1

Project Report On

Warehouse Management and Implementing the Best Practices in

Cairn Energy India

At

CAIRN ENERGY INDIA PTY LIMITED

SYANAM

Submitted by

S. KANDHA HARI SHANKAR

M.B.A (INTERNATIONAL BUSINESS), Registration No - 1226111117

In Partial Fulfilment of Requirement for the award of the Degree of

Masters of Business Administration (IB)

2011-13

Under the guidance of

Faculty Guide Faculty Guide Company Guide

Dr. V.L.Rao, Dr. Ch. Venkataiah, Mr.K.K.V. Krishna

Professor, GSIB Associate Professor, GSIB Cairn Energy India

GITAM SCHOOL of INTERNATIONAL BUSINESS

GITAM CAMPUS, RUSHIKONDA VISAKHAPATNAM – 530045, ANDHRA PRADESH, INDIA

2

DECLARATION

I, hereby declare that this project titled “Warehouse management & implementing the best

practices in Cairn Energy India” at CAIRN ENERGY INDIA PTY Ltd, Syanam is

prepared by me during the academic years 2011-12 under the guidance of my faculty guide

Dr.V.L.Rao, Professor, GSIB, and Dr.CH.Venkataiah, Associate Professor, GSIB.

I also declare that this project has been conducted in partial fulfilment of the requirement for

the degree of Masters in Business Management, International Business 2011-13 offered by

GITAM School of International Business, GITAM University. This project is not based on

any previously submitted project for the award of any degree or diploma offered by any

University. It is a result of my own efforts and hard work.

Date: 2/07/2012 S. KANDHA HARISHANKAR

Place: Visakhapatnam M.B.A (IB)

3

ACKNOWLEDGMENTS

I would like to take this opportunity to acknowledge and thank all those who have assisted

me with this project. The project report could not have been prepared, if not for the help and

encouragement from various people.

I would like to express my gratitude to Mr.K.K.V. Krishna (Cairn Energy India pty ltd) for

helping me understand the complete warehouse & procurement process. The valuable and

timely information and suggestions provided by him helped me make an exhaustive report.

I would like to extend my warm gratitude to my faculty guides Dr. V.L.Rao, Professor,

GITAM School of International Business and Dr. CH.Venkataiah, Associate professor,

GITAM School of International Business for their valuable support, guidance and planned

approach which were indispensable for giving the project its right direction. And last but not

the least I thank my family and friends without whose support the project would have been a

distant reality.

4

TABLE OF CONTENTS

EXECUTIVE SUMMARY 05

CHAPTER-1

INTRODUCTION 07

OBJECTIVES OF THE STUDY 08

CHAPTER-2

INDUSTRY REVIEW 09

COMPANY REVIEW 14

OPERATIONS IN CAIRN 16

REVIEW OF LITERATURE 20

CHAPTER-3

INVENTORY MANAGEMENT 22

WAREHOUSE UTILIZATION 26

DATA ANALYSIS:

ABC ANALYSIS 28

FSN ANALYSIS 30

VED ANALYSIS 35

CHAPTER-4

SUMMARY 37

OBSERVATIONS AND FINDINGS 38

RECOMMENDATIONS 38

ANNEXURE

REFERENCES

5

EXECUTIVE SUMMARY

The project titled “A study on Warehouse Management and implementing the best practices

in Cairn India” involves in studying the warehousing needs, current utilization of warehouses,

pattern of cargo arrival and despatch, scope for system improvement and better utilization of

warehouses.

The project involves the different operations done at the warehouse. The report shows how

all the operations are linked to the warehouse and the warehousing activities and functions.

The warehouse at the CAIRN ENERGY INDIA terminal is an upstream warehouse. The

current utilization of the receivables and issues of warehouse at the terminal is more than

75.51 % percent on an average. Usually the storage utilization will not be more than 70 % in

other companies but here they are utilizing more than other companies.

The main objective for Cairn is to run their production without any disturbance because if

there is any delay or the equipments, spare parts are not available in the site then production

process will stop, even a single minute of delay leads to crores of losses to the company.

Warehouse is to provide the customers to load and unload the goods in the warehouse for

production of crude oil and gas from sea. The warehouse will do the issues and receipts based

on the production needs and replenish the stocks by procuring the goods at right time and

storing the goods on racks in department wise like mechanical, electrical, and instrumental

goods.

The ABC analysis for 2011-12 shows that 134 products that are issued to the production

which contributes 80 % of total sales value which comes under A category, 230 products that

are issued to the production which contributes 15 % of total sales value which comes under

the B category, 673 products that are issued to the production which contributes 5 % of total

sales value which comes under C category.

The finding in the project, their current inventory is around Rs 35cr in that they are holding

Rs 17cr worth of dead inventory (almost 50 % is dead inventory) which is a big threat for the

company and they are running short of space in warehouse and no technology (RFID, pick to

light system, bar code, auto ID) is implemented so far they are doing all the process

manually.

6

The recommendations that given are to handover all dead inventories to ONGC, then to

remove all 55 % of desirable items that are occupying the space in warehouse, to upgrade the

technology in warehouse by implementing the Radio Frequency Identification to increase the

productivity.

7

CHAPTER 1

INTRODUCTION

Warehouse management has the primary focus of managing the storage and movement of

inventory and materials within a warehouse. Palletized storage and the use of pallet trucks or

forklifts in warehouses and big box stores introduce safety issues for employees and

customers. Many warehouse management systems use an Auto ID Data Capture

(AIDC) technology system with bar code scanners, mobile computers, wireless networks, and

Radio-frequency tags (RFID) for inventory control and inventory database synchronization.

These warehouse management systems track products from production to shipping to

stocking at a retailer or warehouse. Warehouse management can also be applied to managing

big box stores like Costco, Sam’s Clubs or Wal-Mart since they share more similarities with

warehouses than typical retail environments.

Inventory management within warehouses is a challenge given the characteristic value

specific nature of the products. Global visibility of finished and semi finished products can

greatly improve both inventory turnover and maximize production efficiency.

One of the major goals in Warehouse Management is to track, store and move goods and

materials efficiently; keeping inventory levels down while still always having enough

products on hand. Picking and packing, controlling logistics documents, and in and outbound

monitoring are all part of this process. Additionally, mobile devices and RFID expedite

warehouse management processes enhancing the reliability of information about goods stored

and moved through warehouse locations.

Trends in Warehouse Management

Traditional warehousing has declined since the last decades of the 20th century, with the

gradual introduction of Just In Time (JIT) techniques. The JIT system promotes product

delivery directly from suppliers to consumer without the use of warehouses. However, with

the gradual implementation of offshore outsourcing and off shoring in about the same time

period, the distance between the manufacturer and the retailer (or the parts manufacturer and

the industrial plant) grew considerably in many domains, necessitating at least one warehouse

per country or per region in any typical supply chain for a given range of products.

Recent retailing trends have led to the development of warehouse-style retail stores. These

high-ceiling buildings display retail goods on tall, heavy duty industrial racks rather than

8

conventional retail shelving. Typically, items ready for sale are on the bottom of the racks,

and crated or palletized inventory is in the upper rack. Essentially, the same building serves

as both warehouse and retail store.

