a project report on effectiveness of inventory management and its cost control at birla hindal-co

To examine the effectiveness of inventory management and its cost control at Hindal co

TABLE OF CONTENTS:

SL. NO.

CHAPTERS PAGE NO.

1. Introduction 1 – 6

2. Company Profile 7 – 36

3. Inventory Analysis 37 – 54

4. Inventory Ratio Analysis 55 – 73

5. Inventory Practices at Hindalco Industries Ltd. 74 – 78

6. Findings & Suggestion 79 - 82

Conclusion

Bibliography

Annexure

Babasabpatilfreepptmba.com


Introduction to Inventory Management

Importance of Inventory Management

Objectives of the Study

Scope of study

Sources of data

Tools used

Limitations of study



INVENTORY MANAGEMENT CONCEPT:

Introduction: Inventory Management is very important area of production management

and plays a vital role in the economic operations of a concern. It has been defined a

variety of ways and most of the definition stress the importance of control element in

achieving cost effectiveness. Irrespective of the range of particular discipline which may

have to be applied within the functional fields in meeting the needs of individuals

situation.

According to Prichard and Eagle, inventory management can be defined as “the

sum total of those activities necessary for their aquition storage, sales, disposal or use of

inventory.

Inventory management, impact is an integral part of production, planning and

control which, according to Charles A. Kepke, may be defined as the co-ordination of

series of function according to a plan which will economically utilize plant, facilities and

regulate the orderly movement of goods through their entire manufacturing cycle, from

procurement of all materials to the shipping of finished goods at pre-determined rate. The

scope of inventory management is not restricted to technique of regulating the movement

of inventories and it rather converts the entire range of functions, which affects the flow,

conversion, quality and cost of inventories.

It can be inferred from the above definitions of inventory management that there

are two guiding principles in inventory management.

Adequate inventory has to be maintained to avoid the stock out and causing

consequent production held up and the customer’s dissatisfaction



Excessive investment in inventory items must be avoided as it increases the

carrying and results in loss of profit.

In view of these principles it may be inferred that for manufacturing

concern, inventory management is the significant aspect of production and

financial planning and control.

IMPORTANCE OF INVENTORY MANAGEMENT:-Investment in inventory normally accounts for about 1/3 value of the total assets

and for an average manufacturing concern, cost of inventory represents about one half of

the product cost. Because inventory constitutes such a significant part of product cost 7

since the cost is controllable, proper planning, purchasing, handling, accounting and

control of inventories is of great significance.

Inventory management is now great significance in a view of imperative need for

productivity growth. Optimal utilization of all available resources and avoidance of all

types of waste especially in case of raw materials is required for an ambitious

programmer of economic growth.

The importance of inventory management lies in the fact that many significant

effort for the reducing the materials cost will go along way in improving the profitability

and rate return on investment.

Following are the benefits of optimum inventory management:

It provides a check against the loss of materials through carelessness or pilferage.

Inventory management ensures an adequate supply of materials, stores, spares etc.

Minimizes the stock out and shortages an avoids a costly interruption in

operations.

It reduce length of manufacturing cycle to the minimum.

It enables the management make cost and consumption between operations and

periods.



OBJECTIVES OF THE STUDIES: The major objective of the study is to examine the effectiveness of inventory

management and its cost control.

Some of the other objectives of the studies are:

To study the working of Hindalco Industry Ltd., Belgaum

To study the inventory management based on the ratios

To study the inventory management and its effective control through various

techniques.

SCOPE OF THE STUDY :-Inventory management being a very important concept in all the company’s

having a void coverage often calls for the managerial attention. In the modern times

inventory management has become the integral part of the all companies. So all the firm

give special importance for inventory management. The major objective of the study is to

examine the effectiveness of inventory management system adopted by Hindalco

Industry Ltd., Belgaum. The study mainly focuses on the techniques used by this

company to control the inventory. The study also covers other areas like the financial

ratios for the period of 2001 to 2006.

SOURCES OF DATA:-Sources of Data can be understood as the sources of the means from which the

information is collected. Data originally collected in the process of the investigation are

known as the primary data, those collected by the other persons is known as the

secondary data.



The sources from which the original investigation is known as the primary

sources. On the other hand the sources did itself collected the data but took from other

primary source is known as the secondary data. The information for this project is

collected from both primary and the secondary sources.

The information is collected from the secondary sources like internet,

annual records, so these are the main sources of data from which the information is

collected for the preparation of this project.

TOOLS USED:Inventory turn over ratio: it indicates the number of times obtained by

dividing the cost of sales by the average sales.

Where,

Inventory turn over ratio = Cost of goods sold divided by average inventory.

Cost of goods sold = Sales – Gross Profit

Inventory conversion period.

This ratio indicates number of days taken to convert the inventory.

Where,

Inventory conversion period = 365 /inventory turn over ratio

Duration of Raw Materials Stage: This indicates the number of days taken for

the production unit to convert the raw materials to finish goods.

Where,

Duration of raw materials = average raw materials . Average raw materials consumed per day

Raw Material Turn over Ratio:

This ratio indicates may help in determining stock holding policy in respect of

raw materials. It is also helpful in finding out the consumption pattern of raw materials.



Where,

raw material turn over ratio = Cost of goods sold

Average raw material

Raw material consumed = Opening stock of materials+purchases–closing

stock of materials

Average Raw materials = Opening stock + closing stock

2

Inventory to current assets ratio.

This ratio express the relation between the stock and the current assets. It

lights as how much amounts per rupee of current assets are represent by stock.

Where,

Inventory to current assets = Inventory

Current assets

Inventory to Capital Employed Ratio:

This ratio indicates how much capital utilized to invest in inventories other

than the other assets,

Where,

Inventory to capital employed = Inventory

Total Capital Employed

Inventory to Total Asset Ratio:

This ratio indicates the significance of this ratio is it reflects the portion

inventory as percentage of total assets, which helps the management utilization of

remaining resources profitability.

Where,



Inventory Total assets = Inventory

Total Assets

Limitations of the Study:

The collection of information and methods are mentioned above are subject to

variation from time to time the project duration of 60 days only to inventory

management.

One limitation which could be mention here is, as there are some techniques of

cost control.

It was not possible to collect information regarding the some techniques

used the company. But important techniques were considered for the

study.

Data regarding inventory cost control is not available for this study

Only five years data is used for the analysis of the study .



HINDALCO INDUSTRIES



Hindalco Industries Limited, a flagship company of the Aditya Birla Group, is structured

into two strategic businesses — aluminium and copper — and is an industry leader in

both segments. A non-ferrous metals powerhouse, close to global scale, it ranks among

India's top 10 companies in terms of market capitalization.

Hindalco commenced its operations in 1962 with an aluminium facility at

Renukoot in eastern Uttar Pradesh. Over the years, it grew into the largest integrated

aluminium manufacturer in the country. With an eye to build size and scale, Hindalco

acquired in FY 2000 a majority stake in Indian Aluminium Company Limited (Indal) -

having a major presence in downstream aluminum products and a leader in special

alumina from Alcan of Canada.

In August 2004, the boards of Hindalco and Indal approved a Scheme of

Arrangement wherein all the assets of Indal other than the foil unit at Kollur in Andhra

Pradesh were to be demerged into Hindalco. This has come into effect retrospectively

from 1 April 2004.

Hindalco is Asia's largest primary producer of aluminium, and among the most

cost-efficient producers globally. In India, Hindalco enjoys a leadership position in

primary aluminium and downstream products. Smelters are located at Hirakud, Orissa,

with a captive power plant and coal mines, and at Alupuram, Kerala. Rolled product

manufacturing facilities are located at Belur and Taloja and an extrusion plant at

Alupuram.

The company's R&D centers are located at Belgaum, Renukoot and Taloja. The

government of India’s Department of Scientific and Industrial Research (DSIR) has

recognized these. Hindalco's units are ISO 9001 and 14001 certified, while several have

also attained the OHSAS 18001 - the occupational health and safety certification. On the



export front, the company has been accorded a 'Trading House' status by the Indian

government.

As a member of the Aditya Birla Group, Indal is a part of a $6 billion corporation,

with a market cap of $5 billion. The Group’s multi-cultural, multi-lingual workforce of

72,000 employees belongs to 20 different nationalities and its products and services reach

across more than 100 countries. Its flagship companies include Hindalco, Grasim, Indian

Rayon and Indo Gulf.

Indal along with Hindalco and its Copper Division forms a non-ferrous metals

powerhouse of global size and scale, with the Hindalco-Indal combine providing

opportunities for synergy and strong market position.

INDIAN ALUMINIUM COMPANY, LIMITED (INDAL):-(Now part of Hindalco industries)

India’s foremost aluminium producer and a member of the country’s leading business

house – the Aditya Birla Group. A partner to Hindalco, India’s largest aluminium

producer, together forming a non-ferrous metals powerhouse. With technical know-how

acquired from its original promoter, Alcan Aluminium Limited, Canada (now Alcan

Inc.), Indal has brought aluminium to touch every aspect of modern day industry and life

in India.

