A PROJECT REPORTON

WORKING CAPITAL MANAGEMENT IN CCL.

BySneh Samrani

Sam Higginbottom Institute Of Agriculture, Technology And Sciences.

Allahabad -211007June, 2016

A PROJECT REPORTON

WORKING CAPITAL MANAGEMENT IN CCL.

By

Sneh Samrani

Under the guidance ofMR. A. D. WADHWA(Finance Manager)

Central Coalfields Limited, Ranchi.

CERTIFICATE FROM SUMMER INTERNSHIP GUIDE.

This is to certify that Ms. Sneh Samrani , a student of the Bachelor of Business Administration (Honours) at Sam Higginbottom Institute of Agriculture Technology & Sciences Allahabad , has done her internship in our FINANCE DEPARTMENT, CCL Darbhanga House , under my guidance from 17 th June 2016 to 11 th July 2016( 3 weeks) on the topic “WORKING CAPITAL MANAGEMENT ” of Central Coalfields Limited, Ranchi.She has completed her training successfully.

Mr. A.D.Wadhwa

Manager ( Finance ) CCL , Ranchi

CONTENTS

SL.NO TOPIC 1. Introduction.2. Historical Background. 3. Highlights of CCL. 4. Vision , Mission , Objectives of CCL.5. Working capital management.6. Working capital management in CCL.7. Cash management.8. Inventory management.9. Debtors management.10. Problems faced by CCL in dues

payment.11. Findings.12. Recommendations.13. Conclusion.14. Bibliography.

INTRODUCTION of CENTRAL COALFIELD LIMITED.

C.C.L is a subsidiary company of Coal India limited under ministry of coal and mines govt. of India C.C.L is one of the 8 coal production subsidiaries of coal India limited under ministry of coal and mines. Company is governed by a

board of directors consisting of 5 full time directors and 6 part time directors. Full time directors are responsible for specific functions of operation, project & planning, finance and personnel. India is third largest country in the production of coal. C.C.L means Central Coalfields Limited.

HISTORICAL BACKGROUND.Coal Mining first started in India in the year 1815. The private Railway Companies started mining activities in the year 1850. The Railway Board Nationalized the coal mining in 1925. The Railway collieries were transferred to the Coal Board in the year 1944.In 1774 Warren Hastings initiates commercial coal mining at Raniganj (West Bengal) in 1815-1820 First Shaft Mine opened at Raniganj 1835 Carr, Tagore & Company takes over the

2. Raniganj Coal Mines 1843 Bengal Coal Company takes over Raniganj Coal Mines and others; is first Joint Stock Coal Company in India. Upto 1900 Minimal development; River transportation used to transport coal to Calcutta ;railway lines at Calcutta leads to expansion of Coal Production in Early 1900s, Capacity at 6 million tonnes per annum 1955-56 Focus on Coal Industry; capacity up to 38.4 Million tonnes. In 1956 National Coal Development Corporation (NCDC ) formed to explore and expand coal mining in Public Sector. In 1972 Coking Coal Industry Nationalized, Bharat Coking Coal Limited formed to manage operations of all Coking Coalmines in Jharia Coalfield. In 1973 Non-coking coal was nationalized; Coal Mine Authority Limited set up to manage these mines; NCDC operations bought under the ambit of CMAL. In1975 Coal India Limited formed as holding Company with 5 subsidiaries:-

Bharat Coking Coal Limited (BCCL),

Central Coalfields Limited (CCL),

Western Coalfields Limited (WCL),

Eastern Coalfields Limited (ECL)

Central Mine Planning and Design Institute Limited (CMPDIL) in 1985.

Northern Coalfields Limited (NCL)

South Eastern Coalfields Limited (SECL) 1992.

Mahanadi Coalfields Limited (MCL)

In 2007 Coal India & five of its Subsidiaries, viz, NCL, SECL, MCL, WCL, CCL was accorded coveted "Mini Ratna" Status.

HIGHLIGHTS OF Central Coalfield Limited.

Central Coalfield Limited has been on the coal map the country as a public sector on October, 1956, under different names. In the beginning it was known as National Coal Development Corporation, then Central Division of Coal mines Authority , and finally under its present nomenclatures at Ranchi, Jharkhand. The Central Coalfield Limited is one of the subsidiaries of coal India Limited registered under the Company’s Act 1956 in the year 1975.The mining and extraction of coal is entrusted to a public sector organization Coal India Limited. The Company is divided into eight subsidiaries and Central Coalfield Limited is one of them. The company presently known as CCL has a history of more than three decades. Pursuant to the Industrial Policy Resolution of 1956, a company was formed by the names of M/S Hindustan Collieries Private Limited, on 5 September, 1956. The name was changed to the National Coal Development Corporation. The NCDC was formed on 01.10.1956 with 11 state railway collieries in Orissa and Madhya Pradesh. Like other industries and organization, the affair of CCL too is not settled by its owner (Govt. of India). Rather the professional team of management called Board of Directors (BOD) is appointed by the Govt. of India to manage the affair of CCL. It consists of chairman – cum-Managing Director, four functional Directors in charge of operations, personnel, finance and projects & planning. Besides part-time Directors as may be appointed by the Govt. from time to time. At present CCL have 67 collieries and 7 washeries under revenue production. Some of the state collieries are very old, at least one of which that in Giridih has crossed century in the year 1961. It also has seven coal washeries, a coal oven plant ,besides workshop and handling plants spread over in Hazaribagh ,Palamu , Dhanbad ,Ranchi, Bokaro , Giridih, and Chatra district. CCL is the major source of medium

coking coal in India. CCL‟s other important activities are beneficiation of medium coking coal for steel plants through its chain of coal washeries and manufacture of soft coke for domestic kitchen. Most of the production (88%) comes from surface mines. The productivity of underground mines and many of the surfacemines is low, but because of high priced of coking coal, the company has been making marginal profit and losses with the recent deregulation of coking coal price the profitability of the company is expected to improve. The command area of CCL companies 10 coalfields namelyGiridih, East Bokaro, West Bokaro, piparwar, Ramgarh-kaitha, North Karanpura.

