my project (print)

8/2/2019 My Project (Print)

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A STUDY ON

INVENTORY MANAGEMENTWith reference to

ANDHRA PRADESH HEAVY MACHINERY AND

ENGINEERING LIMITED

A project report submitted in partial fulfilment of the

requirement for award of

MASTER OF BUSINESS ADMINISTRATION

Submitted

By

T. Chndra Babu

(Regd.No10H71E0009)

Under the Esteemed of guidance of

Mrs. Vasavi

Asst. Professor

DEPARTMENT OF MANAGEMENT STUDIES

Devineni Venkata Ramana & Dr. Himasekhar

MIC COLLEGE OF TECHNOLOGYKanchikacharla521180, Krishna District, Andhra Pradesh.

JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY

KAKINADA

2010-2012


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ACKNOWLEDGEMENT

The completion of this project makes me to recall with Gratitude several

persons who have extended their co-operation in one way or the other in this venture.

I am very much thankful to Mrs. Ranibhai, for his precious guidance and constant

support in completing my project in ANDHRA PRADESH HEAVY MACHINERY AND

ENGINEERING LIMITED, KONDA PALLI

I express my sincere thanks to Dr. T. NAGESWARA RAO, M.B.A head of

the Department of Management Studies.

I am grateful to my project guide Mrs. Vasavi for permitting me to undertake

this project.

My sincere thanks to Madam Mrs. Vasavi M.B.A, Asst professor of M.B.A,

department for his guidance & suggestions are during the course of study.


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DECLARATION

I hereby declare that this project report entitled A STUDY ON

INVENTORY MANAGEMENT WITH SPECIAL REFERENCE TO ANDHRA

PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED, KONDA

PALLI.

Has been prepared by me during the year 2010-2012 in partial fulfilment Of the

requirement for the award of MASTER OF BUSINESS ADMINISTRATION By

JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY KAKINADA.

I also declare that this project is the result of my own effort and that

it has been submitted to any university for the award of any other Degree or diploma.

Date : Signature of the student

T. CHANDRA BABU

Place : (Regd. No.10H71E0009)


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CONTENTS

CHAPTER-I

Introduction

Theoretical framework

CHAPTER-II

Industry Profile

Company Profile

CHAPTER-III

Research Methodology

CHAPTER-IV

Data analysis and interpretation

CHAPTER-V

Finding & suggestions

Conclusion

Bibliography


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CHAPTERI

INTRODUCTION


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INTRODUCTION

Finance is called The science of money. It studies the principles and the methods of

obtaining control of money from those who have saved it, and of administering it by those

into whose control it passes. Finance is a branch of Economics till 1890. Economics is

defined as study of the efficient use of scarce resources. The decisions made by business firm

in production, marketing, finance and personnel matters form the subject matters of

economics. Finance is the process of conversion of accumulated funds to productive use. It is

so intermingled with other economic forces that there is difficulty in appreciating the role it

plays.

MEANING AND DEFINITION OF FINANCE:Howard and Uptron in his book introduction to Business Finance defined, as that

administrative area or set of administrative function in an organization which relate with the

arrangement of cash and credit so that the organization may have the means to carry out its

objectives as satisfactorily as possible.

In simple terms finance is defined as the activity concerned with the planning, raising,

controlling and administering of the funds used in the business. Thus, finance is the activity

concerned with the raising and administering of funds used in business.

MEANING AND DEFINITION OF FINANCIAL MANAGEMENT:

Financial management is managerial activity which is concerned with the planning

and controlling of the firms financial resources. An entity whose income exceeds its

expenditure can lend or invest the excess income. On the other hand, an entity whose income

is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing

its expenses, or increasing its income. The lender can find a borrower, a financial

intermediary such as a bank, or buy notes or bonds in the bond market. The lender receives

interest, the borrower pays a higher interest than the lender receives, and the financial

intermediary earns the difference for arranging the loan.

A bank aggregates the activities of many borrowers and lenders. A bank accepts

deposits from lenders, on which it pays interest. The bank then lends these deposits to

borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity.
http://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_intermediary


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Finance is used by individuals (personal finance), by governments (public finance),

by businesses (corporate finance) and by a wide variety of other organizations, including

schools and non-profit organizations. In general, the goals of each of the above activities are

achieved through the use of appropriate financial instruments and methodologies, with

consideration to their institutional setting. Finance is one of the most important aspects of

business management and includes decisions related to the use and acquisition of funds for

the enterprise.

DEFINITIONS:

Howard and Upton define financial management as an application of general

managerial principles to the area of financial decision-making.

Weston and Brig hem define financial management as an area of financial decision

making, harmonizing individual motives and enterprise goal.

Financial management is concerned with the efficient use of an important economic

resource, namely capital funds - Solomon Ezra & J. John Pringle.

Financial management is the operational activity of a business that is responsible for

obtaining and effectively utilizing the funds necessary for efficient business operations- J.L.

Massie.

Financial Management is concerned with managerial decisions that result in the

acquisition and financing of long-term and short-term credits of the firm. As such it deals

with the situations that require selection of specific assets (or combination of assets), the

selection of specific liability (or combination of liabilities) as well as the problem of size and

growth of an enterprise. The analysis of these decisions is based on the expected

inflows and outflows of funds and their effects upon managerial objectives. - Phillippatus.

NATURE OF FINANCIAL MANAGEMENT:

The nature of financial management refers to its relationship with related disciplines like

economics and accounting and other subject matters. The area of financial management has

undergone tremendous changes over time as regards its scope and functions. The finance
http://en.wikipedia.org/wiki/Personal_financehttp://en.wikipedia.org/wiki/Public_financehttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Business_managementhttp://en.wikipedia.org/wiki/Business_managementhttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Public_financehttp://en.wikipedia.org/wiki/Personal_finance


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function assumes a lot of significance in the modern day s in view of the increased size of

business operations and the growing complexities associated thereto.

OBJECTIVES OF FINANCIAL MANAGEMENT:

Efficient financial management requires the existence of some objectives or goals

because judgment as to whether or not a financial decision is efficient must be made in the

light of some objective. Although various objectives are possible we assume two objectives

of financial managements. These are:

I. Profit Maximization

II. Wealth Maximization.

I. Profit Maximization:It has traditionally been argued that the objective of a company is to earn profit; hence

the objective of financial management is also profit maximization. This implies that the

finance manager has to make his decisions in a manner so that the profits of the concern are

maximized. Each alternative, therefore, is to be seen as to whether or not it gives maximum

profit.

However profit maximization cannot be the sole objective of a company. It is at best a

limited objective. If profit is given undue importance, a number of problems can arise. There

are-

a) The term profit is Vague. It does not clarify what exactly it mean. It conveys a different

meaning to different people. For example, profit may be in short term or long term period; it

may be total profit or rate of profit etc.

b) Profit maximization has to be attempted with a realization of risks involved.

c) Profit Maximization as an objective does not take into account the time pattern of returns.

d) Profit Maximization as an objective is too narrow.


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II. Wealth Maximization:The readers would appreciate that a company, which has profit maximization as its

objective, may adopt policies yielding exorbitant profits in the short run which are unhealthy

for the growth, survival and overall interests of the business. A company may not undertake

planned and prescribed shut-downs of the plant for maintenance, etc. for simply to maximize

its profits in the short run. If this reduces the life of a plant say by five years, the company is

ignoring maintenance only at its own peril although it may have greater profits in the short

run. Hence, it is commonly agreed that the objective of a firm should be to maximize its

value or wealth.

According to Van Horne value of a firm is represented by the market price of the

company common stock. Normally, this value is a function of two factors:

a) The likely rate of earnings per share of the company: and

b) The capitalization rate.

SCOPE AND SIGNIFICANCE OF FINANCIAL MANAGEMENT:

Financial Management is essential in all types of organization wherever the funds are

involved, whether profit oriented or non-profit oriented, in a centrally planned economy and

also in a capitalist set-up. It is a must for private and public enterprises. If Financial

Management of a company is bad, there is a danger of liquidation, even when the company

makes high profits.

