A PROJECT REPORT ON

INVENTORY MANAGEMENT

IN

SINGARENI COLLIERIES COMPANY LIMITED

Submitted

By

I.Sushma

H.NO:141109672044

Project report submitted in partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

ICBM-School of Business Excellence(affiliated to Osmania University)

Upperpalli ‘X’ Roads,Right of pillar No: 179, Rajendra Nagar,Hyderabad-500048

(2010-2011)

1

DECLARATION

I here by declare that this project work entitled “INVENTORY

MANAGEMENT” in SINGARENI COLLIRIES COMPANY LIMITED is an

original and genuine work done by me.

I also state that it is not submitted else where in part of full a part from myself

submitting it from the context of an academic endeavour and partial fulfillment for

the award MBA degree by Osmania University as a part of the academic curriculum.

I.SUSHMA

2

ACKNOWLEDGEMENT

I take this opportunity to express my gratitude to SINGARENI COLLIERIES

COMPANY LIMITED (SCCL), Kothagudem who gave me this opportunity to carry

out the work in the organization.

I am very much thankful to Mr.R.PEDDI RAJU Project Manager SCCL, for giving

me full information and for helping me in the completion of the project.

I thank ,Head of the Department,ICBM-SBE,Hyderabad for his

encouragement to complete my project work.

I Sincerely praise the efforts of Mr.Ramesh Babu, ICBM-SBE,Hyderabad for

guiding and supporting me in completion of this project.

I.SUSHMA

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INDEX

CHAPTER CONTENTS PAGE NO.Chapter-1 Introduction

Inventory Management Need of Inventory Management Objectives of the Study Methodology of the study Limitations of the study Time period

Chapter-2 Review of literature Review of related literature

Chapter-3 Organisation profile Introduction Origin History Operational Areas Milestones Technology and Output Manpower in SCCL Vision Mission Gloom to Glory Strengths Weakness

Chapter-4 Inventory management in SCCLIntroductionMaterial Management Cycle Stores OrganisationStores CategorisationOrganizational setup & Resposibilities

4

Store Keeping Standardisation,classification & codification

Analysis of inventory management in SCCL Inventory control procedures Inventory Carrying cost Inventory Levels

Chapter-5 Analysis

Chapter-6 ConclusionsSuggestions

BIBILOGRAPHY

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CHAPTER-1Introduction

INTRODUCTION

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INVENTORY MANAGEMENT:

Conversion of raw materials into finished goods is the main unction of every

production firm.Required raw materials if purchased and stocked in advance, ensures

smooth production process. But, how much should be purchased? How to stock it?

How to release the stock? What costs are involved? How to control the costs of

acquiring and storing materials? All these issues call for Materials Management.

Materials management involves Materials acquiring-purchasing, receiving and

storing, inventory control, disposal of surplus and control on scrap. Effective

materials management is key to a firm’s profitability. An ideal materials

management ensures efficiency in accountability coordination and performance in

the department. Further, it is computerized to save time and efforts.

MEANING AND NATURE OF INVENTORY:-

In accounting language, inventory may mean the stock of finished goods

only. In a manufacturing concern, it may include raw materials, work-in-progress

and stores etc.

Definitions:-

Material management is the flow of materials into an organization to the point where

those materials are converted into the firm’s end product(s). Bailey & Farmer.

INVENTORY INCLUDES THE FOLLOWING THINGS:-

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A. Raw material :- Raw material form a major input into the organization.

They are required to carry out production activities uninterruptedly the

quantity of raw material required will be determined by the rate of

consumption and the time required for replenishing etc., to affect the stock of

raw materials.

B. Work in Progress :- The work in progress is that stage of stocks, which are

in between raw material and finished goods. The quantum of work in

progress depends upon the time taken in the manufacturing process. The

greater the time taken in manufacturing the more will be the amount of work

in progress.

C. Consumables:- These are the materials, which are needed to smoother the

process of production. These materials do not directly enter production but

they act as catalysts. Consumables may be classified according to their

consumption and criticality. Generally consumables stores do not create

any supply problem and the form a small part of production cost. There

can be instances where these materials may account for which they value

raw materials. The fuel oil may form a substantial part of cost.

D. Finished goods:- These are the goods, which are ready for the consumer’s

the stock of finished goods provides a buffer between production and

market.

E. Spares:- The stocking policies of spare differ from industry to industry

some industries like transport will required more spares than the other

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concerns. The costly spare parts like engine, maintenance spares etc. are

not discarded after use, rather they kept in ready position for further use.

All decision about spares are based on the financial cost of inventory on such

spares and the cost may arises due to their non-availability.

BENEFITS OF HOLDING INVENTORIES:- Although holding inventories

involves blocking of firms funds and the cost of storage and handling, every

business enterprise has to be maintain certain level of inventories of facilitate un-

interrupted production and smooth running of business.

In the absence of inventories a firm will have or mark purchases as soon as it

receives order. It will mean loss of time and delays in execution of orders which

sometimes may causes loss of customers and business.

A firm also needs to maintain inventories to reduce ordering cost and avail

quantity discounts etc.

There are their main purposes of holding inventories.

THE TRANSACTION MOTIVE:- which necessitates the holding of

inventories for the unpredictable changes in demand and supplies of

material?

THE PRECAUTIONARY MOTIVE:-which necessitates the holding of

inventories for meeting the unpredictable changes in demand and supplies

of materials?

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THE SPECULATIVE MOTIVE:- This includes keeping inventories for

taking advantage of prise fiuctuvations,saving re ordaring costs and quality

discounts.

RISK AND COSTS OF HOLDING INVENTORIES:-

The holding of inventories involves blocking of firms fund and incurrence of

capital and other costs.

The various costs and risks involve in holding inventories are.

Capital Costs:-Maintianing of inventories results in blocking of firms

financial resourses.The firm has therefore to arrange for additional

funds to meet the costs of inventories.

The funds may be arranged from own resources of from outsiders. But

in both the case, the firm insures the cost .in the former case, there is an

opportunity cost of investment while in the later case. The firm has to

pay interest to the outsiders.

Storage and Handing Costs:-Holding of inventories also involves

coast on storage as well as handing of materials. The storage of cost

include the rental of the go down, insurance charges etc.,

Risk of Price Decline:- There is always a risk of reduction in the

prices of inventories by the supplies in holding inventories. This may

be due to increased market supply, competition or general depreciation

in the market.

Risk of Obsolescence:- The inventories may become obsolete due to

improved technology, changes in requirements, changes in customer

tastes etc.,

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Risk Determination in Quality:- The quality of materials also

deteriorates while the inventories are kept.

OBJECTIVES OF INVENTORY MANAGEMENT

Definition of inventory management: Inventory management is concern with

the determination of optimum level of investment for each components of

inventory and the efficient use of components and the operation of components

and the operation of an effective control and review of mechanism. The main

objectives management is operational and financial.

The operational objective mean the materials and the spares should be

available in sufficient quantity so that work is not disrupted for want of

inventory.

The financial objectives mean that the material and spares should be available

in sufficient quantity so that work is not disrupted for want of inventory.

The following are the objectives means that investment in inventory

should not remain idle and minimum working capital be locked in it.

The following are the objectives of inventory management:

To ensure continuous supply of materials, spares and finished goods so

that production should not suffer at any tie and the customers demand

also be met.

To avoid both over-stocking and under-stocking.

To maintain investment in inventories at the optimum level as required

by the operational and sales activities.

To keep material cost under control so that they contribute in reducing

the coast of production and overall costs.

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To eliminate duplication in ordering or replenishing stocks. This is

possible with help of centralizing purchases.

To minimize losses through deterioration pilferage wastages and

damages.

To ensure perpetual inventory control so that materials show in stock

ledgers should be actually lying in the stores.