VISION, MISSION AND OBJECTIVES OF CCL.

Vision :" Committed to create eco-friendly mining ".

MISSION :"To become a World class, Innovative, Competitive & Profitable Coal Mining Operation to achieve Customer Satisfaction as a top priority.

Objectives Of CCL :Coal mining through efficiently operated mines.

Besides fulfilling coal needs of the customer in terms of quantity, focus on quality, Value addition and beneficiation to the satisfaction of the customers.

Marketing of coal as main product.

WORKING CAPITAL MANAGEMENT.Capital required for a business can be classified under two main categories via :1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day-to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these assets represent that part of firm capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day – to- day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firm’s capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.

CONCEPT OF WORKING CAPITAL .There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The Gross Working Capital is the capital invested in the total current assets of the enterprises current assets are those assets which can convert in to cash within a short period normally one accounting year.

Optimization of investment in current asset

Financing of current assets.

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES. Net working capital can be positive or negative. When the current

assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assts or the income business.

Liquidity position of the firm Judicious mix of short-term and long -term financing.

CONSTITUENTS OF CURRENT ASSETS :1. Cash in hand and cash at bank.

2. Bills receivables.

3. Sundry debtors.

4. Short term loans and advances.

5. Inventories of stock as: a. Raw material b. Work in process c. Stores and spares d. Finished goods.

6. Temporary investment of surplus funds.

7. Prepaid expenses.

8. Accrued incomes.

9. Marketable securities.

CONSTITUENTS OF CURRENT LIABILITIES .1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation

6. Bills payable.

7. Sundry creditors.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS .

1. NATURE OF BUSINESS: The requirements of working is very limited in public utility undertakings such as electricity, water supply and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. of working capital along with fixed investments1.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating inventories it will require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labour and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will needs

lower amt. of working capital as compared to a firm having a low rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product/ services on cash requires lesser amt. of working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtor and the firm may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital.

Working capital management in CCL .Requirements:For purchasing spare parts like nut, bolt etc.

For purchasing of small equipment .

For purchasing fuels .

For payments of wages, carriage etc.

Few points for working capital management in CCL:

Current Assets

Cash Management

Debtors Management

Inventory Management

Current Liabilities .Creditor’s Management .

Working Management in CCL is divided in 2 categories :-

Inflows

Outflows

1. SALES REALISATIONS (A) National thermal power corporation.(NTPC)(B) Damodar valley corporation. (DVC)(C) PSPCL(D) JSEB

2. Interest/Dividend Outflows. Revenue expenditure :- Salary Store Contractor Transportation etc

Capital Expenditure. Plant and machinery. Land. Building.

Investment. Fixed Deposit. Mutual Fund.

Operating cycle is the time duration required to convert sales into cash, after the conversion of resources into inventories.

The operating cycle of a manufacturing company involves three phases:

Acquisition of resources such as raw material , labour, power and fuel etc .

Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods.

Sale of the product either for cash or on credit. Credit sales create account receivable for collection.

CASH MANAGEMENT.Cash is the most liquid asset. Cash is common denominator to which all other current assets can be reduced because receivables and inventories get converted into cash. Cash is lifeblood of any firm needed to acquire supply resources, equipment and other assets used in generating the products and services. Marketable securities also come under near cash, serve as back pool of liquidity which provide quick cash when needed.

MANAGEMENT OF CASH .Although cash is only 1-3% of total current assets but its management is very important.

Management of cash includes : Determination of optimum amount of cash required in the

business. To keep the cash balance at optimum level and investment of

surplus cash in profitable manner. Prompt collection of cash from receivables and efficient

disbursement of cash.

Cash flow is the movement of cash into or out of an account, a business, or an investment over a given period. The cycle of cash

inflows and outflows plays a crucial role in a business’s financial health. It’s a sign of good financial health when cash inflows exceed cash outflows.

1.Cash flow management describes the process of anticipating and planning for cash receipts and disbursements. Cash management is the process of managing the short-term liquid resources of the business to optimize its results.

2. It’s important to understand that profit does not equal cash. Profit stems from revenue and is calculated by deducting the expenses incurred to generate that revenue in a given accrual period, regardless of whether the underlying cash flow has actually occurred or not (e.g., when a firm makes a sale, it can account for it, even though the company may have to wait 60 days for the customer to actually send a cheque) . Profit is an accounting concept derived from the income statement. Conversely, cash flow reflects the cash transactions—movement in (i.e., accounts receivable being paid) and out (i.e. accounts payable being paid) of a business in a given period.

3. Since accounts receivable don’t always line up perfectly with accounts payable, a business may confront a cash flow crunch (lack of short-term liquidity) even if the business is profitable on paper.