Financial Management optimizes the output from the given input of funds. It attempts to

use funds in the most productive manner. If proper financial management techniques are

used, most of the enterprises can reduce their capital employed and improve their return on

investment.

The strength of the finance function determines the strength of other functions since

production, marketing etc., are possible only with sound financial management. Financial

Management plays crucial role in making the best use of resources.

Financial Management today covers the entire gamut of activities and functions given

below. The head of finance is considered to be important ally of the CEO in most

organizations and performs a strategic role. His responsibilities include:


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a. Estimating the total requirements of funds for a given period.

b. Raising funds through various sources, both national and international, keeping in

Mind the cost effectiveness;

c. Investing the funds in both long term as well as short term capital needs;

d. Funding day-to-day working capital requirements of business;

e. Collecting on time from debtors and paying to creditors on time;

f. Managing funds and treasury operations;

g. Ensuring a satisfactory return to all the stake holders;

h. Paying interest on borrowings;

i. Repaying lenders on due dates;

j. Maximizing the wealth of the shareholders over the long term.

k. Interfacing with the capital markets;

l. Awareness to all the latest developments in the financial markets;

m. Increasing the firms competitive financial strength in the market &

n. Adhering to the requirements of corporate governance.

ROLE OF FINANCIAL MANAGEMENT:

To participate in the process of putting funds to work within the business and to

control Their productivity; and

To identify the need for funds and select sources from which they may be

obtained. The functions of financial management may be classified on the basis

of liquidity, profitability and management.

1. LIQUIDITY:Liquidity is ascertained on the basis of three important considerations:

a. Forecasting cash flows, that is, matching the inflows against cash outflows;

b. Raising funds, that is, financial management will have to ascertain the sources from which

funds may be raised and the time when these funds are needed;

c. Managing the flow of internal funds, that is, keeping its accounts, with a number of Banks

to ensure a high degree of liquidity with minimum external borrowing.


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1. PROFITABILITY:While ascertaining profitability, the following factors are taken into account:

a. Cost control: expenditure in the different operational areas of an enterprise can be analyzed

with the help of an appropriate cost accounting system to enable the financial manager to

bring costs under control.

b. Pricing: Pricing is of great significance in the companys marketing effort, image and sales

level. The formulation of pricing policies should lead to profitability, keeping, of course,

the image of the organization intact.

c. Forecasting Future Profits: Expected profits are determined and evaluated. Profit levels

have to be forecast from time to time in order to strengthen the organization.

d. Measuring Cost of Capital: Each source of funds has a different cost of capital which must

be measured because cost of capital is linked with profitability of an enterprise.

2. MANAGEMENT:The financial manager will have to keep assets intact, for assets are resources which

enable a firm to conduct its business. Asset management has assumed an important role in

financial management. It is also necessary for the financial manager to ensure that sufficient

funds are available for smooth conduct of the business. In this connection, it may be pointed

out that management of funds has both liquidity and profitability aspects. Financial

management is concerned with the many responsibilities which are thrust on it by a business

failures, financial failures do positively lead to business failures.

The responsibility of financial management is enhanced because of this peculiar situation.

Financial management may be divided into two broad areas of responsibilities, which are not

by any means independent of each other. Each, however, may be regarded as a different kind

of responsibility; and each necessitates very different considerations. These two areas are:

The management of long-term funds, which is associated with plans for

development and expansion and which involves land, buildings, machinery,

equipment, transport facilities, research project, and so on;

The management of short-term funds, which is associated with the overall cycle

of activities of an enterprise. These are the needs which may be described, as

working capital needs.


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FUNCTIONS OF FINANCIAL MANAGEMENT:

The modern approach to the financial management is concerned with the solution of

major problems like investment financing and dividend decisions of the financial operations

of a business enterprise. Thus, the functions of financial management can be broadly

classified into three major decisions, namely:

(a) Investment decisions,

(b) Financing decisions,

(c) Dividend decisions.

The functions of financial management are briefly discussed as under:

1. INVESTMENT DECISION:The investment decision is concerned with the selection of assets in which funds will be

invested by a firm. The assets of a business firm include long term assets (fixed assets) and

short term assets (current assets). Long term assets will yield a return over a period of time in

future whereas short term assets are those assets which are easily convertible into cash within

an accounting period i.e. a year. The long term investment decision is known as capital

budgeting and the short term investment decision is identified as working capital

management. Capital Budgeting may be defined as long term planning for making and

financing proposed capital outlay.

In other words Capital Budgeting means the long-range planning of allocation of funds

among the various investment proposals. Another important element of capital budgeting

decision is the analysis of risk and uncertainty. Since, the return on the investment proposals

can be derived for a longer time in future, the capital budgeting decision should be evaluated

in relation to the risk associated with it.

On the other hand, the financial manager is also responsible for the efficient management

of current assets i.e. working capital management. Working capital constitutes an integral

part of financial management. The financial manager has to determine the degree of liquidity

that a firm should possess. There is a conflict between profitability and liquidity of a firm.

Working capital management refers to a Trade off between liquidity (Risk) and

Profitability. Insufficiency of funds in current assets results liquidity and possessing of

excessive funds in current assets reduces profits. Hence, the finance manager must achieve a


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proper trade off between liquidity and profitability. In order to achieve this objective, the

financial manager must equip himself with sound techniques of managing the current assets

like cash, receivables and inventories etc.

2. FINANCING DECISION:The second important decision is financing decision. The financing decision is concerned

with capitalmix, (financingmix) or capital structure of a firm. The term capital structure

refers to the proportion of debt capital and equity share capital. Financing decision of a firm

elates to the financing mix. This must be decided taking into account the cost of capital,

risk and return to the shareholders. Employment of debt capital implies a higher return to the

share holders and also the financial risk. There is a conflict between return and risk in the

financing decisions of a firm. So, the financial manager has to bring a trade off between

risk and return

by maintaining a proper balance between debt capital and equity share capital. On the other

hand, it is also the responsibility of the financial manager to determine an appropriate capital

structure.

3. DIVIDEND DECISION:The third major decision is the dividend policy decision. Dividend policy decisions are

concerned with the distribution of profits of a firm to the shareholders. How much of the

profits should be paid as dividend? i.e. dividend pay-out ratio. The decision will depend upon

the preferences of the shareholder, investment opportunities available within the firm and the

opportunities for future expansion of the firm. The dividend payout ratio is to be determined

in the light of the objectives of maximizing the market value of the share. The dividend

decisions must be analyzed in relation to the financing decisions of the firm to determine the

portion of retained earnings as a means of direct financing for the future expansions of the

firm.

FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT

One of the most important functions of the financial manager is to ensure availability of

adequate financing. Financial needs have to be assessed for different purposes. Money may

be required for initial promotional expenses, fixed capital and working capital needs.

Promotional expenditure includes expenditure incurred in the process of company formation.

Fixed assets needs depend upon the nature of the business enterprise whether it is a


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manufacturing, non-manufacturing or merchandising enterprise. Current asset needs depend

upon the size of the working capital required by an enterprise.

1) Determining the source of Funds

2) Financial Analysis

3) Optimum Capital Structure

4) C V P Analysis

5) Profit Planning and Control

6) Fixed Assets Management

7) Project Planning and evaluation

8) Capital Budgeting

9) Working Capital

10) Dividend Policies

11) Acquisitions and Mergers

12) Corporate taxation

1) DETERMINING SOURCES OF FUNDS:The financial manager has to choose sources of funds. He may issue different types of

securities and debentures. He may borrow from a number of financial institutions and the

public. When a firm is new and small and little known in financial circles, the financial

manager faces a great challenge in raising funds. Even when he has a choice in selecting

sources of funds, that choice should be exercised with great care and caution. A firm is

committed to the lenders of finance and has to meet terms and conditions on which they offer

credit. To be precise, the financial manager must definitely know what he is doing.

