A

SUMMER PROJECT REPORT

ON

“INVENTORY MANAGEMENT IN SHIPBUILDING COMPANY”

AT

MAZAGON DOCK LTD.

SUBMITTED IN PARTIAL FULFILMENT OF THE DEGREE OF MASTERS OF

MANAGEMENT STUDIES

BY

Mr AKSHAY D. MANJAREKAR

[ROLL NO. A - 16]

UNDER THE GUIDANCE OF

Mr Smrutiranjan Mohanty Mr Mahadev Murmu

Prof. Operations Asst. Manager (SB – Stores)

(Institute guide) (Organization guide)

ARUNA MANHARLAL SHAH INSTITUTE OF MANAGEMENT & RESEARCH

GHATKOPAR [W], MUMBAI – 86

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ACKNOWLEDGEMENT

I owe my sincere gratitude to Mazagon Dock Ltd. for providing me the opportunity to

undergo two months training on the project titled “Inventory Management in Shipbuilding

Company”.

My training gave me an exposure to the actual prevailing conditions in industry and helped

me ensure the practicability of the theories learnt.

I would like to express a sense of profound gratitude and indebtedness to all the people who

have contributed in making my training a rich experience.

I am very thankful to my project guide Mr. Mahadev Murmu (Assistant Manager – SB

Stores) who gave me an insight into the various aspect, facts, figures and their continues

guidance throughout the project.

Along with it I would like to thank Dr J K Sachdeva (Director – AMSIMR) and my institute

guide Mr. Smrutiranjan Mohanty.

Due to assistance and the coordination of many people from Mazagon Dock Ltd. I was able

to successfully complete my training. They not only helped me whenever I had doubts but

also kept my spirits high.

Akshay D. Manjarekar

(Operations - Semester III)

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EXECUTIVE SUMMARY

Mazagon Dock Limited is the India’s premier shipyard constructing warships as well as

offshore platforms. It builds and repairs ships.

Mazagon Dock Limited, Mumbai, an ISO 9001: 2008 Company is one of the leading

shipbuilding and offshore fabrication yards in India have come to be recognized as a powerful

symbol of productivity and performance.

Whenever production term comes then first thing comes in our mind that is inventory.

Because inventory is base for any production unit so, when we control and manage the

inventory properly then the company is benefited (by reducing holding and carrying cost of

inventory). Thus after studying inventory Management the important activity which is done is

Budgetary Control in which operating Budget expenses is to be control in Mazagon Dock Ltd.

A Budget is a plan which relates to a definite period of time and which is expressed in

quantitative terms. It is thus a predetermined statement which incorporates the policy of the

management during a given period and serves as a standard for comparing the actual results.

Thus a budget is a tool in the actual results. Thus a budget is tool in the hands of the

management which serves as a guide to all the employees in achieving their goals objectives

and targets. A budget can help us a planning and coordination with all the employees, and

departments, but the most important factor is that it is used for control purposes at all levels of

management.

The project requires 7 years’ time for the completion. The steps involve collection of data

from various sources like SAP, Monthly performance review meetings (MPRM) Reports,

Annual Reports, Computerized Inventory Management system (CIMS).

Thus from this study of inventory management it is observed that by using various techniques

such as ABC, EOQ, Reorder level etc. management minimize investment in inventory and

meet a demand for the product by efficiently organizing the production operations. The firm

should minimize investment in inventory which involves costs i.e. ordering cost and carrying

cost, so that smaller the inventory, the lower is the cost to the firm.

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TABLE OF CONTENTS

Sr. No. TOPIC Pg.No

1 CHAPTER 1

a) INTRODUCTION 6

b) OBJECTIVE 23

c) RESEARCH METHODOLOGY 24

2 CHAPTER 2

a) INDUSTRY INTRODUCTION 26

3 CHAPTER 3

a) BACKGROUND OF THE COMPANY 32

b) ORGANISATION STRUCTURE 38

4 CHAPTER 4

a) DATA ANALYSIS 40

5 CHAPTER 5

a) CONCLUSION 46

b) FINDINGS 46

c) RECOMMENDATIONS 46

6 CHAPTER 6

a) REFERENCES 48

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CHAPTER 1

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INTRODUCTION

In any business or organization, all functions are interlinked and connected to each other and

are often overlapping. Some key aspects like supply chain management, logistics and

inventory form the backbone of the business delivery function. Therefore these functions are

extremely important to marketing managers as well as finance controllers.

