INTRODUCTION

ABOUT JK AT GLOBAL LEVEL:

JK Organization was founded over 100 years ago and ranks, among the largest
private sector groups in India in terms of assets and sales. J.K organization has a
distinguished record of having pioneered several new products and processes through
out the world. The group has multi-business, multi product and multi location
operations at a multi national level.

JK owes its name, to the two great visionaries- Late Lala Juggilal Singhania
and his son Late Lala Kamlapat Singhania as they conceived an industrial entity. A
dynamic personality with a broad vision, inspired by the cause of the Swadeshi
movement of Mahatma Gandhi, and driven by the zeal to set up an Indian enterprise,
Lala Kamlapat Singhania founded J.K. Organization in the 19 th century with its
headquarters at Kanpur (U.P.) – ushering in a new industrial era in India.

J.K. Organization is continuously striving to achieve excellence in its products

and processes. Success of J.K. Organization is based on the use of latest technology,
continuous research & development and innovation. The Group has set up several
R&D institutions for specific industries.

The Group's exports span over 60 countries across 6 continents comprising of

products like tyres, paper, woolen textiles, readymade apparels, rubber products,
engineering products etc. It has global presence with manufacturing operations and
outsourcing arrangement in different parts of the world.

Innovation and passion to perform has always been the driving force at J.K
Organization. In the border-less global business scenario, all the major businesses of
J.K. Organization are continuously upgrading their scale of operations. This is a
continuous process in line with the passion for growth. J.K. Organization constantly
scans the business opportunities that emerge all through the world and focuses on
areas in which the group can leverage its strength. The Company is implementing
TPM with the help of Japan Institute of Plant Maintenance.

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 The Company has an export footprint for high value branded products in the
Middle East, South East Asia, SAARC and various African countries. JK Paper has
also been consistently exporting its products to markets such as Sri Lanka,
Bangladesh and several West Asian Countries. Nearly 50% of the exports is of
branded products.

The Company has made, on 30th March 2006, an international offering of

unsecured Foreign Currency Convertible Bonds (FCCBs) due 2011 aggregating to US
$5 million; and (ii) 77,00,000 Global Depository Receipts (GDRs) @ US $ 1.544 per
GDR aggregating to about US $ 12 million. The said FCCBs and GDRs will be listed
on the Luxembourg Stock Exchange.

Most of the Group's plants have ISO 9001 certification and some also have
earned QS 9000 and ISO 14001 certifications, which include caring for
environment. it's no surprise that the Group has bagged various awards for
betterment of the environment and exports.

It is the first Indian Paper Mill to receive the “Sword of Honour” from British
Safety Council and ISO 9001 Certification by DNV – Norwegian agency.

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ABOUT JK AT NATIONAL LEVEL:

JKPM Incorporated in the year 1938, JK Corp Limited, started its operation
with a board mill at Bhopal for manufacture of straw board. Since then the activities
of the company have been diversified from time to time. In the year 1962, JK Corp
Ltd. set up this integrated Pulp and Paper Mill in the backward district of Rayagada in
Orissa. In 1982, the activities of JK Corp Ltd. were further diversified when it set up a
most modern cement plant by the name Lakshmi Cement.

In 2001 JK Paper Ltd. was formed by amalgamating the JK Paper Mills at

Rayagada and the Central Pulp Mills at Songadh, Gujarat, to become India’s 2 nd
largest producer of quality paper with a turnover exceeding Rs. 650 crores.

The company is also commissioning a modern Recovery Boiler at its CPM

Unit, which would result in higher chemical recovery and increased pulp production.
These projects along with other modernization programs would cost around Rs. 100
crores and would result in reduced cost and higher production. The projects are
scheduled for commissioning during the financial year 2004-05.

JK Paper Ltd., India's largest producer of branded papers is also a leading

player in the Printing and Writing segment. It operates two paper plants in India, JK
Paper Mills in Rayagada, Orissa, with a capacity of 125,000 tonnes per year and
Central Pulp Mills, located at Songadh, Gujarat, with a manufacturing capacity of
55,000 tonnes per year. Both the manufacturing units of the Company are ISO 9001-
2000 compliant. A plant to manufacture 60,000 tonnes per year of industrial
packaging board in Gujarat is under implementation.

About 40% of Paper produced by the Company is sold under various brand
names, JK Copier, JK Excel Bond, JK Bond, JK Savannah, JK Copier Plus and JK
Easy Copier. Being the largest selling branded copier paper in India, JK Copier is the
Company's flagship brand. The other major product is JK Maplitho, a superior
uncoated Writing and Printing paper. The Company sells through a nationwide
distribution network of approximately 100 distributors and 2500 dealers.

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 JK Paper enjoys highest Operating Margins and Highest Net Sales Realisation
(NSR) in over 90% of the products it sells, amongst the paper mills across India. It is
the only Company in the industry with such a large share of branded products in its
portfolio.

The Company passionately believes in Environment & Safety and has

introducing cleaner and environment-friendly technologies. JK Paper Mill at
Rayagada has been adjudged as the Greenest Paper Mill in India. Both the units of the
Company are ISO 14001 certified for their eco-friendly operations.

The Company's plantations, driven by in-house research programme, have

covered more than 45,000 hectares of land over the years. By providing farmers high
quality plant species through the Company's plantation research centre, it is helping
the farmers to improve their economic well being. Very large number of farmers in the
states of Orissa, Chhattisgarh, West Bengal, Andhra Pradesh, Gujarat and Maharashtra
are benefiting from this programme. The plantation with its superior quality plants
contribute towards a strong base for high quality raw materials.

J K Paper is highly committed to enhancing the well being of society at large.

The Centre for Science and Environment, an independent organization, has, in an
initiative supported by UNDP and the Ministry of Environment and Forests in July
'99, ranked J K Paper as the No.1 in green rating among Indian paper manufacturers.
This distinction has spurred J K Paper towards achieving global standards in
environmental protection. J K Paper's efforts towards enhancing the well being of the
society can be viewed fewer than two broad heads i.e. Nature and People.

The Prime Minister of India, Dr. Manmohan Singh, when he was a Finance
Minister and chairman of the project advisory panel and emphasizes the importance of
the project, " Being environment friendly is not only a moral obligation, it also makes
good economic sense.... Ultimately a country like India cannot be governed by ever
expanding regulations.... We must develop a more participatory style of management
and regulations, which rely more and more on self-performance and self-
improvement. And ratings can help in inducing that change in mindset."

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 All in all, as the green rating project drew to a close, only one pulp and paper mill
was found to have a commendable environment policy. This mill, which also enjoys
an ISO 14001 certification, was JK Paper.

J.K. (EAST ZONE) GROUP COMPANIES

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BRIEF DETAILS OF J.K. (EAST ZONE) GROUP COMPANIES

JK PAPER LIMITED

JK Paper Limited was formed in 2001 by amalgamating JK Paper Mills at

Rayagada and Central Pulp Mills at Songarh, Gujarat, to become India’s 2nd largest
producer of quality paper with a turn over exceeding Rs. 650 crores. It is a leader in
writing, printing as well as coated varieties of paper.

JK CORP LIMITED (LAKSHMI CEMENT)

JK Corp Limited (formerly Straw Products Ltd.) belongs to Eastern Zone and
is one of the major companies of JK Organization. Before 2001, JK Corp Limited
comprised of 2 units viz. JK Paper Mills & Lakshmi Cement. In 2001, JK Paper Mills
became a part of JK Paper Ltd. The company turnover is around Rs.450 Crore.
Received the DMA Watson Wyatt Award for Most Innovative Human Resource
Practice (2002)

JK INDUSTRIES LIMITED

JK Industries Limited is another flagship company of our group. In the last 10

years the turn over of the company has increased four-folds. JK Industries Ltd.
comprises the following Divisions:

JK TYRE

In 1977 JK Industries set up a modern Automotive Tyres & Tubes Plant at

Jaykaygram near Udaipur in Rajasthan in technical collaboration with General Tire
Co., USA and another plant in 1991 at Banmore in Madhya Pradesh. The two Plants
together have a manufacturing capacity of nearly 30 lakh tyres per annum. The
company turnover is around Rs.2250 crore.JK Tyre is the largest four-wheeler tyre
producer in India. JK Tyre is the pioneer of Steel Radial Technology in India.

JK AGRI GENETICS LIMITED

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 J.K. Agri-Genetics Manufactures hybrid and high yielding seeds at Hyderabad.
It has tie up with the leading companies of the world to produce genetically superior
seeds for the growth of Indian agriculture. It has a robust pipeline of products in
several crops viz. cotton, jowar, maize, rice, tomato, sunflower, okra, hot pepper,
sorghum, pearl millet, bhendi. The production of hybrid seeds is carried out in an area
of 10000 ha. The company turnover is around Rs.38 crores.

JK SUGAR LIMITED

A 4300 TPD Cane Crushing Capacity Sugar Mill at Meerganj, Uttar Pradesh,
was commissioned in 1996. The plant has adopted the most modern design and has
installed a baggage based cogeneration plant of 9 MW, of which 4MW is fed into the
upseb Grid. Plans are being formulated for expansion of the Mill. Continued emphasis
is on co-generation of power. The company turnover is around Rs.113 crores.

FENNER (INDIA) LIMITED

Fenner India Limited started its operation in 1929. The company is engaged in
a host of quality of products ranging from Power Transmission and Engineering
products, Automotive Products, Conveyor Belting, and Industrial Electronics to
Material Handling Systems. The products are used in more than 35 countries
worldwide. Majority of the airports in Indias have Fenner Baggage Handling systems.
The company has a gross turnover of about Rs.425 crores.

With modern units located at Madurai, Hyderabad and Chennai, the company
is on the threshold of major growth. Fenner’s acquisition of spinning units in Karur
and Salem marks its diversification into the field of Cotton Textiles and installed few
wind Mills.

JK DAIRY & FOODS LIMITED

JK Dairy & Foods Ltd is located in the middle of the milk rich area of
Gajraula, about 110 Kms East of Delhi, the plant has latest equipment from leading
suppliers all over the world. The company’s turnover is around Rs.68 crores. Is a
supplier to HLL, SKB, Perfetti, Amrit Banaspati, Tata Tea. Keeping in view the
necessity to have high standards of hygiene, the civil work is also of high quality. The

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dedicated team of professionals and experts has helped make JKDF one of the first
dairy processing company in India to get coveted ISO 9002 accreditation and the
products synonymous with quality. Its products include dairy powder, dairy creamer,
butter(ghee), skimmed milk powder.

JK PHARMACHEM

JK Pharmachem is the leading Fermentation Company manufacturing

Pencillin G & Bio Catalysis enzymes. Market share is 23%. The company has a gross
turnover of about Rs.120 crores.

Therefore
“THEY BELIEVE GENERATING REVENUE IS NOT THE ULTIMATE END OF
BUSINESS FOR THEM, CREATION OF WEALTH IS MORE APPROPRIATE
OBJECTIVE. THE WEALTH OF SOCIAL INFRASTRUCTURE. THE WEALTH
OF SUPPORT AND CARING FOR PEOPLE OF INDIA”.

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INTRODUCTION TO INVENTORY MANAGEMENT

Inventory Management involves the control of assets being produced for the
purposes of sale in the normal course of the company’s operations. Every enterprise
needs inventory for smooth running of its activities. It serves as a link between
production and distribution process. There is generally a time lag between the
recognition of a need and its fulfillment. The greater the time lag, the higher the
requirements for inventory. The unforeseen fluctuations in demand and supply of
goods also necessitate the need for inventory. It is also provides a cushion for future
price fluctuations.

The important of inventory management has greatly increased in recent times

as 60% of the total cost of production relates to inventory. Inventory management
boils down to maintaining an adequate supply of something to meet the expected
demand patterns subject to budgeting considerations. At the same time unnecessary
investment should be avoided. Inventory control became very much necessary for the
long run profitability of the company.

The investment in inventories constitutes the most significant part of current

assets or working capital in most of the undertakings. Thus it is very essential to have
proper control and management of inventories. The purpose of inventory management
is to ensure availability of materials in sufficient quantity as and when required and
also to minimize investment in inventories.

Most of the manufacturing companies spend more than 60% of the money for
materials. Materials include raw material bought out finished components, semi
finished, components, spare parts, consumables and work in progress. Even a small
saving in material will had to heavy reduction in production cost. Inventory
management deals with purchasing, stocking and issuing of materials to various
departments at right time, right quantity, and at a right quality. Inventory management
involves controlling the quantity, kind, location, movements and timings of purchase
of various materials used in the industry.

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 The most significant reason for the importance of material management is that
50% to 60% of the total cost of production relates to materials. In materials
management the costs relating materials are divided into two segments viz., the cost
of materials which is the price tat we pay for obtaining the goods and second, the cost
on materials which are the costs which we incur on materials other than price that we
pay for it. In the nineties the materials manager will be deeply involved in quality
management and inventory management.

One will appreciate that the quality of the final product is primarily dependant
on the quality of raw materials used. Another interesting development that is taking
place is that quality is no longer confined to the production floor but is board room
issue. The area is little more complicated. Today inventories are no longer considered
as disease which we can cure. Standard medicines or techniques like ABC analysis,
EOQ, purchasing etc. Inventory is today identified as a symptom of a disease, and it
is, therefore, necessary to identify the disease which gives rise to these symptoms
before attempting control over it. Inventory of finished goods will pose a greater
danger in the year to come because of shortening life cycles of products.

It is great pity that corporate management spends of 50% of their time on

personnel problems which costs the company 7% of the total expenditure while hardly
any attention is paid to the management of inventories which accounts for 60% of
costs. A wit gave the reason “Materials cannot shout and make noise as the unions
do”; the inventory manager will have to do the shouting on behalf of the in
articulating materials. Inventories are components of the firm’s working capital.

However, the importance of inventory management to the company depends

upon the extent investment in inventory.

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 NEED AND SIGNIFICANCE OF THE STUDY

As part of the two year Master Degree in Business Administration, being

offered by Andhra University every student has to fulfill the criteria of submitting the
report of 8 weeks practical training in an organization.

The basic idea is to familiarize the M.B.A. student with real work environment
so as to equip them fully with knowledge and skills both theoretical and practical.

The scope of the study is confined to one of the key areas of “FINANCE” i.e.
“INVENTORY MANAGEMENT”, which plays a vital role in the manufacturing
organization.

The study concentrates on the methods and techniques followed by the “JK
PAPER MILLS” for its “INVENTORY MANAGEMENT” and its relative merits and
demerits.

The present study also concentrates on the importance of the “INVENTORY

MANAGEMENT” and the study appraises the company success in meeting
requirements of the organization.

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 OBJECTIVES OF THE STUDY

The main objectives of the study is

 To study the importance of the “INVENTORY MANAGEMENT” with

emphasis on “JK PAPER MILLS”

 To study the various aspects of inventory of JK.

 To study the procurement procedures of inventory.

 To evaluate inventory levels and the techniques those are being followed at

JKPM.

 To study the inventory control techniques.

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 METHODOLOGY

The main emphasis of the study is on the inventory management at JKPM.