To ensure right quality goods at the reasonable prices. Suitable quality

standards will ensure proper quality of stocks. The price analysis; the

cost-analysis will ensure payment of proper prices.

To facilitate furnishing of date for short-term and long-term planning

and control of Inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of

liquidity but also increases profits and causes substantial reduction in the

working capital of the concern.

1. Determination of stock levels:

Carrying of too little of inventory is detrimental to the film. If the

inventory level is too little, the firm will face frequent stock outs involving

heavy ordering cost and if the inventory level is too high it will be

unnecessary

tie up of capital.

An efficient inventory management requires that a firm should maintain an

optimum level of inventory where inventory costs are the minimum and at

the same time there is no stock out if which may result I loss or sale of

shortage of production.

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2. Minimum stock level: It represents the quality below its stock of any item

should not be allowed to fall.

Lead-Time: a purchase in firm requires sometimes to process the order and

the

Time is also required by the supplying firm to execute the order. The time

taken in processing the order and then executing it is known as lead-time.

Rate of consumption:-It is the average consumption of materials in the

factory. The rate of consumption will be decided on the basis of past experience and

production plans.

Nature of material:- The nature of material also affects the minimum level

if a material is required only against the special order of the customer teen minimum

stock level cal be required for such material.

Minimum stock level can be calculated withy the help of the following

formula.

( Minimum stock level = reordering level –(normal consumption X

normal re-order period)

b) Re-ordering level:-

When the quantity of material reaches at a certain figures then fresh

order is sent to get material again. The order is sent before the materials reach

minimum stock level, Re-ordering level is fixed between minimum level and

maximum level.

( Re-ordering level = maximum consumption X maximum re-order

period)

c) Maximum level:- It is the quantity of materials beyond which a firm

should not exceed its stocks. If the quantity exceeds maximum level limit it will be

over-stocking.

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Over stocking will mean blocking of more working capital, more space for

storing the materials, more wastage of materials and more changes of losses from

obsolescence.

(Maximum stock level = record level + recorder quantity (minimum

consumption minimum re order period)

D) Danger stock level:-

It is fixed below minimum stock level.

The danger stock level indicates emergency of stock position and urgency of

obtaining fresh supply at any cost.

E) Average stock level:-

This stock level indicates the averages stock held by the concern.

(Average stock level = minimum stock level +1/2 x reorder period)

2) Determination of safety stocks:-

Safety stocks are a buffer to meet some unanticipated increase in usage. The

demand for material may fluctuate and delivery of inventory may also be delayed

and in such a situation the firm can face a problem of stock out.

In order to protect against the stock out arising out of usage flucturations,

firms usually maintain some margin of safety stocks.

Two costs are involved in the determination of the stock that is opportunity

cost of stock outs and the carrying cost.

3) Economic Order Quantity( EOQ):-

The quantity of material to be ordered at one time is known as economic

order quantity.

The quantity is fixed in such a manner as to minimize the coct of ordering

and carrying cost.

(Total Cost Of Material = Acquisition + Carrying Cost+ Ordering Cost)

Carrying Cost:

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It is the cost holding the materials in the store

Ordering cost;

It is the cost of placing order for the purchases of materials.

EOQ can be calculated with the help of following formula

EOQ=Square root of 2CO/1

Where C= consumption of the material in units during the year

O=Ordering cost

I= Carrying cost or interest payment on the capital

ABC analysis (Always better control analysis):-

Under ABC analysis the materials are divided into 3 categories viz A,B,C.

Almost 10% of items contribute to 70% of value of consumption and this category is

called A category.

About 20% items controlbute about 20% of value of consumption and his is known

as category B materials. Category C covers about 70% of items which contribute

only 10% pf value of consumption.

VED analysis (Vitally Essntial Desire)

The VED analysis is used generally for spare parts. Spare parts classified as vital (V)

essential (E) and desirable (D).

The vital spares are must for running the concern smoothly and these must be stored

adequately the E type of spares are also necessary but their stocks may be kept at low

figures.

CLASSIFICATION AND CODIFICATION OF INVENTORIES:-

The inventories should first be classified and then code numbers should be assigned

for their identification. The identification of short names is useful for inventory

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management not only for large concerns but also for small concerns. Lack of proper

classification may also lead to reduction in production.

Generally materials are classification accordingly to their nature such as

consumption materials consumer stock, spares,lubricants etc, After classification the

materials are given code numbers. The coding may be done alphabetically or

numerically. The later method is generally used for coding.

The class of materials is assigned two digits and then two or three digits are

assigning to the categories of items divided into 15 groups. Two numbers will be

categories of materials in that class. The third distinction is needed for the quality of

goods and decimals are used to not this factor.

Valuation of inventories-method of valuation:

FIFO method

LIFO method

Base stock method

Weighted average method

CRITERIA FOR JUDGING THE INVENTORY SYSTEM:-

While the overall object of the inventory system is to minimize the cost to the at the

risk level acceqtable of management, the more proximate criteria for judging the

inventory system are:

Comprehensibility

Adaptability

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Timeliness

Areas of improvement:

Inventory management in India can be improved in various ways. Improvements

could be effected through:

Effective computerization: Computers should not be used merely for accounting

purpose but also for improving decision-making.

Review of classification. ABC and FSN classification must be periodically reviewed.

Improved Co-ordination: Better co-ordination among purchase, production

marketing, and finance departments will help in achieving greater efficiency in

inventory management.

DEVELOPMENT OF LONG TERM RELATIONSHIP:-

Companies should develop long term relationship with vendors. This would help in

improving quality and delivery.

Disposal of obsolete/surplus inventories:

Procedure for disposing obsolete/surplus inventories must be simplified.

Adoption of challenging norms:

Companies should set benchmarks with global competitors and use ideas like JIT to

improve inventory management.

The reasons for keeping stock:-

There are three basic reasons for keeping an inventory:-

Time - The time lags present in the supply chain, from supplier to user at

every stage, requires that you maintain certain amount of inventory to use in

this "lead time".

Uncertainty - Inventories are maintained as buffers to meet uncertainties in

demand, supply and movements of goods.

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Economies of scale - Ideal condition of "one unit at a time at a place where

user needs it, when he needs it" principle tends to incur lots of costs in terms

of logistics. So bulk buying, movement and storing brings in economies of

scale.

INVENTORY COST:-

Inventory cost represents the following:-

a) The total value of stores and spares and capital spares

b) Stores in transit an under inspection and

c) Stock of finished products.

Normally, there are certain problems in maintaining optimum level of

inventory problems of inventory can be resolved by the cost implication. Costs

which are relevant for consideration,

are discussed in the following lines:

Basically, there are four costs for consideration in developing an

inventory model.

1).The cost of placing a replenishment order.

2).The cost of carrying inventory

3).The cost of over stocking

4).The cost of under stocking

The cost of ordering and inventory carrying cost are reviewed as the supply

side cost and help in determination of the quantity to be ordered for each

replenishment.

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The under stocking and over stocking costs are viewed as the demand

side costs and help in the determination of the amount of variations in demand and

the delay in supplies which the inventory should withstand.

Understocking:-

This cost is incurred when an item is out of stock.It includes cost of lost

production during the period of stock out and the extra cost per unit which might

have to be paid for an emergency purchase.

Overstocking:-

This cost is the inventory carrying cost (which is calculated per year)for a

specified period of time.The time varies in different context it could be the lead-time

of procurement of entire lifetime of machine.

Cost of ordering includes:-

1) Paper work cost, typing and dispatching an order

2) Follow up costs-the follow up required to ensure timely supplies

includes the travel cost for purchase follow up ,the telephones, telex and postal bills

etc

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3) Costs involved in receiving of the order, inspection, checking and

handling in the stores.

