Upload
solitudesnake
View
5
Download
1
Tags:
Embed Size (px)
DESCRIPTION
snake's collections
Citation preview
INVETORY MANAGEMENT
INTRODUCTION
Page 1
INVETORY MANAGEMENT
CHAPTER-1
1.1 INTRODUCTION
Every business needs adequate liquid resources in order to maintain day-to-
day cash flow. It needs enough cash to pay wages and salaries as they fall
due and to pay creditors if it is to keep its workforce and ensure its supplies.
Maintaining adequate working capital is not just important in the short-term.
Sufficient liquidity must be maintained in order to ensure the survival of the
business in the long-term as well.
Even a profitable business may fail if it does not have adequate cash flow to
meet its liabilities as they fall due.
Therefore, when businesses make investment decisions they must not only
consider the financial outlay involved with acquiring the new machine or the
new building, etc, but must also take account of the additional current assets
that are usually involved with any expansion of activity.
Increased production tends to engender a need to hold additional stocks of
raw materials and work in progress. Increased sales usually mean that the
level of debtors will increase. A general increase in the firm’s scale of
operations tends to imply a need for greater levels of cash.
Then we should know, why should the managers of a business pay special
attention to working capital?
Page 2
cash
raw material
wip
finished goods
sales
debtors
INVETORY MANAGEMENT
Management must ensure that a business has sufficient working capital. Too
little will result incash flow problems highlighted by an organization exceeding
its agreed overdraft limit, failing topay suppliers on time and being unable to
claim discounts for prompt payment. In the long run, abusiness with
insufficient working capital will be unable to meet its current obligations and
willbe forced to cease trading even if it remains profitable on paper.
On the other hand, if an organization ties up too much of its resources in
working capital it willearn a lower than expected rate of return on capital
employed. Again this is not a desirable situation.
The three components, which put affects on working capital, are as:
1. Inventory
2. Receivable
3. Cash
Operating cycle
Page 3
INVETORY MANAGEMENT
For a manufacturing company like; steel industry; cement industry and many
other manufacturing companies, Inventory management is the most crucial
part for the organization.
Inventories which may classified as:
1. Raw material
2. Work-in-progress
3. Finished goods
Whereas receivable and cash management can be done after sales but
inventory management must be done before sale. It requires appropriate
forecasting of production and sales. As it is based on forecasting, so it
becomes difficult task for any financial manager for any organization.
Inventory Management must be designed to meet the dictates of market place
and support the company’s Strategic Plan. The many changes in the market
demand, new opportunities due to worldwide marketing, global sourcing of
materials and new manufacturing technology means many companies need to
change their Inventory Management approach and change the process for
Inventory Control.
Inventory Management system provides information to efficiently manage the
flow of materials, effectively utilize people and equipment, coordinate internal
activities and communicate with customers.
Page 4
INVETORY MANAGEMENT
Inventory Management does not make decisions or manage operations; they
provide the information to managers who make more accurate and timely
decisions to manage their operations.
The Inventory Management system and the Inventory Control Process
provides information to efficiently manage the flow of materials, effectively
utilize people and equipment, coordinate internal activities, and communicate
with customers. Inventory Management and the activities of Inventory Control
do not make decisions or manage operations; they provide the information to
Managers who make more accurate and timely decisions to manage their
operations.
The basic building blocks for the Inventory Management system and Inventory
Control activities are:
1) Sales Forecasting or Demand Management
2) Sales and Operations Planning
3)Production Planning
4)Material Requirements Planning
5)Inventory Reduction
If we see for TATA STEEL, company is maintaining more than 5% inventories
in their hand. Also the company consuming raw material more than 20% of
sale value in the last year. So inventory management is one of the essential
for the organization.
1.2 MAJOR TYPES OF INVENTORY
Page 5
INVETORY MANAGEMENT
Raw material
Raw materials are inventory items that are used in the manufacturer's
conversion process to produce components, subassemblies, or finished
products. These inventory items may be commodities or extracted materials
that the firm or its subsidiary has produced or extracted. They also may be
objects or elements that the firm has purchased from outside the organization.
Even if the item is partially assembled or is considered a finished good to the
supplier, the purchaser may classify it as a raw material if his or her firm had
no input into its production. Typically, raw materials are commodities such as
ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food
items. However, items such as nuts and bolts, ball bearings, key stock,
casters, seats, wheels, and even engines may be regarded as raw materials if
they are purchased from outside the firm.
Work-in-process
Work-in-process (WIP) is made up of all the materials, parts (components),
assemblies, and subassemblies that are being processed or are waiting to be
processed within the system. This generally includes all material—from raw
material that has been released for initial processing up to material that has
been completely processed and is awaiting final inspection and acceptance
before inclusion in finished goods.
Any item that has a parent but is not a raw material is considered to be work-
in-process. A glance at the rolling cart product structure tree example reveals
that work-in-process in this situation consists of tops, leg assemblies, frames,
legs, and casters. Actually, the leg assembly and casters are labeled as
Page 6
INVETORY MANAGEMENT
subassemblies because the leg assembly consists of legs and casters and
the casters are assembled from wheels, ball bearings, axles, and caster
frames.
Finished goods
A finished good is a completed part that is ready for a customer order.
Therefore, finished goods inventory is the stock of completed products. These
goods have been inspected and have passed final inspection requirements so
that they can be transferred out of work-in-process and into finished goods
inventory. From this point, finished goods can be sold directly to their final
user, sold to retailers, sold to wholesalers, sent to distribution centers, or held
in anticipation of a customer order.
1.3 HISTORY OF INDIAN STEEL SECTOR
Steel is an important indicator to analyze the economic development of a
country. The steel industry is highly scientific and technology oriented.
Technological advancement is very important for the overall health of the steel
industry.
Indian Steel Industry
During Ancient Period
The history of iron and steel making in India goes back by several centuries. It
dates to 480 BC when archers in India used arrows tipped with steel. The iron
pillar of Dhar near Indore in Madhya Pradesh dates back to about 321 AD, the
iron pillar of Kutab Minar near Delhi dates back to about 400 AD and the iron
Page 7
INVETORY MANAGEMENT
beams of Sun temple of Konark in Orissa dates back to 13th century. These
pillars are a testimony to ancient India's expertise in the making of steel.
Before Independence
The roots of the Indian Steel industry in modern times can be traced to the
year 1874, when a company called Bengal Iron works at Kulti near Asansol in
West Bengal produced iron. One of the most important landmarks in the
history of Indian steel industry was the commencement of the Tata Iron and
Steel Company at Jamshedpur in the state of Bihar in 1907.The other
prominent steel manufacturers before independence were Indian Iron and
Steel Company (1922),Mysore Iron and Steel Works(1923) and Steel
Corporation of Bengal (1937).
After Independence
India found it difficult to sustain development in steel sector after
independence on its own due to the lack of technological development. The
high cost of developing technology in this sector proved to be a major
hindrance. That's when the government decided to go for synergy with other
countries for technology transfer. Some of the prominent steel plant set up
then was in Rourkela in collaboration with West Germany and in Bokaro in
collaboration with Russia. These steel plants came under the purview of
public sector enterprises.
Post Liberalization
Page 8
INVETORY MANAGEMENT
The post liberalization scenario in the Indian Steel industry has witnessed a
monumental shift. Some of the salient features are:
The need for license for increasing capacity has been abolished.
Steel industry has been removed from the list of Industries under the
control of state sector.
Foreign equity investment in steel has gone up to 74%.
In January 1992 the price and distribution controls were removed.
Policies like convertibility of rupee on trade account, freedom to
mobilize resources from overseas financial markets and restructuring
of existing tax structure have immensely benefited the industry.
Future trends
It has to be said that the global recession has affected the Indian steel
industry especially stainless steel, but the steel industry is trying to offset
the negative effect of the recession by focusing on transportation and
construction projects which are usually funded by the government.
India is the only country globally to record a positive overall growth in
crude steel production at 1.01 per cent for the period January -March
2009.
It is estimated that India's steel consumption will grow at nearly 16%
annually till 2012.
The National Steel Policy has forecasted the demand for steel would
reach 110 million tons by 2019-2020.
Page 9
INVETORY MANAGEMENT
1.4 SCENARIO OF PRESENT STEEL INDUSTRY IN INDIA
The Indian steel industry have entered into a new development stage
from 2005-06, riding high on the resurgent economy and rising demand
for steel. Rapid rise in production has resulted in India becoming the 5th
largest producer of steel.
It has been estimated by certain major investment houses, such as
Credit Suisse that, India’s steel consumption will continue to grow at
nearly 16% rate annually, till 2012, fuelled by demand for construction
projects worth US$ 1 trillion. The scope for raising the total consumption
of steel is huge, given that per capita steel consumption is only 40 kg –
compared to 150 kg across the world and 250 kg in China.
The National Steel Policy has envisaged steel production to reach 110
million tonnes by 2019-20. However, based on the assessment of the
current ongoing projects, both in Greenfield and Brownfield, Ministry of
Steel has projected that the steel capacity in the county is likely to be
124.06 million tonnes by 2011-12. Further, based on the status of MOUs
signed by the private producers with the various State Governments, it is
Page 10
INVETORY MANAGEMENT
expected that India’s steel capacity would be nearly 293 million tonne by
2020
Production
Steel industry was delicensed and decontrolled in 1991 & 1992
respectively.
Today, India is the 7th largest crude steel producer of steel in the
world.
In 2008-09, production of Finished (Carbon) Steel was 59.02 million
tonnes.
Production of Pig Iron in 2008-09 was 5.299 Million Tonnes.
Last 5 year's production of pig iron and finished (carbon) steel is given
below:
(in million tonnes)
Category 2005-06 2006-07 2007-08 2008-09 2009-10
Pig Iron 3.228 4.695 4.993 5.314 5.289
Finished Carbon Steel 40.055 44.544 55.416 58.233 59.02
(Source: Joint Plant Committee)
Demand - Availability Projection
Demand – Availability of iron and steel in the country is projected by
Ministry of Steel annually.
Page 11
INVETORY MANAGEMENT
Gaps in Availability are met mostly through imports.
Interface with consumers by way of a Steel Consumer Council exists,
which is conducted on regular basis.
Interface helps in redressing availability problems, complaints related
to quality.
Steel Prices
Price regulation of iron & steel was abolished on 16.1.1992. Since then
steel prices are determined by the interplay of market forces.
There has been an up-trend in the domestic steel prices since 2006-07
and the trend accentuated since January this year.
Rise in raw material prices, strong demand in the international and
domestic market and up-trend in the global steel prices have been
some of the reasons cited by the industry for increase in the steel
prices in the domestic market.
The mismatch in demand and supply is considered to be the main
reason on the demand side for the rise in steel prices. Honorable Steel
Minister has held discussion with all major steel investors including
Arcellor-Mittal, POSCO, Tata Steel, Essar, Ispat and also SAIL, RINL
to explore the possibility of expediting the ongoing as well as
envisaged steel projects.
The Government also took various fiscal and other measures for
stabilizing the steel prices like exempting pig iron, non alloy steel and
steel making inputs like zinc, ferro-alloys and met coke from customs
duty; withdrawing DEPB benefits on export of various categories of
Page 12
INVETORY MANAGEMENT
steel products and bringing back railway freight on iron ore from
classification 180 to 170 for domestic steel producers.
In May 2008, the Government imposed 15% export duty on semi-
finished products, and hot rolled coils/sheet, 10% export duty on cold
rolled coils/sheets and pipes and tubes and 5% export duty on
galvanized steel in coil/sheet form in order to further curtail rising prices
and increase supply of steel in the domestic market.
Imports of Iron & Steel
Iron & Steel are freely importable as per the extant policy.
Last five years import of Finished (Carbon) Steel is given below:-
Year Qty. (In Million Tonnes)
2005-2006 2.109
2006-2007 3.850
2007-2008
(Partly estimated)
4.436
2008-09 6.581
2009-2010
(Partly estimated)
5149
(Source: Joint Plant Committee)
Exports of Iron & Steel
1. Iron & Steel are freely exportable.
Page 13
INVETORY MANAGEMENT
2. Advance Licensing Scheme allows duty free import of raw materials
for exports.
Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate
exports. Under this scheme exporters on the basis of notified
entitlement rates, are granted due credits which would entitle them to
import duty free goods. The DEPB benefit on export of various
categories of steel items scheme has been temporarily withdrawn from
27th March 2009, to increase availability in the domestic market.
Exports of finished carbon steel and pig iron during the last five years
and the current year is as :
(Source: Joint Plant Committee)
Page 14
Exports (Qty. in Million Tonnes)
Year Finished (Carbon) Steel Pig Iron
2005-2006 4.381 0.393
2006-2007 4.478 0.440
2007-2008
(Prov.estimated)
4.750 0.350
2008-2009 4.627 0.560
2009-2010
(Prov.estimated)
3.482 0.350
INVETORY MANAGEMENT
CHAPTER-2
Company profile
Present scenario of TATA steel
The Tata Steel Group has always believed that mutual benefit of countries,
corporations and communities is the most effective route to growth. Tata Steel
has not limited its operations and businesses within India but has built an
imposing presence around the globe as well. With the acquisition of Corus in
2008 leading to commencement of Tata Steel's European operations, the
Company today, is among the top ten steel producers in the world with an
existing annual crude steel production capacity of around 30 million tonnes
per annum and employee strength of above 80,000 across five continents.
The Group recorded a turnover of Rs.147, 329 Crores (US$ 28,962 million) in
2009 - 2010. The Company has always had significant impact on the
economic development in India and now seeks to strengthen its position of
pre-eminence in international domain by continuing to lead by example of
responsibility and trust. Managing a global workforce and setting global
benchmarks is primarily about managing diversity. In a process of inclusive
growth, every person contributes to the blueprint of the future and is truly
committed to the stated objectives. And one of the key requisites for
successful diversity management is a shared vision.
Page 15
INVETORY MANAGEMENT
HISTORICAL ACHIEVEMENT OF TATA STEEL
Below is a chronological list of major business decisions in the history of Tata
Steel ltd.
1907
The Tata iron and steel company was formed at Mumbai.
1917
During the year 1, 50,000 equity shares were issued at par and 26,250
deferred shares were issued at a premium of Rs.370 per share.
1973
With the effect from 1st April, the wholly owned subsidiary, West
Bokaro Ltd. was amalgamated with the company.
1983
During the year Indian tube company Ltd. was amalgamated with the
company.
During the year Tata steel agreed to purchase the bearing
manufacturing plant of Metal box India of Kharagpur.
1985
With the effect from 1st October, Indian Tube co ltd. was amalgamated
with TISCO.
Page 16
INVETORY MANAGEMENT
1987
On 2nd March, 300000 tonnes capacity bar and rod mill costing about
Rs.78 crores was commissioned under the second phase of
modernization.
On 11th August, approval were received for investment of Rs. 16 crores
in the capital of Tata Timken ltd. , a company promoted by Tata steel.
1988
During the period the company, installed a new sinter plant with a
capacity of 1.3 million tones per annum.
1992
During the year company privately placed with UTI, LIC, Army group
insurance fund and GIC and its subsidiaries 17.5% non-convertible
debenture worth Rs.185 crores.
1995
30,018,246 no. of equity shares allotted to Tata sons ltd. and their
associate companies on exercise of warrant held by them.
1997
Tata steel’s international trading division was awarded the prestigious
ISO-9002 certification by the Indian Register Quality System (IQRS).
Page 17
INVETORY MANAGEMENT
2000
Tata steel, the flagship of Tata group, has entered into understanding
with Tata International to export 30% of production at Tata steel
major’s new 1.2 million tones cold rolling in Jamshedpur.
Tata steel has tied up with the POSCO-Hyundai steel processing
venture located in Chennai for getting its cold rolled coil process.
Tata steel has launched its largest branded steel product. Tata Tiscon,
a specially construction grade steel, which will be available in the retail
market.
2001
Tata SSL has become a subsidiary of Tata Iron and steel company,
following a successful open offer to the shareholder of TSSL.
2002
TISCO entered into a power distribution business. TISCO has began
distribution power in Jamshedpur.
2008-09
Jamshedpur plant’s crude steel making capacity from 6.8 mtpa to 9.7
mtpa, at an estimated cost of Rs.13,900 crore. The scheduled date for
completion of the project is April 2011.
Page 18
INVETORY MANAGEMENT
Projects and operations: India
The Tata Steel Group’s growth and globalization strategy is driven by its
business expansion while maintaining profitability and mitigating risks. The
Tata Steel Group over the years has focused on enhancing raw material
security and announced major joint ventures in various parts of the globe.
Tata Steel’s Indian operations are one of the most competitive assets in the
global steel industry and therefore, capacity expansion in India is one of the
key strategies for Tata Steel. The Indian operations draws its greatest
strength and its competitive position as one of the lowest cost producers of
steel in the world from the quality and yield of its raw material units. The
mines have successfully offered raw material security and have partially
insulated Tata Steel from the volatility of the global markets. The Company
has, therefore, continuously modernized and expanded its raw material
facilities right from the 1950s, when it had launched its two million tonne
expansion programme.
In the financial year 2009-10, the Company commissioned its 1.8 million
tonnes of crude steel making capacity at Jamshedpur, which will be further
augmented by 3 million tonnes through the ongoing brown field expansion, by
2011. The 3-mtpa expansion at Jamshedpur will enable Tata Steel to
strengthen its market share in the Flat Products segment and simultaneously
reduce the operating costs over a large volume of production. The long-term
strategy is to continue to pursue capacity expansion in India through
Greenfield projects as well.
Page 19
INVETORY MANAGEMENT
Therefore the India growth strategy remains a fundamental part of the long-
term strategy of the Tata Steel Group.
1. Jharkhand
Seraikela Plant
Greenfield Project
Project Highlights:
Setting up a 12 million tonnes per annum Greenfield integrated steel
plant in the state.
The Greenfield project is to be set up in two phases. The first phase of
6 mtpa is likely to be set up within 36 months to 54 months from the
date of obtaining all statutory clearances.
Capacity: 12 mtpa integrated steel plant.
Project Update: Tata Steel is awaiting the R&R Policy from the State
Government for its Greenfield project.
Press Releases
Telemedicine centre inaugurated at Tata Main Hospital.
Tribal cultural centre, Tata Steel organized the award ceremony for
Jyoti Fellowship and Moodie Endowment.
Graduation ceremony of trainees at Tata Steel’s technical training
centre in Seraikela.
Jharkhand honors Tata Steel Sports Persons.
Page 20
INVETORY MANAGEMENT
Jamshedpur Plant
Brownfield Project
Project Highlights
MoUs with the Government of Jharkhand was signed in 2005 for:-
Expansion of Tata Steel's existing plant at Jamshedpur from 5 mtpa to
10 mtpa.
Co-operation in the area of Human Resource Development through
Industrial Training Institutes.
The project includes the development of iron ore mines and other raw
materials sources including coal and logistic linkages for this plant.
Project Update: The first phase which entails reaching a crude steel
capacity of 6.8 mtpa has essentially been completed. The capacity of the
Jamshedpur plant is expected to become 10 mtpa by December 2011.
Page 21
INVETORY MANAGEMENT
Chhattis garh
Jagdalpur Plant (Bastar)
Project Highlights
MoUs with the Chhattisgarh government was signed on June 04,
2005.
The integrated steel plant will have an ultimate capacity of 5 mtpa of
steel with 2 mtpa in the first phase.
The project also includes development of captive iron ore mines to
meet the iron ore requirements of this plant.
Capacity: 5 mtpa Greenfield integrated steel plant.
Project Updates: The process of acquiring land is under progress. The
Company has also applied for environmental clearances and other
licenses.
Orissa
1. Greenfield Project at Kalinganagar
Project Update: Preliminary work focusing on land acquisition,
rehabilitation and resettlement work is in progress. The order for
equipment and services has been placed in accordance to the
stipulations in the MoUs signed with the Orissa State Government. A
grant for the mining lease of iron ore has been sought.
Page 22
INVETORY MANAGEMENT
Capacity: Greenfield Steel Plant of capacity 6mtpa.
2. Port Project at Dhamra
The Dhamra Port Company Ltd. is a 50:50 joint venture between Tata
Steel Ltd. and Larsen and Toubro for the development of a deep water
port in Dhamra, Orissa.
3. West Bengal
Haldia Plant
Project Highlights: Hoogly Met Coke and Power Company Ltd. (incorporated
in 2005), is a 100% subsidiary of Tata Steel. The Company was set up to
produce low ash metallurgical coke primarily to meet Tata Steel’s requirement
at its Jamshedpur plant and also to supply hot gases to Tata Power for
electricity generation by adopting heat recovery route.
Capacity: 1.2 mpta of coke.
Project Update: Capacity of plant is likely to be increased to 1.6 mtpa in
2009.
Page 23
INVETORY MANAGEMENT
Tamil Nadu
1. Tuticorin Mines
Project Highlights
MoUs with the Government of Tamil Nadu signed on June 27, 2002.
Titania project involves mining, mineral separation and value addition
i.e. pigments production in phases subject to techno- economic
viability.
Prospecting license over 80 sq.km area granted by the Government of
Tamil Nadu in the districts of Tirunelveli and Tuticorin with due
approval from Government of India.
The feasibility study conducted with the help of Consortium Partners
comprising Outokumpu Finland's physical separation division based in
USA, Outokumpu-Lurgi, Germany, Pincock Allen and Holt, USA, a
resource and mining consulting company and L&T.
Environmental Impact Assessment of the project carried out and
Environmental Management Plan drawn with the assistance of MIN-
MEC Consultancy.
Capacity: 60,000 tonnes per annum of titanium di-oxide.
Press Releases
Tata Steel committed to its Titanium-dioxide project in Tuticorin and
Tirunelveli.
Page 24
INVETORY MANAGEMENT
Tata Steel signs MoUs with Tamil Nadu Government for its Titanium
Oxide project.
“TATA COLONY” at Koottappanai Village, Tirunelveli, inaugurated.
Tata Relief Committee initiative for Tsunami affected victims of Tamil Nadu.
Projects and operations: International
The Tata Steel Group’s growth and globalization strategy is driven by its
business expansion while maintaining profitability and mitigating risks. The
Tata Steel Group over the years has focused on enhancing raw material
security and announced major joint ventures in various parts of the globe.
1. Australia
2. Bowen Basin Project
Location: Bowen Basin in Central Queensland.
Project Highlights
Tata Steel has a joint venture with Vale in Australia for a Coking Coal
Mine.
Tata Steel on December 14, 2005 signed agreements to buy a 5%
interest in the Carborough Downs Coal Project located in Queensland,
Australia.
Page 25
INVETORY MANAGEMENT
Tata Steel and Vale, along with other joint venture partners (Nippon
steel, JFE and POSCO) have undertaken a large scale expansion of
the Carborough Downs Coal Mine near Moranbah in Central
Queensland in Australia.
The Carborough Downs coal project is majority owned and operated by
a subsidiary of AMCI Holdings Australia Pty Ltd.
The project life is currently estimated to be 14 years and approximately
58 million tonnes of raw coal is expected to be mined during this
period.
There is a further potential resource of 100 million tonnes of raw coal in
the unexplored areas and deeper seams.
The clean coal envisaged to be produced would be low-ash coking coal
and PCI coal, highly suitable for steel making.
Tata Steel also signed an off take agreement for a proportion of the
production over life of the project.
The first raw coal production started in August 2006 and the mine is
currently producing around 1 mtpa.
Capacity: Mining capacity of 58 million tonnes of raw coal for 14 years.
Project Updates
Commissioning of the large scale and new mining equipment (Long
wall), which will be one of the largest in Australia, is expected by mid
2009.
Page 26
INVETORY MANAGEMENT
The second phase of expansion has been undertaken, at the end of
which the company is expected to produce 3.7mtpa of coking coal and
PCI coal.
Press Releases
Tata Steel's investment for the expansion of production at Carborough
downs coal mine in Australia.
Tata Steel acquires stake in Australian coal mines.
2. Canada
1. Iron ore project
Location: Northern Quebec, Labrador and Newfoundland provinces.
Project highlights:
Tata Steel, through its subsidiaries, signed a Heads of Agreement
memorandum with New Millennium Capital Corporation, Canada.
The aim was to develop iron ore projects in the region.
Tata Steel holds a 19.9% stake in NML with an option to acquire an
80% equity interest in NML’s Direct Shipping Ore project.
