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- 1

INDUSTRY PROFILE INTRODUCTION The power sector has registered progress since the process of planned development of the economy began in the 1950. Hydro power & coal based thermal power have been the main sources of generating electricity. Nuclear power development is at slower pace was introduced in the late sixties. Inspite of the overall development that has taken place, the power supply industry has been under constant pressure to bridge the gap between supply & demand. GROWTH OF INDIAN POWER SECTOR Power development is the key to the economic development. The power sector has been receiving adequate priority ever since the process of planned development began in 1950. The power sector has been getting 18-20% of the total public sector outlay in initial plan periods. Remarkable growth and progress have led to extensive use of electricity in all the sectors of economy in the successive five year plans. GROWTH IN NUMBER OF COMPANIES The fifth plan onwards i.e. 1974-79, the Government of India got itself involved in a big way in the generation & bulk transmission of power to supplement the efforts at the state level & took upon itself the responsibility of setting up large power project to develop the coal &hydroelectric resources in the country as a supplementary effort in meeting the countrys power requirement The National thermal Power Corporation (NTPC) and National Hydro-electric Power Corporation (NHPC) were set up for these purposes in 1975. North-Eastern Electric Power Corporation (NEEPCO) was set up in 1976 to implement the regional power projects in the North-East. Subsequently two more power generation corporations were set up in 1988 viz. Tehri Hydro Development Corporation (THDC) and Nathpa Jhakri Power Corporation (NJPC). To construct, operate and maintain the inter-State and interregional transmission systems the National Power Transmission Corporation (NPTC) was set up in 1989. The corporation was renamed as POWER GRID in 1992. The policy of liberalization the Government of India announced in 1991 and consequent amendments in Electricity (Supply) Act have opened new vistas to involve private efforts and investments in electricity
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industry. Considerable emphasis has been placed on attracting private investment and the major policy changes have been announced by the Government in this regard . GROWTH IN INSTALLED CAPACITY Over the year since 1950 the installed capacity of power plants (utilities) has increased to 89090 MW(31-3-98) from meagre 1713MW in 1950 ,registering a 52 fold increase in48 year. Similarly, the electricity generation increased from about 5.1 billion units to 420 billion, 82 fold increases the per capita consumption of electricity in the country also increased from 15 KW in 1950 to about 338 KW in 1997-98 which is about 23 times. In the field of rural electrification & pump set energisation, country has made a tremendous progress. About 85% of the villages have been electrified except for fling areas in the north eastern states ,where it is difficult to extend the grid supply GROWTH IN PRODUCTION Similarly, the electricity generation increased from about 5.1 billion units to 420 billion units, 82 fold increase. The per capita consumption of electricity in the country also increased from 15 KW in1950 to about 338 KW in 1997-98 which is about 23 times. In the field of Rural Electrification and pump set energisation, country has made a tremendous progress. About 85% of the villages have been electrified except far-flung areas in the North Easter states, where it is difficult to extend the grid supply. From, the Fifth Plan onwards i.e. 1974-79, the Government of India got itself involved in a big way in the generation and bulk transmission of power to supplement the efforts at the State level and took upon itself the responsibility of setting up large power projects to develop the coal and hydroelectric resources in the country as a supplementary effort in meeting the countrys power requirements.

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INDUSTRY PROFILE
250000 189450 190019 188178

225069 177697 GROWTH IN SALES 158271 148048

200000 MEGA WATT

138276 150000 129040 133178 INDUSTRY PROFILE 100000

189450 177697 190019 188178

250000 200000 MEGA WATT

225069

50000
150000 129040 100000 50000 0 2002

133178

138276

148048

158271

2002

2003

2004

2005

2006

YE AR

2003

2004 Y E AR

2005

2006

SALES OF ENERGY IN RUPEES

GROWTH IN HUMAN RESOURCES NTPC takes pride in its highly motivated & trained Human Resources that has contributed its best to brings NTPC to its present height .the total strength of employee of the corporation stands at 23385 as on March 31,2005 as against 23080 as on March 31 2004 though the company has continuously added to its installed capacity, the man MW ratio for the year 2004-05 was 0.91 as against 0.98 for the year 2003-04

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No. of employee per MW

M M Ratio an W
8 7 6 5 4 3 2 1 0 82-83 85-86 89-90 94-95 99-00 2004-05 1.82 4.91 7.6

1.23

1.1

0.91

YEAR

In order to realize the HR Vision of making NTPC a learning organization by providing opportunity to update knowledge & to continually develop new capabilities among the employees a number of initiative have been taken up through tie ups with reputed institution like IT Delhi for M-Tech in power generation technology MDI Gurgaon for executive MBA Programme BITS pilani for B S Power engineering the energy &resources institute School of advanced studies for MA in regulatory studies & Network for preventive environment management for international diploma in preventive environment management Employee morale continued to re-merit high facilitating smooth working of the company & contributing to higher generation of power. All efforts to achieve skill development were made through measures like tab ratios development, etc. The turnover rate of the executive during the year continued to be low at 0.44% FUTURE DEVELOPMENT EXEPECTED Integrated Gasification Combined Cycle Apart from development of an optimized process for 100 MW plant various system & component such as gasifier for Indian coal hot gas clean up system, etc. will be developed under this programme. Carbon sequestration

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This involves 2 main programmes for Co2 capture. The first technology will be based on absorption process while the other involves use of bio chemical processes for carbon capture .A proposal for storage of Co2 in basalt rocks is also being proposal for registration at CSLF. Inlet our cooling system

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Page No. - 7

COMPANY PROFILE INTRODUCTION OF NTPC NTPC Limited is the largest power generating company of India. A public sector company, it was incorporated On 7 nov.1975 to accelerate power development in the country as a wholly owned company of the Government of India. At present, Government of India holds 89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs, Domestic Banks, Public and others. Within a span of 32 years, NTPC has emerged as a truly national power company, with power generating facilities in all the major regions of the country.

NTPC's core business is engineering, construction and operation of power generating plants. It also provides consultancy in the area of power plant constructions and power generation to companies in India and abroad. As on date the installed capacity of NTPC is 29,144 MW through its 15 coal based (23,395 MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects (1,794 MW). NTPC acquired 50% equity of the

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SAIL Power Supply Corporation Ltd. (SPSCL). This JV company operates the captive power plants of Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33% stake in Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture company between NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding Co. Ltd. The present capacity of RGPPL is 1480 MW. NTPC's share on 31 Mar 2008 in the total installed capacity of the country was 19.1% and it contributed 28.50% of the total power generation of the country during 2007-08. NTPC has set new benchmarks for the power industry both in the area of power plant construction and operations. It is providing power at the cheapest average tariff in the country. With its experience and expertise in the power sector, NTPC is extending consultancy services to various organizations in the power business. NTPC is committed to the environment, generating power at minimal environmental cost and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive afforestation in the vicinity of its plants. Plantations have increased forest area and reduced barren land. The massive afforestation by NTPC in and around its Ramagundam Power station (2600 MW) have contributed reducing the temperature in the areas by about 3c. NTPC has also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization Division to manage efficient use of the ash produced at its coal stations. This quality of ash produced is ideal for use in cement, concrete, cellular concrete, building material. A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has been established in NTPC with the assistance of United States
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Agency for International Development. (USAID). Cenpeep is an efficiency oriented, eco-friendly and eco-nurturing initiative - a symbol of NTPC's concern towards environmental protection and continued commitment to sustainable power development in India. As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-economic status of the people affected by the its projects. Through it's Rehabilitation and Resettlement programmes, the company endeavors to improve the overall socio-economic status of Project Affected Persons. NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in 1987-88. NTPC has been Placed under the 'Excellent category' (the best category) every year since the MOU system became operative. Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector 'Navratnas'- a potential global giant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realize it's vision of being NTPC was formed on 7th Nov-1975 as a PSU to be engage in bulk power generation and transmission. The bulk power ( through generators of 100 and 200 MW) was to be generated by setting up generators right at pitheads and transmitting the power overlong distances with the aim of setting up a grid of transmission line that would get up not only to the urbun centre but also to their interland in his 1st speech the 1st Chairman of NTPC Shri D.V. Kapoor said it is appropriate to review NTPC 1st year operation and its future roll in the backdrop of power supply industrys presents scenario of endemic shortages commissioning slippages and capacity under utilization. It is NTPCs assigned roll to set up large capacity coal pithead thermal power station along with associated transmission network up to supplement the efforts of the state in power development. From these beginnings NTPC has traveled a long distance. Now its vision is :

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VISION "A world class integrated power major, powering India's growth, with increasing global presence".

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MISSION DEVELOP AND PROVIDE RELIABLE POWER RELATED PRODUCTS AND SERVICES AT COMPETITIVE PRICES INTEGRATING MULTIPLE ENERGY SOURCES WITH INNOVATIVE AND ECO-FRIENDLY TECHNOLOGIES AND CONTRIBUTE TO SOCIETY

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CORE VALUES (B-COMIT) B Business Ethics C Customer Focus O Organizational & Professional Pride M Mutual Respect & Trust I Innovation & Speed T Total Quality for Excellence

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OBJECTIVE - Business Portfolio Growth To further consolidate NTPCs position as the leading thermal power generation company in India & establish a presence in hydro power segment To broad base the generation mix by evaluating conventional & non-conventional sources of energy to ensure long run competitiveness & mitigate fuel risks To diversify across the power value chain in India by considering backward & forward integration into areas such as power trading, transmission, distribution, coal mining, coal beneficiation, e.t.c. To develop a portfolio of generation assets in international markets To establish a strong services brand in the domestic & international markets - Customer Focus To foster a collaborative style of working with customers ,growing to be a preferred brand for supply of quality power To expand the relationship with existing by offering a bouquet of services in addition to supply of power e.g. trading, energy consulting, distribution consulting, management practices To expand the future customer portfolio through profitable diversification into downstream businesses , inter alia retail distribution & direct supply - To ensure rapid commercial decision making, using customer specific information ,with adequate concern for the interest of the customer - Agile Corporation To ensure effectiveness in business decision & responsiveness to changes in the business environment by: Adopting a portfolio approach to new business development

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 Continuous & coordinated assessment of the business environments to identify & respond to opportunities & threats To develop a learning organization having knowledge based competitive edge in current & future business To effectively leverage information technology to ensure speedy decision making across the organization - Performance Leadership To continuously improve on project execution time & cost in order to sustain long run competitiveness in generation To operate & maintain NTPC stations at par with best run utilities in the world with respect to availability, reliability, efficiency, productivity,& costs To effectively leverage information technology to drive process efficiency To aim for performance excellence in the diversification businesses To embed quality in all systems & processes - Human Resource Development To enhance organizational performance by institutionalizing an objective & open performance management system To align individual & organizational needs & develop business leaders by implementing a career development system To enhance commitment of employees by recognizing & rewarding high performance - Financial Soundness To maintain & improve the financial soundness of NTPC by prudent management of the financial resources To continuously strive to reduce the cost of capital through prudent management of deployed funds, leveraging opportunities in domestic & international financial markets To develop appropriate commercial policies & processes which would ensure remunerative tariffs & minimize receivables

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 To continuously strive for reduction in cost of power generation by improving operating practices - Sustainable Development To contribute to sustainable power development by discharging corporate social responsibilities To lead the sector in the areas of resettlement & rehabilitation & environment protection including effective ash- utilization , peripheral development & energy conservation practices To lead developmental efforts in the Indian power sector through efforts at policy advocacy, assisting customers in reforms , disseminating best practices in the operations & management of power plants e.t.c. - Research & Development - To pioneer the adoption of reliable ,efficient & cost effective technologies by carrying out fundamental & applied research in alternate fuels & technologies - To carry out research & development of breakthrough techniques in power plant construction & operation that can lead to more efficient, reliable & environment friendly operation of power plants in the country - To disseminate the technologies to other players in the sector & in the long run generating revenue through proprietary technologies

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STRATEGIC INITIATIVES NTPC has acquired 44.6% equity stake in Transformers and Electricity Kerala ltd. (TELK) for manufacturing of Transformers. As part of globalization initiatives, NTPC Plans to construct and operate thermal power plants in overseas market. NTPC has signed an MOU with Nigeria for supply of LNG. NTPC in turn shall set up & operate 500 MW coal based and 700 MW gas based power plant in Nigeria. The company has also signed an MOU for setting up of a 500MW coal based power plant in Sri Lanka. POWER PERFORMANCE (2006-2007) Highest ever generation of 188.674 billion units. Highest ever capacity utilization (PLF) of 89.43% in coal-based power plants. Net profit after tax of 68.647 million. New national record of 559 days of uninterrupted running set by unit 3 of Vindhyachal Super Thermal Power Station. Paid a dividend of 32%

INTEGRATED POWER MAJOR NTPC Electric Supply Company ltd., (NESCL) formed as a subsidiary company to take up power distribution activities. NESCL has started the process of implementation of accelerated Rural Electrification Programmed in West Bengal. NTPC Vidyut Vyapar Nigam Ltd. has been formed as a subsidiary company for power trading. NVVM transacted business of 2664 MUs in 2006-07. Entered the coal mining business and has been allotted 8 coal mining blocks. NTPC Has got the approval for Mining Plan of 15 MTPA for its first coal mining project at Pakri Barwadih. If is the largest ever capacity planned in the very first phase in single mine in the country. NTPC has also signed a MoU with CIL and SCCL for formation of Joint Ventures to undertake development, Operation &

Page No. - 17

maintenance of coal blocks and integrated coal-based power plants. MoU signed with BEML for joint business development in the field of contract coal mining. Consortium comprising NTPC, Canoro and Geopetrol has been allotted an oil exploration block in Arunachal Pradesh. MoU signed with Ministry of Railways for setting up power plant of 1000MW at Nabinagar in Bihar. Project approved by CCEA. MoU signed with ADB for establishment of power generation of about 500 MW through Renewable Energy sources. MoU signed with BHEL for taking up EPC jobs together.

