A STUDY ON INVENTORYMANAGEMENT

With reference to HINDUSTAN SHIPYARD LIMITED.

A project report Submitted in partial fulfillment of the award of the Degree of

“BACHELOR OF BUSINESS MANAGEMENT”

Submitted By

E.KIRAN KUMAR

(Regd. No: 2010-1109048)

Under the guidance of

Dr. G.SYAMALA RAO M.Com, M.B.A, M.Phil, Ph.D.,

Associate Professor,

GVP College for Degree and PG Courses (Autonomous)

Affiliated to Andhra University

(Accredited by NAAC with B++)

Gayatri Valley, Rushikonda Campus,

Visakhapatnam-530045

2010-2013

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CERTIFICATE

This is certify that Mr. E.KIRAN KUMAR, Regd.No2010-1109048 student

of 3rd BBM, GVP College for Degree and PG Courses (Autonomous),

Visakhapatnam, during the academic year 2010-13 has undergone project work

entitled A STUDY ON INVENTORY MANAGEMENT with reference to

HINDUSTAN SHIPYARD LIMITED. The project has been carried out by her

under my guidance in partial fulfillment of the award of the Bachelor of Business

Management.

Place: Visakhapatnam

Date:

Dr. G. SYAMALA RAO

Associate Professor,

GVP College for Degree and PG Courses,

Rushikonda,

Visakhapatnam.

DECLARATION

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I hereby declare that the project work entitled “A study on INVENTORY

MANAGEMENT” with reference to HINDUSTAN SHIPYARD LIMITED

Visakhapatnam, submitted by me, under the esteem guidance of Dr.G.Syamala

Rao M.Com, M.B.A, M.Phil, Ph.D., to the Gayatri Vidya Parishad College for

Degree and P.G Courses, Visakhapatnam, in partial fulfillment of the requirement

for the award of Bachelor of Business Management.

I further declare that this project work is a result of my own efforts and that

it has not been submitted to any other co0llege or University or Institute.

E.KIRAN KUMAR

2010- 1109048

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ACKNOWLEDGEMENT

I would like to thank all the people before start my report whose constant

support helped me to bring the project into existence.

I am thankful to Dr.G. Syamala Rao, Associate Professor. School of

Management Studies, for his valuable guidance in the project and also my

educational career.

I would like to express my sincere thanks to U.S.PRAKASH RAO, M.com,

PGDPA, and Accounts Officer who has motivated me with their valuable

suggestion and helped throughout the project in permitting various tasks in this

esteemed organization.

(E.KIRAN KUMAR)

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TITLE PAGE NO:

CHAPTER-1 INTRODUCTION 6 - 11

CHAPTER-2 INDUSTRIAL PROFILE 12 - 25

CHAPTER-3 COMPANY PROFILE 26 - 49

CHAPTER-4 CONCEPTUAL FRAMEWORK 50 - 109

CHAPTER-5 DATA ANALYSIS AND 110 - 120

INTERPRETATION

CHAPTER-6 FINDINGS, SUMMARY, 121 - 125

SUGGESTIONS

BIBLIOGRAPHY 126

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CHAPTER-1

INTRODUCTION

INTRODUCTION

NEED FOR THE STUDY

OBJECTIVES OF THE STUDY

LIMITATIONS

METHODOLOGY

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INTRODUCTION:-

Business in this world has taken a major role in the life of human beings. Progress or growth of every human being depends on the business, So by this we can know how important it is. In the olden days the buses were considered to be one of the means of transportation for exchange of goods .source of the transportation, Ships are the main source of transportation, since ages. In this globalized world shipping industry plays a vital role .

Import and export of goods and services from one country to the other is done through ships.

Hindustan Shipyard Limited was the pioneer shipbuilding industry in INDIA. This ship building industry is situated on the eastern coast of Visakhapatnam with nature of harbor situated almost mid-way between Kolkata and Chennai.

Inventories are stock of the product a company is manufacturing for sales Components. Inventories often constitute the major element of the total working Capital and hence it has been correctly observed “A good inventory management is good financial management.”

Inventory is considered to be the most important in Hindustan Shipyard Limited .As the main objective of Hindustan Shipyard Limited is to built, so the inventory plays a significant role in shipbuilding.

Inventory constitutes the most significant part of current assets of a large majority of companies in INDIA. In an average inventories are approximately 60% of the current assets in public limited companies in INDIA. Because of large size of inventory maintained by firms, a considerable amount of funds is in firm. Neglecting the management of inventories will be jeopardizing.

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NEED FOR THE STUDY:-

Inventory management is a very simple concept – should not have too much stock and should not have too little. Since there can be substantial costs involved in straying above and below the optimal range, careful inventory management can make huge difference in the profitability of a business. Although the concept is simple, the process of getting the right balance can be quite a complex and time consuming task without the right technology.

There are two things; one need to be keen in managing inventory is (1). When to order (2) How much to order.

Holding inventories involves blocking of a firms fund and the costs of storage and handling, every business enterprise has to maintain 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. A firm also needs to maintain inventories to reduce ordering costs and avail quantity discounts, Etc.

As Hindustan Shipyard Limited is a ship building industry, its inventory forms different parts of ships and other materials related. In this case, the inventory plays the major role in Hindustan Shipyard Limited, and it should be properly maintained and managed.

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OBJECTIVES OF THE STUDY:-

To study the organization profile with reference to HSL.

To calculate different ratios used in the inventory management with reference to HSL.

To study the inventory management practices in HSL

To study the step by step process of inventory applications in HSL

To give suggestions if any.

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METHODOLOGY

The methodology of collection data is an important part of the study. The

sources of the data can be divided into two parts, these are as follows:-

Primary data

Secondary data

Primary data:-

Information of the primary data for the study is collected by the personal interaction with the officers and persons of various levels who involved in the inventory management of M/S HSL.

Secondary data:-

The secondary data required for the study is collected from the annual report published M/S HSL, Visakhapatnam. And also the data required for the study is collected from magazines, newspapers and internet.

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LIMITATIONS OF THE STUDY

This study is conducted with the limited data available and the analysis was done accordingly.

The study is conducted with the limited time period and analysis made accordingly.

As the data provided to us is very limited and depth of matter is not possible.

Most of the data collected was historical.

There was no scope for gathering the entire financial information as it is confidential.

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CHAPTER -2

INDUSTRIAL PROFILE - SHIP BUILDING

INDUSTRY

INTRODUCTION TO INDUSTRY

ECONOMIC CONDITIONS

MAJOR SHIP BUILDERS

GROWTH OF SHIPBUILDING

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INTRODUCTION TO INDUSTRY

The shipbuilding industry is involved in the construction and modification of ships. This is carried out in a specialized facility called a shipyard. The industry builds ships for commercial as well as military purposes.

History

The shipbuilding industry can be traced back to 2,500 BC, when ancient Egyptians assembled wooden planks to build ships. Greeks started using multiple masts for increasing the speed. The shipbuilding industry across the world progressed during the ‘Middle Ages.’ China was home to some of the biggest seaports of the world, including Quanzhou and Guangzhou.

During the nineteenth century, the use of iron in shipbuilding increased. In 1843, Isambard Brunel built the ‘Great Britain,’ the first ship made completely of iron. Steel replaced wrought iron in the latter part of the century due to its easy availability. However, the use of wood for building decks continues until today.

Modern shipbuilding manufacturing techniques

Modern shipbuilding makes considerable use of  prefabricated sections. Entire multi-deck segments of the hull or superstructure  will be built elsewhere in the yard, transported to the building dock or slipway, and then lifted into place. This is known as "block construction". The most modern shipyards pre-

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install equipment, pipes, electrical cables, and any other components within the blocks, to minimize the effort needed to assemble or install components deep within the hull once it is welded together. This was first introduced by Alstom Chantiers de l'Atlantique when they built the largest Ocean Liner in the world Cunard's RMS Queen Mary 2.

Ship design work, also called naval architecture, may be conducted using a ship model basin. Modern ships, since roughly 1940, have been produced almost exclusively of  welded  steel. Early welded steel ships used steels with inadequate  fracture toughness, which resulted in some ships suffering catastrophic brittle fracture structural cracks (see problems of the Liberty ship). Since roughly 1950, specialized steels such as ABS Steels with good properties for ship construction have been used. Although it is commonly accepted that modern steel has eliminated brittle fracture in ships, some controversy still exists. Brittle fracture of modern vessels continues to occur from time to time because grade A and grade B steel of unknown toughness or fracture appearance transition temperature (FATT) in ships' side shells can be less than adequate for all ambient conditions.

ACTIVITES OF SHIPYARD:-

SHIP BUILDING

SHIP BREAKING

SHIP REPAIRING

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Ship Building

Global Shipbuilding is estimated to be a USD 20 billion industry and is presently dominated by Korea, Japan and China, which together account for around 75 per cent of the world output.

Fortunes of shipping and shipbuilding industries seem to be linked to each other or at least move in tandem. For nearly three decades in the post World War II era, both the industries were dominated by European nations and United States. However, high labor costs in the yards of Europe and USA, one of the major determinants in this cost competitive industry, has led to a gradual shift of the center of shipbuilding to these Asian nations over the last two decades.

Similar progress was observed in  Indian shipbuilding industry, as per the research carried out by i-maritime Consultancy the order book of the Indian shipyards, which was hovering around Rs 1,500 crore in 2002, has reached a value close to Rs 13,700 crore by September 2006, with nine times increase in just four years.

The Indian shipbuilding, which was totally domestic till late 90’s, has become export oriented.  ABG Shipyard  was the first to build and export a newsprint carrier for a Norwegian client in 2000 and established India’s competitiveness in building and delivering ships of the International standards. Today six years down, out of the 199 ships on the order book, close to 124 are for exports.

India has a long history and tradition of shipbuilding that can be traced back to the Harappan civilization. However, since the beginning of the 20th century, it had been on a declining scale and presently, rated capacity of country's shipbuilding yards is minuscule vis-à-vis world's capacity.

However, some private sector yards are showing increasingly better performance. ABG Shipyards, one of the leading private sector shipyards of the country, has recently executed an order of newsprint carriers for Norway-based Lys Lines and got another order of delivering five 10,000-dwt dry cargo vessels

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from a German ship-owner. Both Norwegians and Germans are known to demand the best of quality products.

Looking at the prospects of Indian shipbuilding industry, it has been observed that cost competitiveness remains the significant advantage of domestic shipbuilding industry considering the two major parameters of shipbuilding viz. Steel fabrication and labor. China is emerging as a major shipbuilding nation leveraging on these advantages and posing serious threats to Korea and Japan. Considering this, it can be said that a proper strategy taken in the right direction could leverage the competitive benefit and lead the Indian shipbuilding industry towards better prospects.

Ship Breaking

Ship breaking or ship demolition involves breaking up of aged ships for scrap.Ships purchased on the basis of their light displacement tonnage (LDT) are demolished in ship breaking yards and sent to steel re-rolling mills for reuse as raw material for production of steel. Currently, the international ship demolition market is centered on the Indian subcontinent. While a large number of tankers find their way to scrap yards in Pakistan and Bangladesh, Indian ship breaking yards attract mostly dry and general cargo vessels.

Ship breaking industry in India is mostly concentrated at Along in Gujarat, which the world’s largest ship is breaking yard catering to nearly 90 per cent of India's ship breaking activity. However, sporadic activity also takes place in other locations like Sachana, Gujarat, Mumbai and Calcutta. The ship breaking activity at Alang includes a total of 170 yards of which 50-70 are operational and around 50,000 people are involved directly or indirectly in the business of scrapping. The total tonnage of ships broken in India has varied from a low of 0.65 million ldt in 1991-92 to a high of 2.79 million ldt in 1997-98. Financing is an important aspect of the industry as scrapping normally involves an intermediary 'cash buyer'. Earlier State Bank of Saurashtra and Dena Bank took active role in the ship breaking industry, however, of late; most banks have become reluctant to finance ship scrapping projects.

Ship scrapping industry in India suffers from government apathy. In spite of the fact that re-rolling accounts for about 60 per cent of the national production of bars, rods and structural and ship scrapping supplies nearly 200,000 tons of scrap

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every year to the re-rolling mills, the sector remains largely disorganized as well as unrecognized.

In the recent past, the ship scrapping industry attracted considerable attention on the issues relating to environmental pollution, health problems of labor and violence of human rights. Environmentalists across the world particularly Greenpeace and Basel Action Network have drawn international attention to the poor working environment prevailing at the Indian ship scrapping yards particularly at Alang and opened up fronts everywhere by calling for legal action against scrappers, building up public opinion against scrapping and physically blocking the ships meant for scrapping. The environmental issue could become the single largest factor that could determine the structure of the ship breaking industry in future.

Looking at the prospects of the ship breaking industry in India it has been observed that competition from neighboring countries is expected to become tough in the near future. China has also come back to the scrapping industry in recent years with a bang by capturing a significant volume of tonnage sent for scrapping. Pakistan and Bangladesh are likely to pose serious threat to Indian ship scrapping yards. Considering all the hurdles faced by the Indian ship scrapping industry, ample scope for improvement has remained and Indian ship scrapping industry is expected to take all possible actions to keep the industry vibrant.

Ship Repair

Ship repairing is a service, consisting of a number of smaller services on various parts and components of the ship. While the repairing activity is adjunct to shipyards and ports, the extent and complexity of these services vary.

Ship repairing in India started long back. The first dry dock was built at Bombay port in 1750 and second at Calcutta port in 1781. For about two decades immediately after the Independence, the Indian ship repair industry made a booming business. The potential size of the ship repair industry in India is around Rs. 44 billion, which includes repairing required by Indian and foreign vessels calling at Indian ports.

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However, only a small percentage of this business equivalent to Rs 10-12 billion is executed by the Indian ship repairing industry.

In India, major shipyards carry out both ship repair and ship building activities. The industry is controlled by 10 large and 30 to 40 medium and small sized shipyards apart from Naval Dock yards  and Defense shipyards. The attempts to set up exclusive ship repair facilities in the private sector failed to perform.With the growing fear of pollution and stricter norms and regulations, ship repairing services are in demand. Indian shipyards have the competitive advantage like low labor costs, availability of trained and skilled labor force and proximity to international shipping routes required for getting success in the business. However, the industry is in a dismal state, not withstanding such advantages and has not been able to cater to the needs of the Indian merchant fleet adequately due to following reasons.

Lack of new investments in machinery / equipment Deterioration of existing machinery / equipment

Usage of obsolete methods and systems

Lack of suitable training for up gradation of skills

Life emphasis on professional management techniques

Supply bottlenecks for raw materials and spares

Over dependence on public sector

Cumbersome government procedures

Extremely low labor productivity

While there has been success in the field of ship breaking and ship building industry in India both of which are labor intensive, ship repairing industry can also replicate the scenario provided it utilizes its inherent competitive advantages to the

The Shipbuilding Industry- Riding the Economic Wave

The global economic recession and the decline in sea-borne trade led to over-capacity of ships globally ultimately affecting the performance of the shipbuilding

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industry during 2009. The global shipbuilding order book declined from 367.2 mn GT as on December 31, 2008 to 303.5 mn GT as on December 31, 2009 primarily led by the slow growth of new-build orders aggregating 18.2 mn GT during CY09 as against 90.7 mn GT during CY08. The vessel deliveries however continued to grow at a steady pace with 75.7 mn GT of vessels delivered during CY09 compared to 64.2 mn GT of deliveries during CY08.

