Summer Training Report

On
Inventory Management
At (National thermal power corporation)

Submitted in partial fulfilment of the degree
of
Master of Business Administration
Affiliated
To
Maharishi Dayanand University (Rohtak)

Submitted to: Submitted by:
The Controller of Examination Ruby Jain
M.D.U. (Rohtak) RollNo. 2K13-MRCE-MBA-044

MANAV RACHNA COLLEGE OF ENGINEERING
FARIDABAD (HARYANA)
2014








DECLARATION

I RUBY JAIN Roll no. 2k13-MRCE-MBA-044, Class MBA of the (Manav Rachna College
of Engineering) hereby declare that the summer training report entitled INVENTORY
MANAGEMENT is an original work and the same has not been submitted to any other
institute for the award of any other degree.


Facultys Signature Candidates Signature




(Signature of the Director/ Principal of the Institute)













I

ACKNOWLEDGEMENT
I would like to express my profound gratitude to Mr Dinessh Rastogi (senior manager
finance) under whose guidance I was able to complete my summer training project and was
able to learn the various aspects of finance apart from my project INVENTORY
MANAGEMENT by NATIONAL THERMAL POWER CORPORATION
Their guidance and inspiration helps me lot during prepare my project. Their cordial
cooperation also impress me to furnish my project in good manner. I express my gratitude to
all authorities at NTPC, FARIDABAD, whose directions and valuable information greatly
helped me in preparing my project.
I acknowledge the great assistance and support of entire team of professionals who allowed
me to pursue this project, despite an already crowded and over loaded work schedule.
I would like to specially thank to my family members without their support it was impossible
to go for the project.
Last but not least I must thank god.

(RUBY JAIN)







II

PREFACE
With Immense pleasure and deep sense of sincerity, I have completed my Industrial
training. It isan essential requirement for each and every student to have some
practical exposure towards real world situations. A systematized practical
experience to inculcate self confidence in a student so that they can mentally prepare
themselves for this competitive environment.
The Purpose of Training are:
1. Developing intellectual abilit y of student
2 . B r i n g c o n f i d e n c e
3 . D e v e l o p i n g s k i l l s
4 . Mo d i f y A t t i t u d e s


















I I I



LIST OF EXHIBITS

Fig. No. Title Page No.
5.1 Average Inventories 47
5.2 Total Current Assets 48
5.3 Cost of Goods Sold 49
5.4 Inventories to Gross Working Capital 50
5.5 Inventory Turnover Ratio 51
5.6 Inventory Conversion 52



LIST OF TABLES

Table No. Title Page No.
5.1 Average Inventories 47
5.2 Total Current Assets 48
5.3 Cost of Goods Sold 49
5.4 Inventories to Gross Working Capital 50
5.5 Inventory Turnover Ratio 51
5.6 Inventory Conversion 52







IV



INDEX


S.No. TITLE PAGE No.
Certificate
Declaration i
Acknowledgement ii
Preface iii
List of Exhibits iv
List of Tables iv
1 Introduction 1-3
1.1 Introduction
1.2 Objectives of the Study
1.3 Scope of the Study

2 Profile of the Company 4-21
2.1 Profile of the Company
2.1.1 Organisational Environment
2.1.2 Regulatory Environment
2.1.3 Relationship With Suppliers
2.1.4 Structure Of The Manual
2.1.5 Issue Procedure
2.2 NTPC Vision Mission and Value
2.3 NTPC growth and its initiatives
2.3.1 Future Growth Plan
2.3.2 Growth of the Generation Business
2.3.3 Total Capacity Portfolio
2.3.4 Fuel/energy Mix for Capacity Addition
2.3.5 Diversification Along the Value Chain
2.3.6 Establishing a Global Presence


3 Conceptual Framework 22-46
3.1 Inventory Management & Inventory Control
3.2 Cost Concept in Inventory Management
3.3 Selective Inventory Control Techniques
3.4 Mathematical Modelling For Inventory Controlling
3.5 Inventory Management And Control At NTPC
3.6 Important Quantity Standards Used As A Tool To Control
Inventory
3.7 Tools Used For Inventory Control: Inventory Levels
3.8 Determination Of Safety Stock And Order Level
3.9 Layout Of Stores For Smooth Running Of Operations
3.10 Warehousing And Storage


4 Research Methodology 47-49
4.1 Research Design
4.2 Data Collection Tools
4.3 Sampling Technique
4.4 Data Analysis Tools


4.5 Data Presentation Tools
5 Data Interpretation and Analysis 50-58
5.1 Evaluation of Inventory Of NTPC
5.2 Trend Analysis Of Inventory



6 Conclusion
59-61
6.1 Conclusion
6.2 Limitations


7 Bibliography
62











CHAPTER -1
INTRODUCTION

























1

1.1 INTRODUCTION
The term Inventory includes stock of (a) finished goods (b) work-in-progress and (c) raw
materials and components. In case of a trading concern, inventory primarily consists of
finished goods while in case of a manufacturing concern; inventory consists of raw materials,
components, stores, work-in-progress and finished goods.

A business's inventory is one of its major assets and represents an investment that is tied up
until the item is sold or used in the production of an item that is sold. It also costs money to
store, track and insure inventory.

Inventory Management is the overseeing and controlling of the ordering, storage and use of
components that a company will use in the production of the items it will sell as well as the
overseeing and controlling of quantities of finished products for sale.

Inventories that are mismanaged can create significant financial problems for a business,
whether the mismanagement results in an inventory glut or an inventory shortage. Successful
inventory management involves creating a purchasing plan that will ensure that items are
available when they are needed (but that neither too much nor too little is purchased) and
keeping track of existing inventory and its use.

Inventory management plays a very significant role in facilitating the production process with
adequate amount of required materials at the right time and in right amount.

Inventory Management process needs to be studied so as to understand the overall working
of the process adopted by the organization and the challenges faced by the organization
during the process. The study of the Inventory Management can help the organization to
come up with measures to improve the system of inventory management and attain its
objectives in the long-run





2

1.2 OBJECTIVES OF THE STUDY
The objective of this research is to get an understanding of inventory management
process & to find out the inventory control techniques implemented by NTPC.

To study the various inventory ratios for forecasting the future movement of
inventories in the organization.

To identify the problem area regarding the inventory management/control process of
NTPC.

To provide few suggestions to incorporate the changes required in accordance with
the internal & external environment.

1.3 SCOPE OF THE STUDY
Study will help to understand the movement of inventories and to know about the process of
handling the inventories. It will indicate the drawbacks and measures to overcome these,
which will ultimately enhance the productivity and influence the profitability of NTPC.