FORAY INTO HYDRO SECTOR NTPC has been giving increased thrust to hydro development for a balanced portfolio for long term sustainability. 1920 Mw Under implementation at Koldam (800 MW), Loharing Pala (600 MW) and Tapovan Vishnugad (520 MW). NTPC Hydro Ltd. Incorporated as a subsidiary company to take up small hydro projects. Presently, the planned for implementation are Lata Tapovan (171 MW), Uttrankhand and Ramman III (120 MW), West Bangal. MoU signed with Arunachal Pradesh for Implementation of two Hydro projects Etalian (4000 MW) and attunli (500 MW).

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PROJECT PROFILE Coal Based Power Stations

Coal based 1. Singrauli 2. Korba 3. Ramagundam 4. Farakka 5. Vindhyachal 6. Rihand 7. Kahalgaon 8. NTCPP 9. Talcher Kaniha 10. Unchahar 11. Talcher Thermal 12. Simhadri 13. Tanda 14. Badarpur 15. Sipat Total (Coal) State Uttar Pradesh Chattisgarh Andhra Pradesh West Bengal Madhya Pradesh Uttar Pradesh Bihar Uttar Pradesh Orissa Uttar Pradesh Orissa Andhra Pradesh Uttar Pradesh Delhi Chattisgarh Commissioned Capacity (MW) 2,000 2,100 2,600 1,600 3,260 2,000 1,840 840 3,000 1,050 460 1,000 440 705 500 23,395

Gas/Liq. Fuel Based Power Stations

Commissioned Capacity (MW) 16. Anta Rajasthan 413 17. Auraiya Uttar Pradesh 652 18. Kawas Gujarat 645 19. Dadri Uttar Pradesh 817 20. Jhanor-Gandhar Gujarat 648 21. Rajiv Gandhi CCPP Kayamkulam Kerala 350 22. Faridabad Haryana 430 Total (Gas) 3,955 Gas based State

Power Plants with Joint Ventures

Coal Based State Fuel 23. Durgapur West Bengal Coal 24. Rourkela Orissa Coal 25. Bhilai Chhattisgarh Coal 26. RGPPL Maharastra Naptha/LNG Total (JV) Grand Total (Coal + Gas + JV) Commissioned Capacity(MW) 120 120 324 1480 2044 29,394

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NEW PLANTS OF NTPC The company has formulated a long term Corporate Plan for 15 years upto 2017. The Corporate Plan seeks to integrate the Companys vision, mission and strategies for growth with the national plans and to provide the company the cutting edge in the emerging competitive environment. NTPC is targeting to become a 75,000 MW Plus company by 2017. (A) Projects approved and under construction for commissioning by 2012 - 13360 MW
Project (State) Capacity Under Construction(MW) 500 (1x500) Fuel Coal Coal

Kahalgaon Stage II Phase I (Bihar) Kahalgaon Stage II Phase II (Bihar) Sipat I (Chhattisgarh) Sipat II (Chhattisgarh)
Barh - I (Bihar) Korba-III (Chhattisgarh) Bhilai Exp. Power Project, JV with SAIL (Chhattisgarh) NCTPP-II, Dadri, Uttar Pradesh Farakka III, West Bengal Simhadri - II,Andhra Pradesh Vallur (JV with TNEB), Tamil Nadu Aravali Super Thermal Power Project, Jhajjar (JV with Haryana & Delhi) Koldam HEPP (Himachal Pradesh) Loharinag Pala HEPP(Uttaranchal) Tapovan Vishnughad (Uttaranchal) Total

500 (1x500)

1980 (3x660) 500 (1x500) 1980 (3x660) 500 (1x500) 500 (2x250)

Coal Coal Coal Coal Coal

980 (2x490 MW) 500 (1 X 500) 1000 (2x500) 1000 (2x500) 1500 (3x500) 800 (4x200) 600 (4x150) 520 (4x130) 13360

Coal Coal Coal Coal Coal Hydro Hydro Hydro

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B ) New projects being pursued for benefits starting in the 11th Plan capacity addition for Eleventh Plan and Beyond In addition to the above on-going projects, proposals for a host of new power projects as given below are being pursued for benefits starting in the 11th plan subject to timely linkages, clearances/approvals.

Sl. No. 1 2 3 4 5 6 7 8

Project/ State Mauda, Maharastra Bongaigaon TPP, Assam Barh-II, Bihar Nabinagar-JV with Railways-Bihar* North Karanpura, Jharkhand Rihand - III Kawas-II CCPP, Gujarat@ Jhanor Gandhar-II CCPP, Gujarat@

Capacity (MW) 1000 750 1320 1000 1980 1000# 1300 1300

Fuel Coal Coal Coal Coal Coal Coal Gas/LNG Gas/LNG

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Organization Chart of NTPC

CMD

Director (Tecj)

Director (Proj)

Director (Fin)

Director (Opn)

Director (HR)

Director (coml)

CVO

Ex.Dir. (Hydro)

Ex.Dir. (NR)

Ex.Dir. (WR)

Ex.Dir. (SR)

Ex.Dir. (ER)

Ex.Dir. (NCR)

Core Hydro Divn.

Singrauli

Korba

Ramagundam

Farakka

National

Koldam

Rihand

Vindhyachal

Kayamkulam

Kahalgaon

Dadri Gas

Tapoban

Unchahar

Sipat

Simhadri

Talcher Kaniha

Badarpur

Loharinagpala

Tanda

Kawas

Talcher Thermal

Anta

Jhanore

Barh

Auraiya

North Karanpura

Faridabad

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YEAR EVENTS OF THE COMPANY 2003 'Best Employer' survey conducted by Business Today and Hewitt Associates rates National Thermal Power Corporation (NTPC) as the best employer among public sector undertakings for 2002-03 Receives Rs 11,503 crore bonds from State Electricity Boards (SEB) towards dues Inked Rs 7,000-cr Loan agreement with LIC. NTPC Ramagundam unit has received the Rajbhasha Award for 2002-03. In spite of its presence in a non-Hindi speaking area, the company has bagged the award for eight times. Inks power purchase agreement with Mahrashtra State Electricity Board (MSEB)

2004 -

NTPC join hands with Kerala State Industrial Development Corporation (KSIDC) for setting up LNG terminal. The Kerala State Industrial Development Corporation (KSIDC) joins hands with NTPC for Kayamkulam project. NTPC inks pact for expansion of Kayamkulam thermal plant Vajpayee dedicates NTPC power project to nation Prime Minister unveils Simhadri project Shyam Benegal's film for NTPC adjudged as best film on corporate responsibility NTPC and others join hands for Pipavav project NTPC signs accord with ASCI for joint research NTPC has signed a memorandum of understanding (MoU) with Administrative Staff College of India (ASCI) for carrying out joint research and prepares well-documented policy options that would contribute to reform and sectoral growth in the area of generation, transmission and distribution of power.
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National Thermal Power Corporation, Kayamkulam, gets award for industrial safety instituted by National Safety Council, Kerala, in other industries category Entered into an agreement with Indian Institute of Technology, Mumbai, to promote research and development in several areas including power distribution and renewable technology. The 1000-MW Simhadri thermal power plant of the NTPC here has got the ISO-9001 certification for quality management, ISO-14001 for environment management and OHSAS - 18001 for safety management. NTPC expands installed capacity to 22,250 MW National Thermal Power Corporation Ltd. (NTPC) has bagged the Enterprise Excellence Award The National Thermal Power Corporation (NTPC) has signed an agreement with Uttaranchal government to develop two hydroelectric projects with an installed capacity of 1120 mw in the hill state.

2005 NTPC forges alliance with IOC for new power plant NTPC CMD wins SCOPE award NTPC may ink agreement with RIL for gas supply NTPC Hydro signs agreement to implement Hydro-Electric Power Project NTPC Hydro signs agreement with WBSEB for 90mw unit Bharat Heavy Electrical Limited (BHEL) teams up with National Thermal Power Corporation (NTPC) for promoting a 100 mw IGCC (integrated gasification and combined cycle) power project. NTPC signs MoU with Defence Metallurgical Research Laboratory (DMRL) to develop gas turbine blades

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2006 2007 National Thermal Power Corporation Ltd (NTPC) has informed that Shri. K B Dubey has taken over as Director (Projects) of the Company w.e.f. January 12, 2007. National Thermal Power Corporation Ltd (NTPC) has forayed into an pact with Coal India Ltd (CIL) to build and run coal blocks and integrated coal based power plants. NTPC Ltd has inked a memorandum of understanding (MoU) with the Ministry of Power. NTPC signs $100mn loan agreement with KFW NTPC Ltd and Singareni Collieries Company Ltd (SCCL) on May 11, forayed into an equal joint venture for development, operation and maintenance of coal blocks. NTPC Ltd on May 23, 2007 inked an agreement with Chhattisgarh State Electricity Board to sell electricity from its Barh Super Thermal Power Station (stage II). NTPC Limited has appointed Shri Rajesh Verma, Joint Secretary and Financial Advisor, Ministry of Power as Part-time Director (Government nominee) on the Board of NTPC Limited. National Thermal Power Corporation Ltd (NTPC) has informed that a Memorandum of Understanding (MOU) has been signed on July 29, 2007 between the Company and Anna University, Chennai (AUC) to provide a platform for knowledge sharing and collaboration to promote Research and Development. NTPC Limited has informed that As per order No. 8/6/2007 - TH. I dated 30th August, 2007 of the Ministry of Power, Government of India and in pursuance of Article 41 of the Articles of Association of NTPC Limited, the President has appointed Shri V.P. Joy, Joint
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NTPC appoints Mr. R. Venkateswaran as General Manager NTPC to set up 500MW plant in Sri Lanka

Secretary, Ministry of Power as Part- time Director (Government nominee) on the Board of NTPC Limited, with effect from August 30, 2007. National Thermal Power Corporation Ltd (NTPC) has signed a Memorandum of Understanding (MOU) with Bharat Heavy Electrical Ltd. (BHEL) for forming a Joint Venture Company for carrying out Engineering Procurement and Construction (EPC) activities in the power sector on mutually beneficial terms.

SUBSIDIARIES OF NTPC NTPC Electric Supply Company Ltd (NESCL): NESCL is a wholly owned subsidiary of NTPC. It was incorporated in August 2002 with the objective to acquire, establish & operate Electricity Distribution Network in various circles/cities across India. The company provides consultancy in the area of: Turnkey execution, Project monitoring, Quality Assurance and Inspection, and Third Party Quality inspection on the behalf of utility. NTPC Vidyut Vyapar Nigam Ltd. (NVVN): It was formed to cater to and deal with the vast potential of power trading in the country and optimum capacity utilization. NTPC Hydro Limited (NHL): It was set up in December, 2002 to develop small and medium sized Hydro Electric Power Projects of up to 250 MW capacities. Major Achievements of NTPC Largest thermal power generating company of India. Sixth largest thermal power generator in the world. Second most efficient utility in terms of capacity utilization. One of the nine PSUs to be awarded the status of Navratna. Provides power at the cheapest average tariff in the country.