Complete Capabilities in Aluminium:INDAL's facilities cover a wide range of operations: bauxite mining, alumina refining,

aluminium smelting with captive power generation to downstream rolling of sheet, foil

and other semi fabricated products. With technological expertise of over 60 years of

experience in the aluminium industry in India, INDAL is a market leader in the upstream



range of standard and Speciality alumina products in India, providing applications for

refractors, ceramics and electrical industries.

In the downstream segment, INDAL is the largest manufacturer of rolled products in

India with the widest range of extrusions, meeting the requirements of different industrial

applications such as building, transportation, consumer durables, packaging and

telecommunication.

Creating and Adding Value:Established in 1938, Indal operates across the value chain from bauxite mining to

alumina refining, smelting and rolling. A nationwide spread of plants, mines and offices

gives Indal the advantage of being in proximity to various regional markets within and

outside the country. The Company’s plants and mines are certified with ISO 9001, ISO

14001 and OHSAS 18001 certifications for quality, environment, safety and health.

Indal enjoys a leading market position in India for Speciality alumina chemicals and

value-added products of aluminium sheet, foil and extrusions.

The Indal units comprise two smelters, one located at Hirakud, Orissa, with a captive

power plant and coal mines, and the other at Alupuram, Kerala, two sheet plants at Belur,

West Bengal, and Taloja, Maharashtra, and an extrusions unit at Alupuram. The

Company's two DSIR recognized R&D centers are located at Belgaum and Taloja.

SUBSIDIARIES & JOINT VENTURES:

Utkal Alumina International Limited (UAIL): The joint venture company is a

subsidiary of Indal, which holds 55% equity, while the balance is held by Alcan Inc. of

Canada. The proposed alumina refinery is to be set up in Doragurha in the Rayagada

district of Orissa, to produce one million tone per annum of alumina, sourcing bauxite

from the rich reserves at Baphlimali, in Rayagada, Orissa.



Suvas Holdings Private Limited (SHPL): A subsidiary in which Indal holds 51%

equity stake, based on an MOU with Laxmi Organics Industries Limited (LOIL) and

SHPL; with the intent to operate mini hydel power plants in Maharashtra for captive

consumption at the Taloja Sheet and Kalwa Foil Plants. The Power Project is subject to

endorsement of its viability by an ongoing feasibility study.

Some recent milestones:

In April 2005, the company entered into MoUs with the Orissa and Jharkhand

governments for setting up a Greenfield alumina facility and aluminium facility

respectively, in the states.

In August 2004, the boards of Hindalco and Indal approved a scheme of arrangement

in which all assets of Indal other than the foil unit at Kollur in Andhra Pradesh were

to be demerged into Hindalco. This came into effect from 1 April 2004.

In FY 2002, Hindalco acquired the copper business of Indo Gulf Corporation

Limited, a Group company. Over the last two years, with a strategic intent to achieve

vertical integration, the copper business of Hindalco has acquired two captive copper

mines in Australia — Nifty and Mt. Gordon.

In FY 2000, Hindalco acquired a majority stake in Indian Aluminium Company

Limited (Indal), an Alcan Canada Group Company, which had a major presence in

downstream aluminium products and is a leader in Speciality alumina chemicals.

SHARE HOLDERS PATTERN:-

CATEGORY NO. OF

SHAREHOLDERS

PERCENTAGE OF

SHAREHOLDERS

Promoters 53066724 74.62



UTI & Mutual Funds 3445869 4.85

Bank & Financial

Industries

5538870 7.79

FII’s 768050 1.08

NRI / OBC’S 128174 .18

GDR’S 304658 .43

Corporate’s 1509401 2.12

Individual’s 6145767 8.64

State Govt. 204469 .29

Total 71111982 100

Hindalco Industries Key Products & their Locations:

companykey products and

brandslocations capacities country

Hindalco

Industries

Ltd.

alumina

chemicals

Renukoot (Uttar Pradesh),

Muri (Jharkhand),

Belgaum (Karnataka)

114,5000 tpa India


http://www.hindalco.net/




primary

aluminium

Renukoot (Uttar Pradesh),

Hirakud (Orissa),

Alupuram (Kerala)

424,000 tpa

extrusions Renukoot,

Alupuram

21,700 tpa

rolled products Belur,

Taloja,

Renukoot

170,000 tpa

wire rods Renukoot,

Alupuram

50,000 tpa

aluminium foil Silvassa

(Dadra & Nagar Haveli),

Kalwa

11,000 tpa

aluminium wheels Silvassa

(Dadra & Nagar Haveli)

300,000 tpa

*Indal

(subsidiary

of

Hindalco)

foil rolling Kollur (Andhra Pradesh) 3,000 tpa India

SOME ACHIVEMENT’S OF HINDALCO AS FACTFILE

India’s largest aluminium producer.

Market share of 48 per cent.

One of the lowest-cost producers of aluminium in the world.

Over 58 per cent of sales in value-added products.

Fully integrated aluminium plant at Renukoot, UP.

Aluminium wheels plant at Silvassa, in Dadra & Nagar Haveli.

Foil plants at Silvassa and Kalwa.


http://hindalco.com/about_us/tapping_new_markets.htm


Foil unit of Indal at Kollur ISO 9001:2000 and 14001 certified .

Alumina refining capacity of 114,5000 tpa.

Aluminium metal producing capacity of 424,000 tpa.

Captive power generation of 887.2 mw.

VISION“To be a premium metals major,

Global in size and reach,

With a passion for excellence”

MISSION“To relentlessly pursue the creation of superior

Shareholder value by exceeding customer

Expectations profitability,

Unleashing employee potential and being a

Responsible corporate citizen adhering to our

Values”

SOCIAL VISION“To actively contribute to the social and economic

Development of the communities in which

We operate and beyond.

In so doing build a better, sustainable

Way of life for the weaker sections of society

And help rise the country’s Human Development Index.”

VALUES

Integrity:



Honesty in every action.

Commitment:

On the foundation of integrity, doing whatever it takes to deliver, as promised

Passion:

Missionary Zeal, arising out of an emotional engagement with work.

Seamlesssness:

Thinking and working together across functional silos, hierarchy levels business and

geographies.

Speed:

Responding to stakeholders with a sense of urgency.

QUALITY POLICY

We, at Hindalco Industries Limited, are committed to pursue and sustain

excellence through continual improvement in all our activities.

To achieve these goals, we shall:

Meet and exceed the expectations of customers with speed, ensuring reliable

and consistent customer service.

Associate with Suppliers to ensure high quality of inputs through proactive

partnership.



Improve effectiveness of Quality Management System with emphasis on in-

process control.

Foster teamwork, educate, train, motivate and involve employees in achieving

the Quality Objectives.

Establish viable modernisation of manufacturing facilities and encourage

technological innovations.

Provide value for money and be globally competitive.

ENVIRONMENTAL & ENERGY POLICY

We, at Hindalco Industries Limited – a premier name in Aluminium & Copper,

operating across the process chain form mining to semi-fabricated products – stand

committed to continually strengthen our energy efficiency and environmental

performance in order to achieve Sustainable Development.

To achieve this, we shall

Institutionalise an Energy & Environmental Management System across all

production & operational activities, which can be monitored through periodic

audits.



Comply with all applicable legislations and go beyond wherever technolo-

economically viable.

Enhance material efficiency, achieve high process/equipment productivity and

adopt pollution prevention practices.

Adopt energy efficient and cleaner technologies; appropriate to the region in

which we operate and in line with our future growth and diversification plans.

Promote use of non-conventional and renewable every, waste heat recovery

and incorporate technological interventions to reduce Green House Gases

(GHG) from our operations.

Reduce open land storage of wastes, and take active measures to promote

industrial recycling and re-use.

Work in partnership with regulatory authorities, relevant suppliers, contractors

and stakeholders to meet the requirements of the policy.

OCCUPATIONAL HEALTH & SAFETY POLICY

We, at Hindalco Industries Limited, value people as our most important resource

and are committed to achieve excellence in health and safety management by providing a

safe and healthy work environment, at all locations.

To achieve these goals, we shall:

Inculcate a sense of responsibility related to occupational health & safety,

amongst all levels of employees.

Use safe and better technology for ensuring and upgrading health and safety

standards.



Develop, sustain and continually improve safe work practices and standards to

safeguard employees, contractors, community and assets.

Comply with all prevalent statutory and regulatory requirements related to

occupational health and safety.

Promote and enhance safety awareness and consciousness amongst all

employees, through training and development.

Monitor and review health and safety management systems and working

conditions, periodically.

This policy shall be made available to all employees, suppliers, customers, community

and other stakeholders.