3





CHAPTER -2
PROFILE OF THE COMPANY






















4


2.1 PROFILE OF THE COMPANY
NTPC FARIDABAD is one of the operating unit (power station) of NTPC, which has 15 coal
based and 7 gas based stations in India. NTPC incorporated in the year 1975, generated one-
fourth of total power the greatest share in India- despite having only one-fifth of total
installed capacity of India. FGPS started commercial operation from Jan 1, 2001.
2.1.1 ORGANISATIONAL ENVIRONMENT
FGPs is a combined cycle power station, having capacity of 432MW (2*138MW GT
+ 156MW ST). It is designed to run both on Natural Gas as well Naphtha or both.
FGPs is in business of generating electricity/power. Power generated is transmitted to
the grid owned by PGCIL. NTPC, Faridabad is ISO 900, ISO 14001 and OHSAS
18001 certified company. NTPC, fbd with a trained and dedicated team of one
hundred n fifty employees & 200 contract workers has acquired a profile of a model
station in term of efficiency team work. NTPC Faridabad has long recognized the fact
that an employer clearly has a moral as well as social legal duty to conduct the
business in socially & ethically responsible manner. Contract labour (average 100nos)
also work with them. Our personnel supervise their financial & statutory interest
through close interaction with the contractor. We have structured HR policies,
dynamic with the changes in environment & expectation of our employee.
2.1.2 REGULATORY ENVIRONMENT
All the activities and business conducted at Faridabad gas power station complies with
the statues and laws of the land. The workforce is covered under the various labour
laws. Minimum wages and other statutory benefits are ensured to anyone working at
the power station. Applicable laws are the part of the ISO 14001:2004 and OHSAS
18001 systems. The Comprehensive Rehabiliation Action Plan(RAP), derived from
the R&R policy of the govt. of India was developed for FGPS in consultation with
state and the project affected village with as a key focus area.
2.1.3 RELATIONSHIP WITH SUPPLIERS
Gas, Naphtha, HSD, Spares and water are most critical inputs for generation of power.
Hence we have the system, structure and processes to manage value-creating long
term relationship with (for water) Vendor development is an ongoing process. We
work

5
closely with BHEL, Siemens and Alstoms for best result in O & M. Our IT systems
& Tools like OPPMS and OLIMFAS help us manage our material management E-
procurement is the new initiative at FGPS for faster and wider coverage for
procurement. Outsourcing of services, whatever feasible has been a strategy to reduce
our fixed cost (which benefits us as per CERC Tariff Norms) e.g., CISF for plant
security, ICH for canteen and guest house , school for child education, UPL for
service and contract Job etc.
2.1.4 STRUCTURE OF THE MANUAL
Different sections are arranged sequentially as per clause no. of SA 8000. Though
section numbers are similar to the clause no. SA 8000, yet clause no. is also
mentioned under the title of each section except section 00 which is introductory only.
2.1.5 ISSUE PROCEDURE
THE Management Represented is authorized by General Manager to carry out the
activities of preparing issuing, maintaining and updating of this Social Accountability
Manual.
The distribution of the manual and the amendment(s) are controlled and carried out by
the management representative.
The master copy bears the signature of the approving and issuing authority in original.
The master copy does not bear stamp of controlled









6



7

All controlled copies issued to the concerned individual are photocopies legibly from
Master Copy and bear rubber stamp CONTROLLED in red colour on each page of
the manual.
NTPC Limited (formerly National Thermal Power Corporation) an Indian state-owned
electric utilities company and is based in New Delhi, India. NTPC's core business is
generation, distribution and sale of power to state-owned power companies in India.

NTPC Limited is the largest power generating company of India with an electric power
generating capacity of 41,794 MW. A public sector company, it was incorporated in the year
1975 to accelerate power development in the country as a wholly owned company of the
Government of India, which held 75% of its equity shares on 31 March 2013 (after
divestment of its stake in 2005, 2009 and 2012).

Although the company has approx. 18% of the total national capacity it contributes to over
27% of total power generation due to its focus on operating its power plants at higher
efficiency levels (approx. 83% against the national PLF rate of 78%).

In May 2010, NTPC was conferred Maharatna status by the Union Government of India. It
is listed in Forbes Global 2000 for 2012 at 384th rank in the world.










The total installed capacity of the company is 41,794 MW (including JVs) with 17 coal-
based and seven gas-based stations, located across the country. In addition under JVs (joint
ventures), six stations are coal-based, and another station uses naphtha/LNG as fuel.

8


Installed Capacity
The generating capacity as well as plant performance or operational efficiency has been continuously
growing without break since its inception.
NTPCs Installed Capacity and performance depicts the companys outstanding performance across a
number of parameters.



NO. OF PLANTS CAPACITY (MW)
NTPC Owned
Coal 15 23,895
Gas/Liquid Fuel 7 3,955
Total 22 27,850
Owned By JVs
Coal & Gas 4 2,294
Total 26 30,144

9






10
Regional Spread of Generating Facilities
REGION COAL GAS TOTAL
Northern 7,035 2,312 9,347
Western 6,360 1,293 7,653
Southern 3,600 350 3,950
Eastern 6,900 - 6,900
JVs 8,14 1,480 2,294
Total 24,709 5,435 30,144























11

2.2 NTPC VISION MISSION AND VALUE



VISION
To be the worlds largest and best power producer, powering Indias growth.

MISSION
Develop and provide reliable power, related products and services at competitive
prices, integrating multiple energy sources with innovative and eco-friendly
technologies and contribute to society.

CORE VALUES
Business Ethics
Environmentally and Economically Sustainable
Customer Focus

Organizational and Professional Pride
Mutual Respect and Trust
Motivating Self and Others
Innovation and Speed


12


Coal Based Power Stations
The coal based power station has been always the main stay of NTPC . It is one of the biggest user of
coal in India. The entire generation back bone of NTPC is based on its coal fired stations. Following
are the coal based stations of NTPC














13


COAL BASED(Owned by NTPC)
STATE
COMMISSIONED
CAPACITY(MW)
1. Singrauli Uttar Pradesh 2,000
2. Korba Chattisgarh 2,600
3. Ramagundam Andhra Pradesh 2,600
4. Farakka West Bengal 1,600
5. Vindhyachal Madhya Pradesh 3,260
6. Rihand Uttar Pradesh 2,000
7. Kahalgaon Bihar 1,840
8. Dadri Uttar Pradesh 1,820
9. Talcher Kaniha Orissa 3,000
10. Unchahar Uttar Pradesh 1,050
11. Talcher Thermal Orissa 460
12. Simhadri Andhra Pradesh 1,000
13. Tanda Uttar Pradesh 440
14. Badarpur Delhi 705
15. Sipat-II Chattisgarh 1,000
Total 23,895







14


STATE-WISE POWER GENERATION BY NTPC


15
2.3 NTPC GROWTH AND ITS INITIATIVES















NTPC has set new benchmarks for the power industry both in the area of power plant
construction and operations. It is providing power at the cheapest average tariff in the
country. With its experience and expertise in the power sector, NTPC is extending
consultancy services to various organizations in the power business.

NTPC is committed to the environment, generating power at minimal environmental
cost and preserving the ecology in the vicinity of the plants. NTPC has undertaken
massive afforestation in the vicinity of its plants. Plantations have increased forest
area and reduced barren land.

The massive afforestation by NTPC in and around its Ramagundam Power station
(2600 MW) has contributed reducing the temperature in the areas by about 3c. NTPC
has also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization
Division to manage efficient use of the ash produced at its coal stations.




16
A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has been
established in NTPC with the assistance of United States Agency for International
Development. (USAID).

CENPEEP is efficiency oriented, eco-friendly and eco-nurturing initiative - a symbol
of NTPC's concern towards environmental protection and continued commitment to
sustainable power development in India.

As a responsible corporate citizen, NTPC is making constant efforts to improve the
socio-economic status of the people affected by the projects. Through its
Rehabilitation and Resettlement programmes, the company endeavours to improve
the overall socio-economic status of Project Affected Persons.

NTPC was among the first Public Sector Enterprises to enter into a Memorandum of
Understanding (MOU) with the Government in 1987-88. NTPC has been Placed
under the 'Excellent category' (the best category) every year since the MOU system
started operating.
Inspired by its glorious past and vibrant present, NTPC is well on its way to realize its vision
of being "A world class integrated power major, powering India's growth, with increasing
global presence.

