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A STUDY ON
INVENTORY MANAGEMENTWith reference to
ANDHRA PRADESH HEAVY MACHINERY AND
ENGINEERING LIMITED
A project report submitted in partial fulfilment of the
requirement for award of
MASTER OF BUSINESS ADMINISTRATION
Submitted
By
T. Chndra Babu
(Regd.No10H71E0009)
Under the Esteemed of guidance of
Mrs. Vasavi
Asst. Professor
DEPARTMENT OF MANAGEMENT STUDIES
Devineni Venkata Ramana & Dr. Himasekhar
MIC COLLEGE OF TECHNOLOGYKanchikacharla521180, Krishna District, Andhra Pradesh.
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY
KAKINADA
2010-2012
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ACKNOWLEDGEMENT
The completion of this project makes me to recall with Gratitude several
persons who have extended their co-operation in one way or the other in this venture.
I am very much thankful to Mrs. Ranibhai, for his precious guidance and constant
support in completing my project in ANDHRA PRADESH HEAVY MACHINERY AND
ENGINEERING LIMITED, KONDA PALLI
I express my sincere thanks to Dr. T. NAGESWARA RAO, M.B.A head of
the Department of Management Studies.
I am grateful to my project guide Mrs. Vasavi for permitting me to undertake
this project.
My sincere thanks to Madam Mrs. Vasavi M.B.A, Asst professor of M.B.A,
department for his guidance & suggestions are during the course of study.
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DECLARATION
I hereby declare that this project report entitled A STUDY ON
INVENTORY MANAGEMENT WITH SPECIAL REFERENCE TO ANDHRA
PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED, KONDA
PALLI.
Has been prepared by me during the year 2010-2012 in partial fulfilment Of the
requirement for the award of MASTER OF BUSINESS ADMINISTRATION By
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY KAKINADA.
I also declare that this project is the result of my own effort and that
it has been submitted to any university for the award of any other Degree or diploma.
Date : Signature of the student
T. CHANDRA BABU
Place : (Regd. No.10H71E0009)
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CONTENTS
CHAPTER-I
Introduction
Theoretical framework
CHAPTER-II
Industry Profile
Company Profile
CHAPTER-III
Research Methodology
CHAPTER-IV
Data analysis and interpretation
CHAPTER-V
Finding & suggestions
Conclusion
Bibliography
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CHAPTERI
INTRODUCTION
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INTRODUCTION
Finance is called The science of money. It studies the principles and the methods of
obtaining control of money from those who have saved it, and of administering it by those
into whose control it passes. Finance is a branch of Economics till 1890. Economics is
defined as study of the efficient use of scarce resources. The decisions made by business firm
in production, marketing, finance and personnel matters form the subject matters of
economics. Finance is the process of conversion of accumulated funds to productive use. It is
so intermingled with other economic forces that there is difficulty in appreciating the role it
plays.
MEANING AND DEFINITION OF FINANCE:Howard and Uptron in his book introduction to Business Finance defined, as that
administrative area or set of administrative function in an organization which relate with the
arrangement of cash and credit so that the organization may have the means to carry out its
objectives as satisfactorily as possible.
In simple terms finance is defined as the activity concerned with the planning, raising,
controlling and administering of the funds used in the business. Thus, finance is the activity
concerned with the raising and administering of funds used in business.
MEANING AND DEFINITION OF FINANCIAL MANAGEMENT:
Financial management is managerial activity which is concerned with the planning
and controlling of the firms financial resources. An entity whose income exceeds its
expenditure can lend or invest the excess income. On the other hand, an entity whose income
is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing
its expenses, or increasing its income. The lender can find a borrower, a financial
intermediary such as a bank, or buy notes or bonds in the bond market. The lender receives
interest, the borrower pays a higher interest than the lender receives, and the financial
intermediary earns the difference for arranging the loan.
A bank aggregates the activities of many borrowers and lenders. A bank accepts
deposits from lenders, on which it pays interest. The bank then lends these deposits to
borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity.
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Finance is used by individuals (personal finance), by governments (public finance),
by businesses (corporate finance) and by a wide variety of other organizations, including
schools and non-profit organizations. In general, the goals of each of the above activities are
achieved through the use of appropriate financial instruments and methodologies, with
consideration to their institutional setting. Finance is one of the most important aspects of
business management and includes decisions related to the use and acquisition of funds for
the enterprise.
DEFINITIONS:
Howard and Upton define financial management as an application of general
managerial principles to the area of financial decision-making.
Weston and Brig hem define financial management as an area of financial decision
making, harmonizing individual motives and enterprise goal.
Financial management is concerned with the efficient use of an important economic
resource, namely capital funds - Solomon Ezra & J. John Pringle.
Financial management is the operational activity of a business that is responsible for
obtaining and effectively utilizing the funds necessary for efficient business operations- J.L.
Massie.
Financial Management is concerned with managerial decisions that result in the
acquisition and financing of long-term and short-term credits of the firm. As such it deals
with the situations that require selection of specific assets (or combination of assets), the
selection of specific liability (or combination of liabilities) as well as the problem of size and
growth of an enterprise. The analysis of these decisions is based on the expected
inflows and outflows of funds and their effects upon managerial objectives. - Phillippatus.
NATURE OF FINANCIAL MANAGEMENT:
The nature of financial management refers to its relationship with related disciplines like
economics and accounting and other subject matters. The area of financial management has
undergone tremendous changes over time as regards its scope and functions. The finance
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function assumes a lot of significance in the modern day s in view of the increased size of
business operations and the growing complexities associated thereto.
OBJECTIVES OF FINANCIAL MANAGEMENT:
Efficient financial management requires the existence of some objectives or goals
because judgment as to whether or not a financial decision is efficient must be made in the
light of some objective. Although various objectives are possible we assume two objectives
of financial managements. These are:
I. Profit Maximization
II. Wealth Maximization.
I. Profit Maximization:It has traditionally been argued that the objective of a company is to earn profit; hence
the objective of financial management is also profit maximization. This implies that the
finance manager has to make his decisions in a manner so that the profits of the concern are
maximized. Each alternative, therefore, is to be seen as to whether or not it gives maximum
profit.
However profit maximization cannot be the sole objective of a company. It is at best a
limited objective. If profit is given undue importance, a number of problems can arise. There
are-
a) The term profit is Vague. It does not clarify what exactly it mean. It conveys a different
meaning to different people. For example, profit may be in short term or long term period; it
may be total profit or rate of profit etc.
b) Profit maximization has to be attempted with a realization of risks involved.
c) Profit Maximization as an objective does not take into account the time pattern of returns.
d) Profit Maximization as an objective is too narrow.
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II. Wealth Maximization:The readers would appreciate that a company, which has profit maximization as its
objective, may adopt policies yielding exorbitant profits in the short run which are unhealthy
for the growth, survival and overall interests of the business. A company may not undertake
planned and prescribed shut-downs of the plant for maintenance, etc. for simply to maximize
its profits in the short run. If this reduces the life of a plant say by five years, the company is
ignoring maintenance only at its own peril although it may have greater profits in the short
run. Hence, it is commonly agreed that the objective of a firm should be to maximize its
value or wealth.
According to Van Horne value of a firm is represented by the market price of the
company common stock. Normally, this value is a function of two factors:
a) The likely rate of earnings per share of the company: and
b) The capitalization rate.
SCOPE AND SIGNIFICANCE OF FINANCIAL MANAGEMENT:
Financial Management is essential in all types of organization wherever the funds are
involved, whether profit oriented or non-profit oriented, in a centrally planned economy and
also in a capitalist set-up. It is a must for private and public enterprises. If Financial
Management of a company is bad, there is a danger of liquidation, even when the company
makes high profits.
Financial Management optimizes the output from the given input of funds. It attempts to
use funds in the most productive manner. If proper financial management techniques are
used, most of the enterprises can reduce their capital employed and improve their return on
investment.