CORPORATE SOCIAL RESPONSIBILITY POLICY

We, the employees of Hindalco Industries Limited are committed to realise our

Groups Social vision to actively contribute to the socio-economic development of the

underprivileged communities around us for a better, sustainable way of life and thereby

help raise the country’s Human Development Index.

While adopting the principles of Sustainable Development, we shall strive to

work in partnership with the community, government and other stakeholders.

We shall fulfil our responsibility as a good corporate citizen through a

comprehensive plan, which will focus on:



Health, Sanitation and Family Welfare.

Primary & Adult Education.

Sustainable Livelihood through income generation, agriculture based

programmes including Watershed Development.

Women’s Empowerment through self-help Groups.

Infrastructural Development & Support.

Expousing Social Causes.

With the overall aim of building long term socio-economic self reliance among the

communities in which we operate.

Strategic ObjectivesThe Company recognizes that the conduct and effectiveness of an organization are

mainly anchored to the quality of its workforce. In order to fulfill its purpose and to

achieve its objectives the company requires commitment and dedication of its employees

who place high value not only in the interest of the company but also in the interest of

other individual entities

The objectives are:

To operate at a level of profitability, which will ensure the long term

economic viability of the company by providing a return on equity, which

compares favorably with other industries of similar capital intensity and risk

which will enable the company to attract adequate to support its growth.

To aspire towards a high level of operating, technical and marketing

excellence, and to make the optimum use of assets, which will ensure a strong

competitive position in the markets served by the company.



To strive to satisfy customers by integrating there needs into the company

products and services with efficiency and professionalism and to give the best

value to them by promoting quality products.

To improve the process of managing the company affairs through proper

planing, timely implementation of plans and regular performance reviews.

To sustain an organization of able and committed employees and to provide

them with opportunities for growth and advancement.

To foster a culture of innovation with the application of new ideas and

methods to solve business problems and seize opportunities.

To recognize and seek to balance the interest of shareholders, employees,

customers, suppliers, government as well as the public at large.

To uphold the highest standards of integrity in the conduct of all phases of

business.

SECRET OF SUCCESS:

The Board of Directors of Hindalco and Indal in their respective meetings today

have approved a scheme of arrangement between the two Companies, which entails the

demerger of all the businesses of Indal with the exception of the business pertaining to

the foil plant at Kollur, into Hindalco. The scheme of arrangement is subject to necessary

approvals, and will take effect retrospectively from 1 April 2004 when sanctioned by the

courts. According to Mr. Kumar Mangalam Birla, Chairman of the Aditya Birla

Group, “Hindalco owns nearly 97 percent equity in Indal. I believe that the time is

opportune to take this strategic stake to its logical conclusion. We would like to bring the

maximum focus and harness all possible synergies to attain even higher levels of growth

and enhance stakeholder value.”

Over the last four years, both Hindalco and Indal have worked in tandem for the

growth and development of the aluminium sector. Both Hindalco and Indal have posted



path-breaking results. Such a move would help in leveraging their combined strength

even further said Mr. D. Bhattacharya, Managing Director, and Hindalco.

Future outlookThe company’s business strategy is to ensure profitable growth in the future will

be through: Realization of synergy gain with Hindalco to ensure better market position,

combining Indal’s strengths in Alumina and down stream segments with Hindalco’s

advantage in primary metal.

Higher assets utilization across plant location, particularly leveraging the benefits

of the upgraded rolling mills as well as taking steps to optimize use of idle physical

infrastructure assets and enriched product mix for higher returns from existing assets.

Strengthening of exports with an emphasis on consolidating Indal’s presence in existing

market while tapping new regions for export of value added product viz., especially

alumina and downstream sheet, foil and extrusions. Cost control efforts including better

logistics, higher operating efficiencies and improved working capital management.

Strategic growth plansAll capex plans pertaining to Indal, for which a sum of Rs.2000 crore has been

earmarked, will be undertaken as planned under the aegis of Hindalco.

Among these are:

The expansion of its metal capacity to 100,000 MT per annum,

Its power generating capacity to reach 267.5 MW at Hirakud,

Ramping up the alumina plant at Muri to 500,000 MT per annum and

Enhancing the special alumina chemical capacity to 127,000 MT per annum at

Belgaum.

TAKE A VIEW OF HINDALCO INDUSTRIES BELGAUM.HISTORY OF THE PLANT (Belgaum works)



The INDAL plant at Belgaum was established in 1968 and started operations on

the 7th November 1970. It is situated about 6 Kms., from Belgaum City, beside the

National Highway. It has a total area of 1400 acres.

This was the only unit of INDAL, which started with both the facilities - Alumina

Plant and Smelter Plant. The main products of this unit are Alumina Hydrate, Calcined

metallurgical grade alumina and Special grades of aluminas and Hydrate. The Alumina

Plant was set up with a capacity of 1,60,000 tons of Alumina per year and Smelter Plant

had a capacity of 73,000 tons of metal per year. Due to the hike in the power rates, the

potlines in the Smelter had to be de-energized in 1995. The subsidiary of Smelter plant –

Carbon Paste and Block Plant is still in operation. Owing to increased demand of hydrate,

aluminas and Speciality chemicals in the export market, the Alumina Plant was expanded

in several stages and currently operates at about 3,40,000 T of Hydrate (as Alumina) per

annum.

The Specials plant – a branch of Alumina plant manufacturing specialty grades of

hydrate and Alumina is being operated at 60 KT per annum. The raw material-Bauxite is

brought from Durgmanwadi Mines 120 Kms from Belgaum. About 70% of the total

production are exported. The Carbon Paste and Block Plant is operated using imported

raw materials (Carbon Pitch Coke) from Korea.

Marketing of Hydrates and Aluminas is a major business objective, both at the

domestic and International Levels. The non-metallurgical grade Aluminas, also termed as

‘Special Alumina Chemicals’, find wide usage in diverse industries such as high-grade

refractors, zeolite, alum, plastics, paper, industrial ceramics and high-tension insulators.

PRODUCTS OF HINDALCO – BELGAUM:CHEMICALS (Aluminium Capacity 14,01,000 TPA)



The chemicals units comprise bauxite mining at lohardaga (Jharkhand),

Durgmanwadi (Maharashtra), the alumina refineries at Muri (Jharkhand) and Belgaum

(Karnataka), including facilities for specialty grade alumina chemicals.

ALUMINUM

Metal & Power (Metal capacity 1,10,10,000 TPA captive power 67.5 MW) Indal’s

smelters are located at Hirakund (Orissa) & Alupuram (Kerala).

SHEET

Indal’s sheet rolling mills are located at Bellur (West Bengal) and Taloja

(Maharashtra). The continuos caster at Hirakund (Orissa) Provides Comcast coils

for cold rolling at Bellur.

FOIL & PACKAGING

The foil plant is located at Kalwa (Maharashtra) is equipped with the latest

microprocessor based gauge control system to ensure world class rolling of foil and state

of the art converting equipment.

EXTRUSIONS

Indal’s extrusions unit based at Alupuram (Kerala) offers the widest range of

alloys and shapes in India.

PRODUCTS

The main products of Alumina Plant, Special Products & Carbon Paste & Block

Plant are as under:

Aluminium Hydrate

Calcined Alumina

Vanadium Sludge

Various Grades of Alumina & Hydrate produced as Special Products.

Carbon Paste & Blocks.



SPECIAL PRODUCTS

Alumina can be broadly divided into two types-Metallurgical and Non-

Metallurgical Grades. Metallurgical grade alumina is being used for the production of

aluminium. While Speciality grade hydrate & alumina is used for various other

applications like fusion, grinding media, tiles, refractory, high tech ceramics, filler in

SMC/DMC compound, Alum, Glass etc.

The Belgaum Works is divided into the following Departments:Alumina operations and production

Specials

Alumina R&D

Alumina mechanical

Boiler house

Machine shop

Garage

PPC

CPBP

Civil & pump house

EPD

Alumina electrical E & I

Smelter R&D

Smelter mechanical

Smelter electrical

Smelter sales

GM office

HR

Accounts

Purchase

Traffic



Stores

Exim

Dispatch

Systems

W.C.M

BRDC

Corporate

In all there are around 777 employees, who include the management, workers

these all are full time enrolled people.

MARKETING

Indal (Now part of Hindalco) has no marketing division at Belgaum works, all of

Indal (now part of Hindalco) units the units work independently, and for the sales and

marketing there are separate centers which co-ordinate with all the units and look into the

sales and marketing of the products. The sales office is in Bangalore, Delhi, and

Hydreabad.

FINANCE (ACCOUNTS DEPARTMENT)

This department handles all financial transactions, costing and billing operations

negotiation process, maintaining and preparing various invoices, payments and receipts

are the to major areas of operation done by this department. In addition taxation cash loan

normal and statuary payments expenses, this section handles advances and other

operations relating to banks.