OBJECTIVES OF CASH MANAGEMENT : To maintain optimum cash balance.

To keep the optimum cash balance requirements at minimum level by prompt collection & late disbursement etc.

FACTORS TO BE CONSIDERED WHILE DETERMINING THE OPTIMUM CASH BALANCE: Synchronization of cash flows.

Cash shortage costs .

Excess cash balance costs .

Procurement and management costs .

Compensating balance.

Uncertainty.

Firm’s capacity to borrow in emergence.

Efficiency of Management.

Effective Cash Flow Management Technique: Identify Source of Deficit. Develop a Temporary Cash Flow Solution. Balance Future Income and Outlays to Prevent Future

Crises. CCL follows AS3, but both (direct and indirect).

INVENTORY MANAGEMENT .

Introduction

A. Inventory is those goods and materials themselves, held available in stock by a business. Most manufacturing organizations usually divide their Inventory into: Raw Materials: Materials and components scheduled for use in

making a product. Materials used in Process: Materials and components that have

begun their transformation to finished goods. Finished Goods: The goods that are ready for sale to the

consumers are finished goods. Goods for Resale: Returned goods that are salable.

B. The Significance of Inventory: For smooth Running of the business operations and uninterrupted

production, inventory is crucial. The time lag present in the supply chain from supplier to user at every

stage, requires that one maintains certain amount of inventory to use in this “lead time”.

They are required as buffers to meet uncertainties in demand, supply and movement of goods.

If the inventory is unavailable, it can indirectly hamper the productivity of the Company since their will be salary and wages procrastinations and increase in the liability.

The speculative motive of holding inventory influences the decision to increase or decrease the inventory level to take advantage of price fluctuations.

C. Inventory Management: The objective of Inventory Management is: To maintain sufficient inventory for the smooth production and sales

operations and to avoid excessive and inadequate levels of inventory. Maintain sufficient stock of raw materials in period of short supply and

anticipate price changes. Maintain sufficient finished goods inventory for smooth sales operation

and efficient customer service. Minimize the carrying cost and time. Control Investment in inventories and keep it at an optimum level.

Inventory Management in CCL: In CCL the management of the materials i.e. goods and stores/inventory is known as Materials Management. The entire gamut of materials here can be divided into two types:

a) Spares: Those materials with a higher self life used as a part of any Assembly/Sub-assembly of machine/equipment having some retain down value are known as spares. The spares are of two types:

A. Long durable sparesB. Spares that are of regular use & consumable in nature: Examples of such

type include Different Types of Filters, Break Shoes, Bearings, V-Belts, Repair Kits, Head Light Bulbs etc.

b) Consumables: Those materials that are perishable and have shorter self life are known as consumables. They do not have any written down value such as Cotton Waste, Mobiles, HSD, MS, Consumable Electrical Items, Pipe & Pipe Fittings etc.

Depending upon the application, the Materials are further classified into two categories:

a) Capital Materials: Those materials constituting capital and creating an asset for the organization are known as capital goods. At CCL, a capital register is maintained for all capital goods received/available.

b) Revenue Materials: When the materials i.e. goods or stores/spares/consumables are used for replacement of worn out part or consumable then it is known be revenue in nature.

Material Planning, Programming and Indenting:The first step of Materials Management activity in an Organization as big as CCL is planning, programming and subsequently requisition of spares and consumables i.e. materials. If the Company wishes to purchase machines or any equipments and/or the Spares & Consumables for the FY2015-16, then in the current FY2014-15, it needs to implement the aforementioned things. CCL uses the following information for planning, programming materials for a particular period:

First the area of jurisdiction is decided.

Then the consumption pattern of materials for the past three years and/or as decided in the organization is determined, the record of which is mentioned in the log books/cardex available at Central Stores, Regional Stores and at Unit Stores. All material has a stock card for record keeping there. A stock card is a kind of material ledger.

The age or life of equipment desired to be purchased is determined and care is taken that the age is under the warranty/guarantee period. If yes, there is no need for the Company to focus on buying spares of the desired equipment. Also, the number of remaining life of machine is determined.

Then the number of equipment i.e. fleet/population of equipment is determined.

Next, it is checked whether the same materials are kept in other Central, Regional and/or Unit Stores of the Organization.

Now for planned requisition of materials, there are classifications. To requisition the consumables in a financial year a duly Printed & Prescribed Form known as Material Budget is prepared which is available for the Group/Class Wise for consumables.

The materials which are consumable in nature are broadly classified hereunder:Class Material Class Description1. Engineering Material2. Consumable Stores3. Mining Supplies4. General Supplies5.0. Spare parts for underground (U/G) or open cast (O/C) mining machines

for face (actual coal cutting).5.1 Materials for transport vehicles.5.2. Spare parts for mine ventilation, fans, pumps, coal handling plants.5.3. Materials for electrical equipment5.4. Materials for workshop, mechanical plant and equipment.5.5. Materials for washer plant and equipment and ropeway.6.0. For excavation machines for digging and loading.6.1. Machines for transport6.2. Machines for levelling6.3. Material handling equipment7. Brought out spares for both U/G and O/C machineries.8. Plant and machineries.9. Unallotted.10. Scrap.

