INVENTORY MANAGEMENT

Submitted in the partial fulfillment for the requirement

For award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the Guidance of: Submitted by:

Mrs. S. ANAND VIKAS MALIK
AO, Finance Deptt. (BHEL) M.B.A (IIIRD SEM)
Ranipur, Haridwar B.C.E.T
(Uttarakhand) LUDHIANA (PUNJAB)

DEPARTMENT OF MANAGEMENT STUDIES

BHUTTA COLLEGE OF ENGG. &TECH.
LUDHIANA (PUNJAB)

1
 PREFACE

There has been a great flux in the subject matter of financial

management . About three- decade ago , the scope of financial was
restricted to the raising of funds whenever needed & little
significance used to the financial decision & problem solving. The
modern thinking in the financial management gives great
importance to management decision –making policies. Today
financial manager occupies a key position in top management and
plays a dynamic role in solving complex management problem.

The basic purpose of this project is to have a through and deep

understanding of financial position of the firm .A number of books
had been consulted for writing theory; data had been collected from
the balance sheet and other source.

I have tried to minimize the printing mistake and put the contents in
short & crisp. I welcome the critical suggestion and any mistake
found in the project.

1
 ACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and

contribution make it successful. Since such a list will be a prohibitively long, I

may be excused for important omissions.

The guidance, help and co-operation of my supervisor Mrs S. Anand AO,

Finance Deptt. BHEL, Hardwar is gratefully acknowledged with profound

gratitude.

I am also thankful to all others in Finance Department, H.E.E.P., BHEL,

Hardwar, who provided me with all the required information for my project.

Last not the Least, my special thanks to our

1
 DECLARATION

I hereby declare that the study entitled ‘’INVENTORY MANAGEMENT” in

the context of H.E.E.P. BHEL” being submitted by me in the partial fulfilment

of the requirement for the award of MASTERS IN BUSINESS

ADMINISTRATION is a record of my own work. The study was conducted

at Finance Department, H.E.E.P. BHEL.

The matter embodied in this project report has not been submitted to

any other University or Institution for the award of degree This project is my

original work and it has not been presented earlier in this manner . this

information is purely of academic interest.

1
 OBJECTIVE OF THE STUDY

The project work is done to fulfill the requirement of our M.B.A

degree course. It is an integral part of the curriculum of this program.
The main objective of this project is to have deeper insight in to the financial
position of the company and make analysis of items of the Balance sheet and
profit & loss a/c. This will help to know about the past and present trend as
well as predict about the future. It will help to make inter firm comparison
and act according to this. What strategy a company has to make and in what
filed more expenditure is to be made , can be analyzed with the help of the
project.
In addition to the knowledge, this project report provides the financial
position of the unit for the current financial years for various areas. It is also
tells about the various policies and accounting adopted by the firm.

1
1
 COMPANY'S OBJECTIVES

BUSINESS OBJECTIVE:

GROWTH:

To ensure a steady growth by enhancing the competitive edge of BHEL in

existing business, new areas and International operations so as fulfill national

expectations from BHEL.

PROFITABILTY:

To provide a reasonable and adequate return on capital employed, primarily

through improvements in operational efficiency, capacity utilization and

productivity, and generate adequate internal resources to finance the

company's growth.

1
CUSTOMER FOCUS:

To build a high degree of customer confidence by increasing value for his

money through international standards of product quality, performance and

superior services.

PEOPLE-ORIENTATION:

To enable each employ to achieve his potential, improve his capabilities,

perceive his role and responsibilities participate and contribute positively to

the growth and success of the company. To invest in human resources

continuously and be alive to their needs.

TECHNOLOGY:

Achieve technological excellence in operations by development of

indigenous technologies and efficient absorption and adaptation of imported

technologies to suit business needs and priorities, and provide the competitive

advantage to the company.

1
IMAGES:

To fulfill the expectations, which stakeholders like Govt. as owner,

employees, customers, ant the country at large have from BHEL.

THE CORPORATE STATEMENTS

1
VISION:

Earlier:

"A world class, innovative, competitive and profitable engineering enterprise

providing total business solution".

Now:

"A world class engineering enterprise committed to enhancing stake -holder

value".

 As stake holder interest is becoming prime it was essential that whatever

company does, it should enhance stake-holder value.

 World class to innovative and profitable

 Profitable to competitiveness in an open market situation

 Hence world class takes care of innovation profitability and

competitiveness

 Providing total business solutions is the action part and hence taken to

mission statement.

 The main objective of mission is to such an extent that every stake holder

prefers to be associated with BHEL in BHEL would be his preferred

destination.

1
MISSION:

Earlier

To be the leading Indian engineering enterprise providing quality products

systems and services in the field of energy, transports, industry infrastructure

and other potential area.

Now:

To be an Indian multi-national engineering enterprise providing total business

solution through quality products systems and services in the field of energy

industry , transportation, infrastructure and other potential area.

 Multinational has been added to reflect BHEL globalization aspirations to

start assembly/service centers outside India.

 Leading has been taken care of by the work "world class in the vision stmt.

Hence "leading" word from mission statement has been dropped.

1
VALUES

Earlier

 Meeting commitments made to external and internal customers.

 Foster learning creativity and speed of response

 Team playing

 Respect for dignity and potential for individuals.

 Loyalty and pride in the company

 Zeal to excel

 Integrity and fairness in all matters

Now:

 Strike adherence to commitments

 Foster learning, creativity and team work.

 Ensure speed of response

 Respect for dignity and potential for individual

 Loyalty and pride in the company

 Zeal to excel and zest for change

 Integrity and fairness in all matters

 Most of them have been rephrased.

1
 "Zest for change" has been added as change has been integral with success

and the rate at which change is needed is very high compared to earlier

period.

1
 BHEL – AN OVERVIEW

The first plant of what is now known as BHEL was

established more than 40 years ago at Bhopal and was the genesis of the

heavy electrical equipment industry in India.

`BHEL is, today the largest engineering and manufacturing

enterprise of its kind in India, with a well recognized track record of

performance, earning profits continuously since 1971-72 .It achieved a sales

turnover of Rs-21401 Cr. with a pre-tax profit of Rs 4430Cr. in 2007-2008.

BHEL caters to core sectors of the Indian economy viz. Power Generation

and Transmission, Industry, Transportation, Telecommunication, Renewable

Energy, Defence etc.

The wide network of BHEL’s 14 manufacturing divisions, 4

power sectors regional centers, over 100 project sites, 8 service centers and 4

regional offices, enables the company to be closer to its customers and

provide them with suitable products, systems and services efficiently and at

competitive prices. Having attained ISO 9000 certification, BHEL is now well

1
on its journey towards TOTAL QUALITY MANAGEMENT .On the

environmental management front, the major units of BHEL have already

acquired the ISO-14001 certification.

The company’s inherent potential coupled with its strong

performance over the years, has resulted in it being chosen as one of the

“NAVRATNA” PSE’s.

Board of Directors (As on 21.07.2008)

1
 CHAIRMAN & MANAGING DIRECTOR
Shri. K. Ravi Kumar
Chairman & Managing Director

NOMINEE OF GOVERNMENT OF INDIA

Naresh Chaturvedi
Additional Secretary & Financial Advisor
Ministry of Heavy Industries &
Public Enterprises,
Udyog Bhavan, New Delhi – 110011.

Dr. Surajit Mitra

Joint Secretary
Ministry of Heavy Industries & Public Enterprises
Deptt. of Heavy Industry,
Udyog Bhavan,
New Delhi-110011.

INDEPENDENT & NON-EXECUTIVE DIRECTORS

Vineet Nayyar
Director

Sanjay M Dadlika
Director

Ashok K Aggarwal
Director

1
 Manish Gupta
Director

Shekhar Datta
Director

Raman Singn Sidhu

Director

WHOLE-TIME FUNCTIONAL DIRECTORS

SK Jain
Director (HR)

Ramji Rai
Director (ER&D)

AK Mathur
Director (IS&P)

K Ravi Kumar
Director (Power)

CS Verma
Director (Finance)

COMPANY SECRETARY
NK Sinha

1
PRODUCT PROFILE

POWER SECTOR – Generation and transmission

 Steam Turbine – Generator Sets and Auxiliaries

 Boiler and Boiler Auxiliaries

 Once-through Boilers

 Nuclear Power Generation Equipment

 Hydro Turbine- Generator Sets and Auxiliaries

 Mini /Micro Hydro Generator Sets

 Gas Turbine –Generator Sets

 Waste Heat Recovery Boilers

 Heat Exchangers

 Condensers

 Regenerative Air Pre –Heaters

 Electrostatic precipitators

 Bag Filters

 Valves

 Pumps

1
 Electrical Machines

 Piping Systems

 Power, Distribution and Instrument Transformers

 Switch Gear

 Control Gear

 Distributed Digital Control for Power Stations

 Bus Ducts

 Rectifiers

 Porcelain Insulators, Ceralin

INDUSTRY SECTOR

 Industries / Transportation /Oil and Gas /Telecommunication / Renewable Energy

 Steam Turbine –Generator Sets

 Gas Turbine- Generator Sets

 Diesel Engine - based Generators

 Industrial Steam Generators

 Heat Recovery Steam Generators

 Fluidized Bed Combustion

 Marine Turbines

1
 Industrial Heat Exchangers

 Centrifugal Compressors

 Industrial Valves

 Reactors

 Columns

 Pressure Vessels

 Pumps

 Industrial Valves

 Fabric Filters

 Electronic Control Gear and Automation Equipment

 Thruster Equipment

 Power Devices

 Energy Meters

 Transformers

 Switchgear

 Insulators

 Capacitors

 Broad Gauge, AC/DC Locomotives

 Diesel –Electric Shunting Locomotives

1
 Traction Motors and Control Equipments

 Electric Trolley Buses

 AC/DC Electric Multiple Units

 Drives and Controls for Metro Systems

 Battery Operated Passenger Cars

 Oil Rigs and Oil Field Equipment

 X-Mass Trees and Well Heads

 Cathodic Protection Equipment

 Digital Switching systems

 Rural Automatic Exchange

 Simulators

 Wind Electric Generators

 Solar Powered Water Pumps

 Solar Water Heating Systems

 Photo Voltaic Systems

 Defense Equipment

 Reverse Osmosis Desalination Plants

1
SYSTEMS AND SERVICES

 Turnkey Utility Power Stations/EPC Contracts

 Captive Power Plants

 Co-generation Systems

 Combined Cycle Power Plants

 Modernization and Renovation of Power Stations and RLA Studies

 Switchyards and Substations

 HVDC Transmission Systems

 Shunt and Series Compensation Systems

 Power System Analysis

 Consultancy Services

 Construction Services

1
 MAJOR COMPETITORS OF BHEL

1. ELECTRO CONSULT ITALY

2. ABB SWITZERLAND

3. BEEHTEL USA

4. BLOCK & NEATCH USA

5. GENERAL ELECTRIC USA

6. RAYTHEON USA

7. WESTINGHOUSE USA

8. CNMI & EC CHINA

9. SANGHAI ELECTRIC CO UK

10.GEC-ALSTHOM UK

11. ELECTRIM POLAND

12. FRANCO TOSI FRANCE

13. FUJI JAPAN

14. HITECHI JAPAN

1
15. MITSUBISHI JAPAN

16. TOSHIBA JAPAN

17. ROLLS ROYCE GERMANY

SIEMENS GERMANY

B.H.E.L. IN INDIA

# REGIONAL OFFICES (POWER SECTORS)

***********************************

1. NOIDA (NORTHERN REGION)

2. KOLKATA (EASTERN REGION)
3. NAGPUR (WESTERN REGION)
4. CHENNAI (SOUTHERN REGION)

# BUSSINESS OFFICES
*******************
1. BANGLORE
2. BHUBANESHWAR
3. CHANDIGARH
4. CHENNAI
5. GUWAHATI
6. HARIDWAR
7. JABALPUR
8. JAIPUR
9. KOLKATA
10. LUCKNOW
11. MUMBAI
12. NEW DELHI
13. PATNA
14. RAIPUR
15. RANCHI
16. SECUNDERABAD
17. THIRUVANANTHAPURAM
18. VADODARA

1
# MANUFACTURING UNITS
***********************
 HEAVY ELECTRICAL EQUIPMENT PLANT
HARDWAR DIVISION.