The agreement also provides exclusivity to Tata Steel in the Labmag
taconite iron ore property.
Tata Steel will have 100% off take rights to the produce of the mine at
the time of production commencement.
The iron ore from this project will serve Tata Steel’s European facilities.
Page 27
INVETORY MANAGEMENT
Capacity: The DSO resource is estimated to be approximately 100 million
tonnes. The LabMag deposit consists of 3.5 billion tonnes of proven and
potential mineral reserves. These reserves are contained in the 4.6 billion
tonnes of measured and indicated resources and 1.2 billion tonnes of inferred
resources.
Project Update: Tata Steel, along with NML is trying to work out an
economically viable solution to advance the project. The feasibility study for
the DSO project is progressing and production is expected to commence in
2011.
2. Ivory Cost
1. Nimba Iron ore Project
Location: Nimba Iron ore deposits in Ivory Coast.
Project Highlights:
Tata Steel Limited and SODEMI (State Owned Company for Mineral
Development), on December 11, 2007 entered into Joint Venture
agreement for the development of Mount Nimba Iron ore deposits in
Ivory Coast (West Africa).
The project will be implemented by a joint venture company – Tata
Steel Cote d’ivoire, wherein Tata Steel will have a major shareholding
(75%).
Page 28
INVETORY MANAGEMENT
The Mt. Nimba deposit spread over 3 countries – Liberia, Guinea and
Ivory Coast is one of the biggest iron ore deposits in West Africa.
The initial phase will involve exploration and detailed feasibility
assessments followed by construction of the mine and beneficiation
facilities.
The iron ore from this project will be supplied to Tata Steel Group
facilities especially those located in the United Kingdom and The
Netherlands.
Capacity: To be assessed.
Project Update: The project is in its initial phase that involves exploration
and detailed feasibility assessments followed by construction of the mine and
beneficiation facilities.
Press Releases: Tata Steel’s joint venture in Ivory Coast for Mount Nimba
Iron Ore.
Mozambique
1. Key coal exploration tenements
Location: Key coal exploration tenements (the Benga and Tete licensees)
held by Riversdale in Mozambique.
Project Highlights
Page 29
INVETORY MANAGEMENT
Tata Steel and Riversdale Mining Ltd. Australia signed a joint venture
agreement on November 30, 2007.
Under the terms of agreement, Tata Steel will pay AUD100 million
(approximately 88.2 million USD) to acquire 35% of Riversdale's Benga
and Tete licenses.
The JV comprises two licenses (the Benga and Tete licenses) and
covers an area of 24,960 hectares (approximately 96.7 square miles).
The coking coal derived from this project will be supplied to the Tata
Steel Group's facilities in Europe, Asia and elsewhere.
The Government of Mozambique has approved the mining contract for
the tenements, which is a signal for the Benga Coal project to
commence.
Capacity: Potential to extract 720 million tonnes by open-cut methods from a
major coal resource in the Benga License.
Project Update: The feasibility study for the project is in progress.
Press Releases
Tata Steel Signs MoUs with Riversdale Mining Limited.
Tata Steel signs JV with Riversdale Mining for Mozambique Coal
Project
Page 30
INVETORY MANAGEMENT
The Netherlands
Operations: The IJmuiden Steelworks is Corus’ largest and most cost-
efficient steel making facility, with a production capacity of 7.6mtpa.
Projects: A number of capital expenditure schemes are in progress at
IJmuiden. Among them is a €20m pilot plant that is being jointly funded with
ULCOS, the European Commission and the Dutch government. The
60,000tpa pilot plant is intended to prove the commercial and technical
viability of a new iron making process called Hisarna. If successful, the project
will considerably reduce the carbon dioxide emissions of the existing
integrated steelmaking process. Hisarna would also be more energy efficient
than existing technology and use cheaper and more abundant raw materials.
3. Oman
1. Limestone Project
Location: Uyun region in the Salalah province.
Project Highlights
Tata Steel Limited and the members of the Al Bahja Group, a leading
business house of Oman signed a Joint Venture Agreement on
January 16, 2008 – Tata Steel has a 70% stake in the joint venture.
The project envisages mining of limestone in the Uyun region
(limestone is the key raw material for producing good quality steel),
which lies in the Salalah province of Oman and has large deposits of
limestone.
Page 31
INVETORY MANAGEMENT
Capacity: To be assessed.
Updates: Exploration and feasibility studies are in progress.
Press Releases: Tata Steel’s joint venture in the Sultanate of Oman for
Uyun limestone.
4. Singapore
Tata NYK Shipping Pvt Ltd.
Tata NYK Shipping Pte Limited is a Singapore based 50:50 joint ventures
between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK line),
Japanese shipping major.
Project Highlights
The JV was set up to cater to ship bulk cargo such as coal, iron ore
and steel.
The shipping firm would handle the Tata Steel Group’s requirements
for moving raw materials and steel.
The Company would ensure a strategic control over logistics in the
future.
Tata NYK has entered into a long term charter for 8 Supramax /
Panamax vessels.
Orders have been placed for building two new Supramax vessels.
The Company handled a total of 4.48 million tonnes of cargo in FY 09.
Page 32
INVETORY MANAGEMENT
Project Update:
As part of its long-term strategy, the Company plans to enter into a long term
carter for capsize vessels in 2009.
NatSteel Holdings
NatSteel, a 100% subsidiary of the Tata Steel Group, is headquartered in
Singapore and has presence in Vietnam, Thailand, Australia, China, Malaysia,
Philippines and Singapore. The Singapore operations comprise steel making
and rolling operations of capacity 7, 50,000 tonnes per annum and have a
well-established downstream business. The downstream business comprising
direct sales to contractors uses 45 knowledge-centric services and consists of
a cut and bend facility and products like mesh, cages and couplers which
benefits the customers in terms of higher yields, higher productivity, and
lesser space requirement and just in time steel in desired sizes. The
downstream facility in Singapore, produces over 4, 00,000 tonnes per annum
of cut and bends bars, mesh, pre-cages, bore pile cages etc., and is the
largest single location facility in the world.
Of the two units operating in China, one is a rolling mill at Xiamen producing
about 5,00,000 tonnes of bars and rods and the other is a wire drawing plant
at Wuxi, with a capacity of 1,00,000 tonnes per year. In the Xiamen city, the
market share is about 25%.
Page 33
INVETORY MANAGEMENT
5. South Africa
Tata Steel (KZN) (PTY) Ltd.
TSKZN is a South Africa based subsidiary of Tata Steel, in the business of
producing Ferro Chrome and Charge Chrome.
Project Highlights
The ground-breaking ceremony of Ferro Chrome Project was held at
Richards Bay on August 21, 2006.
A Ferro Chrome Plant was commissioned at Richards Bay in 2008 to
produce High Carbon Ferro Chrome, for global consumers.
The proposed plant in South Africa will manufacture High Carbon Ferro
Chrome with a Chrome content of +64%, and the annual production
capacity will be 134,500 Metric Tonnes Per Annum (mtpa) in Phase I.
TSKZN commenced commercial production on 1st July, 2008 and in
the first year it has achieved a production of 63,479 mtpa of saleable
grade Charge Chrome.
Capacity: 1, 51,000 tonnes per annum.
Project Update: The Ferro Chrome used in the manufacture of stainless
steel will be exported to Tata Steel’s customers in Asia, Europe, the USA and
in other parts of the world.
Page 34
INVETORY MANAGEMENT
6. United Kingdom
Corus
Corus, the European arm of the Tata Steel Group, is headquartered in
London in the United Kingdom. Corus’ crude steel capacity in the UK is in the
region of 13mtpa.
Operations: Corus produces carbon steel by the basic oxygen steel making
method at three integrated steelworks in the UK at Port Talbot, Scunthorpe
and Teesside (currently mothballed), and special and alloy steels through the
electric arc furnace method in Rotherham. In addition, there are a number of
downstream rolling, coating and processing facilities.
Performance: Liquid steel production in 2008-09 at 16 million tonnes was
20% lower than that of 2007-08. Turnover for the period was Rs.1,09,570
crore (US$ 21,539m).
Projects: A number of capital expenditure schemes are in progress in the UK.
Among them is the £60m BOS gas recovery plant at Port Talbot, which is
expected to significantly reduce natural gas and electricity purchases and
materially reduce carbon dioxide emissions at the site through the utilization
of gas generated inside the Basic Oxygen Steel plant.
Page 35
INVETORY MANAGEMENT
7. Vietnam
Ha Tinh Project
Project Highlights
A proposed steel complex with an estimated capacity of 4.5 million
tonnes per year.
Tata Steel signed a MoUs with Vietnam Steel Corporation (VSC) on
May 29, 2008 to develop a steel complex in Ha Tinh. Another MOU
was signed to set up a cold rolling mill in Ha Tinh province.
Tata Steel is partnering with VSC in establishing a steel complex in Ha
Tinh province, which will be phased over 10 years. On the successful
completion of the study and financial closure, Tata Steel will have a
stake of minimum 65% and VSC will have a stake of 35% in the Steel
complex.
Tata Steel will also have a stake of 30% in Thach Khe Iron Ore Joint
Stock Company, which would undertake mining in the Thach Khe iron
ore mine.
Capacity: A proposed steel complex with an estimated capacity of 4.5 million
tonnes per year.
VNSteel
Overview: Established in 995 by a merger of Metal Corporation and Steel
Corporation, VNSteel is Vietnam’s largest steel company and has various
manufacturing plants and a distribution system across the country. The total
Page 36
INVETORY MANAGEMENT
capacity of VNSteel including that of its joint ventures is around 2.2 million
tonnes with a product mix ranging from crude steel, high quality construction
steel to sheet and plate products serving other economic sectors.
Project Updates: The Company has completed the feasibility study for the
steel complex, to be developed in 3 phases. Tata Steel, in collaboration with
VNSteel and VICEM has also completed the detailed project report for
Phase1, which is the cold rolling mill.
Press Releases
JV between Tata Steel, Vietnam Steel Corporation and Vietnam
Cement Industries.
Vietnam Steel Corporation and Tata Steel sign a MoUs.
Vietnam Steel Corporation and Tata Steel sign a Memorandum of
Cooperation.
Vietnam Prime Minister visits Tata Steel.
Page 37
INVETORY MANAGEMENT
LEGENDARY HEROES OF THE TATA STEEL
Here is the story of some heroes/ tycoons who thought to build India. They
believe building India means not only earning money but also to increase the
wealth o the country’s people. It is the story of struggle, anxiety, adventure
and achievement.
JAMSHETJI NUSSERWANJI TATA
The founder of TATA Steel began with a textile mill in central India in 1870’s.
At the age of 43, Jamsetji read a report by a German Geologist Ritter Von
Schwartz on the availability of iron ore in Chanda district in central provinces,
which gave him the idea of giving India a steel plant.
SIR DORABJI TATA
J. N. Tata had exhorted to his sons to pursue and develop his life’s work his
elder son, through his endeavors in setting up TATA steel and TATA power.
Sir Dorabji Tata was instrumental in transforming his father’s grand vision into
reality. He was the first chairman of gigantic Tata.
JEHANGIR RATANJI DADABHAI TATA
The late chairman of the TATA group pioneered civil aviation on the
subcontinent in 1932 by launching TATA airlines, now known as Air India.
Under his control, the number of TATA venture grew from 13 to 80,
encompassing steel, power generation, hotel, consultancy services,
information technology etc.
RATAN TATA
Page 38
INVETORY MANAGEMENT
Mr. Ratan N Tata is the present
chairman of TATA group of sons, with
his efficient leadership TATA group is
soaring new heights, from Corus take
over to brands like Jaguar and Land
Rover.