The next step of Materials Mgt. is indenting, which means requisition of materials that are required by the Company. Indents are prepared for 100% requirement of all the Plants & Equipments but these are also prepared for requisitioning the Spares & Consumables too depending upon the necessity of requirements, based on which indents are of three types at CCL:

Normal Indent Emergent Indent Emergent Indent for Local Purchase

The Indents for spares when made are signed by the Initiating Officers of the User/Technical Dept. or the Officers who have prepared the Indent. They are subsequently countersigned by the Head of the Technical Department of Indenting Unit. Such Indents are then signed by the Stores Officer or an Executive of the Material Management Department subsequent to which it is signed by the Head of

Finance Department according the mentioning of Budgetary Provisions & finally approved by the Competent Authority.

The Indents for Consumables are prepared by the Stores Executive, countersigned by the concerned Technical Department, certified for Budgetary Provisions by the Head of Finance and are approved by the Competent Authority.

Once the materials planning, programming and indenting are done, the Indents received by the different Units are being compiled at Head Office & a Consolidated Indent is prepared. The same is again approved thereof by the Competent Authority as per the Delegation of Powers and intimation of Indent Approval is accorded to Indenting Authority.

The MM functioning can broadly be categorized to undertake two important functions,

A. Purchase ManagementB. Stores/Inventory Management

1. Purchase Management in CCL: Objective: To procure plant and equipment, spares and other store materials with a view to:

a) Maintaining continuity of production by correct supplies, in time.b) Items purchased are most economic taking into account their quality,

durability, efficiency etc.c) Developing vendor relationship to ensure fair play and equity.

Adequate care is taken that the materials obtained are of:

A) Of right qualityB) In right quantityC) At the right timeD) At right pricesE) From right sources.

The Purchase Functions in CCL are normally undertaken at two levels:

Centralized Purchases: Done through Headquarter Decentralized Purchases: Done through Area/Units.

Upon receipt of the approved Material budget/Indent the function of Purchase Management starts with the drafting of NIT (Notice Inviting Tender)/Tender Notice. Normally the NIT has the following minimum important parameters which are essential for deciding a tender. The following are the Terms and conditions of the NIT:

Prices: The materials shall be purchased on unit price of the goods along with any taxes if applicable on the price quoted. Whether the quoted prices are inclusive of one or more of the aforesaid taxes and/or exclusive of one or more of the taxes or duties, the percentage of taxes are to be clearly mentioned.

The Delivery Schedule: Whether the quoted materials are to be delivered ex-stock (ready stock) or will take certain time from the date of receipt of supply/purchase order so that the material can be arranged.

Place of Delivery: There are certain salient features of purchase order without which the lowest price cannot be calculated. One of them being the place of delivery. The place may be offered by the supplier to deliver the goods either ex-warehouse, ex-shop, ex-their factory premises or FOR Destination.

Packing & Forwarding Charges: These are either inclusive in quoted price or are exclusively incurred as additional costs.

Guarantee/Warranty Certificate: A certificate of guarantee/warranty is provided by the tenderer to the effect that the offered materials against this tender are for fit for working for a period of 18 months from the date of supply or 12 months from the date of fitment whichever is earlier.

Price Certificate: The manufacturer/supplier furnishes a price certificate to the effect that the quoted price is not more than the prices quoted to other parties.

Price Fall Clause: In case of any higher price charged by the Supplier, by exercising this clause, the Company reserves the right to recover the difference of difference of price at which the supplier supplies & price quoted in the same period to other purchasers.

Material Fitment Certificate: A fitment certificate to the effect has to be furnished by the tenderer stating that the offered material(s) is/are being manufactured in accordance with its given specifications and are guaranteed for its proper fitment into the machines.

Payment Terms: The method in which payment is to be made is laid down in payment terms. The payment could be either 100% against delivery or 50% against delivery and 50% payment after satisfactory inspection of material after 7 or 21 days depending on type of supplies. Normally payments are made within 21 days after receipt, acceptance and accountal of material. Sometimes advance payment are also been agreed in case of Equipment Purchase and/or purchase of Capital Item.

Paying Authority: The name of the officer and the area where the payment will be made is also mentioned in the NIT.

Submission of Bill: The Bills of supplies in duplicate/triplicate are to be submitted along with a few other documents like copy of purchase order, copy of receipted challan, price certificate copy etc. to the consignee.

Security Deposit/Bank Guarantee: After successful bidding, CCL issues the supply order in which the tenderer has to submit a 5% or as may be decided Security Deposit in the form of Bank Guarantee. It is however released after successful supply, acceptance and given performance guarantee on accountal of the material.

Inspection Authority: The Name of the Competent Inspection Authority is usually mentioned in the NIT.

Earnest Money Deposit: The NITs may or may not be attracting the EMD Clause. However, some Manufacturers are exempted from this clause having NSIC Certificate and/or enjoying the Ancillary Status of the Company.

Consignee Details: Incorporated with the details of Company’s Consigness.

After receipt of Financially Concurred & Approved Indents/ Materials Budgets, the mode of tendering are being decided which may be of the following types:

A. Open Global Tender: Anyone around the Globe can participate in the Tender.

B. Open Domestic Tender: Anyone within Country can participate into the Tender.

C. Limited Tender: Only few parties can quote the tender. D. Single Tender for Proprietary & Non-proprietary Items: Issued only to

a selected Firms. When the Company understands that there is only one manufacturer source of Proprietary Nature and/or also in case of Original Equipment Manufacturer the Single Tenders are being issued. Sometimes only in special cases after specific approval by the Competent Authority, some Branded Materials are being procured under Single Tendering System Viz. Godrej Furniture, IPads etc.

