A

PROJECT REPORT ON
INVENTORY MANAGEMENT
AT
SINGARENI COLLARIES COMPANY LTD.
MASTER OF BUSINESS ADMINISTRATION
By
N.ANILU
H.T.NO: Y11BU128050

DEPARTMENT OF BUSINESS MANAGEMENT

JOSEPH SRIHARAHA&MARY INDHRAJA EDUCATIONAL
SOCIETYGROUP OF INSTITUTION OF- FACULTY MANAGEMENT
(Approved by AICTE,Affiliated to JNT university)
DESHMUKHI, POCHAMPALLI MANDAL NALGONDA DIST
2010-2012

DECLARATION

I hereby declare that this Project Report titled INVENTORY

MANAGEMENT at SINGARENI COLLARIES COMPANY
LTD. submitted by me to the MASTER OF BUSSINESS
ADMINISTRATION , J.N.TU., Hyderabad, is a bonafide work
undertaken by me and it is not submitted to any degree diploma /
certificate or published any time before.

Name:
Date:
Signature of the student

THE SINGARENI COLLERIES COMPANY LIMITED

(A Government Company)
PO: Kothagudem Collieries

PH: 08744-245719

Khammam Dist. A.P

Pin: 507 101(A.P)

Fax: 08744-245401
e-mail:hrd1_crp@scclmines.co

No: CRP/HRD/217/

CERTIFICATE

This is to certify that Mr.N.ANILU, MBA student of SRI

NAGARJUNA INSTITUTE OF MANAGEMENT STUDIES , ACHARYA
NAGARJUNA UNIVERSITY, Has done his Project work in our
Organization and collected the data/information from 09-05-2011 to 26-062011 on the topic: INVENTORY MANAGEMENT.
This certificate is issued to him subject to the terms and
conditions mentioned in the permission Lr.No.CRT/HRD/154/3178, Dt. 0905-2011.

Chief
GM(HRD)

To
Mr.N.ANILU,
3

MBA student,
SRI NAGARJUNA INSTITUTE OF MANAGEMENT STUDIES,

ACHARYA NAGARJUNA UNIVESITY,

GUNTURE.

Cc:
The Principal,
SRI NAGARJUNA INSTITUTE OF MANAGEMENT STUDIES,

ACHARYA NAGARJUNA UNIVERSITY,

GUNTURE.

ACKNOWLEDGEMENT

At the outset, I wish to thank the management of SINGARENI COLLARIES

COMPANY LTD. for their kind gesture of allowing me to undertake this project, and its
various employees who lent their helping hand towards the completion of this study.
4

The very high degree of informal co-operation received during my discussion on the
topic has been one of the greatest pleasures of working in the organization.
The co-operation I received from the wide cross-section of employees SINGARENI
COLLARIES COMPANY LTD. of makes it difficult to list out individuals for
acknowledgement. However, I particularly indebted to S. Anil kumar for appraising me of the
situation with necessary background and helping me to complete this project.
It is with great pleasure that I express my gratitude

I take this opportunity to thank Mr., principal of SRI NAGARJUNA

INSTITUTE OF MANAGEMENT STUDIES, for this encouragement in doing the
project.

Mr.RAMU under whose guidance and advice this study has been carried out.
Finally I thank to my parents & friends for their continuous support and help in the
completion of my project work

TABLE OF CONTENTS

INDEX
PAGE No.

CHAPTER--1.

INTRODUCTION

1-5

CHAPTER2

REVIEW OF LITERATURE

6-21

CHAPTER3

COMPANY PROFILE

22-64

CHAPTER4

DATA ANALYSIS &

65-81

INTERPRETATION

CHAPTER5

CONCLUSION&SUGGESTIONS

BIBLIOGRAPHY

82-86

87-88

ABSTRACT

The project work entitled inventory management includes study about inventory, its importance and
effectively it should be managed for smooth operations of business. Inventories are assts of the and
require investment and hence involve the commitment of farms resources.
Every firm is required to manage the inventories in such a way as to get the best returns. The
objective of inventory management is to determine the optimum level of the inventory that is the level at
which the interest of the all department are taken care of.
The inventory management seeks to maximize the wealth of the share holders by minimizing the
cost of procuring and maintaining.
The objective behind the inventory management is maintaining sufficient stock of raw materials
ensuring continuous supply to production process for uninterrupted production schedule and minimizing
the total annual cost of maintaining inventories.
Inventories are assets of the firm and hence involve the commitment of firms resources;
managers must ensure that the firm maintains inventories at the correct level.

INTRODUCTION:
The thrust areas of this Millennium for improving efficiency of any business
activity are considered to be Service functions.

Globalization has resulted in high

competition. Improving quality and reducing cost have become real needs for the success
of any Organization.

High degree of competition has forced Organisations to look beyond the

operational levels to reduce cost of production to withstand global competition. Need for
higher productivity has percolated not only to the operational level but also to the product
design and other managerial effectiveness resulting in introduction of higher level
technologies and automation.
In High-tech scenario, as Machine controlled elements are more dominant than
the human elements, Management Service functions have become need of the hour, to
reduce overall cost of production. Further, developments in information Technology and
Internet facilities have helped to maximize resources utilization and achieve higher
service levels.
Logistics /Materials Management is considered one of the vital service
functions that helps in bringing down the working capital requirement and hence, the cost
of production through reduction of interest burden.

Also, it would help to make

available capital for alternate productive purposes.

Every enterprise needs inventory of smooth running of its activities. It serves

as a link between production and distribution process. There is generally, a time lag, the
higher requirement for inventory it also provides a cushion for future price fluctuations.

The investment in inventories constitutes the most significant part of current

assets /working capital in most if the under taking. 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.
MEANING AND NATURE OF INVENTORY:
IN accounting language, inventory may mean the stock of finished goods only. In a
manufacturing concern, it may include raw materials, work-in-progress and stores etc.
DEFINITION:
Inventory management is concern with the determination of optimum level
of investment for each components of inventory and the efficient use of components and
the operation of components and the operation of an effective control and review of
mechanism. The main objectives of inventory management are operational and
financial. The operational objective mean the materials and the spares should be
available in sufficient quantity so that work is not disrupted for want of inventory. The
financial objectives mean that the materials and spares should be available in sufficient
quantity so that work is not disrupted for want of inventor.

NEED OF THE STUDY:

Every industry on average spends 70% on raw materials (inventory). Therefore

there is a need to know the raw material cost and also there is great importance to
understand the inventory management system of this industry.
10

The study helps a log to various departments to take steps to control the inventory
process.

OBJECTIVES OF THE STUDY:

To examine the organization structure of inventory management in the stores

of Singareni collieries
To discuss pattern, levels and trends of inventories in Singareni collieries.
To understand the various inventory control techniques followed by studies in
Singareni collieries.
To access the performance of inventory management of the Singareni
collieries by selected accounting ratios.
To know the inventory control techniques of Singareni collieries.

SCOPE OF THE STUDY:

This study covers the inventory position of the singareni collieries company
limited period. The Inventory Management discipline encompasses all system and data network
elements from the mainframe to the server level throughout the enterprise. All mainframe and
data network based hardware and software assets must be identified and entered into the
11

Inventory System.

Any changes to these environments must be reflected in the Inventory

System.
Financial and technical product information must be available through the Inventory
System, as needed to support the functional responsibilities of personnel within the finance and
contracts management departments. Asset criticality must be included with asset descriptive and
financial information, so that the Recovery Management department is supplied with the
information it requires. Recovery actions must be implemented to safeguard critical assets.

METHODOLOGY OF THE STUDY: The following is the methodology of the study. The
collection of data is done in two principle sources. They are as follows:

Primary data.
Secondary data.

PRIMARY DATA

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The primary data needed for the study is gathered through interview with concerned
officers and staff, either individually or collectively. Some of the information has been verified or
supplemented with personal observation conduct.
SECONDARY DATA
The secondary data needed for the study was collected from published sources such as
pamphlets of annual reports, returns and internal records, reference from text book and journals
of financial management.
LIMITATIONS OF THE STUDY:

The inventory

may not be physically counted , just

tracked through the internal

paperwork provided by the company

In the company hold this information in separated areas form regular inventory, of not
properly informed about the procedures for damaged or returned inventory items.

Most of the data is based on secondary data.

The number of locations a company uses to store inventory.

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INVENTORY MANAGEMENT
Inventory management and its importance:
Inventory management, or inventory control, is an attempt to balance inventory
needs and requirements with the need to minimize costs resulting from obtaining and
holding inventory. There are several schools of thought that view inventory and its
function differently. These will be addressed later, but first we present a foundation to
facilitate the readers understanding of inventory and its function.
14

What is inventory?
Inventory is a quantity or store of goods that is held for some purpose or use (the
term may also be used as a verb, meaning to take inventory or to count all goods held in
inventory). Inventory may be kept in-house, meaning on the premises or nearby for
immediate use; or it may be held in a distant warehouse or distribution center for future
use. With the exception of firms utilizing just-in-time methods, more often than not, the
term inventory implies a stored quantity of goods that exceeds what is needed for the
firm to function at the current time (e.g., within the next few hours).

INVENTORY MANAGEMENT:
Inventories are stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which in ventures exist in a
manufacturing company are Raw Materials, work in progress, and Finished Goods, the
levels of three kinds of inventories for a firm depends on the nature of business.