OPERATIONS

The main operations are based in the CPBP, Alumina and special products. These

departments are the core for the manufacturing of Alumina carbon block, carbon paste

and special products. These departments comprise of smaller departments and each of

these 3 major departments has a department head.



The majority of the people are working in Alumina, CPBP and Special products

departments, and the work is carried out in shifts.

RESEARCH AND DEVELOPMENT:

INDAL’s (now Hindalco) R&D centers at Belgaum and Taloja are recognized by

the department of Scientific and industrial research (DSIR). The Belgaum R & D center

carries out studies on ores, alumina and specially grades and carries out overseas

assignments in collaboration with ALCAN. The R & D lab has the status of “Center of

Excellence” for predicting organic behavior in refineries. A joint technical development

program with ALCAN is under execution in the field of raw materials. Both the R & D

centers have attained ISO 9001 & 9002 certification, with the Belgaum R&D center

having recently adopted the revised ISO 9001:2000 standard.

Over the last five years, about rupees 560 million has been spent on R &D – a

testimony to INDAL’s commitment towards developing new applications for

alumina/aluminum, optimizing manufacturing process and ensuring environmental

friendliness.

HUMAN RESOURCE DEPARTMENT

Belgaum works has a separate HR Department, which looks into the daily

administration and also into the specific and nitty gritty of the company, it is the bridge

between the production, employees, management and the outside world. This department

is concerned with implementation of the plans, with the welfare of the plant, with the

industrial relations and above all safety and security of the plant and the work force is its

prime concerns. This department looks after the subsidiaries like recruitment selection

training and induction, canteen community development disciplinary actions ESI,

welfare, security, guesthouse medical facility etc.

INTERNATIONAL TRADE DEPARTMENT



Indal’s alumina, chemicals, sheet, foil, extrusions & carbon products all complete in

export markets, particularly across the Indian Ocean, from East Coast of Africa across the

middle cost, south East Asia and the far east. New market in Europe, U.S.A. China,

Japan & Australia are also being explored.

OTHER VARIOUS DEPARTMENTS:

Commercial Department

Stores Department

Purchase Department

Accounts Department

Dispatch Department

Accounts Department

Other departments are:

Traffic Department

Exports Department

Project Department

EPD Department

Legal Cells

Systems Department

Environment Department

Work Managers Office



Engineering Department

Production Department: (BAYER’S PROCES)



ORGANISATION STRUCTURE

Indal’s organization is structured into Strategic Business Units (SBU’s) each responsible

for its own production, technology development and marketing, drawing upon centralized

service functions in Corporate Finance, Human Resource Development, Corporate

Affairs, Planning & Monitoring, Legal, Engineering Projects & Materials Management,

Secretarial & Investor Services and Infocom.

The heads of each business and function along with the Chief Operating Officer

constitute the Management Committee. This Committee formulates strategic plans and

policies to take the business forward and monitors/reviews implementation of the

Company’s Strategic Business Plans.



ORGANISATION STRUCTURE



WORLD CLASS MANUFACTURING ACTIVITIES: WCM

WCM is a competitive strategy that aims for shareholder’s value creation enough focus

on sustainable and superior QCEIP performance and other parameters. The objective of

our WCM initiative is to successfully compete with any organization in which every

employee from top to bottom is working towards making that organization the best in its

particular field. It is based on the idea that each person is an expert in his or her own job,

and by synergizing the collective thinking power, creativity and job knowledge of

everyone in the organization, we can accomplish this objective.

One cannot seek cultural change in a business like manner. It is not something that can

be bought or installed like computer software. Developing a culture is like planting a

garden. It takes time. It requires vision, planning and systematic & disciplined

application of skill & effort. We could understand that the task is by no means easy, as

part of the problem is duality of WEM philosophy that stresses both on Instrumental and

the inspirational. The inspirational is essential for sustaining the initial flush of

enthusiasm.

Main Purposes of WCM Workshop are:

Build up the Top Management Will, thus getting a Commitment form them.

To introduce and proliferate the concepts, tools and techniques of World Class

Manufacturing at all levels.

Develop Leads (known as Champions of Change) to further proliferate the WCM

Concepts in plant once the Conference Cum Workshop is over.

Establish a common language amongst the Champions of Change.

Develop a Culture for Excellence involving People, and creating a Mindset for doing

quality work in all that we do, everytime, and all the time.



WCM (WORLD CLASS MANUFACTURING)

A main aspect of the company, it is moving towards building a WCM unit in the

organization. Below is the WCM model of the company.

ZERO DEFECTS

ZERO LOSSES

ZERO BREAKDOWNS

ZERO POLLUTION

ZERO ACCIDENTS

ZERO CUSTOMER COMPLAINTS



EIGHT DIMENSIONS:

1. Waste Elimination (MUDA): Waste is anything which customer does not look for or

pay for. Any activity, which is not adding any value to business, is considered as

MUDA.

2. Work Environment (5s): It stands for good house keeping concepts and is

considered the basis for continuous productivity and quality improvements Respect

Standards and cultivates good habits.

The 5s Stands for:

Sorting

Systematic Arrangement

Spick & Span

Serene Atmosphere

Self Discipline

3. Just In Time: The prime goal of just in time is the achievement of Zero Inventories

not just within the confines of a single organization but ultimate through.

4. Equipment Effectiveness / TPM: It is an innovative approach to maintenance that

Optimized Equipment Effectiveness, Minimizes waste promote, Zero Accidents, Zero

Breakdowns & Zero Pollution- through team activities involving all levels of

employees.

5. Customer Driven (Internal & External): This dimension ensures customer delight,

both internal as well as external in enables understanding of customer expectations of

our products / services.



6. Strategic Quality Management (SQM): It is the process of establishing long-term

quality goals and defining the approach to meet these goals. It is centered on quality

based on the participation of all its members and aiming at long-term success through

customer’s satisfaction and benefits to the members of organization and society.

SQM is developed, implemented and led by the upper management. Here, we

integrate quality into strategic planning.

7. Liaison and Understanding: Liaison is co-ordination/communication between the

two extreme ends, liaison needs proper scheduling to achieve the satisfaction of your

customer liaison and understanding therefore is most essential. The need for liaison

and understanding is to meet the immediate demand of the market.

8. Information, Systems, Technology & Cash Flow: Keeping upto date with

information from various sources the suppliers, customers, competitors, employees

and other stake holders is extremely necessary for managing the business systems for

effective manufacturing, continuous up-gradation of technology and effective cash

flow are the basic requirements and WCM.

AWARDS & RRECOGNISATION

1987: Nathaneal V Davis Alcan Safety Owl for best

Safety performance.

1996: National Award for Energy Conservation (Aluminium Sector) from

ministry of Power, Government of India.

2001: National Energy Conservation Award for Belgaum.

2003: Greentech Gold Award for Environment Management.

2004: Greentech Gold Award for Safety.

MAJOR PLAYERS



5The Industry is oligopolistic in nature with three players in the sector

National Aluminium Co Ltd. (NALCO), Hindalco Industries Ltd. (HINDALCO), Sharat Aluminium Co Ltd. (SALCO), The Indian Aluminium Co Ltd. (INDAL) & The Madras Aluminium Co Ltd. (MALCO)

INDAL, which is popularly known as Indian Aluminium Co Ltd., is one of the 20th largest public Ltd. Co., in India. Indal engaged in all phases of the Aluminium Industry from bauxite mining through smelting to manufacture of a wide range of finished aluminium product.

CUSTOMERS HUBHYDRATES:

Asian Bentonite, Indonesia, Malaysia, Philippines, Korea Oman Chemicals IOSK Singapore Thai Acids: Bangkok – Thailand Ta-Shain: Taiwan Kel Chemicals: Kenya

ALUMINA: New Co. Ag.Switzerland Hydro Aluminium: Stabckk (Norway) Gerald Metals: Switzerland Glencore AG: Zurich (Switzerland)

CARBON PASTE & BLOCK PLANT: Balco Nalco V.B.C. Ferra Alloys: Andhra Pradesh Iran Ferro Silices: Iran

SWOT Analysis of Hindalco Industries Limited, Belgaum WorksSTRENGTH:



Integrated Operations from Bauxite Mining, Alumina Refining & Specials.Dominate Player in Domestic Market in Specialty Alumina & Hydrates.Established Export Presence in 30 Countries.Highly Competent, Committed & Skilled Operatives & Technical Personnel.Among the Best in Specific Energy Consumption in Alumina Industry.

WEAKNESS:Non-Global Scale of Operations.High Exposure to Furnace Oil as majors Source of Energy Input.High Cost of State Grid Electrical Energy & Supply interruptions.Higher Cost of Logistics & Inward and Outward Material movement 100% by Road.Alumina Quality More Suited to HSS Technology, which is getting phased out.There is not proper inventory control system.