The NIT has three important bidding parts, Technical Part, Commercial Part & Price Part. Normally the Tenders are invited in Two Bid System. One is Techno-Commercial Part & another contains Price Part. In fact the CCL exercises all three

types of Bidding System as detailed below depending upon the material type, its urgency etc:

a) Single Bid System: All the three parts of NIT are consolidated in one tender.b) Two Bid System: Technical and commercial parts are consolidate in one

tender and pricing in the next one.c) Three Bid System: All three parts are tendered separately.

Upon receipt of Offers from the Vendors against Tenders, after opening of First Part of the Offers submitted and/or as the case may be, a Techno-Commercial Comparative Statement and Evaluation Report is prepared. The Price Part is subsequently opened only for Techno-Commercially Qualified Bidders in Two or Three Bid System. A Comparative Price Statement is prepared having full details of Taxes, Packing & Forwarding Charges, Duties, Delivery Point etc to arrive at the Lowest Landed Cost (also commonly known as L1 Price) item wise & firm wise. After approval by Competent Authority & Budget Certification/Financial Concurrence, finally the Contract/Purchase Order is issued. The Contract/Purchase Order is of three types:

A. Normal Purchase Order: Placed for delivery of Goods & Services at the earliest in accordance with the Terms & Conditions as laid down in the said Contract.

B. Rate Contract: Under this the prices and terms and conditions are fixed and are applicable/valid for a period of 1 to3 years. The Area Direct Demanding Officers exercises for their as and when required basis item procurement by using the Rate Contract.

C. Depot Agreement: This is more or less like the Rate Contract with the addition that the Manufacturer/Supplier has to keep all the materials off the shelf for which Depot Surcharge are payable extra.

2. Stores Management in CCL: Structure of Stores : For safe, secure and logistic control of stores and inventories in an organization like CCL there are three tier arrangements for stores management:

A. Central Stores: Normally only one Central Stores in CCL is located at a central place to cater the bulk need of different areas/regions of the Company of the centralized nature of items.

B. Regional/Area Stores: For maintaining a better administrative control, CCL has administrative regions/areas headed by the Area GM. Each area/region normally has more than one mine under its control of both OC and UG mines category. All such areas have Regional/Area Stores which are responsible to cater the entire stores and inventory requirement of the Unit/Charged Off

Stores. This unit/charged off stores ultimately issue the stores and inventory to the production unit attached to them. Such consuming mines have different grade of consumers like unit/colliery workshops, mines, automobile garages etc. The head of the Regional Stores known as Direct Demanding Officers as well as their normal functioning as Regional Stores officers. The Regional Stores Officers also responsible for the collection of materials from the Company’s centralized consigning i.e. the Central Stores catering need for units attached to them.

C. Unit/Charged off Stores: It is responsible for collection of materials from Regional Stores of the Area who ultimately issues the stores, spares & consumables to the ultimate users attached to the unit i.e. the different sub units of the mine. The store spares and consumable of these Units/Charged Off Stores are not taken into account of Inventory Valuation and are being treated as charged/used off and that is why the Unit Store also known as Charged Off Stores.

In all such Central, Regional and Unit Stores there are following important sections:

1. Purchase Section2. Material Receipt Section3. Material Storage/Issue Section4. Accounts Section5. Material Disposal Section.

Each Section are normally headed by a Section Incharge which are Sr. Stores Keepers subordinated by Assistant Store Keepers, Store Issue Clerks and labours. The account section is headed by either an Account Officer or Accountant.

Against the given supply order and/or Rate Contract/Depot Agreement, the vendor supplies the material to the Consignee Stores. Normally the supplier delivers the material along with some documents like copy of invoice in duplicate, copy of delivery challan in duplicate, fitment certificate etc. And/or any other document directed in accordance to the supply order like copy of excise gate pass, copy of octrai receipt etc.

As soon as the material is received after unloading into stores premises, the same are kept into the Stores Receipt Section. The personnel of this section after manual counting and inspection signs the delivery challan and return s a copy of challan as a token of material receipt back to the supplier.

Afterwards the details of the materials are recorded in the day book/daily receipt register wherein the entire details of the received material as per

delivery challan are being recorded and subsequently an inspection invitation advice to the concerned technical department is issued.

After receipt of inspection invitation letter, the concerned inspecting authority visits and inspects the received material in accordance to the supply order and delivery challan and subsequently submit the satisfactory inspection note, if satisfied.

Subsequently the Stores Keeper prepares the Store Receipt Voucher (SRV) also known as Daily Receipt Register (DRR) where all the details mentioned in Day Book is also recorded. The DRR/SRV is in four copies. The first copy is meant for the preparing authority i.e. stores receipt section, the second copy is meant for finance department for making payments, the third copy is used for data entry and the fourth is retained by the stores issue section.

The SRV/DRR is signed by the stores keepers of receipt section, store keepers of storage/issue section, chief store keeper and is finally accepted by the stores officer.

Storage/Issue Section: In this section the duly received, inspected and accepted materials are being

handed over by the store receipt section with SRV/ DRR.

The Issue Section Incharge physically receives the material in accordance with details of SRV/DRR and after due recording and signature in cardex/ stock card, the materials are being placed/stored at its designated location/bin. A Bin Card having locational details of individual receipt are being tagged on each and every stores received by Issue Section.