4) Any set up cost of machines charged by the supplier, either directly

indicated in quotations are assessed through quotations for various quantities

5) The salaries and wages of the purchase department.

Cost of inventory carrying:

This cost is measured as the percent of the unit cost of the item. This measure

gives basis for estimating what actually cost a company to carry a stock.

This cost includes:-

1) Interest on capital.

2) Insurance and tax charges.

3) Storage costs-labour cost, provision of storages areas and facilities

like bins, racks etc.

4) Transport bills and hamali charges.

5) Allowances for deterioration or spoilages.

6) salaries of stores staff

Objectives of the study:-

To examine the organization structure of inventory management in

the stores of SCCL.

To discuss pattern,levels and trends of inventories in SCCL.

To understand the various inventory control techniques followed by

stores in SCCL.

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To access the performance of inventory management of the SCCL by

selected accounting ratios.

To know the inventory control techniques of SCCL.

Methodology of the study:-

The study is based on secondary data.

The secondary data has been collected from annual reports, manuals,

purchase, registers, storage records of the organization.

But, it was supplemented by with interaction with the concerned personal

with regard to some primary data.

Limitations:-

The study has the following limitations:

The study is limited only for a period of 5 years i.e., from 2005-06 to

2009-10.

There may be approximations.

The study is purely based on secondary data.

Time Period:-

The study was carried in Singareni collaries company limited kothagudem for

a period of 6 weeks.

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CHAPTER-2

Organisational Profile

INTRODUCTION OF COAL MINING IN INDIA

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Man had blessed with abundance of natural resources, including mineral

wealth that play a vital role in the development of a country and promote the

economic growth when explored and made best use of them.

Man knows coal, which is one of the important materials, since ages

and this natural wealth have put to diverse use In the modern world. Coal regarded as

the fuel of growth. The coal is an important input for power generation and many

other industries like iron and steel, railway, shipping and construction industries etc,

a vital infrastructure fro the economic development. Despite the development of

alternative fuel material in many industries. Thus coal industry plays an important

role In the industrial development of any country, like India.

The world coal consumption is projected to go up from

4.7 billion tonnes in 1999 to 6.4 billion tonnes by 2020. primarily in India and china ,

which are expected to account for 75% of the increased consumption.

In India , coal mining was started in 1774 and still

significantly under the government control and ownership with coal India limited

( CIL) , along with its following subsidiaries are become number one coal producer

in India.

Eastern Coal fields India limited (ECFIL) – sanctrica, west Bengal.

Bharath Cooking coal limited (BCCL) - Dhanbad, Bihar

Central Coal fields limited (CCL) – Ranchi, Bihar

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Northern Coal fields limited (NCFL) – Singrauli, Madhya pradesh

Western Coal fields limited (WCFL) – Nagpur, Maharastra.

Mahanadi Coal fields limited (MCL) – Sambalpur. Orissa.

Central mining planning & design institute limited (CMPDIL) – Ranchi,

Bihar.

SINGARENI COLLERIES COMPANY LIMITED

ORIGIN:-

A remarkable little adventure gave a birth to this giant corporate

entity that us today the Singareni Collieries Company Limited.

Way back on a dark night in 1870, a group of pilgrims who on

their way to have a darshan of lord Rama at Badrachalam temple (near singareni

village) has lit a fire to prepare for the meal. One of the supporting stones on their

makeshift stove, caught fire. The incident was immediately reported to the local

government.

This led to an extensive survey by Dr. William king, an

eminent geologist, which confirmed the revolutionary discovery of mammoth of coal

in the Godavari valley.

The rest, as they say, is history:

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The year 1886 witnessed the formation of they Hyderabad Deccan

Company private limited and it acquires the mining rights for exploiting the coal

reserves. The first commercial operation commenced at Yellandu ( khammam

District) in Andhra pradesh in 1889. In 1921 the company was re-christened the “

Singareni colleries company limited: and its scrip listed on the London stock

exchange.

The mining rights for exploiting the coal reserves were acquired by the

Hyderabad Deccan company. Which was incorporated at London Stock exchange.

Hence the first extracting of coal was started at yellandu in 1886 by Hyderabad

deccan company.

The company became government company after nizam purchased its

shared from London stock exchange in 1945. With this, SCCL became the fiorst

ever government managed coal company in India. Later in the year 1949, SCCL

came under the control of indai and Andhra pradesh as a joint venture with equity

ratio of 49% and 51% respectively.

The SCCL is engaged in coal mining in four districts of Andhra Pradesh

namely, Khammam, karimnagar, adilabad and wrangal. In overall India it spreads to

6% of geographical area producing 10% of total coal.

The operation areas of SCCL are as follows:

Khammam District – Kothagudem, yellandu,Sattupalli and managuru

Adilabad District – Bellampalli, Mandamari Srirampur,Goleti,Kairiguraand

Dorli

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Karimnagar District – Ramagundam – I, II, III.

Warangal district – Bhoopalpally.

The coal reserves stretch over 350 square kms. Of pranahis Godavari valley

of above districts of Andhra Pradesh with proven deposits of 8,575 million tones of

coal.

SCCL now operates 36 under ground mines and 14 open cast mines in these

four districts.

MILE STONES OF TECHNOLOGY INTRODUCTION :

1948: Introduction of machine mining (shuttle car)

1951: Electric coal drills

1953: Electric cap lamps

1954: Frame Proof mining machinery

1975: Open cast mining

1979: Side Dumps Loaders(SDLs)

1981: Load haul dumpers

1983: Merchandised long wall.

1986: walking dragline in open cast mines and computes introduction

1989: French Blasting gallery technology

1994: Input crushing & conveying technology in opencast mining.

2002: Surface miner technology.

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Vision, Mission and Principles Guiding Sustainable Development

Vision:

Vision shall bring into view untapped potentials and unutilized opportunities

that await exploitation as well as problems and challenges that may impede progress.

The vision must identify catalytic forces that can be harnessed.

It must express aspitations, determination and commitment for self

realization.

Though planning and prediction over long time horizon is difficult, desired

end results must be dreamt and strategies to accomplish them shall be drawn. Vision

needs a subtle blend of humility and courage to dare.

Vision is realizable only when it neither has lofty optimism nor extreme

pessimism.

The vision of Singareni is,

To produce coal qualitatively and cost effectively in a socially and

environmentally sustainable manner, valued by customers, employees, and the

community.

TO achieve this vision,

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It aims to achieve a best safety performance.

Adopt best environmental practices strive to bring BACKthe nature to

the best possible original extent,

Attain sustainable competitive advantage in the marketplace

Align production to meet market demand

And, continuously improve operational performance.

SCCL – MISSION:

o To retain strategic role of a premier coal producing company in the

country and excel in a competitive business environments.

o To strive for the self-reliance by optimum utilization of resources and

earn adequate returns on capital employed.

o To exploit the available mining blocks with maximum conservation

and utmost safety by adopting suitable technologies and practices and constantly

upgrading them against international bench marks.

o To supply reliable and qualitative coal in adequate quantitites and

strive to satisfy customers needs by sharing their experience customizing our

product.

o To emerge as a model employer and maintain harmonious industrial

relations with the legal and social frame work of the state.

o To emerge as a responsible company through good corporate

governance, by laying emphasis on protection of environment & ecology and with

due to regard for corporate social obligations.