Another trend relates to Vendor Managed Inventory (VMI). This gives the vendor the control

to maintain the level of stock in the store. This method has its own issue that the vendor gains

access to the warehouse.

Large exporters/manufacturers use warehouses as distribution points for developing retail

outlets in a particular region or country. This concept reduces end cost to the consumer and it

enhances the production sale ratio.

Objective

Main objective of the researcher in Cairn Energy India is to find how the warehouse is

utilised, their needs, pattern of cargo arrival and despatch, pattern of goods received and

issued to plant for production purpose, how to balance the inventory in a optimized way, to

figure out possible ways to improve the system and better utilization of warehouses, how

much inventory level should Cairn hold, to improve their productivity by using latest

technology, to give more importance to maintain inventory which are contributing high value

in sales by using ABC analysis method.

Source of data

All the data collected is primary data taken from the managers and officers in the Cairn

Energy India Pty Ltd staff.

9

CHAPTER 2

Industry Review

Recent Trends in Oil & Gas Industry

ABSTRACT:

Oil refineries are an integral part of converting oil into an energy resource. This industry is

very fragmented, the oil and gas refining is a highly capital-intensive industry and because of

the large amount of capital investment required, there are very few companies or competitors

within the industry. The U.S. has the largest refining capacity totalling 16.7 million barrels

per day; Russia's refining capacity is at 5.4 million barrels per day, Japan at 4.7 million, and

China at 4.5 million barrels per day. India had approximately 5.7 billion barrels of proven oil

reserves as of January 2011, the second-largest amount in the Asia-Pacific region after China.

However, refining capacity is not the actual indicator of oil production in the number of

barrels produced per day. Saudi Arabia is actually the world's largest oil producer, producing

an estimated 8.4 million barrels per day, Russia is second producing 8.2 million barrels per

day and the U.S. is third producing 5.7 million barrels per day.

INTRODUCTION:

In the present scenario the demand for refined petroleum and other refined products is

increasing, surplus refining capacity of the industry is diminishing very fast. So, in today’s

world, the Oil Refinery Industry has to concentrate on additional capacity building so that the

Growing Market Demand can be met accordingly. This additional capacity building naturally

requires Heavy Investment. This is where the problem lies as the much needed investment in

the Oil Refinery Industry is not attaining its required level because of the uncertainty of the

investment returns. This is because; returns to the investment in Oil Refinery Industry were

very low in the past three decades. But, the good news is that in the recent years the rates of

return are improving. At present, the average margin per barrel has reached a level which is

enough to cover the Capital Cost. But many companies are not willing to invest in new oil

refinery plants may be because of the factor that any Oil Refinery Plant requires at least five

years to be established and this long period increases the risk of investing. The investor

companies fear that the future margins may not be enough to cover their total investment

cost. According to a survey, World Crude Oil Refining Capacity was 83.1 million barrels per

day. But, to keep pace with rising demand this capacity has to reach the level of 93 million

barrels per day by 2010. This means the global Oil Refinery Industry has to grow at an

average Growth Rate of 1.8% per year. This will be possible only if the Oil Refinery Industry

becomes successful to attract sufficient volume of investment from different investors.

10

Objectives:

Greater investment:

This oil and gas industry needs huge investments to find the oil resources in the sea. Once

they found the oil resources they will test the quality of crude and its type, like whether its

sour, sweet, better. If the quality is good they will analyse about the cost to exploration which

is normally expensive and to set up the plant it will take huge capital to invest.

Cost structure problem:

The industry is extremely capital intensive and is characterized by very high fixed costs and

low variable costs. High fixed costs require maximum-capacity operation. Lower throughput

increases average fixed costs exponentially, which seriously damages profitability. Hence

there is an incentive to operate over capacity. The market thus has a natural tendency to

oversupply, since all refiners maximize their individual utility by operating at or above

capacity. This forces down margins and pushes refineries into loss. Low variable costs mean

refineries do not close, despite widespread losses, providing that variable costs are met.

Continued operation makes some contribution to fixed costs.

Current trend in refineries:

Closure of refineries:

The prospect of losing relatively cheap Iranian crude comes as refiners are under pressure

from weak profit margins. The world has about 7 million barrels per day (bpd) of surplus

refining capacity worldwide, according to Royal Dutch Shell in Europe, the collapse of

refiner Petro plus - three of its five plants are shut at least temporarily - has raised the

prospect of further pruning of the continent's 13 million bpd of capacity, long under pressure

from declining demand in the mature market.

Refineries at risk:

At least five of its plants make losses. Small refiners that rely on Iran's heavy oil as a primary

source of supply for cranking out asphalt and bitumen are among the most vulnerable. Saudi

Arabia, Russia and Iraq provide alternatives to Iran's heavy crude, but refiners in the

Mediterranean are concerned the scramble for replacements will force them to pay a higher

price than rivals in Turkey and North Africa exempt from the ban.

Shaky ground:

Global oil companies such as Shell and BP Plc. have been scaling back their European

refining business. Oil demand in Europe is forecast to average 14.1 million bpd this year,

versus 15.3 million bpd a decade ago, according to the International Energy Agency.

Refiners in Italy were on shaky ground even before the European Union ban, starting on July

1, was announced. Of the 2 million bpd of capacity to make oil products, consumers have

11

been using only about 1.5 million bpd, according to the IEA. This idle capacity has slashed

profits for the country's refining industry and pushed many units to the brink.

Three struggling facilities belong to oil and gas major Eni and include relatively sophisticated

plants at Gela and Livorno. The others are Total and ERG's Rome facility and Iplom's

Busalla refinery.

Eni's refining and marketing unit has lost 1.2 billion euros over the past three years; leading

to speculation the company might downsize its refining operations. The companies are facing

political pressure to keep plants open. "Politics have entered the picture because governments

do not want to see additions to the high level of unemployment, so this may complicate what

otherwise would be a purely commercial matter," The company has, however, suspended

production at the 70,000 bpd Porto Marghera refinery near Venice for six months.

Reliance on imports

The Petro plus crisis may tempt some European countries to abandon their plants altogether

and rely solely on imported fuel. Land-locked Switzerland, with only two refineries, may

become the first to do so. In addition to Petro plus' Cressier refinery, Libyan owned Tamoil's

50-year-old Collombey plant has been struggling. The 72,000 bpd refinery was squeezed as

oil prices jumped due to the loss of Libyan crude and after clients such as BP and Shell

suspended distribution for fear of falling foul of international sanctions on Libya.Industry

sources with knowledge of Tamoil's business said it had tried unsuccessfully to sell the

Collombey refinery last year, although the current strategy of the owner is unclear.fransesco

Marchese, wholesale and export manager for Tamoil in Switzerland, declined to comment.

He said the refinery was operating normally and that run rates had increased since the closure

of Cressier. Sources told Reuters that Libyan exports to Tamoil resumed in December, a

factor which may help to improve the plant's profitability for the time being.

