED IN PRACTISING INVENTORY MANAGEMENT SYSTEM: Demand and lead-time deterministic and static in most of the actual cases and sudden changes without conforming to the predetermined parameter lead to higher inventory holding or stock outs. Volatile markets and often changing governments regulating policies do contribute towards it. Though the main logic behind PWRI policy not hold any stock but in some cases stocks do exist for PWR items due to the fact that some of the earlier regular consumable items have been brought into this category and because of very slow consumption those stocks will remain and also in some cases user departments may not utilize or use the material procured under policy. RIL policy has not followed as a periodic review system Inventory norms for some of the major items could not be followed mainly view materials, pulp, coal and machine clothing due to government controls and its seasonal availability. Average inventory during the quarter on daily basis could not be calculated due to difficultly involved in calculations and time hence inventory as on at the end of quarter is compared with recommended any minimum and maximum level. Even though we spent a lot of man hours (both consultants and internal) and money in identifying obsolete and surplus items but disposal of the same is high problem mainly because of factory location and value of items and transportation. Locational disadvantages of our mills forces us to carry large inventory of spare parts. User departments most of the times dont realize the costs involved in materials as they realize machine down times and production stoppages. Obsolete and surplus stocks building up can be avoided to be greater extent if the requirement of material is worked out on most realistic way.

76

CONCLUSION: Cost reduction of inventory could be possible when there is proper coordination between departments. (Stores, Purchase, User) Obsolete/surplus stocks are bound to be generated in any inventory management system. However identification and disposal of these stocks is done on top priority some cost benefit could be enjoyed on this account. Timely corrective action to control / inventory will definitely yield fruitful results. Much control should be exercised in procuring spare parts in for old equipments due to the fact that remaining life of these equipments will be very less and the same day be replaced by new equipments shortly. Standardization in respect of equipment will greatly help in reducing inventory of spare parts.

77

INVENTROY CONTROL DEFITION: Inventory control is meant for maintaining a reserve of goods that will ensure manufacturing according to a production plan based on sales requirement at the lowest possible ultimate cost 1. PRODUCTION BASED CHEMICALS: TOTAL NO. OF CHEMICALS: 46NO. HEAVY CHEMICALS: 19NO. 1.1 BENEFITS DUE TO NEW COMPUTATION METHOD: (E.g.) 2003-04(old method) 2004-05(new method) Reduction Average inventory level (Production based chemicals) 2. OBJECTIVES: Identify specific opportunities for reduction of inventory (focusing on heavy chemicals) Keeping in view the Item specific constraints Logistics other supplier related issue Required service level 2, 20, 55,825 1, 87, 81,851 15%

3. WHY INVENTORY OF PRODUCTION BASED CHEMICAL HIGH Variation in actual consumption vis--vis planned consumption Price fluctuations Uncertainties in supply such as

78

 Complexities in logistics (Transshipments due to location of mill & supplier). Supply interruptions due to: Power cuts Break downs Input availability Seasonal availability Large receipt to sizes due to high percentage of transportation cost. Large lead time of procurement (4 to 6 weeks) of certain chemicals (dyes & costing plant chemicals). 4. COMPUTATION OF INVENTORY NORM FOR CHEMICALS:PROPOSED BY: M/s: ANDERSEN CONSULTANTS (AMERICAN BASED) This method is applicable for frequently arriving large volumes materials lonely production based item and not maintenance based items. The average inventory consists of two components: SAFETY STOCK BASE STOCK (RUNNING STOCK) Variations in receipt quantity, lead time and consumption quantity is considered as basis for safety stock. Delivery lot sizes & daily consumption is considered as basis of base stock.

79

BASIS FOR INVENTORY BASE STOCK

ANTICIPATED DEMAND

MINIMUM RECEIPT LOT SIZE

RECEIPT QUANTITY VARIANCE

AVERAGE INVENTORY

CONSUMPTION VARIANCE

LEAD TIME VARIANCE

RECEIPT VARIANCE

SAFETY STOCK:

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5. PROCEDURE FOR COMPUTATION OF NORMS: 5.1 Data collected on daily opening inventory, receipts, issued & opening inventory for each item from computer for last one year. 5.2 Data or Receipts is used to compute: 1. Average inter arrival frequency Ex: for lime the average inters arrival frequency is 1 day. 2. 95% ile, inter arrival frequency Ex: for lime, 95% ile inter arrival frequency is 5 days which means that only in 5% of the receipt no. of days between two arrivals whose more than 5 days. 3. Average receipt quantity Ex: for lime average receipt quantity is 80T 4. 5% ile receipt quantity Ex: for lime 5% ile, receipt quantity is 48T which means that only on 5% of the day the total receipt quantity was less than 48% 5.3 Data on daily consumption is used to compute 1. Average consumption during inter arrival time. Ex: for lime average consumption during inter arrival time is 83T 2. 95% the consumption during inter arrival time Ex: for lime the 95% ile consumption during inter arrival time is 135T which means that only on 5% of the days consumption is more than 135T Hence for lime safety stock due to:

81

I. LEAD TIME VARIANCE = 5 days 1 day = 4 days = 4 * 92.91 (where 92.91 is the daily consumption in tons) = 372T II. RECEIPT QUNTITY VARIANCE = 80T-48T = 32T III. CONSUMPTION QUNTITY VARIANCE = 135T-83T = 52T TOTAL SAFETY STOCK = I + II + III = 372 + 32 + 52 = 456T 5.4 Base stock is computed considering daily consumption & delivery lot size. Ex: for lime daily consumption is 92.91T

= 0.1614 DAY = 1 DAY (SAY)

82

= = 5.5 5.6

46.45 46T (SAY)

The computed figures are verified with stores. The normative inventory is computed on the basis of above calculations: Agreed safety stock after due discussion with stores considered as 550T (Instead of computed safety stock 456T)

= 550T + 46T = 596T

CONCLUSION:
596T of lime to be maintained for 6 days consumption. Normative inventory level compared with actual inventory level on monthly basis.

83

Monthly requirement plan is forwarded by Dy. General Manager (Stores) to Purchase Department, Head Office. Daily follow up with Head Office.

QUALITY MANAGEMENT SYSTEM

INTRODUCTION: Quality management is a way of working or a philosophy, which encompasses very broad range of values and principles. It is clear by now that though the name says QUALITY MANAGEMENT; it actually means the MANAGEMENT with quality as focus. KEY CONCEPTS IN QUALITY MANAGEMENT: LEADERSHIP FOR QUALITY CUSTOMER FOCUS CONTINUOUS IMPROVEMENT PREVENTIVE ACTION COST OF QUALITY PROFITS THOUGH QUALITY TEAM WORK TRUST QUALITY SYSTEM APPROACH INTEGRATED MODEL OF QM:

84

C O QUALITY MANAGEMENT SYSTEM M M STORES AND YARD U DEPARTMENT FLOW CHART N I INPUT/OUTPUT PROCESS RESOURCES C A T I O N BUDGETS/NORMS MATERIALS PLANNING * S P A C E * E RAWMATERIALS/ Q COAL/CHEMICALS U RECEIVING STORES&SPARES I PACKING P MATERIALS M E N T * SCRAP M HANDLING/STORAGE/ A DISPOSAL N RAWMATERIALS/ P COAL/CHEMICALS SOLID WASTES O STORES&SPARES 85 W PACKING E ISSUE MATERIALS R

86

QUALITY MANAGEMENT SYSTEM STORES & YARD ORGANIZATIONAL CHART

Dy. GENERAL MANAGER (STORES)

MANAGER (STORES)

Dy. MANAGER (STORES)

Dy. MANAGER YARD (RAWMATERIALS)

Dy. MANAGER (LIAISON)

ASST. MANAGER (STORES)

ASST.OFFICER (STORES)

OFFICER (STORES)

OFFICER (STORES)

ASST. MANAGER

ASST. MANAGER MOVEMENTS

ASST. MANAGER YARD COAL & LIME

ASST. OFFICER MOVEMENTS

ASST. OFFICER YARD

OFFICER YARD2

SR. ASST.

SR. ASST.

SR. ASST.

ASST. OFFICER (YARD) CHEMICALS

SR. ASST.

SUPERVISION OF BAMBOO HARDWOOD YARD WASTE REMOVAL CO-ORDINATION WITH INTER DEPARTMENTS COAL LIASONING WITH OFFICIALS MOVEMENTS

STENO TYPIST

RLY. LIAISONING DESPATCHES DELIVERY OF GOODS CHASING OF GOODS & CLAIMS

TYPIST ASST. ASST. ASST. ASST.

WEIGHING SCALES MAINTAINANCE

LIAISON AT VISAKAPATNAM WITH PLY OFFICIALS & OTHERS PROCUREMENT ASSITANCE

ASST. SUPERVISOR SCRAP

COMPUTER DATA WEEKLY/ MONTHLY/ REPORTS

SUPERVISIOR (YARD)

SUPERVISIOR (YARD)

MIS
RECEIPTS REJECTION & REPLACEMENT REPAIR JOB CO-ORDINATION

MATERIAL PLANNING & INVENTORY CONTROL UNLOADING STACKING ISSUE OF CHEMICALS & PULP GODOWN UPKEEPING RAWMATERIALS CHEMICALS PULP RECORD KEEPING AND BILLS PASSING BUILDING MATERIAL PROCUREMENT & ACCOUNTING SUPERVISION OF COAL LIME WASTE DISPOSAL COORDINATION WITH INTER DEPT. & LOCAL BODIES

SUPERVISIORS (YARD)

ISSUE & GODOWN UPKEEPING & PRINTING&STATIONERY &ACCOUNTING

MODVAT CENTRAL EXCISE REPORTS

PERPECTUAL INVENTORY CHECKS

DISPOSAL OF SCRAP& OBSOLETE & ACCOUNTING

OFFICE ADMN. TYPING DAK RECEIPT FILING CLAIMS

87

PLACEMENTS & DRAWN OUT OF WAGONS & TRUCKS RLY. SIDING MAINTRNANCE AND SUPERVISE FEEDING OPERATIONSIN SHIFT

PROCEDURES FOR QUALITY MANAGEMENT SYSTEM IN STORES & YARD TITLE: PURPOSE: SCOPE: MATERIAL PLANNING PROCEDURE MATERIAL PLANNING FOR EFFECTIVE CONTROL AND SMOOTH FLOW OF MATERIAL AVAILABILITY APPLICABLE FOR ALL RAW MATERIALS, CHEMICALS, STORES AND SPARES.

RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES) ASST. MANAGER (YARD&STORES) INPUTS: SL. NO.
1. 2. 3. 4. 5. 6. 7.

INPUT
REVENUE/CAPITAL BUDGET ANNUAL INDENT REQUIREMENTS ANNUAL SHUT REQUIREMENTS PURCAHSE REQUIREMENTS MEMOS FOR URGENT PROCUREMENTS DATUM LEVELS/ NORMS IMPORT BUDGET

SOURCE
ACCOUNTS DEPT PLANNING DEPT. PLANNING DEPT. USER DEPT. USER DEPT. I.E.DEPT. PLANNING DEPT.

FREQUENCY
YEARLY YEARLY AWR CONTINEOUS AWR CONTINEOUS YEARLY

RESPONSIBILITY
ACCOUNTS DEPT ASST.MANAGER (YARD) ASST.MANAGER (YARD) DY.MANAGER (STORES) ASST.MANAGER (YARD) ASST.MANAGER (YARD) ASST.MANAGER (STORES)

REVIEW CRITERIA
TARGET VS CONSUPTION STOCK STATUS STOCK STATUS STOCK STATUS STOCK OUTS REPLENISHMENTS TARGET VS CONSUMPTION

REFERENCE

88

PROCESS INTERFACE: SL.NO. 1. 2. ACTIVITY MATERIAL PLANNING - PRODUCTION & MAINTENANCE MATERIALS MATERIAL PLANNING - PRINTING & STATIONERY ITEMS / JOB PROCESSING ITEMS RESPONSIBILITY DY. MANAGERS(YARD&STORES) ASST. MANAGER (YARD) DY. MANAGER (STORES) ASST. MANAGER (YARD) REFERENCE

MEASUREMENT AND MONITORING PROCESS: SL.NO. 1. 2. 3. 4. 5. STAGE / SECTION STOCK, STATUS OF MACHINE CLOTHING, DOCTOR BLADES, CHEMICALS, TOOLS, Etc. STOCK STATUS OF IRP ITEMS PROCESSING OF ANNUAL INDENT REQUIREMENTS PROCESSING OF ANNUAL SHORT REQUIREMENT Y FLAGGING OF PURCHASE REQUISITIONS MONITORING CRITERIA NORMS VS STOCK REORDER LEVEL STOCK AVILABILITY OUTSTANDING PR/ PO STOCK AVILABILITY OUTSTANDING PR/ PO STOCK AVILABILITY OUTSTANDING PR/ PO AUTHORIZATION DEPT. BUDGET FOR RASING OF PRs V/S ACTUAL VALUE FREQUENCY MONTHLY/ WEEKLY DAILY QUARTELY AWR DAILY RESPONSIBILITY
ASST.MANAGER(YARD) ASST.MANAGER(YARD) ASST.MANAGER(YARD) ASST.MANAGER(YARD)

REFERENCE

DY. MANAGER (STORES)

6.

PURCHASE REQUISITION

WEEKLY

ASST. MANAGER (STORES)

89

OUTPUT: SL.NO. 1. OUTPUT STOCK, STATUS WITH RECEIPT ND ISSUE AND TRANSIT DETAILS FOR IMPORTANT ITEMS REPORT OF DOCTOR BLADES, CHAINS Etc. STOCK REPORT FOR CHEMICALS, PACKING MATERIALS, FUELS Etc. STOCK REPORT FOR IRP ITEMS REPLENISHMENT REPORT FOR MACHINE CLOTHING Y FLAGGED PURCHSE REQUISTION REPORT OF PR VALUE STATUS DEPT. WISE STOCK REPORT FOR MAJOR CHEMICALS LIME RECEIPTS RECEIPT OF CHEMICALS REPLENISHMENT CONSUMPTION TO CE(W) VP(C) VP(RM) SR MGR (SP) GM (PUR) GM (COMM) GM(PUR) SR MGR(PUR) PUR(W) PUR(W) GM (PUR) PUR(W) GM(PUR) GM(ENG.) GM (PUR) PUR(W) GM(PUR) GM(PUR) REVIEW CRITERIA
DAILY FOR EXPEDITING DELIVERIES AS PER DATIUM LEVELS MONTHLY FOR REPLENISHMENT OF STOCKS AS PER RECOMMENDED NORMS DAILY FOR REPLENISHMENT OF STOCKS AS PER RECOMMENDED NORMS DAILY FOR REPLENISHMENT OF STOCKS AS PER RECOMMENDED NORMS MONTLY FOR REPLENISHMENT OF STOCKS AS PER RECOMMENDATIONS OF USER DEPT. DAILY FOR ARRANGING MATERIALS OF NEED BASE ITEMS BY PURCHASE(WORKS) WEEKLY FOR MONITORING OF ACTUAL VS BUDGET SANCTIONS DAILY CRITICAL ITEMS REVIEW FOR BETTER CONTROL AND TO AVOID STOCK OUT SITUATION WEEKLY AND MONTHLY REPORTS FOR BETTER CONTROL AND INFLOW OF QUALITY MATERIALS WEEKLY AND MONTHLY REPORTS FOR BETTER CONTROL AND INFLOW OF QUALITY MATERIALS