GLOOM TO GLORY:

28

The SCCL was receiving budgetary support from both government of

India and government of Andhra Pradesh till some time age, but they later

abandoned. Also the pricing of coals was decided by government of India keeping

its impact on the major sectors like power, railways, cement, and etc. the prices were

not revised regularly also hike in input cost due to periodical revisions of national

coal wage agreements (NCWA), stores and interest were also not fully compensated

by government. The frequent strikes by the workers, law and order problems, low

productivity, apart from un-remunerative coal price vise- a—versa cost of production

during the period 1989-90 to 1991-1992 affected the financial health of the company

and refer to BIFR in may 1992. But due to liberal financial package extended by the

Govt of India in consultation with Govt of A.P and sustained efforts made by the

management of SCCL and trade unions, a modest financial turn around was

achieved. The company earned profit of rs 17.76 crores and 26.64 crores in 1993-94

respectively. By March 1994, SCCL became out of the BIFR purview. The

company for success took following remedial measures/reforms.

Unifying trade unions through path breaking elections.

High pitch communication drive harnessing media, launching literacy

programmes.

Focused multi-faceted workers welfare programme.

Establishing outsourcing of non-core and ancillary activities.

Innovative programmes launched( dial your GM, Fields visits,

interactions, follow ups).

Fuel supply agreements-technology infusion for quality testing, work

force visits to client sites.

Focus on safety, environment protection and labour welfare.

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The process of turning around a sick company which commenced in 1997-98

reached its logical conclusion when sccl, totally wiped out its accumulated losses and

entered the financial year 2003-04 with a net profit of 80.45 crores after issuing

dividend of 86.70 crores

Mining Success and Honors:

SCCL Multi faceted achievements are landmarks that stand testimony to its

efficiency. The company has deservedly won many awards prominent them are:

2001 -02:

Best management award in the state

National safety award

Best payroll saving award in the state.

2003 -2004:

Best workers welfare activity award from FAPCCI

Golden peacock environment management award from world

environment management foundation.

Coal India award for fly ash utilization from ministry of env &

forests, power, science, & technology.

Golden peacock innovation management award from world

environment management foundation.

Important Events In The Life Of SCCL

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Year Milestones

1889 Commencement of mining operations.

1948 Introduction of Machine Mining(Shuttle cars,Ls).

1951 Introduction of Incentive Schemes.

1951 Introduction of Electrical Coal Drills.

1952 Introduction of Electric Cap Lamps.

1953 Introduction of Flame Proof Mining Machinery.

1975 Commencement of Open cast Mining Projects.

1981 Introduction of latest underground machine.

1983 Introduction of Long Wall Face Machinery.

1984 Introduction of First 132/33 KYA substation.

1985 Singareni coal work graded from “c” to “g” grade.

1986 Introduction of Walking Dragline in CC mines.

1989 Introduction of French Blasting Gallery Techniques.

1991 Computerised Information System.

1994 Introduction of In-pit crushing in OCP mines.

1995 Open casting of developed pillars and go ap aran

2009 SAP introduction

AWARDS:-

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Singareni Collieries Company Limited(SCCL) has been awarded Infraline

Energy Excellence Award 2007 under company category-Black Diamond

Award for coal sector development on 12th October 2007 at New Delhi.

SCCL received Indira Gandhi Vriksha Mitra Award-2004 for outstate made

in the field of afforestation and waste land development on 5th june 007 at

New Delhi.

Environmental Excellence Award for 2005-06 from Society for Research and

Initiatives for Sustainable Technology Institute(SRISTI),New Delhi.

Environmental Excellence Award from Green Tech Foundation in 2005-06.

Golden Peacock Innovation Mnagement Award 2005 from the Institute of

Directors,New Delhi.

Golden Peacock Environment Management Award from World Environment

Foundation,New Delhi.

National Fly Ash Utilization Award 2005 jointly instituted by the Ministry of

Environment and Forests,Power Technology,Government of India.

The second Best Corporate Film Award 2005 by Public Relations Society of

India,Hyderabad for “Shramika Bandham”.

Three of the fourteen “National Safey Awards(Mines)” instituted by the

Directorate General of Mines Safety,Government(pertaining to 2001).

Best Worker Welfare Activity Award for 2002-03 by the Federation of

Andhra Pradesh Chambr of Commerce and Indusries.

Best Management Award for 2001-02 by the Government of Andhra Pradesh.

PRODUCTION PROJECTIONS:

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Operating

Region

PRODUCTION (MT) IN THE TERMINAL

YEAR OF

1X Plan

2001

X Plan

2006-07

X1 Plan

2011-12

X11 Plan

2016-17

Bellampalli 505 605 8.0 8.7

Ramagundam 16.1 17.6 13.3 11.4

Kothagudem 12.4 12.5 13.8 15.1

Total 34.0 36.6 35.1 35.3

Open Cast

52% 48% 44% 29%

Under ground

48% 52% 56% 71%

SCCL strengths and B arriers:-

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Strengths:

Quick and smooth adoption of new technologies SCCL is a pioneer in

adopting blasting gallery (BG) technology (FRENCH) input crushing & conveying

technology (Germany) and (UK & China ) performance is very encouraging.

Barriers:-

Limited financially viable reserves, amenable for open cast mining, high

stripping ratios in projects.

Difficult geo-minig conditions like steepness, existence of clay bands

incompatible roof and low grade of coal.

Production Of SCCL:-

(figures are in crores tonns)

34

Year Target Actual

2005-06

360.00 361.00

2006-07

375 377

2007-08

380 406

2008-09

415 445.46

2009-10

503.90 504.24

Targeted Production for the Year 2010-11 is 513.00 lakh tonnes

Coal Prices :-

35

Grade of

Coal

Useful heat value

per kilo calorie/per

kilogram

Basic Price per Tonne(RS)

ROM

Coal

Steam/Round

Coal

Slack

coal

Crushed

ROM

Coal

A Exceeding 6200 2607.52 2841.54 2623.14 2677.74

B Exceeding 5600 but

not exceeding 6200

2213.64 2447.64 2229.24 2283.84

C Exceeding 4940 but

not exceeding 5600

1838.88 2054.88 1853.28 1903.68

D Exceeding 4200 but

not exceeding 4940

1491.60 1689.60 1504.80 1551

E Exceeding 3360 but

not exceeding 4200

1128 1334.46 1141.26 1189.56

F Exceeding 2400 but

not exceeding 3360

681 831 691 726

G Exceeding 1300 but

not exceeding 2400

503 653 513 548

Washery

Grade-D

2390.00

Washery

Grade-E

1676.63

Washery

Grade-F

1472.47

36

CHAPTER-4

INVENTORY MANAGEMENT IN SCCL

37

Introduction :

The thrust areas of this Millennium for improving efficiency of any business

activity are considered to be Service functions. Globalisation has resulted in high

competition. Improving quality and reducing cost have become real needs for the

success of any Organisation.

High degree of competition has forced Organisations to look beyond the

operational levels to reduce cost of production to withstand global competition. Need

for higher productivity has percolated not only to the operational level but also to the

product design and other managerial effectiveness resulting in introduction of higher

level technologies and automation.

In High-tech scenario, as Machine controlled elements are more dominant

than the human elements, Management Service functions have become need of the

hour, to reduce overall cost of production. Further, developments in information

Technology and Internet facilities have helped to maximise resources utilisation and

achieve higher service levels.

Logistics /Materials Management is considered one of the vital service

functions that helps in bringing down the working capital requirement and hence, the

cost of production through reduction of interest burden. Also, it would help to make

available capital for alternate productive purposes.

Materials Management Cycle :

38

Broadly, the Inventory Management System comprises of

Material Planning

Purchasing

Formulating delivery schedules

Receipts and inspection

Storage & issues

Re-allocation of available stocks among various stores/users

Identification of Obsolete and unusable inventory

Disposal of used items / scrap

It is needless to say that judicious Planning, Organising, scheduling and

monitoring of various activities is essential at every stage to ensure that inventories

are maintained at optimal level and avoid stock out situations.

In real time, the subject becomes complex, as it has got inter-relationship

with the production system, which is dynamic due to both internal and external

factors. Thus, integration of Materials Management System with the production

system and supply chain management is essential to achieve the desired results.