BOARD OF DIRECTORS
AS ON 25 JUNE 2009
MR. Ratan N. Tata (Chairman)
Mr. B. Muthuraman (Vice Chairman)
Mr. James Leng
Mr. Nusli N. Wadia
Mr. S. M. Palia
Mr. Jacobus Schraven
Dr. Anthony Hayward
Mr. Andrew Robb
Mr. Suresh Krishna
Mr. Ishaat Hussain
Dr. Jamshed J. Irani
Mr. Subodh Bhargava
Mr. Kirby Adams
Mr. H.M. Nerurkar
Page 39
INVETORY MANAGEMENT
SENIOR MANAGEMENT
Mr. B. Muthuraman(Managing Director)
Kirby Adams (Chief executive officer)
H.M Nerurkar
Kaushik Chatterjee
Jean-Sebastien Jacques
Arun Baijal
Manzer Hussain
Avneesh Gupta
R. P. Singh
Marjan Oudeman
Anand Sen
Scott MacDonald
Varun Jha
Phil Dryden
Abanindra M. Misra
Frank Royle
Om Narayan
Tor Farquhar
Radhakrishnan Nair
Partha Sengupta
Hridayeshwar Jha
N. K. Misra
Page 40
INVETORY MANAGEMENT
Binay Kumar Singh
Santi Charnkolrawee
T. V. Narendran
V. S. N. Murty
Helen Matheson
Sandip Biswas
Lim Say Yan
Bimlendra Jha
Dr. Debashish Bhattacharjee
TOP COMPETITORS OF TATA STEEL
Jindal Steel
SAIL
Essar steel
SOME OTHER MAJOR PLAYER IN THIS INDUSTRY
Saw pipes
Uttam steel ltd
Ispat industry ltd
Mukand ltd
Mahindra Ugine steel co.ltd
Usha ispat ltd
Page 41
INVETORY MANAGEMENT
Kalyani steel ltd
Electro steel casting ltd
Sesa Goa ltd
NMDC
Llyod steel industry l
2.6 VISION AND MISSION STATEMENT OF TATA STEEL
Vision
We aspire to be the global steel industry benchmark for
Value Creation and Corporate Citizenship
We make the difference through:
Our people, by fostering team work, nurturing talent, enhancing
leadership capability and acting with pace, pride and passion.
Our offer, by becoming the supplier of choice, delivering premium
products and services, and creating value for our customers.
Our innovative approach, by developing leading edge solutions in
technology, processes and products.
Our conduct, by providing a safe working place, respecting the
environment, caring for our communities and demonstrating high
ethical standards.
Page 42
INVETORY MANAGEMENT
Mission
Consistent with the vision and values of the founder Jamsetji Tata, Tata
Steel strives to strengthen India’s industrial base through the effective
utilization of staff and materials. The means envisaged to achieve this are
high technology and productivity, consistent with modern management
practices.
MAJOR BRANDs OF TATA STEEL
Brands
The Tata Steel Group’s Brand building endeavors have always been directed
at building assurance, reliability and superior product quality in every
segment. Outstanding performance by the Company’s different divisions have
surpassed their own brand standards and created higher quality parameters
for each other.
Galvano™ is Galvanized Plain (GP) steel offering available in
sheet and coil forms for all customer segments like white
goods, panels, bus bodies etc. Galvano™ meets the diverse
and specific needs of the general engineering segment. Unlike the ordinary
spangled and crushed spangled products available in the market, Galvano™
is a Zero spangled product with unmatched surface finish and mechanical
properties.
Page 43
INVETORY MANAGEMENT
Tata Agrico, a division of Tata Steel is the pioneer
manufacturer of superior quality agricultural implements in the
country under the brand name 'Agrico'. Since 1925, it has
been the leading brand in shovels, powrahs, crowbars, kudalies, pickaxe and
hammers. These implements cater to the needs of Agricultural, Horticulture
Industry, maintenance of roads, dams, railway- tracks, collieries etc. in India
and abroad. The Agrico products are the first in India to be manufactured with
ISO: 9002 Certification. All Tata Agrico implements are guaranteed against
manufacturing defects and are distributed all over the country through a
network of consignment agents and distributors. The Agrico division recently
expanded its product offerings by launching three new products and many
more variants in the existing category.
Tata Bearings manufactures a wide variety of bearings and
auto assemblies, like Ball Bearings, Tapered Roller Bearings,
Magneto Bearings, Double Row Angular Contact Bearings,
Clutch Release Assemblies, Fan Support Assemblies and Cylindrical Roller
Bearings. It is the only Bearings Manufacturer in India to win TPM Award from
Japan Institute of Plant Maintenance, Tokyo and is amongst the largest
bearing manufacturers in India.
Tata Pipes has matured into a fully bloomed brand since
1996. A deeply thought out branding exercise was undertaken
in order to unleash the power of the ‘Tata Pipes' Brand. Tata
Page 44
INVETORY MANAGEMENT
Pipes are manufactured with the HFIW process in the Long Products
Division's high-tech facility at Jamshedpur.
Tata Shaktee is Tata Steel’s flagship brand in the field of
galvanised corrugated sheets. Since Tata Shaktee was
launched in Feb 2000, the brand has been consistently
delivering on its promises of longevity and strength. Tata Shaktee is the only
brand, which produces 4 ft wide GC sheets called "Tata Shaktee Wider GC
Sheets".
Tata Steelium is another brand of the Flat Products Division
of Tata Steel. Apart from providing a certain level of quality
the name also assures the customer of the genuineness of
the product. It goes a long way in meeting the challenge of gaining a
sustainable competitive edge in the marketplace. The brand has acquired new
customers in retail untapped areas and made an aggressive entry into the
retail segment through exclusive shops called Steelium zones. Customer
relationship building programmes are undertaken with a view to increasing
market share.
Tata Tiscon is the first Thermo Mechanically Treated (TMT)
rebar in the country. Every Tata Tiscon rebar is made from
pure steel, with the most advanced TMT technology from
Tempcore, Belgium. Tata Tiscon is available for both residential and project
Page 45
INVETORY MANAGEMENT
applications. It has the best combination of strength, ductility and unparalleled
quality consistency. Tata Tiscon forms an unbreakable and unshakeable bond
with cement (atoot jod), and together they lend a strong foundation for
building construction.
Tata Tiscon became the first rebar in India to be awarded the ‘Superbrand'
status in the construction rebar category. Retail sales have received a boost
through new marketing initiatives and consumer schemes launched as a
result of continuous monitoring of consumer sales.
Tata Steel Wire Division is the leading producer of steel wires
under the brand name Tata Wiron, with a 30% market share
of the organized wire market in India. It manufactures a wide
range of wires catering to the needs of the various industry segments such as
automobile, infrastructure, power and general engineering. The products are
well established across the markets of Europe, USA, Middle East Asia,
Australasia, South Asia and Far East Asia. Tata Wiron GI wires have a
distinct brand identity of being a valued business partner for its consumers.
Page 46
INVETORY MANAGEMENT
RESEARCH DESIGN
Page 47
INVETORY MANAGEMENT
CHAPTER-3
3.1 RESEARCH METHODOLOGY
The study is based on descriptive and applied research. The efficiency of
inventory management model at TATA Steel requires a thorough knowledge
of iron making process and expertise in identifying the materials. The
accounting is as well as in planning the control of inventory is thoroughly
studied by ratio analysis.
Data collection method
I. Primary source
Personal interview
Finance and Accounts department
Purchase department
Plant visit
II. Secondary source
Concern data
Website
Annual report
Company records
Intranet of company
Page 48
INVETORY MANAGEMENT
Presentation of data
Data is presented in the form of tables, diagram and trend lines.
Data analysis and interpretation.
The data analysis has been done using various inventory ratios.
Limitation of the studies
The study is based on the comparison across companies. This
company follows various accounting policies. Hence the choice of
accounting for the companies to an extent distort the inter company
comparison.
Ratio alone cannot show whether performance is good or bad.
The data is pertaining up to the year 2009.
Ratio does not take into account the impact of certain non-financial
parameters. The study is limited
Page 49
INVETORY MANAGEMENT
ANALYSIS &
INTERPRETATION
OF DATA
Page 50
INVETORY MANAGEMENT
CHAPTER: 4
DATA ANALYSIS AND INTERPRETATION
4.1 INVENTORY MANAGEMENT IN TATA STEEL
Inventory management is one of the most important managerial activities.
TATA steel has its own mines and querries in India and also in some other
countries. The raw material inventory includes materials from its own source
as well as purchased from others. Raw material inventory, therefore lies both
at works and its place of extraction. These are transported to works both by
road and rail.
To maintain the minimum required inventory is not an easy task. There are
many reasons for each different organization as to what the quantity should
be maintained. TATA STEEL’s raw material inventory consist of mainly coal
and iron ore, but there are many other things included in it in small quantities.
TATA STEEL has its transportation system which helps in carrying the
materials from different locations to Jamshedpur works.
Each types of production department maintain separate inventory level. TATA
steel maintains different types of inventory i.e. raw material, WIP, finished
goods, transit inventory, buffer inventory, anticipation inventory and
cycle inventory.
For valuation of inventory TATA Steel generally uses FIFO method and for
ordering, they use EOQ method.
Page 51
1) Production dept.
2) Inventory controller
3) Purchase dept.
4) Supplier dept.
5) Recievable debt.
6) Inventory dept.
INVETORY MANAGEMENT
First in first out (FIFO): A method of valuation of inventory, by which the cost
are allocated on the assumption that goods are consumed or sold in the order
in which they are received and taken in to stock.
Economic Ordering Quantity (EOQ): It is the optimum quantity of goods for
which if orders are placed, the aggregate order placing cost and the
aggregate inventory carrying cost will be equal and economical. There will not
be any loss by either way. For any item of goods, annual requirement in units,
cost of placing one order, cost of carrying one unit in inventory for one year
are the influencing factors. Any change in one or more of them will change the
EOQ of that item.
To find out EOQ; the formula is= √2AO/C
Where; A= Annual consumption; O= ordering cost, C= carrying cost
Channels of ordering raw material:
Page 52
INVETORY MANAGEMENT
Policies maintained by TATA STEEL for inventories
Finished and semi-finished products produced and purchased by the
Company are carried at lower of cost and net realizable Value.
Work-in-progress is carried at lower of cost and net realizable value.
Coal, iron ore and other raw materials produced and purchased by the
Company are carried at lower of cost and net realizable value.
Stores and spare parts are carried at cost. Necessary provision is made and
charged to revenue in case of identified obsolete and non-moving items.
Cost of inventories is generally ascertained on the ‘weighted average’
basis.
Page 53
INVETORY MANAGEMENT
4.2 FINANACIAL ANALYSIS OF TATA STEEL RELATED TO INVENTORY
Ratio analysis is the major and efficient tool for management to analyze the
data. So here some ratios are given which are related to inventories and with
analysis.
>Raw material conversion period
This ratio shows in how many day raw materials is used to manufacturing.
To find this ratio, the formula is;
Average stock of raw material x 365
Total raw material consumed
Where average stock of raw material = (Op. stock of raw mat.+ Cl. Stock of
raw mat.)/2
Particulars 2009-
10
2008-
09
2007-
08
2006-
07
2005-
06
Opening stock of raw material 901.56 720.52 707.54 603.7 287.02
Closing stock of raw material 1433.2
6
901.56 720.52 707.54 603.7
Average stock of raw material 1167.4
1
811.04 714.03 655.62 445.36
Total raw material consumed 5709.9 3429.5 3121.4 2368.3 1715.1
Page 54
INVETORY MANAGEMENT
1 2 6 4
If we look towards for the year 2005-06, then we can easily observe that, the
raw material conversion period is too high than the year 2009-10. This trend is
showing that the period for conversion of raw material is decreasing year by
year. It very good sign for the company. Because as soon as raw material is
used for production the storing cost will be less. So this chart is showing how
efficiently TATA steel is reducing it’s storing cost and how fast raw material is
used for production.
>WIP conversion period
This ratio shows, in how many days the WIP converted into finished products.
To find out this ratio, the formula is;
Average stock of work-in-process x 365
Cost of production
Where average stock of WIP = (Op. stock of WIP+ Cl. Stock of WIP)/2
Particulars 2009-10 2008-09 2007-08 2006-07 2005-
06
Page 55
2010 2009 2008 2007 20060
20
40
60
80
100
120
Raw material conversion period
Raw material conversion period
INVETORY MANAGEMENT
Opening stock of WIP 71.48 28.94 23.93 32.42 13.76
Closing stock of WIP 73.17 71.48 28.94 23.93 32.42
Average stock of WIP 72.325 50.21 26.44 28.18 23.09
Cost of production 18917.7
1
14423.4
7
13300.1
7
11469.7
1
9516.9
7
As we can see in the chart that WIP converted into finished product within a
day in the year 2005-06 to 2007-08. But in recent year it is taking more than
one day. If we measure this chart, we can say that the efficiency level of
TATA steel is reducing year by year to convert WIP to finished goods.