RAW MATERIAL:
Raw materials are those basic inputs that all converted into finished product through
the

manufacturing process. Raw materials inventories are those units, which have been

purchased and stored for future production.

WORK-IN-PROGRESS:

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Inventories are semi-manufactured products they represent that need more before
they become finished products for sale
FINISHED GOODS:
Finished goods inventories are those completed manufactures products, which are
ready for sale. Stocks of raw materials and work-in-progress facilitate production while
stock of finished goods is required for smooth marketing operations.
Excessive level of inventory consumes the finds of a firm, which cannot be, used
for any other purpose and thus, involves an opportunity cost. The carrying costs, such as
the cost of storage and handling insurance also increase in proportion to the volume of
inventory.
Maintaining a liquidates level of inventory is also dangerous. The consequences of
inadequate investment in inventory are production holds up failure to meet delivery
commitments. If inventory is not sufficient to meet the demand of the customers regularly
that may shift to other competitors, which will amount to a permanent loss to a firm.

OBJECTIVES OF INVENTORY MANAGEMENT:

To maintain sufficient stocks of raw materials in period of short supply and anticipate
price charges.
To ensure a continuous supply of raw materials to facilitate uninterrupted production.
To maintain sufficient finished goods inventory for smooth sales operations and efficient
customer service.
To minimize the carrying costs and time.
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 To control investment in inventories and keep it at optimum level.

INVENTORY MANAGEMENT TECHNNIQUES:

The firm should determine the optimum level of inventory. Efficiently
controlled inventories make the firm flexible.
Determining an optimum level involves two types of costs.
a)

Ordering Costs.

b)

Carrying Costs.
ORDERING COSTS:
The term Ordering Cost is used in cases of raw materials and includes the entire
costs of acquiring ram materials. Ordering cost is involved in:

Preparing a purchases or requisition form and

Receiving inspecting and recording the goods received to ensure both quantity and
quality. The costs of acquiring materials consists cost of a larger quantity would increase
associated with the maintenance on inventory i.e., carrying costs.

CARRYING COSTS:
Carrying costs are involved in maintaining or carrying inventory. The cost of
holding inventory may be divided in to two categories.
Storage cost i.e., tax, depreciation, insurance, and maintenance of the building,
utilities and services.
Insurance of inventory against fire and theft.
Deterioration in inventory because of pilferage, fire, technical obsolescence, style
obsolescence, and price declines.
17

 Serving cost-such as labour for holding inventory, clerical and account cost.
The carrying costs and the inventory size are positively related and move in
the same directions, in the level of inventory increases, the carrying cost also increase
and vice-versa.

BENEFITS OF HOLDING INVENTORY:

It acts as a buffer to decouple or un couple the various activities of a firm so that
all do have to be pursued exactly the same rate.
Since inventory enables uncoupling of the key activities of a firm each of them
can be operated at the most efficient rate.
An inventory enables firms in the short-rum to product at a rate than purchases of
raw materials and vice-versa, or sell at rate greater than production and viceversa.
The maintenance of inventory cost also helps a firm enhance its sales efforts.
By holding less inventory cost can be minimized, but there is a risk that the
operation will be disturbed, as the emerging demands cannot be met.
By holding a large inventory, the chances of disruption of operations are reduced, but the
cost will increase.
The appropriate level of inventory should be determined in term of a tradeoff between the
benefits the costs associated with maintaining inventor
SYSTEM STUDY:
In stores materials is taken in stock through five different transactions.
1. Receipt of material.
2. IRN generation.
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3. Sending the material to issue section.

4. Receipt from other sources.
5. Maintenance of details in receipt transaction.

1. RECEIPT OF MATERIAL:
In stores, material is taken in to stock through five different transactions. As
and when the material is received, IRN (inspection cum receipt note) will be prepared
and material is taken in to receipt through this IRNS, Purchase order status is updated in
different stages of this transaction. All the materials receive through this type are
subjected to quality inspection.
Receipts from sources other than vendor:
Documents as well as material are received at the same time. As and when the
material is received, IRN (inspection cum receipt note) will be prepared and material is
taken in to receipt through these IRNS. No purchase order status is updated different
stages of this transaction.

Receipts from other stores:

Issuing stores the material through ISTN (inter stores transfer note).
Material is received at received at receiving stores against this ISTN only.
Receipts of return:
Material once issued to mines/departments is returned to stores through credit
note.
Receipts through local purchase:

19

It is a receipt cum issue transaction. It is operated by a document called RILIP (Receipt

cum issue local purchase).

Receipt from vendors- Receipt of documents:

LR booking date must be within order validity date. If document date is not within the
order validity date. System should alert the user that order is already expired and should
block the consignment. Material receipt can be posted only for the valid orders.
Vendor may be sending the material pertaining to different purchase orders (placed
on him) through a single consignment. Consignment may be against different rate
contract suborders or general orders.
There may be different invoices for the quantity delivered against same vendor,
same purchase order, same schedule and same item.

Vendor supplies receipt of material:

It is important to record the delivery schedule against which the material is
received. Receipt may be against multiple delivery schedules. Schedule wise balance
quantities in a purchase order, inventory schedule to be received before certain date are
important areas of analysis. If the material is received with all valid requirements i.e.,
with respect to a valid purchase orders, with respect to a valid delivery schedule etc. it
will be considered for inspection. If the material is received without valid requirements
i.e., with respect to expired purchase order, without delivery schedule etc., material may
be allowed inside the stores compound but it will not be considered for inspection.
20

Sometimes, material is received at site. Receipt documents along with

acknowledgement from user and indent are submitted to the stores later (ex. Explosives,
slurry compound).
Sometimes, material is received at stores. After weighing lorry with the material at
stores, material is dispatched to user mine/department where it is unloaded. After
unloading, user dept submits receipt acknowledgement to the stores. Empty lorry is
weighed at stores to find the weight of material. Only then, IRN is prepared for the net
weight of material and it is taken in to stock. Indent is submitted to the stores later. Items
covered in the selected purchase order only should be considered for receipt.
2. IRN generation:
Different IRNs will be generated for the different purchases orders, different schedule,
different class code, different stores sections, different invoices, different Lars. If items of
different classes covered in different schedules of same purchases order are received in a
single consignment, different IRNs are generated for different schedules and different
class codes.
Sending the rejected material to vendor:
Vendor will be informed about this rejected material and he will ask to collect the
rejected material.
If he wants to replace the materials, he will bring the new material, hands over it to
SCCL and takes old rejected material.
` If vendor wants it to sent on LR-TO PAY basis, it will be booked in a private
transporter. If vendor does not respond to our correspondence, he will informed that the
material will be auctioned if he does not lift the rejected material from stores before
certain date. Even after that, if he does not respond, it will be auctioned.

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Sending the material to issue section:

After quality inspection is over, accepted is over, accepted material is shifted to the
concerned issue section. If the total quantities of all items are rejected in IRN, IRN will
be filed in the physical documents file of that purchase order. Vendor is intimates may be
dispatched to him with freight TO BE PAID condition. This IRN is also removed from
the list of pending IRNs.
Taking material into stock:
Issue section clerk verifies the material and its quantity with the mentioned in the
IRN i.e., whether item received and item given in IRN are one and the same or not. He
counts the material and its count is verified with the same IRN. If required, IRN and the
material will be sent back to the receipt section. If issue clerk satisfies with the material
and its quantity, stock of respective item is updated. This IRN is also removed from the
list of pending IRNs. Till then from the receipt of material, item is said to be under
inspection.PO status is also updated with the updating of stocks.
Locating the material in the section:
If the material is procedure for any specific use or if the material is urgently
required, respective mine/department is informed to draw the material.

Receipts from other sources:

(In-house manufacturing units/super bazaar/Hyderabad purchase
cell/miscellaneous agencies)

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In-house manufacturing / super bazaar:

No need to maintain balance on order particulars.
Material manufactured in SCCL workshops may be produced from outside agencies also.
It may be required to maintain the stock also. Generally no stocks will be maintained for
the items produced in this mode.
IRN will be generated in the transaction as per IRN generation logic explained in vendor
supplies.
No inspection is carried out for these
Stock will be updated with the received quantity for the material.
Generally both receipt and issue transactions occur in the same hour at stores
This be avoided by transferring material from the workshops to the areas.

Maintenance of details in receipt transaction:

Chelan number and date i.e. Details of issue from workshop Details of
workshop/super bazaar from which the material is brought receipt date on which the
material is received from workshop/Hyd, purr. Cell etc.
Details of transaction:
Mode of transaction i.e. company/ private / hired vehicle, manual Name of
transporter. Number of lorry /vehicle etc. Details of the person i.e. designation and his
department who collects the material.
Details of requisition against which the material is issued to that particular
dept/mine.

23

Receipts from other stores through ISTNs:

When a store issue the material to another store, issuing stores will generate a ISTN
and issue the material through ISTN (Inter stores transfer note). Material is received
stores against this ISTN.
Following details are maintained in a register in the issue section:
Details of driver/person who has brought the material.
Details of stores from which material is issued.
Details of requisition against which the material is issued.
Date on which material is issued at issued at issued stores.
Date on which material is received at receiving stores.
Details of materials and respective quantities received through this ISTN.

Verification of the material:

Verification whether the material and respective quantities are tilled with
those mentioned in the ISTN is carried out in the issue section. According to the receipt
of the material, the material along with ISTN is posted.

