A project report on
STUDY OF MANAGEMENT CONTROL ON MATERIALS FLOW AT RCF Ltd
Submitted in partial fulfillment of the requirement for the award of the degree of Masters of Management Studies (MMS) under the University of Mumbai.
Submitted by:
Name:
Roll number:
Batch:
Under the guidance of
A. C. Patil College of Engineering Management Studies and Research,
Sector-4, Plot-17, Kharghar,
Navi Mumbai-410210
Contact No: 022-27745722/27863644
Fax: 91-22-27745732
E-mail: principle@acpce.org
Website: http/www.acpce.org
GUIDE CERTIFICATE
This is to certify that Mr. _________ (Roll no____) student of Masters of Management has undergone summer project under my guidance and prepared a project report titled “STUDY OF MANAGEMENT CONTROL ON MATERIALS FLOW AT RCF Ltd ” as a partial fulfillment of requirement for award of degree of Masters of Management Studies from Mumbai University for the academic year 2011-2012.
Guide name
Prof and head.
Place:
Date:
COLLEGE CERTIFICATE
This is to certify that Mr. __________ Student of first year of Masters of Management Studies has undergone and completed his summer project in “Rashtriya Chemicals & Fertilizers Ltd” as a partial fulfillment of requirement for the award of degree of Masters of Management Studies from Mumbai University, Academic year 2011-2012.
Prof and head. Director
Place:
Date:
DECLARATION
I, hereby declare that this summer project report entitled “STUDY OF MANAGEMENT CONTROL ON MATERIALS FLOW AT RCF Ltd” is record of work carried by me under the guidance of Dr. N. Mahesh, as a partial fulfillment of award of degree in MMS.
I also hereby declare that this project report is a result of my own effort and not being submitted at any time to any other university or institute for the award of any degree or diploma.
Sign
Name
Place:
Date:
ACKNOWLEDGEMENT
It is my pleasure to be indebted to various people, who directly or indirectly contributed in the development of this work and who influenced my thinking, behavior, and acts during the course of study.
I am thankful to RCF Ltd and Mr. Parag Dandekar, Material Manager, (Material Handling dept.) in Rashtriya Chemicals & Fertilizers Ltd, for permitting and providing opportunity to work with the organization and guide me throughout my tenure in the organization.
I would like to thank Dr. D.G. Borse, Director, A.C.P.C.E.M.S.& R for his support and guidance for this project. I would also like to thank my project guide Dr. N. Mahesh, Prof and HOD, for guiding me about my projects on operations management with RCF Ltd.
I would also like to thank all the respondents who spent their valuable time, by providing me with required information, and I appreciate the respondents for putting forth their suggestions and recommendation which helped me to gain more insight for this project.
Lastly I would like to thank my family members and all my friends and colleagues for cooperating and supporting me for the completion of this project.
Place:
Date:
Executive Summary
Rashtriya chemicals & Fertilizers Ltd, has its major focus on Materials management. It has successfully and effectively controlled the entire process of material flow from procurement to supply to various plants. The objective of materials management is to provide an unbroken chain of materials for production on time for the customer base.
Effective material flow is essential in order to (1) provide the best service to customers, (2) produce at maximum efficiency, and (3) manage inventories at predetermined levels to stabilize investments in inventories.
Successful materials management requires the development of a highly integrated and coordinated system involving sales forecasting, purchasing, receiving, storage, production, shipping, and actual sales. Both the theory of costing materials and inventories and the practical mechanics of cost calculations and record keeping must be considered.
Materials managers in RCF are constantly confronted with below mentioned problems and requirements:
- Inventories account for a large portion of the working capital requirements of most businesses. This fact makes materials or inventory management a major problem requiring constant attention by all three management levels (top, middle and low).
- At present, the problem of materials management has become even more acute due to market conditions and inflation.
- Effective materials management and materials control is found in RCF where every individuals have been vested with responsibility for, and authority over, the various details of procuring, maintaining, and disposing off inventory. Such a person or persons must have the ability to obtain, coordinate, and evaluate the necessary facts and to take actions when and where needed.
Table of content
guide certificate……………………………………………………………………ii
COLLEGE CERTIFICATE……………………………………………………………….III
DECLARATION…………………………………………………………………………IV
ACKNOWLEDGEMENT………………………………………………………………..V
Executive Summary………………………………………………………………………VI
1. Introduction
1.1 Introduction of topic………………………………………………………………..1
1.2 Objectives of the study……………………………………………………………..2
1.3 Scope of the study………………………………………………………………….3
1.4 Limitation…………………………………………………………………………..3
2 Literature review…………………………………………………………………….....5
3 Introduction to Industry………………………………………………………………..8
3.1 Mission of the company…………………………………………………………....9
3.2 Objectives of the Company……………………………………………………….10
3.3 Quality Policy……………………………………………………………………..15
3.4 5 S in the RCF…………………………………………………………………….17
3.5 Organization structure at RCF………………………………………………...…..20
4 Research Methodology………………………………………………………………..22
4.1 Methodology of the study………………………………………………………....22
5 Material flow at RCF……………………………………………………………….....23
5.1 Material Handling…………………………………………………………………23
5.1.1 Material handling in RCF……………………………………………….....25
5.2 Transportation and Logistics in RCF……………………………………………..27
5.3 Purchase ……………………………………………………………………….....28
5.3.1 Purchase Department in RCF……………………………………………..30
5.4 Stores……………………………………………………………………………..41
5.4.1 Stores at RCF……………………………………………………………..43
5.5 Inventory………………………………………………………………………….51
5.5.1 Definition and need of Inventory………………………………………….51
5.5.2 Purpose of Inventory……………………………………………………...52
5.5.3 Functions of Inventory……………………………………………………52
5.5.4 Inventory in RCF stores…………………………………………………..64
5.6 Bagging Department……………………………………………………………..66
5.6.1 Suphala Bagging Plant…………………………………………………....66
5.6.2 Urea Bagging Plant……………………………………………………….70
6 ERP in RCF………………………………………………………………………….75
6.1 Schematic Representation of SAP Code………………………………………...78
7 Analysis……………………………………………………………………………...80
8 Findings ………………………………………………………………………...…...83
9 Recommendations…………………………………………………………………....84
10 Conclusion……………………………………………………………………….......85
Annexure
Bibliography
1. Introduction
1.1 Introduction of topic
Materials Management can be defined as that function of business that is responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum cost.
Materials management is simply the process by which an organization is supplied with the goods and services that it needs to achieve its objectives.
Activities of material management:-
The materials management process begins with the supplier and ends when the material is either consumed or incorporated into some product. The executives who engage in materials management are concerned with three basic activities:
· Buying
· Storage of material
· Movement of material
They have different job titles including purchasing or materials manager, purchasing director, inventory manager, and others.
Objective of material management:-
1) Primary objective:
· Low prices
· High inventory turnover
· Low cost acquisition and possession
· Continuity of supply
· Consistency of quality
· Low payroll 3cost
· Favorable relations with suppliers
· Development of personnel
· Good records
2) Secondary objective:
· Favorable reciprocal relations
· Economic make or buy
· New materials and products
· Standardization
· Product improvement
· Forecast
· Regulating inventory
· Cutting operating costs
Functions of material management:-
1) Purchasing
2) Transportation and clearance
3) Stores and inventory
4) Material handling
5) Packing and bagging
1.2 Objective of the study.
The objective of the present studies is as follows:
- To study the common factors affecting the Material Management and material flow of R.C.F Ltd
- To collect data and observation regarding the Material Management and material flow of R.C.F Ltd.
- To ascertain the role of purchase and stores in Material Management.
- To analyze the amount of inventory and control on it over the years.
- To understand the procurement process of raw materials as per the requirements.
1.3 Scope of the study
Material Management help the business to assess the risk and plan a strategy as far as production and purchasing plans are concerned, to accept it on the most favorable terms consistent with the basic policies and objectives of the business.
The goal of materials management is to provide an unbroken chain of components for production to manufacture goods on time for the customer base. The materials department is charged with releasing materials to a supply base, ensuring that the materials are delivered on time to the company using the correct carrier. Materials is generally measured by accomplishing on time delivery to the customer, on time delivery from the supply base, attaining a freight budget, inventory shrink management, and inventory accuracy. The materials department is also charged with the responsibility of managing new launches.
Materials management can deal with planning and building design for the movement of materials, or with logistics that deal with the tangible components of a supply chain. Specifically, this covers the acquisition of spare parts and replacements, quality control of purchasing and ordering such parts, and the standards involved in ordering, shipping, and warehousing the said parts.
1.4 Limitation
- The background on this topic was not strong enough to understand the process carried out in the organization.
- Data available to study is limited because of its confidential nature and organization is not in favor to disclose its confidential data.
- While doing the project, company is going through the phase of annual shut down and therefore some centers in the factory are closed for some time, so data was not available to study at that time.
- Time was the major limiting factor for the study, as its difficult to study whole process flow of the material in depth in such a short period of the time.
· Various decisions are taken by the management, but the reason behind that decision cannot be discussed with us.
2. Literature Review
Materials management can deal with campus planning and building design for the movement of materials, or with logistics that deal with the tangible components of a supply chain. Specifically, this covers the acquisition of spare parts and replacements, quality control of purchasing and ordering such parts, and the standards involved in ordering, shipping, and warehousing the said parts. Materials Management can be defined as that function of business that is responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum cost.
Materials management is simply the process by which an organization is supplied with the goods and services that it needs to achieve its objectives.
Efficient and Stream-lined processes are required to remain competitive in today's marketplace. Material flow, distribution, logistics, purchasing and planning are all important factors for success and competitiveness. Inventory Solutions can help you by optimizing your material flow.
Material flow involves Production Planning, Purchasing, Just-In-Time (JIT), and Inventory Management / Inventory Control.
Optimization of Material Flow can have the following benefits:
· Improve Product Quality | |
· Reduce Purchasing Costs | |
· Reduce Freight / Transportation Cost | |
· Reduce Manufacturing Waste | |
· Increase Production | |
· Improve Customer Satisfaction | |
· Reduce Downtime | |
· Reduce Product Cost | |
· Increase Cash Flow |
Purchasing refers to a business or organization attempting for acquiring goods or services to accomplish the goals of the enterprise. Though there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations. Typically the word “purchasing” is not used interchangeably with the word “procurement”, since procurement typically includes Expediting, Supplier Quality, and Traffic and Logistics (T&L) in addition to Purchasing.
Inventory management is primarily about specifying the shape and percentage of stocked goods. It is required at different locations within a facility or within many locations of a supply network to proceed the regular and planned course of production and stock of materials.
The scope of inventory management concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and react to the wider environment.
Inventory management is the active control program which allows the management of sales, purchases and payments.
Inventory management software helps create invoices, purchase orders, receiving lists, payment receipts and can print bar coded labels. An inventory management software system configured to your warehouse, retail or product line will help to create revenue for your company. The Inventory Management will control operating costs and provide better understanding. We are your source for inventory management information, inventory management software and tools.
Inventory management software helps create invoices, purchase orders, receiving lists, payment receipts and can print bar coded labels. An inventory management software system configured to your warehouse, retail or product line will help to create revenue for your company. The Inventory Management will control operating costs and provide better understanding. We are your source for inventory management information, inventory management software and tools.
Material Handling is the movement, storage, control and protection of materials, goods and products throughout the process of manufacturing, distribution, consumption and disposal. The focus is on the methods, mechanical equipment, systems and related controls used to achieve these functions. The material handling industry manufactures and distributes the equipment and services required to implement material handling systems. Material handling systems range from simple pallet rack and shelving projects, to complex conveyor belt and Automated Storage and Retrieval Systems (AS/RS). Material handling can also consist of sorting and picking as well as automatic guided vehicles.
3. Introduction to industry
Rashtriya Chemicals and Fertilizers ltd. is one of the India Asia . Rashtriya Chemicals and Fertilizers have two plants. One is located at Chembur and second plant is located at Thal. Thal plant is situated around 100 Km away from Mumbai plant. The plants at Mumbai are based on Natural gas as raw material and the plant at Thal are operating on mixed feed of Natural gas and Naphtha.