 CENTRAL FOUNDARY FORGE PLANT

HARDWAR DIVISION.

 HEAVY POWER EQUIPMENT PLANT

HYDERABAD DIVISION.

 HIGH PRESSURE BOILER PLANT

TRICHY DIVISION.

 HEAVY ELECTRICAL PLANT

BHOPAL DIVISION.

 TRANSFORMER PLANT

JHANSI DIVISION.

 ELECTRONICS DIVISION,

BANGLORE.

 INDUSTRIAL VALVES PLANT,

GOINDWAL.

 BOILER AUXILIARIES PLANT,

RANIPET.

 ELECTRO PROCELAIN DIVISION,

1
 BANGALORE.

 INSULATOR PLANT,

JAGDISHPUR.

 COMPONENT FABRICATION PLANT ,

RUDRAPUR

 HEAVY EQUIPMENT REPAIR PLANT , VARANASI .

# SERVICE CENTRES
******************

1. CHANDIGARH
2. KOLKATA
3. NAGPUR
4. NOIDA
5. PATNA
6. SECUNDERABAD
7. VADODARA
8. VARANASI

CUSTOMERS OF BHELs PRODUCTS

DOMESTIC:-

1) PUNJAB STATE ELECTRICITY BOARD(PSEB)

2) HARYANA STATE ELECTRICITY BOARD (HSEB)
3) UTTAR PRADESH STATE ELECTICITY BOARD(UPSEB)

1
4) NATIONAL THERMAL POWER CORPORATION(NTPC)
5) APPOLO TYRES
6) ABB
7) NATIONAL HYDEL POWER CORPORATION(NHPC)
8) ANDHRA PRADESH STATE ELECTRICITY BOARD(APSEB)
9) BALCO
10) WEST BENGAL STATE ELECTRICITY BOARD(WBSEB)
11) BIHAR STATE ELECTRICITY BOARD(BSEB)
12) INDIAN OIL CORPORATION(IOC)
13) MADHYA PRADESH STATE ELETRICITY BOARD(MPSEB)
14) SAIL
15) BCCL
16) ORISSA STATE ELECTRICITY BOARD(ORSEB)
17) KARNATAKA STATE ELECTRICITY BOARD(KSEB)
18) BIRLA CEMENT
19) BIRLA TYRES
20) BOKARO STEEL PLANT
21) GRASIM INDUSTRIES
22) GOA SHIP YARD
23) HARYANA STATE ELECTRICITY BOARD(HSEB)
24) HIMACHAL PRADESH STATE ELECTRICITY BOARD(HPSEB)
25) DLW, VARANASI
26) INDIAN NAVY
27) DELHI VIDYUT BOARD
28) DEPTT. OF ATOMIC ENERGY
29) ESSAR OIL
30) SIEMENS, NEW DELHI
31) ONGC
32) L&T
33) KIRLOSKAR
34) JK CEMENT
35) SCOOTER INDIA LTD.

INTERNATIONAL: -

1) M/S EBARA CORPORATION, JAPAN

1
2) M/S ZEECO INCORPORATION, USA

3) SIMMCO INTERNATIONAL

4) SIEMENS, GERMANY

5) SIEMENS, SINGAPORE

6) BAIJI PROJECT, IRAQ

7) KYCR COIL INDUSTRIES LTD., BANGLADESH

AWARDS AND ACHIEVEMENTS –BHEL

1. 20 out of 26 thermal power stations which received “Meritorious Rewards

for the 1996-97” instituted by Ministry of Power, are equipped with BHEL

sets.

2. Success in achieving the over all goals set out in MOU signed with Govt.

of India for 1998-99 and the performance qualified the company for

placement in ‘excellent’ category for 10th year in succession.

3. Best organization award for excellence in “Value Engineering” (1991) by

society of Indian Value Management.

4. Also has been honored a number of times with National Safety Awards for

the largest accident free period.

5. “SCOPE” award for excellence and outstanding contribution to the PSEs’

management in 1996-97.

1
6. British Safety Council Award to the electronic division , Bangalore.

7. EEPCs’ “Top Exporter Award” –1998-99 amongst public and private

sector companies in India for 11th year in succession.

8. “Best Contractors’ Camp Award” at Hubara in Oman for Health, safety

and environmental standards set by Shell.

9. BHEL, Hardwar has won productivity awards at National level, instituted

by National Productivity Council in the field of power generation,

transmission & distribution and equipment manufacturing.

10.A large number of BHEL employees have been honored with the coveted

Prime Minister’s “SHRAM VIR”, “SHRAM SHREE”, “SHRAM DEVI”,

and “VISHWAKARMA” National Awards.

11.Best material handling award by National Material Handling Council,

Jamshedpur.

12.INSSAN Award for excellence in suggestion scheme (1991) by Indian

Suggestion Scheme Association.

1
CURRENT INFORMATIONS OF BHEL

During 2006-07

25-Jul-2007
BHEL
to set up
eco-
friendly
Co-
generatio
n power
plant at
IOC’s
Gujarat
Refinery
; Wins
Rs.4,310
Million
EPC
contract
against
Internati

1
onal
Competit
ive
Bidding
19-Jul-2007
BHEL
set to
become
sole
supplier
in the
world
for high-
rating
Disc
Insulator
s for 800
kV Ultra
High
Voltage
Direct
Current
Transmis
sion
Lines
Jul-2007

3-Jul-2007
BHEL
bags
ICWAI
National
Award
for

1
Excellen
ce in
Cost
Manage
ment
2006

29-Jun-2007
Union
Minister
for
Heavy
Industrie
s and
Public
Enterpris
es
reviews
power
projects
under
executio
n by
BHEL
in
Maharas
htra;
Move
aimed at
expeditin
g
commiss
ioning in
view of

1
critical
power
situation
in the
state

25-Jun-2007
BHEL
once
again
outbids
Chinese
company
; Wins
Rs.1,060
Million
contract
for
Turbo
Blower
Package
from
RINL

18-Jun-2007
BHEL
bags
Rs.1,390
Million
order for
supply
of
Transfor

1
mers
13-Jun-2007
BHEL
A STAR
PSU
12-Jun-2007
BHEL
WORKS
24x7 TO
MEET
NATIO
N’S
POWER
AGEND
A

2-Jun-2007
BHEL
globalisa
tion
thrust
gets
recogniti
on;
EEPC's
Top
Export
Award
conferre
d on
BHEL
for the
17th
consecut

1
ive year
30-May-2007
BHEL
EXCEL
S ON
ALL
COUNT
S;
BHEL
Turnover
surges
29%;
Net
jumps
44% to
Rs.24,15
0
Million
in 2006-
07

21-May-2007
BHEL
power
generatin
g sets
achieve
all-time
high
PLF &
generatio
n;
substanti

1
ally
boost
country's
power
generatio
n in
fiscal
2006-07

14-May-2007
BHEL
to invest
Rs.32,00
0
Million
on
Expansio
n drive
to meet
the
country’
s Power
forecast
in the
Eleventh
Plan

10-May-2007
BHEL
sets
sights on
becomin
ga
US$10

1
Billion
company
by 2012;
Unveils
Strategic
Roadma
p to
further
accelerat
e growth
moment
um
30-Apr-2007
BHEL
identifies
overseas
business
as major
growth
plank;
Targets
Seven-
fold
increase
in
overseas
business
by 2012

27-Apr-2007
BHEL
employe
es win
maximu

1
m
number
of Prime
Minister'
s Shram
awards

16-Apr-2007
BHEL
Doubles
R&D
spend,
Trebles
Turnover
from
Products
develope
d in-
house to
Rs.25,10
0
Million
in just
two
years
29-Mar-2007
BHEL
establish
es fourth
World-
class
Centre
of
Excellen

1
ce;
Aimed at
Consolid
ating
Strength
s in
Crucial
Technol
ogy
Areas
22-Mar-2007
Power
Stations
equipped
with
BHEL
Equipme
nt set
new
benchma
rks; Win
Maximu
m
Meritori
ous
Producti
vity
Awards
15-Mar-2007
BHEL
establish
es state-
of-the-
art

1
Instrume
nt
Calibrati
on
Centre
for
enhancin
g
precision
and
accuracy
of
testing
of
thermal
sets

8-Mar-2007
BHEL
awarded
‘MoU
Award
for
Excellen
ce in
Performa
nce’ by
the
Prime
Minister

27-Feb-2007
BHEL

1
pays all-
time
high
125%
interim
dividend
for fiscal
2006-07
26-Feb-2007
BHEL
outbids
Europea
n MNCs
and
Indian
majors;
Bags
World
Bank-
funded
400 kV
Turnkey
Substati
on
contract
in
Maharas
htra

23-Feb-2007
BHEL
Commis
sions
250 MW

1
Thermal
Unit in
Maharas
htra; Six
Million
units of
Power to
be added
to the
State
Grid –
Takes
BHEL
sets tally
in
Maharas
htra to
88% of
installed
thermal
capacity
10-Mar-2007
First
BHEL
built 500
MW set
marks
two
decades
of
Establish
ment of
Technol
ogy for

1
500 MW
sets in
India

8-Feb-2007
BHEL
demonstr
ates its
Internati
onal
Competit
iveness;
Secures
Order
for 520
MW
Hydro
Electric
Project
in
Himacha
l Pradesh

