Project Report On Analysis of Conversion Cost in Colour Coating Line At JSW Steel Limited (May-June2009) Under the guidance

of Mr. Manoj Kumar (Manager(Costing)) Submitted By: Mohd Arif khan (arifkhan47@rediffmail.com) As part of the MBA-Core Program Curriculum of A.C. Patil College of Mgmt Researc h (Navi Mumbai) Analysis of Conversion Cost

JSW STEEL LTD. TARAPUR CERTIFICATE This is to certify that Mr. Mohd Arif khan student of A.C. PATIL COLLEGE OF MGMT . & RESEARCH has successfully completed her project entitled ANALYSIS OF CONVERSI ON COST for the period of two months May to June09 in our organization as part of her summer internship. During this period we found them honest, sincere & hardwo rking. We wish them all the success in their future endeavors. Manoj Kumar Nitin Tekade (External Guide) Manager- Costing HOD - HR Analysis of Conversion Cost

INDEX SR.NO 1 2 3 4 5 6 PARTICULARS Acknowledgment Executive Summary About JSW Group About JSW Steel Ltd Process Flo w of JSW Introduction of Cost Optimization Strategies PAGE NO 7 8 9 10 11 12 Broad analysis of Cost elements in JSW Analysis of CCL Plant - Data Analysis Sou rces of Data Conclusion Recommendation Bibliography Analysis of Conversion Cost

ACKNOWLEDGEMENTS I take this opportunity to express our sense of gratitude to all those who guide d me and helped me whenever the going seemed difficult and the road ahead was no t visible. I am highly thankful to Mr. P.K. Pandey, HOD(Costing) for giving me t his opportunity to enhance my knowledge. I am also thankful to Mr.Manoj Kumar Jh a, Manager (Costing), JSW, Tarapur, for assigning me to the projects which were truly enriching in nature and scope. I am obliged and thankful to Mr. Nitin Teka de, HOD (HR), JSW, Tarapur who made this training possible. I am greatly indebte d to Mr.Anil Sharma, DGM (CCL Plant), JSW Steel, for providing me with an immens e learning opportunity. I would like to extend our gratitude to our guides Mr. T .J. Singh HOD (Packaging); Mr.Praveen Mobian; Mr.Rahul Mahakal, Sr.Manager(CCL); Mr.Ravi Agarwal (CCL); Mr. Dinesh Soni, Jr. Manager(Costing); Mr.Atul Tayade As st. Manager(CCL); Mr. Mahesh Bhonsle, Asst Manager(CCL); Mr. Sanjay Swami, Dy Ma nager (PPC) who were with me through this entire journey. They inspired me to th ink beyond and to always look for better solutions. I am deeply inspired by thei r profound thoughts, which took me to light whenever the path became difficult. I appreciate the help of Ms. Shweta Bhalekar, Jr. Manager (HR),JSW, Tarapur, who made our stay a pleasant one and also provided us with all we needed and were a lways cordial and helping. Last but not the least, I wish to extend our thanks t o all the staff of JSW, Tarapur, who gave me great insight into the day to day o perations of the plant. Analysis of Conversion Cost

I also wish to thank our faculty at ACPCE, specially Dr. Mahesh , HOD and my int ernal guide Mr.Pampat & colleagues for making this all possible and all others w ho helped us during these two months. EXECUTIVE SUMMARY This report is the presentation of findings of the project work carried out duri ng the summer internship at JSW Steel Limited, Tarapur during the period of May09 -June09. A Project entitled Analysis of Conversion Cost was undertaken during this internship. Overall study of JSW Tarapur and recommendations for cost optimizati on strategies were studied. Broad study was done of the whole plant & later as a sampling CCL plant was studied. The project involved the initial study of basic operations at this plant. The main objective was to understand and analyze the prevailing conversion cost practices, their effects and efficiency. It also inte nded to find the shortcomings and recommend solutions for the same. The various touch points were analyzed, and discussions were made with employees responsible in these areas to understand the prevailing processes and areas of improvement. Based on these recommendations, cost optimization strategies have been made as part of this study. The main products of the company are GI, GL, PPGI & PPGL. Th e project is mainly about study of the costing of these products and analysis of the variable costs for cost reduction by studying various cost elements involve d. The objective of project is Analysis of conversion cost of production & to fi nd the area of cost optimization that can be adopted by company. Analysis of Conversion Cost

About JSW GROUP JSW Group is one of the fastest growing business conglomerates with a strong pre sence in the core economic sector. This Sajjan Jindal led enterprise has grown f rom a steel rolling mill in 1982 to a multi business conglomerate worth Rs. 1470 0 Crore (US $ 3.7billion). As part of the US $ 10 billion O. P. Jindal Group, JS W Group has diversified interests in Steel, Energy, Minerals and Mining, Aluminu m, Infrastructure and Logistic, Cement and Information Technology. JSW Steel Lim ited is engaged primarily in manufacture of flat products viz. H R Coils, CR Coi ls, Galvanized products, auto grade / white goods grade CRCA Steel and Power. JS W Steel Limited has the largest galvanizing production capacity in the country a nd is the largest exporter of galvanized products with presence in over 74 count ries across five continents. On its road to growth and expansion, the Group is a lso conscious about its responsibility towards environment and social developmen t. Eco-efficiency is a matter of principle. Preventive measures for damage to th e environment are taken into account at the planning stage of production and gro wth. JSW Foundation, an integral part of the Group, is the CSR wing, with a visi on to create socio economic difference in the fields of Education, Health and Sp orts, Community Relationship/Propagation as well as Art, Culture and Heritage. G roup Companies: Analysis of Conversion Cost