Effective inventory management is all about knowing what is on hand, where it is in use, and

how much finished product results.

Inventory management is the process of efficiently overseeing the constant flow of units into

and out of an existing inventory. This process usually involves controlling the transfer in of

units in order to prevent the inventory from becoming too high, or dwindling to levels that

could put the operation of the company into jeopardy. Competent inventory management also

seeks to control the costs associated with the inventory, both from the perspective of the total

value of the goods included and the tax burden generated by the cumulative value of the

inventory.

Balancing the various tasks of inventory management means paying attention to three key

aspects of any inventory. The first aspect has to do with time. In terms of materials acquired

for inclusion in the total inventory, this means understanding how long it takes for a supplier

to process an order and execute a delivery. Inventory management also demands that a solid

understanding of how long it will take for those materials to transfer out of the inventory be

established. Knowing these two important lead times makes it possible to know when to place

an order and how many units must be ordered to keep production running smoothly.

Calculating what is known as buffer stock is also key to effective inventory management.

Essentially, buffer stock is additional units above and beyond the minimum number required

to maintain production levels. For example, the manager may determine that it would be a

good idea to keep one or two extra units of a given machine part on hand, just in case an

emergency situation arises or one of the units proves to be defective once installed. Creating

this cushion or buffer helps to minimize the chance for production to be interrupted due to a

lack of essential parts in the operation supply inventory.

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Inventory management is not limited to documenting the delivery of raw materials and the

movement of those materials into operational process. The movement of those materials as

they go through the various stages of the operation is also important. Typically known as a

goods or work in progress inventory, tracking materials as they are used to create finished

goods also helps to identify the need to adjust ordering amounts before the raw materials

inventory gets dangerously low or is inflated to an unfavourable level.

Finally, inventory management has to do with keeping accurate records of finished goods that

are ready for shipment. This often means posting the production of newly completed goods to

the inventory totals as well as subtracting the most recent shipments of finished goods to

buyers. When the company has a return policy in place, there is usually a sub-category

contained in the finished goods inventory to account for any returned goods that are

reclassified as refurbished or second grade quality. Accurately maintaining figures on the

finished goods inventory makes it possible to quickly convey information to sales personnel

as to what is available and ready for shipment at any given time.

In addition to maintaining control of the volume and movement of various inventories,

inventory management also makes it possible to prepare accurate records that are used for

accessing any taxes due on each inventory type. Without precise data regarding unit volumes

within each phase of the overall operation, the company cannot accurately calculate the tax

amounts. This could lead to underpaying the taxes due and possibly incurring stiff penalties in

the event of an independent audit.

Inventory management is a very important function that determines the health of the supply

chain as well as the impacts the financial health of the balance sheet. Every organization

constantly strives to maintain optimum inventory to be able to meet its requirements and

avoid over or under inventory that can impact the financial figures.

Inventory is always dynamic. Inventory management requires constant and careful evaluation

of external and internal factors and control through planning and review. Most of the

organizations have a separate department or job function called inventory planners who

continuously monitor, control and review inventory and interface with production,

procurement and finance departments.

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DEFINING INVENTORY

The raw materials, work-in-process goods and completely finished goods that are considered

to be the portion of a business's assets that is ready or will be ready for sale. Inventory

represents one of the most important assets that most businesses possess, because the turnover

of inventory represents one of the primary sources of revenue generation and subsequent

earnings for the company's shareholders/owners.

From the above definition the following points stand out with reference to inventory:

All organizations engaged in production or sale of products hold inventory in one form

or other.

Inventory can be in complete state or incomplete state.

Inventory is held to facilitate future consumption, sale or further processing/value

addition.

All inventoried resources have economic value and can be considered as assets of the

organization.

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PURPOSE OF INVENTORY MANAGEMENT

A. Operating Purpose:

(1) Ensuring Availability of Materials: There should be a continuous availability of all

types of raw materials in the factory so that the production may not be help up wants

of any material. A minimum quantity of each material should be held in store to

permit production to move on schedule.