The Issue Section Incharge put their signature on SRV/DRR as token of safe/ undisputed received of stores and spares and returns the DRR/SRV’s back to the Receipt Section. The Receipt Section forwards the SRV to the Chief Stores Keeper who after being satisfied with available documents and transactions records signs and forward the same to the Stores Officer for final acceptance of the material received.

After due authentication by the Stores Officer Incharge, the SRV are forwarded the Stores Finance Section for settlement of payments/accounting of Bills as the case may be.

The storage/issue section are having immense custodial responsibilities of all the inventories under their control. The periodical physical verification of sample materials or a part of stores, cleanliness, dust separations, prevention

of theft, temperature control etc. are some of the normal vigilance function of the Incharge of the storage/issue section.

Now the Authorized Officer of Technical Department get the material issued by furnishing the Stores Requisition Voucher.

Subsequently the Stores Issue Section Incharge after being satisfied with the Authorization, issues the required material to the users after due posting in the stock card/ cardex. Finally at the end of the day all such stores requisition/issue vouchers after having signs of CSK are submitted to Associated Stores Finance Section for material accounting.

The material transferred from Central to Regional Store is made by Depot Transfer Document applicable to both inter Company & Intra Company. The Issued materials are returned back to the Stores by way of Stores Return Vouchers.

For maintaining the Supply Chain Management System for both spares and consumables of an effective Inventory Management and Control System, following important evaluation analysis are being exercised by Store Executives in close cohesion with the Technical Department so that a situation of non availability of fast moving spares and consumables can be avoided and a smooth reordering level are maintained on one hand and avoiding the inventory built up on the other. Thus a situation of inventory mounting could be ruled out in order to maintain Company’s norm. As per CCL’s Inventory Norm, the inventory carrying cost should not be more than six months stores consumption. The store budgets are provided under four heads:

1. Timber2. Petrol (Motor Spirit), Oil, Lubricants3. Explosives4. General Stores i.e. spares and consumables.

Now, the budgetary allocation is made in the aforementioned four heads in the mining industry.In order to give 96% store satisfaction i.e. 96% of all requisitioned item by the technical department has to be off the shelf. Anything below 96% is “bad inventory” management. For Eg. if requisitioned items delivered are only 90% satisfaction lavel, then the store satisfaction is lower by 6%.

It is nearly impossible to achieve 100% store satisfaction by maintaining any amount of inventory management. Depending upon movement, (issue history of items and applicability of items the spares, assemblies and subassemblies can be categorised hereunder:

1. The fast moving stores and spares.

2. Medium moving stores and spares.3. Slow moving stores and spares4.4. Float items: Float items are those that are mandatorily required by the

machine in case of failure of any assembly or subassembly, it is an integral that needs to be replenished where the repairing time of assembly/subassembly are higher even when the spares are available.

5. Float items of insurance in nature: Insurance items are those which may or may not be required throughout the life of the equipment.

Accounting Standard (AS)-2 (Valuation of inventories)The objective of this standard is to formulate the method of computation of cost of inventories/ stock, determine the value of closing stock/inventory at which the inventory is to be shown in the balance sheet till it is not sold and recognized as revenue. This statement deals with the determination of such value, including the ascertainment of cost of inventories and any write down there off to net realizable value.

Standard methods of Inventory valuation used: Some commonly used methods of inventory valuation are as follows:

LIFO (Last in First Out): The items purchased most recently is assumed to be the first item sold.

FIFO ( First in First Out): The first item purchased is assumed to be the first item sold

Weighted Average Method: The average cost per unit of inventory i.e. the ratio of the total cost of goods available for sale and the total quantity available for sale is applicable in case of weighted average method of valuation of inventory.

Valuation Method used in CCL: CCL uses the weighted average method for valuation of its inventories.

Method of Analysis of Inventory: There are four kinds of normal analysis which are exercised for an effective inventory management control:

1. ABC Analysis: Such type of analysis depends on the movement of any spares/ consumables i.e. fast and medium pace moving item. It is a movement based analysis system of material control. In this technique, material is analyzed according to their movement so that the fast moving materials are given greater attention and care. All items are classified according to their movement i.e. high, medium and low moving which are known as A, B and C items respectively.

2. XYZ Analysis: Such type of analysis depends on the movement of any spares/ consumables i.e. slow pace moving item.

3. HML Analysis: It is High, Medium and Low Value Stores Analysis.4. VED Analysis: Vital, Essential, and Desirable items are kept under this

category.

For example: A high moving item like Repair Kit RK 2008 has an opening stock of 20, with 200 as received stock, 180 as issued and 40 as closing stock. Since the item has high usage frequency it is an “A” material, A “high moving” item and a “critical/vital” item. Hence it can be concluded using the above four analysis that the item is of high priority.

We take another example of Caterpillar Dumper Brake Bearing Assy. It is a slow moving (C), high valued (H), vital (V) item and hence is high priority. By making such exercises and analysis, CCL decides upon the reorder quantity.

Disposal Function: The MSTC i.e. Metal & Scrap Trading Corporation, a GOI Organisation takes

care the disposal of old materials of CCL. If the material is unused and stocked up without reason, it is to be disposed off. For this there are a few steps:

First a Survey Off Report is made for Disposal having the details of material description, material quantity, weight, location, Written Down Value, Reserve Value etc having the signature of Stores Officer, User Department, Associated Finance & General Manger.