Issue of material:
Material is issued from stores to mines/department and to other stores.
Material is issued to mines/department against SIV (stores indent voucher)
Where material is issued to other stores against ISTN (Inter stores transfer note)

Material issued to mines/Department against SIV:

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SIV s are prepared section wise i.e. different SIV s should be for different stores
sections even SIV is from same department SIV raised mine/department consists of
details-SIV number. SIV date, Mine/department which raises the indent, Type of indent
i.e. Capital/revenue/sale account, finance code, Item code of the material, Required
quantity item wise charge code wise cost centre.
User department will raise an indent for the require d quantities of the required
material. It is to be approved by agent/project officer of the mine, HOD of the material. It
is the description of the stores in charge which decides what not be issued. Total quantity
not exceeds the quantity requisitioned. User department indicates the category of material
in indent I.e. whether it is capital or revenue or sale account, to enable the accounts
department to decide to which account this consumption is to be posted. Same material in
different indents may be indicated against different accounts.

For example, GI pipe drawn for laying a new pipe line is

Identified under capital whereas the material issued to company employees/contractor is
indicated as sale account.
User department indicates the cost centre for every item in indent to represent the
activity in which the respective item is going to be used i.e. coal cutting, ventilation etc.
same material in different indents may be indicated against different charge codes.
Charges codes are standardized and communicated to the mines/department.

User department indicates the charge code for every item in indent to represent
the equipment to which the respective item is going to be used i.e. dumper number, dozer
number. This charge code concept is relevant in OC and UGMM. For underground
consumption, if there is no need to mention equipment, there is no change code. All the
25

equipment in the mine is given a charge code by the respective department. Quantity
requisitioned for an item in the indent may be split up for the use of number of
equipment. So, charge code wise requirement should be raised for every item in indent, if
change code concept is relevant.
In the case of critical items or the items which are to be monitored closely, stores
in charges will write the quantities to be issued against each item on the approved indent
and approves the indent in the capacity of issuing authority. Regarding all other the
material, he will approve the indent as issuing authority. Materials will be issued to the
concerned as per advise of stores in charge (as in the case of critical items). While issuing
the material, it is required to maintain the details of the following for each item issued in
the indent.

Purchase orders stocks from which the material is issued

IRN from which is material is issued
Serial number of material issued
Details of brand of the material issued.
If the stock of a particular item is reserved for a particular department and any other
department is in need of it, issue section clerk should be alerted so that it is reserved for
the department for which it is meant. Materials reserved for a department can be issued to

another department with the advice of stores in charge or after obtaining the approval
from the department for which the material is reserved. Material can also be issued to
workers reporting to contractors on sale account basis i.e. Helmets, shoes etc. material
can also be issued to company employees on sale account basis i.e. CF lamps, dinner sets
etc.
26

Material issued to a particular department/mine can be used immediately (in that

case, respective mine consumption of that item is updated and no stock updating at pit
stores) or a part quantity can be issued for immediate consumption and the remaining can
be stocked at pit stores.
Even if total quantity of and item in SIV is no issued, Sirs for which issues are made
should not be accessed either for issue or for modification. There must be that provision
to delete/cancel all the unused Sirs prepared in the system in regular intervals. Inventory
of SCCL has to include the value of the materials stocked at pit stores also. After the
issue of material to mines, data regarding for which charge codes it is used is available in
OCMM/UGMMS.

Material issued to other stores against ISTN:

ISTN document consists of following details
Details of driver/person to whom the material is issued.
Details of stores to which material is issued.
Details of requisition against which the material is issued.
Date on which material is issued at issuing stores.
Maintaining original receipt date of material throughout the life of material even if it is
transferred to some other stores.

Miscellaneous issue:

27

Material issued to contractors on chargeable basis- i.e. explosives, diesel etc.

material like diesel explosives etc are issued to OB contractor. Same finance code is used
in raising indent. These indents are revenue indents only.
Value of the material issued to a particular OB contractor can be assessed by
summing up these ISSUES statements furnishing the details of all issues made to a
particular OB contractor is furnished by the stores to account department at the end of
every month.
Security check :
Material issued is counterchecked by security personnel at the entrance gate, to
compare with the details of the material as per SIV/ISTN document.

Issue of material, which is under inspection:

Material under inspection can be issued in two ways. Issue may be to another
department or to and outside agency against chaplain for testing the item/sample. After
the receipt of inspection report, item or lot will be accepted/rejected accordingly.
Issue may be from receipt section against breakdown SIV. In such case
breakdown indents approved by HOD are submitted and issues are made against those
SIVs. In this case, physically issue takes place before the item is taken in to stock.

Issue of stocked material against challan:

Some stocked material like GI pipes will be issued to Govt. agencies etc against
challan on returnable basis. After the material is returned, same will be taken in to stock.
28

Issue of unserviceable material against challan:

Some unserviceable material like old pipes will issued to Govt/private agencies
against challan. But this material pertains to scrap/unserviceable material.
Keep operations running?
A manufacturer must have certain purchased items (raw materials, components, or
subassemblies) in order to manufacture its product. Running out of only item can prevent
a manufacture its product. Running out of only can prevent a manufacturer from
completing the production of its finished goods.
Inventory between successive department operations also serves to decouple the
dependency of the operations. A machine or work center is often dependent upon the
previous operation to provide it with parts to work on. If work ceases at a work center,
then all subsequent centers will shut down of lack of work. If a supply of work in
process inventory is kept between each work centers, then each machine can maintain its
operation for a limited time, hopefully until operations resume the original center.
Lead Time :
Lead time is the time that elapses between the placing of an order (either a
purchase order or a production order issued to the shop or the factory floor) and actually
receiving the goods ordered. If a supplier (an external firm or an internal department of
plant) cannot supply the required goods on demand, then the client firm must keep an
inventory of the needed goods. The longer the lead time, the larger the quantity of goods
the firm must carry in inventory.

Quantity Discount :
29

Often firms are given a price discount when purchasing of a good. These also
frequently result in inventory in excess of what is currently needed to meet demand.
However, is the discount is sufficient to offset the extra holding cost incurred as a result
of the excess inventory, the decision to buy the large quantity is justified. The above
different transaction mentioned under system study is to be properly maintained in the
data base for inventory management. The inventory management techniques are here
under.
Controlling Inventory:
RISK AND COST OF HOLDING INVENTORIES
The holding of inventories involves blocking of firms funds and incurrence of a
capital and other cost.
The various costs and risk involve in holding inventories are:

CAPITAL COST: Maintaining of inventories results in blocking of the firm financial

resource. The firm has therefore to arrange for additional funds to meet the cost of

inventories.
The funds may be arrange from own resources or from outsiders. But in both cases, the
firm insures the cost. In the former case, there is an opportunity cost of investment while

in later case the firm has to pay interest pay to the outsiders.
STORAGE AND HANDLING COSTS: Holding of inventories also involves cost on
storage as well as handling materials. The storage cost includes the rental of the Go
down, Insurance charges etc.

RISK AND PRICE OF DECLINE: There is always a risk of reduction in the prices of
inventories by the suppliers in holding inventories. This may be due to increased market

supply, competition or general depreciation in the market.

RISK OF OBSOLESCENCE: The inventories may become obsolete due to improved
technology, changes in requirements, change in customer tastes etc.
30

RISK DETERMINATION IN QUALITY: The quality of materials also deteriorates

while the inventories are kept.

OBJECTIVES OF INVENTORY MANAGEMENT To ensure continuous supply of
materials spares and finished goods so that production should not suffer at any time and

the customers demand also are met.

To avoid both over-stocking and under-stocking.
To maintain investment in inventories at the optimum level as required by the operational

and sales activity.

To keep material cost under control so that they contribute in reducing the cost of

production and overall cost.

To eliminate duplication in ordering or replenishing stocks. This is possible with the help

of centralizing purchases.
To minimize loss through deterioration, pilferage, wastage and damages.
To ensure perpetual inventory control so that materials show in stock ledgers should be

actually lying in the store.

To ensure right quality goods at the reasonable prices. Suitable quality standards will
ensure proper quality of stocks .the price analysis; the cost-analysis and value analysis

will ensure payment of proper prices.

To facilitate furnishing of date for short-term and long-term planning and control of
inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of liquidity but
also increases profits and causes substantial reduction in the working capital of the
concern.
DETERMINATION OF STOCK LEVELS
Carrying of too little of inventory is detrimental to the firm. If the inventory level
is too little, the firm will face frequent stock-outs involving heavy ordering cost and if the
inventory level is too high it will be unnecessary tie up of capital.
31

An efficient inventory management requires that a firm should maintain an

optimum level of inventory where inventory costs are the minimum and at the same time
there is no stock-out which may result loss or sale of shortage of production.

Minimum Stock Level:

It represents the quality below its stock of any item should not be allowed to fall.
Lead Time: A purchase in firm requires some times to process the order and the same
time is required by the supplying firm to execute the order. The time taken in processing
order and executing is known as lead time.

Read of consumption: It is the average consumption of materials in the factory. The rate
of consumption will be decided on the basis of past experience and production plans.

Nature of material: The nature of material also affects the minimum level; if a material
is required only against the special order of customer then minimum stock level can be
required for such material. Minimum stock level can be calculated with the help of
following formula:

Minimum stock level = reordering level - (normal consumption x normal reorder

period)
Re-ordering Level:
When the quality of materials reaches at a certain figures then fresh order is sent
to get material again. The order is sent before the materials reach minimum stock level.
Re-ordering level is fixed between minimum level and maximum level.