Trombay fertilizer complex a unit of the erstwhile Fertilizer Corporation of India 15th October 1965 . It was the significant day in the history of Indian Fertilizer Industry, since a new complex fertilizer was available to Indian farmers to improve their productivity. Ever since the Trombay Unit went into production, it has made outstanding contribution to the growth and development and has carried forward the task of national building vigorously with the spirit of dedication and determination.
The Rashtriya Chemicals and Fertilizer Ltd. were incorporated on March 6, 1978 on reorganization of the erstwhile Fertilizer Corporation of India India India India
3.1 Mission of the company:
RCF as a corporate body and Government of India undertaking is responsible to the people of India
Keeping these aspects in view, RCF has set for itself the following corporate goals -
- To help increase the national agricultural productivity by providing agricultural inputs and services.
- To provide the above inputs and services with least consumption of real resources and at least cost.
- To obtain for it's employees as decent a standard of living and as good a quality of life as possible, consistent with the general socio-economic conditions in the country.
- To secure as high a return on the rate of investment as possible, keeping in view the requirements of other competing objectives.
- To promote self-reliance in all activities in relation to company's operations including process know-how, design and engineering, erection, commissioning, operations, maintenance of plants and marketing of products.
- To manufacture and market industrial chemicals related to agricultural inputs and also others based on similar technology and intermediates, by-products, co-products and waste from the main operations.
- To promote, organise, and perform research and development in products, technology, engineering, soil science and agronomy in furtherance of various corporate objectives.
- To improve the environment and minimise to the maximum extent technologically possible, the harmful emissions, atmospheric discharges and effluents.
- To continuously upgrade the quality of human resources and promote organisational and management development.
- To co-operate nationally and internationally in exchange of information and services of personnel.
- To have corporate growth at a pace consistent with availability of resources and developmental needs of the economy.
- To promote specific social objectives such as development of entrepreneurs, ancillary industries, special assistance to SC / ST and other backward classes.
Vision of the Company:
To be the number one leader in the Fertilizer Industry by the year 2010 and a major player in global market.
3.2 Objectives of the company:
The main objectives of the Company are as under:
· To produce and market fertilizers and chemicals efficiently and economically in an environmentally sound manner.
· To maintain optimum levels of efficiency and productivity in the use of resources and to secure optimal return on investment
· To take up and implement the schemes for saving energy
· To promote self-reliance in Company’s operations including process know-how, design, Engineering, Erection, Commissioning, Operation and Maintenance of plants and marketing of products with special emphasis on Research and Development.
· To aim at International standards of excellence in production and quality of products and services
· To continuously upgrade the quality of human resources and promote organisational and management development
· To enhance the Safety standards.
· To care for and protect the Environment and minimize the harmful effects of the emissions, atmospheric discharges and effluents by confirming and also improving on the standards laid done by Pollution Control Authorities.
· To ensure corporate growth by expansion as well as diversification
· To care for the community around especially SC/ST and other Backward classes
Our Commitment:
Our commitment to excellence would not only include the quality of our products , continuous up gradation of technologies modernization of plant and machinery, maintenance of pollution free environment around our plants and colonies but also of the most valuable performing assets namely Human Resources.
Social Responsibilities and Environment Control:
RCF has a high level of social consciousness and, in particular to the environment Pollution Control. The Company has set up facilities to ensure that emission standards of various gases that emanate from its units are below the emissions standards fixed by Maharashtra Pollution Control Board
Other social responsibilities:
RCF is contributing to the development activities in around its production units at Trombay (Mumbai) and Thal (Raigad district, Maharashtra ). RCF considers its social obligations seriously and takes responsibility of the society in its environs for betterment of the people and for this purpose, carries out several programmes such as:
· support for water supply/conservation programmes
- Educational facilities
- Health and sanitation
- Afforestation, wasteland development and promotion of environmental enrichment activities
- Animal Husbandary
- Development of agriculture and cottage industries
- Support to vocational training institutions for upgrading the skill of the local people.
- Support to economic activities around production complexes for weaker sections of the society.
- Literacy programme
- Grant of scholarships and assistance to deserving young pupils belonging to the weaker sections of the society
Products and Services:
RCF is one of the leading producers of Fertilizers in India 15:15:15 , Suphala 20:20:0, Ujjwala, Microla and Biola are its major fertilizers.All the products can be used with different soil types and in various climatic conditions.
RCF pioneered the manufacture of basic chemicals such as Methanol, Sodium Nitrate, Sodium Nitrite, Ammonium bicarbonate, Methylamines, Dimethyl Formamide, Dimethylacetamide in India India
R.C.F pioneered the manufacture of basic chemicals such as Methanol, Sodium Nitrate, Sodium Nitrite, Ammonium bicarbonate, Methylamines, Dimethyl Formamide, Dimethylacetamide. Today R.C.F is the only manufacture of DMF in India
Packaging and modes of transport :
Product characteristics, consumer needs , economy to the consumers and safety are the primary considerations in determining the type of packaging and modes of transportation for each of the products.
Chemicals having vapour pressure like Anhydrous Ammonia and Methylamines are transported in bulk, in specially designed mobile pressure vessels. In accordance with the norms set for liquefiable gases under pressure. Requirements of smaller consumers are met in cylinders.
Tankers are also employed for transport of Methanol, Dimethyl Formamide, Dimethylacetamide, acids and solutions of Methylamines and Ammonium Nitrate.
Transporters and consumers are given guidelines for safety and methods of storing, loading and unloading.
Transporters and consumers are given guidelines for safety and methods of storing, loading and unloading.
Industrial product and division:
RCF took the advantage of manufacturing industrial products since its fertilizer manufacturing process already incorporated Ammonia, Nitric Acid and Sulphuric Acid plants.
Ø Ammonium Bicarbonate
Ø Ammonium Nitrate (Melt)
Ø Anhydrous Ammonia and Refrigerant Ammonia
Ø Argon
Ø Amines (Anhydrous and Solution)
· Monomethylamine
· Dimethylamine
· Trimethylamine
Ø Calcium Carbonate (Dry & Purified) and Chalk (Sludge & impure)
Ø Dimethyl Formamide(DMF)
Ø Dimethylacetamide (DMAC)
Ø Formic Acid
Ø Phospho Gypsum
Ø Dilute Nitric Acid (58%)
Ø Concentrated Nitric Acid (98%, 72% & 68%)
Ø Methanol
Ø Sodium Nitrate
Ø Sulphuric Acid – For captive consumption
Ø Chickton (Liquid Acidifier)
Corporate Social Responsibility:
• Farmers Meeting
• Field Day/ Fertilizer Day/Soil Testing Day
• Micro Nutrient Analysis
• Dealer Training
• Earn while you learn
• Farm Field Schools
• Rural Sports
• Veterniary Camps
• Medical Camps
• Rain Water Harvesting
• Agricultural Exhibitions
• Distribution of Mini Kits
ISO CERTIFICATION:
RCF has obtained following certification –
1.ISO 9001-2000
2.ISO- 14001-1996
3.OHSAS 18001+
3.3 Quality policy
We, at Rashtriya chemicals and fertilizers limited, are committed to produce and market fertilizers, specialty fertilizers and industrial products of stipulated quality standards and so the complete satisfaction of the customers on consistent basis.
We endeavor to continually improve our quality management system through:
· Adoption of state-of-art and eco-friendly technology.
· Establishing and reviewing appropriate quality objectives.
· Periodic feedback from our customers and analysis of customer needs.
· Upgrading the quality of the human resources.
· Compliance with all legal and statutory requirements.
Environmental policy
We, at Rashtriya chemicals and fertilizers limited, leading Public sector undertaking manufacturing fertilizers and chemicals, commit ourselves to minimize the adverse impacts of our operations and products on environment.
We are committed to comply with relevant environmental legislations and other requirements. We shall strive to effectively maintain our environmental management system and continually achieve excellence in environmental performance.
We are committed to maintain, review and improve environmental management system through:
- Optimal use of natural resources with emphasis on recycle and reuse of resources in our operations.
- Adoption of operational control strategies to minimize emissions, effluents and waste.
- Training our employees to imbibe environment friendly work culture.
- Instill environmental awareness in our vendors and contractors.
- Be sensitive to the environment and respond with alertness to its improvement.
Occupational health and safety policy
We, at Rashtriya chemicals and fertilizers limited, a company engaged in manufacture of chemicals and fertilizers commit to maintain a safe and healthy work environment in compliance with all relevant occupational health and safety regulations.
We shall strive to continually improve our occupational health and service management system for prevention of injury and ill health to the employees, contract labours and others at work within the factory premises.
We Endeavour to achieve this through:
- Minimizing any adverse impact of our operations, activities and products on the occupational health and safety.
- Training of our employees, contractors and other agencies to promote safe culture at our sites.
- Involvement of employees in identification and control of occupational health safety issues of the sites.
- Periodic analysis of information on occupational health and safety.
- Sharing information on occupational health and safety with other members of the company
- Analysis of incidents, with a view to develop proper monitoring mechanism for improving processes, practices and facilities.
3.4 Five S in RCF
5S is the name of a workplace organization methodology that uses a list of five Japanese words which are seiri, seiton, seiso, seiketsu and shitsuke. Transliterated or translated into English, they all start with the letter "S". The list describes how items are stored and how the new order is maintained. The decision-making process usually comes from a dialogue about standardization which builds a clear understanding among employees of how work should be done. It also instills ownership of the process in each employee.
There are 5 primary phases of 5S: sorting, straightening, systematic cleaning, standardizing, and sustaining. Additionally, there are three other phases sometimes included; safety, security, and satisfaction.
Sorting (Seiri)
Eliminate all unnecessary tools, parts, and instructions. Go through all tools, materials, and so forth in the plant and work area. Keep only essential items and eliminate what is not required, prioritizing things as per requirements and keeping them in easily-accessible places. Everything else is stored or discarded.
Straightening or setting in order / stabilize (Seiton)
There should be a place for everything and everything should be in its place. The place for each item should be clearly labeled or demarcated. Items should be arranged in a manner that promotes efficient work flow, with equipment used most often being the most easily accessible. Workers should not have to bend repetitively to access materials. Each tool, part, supply, or piece of equipment should be kept close to where it will be used – in other words, straightening the flow path. Seiton is one of the features that distinguishes 5S from "standardized cleanup". This phase can also be referred to as Simplifying
Sweeping or shining or cleanliness / systematic cleaning (Seiso)
Keep the workplace tidy and organized. At the end of each shift, clean the work area and be sure everything is restored to its place. This makes it easy to know what goes where and ensures that everything is where it belongs. A key point is that maintaining cleanliness should be part of the daily work – not an occasional activity initiated when things get too messy.
Standardizing (Seiketsu)
Work practices should be consistent and standardized. All work stations for a particular job should be identical. All employees doing the same job should be able to work in any station with the same tools that are in the same location in every station. Everyone should know exactly what his or her responsibilities are for adhering to the first 3 S's.
Sustaining the discipline or self-discipline (Shitsuke)
Maintain and review standards. Once the previous 4 S's have been established, they become the new way to operate. Maintain focus on this new way and do not allow a gradual decline back to the old ways. While thinking about the new way, also be thinking about yet better ways. When an issue arises such as a suggested improvement, a new way of working, a new tool or a new output requirement, review the first 4 S's and make changes as appropriate.
Safety
A sixth phase, "Safety", is sometimes added. There is debate over whether including this sixth "S" promotes safety by stating this value explicitly, or if a comprehensive safety program is undermined when it is relegated to a single item in an efficiency-focused business methodology.
Security
A seventh phase, "Security", can also be added. In order to leverage security as an investment rather than an expense, the seventh "S" identifies and addresses risks to key business categories including fixed assets (PP&E), material, human capital, brand equity, intellectual property, information technology, assets-in-transit and the extended supply chain.
Satisfaction
An eighth phase, “Satisfaction”, can be included. Employee Satisfaction and engagement in continuous improvement activities ensures the improvements will be sustained and improved upon. The Eighth waste – Non Utilized Intellect, Talent, and Resources can be the most damaging waste of all.
It is important to have continuous education about maintaining standards. When there are changes that affect the 5S program such as new equipment, new products or new work rules, it is essential to make changes in the standards and provide training. Companies embracing 5S often use posters and signs as a way of educating employees and maintaining standards.