6-Feb-2007
Equipme
nt
performa
nce pays
rich
dividend
s;BHEL
wins
Mega

1
Contract
for
equipme
nt to
generate
1500
MW of
power in
Maharas
htra
1-Feb-2007
BHEL
once
again
outbids
Chinese;
Wins
turnkey
order for
Asian
Develop
ment
Bank-
funded
Project
in
Banglad
esh
30-Jan-2007
BHEL
power
generatin
g sets
achieve

1
record
generatio
n in first
nine
months
of 2006-
07

Jan-
2007

8-Jan-2007
BHEL
bags
Rs.3,800
Million
Renovati
on &
Moderni
sation
contract
from
PSEB

Dec-
2006

7-Dec-2006
BHEL
commiss
ions 600
MW
Western
Mountai

1
n Gas
Turbine
Power
Project
in Libya,
on
turnkey
basis

4-Dec-2006
CMD,
BHEL
Honoure
d

27-Nov-2006
BHEL
writes
another
success
story;
Gets
third
consecut
ive
Captive
Power
Plant
order
from
Hindusta
n Zinc

16-Nov-2006

1
BHEL
becomes
the first
PSU to
win the
CII-
Exim
Business
Excellen
ce Prize

24-Oct-2006
BHEL
showcas
es
technolo
gical
strengths
at
'Powerge
n India
&
Central
Asia
2006'
23-Oct-2006
BHE
pays all-
time
high
145%
dividend
for fiscal
2005-06

1
12-Oct-2006
BHE
wins
Rs.9,500
Million
highest-
value
captive
power
plant
order

5-Oct-2006
BHE
achieves
significa
nt
breakthr
ough
with first
commerc
ial order
for
indigeno
usly
develope
d first-
of-its-
kind in
the
world
Controll
ed Shunt

1
Reacto

20-Sep-2006
BHE
wins
Rs.12,24
0
Million
contract
for
2x250
MW
Harduag
anj TPS

18-Sep-2006
BHE
& its
employe
es win
two
National
Safety &
three
Vishwak
arma
National
Award

5-Sep-
2006

1
31-Aug-2006
Three
Manufac
turing
Plants
and Two
Power
Sector
Division
s bag the
CII-
Exim
commen
dation
for
business
excellen
ce.

1-Sep-2006
Mr.
C.P.
Singh
appointe
d as
Director
(Enginee
ring,
Research
&
Develop
ment),
BHE

1
29-Aug-2006
BHEL
on
expansio
n drive
to meet
country’
s power
capacity
addition
plans.

23-Aug-2006
BHEL
holds
Conclav
e of
Liaison
Officers
& SC/ST
Welfare
Associati
ons.
20-Sep-2006
BHEL
bags
Rs.12,24
0
Million
contract
for
2x250
MW
Parichha

1
TPS.
10-Aug-2006
BHEL
bags
EEPC's
Top
Export
Award
for the
16th
consecut
ive year

11-Aug-2006
CMD,
BHEL
honoure
d with
Distingu
ished
Fellow
Award -
2006.
3-Jul-2006
BHEL
wins
Rs.8,420
Million
contracts
for two
Power
Projects
in
Rajastha

1
n.

10-Jul-2006
BHEL
proves
internati
onal
competit
iveness;
wins
contract
for 250
MW
Thermal
Power
Plant
from
Tata
Power
Compan
y

20-Jul-2006
BHEL
once
again
wins
contract
in
Ethiopia,
beating
Chinese
compani
es

1
1-Aug-2006
BHEL
to set up
490 MW
Power
Plant for
NTPC at
Dadri
27-Jul-2006
BHEL
commiss
ions 500
MW
thermal
set at
Vindhya
chal
STPS
29-Jun-2006
BHEL
bags
contracts
for two
Projects
in
Afghanis
tan.
26-Jun-2006
BHEL
once
again
beats
Chinese;

1
Wins
contract
for
ADB-
funded
Project
in
Banglad
esh.

22-Jun-2006
BHEL
bags
contracts
for two
Hydro
Power
Projects
from
APGenc
o.
12-Jun-2006
BHEL
bags
major
order for
110.6
MW
Captive
Power
Plant.

5-Jun-2006
BHEL

1
bags
order for
Lift
Irrigatio
n
Scheme
in
Andhra
Pradesh.
18-May-2006
BHEL
achieves
Rs.11,51
0
Million
turnover
through
products
develope
d in-
house.
9-May-2006
BHE
secures
single-
largest
export
order for
transfor
mers
from
Egypt.

5-May-2006

1
BHEL
power
generatin
g sets
achieve
all-time
generatio
n; boost
country's
power
supply in
fiscal
2005-06.

10-Apr-2006
BHEL
wins
Rs.12,00
0
Million
order for
Lignite
Based
Power
Project.
20-Feb-2006
BHEL
commiss
ions
India’s
largest
Solar-
Diesel
Hybrid

1
Power
Plant in
Lakshad
weep.

14-Feb-2006
BHEL
secures
USD
457
million
turnkey
contract
for 500
MW
Power
Plant in
Sudan.
9-Feb-2006
BHEL
to set up
90 MW
Captive
Power
Plant in
West
Bengal.
2-Feb-2006
BHEL
commiss
ions 110
kWp
stand
alone

1
Solar
Power
Plant in
Sunderb
ans.

16-Jan-2006
BHEL
machine
s to
power
Bhilwara
Group’s
3rd
Hydro
Power
Plant.
12-Jan-2006
BHEL
bags
EEPC's
Top
Export
Award
for the
15th
consecut
ive year.

2-Jan-2006
BHEL
writes
another
success

1
 story;
equipme
nt
performa
nce pays
dividend
s;
machine
s to
power
Asia's
largest
CPP.

SALIENT ACHIEVEMENTS:

 Played pro-active role in arranging interaction of TBG

professionals with UPCL in the area of Transmission business.

 Insured speedier response to customer queries.

1
 Securing single order of more than Rs 2 crore value after

ensuring that BHEL , Bhopal make 11 kV VCBs are type tested

at 95 kVp impulse test. It shall enable new supplies for hilly

areas.

 Coordinated erection and commissioning of 2x40 MVA and

1x160 MVA power transformers within one month of receipt at

respective sites.

 Total support to manufacturing units from order stage to cash

collection and thus obviating the need for visit of unit

representative.

 ROD-Hardwar office recommended by DNV for ISO 14001 &

OHSAS 18001 certification.

 Business support to various units/regions of BHEL for Non ROD

products:

 Market intelligence

 Offer preparation and tender opening

 Attending pre-bid meetings

1
  Joint inspection

 Verification of bills

 Payment follow up

 Collection of payment

NCES

 Rs 25 lacs old outstanding from ROD_Lucknow in 2001-2002

 Rs 9.57 lacs got released in 2002-2003

 Rs 10.42 lacs got released in 2003-04 MOU for sale of solar

Lanterns in Uttaranchal signed with UREDA.

 Total support to manufacturing units from tender stage to cash

collection and thus obviating the need for visit of unit

representative.

CUSTOMER ORIENTATION

1
  Facilitated interaction between customer and concerned BHEL

units/division for techno-commercial requirements.

 Enhanced speed of response for customer's problem/queries

(interim reply within 48 hours).

 Development of rapport with customer by way of regular

interaction.

 Technical support for preparation of Tender specifications.

 Senior officials of UPCL i.e. Director (operations) GM

(Transmission) visited out office and were made aware of

BHEL’s total presence in the power/industry sector as this main

ROD customer was operationally involved with only

transformers and circuit breakers. Officials from test division-

UPCL , Roorkee also were made aware of quality

conscious environment in BHEL.

BHEL AT A GLANCE
(Financial Information)

1
 Rupees (In Million)
2007-08 2006-07 CHANGE (%)
Turnover 21401 18739 14.2
Value Added 8323 7182 15.9
Employee (Nos.) 43636 42124 3.6
Profit Before Tax 4430 3736 18.6
Profit After Tax 2859 2415 18.4
Dividend 746 600 24.4
Dividend Tax 127 93 36.8
Retained Earnings 1986 1722 31.7
Total Assets 29352 22280 31.7
Net Worth 10774 8788 22.6
Total Borrowings 95 89 6.3
Debt : Equity 0.01 0.01 0.0
Per Share (in Rupees) :

- Net worth 220.1 179.5 22.6

- Earnings 58.4 49.3 18.4
- Economic Value Added 1810 1657 9.2
(US $ in million)
Turnover 5419 4344 24.8
Profit Before Tax 1122 866 29.5
Profit After Tax 724 560 29.3

Conversion Rates (Rates as on 31st March) :

1 US $ = Rs. 39.49 for 2007-08
1 US $ = Rs. 43.14 for 2006-07

1
 SHARE PRICE INFORMATION
Y y
Month Year 2007-08 Year 2006-07 Year 2005-2006
 High Low High Low High Low
April 2593.80 2145 2444 2200 830 755
May 2922.50 1351 2485 1600.10 950 789.25
June 1544 1301 2046 1531.20 897.5 832
July 1899 1520.10 2067 1730.25 1039 841.5
August 1900 1540 2307.90 2026 1144 971
September 2089.20 1856 2414.70 2185.25 1244 1060
October 2750 1970 2498 2259 1318 1080
November 2925 2380 2556.50 2367 1498.5 1115.05
December 2870 2348 2668 2232 1489 1316
January 2626 1800 2595 2105 1815 1185
February 2366 1850 2572 2107 2050.5 1780
March 2235 1765 2321.35 1940 2280 1990
"Share price information data is provided for information only and is not
intended for trading purposes. BHEL shall not be liable for any errors or
delays in the information provided, or for any actions taken in reliance
thereon."

----------------- SWOT ANALYSIS ------------------

-S-T-R-E-N-G-T-H- (S): -

1
• Low cost producer of quality equipment due to cheap labour and fully
depreciated plants.
• Flexible manufacturing set up.
• Entry barrier due to high replacement cost of its manufacturing facilities.
• Comprehensive turnkey experience from product design to commissioning.

-W-E-A-K-N-E-S-S-E-S- (W)

• High working capital requirement due to its exposure to cash starved SEBs
(State electricity boards).
• Inability to provide project financing.

-O-P-P-O-R-T-U-N-I-T-I-E-S- (O) :-

• High expected growth in power sector (7000 MW/ p.a. needs to be added).

1
• High growth forecast in India’s index of industrial production would
increase demand for industrial equipment such as motors and compressors.

-T-H-R-E-A-T-S- (T):-

• Technical suppliers are becoming competitors with the opening up of the

Indian economy.
• Fall in global power equipment prices can affect profitability

1
******

OVERVIEW OF

HEEP, HARDWAR

BHARAT HEAVY ELECTRICAL LIMITED-

A CORPORATE GIANT

1
BHEL was established nearly 40 years ago to become the most important
symbol of Heavy Electrical Equipment industry in India and rank amongst the
first few in world. It is the largest heavy engineering and manufacturing
enterprise of its kind in India with well- recognized track record of performance,
making profits continuously since 1971-72. The Company achieved a turnover
of Rs.105200 Million and Profit before Tax Rs. 16060 Million. BHEL caters
to core sector of Indian economy viz.
• Power Generation
• Transmission,
• Industry,
• Transportation,
• Telecommunication,
• Renewal Energy Defense etc.