(2) Avoidance of Abnormal Wastage: There should be minimum possible wastage of

materials while these are being stored in the warehouses or used in the factory by the

workers. Wastage should be allowed up to a certain level known as normal wastage.

To avoid any abnormal wastage, strict control over the inventory should be exercised.

Leakage, theft, embezzlements of raw material and spoilage of material due to rust,

bust should be avoided.

(3) Promotion of Manufacturing Efficiency: If the right type of raw material is

available to the manufacturing departments at the right time, their manufacturing

efficiency is also increased. Their motivation level rises and morale is improved.

(4) Avoidance of Out of Stock Danger: Information about availability of materials

should be made continuously available to the management so that they can do

planning for procurement of raw material. It maintains the inventories at the optimum

level keeping in view the operational requirements. It also avoids the out of stock

danger

(5) Better Service to Customers: Sufficient stock of finished goods must be maintained

to match reasonable demand of the customers for prompt execution of their orders.

(6) Highlighting slow moving and obsolete items of materials.

(7) Designing poorer organization for inventory management: Clear cut accountability

should be fixed at various levels of organization.

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B. Financial Purpose:

1. Economy in purchasing: A proper inventory control brings certain advantages and

economies in purchasing also. Every attempt has to make to effect economy in purchasing

through quantity and taking advantage to favorable markets.

2. Reasonable Price: While purchasing materials, it is to be seen that right quality of

material is purchased at reasonably low price. Quality is not to be sacrificed at the cost of

lower price. The material purchased should be of the quality alone which is needed.

3. Optimum Investing and Efficient Use of capital: The basic aim of inventory control

from the financial point of view is the optimum level of investment in inventories. There

should be no excessive investment in stock, etc. Investment in inventories must not tie up

funds that could be used in other activities. The determination of maximum and minimum

level of stock attempt in this direction.

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TYPES OF INVENTORY

A manufacturing inventory consists of three different parts: raw materials, work in process

and finished goods. Using a leather crafting business as my sample craft company, here are

definitions and examples of the three:

1. Raw materials: Everything the crafter buys to make the product is classified as raw

materials. That includes leather, dyes, snaps and grommets. The raw material inventory

only includes items that have not yet been put into the production process.

2. Work in process: This includes all the leather raw materials that are in various stages of

development. For the leather crafting business, it would include leather pieces cut and in

the process of being sewn together and the leather belts and purse etc. that are partially

constructed. In addition to the raw materials, the work in process inventory includes the

cost of the labour directly doing the work and manufacturing overhead. Manufacturing

overhead is a catchall phrase for any other expenses the leather crafting business has that

indirectly relate to making the products. A good example is depreciation of leather making

fixed assets.

3. Finished goods: When the leather items are completely ready to sell at craft shows or

other venues, they are finished goods. The finished goods inventory also consists of the

cost of raw materials, labour and manufacturing overhead, now for the entire product.

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CONTROL OF MATERIALS:

Rigid control over materials are necessary not only to guard against theft, but also to minimize

waste and misuse from causes such as excessive inventories, over issue, deterioration, spoilage,

and obsolescence.

There are certain prerequisites to an effective control system for materials:

1. Materials of the desired quantity will be available when needed;

2. Materials will be purchased only when a need exists and in economical qualities;

3. Purchases of materials will be made at most favourable prices;

4. Vouchers for the payments of materials purchased will be approved only if the materials

have been received in good condition;

5. Materials will be protected against loss by proper physical control;

6. Issue of materials will be properly authorized and accounted for; and

7. All materials, at all times, will be charged, as the responsibility of some individual.

The control of materials, as an element of cost of production, is illustrated with reference to the

purchase and issues procedures, inventory systems, and inventory control techniques.

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IMPORTANCE OF INVENTORY CONTROL:

The importance or necessity of inventory control is well explained in the terms of the objects

of inventory control, which are obtained through it. A proper inventory control lowers down

the cost of production and improves profitability of enterprise.

ADVANTAGES OF INVENTORY CONTROL:

1. Reduction in investment in inventory.

2. Proper and efficient use of raw materials.

3. No bottleneck in production.

4. Improvement in production and sales.

5. Efficient and optimum use of physical as well as financial resources.

6. Ordering cost can be reduced if a firm places a few large orders in place of numerous

small orders.

7. Maintenance of adequate inventories reduces the set-up cost associated with each

production run.