The record scrapping volume particularly in the dry bulk vessel segment and y-o-y decline in vessel prices in the range of 20-30% provided no respite to the dwindling global shipbuilding order book, especially in case of major shipbuilding nations such as S. Korea, China and Japan thereby requiring their respective governments to take corrective measures in terms of restructuring of yards facing financial crisis and also offering monetary and non-monetary incentives to boost the industry's prospects. However, the Asian shipbuilders continue to dominate the global order book accounting for 95.1% of the total as on December 31, 2010. Of the same, in continuation of the trend during 2008, the market share of the S. Korean shipbuilders remained the highest at 37%. The share of the Chinese and Japanese shipbuilders stood at 36.1% & 16.8% respectively.

The Indian shipbuilders occupied 5th rank globally accounting for 1.44% of the global order book with 2.2 mn GRT of vessels on order as on December 31, 2009. The Indian shipbuilders specialize in the construction of offshore vessels. However, the expansion of shipyards to the extent of constructing bigger vessels such as dry bulk carriers has enabled the Indian shipbuilders to attract new-build orders in the said vessel segment. Importantly, the Indian yards reported no major instance of order cancellation during CY09 (except in case of Pipavav Shipyard) as compared to their peers in S. Korea and China, primarily owing to no speculative orders being placed with the Indian yards and majority of the orders being received from repetitive clients.

We expect the shipping fleet to be in over-capacity during CY10-CY13 based on a combined mix of factors such as world fleet size, world GDP-current prices and the historical trend of sea-borne trade. In spite of the new-build vessel prices declining by 20-30% on y-o-y basis, we expect increased demand for second-hand

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vessels as compared to new-builds. The said demand is expected to be driven by relatively lower prices of second-hand vessels with younger fleet on offer.

MAJOR SHIP SHIP BUILDERS

The world shipbuilding industry is largely dominated by Asian players, such as South Korea, China and Japan. In 2008, South Korea’s production level was higher than that of the entire world combined. The nation’s top shipbuilding companies include Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries. The world's biggest shipyard (operated by Hyundai) launches a new vessel every four days.

The shipbuilding industry is worth $100 billion (Bloomberg report, December 2006). The industry is vital to the economy as it supports trade and other ancillary services

South Korea is the world's largest shipbuilding nation with a global market share of 53.2% in 2011.[13] South Korea is the global leader in the production of advanced high-tech vessels such as cruise liners, super tankers, LNG carriers, drill ships, and large-sized container ships. In the 3rd quarter of 2011, South Korea won all 18 orders for LNG carriers, 3 out of 5 drill ships and 5 out of 7 large-sized container ships.

South Korea's shipyards are highly efficient, with the world's largest shipyard in Ulsan operated by Hyundai Heavy Industries slipping a newly-built, $80 million vessel into the water every four working days. South Korea's "big three" shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering, dominate global shipbuilding, with STX Shipbuilding, Hyundai Samho Heavy Industries, Hanjin Heavy Industries, and Sungdong Shipbuilding & Marine Engineering also ranking among the top ten shipbuilders in the world. In 2007, STX Shipbuilding further strengthened South Korea's leading position in the industry by acquiring Aker Yards, the largest shipbuilding group in Europe. (The former Aker Yards was renamed STX Europe in 2008). In the first half of 2011, South Korean shipbuilders won new orders to build 25 LNG carriers, out of the total 29 orders placed worldwide during the period.

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China is an emerging shipbuilder that briefly overtook South Korea during the 2008-2010 global financial crises as they won new orders for medium and small-sized container ships based on their cheap prices, although its current production is limited mainly to basic vessels.

Japan lost its once industry leading position to South Korea in 2003, and its market share has since fallen sharply. The European nations' combined output has fallen to a tenth of South Korea's, and the outputs of the United States and the rest of the world have become negligible.

Indian ship building industry:-

Shipbuilding, which includes, shipyards, marine equipment manufacturers, and a large number of service and knowledge providers, is an important and strategic industry in a number of countries around the world. Shipbuilding is a globalized, technology-based, and capital intensive industry. The industry is influenced by developments in the shipping industry and the market dynamics. One of the unique factors of the shipbuilding industry is that a ship is sold before the construction begins and each ship is custom made for the owner. It may take around 1 to 3 years for the delivery of a new ship. The buyer orders a ship in anticipation of its future use and sometimes it is done with an advance charter agreement which makes it important for the shipyard to deliver the ship within the specified time. This feature makes delays in shipbuilding unacceptable at times, and thus the buyers prefer to place orders with established shipyards that have a good track record.

MAJOR SHIPYADS IN INDIA

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INDIA PORTS, MARITIME TRASPORTATION, AND INLAND WATERWAYS

The linkages between international trade and the transport network are obvious. An efficient transport system can boost trade and greater volume of trade can, in turn, create demand for investment in the transport network. It is now widely acknowledged that efficiency in the transport sector has major spillover effects on the competitiveness of both goods and services. Competition and increased efficiency in maritime transport services, resulting in lower freight rates, contribute directly to a country’s international competitiveness. Similarly, the development of air transport services is crucial for the sustainable development of trade and tourism. This sector acts as an economic catalyst by opening up new market

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S.NO NAME YEARS OF FOUNDATION

YEARS OF REGISTRATION

1 HSL- VIZAG 1949 1956

2 CSL- COCHIN 1970 1973

3 HOOGLY SHIPYAD- KOLKATA

1901 1901

4 MDL- MUMBAI

1901 1934

5 GRES- KOLKATA

1984 1931

6 GOA SHIPYAD-GOA

1857 1967

opportunities, moving products and services with speed and efficiency. The quality of the transport network has direct implications for the inflow of foreign direct investment (FDI).In the past, the requirement of large-scale investment, long gestation periods, uncertain returns, associated externalities together with social objectives such as consumer protection, welfare and equity have resulted in government monopoly in transport services. In many developing countries, the Government owned, operated and financed the transport sector and success and failure in the provision of such services was largely a story of government’s performance. This picture is rapidly changing with globalization and the liberalization of national economies. Increased commercialization and growth of international trade has led to considerable pressure on the operating environment of the existing transport infrastructure, forcing it to adapt new, improved and more reliable technology. Commercialization has also enhanced competition among trading nations to increase their share in the world’s trade. For instance, with increasing size and sophistication of ships, container ships now make only a few calls in three or four harbors at each end of the trade while the rest of the traffic is served by small feeder ships. This has increased the competition among neighboring harbors to develop as “hub” ports catering to large container ships. Governments all over the world are finding it increasingly difficult to finance the investment required to sustain the growth of transport infrastructure. On the other hand, globalization has given birth to large multinational corporations and alliances that have the willingness, financial strength and technical know-how to operate and manage the advanced transport network. This has created a unique situation where by countries, which were once closed-door, are opening-up their corridors for privatization and foreign investment. The Indian aviation and maritime transport sectors have not been an exception to this trend. Prior to the 1990s, the Government was the main provider of these services and there were various restrictions on private participation. During that period, the performance of these s e c tor s was marked by monopoly- induced in efficiency and low productivity. In fact, in both of these transport services, India’s share in world trade had been steadily declining. In the 1990s, when India embarked upon an ambitious reform programmed, the demand-supply gap in transport infrastructure became more pronounced. The need of the hour was to rectify the infrastructural bottlenecks to sustain the reform programmed. It is at this juncture that the Government announced various reform

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measures in air and maritime transport services, including privatization. It was expected that privatization would increase efficiency through competition, reduce the financial constraints and speed up the process of adaptation of new technologies. The following section will provide a broad overview of maritime and air transport services in India. It will critically analyze the policies and developments in these sectors since the 1990s. The subsequent section will suggest various regulatory, fiscal and other reforms which could facilitate the privatization process and improve the overall efficiency, productivity and global competitiveness of the sectors.

GROWTH OF SHIP BULIDIND IN INDIA

Ship Building is a branch of heavy engineering industry It is an assembly industry. It draws boilers, engines, electrical goods, glass, rubber, nuts and bolts etc. manufactured by other industries.

The industry manufactures ships of a variety of sizes and for a variety of purposes ranging from fishing vessels, cargo ships, oil tankers, cruise liners to ferries. Boats, sailing boats, etc. are also made by this industry.

The industry also manufactures naval ships ranging from mine layers, mine sweepers, destroyers, frigates, tugs to air craft carriers, gun boats, submarines etc.

Ship building is a highly expensive, technical, time consuming, scientific and sophisticated industry. It exists in a few economically sound and technically advanced countries only the industry has developed on account of:

(i) Growing international trade relationships among the countries of the world.

(ii) Development of Iron and Steel and various other industries connected with fitting and trimming of the ships.

(iv) National security and race for naval supremacy in the world has boosted construction of ships of different sizes and for different purposes for the use of the navy.

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(iv) Availability of capital.

(v) Advancement in marine architecture and marine technology.

Kolkata, Vishakhapatnam, Mumbai, Kochi and Murmagao are ship building centers. In these shipyards, ships of a variety of sizes and purpose are built. These include boats, fishing boats, fishing vessels, barges, cargo ships and warships.

1. The Hindustan Shipyard Ltd. Vishakhapatnam set up by M/s Scindia Steam Navigation Company in 1941 was taken over by the Indian Government in 1952 and named Hindustan Shipyard.

The yard has constructed over 150 ships so far.

2. The Cochin Shipyard Ltd. Kochi started work in 1976.

3. The Garden Reach Factory, Kolkata has specialized in the construction of naval boats, harbor crafts, tugs, barges, dredgers etc. It is on the eastern bank of Hoogly.

4. Hoogly Dock and Port Engineers Ltd. was set up in 1984. It has 2 units in Howrah district in West Bengal.

(i) Salkia (ii) Nazirganj.

These units manufacture a variety of ships like dredgers, tugs, fishing trawlers, offshore platforms for the ONGC etc.

4. The Mazgaon Dock, Mumbai constructs dredgers, frigates, destroyers etc. for the Indian Navy.

Besides, there are three dozen small ship yards in the country engaged in manufacturing of small sized vessels for the domestic shipping companies. Goa shipyard makes fiber glass boats, trawlers, barges and dredgers.

Repair Shipyards. There are 17 such yards in India.

They carry out ship repair work.

(i) Dry Dock Cochin(ii) H.S.L. Vishakhapatnam (Hi) Chennai Port Yard

(iv) West India Shipyard Marmagoa (Goa) is the most significant. Naval Ship repair work is done at the Mazgaon Ship Yard Mumbai.

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CHAPTER-3

COMPANY PROFILE - HINDUSTAN

SHIPYARD LIMITED

HISTORY AND BACKGROUND

VISION AND MISSION

OBJECTIVES

MILE STONE ACHIEVEMENTS OF HSL

ACTIVITES OF HSL

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HISTROY AND BACKGROUND

One of the important components of Visakhapatnam economy, the Hindustan Shipyard Limited, Visakhapatnam is credited with the establishment of one of the most significant shipyards in the city. The first president of India – Dr. Rajendra Prasad laid the foundation of the shipyard in 1941. The shipyard was nationalized in 1961, and renamed Hindustan Shipyard Limited .In 2009, HSL was transferred from the Ministry of Shipping to the Ministry of Defence. The yard played a critical role in the development of nuclear-powered.

One of the major shipbuilding establishments of the country, HSL is an ISO 9001 – 2000 organization. It maintains a separate safety department to ensure safe working environment and a training center to impart human resource development lessons and technical trainings. The esteemed organization provides housing, medical and educational facilities not only for its employees but for the general public as well. 

A government of India undertaking, HSL was built to facilitate an efficient shipyard to serve customers better. Mr. Ajit Tewari is the current Managing Director of HSL, Visakhapatnam. Covering a sprawling area of 46.2 Hectares, the Hindustan Shipyard is equipped with latest technologies. The shipyard has top of the line storage and logistic facilities, plasma cutting machines, modern cranes, separate Quality Checking department, vigilant cell, welding machines and every other necessary component required to run a modern shipyard. The Ship repairing unit of the shipyard has facilities like water jet cleaning, grit blasting, dynamic balancing, hydraulic elevators etc. 

The shipyard is relatively compact at 46.2 hectares (0.462 km2). It is equipped with the plasma cutting machines, steel processing and welding facilities, material handling equipment, cranes, logistics and storage facilities. It also has testing and measuring facilities. It also conducts major overhauls of Indian Navy submarines, and is being equipped to construct nuclear-powered submarines.

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VISION:

To become a world class Defence Shipyard, to construct Naval Ships and Submarines for the Indian Navy and Coast Guard and to meet the repair requirements of such vessels and other Government Vessels.

MISSION:

To upgrade the Shipyard, acquire advanced technologies in war ships and submarine construction in a phased manner from 2010 to 2025, and take up projects planned by Indian Navy and Indian Coast Guard for meeting its long term needs.

OBJECTIVES:

To incorporate “Best Practices” in all key activities of the yard such as Production, Efficiency, Customer Satisfaction, Marketing, Human Resources, Purchase and Planning.

To develop the technological capabilities in the area of Ship design and Ship construction and render ‘Shipbuilding’ more viable.

To secure new shipbuilding orders from indigenous and export market & construct vessels for National Maritime and Defence Sector.

To expand ship-repair facilities. 

To undertake retrofitting of Normal Refit, Short Refit & Medium Refit and modernization of special class submarines such as 877 EKM submarine. 

To workout cost effective funding arrangements for Shipbuilding and major Ship repair projects.

To effect economy in expenditure.

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BOARD OF DIRECTORS

Board of directors

NAME

DESIGINATION

RAdm. N. K.MISHRA, NM, IN (Retd.) Chairman & Managing Director

RAdm. K.C. SEKHAR, AVSM, VSM, IN (Retd.)

Chairman & Managing Director

Cmde. NARESH KUMAR, VSM, IN (Retd) Chairman & Managing Director

Shri RAKESH MAHAJAN Director (Finance & Commercial)

Cmde. K .S .SUBRAMANIAN, NM, IN (Retd.)

Director (Shipbuilding)

Capt. P.V.K.MOHAN Independent Director

Dr. DEVI SINGH Independent Director

Shri GYANESH KUMAR, IAS Director

VAdm. N.N.KUMAR, AVSM, VSM, IN Director

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HSL being an old & premier shipyard of the country has been striving towards better productivity and optimum utilization of resources. The total Income of the company during the year is rps 637.87 Crores as compared to rps651.16 Crores for the previous year. Your company recorded a profit of rps54.99 Crores as against rps2.32 Crores of previous years due to accounting of rps 452.68 Crores grant in aid received from Government of India as Financial Restructuring package.

The major highlights of the year 2010 -11 are as follows

The Ministry has sanctioned rps 824.90 Crores as Financial Restructuring package and the same has been implemented successfully.

The company concluded contracts for an order value approx. Rps798 Crores with Coast Guard, Indian Navy and Kandla Port Trust. However the order value is not sufficient for the Yard to sustain. The company desperately needs to secure high value orders from Indian Navy after its transfer of Administrative control from Ministry of Shipping to Ministry of Defence.