This methodology of the study runs as stated below.

The data collected from two ways.

 PRIMARY DATA
 SECONDARY DATA

PRIMARY DATA:

The original data collected specifically for a current research is known as

primary data. This is the information that must be collected for the first time. It may
be done by observation and survey. The data was collected through discussion with
stores & yard manger and purchase manager.

SECONDARY DATA:

The information that already exists is called as secondary data. It is collected

from company records, magazines, souvenirs, annual reports and web sites of the
company

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 FRAME WORK OF THE STUDY

The present study is dived into five chapters as described below:

Ist CHAPTER consists of introduction, need and significance of the study,

objectives, methodology, limitations and frame work.

IInd CHAPTER consists of brief overview of industry, organization, company

profiles.

IIIrd CHAPTER describes about the theoretical study of inventory

management, techniques of inventory management, and valuation of inventory.

IVth CHAPTER deals with the practical study of inventory management

at JK PAPER MILLS

Vth CHAPTER deals with the summary, suggestions and bibliography.

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 LIMITATIONS OF THE STUDY

Every study will be bound with some limitations. The below mentioned are the
constraints under which my study was carried out.

 One of the factors constructing the study was the lack of availability of ample
information

 The time given for the study is short to collect the sufficient data and study the
practical operations of the mill in the field of inventory.

 The study is based on only the information let out by the public documents
such as reports of the organization.
 To the extent that the executives could spare their time, they gave us the
information by way of discussion for the purpose of data collection.
 Most of the information has been kept confidential and as such is not passed
on as part of policy of the organization.
 Most of the inventory data is being controlled and not being let out for the
others as they are said to be the controlled copies.

So I had to manage the study under limitations which as such did not pose any
problem to me.

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 ORGNIZATION PROFILE OF JKPM

PAPER INDUSTRY PROFILE

WHAT IS PAPER?

Paper has played a vital role in the development of mankind since times
immemorial, as a means of communication as the most versatile material for packing
of goods as a medium of preserving knowledge for progeny.

Paper is defined as “A MAT OF CELLULOSE FIBERS ARRANGED IN

CRISES CROSS FASHION WITH HYDROGEN BOND AND OTHER
FORCES”.

INTRODUCTION:

Paper is derived from the word “PAPYRUS”. Today paper includes a wide
range of products with very different applications: Communication, Cultural,
Educational Artistic Hygienic Sanitary as well as storage and transport of all kinds of
goods. It’s almost impossible to imagine a life without paper.

There is degree of consensus that the art of making paper was first discovered
in china and its origin in that country is traced back to second century. In about AD
105 Tsailun, an official attached to imperial court of china, created a sheet of paper
using mulberry and other baste fibers along with fishnets, old rags and hemp waste.

Chinese considered paper a key invention and kept this a closely guarded
secret for five centuries until the technology slowly made it way west ward. The Arab
captured chine city containing a paper mill in the earl’s 700’s and from this stated
their own paper making industry (Early 700’s). Invention of printing in 1450’s
brought a vastly increased demand for paper.

Paper was first made in England in 1496. The first US Mill was built in 1690,
the Rittent House Mill, German town, Pennsylvania.

Paper has been found to have necessary use besides being a stationary and it
may use besides being a stationary and it may perhaps be true that equipped with this

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powerful art craftsman’s has been for the centuries discovering new usage and
benefits paper has been found to be the most essential product as a writing aid over
which our attention is focused at the movement, it has much to talk about. Indeed it
involves itself in a wide range of activities from WHITE HOUSE OFFICALS releases
to kinder garnet copy writing from toilet issue paper to the currency notes and many
more.

Another big example of use of paper is none other than my project work
without which this would which this would not have happened.

In spite of good achievement to its credit in the development of the economy,

India is record is dismal in the scripts on leaves and metals later on which the
development of the paper sheets, it becomes possible for everything known to us in
the form of books, records and reports.

Long back people used to write on walls, wooden plants, leaves of palm etc,
but then paper was invented in china and was called “PAPYRUS”. Since then the
world has got as excellent media for writing printing and several other purposes. A
material that has been playing such an important role in our day to day life initiated
the research of this project to take up this product paper is playing a vital role in day
to day life of every individual. Though the computers have existed and many
programs have been done to do paperless job works. But it is not possible to go out of
paper or to not need it any instance of time. This is the reason why ht researcher chose
paper as the product.

From economic point of view paper industry in all over the world is facing
problems of hardwood and bamboo being prime raw materials for the industry need
cutting of the forest. Along with cutting, plantations of the trees are to be carried out.
But it takes time for growing of trees factories are facing raw material problem. They
are leading to closure of the company only few companies are doing well. For this
substitute raw materials are being constantly being worked for. The company which is
fittest able to survive and cope with the conditions and among them in India is JK
PAPER.

ORGANIZATIONAL PROFILE

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JK ORGANIZATION – AN OVERVIEW

JK Organization was founded over 100 years ago and ranks, among the largest
private sector groups in India in terms of assets and sales. J.K organization has a
distinguished record of having pioneered several new products and processes in India.
The group has multi-business, multi product and multi location operations.

JK owes its name, to the two great visionaries- Late Lala Juggilal Singhania
and his son Late Lala Kamlapat Singhania as they conceived an industrial entity. A
dynamic personality with a broad vision, inspired by the cause of the Swadeshi
movement of Mahatma Gandhi, and driven by the zeal to set up an Indian enterprise,
Lala Kamlapat Singhania founded J.K. Organization in the 19 th century with its
headquarters at Kanpur (U.P.) – ushering in a new industrial era in India.

Equipped with tenacity of purpose, perseverance, and foresightedness, he

achieved success in his mission and in a short span of time, between 1921 and 1937, a
series of Industries with diversified interests were set up by him – Kamla Ice Factory,
JK Jute Mills Co. Ltd, JK Cotton Manufacturers, JK Iron and Steel Co. Ltd. against
the tough opposition of British Industrialization and an alien Government.

He died at an early age of 53 on 31st May 1937 and left the legacy of his spirit
of patriotism, swadeshism and the aptitude for planning and social service to his three
illustrious sons- Sir Padampatiji, Lala Kailashpatiji and Lala Lakshmipatiji, who
along with other family members have contributed the best of their services to the
growth of the organization, in a team spirit.

JK ORGANIZATION has been a forerunner in the economic and social

advancement of India. It has always aimed at creating job opportunities for a
multitude of countrymen and to provide high quality products. It has strived to make
India self-reliant by pioneering the production of a number of industrial and consumer
products, by adopting the latest technology its own know-how. Besides serving the
nation, it has also undertaken industrial ventures in several other countries.

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 JK ORGANIZATION is an association of industrial and commercial
companies, employing nearly 50,000 persons engaged in the manufacture of a variety
of products and in diverse field of commerce. JK Organization comprising more than
50 in number, the group’s companies are mostly public limited, where it has
controlling interest ranging from 35% to 80% and the number of public shareholders
aggregate over 7, 00,000.

JK ORGANIZATION is headed by Shri Hari Shankar Singhania, an eminent

Industrialist who enjoys reputation of a high order in the country, as well as abroad.
He was the President of the International Chamber of Commerce, Paris for 1993 &
1994. Apart from heading apex bodies of Commerce and Industry, he is holding top positions in the
premier Professional Bodies in India and abroad. In honor of his contribution to the society,
Government of India has bestowed the prestigious National “PADMA
BHUSHAN” award to Shri Hari Shankar Singhania on 26-01-2003. He has been
honored with the nation’s third highest civilian award for distinguished service of high
order in trade and industry.

JK ORGANIZATION has made many forays into several fields such as:

Paper and Boards, Cement, Automotive Tyres and Tubes, Pharmaceuticals,

Agrochemical, Hybrid seeds, Cosmetics, Audio Magnetic Tapes, V.Belts, Conveyor
Belting, Automotive Belts, Material Handling Systems, Sugar, Dairy & Food
Products.

JK ORGANIZATION has achieved a number of important technological

break-through and has an impressive record of FIRSTS in India, prominent among
them being:

1949- First in India to manufacture Steel Engineering Files.

1962- First Indian Paper Mill to receive ISO-9001 certification.

1969- First in India to set up continuous Rayon plant.

1977- First in India to produce Steel Belted Radical Tyres for passenger cars, trucks
and buses.

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1980- First in the world to make Steel Radical Tyres for 3 wheelers.

1984- First to produce White Cement in India using dry process technology.

1989- First in India to produce magnetic tapes with cobalt technology.

1994- First Tyre industry in world to receive ISO-9001 Certification for entire
operation.

1994- First in India to produce Aluminum Virgin Metal from Indian Bauxite. (The
company was nationalized in 1973)

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JK EMBLEM

The Hand and Hammer of JK Organization came into use in the beginning of
1943. This symbol was chosen by Late Lala Lakshmipat Singhania, third son of Late
Lala Kamlapat Singhania, the founder of JK Organization.

The circle denotes industry. 24 teeth in the circle symbolize round – the –
clock activity. The hand and hammer signify labour and tool. The hard grip of the
hand stands for the strength and workmanship.

This emblem signifies the strong belief of the organization in the capability of
its employees.

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JK PAPER LIMITED – VISION

To set benchmarks in the Indian Paper Industry in Quality of Products,

Services, People, Profitability, Growth, Innovation and Environmental Management
to contribute to the Development of the nation.

CORPORATE MISSION

To achieve growth and leadership through the JK brand equity, customer

obsession, technological innovation and cost leadership, with a clear focus on
environment, while continuously enhancing shareholder value.

JK PAPER LIMITED – MISSION

To grow the paper business to 5 lakh tonnes by 2006 and establish leadership
through the JK Brand Equity and customer focus, continuously enhancing shareholder
value.

MANAGEMENT OBJECTIVE:

“To provide 100% support to our customers through continuous improvement

of specific, measurable, attributable, result oriented and time bound programs in terms
of service systems and manpower.”

JK PAPER LIMITED - STRATEGIC OBJECTIVES:

 Sustained growth-optimizing production potential in least possible

time.
 Leadership in niche market and customer oriented marketing.
 Internationalization of business.
 Cost competitiveness with international bench-marking

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POLICIES AT JKPM

QUALITY POLICY:

“To provide ‘Customer Delight’ – both internal and external – through our
products and services at Lowest Cost by Continuous Improvement in processes,
productivity, quality and management systems.”

ENVIRONMENTAL POLICY:

JK Paper Mills, Rayagada, Orissa (India) are committed to:

 Comply with applicable Environmental Legislations

 Prevention of Pollution
 Continual improvement in environmental performances

JK Paper Mills shall improve Environmental Performance by:

 Afforestation through social and farm

 forestry supported by clonal technology
 Cleaner technologies and processes
 Reducing pollutants in discharged water
 Reducing particulate emissions
 Solid waste management
 Conservation of resources

TOTAL PRODUCTIVE MAINTENANCE POLICY:

In JK Paper Mills continuous pursuit on organizational excellence by

maximizing overall plant effectiveness and achieving total customer satisfaction, we
are committed to:

Achieve zero breakdowns, zero defects and zero accidents.

 Continuous reduction in cost of production.

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  Involve all employees in systems and process improvement through
teamwork.
 Create a clean and safe working environment.

SAFETY AND HEALTH POLICY:

JK Paper Mills are committed to:

 Adhere legislation and government regulations related to safety and health in

manufacturing activity.
 Foster safety and health awareness among its employees through preventable
measures, continuous development, awareness and improvement in the work
environment.

Give top priority to proactive steps like:

 Safety audits
 Work permit systems
 Health check
 Engineering and process up gradation
 Improved work practices
 Test preparedness and emergency response
 Full participation of employees

ENERGY CONSERVATION POLICY:

JK Paper Mills are committed to reduce the energy consumption and cost by:

 Optimization of plant and equipment efficiency

 Elimination and prevention of all types of losses such as water, power, steam,
coal, compressed air
 Maximizing condensate recovery &use, process heat recovery, waste
minimization
 Increasing the co-generation of steam and power
 Improved utilization of natural resources leading to environmental benefits
 Energy conservation through total emploee involvement.

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 JK Paper Mills believe that

“ENERGY SAVED IS PROFIT EARNED”

CORE VALUES OF JK ORGANIZATION:

 Caring for people

 Integrity including intellectual honesty, openness, fairness and trust
 Commitment to excellence.

What JK Organization Stands For

 Dynamic and successful business organization

 A socially valued enterprises
 Business integrity

FUTURE GROWTH AREAS

In the border-less global business scenario, all the major businesses of J.K.
Organization are continuously upgrading their scale of operations. This is a
continuous process in line with our passion for growth.

J.K. Organization constantly scans the business opportunities that emerge in

India and focuses on areas in which the group can leverage its strength.

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PROFILE OF JK PAPER LTD

JK Paper is an independent company of the JK Organization, a leading Indian

conglomerate with diversified business interest. JK Paper was among the first in India
to set up integrated manufacturing facilities of international standards. and recorded a
turnover of Rs 6,255 million in 2001-2002. The Company’s world class pulp mill is
the largest in the country and occupies a place of pride in the Indian Pulp & Paper
Industry.

The company’s commitment to continuously raise quality benchmarks resulted

in JK Paper Mills becoming the first integrated pulp and paper plant in India to
receive the ISO 9001 certification & is now aiming at attaining the TPM Award.

Currently, the group ranks amongst India’s top Industrial Houses with assets in
excess of Rs 50 billion. The Group has diverse business operations in India and
abroad, automotive tyres and tubes, cement, sugar, audio magnetic tapes, dairy and
other agri-products. It employs nearly 17,000 people and has over 2,90,000 public
shareholders across its major public limited companies.

JK Paper has one of the strongest distribution networks in the paper industry
and has a national reach through its 4 regional offices, 13 warehouses, 95 wholesalers
and over 1,600 dealers. The company exports paper to several countries including, Sri
Lanka, Bangladesh and several West Asian nations. Branded copier paper accounts for
nearly 50% of the exports.

26
PLANT LOCATION - JAYKAYPUR

Jaykaypur is located on the slopes of the Eastern Ghat Plateau in the Southern
part of Orissa bordering the state of Andhra Pradesh and its geographical position 83-
25’ East longitude and 19 10’ North Latitude. Its average height above the mean sea
level is 758 feet.

The township has a population of about 25,000 and has a self-sufficient

marketing complex, including Employees Multi purpose Co-operative Society, a sub-
post & Telegraph Office, a Branch Post Office, a Police Out post and has two Banks
viz., state Bank of India and Indian Overseas Bank. The Township has two Schools
and places of worship of al major faiths. Singapur Road Railway Station (SPRD) on
the Raipur- Waltair Section of south eastern Railway Station and is at a distance of 2
KM from the Mills and all passenger and Express trains halt here.

JAYKAYPUR 765 017, DIST.RAYAGADA, ORISSA (INDIA)

The nearest town in Rayagada, which is the district headquarters and is located
at distance of about 10 KM from the Mills.

Rayagada District has a predominance of tribal population. Therefore, the

villages in and around the Mills are inhabited mostly by the adivasis, who too are
assimilating the industrial culture and are thus coming into the national mainstream.