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RISK AND COST ASSOCIATED WITH INVENTORIES:

Holding of Inventories expose the firm to a number of risks and costs.

Major risks are:

1. Price decline: They may be due to increase in market supply of the product, introduction

of a new competitive product, price-cut by the competitors etc.

2. Product deterioration: This may due to holding a product for too long a period or

improper storage conditions.

3. Obsolescence: This may due to change in customer’s taste, new production technique,

improvements in product design, specifications etc.

The Costs of holding inventories are as follows:

1. Material Cost: This include the cost of purchasing the goods, transportation and handling

charges less any discount allowed by the supplier of goods.

2. Ordering Cost: This includes the variables cost associated with placing an order for the

goods. The fewer the orders, the lower will be the ordering costs for the firm.

3. Carrying Cost: This includes the expenses for storing and handling the goods. It

comprises storage costs, insurance costs, spoilage costs, cost of funds tied up in

inventories etc.

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TECHNIQUES OF INVENTORY CONTROL

In managing inventories, the firm’s objective should be in consonance with the wealth

maximization principle. To achieve this, the firm should determine the optimum level of

investment in inventory. To deal with the problems of inventory management effectively, it

becomes necessary to be conversant with the different techniques of inventory control.

Although the concepts involved in inventory management are production-oriented and are not

strictly financial it is important that the financial manager understand them since they have

certain built-in financial costs. The different techniques of inventory control may be

summarized as follows:

1. Inventory level Technique: The main objective of stock control is to determine and

maintain the optimum level of stock so that there is neither shortage of any material nor

unnecessary investment in inventory. For this purpose, determination of maximum and

minimum limits of inventory and ordering level is necessary.

2. Maximum stock Limit: This represents the quantity of inventory above which it should

not be allowed to be kept. The main object of fixing this limit is to ensure that

unnecessary working capital is not blocked in stores. The quantity is fixed keeping in view

the disadvantages of overstocking.

The disadvantages of overstocking are:

1. Capital is blocked up unnecessarily in stores so there will be loss of interest.

2. More warehouse space is needed so more rent will have to be paid.

3. There are chances of deterioration in quality because large stocks will require more

time for use is the factory.

4. There is the possibility of loss due to obsolescence.

5. There is danger of depreciation in market values.

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The maximum stock level is fixed by taking into account the following

factors:

1. Amount of capital available for maintaining stores.

2. Warehouse space available.

3. Rate of consumption of the material.

4. The time lag between indenting and receiving of the material.

5. Length and technical nature of the production process.

6. Possibility of loss in stores by deterioration, evaporation etc. (There are certain stores,

which deteriorate in quality if they are stored for longer period.)

7. Cost of maintaining stores.

8. Likely fluctuation in prices. For instance, if there is a possibility of a substantial

increase in prices in the coming period, a comparatively large maximum stock level

will be fixed. On the other hand, if there is the possibility of decrease in price in the

near future, stocks are kept at a much reduced level.

9. The seasonal nature of supply of material. Certain materials are available only during

specific periods of year. So these have to be stocked heavily during these periods.

10. Restrictions imposed by the government or local authority in regard to materials which

there are inherent risks, e.g. fire and explosion.

11. Risk of obsolescence, i.e., possibility of change in fashion and habit which will

necessitate change in requirements of materials.

The following formula may be applied to calculate the maximum stock:

1. Maximum Stock = Minimum Inventory + Lot size

2. Maximum Stock = Reorder Level - Minimum consumption during Minimum lead time +

Lot size

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Minimum Stock Limit (Safety or Buffer stock)

This represents the quantity below which stock should not be allowed to fall. It is maintained

to save from the situation of stock out in the event of abnormal increase in material usage rate

and/or delivery period. In fact determination of this quantity is significant because of

uncertainty in respect to material usage rate and delivery period. The main purpose of this

level is to ensure that production is not held up due to shortage of any material. This level is

fixed for all items of stores and following factors are taken into account for the fixation of this

level:

1. Lead time i.e. time lag between intending and receiving the material.

2. Rate of consumption of the material during the lead time.

3. Re-order Level

The following formula is applied to calculate Minimum Stock:

Minimum Stock = Re-order Level - Normal usage during Normal Lead time

But if normal usage and normal lead time is not known then average usage will be treated as

normal usage and average re-order will be treated as normal re-order period.