The risk of closure, however, is not unique to Italy and Switzerland.in Europe there were too

many small refineries that are not very profitable, a legacy of an era when every country

wanted its own plants. At least 1 million barrels a day of refining capacity needs to be shut

down in Europe over the medium term, and Italy and France look most vulnerable

MAJOR FINDINGS:

China Lead in 2016:

China will lead the global planned oil refinery market in terms of capacity addition for the

period 2011- 2016. Of the planned oil refining capacity addition of 609.6 MMtpa globally by

2016, 70.0 MMtpa will be added in China. In the planned oil refinery industry, Petro china

Company Ltd. and China Petroleum & Chemical Corporation are the leading companies in

the country. The country plans to construct six refineries, of which two will be operational in

2012, two in 2013 and one each in 2014 and 2015. All the planned refineries are complex

refineries, four consisting of hydro skimming units and two consisting of coking units.

Oil refining capacity

12

Growth in planned oil refineries until 2016 will be dominated by the Asia Pacific and Middle

East and Africa regions. Asia Pacific’s refinery market is primarily aimed at addressing the

surging demand for petroleum products in the region. Whereas, Middle East and Africa’s

growth in planned refineries is aimed at desisting from imports of petroleum products and

establish superior refining hub. Middle East and Africa will contribute 45.6% to the planned

global oil refining capacity addition of 609.6 MMtpa by 2016, whereas Asia Pacific will

contribute 34.5% to the same. Together, these two regions will account for 80.1% of global

planned oil refinery capacity by 2016.

Top Five Countries:

Globally by 2016, 37 countries will add oil refining capacities and the top five countries of

these in terms of highest planned oil refining capacity will contribute about 42.9% to the

global planned oil refining capacity. The top five countries include China, Saudi Arabia, Iran,

Iraq and India.

LOGISTICS PROCESS IN OIL REFINING COMPANIES:

Transporting hydrocarbons:

The main oil and gas deposits are located in emerging or developing countries. Once

domestic demand is met, these countries export most of their hydrocarbonproduction to

industrialized regions. Europe, North America, and East Asia have strict energy requirements

but are not self-sufficient enough in terms of oil and gas supplies. Thus, production areas are

often far removed from the areas where the oil and gas is needed. This is why large quantities

of hydrocarbons havebeen transported all over the world for decades.

Transporting oil by sea:

Most oil transported around the world travels on specially built ships called tankers. These

ships carry large quantities of crude or refined oil to the areas where it is needed, often

following the same routes. Oil transport is governed by very strict safety measures that oil

companies, shipowners, and the states where they are registered must respect.

Transporting hydrocarbons by land:

Sometimes it is better to transport it by land for economic, geographical, or political

reasons. In this case, oil pipelines, which link ports, refineries, and points of consumption,

are used. Similarly, gas pipelines form a network and are the preferred mode of transport for

natural gas.

Extensive networks of oil pipelines:

Large pipes through which tens of millions of tons of oil are transported every year. The

longest pipeline in the world is the Druzhba pipeline (5,327 km), which passes through eight

countries - Russia, Belarus, Ukraine, Poland, Germany, the Czech Republic and Hungary.

13

To facilitate the circulation of crude within the pipeline, pumping stations located every 60-

100 km increase pressures the crude passes through. Inside a pipeline, oil travels 2 meters per

second or 7km/h.

Storing hydrocarbons:

Industrialized countries accumulate oil and gas reserves for strategic reasons.

This provides them with energy resources in the event of political upheaval threatening their

supply. Storing hydrocarbons means that supply can be adjusted to fluctuating consumer

demand in real time and that crude oil can be stored while it waits refining.

CONCLUSION:

In the globalized world the market for the oil & related products will be highly volatile and

the demand for the oil resources will be high because the utilization is also increasing day by

day. so there is a scarcity for the product. Then starting an oil refinery is not a easy job to do

it require huge investment and one have to wait more than 5 years to fit into this business and

should be considered among the people, industries, competitors, should listed in stock market

and all. Many companies are hesitating to enter into this field because of above mentioned

reasons. So these are the present scenario of oil refinery industries around the world.

14

Company Review

Cairn India Pty Ltd

Cairn has been unlocking value through discovery and development of hydrocarbons in the

sub-continent for more than 15 years. Cairn also developed one of the first set of discovered

fields on auction – RAVVA, off the coast of Andhra. It’s contributing more than a 5th

of the

country’s domestic crude production through their Rajasthan fields. The discovery of

Mangala in 2004 the largest onshore hydrocarbon discovery in India took Cairn’s growth into

greater heights. As estimates shows that India’s crude import bill this year could reach $100

billion if crude prices hover in the range of $100 - $120/barrel with uncertainties in supply

from the Middle East. This would not only fuel inflationary pressures but upset the delicate

fiscal balance of the country. Due to production from Cairn’s Rajasthan fields the country has

experienced double digit growth in crude oil production for the first time since the last four

fiscals. In 2006-07 the crude production growth was 5.6% which dipped to 0.4%-1.8% &

0.5% in last few fiscals. In 2010-2011, the production by Cairn India and reliance led to a

double digit growth in domestic crude oil production for the first time by 11.5%. The

approach paper to the 12th

plan projects a growth rate of 7% for commercial energy demand

for a GDP growth of 9%. This is only possible through a major supply side response coupled

with efficient demand management.

Cairn India has been a trailblazer in a lot of areas in the oil & gas sector. Over the years the

organisation has built an indigenous team with the capability to execute projects across the

whole spectrum of the business – be it exploration, discovery, development and production.

The team is capable of executing projects with the scale of our Rajasthan development,

maximise the life of the field & recovery in mature assets like Ravva applying technology to

transform from gas to oil in suvali, Gujarat and design to implementation of new lines of

business like building the world’s longest continuously heated and insulated pipeline from

Rajasthan to Gujarat. In this stage of transformational growth with the pipeline operations

bringing in the desired scale, their safety standards have been in the top quartile against

global benchmarks. Cairn terminal in barmer, the largest of its kind onshore hydrocarbon

facility, before connecting with the market through pipeline is a zero discharge facility with

GHG emission maintained at half the global average last year. Responsibility and concern for

the environment has been integrated in their operation strategy be it the usage of environment

friendly completion fluids, coiled tubing for reduced environment footprint or their well pad

design with horizontal deviated drilling to optimise usage of land and minimise disruption.

They have been creating value through substantial contribution to the government exchequer

with royalties paid more than USD 1 billion, direct and indirect taxes of more than USD 1

billion, generating profit petroleum for the government of greater than USD 5billion all these

resulting in significant savings in foreign exchange due to reduced imports.

15

The continuous growth in production and its asset base has led to increasing valuation of the

company, which has ultimately enhanced shareholders wealth. The investor community and

the market also endorsed our initiatives to create value for their shareholders as a result of

which the market cap of the company has nearly doubled from USD 6bn to USD 12bn since

IPO. Cairn with the help of its joint venture partners including ONGC continues to create

value and wealth for the nation and strive towards making the dream of India, an energy

independent country – a reality. As they foray into global markets like Sri Lanka, the

organisation will keep working closely with governments and communities across the globe

to develop faster, better and more cost effective solutions for the energy needs of growing

economies thus enriching lives of the local populace.