32

(Re-ordering level = maximum consumption x maximum re-ordering period)

Maximum Level:
It is the quantity of materials beyond which a firm should not exceed its stocks. If
the quantity exceeds maximum level limit it will be over-stocking.
Over stocking will mean blocking of more working capital, more space for storing
the materials, more wastage of materials and more chances of losses from obsolescence.

Maximum stock level = reorder level + reorder quantity (minimum consumption x

minimum re-order period)

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

While the overall object of the inventory system is to minimize the cost to the
firm at the risk level acceptable to management, the proximate criteria for judging the
inventory system are:
Comprehensibility
Adaptability
Timeliness

DEVELOPMENT OF LONG TERM RELATIONSHIP:

Companies should develop long term relationships with vendors. This would help
in improving quality and delivery.
Adoption of challenging norms:
Companies should set benchmarks with global competitors and use ideals like JIT to
improve inventory management
33

NEED OF INVENTORY:
About 10% of total cost of production of SCCL Limited represents inventory cost.
Inventories are maintained basically for the operational smoothness which they can be
affected by uncoupling successive stages of production. Whereas the monetary value of
the inventory serves as a guide to indicate the size of the investment made to achieve this
operational convenience.

The materials management departments primary function is to provide this

operational convenience with a minimum possible investment in inventories. Materials
department is accused of both stock outs as well as large investments in inventories. The
solution lies in exercising a selective inventory control and application of inventory
control techniques. Inventories built to act as a cushion between supply and demand. It is
sufficient to take care of the requirements of demand till the next supply arrives. It is
sufficient to take care of probable delay in supply as well as probable variation in
demand.
The size of the inventory depends upon the factors such as size of industry,
internal lead time for purchase, suppliers lead time, vendor relations, availability of
materials. Inventory cost can be controlled by applying modern techniques Viz., ABC
analysis, SDE, FSN, HMC, VED etc., these techniques can be used effectively with the
help of computerization.

34

WHO DETERMINES INVENTORY:

Norm per inventory could be set by the area top management. In the SCCL
corporate planning department will allocate this investment with the various items taking
into consideration the requisitions given by the smooth operation of the company.
Purchase department will process the procurement action.
What is meant by inventory cost?
Inventory cost represents:
A. The total value of stores and spares and capital spares.
B. Stores in transit and under inspection and,
C. Stock of finished products.
Normally, there are certain problems in maintaining optimum level of inventory.
Problems of inventory can be resolved by the implications. Costs which are relevant for
consideration are discussed in the following lines:
Basically there are four costs of production in developing an inventory model.
1. The cost of placing a replenishment order.
2. The cost of carrying inventory.
3. The cost of under stocking and
4. The cost of overstocking.
The cost of ordering and inventory carrying cost are viewed as the supply side costs
and help in the determination of the quantity to be ordered for each replenishment.
The under stocking and over stocking costs are viewed as the demand side costs
and help in the determination of among of variations in demand and the delay in supplied
which the inventory should withstand.
Whenever an order placed for stock replenishment certain costs are involved and for
most practical purposes it can be assumed that the cost per order is constant. The ordering
cost may vary depending upon the type of items, for example raw material like steel
35

against production component like castings in steel plants, support material in case of
coal industry.
The cost of ordering included:
1. Paper work costs, typing and dispatching an order.
2. Follow up costs the follow up required to ensure timely supplied includes the travel
cost of purchase follow-up, the telephones, telex and postal bills etc.
3. Costs involved in receiving of the order, inspection, checking and handling in the stores.
4. Any set up cost of machines charged by a supplier, either directly indicated in quotations
or assessed through quotations for various quantities.
5. The salaries and wages of the purchase department.
This cost includes:
1.
2.
3.
4.
5.
6.

Interest on capital.
Insurance of tax charges.
Storage costs, labour costs, provision of storage area and facilities like bins racks
Transport bills and homely charges.
Allowance for deterioration or spoilages.
Salaries of stores staff obsolescence.

The inventory carrying cost varies and a major portion of this is accounted for by
the interest on capital. SCCL is paying 20% interest in Bank loans.

Under Stocking Cost:

This cost is the cost incurred when an item is out of stock. It includes cost of lost
production during the period of stock out and extra cost per unit which might have to be
for an emergency purchase.
Overstocking cost:
This cost is the inventory carrying cost (which is calculated per year) for a
specific period of time. The time varies in different contexts; it could be lead time of
procurement of entire life time of machine. In the case of one time purchases
36

Cost = purchase price - scrap price

Inventory cost in relation to SCCL shall be classified as follows
Inventory can be classified as capital and revenue. Certain items though titled as
capital in nature. Example coal tubs, cap lamps etc., 100% of depreciation shall be
charged in the year are drawn. Hence, due care is to be taken by user mine while drawing
the material.
Materials which are to be improved from other countries have to be planned well in
advance nearly about 24 months and to initiate the proposal for procurement.
Sand transportation could be done with minimum lead time in Manuguru,
Kothagudem areas and Godavarikhani region since abundance sand is available in nearby
areas of operations. General experience in SCCL reveals that the production during the
months of November to March is one high side as such the requirement of spares and

store will be on high side. As such we must be in position to keep the material with better
economics for these five months taking lead time into account for procurement of
material to get optimum production. In the current financial year production trend reveals
that the production is improving and showing good performance throughout the year
unlike earlier years in underground mines.
Accounting for materials:
The accounting for direct material begins with the issuance of the purchase
requisition and ends only when the finished product has been shipped to the customer.
In the course of this cycle the other two elements of cost direct labour and factory
overheads become part of material cost to the extent that they are applied to production
and included in inventory values.
Acquiring raw materials from Vendors:
37

Four basic documents are involved in acquiring materials from vendors. They are:
Purchase requisition, the purchase order, the receiving report and the Vendors invoice.
After due consideration of purchase requisition a vendor is selected and a
purchase order is send to the vendor by the purchasing agent. Ultimately the merchandise
and the vendors invoice are received and the receipt of merchandise is recorded on a
receiving report.
If the vendors invoice, the purchase order and the receiving report are found to be
in agreement, a voucher for payment is approved. At this time the receipt of the
merchandise is recovered in the General Ledger as follows:
Dr. Raw materials inventory.
Cr. Accounts payable.

Which payment is made, the following General Ledger entry is made:

Dr. Accounts payable.
Cr. Cash.

Purchase Orders:
A purchase order is prepared from the purchase requisition, with sufficient copies
to meet the requirements of the company organization structure. Usually at least four are
prepared. The original for the vendor and copies for the purchasing department files, the
accounts payable department and the receiving department.
The copy for the latter department may have the quantity ordered blocked out so
that the count of material at receiving wi1l not be influenced by the quantities shown on
the purchase order. The purchase order is a vital document in the materials accounting
process for when it is accepted by the vendor, it becomes a contract. As a contract it must
38

be complete and specific. Therefore, fol1owing the listing of items ordered would be
stated the required delivery date, packing and shipping instruction, billing instruction,
and terms of payment. It is customary to include clauses and conditions as to warranty,
patent infringement, and contractors liability when services are to be performed etc. such
clauses may be inserted as required or be printed on the face or back of the order with a
definite and well marked statement that they are a part of the contract. These clauses are
very useful controlled devices from the point of preventing costly legal entanglements.
Receiving Reports:
When material is received, the quantity is determined by counting, weighting or
other measurement by the receiving department. This is done to assure that payment is
made only for goods actually received.

The receiving department prepares receiving reports, either on a special form or on a

receiving copy of the purchase order.
Payment of Invoices:
Vendors invoices are sent to the accounts payable department. Approved vendors
invoices are filled by vendor according to date of payment. On the date a voucher is
prepared on which are listed the invoices of the vendor covered by the voucher. The
cheque is drawn for the net amount by the voucher. A combination cheque and voucher
form is frequently used. The recording in the invoice register may be done when the
invoices are received or after they are attached to the voucher for payment.
Internal Control:
The purchasing, receiving and payment procedures for goods of services are a
vital part of system of internal control.

39

The matching of purchase orders, receiving records, and vendors invoices assures
that payments are not made for goods and services not received and that the items of the
invoice are in agreement with those specified in the purchase order. The entire process
aids in the control of costs, for any payment for goods and services must ultimately be
reflected in the accounts as a cost of the current period or of a future period.

MATERIALS

Introduction:
Materials are a very important factor of production. It includes physical
commodities used to manufacture the final end product. It is the starting point from
which the first operations start. It is the first and the most important element of cost.
Materials account for nearly 60 percent of the cost of production as is clear from analysis
of the financial statement of a large number of private and public sector organizations.
Proper control of materials is necessary from the time orders for purchase of
materials are placed with supplies until they have been consumed, the object of material
control is to attack material cost on all fronts so that cost of material may be reduced. In
other words, efforts are to be made to reduce the cost of material when it is purchased,
stored and used.
Meaning of Material Control:
Material control can be defined as a comprehensive frame work for the
accounting and control of material cost design with the object of maintaining material
supplies at a level

so as to ensure uninterrupted production but at the same time

minimizing investment of funds, in simple words material control is a systematic control

40

over the purchasing, storing and using of material so as to have minimum possible cost of
materials, matt, curry and frank state in their book Cost Accounting as follows :
Because materials constitute such a significant part of product cost and since this
cost is controllable, proper planning, purchasing, handling and accounting are of great
importance
Need for Material Control:
No system of costing can be considered as complete without a proper control of
materials as materials constitute a major portion of cost of production. The following are
the various objectives of material control:
1. Availability of materials :
There should be continuous availability of all types of materials in the factory so
that the production may not be held up for want of any material. Minimum quantity of
each material is fixed to permit production to move on schedule.