27
HISTORY OF JK PAPER LTD

Incorporated in the year 1938, JK Corp Limited, started its operation with a
board mill at Bhopal for manufacture of straw board. Since then the activities of the
company have been diversified from time to time. In the year 1962, JK Corp Ltd. set
up this integrated Pulp and Paper Mill in the backward district of Rayagada in Orissa.
In 1982, the activities of JK Corp Ltd. were further diversified when it set up a most
modern cement plant by the name Lakshmi Cement.

In 2001 JK Paper Ltd. was formed by amalgamating the JK Paper Mills at

Rayagada and the Central Pulp Mills at Songadh, Gujarat, to become India’s 2 nd
largest producer of quality paper with a turnover exceeding Rs. 650 crores. It is the
first Indian Paper Mill to receive the “Sword of Honour” from British Safety Council
and ISO 9001 Certification by DNV – Norwegian agency.

The company is conscious of the need to constantly update technology of

existing plants and machineries and in this direction there are regular schemes of
modernization and renovation from time to time.

The company’s strategy continues to be to offer more and more value added
products, continuously modernize and upgrade its plants for achieving better
efficiencies, improved quality of products and internationally recognized
environmental standards. Towards this end, the company is implementing an Offline
Coated Paper Project with a capacity of 46,000 TPA at JKPM Unit. This plant will
utilize contemporary blade coating technology and coupled with the company’s high
quality base paper, will be able to offer the product in the upper segment of the
market. The company would thus become the second largest coated paper producer in
India.

The company is also commissioning a modern Recovery Boiler at its CPM

Unit, which would result in higher chemical recovery and increased pulp production.
These projects along with other modernization programs would cost around Rs. 100
crores and would result in reduced cost and higher production. The projects are
scheduled for commissioning during the financial year 2004-05.

28
 J.K.Paper Mill was expanded in phases and at present has 5 paper machines
with an installed capacity of 1,00,000 TPA with plans to expand the capacity further to
1.6 lakhs TPA during the next five years. Besides the new paper machine, imported
cutter for automatic cutting and packaging of paper was commissioned during the
year 1994-1995.

The Mill manufactures quality writing, printing and business communication

papers and paperboards using primarily hardwood and bamboo procured locally found
in and around Orissa.

The mill undertook a massive modernization Program during 1997-98 with an

investment of Rs.300 crores. J.K.Paper Mills have continuously upgraded the
technology by modernizing and renovating the plant, machinery and equipment to
face the present day challenges of Eco-friendly manufacture.

The state-of-the-art blade coating plant is expected to be commissioned during

the year.

The Central Pulp Mill, a unit of JK Paper Ltd. is one of the largest integrated
Pulp and Paper Mill in Western India. The mill was incorporated in 1960 with its
registered office at Pune. The mill began commercial production on April 01, 1968
with an installed capacity of 30,000 tones per annum for production of pulp. The
capacity of mill was enhanced to 40,000 tones per annum by undertaking balancing
scheme. Due to heavy investments and unfavorable market conditions CPM faced
financial problems and was referred to BIFR in 1987 as having negative worth.

29
JK PRODUCT’S RANGE:

SURFACE SIZED MAPLITHO AND

Supper grade of writing & printing
SURFACED SIZED SUPER HIGH BRIGHT
Paper with high finish and brightness.
MAPLITHO
A Paper most suited in all Xerox
JK COPIER
Machine’s.
SURACE SIZED PULP BOARD & Super grade of Bpard for Printing &
SURFACE SIZED SUPER HIGH BRIGHT Parching with high finish and
PULP BOARD brightness.
CHANCELLOR BOND A superior variety Bond and Writing
and Printing.
JK BOND A normal grade of Bond Paper
WOOD FREE PRINTING
A Writing and Printing Paper with
good finish and brightness meant for
export market.

ARIMAIL
A lower grammar Writing & Printing
Paper used for Bills Books as well as
Airmail.

JK LASER PRINTING Suitable for Laser Printer

TITANIUM DIOXIDE LOADED TISSUE
PAPER
OPAQUE PRINTING PAPER
WHITE OFFSET BOARD
VARNISHABLE MAPLITHO
A better grade food packaging paper.
A common food packaging
A high bright board supplied to
Cigarette Industries.
Catering labels and quality printing
jobs with varnishing.

YELLOW PRINTING
Used for Yellow Pages in Telephone
Directory as well as for other quality
printing.

30
 Used for Match Sticks of better
WAX MATCH TUSSUE
quality.
OFFSET PRINTING (NATURAL SHADE) A Paper used for Coating Base.

BLACK CENTERED ART BOARD For Playing Cards.

INVORY BOARD A Superior Coated board used for
Visiting Cards and Invitation Cards.
ENAMEL BOARD A Superior coated board used for
Visiting.
CHROMO PAPER A Coated Board used for printing
Magazine covers.

31
JK PRODUCTION CAPACITIES:

CENTRAL PULP JK PAPER

MILLS MILLS

Installed capacity (paper) 47,000 Tons per 90,000 Tons per

annum annum
Actual production achieved in the
year 2002-2003 51,740 Tons 1,06,521 Tons

Pulp production Capacity 44,000 tons per 1 Lakh tons per

annum annum
Market pulp production 15,290 tons per
annum
Capacity (ADMT)
13,617 tons per

Actual Production:2002-03(ADMT) annum

32
PHASES AT JKPM

OPERATIONAL EXCELLENCE:

J.K. Paper has undertaken an integrated operational improvement Program

named Operational Excellence with the objective of improving the profitability of the
organization. This program is driven by a team of J.K. Paper executives and is
supported by consultants from McKinsey & Company.

Operational Excellence encompasses streams of Manufacturing, Purchasing

and Marketing. This program aims to achieve an accelerated pace of development by
identifying improvement opportunities in various streams as part of a concerted and
focused effort. As a result, it aims to build capabilities within the organization to be
able to maintain this rapid pace of continuous improvement in future also.

In Phase 1, the team has generated about a thousand ideas through

brainstorming, interaction with experts around the world, research on the internet and
reading technical journals. It has then evaluated each of these ideas rigorously in a
fact-based manner and is currently in the process of implementing 110 ideas.
Excepting 7/8 ideas, all other ideas have been successfully implemented as on today.

In Phase 2, the team has about 450 ideas and evaluated. After short listing and
evaluation, final syndication has been done and finally 64 ideas were accepted for
implementation. All these ideas are in the final stage implementation.

In Phase 3, ideas were taken up from the CPM unit and 39 ideas were finally
accepted for implementation.

Currently, Phase 4 is in progress at JKPM. This phase is still under ideas

generation stage.

33
EMPLOYMENT, MANPOWER AND CATEGORIES OF EMPLOYEES

JK Paper Mills provide direct employment to about 1400 persons. In addition,

about 1000 persons on an average are engaged intermittently for material handling,
waste disposal and other additional jobs at the Mills.

The various categories of employees working in the Mills are as follows;

1. Officers
2. Supervisory Staff

3. Workman (Staff)

4. Sub-ordinate Staff

5. Workman (Operatives)

Apart from permanent employees, for casual and extra jobs there is a pool of
casual mazdoors. Various jobs like loading and unloading and civil construction
works are done through contract labour. To have a trained, developed and educated
manpower for future needs and requirements, there are various categories of Trainees
like Management Trainees, Executive Trainees, Staff Apprentices, Trade Apprentices
and Craftsman Trainees.

34
CLASSIFICATION OF JOBS OF WORKMEN (OPERATIVES)

The jobs of Workman (Operatives) are classified into 7 grades – A to G

Different trades of Workmen (Operatives) are distributed into these 7 grades. ‘A” and
‘B’ grades represent unskilled workers; ‘C’, ‘D’ and ‘E’ grades represent semi-skilled
workers and ‘F’ and ‘G’ grades represent skilled and highly skilled workers.

Except the workers working in Finishing House and Feeding jobs, stitching and
stacking of paper Reams and Reels, who are paid on piece rate basis, all other workers
are time rated wage earners on daily basis. Wages are distributed monthly.

SHIFT TIMINGS:

The Mills runs in 3 Shifts and General Shift – m the timings of which are as follows:

‘A’ Shift 6.00 A M to 2.00 P M

‘B’ Shift 2.00 P M to 10.00 P M

‘C’ Shift 10.00 P M to 6.00 P M

GENERAL SHIFT

7.00 A M to 11.30 A M

1.30 P M to 5.00 P M

Commencement and finish of shift period is indicated through blowing of siren and
siren also blows 30 minutes before the commencement of each shift.

ATTENDANCE:

The names of all regular employees are borne on the muster roll. All
employees, except workmen, are expected to mark their attendance by entering the
attendance-recording card inside the Card Reader at the beginning and end of the
Shifts. Workers attendance is marked on the basis of the token system.

35
HOLIDAYS AND LEAVE:

Weekly off day is given as per provisions of the factories Act. Generally, for
those working in General Shift, Sunday is the Weekly –off day.

The Mills observes Festival and National Holidays as follows:

(1) Pongal (2) Republic Day (3) Maha Shivaratri (4) Holi (5) Utkal Divas

(6) May Day (7) Ratha Jatra (8) Independence Day (9) Gandhi Jayanti

(10) Dassera (11) Diwali

PAYMENT DAYS:

Payment of salaries and wages for the month to Mills employees is as given
below:

For Officers, Staff, Sub-ordinate - 5th Day of the following month

For workers - 10th Day of the following month

Withdrawal of salaries and wages through Bank is encouraged.

Wages to Contractors employees is disbursed by the respective Contractors on 7 th Day

of the month. In case scheduled days fall on Sunday or Holiday, Salaries /Wages are
paid on the day proceeding such Sunday/Holiday.

36
DEPARTMENTS AT JKPM

 PULP MILL
 STOCK PREPARATION
 PAPER MACHINE
 PAPER FINISHING
 PLANT FINISHING HOUSE
 SODA RECOVERY
 QUALITY CONTROL
 CENTRAL LABORATORY
 PULP AND PAPER LABORATORY
 WATER SERVICE
 ENVIRONMENTAL AND POLLUTION CONTROL
 MECHANICAL ENGINEERING
 ELECTRICAL ENGINEERING
 INSTRUMENTATION
 PLANNING AND DESIGNING
 POWER HOUSE
 CIVIL DEPARTMENT
 TECHNOLOGICAL DEVELOPMENT
 HRD AND PERSONAL
 TOWNSHIP AND TRANSPORT
 WORKS OFFICE
 ACCOUNTS
 STORES AND YARD
 SALES AND STOCK
 SECURITY
 DISPENSARY
 SAFETY AND MANAGEMENT SERVICES

37
SOCIAL FORESTRY BY JK:

The member unit of JK Organization has been planting trees and saplings for
increasing the Green Cover. JK Paper Mills alone plants more than 1.5 lakh trees per
year. Seedlings are distributed every year by JK Paper Mills to the farmers who are
willing to green their land with trees.

The company has helped farmers with plantation in about 50,000 acres of
degraded wastelands in Orissa and Andhra Pradesh. This plantation program has seen
the development of fast growing, high yielding Eucalyptus clones involving an area of
17431 hectares, benefiting 13666 farmers and generating 90,00,000 man days of
employment for tribal.

Similarly CPM also continued to contribute towards the socio-economic

development of the rural population in the backward districts of Gujarat by providing
free seedlings to the local farmers and imparting direct and indirect employment
opportunities to the local community.

Until now social forestry scheme of CPM has benefited 14381 farmers in 196
villages of five districts of Gujarat and Maharashtra with 87 lakhs plants in 2620
hectares. Besides, it also gives job opportunity of 1500 man days to raise one lakh
seedlings and 450 man days to plant 1 hectare. CPM has introduced high yielding JK
super clones under Social Forestry Program.

Others

1. The mills provided approach roads for the villagers.

2. JK Paper contributed a sum of Rs 57,000 in the year 1997 to the Lions Club of
Rayagada for the construction of Multipurpose Community Hall at Rayagada.
3. For the construction of Lord Sri Jagannath Temple at Rayagada, the mills have
contributed Rs 7.5 lakhs for the completion of the construction work of the
temple.

38
SOCIAL OBJECTIVE:

“WE BELIEVE GENERATING REVENUE IS NOT THE ULTIMATE END OF

BUSINESS FOR US, CREATION OF WEALTH IS MORE APPROPRIATE
OBJECTIVE. THE WEALTH OF SOCIAL INFRASTRUCTURE. THE WEALTH
OF SUPPORT AND CARING FOR PEOPLE AROUND US”.

SOCIAL, CULTURAL & WELFARE HIGHLIGHTS:

The following highlights mark the social, cultural and welfare activities in an
around Jaykaypur:

The Mills, in association with the Lions Club of Rayagada and Seva Kendra-

 The Mills is association with the Lions Club of Rayagada and Seva Kendra a
social service organization of Jaykaypur – the Government officials and the
people in neighboring villages have involved themselves closely with social,
welfare work. Eye Treatment Camps are being held at Jaykaypur / Rayagada
annually since 1978 for which major assistance in the form of men, money and
materials is rendered by the Mills.

 Besides, a number of Health check-up and immunization camps, Hearing

Conservation Camps, dental Camps and Medical Treatment Camps, exclusively
for babies and school children are being held periodically or annually buy
difference services institution like the Lions Club of Rayagada, Jaycees, Mahila
Mandal and Mahila Vikas Kendra of Jaykaypur, Gopabandhu ubak Sangh etc.,
with the active cooperation and monetary assistance from the Mills.

 Educational Institutions of the neigh boring villages as well as Rayagada got

liberal donations in both cash and kind on different occasions. Both Rayagada
College and Women’s College of Rayagada owe a lot to the Mills for their growth.

 The Mills have contributed generously over the years to the District Red Cross
Organization, particularly for the Blood Bank opened at Rayagada in 1983.

 For the women-folk in Jaykaypur, there is Mahila Mandal and Mahila Vikas
Kendra promoting recreational and cultural activities through Mahila Silpa Kala

39
 Kendra, training is imparted to ladies in Tailoring embroidery. Nritya Sadan
imparts training to boys and girls of the colony in music and dance.

 The habit of small savings among the employees is given due encouragement.
This has resulted in cent percent coverage under small Savings Scheme and award
of the “Bachat Shield” to the Mills in 1978. The Mills were also awarded the
Second Best prize in District Koraput under Pay roll Savings Group.

 A cable and Antenna Television (CATV) system has been installed in the
industrial township to add to the cultural, educational and social facilities to the
residents of Jaykaypur.

RECREATION:

Jaykaypur Club and the Manoranjan Kendra provide relaxation and recreation
in the form of sports and games both indoor and outdoor, reading room, library etc. A
Ladies Tailoring Class is also run for the useful utilization of the leisure of the
housewives.

For the Ladies, there are Mahila Mandal and Mahila Vikas Kendra, which
besides providing recreation to its members devotes itself to the cause of social
upliftment.

The Mills also patronize the following five cultural institutions for the
township, who conduct various cultural and entertainment programmes from time to
time.