Issues: Among the most important and major problem with regards to the inventory management system of CCL are highlighted hereunder:

Normally due to uniqueness and different make and models (varieties) coupled with poor standardization of the equipments, the Company is under compulsion to maintain a higher inventory carrying cost against its own norms of six months consumption.

Due to obsoleteness of the equipment, the left out inventories of the related equipment becomes a burden for the organization and leads again to more inventory carrying cost.

Sometimes due to a wrong planning, programming and indenting, poor ABC, XYZ, VED and HML analysis in the absence of poorly maintained records and/or negligence, non application of judicious mind, the inventories shoots up and thus leads to higher inventory carrying cost.

Due to the non implementation of standardised material codification system and also non implementation of online inventory management system for the entire Company, the materials available at one location required at other locations are not properly being utilised which results in a higher inventory at one location and becomes an emergent requirement at another location.

Due to the non availability of genuine and proper cross reference list of OEM’s parts number with the OCM part number, at many times even though the materials available in the same stores and/or other stores having the OCM part number, could not be identified to be used as an exact OEM’s part number.

Recommendations:There must be strict norms for standardised code and proper reference list of plant machineries part numbers for all the equipments of Company. This will not only help in universality of language between subsidiaries but also reduce the inventory carrying cost of those goods rusting as stored inventory in Company A and demanded by Company B. For example if Company B which is a subsidiary of the same parent Company of CIL, suddenly requires a Heavy Earth Mining Machinery Spare due to an unforeseen breakdown but is unable to get it repaired or buy a new one quickly and in turn hampering the process of Overburden Removal in one of the mines, then the HEMM Spares kept unused in another subsidiary may be utilized for the need of its sister Company. But often the subsidiaries including CCL face the problem of identification of HEMM spares due to difference in coding methodology of the same machine by different subsidiaries causing further delay. To avoid this if the material code is universal, there will be no discrepancy in HEMM Spares and other goods identification and the emergencies can be met with ease and resources of companies effectively utilized.

In phase one, intra-area online sharing of all information within units and regional stores should be done. In phase two, Inter India connectivity from one regional to each regional store and in phase three, one regional store to central stores connectivity should be done. And finally in phase four, one subsidiary of CIL should to be linked digitally with another subsidiary. This will provide faster communication between sub parts of CIL and also reduce delays due to non or miscommunication. This will also solve the problem of wrong indentation, programming and planning because of maintenance of proper records in dematerialized form.

The Inventory of Finished Goods

The Company has following types of Coal or Coke for Sale into the Market:

A. Coking Coal.B. Semi-Coking Coal.C. Non Coking Coal.D. Washed Coking Coal.E. Washed Semi & Non-Coking Coal.F. Washery Rejects.G. Washery Middling Coal.H. Washery Slurry Coal.

After completion of one production cycle or time period, normally all such types of Coal are being measured with help of Company’s Surveyors with the application of modern equipments like Total Stations. The Coal is despatched through Road and/or Rail Transport. The Comapny arranges the availability of Railway Racks in co-ordination of Department of Indian Railways for its Bulk Consumers recorded under FSA and their Consumers of Core Sector. The e-auction Coal is delivered to the purchasers both by Rail or Road. The Company is able to reduce its Coal Stock Year on Year.

Debtors management.Meaning of Debtor management

Debtor management means the process of decisions relating to the investment in business debtors. In credit selling, it is certain that we have to pay the cost of getting money from debtors and to take some risk of loss due to bad debts. To minimize the loss due to not receiving money from debtors is the main aim of debtor management. 

Main elements of Debtors management:For effectual debtor management, accompanying elements had better be probed:

1. Credit policy

Credit policy imapcts debtor management since it channelizes management regarding controlling debtors and to make equilibrium among freehanded and rigorous credit. If business firm does not meet requirements to sell the productions on credit after a provided restriction of sale. This released credit

policy will elicit the quantity of profitableness and sale. But risk will also increase with enhancing of sale. If capitalist trade the commodity to those debtors whose potentiality to compensate is not beneficial, then it is potency that roughly some quantity will turn bad debts. Business firm can raise the time limit for compensating by such debitors. On the other hand, if business firm's credit policy is rigorous, then it will raise security and liquidity, but diminish the profitableness. Thus, finance official had better devise credit policy at optimum level where liquidity and profitableness will be equal. Capitalist can demonstrate it graphically.

(a) Length of Credit periodLength of credit time period is also an important element that affects the conclusions of finance officer associated with the manage debitors. It is the time which permits debtor to render his debt for purchasing goods on credit from marketeer. Finance official can attribute the length of credit period agreeing with the approximation of clients.

(b) Cash discountCash discount is method to acquire wealth quick from debtors. It is monetary value of investment funds in credit sale.

2. Credit policy analysis

It refres to the formal unfavorable judgment of credit policy. Rating and analytic thinking of credit policy is based on following components.

(a) Gathering debtor's dataFor investigation of the financial position of debitors, capitalist have to gather the data. This data can be incurred from financial statements of the former years of the customer's bank reports and data provided by credit rating agencies. This data will be practicable for determining where debitors will come in the financial obligation or not. It will also be utilitarian for experiencing capableness to compensate the financial obligation.

(b) Credit DecisionsAfter aggregation and analysis the debitors data, manager has to determine whether business firm had better facilitate to trade commodities on credit or not. If business firm trades the goods on credit to peculiar debtor, then at what level it will be traded after checking his perspective. For this finance manager can fix the monetary standard for rendering goods on credit entry. If a peculiar debtor is underneath than applied standard, then it had better not admit the proposal of purchasing goods on credit.