2.3.1 FUTURE GROWTH PLANS
Over the last three decades, NTPC has spearheaded development of thermal
power generation in the Indian power sector. In this process, it has built a
strong portfolio of coal and gas/liquid fuel based generation capacities.
The Indian power sector is witnessing several changes in the business and
regulatory environment. The legal and policy framework has changed
substantially with the enactment of the Electricity Act 2003. To meet the twin
objectives of ensuring availability of Electricity to consumers at competitive
rates, as well as attract large private investments in the sector, a new Tariff
policy has also been issued.



17
2.3.2 GROWTH OF THE GENERATION BUSINESS
Developing and operating world-class power stations is NTPCs core
competence. Its scale of operation, financial strength and large experience
serve to provide an advantage over competitors. To meet the objective of
making available reliable and quality power at competitive prices, NTPC
would continue to speedily implement projects and introduce state-of-art
technologies.

2.3.3 TOTAL CAPACITY PORTFOLIO
Indias generation capacity can be expected to grow from the current levels of
about 120 GW to about 225-250 GW by 2017. NTPC currently accounts for
about 20% of the countrys installed capacity and almost 60% of the total
installed capacity in the Central sector in the country. Going forward, in its target
to remain the largest generating utility of India, NTPC would endeavour to maintain
or improve its share of Indias generating capacity. Towards this end, NTPC would
target to build an overall capacity portfolio of over 66,000 MW by 2017.

2.3.4 FUEL / ENERGY MIX FOR CAPACITY ADDITON
Currently, coal has a dominant share in the power generation capacities in
India. With high uncertainties involved in Domestic gas/ LNG, both in terms
of availability and prices, NTPC would continue to set up large pit-head coal
based projects, including few integrated coal cum power projects.

To reduce the dependence on fossil fuels, there is a need to push for renewable
sources of power in the sector. NTPC would avail of opportunities to add
hydropower to its portfolio subject to competitive tariffs. The fuel mix in 2017
may be different from the existing portfolio, though not very significantly.

2.3.5 DIVERSIFICATION ALONG THE VALUE CHAIN
NTPC has achieved the distinction of being the largest thermal generating
company in India. In the past, this focus was adequate as the industry was
highly regulated with limited diversification opportunities.



18
To safeguard its competitive advantage in power generation business, NTPC
has moved ahead in diversifying its portfolio to emerge as an integrated power
major, with presence across entire energy value chain. In fact, to symbolize
this change,

NTPC has taken on a new identity and a new name NTPC Limited.

NTPC has recently diversified into coal mining business primarily to secure its
fuel requirements and support its aggressive capacity addition program. In
addition, NTPC is also giving thrust on diversification in the areas of power
trading and distribution..

2.3.6 ESTABLISHING A GLOBAL PRESENCE
To become a truly global company serving global markets, it is essential for
NTPC to establish its brand equity in overseas markets. NTPC would continue
to focus on offering Engineering & Project Management Services, Operations
& Maintenance services, and Renovation & Modernization services in the
international market.

SWOT ANALYSIS of NTPC LIMITED











19

1. STRENGTH OF NTPC LIMITED
The company has kept itself sufficient liquid fund to meet any kind of cash requirement.
Efficient working capital of the plant.
Efficient and timely completion of projects.
A minimum risk factor.
Best integrated project management system.
Company with excellent records and high profit.
An early starter, more than 30 years experience in power sector.
One amongst the nine jewels of India called Navratnas.
Highly motivated and dedicated workers and officers.
Excellent growth prospect with significant additions, modifications and replacements.
Employee friendly personnel policies.
Low project cost of NTPC LTDs plant.
One of the listed companies on BSE & NSE.

2. WEAKNESSESS of NTPC LIMITED
Depleting raw materials.
Some of the pants of NTPC LTD has become old and need investment for replacement or
modifications.



20
3. OPPORTUNITIES for NTPC LIMITED
Demand and supply gap.
Upcoming hydro & nuclear sector.
Use opportunities in the consultancy services both abroad as well as in India.
Growth in power sector.

4. THREATS in NTPC LIMITED
Varying price of raw materials makes working costly.
Huge competitions from SEBs, Reliance Energy & TATA Power and other private
players in power industries.
Coming up of other sources of power generation and consumption.
Huge capital requirement for expansion, diversification, horizontal and vertical
integration.



















21






CHAPTER -3
CONCEPTUAL FRAMEWORK

























22


3.1 INVENTORY MANAGEMENT: AN INTRODUCTION
Materials Management in general and inventory control in particular are of great importance
to the manufacturing industry because materials are vital input to the production system.

Since materials in general contribute more than 50% to the cost of production, their
availability in right quantity and quality at proper time at a reasonable cost (procurement as
well as storage) require a careful and specific attention furthermore there has to be an
organized and efficient way of storage, upkeep issues and utilization of the material resource.
In the context inventory control assumes a great importance.

In the beginning inventory control was an intuitive process based on experience and
judgment but later it developed into a more scientific activity, particularly since the start of
20th century. The concepts of selective inventory control, economic lot sizes and the EOQ
came into being.

Techniques were then developed with overall production schedule in background resulting in
the concept of aggregate inventory management. However these techniques could not cope
with the dynamic nature of inventory management in the context of modern manufacturing
environment.

These techniques had to work without proper means of huge inventory data processing and
were based on some short cut approximation methods with assumptions, which were not
appropriate in real life situations in manufacturing industry.

But with the availability of computer capable of handling information in large volumes at
high speed the individual manufacturing inventory items requirement can now be pin pointed
in terms of both quantity and timing.

As such the traditional inventory control techniques have been rendered obsolete in dynamic
manufacturing environments. Techniques like Material Requirement Planning' and' Just
in Time' have emerged as more appropriate and effective.


23
JIT techniques are a recent development, which originated in and is widely applied in Japan.
It is still in trial or investigation stage in other countries. Material Requirement Planning
called MRP in short is the inventory control technique, which is widely used in almost all
industrial advanced countries.

MRP, which is based on Master Production Schedule and implemented with the help of EDP
on computer, has been found to be quite successful in present day manufacturing
environment and is highly systematic.

It saves a good amount of time, money and space as well as operational difficulties. In this
work it is endeavoured to develop a comprehensive set of recommendations duly supported
by appropriate PPC information/data for implementing MRP.

Relevant production data and information on store, purchase and inventory control has been
collected and processed to work out a requisite frame work for developing and needed MRP
system which, with suitable modification and alternative/additional data can be extended to
other sections of production system also.

Inventory
Inventory is defined as the sum of value of raw materials, fuels and lubricants, spare parts,
maintenance consumable, semi-processed materials and finished goods stock at any given
point of time.

Inventory could be the amount of raw materials, fuel and lubricants, spare parts and semi
processed to be stocked for smooth running of plant. Since resources are idle when kept in
stock, inventory is also defined as an idle resource of any kind having an economical value.

Inventories are assets of an organization and represent investment. Like all investments,
inventory may be too high or too low; it may be well managed or poorly managed. While any
redundant inventory is wastage of capital that should otherwise be earning a return, properly
maintained and controlled inventories can be a great asset.



24
Classification of inventories
The inventories are kept in the form raw materials, work-in-process and finished good. The
reasons for keeping inventories at these stages are given below:

1. Raw Materials:
Economic bulk purchasing

Seasonal factors of availability and price advantages.

