WORKING CAPITAL

MANAGEMENT
 Working Capital Management (1/3)
• Working capital management is concerned with
making sure we have exactly the right amount of
money and lines of credit available to the business
at all times
•
• Working Capital is the money used to make goods
and attract sales
•
• The less Working Capital used to attract sales, the
higher is likely to be the return on investment
•
• Working Capital = Current Assets − Current
Liabilities
Contd….(2/3)
Contd….(3/3)
 Inventory Management (1/4)
• A company's merchandise, raw materials, and
finished and unfinished products which have not
yet been sold. These are considered liquid assets,
since they can be converted into cash quite easily.
•
• Policies, procedures, and techniques employed in
maintaining the optimum number or amount of
each inventory item. The objective of inventory
management is to provide uninterrupted production
, sales, and/or customer-service levels at the
minimum cost.
•
 Inventory Management (2/4)
• Techniques: -
•
 Inventory Management (3/4)
• Importance:-


– TRANSCATIONS MOTIVE: -
 It emphasizes the need to maintain inventories to
facilitate smooth production and sales operations
–
– PRECAUTIONARY MOTIVE: -
 It necessitates holding of inventories to guard against
the risk of unpredictable changes in demand and supply
forces and other factors


– SPECULATIVE MOTIVE: -
 It influences the decision to increase or reduce inventory
levels to take the advantage of price level fluctuations

 Inventory Management (4/4)
• Conflicting needs : -
– To maintain a large size of inventories of raw materials
and WIP for efficient and smooth production and of
finished goods for uninterrupted sales operations
–
– To maintain a minimum investment in inventories to
maximize profitability


• Objective: -
– determine and maintain optimum level of inventory
investment
– to maintain sufficient inventory for the smooth
production and sales operations
– to avoid excessive and inadequate levels of inventories
–
 Company background
• 1956 - Company was set up at Bhopal in the name of
Heavy electrical (India) Ltd. in collaboration with
AEI, UK
•
• The Company`s object is to manufacture of heavy
electrical equipments
•
• 1974 - In January Heavy electrical (India) Ltd was
merged with BHEL
•
• 1982 - BHEL also entered into power equipments, to
reduce its dependence on the power sector

Contd….
• In 1984 BHEL setup Heavy Equipment Repair Plant
(HERP) in Varanasi


• Attained ISO 9000 certification and the major units of

BHEL have already acquired the ISO 14001
certification
•
• BHEL’s 14 manufacturing divisions, four power
sector regional centers, over 100 project sites, eight
service centers and 14 regional offices
•
• BHEL has over the years established its references in
over 50 countries of the world
Sectors (1/3)
• BHEL caters to core sectors of the Indian economy: -
– power generation & transmission, industry,
transportation, telecommunication, renewable
energy, defense
–
• Power sector:-
– Power generation sector comprises thermal, gas, hydro
and nuclear power plant business
– BHEL supplied sets account for nearly 85,786 MW or
64% of the total installed capacity of 1,34,697 MW
in the country
–
Sectors (2/3)
• Transmission: -
– BHEL supplies a wide range of transmission products
which include high voltage power & instrument
transformers, dry type transformers, shunt & series
reactors, switch gear, gas insulated sub-station
capacitors, insulators etc
–
• Industries : -
– BHEL is a major contributor of equipment and systems
to cement, sugar, fertilizer, refineries,
petrochemicals, steel & paper industry
Sectors (3/3)
• Transportation: -
– Mostly of the trains operated by the Indian railways,
including the metro in Calcutta, are equipped with
BHEL’s traction electrics and traction control
equipment
–
• Telecommunication: -
– It also caters to telecommunication sector by way of
small, medium, and large switching systems
–
• Renewable energy: -
– Technologies offered by BHEL for renewable resources
of energy includes:- wind electric generators, solar
power based water pumps, lighting and heating
Enterprise Resource Planning (ERP)
 Enterprise resource planning (ERP) is an
integrated computer-based system used to manage
internal and external resources including tangible
assets, financial resources, materials, and human
resources
•
Evolution of ERP:


• Manufacturing Resource Planning

• Enterprise Resource Planning
• Customer – Centric Resource Planning
• Inter – Enterprise Integration
 Commercial Applications
• Manufacturing
• Supply Chain Management
• Financials
• Project Management
• Human Resources
• Customer Relationship Management
• Data Services
• Access Control
•
Inventory Holding Period (Days)
Year Inventory Sales Inventory to Inventory Holding
1978 512.9 498.6 Sales
102.9 Days
375
1981 640.5 787.0 81.4 297
1990 1080.3 3035.6 35.6 130
1991 1155.0 3279.3 35.2 129
1992 1149.1 3487.4 32.9 120
1993 1230.5 3650.5 33.7 123
1994 1304.4 3708.1 35.2 128
1995 1495.2 4234.1 35.3 129
1996 1809.6 4974.3 36.4 133
1997 1876.6 5893.9 31.8 116
1998 1713.3 6647.0 25.8 94
1999 1818.7 7057.1 25.8 94
2000 1793.9 6991.3 25.7 94
2001 2034.8 6753.9 30.1 110
2002 1994.2 7651.1 26.1 95
 Levels of Inventory
Process Voltas L&T GNFC BHEL
Raw Material 37.7 44.3 4.8 655.6
Stores and Spares 0.9 234.3 13.0 90.3
Semi-finished Goods 56.1 268.2 1.5 1050.7
Finished Goods 32.3 258.0 3.9 197.7
Total Inventory 127.1 804.8 23.2 1994.3
Inventory Percentage of:
Sales 10.3 9.2 16.0 26.1
Current Assets 19.3 7.1 31.0 23.2
Total Assets 14.7 4.7 12.0 20.8

Source : CMIE Database 2002

 Steps have been taken to control
Inventory
• An inventory monitoring cell is constituted at the corporate office
•
• The purchases were controlled by the materials management group
reporting to the Director of Finance
•
• The company provided for weekly meetings between material
planning, production control and purchase departments for better
matched material availability
•
• Monthly review of total inventory at the level of chief executives of
plants and corporate management is introduced
•
• Inventory control is dovetailed with the budgeting system. Top 100
inventory items are identified for closer scrutiny and control
 Presentation by: -
vC Anand Mohandas
v
vGobi kichena
v
vPrachiti Prakash Patel
v
vGajendra
v
vTisha Prasad
v
Cashing vKapil Bhadwani
Machines