2. No excessive investment in materials :

There should be a no excessive investment in stocks. Investment in materials
must not tie up funds that could be better used in other activities. Overstocking should be
avoided keeping in view the disadvantages it carries. For purpose, a maximum quantity is
assigned to each item of material above which stock not be exceeded.
3. Reasonable price :
While purchasing materials, it is seen that it is purchased at a

reasonably

low price. Quantity is not being sacrificed at the cost of the lower price. The material
purchased should be of that quantity alone which is needed.
4. Risks of spoilage and obsolescence :

41

Risks of spoilage and obsolescence of the materials must be avoided. For this
purpose, a maximum quantity of each material is determined and a proper method of
issue of materials is followed. The materials received earlier should be used earlier.
5. Information about availability of materials :
Information about availability of materials should be made continuously
available to the management so that planning of production may be done. The store
keeper can supply this information because he keeps an up-to-date record of every item
of stocks under a proper system of material control.
6. Material can be easily misappropriated :
Material can be easily misappropriated by employees because generally
misappropriation of cash is considered to be serious than misappropriation in kind.
Therefore, this requires an internal check on material which is a part of material control.
7. Invoices :

Invoices received from suppliers should approved for payment only if

the items of materials ordered have been received and properly checked to avoid excess
payment to suppliers.
Essential of material control:
The entire procedure of material control can be divided in to three stages-purchase
control, stores control and issue control. These three types of materials control have been
discussed in detail in this chapter. Here for the sake of convenience various essentials
relating to material control are given in brief:
1.

There should be proper co-operation and co-ordination among the departments involved
in purchasing, receiving and inspection, storage, sales, production and accounting so that
there may be no inadequate availability of materials which may disrupt production and
lose sales.

42

2.

Purchase of materials should be centralized i.e., one purchasing department should be

authorized to make all purchases of materials to avoid reckless buying by all departments
and to ensure that all purchases are made at that most reasonable prices.

3.

There should be proper scheduling of materials.

4.

A good method of classification and codification of materials should be followed.

5.

There should be proper inspection of materials when they are received by the receiving
department.

6.

Standard forms for requisitions, orders, issue, transfer of materials from one job to the
other and transfer of materials from job to the stores should be used.

7.

The storage of materials should be well-planned to avoid losses from theft, carelessness
damage, deterioration, evaporation and pilferage.

8.

A good method of issue of materials to various jobs, orders or processes should be

followed so that there is delivery of right type of materials to the jobs, orders or processes
in the right quantity at the time they are needed.

9.

A system of internal check should be introduced to ensure that all transactions involving
materials are checked by properly authorized and independent persons.

10. Minimum, maximum and re-ordering levels for each type of materials should be fixed to
ensure that is no shortage of materials and that there is no overstocking.
11. Ordering quantity for each type of material should also be fixed to reduce the ordering
costs and carrying costs of materials.

43

12. A careful choice should be made of the method of valuing the material issues because it
effects the cost of jobs or processes and the value of the closing stock of material in the
stores.
13. Adequate records to control materials during production should be maintained to ensure
that there is minimum possible wastage.

Functions of Purchase Department:

Following are the functions of a purchase department:
1.

What to purchase?

2.

When to purchase?

3.

Where to purchase?

4.

How much to purchase?

5.

At what price to purchase?

To perform these functions effectively, purchase department follows the following

procedure:
Receiving purchase requisitions.
Exploring the source of supply and choosing the supplier.
Preparation and execution pf purchase orders.
Receiving and inspecting materials.
Checking and passing of bills for payment.
Specimen form of purchase requirements is given below:

44

SCCL COMPANY Ltd.

PURCHASE REQUESTION
No.________________

Regular/

Special

Date.
Date by which

Materials are
Serial

Description of

No

Articles

Required
Stores
Quantity
Code No.

Remarks

Required

Requested by .

Approved by .
For use in purchase Department

Quotation invited on...

From :

1. ..
2. ..
3. ..

Other action ..

Purchase officer

SCCL COMPANY Ltd.

PURCHASE ORDER
No. ..

Dated

purchase Requisition No. .

To (suppliers)
Yours quotation number . Dated . Has been accepted.
Please supply the following the items of store in accordance with the instructions
mentioned there in and terms and conditions listed on the reserve of this purchase
orders.
Serial Description Quantity
No.

Terms of Delivery

Rate

Total

Delivery

cost

Date

Remarks

45

Term of payment
Packing and Dispatch Instruction
Discount Allowed

purchase officer

STORES (OR GOODS) RECEIVED NOTE

Suppliers name

No.

..
STORES
RECEIVED NOTE:

Purchase Order No.

Serial Description Code

No.

Quantity Date

Date.
Amount Remarks

No.

Received by .
..
Store keeper .
.
Stores Ledger posted by ..

Inspected by
46

Coasted by

Requisitioning for stores:

One of the duties of the storekeepers is to send requisition for materials for
replenishment in time so that the production may not hamper for want of materials. The
store keeper is to see that neither production is adversely affected nor there is
unnecessarily blocking of capital due to overstocking of materials. In this respect, he is
guided by the re-order level, economic ordering quantity, and the maximum quantity
which he is authorized to store in respect of each kind of material.
a)

Re-ordering Level
It is the point at which if stock of a particular material in store

approaches, the storekeeper should initiate the purchase requisition for fresh supplies of
that material. This level is fixed somewhere between the maximum and minimum levels
47

in such a way that the difference of quantity of the material between the re-ordering level
and the minimum level will be sufficient to meet the requirements of productions up to
the time the fresh supply of the material is required.
Re-ordering level can be calculated by applying the following formula.
Ordering level= minimum level + Construction during the time required to get the
fresh delivery.
Another formula given by WHELDON book Cost Accounting is as follows:
Re-ordering level = Maximum consumption x Maximum re-order period.
b) Economic Ordering Quantity
The total costs of a material usually consist of:
Total acquisition cost + total ordering + total carrying cost.
Total acquisition cost through buying is usually unaffected irrespective of
the quantity of material ordered at one time unless quantity discounts are available.

The quantity of material to be ordered at one time is known as economic ordering

quantity. This quantity is fixed in such a manner as to minimize the cost of ordering and
carrying the stock.
Carrying cost . It is the cost of holding the materials in the store and includes:
1. Cost of storage space which could have been utilized for some other purpose.
2. Cost of bins and racks that have to be provided for the storage of materials.
3. Cost of maintaining the materials to avoid deterioration.
4. Amount of interest payable on the money locked up in the materials.
5. Cost of spoilage in stores and handling.
6. Transportation costs in relation to stock.
7. Insurance cost.
8. Clerical cost etc.
48

Ordering cost :
It is the cost of placing orders for the purchase of materials and includes:
1. Cost of staff posted in the purchasing department, inspection section and payment
department.
2. Cost of stationary, postage and telephone charges.
The quantity to be ordered should be such which minimize the carrying and ordering
costs. The order for the material to be purchased should be large enough to earn more
trade discount and to take advantage of bulk transport, but at the same time it should not
be too large to incur too heavy a payment on account of interest, storage and insurance
costs. If the price to be paid is stable, the quantity to be ordered each time can be
ascertained by the following formula.
Q = 2CO/1
Where Q = Quantity to be ordered.
C = Consumption of material concerned in units during the year.

O = Cost of placing one order including the cost of receiving the

goods i.e. costs of getting an item in to firms inventory.
I = Interest payment including variable cost of storing per unit per year i.e. holding
costs of inventory.
For example, a unit of material X costs Rs.50 and the yearly consumption is 20,000 units.
The cost of placing one order including the cost of receiving the material is Rs.20 and the
interest including variable storage cost is 10% per annum. The optimum quantity for which
order is to be placed is
Q = 2CO/I
Danger Level:

49

This means a level at which normal issues of the material are stopped and issues are
made only under specific instruction. The purchase officer will make special arrangements to
get the materials which reach at their danger levels so that the production may not stop due to
shortage of materials.
Danger level = Average consumption x Max. Re-order period for emergency
purchases.
Average Stock Level:
The average stock level is calculated by the following formula:
Average stock level = Minimum stock + of re-order quantity.
Or (Minimum stock level + Maximum stock level).
Stores (or material) Records:
The bin card and the stores ledge are the two important stores records that are
generally kept for making a record of the various items of stores.

BIN CARD:
A bin card makes a record of the receipt and issue of the materials and kept for
each item of stores carried. Quantity of stores received is entered in receipt column and
the quantity of stores issued is recorded and issue column of the bin card and a balance of
the quantity of stores is taken after every receipt or issue, so that the balance at any time
can be readily seen. These cards are maintained by the store-keeper and the storekeeper is
answerable for any difference between the physical stock and the balance shown in the
bin card. These cards are used not only for recording receipt and issue of stores but also
assist the storekeeper to control the stock. For each item of stores, maximum quantity,
maximum quantity and ordering are stated on the card. By seeing the bin card, the
storekeeper can send the material requisition for the material in time.
Stores ledger:
50

This stores ledger is kept in the costing department and is identical with the bib
card except the receipts, issue and balance are shown along with their money values. This
contains an account for every item of stores and makes a record of the receipts, issues and
the balances, both in the quantity and value. Thus, this ledger provides information for
the pricing of materials issued and the money value at any time of each item of stores.