As protective buffer against

I. Delay in supply
II. Change in production rate, due to market fluctuations for the finished
product etc.
2. Work-in-progress inventories:
As liquid stock to cater for variety and shorten the manufacturing cycle.

As protective buffer against product breakdown, rejections

For economic lot size production.

3. Finished goods inventories:
To ensure ex-stock delivery. This is especially required for consumer type goods where
customers cannot be expected to wait during, procurement, processing and supply stages.

As protective buffers against sales rate changes.

To absorb economic production lot.

To stabilize the level of production and employment when sale is of seasonal variety.













25


Functional classification of inventories
1. Movement inventories: These are necessary because it takes time to move products
from one place to another. The average amount of movement inventory is worked out
by:

I=ST where S is the average sale rate (say per week) and T is the transit time in week
and I, the movement inventories required. This is particularly important when finished
goods are sent from the factory to different warehouses or distribution centres.

2. Lot size inventories: Such inventories are carried to obtain quantity discounts, to keep
down transportation cost, buying cost and cost of receipt and holding.

For example, it will be obviously uneconomical for a textile mill to buy cotton everyday
rather than in bulk during the cotton season. Not only daily supplies will entail higher
cost, they will also expose the mill the serious shutdowns arising from any mishaps in
procurement.

3. Fluctuation stocks: These stocks are carried to ensure ready supplies to consumers in
the face of irregular and unpredictable fluctuations in their demand.

Consider, for example the case of a sugar mill, which is marketing 12 varieties of sugar,
such as cubes, crystals, powder, while and brown etc. it may also be presumed that a
costumer will demand immediate supplies and will not wait for the mill to produce his
requirements after he has placed the order. Inevitable, therefore, the mill will have to
keep stocks of all the varieties and in quantities normally sufficient to meet variable
demands.

4. Anticipated stocks: Such stocks are kept to meet predictable changes in demand or in
availability of raw materials. The case of fruit processing factory, which is to buy
tomato in the tomato season to meet regular demand of tomato ketch-up throughout the
year, is an example of seasonal availability or raw materials.




26

Functions of inventory:
Inventories have many useful functions in spite of the facts that it is very costly to maintain
them. But for the inventories, the whole production distribution system of an economy may
breakdown.

If it is possible to procure or process materials without any loss of time, the major need for
inventory disappears. But this is just not possible, given the market of industrial goods in the
country. There is always a delay between rising of materials requisition and receipt of
materials (lead-time). Also this delay is not uniform or constant. This introduces uncertainty
of supply.

There is also uncertainty in demand. It is very difficult to forecast the exact requirement of
materials and the main function of inventory thus is to serve as a cushion and to protect the
production distribution system from shocks due to uncertainty in demand and supply. If no
inventories are kept, uncertainty in demand and supply will break the production distribution
system, increasing ultimately the cost.

INVENTORY CONTROL
Inventory control is a planned method of determining what to indent, when to indent, how
much to stock so that purchasing and storing costs are the lowest possible, without effecting
production and sales. In this process investment in material and parts carried in stock is so
maintained as to ensure smooth and continuous operations of production and sale and the cost
of inventories are kept at the lowest possible level.

Inventory control ensures adequate supply of materials to Production means controlling the
inventories in the organization. It is a technique of maintaining stock items at desired levels,
whether they may be a raw material, goods in process or finished products.








27
Objectives of Inventory Control
The primary objectives of inventory control are:
1. To minimize idle time caused by shortage of raw materials spares etc.
2. To keep down capital investment in inventories, inventory carrying costs and obsolescence
losses.
The two objectives are in conflict with each other and the efficiency of inventory
management lies in balancing them to arrive at optimum overall results.

Benefits of Inventory Control
Following are the main benefits of inventory control:
Minimizes stock outs and shortages.
Ensures economy in purchase
Eliminates duplication in ordering.
Keeps inventory carrying costs at lowest levels?
Permits better utilization of available stock.
Provides a check against losses of material through pilferage, spoilage etc.
Facilitates proper accounting of material.
Locates and disposes inactive or obsolete items of store.
Financial
Operation and periods.
Reduces the possibility of excess items being stocked. Thus saving
capital from being unnecessarily locked up.
Simplifies procedures for paper work and record keeping.
Increase profitability.










28
3.2 COST CONCEPTS IN INVENTORY MANAGEMENT
There are three costs, which are one way or the other associated in inventory
management and are guiding factors in fixing the inventory levels:
Inventory carrying cost/ stock holding cost

Ordering cost/set up cost

Stock-out cost/ non-availability cost.

Inventory carrying cost: Inventory is liquid asset like money, but it is not as liquid
as money in the bank. Money in the bank earns interest while it actually costs to
maintain inventories.
The main elements of inventory carrying cost are:

Capital cost: this normally is the interest charge, which are to be paid to the bank and
may be 15-18%. But it will be more realistic, especially under prevailing conditions,
to consider opportunity cost of money. By opportunity cost is meant the cost that is
incurred in withdrawing funds from a productive activity to invest them in
inventories. Opportunity cost of capital is the rate of return earned by the company on
its total investment.

Storage and handling cost: this is the most obvious inventory carrying cost. This
includes rent of storage facilities or depreciation, if owned by the company; salaries
of personnel and related storage expenses, handling and insurance; security and
preservation of materials and so on..

Deterioration & obsolescence cost: the usage of every material cannot be judged
very accurately and some material get stored for a longer time than what is generally
desirable. This results in deterioration of materials, which is very high for certain type
of material such as paints, rubber goods. The larger the accumulation of inventory and
higher is the risk of wastage and obsolescence.






29
Ordering cost:
The ordering cost covers the cost of originating an indent, calling of quotations,
processing the tenders, placing the order, verifying the invoices and payments.
The composition of buying cost can be grouped as under:

Purchase
i. Cost of inviting quotations and fixing most suitable supplier for the item.
ii. Cost of preparing and placing order.

A) Expediting& miscellaneous costs:
Salary of purchase personnel.
Administrative and over-head costs.
Expediting cost.
Other Misc. cost.
B) Receipt& Inspection: \
Cost of receiving and handling
Cost of inspection
Cost of delivery from receiving to stores or direct to using department.
Stock-out cost:
When an item is required and it is not available in stock, it is called stock-out.
Because of stock-out, certain consequences follow and there is a certain cost
associated with those consequences.

Such a cost is known as the stock-out cost. If the consequences are serious such as
break down or shut down of plant and machinery, men idle time, loss of production
and profit, failure of customer services or loss of goodwill, the stock-out cost is
considerable.







30

3.3 SELECTIVE INVENTORY CONTROL TECHNIQUES:
In a large size stores, there may be a few thousands item having different characteristics.
Annual consumption value of some of the items may be very high whereas for some
items this value might be insignificant.

Some items might be moving very fast, i.e. there might be many issues from stores in a
month whereas there may be some items, which might not have moved from stores for
years together. Some items may be imported whereas some might be indigenously
available. Some items may be vital in the operations of the organization and non-
availability might result in huge production losses if they are required.

Following are some of the selective techniques, commonly used for the purpose of
inventory control.




















31
Classification Annual Value of



ABC Analysis (also known as Items(not based on unit price of items or the importance

Always consumption of better of items in operation)

control)



VED Analysis(Vital, Essential & Criticality of the items i.e. Non-availability of items shall

Desirable)
effect Operations to what extent(stock-out cost)





FSN(fast moving, slow-moving and Movement i.e. issues from stores

Non-moving)



HML(high, medium and low unit Unit price of the items

rates)



SDE(scarce, difficult and easy) Purchasing problems with regard to availability in the

Market.