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Financial Highlights Total income of the company for the year increased by 20.59% to Rs. 353,766 million from Rs. 293,370 million during the previous year. Profit after tax but before provision and prior period adjustments increased by 12.43% to Rs. 68,611 million from Rs. 61,024 million. Net profit after tax increased to Rs. 68,647 million from Rs. 58,202 million registering a growth of 17.95% over last year. Audited Financial Results for the Year ended 31st March 2008
(Rs. Million)
Sl. No. 31.3.2008 31.3.2007 1 1 2 3 4 2 Net Sales (Net of Electricity Duty) Other Income Total Income (1+2) Expenditure (a) Fuel Cost (b) Employees Cost (c) Depreciation (d) Other Expenditure Total (a+b+c+d) 5 6 7 Interest & Finance charges Exceptional items Profit (+)/ Loss (-) from Ordinary Activity before Tax (3) (4+5+6) 220202 18960 21385 19100 279647 17981 198181 11632 20754 15572 246139 18594 222187 19533 22060 30499 294279 18581 198201 12007 20998 26825 258031 18873 3 370501 29676 400177 4 325952 27855 353807 Particulars For the year ended Consolidated Results for the year ended 31.3.2008 5 386350 30020 416370 31.3.2007 6 338392 28126 366518

102549

89074

103510

89614

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Tax Expenses: (a) Current Tax (b) Deferred Tax (c) Fringe Benefit Tax (FBT) Total (a+b+c) Less: Deferred Tax Recoverable FBT transferred to Incidental Expenditure during Construction / Development of coal mines Tax Expenses (Net) 28317 1411 169 29897 1411 20280 1203 154 21637 1203 28722 1478 181 30381 1477 20522 1218 163 21903 1257

85

93

15

28401

20427

28811

20631

Net Profit (+)/Loss(-) from Ordinary Activity after Tax(7-8) Extraordinary Items (Net of tax expenses) Net profit (+)/ Loss (-) for the year before Minority Interest (9-10) Minority Interest in Consolidated Profit Net profit (+)/ Loss (-) for the year after Minority Interest 11-12) Paid-up Equity Share Capital (Face value of share Rs. 10/each)

74148

68647

74699

68983

10

11

74148

68647

74699

68983

12

13

74148

68647

74699

68983

14

82455

82455

82455

82455

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15

Reserves excluding revaluation reserve as per Balance Sheet of 31st March, 2008 Earning per share (Rs.) - (EPS) (a) Basic and diluted EPS before Extraordinary items for the year and for the previous year (not annualised) (b) Basic and diluted EPS after Extraordinary items for the year and for the previous year (not annualised)

443931

403513

446174

404670

16

8.99

8.33

9.06

8.37

8.99

8.33

9.06

8.37

17

Public Shareholding (a) Number of shares (b) % age of shareholding 865,830,000 865,830,000 865,830,000 10.50 10.50 10.50 865,830,00 0 10.50

Audited Segment-wise Revenue, Results and Capital Employed for the Year ended 31st March, 2008 (Rs. Million) Particulars
Sl. No. Consolidated Results for the Year ended 31.03.200 7 6

For the Year ended

31.03.2008 31.03.2007 31.03.2008 1 1 2 Segment Revenue (Net Sales) Generation - Others - Total 2 Segment 369462 1039 370501 325344 608 325952 373783 12567 386350 3 4 5

326473 11919 338392

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Results (Profit before Tax and Interest) Generation - Others - Total Less: (i) Unallocated Interest and Finance Charges (ii) Other Unallocable expenditure net of unallocable income Total Profit before Tax 3 Capital Employed (Segment Assets Segment Liabilities) Generation - Others - Unallocated - Total 259961 376 266049 526386 248880 229 236859 485968 280898 1312 247661 529871 251025 503 236075 487603 90808 288 91096 74944 180 75124 91754 617 92371 75307 392 75699

10719

8063

11325

8131

(22172)

(22013)

(22464)

(22046)

102549

89074

103510

89614

The operations of the company are mainly carried out within the country and therefore, geographical segments are not applicable.

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Profit after Tax

70000 60000 50000 40000 30000 20000 10000 0
CAGR of 14 %

Rs. Million

2002-03

2003-04

2004-05 Year

2005-06

2006-07

THE YEAR AT A GLANCE 2007 2006 188674 170880 188140 169789 176530 159019 325344 266564 89074 66087 68647 58202 26385 23087 3896 3238 38366 31877 256481 230895 485968 449587 244844 201973 564331 523572 80653 59720 111012 97206 23602 21870 4.70 4.44 0.50 0.45 13.89 12.46 10.00 10.00 3.20* 2.80 58.94 54.53 8.33 7.06

Gross Generation Million Units Commercial Generation Million Units Energy sent out Million Units Sale of Energy Rs. Million Profit before tax Rs. Million Profit after tax Rs. Million Dividend Rs. Million Dividend tax Rs. Million Retained Earnings Rs. Million Net Fixed Assets Rs. Million Net Worth Rs. Million Loan Funds Rs. Million Capital Employed Rs. Million Net Cash From Operation Rs. Million Value Added Rs. Million No. of Employees # Value added per employee Rs. Million Debt of Equity Ratio Return on Capital Employee(%) % Face Value Per share Rs. Dividend Per Share Rs. Book Value Per Share Rs. Earning Per Share Rs.

# excluding JVs,Subsidiaries * including final dividend recommended by the Board NTPC -- Singrauli
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NTPC/Singrauli , the flagship station of NTPC is situated in Sonebhadra District of Uttar Pradesh. It has five Units of200 MW (Turbine:KWU design ,Boiler:Combution Engineering Design) and two Units of 500 MW (Turbine:KWU design; Boiler: Combustion Engineering Design). Condenser cooling system of all units is open system It takes water from Govind Ballabh Pant Reservoir and releases in the same reservoir after a distance of around 18 KM through open canal. NTPC , Singrauli has its own MGR(Merry Go Round) system for transportation of coal from NCL Jayant mines. Electricity generated from this plant goes to northern grid (UP,Harayana, Delhi, Rajsthsan,Panjab, J&K,HP& Uttaranchal).Start up power can be taken from Rihand hydle or from NTPC,Vindhyachal (Western grid ). Earlier Whole ash generated was disposed in ash dyke in slurry form. Now part of ash is being disposed in dry form for brick manufacturing and some part is provided to cement manufacturers. The first unit of the station was commissioned in 1982 and the last one in 1987.Since then NTPC, Singrauli is serving the nation day and night. During the initial period of operation NTPC Singrauli faced many operational problems in running the units of 200MW and 500MW. Experienced personnel for running 200MW sets with NTPC at that time were very few and for 500MW sets, were almost nil. Over the year of operation NTPC, Singrauli has not only overcome the operational problems but has also developed best practices which are very much useful for future NTPC stations and have been implemented in other station also. NTPCs first 2000MW unit commissioned

Singrauli at a Glance
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Installed Capacity Unit Sizes Location Coal Source Water Source Beneficiary States

2000MW Stage-1:5*200 MW Stage-2:2*5OOMW Sonebhadra,Uttar Pradesh Jayant /dudhichua Mines Rihand Reservoir UttarPradesh, Uttarakhand Rajasthan,Haryana, Delhi, Himachal Pradesh, Chandigarh, and Jammu & Kashmir.

Important events
Units 1st Synchronization I II III IV V VI VII 13.2.82 25.11.82 28.3.83 02.11.83 26.2.84 23.12.86 24.11.87 Full load Achieved 23.4.82 02.2.83 08.5.83 27.12.83 16.4.84 28.3.87 10.1.88 Commercial operation 01.6.82 01.2.82 01.7.83 01.1.84 01.6.84 01.7.87 01.5.88

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GROWTH IN HUMAN RESOURCE Company strongly believes in achieving organizational excellence through human resource and follows people first approach.

Fiscal 2007 NTPC No. of employees Men/ MW ratio 23602 0.91

Fiscal 2006 21870 0.91 7.81 1665 0.83

Generation per employee (MUs) 7.99 No. of employees in SSTPS Men/ MW ratio Subsidiaries & Joint Ventures Employees of NTPC subsidiaries & JVs Total Employees
FUTURE PLANS Capacity Addition during XIth Plan (2007-2012)

1625 0.81

in 773 24375

2174 24044

NTPC has adopted multi pronged growth strategy to become 50000 MW plus company by the year 2012. Further the company as envisaged 75,000 MW plus installed capacity by 2017 and the same includes significant addition of hydro

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capacity and forays into non-conventional a nuclear power generation. The strategy inter alia includes capacity addition through green field projects expansion of existing stations joint venture and take over of SEBs stations. NTPC has planned an ambitious capacity addition of about 22430 MW during 11th plan. The broad status of 11th plan capacity addition is as under.

Description Capacity commissioned Capacity under implementation Capacity for which received / invited TOTAL

Capacity Addition in 11th plan (MW) 1740 16930

bids 3760 MW (6871 MW in 11th & 12th plan) 22430 MW

Transfer agreement signed with Government of Assam and Assam Power Generation Corporation Limited for transfer of the existing power plant and setting up of new 3 x 250 MW Coal based power plant at Bongaigaon (Assam). MOU signed with RINL (Rashtriya Ispat Nigam Limited) for setting up of around 150 MW Combined Cycle Power Plant using blast furnace gas as fuel. NIT has been floated by RINL.

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Year 2005-06 Fiscal 2006 Units of Electricity sold (Million Units) Revenues(Income) Energy Duty) sales (Exclusively 159019 Amount Electricity 260701 276 452 Fiscal 2005 147792 Rs. in Million 225069 248 333 6525

Energy internally consumed Consultancy

Other Income (Excl . income related to one 8003 time settlement scheme(OTSS) & surcharge) Gross Revenue (Excluding income related 269432 to 1 time settlement & surcharge) Income related to 1 time settlement 18075 scheme & surcharge
Gross Revenue 287507

232175 17004
249179

The gross revenue of the company comprises sales of electricity revenue from consultancy & other service & interest earned on investment such as term deposit & bond issued under 1 time settlement scheme. The gross revenue of the company for the year fiscal 2006 was Rs. 287507 million as against Rs.249179 million in the previous year registering an increase of 15.38%.

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Year 2006-07 Gross Income Units of electricity sold (million units ) Income Fiscal2007 176530 Amount Fiscal 2008 Energy Sales (excluding electricity duty) 325344 Energy internally consumed Consultancy & other service 365 608 Fiscal2006 159019 Rs. in Million Fiscal 2007 266564 276 452 8003 18075 293370

Other income (excluding income related 12193 to OTSS & Surcharge Income related to OTSS & Surcharge Gross income 15256 353766

The gross income of the company comprise of income from sales of electricity consultancy & other service & interest earned& investment such as term deposit & bonds issued under 1 time settlement scheme the gross income of the company for the fiscal 2007 was Rs. 353766 million as against Rs. 293370 million in the previous year registering as increase of 20.6%

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HORIZONTAL ANALYSIS THROUGH COMPARATIVE STATEMENT YEAR 2002-03

PARTICULARS Fixed Asset: Fixed Asset Total Fixed Asset(A) CURRENT ASSET Inventories Sundry Debtors Cash & Bank balances Other Current asset Loan & advances Total Current Asset PREVIOUS CURRENT YEAR YEAR 2002 2003 176781 176781 20176 115328 12048 5511 14736 167799 198650 198650 17712 124349 5447 25142 21482 194132 CHANGES IN ABSOLUTE FIGURES 21869 21869 (2464) 9021 (6601) 19631 6746 26333

TOTAL ASSET(A)

344580

392782

48202

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LIABILITIES & CAPITAL Shareholder funds: Share capital Reserve Profit & Loss Shareholder FUNDS(A) Loans TOTAL LONG TERM LIABILITY(B) CURRENT LIABILITY

78125 208400 1496 288021 115812 115812 31881

78125 237002 681 315808 132157 132157 34202

Nil 28602 (815) 27787 16345 16345 2321

TOTAL CURRENT LIABILITY(C) Total liabilities (A)+ (B)+(C)

31881 435714

34202 482167

2321 46453

YEAR 2003-04 PARTICULARS PREVIO US YEAR 2003 198650 198650 17712 124349 5447 25149 21475 194132 392782 CURRENT YEAR 2004 212545 212545 17380 4699 6091 80023 27275 135468 348013 CHANGES IN ABSOLUTE FIGURES 13895 13895 (332) (119650) 644 54874 5800 58664 (44769)

Fixed Asset: Fixed Asset Total Fixed Asset(A) CURRENT ASSET: Inventories Sundry Debtors Cash & Bank balances Other Current asset Loan & advances Total Current Asset TOTAL ASSET(A) LIABILITIES & CAPITAL Shareholder funds: Share capital Reserve Profit & Loss Shareholder FUNDS(A) Loans

78125 237002 681 315808 132157

78125 277376 566 356067 154528

Nil 40374 (115) 40259 22371

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TOTAL LONG TERM LIABILITY(B) CURRENT LIABILITY TOTAL CURRENT LIABILITY(C) TOTAL LIABILITIES (A)+(B)+(C)

132157 34202 34202 482167

154528 65244 65244 575839 YEAR 2004-05

22371 31042 31042 93672

PARTICULARS Fixed Asset: Fixed Asset Total Fixed Asset(A) CURRENT ASSET: Inventories Sundry Debtors Cash & Bank balances Other Current asset Loan & advances Total Current Asset TOTAL ASSET(A) LIABILITIES & CAPITAL Shareholder funds: Share capital Reserve Profit & Loss Shareholder FUNDS(A) Loans TOTAL LONG TERM LIABILITY(B) CURRENT LIABILITY TOTAL CURRENT LIABILITY(C) TOTAL LIABILITIES (A)+(B)+(C)