2) FINANCIAL ANALYSIS:It is the evaluation and interpretation of a firms financial position and operations, and

involves a comparison and interpretation of accounting data. The financial manager has to

interpret different statements. He has to use a large number of ratios to analyze the financial

status and activities of his firm. He is required to measure its liquidity, determine its

profitability, and assess overall performance in financial terms. This is often a challenging

task, because he must understand importance of each one of these aspects to the firm; and he

should be crystal clear in his mind about the purposes for which liquidity, profitability and

performance are to be measured.


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3) OPTIMAL CAPITAL STRUCTURE:The financial manager has to establish an optimum capital structure and ensure the

maximum rate of return on investment. The ratio between equity and other liabilities carrying

fixed charges has to be defined. In the process, he has to consider the operating and financial

leverages of his firm. The operating leverage exists because of operating expenses, while

financial leverage exists because of the amount of debt involved in a firms capital structure.

The financial manager should have adequate knowledge of different empirical studies on the

optimum capital structure and find out whether, and to what extent, he can apply their

findings to the advantage of the firm.

4) COST-VOLUME-PROFIT ANALYSIS:This is popularly known as the CVP relationship. For this purpose, fixed costs,

variable costs and semi-variable costs have to be analyzed. Fixed costs are more or less

constant for varying sales volumes. Variable costs vary according to sales volume. Semi-

variable costs are either fixed or variable in the short run. The financial manager has to

ensure that the income for the firm will cover its variable costs, for there is no point in being

in business, if this is not accomplished. Moreover, a firm will have to generate an adequate

income to cover its fixed costs as well. The financial manager has to find out the break-even-

point-that is, the point at which total costs are matched by total sales or total revenue. He has

to try to shift the activity of the firm as far as possible from the break-even point to ensure

companys survival against seasonal fluctuations.

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5) PROFIT PLANNING AND CONTROL:Profit planning and control have assumed great importance in the financial activities of

modern business. Economists have long considered the importance of profit maximization in

influencing business decisions. Profit planning ensures attainment of stability and growth. In

view of the fact that earnings are the most important measure of corporate performance, the

profit test is constantly used to gauge success of a firms activities. Profit planning is an

important responsibility of the financial manager. Profit is the surplus which accrues to a firm

after its total expenses are deducted from its total revenue. It is necessary to determine profits

properly, for they measure the economic viability of a business. The first element in profit is

revenue or income. This revenue may be from sales or it may be operating revenue,


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investment income or income from other sources. The second element in profit calculation is

expenditure.

This expenditure may include manufacturing costs, trading costs, selling costs, general

administrative costs and finance costs. Profit planning and control is a dual function which

enables management to determine costs it has incurred, and revenues it has earned, during a

particular period, and provides shareholders and potential investors with information about

the earning strength of the corporation. It should be remembered that though the

measurement of profit is not the only step in the process of evaluating the success or failure

of a company, it is nevertheless important and needs careful assessment and recognition of its

relationship to the companys progress. Profit planning and control are important be, in actual

practice, they are directly related to taxation. Moreover, they lay foundation of policies which

determine dividend, and retention of profit and surplus of the company. Profit planning and

control are an inescapable responsibility of the management. The break-even analysis and the

CVP relationship are important tools of profit planning and control.

6) FIXED ASSETS MANAGEMENT:A firms fixed assets are land, building, machinery and equipment, furniture and such

intangibles as patents, copyrights, goodwill, and so on. The acquisition of fixed assets

involves capital expenditure decisions and long-term commitments of funds. These fixed

assets are justified to the extent of their utility and / or their productive capacity. Because of

this long-term commitment of funds, decisions governing their purchase, replacement, etc.,

should be taken with great care and caution. Often, these fixed assets are financed by issuing

stock, debentures, long-term borrowings and deposits from public. When it is not worthwhile

to purchase fixed assets, the financial manager may lease them and use assets on a rental

basis. To facilitate replacement to fixed assets, appropriate depreciation on fixed assets has to

be formulated. It is because of these facts that management decision on the acquisition of

fixed assets is vital; if they are ill-designed they may lead to over-capitalization. Moreover, in

view of the fact that fixed assets are maintained over a long period of time, the assets exposed

to changes in their value, and these changes may adversely affect the position of a firm.


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7) PROJECT PLANNING AND EVALUATION:A substantial portion of the initial capital is sunk in long-term assets of a firm. The error

of judgment in project planning and evaluation should be minimized. Decisions are taken on

the basis of feasibility and project reports, containing analysis of economic, commercial,

technical, financial and organizational viabilities. Essentiality of a project is ensured by

technical analysis. The economic and commercial analysis study demand position for the

product. The economy of size, choice of technology and availability of factors favouring a

particular industrial site are all considerations which merit attention in technical analysis.

Financial analysis is perhaps the most important and includes forecast of cash in-flows and

total outlay which will keep down cost of capital and maximize rate of return on investment.

The organizational and man-power analysis ensures that a firm will have the requisite

manpower to run the project. In this connection, it should be remembered that a project is

exposed to different types of uncertainties and risks. It is, therefore, necessary for a firm to

gauge the sensitivity of the project to the world of uncertainties and risks and its capacity to

withstand them. It would be unjustifiable to accept even the most profitable project if it is

likely to be the riskiest.

8) CAPITAL BUDGETING:Capital budgeting decisions are most crucial; for they have long-term implications. They

relate to judicious allocation of capital. Current funds have to be invested in long-term

activities in anticipation of an expected flow of future benefits spread over a long period of

time. Capital budgeting forecasts returns on proposed long-term investments and compares

profitability of different investments and their cost of capital. It results in capital expenditure

investment. The various proposal assets ranked on the basis of such criteria as urgency,

liquidity, profitability and risk sensitivity. The financial analyzer should be thoroughly

familiar with such financial techniques as pay back, internal rate of return, discounted cash

flow and net present value among others because risk increases when investment is stretched

over a long period of time. The financial analyst should be able to blend risk with returns so

as to get current evaluation of potential investments.

9) WORKING CAPITAL MANAGEMENT:Working capital is rightly an adjunct of fixed capital investment. It is a financial

lubricant which keeps business operations going. It is the life-blood of a firm. Cash, accounts

receivable and inventory are the important components of working capital, which is rotating


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in its nature. Cash is the central reservoir of a firm and ensures liquidity. Accounts

receivables and inventory form the principal utility of production and sales; they also

represent liquid funds in the ultimate analysis. The financial manager should weigh the

advantage of customer trade credit, such as increase in volume of sales, against limitations of

costs and risks involved therein. He should match inventory trends with level of sales. The

uncertainties of inventory planning should be dealt with in a rational manner. There are

several costs and risks which are related to inventory management.

The risks are there when inventory is inadequate or in excess of requirements. The

former may hold up production, while the latter would result in an unjustified locking up of

funds and increase the cost of capital. Inventory management entails decisions about the

timing and size of purchases purely on a cost basis. The financial manager should determine

the economic order quantities after considering the relationships of different cost elements

involved in purchases. Firms cannot avoid making investments in inventory because

production and deliveries involve time lags and discontinuities. Moreover, the demand for

sales may vary substantially. In the circumstances, safety levels of stocks should be

maintained. Inventory management thus includes purchases management and material

management as well as financial management. Its close association with financial

management primarily arises out of the fact that it is a simple cash asset.


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THEORETICAL FRAM WORK

MEANING OF INVENTORY

Every enterprise needs inventory for smooth running of its activities; it serves as a

link between the recognition of a need and its fulfilment the greater the time lag. The higher

the requirements for inventory, the unforeseen fluctuations in demand and supply of goods

also necessitate the need for inventory. It also serves as a cushion for future prices

fluctuations. The simple meaning of inventory is stock of goods or list of goods the

word inventory is understood differently by various authors. In accounting language it means

stock o finished goods only, for a manufacturing concern it includes raw-materials, work-in-

progress, finished goods etc.

Inventories constitute the most significant part of current assets. Many companies

maintain 60% of current assets as inventories. Because of the large size of the inventories

maintained by the firms, a considerable amount of funds is required to be committed to them.