 JSW Steel Limited, JSW Energy Limited JSW Holdings Limited, JSW Infrastructure a nd Logistics Limited, Vijaynagar Minerals Pvt Ltd Jindal Praxair Oxygen Co. Ltd JSoft Solutions Limited. ABOUT JSW STEEL LIMITED JSWs history can be traced back to 1982, when Jindal Group acquired Piramal Ste el Ltd., which operated a mini steel mill at Tarapur in Maharashtra. The Jindals , who had wide experience in the steel industry, renamed it as Jindal Iron and S teel Co Ltd. (JISCO) now known as JSW Steel Limited (Tarapur & Vasind Works) In 1994, to achieve the vision of moving up the value chain and building a stron g, resilient company, JISCO promoted Jindal Vijayanagar Steel Ltd (JVSL) now kno wn as JSW Steel Limited (Upstream). Its plant is located at Toranagallu in the B ellary-Hospet area of Karnataka, the heart of the high-grade iron ore belt, and spread over 3,700 acres of land. It is just 340 kms from Bangalore, and well con nected to Goa and Chennai ports. JSW Steel Ltd. Encompasses: Tarapur and Vasind Works (Downstream) Vijayanagar Works (Upstream) Indias third largest steelmaker, JSW Steel Ltd. consists of the most modern, ecofriendly steel plants with the latest technologies for both upstream & downstrea m processes. JSW Steel Ltd. has received all the three certificates: ISO:9001 fo r Quality Management System Analysis of Conversion Cost

 ISO:14001 for Environment Management System OHSAS:18001 for Occupational Health & Safety Management System Facilities: Vijayanagar Works Vijayanagar Works is a fully integrated steel plant, located in Bellary district, 340 kms from Bangalor e. It is also well connected to Goa and Chennai ports. The plant is also equippe d with modern technologies to ensure international quality standards. It produce s products from iron ore pellets to hot and cold rolled flat products. Vijayanag ar Works was the first Greenfield project in the world to have Corex technology to produce Hot Metal. By 2008, Vijayanagar Works will achieve 7 MTPA status maki ng it Indias largest integrated steel plant at one location. By 2010, it will f urther expand to 10 MTPA. This makes it among the fastest growing steel plants i n the world. Its eco-friendly approach has also led to the development of Vijay anagar into a modern township. Enveloped by acres of greenery and maintained by JSW, Vijayanagar is prospering by leaps and bounds. Be it education, career oppo rtunity or women empowerment, the Companys initiative has gone a long way in ma king Vijayanagar the success that it is today. Vasind and Tarapur : It is here t hat all began. A new chapter was written in the history of Indian Steel Industry when JSW made its foray at Vasind in 1982 and setup a 20 Hi CR mill. JSW then a cquired a mini steel mill, which moved on to become JSW Steel Ltd. Apart from be ing a leading manufacturer of cold rolled and color coated steel, Tarapur and Va sind works is today Indias biggest producer & largest exporter of galvanized stee l. At Vasind Works, the Company has recently launched GALVALUME, a revolutionary product in the steel industry. Its strategic location, with access to the major ports of Mumbai, markets and raw material sources has worked to its advantage. Analysis of Conversion Cost

The total capacity of Vasind and Tarapur Works is 0.9 MTPA of Galvanized, GALVAL UME & Color Coated Cold Rolled products. As JSW grew phenomenally, it also steer ed Tarapur and Vasind towards newer horizon of prosperity. Apart from providing more jobs, JSW actively participates and organizes various social and cultural a ctivities to make lives richer. The region is now cleaner happier and even more beautiful. Better health initiative, promotion of sports & education are few of the development initiative that has gained in JSW presence. Salem Works: JSW Ste el group acquired the Company and took over the Management from November 2004. S alem Works is the only integrated steel plant in Tamil Nadu and is located at Po ttaneri/M. Kalipatti villages and at about 35 kms from Salem. As part of the JSW Steel group, the plant underwent a dramatic transformation and started making p rofits from the first year onwards. A fast paced expansion plan has been drawn f or the company to quickly become the first 1 MTPA integrated steel plant in Tami l Nadu. The plant is having facilities for production of Pig Iron, Steel, Billet and Rolled Steel products in the long product category. The present capacity is being expanded to one million tones per annum. It has adopted the Sinter plant Blast furnace Energy Optimizing Furnace Ladle Furnace, Vacuum Degassing Continuo us Casting Machine bar and rod mill route with iron ore as the basic input mater ial. It also has plants for generation of power and production of oxygen. Salem Works is highly environment conscious and the process and technology is designed for reusing and recycling the process waste. We have an expanding green belt to provide a green environment. Products of Salem Works have the hallmark of quali ty and combined with competitive pricing, they are highly preferred in automobil e and construction sectors. Analysis of Conversion Cost

Products: Hot Rolled products: HR Coil, HR plate and sheet, HRPO, HRSPO Applicat ions: Automobile, Boiler and Pressure Vessels, Ship Building, Railways, Transmis sion Towers, Oil and Petro Chemicals, Marine Containers, Coal and Mining General and Heavy Engineering Cold Rolled Products: CR coil and Sheet Applications: Aut omobile, White good, Cold rolled formed section, General engineering & fabricati on, Packing, Drums/ barrels, Furniture Galvanized Product: Galvanized Corrugated Sheet, GP Sheet and Coil Applications: Automobile, Boiler and Pressure Vessels, Ship Building, Railways, Transmission Towers, Oil and Petrochemicals, Marine Co ntainers, Coal and Mining, General and Heavy Engineering. Pre-Painted Galvanized Product: PPGI coil, PPGI sheet, PPGI profile Application: Roof, Wall cladding a nd other building products, Household appliances, Furniture, Automotives Jindal Vishwas GC Sheets It is the roof that has to take the brunt of natures extremit ies during its entire life and Analysis of Conversion Cost

hence utmost care must be taken in selection of the right roofing material. Wron g choice of roofing and cladding can create losses in terms of human lives and m aterial in cases of natural disasters A good reliable roof with least number of complications gives peace of mind to meet these challenging needs of the custome rs, JSW offers superior quality Galvanized Corrugated sheets under the brand nam e "Jindal Vishwas". New Initiatives: JSW Shoppe In an endeavor to expand retail base and ensure the easy available of quality and branded steel in all its market, JSW Steel plans to setup 200 exclu sive JSW Shoppes across the length and breadth of the country by 2010. It has la unched JSW Shoppe at Hubli and Jaipur. Mr. Sajjan Jindal, vice chairman and mana ging director, JSW steel has inaugurated two exclusive JSW Shoppe in Hubli, Karn ataka on December 4, 2007 and target is to open several more Shoppe in India. Th e concept originated from the fact that the company wants the end consumer to ge t the right quality of product at competitive prices at the right place. It will help in building trust with the end user and provide them steel at their door-s tep. All technical specification and details on manufacturing ranges are availab le in JSW Shoppe. Information of all types of JSW steel product, ranging from HR coils to Color Coated Steel and Long Products would help in enhancing the aware ness on wide usage of steel among cross section of society & industries. At JSW Shoppe, end consumer will also know about different application of different ste el products being manufactured by M/s JSW Steel through actual components and pi ctures from Automobile, White Goods Sectors, and Construction. STEELeMARTS : Analysis of Conversion Cost

