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INTRODUCTION
ABOUT JK AT GLOBAL LEVEL:
JK Organization was founded over 100 years ago and ranks, among the largest
private sector groups in India in terms of assets and sales. J.K organization has a
distinguished record of having pioneered several new products and processes through
out the world. The group has multi-business, multi product and multi location
operations at a multi national level.
JK owes its name, to the two great visionaries- Late Lala Juggilal Singhania
and his son Late Lala Kamlapat Singhania as they conceived an industrial entity. A
dynamic personality with a broad vision, inspired by the cause of the Swadeshi
movement of Mahatma Gandhi, and driven by the zeal to set up an Indian enterprise,
Lala Kamlapat Singhania founded J.K. Organization in the 19 th century with its
headquarters at Kanpur (U.P.) – ushering in a new industrial era in India.
J.K. Organization is continuously striving to achieve excellence in its products
and processes. Success of J.K. Organization is based on the use of latest technology,
continuous research & development and innovation. The Group has set up several
R&D institutions for specific industries.
The Group's exports span over 60 countries across 6 continents comprising of
products like tyres, paper, woolen textiles, readymade apparels, rubber products,
engineering products etc. It has global presence with manufacturing operations and
outsourcing arrangement in different parts of the world.
Innovation and passion to perform has always been the driving force at J.K
Organization. In the border-less global business scenario, all the major businesses of
J.K. Organization are continuously upgrading their scale of operations. This is a
continuous process in line with the passion for growth. J.K. Organization constantly
scans the business opportunities that emerge all through the world and focuses on
areas in which the group can leverage its strength. The Company is implementing
TPM with the help of Japan Institute of Plant Maintenance.
1
The Company has an export footprint for high value branded products in the
Middle East, South East Asia, SAARC and various African countries. JK Paper has
also been consistently exporting its products to markets such as Sri Lanka,
Bangladesh and several West Asian Countries. Nearly 50% of the exports is of
branded products.
The Company has made, on 30th March 2006, an international offering of
unsecured Foreign Currency Convertible Bonds (FCCBs) due 2011 aggregating to US
$5 million; and (ii) 77,00,000 Global Depository Receipts (GDRs) @ US $ 1.544 per
GDR aggregating to about US $ 12 million. The said FCCBs and GDRs will be listed
on the Luxembourg Stock Exchange.
Most of the Group's plants have ISO 9001 certification and some also have
earned QS 9000 and ISO 14001 certifications, which include caring for
environment. it's no surprise that the Group has bagged various awards for
betterment of the environment and exports.
It is the first Indian Paper Mill to receive the “Sword of Honour” from British
Safety Council and ISO 9001 Certification by DNV – Norwegian agency.
2
ABOUT JK AT NATIONAL LEVEL:
JKPM Incorporated in the year 1938, JK Corp Limited, started its operation
with a board mill at Bhopal for manufacture of straw board. Since then the activities
of the company have been diversified from time to time. In the year 1962, JK Corp
Ltd. set up this integrated Pulp and Paper Mill in the backward district of Rayagada in
Orissa. In 1982, the activities of JK Corp Ltd. were further diversified when it set up a
most modern cement plant by the name Lakshmi Cement.
In 2001 JK Paper Ltd. was formed by amalgamating the JK Paper Mills at
Rayagada and the Central Pulp Mills at Songadh, Gujarat, to become India’s 2nd
largest producer of quality paper with a turnover exceeding Rs. 650 crores.
The company is also commissioning a modern Recovery Boiler at its CPM
Unit, which would result in higher chemical recovery and increased pulp production.
These projects along with other modernization programs would cost around Rs. 100
crores and would result in reduced cost and higher production. The projects are
scheduled for commissioning during the financial year 2004-05.
JK Paper Ltd., India's largest producer of branded papers is also a leading
player in the Printing and Writing segment. It operates two paper plants in India, JK
Paper Mills in Rayagada, Orissa, with a capacity of 125,000 tonnes per year and
Central Pulp Mills, located at Songadh, Gujarat, with a manufacturing capacity of
55,000 tonnes per year. Both the manufacturing units of the Company are ISO 9001-
2000 compliant. A plant to manufacture 60,000 tonnes per year of industrial
packaging board in Gujarat is under implementation.
About 40% of Paper produced by the Company is sold under various brand
names, JK Copier, JK Excel Bond, JK Bond, JK Savannah, JK Copier Plus and JK
Easy Copier. Being the largest selling branded copier paper in India, JK Copier is the
Company's flagship brand. The other major product is JK Maplitho, a superior
uncoated Writing and Printing paper. The Company sells through a nationwide
distribution network of approximately 100 distributors and 2500 dealers.
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JK Paper enjoys highest Operating Margins and Highest Net Sales Realisation
(NSR) in over 90% of the products it sells, amongst the paper mills across India. It is
the only Company in the industry with such a large share of branded products in its
portfolio.
The Company passionately believes in Environment & Safety and has
introducing cleaner and environment-friendly technologies. JK Paper Mill at
Rayagada has been adjudged as the Greenest Paper Mill in India. Both the units of the
Company are ISO 14001 certified for their eco-friendly operations.
The Company's plantations, driven by in-house research programme, have
covered more than 45,000 hectares of land over the years. By providing farmers high
quality plant species through the Company's plantation research centre, it is helping
the farmers to improve their economic well being. Very large number of farmers in
the states of Orissa, Chhattisgarh, West Bengal, Andhra Pradesh, Gujarat and
Maharashtra are benefiting from this programme. The plantation with its superior
quality plants contribute towards a strong base for high quality raw materials.
J K Paper is highly committed to enhancing the well being of society at large.
The Centre for Science and Environment, an independent organization, has, in an
initiative supported by UNDP and the Ministry of Environment and Forests in July
'99, ranked J K Paper as the No.1 in green rating among Indian paper manufacturers.
This distinction has spurred J K Paper towards achieving global standards in
environmental protection. J K Paper's efforts towards enhancing the well being of the
society can be viewed fewer than two broad heads i.e. Nature and People.
The Prime Minister of India, Dr. Manmohan Singh, when he was a Finance
Minister and chairman of the project advisory panel and emphasizes the importance of
the project, " Being environment friendly is not only a moral obligation, it also makes
good economic sense.... Ultimately a country like India cannot be governed by ever
expanding regulations.... We must develop a more participatory style of management
and regulations, which rely more and more on self-performance and self-
improvement. And ratings can help in inducing that change in mindset."
4
All in all, as the green rating project drew to a close, only one pulp and paper mill
was found to have a commendable environment policy. This mill, which also enjoys
an ISO 14001 certification, was JK Paper.
J.K. (EAST ZONE) GROUP COMPANIES
5
BRIEF DETAILS OF J.K. (EAST ZONE) GROUP COMPANIES
JK PAPER LIMITED
JK Paper Limited was formed in 2001 by amalgamating JK Paper Mills at
Rayagada and Central Pulp Mills at Songarh, Gujarat, to become India’s 2nd largest
producer of quality paper with a turn over exceeding Rs. 650 crores. It is a leader in
writing, printing as well as coated varieties of paper.
JK CORP LIMITED (LAKSHMI CEMENT)
JK Corp Limited (formerly Straw Products Ltd.) belongs to Eastern Zone and
is one of the major companies of JK Organization. Before 2001, JK Corp Limited
comprised of 2 units viz. JK Paper Mills & Lakshmi Cement. In 2001, JK Paper Mills
became a part of JK Paper Ltd. The company turnover is around Rs.450 Crore.
Received the DMA Watson Wyatt Award for Most Innovative Human Resource
Practice (2002)
JK INDUSTRIES LIMITED
JK Industries Limited is another flagship company of our group. In the last 10
years the turn over of the company has increased four-folds. JK Industries Ltd.
comprises the following Divisions:
JK TYRE
In 1977 JK Industries set up a modern Automotive Tyres & Tubes Plant at
Jaykaygram near Udaipur in Rajasthan in technical collaboration with General Tire
Co., USA and another plant in 1991 at Banmore in Madhya Pradesh. The two Plants
together have a manufacturing capacity of nearly 30 lakh tyres per annum. The
company turnover is around Rs.2250 crore.JK Tyre is the largest four-wheeler tyre
producer in India. JK Tyre is the pioneer of Steel Radial Technology in India.
JK AGRI GENETICS LIMITED
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J.K. Agri-Genetics Manufactures hybrid and high yielding seeds at
Hyderabad. It has tie up with the leading companies of the world to produce
genetically superior seeds for the growth of Indian agriculture. It has a robust pipeline
of products in several crops viz. cotton, jowar, maize, rice, tomato, sunflower, okra,
hot pepper, sorghum, pearl millet, bhendi. The production of hybrid seeds is carried
out in an area of 10000 ha. The company turnover is around Rs.38 crores.
JK SUGAR LIMITED
A 4300 TPD Cane Crushing Capacity Sugar Mill at Meerganj, Uttar Pradesh,
was commissioned in 1996. The plant has adopted the most modern design and has
installed a baggage based cogeneration plant of 9 MW, of which 4MW is fed into the
upseb Grid. Plans are being formulated for expansion of the Mill. Continued emphasis
is on co-generation of power. The company turnover is around Rs.113 crores.
FENNER (INDIA) LIMITED
Fenner India Limited started its operation in 1929. The company is engaged in
a host of quality of products ranging from Power Transmission and Engineering
products, Automotive Products, Conveyor Belting, and Industrial Electronics to
Material Handling Systems. The products are used in more than 35 countries
worldwide. Majority of the airports in Indias have Fenner Baggage Handling systems.
The company has a gross turnover of about Rs.425 crores.
With modern units located at Madurai, Hyderabad and Chennai, the company
is on the threshold of major growth. Fenner’s acquisition of spinning units in Karur
and Salem marks its diversification into the field of Cotton Textiles and installed few
wind Mills.
JK DAIRY & FOODS LIMITED
JK Dairy & Foods Ltd is located in the middle of the milk rich area of
Gajraula, about 110 Kms East of Delhi, the plant has latest equipment from leading
suppliers all over the world. The company’s turnover is around Rs.68 crores. Is a
supplier to HLL, SKB, Perfetti, Amrit Banaspati, Tata Tea. Keeping in view the
necessity to have high standards of hygiene, the civil work is also of high quality.
7
The dedicated team of professionals and experts has helped make JKDF one of the
first dairy processing company in India to get coveted ISO 9002 accreditation and the
products synonymous with quality. Its products include dairy powder, dairy creamer,
butter(ghee), skimmed milk powder.
JK PHARMACHEM
JK Pharmachem is the leading Fermentation Company manufacturing
Pencillin G & Bio Catalysis enzymes. Market share is 23%. The company has a gross
turnover of about Rs.120 crores.
Therefore
“THEY BELIEVE GENERATING REVENUE IS NOT THE ULTIMATE END OF
BUSINESS FOR THEM, CREATION OF WEALTH IS MORE APPROPRIATE
OBJECTIVE. THE WEALTH OF SOCIAL INFRASTRUCTURE. THE WEALTH
OF SUPPORT AND CARING FOR PEOPLE OF INDIA”.
8
INTRODUCTION TO INVENTORY MANAGEMENT
Inventory Management involves the control of assets being produced for the
purposes of sale in the normal course of the company’s operations. Every enterprise
needs inventory for smooth running of its activities. It serves as a link between
production and distribution process. There is generally a time lag between the
recognition of a need and its fulfillment. The greater the time lag, the higher the
requirements for inventory. The unforeseen fluctuations in demand and supply of
goods also necessitate the need for inventory. It is also provides a cushion for future
price fluctuations.
The important of inventory management has greatly increased in recent times
as 60% of the total cost of production relates to inventory. Inventory management
boils down to maintaining an adequate supply of something to meet the expected
demand patterns subject to budgeting considerations. At the same time unnecessary
investment should be avoided. Inventory control became very much necessary for the
long run profitability of the company.
The investment in inventories constitutes the most significant part of current
assets or working capital in most of the undertakings. Thus it is very essential to have
proper control and management of inventories. The purpose of inventory management
is to ensure availability of materials in sufficient quantity as and when required and
also to minimize investment in inventories.
Most of the manufacturing companies spend more than 60% of the money for
materials. Materials include raw material bought out finished components, semi
finished, components, spare parts, consumables and work in progress. Even a small
saving in material will had to heavy reduction in production cost. Inventory
management deals with purchasing, stocking and issuing of materials to various
departments at right time, right quantity, and at a right quality. Inventory
management involves controlling the quantity, kind, location, movements and timings
of purchase of various materials used in the industry.
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The most significant reason for the importance of material management is that
50% to 60% of the total cost of production relates to materials. In materials
management the costs relating materials are divided into two segments viz., the cost
of materials which is the price tat we pay for obtaining the goods and second, the cost
on materials which are the costs which we incur on materials other than price that we
pay for it. In the nineties the materials manager will be deeply involved in quality
management and inventory management.
One will appreciate that the quality of the final product is primarily dependant
on the quality of raw materials used. Another interesting development that is taking
place is that quality is no longer confined to the production floor but is board room
issue. The area is little more complicated. Today inventories are no longer considered
as disease which we can cure. Standard medicines or techniques like ABC analysis,
EOQ, purchasing etc. Inventory is today identified as a symptom of a disease, and it
is, therefore, necessary to identify the disease which gives rise to these symptoms
before attempting control over it. Inventory of finished goods will pose a greater
danger in the year to come because of shortening life cycles of products.
It is great pity that corporate management spends of 50% of their time on
personnel problems which costs the company 7% of the total expenditure while hardly
any attention is paid to the management of inventories which accounts for 60% of
costs. A wit gave the reason “Materials cannot shout and make noise as the unions
do”; the inventory manager will have to do the shouting on behalf of the in
articulating materials. Inventories are components of the firm’s working capital.
However, the importance of inventory management to the company depends
upon the extent investment in inventory.
10
NEED AND SIGNIFICANCE OF THE STUDY
As part of the two year Master Degree in Business Administration, being
offered by Andhra University every student has to fulfill the criteria of submitting the
report of 8 weeks practical training in an organization.
The basic idea is to familiarize the M.B.A. student with real work environment
so as to equip them fully with knowledge and skills both theoretical and practical.
The scope of the study is confined to one of the key areas of “FINANCE” i.e.
“INVENTORY MANAGEMENT”, which plays a vital role in the manufacturing
organization.
The study concentrates on the methods and techniques followed by the “JK
PAPER MILLS” for its “INVENTORY MANAGEMENT” and its relative merits and
demerits.
The present study also concentrates on the importance of the “INVENTORY
MANAGEMENT” and the study appraises the company success in meeting
requirements of the organization.
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OBJECTIVES OF THE STUDY
The main objectives of the study is
To study the importance of the “INVENTORY MANAGEMENT” with
emphasis on “JK PAPER MILLS”
To study the various aspects of inventory of JK.
To study the procurement procedures of inventory.
To evaluate inventory levels and the techniques those are being followed at
JKPM.
To study the inventory control techniques.
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METHODOLOGY
The main emphasis of the study is on the inventory management at JKPM.
This methodology of the study runs as stated below.
The data collected from two ways.