OPPORTUNITIES:Growing Speciality Alumina & Hydrate Market.Changes In Speciality Market Structure with two Major Global Players Vacating the Market.Growing Metallurgical Alumina Demand.Lower Investment Cost for Brownfield Expansion.They adopts sophisticated software then their company will be increase its profitability

THREATS:Inadequate Bauxite Reserves for operations both at current level & for Expansion.Cyclical Metallurgical Alumina Prices Causing Wide Fluctuations in Profitability.Cyclical & Rising Furnace Oil Prices.Social & Environmental Issues Related to Red Mud Disposal & Storage.



Inventory Management

Description of Inventory Control

Effective Cost Control Techniques

INVENTORY MANAGEMENT:

In modern competitive one of the burning problem of every business and

industries that of cost control and cost reduction. An all pervasive effort for cost control

and cost reduction is of paramount, importance for survival and growth of every

industrial enterprises. This is why inventory management as a scientific device for



controlling inventory cost and eliminating wastage, is now regarded as an integral part of

industrial management. Inventory management does not involve any human factor, as it

concerns itself not with men but with inventory.

Meaning of Inventory:

The dictionary meaning of inventory is stock of goods, of a list of goods;

various authors understand the word inventory differently. In accounting language

it may mean stock of initial goods only. In a manufacturing concern, it may

include raw materials; work in process and stores etc. To understand the exact

meaning of the word ‘inventory’ we May study it from the usage side or from the

side point of entry in the operations. Inventory includes the following things.

1. RAW MATERIALS

Raw material form a major input into the organization. They are required

to carry out production activities uninterruptedly. The liquidity of raw

materials required will be determined by the rate of consumption and the time

required for replenishing the supplies. The factors like the availability of our

materials and the government regulations, etc. to affect the stock of raw

materials.

2. WORK IN PROGRESS

The work in progress is that stage of stocks, which are in between the materials

and initial goods. The raw materials enter the process of manufacture but them yet

party in a final shape of initial goods. The quantum of work in progress depends

upon the time taken in the manufacturing process. The greater the time taken in a

manufacturing the more will be the amount of work in progress.



3. CONSUMABLES:

These are the materials, which are needed to smoothen the process of production.

These materials were not directly enter production but they act as catalysts etc..

Consumables may be classified according to their consumption and criticality.

Generally, consumables stores to not create any supply problem and form a small part

of production costs. They can instances where these materials may account for much

value than the materials. The fuel oil may form a substantial part of cost.

4. FINISHED GOODS

There are the goods, which are ready for the consumers. The stock of initial

goods provides a buffer between production and market. The purpose of maintaining

inventories to ensure proper supply of goods to customers. In some concerns the

production is undertaken on order basis, in these concerns they will not be need for

finished goods the need for finished goods inventory will be more when production is

undertaken in general without waiting for specific orders.

5. SPARES

Spares also form of part of inventory. The consumption pattern from materials,

consumables, finished goods are different from that of spares. The stocking policies

of spares for different from industry to industry. Some industries like transport will

require more space than the other concerns. The costly spare parts like engines,

maintenance spares etc. are not discarded after use, rather they are kept in ready

position for further use. All decisions about spares are based on the financial cost of

inventory on such and the cast that may arise due to their non-availability.

PURPOSE-BENEFITS OF HOLDING INVENTORIES:

Although holding inventories involves blocking of firms funds and the cost of

storage and handling, every business enterprise has to maintain a certain level of

inventories to facilitate uninterrupted production and smooth running of business. In the



absence of inventories a firm will have to make purchases as soon as it receives orders. It

will mean loss of time and delays in execution of orders, which sometimes may cause

loss of customers and business (stock out). Therefore also needs to maintain inventories

to reduce ordering costs and avail liquidity discounts etc.. Generally speaking, there are

three main purposes or motives of holding inventories.

1. THE TRANSACTION MOTIVE: Which facilitates continuous production and

timely execution of sales orders.

2. THE PRECAUTIONARY MOTIVE : Which necessitates the holding of inventories

for meeting the unpredictable changes in demand and supplies of materials.

3. THE SPECULATIVE MOTIVE: Which induces to keep inventories for taking

advantage of price fluctuations, saving in the ordering costs and quantity discounts etc.

RISK AND COST OF HOLDING INVENTORIES:The holding of inventories involves blocking of a firm’s funds and incurrence of

capital and other costs. It also exposes the firm to certain risks; the various parts risks

involved in holding inventories are as below

1. CAPITAL COSTS

Maintaining of inventories result in blocking of the firm's financial resources.

The firm has therefore to arrange for add both the cases the firm incurs a cost. In the

former case, there is an opportunity cost of investment while in the latter case; the

firm has to interest to the outsiders

2. STORAGE AND HANDLING COSTS

Holding of inventory is also involves costs on storage as well as handling of

materials. The storage costs include the rental of the godown, insurance initial funds



to meet the cost of inventories. The funds may be arranged from own resources or

from outsider. But in charges etc

3. RISK OF PRICE DECLINE

There is always a risk of reduction in the prices of inventories by the suppliers in

holding inventories. This may be due to increased market supplies, competition or

general depression in the market.

4. RISK OF OBSOLESCENCE

The inventories may become obsolete due to improve technology, changes in

requirements, change in customers taste etc.

5. RISK DETERIORATION IN QUALITY

The quality of the materials may also deteriorate while in the inventories are kept

in stores.

INVENTORY MANAGEMENT:

The investment in inventory is very high in most of the undertakings increased in

a manufacturing wholesale and retail trade. The amount of investment is sometimes more

in inventory than in other assets. In India, a study of 29 major industries has revealed

that the average cost of materials is 64 paise and the cost of labour and overhead is 36

paise in a rupee. In industries like Sugar, the materials cost is as high as 68.75% of the

total cost. About 90% of part of working capital is invested in inventories. It is

necessary for every management to give proper attention to inventory management. The

proper planning of purchasing handling, storing and accounting should form a part of

inventory management. An efficient system of inventory management will determine (a)

what to purchase (b) how much to purchase (c) from where to purchase (d) where to store

etc.



There are conflicting interests of different departmental heads over the issue of

inventory. The finance manager will try to invest less in inventory because for him it is

an idle investment, whereas production manager will emphasis to acquire more and more

inventories as he does not want any interruption in production due to shortage of

inventory. The purpose of inventory management is to keep the stocks in such that

neither there is over stocking nor under-stocking. The over stocking will mean a

reduction of liquidity and targeting off other production processed: under stocking on the

other hand will result in stoppage of work on the investment in inventory should be kept

in reasonable limits.

OBJECTS OF INVENTORY MANAGEMENT:

The main objectives of inventory management or operational and finances the

operational objectives mean that the materials and the spares should be Honorable in the

sufficient liquidity is so that work is not disrupted for want of infantry. The finance

object means that investments in inventories should be remain idle and minimum

working capital should be locked in it the following are the objectives of inventory

management.

1. To ensure continuous supply of materials spares and finished goods so that production should not suffered at any time and the customers demand should also be met.

2. To avoid both over stocking and under-stocking inventory.

3. To maintain investments in inventory is at the optimum level as required by the operational and sales activities.

4. To keep material cost and control so that they contribute in reducing cost of production and overall costs.



5. To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralizing purchases.

6. To minimize losses through deterioration, pilferage, wastages and damages.

7. To design proper organization for inventory management. A clear-cut accountability should be fixed at various levels of the organization.

8. To ensure perpetually inventory control so that materials shown in stock ledgers should be actually lying in the stores.

9. To ensure right quality goods at reasonable prices. Suitable quality standards will ensure property quality of stocks. To the price analysis will ensure payment of proper prices.

10. To facilitate furnishing of data for short-term and the long-term planning and control of inventory.

PURPOSE-BENEFITS OF HOLDING INVENTORIES

Although holding inventories involves blocking of firms funds and the cost of

storage and handling, every business enterprise has to maintain a certain level of

inventories to facilitate uninterrupted production and smooth running of business. In the

absence of inventories a firm will have to make purchases as soon as it receives orders. It

will mean loss of time and delays in execution of orders, which sometimes may cause

loss of customers and business (stock out). Therefore also needs to maintain inventories

to reduce ordering costs and avail liquidity discounts etc.. Generally speaking, there are

three main purposes or motives of holding inventories.

1. THE TRANSACTION MOTIVE: Which facilitates continuous production and

timely execution of sales orders?

2. THE PRECAUTIONARY MOTIVE : Which necessitates the holding of inventories

for meeting the unpredictable changes in demand and supplies of materials.



3. THE SPECULATIVE MOTIVE: Which induces to keep inventories for taking

advantage of price fluctuations, saving in the ordering costs and quantity discounts etc?

RISK AND COST OF HOLDING INVENTORIES:

The holding of inventories involves blocking of a firm’s funds and incurrence of

capital and other costs. It also exposes the firm to certain risks; the various parts risks

involved in holding inventories are as below

1. CAPITAL COSTS

Maintaining of inventories result in blocking of the firm's financial resources.