The strength of the finance function determines the strength of other functions since
production, marketing etc., are possible only with sound financial management. Financial
Management plays crucial role in making the best use of resources.
Financial Management today covers the entire gamut of activities and functions given
below. The head of finance is considered to be important ally of the CEO in most
organizations and performs a strategic role. His responsibilities include:
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a. Estimating the total requirements of funds for a given period.
b. Raising funds through various sources, both national and international, keeping in
Mind the cost effectiveness;
c. Investing the funds in both long term as well as short term capital needs;
d. Funding day-to-day working capital requirements of business;
e. Collecting on time from debtors and paying to creditors on time;
f. Managing funds and treasury operations;
g. Ensuring a satisfactory return to all the stake holders;
h. Paying interest on borrowings;
i. Repaying lenders on due dates;
j. Maximizing the wealth of the shareholders over the long term.
k. Interfacing with the capital markets;
l. Awareness to all the latest developments in the financial markets;
m. Increasing the firms competitive financial strength in the market &
n. Adhering to the requirements of corporate governance.
ROLE OF FINANCIAL MANAGEMENT:
To participate in the process of putting funds to work within the business and to
control Their productivity; and
To identify the need for funds and select sources from which they may be
obtained. The functions of financial management may be classified on the basis
of liquidity, profitability and management.
1. LIQUIDITY:Liquidity is ascertained on the basis of three important considerations:
a. Forecasting cash flows, that is, matching the inflows against cash outflows;
b. Raising funds, that is, financial management will have to ascertain the sources from which
funds may be raised and the time when these funds are needed;
c. Managing the flow of internal funds, that is, keeping its accounts, with a number of Banks
to ensure a high degree of liquidity with minimum external borrowing.
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1. PROFITABILITY:While ascertaining profitability, the following factors are taken into account:
a. Cost control: expenditure in the different operational areas of an enterprise can be analyzed
with the help of an appropriate cost accounting system to enable the financial manager to
bring costs under control.
b. Pricing: Pricing is of great significance in the companys marketing effort, image and sales
level. The formulation of pricing policies should lead to profitability, keeping, of course,
the image of the organization intact.
c. Forecasting Future Profits: Expected profits are determined and evaluated. Profit levels
have to be forecast from time to time in order to strengthen the organization.
d. Measuring Cost of Capital: Each source of funds has a different cost of capital which must
be measured because cost of capital is linked with profitability of an enterprise.
2. MANAGEMENT:The financial manager will have to keep assets intact, for assets are resources which
enable a firm to conduct its business. Asset management has assumed an important role in
financial management. It is also necessary for the financial manager to ensure that sufficient
funds are available for smooth conduct of the business. In this connection, it may be pointed
out that management of funds has both liquidity and profitability aspects. Financial
management is concerned with the many responsibilities which are thrust on it by a business
failures, financial failures do positively lead to business failures.
The responsibility of financial management is enhanced because of this peculiar situation.
Financial management may be divided into two broad areas of responsibilities, which are not
by any means independent of each other. Each, however, may be regarded as a different kind
of responsibility; and each necessitates very different considerations. These two areas are:
The management of long-term funds, which is associated with plans for
development and expansion and which involves land, buildings, machinery,
equipment, transport facilities, research project, and so on;
The management of short-term funds, which is associated with the overall cycle
of activities of an enterprise. These are the needs which may be described, as
working capital needs.
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FUNCTIONS OF FINANCIAL MANAGEMENT:
The modern approach to the financial management is concerned with the solution of
major problems like investment financing and dividend decisions of the financial operations
of a business enterprise. Thus, the functions of financial management can be broadly
classified into three major decisions, namely:
(a) Investment decisions,
(b) Financing decisions,
(c) Dividend decisions.
The functions of financial management are briefly discussed as under:
1. INVESTMENT DECISION:The investment decision is concerned with the selection of assets in which funds will be
invested by a firm. The assets of a business firm include long term assets (fixed assets) and
short term assets (current assets). Long term assets will yield a return over a period of time in
future whereas short term assets are those assets which are easily convertible into cash within
an accounting period i.e. a year. The long term investment decision is known as capital
budgeting and the short term investment decision is identified as working capital
management. Capital Budgeting may be defined as long term planning for making and
financing proposed capital outlay.
In other words Capital Budgeting means the long-range planning of allocation of funds
among the various investment proposals. Another important element of capital budgeting
decision is the analysis of risk and uncertainty. Since, the return on the investment proposals
can be derived for a longer time in future, the capital budgeting decision should be evaluated
in relation to the risk associated with it.
On the other hand, the financial manager is also responsible for the efficient management
of current assets i.e. working capital management. Working capital constitutes an integral
part of financial management. The financial manager has to determine the degree of liquidity
that a firm should possess. There is a conflict between profitability and liquidity of a firm.
Working capital management refers to a Trade off between liquidity (Risk) and
Profitability. Insufficiency of funds in current assets results liquidity and possessing of
excessive funds in current assets reduces profits. Hence, the finance manager must achieve a
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proper trade off between liquidity and profitability. In order to achieve this objective, the
financial manager must equip himself with sound techniques of managing the current assets
like cash, receivables and inventories etc.
2. FINANCING DECISION:The second important decision is financing decision. The financing decision is concerned
with capitalmix, (financingmix) or capital structure of a firm. The term capital structure
refers to the proportion of debt capital and equity share capital. Financing decision of a firm
elates to the financing mix. This must be decided taking into account the cost of capital,
risk and return to the shareholders. Employment of debt capital implies a higher return to the
share holders and also the financial risk. There is a conflict between return and risk in the
financing decisions of a firm. So, the financial manager has to bring a trade off between
risk and return
by maintaining a proper balance between debt capital and equity share capital. On the other
hand, it is also the responsibility of the financial manager to determine an appropriate capital
structure.
3. DIVIDEND DECISION:The third major decision is the dividend policy decision. Dividend policy decisions are
concerned with the distribution of profits of a firm to the shareholders. How much of the
profits should be paid as dividend? i.e. dividend pay-out ratio. The decision will depend upon
the preferences of the shareholder, investment opportunities available within the firm and the
opportunities for future expansion of the firm. The dividend payout ratio is to be determined
in the light of the objectives of maximizing the market value of the share. The dividend
decisions must be analyzed in relation to the financing decisions of the firm to determine the
portion of retained earnings as a means of direct financing for the future expansions of the
firm.
FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT
One of the most important functions of the financial manager is to ensure availability of
adequate financing. Financial needs have to be assessed for different purposes. Money may
be required for initial promotional expenses, fixed capital and working capital needs.
Promotional expenditure includes expenditure incurred in the process of company formation.
Fixed assets needs depend upon the nature of the business enterprise whether it is a
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manufacturing, non-manufacturing or merchandising enterprise. Current asset needs depend
upon the size of the working capital required by an enterprise.
1) Determining the source of Funds
2) Financial Analysis
3) Optimum Capital Structure
4) C V P Analysis
5) Profit Planning and Control
6) Fixed Assets Management
7) Project Planning and evaluation
8) Capital Budgeting
9) Working Capital
10) Dividend Policies
11) Acquisitions and Mergers
12) Corporate taxation
1) DETERMINING SOURCES OF FUNDS:The financial manager has to choose sources of funds. He may issue different types of
securities and debentures. He may borrow from a number of financial institutions and the
public. When a firm is new and small and little known in financial circles, the financial
manager faces a great challenge in raising funds. Even when he has a choice in selecting
sources of funds, that choice should be exercised with great care and caution. A firm is
committed to the lenders of finance and has to meet terms and conditions on which they offer
credit. To be precise, the financial manager must definitely know what he is doing.
2) FINANCIAL ANALYSIS:It is the evaluation and interpretation of a firms financial position and operations, and
involves a comparison and interpretation of accounting data. The financial manager has to
interpret different statements. He has to use a large number of ratios to analyze the financial
status and activities of his firm. He is required to measure its liquidity, determine its
profitability, and assess overall performance in financial terms. This is often a challenging
task, because he must understand importance of each one of these aspects to the firm; and he
should be crystal clear in his mind about the purposes for which liquidity, profitability and
performance are to be measured.