REFERENCE

2. 3. 4. 5. 6. 7. 8. 9. 10.

90

TITLE: PURPOSE: SCOPE:

GOODS RECEIPT AND HANDLING OF NON CONFORMING PRODUCTS PROCEDURE THIS QUALITY MANAGEMENT PROCEDURE IS VALID FOR ALL INCOMING MATERIALS APPLICABLE FOR ALL RAW MATERIALS, CHEMICALS, STORES AND SPARES.

RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES), ASST. MANAGER (YARD&STORES), OFFICER (STORES) INPUTS: SL.NO. INPUT
RAW MATERIALS COAL HEAVY CHEMICALS CHALLANS STORES & SPARES..... GOODS DELIVERY/ REPLACEMENT NOTE RAW MATERIAL COAL HEAVY CHEMICALS 2. 3. STORES AND SPARES QUALITY REPORTS STATUTORY REQUIREMENTS

SOURCE
SUPPLIERS PURCHASE DEPT. SUPPLIERS SUPPLIERS APPROVING AUTHORITY USER DEPT./ CONTROL LAB VARIOUS LAWS/ LEGISLATIONS

FREQUENCY
DAILY DAILY DAILY DAILY DAILY

RESPONSIBILITY DY. MANAGERS (YARD&STORES)

OFFICER (STORES)

REVIEW CRITERIA
MATERIAL VS CHALLAN MATERIAL VS GODOWN TEST WEIGHMENTS QUNTITY/PACKING ACCEPTANCE/ REJECTION COMPLIANCE WITH THE LAWS

REFERENCE
PARTY DOCUMENTS

1.

DY. MANAGERS (YARD&STORES)

OFFICER (STORES) ASST. MANAGER (STORES) WORKS OFFICER

PARTY DOCUMENTS

4.

CONTINEOUS

REGISTER OF STATUTORY LAWS

91

PROCESS INTERFACE: SL.NO. 1. 2. 3. ACTIVITY RECEIPT OF RAW MATERIALS, COAL, HEAVY CHEMICALS RECEIPT OF STORES AND SPARES REJECTION / DAMAGE / BREAKAGE / SHORTAGE RESPONSIBILITY DY. MANAGER(YARD) ASST. MANAGER (YARD & STORES) OFFICER (STORES) ASST. MANAGER (STORES) OFFICER (STORES) REFERENCE

MEASUREMENT AND MONITORING PROCESS: SL.NO. STAGE / SECTION 1. RECEIPT OF MATERIALS RECEIPT BAMBOO, HARDWOOD, LIME RECEIPT OF STORES AND SPARES REJECTIONS MONITORING CRITERIA QUNTITY IN CHALLAN VS QUNTITY RECEIVED COMPLIANCE QITH STATUTORY NORMS FREQUENCY DAILY RESPONSIBILITY DY. MANAGER(YARD) ASST. MANAGER (YARD & STORES) OFFICER (STORES) DY. MANAGERS, ASST.MANAGER(YARD) OFFICER (STORES) DY. MANAGER (STORES) OFFICER (STORES) REFERENCE

2.

DETECTION OF TRUCK

DAILY

3. 4.

RECEIPT CRITERIAL ANALYSIS QUALITY REPORT FROM APPROVING AUTHORITY

DAILY AWR

92

OUTPUT: SL.NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. OUTPUT YARD REPORT GOODS RECEIPT REPORT REJECTION MATERIAL RETURN DUE STATUS REPORT OF GRRS PENDING FOR APPROVAL REMINDER FOR MATERIAL INSPECTION OF STORES & SPARES MATERIAL REJECTION REPORT RECJECTION MATERIAL RETURN GDN RECEIPT REPORT OF STORES & SPARES DETENTION OF RAW MATERIAL TRUCKS DETENTION OF LIME TRUCKS TO SELF ACC. (w), PUR(w), CULCUTTA OFFICE/HO USER DEPT./SELF PUR(w) VP(C) GM (ENGG.) USER DEPT. ACC(w), PUR, SELF SUPPLIERS SELF ACTIVITY BOARD ACTIVITY BOARD REVIEW CRITERIA
DAILY FOR DOCUMENTATION OF GOODS REEIPT REPORT DAILY FOR DOCUMENTATION OF MATERIAL RECEIPT REPORT MONTLHY FOR RETURN OF NON CONFIRMATORY MATERIALS WEEKLY STATUS REVIEW WEEKLY FOR SMOOTH FLOW OF DOCUMENTATION MONTHLY FOR RETURN OF NON CONFIRMATORY MATERIALS AWR RETURN OF NON CONFIRMATORY MATERIALS DAILY COMMUNICATION TO BE SPECIFIED MONTHLY PRERFORMANCE REVIEW MONTHLY PRERFORMANCE REVIEW