RCF follows 5S by which they are obviously benefited. Few benefits of them are listed below:
· Items at workplace are well organized in such a way that they are always readily and easily available. This has improved the productivity of every individual.
· Production workers can now easily figure out the exact location of tools, gauges, production paperwork, fasteners, and so on thus reducing their frustration and improving their productivity.
· Dirt can have a serious impact on product performance either directly or indirectly. 5S provides responsibility to every worker for keeping the workplace and factory premises clean and tidy for highlighting potential problems before they have an impact on performance.
· Improved Health and Safety is a prime objective of 5S, thus incorporating 5S has motivated employees to work safely in the organization.
· 5S has also proved to be a valuable sales tool for RCF when the marketing team makes a well-organized potential customers visit.
3.5 Organization structure at RCF:
In public enterprise government plays an important role in determining the organization structure of the unit. Hence organization structure is dynamic, may change time to time in response to the needs of the situation.
The chairmen and the managing director (CMD) is the chief executive of RCF. He is charged with the responsibility of implementing the policy decision taken by the board of directors and formulating the procedures and rules for policy implementation. There are five executive directors on the company's board working under the overall supervision of chairman of the board who also is the managing director of the company. The general manager is the higher managerial authority and is a government appointee for the day to day functioning of the company he keeps in touch with executive directors; he reports to and is answerable to the managing directors only. The heads of functioning departments are in turn assisted by managerial personnel each responsible for a separate department.
4. Research Methodology
4.1 Methodology of The Study
Methods of Data Collection: -
In data collection includes types of data, source of data, system of presentation and analysis of data etc.
Types of data: -
Maximum efforts are made to obtain primary data, in case of secondary data; its degree of trueness is thoroughly studied.
1) Primary data: -
Primary data collecting particularly is surveys and descriptive research important ones is
- Observation method.
- Discussion with experts and responsible persons / authority.
- Internal policies like government policies etc.
- People discussion with proper peoples.
2) Secondary data: -
Secondary data means data that are all ready available.
- Books, magazines & newspaper.
- Various publication of the control, state or local government.
- Technical and trade journals.
- Company booklets & leaflets.
- Company website.
Data collected from the above primary and secondary sources will be used to learn about material management, Processes involved in it.
5. Material flow at RCF
5.1 MATERIAL HANDLING:
Introduction and Importance:
Material handling is a necessary and significant component of any productive activity. It is something that goes on in every plant all the time. Material handling means providing the right amount of the right material, in the right condition, at the right place, at the right time, in the right position and for the right cost, by using the right method. It is simply picking up, moving, and lying down of materials through manufacture. It applies to the movement of raw materials, parts in process, finished goods, packing materials, and disposal of scraps. In general, hundreds and thousands tons of materials are handled daily requiring the use of large amount of manpower while the movement of materials takes place from one processing area to another or from one department to another department of the plant. The cost of material handling contributes significantly to the total cost of manufacturing.
In the modern era of competition, this has acquired greater importance due to growing need for reducing the manufacturing cost. The importance of material handling function is greater in those industries where the ratio of handling cost to the processing cost is large. Today material handling is rightly considered as one of the most potentially lucrative areas for reduction of costs. A properly designed and integrated material handling system provides tremendous cost saving opportunities and customer services improvement potential.
Definitions
There are many ways by which material handling has been defined but one simple definition is “Material handling is the movement and storage of material at the lowest possible cost through the use of proper method and equipment”.
Other definitions are:
“Material handling embraces all of the basic operations involved in the movement of bulk, packaged, and individual products in a semisolid or solid state by means of machinery, and within limits of a place of business”.
“Material handling is the art and science of moving, storing, protecting, and controlling material”
Objectives of Material Handling
The primary objective of a material handling system is to reduce the unit cost of production. The other subordinate objectives are:
· Reduce manufacturing cycle time
· Reduce delays, and damage
· Promote safety and improve working conditions
· Maintain or improve product quality
· Promote productivity
· Material should flow in a straight line
· Material should move as short a distance as possible
· Move more material at one time
· Automate material handling
· Promote increased use of facilities
· Purchase versatile equipment
· Develop a preventive maintenance program
· Maximize the equipment utilization etc.
· Control inventory
Advantages of Material Handling:
- Improve efficiency of a production system by ensuring the right quantity of materials delivered at the right place at the right time most economically.
- Cut down indirect labor cost.
- Reduce damage of materials during storage and movement.
- Maximize space utilization by proper storage of materials and thereby reduce storage and handling cost.
- Minimize accident during materials handling.
- Reduce overall cost by improving materials handling.
- Improve customer services by supplying materials in a manner convenient for handlings.
- Increase efficiency and saleability of plant and equipment with integral materials handling features.
Disadvantages of Material Handling:
- Additional capital cost involved in any materials handling system.
- Once a materials handling system get implemented, flexibility for further changes gets greatly reduced.
- With an integrated materials handling system installed, failure/stoppage in any portion of it leads to increased downtime of the production system.
- Materials handling system needs maintenance, hence any addition to materials handling means additional maintenance facilities and costs.
5.1.1 MATERIAL HANDLING IN RCF:
The materials used by RCF for fertilizers are majorly Rock Phosphate, KCL, DAP and Sulphur.
Almost all the raw material used in RCF is imported because in India
Materials | Rock Phosphate | KCL | DAP | |
Sourced from | By product of refinery | |||
Consumption per day | 900MT | 400MT | 300MT | 100T |
Procurement price of Raw materials in Rashtriya Chemicals and Fertilizers Ltd:
 YearsMaterials | 2010 | 2011 |
Rock Phosphate | $170/MT | $210/MT |
KCL | $370/MT | $480/MT |
DAP | $490/MT | $630/MT |
$180/MT | $220/MT |
Note:
Rock Phosphate is majorly procured from Jordon. It is high price rock. Rock price depends mainly on the P2O5 content and impurity level in Rock. Jordon Rock has got higher P2O5 and lesser impurity. Hence, out of total consumption of 900MT per day 600MT of rock is from Jordon and 300MT of rock is from Egypt India and also with small manufacturing companies in India
Analysis:
- The increase in the prices of Raw material is tremendous since last year and it continues to increase thereon. This is because the prices completely depend on the markets. There is global demand in the market, thus the prices increases.
- Increase in the prices, ultimately increases the inventory in the company. If company knows that the future prices of the raw material will be increasing, there is a tendency to procure in bulk.
- To have a control on inventory, RCF procures material on contract basis. They have long term contract of 6months or a year but the material is made available by their suppliers in batches.
DAP material flow is diagrammatically shown below:
5.2 Transportation and Logistics in RCF:
One of the most important functions of materials manager is to arrange for transportation and logistics activities.
RCF has a lot of activities to be carried out on a daily basis in this regards. Materials in RCF are imported from international countries through sea routes. RCF has contract with MbPT (Mumbai Port Trust) for transportation of materials in vessels. Incoterms viz. EXW (Ex works), FOB (Free on Board), DAT (Delivered at Terminal) DAP (Delivered at Place) etc., are followed by supplier and RCF
Following is the process that RCF follows:
· Vessels are booked by RCF in prior along with all the details of the material to be loaded i.e. type of material, weight, volume, density etc.
· These vessels are unloaded after they reach Mumbai Port.
· The material is discharged from vessels into the trucks.
· Trucks carry the material to RCF stores where it is received and inspected.
Unloading the vessels into the trucks directly takes a lot of time. A vessel is on hold until it is completely unloaded. Every receiver is given specific time duration to unload the material. Demurrage charges are borne by the receiver if the unloading time exceeds.
Earlier RCF used to unload 1800MT per day and the vessel was held for a longer period of time resulting into heavy demurrage charges. RCF therefore found an alternative by unloading the vessels on the racks of the Hay Bunder port which is nearby MbPT. This reduced the vessel holding time as the material is unloaded faster on the racks than in the trucks. The capacity of unloading has increased from 1800MT to 3000MT. Demurrage charges have also reduced significantly.
RCF handles 200 trucks per day which is 10MT per truck and 2000MT on an average per day.
5.3 Purchase
The purchasing dept buys material in amount authorized by requisitions it receives from the production control and store dept. There are 4 basic purchasing activities:
1. Selecting suppliers, negotiating the most advantages terms of purchase with them, and issuing necessary purchase orders.
2. Expediting delivery from suppliers when necessary to assure delivery in time to meet schedules, and negotiating any changes in purchase schedules dictated by circumstances.
3. Acting as a liaison between suppliers and other company depts, including engg, quality control, manufacturing, production control, and finance, on all problems involving purchased materials.
4. Looking for the new products, materials, and suppliers that can contribute to company profit objectives, and acting as the company’s “eyes and ears” to the outside world and reporting on changes in market conditions and other factors that can affect company’s operations.
Objectives of purchasing
- Support organizational goals and objectives:
Purchasing must give overriding support for organizational objectives which transcend its own aim. This improves company’s administrative cost, but will improve the company’s balance sheet and overall operating cost.
- Develop integrated purchasing strategies that support organizational strategies:
Purchasing function often fails to design strategies that are aligned with the strategies of other functions, or even broader organizational strategies.
- Support organizational requirement:
Purchasing must efficiently fulfill its traditional role of acquiring materials to satisfy the needs of internal customers. Material includes all the raw material, components, parts, information, services and everything that an organizational buys. Internal customers are all the users within the org who need the material. So purchasing must ensure an uninterrupted supply of materials by:
- Buying materials from the right sources.
- At the right price.
- With specification that meets user needs.
- In the right quantity
- Delivery at the right time
- To the right user
- Using purchasing resources efficiently and effectively:
Purchasing manager always has limited resources including people, facilities, money, time, information and knowledge. They have to use it efficiently by:
- Determining appropriate staffing level.
- Developing and keeping with budget.
- Provide professional training and opportunities for employees.
- Ensuring high utilization of capacity at facilities.
- Designing operations that give high productivity
- Supply best management:
An important job of purchasing is to select, develop and maintain a suitable set of suppliers which is known as supply base means that purchasing must be abreast of current conditions in supply markets to:
- Ensure that current supplies are competitive.
- Identify new suppliers who can provide good service and join supply base.
5.3.1 Purchase Department in RCF:
GM(C)
 |
 |
DGM (PURCHASE) DGM (COMMERCIAL)
 | |
C.M.M.s.(PURCHASE) C.M.M.(PURCHASE) 
M.M.s.(PURCHASE) M.M.s.(PURCHASE) Dy. M.M.s.(PURCHASE) Dy.M.M.s. (PURCHASE) A.M.M.s. (PURCHASE) A.M.M.s. (PURCHASE)
| |
M.O.s. (PURCHASE) M.O.s. (PURCHASE)
| |
A.M.O.s. (PURCHASE) A.M.O.s. (PURCHASE)
Quality Objectives of Purchase Department in RCF:
The parameter used to measure the quality of the purchase department in RCF is the “Minimum Purchasing time”. The processing time achieved or taken by a purchase person from purchase requisition to issue of purchase order has to be minimum.