GOLF(Govt. controlled , ordinary, Source from which the material is obtained.

local, foreign)



MUSIC-3D (multi unit spares Finance, maintenance & Materials

inventory Control-three

dimensional approach)



XYZ Value of items in the inventory at a given time, say end

of financial year







32
3.4 MATHEMATICAL MODELING FOR INVENTORY CONTROL
The solution of inventory problem with mathematical models is to find appropriate levels of
holding inventory, ordering sequence and the quantity that have to be ordered so that the total
cost incurred is minimized. The demand and supply conditions that act within and without
impose constraints on the decision-making process. The demand can be fully known, partially
known or completely unknown.

These states of nature of demand and supply conditions can be combined to form six different
practical situations, namely:
1. Supply station -demand certain
2. Supply station-demand risky
3. Supply station-demand uncertain
4. Supply dynamic-demand certain
5. Supply dynamic-demand risky
6. Supply dynamic-demand uncertain

A. SUPPLY STATIC SITUATIONS
With supply station only a single supply is possible during entire consumption period.
Obtaining Newspapers to be sold in particular time, ice cream for one day fair, purchase of
high fashion items. Replacement orders are either not possible or extremely expensive. For
demand certain situation simply orders has to be placed taking lead-time and shelf life into
consideration.

B. DYNAMIC MODELS
Economic Ordering Quantities:
Important assumptions in EOQ models are listed below:
1. Demand and lead-time are known and constant.
2. Replenishment is instantaneous at the expiry of the lead-time.
3. Item cost doesn't vary quantity order i.e. there are no quantity discounts.
4. Ordering and carrying cost expressions include all relevant costs and these are constants.
5. Uniform demand in small increments. Many mathematical models for inventory control
were developed by researchers. Mathematical models based on concept of EOQ techniques

provide the total minimum inventory cost by balancing inventory carrying and ordering costs.
33
Total-cost of stocking inventory is the sum of purchase costs, cost of ordering and cost of
carrying inventory i.e.
T.C. = Co*D/Q + CC Q/2 + PD
Where T.C = Total cost
Co = Ordering cost\
D = Demand in units on annual basis
Cc = Cost to carry a unit inventory in stock for a given period.
P = Unit purchase cost.
Q= Lot size and Q/2 is average inventory

Differentiating the total cost with reference to Q gives the slope of T.C. curve. Setting the
first derivative equal to zero, identifies the point where
T.C. is minimum. Thus Q = sqrt 2CoD/Cc is obtained. This is known as economic ordering
quantity equation. It is often referred to as Wilson Formulas. It is classical mathematical
inventory model.



















34
UNCERTAINTIES IN INVENTORY MANAGEMENT
In simple inventory management models both demand and supply lead times have been
assumed constant. But variability in demand and supply lead time is a reality. The effect of
demand and supply lead time variation is taken care of by carrying larger inventories called
buffer stocks or safety stock. ,

EOQ models answer the question of how to order but these don't address the question of
when to order. The later is the function of the reorders point models which identify the
reorders point (ROP) in terms of quantity.

The reorder point occurs when the quantity on hand drops to pre specified amount. That
amount generally includes expected demand during lead-time and an extra cushion of stock
which serves to reduce the probability of experiencing a stock out during lead time. There are
four determinants of the reorder point quantity:

1. The rate of demand.
2. The length of lead-time.
3. The extent of demand and lead time variability.
4. The degree of stock out risk acceptable to the management.

According to above determinants the reorder models have been worked out.

1. CONSTANT DEMAND RATE AND CONSTANT LEAD TIME
When both demand and lead-time are constant than there is no risk of a stock out created by
increased demand and lead time longer than expected. In such case ROP is equal to the
product of usage rate and lead-time.

2. VARIABLE DEMAND RATE AND VARIABLE LEAD TIME
Under normal circumstances one or other or both demand rate and lead time tend to exhibit
some variability. In order to compensate for uncertainties, in either demand rate or lead-time,
additional stocks are carried to reduce the risk of a stock out during lead time interval.



35

This additional stock is known as buffer stock or safety stock.

ROP = Expected demand during lead-time + Safety stock.

Drawbacks of Traditional Methods With Respect To Manufacturing
Environment
Due to heavy information processing constraints, the conventional methods of inventory
control suffered from imperfections. These represented the best that could be done under the
circumstances.
Some unrealistic assumptions, short cut approximations were made to make these techniques
workable.
All the old techniques, which were based on short cut approximation method, can no longer
deliver goods. The relevance "and applicability of the conventional inventory management
concepts to manufacturing inventory is discussed below:

1. The concept of stock replenishment doesn't fit into manufacturing inventory. It is in
conflict with basic management objectives of low inventory and high return on investment.
In manufacturing, the inventory item should be available at the time of need rather than to
carry it just so that it would be available when and if needed. Through the use of computer
aided modern methods it is possible to pin point the quantity and timing of need of an item.
So the stock replenishment techniques are not suitable in a manufacturing environment
nowadays.

2. Reorder point techniques forecast demand during replenishment lead-time and attempt to
provide some safety stock to compensate for fluctuation in demand. These techniques are not
able to determine specific timing of future demand environment and misinterpret the
observed demand behaviour.

3. Since EOQ is determined solely on the basis of ordering cost, unit cost, carrying cost, and
annual usage it is totally insensitive to the timing of actual, discrete demand arising during
the period, that the EOQ is intended to cover.
The derivation of EOQ formula is based on the assumption of gradual inventory depletion at
a steady rate which allows carrying cost to calculate for an average inventory of one half of
the ordering quantity. In manufacturing environment this assumption is highly unrealistic.

36
Modern Inventory Control Techniques of NTPC
Material Requirement Planning (MRP) and Just in Time (JIT) techniques have taken care
of most of the draw-backs which were being experienced with traditional inventory control
techniques for managing inventories in manufacturing environments.

These techniques termed as modern inventory control techniques are primarily meant for
manufacturing environment. JIT philosophy is of recent origin and is being widely applied in
Japan.

Under these techniques component parts are manufactured only when required by down
steam work centre, thus right amount of parts are made at the right time and title inventory is
kept to virtually near zero. JIT techniques are being considered and tried in other
industrialized countries too now.

The success of JIT techniques in Japan is due to unique physical and philosophical typical
production of Japanese characteristics system/ culture. These include the ability to virtually
freeze master production schedules, to cross train the highly skilled and very disciplined
Japanese workers, to utilize high degree of automation and robotics and to profit from close
proximity and reliability of material and parts suppliers.

These characteristics enable Japanese firms to reduce system variability to the extent that
demand -can be estimated very accurately and production parameters such as machine
processing times and utilization approach very stable levels.

These factors are not I exhibited in manufacturing $systems in other countries. JIT techniques
are at trial stage in industrially advanced countries and have not found their way in
developing countries, as yet. MRP items are widely used for controlling manufacturing
inventories in industrially advanced countries.






37
3.5 Inventory Management and Control at NTPC
Inventory is a detailed list of movable goods such as raw material general supplies and
equipment etc. and gives the quantity and value of each item. Inventory control may be
defined as the systematic location, storage and recording of goods and materials in such a
way that desires supplies can be made from the mine to the thermal power plant at minimum
cost.
Inventory control is needed to maintain a reserve (store) of goods that will ensure mining
operation according to a production plan. Losses from improper inventory control included
purchases in excess than what needed & the cost of slowed production resulting from
material not being available when wanted. Proper inventory control reduces such losses to a
great extent.
Function of inventory control
To run the stores effectively: - This includes layout storing media (bins, shelves &
open space etc.) Utilization of storage space, receiving and issuing procedures.