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3) OPTIMAL CAPITAL STRUCTURE:The financial manager has to establish an optimum capital structure and ensure the
maximum rate of return on investment. The ratio between equity and other liabilities carrying
fixed charges has to be defined. In the process, he has to consider the operating and financial
leverages of his firm. The operating leverage exists because of operating expenses, while
financial leverage exists because of the amount of debt involved in a firms capital structure.
The financial manager should have adequate knowledge of different empirical studies on the
optimum capital structure and find out whether, and to what extent, he can apply their
findings to the advantage of the firm.
4) COST-VOLUME-PROFIT ANALYSIS:This is popularly known as the CVP relationship. For this purpose, fixed costs,
variable costs and semi-variable costs have to be analyzed. Fixed costs are more or less
constant for varying sales volumes. Variable costs vary according to sales volume. Semi-
variable costs are either fixed or variable in the short run. The financial manager has to
ensure that the income for the firm will cover its variable costs, for there is no point in being
in business, if this is not accomplished. Moreover, a firm will have to generate an adequate
income to cover its fixed costs as well. The financial manager has to find out the break-even-
point-that is, the point at which total costs are matched by total sales or total revenue. He has
to try to shift the activity of the firm as far as possible from the break-even point to ensure
companys survival against seasonal fluctuations.
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5) PROFIT PLANNING AND CONTROL:Profit planning and control have assumed great importance in the financial activities of
modern business. Economists have long considered the importance of profit maximization in
influencing business decisions. Profit planning ensures attainment of stability and growth. In
view of the fact that earnings are the most important measure of corporate performance, the
profit test is constantly used to gauge success of a firms activities. Profit planning is an
important responsibility of the financial manager. Profit is the surplus which accrues to a firm
after its total expenses are deducted from its total revenue. It is necessary to determine profits
properly, for they measure the economic viability of a business. The first element in profit is
revenue or income. This revenue may be from sales or it may be operating revenue,
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investment income or income from other sources. The second element in profit calculation is
expenditure.
This expenditure may include manufacturing costs, trading costs, selling costs, general
administrative costs and finance costs. Profit planning and control is a dual function which
enables management to determine costs it has incurred, and revenues it has earned, during a
particular period, and provides shareholders and potential investors with information about
the earning strength of the corporation. It should be remembered that though the
measurement of profit is not the only step in the process of evaluating the success or failure
of a company, it is nevertheless important and needs careful assessment and recognition of its
relationship to the companys progress. Profit planning and control are important be, in actual
practice, they are directly related to taxation. Moreover, they lay foundation of policies which
determine dividend, and retention of profit and surplus of the company. Profit planning and
control are an inescapable responsibility of the management. The break-even analysis and the
CVP relationship are important tools of profit planning and control.
6) FIXED ASSETS MANAGEMENT:A firms fixed assets are land, building, machinery and equipment, furniture and such
intangibles as patents, copyrights, goodwill, and so on. The acquisition of fixed assets
involves capital expenditure decisions and long-term commitments of funds. These fixed
assets are justified to the extent of their utility and / or their productive capacity. Because of
this long-term commitment of funds, decisions governing their purchase, replacement, etc.,
should be taken with great care and caution. Often, these fixed assets are financed by issuing
stock, debentures, long-term borrowings and deposits from public. When it is not worthwhile
to purchase fixed assets, the financial manager may lease them and use assets on a rental
basis. To facilitate replacement to fixed assets, appropriate depreciation on fixed assets has to
be formulated. It is because of these facts that management decision on the acquisition of
fixed assets is vital; if they are ill-designed they may lead to over-capitalization. Moreover, in
view of the fact that fixed assets are maintained over a long period of time, the assets exposed
to changes in their value, and these changes may adversely affect the position of a firm.
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7) PROJECT PLANNING AND EVALUATION:A substantial portion of the initial capital is sunk in long-term assets of a firm. The error
of judgment in project planning and evaluation should be minimized. Decisions are taken on
the basis of feasibility and project reports, containing analysis of economic, commercial,
technical, financial and organizational viabilities. Essentiality of a project is ensured by
technical analysis. The economic and commercial analysis study demand position for the
product. The economy of size, choice of technology and availability of factors favouring a
particular industrial site are all considerations which merit attention in technical analysis.
Financial analysis is perhaps the most important and includes forecast of cash in-flows and
total outlay which will keep down cost of capital and maximize rate of return on investment.
The organizational and man-power analysis ensures that a firm will have the requisite
manpower to run the project. In this connection, it should be remembered that a project is
exposed to different types of uncertainties and risks. It is, therefore, necessary for a firm to
gauge the sensitivity of the project to the world of uncertainties and risks and its capacity to
withstand them. It would be unjustifiable to accept even the most profitable project if it is
likely to be the riskiest.
8) CAPITAL BUDGETING:Capital budgeting decisions are most crucial; for they have long-term implications. They
relate to judicious allocation of capital. Current funds have to be invested in long-term
activities in anticipation of an expected flow of future benefits spread over a long period of
time. Capital budgeting forecasts returns on proposed long-term investments and compares
profitability of different investments and their cost of capital. It results in capital expenditure
investment. The various proposal assets ranked on the basis of such criteria as urgency,
liquidity, profitability and risk sensitivity. The financial analyzer should be thoroughly
familiar with such financial techniques as pay back, internal rate of return, discounted cash
flow and net present value among others because risk increases when investment is stretched
over a long period of time. The financial analyst should be able to blend risk with returns so
as to get current evaluation of potential investments.
9) WORKING CAPITAL MANAGEMENT:Working capital is rightly an adjunct of fixed capital investment. It is a financial
lubricant which keeps business operations going. It is the life-blood of a firm. Cash, accounts
receivable and inventory are the important components of working capital, which is rotating
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in its nature. Cash is the central reservoir of a firm and ensures liquidity. Accounts
receivables and inventory form the principal utility of production and sales; they also
represent liquid funds in the ultimate analysis. The financial manager should weigh the
advantage of customer trade credit, such as increase in volume of sales, against limitations of
costs and risks involved therein. He should match inventory trends with level of sales. The
uncertainties of inventory planning should be dealt with in a rational manner. There are
several costs and risks which are related to inventory management.
The risks are there when inventory is inadequate or in excess of requirements. The
former may hold up production, while the latter would result in an unjustified locking up of
funds and increase the cost of capital. Inventory management entails decisions about the
timing and size of purchases purely on a cost basis. The financial manager should determine
the economic order quantities after considering the relationships of different cost elements
involved in purchases. Firms cannot avoid making investments in inventory because
production and deliveries involve time lags and discontinuities. Moreover, the demand for
sales may vary substantially. In the circumstances, safety levels of stocks should be
maintained. Inventory management thus includes purchases management and material
management as well as financial management. Its close association with financial
management primarily arises out of the fact that it is a simple cash asset.
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THEORETICAL FRAM WORK
MEANING OF INVENTORY
Every enterprise needs inventory for smooth running of its activities; it serves as a
link between the recognition of a need and its fulfilment 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 also serves as a cushion for future prices
fluctuations. The simple meaning of inventory is stock of goods or list of goods the
word inventory is understood differently by various authors. In accounting language it means
stock o finished goods only, for a manufacturing concern it includes raw-materials, work-in-
progress, finished goods etc.
Inventories constitute the most significant part of current assets. Many companies
maintain 60% of current assets as inventories. Because of the large size of the inventories
maintained by the firms, a considerable amount of funds is required to be committed to them.
It is therefore absolutely imperative to manage inventories efficiently in order to avoid
unnecessary investment.
A firm neglecting the management of inventories will be failed in its long run
profitability and may fail ultimately. It is possible for a company to reduce its level of
inventories to a considerable degree within the range of 10 to 20% without any adverse effect
by using simple inventory planning and control techniques. The reduction in excess
inventories has a favourable impact on the profitability of the firm.