PREVIOU S YEAR 2004 212545 212545 17380 4699 6091 80019 27279 135468 348013

CURRENT YEAR 2005 223148 223148 17777 13747 60783 9714 27052 129073 35221

CHANGES IN ABSOLUTE FIGURES 10603 10603 397 9048 54692 (70305) (227) 6395 4208

78125 277376 566 356067 154528 154528 65244 65244 575839

82455 335308 812 418575 170878 170878 52306 52306 641759

4330 57932 246 62508 16350 16350 (129380) (129380) 65920

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YEAR 2005-06
PARTICULARS Previous year 2005 Fixed asset Total fixed asset: Current asset: Inventories sundry debtors Cash & bank balances Other current asset Loans & advances Total current asset Total asset (A)+(B) Liabilities & capital Shareholder funds(A) Share capital Reserves Profit & loss Shareholder funds(A) Loans Total long term liability(B) Current liability Total current liability Total liabilities(A)+(B)+(C) 82455 335308 812 418575 170878 170878 52306 52306 641759 82455 367132 752 450339 201973 201973 49102 49102 701414 nil 31824 (60) 31764 31095 31095 (3204) (3204) 66063 17819 13747 60783 9764 26993 129106 352254 23405 8678 84714 10161 30287 157245 388140 5586 (5069) 23931 397 3294 28139 35886 223148 223148 Current year 2006 230895 230895 7747 7747 Changes in absolute figures

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2006-07
PARTICULARS Previous Year 2006 230895 230895 Current Year 2007 256481 256481 Changes in absolute figures 25586 25586

Fixed asset Total fixed asset(A) Current asset: Inventories Sundry debtors Cash & bank balances Other current asset Loans & advances Total current asset (B) Total asset (A)+(B) Liabilities & capital Shareholder funds: Share capital Reserves Profit & loss Shareholder funds(A) Loans Long term liability(B) Cuurent liability(C)

23405 8678 84714 10161 30287 157245 388140

25102 12523 133146 10580 40476 221827 478308

1697 3845 48432 419 10189 64582 90168

82455 367132 752 450339 201973 201973 49102

82455 403513 899 486867 244844 244844 54221 785932

nil 36381 147 36528 42871 42871 5119 84518

Total Liabilities (A)+(B) 701414 +(C)

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VERTICAL ANALYSIS Common size position statement 2002-03 Assets Current asset Inventories Sundry debtor Cash & bank balances Other current asset Loans & advances Total current asset Fixed asset Total asset Liabilities & capital Share capital Reserve Profit & loss Shareholder funds(A) Loans(B) Total(A)+(B) Current liability) Total liabilities (A)+(B)+(C) 78125 237002 681 315808 132157 447965 34202 482167 24.7 75 0.21 100 16.2 49 0.14 65.34 27 92 8 100 17712 124349 5447 25142 21482 194132 198650 392782 9.12 64.05 2.80 12.95 11.06 100% 4.50 31.65 1.38 6.40 5.47 49.42 50.57 100 Amount % of sub total % of total

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Common size position statement 2003-04 Assets Current asset: Inventories Sundry debtors Cash & bank alances Other current asset Loans & advances Total current asset Fixed asset Total assets Liabilities & capital Share capital Reserves Profit & loss Total Loans Total Current liability Total liabilities 78125 277376 566 356067 154528 510595 65244 575839 22 78 0.15 100 14 48 0.09 62 26 88 12 100 17380 4699 6091 80023 27275 135468 212545 348013 13 3.47 4.5 60 20.13 100 5 1.4 1.8 23 7.8 39 61 100 Amount %of sub total %of total

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Common size position Statement 2004-05 Assets Current asset Inventories Sundry debtor Cash & bank balances Other current asset Loans & advances Total current asset Fixed asset Total asset Liabilities & capital Share capital Reserve Profit & loss Shareholder funds Loans Total Current liability Total Amount 17777 13747 60783 9714 27052 129073 223148 352221 82455 335308 812 418575 170878 589453 52306 641759 % of sub total 13.77 10.66 47.09 7.53 21 100 % of total 5.05 4 17.26 2.76 7.68 36 63 100 12.9 52.25 0.126 65.28 26.62 92 8 100

20 80.12 0.19 100

Common size position statement 2005-06 Particulars Current asset Inventories Sundry debtors Cash & bank balances Other current asset Loans & advances Total Fixed asset Total Liabilities & capital Share capital Reserve Profit & loss Total Loans Total Current liability Total Amount 23405 8678 84714 10161 30287 157245 230895 388140 82455 367132 752 450339 201973 652312 49102 701414 % of sub total 14.9 5.52 53.87 6.46 19 100 % of total 6.03 2.23 22 3 8 41 59 100 11.76 52.34 0.107 64 28.79 92.9 7 100 Page No. - 45

18 82 0.16 100

Common size position statement 2006-07 Particulars Current asset Inventories Sundry debtors Cash & bank balances Other current asset Loans & advances Total Fixed asset Total Liabilities & capital Share capital Reserve Profit & loss Total Loans Total Current liability Total Amount 25102 12523 133146 10580 40476 221827 256481 478308 82455 403513 899 486867 244844 731711 54221 785932 % of sub total 11.32 5.65 60.02 4.77 18.25 100 % of total 5.24 2.61 27.8 2.21 8.46 46.3 53.7 100 10.5 51 0.11 61.61 31.15 93 7 100

17 89 0.184 100

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PROJECT ON INVENTORY MANAGEMENT IN NTPC-SINGRAULI Inventory Management A theoretical basis Inventory is very important current assets. The term Inventory refers to the stockpile of the products a firm is offering for sale and the components that makes up the product. In other words, inventory is composed of assets that will be sold in future in the normal course of business operations. The assets which firms stores as inventory in anticipation of need are (i) raw materials, (ii) work-in-process (semi finished goods) and (iii) finished goods. The raw materials inventory contains items that are purchased by the firm from others and are converted into finished goods through the manufacturing (production) process. They are an important input of the final product. The work-inprocess inventory consists of items currently being used in the production process. They are normally semi-finished goods that are at various stages of production in a multi-stage production process. Finished goods represents final or completed products which are available for sale. The inventory of such goods consists of items that have been produced but are yet to be sold. Inventory represent the second largest asset category for manufacturing companies, next only to plant and equipment. The proportion of inventory to total assets generally varies between 15 and 30 per cent. Decision relating to inventories are taken primarily by executives in production, purchasing, and marketing departments. Usually raw material policies are shaped by purchasing and production executives, work-inprocess inventory is influenced by the decisions production executives, and finished goods inventory policy evolved by production and marketing executives .Yet, as inventory management has important financial implications, the financial manager has the responsibility to ensure that inventories are properly monitored and controlled. He has to emphasize the financial point of view and initiate programmes with the participation and involvement of others for effective management of inventories. Inventory, as a current asset, differ from other current assets because only financial managers are not involved. Rather, all the functional areas, finance, marketing, production, and purchasing, are involved.

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Business inventory The reasons for keeping stock All these stock reasons can apply to any owner or product stage.

Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in providing the next item for processing. Whilst some processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now moved to eliminate this stock type. Safety stock is held against process or machine failure in the hope/belief that the failure can be repaired before the stock runs out. This type of stock can be eliminated by programmes like Total Productive Maintenance Lot delay stock is held because a part of the process is designed

to work on a batch basis whilst only processing items individually. Therefore each item of the lot must wait for the whole lot to be processed before moving to the next workstation. This can be eliminated by single piece working or a lot size of one. Demand fluctuation stock is held where production capacity is unable to flex with demand. Therefore a stock is built in times of lower utilization to be supplied to customers when demand exceeds production capacity. This can be eliminated by increasing the flexibility and capacity of a production line or reduced by moving to item level load balancing. Line balance stock is held because different sub-processes in a line work at different rates. Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process. Line balancing will eliminate this stock type.

Changeover stock is held after a sub-process that has a long setup or change-over time. This stock is then used while that changeover is happening. This stock can be eliminated by tools like SMED.

These classifications apply along the whole Supply chain not just within a facility or plant.

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Where these stocks contain the same or similar items it is often the work practice to hold all these stocks mixed together before or after the subprocess to which they relate. This 'reduces' costs. Because they are mixed-up together there is no visual reminder to operators of the adjacent sub-processes or line management of the stock which is due to a particular cause and should be a particular individual's responsibility with inevitable consequences. Some plants have centralized stock holding across sub-processes which makes the situation even more acute. Types of inventory While accountants often discuss inventory in terms of goods for sale, organizations - manufacturers, service-providers and not-for-profits - also have inventories (fixtures, furniture, supplies, ...) that they do not intend to sell. Manufacturers', distributors', and wholesalers' inventory tends to cluster in warehouses. Retailers' inventory may exist in a warehouse or in a shop or store accessible to customers. Inventories not intended for sale to customers or to clients may be held in any premises an organization uses. Stock ties up cash and if uncontrolled it will be impossible to know the actual level of stocks and therefore impossible to control them. Whilst the reasons for holding stock are covered earlier, most Manufacturing organizations usually divide their "goods for sale" inventory into:

Raw Materials - materials and components scheduled for use in making a product. Work In Progress, WIP - materials and components that have begun their transformation to finished goods. Finished goods - goods ready for sale to customers. Goods for resale - returned goods that are salable.

Inventory Accounting The way in which a company accounts for its inventory can have a dramatic affect on its financial statements. Inventory is a current asset on the balance sheet. Therefore, the valuation of inventory directly affects the inventory, total current asset, and total asset balances.

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Companies intend to sell their inventory, and when they do, it increases the cost of goods sold, which is often a significant expense on the income statement. Therefore, how a company values its inventory will determine the cost of goods sold amount, which in turn affects gross profit (margin), net income before taxes, taxes owed, and ultimately net income. It is clear, then, that a company's inventory valuation approach can cause a ripple effect throughout its financial picture. One may think that inventory valuation is relatively simple. For a retailer, inventory should be valued for what it cost to acquire that inventory. When an inventory item is sold, the inventory account should be reduced (credited) and cost of goods sold should be increased (debited) for the amount paid for each inventory item. This works if a company is operating under the Specific Identification Method. That is, a company knows the cost of every individual item that is sold. This method works well when the amount of inventory a company has is limited and each inventory item is unique. Examples would include car dealrships, jewelers, and art galleries. The Specific Identification Method, however, is cumbersome in situations where a company owns a great deal of inventory and each specific inventory item is relatively indistinguishable from each other. As a result, other inventory valuation methods have been developed. The best known of these are the FIFO (first-in, first out) and LIFO (last-in, first-out) methods. FIFO: First-in, first-out is a method of inventory accounting in which the oldest stock items in a company's inventory are assumed to have been the first items sold. Therefore, the inventory that remains is from the most recent purchases. In a period of rising prices, this accounting method yields a higher ending inventory, a lower cost of goods sold, a higher gross profit, and a higher taxable income. The FIFO Method may come the closest to matching the actual physical flow of inventory. Since FIFO assumes that the oldest inventory is always sold first, the valuation of inventory still on hand is at the most recent price. Assuming inflation, this will mean that cost of goods sold will be at its lowest possible amount. Therefore, a major advantage of FIFO is that it has the effect of maximizing net income within an inflationary environment. The downside of that effect is that income taxes will be at their greatest.
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LIFO: Last-in, first-out, on the other hand, is an accounting approach that assumes that the most recently acquired items are the first ones sold. Therefore, the inventory that remains is always the oldest inventory. During economic periods in which prices are rising, this inventory accounting method yields a lower ending inventory, a higher cost of goods sold, a lower gross profit, and a lower taxable income. The LIFO Method is preferred by many companies because it has the effect of reducing a company's taxes, thus increasing cash flow. However, these attributes of LIFO are only present in an inflationary environment. The other major advantage of LIFO is that it can have an income smoothing effect. Again, assuming inflation and a company that is doing well, one would expect inventory levels to expand. Therefore, a company is purchasing inventory, but under LIFO, the majority of the cost of these purchases will be on the income statement as part of cost of goods sold. Thus, the most recent and most expensive purchases will increase cost of goods sold, thus lowering net income before taxes, and hence net income. Net income is still high, but it does not reach the levels that it would if the company used the FIFO method. Given the importance differences that exist between the various inventory accounting methodologies, it is imperative that the inventory footnote be read carefully in financial statements, for this part of the document will inform the reader of the method of inventory valuation chosen by a company. Assuming inflation, FIFO will result in higher net income during growth periods and a higher, and more realistic inventory balance. In periods of growth, LIFO will result in lower net income and lower income tax payments, thus enhancing a company's cash flow. During periods of contraction, LIFO will result in higher income levels, but it will also undervalue inventory over time. Small business owners weighing a switch to a LIFO inventory valuation method should note that while making the change is a relatively simple process (the company files IRS Form 970 with its tax return), switching away from LIFO is not so easy. Once a company adopts the LIFO method, it can not switch to FIFO without securing IRS approval.