STEELeMART, a B2B steel-trading portal is a venture of Sapphire Technologies Ltd . It is promoted by the JSW Group - one of the leading and fastest growing integra ted steel enterprises in India having interests in long & flat steel products. S TEELeMARTs intrinsic strength is derived from its trading modules, which have bee n designed keeping in mind the specific buyers needs. Amongst these trading modu les the versatile auction module is immensely popular. It has established for it self a reputation of being the most transparent, cost- effective and interactive online steel trading portal and this is what sets STEELeMART apart from its con temporaries. Everyday hundreds of steel users and traders across the country, tr ade on STEELeMART to get the best deals on steel products. STEELeMART cares for its customers and believes in continually evolving to provide better services, w hich will enhance the experience of its customers while trading through STEELeMA RT. JSW, Tarapur With an employee strength of more than 600 regular employees, T arapur based unit of JSW is crucial part of JSW steel empire. The Tarapur unit, has an annual sales turnover of more than Rs. 4200 crore and is one of the Quali ty-conscious units of this conglomerate. Analysis of Conversion Cost

Hot Rolled Steel, the primary input material for the JSW, Tarapur unit comes to the plant from Bellary based unit of JSW. The first process to which the hot rol led iron is subjected to is termed as Slitting. In this, the hot rolls are cut fro m both sides or from a single side into sheets of desired width as per the custo mer orders. This step removes the damaged edges of the rolls, thus improving the quality of the end product . Cold Rolling, Galvanizing, Color Coating Hot Rolle d Steel Slitting Pickling After slitting, the next step is Pickling of rolls. Duri ng transit and previous processing underwent, surface of the rolls acquire some impurities and also gets oxidized, so they are treated with chemicals (HCl acid) to remove these impurities. Later these sheets are rinsed, dried and oiled to a void further surface impurities. Next process in line is Cold Rolling of sheets. A fter initial uncoiling and welding, the sheet is subjected to a pair of rotating rolls to reduce thickness of pickled sheets, and achieve desired mechanical and metallurgical properties for the sheets. A sensitive balance has to be obtained in terms of the sheet thickness, width and length and involves a high precision work. The Galvanizing process takes place next and begins with the uncoiling and welding of the coils to produce a continuous steel strip. This strip is then cle aned and degreased in a continuous cleaning section. The strip next enters the h eat treatment furnace. It has an atmosphere of nitrogen and hydrogen to prevent oxidation of the steel surface. Here the steel is subjected to a controlled heat ing and cooling cycle to alter its physical properties. The zinc coating operati on is performed by passing the steel strip directly from the exit of the anneali ng furnace into a molten zinc bath of Analysis of Conversion Cost

temperature of around 4600 C. Excess zinc on the surface is wiped off by air "kn ives" after the strip leaves the bath. The zinc composition in the bath is caref ully controlled to ensure that the optimum coating characteristics are achieved. Zinc provides a tough, metallurgical bonded coating that completely protects th e steel surface from corrosive action of the environment. The galvanized steel t hen passes through a set of rollers in the skinpass / leveller unit. Here any di stortions that the strip has acquired in the annealing furnace are smoothed out. From the leveller, the strip passes through a chromate spray which reacts with t he fresh zinc to produce a passive film of zinc and iron oxides. Galvanized shee ts are the major finished goods produced at this plant. Color Coating is the next activity in the processing cycle of the sheets and provides a variety of color c oated sheets. This is totally market driven initiative and is earning rich divid ends for the organization. A major application of these sheets is in consumer go ods industries. The coil is subjected to unwinding, pre-treatment and coating pr ocess before being recoiled. This process here employs high grade green technolo gies and makes little waste, usually burning solvents to provide energy for curi ng the paint. Various types of paints can be used on the surface for different a pplications and properties i.e. polyester, epoxy, pvdf, plastisol etc. The organ ic coating can be done on the cold rolled steel coils, galvanized coils, galvalu me and various grades of aluminium. Galvalume, a zinc-aluminum alloy coated stee l sheet, is an upgraded product from JSWs hot dip metal coating galvanizing line is the latest offering. JSW Steel Ltd is the first Indian Company, under a techn ology licensing from BIEC International Inc., USA to produce Galvalume sheets the fastest-growing sheet steel product renowned for its excellent corrosion res istance and heat reflectivity. Galvalume sheets superior performance has been p roven in the field. Over three decades of actual buildings in North America, Eur ope, Australia and Asia testify to the products unrivaled corrosion resistance an d long service life. Galvalume sheets has 2-6 times longer service life compared to G-90 (275 gsm) galvanized sheet. A patented alloy of barrier-resistant alumin um and corrosion-fighting zinc gives Galvalume sheet its superior corrosion resi stance. Galvalume coating features an alloy that is 55% aluminum, 43.5% zinc and Analysis of Conversion Cost

1.5% silicon. The Galvalume production has started at Vasind unit and is at adva nced stages of production at Tarapur. Importance of Cost Optimisation Strategies: In todays competitive world Corporate and businesses are struggling to maintain p rofits and healthy bottom lines .Cost of production, fuel, raw material and huma n resources is rising each year. These developments have prompted people to look for Cost Optimisation Ideas & methods. Those who have opted for focused cost re duction strategies have survived those who could not managed have perished .In r ecent economic down turn it becomes more important to make Cost Optimisation pro gram a major initiative in industry. Companies are finding it difficult to retai n people and are lying off people, which is unprecedented in recent history of i ndustrial recession. Companies have to develop its own cost reduction program fo r savings without cutting jobs. Cost Optimisation in Steel Company can be achiev ed through reduction, elimination, modification, substitution or innovation .All cost drivers are taken into account and with thorough analysis the best and lea st cost path is adopted for each activity. The best methods to achieve results a re to benchmark operating parameters to world-class companies. The major Cost pa rameters for Steel industry: 1. Raw materials cost. 2. Power (kw h/unit) 3. Fuel (kw/unit) 4. Stores and Spares (Rs/unit). 5. Waste & defectives ( Process Loss) 6. Mfg. Overheads Analysis of Conversion Cost