DEFINITION:
Policies, procedures, and techniques employed in maintaining the optimum number
or amount of each inventory item. The objective of inventory management is to provide
uninterrupted production, sales, and/or customer-service levels at the minimum cost. Since,
for many firms, inventory is the largest item in the current assets category, inventory
problems can and do contribute to losses or even business failures. It is also called inventory
control. See also inventory analysis.
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OBJECTIVES OF INVENTORY MANAGEMENT:
Minimize investment in inventories in order to maximize profits.
In order to minimize carrying costs and ordering costs of inventory.
To minimize obsolescence in stores.
To avoid excess and inadequate stocks.
To provide check against losses of materials.
To meet the demand for products efficiently
NATURE OF INVENTORIES:
Inventories are the stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories may exist in a
manufacturing company are:-
Raw materials
Work-in-progress
Finished goods
RAW MATERIALS:
Raw materials are those basic inputs that are converted into finished product through
the manufacturing process. Raw materials inventories are those units, which have been
purchased and stored for future productions. A company should maintain adequate stock of a
continuous supply to the factors for an uninterrupted production. If it is not possible for a
company to produce raw materials whenever needed, a time lag exists between demand for
materials and its supply. Also there will be some uncertainly on procuring raw materials in
time on many occasions.
WORK-IN-PROGRESS:
The inventories are semi-finished products. They represent products that need more
work before they become finished products for sale. Work in progress inventory builds up
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because of production cycle. Production cycle is the time span between introduction of raw-
materials and emergence of finished products at the completion of production cycle. Still,
production cycle completes, stock of work in progress has to be maintained. Efficient firms
constantly try to make production cycles smaller by improving their production techniques.
FINISHED GOODS:
Finished goods are the completely manufactured products, which are for sale. Stocks
of raw materials and work in progress facilitate production, while stock of finished goods is
required for smooth marketing operations. Stock of finished goods has to hold because
production and sales are not instantaneous. A firm cannot produce immediately when
customers demand goods. Therefore to supply finished goods on a regular basis, their stock
has to be maintained for sudden demand from customers. In case the firm sales are seasonal
in nature, substantial finished goods should be kept to meet the peak demand. Failure to
supply products to customers would mean loss to firms sales to competitors.
The level of finished goods inventories would depend upon the co-ordination between
sales and production as well as on production time. The levels of three kinds of inventories
for a firm depend on the nature of business. A manufacturing firm will have substantially
high levels of three kinds of inventories while a retail of wholesale firm will have a very high
level of finished goods inventories and no raw materials or work in progress inventories.
Within manufacturing firms there will be differences.
INVENTORY DECISIONS:
In an inventory control situation, there are three basic questions to be answered. They
are:
How much order? That is to say, what is the optimal quantity of an item that
should be ordered whenever an order is placed?
When should the order be placed?
How much safety stock should be kept? Thus, what quantity of an
item in excess of the expected requirements should be held as buffer stock in
anticipation of the variations in its demand and/or the time involved in
acquiring fresh supplies.
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INVENTORY COSTS:
In determining optimal inventory policy, the criterion most often is the cost function.
The classical inventory analysis identifies four major cost components. Depending on the
structure of an inventory situation, some or all of these are included in the objective function.
1. PURCHASE COSTS:This refers to nominal cost of inventory. It is the purchase price for the items that are
bought outside sources, and the production cost if the items are produced within the
organization. This may be constant per unit, or it may vary as the quantity purchased/
produced increases or decrease. Quite often, situation is found when it may be stipulated
that, for example the unit price is rest 20 for an order unto 100 units and rest 19.50 if the
order is for more than 100 units.
If the unit cost is constant, it neither does nor affects the inventory control decisions
because whether all the requirements are produced just once or whether they are obtained in
instalments, the total amount of money involved would be the same. However we do
consider the quantity discounts when they occur, because they effect these decisions.
2. ORDERING COSTS/ SET-UP COSTS:This category of costs is associated with the acquisition or ordering of inventory.
Firms have to place orders with suppliers to replenish inventory of raw material. It includes
costs associated with the processing and chasing of the purchase order, transformation,
inspection for quality, expediting overdue orders and so on. The parallel of the ordering cost
when units are produced within the organization and the cost of acquiring materials consists
of clerical costs and costs of stationery. It is therefore called a set-up cost. The ordering cost
is likely and taken to be independent of the order size.
Therefore the unit ordering/setup cost declines as the purchase order/ production run
increases in size.
Ordering costs are costs involved in:
Preparing a purchase order
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Receiving, inspecting and recording the goods received to ensure both
quantity and quality.
3. CARRYING COSTS:They are involved in maintaining or carrying the inventory. It represents the cost that
is associated with storing an item in inventory. Carrying costs are also known as holding cost
or the Storage cost. The main components of this category of carrying costs are Storage cost
i.e. tax, depreciation and maintenance of the building, utilities etc. Insurance of inventory
against fire and theft deterioration in inventory because of pilferage, fire, technical
obsolescence, style obsolescence etc. Serving costs such as labour for handling inventory,
clerical and accounting costs.
The opportunity cost of funds consists of expenses in raising funds (interest of capital)
to finance the acquisition of inventory they would have earned a return. This is the
opportunity cost of funds or the financial cost. The carrying cost and the inventory size are
positively related and move in same direction. If the level of inventory increases, the
carrying costs also increased and vice-versa.
The sum of the order and carrying cost represents the total cost of the inventory. This
is compared with the benefits arising out of inventory to determine the optimum level of
inventory.
4. STOCK OUT COSTS:Stock out cost means the cost associated with not serving the customers. Stock outs
imply shortages. If the stock out is internal (i.e. in the production system) it would imply that
some production is lost, resulting in idle time for men and machines, or that the work is
delayed which might attract some penalty. While if the stock out is external, it would result
in a loss of potential sales and/or loss of customer good will. A shortage can evoke different
reactions from customers.
It would result in a back order or lost sales. In case of back order the sales are not
lose, they are only delayed. When the new shipment arrives, a customer who was denied
earlier would be immediately supplied the goods. But it would involve costs like expediting
costs, packing and shipment costs. On the other hand, when the sales are lost forever, it is
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difficult to assess the costs involved in terms of profit on potential sales lost, profit lost on
whatever the customer would have bought in all future periods in case he decided not to turn
to the organization for anything in future, a so forth. Such costs can be exorbitant indeed.
INVENTORY CONTROL TECHNIQUIES
Selective inventory control Inventory management techniques
1. ABC Analysis 1. EOQ (Economic order quqntity)
2. XYZ Analysis 2. Ordering cost
3. VED Analysis 3. Carrying cost
4. FSN classification 4. System of re- ordering
5. SOS classification
6. SDE Analysis
7. HML Analysis
INVENTRY CONTROL:
Inventory control renders to the process whereby the investment in materials and parts
carried in stock is regulated within predetermined limits set in accordance with the inventory
policy established by the management. The inventory control therefore forms established by
the management. The inventory control therefore forms the basis of material control. The
material control is activity oriented process whereas inventory control is the management
process and the later is the firms step to be followed by the former.
Inventory control refers to a planned method of purchasing and string the material at
lowest possible cost without affecting the sales scheduled. Inventory control therefore, is a
scientific method of determining what, when and how much to purchase and how much to
have to stock for a given period of time.
INVENORY CONTROL TECHNIQUES
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THE NEEDS FOR INVENTORY CONTROL:
The rewards of inventory control system cannot be over looked in the Indian context the
idea behind this is
Conserving valuable foreign exchange.
Release of capital.
Reduction in cost.
1. ABC ANALYSIS:The Analysis is a technique to analyze the items by their value and consumed more
frequently and some may be less frequently and some are consumed rarely. Depending upon
the rate of consumption and the value of the items are divided into three groups.