1. Kalinga SanskrutikII Parishad 4. Andhra Kala Samithi

2. Kala Mandir 5. Friends Library

3. Raja Pathagar

There is also a Seva Kendra, which is engaged in philanthropic activities and

upliftment of the down trodden. For small children, there is a School of Music and
Dance known as Nritya Sadan.

40
SPORTS AND GAMES:

Cricket and Valley ball Tournaments are regularly by the Mills in which
distinguished local and outside teams participate. These tournaments, besides
providing exciting pastime, aim at fostering esprit-de-crops amongst the employees.
Football matches are also conducted from time to time.

CO-OPERATIVE SOCIETY:

There is Multi-purpose Co-operative Society, which discharges the following

functions for the benefit of the employees.

a) Running of Consumer Section with controlled commodities and other daily

necessities.
b) Running of Cloth Sales Section.

c) Advancing loans for purchase of utility goods through hire-purchase scheme.

d) Provides cash loans to members.

e) Encourages thrift habit amongst members and Running Flour Mill.

41
MILE STONES

The various achievements of J.K. Paper Mills:

 Only integrated mill in India to achieve less than 100 meter cube of water
consumption per ton of paper.
 Highest chemical recovery (more than 95%).

 Excellent fiber recovery system (more than 95%)

 Absorbable Organic Halide (AOX) level 0.5 to 1 kg per ton of paper, so far
the best in the country and comparable with international levels.
 Highly efficient Electro Static Precipitators (ESP) in all the boilers.

 Pioneer in Social and Farm Forestry. Supplied in excess of 90 million

saplings and covered over 27,000 hectares under plantation.
 Stood 2nd all over India and was awarded 3 leaves Award by CSE

 Awarded outstanding Performance by State Safety Council, Govt. of Orissa

for Safety, Health, and Hygiene & Environment Management.
 Largest manufacturer of branded copier paper in India.

 First to introduce surface sized map litho in India.

 First to introduce airmail paper from bamboo pulp in India.

 Established India's largest and most modern pulp mill in 1998. It is a

state-of-the-art pulp mill with an annual capacity of 1, 27,000 MT.
 First integrated pulp and paper mill in India to have got ISO 9001
certification.
 First to introduce laser paper in India.

 First to introduce international quality consumer packaging for JK Excel

Bond of 100 sheets & 250 sheets packs.

42
 JK ORGANIZATIONAL CHART
I

CHIEF EXECUTIVE (W)

S.K.MISHRA

VICE PRESIDENT (COML)

S.K.AGARWAL

GM (COML)
C.DALAKOTI

GM (MFG) GM (CTS) GM (PD) GM (ENGG.) GM (P&D) GM (P&A) CMO

D.P.DUBEY A.K.HARI CHANDAN M.V.RAO M.C.GOEL V.K.OSWAL M.R.KUMAR K.G.N.KUMUNDAN

SR MGR (IE) SR.MGR (HRD)

T.V.SAGAR T.K.DAS

43
 JK ORGANIZATIONAL CHART
II

CHIEF EXECUTIVE (W)

S.K.MISHRA

VICE PRESIDENT (COML)

S.K.AGARWAL

GM (COML)
C.DALAKOTI DGM (Stores&Yard )
DGM (SALES & IC)

SR.MGR SR.MGR A/C SR.MGR PUR

(CC)

DM (CC) DM DM DM LIAISON
(Stores ) (Yard )
DM (SALES)

DM (IC)

AM PUR
AM (C&S) AM A/C (6) AM (3)

44
 JK ORGANIZATIONAL CHART
III

CHIEF EXECUTIVE (W)

S.K.MISHRA

G.M.ENGG.

DGM (P.M\C-M) DGM ENGG. DGM INST

MECH.

SR MGR (P. M\C - M SR MGR (ELECT) SR MGR (CVL) SR MGR

SAFETY & PLG

MGR (INST)
MGR (ED) MGR (ELECT)

DM (E) P.M./C DM (E) PD DM DM

DM(2) PMILL-M(2) (WS-M) (2)

AM
AM(2) AM (E) P.M./C AM (E) FBL AM (E) P.W./S AM (C) AM SAFETY(2) INST (2)

45
CONCLUSION:

JK Paper in leadership through quality. It has been setting quality bench

marks from its inception, and continues to do so. Its major brands include JK Copier,
JK Easy Copier, JK Evervite, JK Excel Bond, JK Bond, JK SHB Map litho, CPM
Parchment and JK MICR. Its marketing volume is to the tune of 1, 60,000 MT per
annum. J K Paper has one of the largest distribution networks in the paper industry.
With close to 100 wholesalers, over 1700 dealers, 10 warehouses and 4 regional
offices spread across country, it has achieved unparalleled service levels.

JK Paper has also been consistently exporting its products to markets such as
Sri Lanka, Bangladesh and several West Asian Countries. Nearly 50% of the exports
are of branded products.

46
IMPORTANCE OF INVENTORY MANAGEMENT

INTRODUCTION:

Inventories constitute the largest component of current assets of large majority

of the companies. In every country inventories occupies approximately 60% of
current assets of manufacturing organizations in India. Thus every organization has to
maintain a large amount of inventories in their current assets for that they have to
invest considerable amount of funds in inventories. It, is therefore imperative to
mange inventories efficiently and effectively in order to avoid unnecessary
investment. If a firm neglects the management of inventories it will affect the long run
returns of the organization. The company has to plan the inventory levels without
effecting the production and sales. Efficient inventory control, therefore, can
significantly contribute to the overall profit-position of the organization.

Inventories are stock of the product a company manufacturing for sale and
components that make up the product. Inventory could be the raw materials, work in
progress, finished products, fuels and lubricants, spare parts, maintenance
consumables and other indirect materials at any given point of time. The operational
definition of inventory would be the amount of raw materials, fuels, lubricants, spare
parts and semi-processed materials to be stocked for the smooth running of the plant.
Though inventory is usable resource, it is also an idle resource, unless it is managed
efficiently and effectively.

NATURE OF INVENTORIES

Inventories are stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories exists
in manufacturing company are:

RAW MATERIALS:

Raw materials are those basic unfabricated materials which have undergone no
conversion whatsoever since their receipt from the suppliers. These are basic inputs
that are converted into components, parts and products through manufacturing

47
process. Raw materials inventories are those units, which have been purchased and
stored for future productions.

WORK IN PROGRESS:

Work in progress inventories is semi-manufactured products. They represent

products that need more work before they become finished products for sale. Raw
materials become work in progress at the end of first operation and remain in that
classification until they become piece parts or finished goods. Work in progress can
be found on the conveyors, trucks, pallets in and around the machines, and in
temporary areas of storage waiting to be worked upon or assembled.

FINISHED GOODS:

Finished goods are the completely manufactured products, which are ready for
sale. Products usually leave work in progress classification and enter into the
classification of finished goods at the point of final inspection when they are ready for
delivery to the customer or to finished goods store. Stock of raw materials and work
in progress facilitate production, while stock finished goods are required for smooth
marketing operations.

OTHER TYPES OF INVENTORY ARE:

FLABBY INVENTORY:

It comprises of finished goods, raw materials and stores held because of poor
working capital management and inefficient distribution.

PROFIT MAKING INVENTORY:

It represents stocks of raw materials and finished goods held for realizing
stock profit.

48
NORMAL INVENTORY:

It is based on a production plan, lead time of supplies and economic ordering

levels. Normal inventories fluctuate primarily with change in production plan. Normal
inventory also includes a reasonable factor of safety.

EXCESSIVE INVENTORY:

Even an efficient management may be compelled to build up excessive

inventory for reasons beyond its control, as in the case of a strategic import or as a
measure of government price support of a commodity.

IMPORTANCE OF HOLDING INVENTORIES:

A company should maintain adequate stock of materials for a continuous

I
supply to the factory for an uninterrupted production. Maintaining inventories
involves tying up of a company’s funds and incurrence of storage and handling costs.

There are three general motives for holding inventories:

TRANSACTIONS MOTIVE:

It emphasizes the need to maintain inventories to facilitate smooth production

and sales operations.

PRECAUTIONARY MOTIVE:

The necessity of holding inventory to guard against the risk of unpredicted

demand and supply forces and other factors.

SPECULATIVE MOTIVE:

It influences the decision to increase or reduce inventory levels to take

advantage of price fluctuations. Other than the above, many situations demand
maintenance of adequate levels. They are:

 To avoid uncertainty in procurement of raw materials whenever needed

49
  To facilitate uninterrupted production
 To obtain quantity discounts of bulk purchasing
 To accumulate raw materials in anticipation of price rise
 Stock of goods should be maintained while work in progress
 Stock of finished goods has to be held as production and sales are not
instantaneous
 To minimize carrying cost and time

OBJECTIVES OF INVENTORY MANAGEMENT

The aim of the inventory management thus, should be to avoid excessive and
inadequate levels of inventories and to maintain sufficient inventory for the smooth
production and sales operations. Efforts should be made to place an order at the right
time with the right source to acquire the right quantity at the right price and quality.
An effective inventory management should:

 Maintain a large size of inventory for efficient and smooth production and sales
operations.
 Economy in purchasing
 Ensure a continuous supply of raw materials to facilitate uninterrupted
production.
 To utilize the capital effectively
 Maintain sufficient finished goods inventory for smooth sales operation, and
efficient customer service.
 Reduction of risk of loss
 Maintain a minimum investment in inventories to maximize profitability.
 Maintain sufficient stock of raw materials in periods of short supply and
anticipate price changes.
 Minimize the carrying cost and time.
 Control investment in inventories and keep it at an optimum level.
 To reduce administrative workload
 To provide administrative simplicity
 To meet a high percentage of demand without creating excess stock levels
 To maintain the total volume of replenishment work-load within the
constraints of acceptable personnel complement

50
  To keep all the expenditure within the budget authorization
 To decide which items to stock and which items to procure on demand
 To contribute to the nation's economic well-being
 To provide, on item-by-item basis for re-order points and order such quantity
as would ensure that the aggregate results con1irm with the constraints and
objectives of inventory control

INVENTORY MANAGEMENT TECHNIQUES

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

shareholder, wealth maximization principle. To achieve this principle the
organizations should maintain appropriate levels of inventory. Unsound inventory
control results in unbalanced inventory and inflexibility-the firm may sometimes run
out of stock and sometimes may pile up unnecessary stocks. This increases the level
of investment and makes the firm unprofitable.

To manage inventories efficiency answers should be sought to be

following question:

 How much of an item to order when the inventory of that item is to be

replenished?
 When to replenish the inventory of that item?

The first question, how much to order, relates to the problem of

determining economic order quantity (EOQ), and is answered with an analysis of
costs of maintaining certain level of inventories. The second question, when to order,
arises because of uncertainty and is a problem of determining the re-order point.

ECONOMIC ORDER QUANTITY:

Every organization will think about how much to order, when ordering
the inventories, to solve this problem economic order quantity will fix the
appropriate order size. The economic order quantity is an optimum quantity of
materials to be ordered after consideration of the following categories of costs.

51
ORDERING COSTS:

The term ordering cost is used incase of raw materials (or supplies) and
includes the entire costs of acquiring raw materials. They include costs incurred in
the following activity:

 Requisitioning
 Preparation of purchase order
 Costs of receiving goods
 Inspecting costs
 Documentation processing costs
 Transport costs
 Storing costs
 Intermittent costs of chasing orders, rejecting faulty goods
 Additional costs of frequent or small quantity orders
 Where goods are manufactured internally, the setup and tooling costs
associated with each production run.

CARRYING COSTS:

Costs incurred for maintaining given levels of inventory are called carrying
costs. They include:

 Storage costs (rent, lightening, heating, refrigeration, air conditioning etc.)

 Stores staffing, equipment maintenance and running costs
 Stores handling costs
 Staff services costs (Administrative Costs)
 Audit, stock taking or perpetual inventory costs
 Required rate of return on investment in current assets
 Obsolescence and deterioration costs
 Insurance and security costs
 Costs of money tied up in inventory
 Pilferage and damage costs
 Costs incurred in providing special facilities like fencing racks

52
STOCK OUT COSTS:

The stock outs costs are associated with running out of stock which
includes the following:

 Lost contribution through the lost sales caused by the stock out
 Loss of future sales because customers go elsewhere
 Loss of customer goodwill
 Cost of production stoppages caused by stock outs of work in progress or
raw material
 Labour frustration over stoppages
 Extra costs associated with urgent, often small quantity replenishment
purchases

The EOQ is optimum size of the order for a particular item of inventory
calculated at a point where the total inventory costs are at a minimum for that
particular stock item. It is an optimum size of either a normal outside purchase order
or an internal production order that minimizes total holding and ordering costs of
inventory. Stock costs are difficult to incorporate in this model. Since they are based
on qualitative and subjective judgment, the ordering costs are the costs of placing a
separate order multiplied by the number of separate orders placed in the period. The
carrying costs can be calculated based on the assumptions that annual cost of carrying
a particular stock item on average, half of the stock in hand all the time in addition to
the safety or buffer stock. The fewer the orders, the lower is the cost ordering, but the
greater the size of the order the greater the cost of carrying. The safety or buffer stock
has no bearing on the EOQ) only on the timing of orders.

Assumptions of EOQ model - to be able to calculate a basic EOQ

certain assumption are necessary:

 That there is a known constant ordering cost & stock holding cost
 That rate of demand is known and constant
 That there is a known constant price per unit, i.e., there are no price discounts
 That replenishment is made instantaneously, i.e., the whole batch delivered at
once.

53
 Carrying costs vary with inventory size. This behavior is contrary to that of
ordering costs, which decline with increase in inventory size. The economic size of
inventory would do depend on trade off between carrying costs and ordering costs.

A = Annual Consumption

B = Buying Cost per Order

C = Cost per Unit

S = Storage and Other Inventory Carrying Cost

FIXATION OF INVENTORY LEVELS

Various levels of inventory are fixed to see that no excess inventory is carried
and simultaneously there will not be any stock outs. The following inventory levels
are fixed for each item of stock.

RE ORDER LEVEL:

Reorder level is the level of stock availability when a new order should be
raised. The stores department will initiate the purchase of material when the stock of
material reaches at this point. This level fixed between the minimum and maximum
stock levels and the following formula is used for this purpose:

REORDERLEVEL = MAXIMUM USAGE) X (MAXIMUMLEADTIME)

MINIMUM STOCK LEVEL:

Minimum Stock level is the lower limit below, which the stock of any stock
item should not normally be allowed to fall. Their level is also called safety stock or
buffer stock. The main object of establishing this level is to protect against stock out
of a particular stock item and in fixation of which average rate of consumption and
time required for replenishment, i.e., lead time are given prime consideration.

54
MAXIMUM STOCK LEVEL:

Maximum level represents the upper limit beyond which the quantity of any
item is not normally allowed to rise to ensure that unnecessary working capital is not
blocked in stock items. Maximum sock level represents the total of safety stock level
and economic order quantity. Maximum stock level can be expressed in the formula
given below:

MAXIMUM STOCK LEVEL = REORDER LEVEL + ECONOMIC

REORDERING QUANTITY -(MINIMUM USAGE * MINIMUM LEAD TIME)

55
DANGER LEVEL:

Danger level of stock is fixed below the minimum stock level and if stock
reaches below this level, urgent action for the replenishment of stock should be taken
to prevent stock out position.