REFERENCE

93

TITLE: PURPOSE: SCOPE:

PROCEDURE FOR IDENTIFICATION TRACE ABILITY, HANDLING, PRESERVATION STORAGE AND DISPOSAL OF MATERIAL THIS QUALITY MANAEMENT PROCEDURES IS OPTIMAL IDENTIFICATION, TRACE ABILITY, HANDLING, PRESERVATION, STORAGE AND DISPOSAL OF ALL MATERIALS APPLICABLE FOR ALL RAW MATERIALS, COAL, LIME, HEAVY CHEMICALS, STORES AND SPARES AND SOLID WASTES.

RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES) ASST. MANAGER (YARD&STORES) INPUTS:
SL. NO. 1. INPUT MATERIAL CATALOGUE RAW MATERIAL COAL 2. HEAVY CHEMICALS STORES SPARES 3. 4. MATERIAL SAFETY DATA SHEET LIFE/STORAGE NORMS DATA STOCK STOCK SUPPLIER/ STANDARD LITERATURE SUPPLIER/ STANDARD LITERATURE DAILY DAILY AWR AWR SOURCE IE DEPT. STOCK/TRUCK/ RAIL STOCK /RAIL FREQUENCY AWR DAILY DAILY RESPONSIBILITY Sr. MANAGER (IE) DY.MANAGER (YARD) ASST.MANAGER (YARD) ASST.MANAGER (YARD) ASST.MANAGER (STORES) DY.MANAGER(YARD) ASST.MANAGER(YARD) ASST.MANAGER(STORE) DY.MANAGER (YARD) ASST.MANAGER (YARD) ASST.MANAGER (STORES REVIEW CRITERIA MATERAIAL SPECIFICATIONS QUNTITY/QUALITY QUNTITY/QUALITY QUNTITY/QUALITY QUNTITY/QUALITY COVERAGE OF ALL APPLICABLE ITEMS COVERAGE OF ALL APPLICABLE/ IDENTIFIEBLE ITEMS AS PER LAW PHYSICAL REFERENCE

94

PROCESS INTERFACE:

SL.NO. 1. 2. 3. 4. 5. 6. 7.

HANDLING & STORAGE METHOD FOR RAW MATERIALS COAL LIME HEAVY CHEMICALS STORES AND SPARES SCRAP SOLID WASTES

RESPONSIBILITY DY. MANAGER(YARD)

REFERENCE

ASST. MANAGER (YARD) ASST. MANAGER (YARD) DY. MANAGER(STORES) ASST. MANAGER (YARD) DY. MANAGER(STORES) ASST. MANAGER (STORES)

95

MEASUREMENT AND MONITORING PROCESS: SL.NO. 1. STAGE / SECTION STOCK CHECKING FOR RAW MATERIALS, COAL, LIME, CHEMICALS STOCK TAKING FOR STORES AND SPARES HANDLING OF COAL LIME HEAVY CHEMICALS HANDLING OF RAW MATERIALS CONDITION MONITORING FOR STORES SPARES SOLID WASTE SCRAP MONITORING CRITERIA PHYSICAL VS BOOK STOCK PHYSCIAL VS BOOK STOCK FIFO FIFO CONDITION OF MATERIALS FREQUENCY HALF YEARLY RESPONSIBILITY DY. MANAGER (STORES &
YARD) ASST.MANAGER(STORES) ASST.MANAGER(STORES)

REFERENCE

2. 3. 4. 5. 6. 7.

PERPECTUAL CONTINEOUS CONTINEOUS MONTHLY

DY. MANAGER (STORES &

YARD)

DY. MANAGER (YARD)

ASST. MANAGER (YARD) ASST. MANAGER (STORES)

DISPOSAL WITH COMPLIANCE CONTINEOUS OF STRATEGY NORMS ARRIVALS, SEGREGATION/DISPOSAL WITH DAILY COMPLIANCE OF STATUTORY NORMS

DY. MANAGER(STORES)

96

OUTPUT: SL.NO. 1. 2. 3. OUTPUT PHYSICAL SHORTAGE/EXCESS STATEMENT MATERIAL FIT FOR LINE INVENTORY & CONTROL GRAPHS OF VARIOUS ACTIVITIES TO TOP MANAGEMENT USER DEPT. ACTIVITY BOARD REVIEW CRITERIA
HALF YEARLY FOR ACCURACY OF BOOKS VS PHYSICAL CONTINEOUS FOR QULITY AS PER SCHEDULE FOR ANALYSIS