A-Class Items: These are most costly and will have high usage value. They constitute 10%
of items only but account for 70% of total annual consumption cost. A-class items only
frequently but in small quantity.
B-class Items: Items are will have medium usage value. They constitute nearly 20% of total
items accounting for 20% of total inventory investment.
C-class Items: Are called low usage value items. They constitute nearly 70% of items
accounting only for 10% of capital investment in inventory.
2. XYZ ANALYSIS:XYZ analysis is based on the closing inventory value of different items. Items, whose
inventory values are high, are classed as X-items, while those with low investment in themare termed as Z-items. Other items are the Y-items whose inventory value is neither too high
nor too low.
It can be easily visualized that the several types of analysis discussed are not mutually
exclusive. For example ABC and XYZ analysis may be combined to classify and control
depending on whether the items are AX, BY, CZ, AY of and so on. Similarly XYZFSN
combine classification exercise will help in timely prevention of obsolescence.
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3. VED ANALYSIS:In VED analysis, the items are classified on the basis of their criticality to the
production process or other service. In the VED classification of materials, V stands for
Vital items without which the production process would come to a standstill. E in the
system denotes Essential items whose stock out would adversely affect the efficiency of the
production system.
Although the system would not altogether stop for want of these items, yet their no-
availability might cause temporary losses in, or dislocation of production. The D items are
the Desirable items are required but do not immediately cause a loss to production. The VED
analysis is done mainly in respect of spare parts.
4. FSN ANALYSIS:Based on the consumption pattern of the items, the FSN classification calls for
classification of items are F-Fast Moving, S-Slow Moving and N-Noon Moving goods. This
speed classification helps in the arrangement of stocks in the stores and in determining the
distribution and handing patterns.
5. S-OS ANALYSIS:S-OS analysis is based on the nature of supplies, where in S-represents the Seasonal
items and OS represent the Off Seasonal items. This classification of items is done with the
aim of determining proper procurement of strategies.
6. S-D-E ANALYSIS:
This uses the criterion of the availability of the items. In this analysis S-stands forscarce items which are short in supply.
D-refers to the difficult items meaning the items that might available in indigenous market
but cannot procure easily. While E-represents easily available items even from local markets.
7. HML ANALYSIS:This is similar to the ABC analysis except that, in this analysis, the items are
classified on the basis of unit value rather than value. The items are classified accordingly as
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their cost per unit is H-high, M-medium and L-low. This type of Analysis is useful for
keeping control over materials consumption at their department levels.
ECONOMIC ORDER QUANTITY (EOQ):
One of the inventory management problems to be resolved is how much inventory should
be added when inventory is replenished. If the firm is buying raw materials, it has to decide
lots to in which it has to be purchased on cash replenishment.
If the firm is planning production as per schedule. These problems are called order
quantity problem and task of the firm is to determine optimum inventory level involves two
types of costs:
1. Ordering cost.
2. Carrying cost.
The economic order quantity is that inventory level, which minimizes the total of ordering
and carrying costs.
1. Ordering costs:The term ordering cost is used in case of raw materials (or supplies) and includes the
entire costs of acquiring raw materials. They include costs incurred in the following
activities. Requisitioning, purchasing, ordering, transport recieving, inspecting and storing
(store placement), ordering cost increase in proportion to the number of orders placed the
critical and staff costs, however, dont vary in proportion to the number orders placed, and
one view is that so long as they are committed cost they need not to be revoked in computing
ordering cost.
2. Carrying cost:Cost incurred for maintaining for given level of inventory are called carrying cast, they
include storage, insurance, taxes, deterioration and obsolesces.
Formula:
EOQ =
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System of Re-ordering
Re order point = S (L) + F where
S = Usage
L = Lead time needed to obtain additional inventory when order is placed.
R = Average quantity ordered
F = Stock out acceptance facts
The value of T the stock out acceptance facts depends on the stock out percentages rates
applicable to the firms and the probability distribution of usage. If the usage rate has a poison
distribution the value of F for various stocks out %.
METHODS OF VALUATION:
The government of India has given sufficient flexibility for companies to introduce
scientifically developed methods of valuation of their stocks. In order to prevent
malpractices, it has been stipulated that such methods must be studied and approved by the
Board of Directors, and must be followed for a minimum prior of three years. The various
methods of valuation available are given below.
First in first out [FIFO]
Last in first out [LIFO]
Periodical Simple Average Method
Normal cost/ Standard cost method
Weighted average method
Replacement price method
A.FIFO:In this case it is assumed that the stores follow the principal that oldest stock issued
first so that stock left out is from the later arrivals. Hence all issues are assumed to have come
out from older stocks. These are valued at old price. The cumulative value of stock out will
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give the net value of the existing stock. Under this method it is assumed that the materials or
goods first received arc the first to be issued or sold. Thus according to this method, the
inventory on a particular date is presumed to be composed of the items which were acquired
most recently.
Advantages:
The FIFO method has the following advantages:
It values stock nearer to current market prices since stock is presmed to be
consisting
The most recent purchases
It is based on cost and therefore, no unrealized profit enters into the financial
accounts of the company.
The method is realistic since it takes into account the normal procedure of
utilizing or selling those materials or goods which have been longest in stock.
Disadvantages:
The method suffers from the following disadvantages
It involves complicated calculations and hence increase the possibility of
clerical errors.
Comparison between different jobs using the same type of materials becomes
sometimes difficult. A job commenced a few minutes after another job may
have to been an entirely different charge for material because the first job may
have to bean a entirely different charge for materials because the first job
completely exhausted the supply of materials of the particular lot.
The FIFO method of valuation of inventories is particularly suitable in the following
circumstances
The materials or goods are of a perishable nature.
His frequency of purchases is not large.
There are only moderate fluctuation in the prices of materials or
Goods purchased Materials are easily identifiable as belonging to a particular
Purchase lot.
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B.LIFO:Here stores are issued from the last stock. This means issues have taken place from
later arrivals. Hence all issued are valued as per the price of the latest arrivals to compute
value of stock left in stores. This method is based on the assumption that last item of materials
or goods purchased are the first to be issued or sold. Thus, according to this method, inventory
consists of items purchased at the earliest cost.
Advantages:
This method has the following advantages,
It takes into account the current market conditions while valuing materials
issued to different jobs or calculating the cost of goods sold
The method is based on cost and, therefore, no unrealized profit or loss is
made on account of use of this method.
The method is most suitable for materials which are of a bulky and non
perishable type.
C.PERIODICAL SIMPLE AVERAGE:In this case after each receipt of material, adding the cost of materials in hand with the
cost of materials received and dividing the same by the total number of units calculate the
average cost. This process is repeated every time new items are received. This average cost is
used for computing the value of items issued and value of items remaining in the stock.
D.NORMAL COST / STANDARD COST METHOD:This method is mostly used for items manufactured in house. Here the average of a
certain lot is calculated and used as cost of items issued. Since this method is used for items
manufactured, one can use standard costing method also for valuation of such stocks.
E.WEIGHTED AVERAGE METHOD:This method is used when the quantity and prices of items vary widely from each
purchase. In this case, the weighted average price is calculated for each item. This price is
used for computing the value of items and those remaining in stock.
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F. REPLACEMENT PRICES METHOD:This is a modern method developed by George Tarboro. However without application
it is difficult to price each item. This has not yet become popular. FIFO, LIFO and Weighted
Average methods are popular and acceptable to the government tax authorities.
SELECTIVE INVENTORY CONTROL:
APHMEL has to maintain several types of stores and spares inventories. It is not
desirable to keep some degree of control on all items. The firm should pay maximum type of
attention to those times whose value highest. They should therefore, classify inventories to
which items should receive the most effect in controlling.
DIFFERENT TYPES OF INVENTORY CONTROLS OF THERE USES:
Types of control Criteria Main use
ABC
Also know always better
control or pardons law.
Value of consumption
nothing to do with the
unit value of item.
To control raw materials
components and work in perseveres
in nominal course of business.