Returns generated by Cairn Energy India Vs its peers & indices since IPO:

30th

August 2011 Price % change since Cairn IPO*

Cairn India 279 103

Reliance 783 22

ONGC 263 15

NIFTY 5,001 28

BSE O&G sector 8,353 32

Functional area:

Logistics process in Cairn:

Cairn India has a separate division for logistics trade operations in Kakinada only for Ravva

asset in Krishna Godavari basin. It’s a only branch which all deals with logistics,

transportation, packing, clearances of goods for entire Andhra Pradesh location that includes

Hyderabad, Guntur, Rajahmundry, Warangal, Syanam.

The goods are all imported from various countries like Singapore, Malaysia, hongkong,

Indonesia and all. It may come through ship, air cargo to Chennai from Chennai port the

goods have been sent to syanam offshore plant where the production process will be going on

for 365 days 24*7 without any break.

Supply Chain Management Process in Cairn:

Once the goods reached the plant all the goods has to be sent to warehouse department. After

checking is done by the warehouse manager they will enter into the GOODS RECEIPT

NOTE (GRN) then department in charge will come and they will check whether goods are in

good condition with quality, quantity and size of the material. After the department check

only they will keep the goods in rack according to the category. If the goods are not matching

with the required list the warehouse manager will return the goods to the vendor itself.

If it is matched that product will be send to the plant offshore for production purpose. The

warehouse will supply all type of spare parts to the plant if they required.

16

OPERATIONS

Cairn’s production process:

The company will identify the oil & gas resources from the sea

they will check whether it is economical to explore or not

they will set the reservoirs and drilling process will done

The fluid will come through the pipeline by putting enough pressure to take oil and

connect it through the pipeline

From KG- basin they will get a sweet crude, water & gas

Then they will check the quality of the crude oil mixed with water by sending it for

lab test

They are having 5 big tanks to store crude oil in the production plant

If it is a good quality crude they will export & sell to HPCL

If the quality is not good quality they will drop it as waste

All gas which have been taken from sea are directly sold to GAIL through pipeline

Cairn would not store any gas

As of now Cairn’s production per day is around 24 barrel of sweet crude which is

highly expensive and lucky to get this type of sweet crude

Cairn is giving more importance to safety

Cairn’s procurement strategy:

The Cairn energy used some important strategy to compete in market, all decisions has been

taken from the top- management.

Cairn previously used to do the “No negotiation strategy” while Cairn was a MNC company

but right now Cairn is in the vendantta group and now they are following the negotiation

method.

Purchase Request to Purchase Order Process in Cairn (PR TO PO):

The purchase request is done by the end user in Cairn whoever needs the product will raise

the PR to the procurement department through SAP software, procurement team will analyze

17

the budget & need of a product then only they will make quotation for the product. Based on

that the vendors will quote the prices by seeing the first three lowest price (L1, L2, L3) Cairn

will choose the lowest price (L1) by evaluating the vendor company then they will give the

purchase order to their vendor.

Procurement process in cairn:

The procurement is done from the various suppliers .The major supplier for Cairn India is

caterpillar pvt ltd located at Singapore, Gemmco Company is an agent for caterpillar in India

and some other equipment are procured from sparrow offshore company too.

Once the procurement is done from caterpillar Singapore the goods are imported & it

directly arrives at Chennai.

Cairn has its own freight forwarder in Chennai, based on their Inco-terms they will

Get the clearances.

90 % of the goods are imported through Air transport only. Chennai is a best place to

do this clearances process than Visakhapatnam because all international flights will

come to Chennai and Cairn has its own branch in Chennai.

From Chennai the goods are packed and sent to warehouse of Syanam plant.

Procurement life-cycle in Cairn:

Purchase Request from end user in cairn – checking the need from procurement team –

release the quotation – vendor applies – choose the lowest price – purchase order given –

delivery – stores – sales.

Payment process in Cairn:

The payment process is done by the finance department in Cairn

Once the procurement process done and warehouse department received the goods

from vendor the finance department will check the process another time

The finance department will do the 3 time checking by matching 3 bill receipts like

purchase request (PR), invoice and goods receipt notes (GRN)

They will do only payment process by seeing the invoice that submitted by warehouse

department

Cairn would not encourage the advance payment, if it is a regular supplier they will

pay up to $ 10,000

18

Mostly Cairn would not hesitate to make advance payment to the regular suppliers

If any regular supplier ask for more than $ 10,000 as an advance payment Cairn will

follow the Advance Bank guarantee system

Warehouse process in cairn:

This warehouse in RAVVA asset at Syanam plant is completely for upstream supply chain.

The goods (equipments, spare parts, machines) which they stored are used only for their own

production of crude & gas in the plant. The warehouse’s main objective is to run the

production continuously (24 hours*7days a week) without any stop in the production because

even 30 minutes of delay in the production will occur a huge loss for the company.

The goods are coming from Kakinada warehouse branch, once the goods came to

Syanam warehouse plant, then the warehouse manager will check by seeing all the

goods with the GRN list

The goods which are stored in warehouse are used only for production purpose

In the inventory box the equipment name, place will be mentioned clearly

The loaded goods which are listed in a receipt and submitted to the department in

charge person & warehouse manager to verify the items that receipt is called as GNR

(Goods Receipt Notes)

Warehouse will issue goods to offshore and production plant if they required for

production or maintenance

There are 3 types of materials which are categorized in warehouse department

o Direct consumables (non coded items)

o Consumables (non value items)

o Stocks items

Storage process in Cairn:

All the goods are arranged and stored in First In First Out (FIFO) method

The total 108 racks in the warehouse are arranged in alphabetical order and based on

goods weight capacity only

They are differentiating the inventory by its weight and department it belongs to

Goods which are to be preserved carefully were stored in AC room in warehouse

Goods which comes under the stationary items are stored in golden room in

warehouse

19

Every Saturday they cleaning warehouse completely

They are feeding all information in record notes that are kept in inspection rack

They are implementing SAP software with ERP to store the goods list like issues &

receipts in the systems

They are storing all kind of seasonal stock goods in steel cupboards like raincoats,

winter jersey’s, umbrella and all

Duty of warehouse department:

Received Receipts:

The goods which are received from various place has to be noted down and to check

the goods whether it is a good quality, size is correct, quantity is correct or not

Once they checked all the goods which they received, they will inform to the

particular department which the goods belongs to like electrical goods, mechanical

goods

The particular department head will come to warehouse and he will check with his

receipt list which he ordered.

In case the goods which vendors sent are not matching with our list then all the items

which are not matching will be returned the vendor, all the expenses will be taken

from vendors only

The goods will be stored in FIFO method, when the department head will conform

about the items which the vendor’s sent to warehouse.