DANGER LEVEL = AVERAGE CONSUMPTION * LEAD TIME FOR

EMERGENCY PURCHASES

AVERAGE STOCK LEVELS:

AVERAGE STOCK LEVELS = (MINIMUM STOCK LEVEL + MAXIMUM

STOCK LEVEL) / 2

(OR)

MINIMUM STOCK LEVEL+ 1/2 ROQ

SELECTIVE INVENTORY CONTROL:

ABC ANALYSIS:

This technique popularly known as "Always Better Control" is a basic

analytical management tool which enables top management to place the efforts
where the results will be greatest. This technique tries to analyze the distribution of
any characteristic by money value of importance in order to determine priority.

This technique tries to segregate all items into 3 categories on the basis of
their annual usage. They are:

 A
 B
 C

Items in class A constitute the most important class of inventories so far as the

56
proportion in the total values of inventories is concerned. Items in class B constitute
an intermediate position while those in items C are quite negligible.

It is seen that a very small percentage of the items say 15 to 20 percent

account for 75 to 80 percent of the total material usage and large number of items say
75 to 80 percent of the total items account to 15 to 20 percent of the monetary value.
ABC analysis divides the total inventory list into three classes using the rupee
volume. The A items consist of approximately 15 percent of the total items, B items
the next 35 percent and C consist of remaining 50 percent items. The numbers are just
indicative and actual break up will vary from situation to situation.

CLASSIFICATION:

A B C
Very tight control Moderate Loose
Very low safety stock Low safety stock High safety stock
Bulk ordering (once in 6
Frequent ordering Once in 3 months
months or one year)
Weekly control reports Monthly control reports Monthly control reports
Follow-up in exceptional
Maximum follow-up Periodic follow-up
cases
Individual posting Small group posting Group posting
Must be handled by senior Can be handled by middle
Can be fully delegated
officers management

VED ANALYSIS:

57
 This is also a classification system but unlike ABC analysis in this system the
classification inventory is made on the basis of seriousness of the situation. The cost
of shortage depends upon the seriousness of the situation. The VED system is a
widely used classification technique to identify criticality of various items for
inventory control. This technique is based on the assumption that a firm need not
exercise same degree of control on all items of inventory. On the basis of criticality,
the various items of inventory are categorized into three categories:

V – VITAL
E – ESSENTIAL
D – DESIRABLE

Highly critical items like vital requires much closer attention by senior
management compared to that of less critical items. The reorder level depends on the
criticality of the items. For vital items relatively more inventory is maintained
compared to that of desirable inventories. The items falling into the criticality level 'E'
are essential but not as much important as 'V' items.

JUST IN TIME INVENTORY MANAGEMENT (JIT):

It is also called zero-inventory operation. Just in Time is actually a

philosophy which can be installed after eliminating all unwanted operations and
waste. It is a continuous process. It seeks to eliminate raw material stock and finished
stock. It eliminates carrying costs altogether and making the industry highly
competitive. It begins by identifying the problems and forcing firms to tackle them,
the main tactic used to reveal such problems in inventory reduction. The major focus
is on the idea of producing in response to need rather than as a consequence of plans
and forecast instead of purchasing inventory into the system. In order to make
products they turned the process round and used the pull from the market place or the
next operation as a way of making the system more directly responsive and
eliminating unnecessary waste due to over production and so on. It attempts to
minimize inventories through small incremental reduction rather than prescribed
particular techniques or methodologies.

VALUATION OF INVENTORIES

58
 According to Accounting Standard-2 the valuation of inventories' is given by
the Institute of Chartered Accountants of India. Items such as expenses revenues, or
book debts can be' recorded in the books of accounts with a fair degree of accuracy.
However, an element of subjectivity is involved in the measurement of items such as
depreciation or inventory value Methods of valuing the inventory may vary between
different business and even between different undertakings within the same trade or
industry Taking all these significant aspects into account, this standard deals with,

1. The determination .of value at which inventories are carried until related revenues
are recognized.

2. Ascertainment of cost thereof, and

3. The circumstances in which carrying amount of inventory is written down below

cost

Valuation of inventory is of critical importance

The reasons include:

 Individual items may not be of significant value but taken together, would
constitute a significant portion of total assets.
 Rapid turnover exception being rare or seasonal turnover
 Susceptible to obsolescence and spoilage, slow or fast moving
 Held at different places
 Physical condition

It may involve varying degrees of estimation

Inventory is the second largest item after fixed assets in financial statements
of manufacturing concerns. It affects both the results of operations as well as the
financial position as reflected in Balance Sheet.

INVENTORIES:

59
Defined as: Inventories are assets,

 Held for the purpose of sale in the ordinary course of business

 In the process of production for such sale
 In the form of material or supplies to be consumed in production process or in
rendering of services.

Inventory includes the following:

 Goods purchased and held for resale

 Finished goods produced for sale
 Work in progress generally
 Materials, maintenance supplies, consumables and loose tools awaiting use in
production process

MEASUREMENT:

The critical part of the study is that inventories should be valued at the lower of

(a) Cost and

(b) Net realizable value

COST:

The following elements that constitute cost of inventories should be kept in

mind.

Cost includes:

 Cost of purchase, net of trade discounts, rebates, duty drawbacks. Cenvat

credit availed etc.
 Cost of conversion
 Other costs incurred in bringing the inventories to their present location and
conditions

But cost doesn't include

60
  Selling and Distribution costs
 Abnormal wastage, storage costs

COST FORMULAE:

In as much as cost do not remain static and vary from time to time., several
types of cost formulae can be used. In inventory valuation, therefore, the question that
is crucial is, with reference to the flow of production, which inventory has been sold
and which continued to remain in inventory.

In this backdrop, inventory valuation depends on cost flow assumptions such

as LIFO, FIFO, Base Stock method etc., but the standard favored only three methods
are as follows...

 Specific Identification Method

 First In First Out
 Weighted Average Cost Method

SPECIFIC IDENTIFICATION METHOD:

This method is also known as Specific Price Method. This is also known as
actual cost method because specific job bears the actual cost of material bought for
the job. When using- this method, units in inventory are specifically identified and
each unit cost is identified with a particular invoice.

The advantage of this method is that cost charged to jobs is factual and not
notional.

Cost of items forming part of inventory, that are not ordinarily interchangeable
as also goods or services produced and segregated for specific projects, should be
assigned by specific identification of their individual costs. This formula has to be
applied whenever materials are purchased and set aside for specific job or work order.
This could be a cumbersome or impracticable exercise. When the items are many and
interchangeable.

FIRST IN FIRST OUT METHOD:

61
 This method is based on the assumptions that the materials. Which are
purchased first, are issued first? Issues of materials are priced in the sequence of
incoming order of purchases. The flow of cost of materials should also be in the same
order.

Issues are priced on the same basis until the first lot received i.e.
exhausted, after which the price of the next lot received becomes the basis of cost for
issues.Thus the materials issued are priced at the cost pertaining to the earliest lot,
and as a corollary the inventory in hand is valued at a price representing recent
purchases.It merely denotes that cost incurred for the 'earliest purchase' is first used
for accounting purpose.

It is a common practice for most business houses to sell or issue oldest

merchandise or materials first so that when FIFO is used for inventory valuation,
there is an agreement between cost flow assumption and the physical flow goods. The
ending inventory thus would consist of goods recently produced or purchased.

The FIFO method is most successfully used when

 Size of raw materials is very large and cost is high

 Materials are easily identified as belonging to a particular purchase

 Not more that two or three different receipts are on material card at one time

 Price of materials does not fluctuate widely, so that clerical labour

involvement is minimized.

 Material are subject to deterioration and obsolescence

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WEIGHTED AVERAGE COST METHOD:

This is calculated by dividing the total cost of material in stock by the total
quantity of material in stock. Under this method, costs are averaged after weighing by
their quantities. The weighted average cost is determined, either at periodical
intervals or each time when fresh materials are arrived on purchase. The average cost
at any time is, thus, balance value figure divide by the balance unit figure. This
method evens out the effect of widely varying prices of different lots of purchases,
which makes up the stock. There will be no' profit or no loss arising out of pricing
issues.

NET REALIZABLE VALUE (NRV):

NRV is defined as the estimated selling price in the ordinary course of

business less the estimated costs of completion and the estimated costs necessary to
make the sale.

RATIO ANALYSIS OF INVENTORY MANAGEMENT

ACTIVITY RATIOS:

Funds of creditors and owners are invested in various assets to generate

profits. The better the management of assets the larger the amount of sales. Activity
ratios are employed .to evaluate the efficiency with which the firm manages and
utilizes its assets. These ratios are also called as turnover ratios because they
indicated the speed with which assets are being converted or turned over into sales.
Several activity ratios can be calculated to judge the effectiveness of asset utilization.

INVENTORY TURNOVER RATIO:

Inventory ratio indicates the efficiency of the firm in producing and selling its
products. It is calculated by dividing the cost of goods sold by the average inventory

63
 If cost of goods figure is not available, we need to compute the Inventory
Turnover Ratio as sales divided by the average inventory or year end inventory.

COMPONENTS OF INVENTORY:

The inventory turnover indicates how rapidly the inventory is turning through
sales. Generally, a high inventory is indicative of good inventory management. A low
inventory turnover implies excessive inventory levels than warranted by production
and sales activities or a slow moving or obsolete inventory.

A high level of sluggish inventory amounts to unnecessary tie up of funds

reduced profit and increased costs. If the obsolete inventories have to he written off,
this will adversely affect the working capital and liquidity position of the firm.
However a relatively high inventory turnover should be carefully analyzed.

64
 A high inventory inventory, which results in frequent stock outs; the firm
replenishes its inventory in too many small lot sizes. The situations of frequent stock
outs and too many small inventory replacements are costly for the firm.

Thus too high and too low inventory turnover ratios should be investigated
further. The computation of inventory turnover ratios for individual components of
inventory may help to detect the imbalanced investments in the various inventory
components.

CRITERIA FOR JUDGING THE INVENTORY SYSTEM:

While the overall objectives of the inventory system is to minimize the cost of
the firm at the risk level acceptable to management therefore approximate criteria for
judging the inventory system are:

 COMPREHENSIBILITY
 ADAPTABILITY
 TIMELINESS

COMPREHENSIBILITY:

Inventory systems range from the utterly simple to the weirdly complex.
Irrespective of how simple or complex a system is, regardless of whether it is
automated or manual; it should be clearly understood by all affected parties. The
system must be properly explained to all concerned so that its purpose, logic and
rationale are transparent. This generates enthusiasm for the system and enchases its
credibility. Other wise it is likely to be perceived as mysterious ‘black box’ of
dubious value.

ADAPTABILITY:

The questions raised in this context are: Is the system responsive to change?
Can new products, new situations, and new requirements be handled by the system? A
certain degree of flexibility and adaptability must be designed into the system to
make it versatile. Of course this cannot be and this should not be carried too far. The
system must not provide for every possible and imaginable contingency. If it is

65
developed with this deal, it is likely to be a complex monstrosity. Remember the
caveat that the design of nay system should ordinarily take care of about 90 per cent
to be handled by hand.

TIMELINESS:

Inventories may suffer loss in value on account of variety of factors. The more
common sources of value decline are:

 Obsolescence caused by changes in technology and shifts in consumer taste

 Physical deterioration with the passage of time
 Price fluctuations because of inherent volatility of certain commodities

The inventory system should be capable of inducing timely action. It should

provide adequate forewarning which triggers appropriate corrective steps.

AREAS OF IMPROVEMENT

Inventory management can be improved in various ways. Improvements could

be effected though:

 Effective Computerization
 Review of Classification of ABC Analysis etc,.
 Improved Coordination
 Disposal of Surplus Inventory
 Adoption of Challenging Norms

66
 INVENTORY MANAGEMENT AT JKPM

INTRODUCTION:

Unlike in the past, today’s business world is highly competitive and also the
steep rise in input, costs added fuel to this fire. To meet these challenges organizations
are forced to practice some of the scientific management tools. Materials management
is one such area which received due importance due to the face that efficient
management of the materials will directly result in hefty bottom line of companies
profit and loss account out of all functions of materials management, inventory
management has been widely accepted and practiced in most of the Indian business
organizations with a view to reduce the cost in materials inventory of course without
interrupting production operations.

As you all will appreciate the fundamental questions to be answered by any

inventory management system are:

 When to place an order

 For how much quantity

However, it is needless to say that both the questions are to be answered by

OPTIMIZING the two main cots involved:

 CARRYING COST
 ORDERING COST

Consciousness for better inventory management was spread in JKPM by the

institution of Managing Directors in 1968. a humble beginning was made in stores
department for standardization of specifications in consultation with user
departments with a view to have unified specifications reduce variety/no. of items.
Further during the middle of 1971 operations research society of Indian was
entrusted to study the possibilities for optimal control of inventory.

67
 A preliminary survey was made during 1971 under the guidance of
Lt. Col. H.S.SUBBA RAO (Retd.). During later part of 1973 a separate section
called “OPERATIONS RESEARCH ANALYST CELL” was formed with a view
to study exclusively inventory management taking help from Lt. Col. H.S.SUBBA
RAO and stores.

ASPECTS OF STUDY:

Inventory management covered the following aspects:

a. CODIFICATION(Standardization and Variety)

b. ABC ANALYSIS
c. USAGE RATE AND LEAD TIME ANALYSIS
d. INVENTORY REPLENISHMENT POCLICY(IRP)
e. DOCUMENTATION

INVENTORY MANAGEMENT STUDIES:

As it was mentioned in the beginning inventory management studies were

initiated by ORSI and studied by ORA (Operation Research Analyst) during 1970’s
then HOWARD & FINLEY CONSULTANTS studied INVENTORY ACCOUNTING
system during 1980’s and SIGMA CONSULTANTS were engaged in late 1980 to
analyze machinery spares inventory including departmental stores inventory.

Management services department also carries out some inventory management

studies time to time in addition to formulation of inventory replenishment policy.

CODIFICATION:

Codification of materials through 9 digits was done during 1973-74 during

inventory management studies by ORA and with avoided and correct specifications of
materials could be achieved to a greater extent.

ABC ANALYSIS:

68
 In order to exercise selective control ABC Analysis of all 15000 items(except
fibrous raw materials) was done based on 1973 consumption usage rate and analysis
showed that 92 items were under AB class which contributed and 95% of the total
companies consumption value and the rest in C class.

Similar study was carried out during 1968. The ABC Analysis was done based
on 1984 consumption value. It was found that 265 items contributed to 92.5% of total
stores consumption. However due to the fact that our inventory replenishment policies
are based on main groups of items hence the same could not be adopted. Moreover
most of the AB class items in earlier grouping had fallen under same grouping in
present analysis also. The other important factor which was considered before
inventory replenishment policy grouping during the inventory management studies
was critically and availability of the items.