PRIMARY DATA
SECONDARY DATA
PRIMARY DATA:
The original data collected specifically for a current research is known as
primary data. This is the information that must be collected for the first time. It may
be done by observation and survey. The data was collected through discussion with
stores & yard manger and purchase manager.
SECONDARY DATA:
The information that already exists is called as secondary data. It is collected
from company records, magazines, souvenirs, annual reports and web sites of the
company
13
FRAME WORK OF THE STUDY
The present study is dived into five chapters as described below:
Ist CHAPTER consists of introduction, need and significance of the study,
objectives, methodology, limitations and frame work.
IInd CHAPTER consists of brief overview of industry, organization, company
profiles.
IIIrd CHAPTER describes about the theoretical study of inventory
management, techniques of inventory management, and valuation of inventory.
IVth CHAPTER deals with the practical study of inventory management
at JK PAPER MILLS
Vth CHAPTER deals with the summary, suggestions and bibliography.
14
LIMITATIONS OF THE STUDY
Every study will be bound with some limitations. The below mentioned are the
constraints under which my study was carried out.
One of the factors constructing the study was the lack of availability of ample
information
The time given for the study is short to collect the sufficient data and study the
practical operations of the mill in the field of inventory.
The study is based on only the information let out by the public documents
such as reports of the organization.
To the extent that the executives could spare their time, they gave us the
information by way of discussion for the purpose of data collection.
Most of the information has been kept confidential and as such is not passed
on as part of policy of the organization.
Most of the inventory data is being controlled and not being let out for the
others as they are said to be the controlled copies.
So I had to manage the study under limitations which as such did not pose any
problem to me.
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ORGNIZATION PROFILE OF JKPM
PAPER INDUSTRY PROFILE
WHAT IS PAPER?
Paper has played a vital role in the development of mankind since times
immemorial, as a means of communication as the most versatile material for packing
of goods as a medium of preserving knowledge for progeny.
Paper is defined as “A MAT OF CELLULOSE FIBERS ARRANGED IN
CRISES CROSS FASHION WITH HYDROGEN BOND AND OTHER
FORCES”.
INTRODUCTION:
Paper is derived from the word “PAPYRUS”. Today paper includes a wide
range of products with very different applications: Communication, Cultural,
Educational Artistic Hygienic Sanitary as well as storage and transport of all kinds of
goods. It’s almost impossible to imagine a life without paper.
There is degree of consensus that the art of making paper was first discovered
in china and its origin in that country is traced back to second century. In about AD
105 Tsailun, an official attached to imperial court of china, created a sheet of paper
using mulberry and other baste fibers along with fishnets, old rags and hemp waste.
Chinese considered paper a key invention and kept this a closely guarded
secret for five centuries until the technology slowly made it way west ward. The Arab
captured chine city containing a paper mill in the earl’s 700’s and from this stated
their own paper making industry (Early 700’s). Invention of printing in 1450’s
brought a vastly increased demand for paper.
Paper was first made in England in 1496. The first US Mill was built in 1690,
the Rittent House Mill, German town, Pennsylvania.
Paper has been found to have necessary use besides being a stationary and it
may use besides being a stationary and it may perhaps be true that equipped with this
16
powerful art craftsman’s has been for the centuries discovering new usage and
benefits paper has been found to be the most essential product as a writing aid over
which our attention is focused at the movement, it has much to talk about. Indeed it
involves itself in a wide range of activities from WHITE HOUSE OFFICALS releases
to kinder garnet copy writing from toilet issue paper to the currency notes and many
more.
Another big example of use of paper is none other than my project work
without which this would which this would not have happened.
In spite of good achievement to its credit in the development of the economy,
India is record is dismal in the scripts on leaves and metals later on which the
development of the paper sheets, it becomes possible for everything known to us in
the form of books, records and reports.
Long back people used to write on walls, wooden plants, leaves of palm etc,
but then paper was invented in china and was called “PAPYRUS”. Since then the
world has got as excellent media for writing printing and several other purposes. A
material that has been playing such an important role in our day to day life initiated
the research of this project to take up this product paper is playing a vital role in day
to day life of every individual. Though the computers have existed and many
programs have been done to do paperless job works. But it is not possible to go out of
paper or to not need it any instance of time. This is the reason why ht researcher chose
paper as the product.
From economic point of view paper industry in all over the world is facing
problems of hardwood and bamboo being prime raw materials for the industry need
cutting of the forest. Along with cutting, plantations of the trees are to be carried out.
But it takes time for growing of trees factories are facing raw material problem. They
are leading to closure of the company only few companies are doing well. For this
substitute raw materials are being constantly being worked for. The company which is
fittest able to survive and cope with the conditions and among them in India is JK
PAPER.
ORGANIZATIONAL PROFILE
17
JK ORGANIZATION – AN OVERVIEW
JK Organization was founded over 100 years ago and ranks, among the largest
private sector groups in India in terms of assets and sales. J.K organization has a
distinguished record of having pioneered several new products and processes in India.
The group has multi-business, multi product and multi location operations.
JK owes its name, to the two great visionaries- Late Lala Juggilal Singhania
and his son Late Lala Kamlapat Singhania as they conceived an industrial entity. A
dynamic personality with a broad vision, inspired by the cause of the Swadeshi
movement of Mahatma Gandhi, and driven by the zeal to set up an Indian enterprise,
Lala Kamlapat Singhania founded J.K. Organization in the 19 th century with its
headquarters at Kanpur (U.P.) – ushering in a new industrial era in India.
Equipped with tenacity of purpose, perseverance, and foresightedness, he
achieved success in his mission and in a short span of time, between 1921 and 1937, a
series of Industries with diversified interests were set up by him – Kamla Ice Factory,
JK Jute Mills Co. Ltd, JK Cotton Manufacturers, JK Iron and Steel Co. Ltd. against
the tough opposition of British Industrialization and an alien Government.
He died at an early age of 53 on 31st May 1937 and left the legacy of his spirit
of patriotism, swadeshism and the aptitude for planning and social service to his three
illustrious sons- Sir Padampatiji, Lala Kailashpatiji and Lala Lakshmipatiji, who
along with other family members have contributed the best of their services to the
growth of the organization, in a team spirit.
JK ORGANIZATION has been a forerunner in the economic and social
advancement of India. It has always aimed at creating job opportunities for a
multitude of countrymen and to provide high quality products. It has strived to make
India self-reliant by pioneering the production of a number of industrial and consumer
products, by adopting the latest technology its own know-how. Besides serving the
nation, it has also undertaken industrial ventures in several other countries.
18
JK ORGANIZATION is an association of industrial and commercial
companies, employing nearly 50,000 persons engaged in the manufacture of a variety
of products and in diverse field of commerce. JK Organization comprising more than
50 in number, the group’s companies are mostly public limited, where it has
controlling interest ranging from 35% to 80% and the number of public shareholders
aggregate over 7, 00,000.
JK ORGANIZATION is headed by Shri Hari Shankar Singhania, an eminent
Industrialist who enjoys reputation of a high order in the country, as well as abroad.
He was the President of the International Chamber of Commerce, Paris for 1993 &
1994. Apart from heading apex bodies of Commerce and Industry, he is holding top positions in the
premier Professional Bodies in India and abroad. In honor of his contribution to the society,
Government of India has bestowed the prestigious National “PADMA
BHUSHAN” award to Shri Hari Shankar Singhania on 26-01-2003. He has been
honored with the nation’s third highest civilian award for distinguished service of
high order in trade and industry.
JK ORGANIZATION has made many forays into several fields such as:
Paper and Boards, Cement, Automotive Tyres and Tubes, Pharmaceuticals,
Agrochemical, Hybrid seeds, Cosmetics, Audio Magnetic Tapes, V.Belts, Conveyor
Belting, Automotive Belts, Material Handling Systems, Sugar, Dairy & Food
Products.
JK ORGANIZATION has achieved a number of important technological
break-through and has an impressive record of FIRSTS in India, prominent among
them being:
1949- First in India to manufacture Steel Engineering Files.
1962- First Indian Paper Mill to receive ISO-9001 certification.
1969- First in India to set up continuous Rayon plant.
1977- First in India to produce Steel Belted Radical Tyres for passenger cars, trucks
and buses.
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1980- First in the world to make Steel Radical Tyres for 3 wheelers.
1984- First to produce White Cement in India using dry process technology.
1989- First in India to produce magnetic tapes with cobalt technology.
1994- First Tyre industry in world to receive ISO-9001 Certification for entire
operation.
1994- First in India to produce Aluminum Virgin Metal from Indian Bauxite. (The
company was nationalized in 1973)
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JK EMBLEM
The Hand and Hammer of JK Organization came into use in the beginning of
1943. This symbol was chosen by Late Lala Lakshmipat Singhania, third son of Late
Lala Kamlapat Singhania, the founder of JK Organization.
The circle denotes industry. 24 teeth in the circle symbolize round – the –
clock activity. The hand and hammer signify labour and tool. The hard grip of the
hand stands for the strength and workmanship.
This emblem signifies the strong belief of the organization in the capability of
its employees.
21
JK PAPER LIMITED – VISION
To set benchmarks in the Indian Paper Industry in Quality of Products,
Services, People, Profitability, Growth, Innovation and Environmental Management
to contribute to the Development of the nation.
CORPORATE MISSION
To achieve growth and leadership through the JK brand equity, customer
obsession, technological innovation and cost leadership, with a clear focus on
environment, while continuously enhancing shareholder value.
JK PAPER LIMITED – MISSION
To grow the paper business to 5 lakh tonnes by 2006 and establish leadership
through the JK Brand Equity and customer focus, continuously enhancing shareholder
value.
MANAGEMENT OBJECTIVE:
“To provide 100% support to our customers through continuous improvement
of specific, measurable, attributable, result oriented and time bound programs in terms
of service systems and manpower.”
JK PAPER LIMITED - STRATEGIC OBJECTIVES:
Sustained growth-optimizing production potential in least possible
time.
Leadership in niche market and customer oriented marketing.
Internationalization of business.
Cost competitiveness with international bench-marking
22
POLICIES AT JKPM
QUALITY POLICY:
“To provide ‘Customer Delight’ – both internal and external – through our
products and services at Lowest Cost by Continuous Improvement in processes,
productivity, quality and management systems.”
ENVIRONMENTAL POLICY:
JK Paper Mills, Rayagada, Orissa (India) are committed to:
Comply with applicable Environmental Legislations
Prevention of Pollution
Continual improvement in environmental performances
JK Paper Mills shall improve Environmental Performance by:
Afforestation through social and farm
forestry supported by clonal technology
Cleaner technologies and processes
Reducing pollutants in discharged water
Reducing particulate emissions
Solid waste management
Conservation of resources
TOTAL PRODUCTIVE MAINTENANCE POLICY:
In JK Paper Mills continuous pursuit on organizational excellence by
maximizing overall plant effectiveness and achieving total customer satisfaction, we
are committed to:
Achieve zero breakdowns, zero defects and zero accidents.
Continuous reduction in cost of production.
23
Involve all employees in systems and process improvement through
teamwork.
Create a clean and safe working environment.
SAFETY AND HEALTH POLICY:
JK Paper Mills are committed to:
Adhere legislation and government regulations related to safety and health in
manufacturing activity.
Foster safety and health awareness among its employees through preventable
measures, continuous development, awareness and improvement in the work
environment.
Give top priority to proactive steps like:
Safety audits
Work permit systems
Health check
Engineering and process up gradation
Improved work practices
Test preparedness and emergency response
Full participation of employees
ENERGY CONSERVATION POLICY:
JK Paper Mills are committed to reduce the energy consumption and cost by:
Optimization of plant and equipment efficiency
Elimination and prevention of all types of losses such as water, power, steam,
coal, compressed air
Maximizing condensate recovery &use, process heat recovery, waste
minimization
Increasing the co-generation of steam and power
Improved utilization of natural resources leading to environmental benefits
Energy conservation through total emploee involvement.
24
JK Paper Mills believe that
“ENERGY SAVED IS PROFIT EARNED”
CORE VALUES OF JK ORGANIZATION:
Caring for people
Integrity including intellectual honesty, openness, fairness and trust
Commitment to excellence.
What JK Organization Stands For
Dynamic and successful business organization
A socially valued enterprises
Business integrity
FUTURE GROWTH AREAS
In the border-less global business scenario, all the major businesses of J.K.
Organization are continuously upgrading their scale of operations. This is a
continuous process in line with our passion for growth.
J.K. Organization constantly scans the business opportunities that emerge in
India and focuses on areas in which the group can leverage its strength.
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PROFILE OF JK PAPER LTD
JK Paper is an independent company of the JK Organization, a leading Indian
conglomerate with diversified business interest. JK Paper was among the first in India
to set up integrated manufacturing facilities of international standards. and recorded a
turnover of Rs 6,255 million in 2001-2002. The Company’s world class pulp mill is
the largest in the country and occupies a place of pride in the Indian Pulp & Paper
Industry.
The company’s commitment to continuously raise quality benchmarks resulted
in JK Paper Mills becoming the first integrated pulp and paper plant in India to
receive the ISO 9001 certification & is now aiming at attaining the TPM Award.
Currently, the group ranks amongst India’s top Industrial Houses with assets
in excess of Rs 50 billion. The Group has diverse business operations in India and
abroad, automotive tyres and tubes, cement, sugar, audio magnetic tapes, dairy and
other agri-products. It employs nearly 17,000 people and has over 2,90,000 public
shareholders across its major public limited companies.
JK Paper has one of the strongest distribution networks in the paper industry
and has a national reach through its 4 regional offices, 13 warehouses, 95 wholesalers
and over 1,600 dealers. The company exports paper to several countries including, Sri
Lanka, Bangladesh and several West Asian nations. Branded copier paper accounts
for nearly 50% of the exports.
26
PLANT LOCATION - JAYKAYPUR
Jaykaypur is located on the slopes of the Eastern Ghat Plateau in the Southern
part of Orissa bordering the state of Andhra Pradesh and its geographical position 83-
25’ East longitude and 19 10’ North Latitude. Its average height above the mean sea
level is 758 feet.
The township has a population of about 25,000 and has a self-sufficient
marketing complex, including Employees Multi purpose Co-operative Society, a sub-
post & Telegraph Office, a Branch Post Office, a Police Out post and has two Banks
viz., state Bank of India and Indian Overseas Bank. The Township has two Schools
and places of worship of al major faiths. Singapur Road Railway Station (SPRD) on
the Raipur- Waltair Section of south eastern Railway Station and is at a distance of 2
KM from the Mills and all passenger and Express trains halt here.
JAYKAYPUR 765 017, DIST.RAYAGADA, ORISSA (INDIA)
The nearest town in Rayagada, which is the district headquarters and is located
at distance of about 10 KM from the Mills.
Rayagada District has a predominance of tribal population. Therefore, the
villages in and around the Mills are inhabited mostly by the adivasis, who too are
assimilating the industrial culture and are thus coming into the national mainstream.
27
HISTORY OF JK PAPER LTD
Incorporated in the year 1938, JK Corp Limited, started its operation with a
board mill at Bhopal for manufacture of straw board. Since then the activities of the
company have been diversified from time to time. In the year 1962, JK Corp Ltd. set
up this integrated Pulp and Paper Mill in the backward district of Rayagada in Orissa.