SCCL COMPANY LTD

BIN CARD
Bin card No.

Bin No..

Name of the article..

Maximum Quantity..

Code No..

Minimum Quantity..

Stores Ledger Folio.

SCCL

Receipt

BIN

CARD

Issues

Ordering Quantity

Balan

Goods on Order

ce

Go

D od
a s

rec

nt

eiv

it

Note

Da

ed

No.

te

No
te
No
.

Issues
Requisit
ion

Quan

Quant

tity

ity

No

Quan

Date of Rema

tity

checkin

an

rks

of

date
of
Good
recei
ved

or
de
r

51

SCCL COMPANY LEDGER:

SCCL COMPANY LTD
STORES LEDGER
Name of the article

Minimum Quantity..

Code No

Maximum Quantity..

Bin No..

Ordering Quantity

Receipt
Date

Issues

Balance

REMARKS

G.RNO Qty Rate Amt S.no Qty Rate Amt Qnty Rate Amt

52

Bin Card vs. Stores Ledgers

Bin card

Stores Ledger

1. A record of quantities only.

1. A record of both quantities & values.

2. Maintained by storekeeper.

2. Maintained by the costing department.

3. Normally posted just before the 3. Always posted after the transaction takes
transaction takes place.

place.

4. Each transaction is individually 4. Transaction may be summarized & posted

posted.

periodically.

5. Usually kept inside the stores

5. Kept outside the stores.

53

54

INTRODUCTION OF COAL MINING IN INDIA:

Man has been blessed with abundance of natural resources, including mineral
wealth that play a vital role in the development of a country and promote the economic
growth when explored and made best use of them.
Man knows coal, which is one of the important materials, since ages and this
natural wealth have been put to diverse use In the modern world. Coal regarded as the
fuel of growth. The coal is an important input for power generation and many other
industries like iron and steel, railway, shipping and construction industries etc, a vital
infrastructure for the economic development. Despite the development of alternative fuel
material in many industries. Thus coal industry plays an important role In the industrial
development of any country, like India.
The world coal consumption is projected to go up from 4.7 billion tones in 1999
to 6.4 billion tones by 2020. Primarily in India and china, which are expected to account
for 75% of the increased consumption?
In India , coal mining was started in 1774 and still significantly under
the government control and ownership with coal India limited ( CIL) , along with its
following subsidiaries are become number one coal producer in India.
Eastern Coal fields India limited (ECFIL) sanitaria, west Bengal.
Bharath Cooking coal limited (BCCL) - Dhanbad, Bihar
Central Coal fields limited (CCL) Ranchi, Bihar
Northern Coal fields limited (NCFL) Singrauli, Madhya Pradesh
Western Coal fields limited (WCFL) Nagpur, Maharastra.

55

SINGARENI COLLERIES COMPANY LIMITED:

ORIGIN:
A remarkable little adventure gave a birth to this giant corporate entity that us
today the sigareni collieries company limited.
Way back on a dark night in 1870, a group of pilgrims who on their way to
have a darshan of lord Rama at Badrachalam temple (near singareni village) has lit a fire
to prepare for the meal. One of the supporting stones on their makeshift stove, caught
fire. The incident was immediately reported to the local government. This led to an
extensive survey by dr. William king, an eminent geologist, which confirmed the
revolutionary discovery of mammoth of coal in the Godavari valley.
The rest, as they say, is history:
The year 1886 witnessed the formation of the Hyderabad Deccan Company private
limited and it acquires the mining rights for exploiting the coal reserves. The first
commercial operation commenced at Yellandu (khammam District) in Andhra Pradesh in
1889. In 1921 the company was re-christened the Singareni collieries company limited:
and its scrip listed on the London stock exchange.
The mining rights for exploiting the coal reserves were acquired by the Hyderabad
Deccan company. This was incorporated at London Stock exchange. Hence the first
extracting of coal was started at yellandu in 1886 by Hyderabad Deccan Company.
The company became government company after nizam purchased its shared from
London stock exchange in 1945. With this, SCCL became the forest ever government
managed coal company in India. Later in the year 1949, SCCL came under the control of
India and Andhra Pradesh as a joint venture with equity ratio of 49% and 51%
respectively.
56

The SCCL is engaged in coal mining in four districts of Andhra Pradesh namely,
Khammam, karimnagar, adlibbed and Warangal. In overall India it spreads to 6% of
geographical area producing 10% of total coal.
The operation areas of SCCL are as follows:
KHAMMAM DISTRICT Kothagudem, yellandu and managuru
ADIALABAD DISTRICT Bellampalli, Mandamari and Srirampur
KARIMNAGAR DISTRICT Ramagundam I, II, III
WARANGAL DISTRICT Bhoopalpally.
The coal reserves stretch over 350 square kms. Of pranahis Godavari valley of above
districts of Andhra Pradesh with proven deposits of 8,575 million tons of coal.
SCCL now operates forty two (42) underground mines and thirteen (13) open cast
mines in these four districts.
MILE STONES OF TECHNOLOGY INTRODUCTION:
1948:

Introduction of machine mining (shuttle car)

1951:

Electric coal drills

1953:

Electric cap lamps

1954:

Frame Proof mining machinery

1975:

Open cast mining

1979:

Side Dumps Loaders (SDLs)

1981:

Loads haul dumpers

1983:

Merchandised long wall.

1986:

Introduction of computes and walking dragline in open cast mines

1989:

French blasting gallery technology

1994:

Input crushing & conveying technology in opencast mining.

2002:

Surface miner technology.

57

TECHNOLOGIES & THEIR OUTPUT IN SCCL

NAME OF THE TECHNOLOGY

PERCENTAGE OF OUTPUT IN
2007 08

Traditional underground mining

15%

Open cast mining

69%

Long wall technology

Blasting gallery technology

Sl. No.
1
2

16%

CATEGORY
Top executives

31-03-08
6
2512

Executives
Supervisory staff

Secretarial staff

2352

Technical staff

9668

Skilled (Daily Rated)`

18781

Semi skilled (Daily

5298

3936

Rated)
8

Unskilled (Daily Rated)

19335

Unskilled (piece Rated)

16733

10

Apprentices
Total

MAN

7
78628

POWER OF SCCL:
Vision, Mission and Principles Guiding Sustainable Development
58

Vision:
Vision shall bring into view untapped potentials and unutilized opportunities that await
exploitation as well as problems and challenges that may impede progress. The vision
must identify catalytic forces that can be harnessed.
It must express aspirations, determination and commitment for self realization.
Though planning and prediction over long time horizon is difficult, desired end results

must be dreamt and strategies to accomplish them shall be drawn.

Vision needs a subtle blend of humility and courage to dare.
Vision is realizable only when it neither has lofty optimism nor extreme pessimism.
The vision of Singareni is,
59

Singareni collieries to produce coal qualitatively and cost effectively in a

socially and environmentally sustainable manner, valued by customers, employees, and
the community.
To achieve this vision,
it aims to achieve a best safety performance.
Adopt best environmental practices strive to bring back the nature to the best
possible original extent,
Attain sustainable competitive advantage in the marketplace
Align production to meet market demand
And, continuously improve operational performance.
SCCL MISSION:
To retain strategic role of a premier coal producing company in the country and
excel in a competitive business environments.
To strive for the self-reliance by optimum utilization of resources and earn
adequate returns on capital employed.
To exploit the available mining blocks with maximum conservation and utmost
safety by adopting suitable technologies and practices and constantly upgrading
them against international bench marks.

To supply reliable and qualitative coal in adequate quantities and strive to satisfy
customers needs by sharing their experience customizing our product.
To emerge as a model employer and maintain harmonious industrial relations with
the legal and social frame work of the state.
60

 To emerge as a responsible company through good corporate governance, by

laying emphasis on protection of environment & ecology and with due to regard
for corporate social obligations.
GLOOM TO GLORY:
The SCCL was receiving budgetary support from both government of India and
government of Andhra Pradesh till some time age, but they: later abandoned. Also the
proving of coals was decided by government of India keeping its impact on the major
sectors like power, railways, cement, and etc.
The prices were not revised regularly; also hike in input cost due to periodical
revisions of national coal wage agreements (NCWA), stores and interest were also not
fully compensated by government.
The frequent strikes by the workers, law and order problems, low productivity, apart
from un-remunerative coal price vise- aversa cost of production during the period
1989-90 to 1991-1992 affected the financial health of the company and refer to BIFR in
May 1992.
But due to liberal financial package extended by the govt of India in consultation
with govt of a.p, and sustained efforts made by the management of sccl and trade unions,
a modest financial turnaround was achieved.

The company earned profit of Rs 17.76 crore and 26.64 crore in 1993-94 respectively.
By March 1994, sccl became out of the BIFR purview. The company for success took
following remedial measures/reforms.
61

 Unifying trade unions through path breaking elections.

High pitch communication drives harnessing media, launching literacy programmers.
Focused multi-faceted workers welfare programmed.
Establishing outsourcing of non-core and ancillary activities.
Innovative programmers launched (dial or GM, Fields visits, interactions, follow ups).
Fuel supply agreements-technology infusion for quality testing, work force visits to client
sites.
Focus on safety, environment protection and labor welfare.