>Finished goods conversion period
It refers to the time in which the finished goods are converted into sales or in
other way we can say that the time period between production and sales
when the finished goods kept in the ware house before the actual sale is
made.
So formula for FGCP is;
Page 56
2010 2009 2008 2007 20060
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
WIP conversion period
WIP conversion period
INVETORY MANAGEMENT
Average stock of finished goods x 365
Cost of goods sold
Where average stock of finished goods
= (Op. stock of finished goods +Cl. Stock of finished goods)/2
Particulars 2010-09 2008-09 2007-08 2006-07 2005-06
Opening stock of finished goods 1074.27 1078.08 1000.62 887.82 622.13
Closing stock of finished goods 1361.85 1074.27 1078.08 1000.62 887.82
Average stock of finished goods 1218.06 1076.18 1039.35 944.22 754.975
Cost of goods sold 18989 14874.23 13673.31 12012.39 10555.24
From the table and the chart we can easily observed that, though in the year
2006-07 the conversion period increased than the year 2005-06. But
fortunately the recession period couldn’t hit the sales for the year 2007-08 to
2009-10. The finished goods were converted into sales even less than only 25
days in the year 2009-10. It shows the efficiency of not only quality of the steel
but also the efficiency of marketing department of TATA steel
Page 572010 2009 2008 2007 20060
5
10
15
20
25
30
35
Finished goods conversion period
Finished goods conversion period
INVETORY MANAGEMENT
Raw material to current asset
It indicates the percentage of raw materials in the current asset of the
company.
To find out this;
Raw material(closing) x 100
Current asset
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Raw material(Closing) 1433.26 901.56 720.52 707.54 603.7
Current asset 10047.48 6636.28 13701.89 4237.6 4083.58
Page 58
2010 2009 2008 2007 20060
2
4
6
8
10
12
14
16
18
Raw material to current asset
Raw material to current asset
INVETORY MANAGEMENT
This chart and table can show the one unexpected downfall in the year 2007-
08, which is less than 6%. If we observe carefully then we can see that, in the
year 2007-08, the raw material trend is nearly same to other years, but due to
huge cash in hand increase the current asset. Which reduce the percentage
of raw material to current asset.
Finished goods to current asset
It indicates the percentage of finished goods in the current assets of the
company. Finished goods are such a component of the current assets which
can be easily converted into cash.
So the formula is;
Finished goods(closing) x 100
Current asset
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Finished goods(Closing) 1361.85 1074.27 1078.08 1000.62 887.22
Current asset 10047.48 6636.28 13701.89 4237.6 4083.58
Page 59
2010 2009 2008 2007 20060
2
4
6
8
10
12
14
16
18
Raw material to current asset
Raw material to current asset
2010 2009 2008 2007 20060
5
10
15
20
25
Finished goods to current asset
Finished goods to current asset
INVETORY MANAGEMENT
As we saw in the raw material to current assets, which is same as finished
goods to current assets. Due to huge amount of cash held in the year 2007-
08, the percentage of finished goods is lesser than the other years. But in the
year 2006-07 it is near to 25%. But the percentage is going downwards in the
year 2009-10, which is less than 15%.
Average inventory turnover ratio
It indicates the percentages of inventory with gross sales.
The formula is;
Average inventory x 100
Gross sales
Where average inventory = (Op. inventory+ Cl. Inventory)/2
Particulars 2009-
10
2008-
09
2007-08 2006-07 2005-06
Opening inventory 2047.31 1827.54 1732.09 1532.34 922.91
Closing inventory 2868.28 2047.31 1827.54 1732.09 1532.34
Average inventory 2457.80 1937.43 1779.82 1632.22 1227.63
Gross sales 26843 22191.8 19762.5
7
17144.2
2
15876.8
7
Page 60
2010 2009 2008 2007 20060
5
10
15
20
25
Finished goods to current asset
Finished goods to current asset
2010 2009 2008 2007 20060
1
2
3
4
5
6
7
8
9
10
Average inventory turnover ratio
Average inventory turnover ratio
INVETORY MANAGEMENT
As we can observed that, the trend is showing nearly constant, except the
year 2005-06. The inventory level is increasing as well as the gross sales. It
shows the constant growth of sales and inventory.
a) >Stock turnover ratio
Every firm has to maintain a certain level of inventory of finished goods so as
to be able to meet the requirements of the business. But the level of inventory
should neither be too high nor too low.
The stock turnover ratio measures the number of times a company sells its
inventory during the year.
The formula for stock turnover ratio is;
Cost of goods sold
Average stock
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Cost of goods sold 18989 14874.23 13673.31 12012.39 10555.24
Average stock 2457.8 1937.43 1779.82 1632.22 1227.63
Where average stock = (Op. inventory+ Cl. Inventory)/2
Page 61
2010 2009 2008 2007 20060
1
2
3
4
5
6
7
8
9
10
Average inventory turnover ratio
Average inventory turnover ratio
INVETORY MANAGEMENT
As we can find out that in the year 2005-06 the ratio was very high as
compare to other years. In the year 2006-07 it is even less than 7.5, but after
that TATA maintained the consistency on its growth.
b) >Spare parts index
It shows the index of spare parts, which are used to fixed asset.
To find out spare parts index, the formula is;
Stores and spares parts(closing) x 100
Net block of fixed asset
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Stores and spares
parts(closing)
505.44 442.66 505.44 442.66 349.06
Net block of fixed assets 11040.56 9865.05 11040.56 9865.05 9112.24
Page 62
2010 2009 2008 2007 20063.4
3.6
3.8
4
4.2
4.4
4.6
4.8
Spare parts index
Spare parts index
INVETORY MANAGEMENT
This index is showing downwards in recent years. But in the year 2005-06 it is
less than 4. And in the year 2007-08 it is more than 4.5. So TATA steel should
try to reduce this index. But the chart is showing very impressive that index is
reducing year by year.
c) >Inventory conversion period
This ratio shows in how many days inventories are converted into sales. It is
major ratio analysis for cash conversion period. Because it is the first
component of the cash conversion period.
The formula is;
Inventories(closing)
Sales/365
Page 63
2010 2009 2008 2007 20063.4
3.6
3.8
4
4.2
4.4
4.6
4.8
Spare parts index
Spare parts index
2010 2009 2008 2007 20062.6
2.7
2.8
2.9
3
3.1
3.2
3.3
Inventory conversion period
Inventory conversion period
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Inventories(Closing) 2868.28 2047.31 1827.54 1732.09 1523.34
Sales 24315.7
7
19693.2
8
17551.0
9
15139.3
9
14498.9
5
INVETORY MANAGEMENT
From this chart we can observed that in the year 2008-09 and 2007-08, the
inventory was most efficiently converted into sales. But unfortunately it is very
high in the year 2009-10. So it shows the inefficiency for the company
d) >Current ratio
This ratio is used to judge the short term solvency of a company and is
worked out by dividing the aggregate Current Assets by its aggregate Current
Liabilities.
To find out the current ratio, the formula is;
Current asset
Current liabilities
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Current asset 10047.48 6636.28 13701.89 4237.6 4083.58
Current liability 8974.05 6768.78 5453.66 3808.72 3699.99
Page 64
2010 2009 2008 2007 20060
0.5
1
1.5
2
2.5
3
Current ratio
Current ratio
INVETORY MANAGEMENT
In the year 2007-08 this ratio is too high due to huge amount cash held in the
company. From here we can say that company has huge liquidity but in other
sense we can say that company blocked this huge amount of cash without
investing. Again it is very good sign for the company, because the recession
hit the world in the year 2008-09 and company has huge amount of liquidity to
face the crisis moment. Again we can see that the in the year 2008-09 the
ratio is even less than 1. So 2007-08 heavy cash amount saved in the year
2008-09. Rest of the year maintained the consistency, which is just above 1.
e) >Acid test ratio
It measures the company’s most liquidity against the current liability. Here we
exclude the inventory from the current asset. Because inventory is less
liquidity than other current assets. So it indicates the coverage of current
liabilities with quick realizable assets.
The formula to find acid test ratio;
Current assets- Inventories
Current liabilities
Page 65
2010 2009 2008 2007 20060
0.5
1
1.5
2
2.5
3
Current ratio
Current ratio
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Current assets 10047.48 6636.28 13701.89 4237.6 4083.58
Inventories 2868.28 2047.31 1827.54 1732.09 1523.34
Current liability 8974.05 6768.78 5453.66 3808.72 3699.99
INVETORY MANAGEMENT
As we have seen in the current ratio, in the year 2007-08 is highest than the
others. Here also this ratio is highest than the other due to heavy amount of
cash, which shows the most liquidity. Here we can see that the current ratio of
the year 2006-07 and 2009-10 was same. But due to less inventory
percentage in current assets the acid test ratio is higher than the year 2006-
07. 2006-07 ratio is even less than the year 2008-09. So for the year 2008-09
liquidity is little bit better than 2006-07, after facing the crisis period. And it is
slowly moving upwards in the year 2009-10.
Page 66
2010 2009 2008 2007 20060
0.5
1
1.5
2
2.5
Acid test ratio
Acid test ratio
INVETORY MANAGEMENT
f) >Total inventories to total assets
This ratio shows the percentage level of inventories in compare to total asset.
The formula is;
Total Inventories(closing) x 100
Total assets
Page 67
2010 2009 2008 2007 20060
2
4
6
8
10
12
14
Total inventories to total assets
Total inventories to total assets
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Total inventory 2868.28 2047.31 1827.54 1732.09 1523.34
Total Assets 58741.7
7
47075.5
2
25597.5 14617.1
6
12143.3
INVETORY MANAGEMENT
The percentage level is decreasing year by year to increase the liquidity level.
But in the year 2008-09, it is very low because of recession period to increase
the liquidity percentage.
4.4 Balance sheet of TATA Steel
Rs in Crores
Particulars 31st MAR 09 31st MAR 08 31st MAR 07 31st MAR 06 31st MAR 05
Share capital 6203.45 6203.3 727.73 553.67 553.67
Reserve and Surplus 23176.26 21097.43 13368.42 9201.63 6506.25
Total share holder's fund 30176.26 27300.73 14096.15 9755.3 7059.92
Loans 26946.18 18021.69 9645.33 2516.15 2739.7
Deferred tax liabilities 585.73 681.8 748.94 957 829.42
Provision for employee separation 1033.6 1071.3 1107.08 1388.71 1541.26
Total funds employed 58741.77 47075.52 25597.5 14617.16 12143.3
Application of funds
Fixed asset 14482.22 12623.56 11040.56 9865.05 9112.24
Investments 42371.78 4103.19 6106.18 4069.96 2432.65
Foreign currency translation diff a/c 471.66
Current assets 5707.05 3613.7 10646.16 3002.74 2701.14
Loans and advances 4578.04 33348.74 3055.73 1234.86 1382.44
(-) Current liabilities and provisions -8974.05 -6768.78 -5453.66 -3808.72 -3699.99
Net current assets 1311.04 30193.66 8248.23 428.88 383.59
Miscellaneous expenditure 105.07 155.11 202.53 253.27 214.82
Page 68
INVETORY MANAGEMENT
Total assets 58741.77 47075.52 25597.5 14617.16 12143.3
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05
Sales and other operating expenses 24315.77 19691.03 17551.09 15139.39 14498.95
Other income 308.27 242.8 433.67 254.76 148.03
Total Income 24624.04 19933.83 17984.76 15394.15 14646.98
Expenditure
Manufacturing and other expenses 15525.99 11852.75 10813.84 9320.5 8658.41
Depreciation 973.4 834.61 819.29 775.1 618.78
(-)Expenditure transferred to capital
a/c
-343.65 -175.5 -236.02 -112.62 -204.82
Net financial charges 1152.69 786.5 173.9 118.44 186.8
Total expenditure 17308.43 13298.36 11571.01 10101.42 9259.17
Profit before taxes and exceptional
items
7315.61 6635.47 6413.75 5292.73 5387.81
Profit before taxes 7315.61 7066.36 6261.65 5239.96 5297.28
(-) Taxes -2113.87 -2379.33 -2039.5 -1733.58 -1823.12
Profit after tax 5201.74 4687.03 4222.15 3506.38 3474.16
Page 69
INVETORY MANAGEMENT
Page 70
INVETORY MANAGEMENT
Page 71
4.5 >COST SHEET OF TATA STEEL Rs in
crore
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05
Raw material consumed 5709.91 3429.52 3121.46 2368.3 1715.44
Payment and provision for
employee
2305.81 1589.77 1454.83 1351.51 1291
Operation and other
expenses
6213.58 5068.88 4647.28 4038.71 3687.17
(-)Commission -61.49 -52.53 -64.71 -80.75 -86.18
(-)Provision for wealth tax -1 -0.95 -0.97 -0.8 -0.7
Freight and handling
charges
1251.23 1098.19 1117.45 1004.32 936.68
Excise duty 2527.96 2498.52 2210.55 2004.83 1377.92
Depreciation 973.4 834.61 819.29 775.1 618.78
Adjustment of WIP
(+) Opening stock of WIP 71.48 28.94 23.93 32.42 9.28
(-) Closing stock of WIP -73.17 -71.48 -28.94 -23.93 -32.42
COST OF PRODUCTION 18917.71 14423.47 13300.17 11469.71 9516.97
Adjustment of finished
goods
(+)Opening stock of finished
goods
1074.27 1078.08 1000.62 887.22 620.81
(+) Purchase of finished
goods
358.87 446.95 450.6 656.08 1305.28
(-)Closing stock of finished
goods
-1361.85 -1074.27 -1078.08 -1000.62 -887.82
COST OF GOODS SOLD 18989 14874.23 13673.31 12012.39 10555.24
INVETORY MANAGEMENT
4.6 RAW MATERIAL CONSUMPTION OF TATA STEEL
Raw material is important for any kind of manufacturing industry. That may be
steel industry or may be cement industry or any kind of manufacturing
industry. Same way, TATA steel is also consuming raw material from various
sources. Major part of raw material is taken from its own mines and some
from various country i.e. Australia. Australia is major supplier of coal. Below
all the details of raw material is given.Here all the details of amount of raw
material consumption, value of raw material and price per tonne of raw
material are given with charts and analysis.