STORES ORGANISATION

Organisation of Inventory Management function in SCCL:

In a traditional way, the Materials Management function in SCCL is

organised as PURCHASE and STORES functions. While the Purchase function is

looked after by the Purchase Department, the Stores functions viz

Material Planning

Formulating delivery schedules

39

Receipts and inspection

Storage & issues

Re-allocation of available stocks among various stores/users

Identification of Obsolete and unusable inventory

Disposal of used items / scrap

are entrusted to the Stores Department. The Stores department is headed by

CGM(Stores). Who functions under the control of Director (Operations).

Separate stores are established for Machine Mining equipment / spares and

Opencast equipment/spares to develop expertise in Spare Parts Management and to

meet the local requirements of the projects.

In all, there are 12 Stores located in various areas and each stores is under the

administrative control of respective CGM/GM. Out of 12 Stores, there are 5

Opencast Stores and 6 Area stores and there is a Central Stores located at

Kothagudem to maintain and monitor high value items pertaining to Opencast

Projects and Capital items of under ground Mining to avoid duplication of stocks of

high value items

Codification and Standardisation :-

As the stores activities are widely spread geographically across 350 Kms

from one end to the other end of the Company, proper classification and codification

are the key factors not only for successful implementation of computerisation and

also to have clear communication/interaction among the users, stores, suppliers and

Purchase Department. If the codification is not unique, computerisation becomes

waste and it creates chaos. It would only result in garbage-in and garbage-out in

computer jargon.

40

In order to derive full benefit of computerisation, codification has been

standardised to ensure that unique Code is maintained at all stores for any given

item. Also, Items with alternate Part Nos. have been brought under unique item

codes. Items maintained with wrong Part Nos. have been corrected for their Part

Nos. at each store. Suitable programs were developed in this direction and

continuous efforts are put in to ensure that duplicate Items are avoided This

exercise has given favorable results to reduce the inventories considerably.

In order to make sure that the items and Material Master are maintained with

correct Part Nos. an exercise was undertaken to counter-check the Part Nos.

maintained in Item/ Material Master with OEM Parts’ Catalogues. For the items for

which, Part Nos. have not tallied with the Parts’ Catalogue, correct part nos. were

identified from the purchase orders and the same are incorporated in the Item as well

as Material Master. Wherever the equipment suppliers have supplied Parts’

Catalogue in a CD, this exercise could be done faster and more systematically.

Suppliers were also requested to furnish the list of alternate part nos. using which;

items with alternate part nos. have been codified with unique item code. This

exercise has helped to obtain correct stock status for better decision-making before

placing further orders. In case of imported equipment, this exercise could not be

taken up as there is no response from the suppliers. However, all the Purchase

Orders for the capital equipment are released with the condition that they must

supply soft copy of the Parts Catalogue. By this exercise many of the items, which

were lying as non-moving are put to use, by correcting the Part Nos. and

nomenclature.

Also, another exercise was undertaken to identify to bought out items by

OEM (such as bearings, electrical, Hydraulic components etc.), which are referred in

the Parts Catalogue with their own part nos. In order to avoid multiple bin cards,

some with OEM part nos. and some with original manufacturers’ part nos. Such

41

items have been brought under unique item code. This has helped to reduce the

inventory in case of bearings, auto electrical, Hydraulic components.

STORES CATEGORISATION:-

Central Stores (CS):-

The concept of CS was started to optimize inventories. High Value items

common to more than one project required to be stocked as float is ordered on CS.

The item is diverted to the needy project as and when needed. Similarly capital items

and items where buffer stocks are required to be maintained are ordered on CS,

which are diverted as and when required. As far as possible stocking of items

physically at CS is avoided only diversion of Purchase Order is resorted to. CS is

under direct control of CGM (Stores).

Area Stores:-

To cater the materials requirement of various Mines & Departments, Area

Stores exist in each Area. Each Area Stores will be under the charge of

DGM/SE/DySE who will be assisted by sufficient Executives, Stores Keepers,

Clerical staff and Issue Mazdoors. While he will be functionally responsible to the

CGM (Stores), he will be administratively under GM/CGM of the Area wherever the

Stores is attached to the GM/CGM of that Area. The broad functions of Area Stores

will be:

1. Receipts

2. RC suborder placing and supply the required material based on users

requirement

3. Custody and stores keeping

4. Issues to Mines & departments on STO’s and Reservation

5. Delivery schedules giving as per requirements(JIT)

42

6. Claims, Insurance and other miscellaneous works

7. Inventory control

8. Material Requirement Planning(MRP)

9. Stock verification

The custodial responsibility for the material held in a stores will be

transferred to the stores personal employed therein.

PIT/Departmental Stores:-

The Department Officer of Pit Stores will normally be the Pit

Manager/Engineer or any other Officer nominated by the GM The stores set up in

Workshops, Power Houses, Building Department etc., will be under the direct

control of the head of the department concerned.

The Mines and Departments will draw their requirements from the Area

Stores for direct consumption on weekly or fortnightly basis. Each

Mine/Department will have a small stores for charge-off materials of daily

consumption, drawn from the Area Stores. The Mine/Departmental Stores will keep

the Receipt & Issue Records on a numerical ledger maintained at Pit/Departmental

level.

The general Organisational pattern of stores is as under

43

Director(operations)

CGM(Stores)

Central stores IMC Inspections Disposal Area stores OCStores

DGM(Stores)

Inspection Store keeper

Fitter/Electrician Sec.Clerks

Issue.Mazdoor

44

STORE KEEPING :-

PRINCIPLES OF STORE KEEPING, STORAGE, CARE AND

PRESERVATION OF MATERIAL

STORAGE :-

Every store dept., will be well laid-out and organised to allow smooth flow of

receipts and issues, to ensure that no hidden stocks exists or stocks accumulate, to

deviate stock verification discrepancies and above all to reduce the cost of inventory

by better stores management. The principles of store keeping should be observed

while organising a storehouse.

PRINCIPLES OF STORE KEEPING :-

The following principles of Store keeping will be observed by all personnel

employed on Store Keeping functions:

o Separate Areas for different functions :

o (Receipt, Storage & issue) :-

o undirectional flow of material

o Optimum utilisation of spare Floor area and Vertical Space.

o Proper lay-out, providing gang-ways for working space, Fire line, use

of material handling devices and ventilation.

o Proper system of location (Sequential order of codification as far as

possible).

o Correct accounting.

o Security cage for attractive and costly items and restriction of entry to

store houses.

45

o Use of dumpage.

o Use of mechanical handling devices.

o Cleanliness.

o Room for expansion.

o Bulk stores godowns near receipt section, issue sections near issue-

bay.

o First – in – First – out.

o Sacred trust – store keeper, a trustee of stores.

STANDARDISATION, CLASSIFICATION & CODIFICATION OF

INVENTORIES:-

GENERAL :-

Inventories used in S.C.C.Limited consist mainly of General Consumable

stores and Spare parts for mining, excavation, drilling and miscellaneous equipment.

Among the general consumable stores, engineering materials, mining supplies and

general supplies are included.

STANDARDISATION:-

Standardisation is a process of systemization of stores, based on reduction of

varieties to control minimum work, leading to economy and efficiency. In other

words, standardization is rationalised store keeping and it has great importance in

Inventory control, as it leads directly to lower holdings and thereby secure a

reduction in material cost, without a corresponding reduction in stock over.

46

PROCEDURE FOR STANDARDISATION:-

The implementation of a program as standardization involves a thorough

scrutiny of the complete list of commodities stocked, keeping in view the following

essential requirements viz.,:

The ultimate use of each item.

Items having similar characteristics and which can be used as substitutes.

Range of sizes actually required, to determine sizes which can be eliminated.