The analysis made in the year 09-10 is as below along with the targets for the year 10-11
SR. NO. | QUALITY OBJECTIVE | PERFORMANCE INDICATOR | Target for 2009-10 | Actual Performance | TARGET FOR 2010-11 |
Achieving Processing Time - Purchase Requisitions to Purchase Order Issue | |||||
1 | Single Bid value less than Rs 1.00 Lakh | No of Days | 40 days in 85% cases | 40 days in 83% cases | 40 days in 86% cases |
2 | Single Bid value Rs 1.00 Lakh to less than Rs 5.00 Lakh | No of Days | 50 days in 85% cases | 50 days in 86 % cases | 50 days in 86% cases |
3 | Single Bid value Rs 5.00 Lakh to less than Rs 50.00 Lakh | No of Days | 60 days in 85% cases | 60 days in 91% cases | 60 days in 86% cases |
4 | Single Bid value Rs 50.00 Lakh and above | No of Days | 75 days in 85% cases | 75 days in 100% cases | 75 days in 86% cases |
5 | Two Bid value less than Rs 1.00 Lakh | No of Days | 60 days in 85% cases | 60 days in 100% cases | 60 days in 86% cases |
6 | Two Bid value Rs 1.00 Lakh to less than Rs 5.00 Lakh | No of Days | 75 days in 85% cases | 75 days in 87% cases | 75 days in 86% cases |
7 | Two Bid value Rs 5.00 Lakh to less than Rs 50.00 Lakh | No of Days | 90 days in 85% cases | 90 days in 83% cases | 90 days in 86% cases |
8 | Two Bid value Rs 50.00 Lakh and above | No of Days | 120 days in 85% cases | 120 days in 90% cases | 120 days in 85% cases |
9 | All Open Tenders | No of Days | Additional 60 days | 100% cases | Additional 60 days |
Production Limitation (Plant Downtime) Due To Unavailability of - | |||||
A | Chemicals | No of Days | Not available | NIL | 8 Days |
B | Packaging Materials | No of Days | Not available | NIL | 8 Days |
C | Spares/Engineering Items | No of Days | Not available | NIL | 8 Days |
D | Raw Material | No of Days | Not available | NIL | 8 Days |
Various steps involved in purchase procedure:
- Prequalification of the vendors
- Receipt of purchase requisition (indents)
- Floating the enquiries
- Receipt of quotation along with EMD (Earnest money deposit)
- Opening of tenders
- Preparation of techno-commercial and price comparative statements
- Negotiations with the party by E-Reverse Auction
- Placement of purchase order and request for Security deposit
- Arrangement of transportation and insurance
- Receipt and inspection of material
- Payment to the party
1. Prequalification of the vendors:
· It is mandatory to pre-qualify the vendors in every 3 years.
· Pre-qualification is done through press advertisement
· Also the requirement is given on the R.C.F website.
· For pre-qualification of the vendor, his credentials are seen this include, Corporate record, financial status, registration with the statutory bodies, past performance/experience, Technical capability, largest order execution, references from the other big/government customers etc.
2. Receipt of purchase requisition (Indents):
Indent includes:
Indent number, material code number along with its description, quantity required, technical specification in detail, spares list if any, date of requirement, approximate cost (it is with reference to the old purchased price, estimated market price or directly calculated by SAP using weighted average method) and single bid system or two bid system.
Types of indent
· Codified Indent
· DC Indent
· Single Tender
· Capital Indent
Approving authorities as per delegation of powers:
For e.g.
Sanction of Indents | Board | CMD | Directors | ED | GM | DYGM | CE |
General | Full Powers | Full Powers | Rs.3.00Crs | Rs.2.00Crs | Rs.1.00Crs | Rs.0.25Crs | Rs.1.00Lacs |
PSUS | Full Powers | Full Powers | Rs.5.00Crs | Rs.3.00Crs | Rs.2.00Crs | - | - |
Ø Codified Indents: In case value of the indent exceeds Rs.1.00Lacs CGM’s approval is required. For lesser value DyGM’s approval is essential.
Ø DC Indents: In the case value of the indent is more than Rs.20,000/- CGM’s approval is required. For lesser value DyGM’s approval is essential.
Ø Proprietary Indents: Items has to be recommended as proprietary by a committee and approved by ED/CGM.
Ø Single tender: Approval of director is required before placing the Indent.
Ø Capital Indent: Budget provision is essential. Capital budget proposed at the beginning of the year.
3. Floating the Enquires:
Enquiry includes:
· Request for sealed quotation (whether single bid or 2 bid system)
· Quotation acceptance date
· Item description, quantity, unit price, delivery date.
· EMD details as per calculation
· Enclosed Annexure:
Ø Criteria for prequalification
Ø Instruction for bidder
Ø Bid Abstract sheet and Price bid format
Ø GTC ( General Terms & Conditions )
Ø Bank Guarantee toward security deposit
Ø List of approved banks
Ø Technical specification.
Methods of Floating the Enquires:
a. Limited Tender Basis:
If the value of the Tender is less than Rs.10.00Lacs, then enquiry is sent by limited tendering process to only pre-qualified parties. The bids are also opened without calling the parties for bid opening. The following is the guideline.
· For Tender ups to Rs.5.00lacs-six parties.
· For Tenders up between Rs.5.00lacs to Rs.10.00Lacs-12parties
· For Tenders between Rs.10.00Lacs all approved registered vendors
· Above Rs.15.00Lacs press Tender. But waiver for press tender can be taken for floating the tender on limited tendering.
· Above Rs.50.00lacs, press Tender is mandatory.
b. Open Tender: In the value of the Tender is more than Rs.10.00Lacs, tenders are invited through press tender. In open tender, tender notice is sent globally and all the parties are allowed to participate during tender opening.
4. Receipt of Quotations: The quotations can be received in 2 ways:
· Single stage: Technical bid and price bids are opened together.
- Two stage: Technical and price bids are opened separately. After technical scrutiny, price bids shall be opened only of the technically suitable parties.
· Normally 21 days are given to the parties for bid submission for local tender.
· 10 weeks for global tenders
· 1 weeks for proprietary item.
- EMD is essential for tender value exceeding Rs.5.00lacs (2.5% first Rs.1.00lacs, 1.25% for next Rs.5.00lacs,1% for next Rs.10.00lacs, 0.5% for additional amount).
5. Opening of the Tenders:
· Limited tenders are opened by a tender opening committee from purchase and finance department.
· During opening of the tenders, it is checked whether it is sealed or not. If sealed, the tenders are approved with signature of the committee on the envelope. This is done by auditing purpose.
· In case of press tender, tender shall be opened in front of all participating bidders. In press tender, it is compulsory to invite the participants but their attendance is not compulsory.
· Bids should be opened on due date only. In case of extension of due date approval is to be taken and all the parties should be informed regarding the extended date.
· The bid shall be valid at the time of bid opening.
· All changes/over writings are noticed and mentioned on the bid.
· Clarifications if any needed from the suppliers are sent to them and their reply on it is expected within a week’s time.
6. Preparation of comparative statements :
Techno-commercial bid statement:
In a two bid system, the parties are needed to qualify the techno-commercial bid. This qualification is done by comparing the techno-commercial clauses of all the parties with that of RCF. Parties that match up with the clauses are selected.
EMD of the other rejected parties are returned.
The comparative statement consists of following factors:
· Product details
· Technical specification
· EMD if deposited or NSIC exempted.
· Quantity approved
· Delivery period: RCF terms
· Payment terms: 30 days (standard)
· Acceptance of participating in E-Reverse Auction
Price bid statement:
For finding the lowest position of the bidder, price comparative statement is prepared. The comparative statements consist of following cost factors.
For Domestic offers
· Basic price
· Packing and Forwarding
· Excise duty
· VAT/CST
· Freight
· Insurance
· Octroi
For Foreign offers
· Basic price
· Freight/Insurance
· Custom duty and Handling charges etc
If there is any deviation to R.C.F’s standard commercial terms, prices are loaded for following deviations:
· Non acceptance of RCF’s payment terms
· Non acceptance of penalty clause
· Non acceptance to submit performance guarantee.
The party’s bids are compared on evaluated cost of the bidders.
7. Negotiations with the party by E-Reverse Auction:
As far as possible negotiations are discouraged if the prices received are within the estimates. In case the prices are more than our estimates then the negotiations are carried out using E-Reverse Auction.
E-Reverse Auction:
After opening the price bids and evaluating the cost to RCF, the bidders whose price bids have been opened shall be required to participate in the e-Reverse Auction on the site of the Service Provider (abcProcure) appointed by RCF.
RCF will inform the tenderer in writing the details of service provider including contact details to enable them to contact and get trained. Business rules like event date, time, start price, bid decrement, extensions, etc. also will be communicated through service provider for compliance.
It is mandatory for tenderer to have a valid digital signature certificate issued by any of the valid Certifying Authority approved by Government of India
It shall be RCF’s discretion to use the Lowest Landed Rate obtained amongst the price bids opened or “any other Rate deemed reasonable by RCF” as the Opening Bid Price for the e-Reverse Auction.
The e-Reverse Auction shall be conducted till the conclusion of the event takes place.
8. Placement of purchase orders:
The following steps are needed to be considered while placing the order on the party.
· In case the value of the purchase order is less than Rs.1.00lacs, on purchase committee and financial concurrence is required. The order can be approved by chief Engineer/operation manager.
RCF, public ltd company, financed by government and the money involved is public’s money. Thus they are bound to maintain transparency in all the jobs that they carry out. To maintain transparency, their employees are given sufficient powers and authority above which they cannot take decisions. To ensure that no one takes undue advantage of the power and the public funds are well utilized, 3 types of audits are conducted viz. Internal audit, Vigilance audit and Statutory audit.
Below table is an example of the approving authorities as per delegation of powers.
Sr. No | Value of the tender | Committee | Approving authority |
1. | Rs.1.00 lacs or less | Not required | OM/CE |
2. | Above Rs.1.00-5.00 lacs | Chief engineers | Dy GM of concerned plant |
3. | Above Rs.5.00lacs-50.00lacs | DyGm’s | GM/ED |
4. | Above Rs.50.00lacs-1.00Crs | ED’s | Director |
5. | Above Rs.1.00Crs-2.00Crs | Director’s | CMD |
· In some cases RCF deviates from its normal purchase process, these are just extensions from its standard procedure. Such cases are:
1. Repeat orders: These orders are placed to stay along with market fluctuations. The prices keep on fluctuating hence there is no downward trend in the prices. The company orders in bulk if the prices are estimated to go high.
2. Proprietary purchases: These are the purchases made of specific spares or ancillary equipments which will hamper the output if they are replaced with any other. Thus such purchases are made from proprietary and there equipments are only preferred. The purchase process is the little different than the normal procedure.
Security Deposit cum Performance Guarantee:
The supplier has to submit Security deposit once they receive the purchase order.
Security Deposit for proper and timely fulfillment of the contract has to be furnished by every successful tenderer within 15 days from the date of receipt of Purchase Order. No exemption will be made. The scale of Security Deposit to be furnished is as under:
For the first Rs.10 lakhs of contract value : 10% thereof
For the next Rs.10 lakhs of contract value : 7.5% thereof
For the next Rs.10 lakhs of contract value : 5% thereof and above
The supplier will furnish Security Deposit as specified above in the form of either a Demand Draft in favour of RCF payable at Mumbai or by means of a Bank Guarantee in the proforma from any Nationalized Bank and shall be valid for the duration of the contract or as prescribed by RCF. Bank Guarantee charges shall be borne by the supplier, it does not bear any interest. RCF reserves the right to insist on security deposit in the form of demand draft from any supplier. In the event of any breach of any of the terms and conditions of the contract or the supplier neglects, delays or fails to perform the contract, RCF shall have the right to forfeit the security deposit.
9. Arrangement of Transportation and Insurance:
In case the material is to be collected from Mumbai then for that RCF have to line up the contract for collection of the material. Normally RCF line up ARC for such transportation jobs. Insurance for incoming material is also arranged by purchase department to take care of any damage during the transit.
10. Receipt and inspection of material:
Once the material is arrived at RCF it is directed to RCF stores. At stores the material is booked and sent for inspection. The inspection of the material is needed so as to ensure that the material matches with that of the requisition.
11. Payments to the party:-
As per our standard procedure payment is to be released within 30 days of receipt and acceptance of material.
Purchase Flow diagram:
5.4 Stores
“STORE” refers to the place where all kinds of material and goods are held in stock and storage or storekeeping is defined as the act of storing the goods. The word ‘stores’ is sometimes used to refer anything which is stored.
Store keeping is primarily a service function in which the store keeper acts as the custodian of all items carried in the store. Store management should aim at providing the services as efficiently as possible with minimum possible cost. Store keeping may be defined as a function of receiving, storing and issue of raw materials, bought out parts and components, spare parts, tools, consumables, supplies and stationary items etc, to the user department which indented for the same. Storage is not the simple act of storing materials, but rather a package of services which enables the smooth flow of materials through the production department without causing stoppage of production due to shortage of materials.
Types of stores:-
1. Raw materials store
2. Component store
3. Consumable material store
4. Semi finished goods store
5. Finished goods store
6. Inwards goods store or Transit store
7. Holding store
8. Spare part store
9. Inflammable materials store
10. Tools store
11. Stationary store
12. Maintenance materials store
13. Rejected materials store
14. Packing material store
Objectives of stores management:-
· To facilitate a balanced and smooth flow of raw materials, components, tools and any other items necessary to meet production requirement.