7. Packaging 8. Labour 9. Salary 10. Admin. Overhead It gives us rapid turnover & thus decrease the amount of money tied in materials. The major problem with ju st-in-time operation is that it leaves the supplier & downstream consumers open to supply shocks & large supply or demand changes. Following are the list of raw materials used in Galvanizing & Color-coating Line of JSW: --a) HR/ CR COILS : It contributes about 64% of the total conversion cost. So the company must try t o find out different alternatives through which they can reduce the cost of thei r raw materials. Some of the available Suppliers for HR & CR coils: 1. Bao Steel -China 2. POSCO-Japan 3. Arcelor Mittal-MNC 4. CORNS-MNC Big Indian Players in Steel Industry: 1. Tata Steel 2. SAIL 3. JSW Steel Ltd. 4. ISPAT 5. Essar Steel Analysis of Conversion Cost

Secondary Steel Players in the Market: 1. Bhushan-GP/GL 2. ISPAT-GP/GL 3. Nation al Steel 4. JSW Steel Ltd. 5. Uttam Steel. Present Supplier: In Tarapur plant of JSW, the HR/CR coils are brought down from Bellary plant of JSW. Company processes the HR coils which are bought from Bell ary plant of Jindal, by passing it through various stages and converting it into CR coils which are used in further stages of production. If the company plans t o buy the HR coils from outside rather than its own company then it would NOT ge t HR coils at lower price than its own company. Also the company buys the HR coi ls at the market value from Bellary plant, as it cannot negotiate with them. An outside company will always want some surplus, additional profit if it is sellin g its product to other company. But while dealing with outside companies, it can negotiate well to bring down the prices with its good negotiating skills. Cold Rolling department is completely dependent on the raw materials in the form of H R coils as supplied by Slitting and pickling lines. As the stock level of HR coi ls is maintained at a very low level, this plant has to be closed often, wheneve r HR coils are not available. So, company must plan to built some inventory for maintaining sufficient stock of HR coils so that there is no stoppage in other l ines due to raw material shortage. Buying coils from your own sub-branches is be neficial as they are aware of the quality of products required at their own orga nization. The sources of raw materials are Analysis of Conversion Cost

limited. All the companies in the business of steel making have to depend on the existing available sources of raw material required for steel making. Though In dia has good reserves of iron ore but at the same time lack of matching and adeq uate reserves of coking coal and non-availability of good quality lime-stone for steel making have also to be considered while project planning unless the suita ble technology bypass these primary requirements. The input costs for making of HR coils in Bellary plant is approx. Rs. 19000. Out of which 85% is raw material cost i.e. Iron ore & the remaining 15% is conversion cost. In this 85%, there i s 70:30 ratio of iron ore & coke. So company must try to reduce the input costs by acquiring new mines having good ironore percentage or getting into long term contract with major suppliers of iron ores in domestic as well as international market. Company must also try to develop good negotiation skills so that they ca n settle at lower costs with suppliers. But acquiring iron-ore from own mines is very more beneficial. The policies of Governments, both Central and State, shou ld be transparent so that renewal or re-allotments of existing mining leases of primary raw materials like iron ore and coal can be made without any problem. Th e grants of some of the new mining leases are essential for making investment an d expansion of some of the mines for new projects or capacity enhancements (exam ple, Posco). Alternative ways like plans to enter into strategic investments/ ti e-ups for coking coal blocks in India and abroad to ensure assured supply of cok ing coal is a major hurdle to cross. b) ZINC & ALLOYS : Zinc & alloys constitute s about 10 % of the total cost of conversion in Galvalume & Galvanising plant. I t has been estimated that corrosion costs about 4% of the GDP of an industrial c ountrys economy. In Galvanizing industry the 45% of the conversion cost involves the zinc consumption. The technique used in Tarapur plant of JSW is hotdipped ga lvanizing. The main zinc supplier for Tarapur branch is Hindustan Zinc. The coatin g products of zinc & its alloys are as follows:Analysis of Conversion Cost

1. Galvanized: A zinc coating, usually hot-dipped, in which the zinc and steel f orm a metallurgical bond. The thickness of a hot-dipped coating can be vary from thin zinc/iron layer to heavy applications. 2. Galvanneal: A zinc-iron coating produced by post-heating a hot-dipped coating. It is used when paint is to be ap plied to the coated sheet. 3. Galvalume: Here Zn-Al alloy is used in which contribution of Aluminum is abou t 55% with superior corrosion resistance. So, the thickness of the zinc coating plays very important role in deciding the costs. More the thickness more will be the cost of galvanizing. So, constant efforts must be taken by company to devel op new mechanism to reduce the zinc consumption. Increasing the temperature of m olten zinc can reduce the thickness of the zinc coating. Also research was done to analyse the cost of other metals that can be used for galvanizing. But it was found that cost of existing metals & alloys that provide good corrosion resista nce is very high when compared with zinc except some alloys like terne made from tin & lead & NASSAC. c) PAINT: Paint constitutes about 50% of the total convers ion cost in Colour Coating plant. Paint is applied over Galvanized product as pe r the customer requirements. In JSW, Primer, Top coat & Back coat are three impo rtant elements in Colour-coating line. Here, the colour-coating line applies abo ut 5 of primer coating on both the side of GI/GL coils. Top coat is applied as pe r the customer requirements. Viscosity of paint is Analysis of Conversion Cost