Some of the noteworthy achievements during the year are as follows

1) Two 53 K bulker vessels were delivered to M/s. GML.

2) Six vessels of different categories were launched/floated.

3) Keels were laid for five new vessels.

4) Repair of ONGC Jack up Rig is at advanced stage of completion and targeted to be delivered by the end of Nov 2011.

5) Repair of twenty three vessels was undertaken during the year 2010-11 including two warships viz. INS KUMBHIR &INS SANDHAYAK.

The present shipbuilding order book position comprises 24 vessels out of which 14 vessels are at various stages of their construction. The focus of the yard during the next couple of years will be on completion of the orders of M/s. GML & five IPVs for Indian Coast Guard. The other orders would also be attended to with renewed planning & Production norms to keep the workshops & workmen optimally utilized. However I regret to inform that with the present order book most

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workshops will remain idle in near future unless some high value orders are secured by HSL.

Grading Vide Memorandum of Understanding

The performance of the company for the year, based on self appraisal is “Good” in terms of the MoU signed with the Ministry of Defence.

TRANSFER TO MINISTRY OF DEFENCE

Considering the strategic location of HSL and requirements of Defence, the President of India transferred the administrative control of Hindustan shipyard Limited from the Ministry of Shipping to the Ministry of Defence with effect from 22nd February,2010 under Government of India (Allocation of Business) Rules,1961 vide notification No.1/22/1/2010-Cab, Dated 22nd February,2010. The Shipyard would now play a major role as a Defence yard and undertake construction of Hi-tech Warships and Submarines.

Corporate Governance

Your company constantly endeavors to adopt and maintain the highest standards of ethics in all spheres of its business activities. Your company firmly believes in the fundamental principles of Corporate Governance like honesty, integrity, accountability, transparency and legal/statutory compliances, to protect, promote and safe guard the interests of all stakeholders. It also strives to carry out its business obligation with good corporate values duly discharging its duties for maximum level of transparency in decision making to avoid conflict of interests. It also accords due importance to adherence of adopted corporate values and objectives and discharging social responsibilities as a responsible corporate citizen.

Infrastructure up gradation & Modernization

The yard infrastructure is required to be upgraded to increase its capacity and efficiency for construction of sophisticated Defence Vessels in future. This up gradation has been planned to be undertaken in two phases. In first phase the existing infrastructure facilities would be refurbished and or renewed. Budget estimates for the Phase-I modernization is ` 457.36 Crore. In the second phase the yard infrastructure would be augmented so as to make the yard capable of

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constructing modern warships, submarines and amphibious Vessels etc. Both the proposals are under active consideration at Ministry of Defence.

Future Outlook

The yard is strategically located on the east coast of the India in the close proximity of Eastern Naval Command. Consequent to transfer of Administrative control of your company to Ministry of Defence, the yard has been identified as one of the Defence shipyards for construction of Warships and Submarines. The present order book is likely to be completed by Aug 2013 and thereafter HSL will concentrate on construction of Defence Vessels. The surplus capacity,if any, available would be utilized for commercial vessels. With above mentioned infrastructure up gradation and capacity improvement the yard will grow as one of the major Defence shipyards of the country.

Human Resource Development

Considering the large attrition rate of the existing workforce of the company in coming years, your company has started inducting the young workforce to fill up the organizational gaps. Your company has inducted 15 management trainees recently and will continue to induct more in coming years depending upon the requirements. The skill development is one of the high priority areas to hone the skills required for construction of complex warships and submarines. Hence, Your Company continues to impart training to new entrants and existing employees as well to increase the productivity. Further, recently your Company has revised the pay scales of the staff and workmen of the company in order to boost their morale which will result in higher productivity. However while approving the wage revision; your company could not arrange the payment of arrears due to staff & workmen as the financial health of the Company did not permit such payments. This is a major issue of the Unions as the wage revision for Officers was undertaken prior to wage revision of staff & workmen and their arrears have been paid.

CAPITAL STURCTURE

The authorized equity share capital of the company as on 31 Mar 2011 stood at RS304.00 Crores against which the paid up Equity Share Capital as on 31 Mar 2011 is RS301.99 Crore

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FINANCIAL RESTRUCTURING

The Ministry has sanctioned RS824.90 Crores towards financial restructuring package as mentioned below:

i) An amount of RS452.68 Crores (Rupees Four Hundred Fifty Two Crores and Sixty Eight lakhs) has been given as grants in aid for clearance of old outstanding liabilities towards Banks, employee arrears, tax arrears and other liabilities.

ii) The existing Government loan with interest and Government guarantee fee against loan from SBI amounting to RS372.22 Crores (Rupees Three hundred Seventy Two Crores and Twenty Two lakhs) has been converted as loan in perpetuity without interest.

PERFORMANCE HIGHLIGHTS

Financial Parameters

The Directors are pleased to inform that the company has recorded a Profit Before Tax (PBT) ofRS165.18 Crores during the year 2010-11. This increase in PBT is due to accounting of grant-in-aid of RS452.68 Crores as income which has been received from Government of India towards Financial Restructuring.

Value of Production

The company achieved a value of production of RS603.84 Crores during the FY 2010-11.

MOU Rating

In terms of the parameters finally arrived at the Memorandum of Understanding signed with Government for the year 2010-11, performance of the company is expected to be rated as “Good”.

DIVISION-WISE PERFORMANCE

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SHIPBUILDNG

Your Company had achieved a turnover (including work-in-progress) of Rs.258.49 Crores during the year 2008-09 on the shipbuilding front. Your Company had achieved a production of 63772 DWT during the year 2008-09 which is 85% of the installed capacity. The Shipbuilding Division of your Company achieved a Value of Production of Rs. 243.08 Crore for 2009-10 as against Rs.258.49 Crore of the previous year. The Shipbuilding Division of your Company achieved a Value of Production of RS243.19 Crores for 2010-11 as against RS243.08 Crores of the previous year.

MAIN EVENTS

Following are the major events recorded by the Shipbuilding Division during the year 2010-11:

Si.No Events Date Description of Vessel Owner

1 Fresh contracts concluded

27-8- 2010

3 No 50 T BP Tugs Indian Navy

23 -3-2011

8 No. Inshore Patrol Vessels Coast Guard

24-3-2011

2 No. 50-T BP Tugs Kandla Port Trust

2 Delivery 12-4-2010

First (of 6 No) 53000 DWT Bulker

GML, Chennai

5-2-2011

Second (of 6 No) 53000 DWT Bulker

GML, Chennai

3 Floating/ Launching

3-5-2010

Floating of Second (of 6 No) 53,000 DWT Bulker

GML, Chennai

15-5-2010

Launching of Third (of 5 No) Inshore Patrol Vessel

Coast Guard

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14-7-2010

Launching of First (of 2 No) 50T BP Tug

Visakhapatnam Port Trust (VPT)

3-11-2010

Launching of Second (of 2 No) 50T BP Tug

Visakhapatnam Port Trust (VPT)

6-11-2010

Launching of Fourth (of 5 No) Inshore Patrol Vessel

Coast Guard

31-3-2011

Floating of Third (of 6 No) 53,000 DWT Bulker

Coast Guard

4 Keel Laying 27-12-2010

First (of 3 No) 50-Ton BP Tug

Indian Navy

27-12-2010

Second (of 3 No) 50-Ton BP Tug

Indian Navy

30-12-2010

Fourth (of 6 No) 53,000 DWT Bulker.

GML, Chennai

30-12-2010

Fifth (of 6 No) 53,000 DWT Bulker

GML, Chennai

5-3-2011

Third ( of 3 No) 50-TBP Tug Indian Navy

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Order Book Position as on 31 May 2011

HSL is presently having an order book of 24 Vessels of which, 14 Vessels are under various stages of construction. The value of the above Shipbuilding orders is RS1108.21 Crores.

The details of Order Book Position are as follows:

Si No

Yard No.

Type of vessel

No. of Vessels(Qty)

Owner Balance Contracts Value(Rs in Crs)

Contractual delivery date

Anticipated delivery date

1 11138 to 11141

53,000 DWT Diamond series Bulk Carriers

4 GML, Chennai 237.29 Jul 2009 –

Jan 2011Sep 2011 – Aug 2013

2 11154 to 11158

Inshore Patrol Vessels

5

Indian Coast Guard

34.07 Mar 2008- Mar 2009

Aug 2011 – Jul 2012

3 11160 & 11161

50-Ton Bollard Pull Tugs

2

Visakhapatnam Port Trust

39.13 Mar 2011 – Jul 2011

Aug 2011 – Oct 2011

4 11162 to 11164

50-T Bollard Pull Tugs

3

Indian Navy 155.40 Oct 2012 – Jun 2013

Oct 2012 – Jun 2013

5 11165 to 11172

Inshore Patrol Vessels

8

Indian Coast Guard

551.12 Aug 2013 – May 2015

Aug 2013 – May 2015ug

6 11173 to 11174

50 –T Bollard pull Tugs

2

Kandla Port Trust

91.20 Mar 2013 – Jun 2013

Mar 2013 – Jun 2013

Total 24

1108.21

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Production & Physical Performance

The Ship building production in DWT and capacity utilization achieved during the year 2010-11 are presented below. The figures for same parameters for previous year are also shown for comparison.

Sl. No.

Description Unit 2010-11 2009-10

1 Installed capacity (at 3.5 Standard Pioneer Ships per annum)

DWT 75,250 75,250

2 Actual Production achieved

DWT 61853 67572

3 Capacity Utilization Percentage 82 % 90 %

4 Productivity achieved M.hrs/DWT 42.5 27.20

SHIP REPAIRS

During the year, the Ship-repair Division undertook repairs on 53 Vessels of various types belonging to Indian Navy, Dredging Corporation of India Ltd., Shipping Corporation of India Ltd., Visakhapatnam Port Trust and 27 foreign vessels and also miscellaneous repair works. The Ship Repair division achieved a Turnover of Rs.201.65 Crs inclusive of the repair works on INS Sindhukirti. The Ship Repair Turnover has increased by 32.88% in 2008-09. This could be achieved by utilizing the Dock facilities to the optimum level. The Ship Repairs Division of your Company achieved a Value of Production of Rs. 266.04 Crore for 2009-10 as against Rs.144.13 Crore of the previous year. Ship repair Division has undertaken repairs on 29 Vessels

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(including 17 Foreign Flag Vessels) of various types belonging to Indian Navy, DCI, SCI, ONGC, VPT etc.During the year Ship Repair Division has undertaken repairs of 22 vessels (Including 8 Foreign Flag) of various types belonging to Indian Navy, DCI, SCI, ONGC, VPT etc. and also miscellaneous works. The repair dock was utilized to its optimum level. Your Company achieved a Ship Repair Turnover of Rs277.38 Crores during the year 2010-11 and is committed to increase its revenue from Ship Repairs in coming years.

RETROFIT

Your company has signed a contract on 3rd October, 2005 with Indian Navy for MR-cum-Modernization of INS Sindukirti and the total refit is jointly undertaken by HSL, Naval Dockyard (Visakhapatnam) & Rosoboron Export (ROE). Subsequently 8 Contracts were concluded with ROE for logistic support and material supply to carry out the Medium Refit.

The major works on submarine that were completed under this refit contract is enumerated below:• Defect survey on entire hull structure completed and Pressure Hull repairs commenced.• Chemical cleaning & Defect survey on piping spools of various systems completed & pipe manufacturing commenced.

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• Spares & Yard material to take up repair works on Engineering equipment and hull structure have been received.• HSL welders were trained to take up pressure Hull repairs and welding of Titanium piping spools.• Basic design for modification of keel block for leveling of Submarine has been completed.• Sonar Dome insulation renewal undertaken first time in India.• Major infrastructure for submarine repairs has been set up.

The Value of Production on account of Submarine Repairs was Rs. 99.31 crore for 2009-10 as against Rs. 57.52 crore of the previous years. The Value of Production on account of submarine repairs at the Retrofit Division was Rps83.27 Crores.

MAJOR WORKS DURING THE YEAR 2010-11

(a) Repair contract of Jack up Rig “SAGAR RATNA” of ONGC, worth Rs450 Crores is at an advanced stage of completion and targeted to be delivered by the end of Nov 2011.

(b) INS Sandhayak and INS Kumbhir repair orders of Rs75 Crores is presently in progress.

MODERNISATION

The yard is required to be modernized to increase its capacity and efficiency for construction of sophisticated Defence Vessels in future. The modernization is planned in two phases.

(a) Phase-1- In the first phase, the existing infrastructure facilities need to be refurbished/ renewed as identified.

(b) Phase- 2 – In the second phase of Modernization is to bring up the yard infrastructure in order to construct sophisticated Naval Vessels.

DRAWING & DESIGN OFFICE

The Design works for ongoing projects such as Inshore Patrol Vessel, Yard Crafts, Dry dock Gate and Bulk Carriers etc. have been carried out

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using Tribon M3 software in the CAD/CAM center. The capability of Design Office is also planned to be augmented to cater for design of Warships and Submarines.

QUALITY ASSURANCE

The 3rd Surveillance Audit with transition to ISO 9001:2008 standards was satisfactorily carried out during 19 May 2010 – 21 May 2010 and a new certificate of approval of ISO 9001: 2008 has been issued by LRQA. The 4th surveillance audit was satisfactorily conducted during 08 Nov 2010 – 10 Nov 2010. The Quality Management System of ISO 9001: 2008 is being maintained through periodical internal quality audits. The 5th surveillance audit was last undertaken between 21 Jun 2011 to 23 Jun2011.

IMPLEMENTATION OF INFORMATION TECHNOLOGY

Your company has successfully implemented the following tasks under IT:

• Database holding various enterprise data pertaining to the ERP application i.e., Purchase, Inventory,Finance, HR & Payroll etc., was upgraded with higher version to enhance the security, scalability, reliability of the data.

• To enrich the network facility in the yard, various technical recommendations were obtained by conducting the survey in association with various reputed network firms.

• The following jobs were undertaken during the year 2008-09 is under progress:

a) The applications i.e., Provident Fund Loan, Provident Fund contribution, pay arrears, family pensions, medical reimbursements etc lying under payroll application which are placed on the legacy system platforms are being customized and migrated to ERP package for enhanced level of usage in terms of ease of use, online interface and integration with enterprise modules.

b) Introduction of Web-enabled employee attendance regulation system with RFID readers at various yard entry points which enables centralized and real-time storage of attendance data and enquiry of the same from all

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computers which are connected over yard LAN for effective monitoring of time keeping management for effective usage of production man days.

c) Provision of internet for more no. of employees in the yard and for customers in customer servicing centre by placing the highly Network security Unified threat management tools and proper analyzer tools to monitor the security and usage of internet service.

d) Enrichment of HINDI version in HSL website with more content which is in English version.

INDUSTRIAL RELATIONS

The Industrial Relations situation in the Company during the year was cordial and harmonious. HS Staff and Workers Union elections were held on 14.11.09. Management has accorded recognition to the union for a period of 3 years. In order to motivate employees, HSL has implemented new Promotion policy for both Staff and Workmen to streamline promotions. The Wage Revision for Staff & Workmen is due from 1.1.2009. The Management has constituted a Wage Negotiation Committee and the negotiations have been completed. The MoU is being processed further for the Board and Government sanction. The Industrial Relations were cordial and harmonious during the year 2010-11.