To maintain the warehouse safely because Rs 35 crores worth of inventory they

holding right now

Issues receipts:

When the production plant needs the particular equipments, spares parts they will

inform the warehouse and warehouse will issue the goods by entering into system

Based on the consumption rate the stocks are classified as

o Fast moving goods

o Slow moving goods

o Non moving goods or Dead inventory

20

Issue process has 3 bill receipt copies

o Warehouse issue receipt copy

o Department issue receipt copy

o Security gate pass issue receipt copy

Major warehousing processes include:

Receiving

Inspection/ Acceptance

Proper Storage

Order preparation / picking

Dispatching/ Delivery

Inventory management (Checking as per System vs. Actual stock)

21

REVIEW OF LITERATURE

Warehouse design and control: Framework and literature review

B. Rouwenhorst, B. Reuter, V. Stockrahm, G. J. van Houtum, R. J. Mantel and W. H. M.

Zijm

In this paper they presented a reference framework and a classification of warehouse design

and control problems. Based on this framework, this review the existing literature on

warehousing systems and indicate important gaps. In particular, they emphasize the need for

design oriented studies, as opposed to the strong analysis oriented research on isolated sub

problems that seems to be dominant in the current literature.

A framework for the design of warehouse layout

Mohsen M D Hassan

This paper presents a framework for the design of warehouse layout to organize the design

process, facilitate the task of designers, and highlight important design issues to help

warehouse managers make informed decisions. The framework accounts for several factors

and operations of warehousing in the design, and addresses design decisions required to

respond to them. It attempts to develop a layout that has several characteristics such as

modularity, adaptability, compactness, accessibility, flexibility, and distribution of movement

to enable it to respond to changing conditions, improve space utilization, and reduce

congestion and movement.

Cairn warehouse design layout:

The warehouse which is located in syanam plant has one entrance and three exits. Normally

all the goods which are entered and which is placed in the racks according to the weight of

the equipment and department category. But we susjusted them to arrange the racks by fast

moving goods, slow moving goods and non moving goods. The fast moving goods should be

placed in near to the entrance of warehouse, slow moving should be placed in the bottom of

the racks and non moving should be placed in the top of the racks to improve the efficiency

22

and save the time f+or issuing the goods to the production department and offshore

department.

Inventory Management

The inventory management’s main aim is about inventory optimization. The inventory

optimization is nothing but balancing or maintaining the inventory between high and low

stocks of inventory in warehouse. There should be no idle inventory as well as no shortage of

inventory but here Cairn is holding excess of inventory in warehouse to meet the requirement

because this syanam plant is aged more than 15 years so the criticality of the stocks will vary

from time to time.

Determining the storage cost (warehouse department)

Formula:

Storage cost = inventory turnover * holding cost

Cairn’s holding cost for 2012 = $53, 20,000 @ 51 INR

Cairn’s holding cost for 2012 = Rs 27, 13, 20,000 (Indian rupee value)

Inventory turnover = annual sales / average inventory level

Cairn annual sales for 2011 = Rs 4, 31, 39,392

Average inventory level = beginning inventory + closing inventory / 2

Beginning inventory for April 2011 = $ 55,20,000 @ 45 INR rate

Beginning inventory in Indian rupee value = Rs 24, 84, 00,000

Closing inventory for march 2012 = $ 53,20,000 @ 51 INR

Closing inventory in Indian rupee value = Rs 27, 13, 20,000

Average inventory level = 51,97,20,000 / 2

Average inventory level = Rs 25, 98, 60,000

Inventory turnover = 4,31,39,392 / 25,98,60,000

Inventory turnover = 0.167

Storage cost = Inventory turnover * holding cost

= 0.167 * 27, 13, 20,000

23

Storage cost = Rs 4, 53, 10,440

Here while calculating the storage cost, we found that the inventory turnover ratio 4:25 or

0.167 is very low. It says that the sales is very low and Cairn have more excess of inventory

which is highly risk to hold an huge inventory but in our (Cairn) case we have to maintain

excess inventory because our motive is to supply the equipment whenever is required for

production purpose. Basically we have to maintain inventory which are manufactured form

different countries and imported over here I do agree that but right now we are holding

around Rs 17 crores of dead inventory (non performing for more than 5 years) if we hold

these dead or non-moving inventory the capital will be stagnated, indirect cost will increase

and it’s a loss for the company.

Problems of holding dead inventory:

It will be a huge risk for any company for any kind of industry

The capital and investment that the company had made will be blocked

It will occupy a huge space in warehouse because of this space, shortage will arise

It will be simply lying in the warehouse

It will increase the indirect expenses

Then there will be no inventory optimization in warehouse

The suggestions to clear the dead inventory for Cairn Energy India:

Check with all departments whether the inventory which are not moving for the past 5

years has any chance to use for production in future

If there is a chance to use it again then maintain it in warehouse

But there is no use of maintaining these dead inventories then bundle them and

handover it to ONGC because ONGC is a major partner in RAVVA asset holding 40

% of shares and Cairn has only 22.5 % of share in RAVVA asset

Inventory accuracy

Inventory in terms of quantity for the financial year 2011-12 = 5,905 (quantity)

Current inventory level in terms of quantity for the financial year 2012 = 70,310

Inventory accuracy = 5,905 / 70,310

= 0.083 * 100

Inventory accuracy for 2011 – 2012 = 8.39 %

24

These 8.39 % shows that Cairn is not following the inventory optimization, it means there is

no proper balance between the shortage of inventory and idle inventory. Cairn is holding

excess of inventory, so there is no accuracy in inventory.

Necessary inventory

Current inventory level as per quantity for the financial year 2012 = 70,310

Total consumption times for the financial year 2011-2012 = 1,725 times

Per month consumption:

Yearly / no. of months = 1,725 / 12

Per month consumption = 143.75 or 144 times

Per day consumption:

Yearly / no. of days = 1,725 / 365 or 143.75 / 30

Per day consumption = 4.79 or 5 times

Average daily consumption = 5 times

Necessary inventory level = current inventory / avg. daily consumption

= 70,310 / 5

Necessary inventory level = 14,062 in terms of quantity

Current inventory level in value = Rs 35, 21, 72,765.52

Necessary inventory level = current inventory / avg. daily consumption

= 35, 21, 72,765.52 / 5

= Rs 7, 04, 34,553.104

Necessary inventory level = Rs 7, 04, 34,553.104 in terms of value

This calculations shows that Rs 7, 04, 34,553.104 worth of inventory, Cairn should hold to

meet the production requirement with 14,062 quantity as a necessary inventory to hold by

warehouse department in RAVVA asset.

It’s a kind of alarm for warehouse department to procure and replenish the stocks to run the

production efficiently.

25

WAREHOUSE SPACE CALCULATIONS

Old warehouse space:

Length = 27.8m, width = 13.6m, height = 4.5m

Formula: L*B*H = 27.8m*13.6m*4.5m

Old warehouse space = 1,701.36 m3

A/C room warehouse space:

L = 17m, W = 4.5m, H = 3.3m

A/C room warehouse space = 252.45m3

Recently extended space:

L=14.4m, W= 12m, H = 4.5m

Recently extended space = 777.6m3

Total surface (ground) area space of a warehouse:

Formula: without calculating height

Total surface (ground) area space of a warehouse = 627.38m2

Total volume area of a warehouse:

Formula:

= old warehouse space + A/C room space + recently extended space

= 1,701.36 + 252.45 + 777.60

Total volume area of a warehouse = 2,731.41m3

1 meter = 3.28 ft

The Cairn India which did not have the record of the space data so I personally measured the

entire space in warehouse at syanam plant shows that the total space of warehouse is around

2,731.41 m3 which excludes the office space. This entire warehouse is belongs to ONGC,

from ONGC Cairn India took the warehouse for lease because ONGC, CAIRN, VEDIOCON

AND RAVVA SINGAPORE are having a joint venture in this RAVVA platform production.