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ABC Analysis in Inventory Management I did some study on the ABC Analysis in Inventory Management. It is also useful in business analytics. I will cover what it is and how it is supported in various ERPs. Finally, how it may be used in analytics application. What is ABC Analysis in Inventory Management? Some people may confuse this with activity based costing, which is also called ABC. However, in the inventory management area, ABC analysis refers to categorizing the stock according to their cost and quantity. Not all stock is equally valuable and therefore doesnt require the same management focus. The results of the ABC analysis provide information that helps evaluate how each inventory part should be monitored and controlled. ABC category for an inventory item is derived based on its cost and quantity. You cannot say that an item is always a class A item or a class B item. The category of an inventory item can change over time. An inventory management system should be able to based on the information available and periodically update the ABC assignment.

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Page No. - 53

Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs. In order to achieve JIT the process must have signals of what is going on elsewhere within the process. This means that the process is often driven by a series of signals, which can be Kanban, that tell production processes when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency. Some have suggested that "Just on Time" would be a more appropriate name since it emphasizes that production should create items that arrive when needed and neither earlier nor later. Quick communication of the consumption of old stock which triggers new stock to be ordered is key to JIT and inventory reduction. This saves warehouse space and costs. However since stock levels are determined by historical demand any sudden demand rises above the historical average demand, the firm will deplete inventory faster than usual and cause customer service issues. Some have suggested that recycling Kanban faster can also help flex the system by as much as 10-30%. In recent years manufacturers have touted a trailing 13 week average as a better predictor for JIT planning than most forecastors could provide. Setting an Inventory Strategy No single inventory strategy is equally effective for all businesses. Indeed, there are many different factors that can impact the usefulness of a given inventory strategy, including positioning of inventory, rationalization, segmentation, and continuous improvement efforts. Moreover, small businesses in particular often face financial and logistical limitations when erecting their inventory systems. And of course, different industries have different inventory needs. Consumer goods producers, for instance, need to have well-balanced inventories at the point of sale, while producers of industrial and commercial products typically do not have clients that require the same degree of delivery lead time.

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When a company is faced with a need to establish or reevaluate its inventory control systems, business experts often counsel their corporate clients to engage in a practice commonly known as "inventory segmenting" or "inventory partitioning." This practice is in essence a breakdown and review of total inventory by classifications, inventory stages (raw materials, intermediate inventories, finished products), sales and operations groupings, and excess inventories. Proponents of this method of study say that such segmentation break the company's total inventory into much more manageable parts for analysis. Donating Excess Inventory In recent years, many small (and large) businesses have gained valuable tax deductions by donating obsolete or excess inventory to charitable organizations, churches, and disaster relief efforts. The type of deduction that can be claimed depends on the business structure of the donating company. "If you're organized as an S corporation, a partnership, or a sole proprietorship and you donate inventory to a charity that uses the goods to assist the sick, the poor, or children, you're generally able to take a tax deduction for the cost of producing the inventory, " stated Joan Szabo in Entrepreneur. C Corporations, meanwhile, can deduct the cost of the inventory plus half the difference between the production cost and the inventory's fair market value, provided the deduction does not exceed twice the cost of the donated goods. A number of organizations have been established for the express purpose of distributing donated inventory. Gifts in Kind International (based in Alexandria, Virginia) distributes used computers, high-tech equipment, and other donated inventory to approximately 50, 000 domestic and international charities. The Galesburg, Illinois-based National Association for the Exchange of Industrial Resources (NAEIR), meanwhile, distributes excess inventory to more than 5, 000 schools, churches, homeless shelters, and other charitable organizations. Office supplies comprise much of the NAEIR goods, but clothing, janitorial supplies, and computer equipment are also distributed. The NAEIR estimates that it has distributed more than $1 billion in corporate inventory donations to American schools and nonprofit organizations since 1977.

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For example: Manufacturing A canned food manufacturer's materials inventory includes the ingredients to form the foods to be canned, empty cans and their lids (or coils of steel or aluminum for constructing those components), labels, and anything else (solder, glue ...) that will form part of a finished can. The firm's work in process includes those materials from the time of release to the work floor until they become complete and ready for sale to wholesale or retail customers. This may be vats of prepared food, filled cans not yet labeled or sub-assemblies of food components. It may also include finished cans that are not yet packaged into cartons or pallets. Its finished good inventory consists of all the filled and labeled cans of food in its warehouse that it has manufactured and wishes to sell to food distributors (wholesalers), to grocery stores (retailers), and even perhaps to consumers through arrangements like factory stores and outlet centers. Logistics or distribution The logistics chain includes the owners (wholesalers and retailers), manufacturers' agents, and transportation channels that an item passes through between initial manufacture and final purchase by a consumer. At each stage, goods belong (as assets) to the seller until the buyer accepts them. Distribution includes four components:
1.

Manufacturers' agents: Distributors who hold and transport a consignment of finished goods for manufacturers without ever owning it. Accountants refer to manufacturers' agents' inventory as "material" in order to differentiate it from goods for sale. Transportation: The movement of goods between owners, or between locations of a given owner. The seller owns goods in transit until the buyer accepts them. Sellers or buyers may transport goods but most transportation providers act as the agent of the owner of the goods. Wholesaling: Distributors who buy goods from manufacturers and other suppliers (farmers, fishermen, etc.) for re-sale work in the wholesale industry. A wholesaler's inventory consists of all the products in its warehouse that it has purchased from manufacturers or other suppliers.

2.

3.

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A produce-wholesaler (or distributor) may buy from distributors in other parts of the world or from local farmers. Food distributors wish to sell their inventory to grocery stores, other distributors, or possibly to consumers.
4.

Retailing: A retailer's inventory of goods for sale consists of all the products on its shelves that it has purchased from manufacturers or wholesalers. The store attempts to sell its inventory (soup, bolts, sweaters, or other goods) to consumers.

High level inventory management It seems that around about 1880 there was a change in manufacturing practice from companies with relatively homogeneous lines of products to vertically integrated companies with unprecedented diversity in processes and products. Those companies (especially in metalworking) attempted to achieve success through economies of scale - the gains of jointly producing two or more products in one facility. A variety of attempts to achieve this were unsuccessful due to the huge overhead of the information processing of the time. However, the burgeoning need for financial reporting after 1900 created unavoidable pressure for financial accounting of stock and the management need to cost manage products became overshadowed. In particular it was the need for audited accounts that sealed the fate of managerial cost accounting. The dominance of financial reporting accounting over management accounting remains to this day with few exceptions and the financial reporting definitions of 'cost' have distorted effective management 'cost' accounting since that time. This is particularly true of inventory. Hence high level financial inventory has these two basic formulas which relate to the accounting period: 1) Cost of Beginning Inventory (at the start of this period)+ Inventory Purchases (within this period)+ Cost of Production (within this period)=

Cost of Goods 2) Cost of Goods - Cost of Ending Inventory (at the end of this period)= Cost of Goods Sold

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The benefit of these formulae is that the first absorbs all overheads of production and raw material costs in to a value of inventory for reporting. The second formula then creates the new start point for the next period and gives a figure to be subtracted from sales price to determine some form of sales margin figure. Inventory Management In NTPC Singrauli In financial parlance inventory is defined as the sum of value of raw materials, fuels and lubricants. spare parts, maintenance consumables, semi-processed materials and finished goods stock at any given point of time. The operational definition of inventory could be: The amount of raw materials, fuel and lubricants, spare parts and semi processed to be stocked for smooth running of plant, since resources are idle when kept in stock, inventory is also defined as an idle resources of any kind having an economical value. Inventories are assets of an organization and represent investment. Like all investment, inventory may be too high or too low. It may be well managed or poorly managed while any redundant inventory is a wastage of capital that should otherwise be earning a return. Properly maintained and controlled inventories can be a great asset. FUNCTIONS OF INVENTORY The main functions of inventory is to serve as a cushion and to protect the production distribution system from shocks due to uncertainty in demand and supply. If no inventories are kept, uncertainty in demand and supply will break the production distribution system, increasing ultimately the cost. Another important factor which warrants maintaining inventory is high idle time cost of machines and men and as such urgency of requirements. If men and machine in factory could wait and so also the customers, the materials need not wait for them and inventory would not be necessary. However in this industrial age it is very costly to keep men and machines waiting for the materials. So the materials should have to wait for them and inventories are maintained for this purpose.

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INVENTORY CONTROL: Inventory control is a planned method of determining what to indent, when to indent, How much to stock so that purchasing and storing cost are lowest possible without affecting production and sales. In this process investment in materials and spare parts carried in stock is maintained for smooth and continuous operations of production and sale. The costs of inventories are kept at the lowest possible level. IMPORTANCE OF INVENTORY MANAGEMENT: The primary objective of inventory management are: a. To minimize losses, due to, idle time of men and machine and customer goodwill, caused as a result of shortage of materials. b. To keep down investments in inventories, inventory carrying cost and obsolescence. ADVANTAGES OF INVENTORY MANAGEMENT/CONTROL The following are some of the benefits which accrue from intelligent and scientific management of inventories:1) 2) 3) 4) 5) 6) Inventory control ensures an adequate supply of materials, stores, spares etc. minimizes stock out and shortages, and avoids costly interruptions in operations. It keeps down investment in inventories, inventory carrying cost and obsolesce losses to the minimum. It facilitates purchasing economics through the measurement of requirement on the basis of recorded experience. It eliminates duplication in ordering or in replenishing stocks by centralizing the source from which purchase requisition emanate It permits better utilization of available stock by facilitating inter department/ inter unit transfers within the company. It provides a check against the loss of materials through carelessness and pilferage.

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7)

It facilitates cost accounting activities by providing a means for allocating material cost to product, department and other operating accounts. 8) It enables management to make cost and consumption comparisons between operations, periods and units. 9) It serves as a means for the location and disposition of inactive and obsolete items of stores. 10) Perpetual inventory values provide a consistent and reliable basis for preparing financial statement. RE-ORDERING SYSTEMS: Optimum inventory can be worked out on the basis of reordering EOQ and order level control. EOQ tells us how much to order, recorder system tells us when to order. The problem of inventory control arises due to uncertainty in consumption rate or length of lead time. If demand is constant and so is lead time, a fixed quantity can be ordered at a fixed interval. But of them are variable in actual situations. It is therefore not possible to keep both size and interval between orders as fixed. One method to solve this problem is to fix the size of the order and let the ordering frequency vary based on consumption pattern. This is known as Q system-Fixed order quantity system-Two bin system or Min Max. system of reordering. P system ( fixed order frequency system) The other system is to fix order frequency of length of time between orders, let the size of order vary with usage rate. This is known as P System or review system or Fixed order interval system or cycle system of reordering. In either case the extra amount of inventory known as safety stock is provided to take care of unexpected demands due to variation in usage or lead time.

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Q system (fixed order quantity or two bin system) Stocks are separated in two bins or parts. The first bin contains stock to satisfy demand between arrival of one order and placing of next. The second bin meets requirements during the lead time. The stock in second bin represents reorder level and contains quantities to meet normal lead time requirement and safety stock. When the stock in first bin is finished , a reorder is placed for fixed quantity , normally EOQ. Maximum- Minimum system of inventory control: System is based on Fixed Order quantity system in which size of ordered quantity every time to be purchased is fixed but the frequency of orders is based on consumption pattern. This is a modified version of Two Bin System. The stocks are not separated in two parts or bins but are separated on the cadrex card and reorder level prominently marked on it. Minimum level Minimum level is the level below which stock should not normally drop. This is safety stock to provide necessary cushion when the consumption is at higher rate or the normal delivery period is exceeded or both. If there are no variations in consumption as well as lead-time, there would be no need for safety stock. A fixed amount of materials may be ordered at a fixed interval. The ideal situation would be as under. Q (Qty.) P --------------------------------------------------------------------- (Reorder
Level)

4 (Month)

When the stock level reaches P we order quantity Q which arrives exactly when the stock reaches 0. In practical situations such ideal situations do not exist. Either the rate of consumption may increase or the quantities ordered may not come in time. The result is stock-out as under: -

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Q (Qty.) P -------------------------------------------------------------------- (Reorder

Point)

A1

B 4 (Month)

A Stock-out due to higher rate of consumption. B Stock-out due to delay in supply. Q P --------------------------------------------------------------------- (Reorder
level)

(Qty.)

SAFETY 1 STOCK 0

4 (Month)

Safety stock provides cushion to prevent stock-out at A and B. Determination of safety stock If the demand and length of past lead times is fairly stabilized, safety stock can be calculated as under: __ Safety Stock = k D This is based upon demand during lead time D and importance of item which is measured in terms of stock out cost. Value of k which is constant and may vary between 1-3.9 depending upon the criticality and degree of safety / service level required (keeping in view stock-out cost of each item). If the value of k=1, it would provide 84 % service level i.e. there are 16 % chances of stockout inspite of provisioning of safety stock.