· To maintain optimum stock of materials to compensate for irregular supplies by suppliers.
· To achieve efficient utilization of storage space.
· To reduce usage of material handling equipment.
· To provide codification of stored items for easy recognition.
· To enable flexibility in production schedules.
· To facilitate quantity purchases at discount prices.
· To keep the account of all goods kept in stores.
· To prevent theft, damage, wastage and deterioration of store materials.
· To maintain record of all incoming materials and issue of materials to user department.
Functions of store management:-
· To receive raw material, components, tools, equipments and other items and account for them.
· To provide adequate and proper storage and preservation of various kinds of materials.
· To meet the demands of the user departments by proper issues and keeping account of items used by user department.
· To minimize obsolescence, surplus and scrap through proper codification, preservation and handling.
· To highlight accumulation of stocks, discrepancies and abnormal consumption and implement proper control measures.
· To ensure good house-keeping to facilitate proper material handling, material preservation, receipt, stocking and issue of materials.
· To assist material accounts department in stock verification and provide supporting information for effective purchasing.
· To co-ordinate storekeeping with related production functions.
5.4.1 Stores at RCF
After arriving material at RCF, it is then send to the stores, depending on nature of the materials, following are the types of stores at RCF Trombay unit.
Ø General stores (SAP no-2002): It includes items which are of common nature, these items can be used in any plants. For eg: hand gloves, goggles, shoes, brooms, stationary items etc.
Ø Electrical stores(SAP no-2003): It includes items such as cables etc which are of electrical nature.
Ø Mechanical stores(SAP no-2004): It includes items such as pumps, shafts, conveyer belt, etc. For glass materials special room is used for storage.
Ø Capital stores(SAP no-2005): It includes materials which are used only once and capital budget is prepared for procurement of this items.
Ø Instrumental stores(SAP no-2006): It includes tools which are related to the machines.
Ø Trombay IV (SAP no-2007)
Ø Trombay V(SAP no-2008)
Ø Chemical stores(SAP no-2009): It includes items such as lubricants, oils, grease, petrol, and various chemicals etc.
Process involved in flow of material in stores at RCF:
In RCF when material arrives it goes from various stages, following are the stages involved in it.
1. Receipt and booking centre (SAP no-2001):- After arriving material at the RCF factory, first stage through which material goes is receipt and booking centre, at this stage challan is checked with purchase order, whether it is having same details as in purchase order, if it matches with the purchase order then goods of receipt is given and the material goes further to the respective stores for inspection.
2. Inspection of goods: This stage includes testing of material like its quantity, weight, visual inspection etc. Present condition of material is checked if it is in right condition, certificates of quality of equipment is checked, if inspection at the stores is not possible and if its tedious process then inspection done by third party is also accepted if third party is recognized by government and management, in some cases user is asked to inspect the material if it fits specification and fulfill his requirement, if material passes this stage it is send for storage and preservation if material does not pass this test it is rejected and information is send to the vendor.
3. Storage and preservation: Material which passes the inspection test is stored on basis of volumetric analysis, in this analysis material is stored depending on its nature, for e.g.- heavy material is stored in bottom or at lower level so that movement of these goods is easy, where as light material is stored on upper level. Storage depends on type of material.
Tree layout used for storage
In storage material is stored in different layout, in RCF Tree layout is used for storage, when material is stored in this layout, material is tagged, tagging includes naming the material, its user name, PO number etc.
Preservation is also important part of storage, it is responsibility of the stores to keep the received material in good condition to be used by user, for this various methods are used by the store department for e.g.-oiling of the mechanical equipment, special room for glass equipment, hot chambers for equipment which cannot be stored at the room temperature, cooling chamber facilities etc.
4. Issue of material to the user: Two methods are used for issuing the materials, methods used are,
Ø FIFO (First In First Out) - In this case materials which are arrived first are issued first to the users that is oldest material is issued to the user. This method is generally used for all type of materials.
Ø LIFO (Last In First Out) - In this case material which arrived last that is newest material in the store is issued to the user. This method used for those materials which are used for research purpose, to obtain proper result, for e.g. - chemical items.
Performance Monitoring Parameters
· To ensure that the stock charging of materials is done and goods receipt note is sent to finance department where all documents like excise gate pass, MTC, GC and other certificates are available within prescribed time limit
- Availability of service equipment
- Scrap disposal
- Utilization of capital Budget
- To receive zero complaints from the customer
- No reportable accident
DEPARTMENTAL ORGANOGRAM
ISO 14001: 2004: 4.4.1
DGM (COMMERCIAL) |
C.M.M (STORES) |
M.M (STORES) |
 | |||
 | |||
Process Map: Stores Material Receipt, Inspection, Storage & Issue
ISO 14001
Activities | Responsibility | Document Ref. | Record Ref. | ||||||||||||||
       
 
 No  
|  Receipt SectionReceipt Section Weigh Bridge OPR Concerned store By MH Eqpt & Manpower Weigh Bridge Operator Concerned Store Receipt Section | Delivery challan, CISF Entry, Excise GP Delivery Challan, SAP Weighment Card Delivery Challan Weight Card Weighment Card Delivery Challan Weighment Card, Challan with CISF Entry, SAP | SAP |
Activities | Responsibility | Document Ref. | Record Ref. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 NO
YES
NO
YES
  | ASK/SK RECEIPT SECTION OFFICER OF CONCERNED GODOWN ASK/SK OF CONCERNED STORE CC LAB/ OUTSIDE LAB. OFFICER OF CONCERNED STORE USER/ OFFICER OF CONCERNED STORE | 1.DEL. CHALLAN 2. WEIGHT CARD. 3. MTC/GC ETC LAB REPORTS GRN (INSPECTION) | SAP SAP SAP | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activities | Responsibility | Document Ref. | Record Ref. | ||||||||||||
    
| ASK/SK CONCERNED STORE OFFICER OF CONCERNED STORE MM/CMM ASK/SK CONCERNED STORE ASK/SK CONCERNED STORE | GRN (INSPECTION) GRN (PAYMENT) GRN (PAYMENT) GRN,INSP, NOTE, CHALLAN, WEIGHT CARD,MTC, GC,LAB REPORTS Etc. |
Activities | Responsibility | Document Ref. | Record Ref. | ||
 | OFFICER OF CONCERNED GODOWN OFFICER OF CONCERNED GODOWN | SAP/ DELIVERY CHALLAN | REJECTION NOTE REJECTION NOTE |
5.5 Inventory
5.5.1What is Inventory?
It is a stock of some kind of physical commodity. Mr. Fred Houseman has defined Inventory – “An Inventory is a idle resource of any kind, provided that such resource has economic value”.
What is the need of Inventory?
Inventory is necessary to ensure that materials are available as and when required for production and services. Keeping men and machines waiting for materials means loss of production. The cost of purchasing materials on day to day basis is very high. So certain minimum quantity has to be bought at a time. This is the working stock. Besides, the rate of consumption may suddenly increase or the suppliers may not deliver the materials on time resulting in stock out and production hold-up. To avoid these situations, safety stock or minimum stock or buffer stock is being maintained. That is why inventory is needed.
There is a need for inventory because: -
- To provide protection against uncertainties of demand and supply.
- To ensure smooth flow of materials through production processes.
- To ensure reasonable utilization of manpower and machines, etc.
- To provide the means of good customers services.
Generally speaking, the costs of not having Inventories are often greater than the cost of having them-such as, in case of stock-out costs.
Why Inventory control is necessary?
It is necessary:-
- To ensure optimum production with minimum investment in inventory.
- To maintain continuity of production or operation by ensuring smooth flow of materials.
- To reduce materials costs and to contribute towards reduction of cost of production or operation and over-all costs.
- To reduce working capital and recurring expenditure.
- To release working capital for better utilization of money which is locked – up in inventories.
- To ensure right quality of end products.
- To reduce the stock-out costs.
- To reduce emergent purchases.
- To maintain in the quality standard.
- To protect against unforeseen failure of supplies.
5.5.2 Purpose of Inventory:
Inventory is created for two general purposes, i.e. protection and economy
1. To provide sufficient materials to meet demands with minimum delay or excessive consumption.
2. To affect lower product costs by realizing the economics resulting from longer manufacturing runs and from purchasing larger quantities per order (i.e. economy).
5.5.3 Functions of Inventory:
Inventory has 4 basic functions. These functions must be understood if inventory is to be analyzed to determine how much inventory is really needed. These functions are:-
1. Lot size Inventory :
Many companies manufacture items in lots rather than one. The main reason relates to production costs and efficiency. As a result of this, inventory in excess of immediate requirements are carried.
2. Fluctuation Inventory :
These inventories exist because demand or supply fluctuates. Safety stock is fluctuation inventory.
3. Anticipation Inventory:
These are the inventories that are built in anticipation of future demand. Anticipation inventory built-up during a stock season to keep the labour employed, while providing for demand during the peak season. Inventory also build-ups before the holiday season, to anticipate strike, to provide initial inventories of new products and promotional items.
4. Transportation Inventory:
These inventories exist because materials are moved from place to place. For example A company has a plant at Nashik, but the stock-points or godowns are at Mumbai, Calcutta , Delhi and Madras , would normally have considerable amounts of inventory in transit between plant at Nasik
Factors Influencing Inventory:
There are ten factors which influence stocking of inventory, and these are:-
1) Requirements or Demands: - To meet the sudden fluctuation in demand, ready stock is necessary to maintain.
2) Position of supplies: - To meet the demands, if there is a short supply for any reason, ready stock is necessary to maintain.
3) Lead Time: - To meet the uncertainty in delivery period of supplies, which may be beyond our control, ready stock is necessary to maintain to meet the demand
4) Vendor Relations: - Good relations with suppliers usually have a great influence on prompt supplies.
5) Market Availability of materials: - If the availability of particular material/materials is scares, it is difficult or uncertain to get the supplies, it will reflect on the inventory.
6) Government policy: - There is a great deal of influence on the availability of materials/materials due to Government policy, such as sales tax, octroi, Excise, Customs Duty, particular imported and canalized items.
7) Work in Progress (WIP):- The size of the inventory depends on production cycle time, percentage of machine utilization, balancing of production capacities of various machines and shops.
8) Finished Goods: - The size of the inventory depends on accuracy of sales forecast, available storage space, etc.
9) Storage Space: - Bulk materials cannot be stored at one time.
10) Shelf life: - Perishable goods cannot be stored for a long time.
What happens when there are both excessive Inventories and inadequate Inventories?
Cost Areas | Case of Excessive Inventories | Case of Inadequate Inventories |
1. Cost of materials | a) Prices may fall, thus entailing a loss. (Many may agree that the opposite but compare the gains with the cost of carrying the stocks). b) Obsolescence may occur where design changes take place and the old spares or components are not required. c) Deterioration or damage may take place during storage. Many materials have shelf life. | a) Rush purchases cost more. b) Small quantity purchases often mean higher prices. Quantity discount cannot be availed of. |
2. Production | a) Inefficient working conditions are often created by large stocks. | a) Work stoppages may occur products stock-outs. b) Lay-offs or retiring of people or training new people may be involved. c) Extra machine set-ups would be required. d) Economics batch production may not be possible. e) Emergency or urgent production might be required. All these amount to extra cost. (Expenditure). |
3. Overheads | a) Higher inventory carrying cost arising from bank borrowing, larger storage space for keeping larger stores, more number of storekeepers for maintaining the stores, etc. b) Sometimes it may become necessary to rent out outside storage space. | a) Increased cost of purchasing, receiving, inspection, accounting, etc. arising from the larger number of small orders. b) Materials handling cost and transportation costs will increase. |
Relevant cost factors in determining Inventory Levels:-
There are four cost factors in determining the inventory levels, There are:-
· Cost of placing a replenishment order.
· Cost of carrying inventory.
· Cost of under stocking and
· Cost of overstocking.
The cost of ordering and inventory carrying costs are viewed as the procurement costs. The under stocking and overstocking costs are viewed as the demand side costs and help in determination of the amount of variation in demand and delay in supplies which the inventory should withstand.
Classification of Inventories:
- Production Inventories: Raw materials, parts and components which are required directly in the production and formed as part of the product during conversion process.