REFERENCE

TPM

97

RATIO ANALYSIS OF INVENTORY

RATIO OF COST OF GOODS SOLD TO SALES:-

TABLE: 4.1 YEARS COST OF GOODS SOLD

Rs. in Lacs (0.1 Million)

SALES RATIO
Rs. in Lacs (0.1 Million)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 FIGURE:

483.3 483.95 519.33 477.45 516.22

535.86

629.62 540.18 585.33 624.61 633.52 665.12

0.76 0.89 0.88 0.76 0.81 0.80

RATIO OF COST OF GOOD SOLD TO SALES

0.9 0.85 RATIO 0.8 RATIO 0.75 0.7 0.65 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 YEAR

98

INTERPRETATION: The table 4.1 shows the ratio of cost of goods sold to sales. It is observed that there is an increase of 17.10% in the ratio of cost of goods sold to sales in the year 2001-02 from the year 2000-01. But when compared to 2002-03 with 2001-02 there was a decrease of 1% and the next year there was further decrease of 14% from the year 2001-02. In the year 2004-05 there was an increase of 6.58% in cost of sales which is not good as the cost of goods sold must be minimized to the fullest possible length. But in year 2005-06 their was a slight decrease. Therefore overall the company performance is said to be good in controlling and reducing the cost of goods sold.

99

RATIO OF RAW MATERIAL CONSUMED TOTAL COST OF THE PRODUCTION:

TABLE:4.2
YEARS RAW MATERIALS CONSUMED Rs. in Lacs (0.1 Million) TOTAL COST OF PRODUCTION Rs. in Lacs (0.1Million) RATIO

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 FIGURE:

9744.22 9239.14 10482.19 11887.81 13201.14

15977.08

27914.43 26733.09 30905.13 32905.18 34768.78

42598.36

0.35 0.35 0.34 0.36 0.38

0.38

RATIO RAW MATERIAL CONSUMED TO TOTAL COST OF PRODUCTION

0.39 0.38 0.37 RATIO 0.36 0.35 0.34 0.33 0.32 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 YEAR RATIO

100

INTERPRETATION: The above 4.2 table reveals the ratio of the raw material consumed to the total cost of production. In the year 2000-01 the ratio is stable when compared with the previous year 2000-01. But in the 2002-03 there was an decrease of 2.86% in the ratio as the cost of production increased and in the next year i.e., 2003-04 there was an further increase of 5.88% when compared to the previous year. And in the years 2004-05 there was further increase of 5.56%, and in the year 2005-06 it was stable. Overall the ratio is in an increasing trend and hence it is good for the organization that it maintaining other costs in a controlled way.

101

RATIO OF OPENING AND CLOSING RAW MATERIAL TO THE TOTAL RAW MATERIAL:

TABLE: 4.3 YEARS OPENING

Rs. in Lacs (0.1 Million)

CLOSING
Rs. in Lacs (0.1 Million)

TOTAL
Rs. in Lacs (0.1 Million)

OPENING RATIO

CLOSING RATIO

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

FIGURE:

1790.32 1975.16 1796.55 2630.07 2001.24 2607.24

1975.16 1796.55 2630.07 2001.24 2607.68 3160.02

3765.48 3771.71 4426.62 4631.31 4608.92 5767.26

0.48 0.52 0.41 0.57 0.43 0.45

0.53 0.48 0.59 0.43 0.57 0.55

RATIO OF OPENING AND CLOSING RAW MATERIAL TO THE TOTAL RAW MATERIAL:
0.7 0.6 0.5 RATIO 0.4 0.3 0.2 0.1 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 YEAR OPENING CLOSING

102

INTERPRETATION: The above table 4.3 reveals the opening and closing raw material in lakhs and in the ratio. In the year 2000-01 the ratio values of opening and closing are said to be 0.48 and 0.53 respectively. For the next year 2001-02 there was an increase in the ratio of opening by 7% and decrease in the closing by 9.43%. and in the next year 2002-03 there was an decrease of 21.5% in opening and 22.92% increase in the closing and in the year 2003-04 there was and tremendous increase of 39.02 in opening and there was an rapid decrease of 27.11% in the closing. In the year 2004-05 the opening ratio decreased by 24.56% and the closing ratio is increased by 32.56% with comparison of the previous year 2003-04 and in the year 200506 opening has increased by 4.6% and decrease in closing by 4% it is good for the company. Over all the organization must have an increase in the raw materials and the raw materials of JK are said to be fluctuating.