In 1982, the activities of JK Corp Ltd. were further diversified when it set up a most
modern cement plant by the name Lakshmi Cement.
In 2001 JK Paper Ltd. was formed by amalgamating the JK Paper Mills at
Rayagada and the Central Pulp Mills at Songadh, Gujarat, to become India’s 2nd
largest producer of quality paper with a turnover exceeding Rs. 650 crores. It is the
first Indian Paper Mill to receive the “Sword of Honour” from British Safety Council
and ISO 9001 Certification by DNV – Norwegian agency.
The company is conscious of the need to constantly update technology of
existing plants and machineries and in this direction there are regular schemes of
modernization and renovation from time to time.
The company’s strategy continues to be to offer more and more value added
products, continuously modernize and upgrade its plants for achieving better
efficiencies, improved quality of products and internationally recognized
environmental standards. Towards this end, the company is implementing an Offline
Coated Paper Project with a capacity of 46,000 TPA at JKPM Unit. This plant will
utilize contemporary blade coating technology and coupled with the company’s high
quality base paper, will be able to offer the product in the upper segment of the
market. The company would thus become the second largest coated paper producer in
India.
The company is also commissioning a modern Recovery Boiler at its CPM
Unit, which would result in higher chemical recovery and increased pulp production.
These projects along with other modernization programs would cost around Rs. 100
crores and would result in reduced cost and higher production. The projects are
scheduled for commissioning during the financial year 2004-05.
28
J.K.Paper Mill was expanded in phases and at present has 5 paper machines
with an installed capacity of 1,00,000 TPA with plans to expand the capacity further
to 1.6 lakhs TPA during the next five years. Besides the new paper machine, imported
cutter for automatic cutting and packaging of paper was commissioned during the
year 1994-1995.
The Mill manufactures quality writing, printing and business communication
papers and paperboards using primarily hardwood and bamboo procured locally found
in and around Orissa.
The mill undertook a massive modernization Program during 1997-98 with an
investment of Rs.300 crores. J.K.Paper Mills have continuously upgraded the
technology by modernizing and renovating the plant, machinery and equipment to
face the present day challenges of Eco-friendly manufacture.
The state-of-the-art blade coating plant is expected to be commissioned during
the year.
The Central Pulp Mill, a unit of JK Paper Ltd. is one of the largest integrated
Pulp and Paper Mill in Western India. The mill was incorporated in 1960 with its
registered office at Pune. The mill began commercial production on April 01, 1968
with an installed capacity of 30,000 tones per annum for production of pulp. The
capacity of mill was enhanced to 40,000 tones per annum by undertaking balancing
scheme. Due to heavy investments and unfavorable market conditions CPM faced
financial problems and was referred to BIFR in 1987 as having negative worth.
29
JK PRODUCT’S RANGE:
SURFACE SIZED MAPLITHO AND
SURFACED SIZED SUPER HIGH BRIGHT
MAPLITHO
Supper grade of writing & printing
Paper with high finish and brightness.
JK COPIERA Paper most suited in all Xerox
Machine’s.
SURACE SIZED PULP BOARD &
SURFACE SIZED SUPER HIGH BRIGHT
PULP BOARD
Super grade of Bpard for Printing &
Parching with high finish and
brightness.
CHANCELLOR BOND A superior variety Bond and Writing
and Printing.
JK BOND A normal grade of Bond Paper
WOOD FREE PRINTINGA Writing and Printing Paper with
good finish and brightness meant for
export market.
ARIMAILA lower grammar Writing & Printing
Paper used for Bills Books as well as
Airmail.
JK LASER PRINTING Suitable for Laser Printer
TITANIUM DIOXIDE LOADED TISSUE
PAPERA better grade food packaging paper.
OPAQUE PRINTING PAPER A common food packaging
WHITE OFFSET BOARD A high bright board supplied to
Cigarette Industries.
VARNISHABLE MAPLITHO
Catering labels and quality printing
jobs with varnishing.
YELLOW PRINTING Used for Yellow Pages in Telephone
Directory as well as for other quality
30
printing.
WAX MATCH TUSSUEUsed for Match Sticks of better
quality.
OFFSET PRINTING (NATURAL SHADE) A Paper used for Coating Base.
BLACK CENTERED ART BOARD For Playing Cards.
INVORY BOARD A Superior Coated board used for
Visiting Cards and Invitation Cards.
ENAMEL BOARD A Superior coated board used for
Visiting.
CHROMO PAPER A Coated Board used for printing
Magazine covers.
31
JK PRODUCTION CAPACITIES:
CENTRAL PULP
MILLS
JK PAPER
MILLS
Installed capacity (paper) 47,000 Tons per
annum
90,000 Tons per
annum
Actual production achieved in the
year 2002-2003 51,740 Tons 1,06,521 Tons
Pulp production Capacity 44,000 tons per
annum
1 Lakh tons per
annum
Market pulp production
Capacity (ADMT)
Actual Production:2002-03(ADMT)
15,290 tons per
annum
13,617 tons per
annum
32
PHASES AT JKPM
OPERATIONAL EXCELLENCE:
J.K. Paper has undertaken an integrated operational improvement Program
named Operational Excellence with the objective of improving the profitability of the
organization. This program is driven by a team of J.K. Paper executives and is
supported by consultants from McKinsey & Company.
Operational Excellence encompasses streams of Manufacturing, Purchasing
and Marketing. This program aims to achieve an accelerated pace of development by
identifying improvement opportunities in various streams as part of a concerted and
focused effort. As a result, it aims to build capabilities within the organization to be
able to maintain this rapid pace of continuous improvement in future also.
In Phase 1, the team has generated about a thousand ideas through
brainstorming, interaction with experts around the world, research on the internet and
reading technical journals. It has then evaluated each of these ideas rigorously in a
fact-based manner and is currently in the process of implementing 110 ideas.
Excepting 7/8 ideas, all other ideas have been successfully implemented as on today.
In Phase 2, the team has about 450 ideas and evaluated. After short listing and
evaluation, final syndication has been done and finally 64 ideas were accepted for
implementation. All these ideas are in the final stage implementation.
In Phase 3, ideas were taken up from the CPM unit and 39 ideas were finally
accepted for implementation.
Currently, Phase 4 is in progress at JKPM. This phase is still under ideas
generation stage.
33
EMPLOYMENT, MANPOWER AND CATEGORIES OF EMPLOYEES
JK Paper Mills provide direct employment to about 1400 persons. In addition,
about 1000 persons on an average are engaged intermittently for material handling,
waste disposal and other additional jobs at the Mills.
The various categories of employees working in the Mills are as follows;
1. Officers
2. Supervisory Staff
3. Workman (Staff)
4. Sub-ordinate Staff
5. Workman (Operatives)
Apart from permanent employees, for casual and extra jobs there is a pool of
casual mazdoors. Various jobs like loading and unloading and civil construction
works are done through contract labour. To have a trained, developed and educated
manpower for future needs and requirements, there are various categories of Trainees
like Management Trainees, Executive Trainees, Staff Apprentices, Trade Apprentices
and Craftsman Trainees.
34
CLASSIFICATION OF JOBS OF WORKMEN (OPERATIVES)
The jobs of Workman (Operatives) are classified into 7 grades – A to G
Different trades of Workmen (Operatives) are distributed into these 7 grades. ‘A” and
‘B’ grades represent unskilled workers; ‘C’, ‘D’ and ‘E’ grades represent semi-skilled
workers and ‘F’ and ‘G’ grades represent skilled and highly skilled workers.
Except the workers working in Finishing House and Feeding jobs, stitching and
stacking of paper Reams and Reels, who are paid on piece rate basis, all other workers
are time rated wage earners on daily basis. Wages are distributed monthly.
SHIFT TIMINGS:
The Mills runs in 3 Shifts and General Shift – m the timings of which are as follows:
‘A’ Shift 6.00 A M to 2.00 P M
‘B’ Shift 2.00 P M to 10.00 P M
‘C’ Shift 10.00 P M to 6.00 P M
GENERAL SHIFT
7.00 A M to 11.30 A M
1.30 P M to 5.00 P M
Commencement and finish of shift period is indicated through blowing of siren and
siren also blows 30 minutes before the commencement of each shift.
ATTENDANCE:
The names of all regular employees are borne on the muster roll. All
employees, except workmen, are expected to mark their attendance by entering the
attendance-recording card inside the Card Reader at the beginning and end of the
Shifts. Workers attendance is marked on the basis of the token system.
35
HOLIDAYS AND LEAVE:
Weekly off day is given as per provisions of the factories Act. Generally, for
those working in General Shift, Sunday is the Weekly –off day.
The Mills observes Festival and National Holidays as follows:
(1) Pongal (2) Republic Day (3) Maha Shivaratri (4) Holi (5) Utkal Divas
(6) May Day (7) Ratha Jatra (8) Independence Day (9) Gandhi Jayanti
(10) Dassera (11) Diwali
PAYMENT DAYS:
Payment of salaries and wages for the month to Mills employees is as given
below:
For Officers, Staff, Sub-ordinate - 5th Day of the following month
For workers - 10th Day of the following month
Withdrawal of salaries and wages through Bank is encouraged.
Wages to Contractors employees is disbursed by the respective Contractors on 7 th Day
of the month. In case scheduled days fall on Sunday or Holiday, Salaries /Wages are
paid on the day proceeding such Sunday/Holiday.
36
DEPARTMENTS AT JKPM
PULP MILL
STOCK PREPARATION
PAPER MACHINE
PAPER FINISHING
PLANT FINISHING HOUSE
SODA RECOVERY
QUALITY CONTROL
CENTRAL LABORATORY
PULP AND PAPER LABORATORY
WATER SERVICE
ENVIRONMENTAL AND POLLUTION CONTROL
MECHANICAL ENGINEERING
ELECTRICAL ENGINEERING
INSTRUMENTATION
PLANNING AND DESIGNING
POWER HOUSE
CIVIL DEPARTMENT
TECHNOLOGICAL DEVELOPMENT
HRD AND PERSONAL
TOWNSHIP AND TRANSPORT
WORKS OFFICE
ACCOUNTS
STORES AND YARD
SALES AND STOCK
SECURITY
DISPENSARY
SAFETY AND MANAGEMENT SERVICES
37
SOCIAL FORESTRY BY JK:
The member unit of JK Organization has been planting trees and saplings for
increasing the Green Cover. JK Paper Mills alone plants more than 1.5 lakh trees per
year. Seedlings are distributed every year by JK Paper Mills to the farmers who are
willing to green their land with trees.
The company has helped farmers with plantation in about 50,000 acres of
degraded wastelands in Orissa and Andhra Pradesh. This plantation program has seen
the development of fast growing, high yielding Eucalyptus clones involving an area of
17431 hectares, benefiting 13666 farmers and generating 90,00,000 man days of
employment for tribal.
Similarly CPM also continued to contribute towards the socio-economic
development of the rural population in the backward districts of Gujarat by providing
free seedlings to the local farmers and imparting direct and indirect employment
opportunities to the local community.
Until now social forestry scheme of CPM has benefited 14381 farmers in 196
villages of five districts of Gujarat and Maharashtra with 87 lakhs plants in 2620
hectares. Besides, it also gives job opportunity of 1500 man days to raise one lakh
seedlings and 450 man days to plant 1 hectare. CPM has introduced high yielding JK
super clones under Social Forestry Program.
Others
1. The mills provided approach roads for the villagers.
2. JK Paper contributed a sum of Rs 57,000 in the year 1997 to the Lions Club of
Rayagada for the construction of Multipurpose Community Hall at Rayagada.
3. For the construction of Lord Sri Jagannath Temple at Rayagada, the mills have
contributed Rs 7.5 lakhs for the completion of the construction work of the
temple.
38
SOCIAL OBJECTIVE:
“WE BELIEVE GENERATING REVENUE IS NOT THE ULTIMATE END OF
BUSINESS FOR US, CREATION OF WEALTH IS MORE APPROPRIATE
OBJECTIVE. THE WEALTH OF SOCIAL INFRASTRUCTURE. THE WEALTH
OF SUPPORT AND CARING FOR PEOPLE AROUND US”.
SOCIAL, CULTURAL & WELFARE HIGHLIGHTS:
The following highlights mark the social, cultural and welfare activities in an
around Jaykaypur:
The Mills, in association with the Lions Club of Rayagada and Seva Kendra-
The Mills is association with the Lions Club of Rayagada and Seva Kendra a
social service organization of Jaykaypur – the Government officials and the
people in neighboring villages have involved themselves closely with social,
welfare work. Eye Treatment Camps are being held at Jaykaypur / Rayagada
annually since 1978 for which major assistance in the form of men, money and
materials is rendered by the Mills.
Besides, a number of Health check-up and immunization camps, Hearing
Conservation Camps, dental Camps and Medical Treatment Camps, exclusively
for babies and school children are being held periodically or annually buy
difference services institution like the Lions Club of Rayagada, Jaycees, Mahila
Mandal and Mahila Vikas Kendra of Jaykaypur, Gopabandhu ubak Sangh etc.,
with the active cooperation and monetary assistance from the Mills.
Educational Institutions of the neigh boring villages as well as Rayagada got
liberal donations in both cash and kind on different occasions. Both Rayagada
College and Women’s College of Rayagada owe a lot to the Mills for their
growth.
The Mills have contributed generously over the years to the District Red Cross
Organization, particularly for the Blood Bank opened at Rayagada in 1983.
39
For the women-folk in Jaykaypur, there is Mahila Mandal and Mahila Vikas
Kendra promoting recreational and cultural activities through Mahila Silpa Kala
Kendra, training is imparted to ladies in Tailoring embroidery. Nritya Sadan
imparts training to boys and girls of the colony in music and dance.
The habit of small savings among the employees is given due encouragement.
This has resulted in cent percent coverage under small Savings Scheme and award
of the “Bachat Shield” to the Mills in 1978. The Mills were also awarded the
Second Best prize in District Koraput under Pay roll Savings Group.
A cable and Antenna Television (CATV) system has been installed in the
industrial township to add to the cultural, educational and social facilities to the
residents of Jaykaypur.
RECREATION:
Jaykaypur Club and the Manoranjan Kendra provide relaxation and recreation
in the form of sports and games both indoor and outdoor, reading room, library etc. A
Ladies Tailoring Class is also run for the useful utilization of the leisure of the
housewives.
For the Ladies, there are Mahila Mandal and Mahila Vikas Kendra, which
besides providing recreation to its members devotes itself to the cause of social
upliftment.
The Mills also patronize the following five cultural institutions for the
township, who conduct various cultural and entertainment programmes from time to
time.
1. Kalinga SanskrutikII Parishad 4. Andhra Kala Samithi
2. Kala Mandir 5. Friends Library
3. Raja Pathagar
40
There is also a Seva Kendra, which is engaged in philanthropic activities and
upliftment of the down trodden. For small children, there is a School of Music and
Dance known as Nritya Sadan.
SPORTS AND GAMES:
Cricket and Valley ball Tournaments are regularly by the Mills in which
distinguished local and outside teams participate. These tournaments, besides
providing exciting pastime, aim at fostering esprit-de-crops amongst the employees.