The wide network of BHEL’s, 14 manufacturing divisions, 4 Power sector

regional centers, over 150 project site and service centers and 15 regional offices
enable the company to be closer to its customer and provide them with suitable
products, system and services at competitive prices. Having attained ISO 9001,
14001certification, BHEL is now on its journey towards TQM .The Company
inherent potential coupled with its strong performance over the years has
resulted in it being chosen as on of the Navratna PSUs which enjoy the support
from the government their endeavors to become global players. with its prudent
financial management. BHEL occupies an all-important niche as evident by its
ranking by CII amongst top eight PSUs based on financial performance.
Recently in survey conducted by business India, BHEL has been rated as 7th
Best Employer in India.

1
HEAVY ELECTRICAL EQUIPMENT PLANT,
HARDWAR:

Heavy Electrical Equipment Plant, Hardwar of this Multi-unit corporation with

its 7467 strong highly skilled technicians, engineers, specialists and professional
experts is the symbol of Indo Soviet and Indo German Collaboration. It is one of
the four major manufacturing units of the BHEL With turnover of 1400.25
crores and PBT of Rs. 180.35crores. HEEP is engaged in the manufacture of
Thermal and Nuclear Sets up to 1000MW, Hydro Sets up to HT Runner dia
6300mm, associated Apparatus Control gears, AC& DC Electrical machines and
large size Gas Turbine of 60-200 MW. HEEP Hardwar contributes about 44% of
India’s total installed capacity for power generation with total capacity of
Thermal, Nuclear & Hydro Sets of over 45000MW currently working at a Plant
Load Factor of 76% and Operational Availability of 86%..

HISTORICAL PROFILE:

1
The construction of heavy electrical equipment Plant commenced in
Oct.”1963”after indo-soviet technical co-operation agreement in Sept.”1959”
The first product to roll out from the plant was an electric motor in January
1967.This was followed by first 100 MW Steam Turbine in Dec.1969, and first
100MW Turbo Generator(TG) in August 1971.The plant’s “break even” was
achieved in March 1974. BHEL went in for technical collaboration with M/s
Siemens, Germany to undertake design and manufacture to large size thermal
sets Upto a unit rating of 1000 MW in the year 1976.First 200 MWTG set was
commissioned at Obra in 1977.The continuum of technological advancement
subsequently saw the commissioning of 500 MW TG Set in 1984 .The technical
cooperation of Gas Turbine manufacture was also signed with M/s Siemens
Germany. First 150 MW ISO rating gas Turbine was exported to Germany in
Feb”1995”.Our 250 MW thermal set up at Dahanu Plant of BSES made a
history by continuous operation for over 150 days and notching up a record
plant load factor greater than 100%.

KEY COMPETITORS:

Power Sector Giant of the World viz. Siemens Germany, ABB, General electric
of USA etc. are the major competitors of HEEP. All these are the MNC’s and
enjoy huge financial and R&D backup.

CORPORATE CITIZEN:

1
HEEP Hardwars Strategic plans and its policy & strategy are commensurate
with BHEL Corporate / strategic Plan . As first PSU to adopt Corporate
Planning as a process . Board meetings for long –range development , BHEL has
always guided other PSU’s in their Corporate planning process .Board meeting ,
monthly Management Committee meetings, Annual Revenue Budget exercise ,
Mid term reviews , Apex TQ council reviews, Personnel Heads Meet, Quality
Heads Meet , Technology Meets , Product committees meetings, Inter-Unit
Quality Circle Meets etc. are the some of crore strengths of BHEL Corporation’s
vast network.

KEY CUSTOMERS AND SUPPLIERS

The Power supplier of the country National Thermal Power Corporation, NHPC,
NPC, and other IPPs and various State electricity Boards, are the key external
customers of HEEP Hardwar. HEEP has a long standing-relationship with its
customers. Power Sector-Regions, Power Sector Technical Services and other
sister unit of BHEL are the key Internal customers. Manufactures of Casting and
Forging, ETS, Steels including alloy steels, component of the product non-
ferrous and insulating materials, equipment etc. are its suppliers. Some of the
key suppliers are Collaborators M/s Siemens Germany, sister unit CFFP, SAIL,
near by Ancillaries developed by BHEL etc. To further strengthen the relations,
one to one long term cooperation meetings are being held by BHEL with its 200
major suppliers on regular basis

MAJOR MILE STONES

1
1975 Job Redesign concept launched for FIRST time in India.
1978 Well documented Suggestion Scheme launched.
1982 Launched Productivity Movement & Quality Circle. Concept
1993 Accreditation of ISO 9001 quality System.
1995 Adopted EFQM model of TQM for achieving Business
Excellence.
1997 BHEL one of the 9 PSE’s declared “Navratna” by Govt. of India.
1997 National Productivity Award for HEEP by the President of India.
1998 Certificate of Merit by National Productivity Council for
Outstanding performance for 2nd consecutive year.
1999 Accreditation of R Stamp from National Board of Boiler and
Pressure Vessel Inspector, USA.
1999 AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine
Combustion Chambers
1999 INSAAN Award for Excellence in Suggestion for 9th consecutive
year
1999 Accreditation of ISO 14001-Enviornment management system
2000 CII Site Visit for CII-EXIM Business Excellence Award-2000
2001 Top Management TQM Workshop at Rishikesh and HRDC
2001 INSAAN Award for excellence in Suggestion for 11th
consecutive year
2001 Launching of QTM & RCA at HEEP Hardwar by CMD
2002 Launching of delivery Index, Turnover Index and Manufacturing
Index
2002 Accreditation of ISO 9000-2k
2002 JBE Workshop of Apex TQM Group at Tehri to evolve Business
policy and CSF

1
 2003 Commendation for Strong Commitment to Excel in
CII-EXIM Bank Award
2004 Commendation for Significant Achievement in CIIEXIM Bank
Award.
2005 Award given by Institute of Cost and Works Accountants of India
for "Excellent Work in the field of Management Accounting and
Cost Concepts".
BHEL bags EEPC's Top Export Award for the 15th consecutive year.

BUSINESS POLICY:

1
“In-line with Company’s Vision, Mission and values, we dedicate ourselves
to sustained growth with increasing positive Economic Value Addition and
Customer focused business leadership in the Power and Industry Sector.

CRITICAL SUCCESS FACTORS:

• Increase Orders of Spares/Services to 230 Cr.
• Decrease Capital employed by Rs. 120 Cr.
• Saving in Material Cost by 16 Cr. i.e. 5%- Rs. 4 Cr.
• Decrease in indirect material +miscellaneous expenses by 5%- Rs. 4 Cr.
• Effective implementation of QTM/RCA/CTQ
• Strengthening Internal customer concept
• Development of an Incentive Scheme
• Reward Scheme including EXCEL Awards
• Effective implementation of PMS
• Effective Contract Management
• Technology Up gradation
‘Excellence triangle’ for each Critical Success Factor is now being drawn
comprising improvement projects. These projects will be centrally registered
under On-line Central Registration system to be developed for it. While CSF
Champion will take the total stock of position in the improvement projects
undertaken in his respective CSF, progress of individual projects will be
reviewed by Area TQ Council (ATQC) and Functional TQ Council (FTQC).

One of the major strengths of HEEP Hardwar is its free, open and consistent
work culture for making continuous improvement evident from the participation
of employees in Suggestions and Quality Circles. To recognize their efforts

1
various productivity drives and competition are organized through out the year
and Executive director awards the winners in the special Award Distribution
Functions. The journey to excellence is unending .It is a continuous search with
commitment and belongingness. Sky indeed is not the limit for perfection. The
transition has strongly experienced a silent internalization with a blend of
commitment of the existing human resource for creating benchmarks for
excellence. The emergence of role models and clear-cut driving force at the top
provide an anvil to unleash the potential, which remain unexplored in search of
“Attitude to perform”. The surge has started and is getting communicated down
the . BHEL today through TQM is on march towards excellence.

HEEP Product profile

• Thermal and Nuclear sets –( Turbines , generators , condensers and

Auxiliaries of unit capacity upto 1000 MW)
• Hydro sets including Spherical and Disc Valves
• Electrical Machines –( for various industrial applications , pump drives
and power station auxiliaries , unit capacity up to 20000 KW AC/DC)
• Control Panels –( for thermal/ hydro sets and industrial drives)
• Large size Gas turbines (unit rating ;60-200MW)
• Defence products (SRGMs)

PRODUCT CAPACITY RATINGS

* Thermal Sets Upto 1,000 MW

1
 * Hydro Sets Maximum hydro runner

Turbine diameter 6,600 manufacturing

Upto 115 MW

* Gas Turbines 60,200 MW 150 ratings

* Light Aircraft Two Seater

* AC / DC Machines 5, 20,000 KW

* Apparatus and Control Gears to match with the power equipment

* Steam Turbines for combined various combinations

Cycle power plant

* Heat Exchangers / condensers Manufacturing Upto 800 MW ratings

* Medical Equipment Linac (for cancer treatment)

* Super Rapid Gun Mount Naval Guns

KEY CUSTOMERS AND SUPPLIERS

1
The Power supplier of the country National Thermal Power Corporation, NHPC,
NPC, and other IPPs and various State electricity Boards, are the key external
customers of HEEP Hardwar. HEEP has a long standing-relationship with its
customers. Power Sector-Regions, Power Sector Technical Services and other
sister unit of BHEL are the key Internal customers. Manufactures of Casting and
Forging, ETS, Steels including alloy steels, component of the product non-
ferrous and insulating materials, equipment etc. are its suppliers. Some of the
key suppliers are Collaborators M/s Siemens Germany, sister unit CFFP, SAIL,
near by Ancillaries developed by BHEL etc. To further strengthen the relations,
one to one long term cooperation meetings are being held by BHEL with its 200
major suppliers on regular basis.