USAGE RATE & LEAD TIME ANALYSIS:

Consumption/usage rate and had time are the two important parameter which
play viotal role in arriving at inventory replenishment polices. During the inventory
management study (1973-75) forecasting of future demand (consumption) was done
based on available past data and subjective opinion from stores purchase and user
department. Initially lead times were also fixed based on subjective opinion from
purchase and stores.

Presently the future demand (known as Anticipated Annual Demand AAD) is

arrived at by considering past 3 year’s consumption and future requirement (any
additional) of departments. However incase of chemicals the demand mainly depends
on production programme lead time analysis is also carried out time to time to
formulate IRP on more realistic way.

RELEVANT COST:

Two basic cost parameters involved in inventory i.e.

1) Carrying Cost

69
 2) Ordering Cost were calculated and fixed at 20% and Rs.25/- (Indigenous) or
100/- (Imported) items respectively. The above costs were revised during 1986
and presently the carrying cost is 25% and Ordering Cost Rs. 60/-(Indigenous)
Rs. 250/-(Imported).

INVENTORY REPLENISHMENT POLICY:

Basically four types of IRP models were suggested for out inventory control
system and procurement system during the inventory management study (1973-75).
Infact the same models are being followed at present also.

Items covered under the policy are 7 AB chemicals (Vital Items) and other AB
items and C class items of 26 main groups of items.

The four IRP models are

RE – ORDER LEVEL:

This policy is also called “CONTINEOUS REVIEW POLICY”. This policy is

followed for the entire items.

In this policy when the total balance (Quantity on Order KAEDEX

BALANCE) reaches Re-Order Level procurement action is initiated. Items for which
the lead time is large when compared to replenishment cycle, procurement action is to
be taken on the basis of replenishment cycle, and procurement action is to be taken on
the basis of replenishment cycle until the total balance exceeds the ROL. Every time,
the quantity ordered will be equal to the Ordering Quantity. If by any chance safety
stock is reached (SS) emergency action is to be taken to replenish the stock. This
policy is followed for AB items

MODEL:

70
ROL = KA + SS

Ci = Unit Price of Item

D = Anticipated Annual Demand (AAD)

Cp= Procurement/ Ordering Cost Per Day

I = Annual Inventory Carrying Cost

r = No. of years in which one risk of run out is permitted (8 incase of 7 AB items &
4 in for the rest items)

KM = Normal Maximum Consumption during Normal Maximum Lead Time

KA = Average Consumption during Average Lead Time

n = No. of orders

OQ = Ordering Quantity

SS = Safety Stock

ROL = Re Order Level, includes the quantities in transit and the physical stock

71
REPLENISHMENT INVENTORY LEVEL POLICY (RIL):

This policy is followed for “C” class items. In this policy replenishment cycle
time is decided by the no. of orders per year “n”. For these items stock position shall
be reviewed in normal courses as per the cycle time. If the total balance (i.e. Quantity

on Order) is more than i.e. more than safety stock + half of the
order quantity then no replenishment creation shall be initiated for other cases order
shall be placed for RIL total balance. Sometimes the SS may be reached earlier to the
cycle period due to unusual consumption in such cases the procurement action is to be
taken for the balance quantity when the level comes down to safety stock or 20% of
RIL. This policy is also called “PERIODIC REVIEW POLICY”.

MODEL:

No sophisticated model is used rather distribution free analysis (There by chef

in quality) is applied and the safety stocks are calculated that the 95% confidence
level assuming that the lead time are distributed in a Poisson manner

Where da = Daily Average Demand

TM = Maximum Lead Time

TA = Minimum Lead Time

k = 5 (constant)

72
RIL = SS + OQ

AS WHEN REQUIRED POLICY (AWR):

There is no regular requirement of these items but one set of the item shall be
maintained whenever an item or one set of item is consumed, procurement action is to
be taken to replenish the same. This model is followed for items whose consumption
is less and sporadic and of course non availability of these items may be pose serious
problems to plant working.

PURCHASE WHEN REQUIRED (PWR):

Normally no stock of such items shall be maintained. But if the user

departments require the items for normal maintenance jobs they shall inform stores
for procurement through a internal departmental memo.

DOCUMENTATION:

Every aspect is being made to enter in the ERP. ERP stands for the
“ENTREPRENEUR RESOURCE PLANNING”. A software developed on the
basis of Oracle by J.D. EDWARDS and named it as “PEOPLE SOFT WORD”

73
VARIOUS COMMITTES IN INVENTORY COST REDUCTION COST
APPRAISAL COMMITTEE:

This was constituted in 1978 with an object to work out and reduce input raw
material and chemical costs with better cost benefits. This committee was not formed
on permanent basis

VALUE MANAGEMENT TEAMS / COST REDEUCTION SUB COMMITTEE

INVENTORY MANAGEMENT:

VMT (Middle Level Management) took birth during 1986 one of the teams
was constituted to work on inventory control consisting of members from stores
planning user department and material supply department. The same was renamed as
“COST REDICTON SUB COMMITTEE INVENTORY MANAGEMENT” in 1989.
Aim to reduce inventory to identify the reasons for increase and corrective actions are
taken.

INVENTORY REVIEW COMMITTEE:

This committee has been formed with a view to analyze inventory levels and
arrive at some decisions to control the inventory. If critically analysis quarterly
inventory statement particularly when the stock crossed maximum recommended
level the action plans are drawn and execute the decisions taken in meeting.

PURCHASE REQUISITIONS REVIEW COMMITTEE:

As a preventive action to control the future piling up inventories items are

scrutinized closely while processing. Purchase requisitions review committee has
been constituted with a view to fulfill the above objectives for the budgetary control
of items. After working of this committee user department have become more
cautious in writing purchase requisitions and taking more care in procurement of
materials and giving judicious justifications for need of the items.

74
CONSTRAINTS FACED IN PRACTISING INVENTORY MANAGEMENT
SYSTEM:

Demand and lead-time deterministic and static in most of the actual cases and
sudden changes without conforming to the predetermined parameter lead to higher
inventory holding or stock outs. Volatile markets and often changing governments
regulating policies do contribute towards it.

Though the main logic behind PWRI policy not hold any stock but in some
cases stocks do exist for PWR items due to the fact that some of the earlier regular
consumable items have been brought into this category and because of very slow
consumption those stocks will remain and also in some cases user departments may
not utilize or use the material procured under policy.

RIL policy has not followed as a periodic review system

Inventory norms for some of the major items could not be followed mainly
view materials, pulp, coal and machine clothing due to government controls and its
seasonal availability.

Average inventory during the quarter on daily basis could not be calculated
due to difficultly involved in calculations and time hence inventory as on at the end of
quarter is compared with recommended any minimum and maximum level.

Even though we spent a lot of man hours (both consultants and internal) and
money in identifying obsolete and surplus items but disposal of the same is high
problem mainly because of factory location and value of items and transportation.

Locational disadvantages of our mills forces us to carry large inventory of

spare parts. User departments most of the times don’t realize the costs involved in
materials as they realize machine down times and production stoppages.

Obsolete and surplus stocks building up can be avoided to be greater extent if

the requirement of material is worked out on most realistic way.

75
CONCLUSION:

Cost reduction of inventory could be possible when there is proper co-

ordination between departments. (Stores, Purchase, User) Obsolete/surplus stocks are
bound to be generated in any inventory management system. However identification
and disposal of these stocks is done on top priority some cost benefit could be enjoyed
on this account. Timely corrective action to control / inventory will definitely yield
fruitful results. Much control should be exercised in procuring spare parts in for old
equipments due to the fact that remaining life of these equipments will be very less
and the same day be replaced by new equipments shortly. Standardization in respect
of equipment will greatly help in reducing inventory of spare parts.

76
INVENTROY CONTROL

DEFITION:

“Inventory control is meant for maintaining a reserve of goods that will ensure
manufacturing according to a production plan based on sales requirement at the
lowest possible ultimate cost”

1. PRODUCTION BASED CHEMICALS:

TOTAL NO. OF CHEMICALS: 46NO.

HEAVY CHEMICALS: 19NO.

1.1 BENEFITS DUE TO NEW COMPUTATION METHOD: (E.g.)

2003-04(old method) 2004-05(new method) Reduction

Average inventory level 2, 20, 55,825 1, 87, 81,851 15%

(Production based chemicals)

2. OBJECTIVES:

Identify specific opportunities for reduction of inventory (focusing on heavy

chemicals)

Keeping in view the

 Item specific constraints

 Logistics other supplier related issue
 Required service level

3. WHY INVENTORY OF PRODUCTION BASED CHEMICAL HIGH

 Variation in actual consumption vis-à-vis planned consumption

 Price fluctuations
 Uncertainties in supply such as

77
  Complexities in logistics (Transshipments due to location of mill &
supplier).
 Supply interruptions due to:
 Power cuts
 Break downs
 Input availability
 Seasonal availability
 Large receipt to sizes due to high percentage of transportation
cost.
 Large lead time of procurement (4 to 6 weeks) of certain
chemicals (dyes & costing plant chemicals).

4. COMPUTATION OF INVENTORY NORM FOR CHEMICALS:-

PROPOSED BY: M/s: ANDERSEN CONSULTANTS (AMERICAN BASED)

 This method is applicable for frequently arriving large volumes materials

lonely production based item and not maintenance based items.
 The average inventory consists of two components:
 SAFETY STOCK
 BASE STOCK (RUNNING STOCK)

 Variations in receipt quantity, lead time and consumption quantity is

considered as basis for safety stock.
 Delivery lot sizes & daily consumption is considered as basis of base stock.

78
BASIS FOR INVENTORY

BASE STOCK

ANTICIPATED DEMAND

MINIMUM RECEIPT LOT SIZE

RECEIPT QUANTITY VARIANCE

AVERAGE INVENTORY

CONSUMPTION VARIANCE

LEAD TIME VARIANCE

RECEIPT VARIANCE

SAFETY STOCK:

79
5. PROCEDURE FOR COMPUTATION OF NORMS:

5.1 Data collected on daily opening inventory, receipts, issued & opening inventory
for each item from computer for last one year.

5.2 Data or Receipts is used to compute:

1. Average inter arrival frequency

Ex: for lime the average inters arrival frequency is 1 day.

2. 95% ile, inter arrival frequency

Ex: for lime, 95% ile inter arrival frequency is 5 days which means that
only in 5% of the receipt no. of days between two arrivals whose more
than 5 days.

3. Average receipt quantity

Ex: for lime average receipt quantity is 80T

4. 5% ile receipt quantity

Ex: for lime 5% ile, receipt quantity is 48T which means that only on 5%
of the day the total receipt quantity was less than 48%

5.3 Data on daily consumption is used to compute

1. Average consumption during inter arrival time.

Ex: for lime average consumption during inter arrival time is 83T

2. 95% the consumption during inter arrival time

Ex: for lime the 95% ile consumption during inter arrival time is 135T
which means that only on 5% of the days consumption is more than 135T Hence for
lime safety stock due to:

80
I. LEAD TIME VARIANCE = 5 days – 1 day = 4 days

= 4 * 92.91 (where 92.91 is the daily consumption in

tons)

= 372T

II. RECEIPT QUNTITY VARIANCE = 80T-48T

= 32T

III. CONSUMPTION QUNTITY VARIANCE = 135T-83T

= 52T

TOTAL SAFETY STOCK = I + II + III

= 372 + 32 + 52

= 456T

5.4 Base stock is computed considering daily consumption & delivery lot size.

Ex: for lime daily consumption is 92.91T

= 0.1614 DAY

= 1 DAY (SAY)

81
 = 46.45

= 46T (SAY)

5.5 The computed figures are verified with stores.

5.6 The normative inventory is computed on the basis of above calculations:

Agreed safety stock after due discussion with stores considered as 550T

(Instead of computed safety stock 456T)

= 550T + 46T

= 596T

CONCLUSION:

 596T of lime to be maintained for 6 days consumption.

 Normative inventory level compared with actual inventory level on monthly
basis.

82
  Monthly requirement plan is forwarded by Dy. General Manager (Stores) to
Purchase Department, Head Office.
 Daily follow up with Head Office.

QUALITY MANAGEMENT SYSTEM

INTRODUCTION:

Quality management is a way of working or a philosophy, which encompasses

very broad range of values and principles. It is clear by now that though the name
says “QUALITY MANAGEMENT”; it actually means the “MANAGEMENT” with
quality as focus.

KEY CONCEPTS IN QUALITY MANAGEMENT:

 LEADERSHIP FOR QUALITY

 CUSTOMER FOCUS
 CONTINUOUS IMPROVEMENT
 PREVENTIVE ACTION
 COST OF QUALITY – PROFITS THOUGH QUALITY
 TEAM WORK
 TRUST
 QUALITY SYSTEM APPROACH

INTEGRATED MODEL OF QM:

83
 QUALITY MANAGEMENT SYSTEM
STORES AND YARD
DEPARTMENT FLOW CHART

INPUT/OUTPUT PROCESS RESOURCES

C
O
M
M
U
BUDGETS/NORMS MATERIALS PLANNING N
I
C
A
T
I
O
RAWMATERIALS/ N
COAL/CHEMICALS *
STORES&SPARES RECEIVING S
PACKING P
MATERIALS A
C
E
*
E
SCRAP Q
HANDLING/STORAGE/ U
DISPOSAL I
P
M
SOLID WASTES
E
N
T
*
M
A
RAWMATERIALS/ N
COAL/CHEMICALS P
STORES&SPARES ISSUE O
PACKING W
MATERIALS E
R

84
 QUALITY MANAGEMENT SYSTEM STORES & YARD
ORGANIZATIONAL CHART
Dy. GENERAL MANAGER
(STORES)

MANAGER (STORES)

Dy. MANAGER Dy. MANAGER Dy. MANAGER

(STORES) YARD (LIAISON)
(RAWMATERIALS)

ASST. MANAGER ASST.OFFICER OFFICER OFFICER ASST. ASST. ASST. MANAGER

(STORES) (STORES) (STORES) (STORES) MANAGER MANAGER YARD
MOVEMENTS COAL & LIME

ASST. OFFICER ASST. OFFICER

MOVEMENTS OFFICER YARD2
YARD

ASST.
OFFICER SR. ASST. SUPERVISION OF BAMBOO
HARDWOOD YARD WASTE
(YARD)
SR. ASST. SR. ASST. SR. ASST. CHEMICALS
REMOVAL CO-ORDINATION
WITH INTER DEPARTMENTS

COAL LIASONING
WITH OFFICIALS
STENO TYPIST MOVEMENTS

RLY. LIAISONING LIAISON AT VISAKAPATNAM

DESPATCHES WITH PLY OFFICIALS &
DELIVERY OF OTHERS PROCUREMENT
GOODS CHASING OF ASSITANCE
GOODS & CLAIMS WEIGHING SCALES
MAINTAINANCE
TYPIST
ASST. ASST. ASST. ASST.
ASST. SUPERVISIOR
SUPERVISOR SUPERVISIOR (YARD)
SCRAP (YARD)

COMPUTER DATA
WEEKLY/ MONTHLY/
PROCEDURES FOR QUALITY MANAGEMENT SYSTEM SUPERVISIORS
REPORTS MATERIAL (YARD)
PLANNING
MIS & INVENTORY
CONTROL
RECEIPTS
REJECTION
& UNLOADING RAWMATERIALS BUILDING SUPERVISION OF PLACEMENTS & DRAWN OUT OF

ISSUE & GODOWN

UPKEEPING
MODVAT
CENTRAL EXCISE
REPLACEMENT
REPAIR
JOB
PERPECTUAL
INVENTORY
DISPOSAL
OF SCRAP&
85
OFFICE ADMN.
TYPING DAK
STACKING ISSUE OF
CHEMICALS & PULP
GODOWN
CHEMICALS PULP
RECORD KEEPING
AND
MATERIAL
PROCUREMENT &
ACCOUNTING
COAL LIME WASTE
DISPOSAL
ORDINATION WITH
CO-
WAGONS & TRUCKS RLY. SIDING
MAINTRNANCE AND SUPERVISE
FEEDING OPERATIONSIN SHIFT
& REPORTS CO-ORDINATION CHECKS OBSOLETE & RECEIPT FILING UPKEEPING BILLS PASSING INTER DEPT. &
PRINTING&STATIONERY ACCOUNTING CLAIMS LOCAL BODIES
&ACCOUNTING
 IN
STORES & YARD

TITLE: MATERIAL PLANNING PROCEDURE

PURPOSE: MATERIAL PLANNING FOR EFFECTIVE CONTROL AND SMOOTH FLOW OF MATERIAL AVAILABILITY

SCOPE: APPLICABLE FOR ALL RAW MATERIALS, CHEMICALS, STORES AND SPARES.

RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES) ASST. MANAGER (YARD&STORES)

INPUTS:

SL. INPUT SOURCE FREQUENCY RESPONSIBILITY REVIEW CRITERIA REFERENCE

NO.
TARGET
1. REVENUE/CAPITAL BUDGET ACCOUNTS DEPT YEARLY ACCOUNTS DEPT VS
CONSUPTION
ANNUAL INDENT
2. PLANNING DEPT. YEARLY ASST.MANAGER (YARD) STOCK STATUS
REQUIREMENTS
ANNUAL SHUT
3. PLANNING DEPT. AWR ASST.MANAGER (YARD) STOCK STATUS
REQUIREMENTS
4. PURCAHSE REQUIREMENTS USER DEPT. CONTINEOUS DY.MANAGER (STORES) STOCK STATUS
MEMOS FOR URGENT
5. USER DEPT. AWR ASST.MANAGER (YARD) STOCK OUTS
PROCUREMENTS
6. DATUM LEVELS/ NORMS I.E.DEPT. CONTINEOUS ASST.MANAGER (YARD) REPLENISHMENTS
ASST.MANAGER TARGET VS
7. IMPORT BUDGET PLANNING DEPT. YEARLY
(STORES) CONSUMPTION
PROCESS INTERFACE:

86
SL.NO. ACTIVITY RESPONSIBILITY REFERENCE
MATERIAL PLANNING - PRODUCTION & DY. MANAGERS(YARD&STORES)
1.
MAINTENANCE MATERIALS ASST. MANAGER (YARD)
MATERIAL PLANNING - PRINTING & STATIONERY
DY. MANAGER (STORES)
2. ITEMS /
ASST. MANAGER (YARD)
JOB PROCESSING ITEMS

MEASUREMENT AND MONITORING PROCESS:

SL.NO. STAGE / SECTION MONITORING CRITERIA FREQUENCY RESPONSIBILITY REFERENCE

STOCK, STATUS OF MACHINE
NORMS VS STOCK MONTHLY/
1. CLOTHING, DOCTOR BLADES, ASST.MANAGER(YARD)
WEEKLY
CHEMICALS, TOOLS, Etc.
2. STOCK STATUS OF IRP ITEMS REORDER LEVEL DAILY ASST.MANAGER(YARD)
PROCESSING OF ANNUAL INDENT STOCK AVILABILITY
3. QUARTELY ASST.MANAGER(YARD)
REQUIREMENTS OUTSTANDING PR/ PO
PROCESSING OF ANNUAL SHORT STOCK AVILABILITY
4. AWR ASST.MANAGER(YARD)
REQUIREMENT OUTSTANDING PR/ PO
“Y” FLAGGING OF PURCHASE
STOCK AVILABILITY
REQUISITIONS
5. OUTSTANDING PR/ PO DAILY DY. MANAGER (STORES)
AUTHORIZATION
DEPT. BUDGET FOR
6. PURCHASE REQUISITION RASING OF PR’s V/S WEEKLY ASST. MANAGER (STORES)
ACTUAL VALUE
OUTPUT:

87
SL.NO. OUTPUT TO REVIEW CRITERIA REFERENCE
CE(W) VP(C)
STOCK, STATUS WITH RECEIPT ND ISSUE VP(RM) SR
DAILY FOR EXPEDITING DELIVERIES AS PER
1. AND TRANSIT DETAILS FOR IMPORTANT MGR (SP) DATIUM LEVELS
ITEMS GM (PUR)
GM (COMM)
GM(PUR) MONTHLY FOR REPLENISHMENT OF STOCKS AS
2. REPORT OF DOCTOR BLADES, CHAINS Etc.
SR MGR(PUR) PER RECOMMENDED NORMS
STOCK REPORT FOR CHEMICALS, DAILY FOR REPLENISHMENT OF STOCKS AS PER
3. PUR(W)
PACKING MATERIALS, FUELS Etc. RECOMMENDED NORMS
STOCK REPORT FOR IRP ITEMS DAILY FOR REPLENISHMENT OF STOCKS AS PER
4. PUR(W)
REPLENISHMENT RECOMMENDED NORMS
MONTLY FOR REPLENISHMENT OF STOCKS AS
5. REPORT FOR MACHINE CLOTHING GM (PUR) PER RECOMMENDATIONS OF USER DEPT.
PUR(W) DAILY FOR ARRANGING MATERIALS OF NEED
6. “Y” FLAGGED PURCHSE REQUISTION
GM(PUR) BASE ITEMS BY PURCHASE(WORKS)
GM(ENG.) WEEKLY FOR MONITORING OF ACTUAL VS
7. REPORT OF PR VALUE STATUS DEPT. WISE
GM (PUR) BUDGET SANCTIONS
DAILY CRITICAL ITEMS REVIEW FOR BETTER
8. STOCK REPORT FOR MAJOR CHEMICALS PUR(W) CONTROL AND TO AVOID STOCK OUT SITUATION
WEEKLY AND MONTHLY REPORTS FOR BETTER
9. LIME RECEIPTS GM(PUR) CONTROL AND INFLOW OF QUALITY MATERIALS
RECEIPT OF CHEMICALS REPLENISHMENT WEEKLY AND MONTHLY REPORTS FOR BETTER
10. GM(PUR)
CONSUMPTION CONTROL AND INFLOW OF QUALITY MATERIALS
TITLE: GOODS RECEIPT AND HANDLING OF NON CONFORMING PRODUCTS PROCEDURE

PURPOSE: THIS QUALITY MANAGEMENT PROCEDURE IS VALID FOR ALL INCOMING MATERIALS

88
SCOPE: APPLICABLE FOR ALL RAW MATERIALS, CHEMICALS, STORES AND SPARES.

RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES), ASST. MANAGER (YARD&STORES), OFFICER (STORES)

INPUTS:

REVIEW
SL.NO. INPUT SOURCE FREQUENCY RESPONSIBILITY REFERENCE
CRITERIA
RAW MATERIALS COAL DY. MANAGERS
MATERIAL PARTY
HEAVY CHEMICALS …… SUPPLIERS DAILY (YARD&STORES) VS CHALLAN DOCUMENTS
CHALLANS
STORES & SPARES...……..
PURCHASE MATERIAL
1. GOODS DELIVERY/ DAILY OFFICER (STORES)
DEPT. VS GODOWN
REPLACEMENT NOTE
DY. MANAGERS
RAW MATERIAL COAL
SUPPLIERS DAILY (YARD&STORES) TEST WEIGHMENTS
HEAVY CHEMICALS
PARTY
2. STORES AND SPARES SUPPLIERS DAILY OFFICER (STORES) QUNTITY/PACKING
DOCUMENTS
APPROVING
AUTHORITY ASST. MANAGER ACCEPTANCE/
3. QUALITY REPORTS DAILY
USER DEPT./ (STORES) REJECTION
CONTROL LAB
VARIOUS REGISTER OF
STATUTORY COMPLIANCE WITH
4. LAWS/ CONTINEOUS WORKS OFFICER STATUTORY
REQUIREMENTS THE LAWS
LEGISLATIONS LAWS
PROCESS INTERFACE:

SL.NO. ACTIVITY RESPONSIBILITY REFERENCE

89
 DY. MANAGER(YARD)
1. RECEIPT OF RAW MATERIALS, COAL, HEAVY CHEMICALS ASST. MANAGER
(YARD & STORES)
2. RECEIPT OF STORES AND SPARES OFFICER (STORES)
ASST. MANAGER (STORES)
3. REJECTION / DAMAGE / BREAKAGE / SHORTAGE
OFFICER (STORES)

MEASUREMENT AND MONITORING PROCESS:

SL.NO. STAGE / SECTION MONITORING CRITERIA FREQUENCY RESPONSIBILITY REFERENCE

DY. MANAGER(YARD)
QUNTITY IN CHALLAN VS QUNTITY
RECEIPT OF ASST. MANAGER
1. RECEIVED COMPLIANCE QITH DAILY
MATERIALS (YARD & STORES)
STATUTORY NORMS
OFFICER (STORES)
RECEIPT
BAMBOO, DY. MANAGERS,
2. DETECTION OF TRUCK DAILY
HARDWOOD, ASST.MANAGER(YARD)
LIME
RECEIPT OF
3. STORES AND RECEIPT CRITERIAL ANALYSIS DAILY OFFICER (STORES)
SPARES
DY. MANAGER
QUALITY REPORT FROM
4. REJECTIONS AWR (STORES)
APPROVING AUTHORITY
OFFICER (STORES)

OUTPUT:

SL.NO. OUTPUT TO REVIEW CRITERIA REFERENCE

90
 DAILY FOR DOCUMENTATION OF GOODS
1. YARD REPORT SELF REEIPT REPORT
ACC. (w), PUR(w),
DAILY FOR DOCUMENTATION OF MATERIAL
2. GOODS RECEIPT REPORT CULCUTTA OFFICE/HO RECEIPT REPORT
USER DEPT./SELF
REJECTION MATERIAL MONTLHY FOR RETURN OF NON
3. PUR(w)
RETURN DUE CONFIRMATORY MATERIALS
STATUS REPORT OF GRR’S
4. VP(C) GM (ENGG.) WEEKLY STATUS REVIEW
PENDING FOR APPROVAL
REMINDER FOR MATERIAL
USER DEPT. WEEKLY FOR SMOOTH FLOW OF
5. INSPECTION OF STORES & DOCUMENTATION
SPARES
MATERIAL REJECTION MONTHLY FOR RETURN OF NON
6. ACC(w), PUR, SELF
REPORT CONFIRMATORY MATERIALS
RECJECTION MATERIAL AWR RETURN OF NON CONFIRMATORY
7. SUPPLIERS
RETURN GDN MATERIALS
RECEIPT REPORT OF STORES
8. SELF DAILY COMMUNICATION TO BE SPECIFIED
& SPARES
DETENTION OF RAW
9. ACTIVITY BOARD MONTHLY PRERFORMANCE REVIEW
MATERIAL TRUCKS
DETENTION OF LIME
10. ACTIVITY BOARD MONTHLY PRERFORMANCE REVIEW
TRUCKS

TITLE: PROCEDURE FOR IDENTIFICATION TRACE ABILITY, HANDLING, PRESERVATION STORAGE AND
DISPOSAL OF MATERIAL

PURPOSE: THIS QUALITY MANAEMENT PROCEDURES IS OPTIMAL IDENTIFICATION, TRACE ABILITY, HANDLING,
PRESERVATION, STORAGE AND DISPOSAL OF ALL MATERIALS

91
SCOPE: APPLICABLE FOR ALL RAW MATERIALS, COAL, LIME, HEAVY CHEMICALS, STORES AND SPARES AND SOLID
WASTES.

RESPONSIBILITY: DY. MANAGER (YARD), DY.MANAGER (STORES) ASST. MANAGER (YARD&STORES)

INPUTS:

SL.
INPUT SOURCE FREQUENCY RESPONSIBILITY REVIEW CRITERIA REFERENCE
NO.
MATERAIAL
1. MATERIAL CATALOGUE IE DEPT. AWR Sr. MANAGER (IE)
SPECIFICATIONS
STOCK/TRUCK/ DY.MANAGER
RAW MATERIAL DAILY QUNTITY/QUALITY
RAIL (YARD)
ASST.MANAGER
COAL STOCK /RAIL DAILY QUNTITY/QUALITY
(YARD)
2.
ASST.MANAGER
HEAVY CHEMICALS STOCK DAILY QUNTITY/QUALITY
(YARD)
ASST.MANAGER
STORES SPARES STOCK DAILY QUNTITY/QUALITY
(STORES)
SUPPLIER/ DY.MANAGER(YARD)
COVERAGE OF ALL
3. MATERIAL SAFETY DATA SHEET STANDARD AWR ASST.MANAGER(YARD) AS PER LAW
APPLICABLE ITEMS
LITERATURE ASST.MANAGER(STORE)
SUPPLIER/ DY.MANAGER (YARD) COVERAGE OF ALL
4. LIFE/STORAGE NORMS DATA STANDARD AWR ASST.MANAGER (YARD) APPLICABLE/ PHYSICAL
LITERATURE ASST.MANAGER (STORES IDENTIFIEBLE ITEMS

PROCESS INTERFACE:

92
 SL.NO. HANDLING & STORAGE METHOD FOR RESPONSIBILITY REFERENCE

1. RAW MATERIALS DY. MANAGER(YARD)

2. COAL
ASST. MANAGER (YARD)

3.
LIME ASST. MANAGER (YARD)

4. HEAVY CHEMICALS DY. MANAGER(STORES)

5. STORES AND SPARES ASST. MANAGER (YARD)

6. SCRAP DY. MANAGER(STORES)

7. SOLID WASTES ASST. MANAGER (STORES)

MEASUREMENT AND MONITORING PROCESS:

SL.NO. STAGE / SECTION MONITORING CRITERIA FREQUENCY RESPONSIBILITY REFERENCE

1. STOCK CHECKING PHYSICAL HALF YEARLY DY. MANAGER (STORES &

93
 FOR RAW
VS YARD)
MATERIALS, COAL,
BOOK STOCK ASST.MANAGER(STORES)
LIME, CHEMICALS
STOCK TAKING
2. FOR STORES AND PHYSCIAL VS BOOK STOCK PERPECTUAL ASST.MANAGER(STORES)
SPARES
HANDLING OF
DY. MANAGER (STORES &
3. COAL LIME HEAVY FIFO CONTINEOUS
YARD)
CHEMICALS
HANDLING OF
4. FIFO CONTINEOUS DY. MANAGER (YARD)
RAW MATERIALS
CONDITION
5. MONITORING FOR CONDITION OF MATERIALS MONTHLY ASST. MANAGER (YARD)
STORES SPARES
DISPOSAL WITH COMPLIANCE
6. SOLID WASTE CONTINEOUS ASST. MANAGER (STORES)
OF STRATEGY NORMS
ARRIVALS,
SEGREGATION/DISPOSAL WITH
7. SCRAP DAILY DY. MANAGER(STORES)
COMPLIANCE OF STATUTORY
NORMS

OUTPUT:

SL.NO. OUTPUT TO REVIEW CRITERIA REFERENCE

1. PHYSICAL SHORTAGE/EXCESS TOP HALF YEARLY FOR ACCURACY OF

94
 STATEMENT MANAGEMENT BOOKS VS PHYSICAL
2. MATERIAL FIT FOR LINE USER DEPT. CONTINEOUS FOR QULITY
INVENTORY & CONTROL GRAPHS OF
3. ACTIVITY BOARD AS PER SCHEDULE FOR ANALYSIS TPM
VARIOUS ACTIVITIES

95
RATIO ANALYSIS OF INVENTORY

 RATIO OF COST OF GOODS SOLD TO SALES:-

TABLE: 4.1

YEARS COST OF GOODS SALES RATIO

SOLD
Rs. in
Rs. in Lacs (0.1 Million) Lacs

(0.1
Million)
2000-01 483.3 629.62 0.76
2001-02 483.95 540.18 0.89
2002-03 519.33 585.33 0.88
2003-04 477.45 624.61 0.76
2004-05 516.22 633.52 0.81
2005-06 535.86 665.12 0.80

FIGURE:

96
INTERPRETATION:

The table 4.1 shows the ratio of cost of goods sold to sales. It is observed that there is
an increase of 17.10% in the ratio of cost of goods sold to sales in the year 2001-02 from
the year 2000-01. But when compared to 2002-03 with 2001-02 there was a decrease of
1% and the next year there was further decrease of 14% from the year 2001-02. In the
year 2004-05 there was an increase of 6.58% in cost of sales which is not good as the cost
of goods sold must be minimized to the fullest possible length. But in year 2005-06 their
was a slight decrease.