The company under takes the following ship repair activities: Oil tankers, general cargo vessels, bulk carriers, passenger’s vessels, port crafts, hand mix bulker, survey vessels, off shore patrol vessels, drill shifts, off shore supply vessels and drilling platforms for oil sector.

ORGANISATIONAL STRUCTURE:

The department can be mainly categorized as follows:-

1) PRODUCTION DEPARTMENT

2) ADMINISTRATION DEPARTMENT

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3) SERVICE DEPARTMENT

PRODUCTION DEPARTMENT

The production department mainly consists of the following sections

HULL SHOP :-

It deals with material preparations like plates used for the construction of ship.

PRE-FABRICATION:-

It deals with ship parts like the funnel, wheel house and engine roots.

FRECTION DEPARTMENT:-

Assembling the ship parts to bring the complete shape.

WELDING DEPARTMENT:-

It deals with attaching the parts to make complete ship work.

BLACK SMITH DEPARTMENT:-

It deals with railing work, flooring work etc.

STEEL METAL DEPARTMENT:-

It deals with air conditioned works.

RIGGING DEPARTMENT:-

Holding the ship with repairs.

PAINTING DEPARTMENT:-

Painting the ships with required colours.

PLUMBING DEPARTMENT;-

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Plumbing works in trappers.

ENGINEERING DEPARTMENT:-

Facilitating and assembling the main Engine.

ADMINISTRATION DEPARTMENT

The Administration department consists of the following sections.

a) ACCOUNTS DEPARTMENT

b) PERSONAL DEPARTMENT

c) INTERNAL AUDIT DEPARTMENT

d) GENERAL AUDIT DEPARTMENT

ACCOUNTS DEPARTMENT:-

The following are the sections in accounts department

COST ACCOUNTS

BILLS AND INSURANCE

PROVIDENT FUND

SALARIES SECTION

Cost accounts deals with compilation of final accounts, budgets and cost report to ministry, direct and indirect taxation that is central excise, income tax and sales tax.

Bills and insurance deals with payments bills is passing of bills and insurance of materials etc.

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Pay accounts deals with the payment of wages, salaries, provident fund and gratuity and V.R provident fund is allowed.

PERSONAL DEPARTMENT

It consists of the following cells:

STAFF CELL

WORKMEN CELL

EXCUTIVE CELL

Acts which are present in the HSL are:

Promotions leave management, medical requirements, visitors man agent facilities, general administration shifts, time keeping etc.

INTERNAL AUDIT DEPARTMENT:-

The department checks the value of inventories and bills different branches of accounts are awaited annually.

GENERAL DEPARTMENT:-

This responsible for procurement of the stationary and functional goods others incidental items.

SERVICE DEPARTMENT:-

The service department consists of the following sections:-

a. Design office

b. Production, planning department

c. Quality control department

d. Purchase department

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e. General stores

f. Bond store

g. Clearance department

h. Maintance department

i. Civil engineering department

j. Medical and health department

k. Transport department

l. Security department

INFORMATION TECHNOLOGY

In the field of Information Technology, your Company has successfully implemented the following tasks during the year

(a) Action is initiated for introduction of e-procurement in HSL and likely to be implemented by Mar 2012.

(b) Initiated National Informatics Center (NIC) mail service in view of more confidentiality & security for all HSL official correspondence. (C) Implemented the network security using group policy.

ENVIRONMENTAL ASPECTS

Your company continues to be environmental friendly and has fulfilled all the statutory requirements of central and state pollution control boards. The company is committed to meet all the stipulated standards for maintaining and protecting the environment.

MILESTONE EVENTS OF HINDUSTAN SHIPYARD LIMAITED

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1941DR.Rajendra Prasad, the then president of Indian National Congress laid the Foundation Stone on 21.06.1941 for Scindia Shipyard at Visakhapatnam.

1946 Keel for the First Steam ship “JALA USHA” was laid on 22.06.1946.

1948 First Steam Ship of 8000 DWT, JALA USHA was Launched by Pandit JAWAHARLAL NEHRU The first Prime minister of India on 14.03.1948.

1953 Switch over the construction of steam ships to DIESEL SHIPS.

1958 Achievements of 1,00,000 GRT

1961 HSL becomes a fully owned GOVT. OF INDIA Enterprise in july, 1961.

1962 Awarded certificate of Honor by President of INDIA for 1961-62.

1971 Commissioning of DRY DOCK for Ship repairs

1972 Training ship “RAJENDRA” handed over to smt. Indra Gandhi,P.M.

1976 Commissioning of WET BASIN adjacent to dry dock for afloat repairs.

1983 Laying foundation stone for Building Dock on 28.08.1983

1983 Inauguration of stage -2 development program by MoS& T

1985 Inauguration of off shore plat form construction yard by Hon’ble Gilani

46

zail Singh, the President of INDIA.

1987 Inauguration of new covered Building dock by Hon’ble Gilani zail Singh, the President of INDIA.

1987 Delivery of highly sophisticated Drill ship “SAGAR BHUSHAN” to ONGC.

1992 Float out of the First biggest vessel of 42750 DWT Bulker from the Building Dock on23.09.1992.

1993 First time Oil Flown from K.G.Basin, through HSL built platform.

1993 Delivery of 100th vessel- MV LOK PRATAP.

1999 Frost biggest 1200 passenger –cum-cargo vessel “M.V. Swaraj Dweep:” to A&N Admin

2000 Delivery of first biggest bulker of 42750 DWT.

2004 First major repair of jack up oil rig “Sagar Pragati” for ONGC.

2005 Modernization & Medium refit of INS Sinndukirti, 877EKM Submarine

2006 INS Vagli for Indian Navy was successfully completed.

2007 Launching / floating and Delivery of 2 nos. 30000 DWT bulker carriers

2008 Second biggest 700 passenger vessel delivered to Union Territory of Lakshadweep.

2009 Commencement of hi-tech major layup repairs on Jack up oil Rig

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“Sagar Ratna” for ONGC

2010 Transfer Of Administrative Control from MoS to MoD.

2010 Delivery of the first biggest 53000DWT bulk carrier M.V Good Pride GML.

2011 Delivery of the second biggest 53000DWT bulk carrier M.V Good Pride GML.

2011 Modernization of the yard in progress.

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A SHIP IS BORN

Basic design

Detailed design

Working plans

Marking and cutting

Fabrications

Sub- assembly Main assembly

Keel lying

Block erection

Launching

Main engine installation

Out fitting

Dock and sea trails

Delivery of ship

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CHAPTER - 4

CONCEPTUAL FRAMEWORK

THEORTICAL ASPECTS OF IVENTORY MANAGEMENT

APPLICATIONS OF INVENTORY MANAGEMENT IN HSL

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INVENTORY MANAGEMENT

Every enterprise needs inventory for smooth running of its activities. It

serves as a link between production and distribution process. There is, generally a

time lag between the recognition of a need and its fulfillment. Greater the time lag

the higher the requirements for inventory. The unforeseen fluctuations in the

demand and supply of goods also necessitate the need for inventory. It also

provides a cushion for future price fluctuations.

The investment in inventories constitutes the most significant part of current

assets/working capital in most of the undertakings. Thus it is very essential to have

proper control and management of inventories. The purpose of inventory

management is to ensure availability of materials in sufficient quantity as and

when required and also to minimize investment in inventories. Inventories include

all types of stocks. For effective working capital management, inventory needs to

manage effectively. The level of inventory should be such that the total cost of

ordering and holding inventory is the least. Simultaneously, stock out costs should

also be minimized. Business, therefore, should fix the minimum safety stock level,

re-order level and ordering quantity so that the inventory cost is reduced and its

management becomes efficient.

The meaning of inventory is Stock of goods or a list of goods. In

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accounting language it may mean Stock of finished goods only. In a manufacturing

concern it may include raw materials, work in process and stores etc.

DEFINITION:

Inventory management is primarily about specifying the size and placement

of stocked goods. Inventory management is required at different locations within a

facility or within multiple locations of a supply network to protect the regular and

planned course of production against the random disturbance of running out of

materials or goods. The scope of inventory management also concerns the fine

lines between replenishment lead time, carrying costs of inventory, asset

management, inventory forecasting, inventory valuation, inventory visibility,

future inventory price forecasting, physical inventory, available physical space for

inventory, quality management, replenishment, returns and defective goods and

demand forecasting.

NATURE OF INVENTORY

RAW MATERIAL:

Raw materials form a major input into the organization. They are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of consumption and the time required for the replenishing the supplies. The factors like the availability of raw materials and the government regulations.etc. Too affect the stock of raw materials.

WORK-IN-PROGRESS:

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The work in progress is that stage of stocks which are in between raw materials and finished goods. The raw materials enter the process of manufacture but they r yet to attain a final shape of 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.

CONSUMABLES:

These are the materials which are needed to smoothen the process of production. These materials do not directly enter production but they acts as catalysts etc. Consumables may be classified according to their consumption and criticality. Generally consumable stores do not create any supply problem and form a small part of production cost. There can be instances where these materials may account for much value than the raw materials. The fuel oil may form a substantial part of cost.

FINISHED GOODS:

These are the goods which are ready for the consumers. The stocks of the finished goods provide a buffer between production and the market. The purpose of maintaining inventory is to ensure proper supply of goods to consumers. In some concerns the production is undertaken in general without waiting for specific orders.

SPARES:

Spares also form a part of inventory. The consumption pattern of raw materials, consumables, finished goods are different from that of spares. The stocking policies of spares are different from industry to industry. Some industries like transport will require more spares than the other concerns. The costly spare parts like engines, maintenance spares etc. are not discarded

53

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 spares and the costs that may arise due to their non-availability.

The scope of inventory management:

Inventory management oversees the carrying cost of inventory, replenishment lead time, asset management, inventory valuation, inventory forecasting, inventory visibility, physical inventory, future inventory price forecasting, quality management, replenishment, available physical space for inventory, returns and defective goods and demand forecasting. All of these subsections of inventory management need to be balanced in order to keep optimal inventory levels. This is an ongoing process within a business as it needs to shift and react to the environment around it.

Purpose of Inventory Management Systems

Companies that store inventory must have a management system to track the materials and products in the organization. Inventory management is a method to meet the needs of the organization while keeping the costs of storing materials to a minimum. The management system the company uses impacts several departments within the organization, such as purchasing, planning, accounting and production.

1. Meet Customer Demand

The inventory management system ensures the company has the materials available to build product to meet customer demand. Accurate quantities in the system allow the company to build the product within the time frame the customer demands as well. Inaccuracies in the system can result in shortages of materials or products, which may delay production and delivery times for customers.

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Reduce Costs

An accurate inventory management system prevents delays in purchases or over ordering materials for production. Excessive amounts of inventory tie up company funds and can result in waste. For example, changes in production or material specifications can cause an abundance of materials held in stock to become obsolete. A lean inventory is flexible and can respond faster to material changes. Defects found in materials may cause excessive waste when large amounts of inventory are in stock. A leaner inventory also reduces the space needed to store materials. Keeping only what is necessary on hand reduces the company's investment in materials until there is customer demand.

Production Planning

The production planning department relies on accurate inventory quantities to schedule builds or production runs. An inaccurate inventory can cause delays in the materials necessary to build products. The planning department schedules production to meet the demands of customer orders. An inventory management system ensures the smooth flow of materials to production when it is needed to create products for customers.

Purchasing

The inventory management system provides trigger points for material purchases. Inaccuracies in the inventory quantities may result in ordering delays or over ordering materials for production. The purchasing department orders materials when the quantity reaches a specific amount. Vendor lead times are a factor in determining the quantity necessary to trigger a purchase.

Need for Inventory Management

1. Meet variation in Production Demand

Production plan changes in response to the sales, estimates, orders and stocking patterns. Accordingly the demand for raw material supply for

55

production varies with the product plan in terms of specific SKU as well as batch quantities.

Holding inventories at a nearby warehouse helps issue the required quantity and item to production just in time.

2. Cater to Cyclical and Seasonal Demand

Market demand and supplies are seasonal depending upon various factors like seasons; festivals etc and past sales data help companies to anticipate a huge surge of demand in the market well in advance. Accordingly they stock up raw materials and hold inventories to be able to increase production and rush supplies to the market to meet the increased demand.

3. Economies of Scale in Procurement

Buying raw materials in larger lot and holding inventory is found to be cheaper for the company than buying frequent small lots. In such cases one buys in bulk and holds inventories at the plant warehouse.

4. Take advantage of Price Increase and Quantity Discounts

If there is a price increase expected few months down the line due to changes in demand and supply in the national or international market, impact of taxes and budgets etc, the company’s tend to buy raw materials in advance and hold stocks as a hedge against increased costs.

Companies resort to buying in bulk and holding raw material inventories to take advantage of the quantity discounts offered by the supplier. In such cases the savings on account of the discount enjoyed would be substantially higher that of inventory carrying cost.

5. Reduce Transit Cost and Transit Times

In case of raw materials being imported from a foreign country or from a far away vendor within the country, one can save a lot in terms of transportation cost buy buying in bulk and transporting as a container load or a full truck load. Part shipments can be costlier.

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In terms of transit time too, transit time for full container shipment or a full truck load is direct and faster unlike part shipment load where the freight forwarder waits for other loads to fill the container which can take several weeks.

There could be a lot of factors resulting in shipping delays and transportation too, which can hamper the supply chain forcing companies to hold safety stock of raw material inventories.

6. Long Lead and High demand items need to be held in Inventory

Often raw material supplies from vendors have long lead running into several months. Coupled with this if the particular item is in high demand and short supply one can expect disruption of supplies. In such cases it is safer to hold inventories and have control.

BENEFITS OF HOLDING INVENTORIES Although holding inventories involves blocking of a firm’s funds and the costs 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 customers and business. A firm also needs to maintain inventories to reduce ordering costs and avail quantity discounts, etc. Generally speaking, there are three main purposes or motives of holding inventories:

The Transaction Motive which facilitates continuous production and timely execution of sales orders.

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 which induces to keep inventories for taking advantage of price fluctuations, saving in re-ordering costs and quantity discounts,etc.

RISK AND COSTS 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 costs and risks involved in holding inventories are as below:

CAPITAL COSTS:

Maintaining of inventories results in blocking of the firm’s financial resources. The firm has, therefore, to arrange for additional funds to meet the cost of inventories. The funds may be arranged from own resources or from outsiders. But in both the case. The firm incurs a cost. In the former case, the design opportunity cost of investment while in the later case, the firm has to pay interest to the outsiders.

STORAGE AND HANDLING COSTS:

Holding of inventories also involves costs on storage as well as handling of materials. The storage costs 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 suppliers in holding the inventories. This may be due to increased market supplies, competition or general depression in the market.

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RISK OF OBSOLESCENCE:

The inventories may become obsolete due to improved technology, change in requirements, change in customer tests,etc.

RISK DETERIORATION IN QUALITY: The quality of the materials may also deteriorate while the inventories are kept in stores.

OBJECTS OF INVENTORY MANAGEMENT:

The main objectives of inventory management are operational and financial.

The operational objectives mean that the materials and spears should be available

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

financial objective means that investments in inventories should not remain ideal

and minimum working capital should be locked in it. The objectives of inventory

management are as follows.