To ensure timely availability of material and at the same time avoid build up of stock
levels.

To have technical responsibility for the state of material: - this includes methods of
storing, maintenance procedure, studies of deterioration and obsolescence.

To have a stock control system: - physical verification records (especially at the time
of stock taking) ordering policies and procedure for the purchase of goods.

Maintenance of the supply of specified raw material:-general supplies component
parts in sufficient quantities to meet the demand of production.

Protecting the inventory from losses:-due to improper handling and storing of goods
and unauthorized removal from stores.














38
Advantages of a Good Inventory Control.
A good inventory control has several uses and adds a great deal of flexibility to the different
power generation operation.
It makes the operation independent of each other: If proper inventory is not stored
there could be many delays and inefficiency. For example if one activity has to be
completed before a second activity can be started it could stop the entire process.
Having some stored inventory between each process, it could act as a buffer.
Storing resources in inventory: it can be a safeguard against inflation if cash is
placed in a bank; one may get around 8% returns. On the other hand some materials
have increase in price over 30% per year. Thus it may be a better investment to keep
the financial reserve in inventory. Of course one has to consider the cost of holding or
carrying the inventory.
When the demand or supply for an inventory item is irregular storing certain
amounts in inventory is absolutely necessary.
Another important use of inventory is to avoid shortages or stock outs. If the
inventory is repeatedly out of stock many mining operation may suffer resulting in
great loss of production
Another use of inventory is to take the advantage of quantity discounts: Many
suppliers offer discounts for large orders purchasing in large quantities can
substantially can reduces the cost of materials or products. These are however some of
the disadvantage of buying in large quantities. One will have higher storage cost and
higher cost due to spoilage, damaged stock, theft, insurance etc. further by investing
in more inventories less cash will be available to reinvest elsewhere.












39
3.6 Important Quantity Standards Used As a Tool to Control Inventory
There are five important quantity standards used as tool to control inventory:-
The maximum stores: It is the upper limit of the inventory and represents a reserve
or margin of safety to be used in case of emergencies.
The minimum stores: It is the lower limit of the inventory and represents a reserve
or margin of safety to be used in case of emergency.
The standard order: It is the quantity to be purchased at any time. Repeat order for a
given material or product is always for this quantity.
The ordering point: This represents the quantity required to ensure against
exhaustion of the supply during the time interval between the placement of an order
and delivery.
Lead or procurement time: It is the time which takes the stock to reach from reorder
point to minimum stock level.

3.7 Tools Used For Inventory Control: Inventory Levels
The summarized description about the various control level is given below:
a) Minimum Level:
The minimum level is the level below which available raw material should never drop. The exact
quantity which they represent is determined by the rate at which an item is used, its importance in
the process, the normal procurement time and whether substitutes are available.
Ideally, a new shipment should arrive just as stock reaches this minimum. Minimum are not
set at zero, the difference between zero and established quantity is a safety to guard against
the shortages.

b) Reorder point:
The reorder point is the quantity level at which a replenishment order should be issued to
ensure that fresh supply arrive in sufficient time to keep the item from running out of stock.
Thus a reorder point will logically consist of the following elements:

1. The average volume of the use during the normal procurement time.

2. An additional quantity or the safety factor to cover any unanticipated increase in the rate of
war in procurement time.


40
c) Standard Order Quantity:
The standard order quantity is that amount of material which will be requisitioned each time
available balance drop to the reorder point. The objective in setting reorder quantity should
be to achieve the lowest overall inventory cost consistent with uninterrupted operation of the
plant.

d) Maximum Level:
When the system is working properly, the maximum level is the sum of the minimum level
and standard order quantity. Having laid down these levels and quantities they should be
reviewed periodically or occasionally because the assumption on which they are based, e.g.
procurement time and rate of use may change.

Lead Time
When material is obtained either from an outside source or from an internal manufacturing
department there is always a finite interval of time between deciding to place an order and its
subsequent fulfilment. This is the interval defined as 'Lead Time'. The lead time can be
assumed to be made up of two points:
a. An internal part
b. An external part

The internal part of lead time may also be divided into two parts:
a. Serving time or administrative time which consists of the time taken to place the order
b. Receiving and inspection lead time which consists of time taken to receive and inspect the
goods and pass them into the appropriate store.
The external part of the lead time consists of the time taken to execute the order. This
includes the time required by the supplier to get the material ready if they are not in stock and
for shipping or transporting them from supplier go down to buyers receiving section.








41

3.8 Determination of Safety Stock and Order Level
In many practical situation, it is observed that neither the consumption rate of material
(commodity) is constant throughout the year nor is the lead time. The variation in demand
and lead time cause both shortages and surpluses.

a. To face these uncertainties in consumption rate and lead time, extra stock is maintained to
meet out the demand if any. This extra stock is termed as Safety Stock. For determining the
safety stock we approximate the estimated maximum and normal lead time. If 'S' denotes the
safety stock, '1' is the difference of the maximum and normal lead time, 'r' is the,
consumption rate during the lead time than
S=LR

For example, suppose for an item the monthly consumption is 200 units and normal lead time
is 15 days and the maximum lead time is estimated as 2 months then the safety stock is given
by
S= (2-1/2)*200
= 300 units
Now if we don't maintain a safety stock then the total requirement for inventory during the
lead time will be LR.

b. This consumption implies that as soon as the stock reaches a level LR we place an order
for Q quantity. This policy of ROL results in shortages about half the time. To avoid this we
add a safety stock and place an order when stock reaches S+ LR
i.e. ROL= S+LR for example suppose that for an item the monthly consumption is 100 units,
normal lead time is 15 days and the safety stock is of 150 units then

ROL= 150+ (1/2*100)
= 200 units
c. It does not depend upon the importance of the item and
d. The limits of ABC categorization are not uniform but will depend upon the size of the
under taking, its inventory as well as the number of items controlled.

42

3.9 Layout of Stores for Smooth Running of Operation
Layout means general arrangement of stores, storage equipment and space so as to provide
for most efficient receipts, storage and issue of materials. In this, day arrangement of store
entrance, equipment passage and in general storage space forms part of the store layout. A
very well planned layout of a store of warehouse will have the following advantages:

a. Ease of receive material receipts.
b. Ease of storage.
c. Ease of issue
d. Gives better appearance.
e. Reduce damage and wastage's.
f. Cuts down pilferage and accidents.
g. Reduce operating expenses and minimum transportation and handling of materials.
h. Adequate capacity, provision of flexibility for future expansion.
1. Efficient utilization of floor space and height.
J. Clear identification of material, quick location of items in case of physical counting.
k. Creates better impression.

Housing of Scrap
Normally the salvage bay is outside the main stores parameter. This has the following
advantage:
a. It will not intrude upon valuable storage space.
b. It will avoid the possibility of scrap or reject materials getting back into the production
line.
c. It will permit the collection vehicles to pick up materials without entering the main goods
receiving and dispatch bays, they are able to at will without congesting the main bays, and
they can spend as long as necessary in sorting and loading.