It is therefore absolutely imperative to manage inventories efficiently in order to avoid

unnecessary investment.

A firm neglecting the management of inventories will be failed in its long run

profitability and may fail ultimately. It is possible for a company to reduce its level of

inventories to a considerable degree within the range of 10 to 20% without any adverse effect

by using simple inventory planning and control techniques. The reduction in excess

inventories has a favourable impact on the profitability of the firm.

DEFINITION:

Policies, procedures, and techniques employed in maintaining the optimum number

or amount of each inventory item. The objective of inventory management is to provide

uninterrupted production, sales, and/or customer-service levels at the minimum cost. Since,

for many firms, inventory is the largest item in the current assets category, inventory

problems can and do contribute to losses or even business failures. It is also called inventory

control. See also inventory analysis.


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OBJECTIVES OF INVENTORY MANAGEMENT:

Minimize investment in inventories in order to maximize profits.

In order to minimize carrying costs and ordering costs of inventory.

To minimize obsolescence in stores.

To avoid excess and inadequate stocks.

To provide check against losses of materials.

To meet the demand for products efficiently

NATURE OF INVENTORIES:

Inventories are the stock of the product a company is manufacturing for sale and

components that make up the product. The various forms in which inventories may exist in a

manufacturing company are:-

Raw materials

Work-in-progress

Finished goods

RAW MATERIALS:

Raw materials are those basic inputs that are converted into finished product through

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

purchased and stored for future productions. A company should maintain adequate stock of a

continuous supply to the factors for an uninterrupted production. If it is not possible for a

company to produce raw materials whenever needed, a time lag exists between demand for

materials and its supply. Also there will be some uncertainly on procuring raw materials in

time on many occasions.

WORK-IN-PROGRESS:

The inventories are semi-finished products. They represent products that need more

work before they become finished products for sale. Work in progress inventory builds up


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because of production cycle. Production cycle is the time span between introduction of raw-

materials and emergence of finished products at the completion of production cycle. Still,

production cycle completes, stock of work in progress has to be maintained. Efficient firms

constantly try to make production cycles smaller by improving their production techniques.

FINISHED GOODS:

Finished goods are the completely manufactured products, which are for sale. Stocks

of raw materials and work in progress facilitate production, while stock of finished goods is

required for smooth marketing operations. Stock of finished goods has to hold because

production and sales are not instantaneous. A firm cannot produce immediately when

customers demand goods. Therefore to supply finished goods on a regular basis, their stock

has to be maintained for sudden demand from customers. In case the firm sales are seasonal

in nature, substantial finished goods should be kept to meet the peak demand. Failure to

supply products to customers would mean loss to firms sales to competitors.

The level of finished goods inventories would depend upon the co-ordination between

sales and production as well as on production time. The levels of three kinds of inventories

for a firm depend on the nature of business. A manufacturing firm will have substantially

high levels of three kinds of inventories while a retail of wholesale firm will have a very high

level of finished goods inventories and no raw materials or work in progress inventories.

Within manufacturing firms there will be differences.

INVENTORY DECISIONS:

In an inventory control situation, there are three basic questions to be answered. They

are:

How much order? That is to say, what is the optimal quantity of an item that

should be ordered whenever an order is placed?

When should the order be placed?

How much safety stock should be kept? Thus, what quantity of an

item in excess of the expected requirements should be held as buffer stock in

anticipation of the variations in its demand and/or the time involved in

acquiring fresh supplies.


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INVENTORY COSTS:

In determining optimal inventory policy, the criterion most often is the cost function.

The classical inventory analysis identifies four major cost components. Depending on the

structure of an inventory situation, some or all of these are included in the objective function.

1. PURCHASE COSTS:This refers to nominal cost of inventory. It is the purchase price for the items that are

bought outside sources, and the production cost if the items are produced within the

organization. This may be constant per unit, or it may vary as the quantity purchased/

produced increases or decrease. Quite often, situation is found when it may be stipulated

that, for example the unit price is rest 20 for an order unto 100 units and rest 19.50 if the

order is for more than 100 units.

If the unit cost is constant, it neither does nor affects the inventory control decisions

because whether all the requirements are produced just once or whether they are obtained in

instalments, the total amount of money involved would be the same. However we do

consider the quantity discounts when they occur, because they effect these decisions.

2. ORDERING COSTS/ SET-UP COSTS:This category of costs is associated with the acquisition or ordering of inventory.

Firms have to place orders with suppliers to replenish inventory of raw material. It includes

costs associated with the processing and chasing of the purchase order, transformation,

inspection for quality, expediting overdue orders and so on. The parallel of the ordering cost

when units are produced within the organization and the cost of acquiring materials consists

of clerical costs and costs of stationery. It is therefore called a set-up cost. The ordering cost

is likely and taken to be independent of the order size.

Therefore the unit ordering/setup cost declines as the purchase order/ production run

increases in size.

Ordering costs are costs involved in:

Preparing a purchase order


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Receiving, inspecting and recording the goods received to ensure both

quantity and quality.

3. CARRYING COSTS:They are involved in maintaining or carrying the inventory. It represents the cost that

is associated with storing an item in inventory. Carrying costs are also known as holding cost

or the Storage cost. The main components of this category of carrying costs are Storage cost

i.e. tax, depreciation and maintenance of the building, utilities etc. Insurance of inventory

against fire and theft deterioration in inventory because of pilferage, fire, technical

obsolescence, style obsolescence etc. Serving costs such as labour for handling inventory,

clerical and accounting costs.

The opportunity cost of funds consists of expenses in raising funds (interest of capital)

to finance the acquisition of inventory they would have earned a return. This is the

opportunity cost of funds or the financial cost. The carrying cost and the inventory size are

positively related and move in same direction. If the level of inventory increases, the

carrying costs also increased and vice-versa.

The sum of the order and carrying cost represents the total cost of the inventory. This

is compared with the benefits arising out of inventory to determine the optimum level of

inventory.

4. STOCK OUT COSTS:Stock out cost means the cost associated with not serving the customers. Stock outs

imply shortages. If the stock out is internal (i.e. in the production system) it would imply that

some production is lost, resulting in idle time for men and machines, or that the work is

delayed which might attract some penalty. While if the stock out is external, it would result

in a loss of potential sales and/or loss of customer good will. A shortage can evoke different

reactions from customers.

It would result in a back order or lost sales. In case of back order the sales are not

lose, they are only delayed. When the new shipment arrives, a customer who was denied

earlier would be immediately supplied the goods. But it would involve costs like expediting

costs, packing and shipment costs. On the other hand, when the sales are lost forever, it is


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difficult to assess the costs involved in terms of profit on potential sales lost, profit lost on

whatever the customer would have bought in all future periods in case he decided not to turn

to the organization for anything in future, a so forth. Such costs can be exorbitant indeed.

INVENTORY CONTROL TECHNIQUIES

Selective inventory control Inventory management techniques

1. ABC Analysis 1. EOQ (Economic order quqntity)

2. XYZ Analysis 2. Ordering cost

3. VED Analysis 3. Carrying cost

4. FSN classification 4. System of reordering

5. SOS classification

6. SDE Analysis

7. HML Analysis

INVENTRY CONTROL:

Inventory control renders to the process whereby the investment in materials and parts

carried in stock is regulated within predetermined limits set in accordance with the inventory

policy established by the management. The inventory control therefore forms established by

the management. The inventory control therefore forms the basis of material control. The

material control is activity oriented process whereas inventory control is the management

process and the later is the firms step to be followed by the former.

Inventory control refers to a planned method of purchasing and string the material at

lowest possible cost without affecting the sales scheduled. Inventory control therefore, is a

scientific method of determining what, when and how much to purchase and how much to

have to stock for a given period of time.

INVENORY CONTROL TECHNIQUES


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THE NEEDS FOR INVENTORY CONTROL:

The rewards of inventory control system cannot be over looked in the Indian context the

idea behind this is

Conserving valuable foreign exchange.