one of the factor which affects the coverage area of paint. More viscous the pai nt more is the volume solid percentage. Volume solid is the material that is act ually applied over coils & rest part is evaporated. Previously, company use to p refer Epoxy backcoat which consists of 35% volume solid. Its main characteristic was that it offer good pufadhesion & its cost was also low. But for a good back coat its volume solid % must be high enough, so company thought of using Polyes ter or PU back coat. But polyesters pufadhesion was low and PUs cost was high. So, a company named Akzo nobel developed an intermediate product which contains com bination of above 3 back Coats having good volume solid percentage, good pufadhe sion & reduced cost. Company at present keeps only 10-15 days inventory of paint s. It has tied-up contract for 50 shades with suppliers so as to meet its demand . Time procurement plays very important role in deciding cost & continuity in pr ocess can be maintained only if there is proper supply of raw materials from sup pliers. They also sometimes make use of tinters which are mixed with excess stoc k & old stock in inventory to make new shades. Hence, stock which would have con tributed to waste is actually converted into useful product and thus this recycl ed product can be used for colour-coating on coils. In this way, these processes help in reducing the cost. Recommendations: Company can go for setting up their own Mixing Stations beside their Color-coating section, so that they can meet the ir paint requirements easily without any delay. In mixing station they can prepa re their own colours so that they can reduce their procurement time & cost as we ll as save their transportation cost. But after feasibility study we found that setting up our own big mixing station wont be beneficial as we are not into paint business. The company will have to incur additional cost for procurement of raw materials for making of paints. But our main business is Steel so we cannot ind ulge our manpower & other resources in paint business. Also the Analysis of Conv ersion Cost

capital coat required prevents from setting up of a big mixing station. And more over we wont be getting much profit out of it as we will be not be able to compet e in market with already established big brands. But we can set up a small mixin g station, so that we can make use of the old stock or excess stock by mixing th em with tinters to form new shades. This new shades formed from old stock can be applied on GI coils. Thus, it can help a lot to reduce the inventory. Reduced i nventory means reduced inventory carrying costs carrying cost on account of inte rest, storage and handling charges, insurance, record keeping, inspection and ri sk of deterioration in quality. In November 2008 Company converted most of the p art of their old stock of paints to form new shades by mixing with tinters. The thickness of the colour coat has to be reduced. The thickness of the top coat mu st be minimum but satisfying the customer specification. Even if we are able to reduce the coating by 1 then we could save lakhs of rupees. In Colour coating bus iness, product rejections are mainly due to change in colour shades. These colou r changes occur due to variation in temperature of primer & top coat. The cookin g process of primer & top coat must be carefully controlled by maintaining prope r temperature in furnaces. The thickness & colour of primer also plays very impo rtant role in defining the shade of top coat on GI coils. The quantity & price o f the paint vary with their quality. 2. FUEL: Fuel contributes about 1% of the total conversion cost. Basic manufacturing indu stry consumes fuel in large quantum. Fuels also make large part of cost of produ ction hence any cost reduction strategies would have significant impact. Followi ng factors helps in fuel consumption:1. Air fuel ratios Analysis of Conversion Cost

2. Flue gas recycling 3. Nozzles sizes 4. Proper maintenance of burners. NET VAL UE OF FUEL = CALORIFIC VALUE X COST Present fuel: Fuel used in plant is LPG for producing heat in furnace & many other applications. Available substitutes: Chea per substitutes available for LPG according to me is Natural Gas, another substi tute can be Corex gas. Natural gas is much cheaper than LPG. But the calorific v alue of the fuels play important role in deciding the cost of the fuel. At ambie nt temperatures it remains in gaseous form; however, it can be compressed (CNG) under high pressure to make it convenient for use in other applications or lique fied (LNG) under extremely cold temperatures (-260F) to facilitate efficient tran sportation of the gas. But consumption of CNG will be 3 times more than the cons umption of LPG for the same heating required. Liquefied natural gas (LNG) takes up only 1/600th of the space that natural gas would in its gaseous state and thu s can be stored and transported more efficiently. Essar steels and Bhushan Steel co are presently using LNG. Corex gas is used in Bellary plant of Jindal but it is one of the by-products over there so easily available to them & hence it is cheaper substitute for them. So availability cost of fuel and its calorific valu e must be considered before selection of fuel. Fuel consumption also depends upo n the type of the burners used. Weishaupt burners & Benetone burners can be used . Burners efficiency results in low fuel consumption. Analysis of Conversion Cost

Other important factor of combustion is air -fuel ratio. All manufacturers of bu rner provides exact ration of air fuel. This ratio must be maintained within pla nt also. Regular maintenance of burners also helps in fuel consumption. In CCL p lant of JSW, there are 2 lines running in parallel namely CCL 1 & CCL 2. In CCL 1, the fuel consumption rate is about 26-28 kg/MT & in CCL-2 the fuel consumptio n rate is about 14-16 kg/MT. This difference is due to installation of RTO syste m in CCL-2 which has reduced the fuel consumption rate. So, same system must be installed in CCL-1 so as to increase its efficiency. 3. POWER: Power contributes around 2% of the total production cost. All manufacturing indu stry consumes power or other energy sources for its production activities. Major source of power consumption are production equipment like furnaces, ovens, prim e movers, air compressors, HVAC, cooling towers, lightning etc. It is recommende d to conduct an internal audit of energy consumption of all equipment in the fac tory. It is found that either equipment are overrated or are running idle for so metime. Equipment selection & introducing control features can reduce energy cos t. JSW Tarapur branch have already started with their 30 MW power plant to meet its electricity requirements and also gain profit from surplus production by sel ling it to MSEB. Here they have set-up of thermal power plant. Previously, compa ny use to buy power from MSEB for its production and other purposes. In 1983, th ey started with just one plant but now they are having about 7-8 lines running p arallel. So their power requirements are increasing day-by-day due their various expansion plans. So they have set-up their own Captive Power plant. In a Captiv e power plant, company uses 50% of the power generated for its own use & the res t 50% is sold to MSEB. The company has to pay double the amount paid by domestic holdings. So, the company will be benefiting a lot with its own Captive power A nalysis of Conversion Cost

plant. Also it will be gaining profit through selling of the power generated to MSEB at higher rates. Company previously converted many of its power-driven devi ces to fuel-driven because of high cost of power. But now since it has its own p ower plant it can have more of power-driven devices if its fuel prices are more than power prices.Various other modifications can be done in production line for reducing power consumption. 4. STORES & SPARES: Stores and Spares contribute about 2 % in total cost of production. Stores inclu de the raw materials that will be required in future. It is not always good to k eep lot of stock with you. For proper store management, forecast of the producti on must be accurate. Higher amount of materials in stores, then higher will be o ur carrying cost. Spares include maintenance of machinery. Proper care of the ma chinery must be taken in order to prevent any sudden breakdown, which may abrupt ly affect the production line. Alertness among the employees will help to reduce the cost of Stores and Spares. In Tarapur JSW branch, ABC method of Stores cont rol is followed. The classification of the items into the categories A, B and C is made on the basis of such factors as their value of consumption, investment v alue, or sales or profit potential. Thus, here with minimum of effort, control i s exercised over the items of comparatively high importance. Proper forecast of the stores must be done based on production. Thus, forecast must be accurate of the production. Stores & spares department here follows Zero movement Inventory process at the end of each month. Through this study they try to find out those items in inventory that have not been moved i.e. there is no issue or dispatch o f that item. They prepare the Analysis of Conversion Cost