The firm has therefore to arrange for add both the cases the firm incurs a cost. In the

former case, there is an opportunity cost of investment while in the latter case; the

firm has to interest to the outsiders

2. STORAGE AND HANDLING COSTS

Holding of inventory is also involves costs on storage as well as handling of

materials. The storage costs include the rental of the godown, insurance initial funds

to meet the cost of inventories. The funds may be arranged from own resources or

from outsider. But in charges etc

3. RISK OF PRICE DECLINE

There is always a risk of reduction in the prices of inventories by the suppliers in

holding inventories. This may be due to increased market supplies, competition or

general depression in the market.

4. RISK OF OBSOLESCENCE

The inventories may become obsolete due to improve technology, changes in

requirements, change in customers taste etc.



5. RISK DETERIORATION IN QUALITY

The quality of the materials may also deteriorate while in the inventories are kept

in stores.

MATERIALS MANAGEMENT MODULE

Objective: To provide the requisite materials at the right time, Right place and at an optimum cost.

Order Status details Production Plan Bill of materials details Production Cycle Time Procurement Lead time Stage of Material Requirement ROL for Non-Project Materials Part No. Name and Code. Details of Equivalent Part No’s Details of Shelf Life Items Details of items pending inspection Details of insurance claims Details of Dispatch advices Vendor directory and Rating Approval of PC/MPC Concerned CFA Purchase order details Technical Acceptance exists or not Budget Provision Receipt of Materials Issue of Materials Utilization of Customer Store Re-classification details Stock Transfer details Stock Verification Not Advances O/S details BOI Procured Against Indents BOI Utilized Against HAL Fab items



Production Hold up details Hours planned for subcontract Cumulative loading for sub-contract Details of established sources Bill of Material Utilization Factor (P Factor) Price Catalogue Details Vendor price catalogue and Discount Details Items planned for Indigenization Planned time for completion

INVENTORY CONTROL:

Inventory control includes performing one or more wide various of staff or

administrative functions such as

1. Initiating, developing, installing or administrating a control program.

2. Developing long range material support plans

3. Analyzing, evaluating, revising new inventory management systems.

4. Providing guidance on or conducting surveys of supply and inventory

management function.

Responsibility of inventory specialists:

Controlling and authorizing finding for material so that the proper kind,

quality and quantity is available at the correct time and place.

Maintaining records and controls over material in stock, planned for

distribution system.

They decide upon inventory level

Kinds and fixation of inventory level:

The various levels fixed for effective inventory control are as follows

MINIMUM LEVEL:



It represents the quantity below which the inventory of any item should not be

allow to fall, in other words an enterprise must maintain minimum quantity of stocks. The

following factors should be considered in order to fix minimum stock level

Reorder level

Lead time

Average rate of consumption of material

Where,

Minimun level =Reordr level-Aerage consumption*lead time

Maximum level

It represents the level beyond, which the stock in hand is not allowed to

exceed .This is because of the cost involved in holding more than required stock.

RE ORDER LEVEL:

When the quantity of materials reaches at a certain figure the fresh order is tended

to get materials again. The order is sent before the materials reaches minimum stock

level. The reordering level or ordering level is fixed at between the minimum level and

maximum level. The rate of consumption, number of days required replacing the stocks

and maximum quantity of materials required on any day are taken into account while

fixing the reordering level. The ordering level is fixed with the following formula.

Re order level = maximum consumption X maximum Re-order period.

MAXIMUM LEVEL:

It is the quantity of materials beyond which the firm should not exceed its stocks

if the quantity exceeds maximum level limit then it will be over stocking. Your firm

should avoid over stocking because it will result in high material costs. Over stocking

will mean blockading of more working capital, more space for storing the materials, more



wastages of materials and more chances of losses from obsolescence. Maximum stock

level will depend upon the following factors.

1. The availability of capital for the purchase of materials.

2. The maximum requirements of materials at any point of time.

3. The availability of space for storing the materials.

4. The rate of consumption of materials storing lead-time.

5. The cast of maintaining the store.

6. The possibility of fluctuation in prices.

7. The nature of materials. If the materials or perishable in nature then they

cannot miss told for long.

8. Availability of materials. If the materials are available only during

seasons then they will have two bestowed for the rest of the period.

9. Restrictions imposed by the government sometimes government fixes the

maximum quantity of materials, which a concerned can store. The limited

fixed by the government will become the limiting factor and maximum

level cannot be fixed the more than this limit.

10. The possibility of changing in fashions will also affect the maximum level.

Maximum stock level = reordering level + reordering quantity - (minimum

consumption X minimum reordering period)

SAFETY LEVEL:

The consumption rate of materials and lead time don’t remain constant and

therefore to guard against the uncertainty, an extra stock is always maintained which is

known as safety stock.

A safety stock of materials is maintained as insurance against stock depletion due

to increase usage or unusually long delivery times, which cause the stock to fall below

minimum level. The main objective behind keeping safety stock is minimizing stock out

cost.



INVENTORY CONTROL TECHNIQUES:

Inventory control techniques are employed by the inventory control. Organization

within the frame work of one of the basic inventory model, viz., fixed order quantity

systems or fixed order period system.

Inventory techniques represent the operations aspects of inventory management

and help to realize the objective of inventory management and its control.

Several techniques of inventory control are in use and it depends on the

policy of the firm product, the techniques most commonly used are:

1. Always Better Control (ABC) Classification

2. High, Medium and Low (HML) Classification

3. Vital, Essential and Desirable (VED) Classification

4. Scare, Difficult and Easy to obtain (SDE)

5. Fast moving, Slow moving, and Non moving (FSN)

6. Economic Order Quantity (EOQ)

7. Max – minimum System

8. Two bin System

9. Material Requirement Planning (MRP)

10. Just In Time (JIT)

11. Distribution Logistics (DL)

a) ABC Analysis: It is one the widely used techniques for the control of inventory.

Objective of ABC control is to vary the expenses associated with maintaining appropriate

control according to the potential savings associated with the proper level of such a

control. A may account for more than half the total value usage in the inventory. These

items required very careful management and special careful estimates of future usually

class C items which in total account for only a few percent of the total value of usage

very little effort should be devoted to forecast the requirement of items. The inter mediate

class B items justify a reasonable but routine effort in forecasting demands and managing

inventory.



b) HML Analysis: Since the total annual usage is considered in case of ABC Analysis,

quite a few items which fall in B category although the unit cost (cost per unit) is quite

high. If controls are exercised on the basis of ABC only, the importance of these items

will be much less than A or B items even though the inventory or transaction of one unit

of these items will mean quite a lot money. Therefore, it is necessary that the unit cost is

also considered in order to find out the importance of items on the basis of unit cost.

Limits of units costs are fixed for high costs items (H), medium costs items (M) and low

cost units (L) and all items are segregated into H, M and L categories depending on there

unit cost.

This analysis is quite useful in deciding the safety stock in relation to the

availability of the material.

c) VED Analysis:

The materials classification on the items is called VED analysis. VED stands for

vita, Essential and Desirable.

Vital items which render the requirement or the whole line operation in the

process totally and immediately inoperative, unsafe and if these items go out of stock or

not readily available, results in losses of whole production of whole period.

E-Essential items which reduce the equipment’s, performance but not render it

inoperative, results or unsafe, non-availability of items may result in temporary loss of

production or dislocation of production work replacement can be done without any

delayed, without affecting the equipment’s performance seriously, temporary repairs

sometime possible.

D-Desirable items which are mostly non –functional and don’t effect the performance of

the equipment.

d) FSN Classification :



Materials can be classified on the basis of movement as fast moving slow moving

and non moving –FSN according to their consumption patterns. FSN analysis is specially

useful to combat obsolete items whether spare parts, raw material or component. Cut –off

points of three classes are usually in items of number of issues in previous few years

depends on the peculiarities of an individual concern.

e) SDE Analysis:

SDE stands for scarce, difficult and easily available items in the local market.

Scarce items are generally in short supply; usually these are raw material, spare parts and

imported items. Difficult items are not available in local markets, and have to be

produced from for off cities or items for which there are a limited a number of supplies or

items for which quantity suppliers are difficult to get.

The SDE analysis proves to be very useful, in industrial situations where certain

materials are in scare supply, and gives proper guidelines for deciding inventory policies.

f) XYZ Analysis:

For the effective management of stores, the stock can be split as high valued,

middle value or low valued – XYZ classification. This technique helps in identifying the

items, which are being extensively stocked. ‘X’ items are those whose inventory values

are high while ‘Z’ items are those whose values are low. Understandably ‘Y’ items fall in

between these tow categories. XYZ classification may be used in the conjunction for the

better results.

g) Minimum-Maximum Techniques :

The Minimum –maximum system is often used in connation with manual

inventory control system.

The minimum quantities is established in the same way as any re-order point.