Release of capital.

Reduction in cost.

1. ABC ANALYSIS:The Analysis is a technique to analyze the items by their value and consumed more

frequently and some may be less frequently and some are consumed rarely. Depending upon

the rate of consumption and the value of the items are divided into three groups.

A-Class Items: These are most costly and will have high usage value. They constitute 10%

of items only but account for 70% of total annual consumption cost. A-class items only

frequently but in small quantity.

B-class Items: Items are will have medium usage value. They constitute nearly 20% of total

items accounting for 20% of total inventory investment.

C-class Items: Are called low usage value items. They constitute nearly 70% of items

accounting only for 10% of capital investment in inventory.

2. XYZ ANALYSIS:XYZ analysis is based on the closing inventory value of different items. Items, whose

inventory values are high, are classed as X-items, while those with low investment in themare termed as Z-items. Other items are the Y-items whose inventory value is neither too high

nor too low.

It can be easily visualized that the several types of analysis discussed are not mutually

exclusive. For example ABC and XYZ analysis may be combined to classify and control

depending on whether the items are AX, BY, CZ, AY of and so on. Similarly XYZFSN

combine classification exercise will help in timely prevention of obsolescence.


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3. VED ANALYSIS:In VED analysis, the items are classified on the basis of their criticality to the

production process or other service. In the VED classification of materials, V stands for

Vital items without which the production process would come to a standstill. E in the

system denotes Essential items whose stock out would adversely affect the efficiency of the

production system.

Although the system would not altogether stop for want of these items, yet their no-

availability might cause temporary losses in, or dislocation of production. The D items are

the Desirable items are required but do not immediately cause a loss to production. The VED

analysis is done mainly in respect of spare parts.

4. FSN ANALYSIS:Based on the consumption pattern of the items, the FSN classification calls for

classification of items are F-Fast Moving, S-Slow Moving and N-Noon Moving goods. This

speed classification helps in the arrangement of stocks in the stores and in determining the

distribution and handing patterns.

5. S-OS ANALYSIS:S-OS analysis is based on the nature of supplies, where in S-represents the Seasonal

items and OS represent the Off Seasonal items. This classification of items is done with the

aim of determining proper procurement of strategies.

6. S-D-E ANALYSIS:

This uses the criterion of the availability of the items. In this analysis S-stands forscarce items which are short in supply.

D-refers to the difficult items meaning the items that might available in indigenous market

but cannot procure easily. While E-represents easily available items even from local markets.

7. HML ANALYSIS:This is similar to the ABC analysis except that, in this analysis, the items are

classified on the basis of unit value rather than value. The items are classified accordingly as


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their cost per unit is H-high, M-medium and L-low. This type of Analysis is useful for

keeping control over materials consumption at their department levels.

ECONOMIC ORDER QUANTITY (EOQ):

One of the inventory management problems to be resolved is how much inventory should

be added when inventory is replenished. If the firm is buying raw materials, it has to decide

lots to in which it has to be purchased on cash replenishment.

If the firm is planning production as per schedule. These problems are called order

quantity problem and task of the firm is to determine optimum inventory level involves two

types of costs:

1. Ordering cost.

2. Carrying cost.

The economic order quantity is that inventory level, which minimizes the total of ordering

and carrying costs.

1. Ordering costs:The term ordering cost is used in case of raw materials (or supplies) and includes the

entire costs of acquiring raw materials. They include costs incurred in the following

activities. Requisitioning, purchasing, ordering, transport recieving, inspecting and storing

(store placement), ordering cost increase in proportion to the number of orders placed the

critical and staff costs, however, dont vary in proportion to the number orders placed, and

one view is that so long as they are committed cost they need not to be revoked in computing

ordering cost.

2. Carrying cost:Cost incurred for maintaining for given level of inventory are called carrying cast, they

include storage, insurance, taxes, deterioration and obsolesces.

Formula:

EOQ =


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System of Re-ordering

Re order point = S (L) + F where

S = Usage

L = Lead time needed to obtain additional inventory when order is placed.

R = Average quantity ordered

F = Stock out acceptance facts

The value of T the stock out acceptance facts depends on the stock out percentages rates

applicable to the firms and the probability distribution of usage. If the usage rate has a poison

distribution the value of F for various stocks out %.

METHODS OF VALUATION:

The government of India has given sufficient flexibility for companies to introduce

scientifically developed methods of valuation of their stocks. In order to prevent

malpractices, it has been stipulated that such methods must be studied and approved by the

Board of Directors, and must be followed for a minimum prior of three years. The various

methods of valuation available are given below.

First in first out [FIFO]

Last in first out [LIFO]

Periodical Simple Average Method

Normal cost/ Standard cost method

Weighted average method

Replacement price method

A.FIFO:In this case it is assumed that the stores follow the principal that oldest stock issued

first so that stock left out is from the later arrivals. Hence all issues are assumed to have come

out from older stocks. These are valued at old price. The cumulative value of stock out will


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give the net value of the existing stock. Under this method it is assumed that the materials or

goods first received arc the first to be issued or sold. Thus according to this method, the

inventory on a particular date is presumed to be composed of the items which were acquired

most recently.

Advantages:

The FIFO method has the following advantages:

It values stock nearer to current market prices since stock is presmed to be

consisting

The most recent purchases

It is based on cost and therefore, no unrealized profit enters into the financial

accounts of the company.

The method is realistic since it takes into account the normal procedure of

utilizing or selling those materials or goods which have been longest in stock.

Disadvantages:

The method suffers from the following disadvantages

It involves complicated calculations and hence increase the possibility of

clerical errors.

Comparison between different jobs using the same type of materials becomes

sometimes difficult. A job commenced a few minutes after another job may

have to been an entirely different charge for material because the first job may

have to bean a entirely different charge for materials because the first job

completely exhausted the supply of materials of the particular lot.

The FIFO method of valuation of inventories is particularly suitable in the following

circumstances

The materials or goods are of a perishable nature.

His frequency of purchases is not large.

There are only moderate fluctuation in the prices of materials or

Goods purchased Materials are easily identifiable as belonging to a particular

Purchase lot.


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B.LIFO:Here stores are issued from the last stock. This means issues have taken place from

later arrivals. Hence all issued are valued as per the price of the latest arrivals to compute

value of stock left in stores. This method is based on the assumption that last item of materials

or goods purchased are the first to be issued or sold. Thus, according to this method, inventory

consists of items purchased at the earliest cost.

Advantages:

This method has the following advantages,

It takes into account the current market conditions while valuing materials

issued to different jobs or calculating the cost of goods sold

The method is based on cost and, therefore, no unrealized profit or loss is

made on account of use of this method.

The method is most suitable for materials which are of a bulky and non

perishable type.

C.PERIODICAL SIMPLE AVERAGE:In this case after each receipt of material, adding the cost of materials in hand with the

cost of materials received and dividing the same by the total number of units calculate the

average cost. This process is repeated every time new items are received. This average cost is

used for computing the value of items issued and value of items remaining in the stock.

D.NORMAL COST / STANDARD COST METHOD:This method is mostly used for items manufactured in house. Here the average of a

certain lot is calculated and used as cost of items issued. Since this method is used for items

manufactured, one can use standard costing method also for valuation of such stocks.

E.WEIGHTED AVERAGE METHOD:This method is used when the quantity and prices of items vary widely from each

purchase. In this case, the weighted average price is calculated for each item. This price is

used for computing the value of items and those remaining in stock.


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F. REPLACEMENT PRICES METHOD:This is a modern method developed by George Tarboro. However without application

it is difficult to price each item. This has not yet become popular. FIFO, LIFO and Weighted

Average methods are popular and acceptable to the government tax authorities.

SELECTIVE INVENTORY CONTROL:

APHMEL has to maintain several types of stores and spares inventories. It is not

desirable to keep some degree of control on all items. The firm should pay maximum type of

attention to those times whose value highest. They should therefore, classify inventories to

which items should receive the most effect in controlling.