frequency reports through which they classify non-usable inventory into non-movi ng inventory, obsolete inventory etc. Based on their results they try to find ou t reasons for non-usability of an inventory item and how to deal with it. The pr imary reason for nonusability is modification in technologies. But there are man y other reasons also. Study of critical items is done and buffer stock is mainta ined for critical items. Here they have their inventory period of 30 days. Some of the raw materials such as Zinc & HR/CR coils follow just-in-time approach. Th ey have mainly 3-4 days inventory, while for paints a proper lead-time is planne d. According to me, Cost reduction strategy that can be followed in Stores & spa res is Standardization of equipments, reduction of lead-time in inventory & proc urement time must be realistic. Standardization of equipments would help to redu ce the spares for machinery. Periodic verification of the stores must be done. M ostly this is done once a year. Periodic stocktaking usually necessitates the sh ut down of the factory, and it should therefore be completed as soon as possible . indentation plan. Wastage should be reviewed in detail. Excess inventory holdi ng leads to excessive carrying cost on account of interest, storage and handling charges, insurance, record keeping, inspection and risk of deterioration in qua lity and thus adversely affects the profitability of the organization. Non proce ssible material if any is taken either for Rework or Auction considering current order status and Aging/physical condition respectively. Therefore, company plan s 5. PROCESS LOSS: Process Loss constitutes about 3% in CCL plant. There are various reasons for Pr ocess loss. Process loss may be due to breakdowns, line stoppages, repetitive wo rks on production line which consume time & money, human error, inefficient work ing of some machinery parts, some defects or delays in raw materials, etc. Process loss can be minimized by reducing the arisings percentage and increasing the yie ld. Also steps must be taken to reduce the breakdowns. Mainly process losses are due Analysis of Conversion Cost

to breakdowns due to raw materials defects, raw material delay or shortage, Oper ational or mechanical or electrical reasons. Corrective & preventive actions mus t be taken. Line stoppages must be reduced by maintaining continuity within the plant. Continuity can be maintained by proper planning of orders. Shortage of ra w materials & orders often affect the production. Repetitive works must be ident ified within the plant and corrective measures must be taken to taken to reduce redundancy of work. Rewinding of the coils is done on the same line in CCL plant . So setting up a separate rewinding line would give better results. Changing of campaigns also results in process loss as it requires cleaning of equipments in volved in colour coating purpose & there is loss of thinners. Thus, there should be proper scheduling of similar campaigns in groups or batches & clubbing of sa me campaigns so that there is less loss due to frequent cleaning of these painti ng equipments. As, thickness and width of coils change, many changes have to be brought in into the systems parameters. But the machines are designed in such a way that abrupt changes in thickness and widths will not give satisfactory resul ts. Hence, it has to be done in stages to ensure necessary quality levels. So, i deally the planning of coils must be done carefully so as to reduce the wastage in the form of dummy coils. Dummy coils are used to assimilate the systems to th e new thickness and width parameters. 6. PACKAGING : Responsibility for coil quality does not end at the mill. Quality at final point of delivery is dependent on the protection afforded by the coil packaging. Incr easing demands for suitable packaging for coil stock led to a new approach to pr otect coils during transportation and at their final destination. Storage at des tination is one aspect which determines the type of packaging. However, there ar e still no commonly used standards on how such packaging should look. Starting f rom the strapping machines, whether manual or fully automatic, a variety of pack aging systems are available. Some of the packaging materials that are used here are GP sheet, OD ring GP, ID ring HR, straps, wood for providing support at base etc. Most Analysis of Conversion Cost

of the packing materials used are reuse of the packing material obtained from HR coils packing. In JSW, they follow floating budget for packaging cost. This flo ating budget depends on coil weight. As the coil weight decreases by 25% its pac king cost budget increases by 1015%. Saving potential is shown in data & analysi s section. There are two main finished goods produced at this plant, namely GI ( Galvanized Steel) and PPGI (color coated steel) rolls. Following are the sales c hannels through which these products are sold in the market, namely: a) Trade b) OEM c) Export Packaging specification for these 3 segments is different dependi ng upon nature of packaging required for different customers. OEM are the manufa cturers of white goods whose quality constraints are very high. Analysis of Conversion Cost

Analysis of Conversion Cost in Colour Coating Line COST SHEET OF JSW STEEL LTD (A) (B) (C) (D) Particular Avg. PPGI Thick X Width X Coating Raw Material Cost Paint tal(A) Operating Cost(Variable Cost) 1.Process Loss 400 2.Stores And 3.Fuel 574 4.Power 250 Sub Total(B) Fixed Cost 1.Other Mfg Overheads al Expenses 600 3.Factory/Admin.overheads 200 Sub Total(C) Operating Analysis of Conversion Cost 5000 Sub-To Spares 350 62 2.Person Cost

(E) (F) 7436 Packing &Selling Cost 1.Packing 2.Clg.,Fwd 3. Commission Sub Total(F) 2000 Conversion Cost(D+E)Rs. /T 9426 (Before Interest & Depreciation) Above format has been obtained from costing department, which is applicable as o n 31.05.2009. The same format has been used for study of all the Six months unde r consideration of current analysis. Data and Analysis To understand the problem areas, and the consumption of raw materials & Contribu tion of each cost elements in total cost of production in CCL plant the followin g data of past six months has been collected from different departments. From th e six months data, the deviations in cost of various factors like paint, Power, fuel, packaging, process loss which are responsible for total conversion cost of production have been represented through following data. CCL-1 Months Oct-08 No v-08 Dec-08 Jan-09 Avg thickness 0.277 302 791 705 62 Table: 1 Production Paint Litres/Mt. 44 28 35.94 48 Paintcost (Rs./Mt.) 6483 4954 5701 7137 Paint Consumption in lts. 13160 12861 26088 2985 0.38 0.29 0.209 Analysis of Conversion Cost