Football matches are also conducted from time to time.
CO-OPERATIVE SOCIETY:
There is Multi-purpose Co-operative Society, which discharges the following
functions for the benefit of the employees.
a) Running of Consumer Section with controlled commodities and other daily
necessities.
b) Running of Cloth Sales Section.
c) Advancing loans for purchase of utility goods through hire-purchase scheme.
d) Provides cash loans to members.
e) Encourages thrift habit amongst members and Running Flour Mill.
41
MILE STONES
The various achievements of J.K. Paper Mills:
Only integrated mill in India to achieve less than 100 meter cube of water
consumption per ton of paper.
Highest chemical recovery (more than 95%).
Excellent fiber recovery system (more than 95%)
Absorbable Organic Halide (AOX) level 0.5 to 1 kg per ton of paper, so far
the best in the country and comparable with international levels.
Highly efficient Electro Static Precipitators (ESP) in all the boilers.
Pioneer in Social and Farm Forestry. Supplied in excess of 90 million
saplings and covered over 27,000 hectares under plantation.
Stood 2nd all over India and was awarded 3 leaves Award by CSE
Awarded outstanding Performance by State Safety Council, Govt. of Orissa
for Safety, Health, and Hygiene & Environment Management.
Largest manufacturer of branded copier paper in India.
First to introduce surface sized map litho in India.
First to introduce airmail paper from bamboo pulp in India.
Established India's largest and most modern pulp mill in 1998. It is a
state-of-the-art pulp mill with an annual capacity of 1, 27,000 MT.
First integrated pulp and paper mill in India to have got ISO 9001
certification.
First to introduce laser paper in India.
First to introduce international quality consumer packaging for JK Excel
Bond of 100 sheets & 250 sheets packs.
42
JK ORGANIZATIONAL CHART I
CHIEF EXECUTIVE (W)S.K.MISHRA
VICE PRESIDENT (COML)S.K.AGARWAL
GM (COML)C.DALAKOTI
GM (MFG)D.P.DUBEY
GM (P&A)M.R.KUMAR
GM (CTS)A.K.HARI CHANDAN
GM (P&D)V.K.OSWAL
GM (ENGG.)M.C.GOEL
GM (PD)M.V.RAO
CMOK.G.N.KUMUNDAN
SR MGR (IE) T.V.SAGAR
SR.MGR (HRD)T.K.DAS
43
JK ORGANIZATIONAL CHART II
CHIEF EXECUTIVE (W)S.K.MISHRA
VICE PRESIDENT (COML)S.K.AGARWAL
GM (COML)C.DALAKOTI
DGM (SALES & IC)
SR.MGR A/C
DM (SALES)
DGM (Stores&Yard )
DM (CC)
SR.MGR (CC)
DM LIAISON
DM (IC)
AM A/C (6)
DM (Stores )
AM (C&S)
DM (Yard )
SR.MGR PUR
AM PURAM (3)
44
JK ORGANIZATIONAL CHART III
CHIEF EXECUTIVE (W)S.K.MISHRA
G.M.ENGG.
SR MGR (ELECT)SR MGR (P. M\C - M
DM(2)
DGM (P.M\C-M)
MGR (ED)
DM (E) P.M./C
AM(2)
MGR (ELECT)
AM (E) P.M./C AM (E) FBL AM (E) P.W./S
DM (E) PD
SR MGR (CVL)
AM (C)
SR MGR SAFETY & PLG
AM SAFETY(2)
DM PMILL-M(2)
DM (WS-M) (2)
AM INST (2)
MGR (INST)
DGM ENGG. MECH.
DGM INST
45
CONCLUSION:
JK Paper in leadership through quality. It has been setting quality bench
marks from its inception, and continues to do so. Its major brands include JK Copier,
JK Easy Copier, JK Evervite, JK Excel Bond, JK Bond, JK SHB Map litho, CPM
Parchment and JK MICR. Its marketing volume is to the tune of 1, 60,000 MT per
annum. J K Paper has one of the largest distribution networks in the paper industry.
With close to 100 wholesalers, over 1700 dealers, 10 warehouses and 4 regional
offices spread across country, it has achieved unparalleled service levels.
JK Paper has also been consistently exporting its products to markets such as
Sri Lanka, Bangladesh and several West Asian Countries. Nearly 50% of the exports
are of branded products.
46
IMPORTANCE OF INVENTORY MANAGEMENT
INTRODUCTION:
Inventories constitute the largest component of current assets of large majority
of the companies. In every country inventories occupies approximately 60% of
current assets of manufacturing organizations in India. Thus every organization has to
maintain a large amount of inventories in their current assets for that they have to
invest considerable amount of funds in inventories. It, is therefore imperative to
mange inventories efficiently and effectively in order to avoid unnecessary
investment. If a firm neglects the management of inventories it will affect the long run
returns of the organization. The company has to plan the inventory levels without
effecting the production and sales. Efficient inventory control, therefore, can
significantly contribute to the overall profit-position of the organization.
Inventories are stock of the product a company manufacturing for sale and
components that make up the product. Inventory could be the raw materials, work in
progress, finished products, fuels and lubricants, spare parts, maintenance
consumables and other indirect materials at any given point of time. The operational
definition of inventory would be the amount of raw materials, fuels, lubricants, spare
parts and semi-processed materials to be stocked for the smooth running of the plant.
Though inventory is usable resource, it is also an idle resource, unless it is managed
efficiently and effectively.
NATURE OF INVENTORIES
Inventories are stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories exists
in manufacturing company are:
RAW MATERIALS:
Raw materials are those basic unfabricated materials which have undergone no
conversion whatsoever since their receipt from the suppliers. These are basic inputs
that are converted into components, parts and products through manufacturing
47
process. Raw materials inventories are those units, which have been purchased and
stored for future productions.
WORK IN PROGRESS:
Work in progress inventories is semi-manufactured products. They represent
products that need more work before they become finished products for sale. Raw
materials become work in progress at the end of first operation and remain in that
classification until they become piece parts or finished goods. Work in progress can
be found on the conveyors, trucks, pallets in and around the machines, and in
temporary areas of storage waiting to be worked upon or assembled.
FINISHED GOODS:
Finished goods are the completely manufactured products, which are ready for
sale. Products usually leave work in progress classification and enter into the
classification of finished goods at the point of final inspection when they are ready for
delivery to the customer or to finished goods store. Stock of raw materials and work
in progress facilitate production, while stock finished goods are required for smooth
marketing operations.
OTHER TYPES OF INVENTORY ARE:
FLABBY INVENTORY:
It comprises of finished goods, raw materials and stores held because of poor
working capital management and inefficient distribution.
PROFIT MAKING INVENTORY:
It represents stocks of raw materials and finished goods held for realizing
stock profit.
48
NORMAL INVENTORY:
It is based on a production plan, lead time of supplies and economic ordering
levels. Normal inventories fluctuate primarily with change in production plan. Normal
inventory also includes a reasonable factor of safety.
EXCESSIVE INVENTORY:
Even an efficient management may be compelled to build up excessive
inventory for reasons beyond its control, as in the case of a strategic import or as a
measure of government price support of a commodity.
IMPORTANCE OF HOLDING INVENTORIES:
A company should maintain adequate stock of materials for a continuous
supply to the factory for an uninterrupted production. Maintaining inventories
involves tying up of a company’s funds and incurrence of storage and handling costs.
There are three general motives for holding inventories:
TRANSACTIONS MOTIVE:
It emphasizes the need to maintain inventories to facilitate smooth production
and sales operations.
PRECAUTIONARY MOTIVE:
The necessity of holding inventory to guard against the risk of unpredicted
demand and supply forces and other factors.
SPECULATIVE MOTIVE:
It influences the decision to increase or reduce inventory levels to take
advantage of price fluctuations. Other than the above, many situations demand
maintenance of adequate levels. They are:
To avoid uncertainty in procurement of raw materials whenever needed
I
49
To facilitate uninterrupted production
To obtain quantity discounts of bulk purchasing
To accumulate raw materials in anticipation of price rise
Stock of goods should be maintained while work in progress
Stock of finished goods has to be held as production and sales are not
instantaneous
To minimize carrying cost and time
OBJECTIVES OF INVENTORY MANAGEMENT
The aim of the inventory management thus, should be to avoid excessive and
inadequate levels of inventories and to maintain sufficient inventory for the smooth
production and sales operations. Efforts should be made to place an order at the right
time with the right source to acquire the right quantity at the right price and quality.
An effective inventory management should:
Maintain a large size of inventory for efficient and smooth production and sales
operations.
Economy in purchasing
Ensure a continuous supply of raw materials to facilitate uninterrupted
production.
To utilize the capital effectively
Maintain sufficient finished goods inventory for smooth sales operation, and
efficient customer service.
Reduction of risk of loss
Maintain a minimum investment in inventories to maximize profitability.
Maintain sufficient stock of raw materials in periods of short supply and
anticipate price changes.
Minimize the carrying cost and time.
Control investment in inventories and keep it at an optimum level.
To reduce administrative workload
To provide administrative simplicity
To meet a high percentage of demand without creating excess stock levels
To maintain the total volume of replenishment work-load within the
constraints of acceptable personnel complement
50
To keep all the expenditure within the budget authorization
To decide which items to stock and which items to procure on demand
To contribute to the nation's economic well-being
To provide, on item-by-item basis for re-order points and order such quantity
as would ensure that the aggregate results con1irm with the constraints and
objectives of inventory control
INVENTORY MANAGEMENT TECHNIQUES
In managing inventories, the firm’s objective should be in consonance with the
shareholder, wealth maximization principle. To achieve this principle the
organizations should maintain appropriate levels of inventory. Unsound inventory
control results in unbalanced inventory and inflexibility-the firm may sometimes run
out of stock and sometimes may pile up unnecessary stocks. This increases the level
of investment and makes the firm unprofitable.
To manage inventories efficiency answers should be sought to be
following question:
How much of an item to order when the inventory of that item is to be
replenished?
When to replenish the inventory of that item?
The first question, how much to order, relates to the problem of
determining economic order quantity (EOQ), and is answered with an analysis of
costs of maintaining certain level of inventories. The second question, when to order,
arises because of uncertainty and is a problem of determining the re-order point.
ECONOMIC ORDER QUANTITY:
Every organization will think about how much to order, when ordering
the inventories, to solve this problem economic order quantity will fix the
appropriate order size. The economic order quantity is an optimum quantity of
materials to be ordered after consideration of the following categories of costs.
51
ORDERING COSTS:
The term ordering cost is used incase of raw materials (or supplies) and
includes the entire costs of acquiring raw materials. They include costs incurred in
the following activity:
Requisitioning
Preparation of purchase order
Costs of receiving goods
Inspecting costs
Documentation processing costs
Transport costs
Storing costs
Intermittent costs of chasing orders, rejecting faulty goods
Additional costs of frequent or small quantity orders
Where goods are manufactured internally, the setup and tooling costs
associated with each production run.
CARRYING COSTS:
Costs incurred for maintaining given levels of inventory are called carrying
costs. They include:
Storage costs (rent, lightening, heating, refrigeration, air conditioning etc.)
Stores staffing, equipment maintenance and running costs
Stores handling costs
Staff services costs (Administrative Costs)
Audit, stock taking or perpetual inventory costs
Required rate of return on investment in current assets
Obsolescence and deterioration costs
Insurance and security costs
Costs of money tied up in inventory
Pilferage and damage costs
Costs incurred in providing special facilities like fencing racks
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STOCK OUT COSTS:
The stock outs costs are associated with running out of stock which
includes the following:
Lost contribution through the lost sales caused by the stock out
Loss of future sales because customers go elsewhere
Loss of customer goodwill
Cost of production stoppages caused by stock outs of work in progress or
raw material
Labour frustration over stoppages
Extra costs associated with urgent, often small quantity replenishment
purchases
The EOQ is optimum size of the order for a particular item of inventory
calculated at a point where the total inventory costs are at a minimum for that
particular stock item. It is an optimum size of either a normal outside purchase order
or an internal production order that minimizes total holding and ordering costs of
inventory. Stock costs are difficult to incorporate in this model. Since they are based
on qualitative and subjective judgment, the ordering costs are the costs of placing a
separate order multiplied by the number of separate orders placed in the period. The
carrying costs can be calculated based on the assumptions that annual cost of carrying
a particular stock item on average, half of the stock in hand all the time in addition to
the safety or buffer stock. The fewer the orders, the lower is the cost ordering, but the
greater the size of the order the greater the cost of carrying. The safety or buffer stock
has no bearing on the EOQ) only on the timing of orders.
Assumptions of EOQ model - to be able to calculate a basic EOQ
certain assumption are necessary:
That there is a known constant ordering cost & stock holding cost
That rate of demand is known and constant
That there is a known constant price per unit, i.e., there are no price discounts
That replenishment is made instantaneously, i.e., the whole batch delivered at
once.
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Carrying costs vary with inventory size. This behavior is contrary to that of
ordering costs, which decline with increase in inventory size. The economic size of
inventory would do depend on trade off between carrying costs and ordering costs.
A = Annual Consumption
B = Buying Cost per Order
C = Cost per Unit
S = Storage and Other Inventory Carrying Cost
FIXATION OF INVENTORY LEVELS
Various levels of inventory are fixed to see that no excess inventory is carried
and simultaneously there will not be any stock outs. The following inventory levels
are fixed for each item of stock.
RE ORDER LEVEL:
Reorder level is the level of stock availability when a new order should be
raised. The stores department will initiate the purchase of material when the stock of
material reaches at this point. This level fixed between the minimum and maximum
stock levels and the following formula is used for this purpose:
REORDERLEVEL = MAXIMUM USAGE) X (MAXIMUMLEADTIME)
MINIMUM STOCK LEVEL:
Minimum Stock level is the lower limit below, which the stock of any stock
item should not normally be allowed to fall. Their level is also called safety stock or
buffer stock. The main object of establishing this level is to protect against stock out
of a particular stock item and in fixation of which average rate of consumption and
time required for replenishment, i.e., lead time are given prime consideration.
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MAXIMUM STOCK LEVEL:
Maximum level represents the upper limit beyond which the quantity of any
item is not normally allowed to rise to ensure that unnecessary working capital is not
blocked in stock items. Maximum sock level represents the total of safety stock level
and economic order quantity. Maximum stock level can be expressed in the formula
given below:
MAXIMUM STOCK LEVEL = REORDER LEVEL + ECONOMIC
REORDERING QUANTITY -(MINIMUM USAGE * MINIMUM LEAD TIME)
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DANGER LEVEL:
Danger level of stock is fixed below the minimum stock level and if stock
reaches below this level, urgent action for the replenishment of stock should be taken
to prevent stock out position.
DANGER LEVEL = AVERAGE CONSUMPTION * LEAD TIME FOR
EMERGENCY PURCHASES
AVERAGE STOCK LEVELS:
AVERAGE STOCK LEVELS = (MINIMUM STOCK LEVEL + MAXIMUM
STOCK LEVEL) / 2
(OR)
MINIMUM STOCK LEVEL+ 1/2 ROQ
SELECTIVE INVENTORY CONTROL:
ABC ANALYSIS:
This technique popularly known as "Always Better Control" is a basic
analytical management tool which enables top management to place the efforts
where the results will be greatest. This technique tries to analyze the distribution of
any characteristic by money value of importance in order to determine priority.