3. Formulation Collection Policy

For acquiring fund quickly from debtor, the following steps will be acquired under formulation of accumulation policy.(a) Carry reminding letter for compensating debt(b) Take the assistance of debt collection authority for acquiring bad debt.(c) To do effectual legal action against bad debitors.(d) Appeal in person to debitor to compensate his dues on email or mobile(e) Finance manager had better supervise collection position via moderate accumulation period from past miscellaneous debtor and their turnover rate.

Slow payment has a incapacitating effect on business, in detail on small businesses who can least yield it. If capitalist do not handle debitors, they will begin to deal the business as capitalist will step by step lose check due to cut down hard currency flow and definitely capitalist could go through an raised relative incidence of high-risk debt. The accompanying points determines will assist in managing the debitors:

1. Have the correct mental attitude to the check of credit and make certain that it acquires the anteriority it is worthwhile.

2. Demonstrate absolved credit exercises as a subject of business firm policy.

3. Make certain that these exercises are distinctly understood by suppliers, customers and staff.

4. Be professional person when consenting new bills, particularly more prominent ones.

5. Check out each client tremendously before capitalist suggest credit.

6. Determine credit limits for each customer.

7. Ceaselessly look back these limitations when capitalist distrust tough times are coming or if operating in a explosive sphere.

8. Accommodate very close lipped to the more prominent customers.

9. Bill is in right away and distinctly.

10. Believe charging penalizations on delinquent accounts.

11. Believe assuming debit/ credit cards as a defrayment alternatives.

12. Prompt the debtor counterbalances and maturating timetables and do not allow any debts get too prominent or too outdated

Cash basis: Sells coal to private parties like TISCO, IISCO.

Only 10% cash received

Credit basis: 90% coal is sold on this basis.

Only for government parties.

Power sectors: DVC, JSEB, PSEB, HSEB, UPRVUNL

Steel sectors: SAIL, BSP, BSL, RSP, DSP.

Other sectors: defense, cement, fertilizer.

Problems faced by CCL in dues payment system.

• Quantity problems • Difference in goods quantity supplied by CCL and received by the party.

• Quality problems • CCL supplies C, D, E grade of coal in various industries.

• Party’s blame- it received E grade coal while CCL supplied D grade coal.

• Others. • Moisture

• Stowing

• Settlement of disputes:

• Eastern umpire

• Western umpire

• Northern umpire

• Southern umpire

Findings.SLC decides the supplying colliery, the party, the supply date and quantity.CCL black list the parties for certain duration which are not capable of clearing their disputes.CCL stopped the supply to BSEB for last few years due to delay in payments and misbehavior of BSEB officers.CCL is not responsible for the goods which are damaged during the guarantee period.CCL rejects the equipments/machines which fail to meet the quality standard and doesn’t make payment.Delay in delivery of goods by the suppliers leads to reduction in payment amount by 5% per week. This reduction limited to 10% but may reach 15%.

Findings.CCL mainly follows cash flow projection and budget for cash planning and control. Cash flow projection is also used to determine the optimum cash balance of CCL.

CCL has not faced any kind of liquidity crunch in last 5 years, indicates CCL maintains a sufficient cash balance.

No bank loans to fulfill its working capital needs -> CCL has enough cash balance to fulfill its day to day requirement of cash.

CCL has taken a loan from the world bank to fulfill its fixed capital requirements.

Recommendations.For Cash Management.

Maintain certain cash balance to meet sudden heavy demands. Regular and full bank reconciliation statement and cheque

investigations. Prepare the invoice documents immediately after the dispatch

and mail them to the clients at the earliest. Accelerate the collection by reducing the lag between the time

a customer pays the bill and the cheque is collected. Ensure the proper demarcation between the duties of the

individuals who receive cash and those who record the receipt of cash to avoid misappropriation of cash.

For Inventory Management. Better coordination among various department namely

purchase, marketing and finance to help achieve greater efficiency.

Simplify the procedures for disposing obsolete and use ideas like JIT.

Develop long term relationship with vendors for improving quality and quantity of inventory.

Try to strike a trade off between the ordering and carrying cost of inventories.

For Debtors Management. Maintain proper mutual understanding with customers

regarding credit period and timely payment. Arrange for the periodic bilateral meetings.

Maintain proper negotiations for the quality and price of coal. Appoint umpires to settle down the disputes regarding quality, quantity and price.

Assign top management to set proper standard and practices of debtors management to take proper action in order to collect the old outstanding dues.

Be careful about choosing the right kind of collection policies. Start securitization scheme for all the states so as to clearvthe

outstanding dues through long term bounds.

Conclusion.There are many problems faced in working capital management. However , after following suggested recommendations ,CCL can not only get more business benefit but can also approach towards gaining qualitative advantage.

BIBLIOGRAPHY

1. M.Y. KHAN, P.K.JAIN (1981), Financial Management, and Cost Accounting (third edition) New Delhi: McGraw – Hill publishing company limited.

2. I.M.PANDEY.Financial Management New Delhi Vikas publishing house private Ltd – ninth addition 2004 3. Financial Management COMPANY DATA: Sale & Other Data of Central coalfields limited, WEBSITES www.google.com , www.ccl.gov.in .