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

product should not suffer at any time and the customers demand should also

be meeting.

To avoid both overstocking and under stocking of inventory.

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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 cost

of production and overall costs.

To minimize losses through deterioration, wastages and damages.

To facilitate furnishing of data for short term and long term planning and

control of inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

Effective inventory management requires an effective control system for inventories. A proper inventory controller not only helps in solving the acute problem of liquidity but also increases profits and causes substantial reduction in the work capital of the concern. The following are the important tools and techniques of inventory management and control.

Determination of stock levels Determination of safety stocks Selecting a proper system of ordering for inventory Determination of economic order quantity A.B.C. Analysis V E D Analysis Inventory turnover ratios

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Aging schedule of inventories Classification and codification of inventories Preparation of inventory reports Lead time Perpetual inventory system JIT control system

DETERMINATION OF STOCK LEVELS:

Carrying of too much and too little of inventories is detrimental to the firm. If the inventory level is too little, the firm will face frequent stock-outs involved in heavy ordering cost and if the inventory level is too high it will be unnecessary tie-up of capital.

MINIMUM LEVEL:

This represents the quantity which must be maintained in hand at all times. If stocks are less than the minimum level than the work will stop due to shortage of materials. Following factors are taken into account while fixing minimum stock level:

Lead time: A purchasing –firm requires some time to process the order and 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. It is essential to maintain some inventory during this period.

Rate of Consumption: It is 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:

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The nature of material also affects the minimum level. If a material is required only against special orders of the customer then minimum stock will not be required for such materials. Minimum stock level can be calculated with the help of following formula:

Minimum Stock Level=Re-ordering level – (Normal Consumption x Normal Re-order Period).

RE-ORDERING LEVEL : When the quantity of materials reaches at a certain figure then fresh order is sent to get materials again. The order is sent before the materials reach minimum stock level. Re-Ordering level of ordering level is fixed between minimum level and maximum level.

Re-ordering Level = Maximum Consumption x Maximum Re- Order Period.

Maximum level: It is the quantity of materials beyond which a firm should not exceeds its stocks. If the quantity exceeds the maximum level limit then it will be overstocking. A firm should avoid overstocking because it will result in high material.

Maximum Stock level = Re-Ordering level+ Re-Ordering quantity- (minimum consumption x Minimum Re-Ordering Period)

Danger level : It is the level beyond which material should not fall in any case. If danger level arises then immediate steps should be taken to replenish the stocks even if more cost is incurred in arranging the materials. If materials are not arranged immediately there is a possibility of stoppage of work. Danger level is determined with the following formula:

Danger level= Average Consumption x Maximum Re-Order period for emergency purchases.

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Average stock level: The average stock level Is calculated as such:

Average Stock Level=Minimum Stock Level+1/2 of Re-Order Quantity.

DETERMINATION OF SAFETY STOCKS

Safety stock is a buffer to meet some unanticipated increase in usage. The usage of inventory cannot be perfectly forecasted. It fluctuates over a period of time. The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock – out. The stock-out can prove costly by affecting the smooth working of the concern. In order to protect against the stock out arising out of usage fluctuation, firm usually maintain some margin of safety or safety stock.

ORDERING SYSTEM OF INVENTORY

The basic problem of inventory is to decide the Re-Order point. This point indicates when an order should be placed. The re-order point is determined with the help of these things.

Average Consumption rate

Duration of Lead Time

Economic Order Quantity

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When the inventory is depleted to lead time consumption, the order should be placed. There are three prevalent systems of ordering and a concern can choose any one of this:

Fixed order quantity system generally known as economic order quantity(EOQ) system;

Fixed period order system or periodic reorder system or periodic review system;

Single order and scheduled part delivery system.

EOQ (ECONOMIC ORDER QUANTITY):

One of the basic decisions that must be made in any

stock control system is that of determining the quantity to order since

investment in inventories largely depends upon the quantities in which the

items are ordered for replenishment.

Ordering large lots infrequently, reduces administrative work

but increases investment in stocks ordering small lots frequently keeps the

investment in low but increases administrative work. This is because small

lots require high order frequency, more purchase requisition require to be

raised, more frequently the comparative statement must be raised, more the

material must be received, more posting must be done more bills must be

handled. All these activities will call for more staff and hence more

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administrative costs and over heads. Therefore a rational approach is needed

for fixing the order quantity of an item which will either increase neither the

procurement cost nor the storage cost. So such quantity which results in

equal procurement cost & storage cost is known as EOQ (Economic Order

Quantity)

The mathematical explanation of the is as follows

EOQ is given by Q = √ (2 * C * 0) / I

Where:

C = annual consumption of the inventory in units

O = cost of placing one order including the cost of receiving the goods i.e

Cost of getting an item into the firm’s inventory

Q = quantity per order in units

I = annual carrying cost per unit

The annual carrying costs are equal to the average value of stock held

multiplied by carrying cost per unit and represent as QI / 2. Where

I = annual carrying cost per unit.

ABC ANALYSIS:

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All the spares and stores other than the construction meant for specific

construction activities are subjected to consumption analysis covering specific

periods. Items Constituting 70% of the total annual consumption by value are

classified as ‘A’ class items. Items constituting the next 20% of the annual

consumption value are classified as ‘B’ class items. The remaining moving items

constituting 10% of the consumption value are classified ‘C’ class items. Very

large number of items by numbers falls under this classification whose

consumption value will be very low.

ABC analysis helps in classification of items in stores in A, B & C class.

XYZ ANALYSIS:

Inventory holding of each project will also be analyzed with reference to

value of the holding against each item. It is found that about 70% of the total

holding would be covered by very small percentage of items by number, which

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CLASS OF ITEMS% OF ITEMS % OF

CONSUMPTION

A 10-15 70-75

B 10-15 10-15

c 70-75 5-10

will be around 10%. This category will be classified as ‘X’ class items. Similarly

items accounting for the remaining 20% contributing will be categorized as ‘Y’

class items and the remaining items will be listed in ‘Z’ class. This analysis is

usually done for the annual stock review.

In ABC analysis consumption value of items for a particular time span is

considered.

In XYZ analysis inventory value of item on a particular day will be considered.

All steps in ABC analysis are followed in XYZ analysis.

NON – MOVING INTEM ANALYSIS :

All items held in stock will be subjected to non – movement analysis

segregating the items for different non – movement periods like over 2 years, over

5 years and 10 years so as to critically analyze the possibility of utilization of these

items or otherwise for declaring surplus especially those items which have not

moved for more than 5 years. Materials management department with the

concerned technical departments will jointly do this analysis and separate list will

be prepared, i.e. code group wise, for the nonmoving items beyond 5 years on an

annual basis project wise under different code groups and steps would be taken so

that the non – moving items are not indented again, until the existing stocks are

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utilized. Every effort will be made to keep as low as practicable because this is non

– productive inventory. Which is blocking the capital, storage space needing

preservation and up keeping efforts and results, in extra inventory carrying cost.

The company reduces the non – moving inventory by regular review for utilization

or by declaring as surplus.

CODIFICTION :

Any organization engaged in production repair or construction is obliged

to stock a large number of items of stores. It is essential to maintain accurate stock

records of these items and also to know their location in store warehouses. The

normal way of identifying an article is by simple description but this method is far

from satisfactory. The best way is to list out the various items classifying or

grouping them in some convenient manner and allotting each item a code number

which if quoted is sufficient to identify the items. Each code number is unique and

represents one single item. By this maintenance of stocks will be carrier records

with the help of data processing machines are able to give any output using these

codes. These are three types of coding system are i.e. Alphabetical, alphanumeric

and numerical.

STANDARDIZATION AND VARIETY REDUCTION:

It is the process of establishing agreements up on acceptable

levels of various characteristics of a product

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Eg. Quality, design, dimensions, physical characteristics, chemical composition,

performance etc on the basis of study and experience gained by established

agreement or uniform identification is termed a standard / specification.

Standardization is applied usually in two distinct areas in industry.

Standardization of products,

Standardization of business practice

Just in Time:

Just-in-time delivery, or JIT, is an inventory system that works to reduce the amount of inventory that a company will have on hand. In JIT the company purchases inventory only a few days before it is needed for sale or manufacturing, so the inventory arrives just in time for use. By keeping inventory levels low, the company will not only save money, but will also be able to introduce new technologies and advancements to the market faster, because it doesn’t have months of inventory sitting on its shelves or waiting in the supply chain. The major drawback to JIT systems is that with items arriving a day or two before they are needed, one hiccup in the supply chain can grind production and delivery to a halt. All the partners involved in the JIT system need to be reliable and have redundant systems in place to correct problems quickly.

JIT is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. In just in time manufacturing system inventories are reduced to the minimum and in some cases they are zero.

JIT works in the three types of inventories:

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a) Raw materials: inventories provide insurance in case suppliers are late with deliveries.

b) Work in process: inventories are maintained in case a work station is unable to operate due to a breakdown or other reason.

c) Finished goods: inventories are maintained to accommodate unanticipated fluctuations in demand.

 The main BENEFITS of JIT are the following:

1. Funds that were tied up in inventories can be used elsewhere.2. Areas previously used to store inventories can be used for other more

productive uses.

3. Throughput time is reduced, resulting in greater potential output and quicker response to customers.

4. Defect rates are reduced, resulting in less waste and greater customer satisfaction.

Most companies find, however, that simply reducing inventories is not enough. To remain competitive in an ever changing and ever competitive business environment, must strive for continuous improvement.

REORDER – POINT:

An important question in any inventory management system is “when

should an order for the purchases of an item should be placed, so the RE – ORDER

point system provides the answer to this question. RE – ORDER point is the level

of inventory at which the storekeeper should initiate the purchases requisition for

the purchases of inventory in the amount of the economic order quantity.

In designing a RE – ORDER point sub – system three items of information

are needed as inputs to the sub – system.

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1. Lead time, i.e. time lag between indenting and receiving of the inventory. It is

usually expressed in number of days.

2. Usage rate, i.e., the quantity per day at which the items consumed in production

process or sold to customers.

3. Minimum stock level, i.e., the quantity below which stock should not be allowed to

fall. This can be calculated by multiplying the usage rate by the number of day the

firm wants to hold as a protection against shortages.

The following formula can be used for the calculation of the reorder paint

REORDER POINT = UR*LT= UR*DAYS OF SAFETY

Where:

UR = Usage rate per day.

LT = Lead time in days.

DAYS OF SAFETY = Days of safety stock desired by the firm.

LEAD TIME:

There is a definite time lag between identification of the need for an item

till it is received in store ready for issue after placing of order, manufacturing,

transport, receiving and inspection. The total time that elapses between the

recognition of the need for an item and the fulfillment of the need is called lead

time of the item and it plays an important role in establishing the right time for

procurement.

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The right time for the procurement of an item is the time the stock on hand is

just enough to satisfy the demand for the period required for the procurement since

there may be increase in the demand between the time the order is placed and

received in store, safety stock may be added to the average requirements of the

lead time. This implies that the right time for procurement of an item is the time

when stock drops down to a level which is enough to take care of demand during

the period necessary to replenish stock and extension of lead time.

IMPORTANCE OF LEAD TIME:

Lead time has a direct relationship with investment in inventories. The longer the

lead time, higher is the requirement of the working capital. Since during the lead

time, there is no delivery of material, the requirement of the production is met from

the inventories in stock. Also since both lead time and consumption rate increase

without notice, over and above the stock to take care of normal consumption

during average lead time, safety stock is required to be maintained. This implies

that a major factor which influences investment in inventories is that lead time and

it is therefore responsibility of the purchase department to take steps to reduce the

lead time.

ELEMENTS OF LEAD TIME:

Time required by the indenting department to convey requirements to purchase.

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Time required by the buyer to call quotation, make enquires / visit potential

vendors negotiate terms, enter in to contract.

Time required by the supplier to route buyers order through his administrative

channel and fill the same.

Transit time for goods to reach buyer works.

Time required by the buyers receiving department to uncrate goods, prepare

necessary documents and offer material for inspection.

Time require by buyers inward to verity quality of goods.

Time required by the stores deportment to take goods in to stock, deposit into

appropriate bins and update stock records.

MAJOR PARTS OF LEAD TIME:

Lead time of an item can be divided into two parts

Internal lead time External lead time

INTERNAL LEAD TIME:

It is also called as buyer lead time, is the sum of servicing time and receiving

time. The servicing time includes time required by the buyers to call quotations,

compare quotations, visit vendors negotiate terms, obtain sanctions, enter in to

contract etc and receiving time is made up of time required to uncreated and

inspects goods, move them between stores, deposit them in appropriate bins and

make entries into stock cards.

EXTERNAL LEAD TIME:

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It is also called as suppliers lead time, is made of administrative,

manufacturing and delivery times required by the supplier. External lead time

therefore is the time required to get the items from selected suppliers.

V E D (VITAL ESSENTIAL DESIRABLE) ANALYSIS:

The VED analysis is used generally or spare parts. The requirement and

urgency of spare parts is different from that of materials. ABC analysis may not be

properly used for spare parts. The demand for spares depends upon the

performance of the plant and machinary.Spare parts are classified as Vital

Essential Desirable. The vital spares are a must for running the concern smoothly

and these must be stored adequately.

INVENTORY TURNOVER RATIO:

Inventory turnover ratio are calculated to indicate whether inventories have

Been used efficiently or not. The purpose is to ensure the blocking of only

required minimum funds inventory. The inventory turnover ratio also known as

stock velocity is normally calculated as sales / average inventory or cost of goods

sold/average inventory cost.

Cost of goods sold

Inventory turnover ratio = ______________________

Average inventory

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or

Net sales

__________________

Average inventory

Days in a year

Inventory conversion period = _________________

Inventory turnover ratio

INVENTORY REPORTS:

From effective inventory control, the management should be kept

informed with the latest stock position of different items .This is usually done by

preparing periodical inventory reports .These reports should contain all

Information necessary for managerial action.

Drop shipping:

Drop shipping is an inventory process by which a company can sell a

product to a consumer without ever having the product in inventory. The company

enters an agreement with a drop shipping company, and when a product is sold,

either over the phone or on the web, the drop shipping company sends the product

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to the consumer in return for a fee or a percentage of the sale. Drop shipping is

ideal for small companies that don’t have a lot of cash available to warehouse and

ship their own inventory. The downside of drop shipping is that the seller has no

Control over the shipping process and can’t offer different shipping times and

rates, or control mistakes in the process.

Bulk Shipments

Bulk shipping is an old staple of inventory management. The idea is that it is cheaper to purchase and ship goods in bulk, so you plan to replenish your inventory less frequently than you normally would. Since you will receive less frequent shipments, you will have to lay out extra money on purchasing and warehousing the inventory, but if you're reasonably sure you will sell the product, then bulk shipping can save a good deal of money.

Record Keeping

The basis for all inventory management is record keeping. Small companies may be best off keeping track of the inventory manually. This will reduce the cost associated with buying and maintaining a computerized inventory-control system. Larger companies should use a dedicated inventory software program that will allow them to monitor inventory levels among numerous different products and materials.

Physical Inventory

Physical inventory should be done at least once a year, and as often as once a month, depending how likely items are to be missing. Set aside a time to do the inventory when items will not be needed or moved around. If the inventory records are computerized, then enter or scan the physical inventory information and have the computer compare the records. If the inventory is managed manually, then someone will have to record the current inventory and then compare it to the record.