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Value of k=2 will provide 97.7 % and k=3 will provide 99.87% service level .For 100% service level value of k has to be 3.9 . Reorder Point / Level : Reorder point is the point or level at which replenishment order is issued to ensure that supplies are received before the stock on hand are consumed and there are no stock-outs. It consists of mean expected demand during lead-time and safety stock. ___ Recorder Level = D + K D Where D is demand during lead-time. The quantities in pipeline are also to be taken care. In practice reorder points keeps on fluctuating based upon consumption pattern. Standard Order Quantity This is the quantity each time ordered as soon as stocks reach to reorder level. This quantity is normally is EOQ and calculated as under :--------2AS EOQ = -------I Where A = Annual consumption in money value S = Order or set up cost per order I = Inventory carrying cost as percentage of total inventory Maximum Level If the system is working properly, normally the maximum stock will be minimum plus standard order quantity. In practice maximum level varies in view of changes in anticipated consumption pattern and length of lead-time.

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Materials Planning & Inventory Control (MPIC) MPIC cell is directly responsible for reporting to in-charge stores for the specialized function of materials planning for recoupment of A.R. (automatic re-coupment) items and inventory control for optimizing inventory holding and for minimizing the chances of stock out. This cell is responsible for following activities: a. b. c. d. e. f. g. h. i. j. k. l. Codification Computerization Fixation of Inventory level, safety stock, economic order quantity (EOQ) Inventory analysis and review Planning and control of inventory Materials planning and indenting for A.R. items Interactions and coordination with indentors, end users and purchaser Coordination for implementation of system/procedures and policies Formulation of system procedures suiting to respective site conditions Reviews & supervision for inventory levels Management information system (MIS) Coordination with Corporate Materials Management department for System, inventory control and man power planning

DOCUMENTS RAISED BY THE MPIC i. ii. iii. iv. v. Temporary code directory. Periodic issue of inventory analysis report as per Inventory management system manual. Indents for AR Items. Report on inventory level fixation ( viz. max., min., ROL etc.) Generation of all types of reports on inventory for MIS.

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MAIN ACTIVITIES:1. Fixation of Inventory levels MPIC undertakes detailed study/analysis of each items for fixation of inventory level viz. maximum levels, minimum levels, reorder levels, safety stock and EOQ of each item as per inventory management system manual. 2. Inventory analysis and review MPIC undertake various inventory analysis (viz. ABC, XYZ, FSN, VED, SDE etc. as well as metrics integration of above analysis suggest measures for optimizing the inventory holding and facilitating provisioning of materials at right time. 3. Planning and control of inventory: MPIC is responsible for planning of inventory analysis. At the beginning of every financial year an inventory plan is drawn up systematically item wise for A class items, main group wise for B & C class items. The plan state the expected receipts, issues and a stock for the coming 12 months on a monthly basis for A class, on a 6 monthly basis for B class and yearly basis for C class items.. The plan drawn out and monitored in such a way that inventory at any review point should not exceed norms. For achieving this function, MPIC coordinates with end users / indentors for timely lifting of materials and with the purchase wing for getting receipt schedule/ delivery schedule. 4. Materials Planning and indenting for AR items: The materials falling under group AR are identified depending upon the pattern of past consumption trends to the extent possible. Further the items falling under this group shall be indented item wise for A category items and trade group wise for B and C category for the purpose of consolidating requirement for facilitating procurement.

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Similar to the other Items inventory levels is fixed for each AR item. The quantity to be indented shall depend on inventory level/norm/analysis for that item/trade group. Indents other than AR items invariably are routed through inventory control cell so as to verify the quantity reasonability and availability in stores as per inventory levels, norms and analysis. 5. Interaction and Co-ordination with user/Indenters: MPIC cell co-ordinates that purchase requisition are sent to purchase duly completed in time as per levels of inventory fixed, and qty. indented as per the inventory analysis. They also strive to minimize emergency purchases and interact with the purchaser for his follow-up with the supplier for timely supply of the materials. Further they also interact with the user that material is withdrawn for use, as per their requirement reflected in the indent, failing which they inform the purchaser to stagger or cancel the order. They interact with the stores/non-moving items and timely action for their disposal. They also interact with Risk Management group for timely replacement and repair of rejected items and if not possible suggest them alternative ways to procure the items. 6. Co-ordination for implementation of system procedures and Policies: MPIC cell is responsible for implementation of material Management system manuals by interacting with various groups/ cells in the materials department and other disciplines and explain any problem related to the manual. They also educate the personnel of different wing deployed in the materials department regarding use for smooth implementation of policies and procedures contained in the manual. 7. Formulation of conditions: systems and procedures suiting site

MPIC cell is responsible for formulating procedures/guidelines in various spheres of materials activities suiting to local requirements of respective sites and which are not covered elsewhere.

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8. Review of inventory levels:MPIC cell is responsible to review the inventory level periodically (once in a year) and to give revised inventory levels whenever needed based on the experience of the preceding year/years. 9. Management Information System (MIS): Various management reports are to be compiled, generated and sent to various level of project, Regional and Corporate office level as per the inventory management system manual. 10. Co-ordination with Corporate Materials: -

MPIC cell to co-ordinate with corporate materials for revision, modification of various system manuals and procedures /guidelines with the appropriate proposal and relevant details. SELECTIVE INVENTORY TECHNIQUES Inventory is the blocked capital from the total capital invested in the project. Instead of giving any monetary return, it brings about 25% per annum as the inventory carrying cost, but it acts as cushion for smooth running of plant. Control function: All the materials management activities are based on the on line computerized materials management system. All type of analysis is being done through the computerized report for a given period. For example ABC analysis, FSN analysis, XYZ analysis and PQR analysis are easily performed through the computer output.

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INVENTORY HOLDING NORMS

Construction Stores Inventory Norms In day/ months Consumption 1. Cement 2. Steel i) Tor Steel / Re-inforcement steel ii) Structural Steel 3. Others ( viz. pipe, pipe fittings cables etc. ) Operation & Maintenance Store 1.Spares ( Excluding Insurance Spares ) i. Indigenous ii Imported 2. Loose Tools 3.Chemicals , gases and Explosives 4.Oil & Lubricants 5.Stores other than spares ( Consumables & General Stores ) 18 Months 18 Months 6 Months 3 Months 1 Month 6 Months 3 months 6 months 9 months 1 2 months

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LEAD TIME ANALYSIS LEAD TIME Lead time mean the time that lapses between raising of a purchase Requisition by the user department or stores and receipt and acceptance of materials at stores for issue to user departments. Its Importance in Inventory Management Lead-time is of fundamental importance in determining inventory levels. The level of inventory of an item depends upon the length of lead-time. Longer the lead-time, higher will be the ordered quantity and as such higher will be inventory carrying cost as it is calculated on the basis of half of order quantity/value, which is average inventory. Elements of Lead Time a) Administrative lead- time for finalizing purchase order. b) Suppliers lead time- to make the materials ready for dispatch. c) Transit lead-time - The time taken for transportation of materials from sellers works to buyers place. d) Administrative lead-time of bulk completing receiving activities. Impact of Lead-time on: a) Working Inventory: - Size of order depends on length of leadtime, longer the lead- time, larger will be the order quantity. Calculation of inventory carrying cost is on half of ordered quantity/ value. breakinginspection and

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b) Safety Stock When the demand during lead-time is fairly stabilized: Safety Stock = K D Where K is service level and D is demand during lead-time Value of K, which is constant, varies between 1-3. 9 depending upon criticality and degree of safety / service level required (keeping in view stock-out cost of each item). If value of K is 1, it shall provide 84% service level i.e. there is 16% chance of stockout inspite of providing safety stock. Value of K as 2 shall provide 97.7% service level, as 3, 99.87 % service level. For 100% service level, value of K shall be 3.9.
c)

If demand during lead time or length of lead time is highly fluctuating and irregular the calculation of safety stock shall be K Where K is constant and value depends as above and is standard deviation of demands during lead times. Longer the lead-time more will be the requirement during this period and higher will be safety stock. On the contrary if the leadtime is smaller, lesser will be the requirements during lead-time and reduced safety stock. In view of above facts, lead-time has direct bearing upon inventory holding, both working and safety stock.

If we are able to reduce length of lead-time, it shall result in reducing stock levels. STEPS TO REDUCE LEAD TIME Administrative Lead Time for finalizing Purchase Order Ensure that purchase requisitions are complete in all respects as to initiate immediate procurement action immediately. Rationalization of procurement procedures and sufficient delegation of powers at lower and middle levels.

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 Financial limits for open tender (NIT) should be increased. More and more items shall be standardized with standardization of sources of supply Lesser dependency for spares on OEM development of alternative sources. Import substitution. More and more items should be declared as stock item and brought under automatic replenishment system. Finalization of long-term rate/running contracts with suppliers. Finalization of terms and conditions with suppliers specially those from whom we are buying on PAC basis. (Proprietary items purchased on single tender basis) Updating list of approved vendors for various categories of items including evaluation of vendors performances. Specifications, pre-qualifying requirement for the bidders and quality plan shall be clearly spelled out. Delivery lead-time of vendors Post order progressing and expediting with vendors. Prompt clarifications to vendors queries. Prompt arrangements Inspection) for PDI, if required. (Pre-despatch

Prompt approval of samples, if required Good buyer / seller relations including prompt payment to suppliers.
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Transit lead-time of transportation Select the most suitable mode of transportation. Efficient collection group with stores. Post despatch monitoring expediting deliveries of consignments unduly delayed deputing chasers / tracers. Prompt retirement of documents if negotiated through bank. Administrative lead-time of bulk breaking, inspection and receiving activities Prompt bulk breaking (opening of packages and checking of contents of incoming consignments) Prompt inspection of materials at stores by user or by independent inspection cell. Making available inspection, testing and other requisite facilities to inspection people. Prompt handing over of materials to custody group. Vigorous follow up of settlement of discrepancies replacement supplies / repair etc. The overall view of lead-time in private and public sector Lead- Time in private sector is lesser than in public sector organizations. Reasons for longer led time in Public Sector: -

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 Accountability on the part of public sector operating within parameters of well formulated and laid down procedures including long period taken in adjudication/ Evaluation of offers. Tendency to share responsibilities sometimes-unnecessary consultation, references and cross-references. Open tendering (Notice for Inviting Tender) beyond a certain monetary limits, longer time for purchasing, at time unproven suppliers on lower quoted rates get order, delays in supply- substandard / poor quality materials resulting in higher rejections. Lack of good buyer / seller relations.

Procedure for Indents For the purpose of indenting materials planning is to be done on the basis of following groups:1. 2. 3. 4. 5. Stock item (Automatic Recoupment items) Insurance item Unit replacement item Capital item Other non-stock items

Inventory Management is an area where Integrated Management approach involving all functional department is the primary requisite. Unless cooperation is forthcoming from O&M / user department as and when needed, the objective of achieving high service level and at the same time optimizing inventory will be far from achieving. The basic need for achieving this objective of optimizing inventory is dedicated all out efforts by all concerned.

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Grouping of items for Reporting & Control Classification of Stores & Spares :With the introduction of computerized Stores Accounting System, all information/reports can be generated either itemwise or by any required group under the NTPC, Materials codification System (MCS). NTPC has codified the stores & spares under 100 main groups (from 00 to 99). The analysis of reports for all 100 main groups will require handling of a large volume of data and numerous & bulky reports. Therefore, for inventory analysis as well as for reporting to management in a handy and convenient form. A) Construction Stores 1. Cement 2. Steel 3. Others (viz. pipe, pipe fitting, cables etc.) B) O&M Stores 1. Coal 2. Fuel (Excluding coal) 3. Spares (Excluding insurance spares) 4. Loose Tools 5. Chemical, Gases & Explosives 6. Oil & Lubricants 7. Stores other than spares (consumables & Gen. Stores) 8. Scrap

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Inventory Management in NTPC Financial Performance Inventory in NTPC is consists of coal & oil & naphtha components & spares loose tools chemicals & consumables & others. Composition of inventory in 2006-07 is as below:- (From annual report) The inventory in NTPC assumes importance for the fact that the operation continues non stop for power generation consuming inventories of all the components stated above on a regular & continues basis. It is therefore crucial that all inventories is maintained in sufficient stock to ensure uninterrupted operation & maintenance. A new dimension in this state of affairs is that along with fast changing technologies & the completion of life of plant & machinery in the older power station bringing forth the phase of renovation & modernization. This has added new items & quantities to the inventory as also rendering considerable inventory surplus & obsolete. Inventory is sought to be controlled by getting all the indents screened by a committee for justification in the light of its population pipe line quantities past consumption pattern & estimated costs. The efforts at inventory control have resulted in curtailing the cost sunk in the inventory. The pattern of the quantum of inventory per mega watt of installed capacity is as below :- ( from annual report). Inventory Total installed capacity Inventory: - Total installed capacity for each of 5 year.