This technique tries to segregate all items into 3 categories on the basis of
their annual usage. They are:
A
B
C
Items in class A constitute the most important class of inventories so far as the
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proportion in the total values of inventories is concerned. Items in class B constitute
an intermediate position while those in items C are quite negligible.
It is seen that a very small percentage of the items say 15 to 20 percent
account for 75 to 80 percent of the total material usage and large number of items say
75 to 80 percent of the total items account to 15 to 20 percent of the monetary value.
ABC analysis divides the total inventory list into three classes using the rupee
volume. The A items consist of approximately 15 percent of the total items, B items
the next 35 percent and C consist of remaining 50 percent items. The numbers are just
indicative and actual break up will vary from situation to situation.
CLASSIFICATION:
A B C
Very tight control Moderate Loose
Very low safety stock Low safety stock High safety stock
Frequent ordering Once in 3 monthsBulk ordering (once in 6
months or one year)
Weekly control reports Monthly control reports Monthly control reports
Maximum follow-up Periodic follow-upFollow-up in exceptional
cases
Individual posting Small group posting Group posting
Must be handled by senior
officers
Can be handled by middle
managementCan be fully delegated
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VED ANALYSIS:
This is also a classification system but unlike ABC analysis in this system the
classification inventory is made on the basis of seriousness of the situation. The cost
of shortage depends upon the seriousness of the situation. The VED system is a
widely used classification technique to identify criticality of various items for
inventory control. This technique is based on the assumption that a firm need not
exercise same degree of control on all items of inventory. On the basis of criticality,
the various items of inventory are categorized into three categories:
V – VITAL
E – ESSENTIAL
D – DESIRABLE
Highly critical items like vital requires much closer attention by senior
management compared to that of less critical items. The reorder level depends on the
criticality of the items. For vital items relatively more inventory is maintained
compared to that of desirable inventories. The items falling into the criticality level 'E'
are essential but not as much important as 'V' items.
JUST IN TIME INVENTORY MANAGEMENT (JIT):
It is also called zero-inventory operation. Just in Time is actually a
philosophy which can be installed after eliminating all unwanted operations and
waste. It is a continuous process. It seeks to eliminate raw material stock and finished
stock. It eliminates carrying costs altogether and making the industry highly
competitive. It begins by identifying the problems and forcing firms to tackle them,
the main tactic used to reveal such problems in inventory reduction. The major focus
is on the idea of producing in response to need rather than as a consequence of plans
and forecast instead of purchasing inventory into the system. In order to make
products they turned the process round and used the pull from the market place or the
next operation as a way of making the system more directly responsive and
eliminating unnecessary waste due to over production and so on. It attempts to
minimize inventories through small incremental reduction rather than prescribed
particular techniques or methodologies.
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VALUATION OF INVENTORIES
According to Accounting Standard-2 the valuation of inventories' is given by
the Institute of Chartered Accountants of India. Items such as expenses revenues, or
book debts can be' recorded in the books of accounts with a fair degree of accuracy.
However, an element of subjectivity is involved in the measurement of items such as
depreciation or inventory value Methods of valuing the inventory may vary between
different business and even between different undertakings within the same trade or
industry Taking all these significant aspects into account, this standard deals with,
1. The determination .of value at which inventories are carried until related revenues
are recognized.
2. Ascertainment of cost thereof, and
3. The circumstances in which carrying amount of inventory is written down below
cost
Valuation of inventory is of critical importance
The reasons include:
Individual items may not be of significant value but taken together, would
constitute a significant portion of total assets.
Rapid turnover exception being rare or seasonal turnover
Susceptible to obsolescence and spoilage, slow or fast moving
Held at different places
Physical condition
It may involve varying degrees of estimation
Inventory is the second largest item after fixed assets in financial statements
of manufacturing concerns. It affects both the results of operations as well as the
financial position as reflected in Balance Sheet.
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INVENTORIES:
Defined as: Inventories are assets,
Held for the purpose of sale in the ordinary course of business
In the process of production for such sale
In the form of material or supplies to be consumed in production process or in
rendering of services.
Inventory includes the following:
Goods purchased and held for resale
Finished goods produced for sale
Work in progress generally
Materials, maintenance supplies, consumables and loose tools awaiting use in
production process
MEASUREMENT:
The critical part of the study is that inventories should be valued at the lower of
(a) Cost and
(b) Net realizable value
COST:
The following elements that constitute cost of inventories should be kept in
mind.
Cost includes:
Cost of purchase, net of trade discounts, rebates, duty drawbacks. Cenvat
credit availed etc.
Cost of conversion
Other costs incurred in bringing the inventories to their present location and
conditions
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But cost doesn't include
Selling and Distribution costs
Abnormal wastage, storage costs
COST FORMULAE:
In as much as cost do not remain static and vary from time to time., several
types of cost formulae can be used. In inventory valuation, therefore, the question that
is crucial is, with reference to the flow of production, which inventory has been sold
and which continued to remain in inventory.
In this backdrop, inventory valuation depends on cost flow assumptions such
as LIFO, FIFO, Base Stock method etc., but the standard favored only three methods
are as follows...
Specific Identification Method
First In First Out
Weighted Average Cost Method
SPECIFIC IDENTIFICATION METHOD:
This method is also known as Specific Price Method. This is also known as
actual cost method because specific job bears the actual cost of material bought for
the job. When using- this method, units in inventory are specifically identified and
each unit cost is identified with a particular invoice.
The advantage of this method is that cost charged to jobs is factual and not
notional.
Cost of items forming part of inventory, that are not ordinarily
interchangeable as also goods or services produced and segregated for specific
projects, should be assigned by specific identification of their individual costs. This
formula has to be applied whenever materials are purchased and set aside for specific
job or work order. This could be a cumbersome or impracticable exercise. When the
items are many and interchangeable.
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FIRST IN FIRST OUT METHOD:
This method is based on the assumptions that the materials. Which are
purchased first, are issued first? Issues of materials are priced in the sequence of
incoming order of purchases. The flow of cost of materials should also be in the same
order.
Issues are priced on the same basis until the first lot received i.e.
exhausted, after which the price of the next lot received becomes the basis of cost for
issues.Thus the materials issued are priced at the cost pertaining to the earliest lot,
and as a corollary the inventory in hand is valued at a price representing recent
purchases.It merely denotes that cost incurred for the 'earliest purchase' is first used
for accounting purpose.
It is a common practice for most business houses to sell or issue oldest
merchandise or materials first so that when FIFO is used for inventory valuation,
there is an agreement between cost flow assumption and the physical flow goods. The
ending inventory thus would consist of goods recently produced or purchased.
The FIFO method is most successfully used when
Size of raw materials is very large and cost is high
Materials are easily identified as belonging to a particular purchase
Not more that two or three different receipts are on material card at one time
Price of materials does not fluctuate widely, so that clerical labour
involvement is minimized.
Material are subject to deterioration and obsolescence
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WEIGHTED AVERAGE COST METHOD:
This is calculated by dividing the total cost of material in stock by the total
quantity of material in stock. Under this method, costs are averaged after weighing by
their quantities. The weighted average cost is determined, either at periodical
intervals or each time when fresh materials are arrived on purchase. The average cost
at any time is, thus, balance value figure divide by the balance unit figure. This
method evens out the effect of widely varying prices of different lots of purchases,
which makes up the stock. There will be no' profit or no loss arising out of pricing
issues.
NET REALIZABLE VALUE (NRV):
NRV is defined as the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs necessary to
make the sale.
RATIO ANALYSIS OF INVENTORY MANAGEMENT
ACTIVITY RATIOS:
Funds of creditors and owners are invested in various assets to generate
profits. The better the management of assets the larger the amount of sales. Activity
ratios are employed .to evaluate the efficiency with which the firm manages and
utilizes its assets. These ratios are also called as turnover ratios because they
indicated the speed with which assets are being converted or turned over into sales.
Several activity ratios can be calculated to judge the effectiveness of asset utilization.
INVENTORY TURNOVER RATIO:
Inventory ratio indicates the efficiency of the firm in producing and selling its
products. It is calculated by dividing the cost of goods sold by the average inventory
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If cost of goods figure is not available, we need to compute the Inventory
Turnover Ratio as sales divided by the average inventory or year end inventory.
COMPONENTS OF INVENTORY:
The inventory turnover indicates how rapidly the inventory is turning through
sales. Generally, a high inventory is indicative of good inventory management. A low
inventory turnover implies excessive inventory levels than warranted by production
and sales activities or a slow moving or obsolete inventory.
A high level of sluggish inventory amounts to unnecessary tie up of funds
reduced profit and increased costs. If the obsolete inventories have to he written off,
this will adversely affect the working capital and liquidity position of the firm.
However a relatively high inventory turnover should be carefully analyzed.
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A high inventory inventory, which results in frequent stock outs; the firm
replenishes its inventory in too many small lot sizes. The situations of frequent stock
outs and too many small inventory replacements are costly for the firm.
Thus too high and too low inventory turnover ratios should be investigated
further. The computation of inventory turnover ratios for individual components of
inventory may help to detect the imbalanced investments in the various inventory
components.
CRITERIA FOR JUDGING THE INVENTORY SYSTEM:
While the overall objectives of the inventory system is to minimize the cost of
the firm at the risk level acceptable to management therefore approximate criteria for
judging the inventory system are:
COMPREHENSIBILITY
ADAPTABILITY
TIMELINESS
COMPREHENSIBILITY:
Inventory systems range from the utterly simple to the weirdly complex.
Irrespective of how simple or complex a system is, regardless of whether it is
automated or manual; it should be clearly understood by all affected parties. The
system must be properly explained to all concerned so that its purpose, logic and
rationale are transparent. This generates enthusiasm for the system and enchases its
credibility. Other wise it is likely to be perceived as mysterious ‘black box’ of
dubious value.
ADAPTABILITY:
The questions raised in this context are: Is the system responsive to change?
Can new products, new situations, and new requirements be handled by the system?
A certain degree of flexibility and adaptability must be designed into the system to
make it versatile. Of course this cannot be and this should not be carried too far. The
system must not provide for every possible and imaginable contingency. If it is
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developed with this deal, it is likely to be a complex monstrosity. Remember the
caveat that the design of nay system should ordinarily take care of about 90 per cent
to be handled by hand.
TIMELINESS:
Inventories may suffer loss in value on account of variety of factors. The more
common sources of value decline are:
Obsolescence caused by changes in technology and shifts in consumer taste
Physical deterioration with the passage of time
Price fluctuations because of inherent volatility of certain commodities
The inventory system should be capable of inducing timely action. It should
provide adequate forewarning which triggers appropriate corrective steps.
AREAS OF IMPROVEMENT
Inventory management can be improved in various ways. Improvements could
be effected though:
Effective Computerization
Review of Classification of ABC Analysis etc,.
Improved Coordination
Disposal of Surplus Inventory
Adoption of Challenging Norms
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INVENTORY MANAGEMENT AT JKPM
INTRODUCTION:
Unlike in the past, today’s business world is highly competitive and also the
steep rise in input, costs added fuel to this fire. To meet these challenges organizations
are forced to practice some of the scientific management tools. Materials management
is one such area which received due importance due to the face that efficient
management of the materials will directly result in hefty bottom line of companies
profit and loss account out of all functions of materials management, inventory
management has been widely accepted and practiced in most of the Indian business
organizations with a view to reduce the cost in materials inventory of course without
interrupting production operations.
As you all will appreciate the fundamental questions to be answered by any
inventory management system are:
When to place an order
For how much quantity
However, it is needless to say that both the questions are to be answered by
OPTIMIZING the two main cots involved:
CARRYING COST
ORDERING COST
Consciousness for better inventory management was spread in JKPM by the
institution of Managing Directors in 1968. a humble beginning was made in stores
department for standardization of specifications in consultation with user
departments with a view to have unified specifications reduce variety/no. of items.
Further during the middle of 1971 operations research society of Indian was
entrusted to study the possibilities for optimal control of inventory.
A preliminary survey was made during 1971 under the guidance
of Lt. Col. H.S.SUBBA RAO (Retd.). During later part of 1973 a separate section
called “OPERATIONS RESEARCH ANALYST CELL” was formed with a view
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to study exclusively inventory management taking help from Lt. Col. H.S.SUBBA
RAO and stores.
ASPECTS OF STUDY:
Inventory management covered the following aspects:
a. CODIFICATION(Standardization and Variety)
b. ABC ANALYSIS
c. USAGE RATE AND LEAD TIME ANALYSIS
d. INVENTORY REPLENISHMENT POCLICY(IRP)
e. DOCUMENTATION
INVENTORY MANAGEMENT STUDIES:
As it was mentioned in the beginning inventory management studies were
initiated by ORSI and studied by ORA (Operation Research Analyst) during 1970’s
then HOWARD & FINLEY CONSULTANTS studied INVENTORY
ACCOUNTING system during 1980’s and SIGMA CONSULTANTS were engaged
in late 1980 to analyze machinery spares inventory including departmental stores
inventory.
Management services department also carries out some inventory management
studies time to time in addition to formulation of inventory replenishment policy.
CODIFICATION:
Codification of materials through 9 digits was done during 1973-74 during
inventory management studies by ORA and with avoided and correct specifications of
materials could be achieved to a greater extent.
ABC ANALYSIS:
In order to exercise selective control ABC Analysis of all 15000 items(except
fibrous raw materials) was done based on 1973 consumption usage rate and analysis
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showed that 92 items were under AB class which contributed and 95% of the total
companies consumption value and the rest in C class.
Similar study was carried out during 1968. The ABC Analysis was done based
on 1984 consumption value. It was found that 265 items contributed to 92.5% of total
stores consumption. However due to the fact that our inventory replenishment policies
are based on main groups of items hence the same could not be adopted. Moreover
most of the AB class items in earlier grouping had fallen under same grouping in
present analysis also. The other important factor which was considered before
inventory replenishment policy grouping during the inventory management studies
was critically and availability of the items.
USAGE RATE & LEAD TIME ANALYSIS:
Consumption/usage rate and had time are the two important parameter which
play viotal role in arriving at inventory replenishment polices. During the inventory
management study (1973-75) forecasting of future demand (consumption) was done
based on available past data and subjective opinion from stores purchase and user
department. Initially lead times were also fixed based on subjective opinion from
purchase and stores.
Presently the future demand (known as Anticipated Annual Demand AAD) is
arrived at by considering past 3 year’s consumption and future requirement (any
additional) of departments. However incase of chemicals the demand mainly depends
on production programme lead time analysis is also carried out time to time to
formulate IRP on more realistic way.
RELEVANT COST:
Two basic cost parameters involved in inventory i.e.
1) Carrying Cost
2) Ordering Cost were calculated and fixed at 20% and Rs.25/- (Indigenous) or
100/- (Imported) items respectively. The above costs were revised during 1986
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and presently the carrying cost is 25% and Ordering Cost Rs. 60/-(Indigenous)
Rs. 250/-(Imported).