Feb-09 Mar-09 0.37 0.332 1637 5088 25.75 29.44 4414 4506 44276 150315 Following graph illustrates the variation in Avg. thickness & Production month-w ise: Fig - 1 6000 5000 4000 3000 Avg. thickness Production in MT T M / n i t c u d o r P 2000 1000 0 0.277 0.38 0.29 0.209 0.37 0.332 MonthwiseAvg thick . ness(m ) m EXAMPLE: Thickness of coils 0.25 mm o.50 mm 0.75 mm 10 11.08 5.54s 3.69 DFT (Mic rons) 18 19.94 9.97 6.65 25 27.69 13.85 9.23 1. Low production is observed in some months, mainly in January-2009 2. There is very high fluctuation in paint cost 3. From the trend analysis it is also obser ved that the back coat consumption rate is not varying in the same manner as top coat & Primer in some cases. Reasons: 1. As the thickness decreases, the revolu tion of coils increases and so the paint consumption increases. Increase in pain t consumption may also be due to low volume solid percentage in paints. Analysis of Conversion Cost

2. Low production was observed in some months in CCL-1, due to the shortage of r aw materials and also the customers were not placing the orders, because of rece ssion. So, these reasons gave rise to shut down the line in the plant. 3. Due to the recession, the company could negotiate well with their suppliers for the lo w cost of paints, so the paint cost has gradually decreased from Nov-08 to Dec-0 8. 4. Back coat consumption is not varying proportionally with top coat & primer . It may be due to variation in thickness of back coat on coils. The coating thi ckness which is measured in microns may have been decreased or there may incorre ct booking of data. 1. In Jan 09, the back coat consumption is not varying in proper proportion with other paint. Reasons: 1. Increased production resulted in lower paint consumptio n per metric tonne because of increase in Avg. thickness of GI/GL coils. E.g.2. Variation in back coat consumption is due to increase in production in Jan 2009 & increase in its coating thickness from 10 to 12 . Paint Calculation: X = 1000 / (7.85*GP thick) Y= Vol. Solid* 10/DFT X Constant 1000 Vol. Solid Density 7.85 Constant GP THICK 0.35 DFT 364 Analysis of Conversion Cost

Y 46 10 20 23.00 Lit / Ton 15.824663 Z=X/Y Ord. Qty. Total Paint Yield(97%) - A Tray Qty - B TOTAL (A+B) 500 7912 8157 8157 DFT Gauge 10.00 11.00 12.00 13.00 14.00 15.00 16.00 0.25 0.30 0.35 0.40 11.08 9.23 7.91 6.92 12.18 10.15 8.70 7.62 13.29 11.08 9.49 8.31 14.40 12.00 10.29 9.00 15.51 12.92 11.08 9.69 16.62 13.85 11.87 10.38 17.72 14.77 12.66 11.08 From the above table it is clear that by saving one micron coating we can save a pproximately 0. 9 to 1 litre paint per metric tonne. Avg. cost of paint presentl y is Rs.166. Therefore, Cost of paint/MT that can be saved by reducing 1 is appr oximately Rs.166/MT. Analysis of Conversion Cost

1. The high fuel consumption rate is observed in CCL-1 in one month inspite of l ow production because of in continuity in production line & less utilization per centage. 2. There may be number of colour changes in CCL-1 because of many small orders placed by customers. Analysis of Conversion Cost

1. It is also observed that budgeted and actual power consumption is very high i n CCL-1in January month. Reasons: 1. The thickness of the coil is inversely prop ortional to the length of the coil and the length of the coil is directly propor tional to the power consumption. 2. The line speed is directly proportional to t he production rate, which directly affects power consumption per metric tonne. 3 . Power consumption is very high in CCL-1in one of the month, due to low product ion which affects the continuity in line. Analysis of Conversion Cost

Reasons: 1. Cost of applicator rollers is about Rs. Two lakhs. So if the product ion is low then the Rs./MT cost of applicator rollers increases. Also there may frequent changing of rollers due breakage, change in its shape. PROCESS LOSS : CCL 1 table : 1.5 CCL - 2 table : 2.5 Month Yield Production Proces s % s Loss 96% 302 4% Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Month s 96% 90% 80% 94% 95% Yield % 95% 96% 96% 96% 95% 95% 791 705 62 1637 5088 Producti on 4% 10% 20% 6% 5% Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Proces s Loss 6600 5% 6557 6435 6992 5959 6150 4% 4% 4% 5% 5% Summary of CCL -1: table : 1.5.1 Analysis of Conversion Cost

EXP <0.3 EXP >0.3 EXP OEM WG OEM NWG OEM TRD <0.3 TRD >0.3 TRD TOTAL BUD 94.00 97.07 96.89 90.02 96.99 95.96 94.00 96.50 94.64 96.32 TOTAL PROD. 1711.87 26896.18 28608.05 1731.81 10023.34 11755.14 5267.78 1810.14 7077.92 47441.10 ACT. 93.89 96.61 96.43 93.06 97.15 96.42 95.80 94.98 95.53 96.26 ACTUAL PROD. 1601.31 25977.33 27578.63 1581.00 9729.45 11310.45 5044.99 1712.29 6757.28 45646.43 Summary of CCL -2: EXP <0.3 EXP >0.3 EXP OEM WG OEM NWG OEM TRD <0.3 TRD >0.3 TRD TOTAL BUD 94.00 9 1.04 91.25 92.25 90.44 90.64 90.99 86.72 87.97 90.77 TOTAL PROD. 2086.70 28213.6 6 30300.36 839.88 6474.08 7313.96 1420.36 3408.39 4828.75 42443.08 ACT 94.21 95. 88 95.72 88.23 93.56 92.91 95.76 96.65 96.35 95.26 table : 2.5.1 ACTUAL PROD. 1952.96 27031.67 28984.63 736.81 6050.60 6787.41 1358.54 3288.91 46 47.45 40419.49 Interpretation: 1. From the above data it can be seen that the process loss is m ore case Trade & OEM as compare to Export. Reasons: 1. In case of OEM, there is more p rocess loss due to quality constraint involved with customers & in Trade, the cu stomer requirements vary frequently for more and more reduced thickness of coil so there is more process loss in attending the same. 2. Process loss also occurs when there is no line continuity and when adjusting production line according t o production. Analysis of Conversion Cost