- M.R.O Inventories: Maintenance, repairs and operation requirement inventories which are required as indirect materials during the production process and don’t form part of the product.
- Work in progress Inventories (W.I.P): Semi-finished parts or components which are under production at various stages.
- Finished goods Inventories: End products, which are ready for sale or dispatch.
SELECTIVE INVENTROY CONTROL
In many ways of life, whether it be in terms of the national scene or a company situation or that of our own life, we encounter a peculiar phenomenon which can broadly be termed as “the vital few and trivial many”. For example, one will find that the numbers of tax payers in the country are not more than 10%. If we take a T.V. set, about 5% of the total numbers of parts contribute to 80% of the costs. This is true of a car or a refrigerator or any machine. If we analyze the human body, we would realize that about 10% of the total numbers of organs are vital to our life. For example, we could not live without our hearts, lungs or kidneys, but we certainly could live without our eyes, hands or ears. This situation is true for business also. One would find, for example, in a multi-product company, that perhaps 10% of the products contribute to 90% of the sales or 75% of the total profits, or may be, to take an extreme example, that 20% of the personnel are the ones that really contribute to 80% of the efficiency of the company and most others are “passengers”.
It will be appreciated that the primary objectives of materials management in general and of inventory control in particular is to reduce costs. It will also appreciated that almost the same effort is required to control an item of inventory whether its annual consumption is Rs.5000 per annum or Rs.50,000 per annum. A pertinent way of looking at the problem, therefore, would be to control high value items because they give us the greatest returns are low. In fact controller should always take care to see that the cost of controlling is not more than the returns available from such a control. The answer to this problem is selective inventory control.
Here how selective control can be done. Very broadly these can be divided into six types. These are described below:-
Classification | Criteria |
1. A-B-C (sometimes nick-named Always Better Control). | An annual value of consumption of items concerned. (It has nothing to do with the unit value of the item. |
2. V-E-D (vital, essential and desirable). | By the critical nature of the components or material with respect to production. |
3. S-D-E (scarce, difficult to obtain & easy to obtain). | Purchasing problem in regard to availability. |
4. F-S-N (fast moving, slow moving and non-moving). | Issues from stores. |
5. S-O-S (seasonal, off-seasonal). | Seasonality. This applies especially to commodities. |
6. X-Y-Z (the inventory value of items stored.) | The inventory value of items stored. |
What is ABC analysis?
ABC Analysis is a basic analytical management tool which enables top management to place the efforts where the result will be greatest. This technique is popularly known as “Always Better Control”. In materials management, this technique has been applied in areas needing selective control such as inventory, critically of items, obsolete stocks, purchasing orders, receipt of materials, inspection, storekeeping, and verification of bills, etc.
The annual consumption analysis of any organization would indicate that handful of top high level value items-less than 10% of the total number which is accounts for a substantial portion of about 75% of the total consumption value, and these few high consumption value items are called ‘A’ items which need more careful attention of the management. Similarly, a large number of low consumption value items which are about 70% of the total number will account for 10% of the total consumption value, and are known as ‘C’ items. The items which are laying between high and low values are called ‘B’ category items.
Advantages of ABC analysis:
This approach helps the management to exercise selective control and focus their attention only on few high value items when they are confronted with thousands and thousands of stores items. By concentrating on ‘A’ value items, the management is able to control inventories and show visible results in a short span of time. By controlling ‘A’ value items, and doing a proper inventory analysis, obsolete stocks are automatically pinpointed. ABC analysis has to be resorted to because equal attention to ‘A’, ‘B’ and ‘C’ items will not be worthwhile and would be very expensive.
The advantages offered by ABC Analysis among others are:-
i. It puts first in terms of money value of the consumption items, and helps to segregate high value items for pinpoint control
ii. In cases of low value items (i.e. ‘C’ value items), it helps to avoid paper control (i.e. visual control by two line systems).
iii. It helps to give attention in proportion to their need for purchasing and deliveries.
Remember
There are two important things to remember in connection with the ABC Analysis. It is not the quality consumed that matters but the consumption value. Secondly, the classification should not be made according to unit value, but according to total value of annual consumption of the items. For example- 5kgs of salt would be a ‘C’ item; where as 5kgs of gold would be an ‘A’ item.
Again, suppose there are two items- one valued at Rs.100/- each and the other are at Rs.10/- each. Let us suppose that we use only 5 numbers of the first items, but 2000 numbers of the second item.
Purpose of ABC Analysis:
The object of carrying ABC Analysis is to develop policy guidelines for selective control. Normally, once the ABC Analysis has been done the following broad policy guidelines can be established in respect of the each category:-
Guidelines for control of ABC items
‘A’ items High consumption value | ‘B’ items Medium consumption value | ‘C’ items Low consumption value |
1. Very strict control | Moderate control. | Loose control. |
2. No safety stocks or very low safety stocks. | Low safety stocks. | High safety stocks. |
3. Frequent ordering or frequent deliveries-may be weekly. | Once in 3 months. | Bulk ordering once in 6 months. |
4. Weekly control statement. | Monthly control statement | Quarterly control statement. |
5. Maximum follow-up and expediting. | Periodic follow-up | Follow-up & expediting in exceptional cases. |
6. Rigorous value analysis. | Moderate value analysis. | Minimum value analysis. |
7. As many sources as possible for each item. | Two or more reliable sources. | Two reliable sources for each item. |
8. Accurate forecast in materials planning. | Estimates based on passed dates on present plans. | Rough estimates for planning. |
9. Minimization of waste, obsolete & surplus. (Review every 15 days). | Quarterly control over surplus and obsolete items. | Annual control over surplus and obsolete items. |
10. Individual posting. | Small group posting. | Group posting. |
11. Central purchasing and storage. | Combination purchasing. | Decentralized purchasing. |
12. Maximum effort to reduce lead time. | Moderate effort to reduce lead time. | Minimum clerical efforts. |
13. Must be handled by senior officers. | Can be handled by middle management. | Can be handled by junior officers. |
Selective Inventory Control for regular stocks items:
There should be enough appreciation for the danger of high inventory. High inventories are “Grave Yard” of industry. Inventories are too controlled at three stages, namely: -
· Raw materials and general stores
· Work in progress stocks and
· Finished goods stocks.
Large savings in inventory investments are possible if attention is paid to inventory items in proportion to their values. The ABC Analysis is one of the techniques of inventory control. The steps in conducting the ABC analysis are as under:-
- Tabulate and record all the regular consumption items in the stores and the total value of it by multiplying the rate of each item with the total number of pieces consumed during last twelve months.
- Rearrange the items in descending order of their individual total value of inventory.
- Work out the cumulative totals and their percentage of the total value of inventory.
- Arrive at the cumulative figure of items and their percentage.
- Plot the curve (see figure below) taking axis as % of items and ordinate as % of usage value A, B and C region.
100
90
 |
80 70
 |
60
50
40 A B C
30
20 | | | | | | | | | |
10 |
10 20 30 40 50 60 70 80 90 100
 |
Cumulative % of number of items used
From the above curve, items are segregated into A, B and C categories are logical break points. It shows that around 10% of the total number of items constitutes about 70% of the total investment in inventories which is called ‘A’ Category (high Value) and similarly 70% of the total number of items constitutes about 10% of the total investment in inventories, which is called ‘C’ Category (low Value), and in between the two e.g. 20% of the total number of items constitutes about 20% of the total investment is inventory, which is called ‘B’ Category (Medium Value).
These figures may vary from industry to industry but the basic pattern remains the same.
The advantages offered by ABC analysis among others are:-
- It puts first in terms of money value of consumption items and helps to segregate high value for pin point control.
- In case of low value items, it helps to avoid paper control, i.e. visual line control by two-line system.
- It helps to give attention in proportion to their need for purchasing and deliveries.
The frequency of purchases, the number of receipts and issues, and the number of bills to be passed for supply of these ‘C’ (Low Value) items are reduced drastically.
V-E-D Classification
V-E-D stands for vital, essential and desirable. This type of classification is applicable most in the case of spare parts. The peculiarity about spare parts is that it does not follow a predictable demand pattern as in the case of raw material for example. The result is that if we follow the usual methods outlined, earlier, we might get into the difficulties when the demand suddenly changes. For example, the older the machine gets, the greater may be the maintenance spares required. As such, past trends cannot throw much light on stocking policies.
To get over this difficulty, V-E-D Classification is used. Here, the categorization is made in terms of the importance of critically of the part to the operation of the plant. It is very vital; it is given a V classification. It is not so important; it is given a D classification. How such a classification is done will purely depend upon the machinery or equipment involved and one’s own experience, ease of availability of the items etc. For example, if the item was available off the shelf from the supplier’s showroom, there would be no purpose in categorizing it as V. If on the other hand, a minor imported item might automatically get a V classification. In other words the classification is not purely in terms of the critically of the items for proper working of the machine but it is a combination of several factors including price, availability etc.
For V items, a reasonably large quantum of stocks might be necessary, while for D items, no stocks need perhaps be kept, especially it that item also happens to be in the A or B classification. For V items of A classification, close control should be kept on stock levels, but if it is a C item, large quantities may be stores.
The whole objective is to select items for special control and thus expend time and effort in a prudent way.
A very expensive machine is being installed on its foundation but the foundation bolts required for the purpose are not available in the stores. These are purchased at a cost of Rs.150. This item is a C item because its total annual consumption value is low, being only Rs.600. Yet it is as important as the machine itself and without this item, the machine cannot be erected. Even a C item can be very important.
S-E-D Classification
These letters stand for scarce items, those which are difficult to obtain and those which are fairly easy to obtain. It is quite obvious that where an item is scarce and it is A item, we cannot apply the same procedure or yardstick for its stocking. Take for example, an item which is imported. It would be quite absurd for anyone to say that it should be procured once in six weeks. It would be best to obtain it once in a year, considering the time, effort and expenditure involved in the procedures for import.
A scarce item might be an item which is not easily available in the market and might require source development, or else it might be an item which very difficult to manufacture or there are only one or two manufacturers who have to be given orders several months in advance, and so on.
Let us take an item which is easy to obtain and it is an A item. One can bestow on it all the care required for treatment of A items. But if it is a C item, the inventory controller really does not have to bother very much.
F-S-N Classification
This takes into account the pattern of issues from stores. The three letters stand for fast-moving, slow-moving, and non-moving. This classification comes in very handy when we desire to control obsolescence. Items classified S and N require great attention, especially N item. There may be several reasons why an item has got into the N category. There might have been a change in technology or change in the specification of a particular spare part or the item might no longer be in use. When F-S-N classification is made, all such information stand out prominently enabling managers to act on the information in the best interests of the organization.
X-Y-Z Classification
This is the last type and is based on the value of inventory stored. If the values are high, special efforts should be made to reduce them. This exercise can be done once a year.
Remarks:
There is no simple rule of thumb to determine stock levels or to determine the type of strategy to be employed for procurement or stocking. No common procedure can be made applicable for all the items. There would be special peculiarities for each item and as such, special treatment would have to be meted out to overcome problems or difficulties in respect of each type. The different types of classifications suggested would given an executive a clear idea as to what are the implications and this would give him the necessary clues as to how to act and what decisions to take. It will also be clear that none of these classifications should be used in isolation. A person should take an integrated view and decide the best course that will give the best overall results.
Impact of profitability
As will be seen from what has been stated earlier, holding inventories is often very expensive. More inventories mean more costs and this has a direct impact on the profitability.
5.5.4 Inventory in RCF Stores:
In RCF, the inventories are classified in 4 categories as mentioned below.
- Movable inventory
- Insurance spares
- Usable surplus
- Disposable surplus
The total inventory includes all of the above.
Movable inventory:
- This category includes items that are regularly consumed.
- These items are required regularly in bulk quantity.
Insurance Spares:
- These are functional parts of machines or equipment.
- Such items are normally procured along with original equipment or machine; these items are very costly and are not readily available.
- Absence of these spares at the time of breakdown results in heavy losses due to equipment or machine downtime and loss of production.
- Insurance spares are maintained as an insurance against any breakdown, because their replacement involves high cost.
- Because of their high cost, usually one or two numbers of these spare are held in inventory.