DIFFERENT TYPES OF INVENTORY CONTROLS OF THERE USES:

Types of control Criteria Main use

ABC

Also know always better

control or pardons law.

Value of consumption

nothing to do with the

unit value of item.

To control raw materials

components and work in perseveres

in nominal course of business.

HML

High, Medium, Low

Unit price of the

materials this opposite of

ABC or does not take

consumption account

Mainly to control purchases.

VED

Vital, Essential, Desirable.

Critically of the item. To determine the sock levels of

spare parts.

SED

Scarce, Difficult, and easy

to obtain.

Purchasing problems

regard to availability.

Leads time analysis and purchasing

strategies.

G.O.L.F

Gout, open market, Local

and Foreign source.

Source of supply

materials.

Procurement strategies.


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F.S.N.C

Fast moving, slow moving,

non- moving.

Consumption pattern of

the component.

To control obsolence.

S.OS

Seasonal and Off seasonal

Nature of supplies and

seasonally.

Procurement and holding strategies

for seasonal items like agricultural

products.

XYZ

High, Medium, Low

inventory value items.

Inventory value of items

in sale.

To review the inventories, their

uses etc at scheduled intervals.

INVENTORY CONTROL:

APHMEL has separate section called ICC through SAP system. The ICC will control the

whole stock proceeding and the main objective is to minimize the orders on the bases of

consumption pattern and its lead time. By SAP system ever thing will be disclosed in the

company i.e. issuing and receipts and pricing orders of that on the basis of available material

in the stirs and consumption during the year base on lead time they will approach purchase

department. They minimum lead time of consumables is one month on the basis of safety

stock.

GOODS RECEIPTS NOTE:

Cost center

Auditing

Requisition required

Purchasing dept

Quotation raised

Goods purchased

Here APHMEL is purchasing dept are divided in to 2 groups. These two groups are each

troop deal with some items of range of items, who loads accountability and responsibility.

When the order is made items are purchased stores A/c is field. Patria; A/c is credited.


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CONTROAL TECHNIQES USED IN APHMEL:

FSN analysis (fast, slow, non moving).

ABC analysis

JIT (Just in time)

EOQ (Economic Order Quantity)

MATERIAL GROUP DESCRIPTION IN APHMEL

Material code Description

01 Raw material

02 Chemicals

03 Dyes

04 Work shop spares

05 Plant and machinery

06 Rubber tires/compiling

07 Automobile spares

08 Plant and machinery (unit-II)

09 General items

10 Chain pull blocs, hoists EDT, crane

11 Electrical spares

12 Furniture and fixers

13 Tools

14 Instrumentation

15 Laboratory

16 Fire fighting

17 Pipes & fittings


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18 Packing material

19 Fuel

20 Air compressor spares

21 Wits & felts

22 Bearings

23 Medical

24 Bolts & nuts

25 Instrumentation

26 Water, treatment plant spares

27 Pulp mill spares

28 Welding material

29 Iron & steel

30 Valves & spares

31 Casting roads, shafts, bushes

32 Pump spares/ gear box spares

33 Oils & lubricants

34 Paints/ brushes

35 Building material

36 Chains, sprockets, gears

37 Belting

ABC ANALYSIS:

ABC Analysis is a technique of exercising selective control. Over inventory items. The

technique is based on this assumption that a company should not exercise the degree of

control on items which are less costly.


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The smaller numbers of high consumption value item are called an item. The medium

consumption value items are B items.

The largest number of least consumption items is C items classification. The 12000 items

only 8000 items are analyzed into A-B-C classification.

But this industry follows the techniques FNS analysis. APHMEL once up on an item this

technique is using. But ABC Analysis is not applicable in APHMEL.

JIT (JUST IN TIME INVENTORY):

This was originally development by twitchy okno of Japan. Simply implies that the firm

should maintain a minimum level of inventory and rely on supplies to provide parts andcomponents just in time to meet its assembly requirements. The just in time inventory

system while conceptually very appealing is difficult to implement because it involves a

significant changes in the total production and management system.

The JIT is the technique specially adopted by APHMEL for the fulfilment of requisition of

spare parts through baring bank system. By this system there is no need to invest money o

investor. The fulfilment will be within days of the need the data about the needs of spares are

required for this technique. The data firm purchasing consumption, saving reordering is

required. In out DPMI, there is a contract with ILC (irrevocable letter of credit) authorized

dealer, who maintains some stock and fulfils the recruitment when every occurs by the

APHMEL.

EOQ (Economic order quantity)

EOQ =

where

A=Annual consumption

O=Ordering cost

C=carrying cost


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CHAPTER - II

INDUSTRY PROFILE & COMPANY PROFILE


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INDUSTY PROFILE

INTRODUCTION:-

Engineering industry comprises of comical, civil, industrial and mechanical engineering

divisions, where civil engineering division basically concerned with the activities like

planning, construction, designing or manufactured of structure. The chemical industry is

concerned with engineering activities like construction, design and operation of plants and

machinery of chemical products like drugs, synthetic rubber etc. Electrical engineering

primary deals with all engineering activities like manufacturing of devices for generation of

electricity of designing devises for transmission of electricity. This electrical engineering

division is also concerned with the designing and manufacturing of electronic devices

including computers and its accessories. The mechanical engineering division specifically

deals with designing and manufacturing of power plants, engines or related devises and the

industrial engineering is principally concerned with the processing also comprise of fields

like Aeronautical engineering where engineering supervision designing or aircraft, missiles

etc.

Performance of the engineering sector is linked to the performance of the end user

industries for this sector. The user industries for engineering include power utilities, industrial

majors (refining automotive and textiles), government (public investment) and retail

consumers pumps and motors. Many factors contribute to growth of engineering sector in

India.

THE KEY GROWTH DRIVERS ARE:

The growth of the key end user sector in India. For example, the domestic sales of

automobiles have grown at the compounded annual growth rate of around 14 per cent overthe past four year.

Governments emphasis on power and construction sector has increased for the past few

years and thus increasing the demand for capital goods.

Further, India is being preferred by global manufacturing companies as an out sourcing

destination due to its lower labour cost better designing capabilities. Engineering companies

thus have a huge potential for direct exports and outsourcing.


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The combination of AABs global know-how and Indias highly qualified people enables

the Indias subsidiary to produce world class products. The Indian subsidiary is a global

factory or high voltage 72.5 KV circuit breakers, medium voltage outdoor circuit breakers

and magnetic actuators. It also exports several other products including transformers.

The Indian engineering industry is highly competitive with a number of players in each

segment. A large number of multinational companies such as commons, ABB and Alfa level

have also entered the industry. The intense competition has led to Indian players developing

improved capabilities that have made them more competitive.

HISTORY OF ENGINEERING:

The Indian remaindering industry can be traced roughly to mud 19th

centuries stating with

waging building and structural activities. However, it developer in the real sense only after

impedance it gained momentum after the adopting of props Mahanoy his model of heavy

capital goods growth strategy in the second five year pan and subsequent pans. It also

exporting engineering goods like.

The country is currently producing power generation transmission and distribution

equipment.

Plant and machinery for steel.

Chemical and fertilizers.

Cement plants.

Sugar.

Paper machinery.

Electrical and construction machinery.

Machine tools railway rolling stock. Earth moving equipment.

A large number of other industrial goods and consumer durables

GOVERNAMENT MEASURES:

A welcome policy change towards giving a boost in the machine tools production was the

inclusion of machine tools in appendix 1 of the industrial policy announced in April 1983.

This is thrown open machine tools manufacturer or mort and fear companies provide the

particular item is not reserved for small scale industries.


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In addition the important policy of 1983-1984 was designed to help machine tools

production. The provision included.

Those small scale units which export at least 25% of their put and improve proto

types up to Rs.100000.

All scheduled industries will be the facility of drawings and designs once in a year for

neither value nor exceeding Rs.1000000.

A technology development fund was created to cover foreign exchange requirement

for import if balancing equipment technical know -how foreign consultancy services

etc.