The effectiveness of minimum-maximum system is determined by the method and

precision with which the minimum.

h) Two Bin Technique:

One of the oldest system of inventory control is the two bin system, stock of each

item is separated into two bins.

One bin contains stock, just enough to last from the data a new order is placed

until it is received in inventors.

The other bin contains quantities of stock, enough to satisfy probable demand

during the period of replenishment

i) Material Requirement Planning (MRP):

MRP is a new solution to an old problem having stock of materials a lowers on

hand when heeded without carrying excess inventory.

j) E.O.Q. Model : There are two basic questions relating to inventory management

1. What should be the size of the order

2. At what level should the order be placed.

To answer this question the economic order quantity model is helpful. General

E.O.Q. includes 3 types of costs, that are carrying cost, ordering cost & shortage cost.

GOAL



i) Just in Time : The management of inventory has become very sophisticated in recent

years. In certain industry the production process it self lends to just in time (J I T)

inventory control. As the name implies, the idea is that the inventories are acquired and



inserted in the production at the exact time they are needed. This requires efficient

purchasing, very reliable and an efficient purchasing, very reliable and an efficient

inventory handling system. One thing that has made this possible is advent of instant

information through sophisticated computer networks. The coordination of varies

suppliers in an efficient manner is known as supply chain management.

j) Distribution Logistics: An exciting and profit promising way of using systems

logistics in planning and control is the expansion of inventory control to include other

factors. This system is referred to here as distribution logistics. In its advance form. It

treats the entire logistics of business – ranging from sales forecasting through purchasing

and processing materials and inventorying to shipping the finished goods as a single

system.

The goal is usually to optimize the total cost of the system in operation while

furnishing a desire to level of customer service meeting certain constrains such as

financially limited inventory levels.



Introduction

Ratio Application to Inventories

MEANING OF RATIOS:

Generally speaking a ratio is simply on require expressed in terms of another and those it

is an assessment of one number in relation to the another.



An analysis of financial statement with the help of ratio may be termed as “ratio

analysis”

In other wards ratio analysis implies the process of computing determining and

presenting the relationship of items and group o items of financial statement.

1) Inventory Turnover Ratio:

Years Cost of Good sold Avg. Inventory Inventory Turn

Ratio

01-02 29219 6094.66 4.79 : 1

02-03 29074 6199.27 4.68 : 1

03-04 28357 5122.71 5.53 : 1

04-05 32015 5977.85 5.35 : 1

05-06 42868 6314.97 6.78 : 1

S. No.

Ratio Formula Interpretation

01 Inventory turnover Ratio

This ratio indicates the speed

Cost of Goods Sold

Average Inventory

The inventory turnover

ratio in the year 2001-



at which the inventory is

converted into sales which

contributed into sales which

contributed to the profits of

the organization

Cost of goods sold

means sold means,

Average Inventory:

Sales – Gross Profit

Opening St*.+Closing St.

2

02 was 4.79, 2002-03

it was 4.38, but

increased in the year

2003-04 and also

2004-05. In the last

year it was increased

to 6.78. A high ratio is

a profit to the

organization and a low

ratio would be signify

that inventory doesn’t

stays long time.

* St - Stock

GRAPH : 1

GRAPH SHOWING INVENTORY TURNOVER RATIO



4.79 4.685.53 5.35

6.78

0

1

2

3

4

5

6

7

8

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Year

Tim

es

2) INVENTORY CONVERSTION PERIOD:

Table showing the Inventory conversion Period:Year Inventory Conversion Period (in days)



2001-2002 76days

2002-2003 78days

2003-2004 66days

2004-2005 68days

2005-2006 53days

S.

No.


01 Inventory Conversion

period. This ratio

indicates the number of

days taken to convert the

inventory. This ratio is

useful deciding

organizations efficiency

and also helps the

organization is knowing

its own efficiency to

improve its financial

area.

365 (days)

Inventory Turnover Ratio

Inventory conversion

period during the

year 2002 was 76

days while it

increased to 78 days

in 2003, and it

decreased to 66 days

in 2004. And it


in the year 2005.

And there after it


in 2006.

GRAPH -2

INVENTORY CONVERSTION PERIOD



76 78

66 68

53

0

10

20

30

40

50

60

70

80

90

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Year

Tim

es

3) DURATION OF RAW MATERIAL STAGE:

Table Showing Average Raw Materials and Average Raw Materials Consumed per day and Duration:

Year Average Raw Raw Materials Duration (In



Materials

(Amount in

Lakhs.)

Consumed Per day

(amount in Lakhs.)days)

2001-2002 3571.22 180.00 19

2002-2003 3436.35 197.99 17

2003-2004 3045.83 214.56 14

2004-2005 3700.91 248.81 15

2005-2006 3636.12 317.26 11

S.

No.


03 Duration of raw material

stage : The number of days

taken for the production unit

to convert raw material to

finish goods.



Consume per day

The trend of RM Stage

in the 2001 It was 35

days. And Then It is


and than It was



i) Average raw materials

ii) Average raw materials

consume per day indicate

days for consumption.

Opening St.+ Closing St.

2


and against It was


and 25 days in the year

2004-2005.

Division should

concoction decreasing

the Duration of raw

materials Stage since

It Extends period from

creditors and also the

interest cost

GRAPH - 3

DURATION OF RAW MATERIAL STAGE



4. RAW MATERIAL TURNOVER RATIO

Year Average Raw Materials (Amount in Lakhs)

Raw Materials Turnover Ratio

2001-2002 3571.22 8.18: 1

2002-2003 3436.35 8.46: 1

2003-2004 3045.83 9.31: 1

2004-2005 3700.91 8.65: 1

2005-2006 3636.12 11.78: 1



S. No.


04. Raw material Turnover ratio is velocity at which raw material converted into goods ready for sale. If raw material turnover ratio is high then company is efficiency converting into finished goods.

Cost of goods sold :

Average Raw Material

Cost of Goods Sold

Average Raw materials

Sales – Gross Proft

Opening St. + Closing St.

2

Interpretation: Raw material Turnover Ratio in the year 2002 was 8.18:1 times, which is increased to 8.46:1times in the year 2003 and again it increased to 9.31:1 in the year 2004, was decreased to 8.65:1 and again increased to 11.78:1times in the year 2006. It indicates high efficiency to convert the finished goods.

GRAPH - 4

RAW MATERIAL TURNOVER RATIO



8.18 8.469.31

8.65

11.78

0

2

4

6

8

10

12

14

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Year

Tim

es

5. INVENTORY TO CAPITAL EMPLOYED: Meaning: This ratio indicates the relationship between the total capitals

employed and inventories it shows how much capital utilized to invest in the inventories

other than the other assets. The normal manufacturing firms have low ratio of inventory

to total capital employed in the organization.

Year Inventory (in Lakhs)

Total capitalemployed

Percentage



2001-2002 6518.91 15,000 0.4345%2002-2003 5879.64 16,900 0.3479%2003-2004 4365.79 15,300 0.2853%2004-2005 7589.38 18,800 0.4036%2005-2006 5040.56 19,800 0.2545%

S. No.


05. The inventory to capital employed ratio: it shows how much capital utilized to invest in the inventories other than the other assets.

Capital Employed

Inventory

Total Capital Employed

Equity Cap. + Preference Cap +Res & Ser + long term borrowings – fixiticious asset

In the year 2002 & 2005 the ratio of Inventory to Total capital employed were very high i.e0.4345 & 0.4036 times, but there after it went decreasing to 0.2545 times during the year 2006.

GRAPH -5

INVENTORY TO CAPITAL EMPLOYED:



0.4345

0.3479

0.2853

0.4036

0.2545

00.050.10.150.20.250.30.350.40.450.5

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Year

In ti

mes

6. INVENTORY TO CURRENT ASSETS RATIO:


Current Assets (in Lakhs) Percentage

2001-2002 6518.91 9893.67 65.88

2002-2003 5879.64 9156.83 64.21

2003-2004 4365.79 7236.12 60.33

2004-2005 7589.38 10073.25 75.34

2005-2006 5040.56 1098.26 55.40



S.

No.


06. Inventory to current

asset ratio indicates the

relationship between the

inventory and current

assets. It shows the

percentage of inventory

to current assets, which

helps the organizations

in deciding the current

assets policy, which also

affect the liquidity

position of the

organization.

Inventory

Current Assets

The inventory to

current assets ratio in

the year 2002 was

65.88% and in the year

2003 was decreased to

64.21% and again it

decreased to 60.33 %

in the year 2004 but it

increased of 75.34% in

the year 2005. There

after it was decreased

to 55.40%.