The process of turning around a sick company which commenced in 2002-03 reached its
logical conclusion when sccl, totally wiped out its accumulated losses and entered the
financial year 2008-09 with a net profit of 80.45 crore after issuing divided of 86.70 crore
Sl.no PARTICULARS

UNITS

PRE-97
(96-97)

POST97(02

GAIN/REDUCTION (%)

-03)

62

Coal production

M.tonnes

28.73

33.24

(+) 16%

Coal dispatches

M.tonnes

28.83

323.37

(+) 16%

Overall output per

Tonnes

0.98

1.51

(+) 54%

man shift (OMS)

4

Man power

Nos.

1,14,486

97,053

(-) 15%

No. of strikes

Nos.

310

35

(-) 83%

Turn over

Rs in

2114

3689

(+) 75%

Corers
7

Gross investment

Rs.

3339

4115

(+)23%

Earning per man

Rs

345.66

679.86

(+) 97%

Rs

24,402

30,195

(+) 110%

shift
9

Welfare exp. Per

employee

MINING SUCCESS ASND HONORS:

SCCL Multi faceted achievements are landmarks that stand testimony to its
efficacy. The company has deservedly won many awards prominent them are:

2001 -02:
Best management award in the state
63

 National safety award

Best payroll saving award in the state.
2003 -2004:

Best workers welfare activity award from FAPCCI

Golden peacock environment management award from world environment

management foundation.

2005-2006:
Coal India award for fly ash utilization from ministry of environment& forests,
power, science,& technology.
Golden peacock innovation management award from world environment
management foundation.

SCCL Strengths and weakness:

Strengths:

Quick and smooth adoption of new technologies SCCL is a pioneer in adopting

blasting gallery (BG) technology (FRENCH) input crushing & conveying technology
(GERMANY) and (UK & CHINA) performance is very encouraging.

Weaknesses:

64

 Limited financial viable reserves, amenable for open cat mining, high stripping ratios in
projects.
Difficult geo-mining conditions like steepness, existence of clay bands incompatible roof
and low grade of coal.
Adverse low and order conditions arising out of racial activities.

PROFILE OF SCCL IN BRIEF AS ON 31-3-08 (2007-08)

Production

m.t.s

406.04

Man power

nos

75573.00

Turn power

Rs.crs

4499.68

Share capital
Government of AP
Government of India
Other
Total

Rs.crs
Rs.crs
Rs.crs
Rs.crs

:
:
:

885.60
847.56
0.04
:

1733.20
65

Reserves and surplus

Rs.crs

46040.00

Accumulative profit

Rs.crs

15151.00

Net worth (4+5+6+7)

Rs.crs

216258.00

Term loans OQI

Rs.crs

6633.40

Debit equity ratio

Rs.crs

0.38:10

Contribution to exchequer
Government of AP
Government of India

Rs.crs
Rs.crs

:
:

70164.00
15139.00

DETAILS OF LOCATION OF VARIOUS UNITS

SCCL operates 71 mines including 12 open mines in 12 operating areas in the state of
Andhra Pradesh.

Area UG mines OC mines Total District:

66

AREA

UG MINES

OC MINES

TOTAL

DISTRICT

Kothagudem

Khammam

Yellandu

Khammam

Manuguru

Khammam

Bellampalli

Adlibbed

Mandamarri

Adlibbed

Ramakrishnapuram

Adlibbed

Srirampur

10

Adlibbed

Projects pending for approval of government of India

67

The following are pending projects with Govt. of India for approval as on 31.03.08
Slno

Name of the project

Capacity

Capital

Date of

(m.t.p.a)

(Rs in crs)

Sanction

1.

Peddampeta shaft

1.483

297.69

29.12.03

2.

Jallaram shaft

2.285

470.29

20.10.04

3.

Kakatiya long wall

2.160

380.85

18.06.05

4.

Ramapuram shaft project

1.575

333.71

23.02.07

These were the projects which were pending by the government of India

68

SCCL BALALNCE EXTRACTABLE RESERVES (PRESENTLY PROVED

Mine

Reserves Production/annum Balance/Life

Product

years

rate

Open cast

725

17.8

40

15

Under

150.3

16.2

75

20

ground

TECHNOLOGY WISE PRODUCTION (IN MILLION TONNES):

Dispatches during this year 2007-2008
Sector

Target

Off-take

% achieved

Power

28.98

28.39

98%

Cement

4.90

5.15

105%

Hw. Plant

0.50

0.50

100%

Others

3.00

3.45

115%

Collieries

0.12

0.14

117%

Total

37.50

37.63

100%

Sector wise dispatches

PRODUCTION PROJECTIONS:
69

Operating
Region

PRODUCTION (MT) IN THE TERMINAL YEAR OF

1X Plan

X Plan

X1 Plan

X11 Plan

2001

2006-07

2011-12

2016-17

Bellampalli

505

605

8.0

8.7

Ramagundam

16.1

17.6

13.3

11.4

Kothagudem

12.4

12.5

13.8

15.1

Total

34.0

36.6

35.1

35.3

Open Cast

52%

48%

44%

29%

Under ground

48%

52%

56%

71%

70

71

DATA ANALYSIS & INTERPRETATION :

The SCCL inventory consists of stores and spares, stores in transit and under
inspection, stock of coal, and stock of finished products.

1.

COMPONENTIAL ANALYSIS:
Years

Store &spares

Stores
transit

2004-2005

2388600
(38.91%)

248511
(3.81%)

626992
(9.60%)

3264472
(50.00%)

6528575
(100.00%)

2005-

2373870
(38.91%)

257711
(4.22%)

418158
(6.85%)

3050108
(50.00%)

6099847
(100.00%)

2006-2007

2073870
(38.91%)

245264
(4.75%)

252284
(4.89%)

2577190
(50.00%)

5154178
(100.00%)

2007-

1818429

353864

165622

233806

5154178

2008

(38.80%)

(7.56%)

(3.54%)

(3.54%)

(100.00%)

2008-

2211537

265971

499440

2977071

5954019

2009

(37.14%)

(4.46%)

(8.38%)

(50.00%)

(100.00%)

2009-

2288500

275861

517131

3081629

6163121

2010

(37.00%)

(4.5%)

(8.5%)

(50.00%)

(100.00%)

2010-2011

818407

148407

6914

973320

1946642

(38.82%)

(8.10%)

(3.08%)

(50.00%)

(100.00%)

2006

in Stores of coal

Stock FAS

Total

The compon

72

COMPONENTIAL ANALYSIS:

INTERPRETATION:

The investment in stores and spares, stores in transits, stock of coal and stock of finished
goods were registered at 38.91%, 3.81%, 9.60%, 50% respectively during the year 2004-

2005.
During the year 2010-2011 investment in stores and spares, stores in transit, stock of coal
and stock of finished goods were registered at 38.82%, 8.10%. 3.08%, 50.00%

respectively.
On average the investment in stock of finished goods is more when compare with other
components current assets.

73

2. INVENTORY TURN OVER RATIO:

The ratio indicates the number of times the stock has been turned over during the
period and evaluates the efficiency with which a firm is able to manage its inventory. This
ratio is calculated by applying the following formula.
INVENTORY TURNOVER RATIO= SALES/ AVG INVENTORY AT COST
NET SALES
SALES OF COAL
+CAKE +COAL
FAR FUEL

AVERAGE
STOCK
(CLOSING
STOCK)

RATIO

(0%)
DIFFERENCE

2004-2005

27436267

626890

43.8

7.9

2005-2006

29490271

418158

70.5

26.7

2006-2007

31418375

252284

124.5

54

2007-2008

31786580

165622

191.9

67.4

2008-2009

34137306

499440

68.3

-123.6

2009-2010

37905500

517131

73.0

4.7

2010-2011

44996800

691400

65.0

-8

YEARS

CHANGE

74

INVENTORY TURNOVER RATIO:

INTERPRETATION:

From the above table it can be observed that inventory turn over ratio times during the
year 2004 - 2005 and it gradually increased to 191.9 times in the year 2006-2007. It
indicates that the stock has been turned into sales very quickly and it decreased to 65 in

the year 2010-2011.

The lowest turnover ratio was at 43.8 times during the year 2004-2005 and the highest
inventory was recorded at 191.9 times during the year 2007-2008.