Usable Surplus:
- Any item which is not used till its expiry date is segregated for different plants.
- The plant users can accept and use such items if necessary.
Disposable Surplus:
- Any item which is not moved from last 5years in RCF is considered non-movable.
- Such non-movable items come under the category of disposable surplus.
- A Committee is present in RCF which will segregate such items for different plants, if no plant accepts any of such items they are disposed which means sold out.
- The procurement of such items is blocked in this case.
5.6 Bagging Department
5.6.1 SUPHALA BAGGING PLANT
Suphala bagging unit having designed capacity 2000 MT/Day is known as New Suphala Bagging Plant. This new bagging unit is commissioned in 2001.
Process Description:-
Suphala bagging unit is divided in two sections;
(I) Suphala handling system &
(II) Suphala bagging unit.
The entire process system consists of various machines and conveyor belts assembly. They are as follows:
- Bunker (H1, H2, H3)
- Bin activator (BA1, BA2, BA3)
- Duplex weighing machine (WM1 A/B, WM2 A/B, WM3 A/B)
- Bagging machine (BM1, BM2, BM3)
- Slat conveyor (SC1, SC2, SC3)
- Stitching machine (SM1, SM2, SM3)
- Reversible belt conveyor (RBC1, RBC2, RBC3)
- Wagon Loader (WL1, WL2)
The bagging assembly is depited in the diagram:
graph
(I) Suphala Handling System:
Suphala handling system consists of various conveyor belts from Suphala production plant to Suphala bagging plant, storage silo and a Scraper. Product suphala from Suphala Plant is delivered to conveyor NP1 , material from conveyor NP1 is discharged in to a diverter , with the help of motorized flap gate in diverter material can be routed either to silo via conveyor NP2 or to conveyor NP5.
The material from silo can be reclaimed by means of Scraper. This scraper discharges material on conveyor NP3. The material on NP3 conveyor passes through vibrating screen and delumper where lumps formed during storage are separated and crushed to grain size and finally discharged on conveyor NP5.
The material from conveyor NP5 is moved on by conveyor NP4, conveyor NP4 discharges material into a diverter. With the help of pneumatically operated flap gate, material can be diverted to dumper or on conveyor BC1. Dumpers are used to transfer the suphala in ANP bagging plant. Conveyor BC1 feeds material to conveyor BC2 , belt conveyor BC2 is provided with a 2-way flap gate arrangement, which discharges the material to either bunker H-2 or reversible belt conveyor RBC-1 in the bagging bunker shed. The belt conveyor RBC-1 feeds to the bunker H-1 or H-3 depending upon its direction of flow.
(II) Suphala Bagging Plant:
There are Three suphala bunkers H-1 , H-2 and H-3 provided with load cells and controller for load cells which indicates the quantity and high and low levels of material in the bunkers from belt conveyors leading to bunkers. Below each of the three bunkers Bin bottom vibrators (bin activators) BA-1, BA-2 and BA-3 are provided which extract and regulate the flow of material from the bunkers to the respective weighing machines.
Three numbers of duplex weighing machines WM-1A/B, WM-2A/B and WM-3 A/B are provided under bunkers H-1, H-2 and H-3 respectively which receives the material from two bunkers via two way chutes. A common spout from two weighing machines of each buinker feeds to a common bagging machine BM-1, BM-2 and BM-3 respectively. Each bagging machine has an automatic bag placer with independent control along with magazines for empty bags. Under each bagging machine there are slat conveyors SC-1, SC-2 and SC-3 provided with automatic stitching machines SM-1, SM-2 and SM-3 respectively.
The desired quantity of material is fed to the weighing machines which weigh and convey it to the bagging machines BM-1 , BM-2 and BM-3 where it is automatically bagged and then conveyed on the slat conveyors SC-1, SC-2 and SC-3 respectively. The bags are then stitched on these slat conveyors. The complete weighing, bag placing, bagging , stitching and conveying on slat conveyors is sequentially controlled , interlocked with the help of local PLC panel which are in turn interlocked with the main PLC panel of the complete bagging plant .
The slat conveyor SC-1A feeds the bag to reversible belt conveyor RBC-3 which feed the bag to truck loaders TL-1 an TL-2 for loading in trucks. The belt conveyor BC-3A and BC-4A feeds to horizontal reversible belt conveyors RBC-3B and RBC-4B respectively. The belt conveyor RBC-3B and RBC-4B each are provided with 2 nos. of traveling type wagon loaders and belt BC-6 is provided with 1 no. of traveling type wagon loader. Wagon loader WL-1 and WL-2 are with RBC-3B and Wagon loader WL-3 and WL-4 are with RBC-4B and Wagon loader WL-5 are with BC-6. These wagon loaders move along the length of storage platform. The wagon loader loads the filled bags on to the wagon or stacks them on the storage platform as required.
The complete system of bagging plant is sequentially interlocked, controlled and monitored through PLC based control panel located in the control room in the new bagging building.
High density Polythene (HDP) bags are used for bagging the material. The cost per bag varies from Rs. 11 to Rs. 12. Extra care is taken in monsoon, where the bags procured contains Low density Polythene (LDP) lines along with HDP which cost Rs. 15 per bag.
Polypropylene thread is used for stitching the bags. The capacity of per bunker (H1, H2, H3) is of 100MT and per bag is filled with 50kg of the material.
Bagging calculation per shift and per day:
Shifts | 1 | 2 | 3 | Total per day |
Material bagged per shift (MT) | 600 | 600 | 600 | 1800 |
No of bags per MT | 20 | 20 | 20 | 60 |
Total bags per shift | 12000 | 12000 | 12000 | 36000 |
Stacking:
The bags can be stacked when the plant is shut down i.e. when there is no production but wagons are available. Railway provides wagons to RCF for the supply of material all over India
Stacking capacity is of 900MT of this plant.
5.6.2 UREA BAGGING PLANT: The entire process is same as that of the Suphala Bagging plant. Few differences of both the bagging plants is mentioned below:
- Stacking of bags is not done in case of Urea because Urea is soft and if exposed to external environment it absorbs a lot of moisture, turns hard and hence cannot be used.
- The Hoppers used for Urea Bagging are 4 namely; H6, H5, H4 and H1.
- The Silo capacity for Urea is 35000MT
- Bagging calculation per shift and per day:
Shifts | 1 | 2 | 3 | Total per day |
Material bagged per shift (MT) | 450 | 450 | 450 | 1350 |
No of bags per MT | 20 | 20 | 20 | 60 |
Total bags per shift | 9000 | 9000 | 9000 | 27000 |
PROCESS MAP FOR SUPHALA BAGGING PLANT
ACTIVITIES | RESPONSIBILITY | DOCUMENT REFERENCE | RECORD REFERENCE |
 | Internal Bagging & Dispatch Plan | Monthly report | |
CE (TS | Annual Dispatch Plan | 1) Dispatch report 2).M.O.M. 3)Monthly Production Review Meting | |
O.M.(B & MH) , MM (SBP), CMM (P), CMM(T&C), Shift In charge | QMS/B &MH Gr./SBP/ PROD/WI/1 | Shift Log book, Daily report | |
CMM (T&C), Mktg (S&D), HOD (Prod.) | Indent from Marketing Dept. | Daily report, Shift Logbook | |
Shift Incharge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 & 2 | Shift logbook | |
Shift Incharge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 | Loading register | |
 | Shift In charge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 | Loading register |
Shift In charge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 | Shift Log book | |
Shift Incharge | QMS/B &MH Gr./SBP/ PROD/WI/1 | Shift Log book | |
Shift Incharge, Scraper Operator | QMS/B &MH Gr./SBP/ PROD/WI/1 & 3 | Shift Log book | |
Shift Incharge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 & 4 | Shift Log book | |
Shift In charge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 | Q.C. Register | |
HOD (Prod.) Suphala Bagg.Plant HOD (Prod.)- Suphala Plant) | QMS/B &MH Gr./SBP/ PROD/WI/1 QMS/B &MH Gr./SBP/ PROD/QP | General shift logbook | |
Shift In charge Shift Tech (Instr.) | QMS/B &MH Gr./SBP/ PROD/WI/1 | Shift Log book, Calibration records |
 | Shift Incharge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 & 5 | Shift Log book |
Shift Incharge Shift Tech (Mech.) | QMS/B &MH Gr./SBP/ PROD/WI/1 QMS/B &MH Gr./SBP/ PROD/QP | Q.C.Register | |
   Shift InchargeShift Tech (Instr.) Shift Incharge Shift Tech (Instr.) Shift Incharge Shift Technician (P) Shift Incharge Shift Technician (P) Shift Incharge Shift Technician (P) Shift Incharge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 & 6 QMS/B &MH Gr./SBP/ PROD/WI/1 QMS/B &MH Gr./SBP/ PROD/QP QMS/B &MH Gr./SBP/ PROD/WI/1 QMS/B &MH Gr./SBP/ PROD/WI/8 QMS/B &MH Gr./SBP/ PROD/WI/1 QMS/B &MH Gr./SBP/ PROD/WI/1 Loading sheet (Online) | Q.C.Register Shift Log book, Calibration record Loading register Shift Log book Shift Log book Loading Register | |
Shift Incharge Shift Technician (P) | QMS/B &MH Gr./SBP/ PROD/WI/1 | Delivery challan, Loading register |
PROCESS PERFORMANCE MONITORING PARAMETERS
1) Monthly bagging & dispatch plan vs. actual.
2) Downtime & production loss due to various factors such as raw material, equipments, non-availability of Wagons/Trucks etc.
3) Overtime Hours
4) Number of interruptions due to internal & external factors.
5) Number of customer complaints
6) Silo stock
7) Spillage quantity.
8) Wastage of packing material
6. ERP IN RCF
What is sap and where it is used?
SAP is an ERP - "Systems Applications and Products." or SAP. A software product that helps you to manage all the resources of an organization. The original SAP idea was to provide customers with the ability to interact with a common corporate database for a comprehensive range of applications. Gradually, the applications have been assembled and today many corporations, including IBM and Microsoft, are using SAP products to run their own businesses.
SAP applications, provide the capability to manage financial, asset, and cost accounting, production operations and materials, personnel, plants, and archived documents. It is used by many large to medium size organization. It has modules. A client who wants to implement SAP in their company will select the modules required for their business.
Solutions provided are:
- Financials
- Human Resources
- Customer Relationship Management
- Supplier Relationship Management
- Product Lifecycle Management
- Supply Chain Management
- Business Intelligence
The four other applications are:
Customer relationship management (CRM) - helps companies acquire and retain customers, gain deep marketing and customer insight, and align organization on customer-focused strategies
Product lifecycle management (PLM) - helps manufacturers with a single source of all product-related information necessary for collaborating with business partners and supporting product lines
Supply chain management (SCM) - helps companies enhance operational flexibility across global enterprises and provide real-time visibility for customers and suppliers
Supplier relationship management (SRM) - customers can collaborate closely with suppliers and integrate sourcing processes with applications throughout the enterprise to enhance transparency and lower costs
Supplier relationship management (SRM) - customers can collaborate closely with suppliers and integrate sourcing processes with applications throughout the enterprise to enhance transparency and lower costs
Advantages:
Integration
Integration can be the highest benefit of them all. The only real project aim for implementing ERP is reducing data redudancy and redudant data entry. If this is set as a goal, to automate inventory posting to G/L, then it might be a successful project. Those companies where integration is not so important or even dangerous, tend to have a hard time with ERP. ERP does not improve the individual efficiency of users, so if they expect
Integration
Integration can be the highest benefit of them all. The only real project aim for implementing ERP is reducing data redudancy and redudant data entry. If this is set as a goal, to automate inventory posting to G/L, then it might be a successful project. Those companies where integration is not so important or even dangerous, tend to have a hard time with ERP. ERP does not improve the individual efficiency of users, so if they expect
it, it will be a big disappointment. ERP improves the cooperation of users.
Efficiency
Generally, ERP software focuses on integration and tend to not care about the daily needs of people. I think individual efficiency can suffer by implementing ERP. the big question with ERP is whether the benefit of integration and cooperation can make up for the loss in personal efficiency or not.