Cleaning Out Old Inventory

Storing inventory is not free. Inventory represents an investment in a product or material. Even if the product is relatively cheap, it costs money to house

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and manage the inventory. A company should always work toward selling its older inventory by running sales specials that are likely to entice buyers.

STORES MANAGEMENT:

Stores are used for receiving, storage and supply of the goods. It plays a major

role in inventory management. Stores are the center of activities of materials in

motion, an efficient system must aim at good systems and procedures, efficient O

& M and smooth and speedy receipts and issues. The main objective of stores will

be to provide efficient service to all operating functions such as production,

construction, repair and maintenance. These are usually two sections in stores

Receipt / issue section

Custody section

Custody section usually takes care of storage and preservation of the

incoming goods where as issues / receipt section confirms of right input according

to the order and issues the same according to the requirements.

STORES PRESERVATION:

Proper material storage it very important and it is carried out very

effectively by the concerned department. For carrying out an effective preservation

programs, factors such as economic aspects, period of idleness of a part, condition

of the part, nature of the exposed surface as well as applicability of specific

protective to be applied is considered and make sure that they do no exceed the

cost of the part to be preserved.

Some of the procedures followed are as follows:

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All ferrous spares are given a protective cost of paint / varnish and

stored.

Precision spares like instruments, electronic and electrical spares, ball

& roller bearing are covered in polythene bags, enclosing moisture absorbent

chemicals like silica gel etc.

Precision spares are maintained in dust free air – conditioned rooms

without sunlight and moisture.

French chalk powder is sparkled whenever possible an rubber items

like tires, tubes hoses, v belts etc.

Items like electrodes are kept intact in original packing and kept in dry

storage room with same heaters to avoid excess of moisture affecting the coating.

Sintered bush bearings are soaked in warm oil for 24 hours once in a

year.

Pipes over 2 “are flushed / cleaned with dry our in these cases

protective paints to the exterior painting.

Vertical stocking of grin dining wheels with partitioning in between is

necessary so that the faces do not came in to contact with each other.

Strip heaters in all high voltage motors, LT motors should be provided

to avoid moisture entering in to the motors.

Copper parts are protected against ingress of ammonium salts.

Silver and lead parts are cleansed with fresh water.

Compressors and turbines o9f multistage pumps are rotated on their

bearings every quarter to prevent staging / clogging.

Anti – rodents and insecticides measures are taken on regular basis.

Shafts gears and impellers are stored horizontally after painting with

dewatering protection films such as rust guards, rust line etc.

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Fasteners and screws that are kept in the racks are treated with hard

preservation film.

Perishables spares like V belts with a low shelf life are identified and

the FIFO method of issues are practiced.

PURCHASING SYSTEM:

To keep pace with changed market conditions.

To satisfy demand during period of replenishment.

To carry reserve stocks to avoid stock outs.

To prevent loss of sales.

To level out or stabilize production.

To satisfy other business constraints.

Supplier’s conditions of lien quantity.

Government regulation.

Seasonal availability.

Demand forecast error.

Supplier’s delivery interval.

Lead – time offered to customers are shorter than supplier lead –

times.

Minimization of delivery costs.

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INTRODUCTION:

The purchasing department occupies a vital and unique position in the

organization of an industrial concern because purchasing is one of the main

functions of the success of a modern manufacturing concern.

Mass production industries, since they rely upon a continuous how of

right materials, for demand for an efficient purchasing division. The purchasing

function is liaison agency, which operates between the factory organization and

outside vendors on all matters of procurement. Purchasing implies procurement

materials, suppliers, machinery and services needed for production and

maintenance of the concern.

OBJECTIVES OF PURCHASING DEPARTMENT:

To procure right material.

To procure material in right quantities.

To procure material of right quality.

To procure from right and reliable source or vendor.

To procure material economically, i.e. at right or reasonable price.

To receive an delivery of materials at right place and at right time

FUNCTIONS OF PURCHASING DEPARTMENT

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Keep records – indicating possible materials and their substitutes.

Maintain records of reliable sources of supply and price of materials.

Review of materials specification with an idea of simplifying and

standardizing them.

Making contacts with right sources of supply at competitive price.

Procure and analyze quotations.

Place and follow up purchase orders.

Maintain records of all purchases.

To make sure through inspection that right king ( i.e. quantity quality etc,)

To act as liaison between the vendors and different departments of the

concern such as production, quality control, finance, maintenance etc :

To check if the material has been purchases at right time and at economical

rates.

To prepare purchasing budget.

To prepare and update list of materials required by different departments of

the organization within a specified span of time.

Controlling Inventory

Controlling inventory does not have to be an onerous or complex proposition. It is a process and thoughtful inventory management. There are no hard and fast rules to abide by, but some extremely useful guidelines to help your thinking about the subject. A five step process has been designed that will help any business bring this potential problem under control to think systematically thorough the process and allow the business to make the most efficient use possible of the resources represented. The final decisions, of course, must be the result of good judgment, and not the product of a mechanical set of formulas.

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1: Inventory Planning

Inventory control requires inventory planning. Inventory refers to more than the goods on hand in the retail operation, service business, or manufacturing facility. It also represents goods that must be in transit for arrival after the goods in the store or plant are sold or used. An ideal inventory control system would arrange for the arrival of new goods at the same moment the last item has been sold or used. The economic order quantity, or base orders, depends upon the amount of cash (or credit) available to invest in inventories, the number of units that qualify for a quantity discount from the manufacturer, and the amount of time goods spend in shipment.

2: Establish order cycles

If demand can be predicted for the product or if demand can be measured on a regular basis, regular ordering quantities can be setup that takes into consideration the most economic relationships among the costs of preparing an order, the aggregate shipping costs, and the economic order cost. When demand is regular, it is possible to program regular ordering levels so that stock-outs will be avoided and costs will be minimized. If it is known that every so many weeks or months a certain quantity of goods will be sold at a steady pace, then replacements should be scheduled to arrive with equal regularity. Time should be spent developing a system tailored to the needs of each business. It is useful to focus on items whose costs justify such control, recognizing that in some cases control efforts may cost more the items worth. At the same time, it is also necessary to include low return items that are critical to the overall sales effort.

If the business experiences seasonal cycles, it is important to recognize the demands that will be placed on suppliers as well as other sellers.

A given firm must recognize that if it begins to run out of product in the middle of a busy season, other sellers are also beginning to run out and are looking for more goods. The problem is compounded in that the producer may have already switched over to next season’s production and so is not interested in (or probably even capable of) filling any further orders for the current selling season. Production resources are likely to already be allocated to filling orders for the next

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selling season. Changes in this momentum would be extremely costly for both the supplier and the customer.

On the other hand, because suppliers have problems with inventory control,

just as sellers do, they may be interested in making deals to induce customers to purchase inventories off-season, usually at substantial savings. They want to shift the carrying costs of purchase and storage from the seller to the buyer. Thus, there are seasonal implications to inventory control as well, both positive and negative. The point is that these seasonable implications must be built into the planning process in order to support an effective inventory management system.

3: Balance Inventory Levels

Efficient or inefficient management of merchandise inventory by a firm is a major factor between healthy profits and operating at a loss. There are both market-related and budget-related issues that must be dealt with in terms of coming up with an ideal inventory balance:

• Is the inventory correct for the market being served? • Does the inventory have the proper turnover? • What is the ideal inventory for a typical retailer or wholesaler in this business?

To answer the last question first, the ideal inventory is the inventory that does not lose profitable sales and can still justify the investment in each part of its whole.

An inventory that is not compatible with the firm’s market will lose profitable sales. Customers who cannot find the items they desire in one store or from one supplier are forced to go to a competitor. Customer will be especially irritated if the item out of stock is one they would normally expect to find from such a supplier. Repeated experiences of this type will motivate customers to become regular customers of competitors.

4: Review Stocks

Items sitting on the shelf as obsolete inventory are simply dead capital. Keeping inventory up to date and devoid of obsolete merchandise is another

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critical aspect of good inventory control. This is particularly important with style merchandise, but it is important with any merchandise that is turning at a lower rate than the average stock turns for that particular business. One of the important principles newer sellers frequently find difficult is the need to mark down merchandise that is not moving well.

Markups are usually highest when a new style first comes out. As the style fades, efficient sellers gradually begin to mark it down to avoid being stuck with large inventories, thus keeping inventory capital working. They will begin to mark down their inventory, take less gross margin, and return the funds to working capital rather than have their investment stand on the shelves as obsolete merchandise. Markdowns are an important part of the working capital cycle. Even though the margins on markdown sales are lower, turning these items into cash allows you to purchase other, more current goods, where you can make the margin you desire.

Keeping an inventory fresh and up to date requires constant attention by any organization, large or small. Style merchandise should be disposed of before the style fades. Fad merchandise must have its inventory levels kept in line with the passing fancy. Obsolete merchandise usually must be sold at less than normal markup or even as loss leaders where it is priced more competitively. Loss leader pricing strategies can also serve to attract more' consumer traffic for the business thus creating opportunities to sell other merchandise as well as well as the obsolete items. Technologically obsolete merchandise should normally be removed from inventory at any cost.

5: Follow-up and Control

Periodic reviews of the inventory to detect slow-moving or obsolete stock and to identify fast sellers are essential for proper inventory management. Taking regular and periodic inventories must be more than just totaling the costs. Any clerk can do the work of recording an inventory. However, it is the responsibility of key management to study the figures and review the items themselves in order to make correct decisions about the disposal, replacement, or discontinuance of different segments of the inventory base.

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Just as an airline cannot make money with its airplanes on the ground, a firm cannot earn a profit in the absence of sales of goods. Keeping the inventory attractive to customers is a prime prerequisite for healthy sales. Again, the seller's inventory is usually his largest investment. It will earn profits in direct proportion to the effort and skill applied in its management.

Inventory quantities must be organized and measured carefully. Minimum stocks must be assured to prevent stock-outs or the lack of product. At the same time, they must be balanced against excessive inventory because of carrying costs. In larger retail organizations and in many manufacturing operations, purchasing has evolved as a distinct new and separate phase of management to achieve the dual objective of higher turnover and lower investment. If this type of strategy is to be utilized, however, extremely careful attention and constant review must be built into the management system in order to avoid getting caught short by unexpected changes in the larger business environment.

Caution and periodic review of reorder points and quantities are a must. Individual market size of some products can change suddenly and corrections should be made.

The objectives of inventory planning and control

Generally the operations objectives of managing the company’s inventories include the following.

Quality – products need to be maintained in as good a condition as possible while they are being stored. For perishable products this means not storing them for very long.

Speed – inventories must be in the right place to ensure fast response to customer requests.

Dependability – the right stock must be in the right place at the right time to satisfy customer demand. There is no point having the wrong products in stock.

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Flexibility – stock should be managed to allow the operation to be flexible. For example, that may mean keeping sufficient stock to allow the operations processes to switch to producing something else and yet being able to satisfy customers during that period from existing stock levels.

Cost – if possible the total cost of managing stock levels should be minimized. This is the objective of the various quantitative models covered in the chapter.

The problem with inventory management is that keeping stock has both advantages and disadvantages.

The advantages include,

Inventory allows customers to be served quickly and conveniently (otherwise you would have to make everything as the customer requested it).

Inventory can be used so a company can buy in bulk, which is usually cheaper.

Inventory allows operations to meet unexpected surges in demand.

Inventory is insurance if there is an unexpected interruption in supply from outside the operation or within the operation.

Inventory allows different parts of the operation to be ‘decoupled’. This means that they can operate independently to suit their own constraints and convenience while the stock of items between them absorbs short-term differences between supply and demand. In many ways this is the most significant advantage of inventory.

The disadvantages of inventory include,

It is expensive. Keeping inventory means the company has to fund the gap between paying for the stock to be produced and getting revenue in by selling it. This is known as working capital. There is also the cost of keeping the stock in warehouses or containers.

Items can deteriorate while they are being kept. Clearly this is significant for the food industry whose products have a limited life. However, it is also an issue for any other company because stock could be accidentally damaged while it is being stored.

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Products can become obsolescent while they are being stored. Fashion may change or commercial rivals may introduce better products.

Stock is confusing. Large piles of inventory around the place need to be managed. They need to be counted, looked after and so on

.

Theoretical frame work of Inventory Management

Inventory management in HSL

Functions of inspection department

Purchase department

Stores department

Functions of stores department

Inventory norms

Inventory control techniques

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Inventory Management in Hindustan shipyard:

HSL has implemented ERP System for accounting of Inventory. Receipts, Issues, Returns and bin card balances are computerized and Stores priced ledger is generated periodically. Each item has a bin card and posting done. Monthly consumption statement are prepared and circulated to all concerned. Record levels based on a three years history have been fixed for 70% of the items. A mini-maxi system is being operated and minimum stock of six months is aimed for B&C category items. Usually a high value item is ordered on the basis of Economic Order Quantity or as in the case of regular order is placed and a delivery value is given to these suppliers. The deliveries may be daily, weekly or monthly depending upon the quantity consumed. For instance hydrochloric acid is delivered daily for B&C class items mini-maxi system adhered to sticky, while as stated before 205 of C items are operated on nil stock basis. Usually C items are ordered manually of capitalizing the spare parts received along with the equipment.

Capital items are not processed through the materials planning or maintenance section but directly dealt by the Maintenance Dept. after clearance by the finance and top management.

The follow up action is required to get the material as per the delivery schedule. Inspection department will inspect the materials in technical and quality aspects of materials received. After receiving and acceptance of the material, the Goods Receiving Note (GRN) is prepared by the Stores Dept and along with inspection report the Purchases department will advise to the Finance department to arrange the payment for the materials received. If any irregularities in supply of materials, the action is taken according to the terms and conditions of

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the purchases order. For any rejected materials the Purchase department will have corresponding with the suppliers and make necessary of replacement against the damaged / rejected materials.

Functions of inspection department:

In Hindustan shipyard limited material inspection department is functioning under the control of the quality circle division which is directly reporting to director. Inspection department is equipped with the technically knowledge group persons to inspect the materials per the requirement.

The incoming material is received brought by the clearance department and handed over to the concerned stored wing. The stores personnel will arrange for the inspection of the material with coordination of inspection department.

Inspection department will inspect the material specification as per the purchases order or technical specifications mentioned by user department or drawing and designing office and the classification certificates if any.

Normally the following methods, while inspecting the materials are followed:

1. Bulk qualities like bolts, bulbs, paints and consumables etc are inspected at random only.

2. For steel 100% verification is done for above 4.5mm thickness, the inspection is done at random only.

3. For pipes 100% inspection is done.

4. For bonded material 100% inspection is done.

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Inspection is conducted for the following areas:

Quality as per specification

Quantity as per purchase order or suppliers packing list.

Conduction of material such as shelf life expiry or working or serviceable conditions etc.

After inspecting the material the inspection report which is containing all the details of the material including rejected material with reasons.

Inspection report is prepared in five copies which are for:

Purchase department:

For taking the necessary arrangements adjustments on the basis of inspection report purchase department will correspond the matter with the supplier relations adjustments short supplied etc and follow up action is ascertained.

Stores department:

Used for preparing Goods Receiving Notes and for preparing the expected quantity and accounting the materials.