26

ONGC is the major share holder holding 40 %, Cairn 22.5 % but cairn India is doing all

production work in the plant.

Total occupied space in warehouse

S.NO ITEM NAME OCCUPIED SPACE

1. Normal racks 311.85 m3

2. Locker cabinet 1.41m3

3. Dress cabinet 1.49m3

4. Extra large size rack 81.00m3

5. Small rack 1.80m3

6. Small shelf cabinet 1.83m3

7. A/C room cabinet 0.70m3

8. Normal cabinet 1.77m3

9. Large rack 342.9m3

10. B block rack 12.68m3

11. Gold room steel rack 23.4m3

12. A/C room racks 109.3m3

13. Giant racks 69.48m3

14. Big giant rack 84.75m3

15. Ground items space 68.28m3

16. Top placed goods space 208.79m3

Total occupied space in warehouse 1,321.44m3

Once we calculated the total warehouse space we started calculating the total occupied space

in Cairn’s warehouse we took all the items like racks, cupboards, goods that are stored in the

top of the racks and goods stored in ground too, then I found the total occupied space in

warehouse is 1,321.44m3

Warehouse storage utilization

Total space in warehouse = 2,731.41m3

Total occupied space in warehouse = 1,321.44m3

Total free space in warehouse = 1,409.97m3

Storage utilization = occupied space / storage capacity (approx)

= 1,321.44 / 1,750 (approx)

27

= 0.7551 or 75.51 %

Storage utilization = 75.51 %

This shows the optimum utilization of warehouse space for storing goods or inventory stocks

in an efficient way. Normally people use only 70 % of space in warehouse to store goods and

rest 30 % for loading & unloading goods in vehicle’s but here they crossed that limit also.

This clearly shows that they are running shortage of space in warehouse but recently three

months before only they extended the warehouse space.

This problem arises because of dead inventory worth of 17crores occupies the huge space in

warehouse and they are holding around 60 % of personal safety equipments, free t- shirts,

gifts, uniforms and all to distribute it to the Cairn employees which is not important for

production purpose.

According to me the warehouse team is doing a good job by using the space in a efficient

way but the above mentioned problem have to be solved or else once in a 3 months they have

to extend the warehouse which is not that easy because they have to get permission from their

joint venture partners like ONGC, Videocon, RAVVA Singapore companies.

28

DATA ANANLYSIS

ABC ANALYSIS

An analysis of a range of items that have different levels of significance and should be

handled or controlled differently. It is a form of Pareto analysis in which the items (such

as activities, customers, documents, inventory items, sales territories) are grouped into three

categories (A, b, and C) in order of their estimated importance. 'A' items are very important,

'B' items are important, 'C' items are marginally important.

For example, the best customers who yield highest revenue are given the 'A' rating, are

usually serviced by the sales manager, and receive most attention. 'B' and 'C'

customers warrant progressively less attention and are serviced accordingly.

Total value of goods issued = Rs 5, 00, 97,089.45

Total quantity issued = 5,905 (quantity)

Total no. of product issued = 1,038 (quantity)

Steps:

We collected the issued receipts data for 5 years 2008 to 2012 financial year wise

Then we selected the financial year 1st

of April 2011 to 31st

of march 2012

Then we created a pivot table to do analysis in Excel

Identified the total value, quantity, products by using VLOOKUP method

After that I sorted (ranked)the values from highest to smallest

Finally compared with high volume and low volume by keeping the rule in mind

A ITEMS: very tight control and accurate records

B ITEMS: less tightly controlled and good records

C ITEMS: simplest controls possible and minimal records

The sales that contribute by A, B, C items for 2011-12 in Cairn India:

29

‘A’ category:

Rule: 20 % of Cairn’s products or items issued for production should account for 80 % of

sales or consumption value.

Total no. of products in A Category = 134

Total quantity issued in A Category = 1,124 (quantity)

Total issued value in A category = Rs 4, 01, 24,779.4

The first 20% of items in the list will account for approximately 80% of cumulative ARV.

For a company with a stock list of 1,038 different items this means that paying more attention

to the top 134 items (with a sophisticated stock control system) will give close control of

about 80% of total stock investment.

No .of products that comes under the A category, B category, C category for 2011-12 in

Cairn India:

40,124,779.40

7,516,927

2,455,383.38

Sales

A category

B category

C category

134

230

673

products

A category

B category

C category

30

‘B’ category:

Rule: 30 % of Cairn’s products or items issued for production should account for 15 % of

sales or consumption value

Total no. of products in B Category = 230

Total quantity issued in B Category = 1,157 (quantity)

Total issued value in B category = Rs 75, 16,927

The next, 30% of items, will, typically, account for a further 15% of cumulative ARV. These

can be subject to less precise control methods.

‘C’category:

Rule: 50 % of Cairn’s products or items issued should account for 5 % of sales or

consumption value.

Total no. of products in C Category = 673

Total quantity issued in C Category = 3,624 (quantity)

Total issued value in C category = Rs 24, 55,383.38

The last 50% of (low value of low usage) items then account for a mere 5% of ARV and can

be controlled with a simple system.

The main objective of preparing ABC analysis is to find the A category items which 20 % of

products contributes 80 % of sales value. If we maintain these 20% of A category items

properly we can easily cover the 80% of sales, so Cairn should concentrate on these 134

items by keeping the inventory properly and procure it whenever required.

FSN ANALYSIS FOR CAIRN

The fast, slow and non moving or dead inventory are known as FSN analysis

Fast moving goods:

In Cairn Energy India Company the goods are issued once in a year. That means goods which

highly consumed from the production & offshore department for production purpose are

called fast moving goods.

Slow moving goods:

31

The goods which are consumed once in 2 to 3 years for production purpose are called as slow

moving goods.

Non- moving goods or dead inventory:

The goods which are not moving for more than 5 years for any production and offshore

purpose is called as non performing goods or dead inventory. It’s a big threat for any

company but right now Cairn is holding around Rs 17 crores worth of dead inventory.

Storing the goods according to FSN analysis in warehouse:

This FSN analysis also helps to store the goods in the racks like all the fast moving goods

should be placed in the racks which is near to the entrance of the warehouse and all slow

moving goods should be placed next to the fast moving goods racks and all non moving

goods which should be placed in the top of the racks or in the top floor, this will reduce the

material picking time.

All material picking in warehouse could be done by non- experienced labour because it could

not require any experience and easy job to do but all the issues (consumables from

production) should be done by an experienced labour because the stock which is arrived from

different places.