>RAW MATERIAL CONSUMPTION
Types of raw material 2009-10 2008-09 2007-08 2006-07
Iron ore 9545665 8724458 8486755 5986753
Coal 751972 713982 1019483 841649
Coke 3315206 3133450 2773807 2422875
Limestone and
Dolomite
1949523 1729070 1863757 1464970
Ferro Manganese 18895 15824 16516 16844
Zinc and Zinc Alloys 22137 19299 20692 21327
Spelter, Sulphur and
Others
1200105 784802 798141 487102
Page 72
INVETORY MANAGEMENT
Page 73
2010 2009 2008 2007 20060
2000000
4000000
6000000
8000000
10000000
12000000
Iron ore
Iron ore
2010 2009 2008 2007 20060
200000
400000
600000
800000
1000000
1200000
Coal
Coal
INVETORY MANAGEMENT
Page 74
2010 2009 2008 2007 20060
500000
1000000
1500000
2000000
2500000
3000000
3500000
Coke
Coke
2010 2009 2008 20070
500000
1000000
1500000
2000000
2500000
Limestone and Dolomite
Limestone and Dolomite
INVETORY MANAGEMENT
Page 75
2010 2009 2008 200714000
15000
16000
17000
18000
19000
20000
Ferro Manganese
Ferro Manganese
2010 2009 2008 200717500
18000
18500
19000
19500
20000
20500
21000
21500
22000
22500
Zinc and Zinc Alloys
Zinc and Zinc Alloys
INVETORY MANAGEMENT
To produce steel iron ore, coal,coke, ferro manganese, zinc alloys and
spelters, sulpphur are required mostly. All these raw material are required
tproduce in a systematic manner.
In year 2008-09 iron ore and spelters, sulphurs, coke and ferro manganese
are purchased more than the others. Whereas, zinc and alloys are purchased
more in the year 2007-08. In the last year due to heavy production, raw
material consumption is more than others.
Page 76
2010 2009 2008 20070
200000
400000
600000
800000
1000000
1200000
1400000
Spelter, Sulphur and Others
Spelter, Sulphur and Others
INVETORY MANAGEMENT
Totalcostofrawmateria
l
Rs in Crore
Types of raw material 2009-10 2008-09 2007-
08
2006-07 2005-06
Iron ore 504.52 445.35 368.29 273.53 181.78
Coal 455.32 206.85 287.91 226.56 92.1
Coke 3695 1873.6 1510.7
2
1093.71 834.65
Limestone and
Dolomite
391.89 318.45 316.76 300.48 217.87
Ferro Manganese 62.99 48.52 50.94 71.84 102.47
Zinc and Zinc Alloys 210.03 345.3 327 159.36 134.63
Spelter, Sulphur and
Others
877.3 529.48 557.84 513.79 362.03
Page 77
INVETORY MANAGEMENT
*Pie charts are showing the percentage of expenses
Page 78
8%
7%
60%
6%
1% 3%
14%
2010-09
Iron oreCoalCokeLimestone and DolomiteFerro ManganeseZinc and Zinc AlloysSpelter, Sulphur and Others
11%
8%
44%
9%
1%
10%
16%
2008-07
Iron oreCoalCokeLimestone and DolomiteFerro ManganeseZinc and Zinc AlloysSpelter, Sulphur and Others
12%
5%
50%
8%
1%
9%
14%
2009-08
Iron oreCoalCokeLimestone and DolomiteFerro ManganeseZinc and Zinc AlloysSpelter, Sulphur and Others
INVETORY MANAGEMENT
Page 79
9%
5%
43%11%
5%
7%
19%
2004-05
Iron oreCoalCokeLimestone and DolomiteFerro ManganeseZinc and Zinc AlloysSpelter, Sulphur and Others
10%
9%
41%
11%
3%
6%
19%
2005-06
Iron oreCoalCokeLimestone and DolomiteFerro ManganeseZinc and Zinc AlloysSpelter, Sulphur and Others
INVETORY MANAGEMENT
From the above chart we can see that the expenses percentage on coke is
reducing year by year. Whereas, limestone and dolomite expenses
percentage is increasing.
Price per Tonnes
Types of raw material 2009-10 2008-09 2007-08 2006-07 2005-06
Iron ore 528.53 512.98 422.14 322.3 303.63
Coal 6055.01 2929.57 4032.45 2222.3 1094.28
Coke 11145.61 6066.21 4821.27 3942.99 3444.87Limestone and
Dolomite
2010.18 1707.3 1831.97 1612.22 1487.2
Ferro Manganese 33336.86 30015.5 32191.61 43497.21 60834.71
Zinc and Zinc Alloys 94877.35 154669.65 169438.83 75966.94 63126.55
Spelter, Sulphur and
Others
7310.2 4575.94 7108.03 6437.33 7423.18
*values are in rupees
Page 80
2009-10 2008-09 2007-08 2006-07 2005-060
100
200
300
400
500
600
Iron ore
Iron ore
INVETORY MANAGEMENT
Page 81
2009-10 2008-09 2007-08 2006-07 2005-060
100
200
300
400
500
600
Iron ore
Iron ore
2009-10 2008-09 2007-08 2006-07 2005-060
1000
2000
3000
4000
5000
6000
7000
Coal
Coal
2009-10 2008-09 2007-08 2006-07 2005-060
2000
4000
6000
8000
10000
12000
Coke
Coke
INVETORY MANAGEMENT
Page 82
2009-10 2008-09 2007-08 2006-07 2005-060
2000
4000
6000
8000
10000
12000
Coke
Coke
2009-10 2008-09 2007-08 2006-07 2005-060
500
1000
1500
2000
2500
Limestone and Dolomite
Limestone and Dolomite
2009-10 2008-09 2007-08 2006-07 2005-060
10000
20000
30000
40000
50000
60000
70000
Ferro Manganese
Ferro Manganese
INVETORY MANAGEMENT
Page 83
2009-10 2008-09 2007-08 2006-07 2005-060
10000
20000
30000
40000
50000
60000
70000
Ferro Manganese
Ferro Manganese
2009-10 2008-09 2007-08 2006-07 2005-060
20000
40000
60000
80000
100000
120000
140000
160000
180000
Zinc and Zinc Alloys
Zinc and Zinc Alloys
2009-10 2008-09 2007-08 2006-07 2005-060
1000
2000
3000
4000
5000
6000
7000
8000
Spelter, Sulphur and Others
Spelter, Sulphur and Others
INVETORY MANAGEMENT
In the year 2006-07 the entire material rate is hiked. But the ferro manganese
price per tonne is showing downwards. It is becoming cheaper year by year.
Iron ore is cheapest raw material for TATA STEEL. From coal, coke is
prepared. But coal is near to half price than coke. The entire raw material
price is increasing except ferro manganese and zinc and alloys.
>Raw material imported Rs in crore
2009-10 2008-09 2007-08 2006-07 2005-06
4146.75 1542.79 1592.25 1226.82 878.12
Page 84
2009-10 2008-09 2007-08 2006-07 2005-060
1000
2000
3000
4000
5000
6000
7000
8000
Spelter, Sulphur and Others
Spelter, Sulphur and Others
INVETORY MANAGEMENT
Here we can observe that, importing raw material is increasing year by year.
Even in the year 2008-09 more than two times than the last year.
Comparing details 2009-10 2008-09 2007-08 2006-07 2005-06 CGPA
Total raw material consumed 5709.91 3429.52 3121.46 2368.3 1715.14 35.077%
Cost of production 18917.71 14423.47 13300.17 11469.71 9516.97 18.739%
Cost of goods sold 18989 14874.23 13673.31 12012.39 10555.24 15.813%
Page 85
2009-10 2008-09 2007-08 2006-07 2005-060
500
1000
1500
2000
2500
3000
3500
4000
4500
Series1
INVETORY MANAGEMENT
Current asset 10047.48 6636.28 13701.89 4237.6 4083.58 25.243%
Inventories(Closing) 2868.28 2047.31 1827.54 1732.09 1523.34 17.140%
Sales 24315.77 19693.28 17551.09 15139.39 14498.95 13.799%
Profit after tax 5201.74 4687.03 4222.15 3506.38 3474.16 10.618%
>Comparison of various segment related to inventory
Here we have calculated the CGPA (compounded growth per annum). For
this calculation we have taken the last 5 year data of each segment. This
CGPA shows compounded growth or average growth.
Page 86
Total
raw m
ateria
l consu
med
Cost of p
roducti
on
Cost of g
oods sold
Current a
sset
Invento
ries(C
losing)
Sales
Profit a
fter ta
x0.000%5.000%
10.000%15.000%20.000%25.000%30.000%35.000%40.000%
CGPA
CGPA
INVETORY MANAGEMENT
So here we can observed that as raw material consumption price increasing
more than
35%, but
compare to
sales and
profit after tax
is very high.
Cost of
production
and cost of goods sold is compare to same with each other.
>Revenue generated by TATA Steel, Geographically
Revenue generated by geographical market
Region 2009-10 2008-09 2007-08 2006-07 2005-06
India 20914.02 17491.97 15506 13160.35 12187.82
Others 3401.75 2201.31 2045.09 1979.04 2311.13
*The rupee values are in crore
Page 87
2009-10
2008-09
2007-08
2006-07
2005-06
0 5000 10000 15000 20000 25000
IndiaOthers
INVETORY MANAGEMENT
TATA STEEL is one of the biggest importers but this company is big seller in
international market. Here we can see in a regular basis the revenue in other
country is increasing year by year. Even in the year 2008-09 it crossed Rs
3000cr. It is a very good sign for TATA STEEL. Here we can see that revenue
in Indian market. It crossed more than Rs 20000cr. It shows not only the
improvement of TATA STEEL’s sales but also it is showing how Indian people
per capita consumption on steel is increasing. I personally prey that this
should increase year after year.
Page 88
INVETORY MANAGEMENT
Page 89
INVETORY MANAGEMENT
CHAPTER-6
COMPARISON WITH OTHER COMPANIES
Here I am doing comparison with three other major players in this sector. As
per me, they are
JINDAL STEEL
ESSAR STEEL
SAIL
So first of all, we should understand about that company in brief.
JINDAL STEEL
In the world of business, the Jindal Organization is a celebrity. Ranked sixth
amongst the top Indian Business Houses in terms of assets, the Group today
is a US $10 Billion conglomerate.