INVENTORY REPLENISHMENT POLICY:
Basically four types of IRP models were suggested for out inventory control
system and procurement system during the inventory management study (1973-75).
Infact the same models are being followed at present also.
Items covered under the policy are 7 AB chemicals (Vital Items) and other AB
items and C class items of 26 main groups of items.
The four IRP models are
RE – ORDER LEVEL:
This policy is also called “CONTINEOUS REVIEW POLICY”. This policy is
followed for the entire items.
In this policy when the total balance (Quantity on Order KAEDEX
BALANCE) reaches Re-Order Level procurement action is initiated. Items for which
the lead time is large when compared to replenishment cycle, procurement action is to
be taken on the basis of replenishment cycle, and procurement action is to be taken on
the basis of replenishment cycle until the total balance exceeds the ROL. Every time,
the quantity ordered will be equal to the Ordering Quantity. If by any chance safety
stock is reached (SS) emergency action is to be taken to replenish the stock. This
policy is followed for AB items
MODEL:
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ROL = KA + SS
Ci = Unit Price of Item
D = Anticipated Annual Demand (AAD)
Cp= Procurement/ Ordering Cost Per Day
I = Annual Inventory Carrying Cost
r = No. of years in which one risk of run out is permitted (8 incase of 7 AB items &
4 in for the rest items)
KM = Normal Maximum Consumption during Normal Maximum Lead Time
KA = Average Consumption during Average Lead Time
n = No. of orders
OQ = Ordering Quantity
SS = Safety Stock
ROL = Re Order Level, includes the quantities in transit and the physical stock
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REPLENISHMENT INVENTORY LEVEL POLICY (RIL):
This policy is followed for “C” class items. In this policy replenishment cycle
time is decided by the no. of orders per year “n”. For these items stock position shall
be reviewed in normal courses as per the cycle time. If the total balance (i.e. Quantity
on Order) is more than i.e. more than safety stock + half of the
order quantity then no replenishment creation shall be initiated for other cases order
shall be placed for RIL total balance. Sometimes the SS may be reached earlier to the
cycle period due to unusual consumption in such cases the procurement action is to be
taken for the balance quantity when the level comes down to safety stock or 20% of
RIL. This policy is also called “PERIODIC REVIEW POLICY”.
MODEL:
No sophisticated model is used rather distribution free analysis (There by chef
in quality) is applied and the safety stocks are calculated that the 95% confidence
level assuming that the lead time are distributed in a Poisson manner
.
Where da = Daily Average Demand
TM = Maximum Lead Time
TA = Minimum Lead Time
k = 5 (constant)
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RIL = SS + OQ
AS WHEN REQUIRED POLICY (AWR):
There is no regular requirement of these items but one set of the item shall be
maintained whenever an item or one set of item is consumed, procurement action is to
be taken to replenish the same. This model is followed for items whose consumption
is less and sporadic and of course non availability of these items may be pose serious
problems to plant working.
PURCHASE WHEN REQUIRED (PWR):
Normally no stock of such items shall be maintained. But if the user
departments require the items for normal maintenance jobs they shall inform stores
for procurement through a internal departmental memo.
DOCUMENTATION:
Every aspect is being made to enter in the ERP. ERP stands for the
“ENTREPRENEUR RESOURCE PLANNING”. A software developed on the
basis of Oracle by J.D. EDWARDS and named it as “PEOPLE SOFT WORD”
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VARIOUS COMMITTES IN INVENTORY COST REDUCTION COST
APPRAISAL COMMITTEE:
This was constituted in 1978 with an object to work out and reduce input raw
material and chemical costs with better cost benefits. This committee was not formed
on permanent basis
VALUE MANAGEMENT TEAMS / COST REDEUCTION SUB COMMITTEE
INVENTORY MANAGEMENT:
VMT (Middle Level Management) took birth during 1986 one of the teams
was constituted to work on inventory control consisting of members from stores
planning user department and material supply department. The same was renamed as
“COST REDICTON SUB COMMITTEE INVENTORY MANAGEMENT” in 1989.
Aim to reduce inventory to identify the reasons for increase and corrective actions are
taken.
INVENTORY REVIEW COMMITTEE:
This committee has been formed with a view to analyze inventory levels and
arrive at some decisions to control the inventory. If critically analysis quarterly
inventory statement particularly when the stock crossed maximum recommended
level the action plans are drawn and execute the decisions taken in meeting.
PURCHASE REQUISITIONS REVIEW COMMITTEE:
As a preventive action to control the future piling up inventories items are
scrutinized closely while processing. Purchase requisitions review committee has
been constituted with a view to fulfill the above objectives for the budgetary control
of items. After working of this committee user department have become more
cautious in writing purchase requisitions and taking more care in procurement of
materials and giving judicious justifications for need of the items.
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CONSTRAINTS FACED IN PRACTISING INVENTORY MANAGEMENT
SYSTEM:
Demand and lead-time deterministic and static in most of the actual cases and
sudden changes without conforming to the predetermined parameter lead to higher
inventory holding or stock outs. Volatile markets and often changing governments
regulating policies do contribute towards it.
Though the main logic behind PWRI policy not hold any stock but in some
cases stocks do exist for PWR items due to the fact that some of the earlier regular
consumable items have been brought into this category and because of very slow
consumption those stocks will remain and also in some cases user departments may
not utilize or use the material procured under policy.
RIL policy has not followed as a periodic review system
Inventory norms for some of the major items could not be followed mainly
view materials, pulp, coal and machine clothing due to government controls and its
seasonal availability.
Average inventory during the quarter on daily basis could not be calculated
due to difficultly involved in calculations and time hence inventory as on at the end of
quarter is compared with recommended any minimum and maximum level.
Even though we spent a lot of man hours (both consultants and internal) and
money in identifying obsolete and surplus items but disposal of the same is high
problem mainly because of factory location and value of items and transportation.
Locational disadvantages of our mills forces us to carry large inventory of
spare parts. User departments most of the times don’t realize the costs involved in
materials as they realize machine down times and production stoppages.
Obsolete and surplus stocks building up can be avoided to be greater extent if
the requirement of material is worked out on most realistic way.
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CONCLUSION:
Cost reduction of inventory could be possible when there is proper co-
ordination between departments. (Stores, Purchase, User) Obsolete/surplus stocks are
bound to be generated in any inventory management system. However identification
and disposal of these stocks is done on top priority some cost benefit could be enjoyed
on this account. Timely corrective action to control / inventory will definitely yield
fruitful results. Much control should be exercised in procuring spare parts in for old
equipments due to the fact that remaining life of these equipments will be very less
and the same day be replaced by new equipments shortly. Standardization in respect
of equipment will greatly help in reducing inventory of spare parts.
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INVENTROY CONTROL
DEFITION:
“Inventory control is meant for maintaining a reserve of goods that will ensure
manufacturing according to a production plan based on sales requirement at the
lowest possible ultimate cost”
1. PRODUCTION BASED CHEMICALS:
TOTAL NO. OF CHEMICALS: 46NO.
HEAVY CHEMICALS: 19NO.
1.1 BENEFITS DUE TO NEW COMPUTATION METHOD: (E.g.)
2003-04(old method) 2004-05(new method) Reduction
Average inventory level 2, 20, 55,825 1, 87, 81,851 15%
(Production based chemicals)
2. OBJECTIVES:
Identify specific opportunities for reduction of inventory (focusing on heavy
chemicals)
Keeping in view the
Item specific constraints
Logistics other supplier related issue
Required service level
3. WHY INVENTORY OF PRODUCTION BASED CHEMICAL HIGH
Variation in actual consumption vis-à-vis planned consumption
Price fluctuations
Uncertainties in supply such as
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Complexities in logistics (Transshipments due to location of mill &
supplier).
Supply interruptions due to:
Power cuts
Break downs
Input availability
Seasonal availability
Large receipt to sizes due to high percentage of transportation
cost.
Large lead time of procurement (4 to 6 weeks) of certain
chemicals (dyes & costing plant chemicals).
4. COMPUTATION OF INVENTORY NORM FOR CHEMICALS:-
PROPOSED BY: M/s: ANDERSEN CONSULTANTS (AMERICAN BASED)
This method is applicable for frequently arriving large volumes materials
lonely production based item and not maintenance based items.
The average inventory consists of two components:
SAFETY STOCK
BASE STOCK (RUNNING STOCK)
Variations in receipt quantity, lead time and consumption quantity is
considered as basis for safety stock.
Delivery lot sizes & daily consumption is considered as basis of base stock.
BASIS FOR INVENTORY
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BASE STOCK
SAFETY STOCK:
ANTICIPATED DEMAND
MINIMUM RECEIPT LOT SIZE
RECEIPT QUANTITY VARIANCE
CONSUMPTION VARIANCE
LEAD TIME VARIANCE
RECEIPT VARIANCE
AVERAGE INVENTORY
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5. PROCEDURE FOR COMPUTATION OF NORMS:
5.1 Data collected on daily opening inventory, receipts, issued & opening inventory
for each item from computer for last one year.
5.2 Data or Receipts is used to compute:
1. Average inter arrival frequency
Ex: for lime the average inters arrival frequency is 1 day.
2. 95% ile, inter arrival frequency
Ex: for lime, 95% ile inter arrival frequency is 5 days which means that
only in 5% of the receipt no. of days between two arrivals whose more
than 5 days.
3. Average receipt quantity
Ex: for lime average receipt quantity is 80T
4. 5% ile receipt quantity
Ex: for lime 5% ile, receipt quantity is 48T which means that only on 5%
of the day the total receipt quantity was less than 48%
5.3 Data on daily consumption is used to compute
1. Average consumption during inter arrival time.
Ex: for lime average consumption during inter arrival time is 83T
2. 95% the consumption during inter arrival time
Ex: for lime the 95% ile consumption during inter arrival time is 135T
which means that only on 5% of the days consumption is more than 135T Hence for
lime safety stock due to:
80
I. LEAD TIME VARIANCE = 5 days – 1 day = 4 days
= 4 * 92.91 (where 92.91 is the daily consumption in
tons)
= 372T
II. RECEIPT QUNTITY VARIANCE = 80T-48T
= 32T
III. CONSUMPTION QUNTITY VARIANCE = 135T-83T
= 52T
TOTAL SAFETY STOCK = I + II + III
= 372 + 32 + 52
= 456T
5.4 Base stock is computed considering daily consumption & delivery lot size.
Ex: for lime daily consumption is 92.91T
= 0.1614 DAY
= 1 DAY (SAY)
81
= 46.45
= 46T (SAY)
5.5 The computed figures are verified with stores.
5.6 The normative inventory is computed on the basis of above calculations:
Agreed safety stock after due discussion with stores considered as 550T
(Instead of computed safety stock 456T)
= 550T + 46T
= 596T
CONCLUSION:
596T of lime to be maintained for 6 days consumption.
Normative inventory level compared with actual inventory level on monthly
basis.
Monthly requirement plan is forwarded by Dy. General Manager (Stores) to
Purchase Department, Head Office.
Daily follow up with Head Office.
82
QUALITY MANAGEMENT SYSTEM
INTRODUCTION:
Quality management is a way of working or a philosophy, which encompasses
very broad range of values and principles. It is clear by now that though the name
says “QUALITY MANAGEMENT”; it actually means the “MANAGEMENT” with
quality as focus.
KEY CONCEPTS IN QUALITY MANAGEMENT:
LEADERSHIP FOR QUALITY
CUSTOMER FOCUS
CONTINUOUS IMPROVEMENT
PREVENTIVE ACTION
COST OF QUALITY – PROFITS THOUGH QUALITY
TEAM WORK
TRUST
QUALITY SYSTEM APPROACH
INTEGRATED MODEL OF QM:
83
QUALITY MANAGEMENT SYSTEMSTORES AND YARD
DEPARTMENT FLOW CHART
INPUT/OUTPUT PROCESS RESOURCES
BUDGETS/NORMS
RAWMATERIALS/ COAL/CHEMICALS STORES&SPARES
PACKING MATERIALS
SCRAP
SOLID WASTES
RAWMATERIALS/ COAL/CHEMICALS STORES&SPARES
PACKING MATERIALS
MATERIALS PLANNING
RECEIVING
HANDLING/STORAGE/DISPOSAL
ISSUE
COMMUNICATION*SPACE*EQUIPMENT*MANPOWER
84
QUALITY MANAGEMENT SYSTEM STORES & YARD ORGANIZATIONAL CHART
PROCEDURES FOR QUALITY MANAGEMENT SYSTEM
Dy. GENERAL MANAGER(STORES)
MANAGER (STORES)
Dy. MANAGER(STORES)
ASST. MANAGER (STORES)
ASST.OFFICER (STORES)
SR. ASST.SR. ASST.
ASST. ASST.
ISSUE & GODOWN UPKEEPING
& PRINTING&STATIONERY
&ACCOUNTING
COMPUTER DATA WEEKLY/ MONTHLY/
REPORTS
MIS
MODVAT CENTRAL EXCISE
REPORTS
OFFICER (STORES)
ASST.
RECEIPTS REJECTION
&REPLACEMENT
REPAIRJOB
CO-ORDINATION
OFFICER (STORES)
SR. ASST.
PERPECTUAL INVENTORY
CHECKS
ASST.
MATERIAL PLANNING
& INVENTORY CONTROL
SUPERVISOR SCRAP
DISPOSAL OF SCRAP&
OBSOLETE &ACCOUNTING
STENO TYPIST
TYPIST
OFFICE ADMN. TYPING DAK
RECEIPT FILING CLAIMS
ASST. MANAGER
ASST. OFFICER (YARD)
CHEMICALS
UNLOADING STACKING ISSUE OF CHEMICALS & PULP
GODOWN UPKEEPING
SUPERVISIOR (YARD)
RAWMATERIALS CHEMICALS PULP RECORD KEEPING
AND BILLS PASSING
ASST. MANAGER
MOVEMENTS
ASST. OFFICER MOVEMENTS
SR. ASST.
RLY. LIAISONING DESPATCHES DELIVERY OF
GOODS CHASING OF GOODS & CLAIMS
COAL LIASONING WITH OFFICIALS
MOVEMENTS
WEIGHING SCALES MAINTAINANCE
ASST. MANAGERYARD
COAL & LIME
ASST. OFFICER
YARD
ASST.
BUILDING MATERIAL
PROCUREMENT & ACCOUNTING
SUPERVISION OF COAL LIME WASTE
DISPOSAL CO-ORDINATION WITH
INTER DEPT. & LOCAL BODIES
Dy. MANAGER(LIAISON)
Dy. MANAGERYARD
(RAWMATERIALS)
SUPERVISIOR (YARD)
SUPERVISIORS(YARD)
PLACEMENTS & DRAWN OUT OF WAGONS & TRUCKS RLY. SIDING MAINTRNANCE AND SUPERVISE FEEDING OPERATIONSIN SHIFT
OFFICER YARD2
LIAISON AT VISAKAPATNAM WITH PLY OFFICIALS & OTHERS PROCUREMENT
ASSITANCE
SUPERVISION OF BAMBOO HARDWOOD YARD WASTE REMOVAL CO-ORDINATION WITH INTER DEPARTMENTS
85
IN STORES & YARD
TITLE: MATERIAL PLANNING PROCEDURE
PURPOSE: MATERIAL PLANNING FOR EFFECTIVE CONTROL AND SMOOTH FLOW OF MATERIAL AVAILABILITY
SCOPE: APPLICABLE FOR ALL RAW MATERIALS, CHEMICALS, STORES AND SPARES.
RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES) ASST. MANAGER (YARD&STORES)
INPUTS:
SL.NO.
INPUT SOURCE FREQUENCY RESPONSIBILITY REVIEW CRITERIA REFERENCE
1. REVENUE/CAPITAL BUDGET ACCOUNTS DEPT YEARLY ACCOUNTS DEPTTARGET
VSCONSUPTION
2.ANNUAL INDENT REQUIREMENTS
PLANNING DEPT. YEARLY ASST.MANAGER (YARD) STOCK STATUS
3.ANNUAL SHUT REQUIREMENTS
PLANNING DEPT. AWR ASST.MANAGER (YARD) STOCK STATUS
4. PURCAHSE REQUIREMENTS USER DEPT. CONTINEOUS DY.MANAGER (STORES) STOCK STATUS
5.MEMOS FOR URGENT PROCUREMENTS
USER DEPT. AWR ASST.MANAGER (YARD) STOCK OUTS
6. DATUM LEVELS/ NORMS I.E.DEPT. CONTINEOUS ASST.MANAGER (YARD) REPLENISHMENTS
7. IMPORT BUDGET PLANNING DEPT. YEARLYASST.MANAGER
(STORES)TARGET VS
CONSUMPTIONPROCESS INTERFACE:
86
SL.NO. ACTIVITY RESPONSIBILITY REFERENCE
1.MATERIAL PLANNING - PRODUCTION &
MAINTENANCE MATERIALSDY. MANAGERS(YARD&STORES)
ASST. MANAGER (YARD)
2.MATERIAL PLANNING - PRINTING & STATIONERY ITEMS /JOB PROCESSING ITEMS
DY. MANAGER (STORES)ASST. MANAGER (YARD)
MEASUREMENT AND MONITORING PROCESS:
SL.NO. STAGE / SECTION MONITORING CRITERIA FREQUENCY RESPONSIBILITY REFERENCE
1.STOCK, STATUS OF MACHINE CLOTHING, DOCTOR BLADES, CHEMICALS, TOOLS, Etc.
NORMS VS STOCK MONTHLY/WEEKLY
ASST.MANAGER(YARD)
2. STOCK STATUS OF IRP ITEMS REORDER LEVEL DAILY ASST.MANAGER(YARD)
3.PROCESSING OF ANNUAL INDENT REQUIREMENTS
STOCK AVILABILITY OUTSTANDING PR/ PO
QUARTELY ASST.MANAGER(YARD)
4.PROCESSING OF ANNUAL SHORT REQUIREMENT
STOCK AVILABILITY OUTSTANDING PR/ PO
AWR ASST.MANAGER(YARD)
5.
“Y” FLAGGING OF PURCHASE REQUISITIONS
STOCK AVILABILITY OUTSTANDING PR/ PO
AUTHORIZATIONDAILY DY. MANAGER (STORES)
6. PURCHASE REQUISITIONDEPT. BUDGET FOR RASING OF PR’s V/S
ACTUAL VALUEWEEKLY ASST. MANAGER (STORES)
OUTPUT:
87
SL.NO. OUTPUT TO REVIEW CRITERIA REFERENCE
1.STOCK, STATUS WITH RECEIPT ND ISSUE AND TRANSIT DETAILS FOR IMPORTANT ITEMS
CE(W) VP(C) VP(RM) SR MGR (SP) GM (PUR)
GM (COMM)
DAILY FOR EXPEDITING DELIVERIES AS PER DATIUM LEVELS
2. REPORT OF DOCTOR BLADES, CHAINS Etc.GM(PUR)
SR MGR(PUR)MONTHLY FOR REPLENISHMENT OF STOCKS AS
PER RECOMMENDED NORMS
3.STOCK REPORT FOR CHEMICALS, PACKING MATERIALS, FUELS Etc.
PUR(W)DAILY FOR REPLENISHMENT OF STOCKS AS PER
RECOMMENDED NORMS
4.STOCK REPORT FOR IRP ITEMS REPLENISHMENT
PUR(W)DAILY FOR REPLENISHMENT OF STOCKS AS PER
RECOMMENDED NORMS
5. REPORT FOR MACHINE CLOTHING GM (PUR)MONTLY FOR REPLENISHMENT OF STOCKS AS
PER RECOMMENDATIONS OF USER DEPT.
6. “Y” FLAGGED PURCHSE REQUISTIONPUR(W)
GM(PUR)DAILY FOR ARRANGING MATERIALS OF NEED
BASE ITEMS BY PURCHASE(WORKS)
7.REPORT OF PR VALUE STATUS DEPT. WISE
GM(ENG.)GM (PUR)
WEEKLY FOR MONITORING OF ACTUAL VS BUDGET SANCTIONS
8. STOCK REPORT FOR MAJOR CHEMICALS PUR(W)DAILY CRITICAL ITEMS REVIEW FOR BETTER
CONTROL AND TO AVOID STOCK OUT SITUATION
9. LIME RECEIPTS GM(PUR)WEEKLY AND MONTHLY REPORTS FOR BETTER
CONTROL AND INFLOW OF QUALITY MATERIALS
10.RECEIPT OF CHEMICALS REPLENISHMENT CONSUMPTION
GM(PUR)WEEKLY AND MONTHLY REPORTS FOR BETTER
CONTROL AND INFLOW OF QUALITY MATERIALS
TITLE: GOODS RECEIPT AND HANDLING OF NON CONFORMING PRODUCTS PROCEDURE
88
PURPOSE: THIS QUALITY MANAGEMENT PROCEDURE IS VALID FOR ALL INCOMING MATERIALS
SCOPE: APPLICABLE FOR ALL RAW MATERIALS, CHEMICALS, STORES AND SPARES.
RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES), ASST. MANAGER (YARD&STORES), OFFICER (STORES)
INPUTS:
SL.NO. INPUT SOURCE FREQUENCY RESPONSIBILITYREVIEW
CRITERIAREFERENCE
1.
RAW MATERIALS COAL HEAVY CHEMICALS ……
CHALLANSSUPPLIERS DAILY
DY. MANAGERS (YARD&STORES)
MATERIAL VS CHALLAN
PARTY DOCUMENTS
STORES & SPARES...…….. GOODS DELIVERY/
REPLACEMENT NOTE
PURCHASE DEPT.
DAILY OFFICER (STORES)MATERIAL
VS GODOWN
RAW MATERIAL COAL HEAVY CHEMICALS
SUPPLIERS DAILYDY. MANAGERS (YARD&STORES) TEST WEIGHMENTS
2. STORES AND SPARES SUPPLIERS DAILY OFFICER (STORES) QUNTITY/PACKINGPARTY
DOCUMENTS
3. QUALITY REPORTS
APPROVING AUTHORITY USER DEPT./
CONTROL LAB
DAILYASST. MANAGER
(STORES)ACCEPTANCE/
REJECTION
4.STATUTORY
REQUIREMENTS
VARIOUS LAWS/
LEGISLATIONSCONTINEOUS WORKS OFFICER
COMPLIANCE WITH THE LAWS
REGISTER OF STATUTORY
LAWSPROCESS INTERFACE:
89
SL.NO. ACTIVITY RESPONSIBILITY REFERENCE
1. RECEIPT OF RAW MATERIALS, COAL, HEAVY CHEMICALSDY. MANAGER(YARD)
ASST. MANAGER (YARD & STORES)
2. RECEIPT OF STORES AND SPARES OFFICER (STORES)
3. REJECTION / DAMAGE / BREAKAGE / SHORTAGEASST. MANAGER (STORES)
OFFICER (STORES)
MEASUREMENT AND MONITORING PROCESS:
SL.NO.
STAGE / SECTION
MONITORING CRITERIAFREQUENC
YRESPONSIBILITY
REFERENCE
1.RECEIPT OF MATERIALS
QUNTITY IN CHALLAN VS QUNTITY RECEIVED COMPLIANCE
QITH STATUTORY NORMSDAILY
DY. MANAGER(YARD)ASST. MANAGER (YARD & STORES) OFFICER (STORES)
2.
RECEIPT BAMBOO, HARDWOOD, LIME
DETECTION OF TRUCK DAILYDY. MANAGERS,
ASST.MANAGER(YARD)
3.RECEIPT OF STORES AND SPARES
RECEIPT CRITERIAL ANALYSIS DAILY OFFICER (STORES)
4. REJECTIONSQUALITY REPORT FROM APPROVING AUTHORITY
AWRDY. MANAGER
(STORES) OFFICER (STORES)
90
OUTPUT:
SL.NO. OUTPUT TO REVIEW CRITERIA REFERENCE
1. YARD REPORT SELFDAILY FOR DOCUMENTATION OF GOODS
REEIPT REPORT
2. GOODS RECEIPT REPORTACC. (w), PUR(w),
CULCUTTA OFFICE/HO USER DEPT./SELF
DAILY FOR DOCUMENTATION OF MATERIAL RECEIPT REPORT
3.REJECTION MATERIAL
RETURN DUEPUR(w)
MONTLHY FOR RETURN OF NON CONFIRMATORY MATERIALS
4.STATUS REPORT OF GRR’S PENDING FOR APPROVAL
VP(C) GM (ENGG.) WEEKLY STATUS REVIEW
5.REMINDER FOR MATERIAL INSPECTION OF STORES &
SPARES
USER DEPT. WEEKLY FOR SMOOTH FLOW OF DOCUMENTATION
6.MATERIAL REJECTION
REPORTACC(w), PUR, SELF
MONTHLY FOR RETURN OF NON CONFIRMATORY MATERIALS
7.RECJECTION MATERIAL
RETURN GDNSUPPLIERS
AWR RETURN OF NON CONFIRMATORY MATERIALS
8.RECEIPT REPORT OF STORES
& SPARESSELF DAILY COMMUNICATION TO BE SPECIFIED
9.DETENTION OF RAW MATERIAL TRUCKS
ACTIVITY BOARD MONTHLY PRERFORMANCE REVIEW
10.DETENTION OF LIME
TRUCKSACTIVITY BOARD MONTHLY PRERFORMANCE REVIEW
91
TITLE: PROCEDURE FOR IDENTIFICATION TRACE ABILITY, HANDLING, PRESERVATION STORAGE AND DISPOSAL OF MATERIAL
PURPOSE: THIS QUALITY MANAEMENT PROCEDURES IS OPTIMAL IDENTIFICATION, TRACE ABILITY, HANDLING, PRESERVATION, STORAGE AND DISPOSAL OF ALL MATERIALS
SCOPE: APPLICABLE FOR ALL RAW MATERIALS, COAL, LIME, HEAVY CHEMICALS, STORES AND SPARES AND SOLID WASTES.
RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES) ASST. MANAGER (YARD&STORES)
INPUTS:
SL.NO.
INPUT SOURCE FREQUENCY RESPONSIBILITY REVIEW CRITERIA REFERENCE
1. MATERIAL CATALOGUE IE DEPT. AWR Sr. MANAGER (IE)MATERAIAL
SPECIFICATIONS
2.
RAW MATERIALSTOCK/TRUCK/
RAILDAILY
DY.MANAGER (YARD)
QUNTITY/QUALITY
COAL STOCK /RAIL DAILYASST.MANAGER
(YARD)QUNTITY/QUALITY
HEAVY CHEMICALS STOCK DAILYASST.MANAGER
(YARD)QUNTITY/QUALITY
STORES SPARES STOCK DAILYASST.MANAGER
(STORES)QUNTITY/QUALITY
3.MATERIAL SAFETY DATA
SHEET
SUPPLIER/ STANDARD
LITERATUREAWR
DY.MANAGER(YARD)ASST.MANAGER(YARD)ASST.MANAGER(STORE)
COVERAGE OF ALL APPLICABLE ITEMS
AS PER LAW
4. LIFE/STORAGE NORMS DATASUPPLIER/
STANDARD LITERATURE
AWRDY.MANAGER (YARD)
ASST.MANAGER (YARD) ASST.MANAGER (STORES
COVERAGE OF ALL APPLICABLE/
IDENTIFIEBLE ITEMSPHYSICAL
92
PROCESS INTERFACE:
SL.NO. HANDLING & STORAGE METHOD FOR RESPONSIBILITY REFERENCE
1. RAW MATERIALS DY. MANAGER(YARD)
2. COALASST. MANAGER (YARD)
3.LIME ASST. MANAGER (YARD)
4. HEAVY CHEMICALS DY. MANAGER(STORES)
5. STORES AND SPARES ASST. MANAGER (YARD)
6. SCRAP DY. MANAGER(STORES)
7. SOLID WASTES ASST. MANAGER (STORES)
93
MEASUREMENT AND MONITORING PROCESS:
SL.NO. STAGE / SECTION MONITORING CRITERIA FREQUENCY RESPONSIBILITY REFERENCE
1.
STOCK CHECKING FOR RAW MATERIALS, COAL, LIME, CHEMICALS
PHYSICAL VS
BOOK STOCKHALF YEARLY
DY. MANAGER (STORES & YARD)
ASST.MANAGER(STORES)
2.STOCK TAKING FOR STORES AND SPARES
PHYSCIAL VS BOOK STOCK PERPECTUAL ASST.MANAGER(STORES)
3.HANDLING OF COAL LIME HEAVY CHEMICALS
FIFO CONTINEOUS DY. MANAGER (STORES & YARD)
4.HANDLING OF RAW MATERIALS
FIFO CONTINEOUS DY. MANAGER (YARD)
5.CONDITION MONITORING FOR STORES SPARES
CONDITION OF MATERIALS MONTHLY ASST. MANAGER (YARD)
6. SOLID WASTEDISPOSAL WITH COMPLIANCE
OF STRATEGY NORMSCONTINEOUS ASST. MANAGER (STORES)
7. SCRAP
ARRIVALS, SEGREGATION/DISPOSAL WITH COMPLIANCE OF STATUTORY
NORMS
DAILY DY. MANAGER(STORES)
94
OUTPUT:
SL.NO. OUTPUT TO REVIEW CRITERIA REFERENCE
1.PHYSICAL SHORTAGE/EXCESS STATEMENT
TOP MANAGEMENT
HALF YEARLY FOR ACCURACY OF BOOKS VS PHYSICAL
2. MATERIAL FIT FOR LINE USER DEPT. CONTINEOUS FOR QULITY
3.INVENTORY & CONTROL GRAPHS OF VARIOUS ACTIVITIES
ACTIVITY BOARD AS PER SCHEDULE FOR ANALYSIS TPM
95
RATIO ANALYSIS OF INVENTORY
RATIO OF COST OF GOODS SOLD TO SALES:-
TABLE: 4.1
YEARS COST OF GOODS SOLD
Rs. in Lacs (0.1 Million)
SALES
Rs. in Lacs
(0.1 Million)
RATIO
2000-01 483.3 629.62 0.76
2001-02 483.95 540.18 0.89
2002-03 519.33 585.33 0.88
2003-04 477.45 624.61 0.76
2004-05 516.22 633.52 0.81
2005-06 535.86 665.12 0.80
FIGURE:
RATIO OF COST OF GOOD SOLD TO SALES
0.65
0.7
0.75
0.8
0.85
0.9
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
RA
TIO
RATIO
96
INTERPRETATION:
The table 4.1 shows the ratio of cost of goods sold to sales. It is observed that there is
an increase of 17.10% in the ratio of cost of goods sold to sales in the year 2001-02 from
the year 2000-01. But when compared to 2002-03 with 2001-02 there was a decrease of
1% and the next year there was further decrease of 14% from the year 2001-02. In the
year 2004-05 there was an increase of 6.58% in cost of sales which is not good as the cost
of goods sold must be minimized to the fullest possible length. But in year 2005-06 their
was a slight decrease.