Detailed specifications of items required to be retained.

Identification is the process of systematically defining and describing all

items of stock and fixing their identity by allotment of Code numbers for uniform

adoption by all concerned sections.

SPECIFICATION :-

The description of materials apart from laying down the Code number and

description of every item also indicates the specifications wherever applicable and

prescribed. A specification for an item is a correct description of the item, its

dimensions, analysis, performance or other relevant characteristics in sufficient detail

to ensure that it will be suitable for the purpose intended.

Dimensions are the sizes of the various parts of an article, including the

extent of tolerance permitted in these sizes. The dimensions of a typical item can be

shown as under:

2’-6” long = 0.25”

1’-6” wide = 0.25”

6” deep = 0.10”

47

This means that the length can vary between 2’6.25” to 2’5.75” width can

vary between 1’6.25” to 1’5.75” and the depth can be between 6.10” to 5.90”. If any

of the dimensions exceed the limits shown above, it should be rejected at inspection.

Performance describes the physical ability of an article to withstand certain

duties. For example a Tyre should be capable of running 20,000 Miles under load of

2 tonnes and be able to sustain an internal pressure of 85 lbs. Per square inch at a

temperature of 150 F without bursting.

Adherence to standard specifications will ensure consistency in quality of

materials from the point of view of end use of the finished product, facilitate

inspections and enable the purchaser to compare the offers of competitors against a

standard yard-stick.

MECHANICAL RECORDING :-

For Computerized Stores accounting the allotment of Code Numbers for

every stock item is an essential pre-requisite, as it is only Code numbers that all

stock items can be introduced into the computer accounting system, together with

abbreviated designations. Even manufacturers’ part Numbers exist, as in the case of

Spare parts for equipment and since no uniformity exists in the part numbering

system adopted by different manufacturers, Code Numbers will have to be allotted to

every item in addition, so as to bring about uniformity in the recording system.

However, the part numbers allotted to spare parts by different manufacturers should

be shown additionally in the accounting records, so that procurement is arranged on

the basis of manufacturer’s part numbers.

48

S.C.CO.LTD., CODIFICATION:-

Classification of materials into group of similar items adoption of standard

nomenclature and codification are essential for proper identification and orderly

storage of materials. Scientific classification and codification of materials has the

following advantages.

Eliminates stocking of same items under different types,

nomenclature or by function or end use.

Enables proper storage and prompt issue of materials.

Eliminates unnecessary varieties & sizes.

Facilitates proper procurement & accounting.

Facilitates introduction of modern inventory control techniques.

Facilitates introduction of computerization for account and reporting.

Classification of materials is done taking into consideration the

characteristics, end use etc., In the S.C.Co.Ltd., the equipment’s and materials are

classified into 37 Main Classes. A 10 Digit Code has been evolved with the

configuration shown below to cover all varieties of items.

CODE STRUCTURE:-

1 2 3 4 5 6 7 8 9 10

x x x x x x x x x x

--- --- --- ------ -

a) b) c) d) e)

Main Class

Sub-Class

49

Detailed classification or Special features

or Sub-assembly.

Sequential Number

Check Digit

The list of Classification of Inventories used in S.C.Co.Ltd., are as shown

below:

LIST OF MAIN CLASSES ADOPTED FOR STORES

CODIFICATION:-

CLASS WISE INVENTORY STATUS AS ON 31-3-2010.

(Values in crore rupees)

SL.NO MAIN

CLASS

DESCRIPTION Mar-

10

1 10 Building material 0.67

2 11 Cap lamps&spares 0.42

3 12 Chemicals-lab

materials

2.19

4 14 Consumables-

electrical

1.13

5 15 Consumables-general 3.94

6 16 Computer media 0.16

7 17 Electrical appliances 0.07

8 20 Explosures 1.83

9 24 Hardware &fastners 2.23

10 30 Iron & steel 15.44

50

11 31 Non-ferrous

materials

0.10

12 32 Petrol,oils

&lubricants

8.97

13 33 Paints & varnishes 0.12

14 34 Pipes & pipe fittings 1.10

15 35 Power cables 0.31

16 36 Production stores 23.35

17 38 Sundries 1.50

18 40 Timber 2.40

19 44 Tools,instruments,lab

equipments

0.82

20 45 Tubs & tub materials 1.50

21 61 Spares for HEMM 106.69

22 64 Exploration stock 0.70

23 70 Spares for

automobiles

2.62

24 72 Spares for C.S.P’s 1.03

25 74 Spares for

construction

equipment

0.02

26 75 Spares for electrical

equipment-NFLP

1.63

27 76 Spares for electrical

equipment-FLP

2.89

28 77 Spares for general 0.39

29 78 Spares for 0.23

51

FEL,FL,Tractors

30 79 Spares for mining-

conventional

3.55

31 80 Spares for machine

mining

22.96

32 82 Spares for power

house

1.18

33 83 Spares for printing

press

0.01

34 84 Spares for

prospecting

0.64

35 85 Spares for pumpsets 0.64

36 86 Spares for W/S and

Auto W/S

0.28

37 98 Bearings 4.24

TOTAL 217.92

52

INVENTORY ANALYSIS IN SCCl:

INVENTORY CONTROL PROCEDURE

INTRODUCTION:-

Although the broader concept of Materials Management includes

Inventory Control as a whole, it is usual for the Stores Department to be primarily

concerned with stock control or stores inventory control of regular stock items.

Inventory Control is the process of deciding what and how much of various items

are to be kept in stock. The basic objective of Inventory Control is to reduce

investment in the inventories while at the same time, ensuring that stock-outs do not

occur and production will not suffer due to non-availability of any material.

This involves classification of all items through ABC Analysis, based on

consumption pattern, XYZ analysis based on stock value, FSN analysis based on

movement of items and other relevant factors to determine the safety stock minimum

/ maximum levels and economic supply quantities.

The main reasons for keeping Inventory are

a) Un-interrupted transactions of stores items.

b) To procure at an appropriate time at minimum price.

c) As a precaution against any eventuality of procurement.

INVENTORY CARRYING COST:-

53

This is the hidden cost which normally does not appear in the documents but

is accrued on acquisition and maintaining the inventory. The Principal elements of

the Inventory carrying cost are detailed below:

a) Interest on the investment.

b) Storage cost.

c) Physical deterioration or its prevention

d) Obsolescence cost

e) Insurance cost.

f) Handling & distribution

INVENTORY LEVELS:-

a) SAFETY STOCK LEVEL:-

A certain amount of stock is maintained to take any sudden

fluctuation of demand of the item or supply of the item. This is known as Safety

Stock Level. The Safety stock acts as a cushion or buffer for absorbing such

eventualities.

There are many sophisticated ways to calculate Safety Stock

Level. In Coal Industry the Safety Stock may be taken as part of the total

consumption depending upon the criticality / availability of items:

1) Imported items and Spares - 6 Months

2) Indigenous items and Spares - 3 Months

3) Explosives & POL ¼ of storage capacity

b) MINIMUM LEVEL :-

54

When the stock reaches this level action for procurement should be

taken. The consumption during the lead-time of purchase for most of the items it is

taken as the same as Safety Stock level but for some Insurance / Imported stores, the

level may be higher than the Safety Stock Level.

c) MAXIMUM LEVEL :-

The maximum amount of allowable stock, which can be kept. This

level can be determined as stock level and twice the lead time consumption. It

should normally vary from 3 to 6 month's consumption depending upon the lead

time and Safety Stock level.

d) RE-ORDER LEVEL or RE-ORDER POINT :-

This is represented by Safety Stock and Lead time consumption. It

is known as minimum level in stock holding.

e) LEAD TIME (L.T.) :-

It is the time that elapses between submission of requirements for

anything and the time taken to satisfy the need by supplying the material.

f) LEAD TIME CONSUMPTION (L.T.C.) :-

The average consumption of any item during the Lead Time is known

as Lead Time consumption.