Jindal Organization, set up in 1970 by the steel visionary Mr. O.P. Jindal, has
grown from an indigenous single-unit steel plant in Hisar, Haryana to the
present multi-billion, multi-locational and multiproduct steel conglomerate. The
organization is still expanding, integrating, amalgamating and growing. New
directions, new objectives... but the Jindal motto remains the same- "We are
the Future of Steel ".
The group has been technology-driven and has a broad product portfolio. Yet,
the focus at Jindal has always been steel. From mining of iron-ore to the
Page 90
INVETORY MANAGEMENT
manufacturing of value added steel products, Jindal has a pre-eminent
position in the flat steel segment in India and is on its way to be a major global
player, with its overseas manufacturing facilities and strategic manufacturing
and marketing alliances with other world leaders.
Jindal Organization aims to be a global player. In pursuance of its objectives,
it is committed to maintain world-class quality standards, efficient delivery
schedules, competitive price and excellent after sales service.
Financial data of Jindal steel
Balance sheet
Rs. In
Page 91
INVETORY MANAGEMENT
crore
Particulars 31st
MAR 10
31st
MAR 09
31st
MAR 08
31st
MAR 07
31st
MAR 06
Sources of funds
Owner's fund
Equity share capital 15.47 15.4 15.4 15.4 15.4
Preference share
capital
- - - - 1
Reserves & surplus 5,399.85 3,740.98 2,481.33 1,829.31 1,302.98
Loan funds
Secured loans 2,105.49 1,783.39 2,115.61 1,780.77 1,159.51
Unsecured loans 2,857.16 2,079.96 1,392.11 964.6 336.35
Total 10,377.9
7
7,619.73 6,004.45 4,590.08 2,815.24
Uses of funds
Fixed assets
Gross block 7,362.90 5,918.94 4,929.03 3,243.05 2,530.28
Less : accumulated
depreciation
1,617.00 1,183.11 781.75 542.33 361.76
Net block 5,745.90 4,735.83 4,147.28 2,700.72 2,168.53
Capital work-in-
progress
2,318.01 660.48 937.84 1,146.27 345.7
Investments 1,233.40 1,036.19 709.82 430.3 33.38
Page 92
INVETORY MANAGEMENT
Net current assets
Current assets, loans
& advances
5,189.28 3,299.57 1,801.66 1,490.50 1,036.30
Less : current
liabilities &
provisions
4,111.64 2,115.48 1,595.39 1,178.45 769.67
Total net current
assets
1,077.64 1,184.09 206.27 312.05 266.62
Miscellaneous
expenses not written
3.02 3.14 3.24 0.74 1.01
Total 10,377.9
7
7,619.73 6,004.45 4,590.08 2,815.24
Profit and loss account
Page 93
INVETORY MANAGEMENT
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Income
Operating income 7,677.83 5,368.1
4
3,523.08 2,565.04 2,253.60
Expenses
Material consumed 3,419.42 1,727.4
0
1,068.50 536.71 528.2
Manufacturing
expenses
773.84 670.87 510.96 545.44 514.13
Personnel expenses 181.46 132.2 90.14 79.74 50.85
Selling expenses 327.76 264.73 276.47 222.18 171.87
Adminstrative
expenses
337.49 277.03 167.2 148.16 72.42
Cost of sales 5,039.97 3,072.2
3
2,113.27 1,532.23 1,337.46
Operating profit 2,637.86 2,295.9
1
1,409.81 1,032.81 916.15
Other recurring
income
199.46 57.31 36.08 26.02 19.34
Adjusted PBDIT 2,837.32 2,353.2
2
1,445.89 1,058.83 935.49
Financial expenses 267.89 243.02 173.19 108.02 92.51
Depreciation 433.03 451.51 336.47 219.17 152.48
Page 94
INVETORY MANAGEMENT
Other write offs 0.2 0.27 0.27 0.27 0.31
Adjusted PBT 2,136.20 1,658.4
2
935.96 731.37 690.18
Tax charges 465.4 265.55 241.85 154.91 158.11
Adjusted PAT 1,670.80 1,392.8
7
694.11 576.46 532.08
Non recurring items -144.78 -144.57 7.78 -12 -12.48
Other non cash
adjustments
10.46 -11.34 1.1 8.48 -3.9
Reported net profit 1,536.48 1,236.9
6
702.99 572.94 515.7
Earnigs before
appropriation
4,584.28 3,239.5
4
2,136.05 1,528.77 1,057.60
Equity dividend 85.33 62.02 55.43 46.19 46.19
Dividend tax - 10.55 8.87 6.48 6.33
Profit carried to
balance sheet
4,498.95 3,166.9
7
2,071.75 1,476.10 1,005.08
Page 95
INVETORY MANAGEMENT
ESSAR STEEL
Essar Steel is one of India's largest exporters of flat products,
exporting to the highly demanding US and European markets,
and to the growing markets of South East Asia and the Middle East.
A number of major client companies have approved our steel for their use,
including Caterpillar, Hyundai, Swaraj Mazda, the Konkan Railway, and Maruti
Suzuki. Essar Steel has acquired extensive quality accreditations. Our lean
team gives us one of the highest productivities and lowest manpower costs
among steel plants internationally.
Seamless integration
A major strategic advantage is our high level of forward and backward
integration. We are totally integrated - from raw material to finished products,
adding value at every stage of the manufacturing process.
Bailadilla facility: Iron ore beneficiation
At Bailadilla, where some of the world's richest and finest ore is available, we
have set up a beneficiation plant of 8 MTPA capacity, which ensures the
Page 96
INVETORY MANAGEMENT
highest quality iron ore. The iron ore slurry is pumped through a 267 km
pipeline (the second longest in the world) to the pellet plant, yielding
advantages in quality, cost and real time inventory management.
Visakhapatnam facility: Pelletization
The slurry is received at our pellet plant at Visakhapatnam, which has a
capacity of 8 MTPA, providing vital raw material for the steel plant at Hazira.
Hazira facility
Our steel complex at Hazira, Gujarat, houses a 5.0 MTPA
sponge iron plant, the world's largest gas-based sponge
iron plant in single location. The plant provides raw
materials for our state-of-the-art 4.6 MTPA hot rolled coil
(HRC) plant, the first and largest of India's new generation steel mills. This
plant is fed with inputs from four electric arc furnaces and three casters. The
complex's sophisticated infrastructure includes independent water supply and
power, oxygen and lime plants, a township and a captive port capable of
handling up to 8 MTPA of cargo with modern handling equipment like barges
and floating cranes.
Page 97
INVETORY MANAGEMENT
Financial data
Particulars 31st MAR
10
31st MAR
09
31st MAR
08
31st MAR
07
31st MAR
06
Sources of funds
Owner's fund
Equity share capital 1,140.48 1,140.48 1,140.48 581.17 507.98
Preference share capital 43.6 43.6 246.52 2,204.12 530.27
Reserves & surplus 3,554.28 3,447.25 3,080.95 1,246.18 686.54
Loan funds
Secured loans 6,317.62 5,383.11 6,533.32 7,355.20 4,126.32
Unsecured loans 993.77 733.47 409.92 650.46 684.27
Total 12,049.75 10,747.91 11,411.19 12,037.13 6,535.38
Uses of funds
Fixed assets
Gross block 15,367.85 14,688.87 13,554.19 10,447.54 6,940.24
Less : revaluation reserve - - - - 0.07
Less : accumulated 6,239.03 5,414.98 4,664.60 4,049.09 3,691.34
Page 98
INVETORY MANAGEMENT
depreciation
Net block 9,128.82 9,273.89 8,889.59 6,398.45 3,248.83
Capital work-in-progress 549.61 575.12 1,107.78 2,887.36 589.64
Investments 791.31 515.22 433.43 182.97 768.38
Net current assets
Current assets, loans &
advances
5,465.23 4,829.42 5,592.66 5,229.78 3,689.80
Less : current liabilities &
provisions
3,885.22 4,445.74 4,612.27 2,661.43 1,761.27
Total net current assets 1,580.01 383.68 980.39 2,568.35 1,928.53
Total 12,049.75 10,747.91 11,411.19 12,037.13 6,535.38
Balance sheet
Page 99
INVETORY MANAGEMENT
Profit and loss account
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Income
Operating income 11,717.40 10,763.35 8,087.48 6,168.66 6,098.39
Expenses
Material consumed 3,983.17 4,108.57 2,722.02 2,249.70 2,005.67
Manufacturing
expenses
4,426.80 3,587.56 2,721.65 1,918.04 1,505.72
Personnel
expenses
233.07 225.8 152.8 99.75 76.09
Selling expenses 291.73 215.12 337.13 234.9 244.64
Administrative
expenses
269.98 265.5 151.69 171.24 317.13
Cost of sales 9,204.75 8,402.55 6,085.29 4,673.63 4,149.25
Operating profit 2,512.65 2,360.80 2,002.19 1,495.03 1,949.14
Other recurring
income
124.48 41.15 59.83 38.56 1.36
Adjusted PBDIT 2,637.13 2,401.95 2,062.02 1,533.59 1,950.50
Page 100
INVETORY MANAGEMENT
Financial expenses 861.63 890.01 772.04 440.01 570.48
Depreciation 828.11 766.52 631.04 482.1 394.29
Adjusted PBT 947.39 745.42 658.94 611.48 985.73
Tax charges 110.32 383.07 248.19 165.94 204.09
Adjusted PAT 837.07 362.35 410.75 445.54 781.64
Nonrecurring items -707.01 84.16 39.77 172.95 2.98
Other non cash
adjustments
55.14 -16.02 -14.03 -88.31 -184.72
Reported net profit 185.2 430.49 436.49 530.18 599.9
Earnings before
appropriation
1,859.10 1,874.78 436.49 530.18 -874.78
Preference
dividend
- 11.5 - - -
Dividend tax - 1.96 - - -
Profit carried to
balance sheet
1,859.10 1,861.32 436.49 530.18 -874.78
Page 101
INVETORY MANAGEMENT
STEEL AUTHORITY OF INDIA
Steel Authority of India Limited (SAIL) is the leading steel-making company
in India. It is a fully integrated iron and steel maker, producing both basic
and special steels for domestic construction, engineering, power, railway,
automotive and defense industries and for sale in export markets.
Ranked amongst the top ten public
sector companies in India in terms
of turnover, SAIL manufactures and
sells a broad range of steel
products, including hot and cold
rolled sheets and coils, galvanised
sheets, electrical sheets, structural, railway products, plates, bars and rods,
stainless steel and other alloy steels. SAIL produces iron and steel at five
integrated plants and three special steel plants, located principally in the
eastern and central regions of India and situated close to domestic sources
of raw materials, including the Company's iron ore, limestone and dolomite
mines. The company has the distinction of being India’s second largest
producer of iron ore and of having the country’s second largest mines
network. This gives SAIL a competitive edge in terms of captive availability
of iron ore, limestone, and dolomite which are inputs for steel making.
SAIL's wide range of long and flat steel products are much in demand in the
domestic as well as the international market. This vital responsibility is
Page 102
INVETORY MANAGEMENT
carried out by SAIL's own Central Marketing Organisation (CMO) that
transacts business through its network of 37 Branch Sales Offices spread
across the four regions, 25 Departmental Warehouses, 42 Consignment
Agents and 27 Customer Contact Offices. CMO’s domestic marketing effort
is supplemented by its ever widening network of rural dealers who meet the
demands of the smallest customers in the remotest corners of the country.
With the total number of dealers over 2000 , SAIL's wide marketing spread
ensures availability of quality steel in virtually all the districts of the country.
SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000
accredited unit of CMO, undertakes exports of Mild Steel products and Pig
Iron from SAIL’s five integrated steel plants.
With technical and managerial expertise and know-how in steel making
gained over four decades, SAIL's Consultancy Division (SAILCON) at New
Delhi offers services and consultancy to clients world-wide.
SAIL has a well-equipped Research and Development Centre for Iron and
Steel (RDCIS) at Ranchi which helps to produce quality steel and develop
new technologies for the steel industry. Besides, SAIL has its own in-house
Centre for Engineering and Technology (CET), Management Training
Institute (MTI) and Safety Organization at Ranchi. Our captive mines are
under the control of the Raw Materials Division in Kolkata. The Environment
Management Division and Growth Division of SAIL operate from their
headquarters in Kolkata. Almost all our plants and major units are ISO
Page 103
INVETORY MANAGEMENT
Certified.