HML
High, Medium, Low
Unit price of the
materials this opposite of
ABC or does not take
consumption account
Mainly to control purchases.
VED
Vital, Essential, Desirable.
Critically of the item. To determine the sock levels of
spare parts.
SED
Scarce, Difficult, and easy
to obtain.
Purchasing problems
regard to availability.
Leads time analysis and purchasing
strategies.
G.O.L.F
Gout, open market, Local
and Foreign source.
Source of supply
materials.
Procurement strategies.
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F.S.N.C
Fast moving, slow moving,
non- moving.
Consumption pattern of
the component.
To control obsolence.
S.OS
Seasonal and Off seasonal
Nature of supplies and
seasonally.
Procurement and holding strategies
for seasonal items like agricultural
products.
XYZ
High, Medium, Low
inventory value items.
Inventory value of items
in sale.
To review the inventories, their
uses etc at scheduled intervals.
INVENTORY CONTROL:
APHMEL has separate section called ICC through SAP system. The ICC will control the
whole stock proceeding and the main objective is to minimize the orders on the bases of
consumption pattern and its lead time. By SAP system ever thing will be disclosed in the
company i.e. issuing and receipts and pricing orders of that on the basis of available material
in the stirs and consumption during the year base on lead time they will approach purchase
department. They minimum lead time of consumables is one month on the basis of safety
stock.
GOODS RECEIPTS NOTE:
Cost center
Auditing
Requisition required
Purchasing dept
Quotation raised
Goods purchased
Here APHMEL is purchasing dept are divided in to 2 groups. These two groups are each
troop deal with some items of range of items, who loads accountability and responsibility.
When the order is made items are purchased stores A/c is field. Patria; A/c is credited.
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CONTROAL TECHNIQES USED IN APHMEL:
FSN analysis (fast, slow, non moving).
ABC analysis
JIT (Just in time)
EOQ (Economic Order Quantity)
MATERIAL GROUP DESCRIPTION IN APHMEL
Material code Description
01 Raw material
02 Chemicals
03 Dyes
04 Work shop spares
05 Plant and machinery
06 Rubber tires/compiling
07 Automobile spares
08 Plant and machinery (unit-II)
09 General items
10 Chain pull blocs, hoists EDT, crane
11 Electrical spares
12 Furniture and fixers
13 Tools
14 Instrumentation
15 Laboratory
16 Fire fighting
17 Pipes & fittings
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18 Packing material
19 Fuel
20 Air compressor spares
21 Wits & felts
22 Bearings
23 Medical
24 Bolts & nuts
25 Instrumentation
26 Water, treatment plant spares
27 Pulp mill spares
28 Welding material
29 Iron & steel
30 Valves & spares
31 Casting roads, shafts, bushes
32 Pump spares/ gear box spares
33 Oils & lubricants
34 Paints/ brushes
35 Building material
36 Chains, sprockets, gears
37 Belting
ABC ANALYSIS:
ABC Analysis is a technique of exercising selective control. Over inventory items. The
technique is based on this assumption that a company should not exercise the degree of
control on items which are less costly.
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The smaller numbers of high consumption value item are called an item. The medium
consumption value items are B items.
The largest number of least consumption items is C items classification. The 12000 items
only 8000 items are analyzed into A-B-C classification.
But this industry follows the techniques FNS analysis. APHMEL once up on an item this
technique is using. But ABC Analysis is not applicable in APHMEL.
JIT (JUST IN TIME INVENTORY):
This was originally development by twitchy okno of Japan. Simply implies that the firm
should maintain a minimum level of inventory and rely on supplies to provide parts andcomponents just in time to meet its assembly requirements. The just in time inventory
system while conceptually very appealing is difficult to implement because it involves a
significant changes in the total production and management system.
The JIT is the technique specially adopted by APHMEL for the fulfilment of requisition of
spare parts through baring bank system. By this system there is no need to invest money o
investor. The fulfilment will be within days of the need the data about the needs of spares are
required for this technique. The data firm purchasing consumption, saving reordering is
required. In out DPMI, there is a contract with ILC (irrevocable letter of credit) authorized
dealer, who maintains some stock and fulfils the recruitment when every occurs by the
APHMEL.
EOQ (Economic order quantity)
EOQ =
where
A=Annual consumption
O=Ordering cost
C=carrying cost
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CHAPTER - II
INDUSTRY PROFILE & COMPANY PROFILE
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INDUSTY PROFILE
INTRODUCTION:-
Engineering industry comprises of comical, civil, industrial and mechanical engineering
divisions, where civil engineering division basically concerned with the activities like
planning, construction, designing or manufactured of structure. The chemical industry is
concerned with engineering activities like construction, design and operation of plants and
machinery of chemical products like drugs, synthetic rubber etc. Electrical engineering
primary deals with all engineering activities like manufacturing of devices for generation of
electricity of designing devises for transmission of electricity. This electrical engineering
division is also concerned with the designing and manufacturing of electronic devices
including computers and its accessories. The mechanical engineering division specifically
deals with designing and manufacturing of power plants, engines or related devises and the
industrial engineering is principally concerned with the processing also comprise of fields
like Aeronautical engineering where engineering supervision designing or aircraft, missiles
etc.
Performance of the engineering sector is linked to the performance of the end user
industries for this sector. The user industries for engineering include power utilities, industrial
majors (refining automotive and textiles), government (public investment) and retail
consumers pumps and motors. Many factors contribute to growth of engineering sector in
India.
THE KEY GROWTH DRIVERS ARE:
The growth of the key end user sector in India. For example, the domestic sales of
automobiles have grown at the compounded annual growth rate of around 14 per cent overthe past four year.
Governments emphasis on power and construction sector has increased for the past few
years and thus increasing the demand for capital goods.
Further, India is being preferred by global manufacturing companies as an out sourcing
destination due to its lower labour cost better designing capabilities. Engineering companies
thus have a huge potential for direct exports and outsourcing.
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The combination of AABs global know-how and Indias highly qualified people enables
the Indias subsidiary to produce world class products. The Indian subsidiary is a global
factory or high voltage 72.5 KV circuit breakers, medium voltage outdoor circuit breakers
and magnetic actuators. It also exports several other products including transformers.
The Indian engineering industry is highly competitive with a number of players in each
segment. A large number of multinational companies such as commons, ABB and Alfa level
have also entered the industry. The intense competition has led to Indian players developing
improved capabilities that have made them more competitive.
HISTORY OF ENGINEERING:
The Indian remaindering industry can be traced roughly to mud 19th
centuries stating with
waging building and structural activities. However, it developer in the real sense only after
impedance it gained momentum after the adopting of props Mahanoy his model of heavy
capital goods growth strategy in the second five year pan and subsequent pans. It also
exporting engineering goods like.
The country is currently producing power generation transmission and distribution
equipment.
Plant and machinery for steel.
Chemical and fertilizers.
Cement plants.
Sugar.
Paper machinery.
Electrical and construction machinery.
Machine tools railway rolling stock. Earth moving equipment.
A large number of other industrial goods and consumer durables
GOVERNAMENT MEASURES:
A welcome policy change towards giving a boost in the machine tools production was the
inclusion of machine tools in appendix 1 of the industrial policy announced in April 1983.
This is thrown open machine tools manufacturer or mort and fear companies provide the
particular item is not reserved for small scale industries.
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In addition the important policy of 1983-1984 was designed to help machine tools
production. The provision included.
Those small scale units which export at least 25% of their put and improve proto
types up to Rs.100000.
All scheduled industries will be the facility of drawings and designs once in a year for
neither value nor exceeding Rs.1000000.
A technology development fund was created to cover foreign exchange requirement
for import if balancing equipment technical know -how foreign consultancy services
etc.
All the steps are designed to encourage fresh invested expansion and modernization
in the domestic machine tool industry.