All the steps are designed to encourage fresh invested expansion and modernization

in the domestic machine tool industry.

ENGINEERING THE SECOND INDUSTRIAL REVOLUTION:

The second industrial revolution, symbolized by the advent of electricity and mass

production, was drive by many branches of engineering, chemical and electrical engineering

developed in the rise of chemical, electrical and telecommunication industries. Machine

engineers tamed the peril off ocean exploration. Aeronautic engineering turned the ancient

dream of flight into a travel convenience for ordinary people.

INDIAN AUTOMOTIVE INDUSTRY OBJECTIVES ARE:

Exalt the sector as a lever of industrial growth and employment and to achieve a high

of addition in the country.

Promote a globally competitive automotive industry and emerge as global source for

auto components.

Small, affordable passenger cars and a key center for manufacturing tractors and two

wheelers in the world.

Ensure a balanced transition to open trade at a minimal risk to the Indian economy

and local industry.

Conduce incessant modernization of the industry and facilitate indigenous design,

research and development.

Sector Indias software industry into automotive technology.

Assist development of vehicles propelled by alternative energy sources.


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ABOUT HEAVY ENGINEERING INDUSTRY:-

HEAVY INDUSTRY:

Heavy industry in India comprised of the heavy engineering industry, machine tool

industry, heavy electrical industry, industrial machinery and auto industry. These industries

provide goods and services for almost all sectors of the economy, including power, rail a road

transport, the achieve building industry caters the requirements of equipment for basic

industries such as steel ferrous metals, fertilizers, refineries, petrochemical, shipping, paper,

cement, sugar, etc.

PERFORMANCE OF INDUSTRY:

The industrial sector recorded a growth of 9.2%(measure over and above the growth of

industrial production)during the period April Nov 2009-10 over and above the growth of

11.6% achieved in 2008-09. Capital goods sector, which posted a robust growth of 17.4% in

April Nov 2008-09, has maintained its growth momentum during the current year a well.

According to the index of industrial production, capital goods sector posted a growth of

20.8% during April -Nov 2009-10 as compared to April-Nov 2008-09 are given in the table

below.

HEAVY ELECTRICAL INDUSTRY:

Heavy electrical industry encompasses import industry sectors including power

generation, transmission and distribution equipment. This also cover turbo generation,

boilers, turbines, transformers, switchgears and relays, the performance this industry is

closely linked to the power programmer of the country, the government of India has an

ambitious mission of power for all 2012 as per working group on power of 11th pan, a

capacity addition of 72000 MW is required. To reach transmission network and inter regional

capacity to transmit power would be essential.

The technology available in India is almost at par with that in the international market

barring few areas of high voltage lines. However, items like CRGO steel and amorphous

cores for low loss transformers are being imported.

The present buoyancy in the India economy would creator demand for electrical products

through industrial growth and general economic development. The power sector reforms willcreature large business over power sector equipment manufacturers and service providers, in


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the current favourable market scenario. The electrical industry can certainly look forward to

growth.

TURBINES AND GENERATOR SETS:

The capacity established for manufacturer of various kinds of turbines. Such as steam

and hydro turbines including industrial turbines, is more than 7000 MW per annum. Apart

from BHEL which has largest installed capacity. There are other units in the private sector

who are manufacturing turbines for power generation and industrial use. The manufacturing

range of BHEL includes streams turbines, boilers, and generators up to 500 MW for utility

and commercial steam cycle application and is capable of manufacturing steam turbines with

super critical steam cycle paramours and matching generation up to 660 MW size, facilities

are also available for 1000 MW unit size, BHEL has the capacity to manufactured gas

turbines up to 260 MW.

The A.C generators industry in India is adequately catering to the alternative power

requirement of large and small industries, commercial establishment and domestic

manufactures in India are capable of manufacturing A.C generator right form 0.5 KVA and

above with specified voltage rationed the each part and import figures for the year 2006-07

were around RS.2100crore and Rs.3069 crore respectively.

BOILERS:

Boilers is a pressurized system in which water is vaporized to steam, the desire end

product, but heat transferred form a source of higher temperature usually the products of

combustion form burning fuels. Steam thus generated may be used directly a mechanical

work, which in turn may be converted to electrical energy. Although other fluids are

sometimes used for this purpose, water is by far the most common. BHEL is the largest

manufacturer of boilers in their country accounting of around two thirds of market share. It

has the capacity to manufacture differently types of boilers including spare thermal boilers,

utility boilers and other industrial boilers. The export and import figures for the year 2007-08

were Rs.395crore and Rs.98core respectively.

TRANSFORMERS:

A transformer is a voltage changer. The health of transformer industry depends largely

on the power generation and transmission sector. The major users of this industry are the state


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elect city board and industries. The transformer industry in India has developed for over 50

years and has a well matured technology vase. It has the technology to manufacture wide

range of power transformers, distribution a transformer and special transformer for welding

traction and furnaces etc. energy efficient transformers with low losses and low noise level

are also being developed to meet international requirement the expert and import figures for

the year 2009 were Rs.2923crore and Rs.2523crore respectively.

SWITCH GEAR AND CONTROL GEAR:

Continuous power supply is requirement not only for industry but also for every other

use of electricity. And control gears are indispensable both in manufacturing entire range of

circuit breaker form bulk oil, minimum oil. Air blast, vacuum to sculpture hexafluoride as per

standard specification. It is estimated that the present size of the switchgear market than Rs.

4000crore. The export and import figures for the year 2009-10 were Rs.1462crore and

Rs.2322crore respective

HEAVY ENGINEERING INDUSTRY

TEXTILE MACHINERY:

There over 600 units engaged in the manufacture of textile machineries, theircomponents, Accessories and spares. And out if these about 100 unities are manufacturing

the complete textile machinery. The range includes textile machinery required for sorting.

Cording processing of yarns/fabrics and waving. The industry is gearing item to avail the

export target of garment manufactures post multiform agreement (MFA). With a capital

investment of Rs. 1500crore and installed capacity of Rs. 3050crore per annum.

CEMENT MACHINERY:

Cement plants based on dry processing and recalculation technology for capacities up to

7500 TPD are being manufactured in the country. Modern cement plants are designed for

zero downtime. High product quality and better output with minimum.


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Import/export figures for the industry are as under:

(Rs. In crore)

Year 2007-08 2008-09 2009-10

Import 1259 905 2511

Energy consumed per unit of cement production etc. at present, there are 18 units in the

organizes sector for the manufacture of completer cement plant machinery with an installed

capacity of around Rs.699crore annum the industry is fully capable to meet the domestic

demand.

SUGAR MACHINERY:

Domestic manufactures occupy predominant position in the global scenario and are

capable of manufacturing from con dept of commissioning stager sugar pants of latest design

for a capacity up to 10000 TCD (tones crushing per day) there are presently 27 units in the

organized sector for the manufacture of complete sugar pants and components with an

installed capacity if around Rs. 200crores per annum.

RUBBER MACHINERY:

There are at present 19 units in the organized sector for the manufacture of rubber

machinery mainly required for tire tube industry. The range of equipments manufactured the

county included inter-mixer, tire curing pressed tube splices bladder curing presses. Tube

splices tire moulds tire building machinery. Torment services, bias cutters, rubber injection,

moulding machine, bead wire etc.


(Rs. in crore)

Year 2007-08 2008-09 2009-10

Import 36.75 12.02 34.79

Export 46.15 50.32 98.16


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METERIALS HANDLING EQUIPMENT:

The range of equipment manufactured includes crushing and screening plants.

Cole/ore/ash handing plants and associated equipment such as stackers feeders etc. catering

to the growing and rapidly changing needs of the core industries such ads coal, cement

power, port, mining fertilizers and steel plants.

There are 50 unities in the organized sector for the manufacture of material handling

equipment. Besides, there are number of units operating in the small-scale sector. The

industry is self sufficient in meeting domestic demand and is also capable of meeting global

competition.