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Inventory is valued by monthly weighted average method & is subject to, some major analysis such as:-

ABC XYZ VED ICU (Insurance consumables units) SDE & Other FSN

ABC Analysis in Inventory Management I did some study on the ABC Analysis in Inventory Management. It is also useful in business analytics. I will cover what it is and how it is supported in various ERPs. Finally, how it may be used in analytics application. What is ABC Analysis in Inventory Management? Some people may confuse this with activity based costing, which is also called ABC. However, in the inventory management area, ABC analysis refers to categorizing the stock according to their cost and quantity. Not all stock is equally valuable and therefore doesnt require the same management focus. The results of the ABC analysis provide information that helps evaluate how each inventory part should be monitored and controlled. ABC category for an inventory item is derived based on its cost and quantity. You cannot say that an item is always a class A item or a class B item. The category of an inventory item can change over time. An inventory management system should be able to based on the information available and periodically update the ABC assignment.

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X Y Z Analysis XYZ:- XYZ analysis is based on stock holding value of inventory stored for individual item, which is explained as below:X Class items:Those items whose stock holding value for individual item is more than Rs.1,00,000/Y Class items:Those items whose stock holding value for individual item is Rs.10,000/- to Rs. 1,00,000/Z Class items:- Those items whose stock holding value for individual item is below Rs.10,000/FSN Analysis: This analysis is based on pattern of movement of items i.e. issue from stores viz. fast moving, slow moving and non-moving items. Fast moving items are normally declared as Stock items , also known as recurring items in order to ensure ready availability of these items for use all the times. This classification is a very effective tool to control obsolescence and redundant inventory. The reasons for nonmovement of items are analyzed. There might be a change in technology and these items may not have any use in future. Efforts are made to find out alternative uses but failing this, economical disposal is considered. Sometime the items become non-moving due to change in modification. This analysis when used in combination with XYZ classification may be effective guiding factor in lying down inventory policies. This is made clear with the following table. X items Y items Z Items F items S items Tight inventory Reduce Control stock to very low level Normal inventory Low level of control stock Can reduce Low level of N items Quick disposal of items at optimum cost Should be disposed off as early as possible Can afford of at lower
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clerical labor by stock increasing stocks. VED analysis ( Criticality based ):Criticality:

price

The criticality of the spare indicates subjectively, the cost of not having enough spares when required. This is not always measurable. A useful subjective description of criticality could be as follows: V = VITAL: The vital spares are those without which the equipment becomes totally in operable and/or cause loss of life or if operated, can cause serious damage to other parts of the equipment through secondary failure. Critical items that render equipment totally and immediately inoperative or unsafe i.e. if not in stock will result in high losses and complete closure of plant for considerable time. E = ESSENTIAL: Important items which reduce the equipment performance but do not render in to unsafe or in operative immediately. D = DESIRABLE: Desirable but non-functional items which do not affect the performance of the equipment. Stock out results in nominal disruption for short duration. In case of spare parts VED classification has to be done with V-E-I-N classification of equipments used in the plant i.e. equipments themselves are to be classified as vital, essential, important and normal. Determination of essentiality or criticality should be done with the help of maintenance and operation experts whose judgment is essential to derive ranking of the items as vital, essential and desirable. The factors to be considered are essentiality, importance of each part to
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the ultimate goal, degree to which it can be compensated for, if lost and urgency to which it must be replaced.

SDE (Scarce, difficult and easy) Classification:This classification is based upon the purchasing problems of availability of items in the market. Scarce items are those, which are in short supply in the market and not easily available. At times it might be necessary to develop a source of supply of these items. It may be an item which is very difficult to manufacture or there may be very limited number of suppliers and delivery lead time is very long. As against this, there may be some item which is not scarce but it is difficult to buy and delivery period is long. Easy items are normally standard one and are routinely stored by vendor and supplies are available ex-stock.

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Page No. - 80

RESEARCH METHODOLOGY OF THE PROJECT PROBLEM FORMULATION o Continuous increase in the value of inventories beyond level of normal inflation in price in market. o Spares critically required are either not available or desired quantities are not there and those not required are available in abundant. OBJECTIVE OF PROJECT 1. To find out the cost and expenditure which are occurring during maintaining Inventory. 2. To find out the level of the Inventory. 3. To see the various techniques involved in NTPC is effective or not. 4. To find out the holding period of the Inventory. 5. To study the management of Inventory. 6. Effect of inventory on production SCOPE OF THE STUDY Investment in inventory Proportion of fuel in inventory Inventory holding period

Lead time analysis Based on historical data

Study of inventory techniques

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 PERIOD OF STUDY 5 years from 2002-03 to 2006-07 METHOD OF STUDY Collection of data from annual reports of 2002-07 Study techniques of inventory management from companys system manuals Study of the inventory system of NTPC from the manuals

SOURCES OF INFORMATION SECONDARY DATA Annual Reports 2002-03 to 2006-07 Manuals

STATISTICAL TOOLS & TECHNIQUES Graphical presentation Tabulation of data Ratio Analysis

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LIMITATION OF STUDY Data of NTPC is available.Singrauli is a branch of NTPC but its data is not published separately Material codification system has codified the stores and spares into 100 main groups, it was a large volume of data so all data cant be included.

All data are historical All inherent limitation of statistical tool Time period was short Policies of company of not providing all informations

SIGN IFICANCE OF STUDY COMPANY Company will able to formulate better inventory planning. Inventory planning will be efficient & economic. This will facilitate smooth production & prompt service. This will make companys goodwill in market. Company will be able to provide timely delivery of goods & services. ACADEMICIANS This study will enhance knowledge of academicians that how inventory planning can be formulated in an efficient economic way Application of various techniques like ABC FSN SDE VED etc

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CUSTOMER Quality which the company provides to them

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GOVERNMENT Ability of company to generate revenue & its contribution in economic development of country

INDUSTRY Techniques for inventory management used by NTPC Optimum utilisation of inventory Efficiency of inventory management of company

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ANALYSIS OF DATA Preparation of Table & Interpretation FINANCIAL ANALYSIS OF INVENTORY 1- INVENTORY TURNOVER RATIO Cost of good sold Average inventory Year 2002 03 2003-04 2004-05 2005-06 2006-07 Cost of sold 160165 200562 194780 224818 264842 good Average Inventory 18944 17546 17599.5 20612 24253.5 (In million) Ratio 8.45 11.46 11.06 10.90 10.91

SOURCE ANNUAL REPORT 2002-07 This ratio is designed to measure efficiency of use of inventory. In other words it measures the efficiency of inventory management. As all inventory is used to ultimately facilitate sales & carries a cost it is to be related to the cost of goods sold to measure its efficiency. Cost of goods sold although a cost also indicates the turnover achieved. It increases over the year . The average inventory shows controlled level upto the year 04-05 & increases thereafter due to the exercise of R & M. Being embarked upon in the older units such as Singrauli. The ratio was greater in 2003 04 &

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2004 -05.And again come down in 2005 06 & 2006 07. It was low in first year. 2 - INVENTORYHOLDING PERIOD Average inventory * 365 Cost of goods sold Year 2002-03 2003-04 2004-05 2005-06 2006-07 Average inventory 18944 17546 17599.5 20612 24253.5 Cost of goods sold 160165 200562 194780 224818 264842 Days 43 32 33 33 33

SOURCE ANNUAL REPORT 2002-07 The average holding period is the reciprocal of inventory turnover ratio & indicates stability & control with the duration ranging from 44 days in 2002-03 to 34 days in 2006-07 after the first year the holding period recedes to 32 days in 2003-04 & rises marginally to 33 in 2004-05. It thereafter is unchanged at 34 days during 2005-06 & 2006-07. The controlled inventory holding periods indicates sound inventory management with the measures mentioned above despite the fact that due to many spares being scarce. The inventory for them is currently being procured for up to 2 years in advance for uninterrupted operation. 3 - Cash to Inventory Cash Inventory Year 2002-03 2003-04 2004-05

Inventory 17712 17380 17819

Cash 5447 6091 60783

Ratio 0.31 0.35 3.41

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2005-06 2006-07

23405 25102

84714 133146

3.62 5.30

SOURCE ANNUAL REPORT 2002-07 One of the major purposes of cash is pay for inventory. The relationship of these & current assets is mutually complementary. However a trend of the ratio of cash to inventory in a business that is normally expending and where cash is being effectively managed and controlled should be an increasing one. 4 - Inventory to Current Asset Inventory to Current Asset = Year 2002-03 2003-04 2004-05 2005-06 2006-07 Inventory 17712 17380 17819 23405 25102 Inventory Current Asset Ratio 0.091 0.128 0.138 0.148 0.113 9.12% 12.82% 13.82% 14.88% 11.31%

Current Asset 194132 135468 129073 157245 221827

SOURCE ANNUAL REPORT2002-07 Inventory in NTPC is unique for not having any raw material or finished goods. The inventory consist of fuel (coal, oil) spares & components, loose tools, chemicals & consumables & others. As the operation & maintenance in power generation is continuous & regular exercise, the inventory becomes not only critical but voluminous in all its aspects.
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NTPC has different units as the finances had been tied up with conditions of technological cooperation & technical assistance from different collaborating countries & financial institution. As a result NTPC has a larger inventory of components & spares than goods have been required under the condition of uniform technology. The fact of continuous operation & maintenances ensures certain inventory on a permanent basis for security of operations this along with the fact that due to technological change & change of phase from the initial to the later or from the initial synchronization to the later stable operation a large quantum of inventory is rendered surplus. This large inventory has been attempted to be controlled by close monitory economy. However addition to the installed capacity being a regular feather of the companys development & the on set of the phase of renovation & modernization has resulted in & enlargement of inventory in the later years of our period. The ratio of inventory to current assets is designed to measure the proportion of inventory in the total current assets of the company. The ratio follows an increasing trend from the 1st to the 4th year of our period from 9.12 percent to 14.88 percent in 05-06. In the year 06-07 the ratio registers a fall to 11.32%. This fall is more due to the abnormal level of cash in the current assets during this year than due to the enhancement of inventory. In general the inventory constitutes between 13 to 15% of the inventory & indicates control over all the year of the period.

5-

Fuel to Inventory In Rs. Million Fuel (Coal, oil, naphtha ) 5015 4407 4583 Ratio 0.28 0.25 0.26

Fuel to Inventory = Inventory Fuel Year 2002-03 2003-04 2004-05 Inventory 17712 17380 17819

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2005-06 2006-07

23405 25102

9053 9222

0.38 0.36

SOURCE ANNUAL REPORT 2002-07 Fuel (oil, coal, naphtha,) are a large part of total inventory of NTPC. This ratio seeks to determine the trend of this proportion over the years. It is seen that the proportion of fuel in the total inventory ranges between 0.28 to 0.26 upto 04-05, it then increase to 0.38 in 05-06 & then register a slight fall in 0.26-0.24 in 06-07. While small fluctuation may be due to incidental events. It is seen that with expansion in capacity fuel assumes a proportion to nearly 40% of the total inventory.

6 - Financial Analysis through Ratio Analysis

Ratio 2002-03 2003-04 12.93 14.94 1.67 0.43 2004-05 12.77 14.33 1.91 0.41 2005-06 12.46 14.16 2.56 0.45 2006-07 13.89 15.57 3.16 0.50

Return On Capital Employed 10.88 % Return On Net worth % Current Ratio Debt to equity 12.13 4.23 0.42

Return On Capital Employed While the level of debt has been conservatively controlled & investment in fixed asset growing to keep pace with the companys programme capacity addition the return on investment has shown nothing more than very minor deviation for the mid 3 years of period after reaching a level of 12.09% in 2003-04 from 10.88% in 2002-03.Clearly, the return on capital employed needs to be improved with greater deployment of debt & curtailment of costs.

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Return On Net Worth In consonance with the trend of return on capital the return of net worth follows a trend that has very little variation for the mid 3 years i.e.200304,2004-05 2005-06.The ratio for these 3 tears are 14.94% 14.33% & 14.16% respectively. The ratio falls to 13.89% in the last year. Clearly, the return on net worth follows a generally stable trend & indicates that the rate of increase of profit must exceed that of reserve & surplus to en sure that the return on net worth follows a more satisfactory trend. Current Ratio The current ratio follows a receding trend during the first 2 years & then follows an increasing trend over the next 3 years of our period. Whereas much of the current asset of NTPC are of a permanent nature . the company needs to engage of more current liability in its capital structure. This ratio must necessarily follow a decreasing trend .In case the company commands a strong product position & credit worthiness in the market with NTPC .Both these advantages are a reality & therefore the company must ensure the continuity of the rising trend achieved over the last 3 years achieved. Debt-Equity Ratio The debt equity ratio of NTPC has touched the level of 0.5 in the last year of our period. Prior to that it had varied between 0.42% & 0.45% from the first to fourth year of our period .Obviously the management ha s followed a conservative approach with regard to leverage in its capital structure. The management has sought to increase its profit & the profitability of company by taking less risk & basing their programme on the companies own internal funds like general reserve e.t.c. The result has been a low & restricted level of debt in capital structure. Towards the ends the improvement registered is due to the fact as per the tariff norms the debt equity ratio is assumed to be 50:50 for older stations & 70:30 for newer one.