ENGINEERING THE SECOND INDUSTRIAL REVOLUTION:
The second industrial revolution, symbolized by the advent of electricity and mass
production, was drive by many branches of engineering, chemical and electrical engineering
developed in the rise of chemical, electrical and telecommunication industries. Machine
engineers tamed the peril off ocean exploration. Aeronautic engineering turned the ancient
dream of flight into a travel convenience for ordinary people.
INDIAN AUTOMOTIVE INDUSTRY OBJECTIVES ARE:
Exalt the sector as a lever of industrial growth and employment and to achieve a high
of addition in the country.
Promote a globally competitive automotive industry and emerge as global source for
auto components.
Small, affordable passenger cars and a key center for manufacturing tractors and two
wheelers in the world.
Ensure a balanced transition to open trade at a minimal risk to the Indian economy
and local industry.
Conduce incessant modernization of the industry and facilitate indigenous design,
research and development.
Sector Indias software industry into automotive technology.
Assist development of vehicles propelled by alternative energy sources.
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ABOUT HEAVY ENGINEERING INDUSTRY:-
HEAVY INDUSTRY:
Heavy industry in India comprised of the heavy engineering industry, machine tool
industry, heavy electrical industry, industrial machinery and auto industry. These industries
provide goods and services for almost all sectors of the economy, including power, rail a road
transport, the achieve building industry caters the requirements of equipment for basic
industries such as steel ferrous metals, fertilizers, refineries, petrochemical, shipping, paper,
cement, sugar, etc.
PERFORMANCE OF INDUSTRY:
The industrial sector recorded a growth of 9.2%(measure over and above the growth of
industrial production)during the period April Nov 2009-10 over and above the growth of
11.6% achieved in 2008-09. Capital goods sector, which posted a robust growth of 17.4% in
April Nov 2008-09, has maintained its growth momentum during the current year a well.
According to the index of industrial production, capital goods sector posted a growth of
20.8% during April -Nov 2009-10 as compared to April-Nov 2008-09 are given in the table
below.
HEAVY ELECTRICAL INDUSTRY:
Heavy electrical industry encompasses import industry sectors including power
generation, transmission and distribution equipment. This also cover turbo generation,
boilers, turbines, transformers, switchgears and relays, the performance this industry is
closely linked to the power programmer of the country, the government of India has an
ambitious mission of power for all 2012 as per working group on power of 11th pan, a
capacity addition of 72000 MW is required. To reach transmission network and inter regional
capacity to transmit power would be essential.
The technology available in India is almost at par with that in the international market
barring few areas of high voltage lines. However, items like CRGO steel and amorphous
cores for low loss transformers are being imported.
The present buoyancy in the India economy would creator demand for electrical products
through industrial growth and general economic development. The power sector reforms willcreature large business over power sector equipment manufacturers and service providers, in
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the current favourable market scenario. The electrical industry can certainly look forward to
growth.
TURBINES AND GENERATOR SETS:
The capacity established for manufacturer of various kinds of turbines. Such as steam
and hydro turbines including industrial turbines, is more than 7000 MW per annum. Apart
from BHEL which has largest installed capacity. There are other units in the private sector
who are manufacturing turbines for power generation and industrial use. The manufacturing
range of BHEL includes streams turbines, boilers, and generators up to 500 MW for utility
and commercial steam cycle application and is capable of manufacturing steam turbines with
super critical steam cycle paramours and matching generation up to 660 MW size, facilities
are also available for 1000 MW unit size, BHEL has the capacity to manufactured gas
turbines up to 260 MW.
The A.C generators industry in India is adequately catering to the alternative power
requirement of large and small industries, commercial establishment and domestic
manufactures in India are capable of manufacturing A.C generator right form 0.5 KVA and
above with specified voltage rationed the each part and import figures for the year 2006-07
were around RS.2100crore and Rs.3069 crore respectively.
BOILERS:
Boilers is a pressurized system in which water is vaporized to steam, the desire end
product, but heat transferred form a source of higher temperature usually the products of
combustion form burning fuels. Steam thus generated may be used directly a mechanical
work, which in turn may be converted to electrical energy. Although other fluids are
sometimes used for this purpose, water is by far the most common. BHEL is the largest
manufacturer of boilers in their country accounting of around two thirds of market share. It
has the capacity to manufacture differently types of boilers including spare thermal boilers,
utility boilers and other industrial boilers. The export and import figures for the year 2007-08
were Rs.395crore and Rs.98core respectively.
TRANSFORMERS:
A transformer is a voltage changer. The health of transformer industry depends largely
on the power generation and transmission sector. The major users of this industry are the state
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elect city board and industries. The transformer industry in India has developed for over 50
years and has a well matured technology vase. It has the technology to manufacture wide
range of power transformers, distribution a transformer and special transformer for welding
traction and furnaces etc. energy efficient transformers with low losses and low noise level
are also being developed to meet international requirement the expert and import figures for
the year 2009 were Rs.2923crore and Rs.2523crore respectively.
SWITCH GEAR AND CONTROL GEAR:
Continuous power supply is requirement not only for industry but also for every other
use of electricity. And control gears are indispensable both in manufacturing entire range of
circuit breaker form bulk oil, minimum oil. Air blast, vacuum to sculpture hexafluoride as per
standard specification. It is estimated that the present size of the switchgear market than Rs.
4000crore. The export and import figures for the year 2009-10 were Rs.1462crore and
Rs.2322crore respective
HEAVY ENGINEERING INDUSTRY
TEXTILE MACHINERY:
There over 600 units engaged in the manufacture of textile machineries, theircomponents, Accessories and spares. And out if these about 100 unities are manufacturing
the complete textile machinery. The range includes textile machinery required for sorting.
Cording processing of yarns/fabrics and waving. The industry is gearing item to avail the
export target of garment manufactures post multiform agreement (MFA). With a capital
investment of Rs. 1500crore and installed capacity of Rs. 3050crore per annum.
CEMENT MACHINERY:
Cement plants based on dry processing and recalculation technology for capacities up to
7500 TPD are being manufactured in the country. Modern cement plants are designed for
zero downtime. High product quality and better output with minimum.
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Import/export figures for the industry are as under:
(Rs. In crore)
Year 2007-08 2008-09 2009-10
Import 1259 905 2511
Energy consumed per unit of cement production etc. at present, there are 18 units in the
organizes sector for the manufacture of completer cement plant machinery with an installed
capacity of around Rs.699crore annum the industry is fully capable to meet the domestic
demand.
SUGAR MACHINERY:
Domestic manufactures occupy predominant position in the global scenario and are
capable of manufacturing from con dept of commissioning stager sugar pants of latest design
for a capacity up to 10000 TCD (tones crushing per day) there are presently 27 units in the
organized sector for the manufacture of complete sugar pants and components with an
installed capacity if around Rs. 200crores per annum.
RUBBER MACHINERY:
There are at present 19 units in the organized sector for the manufacture of rubber
machinery mainly required for tire tube industry. The range of equipments manufactured the
county included inter-mixer, tire curing pressed tube splices bladder curing presses. Tube
splices tire moulds tire building machinery. Torment services, bias cutters, rubber injection,
moulding machine, bead wire etc.
Import/export figures for the industry are as under:
(Rs. in crore)
Year 2007-08 2008-09 2009-10
Import 36.75 12.02 34.79
Export 46.15 50.32 98.16
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METERIALS HANDLING EQUIPMENT:
The range of equipment manufactured includes crushing and screening plants.
Cole/ore/ash handing plants and associated equipment such as stackers feeders etc. catering
to the growing and rapidly changing needs of the core industries such ads coal, cement
power, port, mining fertilizers and steel plants.
There are 50 unities in the organized sector for the manufacture of material handling
equipment. Besides, there are number of units operating in the small-scale sector. The
industry is self sufficient in meeting domestic demand and is also capable of meeting global
competition.
Import/export figures for the industry are as under:
(Rs. In crore)
Year 2007-08 2008-09 2009-10
Import 261.44 545.54 1552.97
Export 80.16 77.914 124.27
OLD FIELD EQUIPMENT:
The petroleum industry in India is undergoing a major change. With the ongoing process
of liberalization, the industry has been thrown open for private sector in all major areas of
exploration. Production, refining and marketing, and this have resulted in increased demand
for the oil field find related equipment.