(Rs. In crore)

Year 2007-08 2008-09 2009-10

Import 261.44 545.54 1552.97

Export 80.16 77.914 124.27

OLD FIELD EQUIPMENT:

The petroleum industry in India is undergoing a major change. With the ongoing process

of liberalization, the industry has been thrown open for private sector in all major areas of

exploration. Production, refining and marketing, and this have resulted in increased demand

for the oil field find related equipment.

Domestic production covers manly the on-shore drilling equipment. Under of offshore

drilling only offshore platforms and some other technological structure are being produced

locally. The major producers of these equipments are BHEL, Hindustan shipyard,

Meagan dock and Larsen &toubro.


(Rs. In crore)

Year 2007-08 2008-09 2009-10

Import 638.20 352.84 411.73

Export 300.47 71.87 72.51


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METALLURGICAL MACHINERY:

Metallurgical machinery includes equipment for mineral beneficiations are dressing size

reduction tee plant equipments. Foundry 30 Indian public sectors aiming global heights

equipment furnaces. At present there are 39 units in the organized sector engaged in the

manufacture of various typed of metallurgical machinery. The existing production capacity

into the county is sufficient to meet the demand of this equipment in the country.

Indigenous manufacturers are in position to supply of the equipment for still pants e.g.

blast footraces sinter plants. Coke ovens, tell melting shop equipment continuous casting

equipment, rolling mills & finishing line.


(Rs. In crore)

Year 2007-08 2008-09 2009-10

Import 454.40 1200.65 1843.27

Export 370.70 535.04 643.68

MINING MACHINERY:

The major mining equipment are long wall mining equipment, road header, side

discharges loader(SDL), haulage winder ventilation fan, load haul dumper (LHD),coal cutter,

conveyors, battery locos, pumps, friction prop, etc. at the present are 32manufactures the

equipment of various types, out of these, 17 units manufacture underground mining

equipment. Majority of the mining industry is being met by the indigenous manufactures.


(Rs. In crore)

Year 2007-08 2008-09 2009-10

Import 39.01 41.99 76.71

Export 1.55 5.90 48.47


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DAIRY MACHINERY:

At present there are 16 units in the organized sector, both in private and public sector,

manufacturing dairy machinery equipment such as evaporators, milk refrigerates and storage

tanks, milk and cream deodorizers, centrifuges, clarifiers, agitators, homogenizers, spray

dryers and heat exchangers, small scale units are also contributing to the indigenous

production. The spray dryers, plate type heat exchanger and other core equipment on the

equipment because the presence of a by micro crevices resulting from inadequate polish tends

to be the incubation a breeding ground for the bacteria


(Rs. In crore)

Year 2007-08 2008-09 2009-10

Import 21.05 52.36 68.97

Export 8.08 5.95 10.27

MACHINE TOOLS:

Machine tool industry is in a position to export general purpose and a standard, machine

tool to even industrially advanced countries. During last four decades, the machine tool

industry in India has established a sound base and there are around 160 machine tool

manufacturers in the organized sector as also around 400 units in the small ancillary sector.

The India industry has good design capability and the production of CNS machines has

increased to about 4000 no. per annum.

Indian machine tools are manufactured to the international standard of quality/ precision

and reliability. A number of collaboration have also been approved for bringing in the latest

technology in this field of modern machine tools and the industry is now exporting

conventional as well as NC/CNC high-tech machine tools. In the field of R&D, central

manufacturing technology institute, Bangalore has been doing research for more appropriate

designed machine tools.


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PERFORMANCE OF THE INDUSTRY FORTING THE LAST THERE YEARS IS

TABULATED BELOW

Year 2007-08 2008-09 2009-10

Production 1089.04 1342.00 1719.00

Import 1820.83 2899.00 4656.00

Export 52.61 50.00 73.00

INTERNATIONAL COOPERATION:

The department endeavours to promote international co operational in the field of heavy

machineries, heavy industries, capital goods and auto sectors and keeps itself abreast with

WTO matters, bilateral/ multilateral agreements and other issue concerning the department.

To promote economic co-operation at international level, meetings are arranged at senior

officers/ minister level.

India has free trade agreements (FTA) with various organizations/ counties such as

ASEAN, BIMSTEC, Singapore, Thailand and EU etc. the department protects the interests of

concerned industries by suggesting the retention of relevant items in the negative list.

Recently suggestions were made for retention negative list free trade area (FTA) with EU;

ASEAN; India, Thailand FTA; and India-Singapore comprehensive economic agreement

(CECA). The views on machinery and auto sector for the meeting of the meeting of

committee on rules of origin (ROO) in WTO, Geneva have also been conveyed to the

department of commerce.

A formal indo-Czech joint working group (JWG) has been constituted in terms of

protocol of indo-Czech joint committee meeting (JCM) of department of commerce and joint

secretary, heavy industries as co-chairman of JWG from Indian side.

A beginning has been made and heavy engineering corporation Ltd., Ranchi (HEC), has

sought assistance from M/s Victories Heavy Machinery. Prague for submitting offer to

Bokhara steel plant against their tender for manufacture and supply of 8 Nos. Ladle cars.

HEC will also be participating in various tenders in India on the basis of technology and

association of companies of Czech Republic via M/s Skoda machine tools, M/s TOS

Varnsdorf and M/s Unexon, on case to case basis and their association will be sought before

submitting the bids.


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ENGINEERING EXPORTS:

The engineering industry has been making the export front from around Rs.21crore in

1966. The value of exports of engineering goods rose over Rs.105crore by the end of 60s

and continued to show and encouraging trend during to 70s.

In the period 1971-1975 the value of exports more and trebled and nearly doubled in

the next 3 years 1982-83 Rs.1250crore was reached.

The engineering industry has emerged with the leading foreign Exchange Earners of

the country.

Project Exports;

Though Indian Projects are exports has been successful. It is felt that the level of exports

dont match our capabilities. India has a vast pool of trained man power.

The project exports full under the following three categories:

Turnkey Projects.

Engineering Contacts.

Consultancy Service.


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COMPANY PROFILE

APHMEL stands for Andhra Pradesh Heavy Machinery and engineering Ltd. This is

located Kondapalli a small village famous for toys and which is located on the back of river

Krishna. Professionalism is the hallmark this company from the beginning.

HISTIORY OF APHMEL:

Andhra Pradesh Heavy machinery and engineering Ltd was incorporated in September

1976 with the main objective of designing developing and manufacturing the entire range of

castings of all type and Heavy Industrial Machinery, Machines tools etc.

The company becomes a government company on 8th

Nov 1983. The factory was

dedicated to the people by the Honorable chief minister of Andhra Pradesh Mr . N.T.Rama

Rao.

The production started in October 1983 with an installed of 3500 tons per annum at cost

of 1395.69lakh. 1st

phase for total outlay of 13601lakh is financed by

IDBI Rs.507 LAKH

ICFI

Rs.200 LAKH

ICICI - Rs.100 LAKH

In addition to the equity capital of 485lakhs, machines were purchased from famous

manufacturing like HMT (HINDUSTAN MACHINES AND TOOLS) and HEC

(HINDUSTAN ENGINEERING COMPENY).

LOCATION:

APHMEL is located at kondapalli 23kms from Vijayawada the project site is rightly

chooses in 2006 acre and with all infrastructure facilities and easily accessible by rail, road

and adequate water facilities power supply.


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THE FUNDS STRUCTURE OF APHMEL:

Singareni collieries co Ltd 60%

Andhra paper industrial development corporation Ltd (APIDC) 10%

Private share 30%

OBJECTIVES OF APHMEL:

APHMEL have to design, develop, manufacture and market Heavy industrial machinery,

plant and equipment including components and spares and service of poorer, coal mining,

steel chemical, petrol chemical, shipping and engineering industries etc.

To utilize the capacities installed effectively.

To maintain and develop technological leadership.

To increase the profile of the through proper export.

To develop the skills of the employees through proper training and

development programs.

To develop components managerial personal capable of meeting projects and

growth objections of company.

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