Therefore overall the company performance is said to be good in controlling and

reducing the cost of goods sold.

97
  RATIO OF RAW MATERIAL CONSUMED TOTAL COST OF THE
PRODUCTION:

TABLE:4.2

YEARS RAW MATERIALS TOTAL COST OF RATIO

CONSUMED PRODUCTION

Rs. in Lacs (0.1 Million) Rs. in Lacs (0.1Million)

2000-01 9744.22 27914.43 0.35
2001-02 9239.14 26733.09 0.35
2002-03 10482.19 30905.13 0.34
2003-04 11887.81 32905.18 0.36
2004-05 13201.14 34768.78 0.38
2005-06 15977.08 42598.36 0.38

FIGURE:

98
INTERPRETATION:

The above 4.2 table reveals the ratio of the raw material consumed to the total cost of
production. In the year 2000-01 the ratio is stable when compared with the previous year
2000-01. But in the 2002-03 there was an decrease of 2.86% in the ratio as the cost of
production increased and in the next year i.e., 2003-04 there was an further increase of
5.88% when compared to the previous year. And in the years 2004-05 there was further
increase of 5.56%, and in the year 2005-06 it was stable.

Overall the ratio is in an increasing trend and hence it is good for the organization that
it maintaining other costs in a controlled way.

99
  RATIO OF OPENING AND CLOSING RAW MATERIAL TO THE TOTAL
RAW MATERIAL:

TABLE: 4.3

YEARS OPENING CLOSING TOTAL OPENING CLOSING

Rs. in Lacs RATIO RATIO
Rs. in Lacs Rs. in Lacs
(0.1
(0.1 Million) (0.1 Million) Million)

2000-01 1790.32 1975.16 3765.48 0.48 0.53

2001-02 1975.16 1796.55 3771.71 0.52 0.48
2002-03 1796.55 2630.07 4426.62 0.41 0.59
2003-04 2630.07 2001.24 4631.31 0.57 0.43
2004-05 2001.24 2607.68 4608.92 0.43 0.57
2005-06 2607.24 3160.02 5767.26 0.45 0.55

FIGURE:

100
INTERPRETATION:

The above table 4.3 reveals the opening and closing raw material in lakhs and in the
ratio.

In the year 2000-01 the ratio values of opening and closing are said to be 0.48 and 0.53
respectively. For the next year 2001-02 there was an increase in the ratio of opening by
7% and decrease in the closing by 9.43%. and in the next year 2002-03 there was an
decrease of 21.5% in opening and 22.92% increase in the closing and in the year 2003-04
there was and tremendous increase of 39.02 in opening and there was an rapid decrease
of 27.11% in the closing.

In the year 2004-05 the opening ratio decreased by 24.56% and the closing ratio is
increased by 32.56% with comparison of the previous year 2003-04 and in the year 2005-
06 opening has increased by 4.6% and decrease in closing by 4% it is good for the
company. Over all the organization must have an increase in the raw materials and the
raw materials of JK are said to be fluctuating.

101
RATIO OF OPENING AND CLOSING WORK IN PROGRESS TO THE TOTAL
WORK IN PROGRESS:

TABLE: 4.5

YEARS OPENING CLOSING TOTAL OPENING CLOSING

Rs. in Lacs RATIO RATIO
Rs. in Lacs Rs. in Lacs
(0.1 Million)
(0.1 Million) (0.1 Million)
2000-01 820.69 732.26 1552.95 0.53 0.47
2001-02 732.26 750.28 1482.54 0.49 0.51
2002-03 750.28 643.25 1393.53 0.54 0.46
2003-04 643.25 753.67 1396.92 0.46 0.54
2004-05 753.67 696.18 1449.85 0.52 0.48
2005-06 696.18 710.06 1406.85 0.49 0.51

FIGURE:

102
INTERPRETATION:

The above table 4.5 shows the opening and closing work in progress to the total work in
progress.

In the year 2001-02 the opening ratio is decreased by 7.54% and the closing ratio is
increased by 7.84% when compared to the year 2000-01. And in the year 2002-03 there
was an increase of 10.2% in the opening and 9.8% decrease in the closing and in the year
2003-04 there was an decrease of 14.81% in the opening and increasing of 17.39% in the
closing. In the year 2004-05 opening has increased by 13 %, closing decreased by 12%
and in the year 2005-06 opening has decreased by 6%,and closing has increased by
6.25%.

Over all the companies’ ratio of opening and closing work in progress to total work in
progress is said to be fluctuating.

103
  RATIO OF OPENING AND CLOSING INVENTORY TO THE TOTAL
INVENTORY: ( w.r.t. FINISHED GOODS)

TABLE: 4.6

YEARS OPENING CLOSING TOTAL OPENING CLOSING

Rs. in Lacs RATIO RATIO
Rs. in Lacs Rs. in Lacs
(0.1 Million)
(0.1 Million) (0.1 Million)
2000-01 559.69 2275.60 2835.29 0.20 0.80
2001-02 2275.60 625.91 2901.51 0.79 0.23
2002-03 625.91 1340.98 1966.89 0.32 0.68
2003-04 1340.98 1273.33 2614.31 0.51 0.49
2004-05 1273.33 1520.44 2793.77 0.45 0.54
2005-06 1520.44 2218.79 3739.23 0.40 0.59

FIGURE:

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INTERPRETATION:

The above table 4.6 represents the opening and closing inventory of JK PAPER.

In the year 2001-02 the opening ratio is increased by 74.68% and decreased by 71.25
when compared to the previous year 2000-01 and in the year 2002-03 the opening ratio is
decreased by 0.47 and the closing is increased by 0.45 and in the next year 2003-04 there
was an increase of 0.19 in the opening and decrease of 0.19 in the closing. In the final
year 2004-05 the opening ratio is decreased by 11.76% and closing ratio is increased by
10.2% when compared with 2003-04. and in the year 2005-06 he opening has decreased
by 11.11% and closing has increased by 9.25 %.

Therefore it is being interpreted that the company is maintaining a balance between

the opening and closing inventory to the total inventory.

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INVENTORY TURN OVER RATIO:-

COST OF GOOD SOLD/AVERAGE INVENTORY

TABLE: 4.7

YEARS C.G.S AVERAGE INVENTORY TURN

INVENTORY OVER RATIO
Rs. in crore Rs. in crore (In Times)
2000-01 483.3 46.258 10.4
2001-02 483.95 65.47 7.39
2002-03 519.33 62.81 8.26
2003-04 477.45 66.98 7.12
2004-05 516.22 68.42 7.54
2005-06 535.86 81.11 6.60

FIGURE:

106
INTERPRETATION:

The above table 4.7 indicates the inventory turnover ratio of JK PAPER LTD. Higher
the ratio, greater the efficiency of inventory management.

From the above table it is clear that in 2001-02 the ratio is decreased by 40.7% as
there is a reduction in the inventory. Where as, in the year 2002-03, the ratio is increased
by 10.5% as the inventory is moving fastly and generating sales. Where as in the years
2003-04 the ratio is decreased in the inventory from 2002-03 and in the year 2004-05
there was an increase 6% when compared to the previous year 2003-04, and in the year
2005-06 it has decreased by 14%, however the overall inventory turnover ratio in JK
PAPER LTD is fluctuating.

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INVENTORY HOLDING PERIOD :

FORMULAE:

TABLE: 4.8

YEARS DAYS INVENTORY TURN INVENTORY

OVER RATIO HOLDING PERIOD

(In Times) (In Days)

2000-01 365 10.4 35
2001-02 365 7.39 49
2002-03 365 8.26 44
2003-04 365 7.12 51
2004-05 365 7.54 48
2005-06 365 6.60 55

FIGURE:

108
INTERPRETATION:

The above table 4.8 shows the inventory holding period of JK PAPER LTD. Is not
constant it is fluctuating but the fluctuation is not so high it can be accepted. The change
high in the year 2001-02 its around 14 days .

Generally the sales will have an affect on the inventory holding period if the sales are
said to be more then the inventory holding period is said to be very low where as high
when there will be an low sale of the product that is being manufactured .

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RAW MATERIALS TURNOVER RATIO:

FORMULAE:

TABLE: 4.9

YEARS MATERIALS AVERAGE RAW RAWMATERIAL

CONSUMED MATERIALS TURNOVER RATIO

Rs. in Lacs Rs. in Lacs (In Times)

(0.1Million) (0.1Million)
2000-01 9744.22 1790.32 5.44
2001-02 9239.14 1885.86 4.89
2002-03 10482.19 2213.31 4.74
2003-04 11887.81 2315.66 5.13
2004-05 13201.14 2304.46 5.73
2005-06 15977.08 2883.06 5.66

FIGURE:

110
INTERPRETATION:

The above table 4.9 reveals the raw material turn over ratio. In the year 2001-02 the
raw materials turn over ratio is decreased by 10.11% to the previous year 2000-01 and in
the 2002-03 there was a decrease of 3%. In the year 2003-04 there was an increase of
8.23% from the previous year 2002-03.

In year i.e., 2004-05 there was a further increase of 11.70% from the previous year
2003-04 and in the year 2005-06 their was a slight decrease overall there is said to be an
increasing trend with low rate of decrease.

There fore the raw material turn over ratio is said to be in an increasing way and
increase is said to be a favorable one to the organization in respect of raw materials

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WORK IN PROGRESS TURNOVER RATIO:

FORMULAE:

TABLE: 4.10

YEARS COST OF AVERAGE WORK IN WIP

PRODUCTION PROGRESS
TURNOVER RATIO
Rs. in Lacs Rs. in Lacs (0.1Million)
(In Times)
(0.1Million)
2000-01 27914.43 776.48 35.95
2001-02 26733.09 741.27 36.06
2002-03 30905.13 696.77 44.36
2003-04 32905.18 698.46 47.11
2004-05 34768.78 724.93 47.96
2005-06 42598.36 703.12 60.58

FIGURE:

112
INTERPRETATION:

The above table 4.10 reveals the work in progress turn over ratio. In the year 2001-02
the work in progress turn over ratio is increased by 0.30% to the previous year 2000-01.
In the year 2002-03 there was a drastic increase of 23% in the ratio which is said to be
not favorable for the company. In the next year 2003-04 there was an increase of 6.20%
when compared to the 2002-03. In the final year 2004-05 there was an increase in the
ratio by 1.8%when compared to the previous year 2003-04. and in the year 2005-06 there
is increase of 26.3%.

Therefore the work in progress turn over ratio of the company is said to be increasing
and it has to be brought down to the minimum level.

113
 SUMMARY

JK is continuously growing company producing diversified products. Its

diversification of products and services ensure optimal return on investment.

It is using highly sophisticated technology. The paper industry has a bright future
as the demand for it growing day by day.

It production capacities and productivity is increasing year by year by using

quality raw materials and efficient production technology in analyzing the statements.

Order quantity is an optimum quantity when there is a trade off between ordering
cost and carrying cost. If the company follows OQ, OC and stock out costs will reduce
and suspension of production process will not occur in the plant. The inventory turn over
ratio is good and it should be high.

To be precise even though the company is in good stage it has to improve year by
year and if it continuous with the same trend of performance it can hold the top position
in the county and reach up to the international standards and compete with international
companies.

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 FINDINGS

 No false ceiling resulting in accumulation of dust in record room of stores office.

 Filing rack height more & unwanted tables & chairs.
 Normal trailer and unsafe for handling of raw material.
 More number of trips due to low carrying capacity of trucks.
 Content sheet not visible due to dust.
 ABC analysis not applied for raw materials like bamboo etc,.
 New method of finding the levels of inventory.
 Some times the material is issued and it is not entered in the books.

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 SUGGESTIONS

 False ceiling can avoid dust in the record room.

 Decrease the rack height to 5 feet.
 Increase the height of the trailer and its capacity.
 ABC analysis is to be applied for raw materials like bamboo etc,.
 OQ method will reduce the cost of production by reducing CC and OC hence to
be applied for all types of materials.
 If ABC analysis s is applied for the materials produced it helps to reduce the
unnecessary investment and if applied for raw materials it will reduce the CC and
OC.
 By applying ABC analysis it would become easy to concentrate on the items of a
category to avoid suspension in work and can estimate investment to be made on
these items.
 Company can maintain the raw material stock for one month which it is
maintaining right now for two and half months because they are having their own
plantation which can fulfill 20% of their needs.
 Ground loss of raw material can be controlled by applying proper pesticide to it.

116
  Proper system for the unloading of raw material should be their in rainy seasons,
as there is chance for increase in wastage of raw material, which will affect
bottom-line.

Bibliography:

BOOKS AUTHORS
I. M. PANDEY
FINANCIAL MANAGEMENT

PRASANNA CHANDRA
FINANCIAL MANAGEMENT

PRODUCTION AND OPERATIONS CHUNAWALLA & PATEL

MANAGEMENT

ANNUAL REPORTS OF JKPM

o www.jkpaper.com

o www.paper.com

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