Therefore overall the company performance is said to be good in controlling and
reducing the cost of goods sold.
97
RATIO OF RAW MATERIAL CONSUMED TOTAL COST OF THE PRODUCTION:
TABLE:4.2
YEARS RAW MATERIALS CONSUMED
Rs. in Lacs (0.1 Million)
TOTAL COST OF PRODUCTION
Rs. in Lacs (0.1Million)
RATIO
2000-01 9744.22 27914.43 0.35
2001-02 9239.14 26733.09 0.35
2002-03 10482.19 30905.13 0.34
2003-04 11887.81 32905.18 0.36
2004-05 13201.14 34768.78 0.38
2005-06 15977.08 42598.36 0.38
FIGURE:
RATIO RAW MATERIAL CONSUMED TO TOTAL COST OF PRODUCTION
0.32
0.33
0.34
0.35
0.36
0.37
0.38
0.39
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
RA
TIO
RATIO
98
INTERPRETATION:
The above 4.2 table reveals the ratio of the raw material consumed to the total cost of
production. In the year 2000-01 the ratio is stable when compared with the previous year
2000-01. But in the 2002-03 there was an decrease of 2.86% in the ratio as the cost of
production increased and in the next year i.e., 2003-04 there was an further increase of
5.88% when compared to the previous year. And in the years 2004-05 there was further
increase of 5.56%, and in the year 2005-06 it was stable.
Overall the ratio is in an increasing trend and hence it is good for the organization that
it maintaining other costs in a controlled way.
99
RATIO OF OPENING AND CLOSING RAW MATERIAL TO THE TOTAL RAW MATERIAL:
TABLE: 4.3
YEARS OPENING
Rs. in Lacs
(0.1 Million)
CLOSING
Rs. in Lacs
(0.1 Million)
TOTAL Rs. in Lacs
(0.1 Million)
OPENING RATIO
CLOSING RATIO
2000-01 1790.32 1975.16 3765.48 0.48 0.53
2001-02 1975.16 1796.55 3771.71 0.52 0.48
2002-03 1796.55 2630.07 4426.62 0.41 0.59
2003-04 2630.07 2001.24 4631.31 0.57 0.43
2004-05 2001.24 2607.68 4608.92 0.43 0.57
2005-06 2607.24 3160.02 5767.26 0.45 0.55
FIGURE:
• RATIO OF OPENING AND CLOSING RAW MATERIAL TO THE TOTAL RAW MATERIAL:
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
RA
TIO OPENING
CLOSING
100
INTERPRETATION:
The above table 4.3 reveals the opening and closing raw material in lakhs and in the ratio.
In the year 2000-01 the ratio values of opening and closing are said to be 0.48 and 0.53
respectively. For the next year 2001-02 there was an increase in the ratio of opening by
7% and decrease in the closing by 9.43%. and in the next year 2002-03 there was an
decrease of 21.5% in opening and 22.92% increase in the closing and in the year 2003-04
there was and tremendous increase of 39.02 in opening and there was an rapid decrease
of 27.11% in the closing.
In the year 2004-05 the opening ratio decreased by 24.56% and the closing ratio is
increased by 32.56% with comparison of the previous year 2003-04 and in the year 2005-
06 opening has increased by 4.6% and decrease in closing by 4% it is good for the
company. Over all the organization must have an increase in the raw materials and the
raw materials of JK are said to be fluctuating.
101
RATIO OF OPENING AND CLOSING WORK IN PROGRESS TO THE TOTAL WORK IN PROGRESS:
TABLE: 4.5
YEARS OPENING
Rs. in Lacs
(0.1 Million)
CLOSING
Rs. in Lacs
(0.1 Million)
TOTAL Rs. in Lacs
(0.1 Million)
OPENING RATIO
CLOSING RATIO
2000-01 820.69 732.26 1552.95 0.53 0.47
2001-02 732.26 750.28 1482.54 0.49 0.51
2002-03 750.28 643.25 1393.53 0.54 0.46
2003-04 643.25 753.67 1396.92 0.46 0.54
2004-05 753.67 696.18 1449.85 0.52 0.48
2005-06 696.18 710.06 1406.85 0.49 0.51
FIGURE:
RATIO OF OPENING AND CLOSING WORK IN PROGRESS TO THE TOTAL WORK IN PROGRESS
0.42
0.44
0.46
0.48
0.5
0.52
0.54
0.56
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
RA
TIO OPENING
CLOSING
102
INTERPRETATION:
The above table 4.5 shows the opening and closing work in progress to the total work in
progress.
In the year 2001-02 the opening ratio is decreased by 7.54% and the closing ratio is
increased by 7.84% when compared to the year 2000-01. And in the year 2002-03 there
was an increase of 10.2% in the opening and 9.8% decrease in the closing and in the year
2003-04 there was an decrease of 14.81% in the opening and increasing of 17.39% in the
closing. In the year 2004-05 opening has increased by 13 %, closing decreased by 12%
and in the year 2005-06 opening has decreased by 6%,and closing has increased by
6.25%.
Over all the companies’ ratio of opening and closing work in progress to total work in
progress is said to be fluctuating.
103
RATIO OF OPENING AND CLOSING INVENTORY TO THE TOTAL INVENTORY: ( w.r.t. FINISHED GOODS)
TABLE: 4.6
YEARS OPENING
Rs. in Lacs
(0.1 Million)
CLOSING
Rs. in Lacs
(0.1 Million)
TOTAL Rs. in Lacs
(0.1 Million)
OPENING RATIO
CLOSING RATIO
2000-01 559.69 2275.60 2835.29 0.20 0.80
2001-02 2275.60 625.91 2901.51 0.79 0.23
2002-03 625.91 1340.98 1966.89 0.32 0.68
2003-04 1340.98 1273.33 2614.31 0.51 0.49
2004-05 1273.33 1520.44 2793.77 0.45 0.54
2005-06 1520.44 2218.79 3739.23 0.40 0.59
FIGURE:
• RATIO OF OPENING AND CLOSING FINISHED INVENTORY TO THE TOTAL INVENTORY OF
FINISHED GOOD
0
0.2
0.4
0.6
0.8
1
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
RA
TIO OPENING
CLOSING
104
INTERPRETATION:
The above table 4.6 represents the opening and closing inventory of JK PAPER.
In the year 2001-02 the opening ratio is increased by 74.68% and decreased by 71.25
when compared to the previous year 2000-01 and in the year 2002-03 the opening ratio is
decreased by 0.47 and the closing is increased by 0.45 and in the next year 2003-04 there
was an increase of 0.19 in the opening and decrease of 0.19 in the closing. In the final
year 2004-05 the opening ratio is decreased by 11.76% and closing ratio is increased by
10.2% when compared with 2003-04. and in the year 2005-06 he opening has decreased
by 11.11% and closing has increased by 9.25 %.
Therefore it is being interpreted that the company is maintaining a balance between
the opening and closing inventory to the total inventory.
105
INVENTORY TURN OVER RATIO:-
COST OF GOOD SOLD/AVERAGE INVENTORY
TABLE: 4.7
YEARS C.G.S
Rs. in crore
AVERAGE INVENTORY Rs. in crore
INVENTORY TURN OVER RATIO (In Times)
2000-01 483.3 46.258 10.4
2001-02 483.95 65.47 7.39
2002-03 519.33 62.81 8.26
2003-04 477.45 66.98 7.12
2004-05 516.22 68.42 7.54
2005-06 535.86 81.11 6.60
FIGURE:
0
2
4
6
8
10
12
RATIO
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
INVENTORY TURNOVER RATIO
RATIO
106
INTERPRETATION:
The above table 4.7 indicates the inventory turnover ratio of JK PAPER LTD. Higher
the ratio, greater the efficiency of inventory management.
From the above table it is clear that in 2001-02 the ratio is decreased by 40.7% as
there is a reduction in the inventory. Where as, in the year 2002-03, the ratio is increased
by 10.5% as the inventory is moving fastly and generating sales. Where as in the years
2003-04 the ratio is decreased in the inventory from 2002-03 and in the year 2004-05
there was an increase 6% when compared to the previous year 2003-04, and in the year
2005-06 it has decreased by 14%, however the overall inventory turnover ratio in JK
PAPER LTD is fluctuating.
107
INVENTORY HOLDING PERIOD :
FORMULAE:
TABLE: 4.8
YEARS DAYS INVENTORY TURN OVER RATIO
(In Times)
INVENTORY HOLDING PERIOD
(In Days)
2000-01 365 10.4 35
2001-02 365 7.39 49
2002-03 365 8.26 44
2003-04 365 7.12 51
2004-05 365 7.54 48
2005-06 365 6.60 55
FIGURE:
0
10
20
30
40
50
60
DAYS
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
INVENTORY HOLDING PERIOD
RATIO
108
INTERPRETATION:
The above table 4.8 shows the inventory holding period of JK PAPER LTD. Is not
constant it is fluctuating but the fluctuation is not so high it can be accepted. The change
high in the year 2001-02 its around 14 days .
Generally the sales will have an affect on the inventory holding period if the sales are
said to be more then the inventory holding period is said to be very low where as high
when there will be an low sale of the product that is being manufactured.
109
RAW MATERIALS TURNOVER RATIO:
FORMULAE:
TABLE: 4.9
YEARS MATERIALS CONSUMED
Rs. in Lacs
(0.1Million)
AVERAGE RAW MATERIALS
Rs. in Lacs
(0.1Million)
RAWMATERIAL TURNOVER RATIO
(In Times)
2000-01 9744.22 1790.32 5.44
2001-02 9239.14 1885.86 4.89
2002-03 10482.19 2213.31 4.74
2003-04 11887.81 2315.66 5.13
2004-05 13201.14 2304.46 5.73
2005-06 15977.08 2883.06 5.66
FIGURE:
110
RAW MATERIAL TURNOVER RATIO
0
1
2
3
4
5
6
7
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
RA
TIO
RATIO
INTERPRETATION:
The above table 4.9 reveals the raw material turn over ratio. In the year 2001-02 the
raw materials turn over ratio is decreased by 10.11% to the previous year 2000-01 and in
the 2002-03 there was a decrease of 3%. In the year 2003-04 there was an increase of
8.23% from the previous year 2002-03.
In year i.e., 2004-05 there was a further increase of 11.70% from the previous year
2003-04 and in the year 2005-06 their was a slight decrease overall there is said to be an
increasing trend with low rate of decrease.
There fore the raw material turn over ratio is said to be in an increasing way and
increase is said to be a favorable one to the organization in respect of raw materials
111
WORK IN PROGRESS TURNOVER RATIO:
FORMULAE:
TABLE: 4.10
YEARS COST OF PRODUCTION
Rs. in Lacs
(0.1Million)
AVERAGE WORK IN PROGRESS
Rs. in Lacs (0.1Million)
WIP
TURNOVER RATIO
(In Times)
2000-01 27914.43 776.48 35.95
2001-02 26733.09 741.27 36.06
2002-03 30905.13 696.77 44.36
2003-04 32905.18 698.46 47.11
2004-05 34768.78 724.93 47.96
2005-06 42598.36 703.12 60.58
FIGURE:
112
WORK IN PROGRESS TURNOVER RATIO
0
10
20
30
40
50
60
70
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
YEAR
RA
TIO
RATIO
INTERPRETATION:
The above table 4.10 reveals the work in progress turn over ratio. In the year 2001-02
the work in progress turn over ratio is increased by 0.30% to the previous year 2000-01.
In the year 2002-03 there was a drastic increase of 23% in the ratio which is said to be
not favorable for the company. In the next year 2003-04 there was an increase of 6.20%
when compared to the 2002-03. In the final year 2004-05 there was an increase in the
ratio by 1.8%when compared to the previous year 2003-04. and in the year 2005-06 there
is increase of 26.3%.
Therefore the work in progress turn over ratio of the company is said to be increasing
and it has to be brought down to the minimum level.
113
SUMMARY
JK is continuously growing company producing diversified products. Its
diversification of products and services ensure optimal return on investment.
It is using highly sophisticated technology. The paper industry has a bright future
as the demand for it growing day by day.
It production capacities and productivity is increasing year by year by using
quality raw materials and efficient production technology in analyzing the statements.
Order quantity is an optimum quantity when there is a trade off between ordering
cost and carrying cost. If the company follows OQ, OC and stock out costs will reduce
and suspension of production process will not occur in the plant. The inventory turn over
ratio is good and it should be high.
To be precise even though the company is in good stage it has to improve year by
year and if it continuous with the same trend of performance it can hold the top position
in the county and reach up to the international standards and compete with international
companies.
114
FINDINGS
No false ceiling resulting in accumulation of dust in record room of stores office.
Filing rack height more & unwanted tables & chairs.
Normal trailer and unsafe for handling of raw material.
More number of trips due to low carrying capacity of trucks.
Content sheet not visible due to dust.
ABC analysis not applied for raw materials like bamboo etc,.
New method of finding the levels of inventory.
Some times the material is issued and it is not entered in the books.
115
SUGGESTIONS
False ceiling can avoid dust in the record room.
Decrease the rack height to 5 feet.
Increase the height of the trailer and its capacity.
ABC analysis is to be applied for raw materials like bamboo etc,.
OQ method will reduce the cost of production by reducing CC and OC hence to
be applied for all types of materials.
If ABC analysis s is applied for the materials produced it helps to reduce the
unnecessary investment and if applied for raw materials it will reduce the CC and
OC.
By applying ABC analysis it would become easy to concentrate on the items of a
category to avoid suspension in work and can estimate investment to be made on
these items.
Company can maintain the raw material stock for one month which it is
maintaining right now for two and half months because they are having their own
plantation which can fulfill 20% of their needs.
Ground loss of raw material can be controlled by applying proper pesticide to it.
116
Proper system for the unloading of raw material should be their in rainy seasons,
as there is chance for increase in wastage of raw material, which will affect
bottom-line.
Bibliography:
BOOKS AUTHORS
FINANCIAL MANAGEMENTI. M. PANDEY
FINANCIAL MANAGEMENTPRASANNA CHANDRA
PRODUCTION AND OPERATIONS MANAGEMENT
CHUNAWALLA & PATEL
ANNUAL REPORTS OF JKPM
o www.jkpaper.com
o www.paper.com
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