1) Lead Time Stock for Imported items - 6 to 16 Months

2) Lead Time Stock for Indigenous items - 3 to 6 Months

INVENTORY CONTROL :-

Inventory Control is the most important function of the Materials

Management and it forms the nerve center in any Materials Management

Organisation.

55

Inventory Control is the process of deciding what and how much

of various items are to be kept in stock. It also determines the time and quality of

various items to be procured. The basic objective of Inventory Control is to reduce

investment in inventories and ensuring that production does not suffer at the same

time.

Various tools available for Inventory control are:

A B C Analysis

V E D Analysis

S D E Analysis

H M L Analysis

F S N Analysis

Staggered Delivery Schedules

A B C ANALYSIS:

The most important of all analysis is the ABC Analysis "Always

Better Control:. This involves analysing of the Annual Consumption value

(Consumption in Numbers x Unit rate) goes after the principle "Vital Few - Rival

Many" and the criterion used here is the money spent and not the quantity

consumed.

The general pattern of ABC Analysis will be as following:

% of Total % of Annual

Items Consumption cost

A Items 10 70

B Items 20 20

C Items 70 10

56

"A" ITEMS :-

a) Since these items account for over 70% of the total value, they should

be ordered more frequently to reduce the capital locked up at a time in form of

inventories. Usually 3-4 Orders should be placed in a year for such items or annual

Rate contracts should be entered into.

b) There would be some items for which the consumption varies

considerably from time to time during a year. For such items the expected future

consumption should be estimated in advance and they should then procured on a

planned basis, so that only the required quantities arrive a little before they required.

c) Annual or 6-months contracts with scheduled deliveries with a

specific period of order are essential.

As far as possible, two or more suppliers should be selected for each items so

that the dependency on one supplier is avoided. Due to strike, fire, lockout or any

other eventualities if one supplier fails to supply, the other supplier can be

approached.

Delivery schedules for such items should be planned in such a way that the

items are consumed within a month on its receipt.

"B" ITEMS: -

a) The policies for "B" Items in general are intermediate between "A"

and "C" Items.

57

b) Order quantities, re-order points and safety stocks should be fixed for

"B” Items and revisions once in a year is adequate.

c) Annual or 6-months contracts with scheduled deliveries can be used

to an advantage for "B" Items.

"C" ITEMS: -

a) Since these items are too many and the value is less the policies are to

be aimed to reducing the ordering and stock keeping to an extent possible and

ensuring the availability at all times by stocking liberal quantities.

b) Stocks to last for 6 months to over one year can be kept since these

"C" Items do not involve much capital tie-up.

c) Annual orders should be placed to reduce paper work and also to take

advantage of quantity discount for bulk purchases.

V E D ANALYSIS :-

This Analysis is done to consider the vitality of an item and its effect

on production and other services. It is specially used for classification of

maintenance spares denoting the essentiality of stocking.

58

V - Stands for Vital items - when not readily available,

production would come to a halt.

E - is for Essential items - when not readily available, temporary

loss of production or dislocation of production work occurs.

D - denotes Desirable items - which are necessary but do not

cause any immediate loss in production.

S D E ANALYSIS: -

This Analysis is based upon the availability position of an item.

Especially in developing countries where certain items are scare, this analysis is very

useful.

S - refers to Scarce items - specially imported and those are in short

supply

D - refers to Difficult items - which are available in indigenous

market but cannot be procured easily. Items which are to come from

far off places or where there is not much of competition in the market

or reliable suppliers are difficult to find.

E - refers to items, which are easily available.

H M L ANALYSIS :-

The cost per items (per unit) is considered for this Analysis and all items

are classified as:

59

H - High cost items

M - Medium cost items

L - Low cost items

This type of Analysis is useful for keeping control over consumption at

department level and for deciding the Safety Stock in relation to the availability of

the material (SDE Analysis).

F S N ANALYSIS :-

Here the quantity and rate of consumption are Analysed to classify the

items as

F - Fast moving items

S - Slow moving items

N - Non-moving items

X Y Z ANALYSIS :-

XYZ Analysis is to stock what ABC Analysis is to consumption. It is the

counterpart of ABC in stock. It focuses the attention of the Management on the

materials which have been procured at a faster rate than their consumption and hence

its procurement policy needs a review or have become obsolete and hence have to be

disposed off.

"X" Items - Items whose inventory value is

70% of total value

"Y" Items – Items whose inventory value is

20% of total value.

"Z" Items – Items whose inventory value is

10% of total inventory value.

60

STOCK-OUT COST :-

The loss incurred by way of production or other-wise due to non-

availability of items is known as stock-out cost. This may be NIL to anytime,

depending upon the essentiality of the material. To counteract the stock outs,

suitable value of Normal consumption is given while calculating the Safety Stock

level as stated earlier.

Staggered Delivery Schedule: -

This forms one of the most important inventory control technique in the

context of our organization. Generally in our system Purchase orders are released

only once a year with annual requirement as the ordered quantity. Hence the only

way to control inventory build up is to stagger the delivery of the supply of the items.

Deliveries should be planned in such a way that the item when supplied can

immediately put to use especially for A class items. For doing so the lead-time of

supply (for first supply only) and actual requirement by the user is to be considered.

For B-class items the supplies should be scheduled in such a way that a minimum of

4 schedules are planned for supply in a year or even more if it is other than BV–item.

Items that have uniform consumption pattern throughout the year (Other than spares)

monthly schedules should be planned.

SYSTEM OF INVENTORY CONTROL :-

The objectives of Inventory Control is

a) Economy or provisioning at minimum investment and cost without

jeopardizing essential production.

b) Insurance against losses due to stock-out of materials.

61

PERIODIC REVIEW SYSTEM :-

Under this system, the items are periodically reviewed depending upon the

essentiality of the items for stocks and the consumption pattern. Necessary action

for procurement and delivery are taken after the review is done.

INVENTORY CONTROL MEASURES & PROVISIONING: -

It is desirable to periodically review the items where stocks have gone

beyond the optimum levels to share the inventory of such items. Compiling

statement of such items at regular intervals in the stores can do this.

Over-stocked items list can be generated on the computer every quarter, and

wherever SAP has been introduced once in a month. List of such over-stocked items

are to be submitted to CGM(S) by all Area Stores. CGM(S) will circulate the list to

all other stores for indicating the requirement of these items for their Area with

particulars of Average Consumption per month, stock and pending orders. CGM(S)

will arrange Inter-area transfers.

Action would also be taken by the Purchase Department to stagger the

deliveries appropriately and even cancel the purchase orders in the case of such items

where over-stocking has been detected. In the case of under stocked-below order

level items, action would be taken to replenish the stocks to prevent stock-outs. List

of unmoved items should be compiled every six months / one year, in descending

order of value. This statement should indicate the quantity on hand and its value,

quantity on order and the date of last issue for items which have not moved for 1,2

or 3 years and above. After identifying such unmoved items, further procurement

62

of such items should be stopped, after carrying out the reutilization check by

circulating the items within the company.

INVENTORY CONTROL & PROVISIONING OF SPARE PARTS: -

This is a very important subject, in as much as, most part of the surpluses that

accrue constitute the Spare parts.

Only indenting of first set of Spares for the equipment should be done on the

basis of the manufacturers recommended lists of Spare Parts, duly trimmed and

adjusted so as not to exceed 10% of the total value of the equipment. Here also it

would be desirable to order smaller quantities in the initial stage and only after

gaining experience by maintaining proper records of consumption for each type of

equipment, larger quantities of Spares should be procured. The items covering the

last set of Spares will be processed simultaneously along with the equipment in order

to ensure availability of full backing of initial Spares for preventive maintenance

when the new equipment is put into commission.