43

Methods of Salvage
a) Materials: This is the most obvious and frequently mentioned salvage operation. It needs
little outlay apart from suitable bags or containers to hold the materials. Operating costs are
confined to the labor of sorting into appropriate bags or containers. Materials can with
advantage be segregated at source and then stored in different compartments.

b) Incineration: Sometimes it is more economical to destroy material by incineration. It
however, costs money and the economics should be carefully studied before resorting to this
method.

c) Cable stripping: The economics of salvage clearly depends upon the value of the
recovered materials. The stripping of waste cables can be highly rewarding where there are
any significant copper and lead contents. The equipment however requires fairly high capital
investment.

d) Containers and Sacks: There is a good resale value of the containers especially large
drums like 200 liters drum and jute sacking. It is worthwhile to ensure that least damage is
caused to these items during handling.

e) Fire Precautions: Following fire precautions should be observed in all store houses for
preventing outbreak of fire.

Especially inflammable stores should be segregated in separate building or in separate
stacks. Storehouse should be properly ventilated. Smoking in storehouses should be
forbidden and notices may be pasted to this effect.

Appropriate fire preventive equipment should be provided. All such equipment should
be regularly inspected and maintained.

Drill to be observed in case of fire should be laid down and all personnel working in
the storehouse should be adequately trained for fire fighting.




44

3.10 Warehousing and Storage
Functions
The functions of Warehousing and Storage are as under:
1. Safe custody of all materials (Stores and Equipment) warehoused in the Project Site
/Power Station.
2. The correct tally of materials with the Kardex, or on computer ledger.
3. Correct preparation and posting of all initial documents in the available On-line
system. In case of the On-line system gets down the above document should be
maintained manually and the same should be re-entered into the On-line system
whenever the system is available.
4. Periodical identification of Materials in stock (likely to become inactive) and
declaration of the same as "Surplus for Sale".

Storage

For satisfactory receipt, storage, preservation & issuance of material Stores / Godown
facilities should be in proper manner & preferably as follows:

Stores Layout

Uniformity is maintained regarding the layout of stores and especially for Covered Sheds so
that the godowns are all in one identified place and the inward / outward movements become
smooth. "O&M stores Building" is established near the "Main plant".
This provides better area coverage, compact warehousing, quick facility of handling
equipment, tight security, less kg-km. movement per day, etc. The sheds are to be grouped
broadly as under to take care of the major material classes:







45


The Layout for Better Space utilization and Dual entry/Exit Points Bin Management























46





CHAPTER -4
RESEARCH METHODOLOGY


























47

4.1 Research Design
Descriptive type of Research Design has been used under the study. Under the study facts or
information already available have been used and analyses have been done to make critical
evaluation of the Inventory Management process.

4.2 Data Collection Tool
The Primary Data for research has been collected using the survey technique.
Questionnaires were prepared to learn about employees knowledge, belief, satisfaction,
attitude, and so on and to measure these magnitudes in the general population.
The Secondary Data for the study has been collected from the various sources such as:
Annual Reports of NTPC
Companys Website- www.ntpc.co.in
Magazines- Business World, Business Today etc.

4.3 Sampling Technique
The sampling technique used under the study was Stratified Random Sampling. Number of
employees who responded to the questionnaires was 140, out of which 80 were Supervisors and
60 were the Front Line Managers.

4.4 Data Analysis Tools
The Data Analysis tools help us to analysis the performance of an organization in a certain area.
The Data Analysis tools used under this study are:
Ratio and Trend Analysis: ratio and trend analysis was used on the secondary
data. It was used to analyze the movement of inventories in the organization and
thereby forecasting the trend of the ratios for the upcoming financial years.
Percentages: Percentages were used on the primary data collected via
questionnaires. Percentages helped to analyse the responses of the employees in
relation to the inventory management of the organization.





48

4.5 Data Presentation Tools
Data Presentation tools help us to present the results of the study and assess the condition of
area of study. Data Analytical tools used in the study were Column Charts and Line Charts.

Column charts were used in order to demonstrate the pattern of responses generated in the
questionnaires; on the other hand Line charts were used to do the trend analysis of the overall
study.


























49








CHAPTER -5
DATA ANALYSIS AND INTERPRETATION























50

5.1 EVALUATION OF INVENTORY OF NTPC

2008-09 2009-10 2010-11 2011-12 2012-13

Average 2959.55 3295.56 3493.42 3670.99 3880.02
Inventories



Total Current 30925.3 30815.7 35396.79 37396.37 41167.08
Assets



Cost Of Goods 31432.1 33939.4 43089.77 48314.73 48589.59
Sold



RATIOS

Inventory To 0.07 0.11 0.098 0.098 0.094
Gross Working


Capital





10.62 10.3 12.33 13.16 12.52
Inventory
Turnover Ratio



2008-09 2009-10 2010-11 2011-12 2012-13

Inventory 34.37 35.44 29.60 27.73 29.15
Conversion


Period(days)








51

Interpretations
a) Average Inventories: Average Inventories of NTPC has been increasing significant from
Rs. 2959.55Crores in 2008-09 to Rs.3493.42 Crores in 2010-11 and to Rs. 3880 Crores in
2012-13. This increase has taken place over the last five years because of the increase in power
generation capacity of NTPC..
b) Total Current Assets: Total Current Assets of NTPC were Rs. 20925.3 Crores in 2008-
09, which decreased to Rs. 30815.7 Crores in 2009-10, but it has increased significantly in the
following financial years. It rose to Rs.35396.79 Crores in 2010-11 and reached Rs. 41167.08
Crores in 2012-13. It shows that NTPC has been increasing the amount of current assets
required for the working.
c) Cost Of Goods Sold: Cost of Goods sold has also been increasing significantly in the past
five financial years. It has increased from Rs. 31432.1 Crores in 2008-09 to Rs. 48589.59
Crores in 2012-13. It shows that Cost of Goods sold has been a major part of NTPCs
expenditures for power generation.
d) Inventory to Gross Working Capital Ratio: It was 0.07% in 2008-09, increased to
0.11% in 2009-10, then decreased to 0.98 % in 2010-11 and 2011-12 and to .094% in 2012-13.
Keeping in view the above position, NTPC should keep on giving the importance to the
inventory so as to reduce cost..
e) Inventory Turnover Ratio: Inventory Turnover Ratio of NTPC was 10.62 times in 2008-
09, which reduced to 10.3 times in 2009-10, but since then it has been increasing. It rose to
12.33 times, 13.16 times in 2010-11 and 2011-12 respectively, but it again decreased to 12.52
times in 2012-13.
f) Inventory Conversion Period: Inventory Conversion Period of NTPC was 34.37 days in
2008-09 which rose to 35.44 days in 2009-10, but after that it decreased to 29.60 days and
27.72 days in 2010-11 and 2011-12 respectively. It again rose to 29.15 in 2012-13. It is
desirable to have the minimum conversion period, so the organization should look forward to
take it to the minimum level.






52

5.2 Trend Analysis of Inventories
1. Average Inventories

Fig: 5.1


Average Inventory is the average of inventories held at the beginning and at the end of a
financial year. The average inventory has been increasing significantly in the last five
financial years, and it can be forecasted that it can reach Rs.48000crores mark in 2013-
14and Rs.4800 crores till 2016-17. Major component of NTPCs inventories are Coal,
fuel oil, chemicals & consumables, loose tools, steel scraps etc. all the inventory
component have been showing an upward trend.