Financial data
Balance sheet
Page 104
INVETORY MANAGEMENT
Particulars 31st MAR
10
31st MAR
09
31st MAR
08
31st MAR
07
31 st MAR
06
Sources of funds
Owner's fund
Equity share capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40
Reserves & surplus 23,853.70 18,933.17 13,182.75 8,471.01 6,176.25
Loan funds
Secured loans 1,473.60 925.31 1,556.39 1,122.16 1,603.98
Unsecured loans 6,065.19 2,119.93 2,624.13 3,175.46 4,165.81
Total 35,522.89 26,108.81 21,493.67 16,899.03 16,076.44
Uses of funds
Fixed assets
Gross block 32,728.69 30,922.73 29,912.71 29,360.46 28,043.48
Less : accumulated
depreciation
20,459.86 19,351.42 18,315.00 17,198.32 15,558.41
Net block 12,268.83 11,571.31 11,597.71 12,162.14 12,485.07
Capital work-in-
progress
6,544.24 2,389.55 1,236.04 757.94 366.48
Investments 652.7 538.2 513.79 292 606.71
Net current assets
Current assets, loans
& advances
35,666.84 27,309.01 21,673.75 18,788.80 15,521.37
Less : current 19,609.72 15,758.74 13,656.77 15,317.67 13,198.12
Page 105
INVETORY MANAGEMENT
liabilities & provisions
Total net current
assets
16,057.12 11,550.27 8,016.98 3,471.13 2,323.25
Miscellaneous
expenses not written
- 59.48 129.15 215.82 294.93
Total 35,522.89 26,108.81 21,493.67 16,899.03 16,076.44
Profit and loss account
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Page 106
INVETORY MANAGEMENT
Income
Operating
income
43,798.5
8
39,958.6
7
34,328.7
7
28,200.4
8
28,714.3
0
Expenses
Material
consumed
22,042.5
8
16,821.3
9
15,963.1
3
13,903.2
3
11,155.3
3
Manufacturin
g expenses
3,762.77 3,317.74 2,925.43 2,793.45 2,427.11
Personnel
expenses
8,401.73 7,919.28 5,087.76 4,156.97 3,811.75
Selling
expenses
935.68 1,143.90 1,066.73 1,108.12 971.78
Administrativ
e expenses
1,644.78 1,321.44 1,064.29 1,035.99 780.67
Expenses
capitalized
-1,930.40 -1,832.22 -1,423.08 -1,352.05 -921.71
Cost of sales 34,857.1
4
28,691.5
3
24,684.2
6
21,645.7
1
18,224.9
3
Operating
profit
8,941.44 11,267.1
4
9,644.51 6,554.77 10,489.3
7
Other
recurring
income
2,279.89 1,539.69 1,354.96 892.3 676.55
Page 107
INVETORY MANAGEMENT
Adjusted
PBDIT
11,221.3
3
12,806.8
3
10,999.4
7
7,447.07 11,165.9
2
Financial
expenses
253.24 250.94 332.13 467.76 605.05
Depreciation 1,285.12 1,235.48 1,211.48 1,207.30 1,126.95
Other write
offs
128.02 75.49 128.59 181.44 184.89
Adjusted PBT 9,554.95 11,244.9
2
9,327.27 5,590.57 9,249.03
Tax charges 3,284.28 3,934.65 3,253.80 1,694.36 2,592.37
Adjusted PAT 6,270.67 7,310.27 6,073.47 3,896.21 6,656.66
Nonrecurring
items
-277.12 161.9 53.75 45.64 -14.35
Other non
cash
adjustments
181.26 64.61 60.57 71.12 174.66
Reported net
profit
6,174.81 7,536.78 6,187.79 4,012.97 6,816.97
Earnings
before
appropriation
22,052.4
7
18,348.4
3
12,886.6
3
7,861.47 6,839.66
Equity
dividend
1,073.90 1,528.25 1,280.42 826.08 1,363.03
Dividend tax 181.26 258.91 197.98 115.86 185.24
Profit carried to 20,797.3 16,561.3 11,408.2 6,919.5 5,291.4
Page 108
INVETORY MANAGEMENT
balance sheet
> Here for comparison the best method is the comparison is ratio analysis of
these company and TATA Steel ltd.
Ratio analysis TATA JINDAL ESSAR SAIL
Raw material to current asset 14.26 17.3 5.72 8.83
Finished goods to current
asset
13.55 17.02 12.28 33.45
Stock turnover ratio 7.72 7.77 5.48 5.08
Average age of stock 47.28 46.97 66.6 71.85
Inventory conversion period 39 53.49 67.38 85.61
Current ratio 1.12 0.61 1.68 2.01
Acid test ratio 0.79 0.34 0.89 1.42
Total inventories to total asset 5% 9.93% 17.44% 27.46%
Sales 24315.77 14001.25 11688.3 43150.08
Profit after tax 5201.74 4,498.95 1859.1 20,797.3
Page 109
INVETORY MANAGEMENT
It will easy to understand when it will put into chart. So, all the necessary
charts are given below.
If we compare for TATA STEEL with other companies, then we can see that
TATA STEEL’s raw material to current asset is neither too high nor too low. It
is maintaining a required amount of raw material in hand. Where ESSAR
STEEL is maintaining very low amount of raw material in hand.
Page 110
TATA JINDAL ESSAR SAIL0
2
4
6
8
10
12
14
16
18
20
Raw material to cureent asset
Raw material to cureent asset
INVETORY MANAGEMENT
Here we can see that SAIL is playing a defensive role in case of finished
goods. But still TATA steel has limited finished goods to sell. TATA STEEL
never tried to block its capital.
Both TATA STEEL and JINDAL STEEL have the good stock turnover ratio. In
this case TATA STEEL is far ahead than ESSAR STEEL and SAIL.
Page 111
TATA JINDAL ESSAR SAIL0
5
10
15
20
25
30
35
40
Finished goods to current asset
Finished goods to current asset
TATA JINDAL ESSAR SAIL0
1
2
3
4
5
6
7
8
9
Stock turnover ratio
Stock turnover ratio
TATA JINDAL ESSAR SAIL0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
Average age of stock
Average age of stock
INVETORY MANAGEMENT
As the stock turnover ratio is too high, so the average age of stock is less than
50
days. Where SAIL and ESSAR age of stock is too high. Even SAIL age of
stock is more than 70 days.
Inventory conversion period is lowest than other company for TATA STEEL.
So from here we can conclude TATA STEEL is the fastest converter company
for Inventory.
Page 112
TATA JINDAL ESSAR SAIL0
10
20
30
40
50
60
70
80
90
Inventory conversion period
Inventory conversion period
INVETORY MANAGEMENT
Current ratio of TATA STEEL is in standard position. Where JINDAL steel’s
current ratio is less than 1 and SAIL’s current ratio is more than 2. Where
SAIL is blocking its working capital there TATA STEEL is keeping appropriate
coverage for current liability.
Page 113
TATA JINDAL ESSAR SAIL0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Acid test ratio
Acid test ratio
TATA JINDAL ESSAR SAIL0%
5%
10%
15%
20%
25%
30%
Total inventories to total asset
Total inventories to total asset
INVETORY MANAGEMENT
TATA STEEL maintained exact amount of highly liquid money in hand, where
SAIL maintained huge amount of highly liquid money. So in this case
TATASTEEL is good enough to maintain the highly liquid money.
TATA
STEEL has less inventories percentage to total asset than other companies. It
is a good sign for TATA STEEL. This company never tried to block its current
money. From this chart it is clearly shown that SAIL is always maintaining a
defensive position.
Page 114
TATA JINDAL ESSAR SAIL0
0.5
1
1.5
2
2.5
Current ratio
Current ratio
TATA JINDAL ESSAR SAIL0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
SalesProfit after tax
INVETORY MANAGEMENT
Here it is clear that SAIL’s sale and profit is higher than other companies. But
if we see TATA STEEL and JINDAL steel, the percentage of profit against
sale is high for JINDAL Steel than TATA STEEL. But the sale price of TATA
STEEL is less than JINDAL Steel. So, that the sale is higher than JINDAL
steel and ESSAR Steel. As SAIL is Government undertaking organization, it is
getting lot of subsidiaries and also other facilities from Government. But still
TATA STEEL is in second position.
Page 115
INVETORY MANAGEMENT
SUGGESTIONS AND
CONCLUSION
Page 116
INVETORY MANAGEMENT
CHAPTER: 7
CONCLUSION AND SUGGESTION
Conclusion
During my project, I personally learned a lot of things i.e. how TATA STEEL is
working in case production, raw material consumption etc. I also learned
about inventory management in TATA STEEL. I am happy to work here for
last two months. It gave me nice experience as well as a value addition to my
carrier. During this period I found some good points and some which I think
will help in improving the performance of the company. These are as follows:
My observations:
TATA STEEL is maintaining three major types of inventories i.e. raw
material, work-in-process and finished goods.
Cost of inventories is valued under ‘weighted average method’.
TATA STEEL has prepared high quality inventory storing house to
minimize the cost relating to it.
TATA STEEL’s inventory conversation period is too efficient than its
competitors. It is very less than the others.
As per my concern, TATA STEEL is maintaining an appropriate
amount of liquidity to cover its current liability while we see its current
ratio and acid test ratio. It shows its aggressiveness. It never tried to
block its money unnecessarily.
The raw material inventory of SAIL is very low in percentage in
comparison to TATA STEEL.
Page 117
INVETORY MANAGEMENT
TATA STEEL is managing its inventory very cleverly. It is keeping only
5% of its total asset, which is lesser than other competitors. It shows
efficiency level of TATA STEEL.
The Compounded Annual Growth Per Annum of the value of raw
material consumed is more than 35% but sales value is not increasing
that much. But it is far efficient than the others.
All the raw material price is increasing except ferro manganese and
zinc alloys.
Raw material conversion period is decreasing year by year. It shows
its efficiency level.
Expenses on coke are increasing year by year. Where percentage of
expenses on ferro manganese is decreasing.
Import of raw material is the maximum in the year 2008-09. Where in
rest of the year TATA STEEL was using own mines for raw material.
Where finished goods conversion period and raw material conversion
period is decreasing, there work in process conversion period is
increasing.
Page 118
INVETORY MANAGEMENT
SUGGESTION
For better inventory control TATA STEEL must apply VED analysis or
ABC analysis.
TATA STEEL must keep eye on its WIP conversion period.
TATA STEEL should try to minimize its inventory conversion period
and also try to minimize the average age of stock to reduce the cost of
inventories.
As sale price per unit is lesser than the competitors it must keep trend
increasing mode of sales to reduce the blockage of its price in its
inventory.
Try to make same CGPA of closing stock of inventory and profit after
tax. Because PAT CGPA is still 5% less than Inventory CGPA.
Cost of production and Cost of goods sold CGPA should tally. Because
cost of goods sold CGPA is still less than 3% than Cost of production
CGPA.
Inside the plant one quotation is there ‘work must but safety first’. It
should be obeyed by all the employees at least who are working in
production and inventory maintenance departments.
Try to generate more revenue from other country.
TATA STEEL should try for acquisition of more mines in India to
reduce the raw material outsourcing or import cost.
* ABC Analysis: It is a part of inventory management in which, the items
included in the inventory are classified into different categories as items of
Page 119
INVETORY MANAGEMENT
higher value occupying lesser space, lower value occupying more space and
others.
*VED Analysis: V=Vital, E=Essential, D=Desirable. It is the one of the major
part of inventory management. Inventories should divide according to their
importance.
Page 120
INVETORY MANAGEMENT
Page 121
INVETORY MANAGEMENT
Page 122
INVETORY MANAGEMENT
Bibliography
Books
Financial management by Prasanna Chandra
Fundamental Financial management by Bringham & Houston
Websites
www.tisco.com
www.sail.co.in
www.jindalsteel.com
www.essarsteel.com
www.wikipedia.com
www.steel.nic.in
www.economywatch.com
Other references
Annual report of TATA STEEL for the year 2005-06, 2006-
07, 2007-08, 2008-09, 2009-10.
Annual report of SAIL, JINDAL, ESSAR steel for the year
2009-10.
Page 123