TOTAL QUALITY FOCUS:

To face the increased competition from MNC’s (due to liberalization policy of
Government) in early 90’s and to enter European market we moved towards ISO
9000 Certification. Concept of Business Excellence through EFQM Model was
launched in entire BHEL on pilot scale in Oct.”1995” In 1997 HEEP launched
TQM in the entire Plant and since then Self-Assessment is done every year in
September. Based on feedback Report of Assessment, critical success factors are
identified and TQ action plans are drawn. The philosophy of ISO 9001 ,TQM
and ISO 14001 has been integrated BHEL Hardwar for ultimately achieving
“BUSINESS EXCELLENCE”.HEEP Hardwar plant is accredited for ISO 9001
and ISO 14001 and is now on march towards TQM.5-S was launched in March
1999 in a big way and now it has become a way of life in the organization. In
2000 HEEP applied for CII-EXIM Business excellence award and site visit was
conducted but CII team in Seot.”2000.Cii feedback has gone a log way in

1
carrying out further improvement plans and giving a structured thrust to TQM
movement

In July 2001, Unit’s TQ Council reviewed the TQ Action Plans 2001-02 for its
effectiveness and impact on accelerating the pace of improvement and
consequent TQ Score. Executive Director laid the challenge of achieving the TQ
score of 650.With an objective to bring awareness about he CII-EXIM Business
Excellence Model amongst the Sr. Executives, the first ‘Top Management TQM
Workshop’s held at Rishikesh during oct.2001Executive Director who is TQ
Assessor also, himself steered the Workshop with assistance from some
experienced TQ Assessor of HEEP. It followed by second Top Management
TQM Workshop steered again by Ed was held at HRDC on
Oct’29,2001.Subsequantly the third Top Management TQM Workshop was held
in Nov’2001,where-in Sr. Counselor, CII deliberate the detail on Best practices
of TATA STEEL-the winner of ‘CII-EXIM Business Excellence Award
2000’.Simultaneously ,TQ Assessors training program for the select group of
young managers(to be developed as Think Tanks)was organized in Nov’2001.To
give further boost Apex Group was formed. Apex Group developed “Roadmap
to Business Excellence” based on Criteria Linkage of CII-EXIM Business
Model and the initiatives taken at Hardwar was drawn by the group and it was
widely circulated amongst the employees through special issue of Hardwar
Current in April 2002. To be a responsible corporate citizen and to meet
exacting international standards in occupational health, safety and environment,
BHEL continued re-certification of all its units/ divisions for OHAS-18001
Occupational Health and Safety Management System as well as ISO-14001
Environmental Management System. BHEL' journey in Total Quality
Management (TQM) received a boost when all Four major division of BHEL

1
viz. Trichy, Hardwar, Bhopal and Hyderabad along with Power Sector Northern
Region received the coveted CII- EXIM commendation certificates. Other
significant achievements included:
- 'IMC Ramakrishna Bajaj National Quality Award 2004' to BHEL's
Ranipet plant making it the first PSE to win this award.
- BHEL's Hyderabad plant was adjudged the 'Best Organization in
promoting Quality Circles' for the second consecutive year by QCFI
chapter convention.
For contribution to the Renewable Energy sector, the SESI2004: PVSEC
Award for Applications', was conferred on BHEL's Electronics Division, by
solar Energy Society of India.

OVERVIEW OF FINANCE FUNCTIONS

1
Role of finance function-

Finance function is the backbone of any organization. The finance function

plays a very critical role in the maximization of shareholders who provide the
funds to the company. This objective is being achieved by the finance
department, which provides the carious information on the financial
parameters such as cash flows, profitability, cost and margin, assets, working
capital and shareholder value for the purpose of efficient utilization of
resources resulting in better profitability of the company. The importance of
the finance functions cannot be undetermined in any organization as many
companies have perished not due to bad production management but due to
poor financial management.
Finance function acts like radar of the ship, which guides the direction of the
ship and saves it from the perils of the sea. In the same way finance
department provides timely and relevant information to various levels of
management for the purpose of decision making.
The various activities undertaken by the finance department achieve the
aforesaid objectives, may be summarized as follows-
 Maintenance of account books, cost records.
 Preparation of salary bills and other related payment to employees: PP,
bonus, TA, departmental advances of PF accounts etc.
 Preparation of Profit & Loss a/c and Balance Sheet.
 Generation of various MIRs for management use: MIRs relating to
turnover, profitability, cash requirements , inventory.

1
  Coordination with company auditors, Govt. auditors, cost auditors and
tax auditors.
 Decisions relating to purchase and sales.
 Investment decisions : capital investment decisions and working capital
management decisions.
 Financing decisions: decisions relating to financing-mix or capital
structure or leverage.
 Dividend policy decisions.

FINANCE FUNCTIONS IN HEEP, HARDWAR

1. SALES SECTION -

Sales accounts section will deal mainly with the following items :-

(i) Scrutiny and vetting of estimates / quotation for sale of products /

services, wherever financial concurrence is required.

(ii) Scrutiny and vetting of agreements for sales of products and services

(iii) Invoicing for sale / advance or progressive payment / erection income

and other.

(iv) Maintenance of subsidiary records like sales journals / sales day book,

sundry debtors ledgers, advances from customer ledger etc.

(v) Payments, recovery and accounting of sales tax, excise duty.

(vi) Accounting of claims on carriers/ insurance companies for missing

items / damages on outward consignments.

1
(vii) Scrutiny , payments and accounting of bills of carriers and insurers and

other miscellaneous claims relating to the outwards consignments.

(viii) Calculation and scrutiny of data for payments of royalties to the

collaborators.

(ix) Review and reconciliation as well as follow up of recovery of

outstanding dues from the customers in coordination with the

commercial department.

2. STORES SECTION -

For the convenience of performance of various function it is divided in to

further three sections which are as follows :-

a) Stores bills.

b) Stores review.

c) Foreign payment.

They deal mainly with the following items of works:

(i) Payment of suppliers bills including bills for advances -indigenous and

foreign.

(ii) Pricing of stores receipt vouchers including fixed assets vouchers and

fixed assets receipt vouchers.

1
(iii) Maintenace of accounts of advances to suppliers,claims recoverable

,claims for short suppliers ,rejections and rectifications of materials and

sundry creditors.

(iv) Opening of letter of credit and arranging payments to foreign suppliers

under foreign credit / deffered payment agreements.

(v) Payment of bills for ocean freight ,port trust dues ,custom duty,local

agents commission and clearing agents bills,transit insurance bills ,bills

of contractors for transport /handling etc. and accounting of such

payments are made at regional offices.

(vi) Maintenance of accounts of material issued on loan and materials

issued to subcontractors.

(vii) Keeping account of earnest money and security deposits received from

tender and suppliers.

(viii) Adjustment of stores in transit to be made at the close of the year.

3. WORKS SECTION -

Works section of the company is dealing with the following functions:

1
(i) Payments of contractors bills including bills for advance.

(ii) Maintenance of accounts of contractors with regard to security deposits,

earnest money, progressive payments.

(iii) 215 maintenance of accounts of materials issued on loans to

contractors.

(iv) All accounting work related to capital expenditure in progress on

erection of plant & machinery and building.

(v) All other miscellaneous work relating to hiring of various facilities.

(vi) Payments and accounting of all expenditure related to revenue

particularly with regard to expenditure incurred on repair and

maintenance of plant and machinery, building and roads.

4. COST SECTION -

Cost- section of the company is divided into following two sections viz,

PRODUCT COST & CENTRAL COST and these deals with the following

functions :-

(i) Determination of periodic profits including inventory valuation.

(ii) Determination of pricing policy of the company.

(iii) Work related to capital expenditures of the company.

1
(iv) Developing variance Management Information report for different parts

of management for purpose of cost control and reduction.

(v) Valuation of work in progress and finished goods.

(vi) Interaction with management of top management link for achieving

cost control and cost reduction and thereby improving bottom line of

the company.

(vii) Preparation of cost sheet of different product and their analysis for

future planning.

5. PAYROLL SECTION -

This section deals mainly with the following functions :

(i) Preparation of monthly wage bills.

(ii) All account work related to personal payments and disclose profit and

loss account of the company.

(iii) Dealing with income tax authority with regard to personal taxation of

employee.

(iv) Dealing with other statutory authority such as P.F. Commissioner, ESI

(employee state insurance).

(v) To ensure correct payment of salary and wages and other benefits to

employees in, telephone and miscellaneous payments.

1
(vi) Preparation of monthly wage bills.

(vii) All account work related to personal payments and disclose profit and

loss account of the company.

(viii) Dealing with income tax authority with regard to personal taxation of

employee.

(ix) Dealing with other statutory authority such as P.F. Commissioner, ESI

(employee state insurance).

6. BOOKS AND BUDGET SECTION -

This section deals mainly with the following:-

(i) Preparation of operating budget for the company as a whole.

(ii) Co-ordination with various functions of organisation with regard to

generation and submission of important MIR's to corporate office.

(iii) Preparation of annual accounts of the company .

(iv) Coordination with company auditors with regard to company accounts.

(v) Maintenance and accounting of fixed assets accounts.

Preparation of long term profit plans based on broad objectives of the

company.

1
 INTRODUCTION
TO
INVENTORY
MANAGEMENT

INTRODUCTION

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 Inventories constitute the most significant part of current assets of a
large majority of companies in India. To maintain a large size of inventory, a
considerable amount of fund is required to be committed to them. It is,
therefore, absolutely imperative to manage inventories efficiently and
effectively in order to avoid unnecessary investment. A firm neglecting the
management of inventories will be jeopardizing its long-run profitability and
may fail ultimately. It is possible for a company to reduce its levels of
inventories to a considerable degree, e.g.10% to 20%, without any adverse
effect on production and sales, by using inventory planning and control
techniques. The reduction in ‘excessive’ inventories carries a favorable impact
on a company’s profitability.

WHAT IS INVENTORY

A company’s merchandise ,raw materials, and finished and

unfinished products which have not yet been sold is called Inventory.
The term ‘inventory management’ is used in two ways – unit control and
value control. Production and purchase officials use this word in term of unit
control whereas in accounting this word is used in term of value control. As
investment in inventory represents in many cases, one of the largest assets
item of business enterprises particularly those engaged in manufacturing,
wholesale trade and retail trade. Sometimes, the cost of material used in
production surpasses the wages and production overheads. Hence, the proper
management and control of the capital invested in the inventory should be the
prime responsibility of accounting department because resources invested in

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inventory are not earning a return for the company. Rather, on the hand , they
are costing the firm money both in terms of capital costs being incurred and
loss of opportunity income that is being foregone.

NATURE OF INVENTORIES

Inventories are stock of the product a company is manufacturing for

sale and components that make up the product.

VARIOUS FORMS IN WHICH INVENTORIES EXIST IN A

MANUFACTURING COMPANY:-

1)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.

2)Work-in-process: Work-in-process inventories are semi-manufactured

products. They represent products that need more work before they become
finished products for sale.

3)Finished goods: Finished goods inventories are those completely

manufactured products which are ready for sale.

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Stocks of raw materials and work-in-process facilitate production, while stock
of finished goods is required for smooth marketing operations.

OBJECTIVE OF INVENTORY:-

Inventories represent investment of a firm’s funds. The objective of the

inventory management should be the maximization of the value of the firm.
The firm should therefore consider:
(a) costs,
(b) return, and
(c) Risk factors in establishing its inventory policy.

Two types of costs are involved in the inventory maintenance:

1-Ordering costs: - Requisition, placing of order, transportation, and staff

services. Ordering costs are fixed per order size increases.
2-Carrying costs: - Warehousing, handling, clerical and staff services,
insurance and taxes. Carrying cost increases.