INVENTORY CONVERSION PERIOD:

75

It may also be of interested to see average time taken for clearing the stocks. This
can be possible by calculating inventory conversion period. This period is calculating by
dividing the number of days by inventory turnover this formula may be as.
INVENTORY CONVERSION PERIOD= DAYS IN A YEAR 365 / INVENTORY
RATIO
Years

Net sales

Average
stock

Ratio

ICP (days)

2004-2005

27436267

626890

43.8

2005-2006

29490271

418158

70.5

2006-2007

31418375

252284

124.5

2007-2008

31786580

165622

191.9

2008-2009

34137306

499440

68.3

2009-2010

37905500

517131

73.0

2010-2011

44996800

691400

65.0

INVENTORY CONVERSION PERIOD:

76

INTERPRETATION:
The inventory conversion period was 8 days during the year 2004 2005 and
declined to 2 days during the year 2007-2008. This indicates the stock has been
very quickly converted in to sales. In 2010-2011 it has been increased to 5 days
during the year 2010-2011 slowly converted into sales.
The lowest inventory conversion period was record at 2 days in the year 2007
2008 and the highest inventory conversion period was 8 days recorded in 2004
2008

77

PERFORMANCE OF INVENTORY OVER CURRENT ASSETS:

In order to know the percentage of inventory over current assets the ratio of
inventory to current assets is calculated and which is presented in the following table.
Inventory
Inventory Over Currents Assets Ratio =-------------------------- X 100
Current assets
YEARS

Inventory

Current

Ratio(%)

assets

2004-2005

3264472

6690713

49

2005-2006

2575477

6516630

39

2006-2007

2291134

5781012

40

2007-2008

2095494

87787878

24

2008-2009

2667621

10342620

26

2009-2010

2512300

9528510

26.36

2010-2011

2462109

1983452

12.41

78

INVENTORY OVER CURRENT ASSETS:

INTERPRETATION:
During the year 2004- 2005 the ratio was 49% and it gradually declined to 24% and there
is a net decreased to the extent of 33% and slowly increased in the year 2009 -2010.
The lowest inventory over current assets was recorded at 24% during the year 2007-2008
and the highest inventory over current assets ratio was at 49% during the year 20042005.

PERCENTAGE OF INVENTORY OVER TOTAL ASSETS:

TOTAL ASSETS = CUURENT ASSETS +FIXED ASSETS
79

YEARS

INVENTORY

TOTAL

RATIO

ASSETS

(%)

2004 2005

3264472

264228842

12.35%

2005-2006

2575477

25999873

9.90%

2006 2007

2291134

24132888

9.49%

2007 2008

2095494

26347993

7.95%

2008 2009

2667621

28500692

9.36%

2009 2010

2512300

26694068

10.62%

2010 2011

2462100

32800025

13.32%

INVENTORY OVER TOTAL ASSETS:

80

INTERPRETATION:
During the year 2004 2005 the ratio 12.35% and it decreased to 7.95% in the year
2007 2008
and then started increasing up to 13.32% during the year 2010 2011.
The lowest inventory over total assets ratio was recorded at 7.95% during the year 2007
2008 and the highest inventory ratio at 12.35% during the year 2004 2005.

CURRENT RATIO:
In order to know the current ratio the percentage of current assets to current
liabilities to calculated and which is presented in the following table.
81

Current Assets
Current ratio = --------------------------------Current liabilities

YEARS

CURRENT

CURRENT

CURRENT

ASSETS

LIABITIES

RATIO

2004 2005

6690713

13047044

0.513

2005 -2006

6516630

8549887

0.762

2006 2007

5781012

6865103

0.842

2007 2008

87787878

8009667

1.096

2008 2009

10342620

8075040

1.140

2009 2010

9528510

8214010

1.160

2010- 2011

19834527

1550688

1.279

CURRENT RATIO

82

From the above table it can be understood that the percentage of current assets over
current liabilities ratio i.e. current ratio showing a increased trend till 2009 2010.
INTERPRETATION:
During the year 2004 2005 the ratio was 0.513 and has increased to 1.279 in the year
2010 2011.
The lowest current ratio was recorded at 0.513 during the year 2004 2005 and the
highest current ratio was recorded at 1.279 during the year 2010 2011.

QUICK RATIO:

83

The quick ratio is the relationship between quick assets to current liabilities quick
ratio is more rigorous test of liabilities. Quick ratio is more rigorous test of liability
position of a firm it computed by applying the following formula.
Quick Assets
Quick ratio = ------------------------------Current Liabilities
YEARS

QUICK ASSETS

CURRENT
LIABILITIES

QUICK RATIO

2004-2005

3426241

130447044

0.263

2005-2006

3941153

8549887

0.460

2006-2007

3489878

6865103

0.508

2007-2008

6683284

8009667

0.834

2008-2009

7674999

80705040

0.950

2009-2010

6277310

8214010

0.764

2010-2011

2597867

1550688

0.167

QUICK RATIO:

84

INTERPRETATION:
From the above table it can be understood that the percentage of Quick assets of over
current liabilities ratio i.e. quick ratio showing a increasing trend till 2008-2009 and it
was decreased to 0.167 in the 2010-2011.
During the year 2004-2005 the ratio was 0.263 and it gradually increased to 0.167 in the
year 2010-2011.
The average ratio was recorded at 0.984 in the review period.

PROPRITORY RATIO:

85

This ratio established the relationship between share holder funds and
total assets,
Share holder funds
Proprietary ratio =---------------------------------------------Total assets
YEARS

SHARE HOLDER
FUNDS

TOTAL ASSETS

RATIO

2004-2005

18546545

26428842

0.70%

2005-2006

19685760

25999873

0.76%

2006-2007

20650380

24132888

0.85%

2007-2008

21240369

26347993

0.81%

2008-2009

21237960

28500692

0.74%

2009-2010

22490980

26694068

0.84%

2010-2011

23451056

32800025

0.71%

86

INTERPRETATION:
During the year 2004 2005 the ratio was 70% and it was increased in the year 2006
2007 at ratio was 85% and was declining 74% during the year 2008 2009 and again it
had decreased to 71% in 2010 2011.
The lowest inventory was recorded at 70% during the year and the highest ratio recorded
at 85% during the year 2006 2007.

87

FINDINGS
The total component of inventory recorded in the year 2004 2005 is 32, 64,472 and has
declined to 9, 73,320 (Rs .in 000) by the year 2010 2011.
88

 The component analysis has shown a declining trend and its total is 19, 46,642 (Rs.
In000) during the year 2010 2011.
The inventory turnover ratio has shown a fluctuating trend and by the year is 2010 2011
it is 65%.
The inventory conversion period has been 8 days during the year 2010 2011 and
presently it is 5 days i.e. 2010 2011.
The percentage of inventory over the current asset during the year 2004 2005 is 49%
and has decline and to 12.41% during the year 2010 2011.
Percentage of inventory over total assets if 12.35% during the year 2004 2005 this has
decline to 13.32% by the year 2010 2011
The current ratio was 0.513 during the year 2004 2005 increased to 1.160 by the year
2010 2011.
The quick ratio is 0.263 recorded in 2004 2005 and has been 0.167 by the year 2010
2011.
Proprietary ratio is 0.70 during the year 2004 2005 and has been 0.71 by the year 2010
2011.

SUGGESTIONS
Provision of internet facility from one store in SCCL to have effective online
communication.
Stock transfers from one store to others to be done effectively.
Disposal action for obsolete and non moving items to be takes up on priority.
Identification of buyers to be done.
Implementation of buy back clause incorporated in the earlier equipment purchase order
has taken up with the suppliers and returning of the unconsumed spare parts to be done.
Such items are to be identified.
89

 Linking up alternate part numbers and elimination of duplicate code numbers so that
effective utilization of available items could be done and unnecessary purchases could be
avoided.
Orders are being placed annually for the total requirement for one-year period. Instead of
this orders may be placed periodically especially for A Class items periodically.
More number of items is to be covered under (RCD).
To have reliable supplies there should be provision for price variations clause in rate
contract orders.
Alternative part numbers.
The possible for establishing spare parts depots by OEM (original equipment
manufacturer) exploded are to avoid excess inventory to make the material available at
right time.
The investment on raw material should be made as per the requirement. Unnecessary
investment may block up the funds.
Neither too high nor too low inventory turnover ratios may reduce profit and liquidity
position of the industry. So, proper balance should be made to increase profits and to
ensure liquidity.
The raw material should be acquired from the right source at right quality and at right
cost.
The process that was being used by SINGARENI COLLERIES with the purchasing
department should undergo changes, so that, it seeks enhance the celerity of the delivery
of a product without compromising its quality by improving the utilization of materials,
labour and equipment.
To reduce the work, the purchasing department may enter the purchasing order into
database and did not send a copy to anyone. When the merchandise arrived, the receiving
clerk would enter the database and determine whether the order agreed with the
electronic purchase order.

90

CONCLUSION
The following conclusions have been drawn.
The overall, the inventory management in SCCL is up to mark where by adequate
supplies of material and stores, minimization in operations.
It has kept down the investment in inventories, inventory carrying cost a obsolescence
losses to the minimum through purchasing economics by the measurement of
requirements on the basis of recorded experience.
It also enables the management to make cost and consumption comparisons between
operations and periods.
It is also noted that most of the vendors supplying material to SCCL are the same, SCCL
management explore to possibility to arrive supply chain management concept with
regular vendors to reduce lead for requisition possibility and placement of final orders.
During the period of study the current liabilities of SCCL are more than the current
assets. A high proportion of current assets of SCCL are in the inventories, which is a slow

91

moving item. Hence SCCL is sufficiently liquid. Its short-term solvency should be
improved more.
During the period of study the current are more than quick assets, because of lack of
funds the current liabilities of SCCL are more than quick ratio of SCCL is below standard
norm throughout the period of study. Though the slow moving items are removed from
current assets there is less improvement is short-term solvency and liquidity of SCCL.
Hence, SCCL is in-sufficiently liquid.
Suring the period of equity of SCCL increased from 1607.71 to 1733.20, but
compensating this, the debt of the company also increased from 951.49 to 1557.82.

92

Books referred

Author

Shashl.k.Gupta
Management Accounting.. R.K.Sharma
Financial Management
Theory & practice.... Prasanna Chandra
Financial Management. - Khan & join
REFERRED WEBSITES
www.scclmines.com
WWW.ACCOUNTINGFORMANAGEMENT.COM

93