Packaging : It contributes about 20- 22% of total conversion cost in CCL plant. Export Coil PPGI Avg. lot wt.(mt) Actual 5.28 5.79 5.62 5.82 4.80 4.54 5.31 Budgeted packing Cost (Rs./MT) 730 651 624 565 502 671 624 Actual Packing Cost(Rs./M T) 703 598 563 564 464 630 587 table : 3 Packing Qty. ( Mt ) 4832 5436 5401 5267 4638 7539 5519 table : 4 Month Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Avg. OEM Coil PPGI Analysis of Conversion Cost

Month Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Avg. Avg. lot wt.(mt) Actual 3.50 3.64 3.65 3.34 3.40 3.28 3.47 Budgeted Packing Cost 834 807 681 718 690 782 752 Actual Packing Cost 767 693 569 701 620 727 680 Packing Qty. ( Mt ) 814 858 197 568 1,852 894 864 table : 5 Packing Qty. ( Mt ) 131 304 471 417 49 225 266 Trade Coil - PPGI Avg. lot Month wt.(mt) Actual Oct-08 2.30 Nov-08 2.22 Dec-08 3 .43 Jan-09 3.04 Feb-09 3.47 Mar-09 2.44 Avg. 2.82 Budgeted Packing Cost 416 409 246 280 214 275 307 Actual Packing Cost 372 323 214 269 180 226 264 Interpretation : 1. From the Trend analysis, it can be observed that Budgeted packaging costs for OEM & Export Coils are more than Trade coils. 2. Also actual packing cost per m etric tonne is always well below the budgeted cost/MT. 3. Packing cost varies wi th the change in Avg. Coil weight. Reasons : 1. Packing costs are high in OEM du e to high quality constraints. Export coils also need very good packing due roug h handling during transportation. In trade coils, metal packaging is not needed sometimes, so the packaging cost is automatically reduced. Analysis of Conversion Cost

2. There is saving in actual cost due reuse waste packing materials. 3. Packing cost depends highly upon the coil weight & price of packing materials. Cost optimization in straps used for Packaging : 1. Presently company uses steel strap having dimensions 0.64 x 31.75 mm from ITW suppliers. Another Supplier named FROMM packaging systems is ready to offer str aps having dimensions 0.79 x 25.40 mm. Monthly requirement of company is 25000 k gs. of straps. So, with ITW 6.289 mtrs/Kgs strap is required. Therefore total re quirement for whole month goes to 157232 mtrs/month. With FROMM packaging suppli ers, 6.35 mtrs/kgs strap is required. Therefore total requirement for whole mont h goes to 158750 mtrs/month. So, Savings is 1517 mtrs = 239 kg/month Rate of str ap is Rs. 52/Kg Therefore, total savings is Rs. 12428/ month. So, annually, tota l savings can be Rs. 149136. Sources of Data Sources of data are mainly secondary. The data is collected from internal source s of company through direct interactions with the concerned persons. Some of the data was collected through Internet. Sampling method is used for study by study ing the conversion cost in CCL through past six monts data and based on this ana lysis have been carried out. Analysis of Conversion Cost

Conclusion 1. JSW does not own mines for some of its basic raw materials. 2. Inability to u tilize 100% capacity. 3. Low perception among investors about the companys manage ment and ability to sustain growth. 4. Although the company is focusing a on R&D , the budget is only a fraction of what international competitors can afford to invest in their R&D activities. 5. The labor and conversion costs ( these includ e labour cost, energy cost and other manufacturing costs) per tonne of steel are among the lowest in the industry( both domestically and internationally) Analysis of Conversion Cost

6. JSW is Indias largest private steel maker. This allows JSW to the economies of scale in production and better bargaining power with respect to suppliers and c ustomers. 7. JSW steel is located in a fast growing country like India where the per-capita steel consumption is still low but this means huge potential for gro wth. 8. JSW steel has access to top talent from the country and that too at comp aratively lower prices than the competition. 9. JSW steel still does not have ca ptive mines and once they have it, their cost structure would improve further an d the external risk to the company will be mitigated to a large extent. 10. The current economic scenario where steel demand is declining around the world is an other major area of concern for the organization. The company has already postpo ned and/or delayed some of its projects which were in the pipeline. 11. JSW Stee l though is driven by technology, does not spend much on Research and developmen t and prefer to acquire and get technology solutions from outside either through purchase or sometimes through Joint ventures and projects. 12. The average cost of production/tonne has reduced over the years and the prod uctivity of labor has increased substantially over the years. This has primarily been due to the deployment of latest technology in their processes and this dom ain. in order for this trend to continue, it needs to sustain investment in Analysis of Conversion Cost

Recommendations 1. Controlling coating parameters such as air, temperature & viscosity using clo sed loop controls is important. 2. Improvements in continuous coating operations typically relate to increasing the Line speed of the process. 3. Paint jobs mus t be scheduled to minimize changing colour in roll & coil coating equipment. Pai nt with light colours first, then darker ones; the lighter coating does not need to be completely removed, but can blend into the darker coating. Analysis of Conversion Cost

4. Roll & coil coating equipments should be cleaned regularly to prevent coating materials from drying on the rollers & feed lines. Water should be used in clea ning steps to reduce the amount of hazardous waste generated. Initial cleaning s hould be performed with used solvents, saving fresh solvents for final cleaning stages. 5. In Packaging, efforts must be made to lower the budgeted cost in all the 3 segments by bringing automation in packaging line, replacing GP sheets wit h CR sheets for packing if possible & reducing the straps dimensions without affe cting its strength. 6. Company must try to acquire some mines to satisfy its bas ic raw material requirements. 7. It must put some efforts to convert its fuel- d riven devices into power- driven devices. 8. Company may plan in future to built its own mixing stations for paint. 9. Develop good relations with suppliers so as to reduce the raw material shortages & improve procurement time. Bibliography / Referances Websites: 1. www.steelbb.com 2. www.steelonthenet.com 3. www.shumaonline\costred uctionstrategies.com 4. www.energysavings.com 5. www.google.com Analysis of Conversion Cost

Referance books : 1. Principles of Cost Accounting Mr. N.K Jain 2. Financial man agement Mr. I.M. Pandey. Analysis of Conversion Cost