PREPARATION OF CHARTS & DIAGRAM & INTERPRETATION

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Selection of possible Sources of Supply: After receipt of purchase requisition in purchase section, the process of selection of possible sources of supply starts. In certain cases, annual supply contracts are already finalized and as such the selection stage is already carried out. The orders are sent to agreed suppliers with the approval of competent authority.

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1 Flow diagram of selection for source of supply

PURCHASE REQUISITION IS THIS A REGULAR PURCHASE? YES IS THERE AN ANNUAL CONTRACT FOR IT?

NO

YES

MAKE SHORT LIST OF POSSIBLE SOURCES

NO

WAS THE LAST SUPPLIER SATISFACTORY?

NO

OBTAIN QUOTATION AND OTHER INFORMATION

IS IT TIME TO YES CHECK THE MARKET? YES NO PLACE ORDER SELECT SUPPLIER AND AGREE PRICE AND TERMS

Supplier Selection
EVALUATE PERFORMANCE

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FROM STORES MANUAL Even if, there is no annual contract, there may be established supplier and a competent buyer does not change the suppliers until there are valid reasons. The buyer may place the order on the last supplier or may check the market again by requesting the established suppliers to quote their rates. 2 Flow diagram for procurement procedure of NTPC-Singrauli

Indent Requisition

Review by MPIC

Estimate Vetted by Finance

Review by Indent Screening Committee

Clearance by MPIC

Opening of Bids

Issuance of tender Enquiry

Vendor Selection

scrutiny of indent

Registrat ion of indent In purchase

Technical suitability

Comparative statement

Proposal/ TCR

Issuanc e of LOI

DPO vetting

Release Payments

Performance evaluation

Delivery

Inspection of materials

Release of PO

Closure of file Shifting file in record room

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FROM STORES MANUAL PROCUREMENT PROCEDURE First of all indent requisition comes from user department. Then it is reviewed by Material Planning & Inventory Control Department and works out for the required indent. MPIC sends it to Finance Department for vetting. The indent is reviewed by Indent Screening Committee for the following values; -

One for above Rs. 2,00,000.00 2nd for above Rs. 5,00,000.00

After that it is clarified by MPIC and then the indents get registered & get a digital number in computer for controlling purpose. Then indent will scrutinized and vendor selection, seeking of quotation is carried out & bids are opened. Technical aspects are analyzed. Technically suitable offers are taking for making comparative statements. The technically suitable lowest price is accepting for submission of order. After vetting the draft purchase order from Finance Department the final PO is releasing. The material will inspected at vendors works before despatch and getting final inspection certificate the material is despatched. Payment will be released to the vendor after performance evaluation of the material. File of that indent is closed and shifted in record room for keeping record. FINANCIAL ANALYSIS OF INVENTORY THROUGH GRAPHICAL PRESENTATION Graph 3
Inventory Turnover Ratio
14 12 10 8

o i t a R

6 4 2 0 2002-03 2003-04 2004-05 Year 2005-06 2006-07

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This ratio is designed to measure efficiency of use of inventory. In other words it measures the efficiency of inventory management. As all inventory is used to ultimately facilitate sales & carries a cost it is to be related to the cost of goods sold to measure its efficiency. Cost of goods sold although a cost also indicates the turnover achieved. It increases over the year . The average inventory shows controlled level upto the year 04-05 & increases thereafter due to the exercise of R & M. Being embarked upon in the older units such as Singrauli. The ratio likewise registers a generally stable trends showing stability with a receding trend signifying quite an efficient inventory management. 4 INVENTORY HOLDING PERIOD
50 40 30 20 10 0 2002-03 2003-04 2004-05 2005-06 2006-07 Series1

The average holding period is the reciprocal of inventory turnover ratio & indicates stability & control with the duration ranging from 44 days in 2002-03 to 34 days in 2006-07 after the first year the holding period recedes to 32 days in 2003-04 & rises marginally to 33 in 2004-05. It thereafter is unchanged at 34 days during 2005-06 & 2006-07. The controlled inventory holding periods indicates sound inventory management with the measures mentioned above despite the fact that due to many spares being scarced. The inventory for them is currently being procured for up to 2 years in advance for uninterrupted operation.

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Cash to Inventory 5 Graphical Presentation

Ratio 6 5 4 3 2 1 0 2002-03 2003-04 2004-05 2005-06 2006-07 Ratio

One of the major purposes of cash is pay for inventory. The relationship of these & current assets is mutually complementary. However a trend of the ratio of cash to inventory in a business that is normally expending and where cash is being effectively managed and controlled should be a increasing one.

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Ratio

Inventory to Current Asset

3.5

Graphical Presentation
Ratio 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2002-03 2003-04 2004-05 Year 2005-06 2006-07 Ratio

2.5

1.5 Ratio Ratio

Inventory in NTPC is unique for not having any raw material or finished goods. The inventory consist of fuel (coal, oil) spares & components, loose tools, chemicals & consumables & others. As the operation & maintenance in power generation is continuous & regular exercise, the inventory becomes not only critical but voluminous in all its aspects. NTPC has different units as the finances had been tied up with conditions of technological cooperation & technical assistance from different collaborating countries & financial institution. As a result NTPC has a larger inventory of components & spares than goods have been required under the condition of uniform technology. The fact of continuous operation & maintenances ensures certain inventory on a permanent basis for security of operations this along with the fact that due to technological change & change of phase from the initial to the later or from the initial synchronization to the later stable operation a large quantum of inventory is rendered surplus. This large inventory has been attempted to be controlled by close monitory economy. However addition to the installed capacity being a regular feather of the companys development & the on set of the phase of renovation & modernization has resulted in & enlargement of inventory in the later years of our period.

Year

20-34567

0.5

Ratio

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The ratio of inventory to current assets is designed to measure the proportion of inventory in the total current assets of the company. The ratio follows an increasing trend from the 1st to the 4th year of our period from 9.12 percent to 14.88 percent in 05-06. In the year 06-07 the ratio registers a fall to 11.32%. This fall is more due to the abnormal level of cash in the current assets during this year than due to the enhancement of inventory. In general the inventory constitutes between 13 to 15% of the inventory & indicates control over all the year of the period.

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Fuel to Inventory 7Graphical Presentation

0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2002-03 2003-04 2004-05 Year 2005-06 2006-07

Ratio

Ratio

Fuel (oil, coal, naphtha,) are a large part of total inventory of NTPC. This ratio seeks to determine the trend of this proportion over the years. It is seen that the proportion of fuel in the total inventory ranges between 0.28 to 0.26 upto 04-05, it then increase to 0.38 in 05-06 & then register a slight fall in 0.26-0.24 in 06-07. While small fluctuation may be due to incidental events. It is seen that with expansion in capacity fuel assumes a proportion to nearly 40% of the total inventory.

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CONCLUSION & SUGGESTION

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.FINDINGS o o o o o . High transportation cost for rush deliveries. Large number of discrepancies in the process of stocktaking. High number and value of non-moving and obsolete items. High write-offs due to deterioration losses of materials. High expediting cost by deputing personnel to vendors work for expeting dispatches.

Conclusion: Inventory turn over ratio was efficient in year 2003 04 & 2004-05. Inventory holding period management is efficient because was stable from last 3 years. High cash balances are being maintained by the company. Current assets are more due to the high cash balances.

Fuel assumes nearly 40 % of total inventory.

SUGGESTION Aim of inventory management should be minimise the investment and increase profitability. TECHNOLOGY In the era of Renovation & Modernization all items which have become obsolete the spare parts are available in scarce. These obsolete items should try to be modernized and used through technology.

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1. Control supplier Over-runs or over-shipments. If 1000 units were ordered, the receiving department should be instructed to accept only 1000 units. This policy should be communicated to all suppliers. On special items such as printed matter, the supplier should be notified in advance that over or under runs of 5 % will be acceptable limit. 2. Have suppliers reduce and guarantee delivery lead time. Request suppliers to minimize their delivery lead times, and to guarantee lead time reliability. 3. Have suppliers maintain a minimum stock. To help implement technique # 2 (above) , give minimum stock requirements to the supplier, with the request that this stock be maintained at his warehouse at all times. This guarantees availability of materials. This is an exercise in vendor-vendee relationship. 4. Request supplier to use local warehouses. If suppliers plant is situated 1000 kilometers away, have him maintain your stocks at a nearby public or private warehouse. 5. Buy on a consignment basis To minimize inventory investment, arrange with the supplier to receive payments for material supplied in large quantities on a withdrawal basis. Although unit cost / tone of material might be higher, in the long run the total cost of the system will be lesser due to saving in investment cost. 6. Buy on an annual contract or make and hold basis As necessary, to help negotiate acceptance of # 1, 2, 3, or 4 above, commit to an annual contract whenever possible or a make and hold commitment with the supplier. This will warrant schedules and quick responding amendments to the schedules. This assures the supplier of the business and the purchaser of a reliable available supply. Quantities can be released as and when needed. There
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is a precondition to use this model. The demand must be nearly certain for periods of inflow and price must be more or less constant in a year. 7. Stretch out deliveries from suppliers On materials to be used over an extended period of time , schedule daily or weekly deliveries from suppliers. Instead of one lump delivery of the total quantity ordered. Bring materials in and use them right away. 8. Reduce the replenishment cycle Reduce the time it takes to: a. b. c. d. Discover that an item needs to be ordered. Process a requisition. Process the purchase order. Get the order to supplier

9. Reduce ordering costs By minimizing purchase-ordering costs (as per EOQ formula), the purchaser can afford to order more often. Thus he can buy less on each order, which naturally reduces the inventory level. 10. Get better forecasts With reliable forecasts, it is possible to greatly reduce the safety stock inventory. It is to caution that safety stock is for possible use and to be treated as dead stock. If historical usage data are used as a basis for projecting future demands, make sure that previous and seasonal influences and special sales promotions are taken into account. 11. Install proper records Perpetual records are a necessity for maintaining periodic and order point systems

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A purchasing history (showing purchase lead times, quantities and dates) is most useful, in order to properly gauge the lead times, quantities. In addition usage records are required for most systems in order to properly calculate review cycles, usage variability for safety stock needs, recent trends in usage and EOQ amounts. 12. Reduce the number of stock items by standardization: There are two general ways to reduce inventories: *Reduce the quantities of each item kept in hand. *Reduce the number of different items kept in stock. It is generally recognized that inventory investment is reduced by carrying one standard item instead of 10 different items that are used essentially for the same purposes. 13. Tighten up inventory record keeping systems. If record inaccuracy is a problem, do not dismiss as unsolvable problem. *Review reporting (input) procedures, clerical forms and methods. *Institute physical spot-checks of inventory balances on a periodical cycle count basis. *Calculate both an on hand balance and an available balance to achieve closer control over what is actually available for use. *Reduce the review period of periodic systems. 14. Get a visible dead stockpile Look for dead stockpiles in out of the way places, where dead stock or poor quality material may be piled up. Find it short it out, and put the pile in conspicuous location where it can not be missed. Than on a routine basis, work it off or sell off the scrap, etc., adjusting the inventory records as required. If obsolete parts or materials are mixed in with regular warehouse or stockroom stock, the solution is the same, segregate obsolete materials in one conspicuous location and dispose off it, adjusting the records as required. 15. Flush out dead and dying items on the annual basis.
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On a regular basis, perhaps annually, all stocks in inventory to identify dead, dying, slow moving and poor quality stock. Place the material in dead stockpile and mount coordinated programmes (with joint participation by Purchase, Store, Quality and User) for reducing the pile. Disposal alternatives include: return material to vendor, scrap, rework, repair to blend into good stocks on a percentage basis, relabel, etc. Following steps are being adopted for effective inventory control at NTPC-Singrauli 1. Indents are raised with proper budget. Estimated cost is vetted by Finance department. 2. Indents are reviewed by Indent screening committee level-I & levelII before initiating procurement action. Indents with estimated value above Rs.5 lakhs are reviewed by level-I committee which comprises DGM (C&M), DGM (Finance) and DGM (O&M). Indents with estimated value above Rs.2 lakhs but below Rs.5 lakhs are reviewed by level-II Committee which comprises Sr.Manager (Matls), Sr.Manager (Finance) and Sr. Manager of user department. 3. Indented quantities are also reviewed at tender committee stage in view of current stock, pending pile line, past consumption pattern & population of items. 4. Review of old purchase orders with a view as to whether requirement still exists or not. 5. Identification of non-moving items for their use else where and liquidation. 6. Follow-up with user department upon receipt of materials. 7. Communication with other NTPC project and power utilities for disposal of obsolete and surplus items.

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8. Capitalization of spares. 9. Identification of duplicate codes. 10. Follow-up with vendor for timely delivery of materials at site against our orders.

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BIBLIOGRAPHY 1. Finance & Accounts Department Of NTPC Annual Report 2002-07 Stores manual Brochure Of Singrauli Booklet of Singrauli www.cea .com Book Materials Management An Integrated Approach Writer Gopal Krishnan & M sundaram Publisher Prentice Hall of India Private Limited

2.

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