Fast moving goods in warehouse:

Analysis is done for 5 years (2008 to 2012)

1. Material: O-RING equipment (as whole) spare parts yearly issued by

warehouse:

No. of times issued in a month

Financial year (1st April to 31

st March )

Month 2008-09 2009-10 2010-11 2011- 12

April 0 2 1 2

May 4 2 2 0

June 3 1 2 5

July 2 1 1 2

August 3 1 4 4

September 4 1 2 2

October 6 1 1 0

November 2 3 0 1

December 1 4 1 3

January 3 1 0 0

February 2 4 3 0

March 3 5 3 8

Total times 33 26 20 27

32

This shows that “the O-RING” material comes under very fast moving goods is that

warehouse should maintain stock regularly, so that we can meet the requirement from

production department.

2. Material: PLUG, GAUGE, VAETRIX NIPPLE 16-140444 (as whole) spare

parts yearly issued by warehouse:

No. of times issued in a month

Financial year (1st April to 31

st March )

Month 2008-09 2009-10 2010-11 2011- 12

April 4 0 0 0

May 2 1 5 1

June 4 2 0 2

July 3 3 0 1

August 4 3 0 8

September 0 2 0 0

October 2 2 1 1

November 5 2 0 1

December 2 2 0 4

January 2 3 2 1

February 2 1 0 1

March 1 0 0 9

Total times 31 21 08 29

This shows that “the PLUG, GAUGE, VAETRIX NIPPLE 16-140444” material is also

fast moving goods But for the financial year 2010-2011 the consumption is very low by

comparing other years, even though the consumption is less for that year, it comes under the

fast moving goods category only.

3. Material: spring set (as whole) spare parts yearly issued by warehouse:

No. of times issued in a month

Financial year (1st April to 31

st March )

Month 2008-09 2009-10 2010-11 2011- 12

April 0 1 1 0

May 2 0 3 0

June 1 0 7 3

July 0 0 0 1

August 0 1 1 0

September 0 1 0 0

October 0 2 0 0

November 0 4 1 0

December 12 0 0 4

33

January 2 0 1 0

February 0 3 0 0

March 0 2 4 5

Total times 17 14 14 13

Here the spring set material has a fast moving ability it has continues flow for the past 5

years, so it will come under the fast moving category.

4. Material: RING,BACK UP,TA-2852 spare parts yearly issued by warehouse:

No. of times issued in a month

Financial year (1st April to 31

st March )

Month 2008-09 2009-10 2010-11 2011- 12

April 0 0 0 3

May 2 0 0 0

June 0 0 1 0

July 0 0 0 1

August 0 0 0 0

September 1 0 0 0

October 0 0 0 0

November 2 0 0 0

December 0 0 1 0

January 0 0 0 0

February 0 0 0 0

March 0 0 0 0

Total times 05 0 02 04

Here the movement of this RING, BACKUP TA-2852 is slow by comparing other spare parts

that mentioned above but it is also comes under the fast moving goods category only.

34

5. Material: RING,BACK-UP,PA-2149 spare parts yearly issued by warehouse:

No. of times issued in a month

Financial year (1st April to 31

st March )

Month 2008-09 2009-10 2010-11 2011- 12

April 0 0 0 0

May 0 0 0 0

June 0 0 0 01

July 0 0 0 0

August 0 0 01 0

September 0 0 0 0

October 0 0 0 0

November 0 0 0 01

December 0 01 0 0

January 01 0 01 0

February 0 0 0 0

March 0 0 0 02

Total times 01 01 02 04

Being goods issued by warehouse continuously for past 5 years, it also comes under fast

moving goods.

6. Material: BRUSH, WIRE, POLYURETHANE CUP PIG/CS/SS spare parts

yearly issued by warehouse:

No. of times issued in a month

Financial year (1st April to 31

st March )

Month 2008-09 2009-10 2010-11 2011- 12

April 01 0 0 0

May 0 0 0 0

June 01 0 0 0

July 01 0 0 0

August 0 0 0 0

September 01 0 0 0

October 0 0 0 0

November 0 0 0 0

December 01 0 0 0

January 0 0 0 0

February 0 0 0 0

March 1 01 0 0

Total times 06 01 0 0

This material comes under slow moving goods as per Cairn energy norms because

this particular goods which are not issued by the warehouse for the past two years.

35

7. Material: BRUSH, WIRE, PU CUP PIG/CS/SS,GCCBR2-10 spare parts yearly

issued by warehouse:

No. of times issued in a month

Financial year (1st April to 31

st March )

Month 2008-09 2009-10 2010-11 2011- 12

April 01 0 0 0

May 0 02 0 0

June 0 0 0 0

July 0 0 0 0

August 0 0 0 0

September 0 0 01 0

October 0 0 0 0

November 0 0 0 0

December 0 0 0 0

January 0 0 0 0

February 0 0 0 0

March 0 0 0 0

Total times 01 02 01 0

VED ANANLYSIS

The goods which are in the Cairn India warehouse are classified into 3 types they are as given

below

o Vital goods

o Essential goods

o Desirable goods

Vital goods in the warehouse:

The vital goods are very important, without that goods they cannot run the production in the

plant so the warehouse should maintain these goods in proper way and should take extra care

these goods which take some time replenish in warehouse so the procurement department

should take responsibility and make an order before the need comes, the criticality of a

product is very important.

Essential goods in warehouse:

The essential goods are important but not like as vital goods. The company can run the

production without these essential goods but only for certain time after that company should

replenish the essential goods in warehouse or else they will face problem while the

production process.

Desirable goods in warehouse:

These types of goods are not important the company can run their production without any

disturbance of these goods; these goods are mainly based on the personal protection

36

equipment (PPE), gifts to the employees, safety shoes, helmets and all. Right now in

warehouse they are holding around 55 % of stocks as desirable stocks.

VED analysis:

Vital goods:

The total inventory level in quantity = 70,310

Vital goods % in total inventory level = 30.5 % of 70310

Vital goods for financial year 2011-12 = 21,444.55

These 21,444.55 quantity items should be maintained and procured properly. Cairn has to

replenish the stocks in warehouse with proper interval time and production department will

raise purchase request. These vital goods are very much important for the production purpose

so Cairn should take more responsibility to procure, replenish the stocks and maintaining it in

a proper way.

Essential goods:

The total inventory level in quantity = 70,310

Essential goods % in total inventory level = 14.5 % of 70310

Essential goods for financial year 2011-12 = 10,194.95

These 14.5 % of goods should be procured and maintained in a systematic way, actually this

essential goods percentage is less which means there are only 14.5% of essential goods which

are stored in warehouse.

Desirable goods:

The total inventory level in quantity = 70,310

Desirable goods % in total inventory level = 55 % of 70310

Desirable goods for financial year 2011-12 = 38,670.5

This analysis clearly shows that Cairn is storing around 55% of desirable goods in the

warehouse, which is not a good thing for them because desirable goods should be given the

least importance, these 55% of goods will not be useful for the production team and it is just

occupying the space in the warehouse. Cairn should remove these desirable items and able to

concentrate more on vital and essential goods.