GRAPH – 6

INVENTORY TO CURRENT ASSETS RATIO:



65.88 64.2160.33

75.34

55.4

0

10

20

30

40

50

60

70

80

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Year

In p

erce

ntag

e

7. INVENTORY TO TOTAL ASSETS RATIO :


Total Assets (in Lakhs) Percentage

2001-2002 6518.91 10,000 65.18

2002-2003 5879.64 10,600 55.46

2003-2004 4365.79 11,100 39.33



2004-2005 7589.38 12,700 59.75

2005-2006 5040.56 15,600 32.31

SL. No.


07. Inventory to Total Assets indicates the relationship between the Inventory and Total Assets. The Significance of this ratio is it reflects the Portion the Inventory as a percentage of the Total Assets, which helps the management deciding the utilization of remaining resources profitably. Since the inventory will lock up the huge funds and reduces the profitability of the organization.

Total Assets:

Inventory

Total Assets

Fixed Asset + Current Asset

During the year 2002 the rate of inventory to total assets was 65.18% and decreased to a less 55.46% and again it was decreased to 39.33%. It was fluctuating from 59.75and 32.31% during the year 2005 & 2006 respectively.

GRAPH – 7

INVENTORY TO TOTAL ASSETS RATIO



65.18

55.46

39.33

59.75

32.31

0

10

20

30

40

50

60

70

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Year

In p

erce

ntag

e

8. Inventory to Working Capital Ratio

Year Inventory (In lakhs)

Working capital( in lakhs)

Ratio

2001-2002 6518.91 6613.41 0.9852002-2003 5879.64 6273.53 0.9372003-2004 4365.79 4200.55 1.0392004-2005 7589.38 6046.49 1.2552005-2006 5040.56 4279.12 1.177



S.

No.


08. This ratio indicate the

relationship between

Inventory to working

capital and it also indicates

the amount to inventory

tied up in the corking

capital And it also shows

the efficiency of Inventory

Management.

Working Capital

Inventory

Working Capital

Current Assets

Current Liability

In the year 2002 it was

0.985 times of the

working capital, in the

year 2003 it was 0.937

times decreased and in

the year 2004 it was

increased to 1.039

times and then

increased in 2005 it

was 1.255. And there

after it is decreased to

1.177 in the year 2006.

GRAPH -8

Inventory to Working Capital Ratio



0.985 0.9371.039

1.2551.177

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Year

In ti

mes



AT



INVENTORY MANAGEMENT

INTRODUCTION:

In Managing inventories the firms objectives should be in consonance with

shareholders wealth maximization principles. To achieve this the firm should determine

the optimum level of inventory. Efficiently controlled inventories make the firm flexible.

In efficient inventory control results in flexibility.

The firm may run-out of stock and some time may file up unnecessary stocks.

This increase the level of investment and makes the firm unprofitable.

The Hindalco Industries Ltd. following are the some techniques used for the

effective cost control of inventory.

ABC Analysis : These important items usually designated as class A may account for

more than half the total value usage in the inventory. These items require very careful

management and special careful estimates of future usually class C items which in total

account for only a few percent of the total value of usage very little effort should be

devoted to forecast the requirement of items. The inter mediate class B items justify a

reasonable but routine effort in forecasting demands and managing inventory.

The ABC approach means of categoring inventory itmes int three class, A, B and

C according to potential amount to be controlled.

A - Items, which are the 15%

B - Items, which are the 20%

C - Items, which are the 65%

S. No. A B C

1 Tyres Shaft Slaver Causing belt



2. Shells Pump Shafts Loveiay Coupling

These are the items which are classified on the bases of its annual consumption.

These items indicates

A - These are the items indicates consumption is slow.

B - These are the items indicates mediate consumption

C - These are the items indicates high consumption

F. S. N. CLASSIFICATION:Material can be classified on the basis of movement as fast moving, slow moving

and non moving items such as

Sl. No. F S N

1 Soars, Guage glass

2 Oil and Lubricant C. I. impeller

3 Cylinders Rubber packing

4 Welding rods

V. E. D. CLASSIFICATION:The material’s classification based on the items is called V.E.D. Analysis. V.E.D.

stands for V= Vital, E = Essential, D = Desirable.

Sl. No. V E D

1 Seat Kit Piston ring Casing cover

2 Speed Belt B. Cylinder Pressure plate

Vital items which render the equipment or the whole line operation in the process

totally and immediate in operative, unsafe items go out of stock or not ready available,

results in loses or whole production period.



E -Essential items which redues the equipments, performance but not render it on

operative results.

D -Desirable items which are mostly non-functional and did not effect the

performance of the equipmen ts.

FIFO AND LIFO CLASSIFICATION: These are the items which are classified on the bases of its range. Fifo indicates

first in first out. Lifo items indicates last in first out.

Sl No. Items

1. Fevicol

2 Paints

3 Lubricant

4 Masks

5 V -Belts

Bin Card Systems:The bin card is the name of the materials and code number give to that particular

items must be written the received consignment of items were written in the balance

column. The Bin Card shows the stock materials of particular itmes.

Specification copy of Bin Card:

Hindalco Ltd.,

Bin Card Hindalco Industry Ltd.

Mat Code No.



Description Location

Suppliers No. 1, 2, 3

Receipt Issue Balance

Date Qty. Column Qty. Column Doc No.

Total Bin Cards = 30,000

Present Bin Cards = 18,000



AND



FINDINGS & CONCLUSIONThis project can be concluded by saying that inventory management and its cost

control is one of the important areas where the companies have to give more importance.

Inventories constitute the large part of the current assets of the company. The

manufacturing companies hold inventories in the form of raw materials, work in process

and the finished goods. There are mainly three motives behinds holding the inventories,

the are;

To facilitate the smooth functioning

To guard against the risk of unpredictable changes in the usage rate and delivery

period.

Take the advantage of price fluctuation.

The financial analysis in this project helps in identifying the inventory utilization

of its resources and its profitability.

I) INVENTORY TURNOVER RATIO:

Comparative Statement:

Sl Ratio 2001-02 2002-03 2003-04 2004-05 2005-06

I. Inventory Turnover ratio: This ratio indicates the speed at which inventory is converted into salesWhere, Cost of goods sold Inventory

* Cost of goods sold 29219 29074 28357 32015 42868

* Avg. inventory Turnover

Ratio 6094.66 6199.27 5122.71 5977.35 6314.97

* Inventory Turnover Ratio 4.79 4.68 5.53 5.35 6.78

Interpretation : The inventory turnover ratio in the year 2001-02 was 4.79, 2002-03 it

was 4.38, but increased in the year 2003-04 and also 2004-05. In the last year it was



increased to 6.78. A high ratio is a profit to the organization and a low ratio would be

signify that inventory doesn’t stays long time.

II) INVENTORY TO CAPITAL EMPLOYED:


Sl. Ratio 2001-02 2002-03 2003-04 2004-05 2005-2006

I Inventory to capital Employed Ratio:

It indicates how much capital utilized to invest in the inventories than the other assets

Where,

Inv. Capital Employed = Inventory . Total Capital Employed

* Inventory 6508.91 5879.64 4365.79 7589.38 5040.56

* Total Capital Employed 150 169 153 188 198

* Percentage 43.45% 34.79% 28.53% 40.36% 25.45

Interpretation: In the year 2002 & 2005 the ratio of Inventory to Total capital employed

were very high i.e0.4345 & 0.4036 times, but there after it went decreasing to 0.2545

times during the year 2006.

In the last year decreased to 25.45%, it indicates not satisfactory to the company.

The company is not utilized all the capital employed properly.

III) INVENTORY TO TOTAL ASSETS RATIO:




Sl. Ratio 2001-02 2002-03 2003-04 2004-05 2005-2006

I Inventory to the total assets ratio: It indicates significance of this ratio is it reflects the portion the inventory as percentage of total assets Where, Inventory Total Assets

* Inventory 6518.91 5879.64 4365.79 7589.38 5040.36

* Total Assets 10.000 10.600 11.100 12.700 15.600

* Percentage 65.18% 55.46% 39.33% 59.75% 32.31%

Interpretation: During the year 2002 the rate of inventory to total assets was 65.18%

and decreased to a less 55.46% and again it was decreased to 39.33%. It was fluctuating

from 59.75 and 32.31% during the year 2005 & 2006 respectively.

IV) A company has been using ABC cost control techniques, but this techniques old

process because an ABC having a old materials kept a long period in a stock.

V) The company is not introduce any IT systems for the reduction of men power and

time consumption.



SUGGESIONS

After the analysis, suggestion could be as follows.

i) Inventory turnover ratio of Hindalco Industries Ltd., in the year

2005-2006 is satisfied but company should try

Minimize inventory

Keep the level of inventory according to market demand

ii) They have to implement E.R.P. software.

iii) The company should follow the E.O.Q. Model.



B I B L I O G R P H Y

Financial Management : I. M. Panday

Theory and Practices of : B. K. Mishra

Inventory Management

Production Management : K. Ashwatappa

Web-Site : www.hindalco.com


http://www.hindalco.com/

a project report on effectiveness of inventory management and its cost control at birla hindal-co

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