Who raised the purchase indent for the intimation about the procurement?

Accounting department

For arranging the payments or adjustments for the accepted quantity.

Self office copy for record purchase.

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Functions of stores department:

In Hindustan shipyard limited sores department is subdivided on the basis of material wise stores functions is a large function Hindustan shipyard limited. The organization chart enclosed here will give a clear view about the total stores organization in Hindustan shipyard limited.

Normally the functioning of all stores in similar stores function is to maintain the proper stock levels of various stores items. At the same time the stores functions should see the huge amount of capital is not to be locked up in the form of inventories.

1. Material Receipt Report:

This is normally prepared by the concerned stores on the basis of inspection report. Material receipt report is having all details of the materials such as material receipt report number, quantity accepted, P.O number, supplier name and code, internal rate of return number, data etc.., Material receipt report will be prepared in five copies for

Concerned stores: for entering the material in bin cards.

Cost accounts: for accounting the receipts in period store ledger.

Account bills: for arrangement the payment / adjustment.

Purchase department: for information and take necessary follow up action as per the purchase order.

2. Material Requisition:

This is normally written in a prescribed format by the material user department. This is in three copies. Material requisition is having details of material code, description unit of measurement, quality required use department code number, job number and signature of the authorized drawer etc.., after using

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the materials the first two copies are taken by the sores department and sending the third copy along with the issued material to the user department.

Stores department will enter the issued quantity or requisition and in bin card. The original material requisition is sent to cost accounts departments for charging the issue to the work order.

3. Material Return Note:

This is also similar as material requisition written by the user or production department. The material return note is for returning the unused materials to the stores. The material return note is also containing all the details just as material requisition in Hindustan shipyard limited. Material return note is in pink or red color or yellow in color.

Functions of material accounting section in accounts departments:

This material accounting section is dealing with the maintenance of inventory record with values. The main function is as follows:

- Receiver the material receipt reports and enter in the priced stores ledger with providing the values on the basis of purchase order, this is done with the corporation of data processing department computers. Periodically that is per monthly.

- While considering the receipt value there are some predicts mined rates are applied for insurance and material handling charges whenever necessary the predetermined rates are on the basis of last year.

Valuation of the issues:

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Receiving and consolidated all the material requisition received from all the stores and arranging for issue valuation with the help of data processing department.

In Hindustan shipyard limited the issues of all the stores expected bond stores the issues based on the percentage of completion reports from production planning department.

Maintenance of priced stores ledgers:

Periodically priced stores ledger are maintained if any discrepancies noticed in accounting of receipts and issues are adjusting after the intimation received from the concerned stores.

Attending perpetual inventory discrepancies:

- If any discrepancies noticed by perpetual inventory section the necessary adjustments are passing yearly.

- Maintaining the inventory balance and intimating to higher level for taking necessary steps wherever required.

- Intimating to other levels of management about the non moving surplus materials.

- With the entire above department coordination the inventory control management is organizing in Hindustan shipyard limited.

Inventory norms:

In order to supervise the end use of the funds and check in projections, the banks are required to get from the borrowers, quarterly management information reports, pertaining operating systems, funds flow statements. The maximum level of norms have been given as 4-10 weeks for raw materials, low to 5 weeks for semi finished goods, 3-8 weeks for finished goods and 3-9 weeks for accounts receivables depending up on the nature of industry. Hindustan shipyard

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limited is following the approved inventory norms of BPE since 1985 approved total inventory norms is Rs 1910lakhs.

The following is the break up for each store wise:

Machinery equipment 100

Steel 550

General stores 250

Timber stores 20

Other stores 90

Total 1010

However the above norms are out dated norms. These were fixed for the full capacity since the ship construction activity is reduced. The norms are to be evaluated afresh.

It is relationship between cost of goods sold and average inventory. This ratio is expressing that how many times of stock is purchased during the year. High inventory turnover is more profit for the organization it means the efficient utilization of working capital and the stock in inventory are fresh and not absolute.

The problems of spares management, which are different from the other classes are initially presented the categorization of spares, provisioning of spares, role of maintenance budget are brought in the content of solving the spare parts problems. Maintaining the inventory balance and intimating to higher level for taking necessary steps wherever required. In Hindustan shipyard limited all the stores expected bond stores are base on the percentage of completion reports from production planning department.

Inventory various stores:

The entire stores of the organization is subdivided into four stores as

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Bond stores Steel stores Timber stores General stores

Bond stores:

Bond stores dealing with all the imported materials and specific materials particularly for ship construction activity. The material consumption of bond stores is contributing major shares about 60% to 70% of the total material cost of each ship.

The imported materials are like main engine, diesel generator sets, electrical equipment, main shift and propeller, radar and communication equipment where those equipments etc..,

In Hindustan shipyard limited premises there is a customer’s office to look after all the matters of receipts on the ship building material since the area is exempted from customs duty.

Steel stores:

For the material of ‘ B’ class and ‘C’ class lesser cost items such as flats etc.., this type of items is called as standard stock items for these items the steel stores is not only raise the purchase indent but fixes the level of maximum, minimum and recording.

Out of total stores around 80% material is ‘A’ class category for which the design drawing office will be a purchases indent for procurement according to the ordered vessels. Remaining 20% material is standard stock items for which steel stores raise purchases indent. Steel is identified by special codification as A, B, C and the international standards.

LRS- Lloyds Register of Shipping

ABS- American Bureau of Shipping

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Length and breadth but it is accounted in weigh men that is metric tons, the main suppliers are sail and foreign countries of Japan, Korea etc.., and same time very few materials are procured from local suppliers.

If any rejected material is noticed while inspecting that material is kept separately.

Timber stores:

Timber stores is dealing with procurement storing and issues of timber material such as blue pine, teak seafood, pine wood, staging planks, supporting boards, bale wood stock and also for work as per. Timber stores are assisting the purchases department in finalization of the tenders by study of the following

- Quality

- Delivery period

- Specification (size and standard) sample etc..

General stores:

The function of the general stores is sub divided into various groups because it is dealing with various items of more than 40000 items.

There is well organized procedure for accounting of important materials customs office is available within the premises of Hindustan shipyard limited to look after the matters of imported materials. Since the imported materials for ship construction is accepted from the customs duty.

Hindustan shipyard limited is adopted weighted average cost method for its inventory as well as for the consumption of steel, timber, bond and general stores.

The total function is divided in the following manner:

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- Receipt Section

- Groups (concerned stores)

- Inventory control cell

Receipt section:

Functions of the section are as follows:

- Receipt all the material of incoming from clearance department or from supplier directly.

- Enter all the details in a separate register as per the delivery challenge.

- Keep the material in state unsteady till inspect the material.

- Intimate and arrange for the inspection of the material at the earliest.

- Preparation of material returns report for accepted quantity as per the inspection report.

- Handling over the material along with the material return report to the concerned group (stores).

- Regarding the rejected material, it is entered in a separate register and kept them under safe condition.

- Registered material is handed over to the supplier on the advice of purchase department.

- Hindustan shipyard limited is adopted weighted average cost method for its inventory as well as consumption of all items.

- While considering the receipt values there are some predicts mined rates are applied for insurance and material handling charges.

Groups (concerned stores):

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The entire general store activity stoking and issuing is looking after by 10 groups. General store items are also given eight digit codes starting with 3, 4 6 &7 the following table will give a clear idea of group and functioning areas:

Groups Dealing material

a) 0.30 group General stores

b) 0.31 group Cabin hardware

c) 0.32 group Pipes & pipe fitting

d) 0.33 group Industrial consumables

e) 0.34 group Bolts and nuts

f) 0.35 group Oil and paints

g) 0.37 group general consumables

h) 0.38 group Electric consumables

i) 0.40 group Central tool

j) 0.60 group Canteen material

k) 0.70 group Spares for plant and machinery

The above all groups are engaged in maintaining the bin cards, storing the materials and issuing the material to the user department. The bin balance are verified with the priced stores ledger periodically and if any discrepancies noticed that will be corrected by intimating section will pass necessary correction in PSL as well as in the consumption statements. Group personnel are extended their cooperation to conduct the physical stock verification of perpetual inventory section

Size of stores:

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Hindustan shipyard limited is maintained in the four board heads and their sizes available for the last five years from 1995-96 to 1997-00 in the following statements

Accumulation of inventory:

The questions of managing inventory areas only when the company accumulation of inventories. Maintaining inventories involves typing up of the company’s funds and storage & handling costs if it is expensive to maintain inventories why do companies accumulation of inventory?

1. The “Precautionary motive” which emphasis the need to maintain inventories to guard against the risk of unpredictable change in demand supply force and other factors.

2. The “Transaction motive” which emphasis the need to maintain inventories to facilitates smooth production and sales operation.

3. The “speculation motive” which influences the decision to increase or decrease inventory levels to take advantage of price fluctuations.

At times the industry would like to accumulate raw materials in anticipation of price rise.

“A” category consists of highest consumption value of lesser percentage of items.

“B” category of moderate values with moderate consumption of items but the quantity is more in consumption.

“C” category of least costly items with less consumption but the quantity may be consumed more.

Non- moving and surplus material analysis:

In Hindustan shipyard limited the year’s period is considered as a period for non- moving. If any items are not consumed for more than three years

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that is considered as non-moving item. The following are the main reasons for the surplus inventories in Hindustan shipyard limited.

Excess procurement:

Normally steel and other consumables are procured at 5% excess to the requirement to the production damages.

1. Extra procurement of spares for general maintenance of plant and machinery subsequently which is out dated.

2. Due to changes in design of the product. (that is ship construction)

3. Spare parts of out dates assets etc..,

All the above surplus material is unused or new material. The identification of surplus material is the important profess.

Inventory control cell is adopting the following procedures for reducing or disposing the surplus and non-moving inventory.

Stage 1:

- Searching for alternative use or user.

- Keeping them in stock to meet the future requirements.

This can be done with the coordination of design and drawing office or ship repairs department.

Stage 2:

- Intimate to other publish sector undertaking publicity.

Stage 3:

- By calling public tenders and auctions for disposal.

Before calling public tender the reserve prices are to be fixed for the surplus or non-moving items by the experts committee called as survey

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committee, the fixed reserve prices are to be approved by the chairman and managing director.

Disposal activity:

Disposal activity is looking after by disposal section which is under the control of manager. The main activity of the disposal section is to dispose the unwanted concernments stores and scrap material etc..,

Hindustan shipyard limited is having closed general stores; air conditioned boned store and other stores.

Problems of inventory

Hindustan shipyard limited having the various problems in the inventory management. They are

1. Problems in procurement :

Ship building material is tailor made items. Hence the lead time is different from item to item.

Majority of the materials for ship building are imported and international standardization material. Hence the procurement may be most due to various reports and involvement of various authorities.

Because of the Hindustan shipyard limited is being a public sector the decision making of inventory is late through they are correct.

2. Problems in storage:

Regarding prevention of steel, steel is keeping is open yard. Ship building activity should be carrying out at the sea coast, the required steel is exposure to the nature and moisture, it leads for natural and moisture, it leads to decay of rust etc..,

It is required for a periodical maintenance through sand bland ling and anticorrosion painting etc..,

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Regarding imported machinery items those are to be maintained in air condition stores up to installation.

The material is not available in indigenously it is to be stored in water. Hence the separate storage facilities are required.

High grades electrodes (standard material for ship building under ISO 9001) are too preserved at standard temperature.

Material like “Rock Wool Lapin US” is to be kept in a separate closed area (away from other material).

Huge material in size like main engine, life boats etc.., may not possible to store under any stores. Hence they are to be properly covered with fire proof tarpaulins etc..,

3. Problems in finance and accounting :

Due to majority of materials are imported all the payment for imported material are to be in advance, because of the losses. Hindustan shipyard limited is facing accrue shortage of working capital to meet the requirement in time.

Regarding accounting of imported materials, along with the other stock records, it is to be maintained additional register for the statutory requirement with customs department.

Inventory control system:

A firm needs an inventory control system to effectively manage its inventory. There are several inventory control system in vogue in practice they range firm simple system to very complicate systems. The nature of business and size dictated the choice of inventory control system. For small example a small form may operate a two bin system. Under the system the company maintains two bins. Once inventory in one bin used, an order is placed and

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mean while the firm uses inventory in second bin. For a large departmental store that sells hundreds of items, this system is quite unsatisfactory. The departmental sore will have to maintain a self operating, automatic computer system for tracking the inventory position of various items and placing orders.

ABC Inventory Control System :

Large number of firm have to maintain several type of inventories it is not desirable to keep same degree of control on all items the firm should pay maximum attention to those items whose value is the highest. The firm should therefore, classify inventories to identify which item should receive the most effort in controlling. The firm should be selective in its approach to control investment a various type of inventories. The analytical approach is called the ABC analysis and tends measure the significance of each item of inventories in terms of value. The high value items are classified as an item and would be under the tightest control items represents relatively least value and would be under simple control items. Fall in between these two categories and acquire reasonable attention of management. The ABC analysis and tends to measure the significance of each item of inventories in terms of its value.

Classify the items of inventories deterring the expected use in units and the price per unit for each item.

Determine the total value of each item by multiplying the expected units by its unit’s price.

Rank the items in accordance with the total value giving first rank to the item with the highest total value and so on.

Compute the ratio of number of units of each item to total units of all items and the ratio of total value of each item to total value of all items.

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Combine item on the basis of their relative value to form three categories A, B, C.

Just in time control system:

Japanese firm popularized the just in time system in the world in a just in time system material or the manufactured components and part arrive to the manufacturing sites or stores just few hours before they are pert to use. The delivery of materials is synchronized with the manufacturing cycle and speed. Just in time system eliminates the necessity of carrying large inventories. And thus save carrying and other related cost to the manufacturer. The system requires perfect understanding and coordination between the manufacture and supplier of items of the timing of delivery and quality material or components could halt the production. The just in time inventory system complements the Total Quality Management the success of the system depends how well a company manages its suppliers. They will have to develop adequate system procedure to satisfactory meet the needs of manufacturers.

Out Sourcing:

A few years ago there was tendency on the parts of many companies to manufacturer all components in house. Now more and more companies are adopting the practice out sourcing. Out sourcing is a system of buying parts and components from outside rather than manufacturing them internally. Many companies developing small and middle size of suppliers and the components that they are require.

Computerized Inventory Control System:

More and more companies small or large size are adopting the computerized system controlling inventories a computerized inventory control system enable a company to easily track large items of inventories. It is an automatic system of counting inventories recording withdrawals and revising the balance there is an inbuilt system of placing orders as the computer notice

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that the recorders points has been reached. The computerized inventory system is inevitable for large retail stores which carry thousands of items. The company information systems of the suppliers are linked to each other. As soon as the suppliers compute receives an order from buyer system the supply process is activated.