The firm should minimize the total cost (ordering cost + carrying cost). The
economic order quantity (EOQ) of inventory will occur at a point where the
total cost is minimum. The following formula can be used to determine EOQ:

EOQ=(2AO/C)^1/2

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Where,
A=Annual requirement.
O=per order cost.
C=per unit carrying cost.

WHEN SHOULD THE FIRM PLACE AN ORDER TO REPLENISH

INVENTORY?

The inventory level at which the firm places order to replenish inventory is
called reorder point. It depends on
(a) the lead time and
(b) the usage rate.
Under perfect certainty about the usage rate, the instantaneous delivery (i.e.
zero lead time, the reorder point will be equal to:

Lead-time *Usage rate +Safety stock.

The firm should strike a trade-off between the marginal rate of return and
marginal cost of funds to determine the level of safety stock.
A firm, which carries a number of items in inventory, which differ in value,
can follow a selective control system. A selective control system, such as the
A-B-C analysis, classifies inventories in to three categories according to the
value of item:

A-Category consists of highest value items,

B- Category consists of high value items,

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C-Category consists of lowest value items.
More categories of inventories can also be created. Tight control may be
applied for high-value items and relatively loose control for low-value items.

Why business houses hold inventories ?

There are at least three motives for holding inventories:

1-To facilitates smooth production and sales operation (transaction motive).
2-To guards against the risk of unpredictable changes in usage rate and
delivery time (precautionary motive).
3- To make advantage of price fluctuations (speculative motive).

ELEMENTS OF INVENTORY

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There are three basic forms of inventory :

1. STORES INVENTORY : This mainly comprises

(a) Direct materials: such as raw material in form of ferrous, non –ferrous,
insulating materials , casting-forgings and components.
(b) Indirect materials: These are also known as “general stores”,
“Maintenance and operating supplies” and the like it includes all the non
product items regularly stocked by the company and either consumed in
operation of the plant or office or needed to maintain its building and
equipment.

2. Stores In Transit: These are item which have been shipped or

dispatched from vendor but not yet reached their destination in stores and
not yet accounted for in the priced ledger.
3. Production Inventory :
a) Work In Progress Inventory: This includes all product materials on which
the company has performed some manufacturing, processing or converting
operation but which are not yet in finished form ready for sale.
b) Finished goods inventory: these include completed the items of modules
that are ready for sale. These may be located at a company plant or store
for a branch for a commercial warehouse.

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 MANAGEMENT OF INVENTORIES

THE NEED AND IMPORTANCE: -

The need for inventory control in a manufacturing concern can

hardly be overemphasized, since in varies constitute the largest component of
working capital in most of the organizations, its needs the greatest amount of
care and attention for proper control. Its excess or inadequacy, both has
adverse effects on liquidity and profitability of a firm. Insufficient and
inefficient procedures may lead to unbalanced inventories e.g. some items out
of slick and some over slick, resulting in excessive investment. All these
insufficiencies will ultimately have an adverse effect on profits. Control
techniques, such techniques are applied for reducing the investment in
inventories, out adversely affecting the smooth running of production and
sales operation. Material Management is an integrated function of the various
sections of an organisation dealing with the supply of materials and allied
activities in order to achieve maximum coordination and optimum expenditure
on materials.

INVENTORY MANAGEMENT TECHNIQUES: -

Altogether the company deals with stock of thousands of items raising a

serious problem of how one can keep control of track of all these items also,
where it necessary to have some extent of control on each and every item.
Different types of analysis each having its own specific advantages and
purpose help in bringing a practical solution to the control of inventory.

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 The most important of all such analysis is the ABC analysis.
The others one.

VED - analysis
SDE - analysis
HML - analysis
FSN - analysis

ABC ANALYSIS

It’s a formal way of classifying inventory so that the important ones will be
given the most attention. Through this analysis the professional inventory
manager will concentrate his efforts on were they will yield the greatest
rewards. The ABC of ABC analysis refers to the classes, A, B and C into
which the inventory is divided.
A is high value items whose rupee volume typically account for 75-80% of
the value of the total inventory while representing only 10-15% of the
inventory items, the B class is lesser value item whose rupee volume accounts
for 15-20% the value of the inventory, while representing 15-20% of the
inventory items. The C class is low Value item whose volume accounts for
10-15% of the inventory value but 75-80% of the inventory items.
The same degree of control is not justified for all the three classes of
items. The class of items requires the greatest attention and the class of items
the least attention. Class C items need no special calculations since of they
represent a low inventory investment. The order quantity might be a one-year
supply a periodic review once year class B items could have CODs developed
into a semi-annual review of the variables. Class of items could have EOQs

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developed a review of the variables each time an order is placed. The major
concern of an ABC classification in to direct attention to there inventory items
their represent the largest amount expenditure. If inventory levels can be
reduced for claim of items it result in a significant reduction in inventory
investment.

ABC INVENTORY CLASSFICATION

Percent of total class percent of total

No. of units in Annual usage value
each class

Percentage of Category of value of the total

inventory items classes inventory(rupee volume
in %)
10 A 75
15 B 15
75 C 10

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VED ANALYSIS

This analysis specially pertains to the classification of maintenance spares

denoting the essentiality of blocking spares.

V - stands for vital - items when out of stick or when not readily available,
completely bring the production a hault.

E - Is for essential items without which temporary losses of production or

dislocation of production week occurs.

D - Denotes desirable items - all other items, which are necessary but do not
cause any immediate.

S.D.E ANALYSIS
Effects on production.
For developing countries and especially where certain items are in scarce
supply. This analysis is very useful.

S - Refers to scarce items, especially imported items and those which are
very much in short supply.

D - Are difficult items which are available in market but no easily available.
E - Items are those which are easily available, most local items.

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HML ANALYSIS

The cost per item is considered for this analysis.

H - High cost
M - Medium cost
L - Low cost

FSN ANALYSIS

Materials are classified as: -

F- Fast moving - the items with other rates of consumption.

S - Slow moving- if less than five percent is consumed.
N - Non moving items – if less than one percent of the item inventory has
been consumed in the past three months, it is termed as non-moving.

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Ordering Systems-

The main problem in any ordering system is when to order and how
much to order accordingly. Main methods used for overcoming these
problems are:-

1. Reorder level system (ROL method)

In this method, at first a recorder level is found out taking into
consideration the lead-time and also the rate of consumption. To take care of
any variation either in the lead-time or in the ratio of consumption of quantity
known as a buffer stock or safety slick is provided.

2. Periodic ordering method:-

The stocks received at fixed intervals of time and orders are placed
either for a fixed quantity or a variable quantity.

SAFTEY STOCK

The safety stock become necessary in order to avoid 'stock outs' if

the rate of consumption increased and/or the lead time gets extended from the
values considered for the replenishing systems, Thus, a simple way of
establishing the safety stock would be to find out the above two variations that
could systematize such a big amount of information. What is required then I a
upgrading on the class of information processing technology. In other words
the management are as follows.

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1. It enables to establish a well-defined ordering policy.
2. It helps on accurate programme planning.
3. It helps in detection of universal consumption on trends by consumption
analysis.
4. It produces derailed machine processed stores ledgers.
5. It picks up important items from a wide inventories require management
attention.
6. It produces ABC analysis for effective control of issue and procurement.
7. It highlights pending orders and pinpoints disparity between the last
purchase rate and the current purchase. Before and inventory can be put
on the computer a large manual efforts is required for assignment of
individual codes after the coding structure is selected from either of the
systems indicated below. In large inventory of over hundred thousands of
items, this effort may take a year pr even longer specially if meaning
codes are to be assigned. Is the coding effort can be very expensive and
therefore effort can be very expensive and, therefore effort should be
made to minimise it by depending the coding structure as simple as
possible. So in this present era of computer, computerisation of material
management has become a necessity.

The safety stock would be to find out the above two variations that could
normally occur over a period of time in terms of additional quantity of stock
to be maintained.

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 Determination of ordering cost-

Ordering cost is the cost which will be incurred by concern because of

initializing or placing order for the supply of materials.

To find out the ordering cost, at first the following cost are determined for a
particular year.

1. Suitable position of administrative staff lost who have been engaged in

purchasing activities.
2. Clerical cost.
3. Depreciation on building furniture, and on office equipments.
4. Post telegraphic cost and stationary expenditure.
5. Travel and electricity expenditure.

After finding out the total expenditure of all the items, divide that particular
amount by the total number of orders placed in that particular year, which will
give the order cost in Rs.

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 Determination of inventory carrying cost.

Inventory carrying cost is the total expenditure incurred by the material

management function for carrying the inventory in stock. So find the
inventory carrying cost at first the following expenditure for the particular
year is fount out.

(1) Suitable position of the administrative staff cost.

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(2) Suitable position of the security cost & electrical cost.

(3) Maintenance and depreciation expenditure on building and

furniture.

(4) Stationary, post, telegraph and electricity expenses.

(5) Obsolescence, Insurance and handling charges.

OBJECTIVES OF INVENTORY CONTROL;

1. Financial: goal is to keep investment in inventories within the limits of

budget available so that composition of working capital is not thrown out
of balance.
2. Operating :
a) To obtain the best overall balance between production and inventory
carrying cost on the one hand and customer service at the other.
b) To minimize losses resulting from inventory deterioration & obsolesce
3. Property protection :
a) To safeguard an important asset against theft preventable waste all
unauthorized use.

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b) To make certain that within reasonable tolerances the value of this asset is
correctly stated in company’s books
To meet objectives BHEL Hardwar Inventory Control Department has
outlined following major objectives:

1. To maintain the investment in Inventories at the lowest point consistent

with operating sales turnover & financial requirements of the enterprise as
per budget.

2. To ensure an adequate supply of required kind of raw materials parts

supplies and other items to maintain the most efficient level of operations
to meet the demands of customers.
3. To report and liquidate slow moving, non-moving defective or obsolete
items.
4. To ensure the actual existence of physical quantities and values shown in
the records.
5. To prevent loss through waste, damage or pilferage.
6. To signal over under-stocked conditions in relation to current and
projected demand.

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 FUNCTION OF INVENTORY CONTROL

Functions to be performed in the field of Inventory Control are :

1 Setting up norms for carrying Inventory.
2 Determining what items to be stocked.
3 Setting rules for Inventory replenishments.
4 Receiving, storing and issuing inventory items as needed.
5 Maintaining records of inventory quantities and values.
6 Identifying and deposing of slow-moving, non-moving, obsolete or
damage inventories.
7 Furnishing summary information on inventory position for control
purposes.

Locations of position responsible for performing each of these functions in

organisation structure greatly vary from company to company.