37

Chapter 4

Summary

The Cairn Energy India’s procurement and warehouse process are better only but there is a

possible chance to improvise their process every time by implementing new technology

called RFID which will be very useful for them to do their work with more efficiently and

will increase the productivity for the company. They have to give priority for storing goods

which are very important for the production in plant and offshore as well likes vital

equipments to run the production and then for essential goods, they should give least

importance for the desirable goods which are stored in warehouse. They should arrange the

goods which are comes under the fast moving items in front and slow moving goods in the

bottom and non moving goods in the top of the racks. If they follow these methods their

process will convert from better to best. So this is how the Cairn Energy India should

implement some best practices in warehouse in an efficient way.

30.50%

14.50%

55%

% contributed

Vital

Essential

Desirable

38

FINDINGS

The findings in the project are

Cairn Energy India is holding around Rs 17crorer worth of non moving stocks or dead

inventory which is simply lying in the warehouse.

The warehouse in the Syanam plant which is running short of space. (Just three

months back they extended the warehouse space but still space is not enough)

Excess of storage utilization in warehouse.

In Cairn Energy India warehouse they are doing all receipts and issues process

manually.

The warehouse people in Cairn India are not comfortable with the permit process.

In warehouse there is a hole in the AC room.

The warehouse manager’s in Cairn are not going for a rounds to check the warehouse

Lot of air and noise pollution are coming to warehouse because of chopper which is

very near to the warehouse

The warehouse managers are not comfortable with issue receipt "particulars" (Goods

Receipt Notes)

In the warehouse they are allowing all people including outsiders

Some leakage is there in warehouse meter equipment code no - 9912014083,

300002483

RECOMMANDATIONS

The suggestions to improvise the warehouse in Cairn:

Cairn is in a joint venture partnership with ONGC, Videocon, RAVVA companies

they have to discuss about holding dead inventory (17cr) because ONGC has the

major share of 40 % in RAVVA asset, Cairn has only 22.5 %. According to me Cairn

should handover all the dead inventory items except the vital items to ONGC.

Regarding the shortage of space in warehouse, Cairn is holding around 55 % of

Personal Protection Equipment (PPE) it is a desirable item which is not useful for

production it’s just safety equipment for an employee and the dead inventory which

has also occupied lot of space in warehouse. So Cairn have to remove all these

unwanted items from warehouse, if they do this they will find enough space and no

need to extend the warehouse space once in three months.

Right now Cairn is using to store goods in warehouse, their storage utilization comes

around 75.51 %, usually in all warehouses they will store goods only up to 70 % and

rest of 30 % they will utilize the space for big vehicles to loading & unloading goods,

39

way to entrance but in Cairn lack of space they started placing the goods in ground

and top of the racks too.

Cairn is doing all processes manually. Instead of that they can implement new

technology like implementing RFID. If they implement RFID it will benefit them in

many ways as listed below.

Benefits of implementing RFID in Cairn India:

o Increase the productivity and Time saving thing:

In Cairn they are doing all receipts and issues manually which is difficult and highly

time consumable. If they implemented RFID technology, RFID can read more

number of tags at the same time; it will start reading all equipments with in short

period of time.

o Reduced theft and loss:

The warehouse managers should be able to maintain all the equipment, spare parts,

and stocks in a safe manner and it’s really difficult to watch all the time regarding the

items in the warehouse, this RFID can reduce the theft by giving alarm to the

managers if an unknown person touch the items, it will track the items and it clearly

shows were the goods are through the systems.

o Improved inventory efficiency and management:

The inventory is well taken care by this technology by tracking the goods, placing it

in the racks based on FIFO method, we can easily able identify the goods within a

short period of time.

o Reduced labour costs:

This technology will increase the productivity and no need of more labour in

warehouse too.

o Reduced human error:

There is no chance for any human error in implementing RFID technology;

everything will be done by this technology itself, no need of any human effort to track

and note the goods.

Draw backs of implementing RFID in Cairn India:

o High implementation cost:

This technology is very expensive to implement, the RFID tags are of two types

active tags and passive tags. The active tag which has battery and that has to be

charged regularly, it costs around $25 to $30. Passive tags need not to be charged, it

directly charge through the systems but its expensive, it will cost around $100 to

$150. The RFID reader which reads the tags which is placed on the goods will cost

40

around $500 to $1500. Cost is very high but companies like Cairn can afford the price

easily.

o Lack of globally accepted use standards:

There is no assurances and proper standards for this technology to implement in a oil

and gas industry. That’s a main threat. Still its not globally accepted.

o Strain in the IT infrastructure by overwhelming information systems as real-time

scans move between multiple applications.

Then it will also useful for oil and gas industry in many ways like

o Pipeline inspection / maintenance

o Asset tracking

o Personnel Tracking / Safety

So in my point of view company like Cairn should implement the RFID technology because

they yielding huge profit, they can afford the RFID cost, actually its simple cost for them

right now per RFID tag is around $25 to $30 and RFID reader is $ 500 to $200.

The warehouse people in Cairn are not interested in doing the permit process because

that is not related to warehouse department. so Cairn should shift that permit process

work to administration department.

The warehouse AC room hole should be filled properly for some safety purpose.

Warehouse manager should go daily rounds in stores so that the employees under him

will do their work properly like sweeping properly, switching on the AC regularly.

They should control the air & noise pollution that is created by the chopper which is

in the backside of the warehouse. So they should shut the backside shutter to control

the both pollutions.

Warehouse people are not comfortable with the issues & receipts bills particulars data

because it’s not in proper order to store in SAP system.

Except the people who are all working in warehouse should not allow to enter into

warehouse because they are holding around 35 crores worth of inventory. They

should give some priority to safety for goods, its better to have window counter near

to the warehouse manager’s seat so that they can avoid others to enter into

warehouse.

41

REFERENCES

Report

Data from “Cairn India”

Information regarding oil and gas industry

Books and Articles from internet:

1. Article about oil refinery no economic watch market January

2011:http://www.economywatch.com/world-industries/oil/refinery-industry.html

2. Article on Global strategic an analysis, “Refining problems swell oil prices”

http://www.forbes.com/2005/05/30/cz_0530oxanoil.html

3. Article on Italian oil refiners at risk from Iran ban- Jessica donati&ikukokurahone,

2nd

feb, 2012:http://uk.reuters.com/article/2012/02/02/uk-europe-refineries-

idUKTRE8111K820120202

42

4. Article on a world class crude oil refinery in the south Africa, march 2010:

http://www.cef.org.za/index.php?view=article&id=134%3Aworld-class-crude-oil-

refinery-in-the-best-interest-of-south-africa&option=com_content&Itemid=17

5. Article on transportation process of energy resources in transporting hydrocarbons

and storing hydrocarbons in oil & gas industry, august 2010:

http://www.planete-energies.com/en/energy-sources-/oil-and-gas/transporting-

hydrocarbons/storing-hydrocarbons-36.html

6. B.Rouwenhors, B.Reuter, V.Stockrahm, G.J.van Houtum, R.J.Mantel and W.

H.M.Zijm. Title(1999) Warehouse design and control, Year-1999

7. Journal on China’s growth in oil refinery and china reserves help to have more

resources , March 2010:http://www.indianoilandgas.com/data-pdfs/press-

Planned%20Oil%20Refineries_PR.pdf

8. Library of congress: researches , march 2010:” Business and economics research

advisor” http://www.loc.gov/rr/business/BERA/issue5/refining.html