103

RATIO OF OPENING AND CLOSING WORK IN PROGRESS TO THE TOTAL WORK IN PROGRESS:

TABLE: 4.5 YEARS OPENING Rs. in Lacs CLOSING Rs. in Lacs TOTAL
Rs. in Lacs (0.1 Million)

OPENING RATIO

CLOSING RATIO

(0.1 Million) (0.1 Million)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

FIGURE:

820.69 732.26 750.28 643.25 753.67 696.18

732.26 750.28 643.25 753.67 696.18 710.06

1552.95 1482.54 1393.53 1396.92 1449.85 1406.85

0.53 0.49 0.54 0.46 0.52 0.49

0.47 0.51 0.46 0.54 0.48 0.51

RATIO OF OPENING AND CLOSING WORK IN PROGRESS TO THE TOTAL WORK IN PROGRESS
0.56 0.54 0.52 RATIO 0.5 0.48 0.46 0.44 0.42 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 YEAR OPENING CLOSING

104

INTERPRETATION: The above table 4.5 shows the opening and closing work in progress to the total work in progress. In the year 2001-02 the opening ratio is decreased by 7.54% and the closing ratio is increased by 7.84% when compared to the year 2000-01. And in the year 2002-03 there was an increase of 10.2% in the opening and 9.8% decrease in the closing and in the year 2003-04 there was an decrease of 14.81% in the opening and increasing of 17.39% in the closing. In the year 2004-05 opening has increased by 13 %, closing decreased by 12% and in the year 2005-06 opening has decreased by 6%,and closing has increased by 6.25%. Over all the companies ratio of opening and closing work in progress to total work in progress is said to be fluctuating.

105

RATIO OF OPENING AND CLOSING INVENTORY TO THE TOTAL INVENTORY: ( w.r.t. FINISHED GOODS)

TABLE: 4.6 YEARS OPENING CLOSING TOTAL

Rs. in Lacs (0.1 Million)

OPENING RATIO

CLOSING RATIO

Rs. in Lacs Rs. in Lacs (0.1 Million) (0.1 Million)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

FIGURE:

559.69 2275.60 625.91 1340.98 1273.33 1520.44

2275.60 625.91 1340.98 1273.33 1520.44 2218.79

2835.29 2901.51 1966.89 2614.31 2793.77 3739.23

0.20 0.79 0.32 0.51 0.45 0.40

0.80 0.23 0.68 0.49 0.54 0.59

RATIO OF OPENING AND CLOSING FINISHED INVENTORY TO THE TOTAL INVENTORY OF FINISHED GOOD
1 0.8 RATIO 0.6 0.4 0.2 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 YEAR OPENING CLOSING

106

INTERPRETATION: The above table 4.6 represents the opening and closing inventory of JK PAPER. In the year 2001-02 the opening ratio is increased by 74.68% and decreased by 71.25 when compared to the previous year 2000-01 and in the year 2002-03 the opening ratio is decreased by 0.47 and the closing is increased by 0.45 and in the next year 2003-04 there was an increase of 0.19 in the opening and decrease of 0.19 in the closing. In the final year 2004-05 the opening ratio is decreased by 11.76% and closing ratio is increased by 10.2% when compared with 2003-04. and in the year 2005-06 he opening has decreased by 11.11% and closing has increased by 9.25 %. Therefore it is being interpreted that the company is maintaining a balance between the opening and closing inventory to the total inventory.

107

INVENTORY TURN OVER RATIO:COST OF GOOD SOLD/AVERAGE INVENTORY

TABLE: 4.7 YEARS C.G.S Rs. in crore AVERAGE INVENTORY Rs. in crore INVENTORY TURN OVER RATIO (In Times)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

FIGURE:

483.3 483.95 519.33 477.45 516.22

535.86

46.258
65.47

62.81 66.98 68.42 81.11

10.4 7.39 8.26 7.12

7.54

6.60

INVENTORY TURNOVER RATIO

12 10 8 RATIO 6 4 2 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 RATIO

YEAR

108

INTERPRETATION: The above table 4.7 indicates the inventory turnover ratio of JK PAPER LTD. Higher the ratio, greater the efficiency of inventory management. From the above table it is clear that in 2001-02 the ratio is decreased by 40.7% as there is a reduction in the inventory. Where as, in the year 2002-03, the ratio is increased by 10.5% as the inventory is moving fastly and generating sales. Where as in the years 2003-04 the ratio is decreased in the inventory from 2002-03 and in the year 2004-05 there was an increase 6% when compared to the previous year 2003-04, and in the year 2005-06 it has decreased by 14%, however the overall inventory turnover ratio in JK PAPER LTD is fluctuating.

109

INVENTORY HOLDING PERIOD : FORMULAE:

TABLE: 4.8 YEARS DAYS INVENTORY TURN OVER RATIO (In Times) 10.4 7.39 8.26 7.12 7.54 6.60 INVENTORY HOLDING PERIOD
(In Days)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

365 365 365 365 365 365

35 49 44 51 48 55

FIGURE:
INVENTORY HOLDING PERIOD
60 50 40 DAYS 30 20 10 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 YEAR RATIO

110

INTERPRETATION: The above table 4.8 shows the inventory holding period of JK PAPER LTD. Is not constant it is fluctuating but the fluctuation is not so high it can be accepted. The change high in the year 2001-02 its around 14 days . Generally the sales will have an affect on the inventory holding period if the sales are said to be more then the inventory holding period is said to be very low where as high when there will be an low sale of the product that is being manufactured .