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INVENTORY
MANAGEMENT
IN BHEL

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 In BHEL Hardwar determination of product material or direct
work order material (what?) o be carried in Inventory is more or less
automatic result of product design formulation and is given in material
forecast for a work order.Indirect materials consumed in manufacturing
process such as electrodes , brazing alloys, tooling etc. are usually given by
process engineering or at times by design departments.
Balance great bulk of indirect materials is made up of repair parts and
general supplies. Responsibility for specific (what?) items to be carried in
inventory rests with Works Engineering.
With respect to raw materials and purchased parts, responsibility for
determining (when?) and how much to buy is a sign to relevant product
manufacturing i.e. production planning and material planning
groups.However a strict budgetary control and allocation to specific work
order control on high value items is exercised by Inventory control department
organized separately under Material Management,Purchase deparment
attached to manufacturing deparment determines (where?) to buy.
Determination of indirect material (when?) and how much to buy and
(where?) , is done by central group under Material Management by
consolidating requirements of all sections and while looking at consumption
trends over a No.of years.
Again a strict budgetary control and control on high value items for
their allocation is exercised by Inventory control group.

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 In HEEP, Heavy Electrical Equipment Plant the Production industry of
BHEL, Hardwar -- There are different departments which deals with
Inventory management

 Purchase Department
 Shipping Deptt.
 Receiving Deptt.
 Storing Section
 Rejection Shell

Process of placing an order in BHEL

 User department raise the indent. (Requirement)
 Indent will go to purchase department.
 Purchase department will raise the Tender.
 In Reply, supplier will give their quotations.
 Company choose any of them (lowest) & places the order.
 On receiving the material the user department will raise Stores
Receipt Voucher (STR).

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Receiving and storing is done by Central Stores CSX under
Material Management Department.

All the records for raw material are maintained PSL (price store ledger)
section of Finance Department. These records are maintained online.

Issuing Inventory is done by CSX on demand from manufacturing and is

controlled by Material Planning.Again some on-Line checks are proposed to
be introduced at raising of Store Issue voucher stage itself, for high value
items so that induction is controlled strictly as per requirement of production
schedule based on lead time for manufacture to keep WIP inventory under
control.

All the records relating to WIP and Finished Goods are maintained in the
cost section of finance department manually. WIP and Finished Goods are
valued at Factory cost.
Records of Inventory are maintained on a main frame computer centrally
arranged having shared access from all functions for their specific use.

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 Inventory Record Keeping And Related Procedures

How well Inventory records are maintained has a major bearing on the
effectiveness of Inventory control program. Mostly information recorded in
B.H.E.L. system is:
♦ Name of the part or material
♦ Short description
♦ Identifying No called Material code
♦ Unit of measurement
♦ Location in store (custody)
♦ Bin no.
♦ Opening, received, issue, closing quantity and value.

These records are maintained in an online system on main frame computer

user departments have shared access for posting and retrieval of information.
There is a system for reserving specific items as customer specific which is
done by tagging on the item.
Posting of withdrawals or issue from inventory is done on specific
authorization by a document called Store Issue voucher.

• BHEL produces long production cycle items against the firm orders from
customers. Because of this as well as sizeable imported raw materials and
compulsory bulk purchase of items like steel and copper in line with

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 availability from SAIL and MMTC, the company has to carry high level of
inventories.
NEED OF INVENTORY MANAGEMENT

• Stiff competition, globalization of trade and liberalization.

• Achieving, increasing and positive EVA.
• Cost reduction.
• Energy conservation.
• Conservation of natural resources.
• Better, work environment.
• Improved health and safety.
• Enhanced public image.

BHEL took the following steps to control its inventory:-

STRATEGIES/MEASURES

• Formation of specific group in each area to identify the wastage elements

and seek participation of all.
• Identification of wastage.
• Formulation of action plan to eliminate/minimize wastage.
• Review of status.
• Identification of corrective actions and their implementation.

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• Highlighting the gains.

INVENTORY CONTROL

In managing inventories , the firm’s objective should be in

consonance with the shareholders , wealth maximization principle .
To achieve this , the firm should determine the optimum level of inventory .
Efficiently controlled inventories make the firm flexible . Inefficient 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 .

Inventory can be controlled in two ways

1. BEFORE PROCUREMENT is decided HOW much should be
ordered ?
WHEN should it be ordered ?
To manage inventories efficiency ,answers to be sought to the
following answers , HOW MUCH TO ORDER relates to the problem
of determining economic order quantity and is answered with an
analysis of costs of maintaining certain level of inventories . the second
question WHEN TO ORDER ,arises because of uncertainity and is a
problem of determining the re-order point .

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 There are certain TECHNIQUES adopted by firms ,they are
2. IN STORE it refers to continous stock checking when goods are in
stores .
This system is adopted by large firms to put check to discripencies and errors
made in stores.
IN BHEL ,this function is performed by PRICE STORES LEDGER
and STOCK VERIFICATION

A . PRICE STORES LEDGER ;

Price stores ledger relates to goods in stores only .
Its major functions includes following;
• Inventory control in stores –it relates to control of inventory in
stores ,as it accounts for issue of materials to different
departments .
• Price variation control – it controls price changes to stock
,implies impact of price change of stock in market to cost of
material in stores .
• Accounting for scrap and surplus stores –
Due to changes in design or obsolescence of products etc, some items in
stores become surplus . As maintenance of these items in the inventory
results in additional expenditure by way of inventory carrying cost

, these items are to be reviewed periodically ,

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 declared as surplus and disposed off to the
best advantage of the company . when it is finally concluded that all
these items can not be used in the plant action is taken to enquire from sister
division whether these items will be of any use in there plants . The
representatives of stores department and of PSL section sit together to fix up
the reserve price for disposal. These reserve prices are kept confidential
between manager ( stores ) and the executive incharge of PSL .
The accounting treatment accorded whenever the materials are declared
surplus and charged off to P & L account or when materials already
declared as surplus and charged off to P& L account are put to alternative use
and issued for production or when the surplus materials already declared as
surplus are disposed of on sale .

BUT ,PSL ‘s major function include receiving GOODS ,after the order have
been placed as per requirement by the indenter and then distribute those
received goods to different departments for conversion to finished goods .
It is regarded as its major function being basic requirement for production .
THIS is accomplished as follows under two systems;

Manual System:
In almost all the manufacturing divisions, this ledger is
maintained on the computer or a data processing
machine.Where the priced stored ledger is maintained
manually the register will be maintained .The stores Receipts
Vouchers will be priced by the stores account section(Stores
review or stores bill group) with reference to the purchase
order and the bills passed for payments. The priced SRVs are

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posted in the receipts column of the Priced Stores Ledger both
in quantity and value.In respect of other receipts and issue
documents,the valuation will be done by PSL section in
consultation with the other account sections and departments
concerned wherever required.The valuation of issues is
generally done on the basis of monthly weighted average
price.For this purpose the issue price will be arrived at by
adding the opening balance of the month and all the receipts
separately in value and quantity and dividing the value by the
quantity so arrived at,as illustrated below:
If A&B represents the quantities of opening balance and
receipts , X & Y
represents opening balance and receipts during a month in
value and t represents the weighted average issue price’
T=(X+Y)/(A+B)
All issues during the month will be priced on the basis of
t.

At the end of every month the ledger will be closed and the
closing balances will be struck. The Priced Stores Ledger will
be maintained material code-wise and a consolidated summary
of all the materials held in stock class-wise and material code-
wise will be presented ,for obtaining the class-wise summary
and the grand total of all class-wise summaries agreed with the
general ledger.

NOTE 1:
If any other method of pricing the issues like
FIFO,LIFO.average price etc, is proposed to be followed in
any division, specific prior approval of corporate office
should be obtained.

NOTE 2:
The initial space received with equipments are usually
capitalized though these may not be required for

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 immediate use and may be kept in the custody of
stores.As the maintenance of Priced Stores Ledger for
such items will ensure proper control and as computer
system may reject items of ‘nill’ value, it may become
necessary to price such spares kept on Priced Stores
Ledger at a nominal value. Insuch cases the value
adopted will be credited to capital by a contra debit to
code 161-‘Production Stores and Spares’.

Computerised System :
1. Processing and Receipt Documents :
All the receipt documents are checked for validation of
material code, unit of measurement and location with
reference to material master on the computer. The
responsibility for correcting error in this respect rests with
Stores department . After this validation , SRV’s are routed
for pricing on computer. In this respect two further error
statements are generated. The first statement refer to those
SRV’s for which price factors have been fed by Stores
Accounts section (Stores review / Stores Bills group) but for
which there is no matching code in the material master. The
second error list refers to those SRV’s for which price factors
have not been received from the Stores Accounts section
(Stores Review /Stores Billing group). The responsibility for
corrective action on these two error lists rests with the Stores
Review/ Stores Bills group of the Stores Accounts section.
The above process of correction helps in completing process
cycle on computer in respect of various files which need data
from SRV’s.

2. Processing of Issue Vouchers on Computer :

Just like receipt vouchers , issue vouchers are also
validated with reference to material master regarding
material code, unit and location . They are also validated

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with reference to the stock available in the stock master
and if there is no stock to accomodate,
They are rejected by the computer. As in the case of
receipts, the responsibility for error location rests with
the Stores department. After correction , the validated
vouchers are further processed in computer. The issue
rate is arrived at base on a system of monthly weighed
averages after taking into account all the receipts during
the month. Thus the issue vouchers are priced on
weighted average only after all receipts have been
accounted for in particular month. With this ,’ Priced
transaction file’ of of computer gets completed in
particular month and from there , different tabulation
pertaining to current PSL, progressive PSL, document-
wise receipts and issues , accounts code -wise receipts
and issues , material- wise receipts and issues etc., are
received from computer for future work in PSL section.

3 . Processing of Transfer and Other Documents on

Computer :

The transfer and other documents specified above

are priced in the PSL section and fed into the computer.
A tabulation for all such documents processed on the
computer is obtained at the end of every month.

4. Accounting of Material in PSL :

Based on the computer tabulations received for

receipts/ issues/ transfer documents necessary accounting
adjustments through journal vouchers are effected in the
PSL section.

4. Accounting adjustments at the time of Mid- year /

Annual Closing of Accounts :

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 At the time of Mid- year / annual closing of
accounts, the balances under each of the different stock
heads are reconciled with the progressive PSL and the
class summary register. After reconciliation is made , the
closing balance value in each of the stock heads is
cleared and taken to closing stock accounts in the
Financial Ledger, The journal entry is effected in Cost
Accounts section.