Domestic production covers manly the on-shore drilling equipment. Under of offshore
drilling only offshore platforms and some other technological structure are being produced
locally. The major producers of these equipments are BHEL, Hindustan shipyard,
Meagan dock and Larsen &toubro.
Import/export figures for the industry are as under:
(Rs. In crore)
Year 2007-08 2008-09 2009-10
Import 638.20 352.84 411.73
Export 300.47 71.87 72.51
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METALLURGICAL MACHINERY:
Metallurgical machinery includes equipment for mineral beneficiations are dressing size
reduction tee plant equipments. Foundry 30 Indian public sectors aiming global heights
equipment furnaces. At present there are 39 units in the organized sector engaged in the
manufacture of various typed of metallurgical machinery. The existing production capacity
into the county is sufficient to meet the demand of this equipment in the country.
Indigenous manufacturers are in position to supply of the equipment for still pants e.g.
blast footraces sinter plants. Coke ovens, tell melting shop equipment continuous casting
equipment, rolling mills & finishing line.
Import/export figures for the industry are as under:
(Rs. In crore)
Year 2007-08 2008-09 2009-10
Import 454.40 1200.65 1843.27
Export 370.70 535.04 643.68
MINING MACHINERY:
The major mining equipment are long wall mining equipment, road header, side
discharges loader(SDL), haulage winder ventilation fan, load haul dumper (LHD),coal cutter,
conveyors, battery locos, pumps, friction prop, etc. at the present are 32manufactures the
equipment of various types, out of these, 17 units manufacture underground mining
equipment. Majority of the mining industry is being met by the indigenous manufactures.
Import/export figures for the industry are as under:
(Rs. In crore)
Year 2007-08 2008-09 2009-10
Import 39.01 41.99 76.71
Export 1.55 5.90 48.47
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DAIRY MACHINERY:
At present there are 16 units in the organized sector, both in private and public sector,
manufacturing dairy machinery equipment such as evaporators, milk refrigerates and storage
tanks, milk and cream deodorizers, centrifuges, clarifiers, agitators, homogenizers, spray
dryers and heat exchangers, small scale units are also contributing to the indigenous
production. The spray dryers, plate type heat exchanger and other core equipment on the
equipment because the presence of a by micro crevices resulting from inadequate polish tends
to be the incubation a breeding ground for the bacteria
Import/export figures for the industry are as under:
(Rs. In crore)
Year 2007-08 2008-09 2009-10
Import 21.05 52.36 68.97
Export 8.08 5.95 10.27
MACHINE TOOLS:
Machine tool industry is in a position to export general purpose and a standard, machine
tool to even industrially advanced countries. During last four decades, the machine tool
industry in India has established a sound base and there are around 160 machine tool
manufacturers in the organized sector as also around 400 units in the small ancillary sector.
The India industry has good design capability and the production of CNS machines has
increased to about 4000 no. per annum.
Indian machine tools are manufactured to the international standard of quality/ precision
and reliability. A number of collaboration have also been approved for bringing in the latest
technology in this field of modern machine tools and the industry is now exporting
conventional as well as NC/CNC high-tech machine tools. In the field of R&D, central
manufacturing technology institute, Bangalore has been doing research for more appropriate
designed machine tools.
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PERFORMANCE OF THE INDUSTRY FORTING THE LAST THERE YEARS IS
TABULATED BELOW
Year 2007-08 2008-09 2009-10
Production 1089.04 1342.00 1719.00
Import 1820.83 2899.00 4656.00
Export 52.61 50.00 73.00
INTERNATIONAL COOPERATION:
The department endeavours to promote international co operational in the field of heavy
machineries, heavy industries, capital goods and auto sectors and keeps itself abreast with
WTO matters, bilateral/ multilateral agreements and other issue concerning the department.
To promote economic co-operation at international level, meetings are arranged at senior
officers/ minister level.
India has free trade agreements (FTA) with various organizations/ counties such as
ASEAN, BIMSTEC, Singapore, Thailand and EU etc. the department protects the interests of
concerned industries by suggesting the retention of relevant items in the negative list.
Recently suggestions were made for retention negative list free trade area (FTA) with EU;
ASEAN; India, Thailand FTA; and India-Singapore comprehensive economic agreement
(CECA). The views on machinery and auto sector for the meeting of the meeting of
committee on rules of origin (ROO) in WTO, Geneva have also been conveyed to the
department of commerce.
A formal indo-Czech joint working group (JWG) has been constituted in terms of
protocol of indo-Czech joint committee meeting (JCM) of department of commerce and joint
secretary, heavy industries as co-chairman of JWG from Indian side.
A beginning has been made and heavy engineering corporation Ltd., Ranchi (HEC), has
sought assistance from M/s Victories Heavy Machinery. Prague for submitting offer to
Bokhara steel plant against their tender for manufacture and supply of 8 Nos. Ladle cars.
HEC will also be participating in various tenders in India on the basis of technology and
association of companies of Czech Republic via M/s Skoda machine tools, M/s TOS
Varnsdorf and M/s Unexon, on case to case basis and their association will be sought before
submitting the bids.
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ENGINEERING EXPORTS:
The engineering industry has been making the export front from around Rs.21crore in
1966. The value of exports of engineering goods rose over Rs.105crore by the end of 60s
and continued to show and encouraging trend during to 70s.
In the period 1971-1975 the value of exports more and trebled and nearly doubled in
the next 3 years 1982-83 Rs.1250crore was reached.
The engineering industry has emerged with the leading foreign Exchange Earners of
the country.
Project Exports;
Though Indian Projects are exports has been successful. It is felt that the level of exports
dont match our capabilities. India has a vast pool of trained man power.
The project exports full under the following three categories:
Turnkey Projects.
Engineering Contacts.
Consultancy Service.
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COMPANY PROFILE
APHMEL stands for Andhra Pradesh Heavy Machinery and engineering Ltd. This is
located Kondapalli a small village famous for toys and which is located on the back of river
Krishna. Professionalism is the hallmark this company from the beginning.
HISTIORY OF APHMEL:
Andhra Pradesh Heavy machinery and engineering Ltd was incorporated in September
1976 with the main objective of designing developing and manufacturing the entire range of
castings of all type and Heavy Industrial Machinery, Machines tools etc.
The company becomes a government company on 8th
Nov 1983. The factory was
dedicated to the people by the Honorable chief minister of Andhra Pradesh Mr . N.T.Rama
Rao.
The production started in October 1983 with an installed of 3500 tons per annum at cost
of 1395.69lakh. 1st
phase for total outlay of 13601lakh is financed by
IDBI Rs.507 LAKH
ICFI
Rs.200 LAKH
ICICI - Rs.100 LAKH
In addition to the equity capital of 485lakhs, machines were purchased from famous
manufacturing like HMT (HINDUSTAN MACHINES AND TOOLS) and HEC
(HINDUSTAN ENGINEERING COMPENY).
LOCATION:
APHMEL is located at kondapalli 23kms from Vijayawada the project site is rightly
chooses in 2006 acre and with all infrastructure facilities and easily accessible by rail, road
and adequate water facilities power supply.
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THE FUNDS STRUCTURE OF APHMEL:
Singareni collieries co Ltd 60%
Andhra paper industrial development corporation Ltd (APIDC) 10%
Private share 30%
OBJECTIVES OF APHMEL:
APHMEL have to design, develop, manufacture and market Heavy industrial machinery,
plant and equipment including components and spares and service of poorer, coal mining,
steel chemical, petrol chemical, shipping and engineering industries etc.
To utilize the capacities installed effectively.
To maintain and develop technological leadership.
To increase the profile of the through proper export.
To develop the skills of the employees through proper training and
development programs.
To develop components managerial personal capable of meeting projects and
growth objections of company.