Inventory Control Techniques:

Effective inventory management requires an effective control over inventory. Inventory controls refers to a system which ensures supply of required quantity and quality of inventories at the required time and at the same time prevent unnecessary investment in inventories. The techniques of inventory control or inventory management as follows:

1. Determination of Economic Order Quantity:

Determination of the quantity for which the order should be placed is one of the important problems concerned with efficient inventory management. Economic Order Quantity refers to the size of order which gives maximum economy in purchasing an item of raw material of finished products. It is fixed mainly after taking into account the following costs

a. Ordering costs:

It is the cost of placing an order and securing the supplies. It varies from time to time depending upon the number of orders placed and fewer the quantities purchased on each other, the greater will be the ordering cost and higher the quantity purchased on each other, the lesser will be the ordering cost.

b. Inventory Carrying cost:

It is the cost of keeping items in stock. It includes interest on investment, obsolescence losses, store keeping cost, insurance premium etc.., the larger the value of investment the higher will be the investment carrying cost and smaller the value of investment the lesser will be the investment carrying cost.

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The former cost may be referred as “cost of acquiring” while the later as the “cost of holding’ inventory. The cost of acquiring decreases while the cost of holding increases with every increase in the quantity of purchase lot. A balance is therefore struck between the two opposing factors and the economic order quantity is determined at the level for which aggregate of two costs is the minimum.

Formula:

EOQ= square root of 2AO/ C

A= Annual inventory requirement

O= Ordering Cost per order

C= Carrying cost per unit

Assumptions:

Economic Order Quantity is based on the following assumptions

The firm knows with certainty the annual usage or demand of particular items of inventories.

The rate at which the firm uses the inventories or makes sales is constant throughout the year.

The orders for replenishment of inventory are placed exactly when inventories reach the zero level.

The above assumptions may also be called as limitation of Economic Order Quantity model. There is a very likely hood of a discrepancy between actual and estimated demand for a particular item of inventory. Similarly the assumptions as to constant usage or sale of inventories and instantaneous replenishment of inventories are also of doubtful validity on account of these

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reasons. Economic Order Quantity model may sometimes gives wrong estimation about Economic Order Quantity. If the firm is planning the production, has to take a decision regarding how much to produce. The financial manager should determine the optimum or economic order quantity or economic lot size to solve such problems.

2. Determining of Optimum Production Quantity:

The Economic Order Quantity model can be extended to production runs to determine the optimum production quantity. The two costs involved in this process are,

Set up costs

Inventory carrying cost

The set up cost is of the nature of fixed cost and is to be incurred at the time of commencement of each production run. The larger the size of the production run lower will be the set up of cost or unit. However the carrying cost will increase with increase in the size of production. Thus there is an inverse relationship between the set up cost and there carrying cost will increase in the size of production run. Thus there is an inverse relationship between the setup cost and inventory carrying cost. The optimum production size is at that level where the total of the setup cost and the investment carrying cost is the minimum and this level of two costs will be equal.

3. Determination of Reorder Level:

Having determined the Economic Order Quantity or optimum production quantity, it is also important to decide when to order for the new stock. This problem is solved by determining the reorder level.

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Reorder level is the level of inventory at which the firm should place an order to replenish the investment. In case, the order is placed at this level the new goods will arrive before the firm runs out of goods to sell.

In order to determine reorder level information in required about two things

The Lead Time

The Wage Rate

The term leads time refers to time normally taken is receiving the delivery of investment after the order has been placed. In case, there is no uncertainty about the usage rate and the lead time, the reorder level can be determined by simply applying the formula.

Reorder level= average usage * lead time

For example:

If the lead time is 3 weeks and the average usage is 50 units per week, the reorder level can be computed as follows.

Reorder level= lead time * average usage

= 3weeks * 50 units

= 150 units

It may be noted that if the Economic Order Quantity in the above case is 500 units and there is no lead time, the economic order quantity would have been sufficient for ten weeks and the order would have been placed only at the end of 10th week, the time when the reorder quantity reaches the zero level. Since the above problem the lead time is three weeks. Therefore the order should be placed at the end of 7th week when only 50 units are left.

Safety stock:

In the example given above if the reorder level was computed presuming that is no uncertainty regarding the usage as well as the lead time.

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However is actual practice, it is almost impossible to correctly predict both of them. The actual usage as well as the lead time may be different from the normal usage or the normal lead time. In order to guard against such as contingency, the firm maintains a safety stock. The minimum of buffer stock as a cushion against the possible increase in usage or delay in delivery time. The level of safety stock can be calculated by applying the following formulae;

Safety Stock= average stock* period of safety stock

For example:

If the usage rate is 50 units per week and the firm wants to hold sufficient inventory for at least one week of production. The amount of safety stock will be 50 units.

The formula for determining the reorder level when the safety stock is maintained will be as follows;

Reorder level= (Lead time*average usage) + safety stock

4. ABC Analysis:

ABC analysis is a technique of exercising selective control over inventory items the technique is based on this assumption that a firm should not exercise the same degree of control on items which are more costly as compared to those items are divided into three categories A, B, C.

Category A may include more costly items, category B may consist of less costly items and category C of the least costly items. Thus A, B, C analysis concentrates on important items and therefore it also known Control by Important Exception(CIE) this approach is also known as “Proportional Value Analysis”(PVA) since the items are classified in importance of their relative value.

Through no definite procedure can be laid down for classification. The inventories inn A, B, C categories as this will depend upon a large number of factors such as nature and variety of items specific

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requirements of the business etc.., yet the following method is generally adopted

The quality of each material expected to be used in a period is estimated.

The value of each of the above items of materials is found out by multiplying the quantity of each item with the price.

The items are then rearranged in the descending order of their value irrespective of their quantities.

A running total of all values will be taken.

Inventory surveys in general have shown the following trends regarding the components of inventories manufacturing organization.

Category % of total value % of total quantity

A

B

C

70

25

5

10

35

55

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CHAPTER -5

DATA ANALTSIS AND INTERPRETATION

TABLES

CHARTS

INTERPRETATION

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INVENTROY LEVEL AT THE END OF LAST FIVE YEARS

PARTICULARS 2006- 07(RS In lakhs)

2007 – 08 (RS In lakhs)

2008 – 09 (RS In lakhs)

2009 – 10 (RS In lakhs)

2010 – 11 (RS In lakhs)

Steel

1199.53 7864.16 8569.50 4156.12 4932.79

Stores, spares, equipment and other materials

1227.84 2507.47 2481.22 7882.26 7507.81

Timber

50.57 49.72 51.06 38.01 45.09

Goods in transit, Loose tools, under inspection etc.

1550.31 1502.60 6222.65 16999.04 6619.82

Steel cut pieces on shop floor and scrap(as per technical estimate)

87.35 104.80 130.47 104.82 290.21

Total 4115.60 12028.75 17450.90 29180.25 19395.72Less : difference between bin cards &PSL balance

246.49 233.81 233.81 233.81 233.81

Less : provision for obsolence of materials

101.32 23.72 21.86 19.96 130.44

Work in progress at cost

3767.79 11781.22 17209.23 28936.48 19041.47

Ship building under construction

9437.94 13574.00 20006.08 18953.28 14123.77

BALANCE13205.73 25355.22 37215.31 47889.76 33165.24

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INVENTORY LEVEL AT THE END OF LAST FIVE YEARS

Bar graph representation for inventory control:

Interpretation:-

With reference to the above chart it can be inferred that there was an increase during the year 2006-07(13205.73) to 2009-10 (47889.76), then it decreased in the year 2010-11 to (33165.24) at end of the year.

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INVENTORY TURNOVER RATIO

The ratio indicated the efficiency of the firm of selling its products it is calculated by dividing the cost of goods sold or net sales by the average inventory.

If the net sale sold is known then inventory turnover ratio can be computed by dividing sales by average inventory of the yearend inventory. The inventory turnover shows how rapidly the inventory is turning into receivables through sales. This ratio signifies the liquidity of inventory. It is used to measure to discover the possible trouble in the form of over stocking or over valuation.

Net sales 31413.84

Inventory turnover ratio = ___________________ = __________ = 2.18

Average inventory 14371.72

Year Net sales(Rs. Lakhs)

Avg inventory (Rs. Lakhs)

I T R

2006-07 31413.84 14371.72 2.18

2007-08 38452.02 19280.47 1.99

2008-09 39581.38 31285.26 1.26

2009-10 61896.05 42552.53 1.45

2010-11 65214.30 40527.50 1.61

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Bar graph representation for inventory turnover ratio:

I T R – Inventory turnover ratio

Interpretation:-

With reference to the above chart it can be inferred that there was an decrease of the inventory turnover ratio from the year 2006-07(2.18) to 2008-09 (1.26), then it increase from the year 2009-10(1.45) to2010-11 (1.61) at end of the year.

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RAW MATERIAL TURNOVER RATIO

The ratio indicated the efficiency of firms raw material consumed. It is calculated by material consumed dividing by average material inventory.

Material consumed 19019.22

Inventory turnover ratio = ____________________ = _________ = 1.32

Average inventory 14371.72

Year Material consumed(Rs. Lakhs)

Avg inventory (Rs. Lakhs)

Raw material turnover ratio

2006-07 19019.22 14371.72 1.32

2007-08 22255.48 19280.47 1.15

2008-09 26466.04 31285.26 0.85

2009-10 34457.31 42552.53 0.80

2010-11 44151.76 40527.50 1.08

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Bar graph representation for raw material turnover ratio:

R.W.T.R – raw material turnover ratio

Interpretation:-

With reference to the above chart it can be inferred that there was a decrease of the raw material turns over from the year 2006-07(1.32) to 2009-10 (0.80), then it increased in the year 2010-11 to (1.08) at end of the year.

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INVENTORY NET WORKING CAPTIAL

The net working capital is the difference between the current assets of current liabilities it may be either positive or negative when it is positive currents assets exceed current liabilities. When it is negative current liabilities exceed current assets. Raw material consists inventory. The efficiency management of inventory inculcates firm’s effective performance. These ratios calculated from inventory divided by the net working capital.

Average inventory 14371.72

Inventory net working capital = ____________________ = ________= -0.78

Net working capital -18321.82

Year Avg inventory Net working capital

Inventory net working capital

2006-07 14371.72 -18321.82 -0.78

2007-08 19280.47 -11466.77 -1.68

2008-09 31285.26 -23291.04 -1.34

2009-10 42552.53 -18420.86 -2.31

2010-11 40527.50 361.73 112.03

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Graphical representation for Inventory net working capital:

I.N.W.C – Inventory net working capital

Interpretation:-

With reference to the above chart it can be inferred that ratio negative because the current liabilities are more when compared to current assets. In the year 2006-07 there is a decrease in the inventory net working capital -0.78 to -2.31 in 2009-10 and then it increased to 112.03 at year ending 2010-11.

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INVENTORY HOLDING PERIOD

The inventory holding period indicates of inventory and finished goods into sales in a year another words it holds average inventory for some months or days.

360 360

Inventory holding period= ________ = ________ =165.13

ITR 2.18

Years

Inventory turnover ratio Inventory holding periods in days

2006-07 2.18 165.13

2007-08 1.99 180.90

2008-09 1.26 285.71

2009-10 1.99 248.27

2010-11 1.26 223.60

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Bar graph representation for inventory holding period:

I.H.P – Inventory holding period

Interpretation:-

With reference to the above chart it can be inferred that there was an increase of the inventory holding periods from the year 2006-07(165.13) to 2008-09 (285.71), then decrease from the year 2009-10(248.27) to2010-11 (223.60) at end of the year.

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CHAPTER-6

FINDINGS, SUGGESTIONS AND SUMMARY

FINDINGS

SUGGESTIONS

SUMMARY

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FINDINGS

The following are the findings of my study:

I. The financial position of the company is carried in losses in last five years. The position of the company during 2006-07 is706.92Crs, then it decreased to 566.41Crs in 2007-08.and increased year after year and end up with an increase of 628.11 Crs.

II. The inventory level increased during the year 2006-07 to 2009-10 from 13205.73 – 47889.76 lakhs, then it decreased in the year 2010-11 to 33165.24 lakhs at year end of the year 2010-11.

III. The inventory turnover ratio in the year 2006-07 is 2.18, and decreased during the year 2007-08 to 2008-09 to 1.26, and from the year2009-10 increases gradually and finally end up with increase of 1.61 in 2010-11.

IV. The raw material turnover ratio 1.32 during the year 2006-07, decreased during the year 2007-08 to 2009-10, 1.25 to .80 and finally ends up with the increase of 1.08 in 2010-11.

V. The inventory net working capital is negative because the current liabilities are more than currents during 2006-07 to 2009-10. But at end with the positive note increased to 112.03 during the year 2010-11.

VI. The inventory holding period increased during the year 2006-07 to 2009-10, 165.13 to 248.27. End up with a decrease of 223.60 in the year 2010-11.

VII. It has been found that due to lack of the orders the inventory levels are picking up.

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VIII. The project analysis the existing inventory management system in HSL and estimates the inventory requirements for the next financial year by using, inventory net working capital, inventory holding period, Economic order quantity and Weighted average method.

SUGGESTIONS

The suggestion is as follows:

1) It suggested that the company must use the techniques of inventory control effectively for the better use of the inventory and inspection on inventory should be done correctively for the better quality output.

2) It suggested that the company should try to increase the profits by reducing the unnecessary purchases.

3) The inventory turnover ratio, gradually decreased year by year, it is suggested that I T R should be increased.

4) Raw material turnover ratio is decreased year by year, it is suggested that raw material turnover ratio should be increased.

5) Inventory holding period is increased year by year, it is suggested that inventory holding period should be decreased.

6) Inventory net working capital of HSL shows decrease in inventory net working capital from 2007 to 2010, but in the year 2011 it shows increase in

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inventory net working capital, it suggested that current assets should be increased and decrease in current liabilities as like CY2011 for having a positive growth of the company.

SUMMARY

Hindustan Shipyard Limited, Visakhapatnam is credited with the establishment of one of the most significant shipyards in the city. The foundation stone for the shipyard was laid by Dr. Rajendra Prasad on 22 June 1941. Initially known as the Scindia Shipyard, it was built by industrialist Watchband Hirachand as a part of The Scindia Steam Navigation Company Ltd. Jal Usha, the first ship to be constructed fully in India after independence was built at the Scindia Shipyard and launched in 1948 by Nehru. The shipyard was nationalized in 1961, and renamed Hindustan Shipyard Limited. In 2009, HSL was transferred from the Ministry of Shipping to the Ministry of Defence. The yard played a critical role in the development of nuclear-powered.

HSL has very good labor force. HSL from the beginning it is not a profit making organization vat it was established only with the national interest. It was facing different types of problems from its inceptions. Now, ship building activity is in deep depressions stage. Due to heavy subsides offered the various countries like Japan, Korea, etc. The international shipping price is not compatible by the Indian ship builders.

Inventory control may be defined as optimum utilization of materials of production of goods and services it is further defined as “The process of deciding

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what and how times on quantity are to be processed.”HSL is getting losses due to lack of redress, under utilization of capabilities, excess manpower, etc. However, HSL is implemented some diversified activates such as off shore platform for ONGC and intensified shop repair activity including sub marine repairs etc, to reduce the losses.

BIBLIOGRAPHY

BOOKS

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I.M. PANDEY (2003), “FINANCIAL MANAGEMENT”, UBS publishers.

N.K. MISHRA AND SHASHI .K.GUPTA (2008), “FINANCIAL MANAGEMENT”, Kalyani publishers.

WEBSITE

www.hsl.govt.in

www.google.com

ANNUAL REPORTS OF HSL

GENERAL ARTICALS OF SHIP BUILDING INDUSTRY

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