4.2 Acconting of Stock of Durable Tools :

At the time of accounts, the values of durable tools

in stock is brought to account as stock. The tools are
classified as consumable tools and durable tools. The
criteria for treating a tool as a durable tool are as
follows :
(a) the cost of each tool shall be above Rs 10,000; and
(b) the life expectancy of the tool shall be more than
one year.
Description is charged at 20% according to Company’s
accounting policy, only in case of durable tools and all
other tools including those costing Rs. 10,000/- or below
are charged off as consumption of stores and spares in
the accounts. As all the tools are charged of as
consumption as they do not go to stores, non-stock
SRV’s are raised by Stores department. The codification
of tools may include identification tools for
consumableand durable tools. As and when purchases
are made , based on non- stock SRV tabulations, the
amounts will be debited to cost ledger account 005,-
Directly chargeable item- Non production jobs -
Imported’ and 013-‘Directly chargeable items- Non-
production jobs- Indegenous’. Based on the departmental

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 number- wise tabulations , the following JV will be
proposed in the Cost ledger.
Dr. Cr.
000xxx Department concerned aaa

000005 Directly chargeable items-Non bbb

production jobs- imported
000013 -do- -Indegenous ccc

At the time of closing of accounts , alist of durable tools

(i.e. tools costing over Rs. 10,000/- each) purchased
during the year is taken from the non- stock SRV
tabulations (based on code number) and added to the list
already available in PSL. This list is compared with the
list of durable tools kept by each department . Finally,
the depreciatedvalue of durable tools is brought to stock
under code 002/010 ‘Material Control-
Imported/Indegenous’ by crediting the concerned
department . The value of the durable tools is brought to
Financial Ledger by means of the following JV :

Code No. Description Dr.

Cr.
163001 Stock of stores and spares- Loose tools xxx

629002 Stock at the cost of the year- Stores and

xxx
spares -imported
629010 Stock at the close of the year- Stores and
xxx
spares -Indigenous
Again at the commencement of the year, the earlier
closing entries are reversed , by credit to 163001-'Stock
of stores & spares-Loose tools' and debit to
621xxx-'Stock at the beginning of the year -Stores &

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 spares'.The concerned departments are debited in the
Cost Ledger.

4.3 Accounting of Non-stock Items of Stores

4.3.1 In case of medical and stationary stores for which no
Priced Stores Ledger is maintained,statements of stock of
medical stores and stationary stores are obtained from
the Cheif Medical Officer/'Stores department,as at the
end of accounting period/year, duly priced and the
following adjustments are made in the accounts based on
the priced stock statements.

Code Description Dr.

Cr.

162001 Inventories-Miscellaneous stores xxx

7130xx Medical expenses-Stock of medial stores

at the close of the year/ Overhead control
xxx
8040xx Printing and stationary/ Overhead control
xxx

The above entriec are reversed in the following accounting

year i.e. in December/April. However in April, this is
done by operating code 7110xx-'stock of medical stores
at he beginning of the year' instead of 7130xx,in case of
medical stores.

5.2.1 For accounting adjustment in the case of

other non-stock/directly chargeable items,please see
paragraph 4.3.7 and 7.9.1 of Stores Account Manual.

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5 Reconciliation Work and Corrective Action relating to
Problem Areas in Computer Outputs:
5.1 Reconciliation between Bin Card Balance and PSL
Balance:
As PSL figures are always taken into account for various
projections and decision making processes , it is necessary
that figures are correct and strictly correspond with the
actual physical balances of sores and balances appearing in
the bin card. To ensure this, a continuous periodical
reconciliation between the figures appearing in the PSL and
those in the bin cards should be done in close coordination
with the stores department. The physical verification of the
stock held by the stores with reference to the bin card
balances is done by the stock verification section of the
accounts department as well as by the concerned
departments to ensure that all the discrepancies between the
physical balances and PSL/bin cards are brought to light. It
has also been enjoyed in the stock verification manual that
the reconciliation between the PSL and the bin cards
should precede he stock verification and where stock
verification has to be taken up before the reconciliation of
PSL and bin cards balances is completed, a suitable watch
should be kept in the stock verification section to ensure
that no additional discrepancies are thrown up between bin
cards balances and the physical balance as a result of
reconciliation of PSL balance and the bin card balance/ In
this connection a reference is invited to the provisions of
para 3.2 to 3.4 of the Stock Verification Manual. To
facilitate reconciliation, once in every 3 months / 6
months, for different material codes, a single line coding
balance is obtained from the computer and the PSL figures
are compared with the bin card balances. In the case of
discrepancy, transaction related to particular material code,
where discrepancies have been noticed, are inspected
thoroughly and necessary corrections effected wherever

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 required. In the case of corrections in the bin card balances,
the same will be communicated to the Stock Verification
section, especially in the case where stock verification has
already been done by that section.

5.2 Check up of High Value Receipts/Issues:

The problem relates to accounting of stray mistakes in regard

to pricing or in feeding pricing element to computer e.g. rate
which is reckoned per MT may be given as per Kg or vice-
versa. For this purpose tabulated figures of all high value
SRV’sare checked up every month both for quality and value.
The responsibility of ensuring that all receipts are completely
reported to EDP rests with the Stores Review group of Stores
Accounts section.

5.3 Reconcilation of Issues :

To ensure correctness , the total quantity issued in each

major category of materials per tabulation is compared
with the ‘quantities issued report’ prepared by Stores
department at the end of each month. In case there is
any difference, investigations are made so as to ensure
proper reporting of issues in the monthly report.

5.4 Irregular Balance ;

Special tabulation of PSL is obtained from computer on

irregular balances. This tabulation lists out items where
the quantity is positive but value is zero or negetive or
where quantity is nil but value is positive or

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 positive.All such cases are investigated and corrective
action taken every month.

5.5 Quantity Mistakesin Issue Vouchers due to

Punching Errors;
Major errors are generally reconciled when current PSL
is reviewed and minor errors are revealed at the time of
reconciliation of PSL balances with bin card balances.If
the quantity is puncged wrongly vaoue is also
calculated wrongly by the computer . this mistake is
corrected through PSL adjustment forms.

5.6 Wrong Purchasing of Material Codes :

Because of wrong purchasing of material codes, the

transactions relating to one material is wrongly
accounted for under another material code. These
mistakes are generally revealed at the time of
reconciliation of PSL with bin card balances and they
are also correctedthrough PSL adjustment forms.

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 SUGGESTIONS
BENEFITS OF MODERN TECHNIQUES :

These techniques helped in following manner-

1) Helps in reducing carrying cost of inventory.
2) It helped in reducing the level of working capital blocked in inventory .
3) It helped in reducing the level of work of store keeping department and
inventory control department as inventory level is optimum.
4) As more concern is given on wastages it helps in reducing losses.
5) As inventory is kept at optimum level , chances of obsolescence are
decreased.
6) Ease in importing goods as , Transchart (Ministry of shipment) is
recevied.
7) Auto indenting have helped MPIC official in placing the order.

RECOMMENDATIONS
1) The techniques and methods used should be regularly updated.
2) High value and high cost items should be carefully handled and regular
check should be made.

3) With the globalization of economy , proper care should be given to suppliers

and customers.

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 4) It should aim at reducing non value added costs involved in production.
5) Investment should be made in those stock items which are fast moving
rather than on those which are non moving.

INVENTORY MANAGEMENT IN BHEL

• BHEL produces long production cycle items against the firm
orders from customers. Because of this as well as sizeable
imported raw materials and compulsory bulk purchase of items
like steel and copper in line with availability from SAIL and
MMTC, the company has to carry high level of inventories.
RS/LACS
2002- 2004- 2005- 2006- 2007-
2003-04
PARTICULARS 03 05 06 07 08
ACT. ACT. ACT. ACT. ACT. ACT.
Raw Material &
7639 5338 10469 11567 10375 10386
components
Material with
99 155 105 306 395 353
fabricators
Stores &spares 2333 2092 1594 1848 2989 3061
Material in
1466 3819 3716 9910 8193 9705
transit
Finished goods
931 2603 2181 1770 2454 1819
at plant
W.I.P 18488 23699 38585 42120 38398 36411

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Transfer in
1413 1508 2326 2277 4823 3630
transit
Total 32370 39214 58976 67898 67627 65365
Turnover 101335 97432 140697 164060 200864 235096
Average
42267 45414 37915 35792 49095 33752
inventory
Inventory to
1.93 1.78 2.38 2.72 2.99 3.26
turnover
Days of
inventory 139 192 248 215 166 135
holding

Inventory Turnover Ratio = Sales / Average Inventory

Days Of Inventory Holding =365 / inventory Turnover Ratio

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 Graphical Representation of Days of Inventory Holding

DAYS OF INVENTORY HOLDING

350
300
250
NO. OF DAYS

248
200 215 2002-03
192
150 166 2003-04
139 135
100 2004-05
50 2005-06
0 2006-07
2002- 2003- 2004- 2005- 2006- 2007- 2007-08
03 04 05 06 07 08
YEARS

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INTERPRETRATION

If we see from the above table that the days of inventory holding in
the year 2005-06 has come down to 215 days from 248days in the
previous year. Inspite of increase in turnover i.e. 164060 in 2005-06
from 140697 in the year 2004-05the days of inventory holding
decreases. This indicates that the company is using effective strategy
to bring down its inventory level. This makes very less investment
in inventory.
It is in the interest of every organization to minimize its inventory
level.

Following is the process through which the company can achieve

the optimum inventory level.

TAKING

STANDARD ACTUAL COMPARISION OF

INVENTORY ACTUAL WITH
STANDARD
LEVEL INVENTORY

LEVEL

TAKE
ANALYSING REASON OF VARIATION
VARIATION/DEVIATION /
CORRECTIVE
ACTIONS DEVIATION

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NEED OF INVENTORY MANAGEMENT

• Stiff competition, globalization of trade and liberalization.

• Achieving, increasing and positive EVA.
• Cost reduction.
• Energy conservation.
• Conservation of natural resources.
• Better, work environment.
• Improved health and safety.
• Enhanced public image.

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 Graph of inventory in BHEL

70000
60000
50000
40000
30000 Inventory in BHEL
20000
10000
0
2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08

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Interpretation
By the graphical representation, we can easily
understand that the level of inventory is coming down but in 2005-
06 it increases due to large amount of raw material .It comes down
because company takes some effective measures to control the level
of inventory. Those steps are following steps to control its
inventory: -

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STRATEGIES/MEASURES

• Formation of specific group in each area to identify the wastage

elements and seek participation of all.
• Identification of wastage.
• Formulation of action plan to eliminate/minimize wastage.
• Review of status.
• Identification of corrective actions and their implementation.
• Highlighting the gains.

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Suggestion: -

After analyzing the steps taken by the company there are some
suggestions to manage the Inventory

• There should proper analysis of requirement of raw material.

• Order should be placed according to the lead-time.
• Wastage should be avoided.
• There should be proper coordination between the Inventory
Department and Production Department

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1
 BIBLIOGRAPHY
.

 Intelligent stock market security by N. J. Yasaswy.

 The Indian securities market by Tadashi Endo.
 The Big Picture : Reflects on Our Economic Times by T.T.
Ram Mohan
 Financial Accountancy by M .Y .Khan
 Research methodology by C.R.Kothari

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1
 References

www.google.com
www.bhel.co.in
www.bhelhwr.co.in
www.wickeypedia.com
www.answer.com