YEARS 2008-09 2009-10 2010-11 2011-12 2012-13
Average
Invento
ries
2959.5 3295.59 3493.42

3670.99 3880.02
Tbl No. 5.1


53
2959.5
3295.56
3493.42
3670.99
3880.02
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2008-09 2009-10 2010-11 2011-12 2012-13
average inventories

2. Total Current Assets



Fig: 5.2
Total Current Assets include Trade Receivables, cash and bank balances, short-term
loan and advances and other current assets which include inventories.
Total current assets have moved from Rs.30925.3 crores in 2008-09 to
Rs.41167.08crores in 2012-13. It showed a downward trend in 2009-10 but the overall
trend can be seen as moving upwards. It can be forecasted on the basis of this study
that amount of total current assets may reach Rs. 45000 crores (approx) in 2014-15 and
Rs.50000 crores (approx) in 2016-17. So it can be forecasted that there is a significant
increase in the total current assets of NTPC.

YEARS 2008-09 2009-10 2010-11 2011-12 2012-13
Total
Current
Assets
30925.3 30815.7 35396.79

37396.37 41167.08
Tbl No. 5.2


54
30925.3 30815.7
35396.79
37396.37
41167.08
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2008-09 2009-10 2010-11 2011-12 2012-13
total current assets

3. Cost of Goods Sold

Fig:5.3
Cost of goods sold is the amount spent on the raw materials, administration expenses and
other related expenses incurred during the production process. As we can see that there
has been an upward trend in the cost of goods sold from 2008-09 to 2012-13, and it can
be forecasted that cost of goods sold is certainly going to move upwards in the next 4
years as well. It can reach Rs. 60000 crores in 2015-16 and Rs. 65000 crores in 2016-17.



YEARS 2008-09 2009-10 2010-11 2011-12 2012-13
Cost of
Goods
Sold
31432.1 33939.4 43089.77

48314.74 48589.59
Tbl No. 5.3





55
31432.1
33939.4
43089.77
48314.73 48589.59
0
10000
20000
30000
40000
50000
60000
2008-09 2009-10 2010-11 2011-12 2012-13
Cost Of Good Sold

4. Inventory to gross working capital


Fig: 5.4
Inventory to Gross working capital is the ratio of inventories in the gross working
capital of a company. It represents the contribution of inventories in the working
capital of a company. This ratio Indicate the proportion of inventories to net working
capital and the possible risk if inventory values were to reduce. A low ratio is a
positive indication. It was 0.07 in 2008-09 and reached 0.098 in 2011-12, but it
showed the downward trend in 2012-13 and reached 0.094. Studying the overall trend
in the last five financial years it can be forecasted that it can reach again to 0.11 in
2016-17. NTPC should try to keep this ratio as low as possible, so as to reduce the risk
pertaining to the inventories.

YEARS 2008-09 2009-10 2010-11 2011-12 2012-13
Invento
-ries to
gross
working
Capital
0.07 0.11 0.098

0.098 0.09
Tbl No. 5.4




0.07
0.11
0.098 0.098
0.094
0
0.02
0.04
0.06
0.08
0.1
0.12
2008-09 2009-10 2010-11 2011-12 2012-13
Invetories To Gross Working Capital

56

5. Inventory Turnover Ratio
Fig: 5.5
Its a ratio showing how many times a company's inventory is sold and replaced over a
period. The days in the period can then be divided by the inventory turnover formula to
calculate the days it takes to sell the inventory on hand or "inventory turnover days."
From 10.6 times in 2008-09 it decreased to 10.3 times in 2009-10, but it improved in the
succeeding years and reached 12.52 times in 2012-13. Considering the overall trend of
ration, it can be forecasted that it can reach 15.9 times in the year 2016-17 as it has been
showing an upward trend, which is a positive sign for the organization.


YEARS 2008-09 2009-10 2010-11 2011-12 2012-13
Inventory
Turnover
Ratio
10.6 10.3 12.33 13.16 12.52
Tbl no. 5.5





57
10.62
10.3
12.33
13.16
12.52
0
2
4
6
8
10
12
14
2008-09 2009-10 2010-11 2011-12 2012-13
Inventory turnover ratio

5. Inventory Conversion period (days)

Fig: 5.6
An inventory conversion period is equal to the number of days between the date that
materials are acquired and the date that a product or service is sold. Decreasing an
inventory conversion period improves a company's cash conversion cycle, which, in
turn, reduces the organization's working capital requirements and increases its cash
flow.
From 34.37 days in 2008-09 it has been reduced to 29.15 days in 2012-13.
Studying the overall trend of inventory conversion period we can forecast that its
showing a downwards trend and can be reduced to 21 days in 2016-17. It is
suggested to decrease this period to the minimum.

YEARS 2008-09 2009-10 2010-11 2011-12 2012-13
Inventory
Turnover
Ratio
34.37 35.44 29.6 27.73 29.15
Tbl no. 5.6



58
34.37
35.44
29.6
27.73
29.15
0
5
10
15
20
25
30
35
40
2008-09 2009-10 2010-11 2011-12 2012-13
Inventory Conversion







CHAPTER -6
CONCLUSIONS




















59

6.1 CONCLUSIONS
From the study of the inventory management of NTPC, it can be concluded that
The power generation company with the huge capacity of around 41,794 MW
has managed its inventories in an efficient manner.
NTPC has constantly been increasing its installed capacity in various plants.
This has resulted in increase of inventories requirements of the company and
managing the inventory therefore becomes a tough task.
NTPC has managed to work in the best possible manner by implementing
modern technique of inventory control such as- Just in Time (JIT) and
Materials Resource Planning (MRP).
NTPC has been maintaining the various inventory ratios in order to facilitate
the production process. In the financial year 2012-13 ratios have not improved
as such, but they have not become unfavourable for the organization as well.
NTPC has always been taking proper care while choosing the suppliers,
ordering for the raw materials, raw materials requirements etc. but it needs to
make the workers aware of the inventory management techniques
implemented in the organization.
Workers of the organization are satisfied due to the following reasons:
NTPC, a brand name.

Salary packages

Team work

Job security

The workers are satisfied but there are certain areas which the organization
should look upon. The main problem in the organization is the maximum
numbers of workers are illiterate because of which its very difficult to
interact with them or extract their views.
In short, we can say that NTPC, the leader in the power sector has been
maintaining its standards in every section of the organization. With the
increase in capacity, the inventories have rose, but it has been able to manage
them properly and NTPC has been maintaining its global standards.



60

6.2 LIMITATIONS
There were many limitations and shortcoming faced by me while conducting the
analysis.
The members of the organization were not ready to reveal internal details
of the company.
There is time limitation, as it was very difficult to study exhaustively in a
limited time period of six-to-eight weeks.
Lack of coordination and communication was experienced while collecting the
data for the present study.
Respondents seemed to be over burdened with work so they didnt give proper
attention.
People were hesitating in answering the question.
Employees were not interested in filling open-ended questions.
Some of the respondents could have been biased while answering
the questions.



















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BIBLIOGRAPHY

1. Pandey I.M., Financial Management, Ninth Edition (2009), Vikas Publishing
House Pvt. Limited.
2. Rustagi R.P., Financial Management- theory, concepts and problems, Fifth
Edition (2011), Taxmann Publication.
3. Tulsian P.C., Financial Management, Sixth Edition (2010), Pearson Education.
4. Ashwathappa K., Production and Operations Management, Fifth Edition
(2009), Himalaya Publications.
5. Chawla D. and Sondhi N., Research Methodology, First Edition (2011), Vikas
Publishing House Pvt. Limited.
6. http://en.www.wikipedia.org/wiki/NTPC_Limited





















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