111

RAW MATERIALS TURNOVER RATIO: FORMULAE:

TABLE: 4.9 YEARS MATERIALS CONSUMED Rs. in Lacs (0.1Million) AVERAGE RAW MATERIALS Rs. in Lacs (0.1Million) RAWMATERIAL TURNOVER RATIO (In Times)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

FIGURE:

9744.22 9239.14 10482.19 11887.81 13201.14 15977.08

1790.32 1885.86 2213.31 2315.66 2304.46 2883.06

5.44 4.89 4.74 5.13 5.73 5.66

112

RAW MATERIAL TURNOVER RATIO

7 6 5 RATIO 4 3 2 1 0 2000-01 2001-02 2002-03 2003-04 YEAR 2004-05 2005-06 RATIO

INTERPRETATION: The above table 4.9 reveals the raw material turn over ratio. In the year 2001-02 the raw materials turn over ratio is decreased by 10.11% to the previous year 2000-01 and in the 2002-03 there was a decrease of 3%. In the year 2003-04 there was an increase of 8.23% from the previous year 2002-03. In year i.e., 2004-05 there was a further increase of 11.70% from the previous year 2003-04 and in the year 2005-06 their was a slight decrease overall there is said to be an increasing trend with low rate of decrease. There fore the raw material turn over ratio is said to be in an increasing way and increase is said to be a favorable one to the organization in respect of raw materials

113

WORK IN PROGRESS TURNOVER RATIO: FORMULAE:

TABLE: 4.10 YEARS COST OF PRODUCTION Rs. in Lacs (0.1Million) 27914.43 26733.09 30905.13 32905.18 34768.78 42598.36 AVERAGE WORK IN PROGRESS Rs. in Lacs (0.1Million) (In Times) 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 776.48 741.27 696.77 698.46 724.93 703.12 35.95 36.06 44.36 47.11 47.96 60.58 WIP TURNOVER RATIO

FIGURE:

114

WORK IN PROGRESS TURNOVER RATIO

70 60 50 RATIO 40 30 20 10 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 YEAR RATIO

INTERPRETATION: The above table 4.10 reveals the work in progress turn over ratio. In the year 2001-02 the work in progress turn over ratio is increased by 0.30% to the previous year 2000-01. In the year 2002-03 there was a drastic increase of 23% in the ratio which is said to be not favorable for the company. In the next year 2003-04 there was an increase of 6.20% when compared to the 2002-03. In the final year 2004-05 there was an increase in the ratio by 1.8%when compared to the previous year 2003-04. and in the year 2005-06 there is increase of 26.3%. Therefore the work in progress turn over ratio of the company is said to be increasing and it has to be brought down to the minimum level.

115

SUMMARY
JK is continuously growing company producing diversified products. Its diversification of products and services ensure optimal return on investment. It is using highly sophisticated technology. The paper industry has a bright future as the demand for it growing day by day. It production capacities and productivity is increasing year by year by using quality raw materials and efficient production technology in analyzing the statements. Order quantity is an optimum quantity when there is a trade off between ordering cost and carrying cost. If the company follows OQ, OC and stock out costs will reduce and suspension of production process will not occur in the plant. The inventory turn over ratio is good and it should be high. To be precise even though the company is in good stage it has to improve year by year and if it continuous with the same trend of performance it can hold the top position in the county and reach up to the international standards and compete with international companies.

116

FINDINGS

No false ceiling resulting in accumulation of dust in record room of stores office. Filing rack height more & unwanted tables & chairs. Normal trailer and unsafe for handling of raw material. More number of trips due to low carrying capacity of trucks. Content sheet not visible due to dust. ABC analysis not applied for raw materials like bamboo etc,. New method of finding the levels of inventory. Some times the material is issued and it is not entered in the books.

117

SUGGESTIONS

False ceiling can avoid dust in the record room. Decrease the rack height to 5 feet. Increase the height of the trailer and its capacity. ABC analysis is to be applied for raw materials like bamboo etc,. OQ method will reduce the cost of production by reducing CC and OC hence to be applied for all types of materials. If ABC analysis s is applied for the materials produced it helps to reduce the unnecessary investment and if applied for raw materials it will reduce the CC and OC.

By applying ABC analysis it would become easy to concentrate on the items of a category to avoid suspension in work and can estimate investment to be made on these items.

Company can maintain the raw material stock for one month which it is maintaining right now for two and half months because they are having their own plantation which can fulfill 20% of their needs.

Ground loss of raw material can be controlled by applying proper pesticide to it.

118

Proper system for the unloading of raw material should be their in rainy seasons, as there is chance for increase in wastage of raw material, which will affect bottom-line.

Bibliography:
BOOKS FINANCIAL MANAGEMENT AUTHORS I. M. PANDEY

FINANCIAL MANAGEMENT

PRASANNA CHANDRA

PRODUCTION AND OPERATIONS MANAGEMENT ANNUAL REPORTS OF JKPM

CHUNAWALLA & PATEL

o o

www.jkpaper.com www.paper.com
119

120