The Second set of Spares will be provided to cover the maintenance

requirements for the third and fourth year of operation of the equipment. The range

of Spares required will be based on the manufacturer's recommendations suitably

adjusted in the light of experience gained in the first two years of equipment

operation and the maintenance scales developed by Engineers. It is very important

to build up proper consumption data right from the stage of commissioning the

equipment, which should form the basis for all further requirements. The

63

provisioning of subsequent requirements of Spare parts will be done by the users

based on the consumption pattern duly projected to cover the anticipated

requirements and taking into consideration the actual working conditions and the

maintenance scales.

ERP SYSTEM (MATERIAL MANAGEMENT MODULE)

In SCCL, four modules of ERP(SAP) was implemented VIZ.,

1.Material Management

2.FICO(Finance and Controlling)

3.Sales and Distribution

4.HR(Human Resource)

Material Management module consists of Inventory Management(IM) and

purchasing.

The total stores transactions are being covered in IM of SAP-MM module.As

this ERP SAP is an integrated application,the online time to time latest status will be

available,which is useful for correct administrative decisions and also reduces time

delays and repetitive data handling were avoided.

The online material stock,requisition,balance on order status are available

throughout the company to review for procurement action.

In SCCL,12 store plants and 60 pit stores plants are configured.

The following material types are mainly available,

1. Capital item(ZCAP)

2. Revenue items(ZSTK)

3. Stationery items(ZSTA)

4. Repaired item(ZCOR)

5. Coal item(ZFIN)

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6. Medical item(ZMED)

7. MPN mterial items(ZMPN)

8.Scrap item(ZSCR)

ZSTK materials are stock transferred from one store plant to another plant on

STO(Stock Transport Order) and ZCAP,ZSTA,ZCOR materials are drawn on

requisition which is on direct consumption account.

The stores process like GR(Goods Receipt)/GI(Goods Issued) are made in

MIGO transaction code in SAP.All material moment like issues,receipts are based on

movement types in SAP.In GR process the stock is updated and value is updated for

revenue items and material document,accounting document created.Based on

accounting document payment to the vendor is made.

The materials requirements are reviewed from time to time in MRP(Material

Requirement Planning)and purchase requisition are given.Then PO(Purchase Order)

are placed accotdingly with staggered delivery schedules for optimizing inventory

levels.

For some of the regular equipment spares,there are Rate Contract(RC)

available for which the sub order are placed by store plants.The lead time for these

type of items will be generally low and stocking of such items is also less which is a

better tool for optimum inventory.

In addition to the above there are COLG(Customer Operated Located

Godown)and depot agreement are also opted by SCCL.

COMPUTERISED STORE ACCOUNTING :-

In a large undertaking having several units detached far away from each

other and the headquarters, it becomes very difficult to get the Inventory position at

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any given time, if the store accounting is done manually. Moreover, timely

preparation of control statements to assist proper Inventory control and other

material management functions is not possible manually. Therefore, in order to

introduce the latest techniques of Material Management in our organization, it is

necessary to introduce computerised store accounting in a phased manner. The

first step in computerized store accounting is proper codification and classification

of stores.

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THE SINGARENI COLLIRIES COMPANY LIMITED

(A Govt.company)

TREND OF CONSUMPTION VALUES AS ON 31/03/2010.

(All figures are in lakh rupees)

STORE NAME 2009-10 2008-09 2007-08 2006-07 2005-06

1050CENTRAL STORES 1256.98 7677.59 4372.75 2286.69 4920.09

1150KGM STORES 17678.72 13327.12 10958.10 10738.61 6400.33

1250YLW STORES 8022.05 4776.20 3721.01 5870.18 5925.01

1350

MNG AREA STORES 24058.65 37411.49 22883.44 16242.05 17056.14

2250

RG2 AREA STORES 12445.06 7860.29 19712.69 24389.62 16138.81

2251RG-OC3 STORES 25190.03 19815.39 12082.11 13762.54 14292.38

2350RG-OC1 STORES 15753.83 11654.16 9427.60 9574.05 9990.99

2351RG-OC2 STORES 13353.64 24261.11 7896.02 9310.61 8094.59

2450

BHP AREA STORES 10223.04 5237.79 3752.95 3333.60 3422.62

3150

BPA-AREA STORES 10982.46 5430.43 19872.10 5245.21 1017.47

3250MM AREA STORES 3393.00 4996.14 21138.66 5929.10 7647.99

3450

SRP AREA STORES 18283.54 11848.07 9047.33 7074.41 7693.85

    160641.01 154295.78 144864.76 113756.67 102600.27

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THE SINGARENI COLLIRIES COMPANY LIMITED

(A Govt.company)

TREND VALUES OF INVENTORY AS ON 31-3-2010

(All figures are in lakh rupees)

SLNO STORE NAME 2009-10 2008-09 2007-08 2006-07 2005-06

1 1050CENTRAL STORES 1588 2269 1716 1997 2031

2 1150 KGM STORES 1491 1443 2056 2009 12963 1250 YLW STORES 531 484 595.8 1107 1218

4 1350MNG AREA STORES 2413 1810 1898 1756 1856

5 2250RG2 AREA STORES 2931 3437 2629 4165 3119

6 2251RG-OC3 STORES 3635 3627 2331 2576 2151

7 2350RG-OC1 STORES 2388 1302 1168 955.5 1095

8 2351RG-OC2 STORES 3309 2475 2303 1852 1738

9 2450BHP AREA STORES 638 503 729.6 745.3 429.8

10 3150BPA-AREA STORES 581 609 517.8 298.5 105.8

11 3250MM AREA STORES 741 765 988.7 1182 990.1

12 3450SRP AREA STORES 1545 1528 1217 1238 936.5

               

TOTAL     21792 20252 18149.8 19881.3 16966.5

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Chapter-5

Analysis

69

CHAPTER-6

Conclusions

70

Conclusions:-

In this chapter, an attempt is made to give the conclusions at a glance on

inventory management of Singareni Colliries Company Limited.

The following conclusions have been drawn:

Overall,the inventory management in SCCL is upto the mark where by

adequate supplies of materials and store,minimization of stocks and avoided costly

interruption in operations.

2.It has kept down the investments in inventories,inventory carrying cost and

obsolescence losses to the minimum through purchasing economies by the

measurement of requirements on the basis of recorded experience.

3.It also enables the management to make cost and consumption comparisons

between operations and periods.

Suggestions:-

a) Stocks transfers from one store to other stores to be done effectively.

b) Disposal actions for obsolete and non moving items to be take up on

priority.Identification of buyers to be searched.

c) Implementation of buy back clause incorporated the earlier equipment

purchase orders has to be taken up with the suppliers and returning of the

unconsumed spare parts to be done.Such items are to be identified.

d) Orders are released mostly for all the items covered in the op en order

agreements.Rate contracts to be done immediately on their receipt of

requirement.Only the items required are to be procured other wise the items procured

will not get consumed and become non-moving.

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e) Utility of the items asking more than 1 lakh has to be reviewed to take

further action

f) Linking up alternate part numbers and elimination o duplicate code

numbers so that effective utilization of the available items would be done and

unnecessary purchases could be avoided.

72

BIBILOGRAPHY:-

S.NO AUTHOUR TITLE OF THE

BOOK

EDITION PUBLISHER PUBLISHING

YEAR

1

.

Khan

M.Y,Jain P.K

Financial

management

3rd Tata

MCGraw

Hills

2007

2

.

I.M. Pandey Financial

Management

8th Vikas 2004

3

.

Prasanna

Chandra

Financial

Management

6th Tata

McGraw

Hills

2006

VISITED WEB SITES:-

WWW.SCCLMINES.COM

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