Generally, ERP software focuses on integration and tend to not care about the daily needs of people. I think individual efficiency can suffer by implementing ERP. the big question with ERP is whether the benefit of integration and cooperation can make up for the loss in personal efficiency or not.
Cost reduction
It reduces cost only if the company took accounting and reporting seriously even before implementation and had put a lot of manual effort in it. If they didn't care about it, if they just did some simple accounting to fill mandatory statements and if internal reporting did not exists of has not been financially-oriented, then no cost is reduced.
Accuracy
Software is not accurate. What ERP does is makes the lives of inaccurate people or organization a complete hell and maybe forces them to be accurate (which means hiring more people or distributing work better), or it falls.
Accuracy
Software is not accurate. What ERP does is makes the lives of inaccurate people or organization a complete hell and maybe forces them to be accurate (which means hiring more people or distributing work better), or it falls.
Disadvantages:
Expensive
Expensive
This entails software, hardware, implementation, consultants, training, etc. Or you can hire a programmer or two as an employee and only buy business consulting from an outside source, do all customization and end-user training inside. That can be cost-effective.
Not very flexible
Not very flexible
It depends. SAP can be configured to almost anything. In Navision one can develop almost anything in days. Other software may not be flexible.
6.1 Schematic Representation of SAP Code:-
- In the above diagram 300 is the code which is given to the client i.e Rashtriya Chemicals and Fertilizers Ltd for its use.
- Then it gets divided for various plants. 2000 is the code which given to the Chembur plant and 3000 is the code given to the Thal plant for its use.
- Then it gets divided into various units e.g. Purchase, stores, material handling etc.
- 4000 is the code which is given for both the plants i.e .If certain spare part is required for both the plants then it can be placed through this code.
Replacing Legacy Systems with an Integrated Application:
The Indian Fertilizer industry faces several major challenges, including high demand for crop-specific products, unpredictable rainfall, dependence on expensive imported raw materials and strict government policies. To achieve operational excellence in this complex environment RCF needed to tighten its operations. Specifically, it needed to implement an integrated and scalable IT application to enhance collaboration and information sharing across the entire enterprise.
After evaluating a number of options RCF chose the SAP ERP application
With the strong support from senior executives and regular interaction between end users and the IT department, the team completed the project on time and within budget. It took just 10 months for the fertilizer manufacturer to roll out the SAP ERP application across all its offices and production facilities.
Transforming the Organization:
Today, all RCF facilities operate with a single set of business processes, an integrated information base, and accurate visibility into business operations. Uniform material codes enable accurate visibility into inventory levels across plant locations. Tighter integration of material management with finance has eliminated invoicing errors. Similarly, enhanced visibility into inventory movements helps eliminating excess stocking while reducing stock-out situations. Today stock reconciliation across locations can be done at the click of a button at any time as compared with the time consuming manual reconciliation exercise that used to be performed once a year. The finance function has significantly reduced the time and effort involved in consolidation of accounts across its various units by centralizing the entire process using SAP ERP Financials solution.
"The challenge of embracing real-time process integration of a complex business entity formed the core of this user-driven SAP ERP adoption. Alignment of IT with business objectives is leading RCF to new heights of excellence"
- Proven track record in fertilizer industry
- Best fit for company's business requirements
- Large installed customer base in
- Support for growing business requirements
7. ANALYSIS
The balance sheet and the Profit and loss account of the company contains components that directly affect the profits. This component includes all types of inventories. Inventory is therefore a function of profitability. Thus Inventory of RCF is analyzed in this report.
Inventories | Rupees In Crore | ||
2008 | 2009 | 2010 | |
Stores,spares, packing materials and Petroleum Products | 230.54 | 236.2 | 244.44 |
Less : Provision for obsolescence/loss under investigation | 6.4 | 7.99 | 7.9 |
224.14 | 228.21 | 236.54 | |
Raw Materials | 61.85 | 269.7 | 70.7 |
Finished Goods / Bought out products | 549.27 | 175.07 | 73.61 |
Intermediary Products | 25.79 | 13.54 | 22.29 |
By-Products | 4.47 | 6.17 | 6.45 |
TOTAL | 865.52 | 692.69 | 409.59 |
Inventories includes : | |||
i) In transit | |||
Store & Spares | 0.62 | 1.1 | 2.11 |
Raw Materials | 3.5 | 200.54 | 0.07 |
Finished Goods | 41.07 | 25.52 | 27.29 |
ii) Stores & Spares | |||
(a) Under inspection | 5.5 | 1.58 | 1.98 |
(b) Platinum & Rhodium stolen in an earlier year and under investigation which is not available for verifi cation | 0.21 | 0.21 | 0.21 |
(c) With fabricators | 12.21 | 2.83 | 11.82 |
Following are the observations made from the graph:
- The inventory in total has come down from 2008 to 2010
- Stores and spares inventory has increased from 230.54Cr in 2008 to 236.2Cr in 2009 and 244.44Cr in 2010
- Inventory for Raw material has increased tremendously in 2009 but it came down drastically 2010
- Finished goods have come down to a large extent since 2008 to 2010.
ABC Analysis technique can be used to analyze the types of inventories.
Following are the types of Inventories used in RCF:
- Movable inventory
- Insurance spares
- Usable surplus
- Disposable surplus
A class: Insurance spares are less in number and are high cost items. Hence such items will lie under A class category.
B class: Usable and Disposable surplus are medium in quantity and medium in cost. Hence they come under B class category.
C class: Movable inventory is ordered in bulk and are cheaper. Hence such items are considered under C class category.
Year | 2011 | 2010 | 2009 | |||
Total | 68827 | 84.01 | 65167 | 73.43 | 62668 | 70.73 |
Moving | 51737 | 67.08 | 48201 | 58.62 | 46572 | 57.48 |
Insurance | 2245 | 8.93 | 2273 | 6.97 | 2413 | 7.99 |
Usable surplus | 2691 | 0.91 | 2692 | 0.91 | 2686 | 0.9 |
Disposable | 12154 | 7.09 | 12001 | 6.93 | 10997 | 4.36 |
Ø In stores of the RCF ltd, the materials are arranged systematically. It has been managed in a particular way where each items has been codified, so that it can be easily identified when required.
Ø Proper inspection of the items has been carried out so that the items with defects can be identified & rejected. It will be immediately replaced with new one.
Ø Some items are preserved in the stores to avoid from wastage or rust.
Ø RCF also have policies to purchase at right time, right quantity, right quality, right place, and right price to take advantage of 5R.
Ø RCF also utilizes modern SAP system for Inventory Management which helps various department of the company to understand about the materials availability & records.
6. FINDINGS
Ø Ideally, most companies want to have just enough inventories to meet current orders. Having too much of inventory can make a company look less appealing to investors and potential customers. But a low number of inventory is also bad.
· Inventory management in RCF:
Total inventory of RCF was initially very high in 2008 but later it has come down and now RCF has just enough inventories to meet customer’s requirements.
- Safety stock:
Every company has a tendency to invest more or stock more when it makes profit. RCF has made huge profits in last few years and hence started stocking more of spares so as to avoid longer stoppage of production and to meet customer’s requirements on time. Thus RCF has seen increase in their stores and spares inventories since last 3years.
- Raw material: Cost of making the product
Raw material inventory is still kept available in enough amounts in RCF. This is because it is mostly imported and therefore it provides insurance in case suppliers are late with deliveries.
- Finished Goods Inventory:
RCF has large amount of finished goods in 2008 and has decreased at a higher rate in 2010. But RCF still has got sufficient amount of inventory of finished goods to accommodate unanticipated fluctuations in demand.
Ø It has been also found that material management involves various functions right from purchasing the material, storing the material, handling the material to packing and bagging the material.
8. RECOMMENDATIONS
· E-Tendering: Electronic Tendering system
The procurement process in RCF is very lengthy. There is a lengthy filing process which is very time consuming. Though RCF has now incorporated E-Reverse Auction that made the decision making easy thus reducing the process time.
Incorporating E-Procurement system as a whole would definitely make the process fast and accurate. RCF has already taken initiative towards it by considering E-Tendering system to remove the filing system and simplifying the process.
· Inventory management:
Inventory analysis is done at regular intervals to support decision making. Inventory analysis methods like ABC, VED, FSN is not followed in RCF. If followed, they would be able to take necessary steps to protect their valuable items and to manage their inventory in a better manner.
· Economic Order Quantity:
An inventory-related equation that determines the optimum order quantity that a company should hold in its inventory given a set cost of production, demand rate and other variables. This is done to minimize variable inventory costs
EOQ is not used in RCF. If used they would have more control on the ordering cost and carrying cost enabling them to manage their budget efficiently.
· Wastage Reduction:
Material dumped in Silo needs to be managed very well which would reduce the wastage of material.
9. CONCLUSION
In the earlier years, Materials Management was treated as a Cost Centre, since Purchasing Department was spending money on materials while Stores was holding huge inventory of materials, blocking money and space.
Today, organizations have realized that profits can be maximized mainly by two ways i.e. by either increasing output or by decreasing the inputs. Output can be increased by increasing the sales whereas inputs can be decreased by cutting down various manufacturing cost. Indian manufacturers have been working out on various strategies to face the intense competition in the market and to cut down manufacturing. Progressive Management has since recognized that Materials Management can provide opportunities to reduce manufacturing costs and can be treated as a Profit Centre. Organizations earn or loose large sums depending on how effective are their Materials Management.
In the current situation, the Selling Price is determined by the market forces and as such, Profit can be ensured only by reducing the Manufacturing Cost. In most of the organizations, materials cost contribute to 60% of manufacturing cost and as such there is a significant importance to Materials Management.
It is evident that the Materials Manager can make a direct contribution in increasing Profitability in the following ways:
a) By deciding inventory norms rationally and through control systems. Inventory Turnover can be maximized.
b) By proper planning and control of Spare parts, capacity utilization can be increased which will increase the turnover of Fixed Assets
c) By developing dependable sources and purchasing quality materials at competitive prices, which will increase Profit Margin and in turn ROI
d) By developing proper systems and control on issue of materials, the consumption can be minimized, resulting in reducing the materials cost, which will increase the Profit Margin.
Bibliography
Books:
1. S.A. Chunawalla (2009) Productions and operations management
Pp 517-519, Mumbai.
2. K. Shridhara Bhat (2007) Materials management 3rd edition,
Pp 2-5, pp 110-117.
Mumbai.
3. S. D. Aphale Materials management 3rd edition
Pp 72-75, Pp 88-90.
Web Sites:
www.rcfltd.com as visited on 21th June 2011 9.00 p.m.
www. Inventorysolutions.org/def_mat_flow html as visited on 22st June 2011, 6.00 p.m.
www.swazibusiness.com/wat/courses/stores & purchase html as visited on 27st June 2011, 6.15 p.m.
www. Inventorymanagment.com as visited on 27st June 2011, 6.20p.m.
www.en.wikipedia.org/wiki/purchasing as visited on 27th June 6.30p.m.
www.en.wikipedia.org/wiki/store manager as visited on 28th June 6.35p.m.
www.en.wikipedia.org/wiki/store as visited on 28th June 6.35p.m.
www.en.wikipedia.org/wiki/material handling as visited on 28th June 6.41p.m.
www.en.wikipedia.org/wiki/material flow analysis as visited on 28th June 6.43p.m.
www.businessdictionary.com/definition/materials-management.htm as visited on 28th June 9.00a.m
www.materialsmanagement.info/defscope/index.htm as visited on 28th June 9.p.m
www.inventorymanagement.com as visited on 29th June 6.41p.m
http://www.slideshare.net/Deepakpati/abc-analysis as visited on 29th June 6.41p.m
Thank you for sharing great information. If you want more information please visit us at:
ReplyDeleteMulti Tier Conveyor Manufacturer in Mumbai
Woderful Post. Thank you so much for your great information. Please visit us at:
ReplyDeleteBare Galavalume Metal Sheets
Inventory system and POS control software is a powerful,
ReplyDeletescalable Point-of-Sale and Inventory Management software solution with integrated e-commerce that allows you to maintain absolute control of retail of your business.
some tanning salons have high power uv lamps which can shorten the amount of time you need to expose yourself:: procurement quality control
ReplyDeleteThanks for sharing this update!
ReplyDeleteThat was very interesting
ISO 20000 Certification