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Re-ordering Level (Ordering Level)

It is the point at which if the stock of the material in stores reaches, the storekeeper should

initiate the purchase requisition for fresh supply of material. This level is fixed somewhere

between maximum and minimum level is such a way that the difference of quantity of the

material between the reordering level and the minimum level will be sufficient to meet

requirements of production up to the time of fresh supply of the material. It is fixed after

taking into consideration the following factors:

a) Rate of material usage: Generally this rate is found out as usage rate per day, pre week

or per month. The quantity of production fluctuates according to demand of the product

which results in variation in usage rate.

Hence, the following three factors:

(i) Maximum usage rate: It implies quantity of material required at maximum capacity

production.

(ii) Minimum usage rate: It implies quantity of material required at capacity

production in most unfavorable business conditions.

(iii) Normal or average Usage Rate: It implies quantity of material required at capacity

production under normal business conditions.

b) Ordering Period: The time taken in preparing the order for purchase of material is called

ordering period. In some concerns this period may be significant but in large concerns this

period is significant because before placing the order the purchase manager has to trace

out the best suppliers, after that only he places the order.

c) Delivery, Lead or Procurement Time: The time taken from the date of placing the order

to the date of delivery by the suppliers is called procurement time. The maximum,

minimum and average procurement time should also be determined.

d) Minimum Stock Level: This is the level of stock below which stocks should normally

not be allowed to fall.

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Danger Level

This means a level at which normal issues of the material are stopped and issues made only

under specific instructions. The purchase officer will make special arrangements to procure

the materials reaching at their danger levels so that the production may not stop due to

shortage of materials. It is determined as follows:

Danger level = Average Consumption x Maximum Re-order period for Emergency

Purchase

Max. Inventory

Average usage

EOQ

Avg. inventory----------------------------------------------------

Re-order point-----------------------------------------------------

max.usage

Safety stock -------------------------------------------------------

Weeks lead time

Re-order point under safety stock

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ECONOMIC ORDER QUANTITY TECHNIQUE

Economic order quantity (EOQ) is that size of the order which gives maximum economy in

purchasing any material and ultimately contributes towards maintaining the materials at the

optimum level and at the minimum cost.

In other words, the economic order quantity (EOQ) is the amount of inventory to be ordered at

one time for purposes of minimizing annual inventory cost.

The quantity to order at a given time must be determined by balancing two factors:

1. The cost of possessing or carrying materials

2. The cost of acquiring or ordering materials.

Purchasing larger quantities may decrease the unit cost of acquisition, but this saving may not be

more than offset by the cost of carrying materials in stock for a longer period of time.

The carrying cost of inventory may include:

Interest on investment of working capital

Property tax and insurance

Storage cost, handling cost

Deterioration and shrinkage of stocks

Obsolescence of stocks.

Economic order quantity =

A = Demand for the year Cp = Cost to place a single order Ch = Cost to hold one unit inventory for a year

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THE SELECTIVE INVENTORY CONTROL OR ABC SYSTEM OF CONTROL

Most manufacturing firms find themselves confronted with virtually thousands of different

inventory items. Most of these items are relatively inexpensive, while other items are quite

expensive and account for a large portion of the firm’s investment. Some inventory items,

although not expensive, turnover slowly and therefore, they require a high average

investment. The firm should classify them into A.B.C category items.

Category A will include more expensive items (in cost of product) with high investment and it

will require more intensive control.

The ‘B’ group will consist of the items accounting for the next largest investment.

The ‘C’ group will consist of a large number of items of inventory accounting for small

investment.

The ‘A’ items require intensive inventory control and most sophisticated inventory control

techniques should be applied to these items.

The ‘B’ items can be controlled using less sophisticated technique, and their level can be

viewed less frequently than ‘A’ items.

The ‘C’ items can receive the minimum attention: they will probably be ordered in large

quantities in order to obtain them at the lowest price.

Though the ABC technique is a good technique but it cannot be universally applied. Certain

items of inventory may be inexpensive but may be critical to the product in process and

cannot be easily obtained. Therefore, they may require special attention.

These types of items must be treated as “A” class items even though, using the broad

framework, they would be “B” or “C” class items.

Although, not perfect, the ABC system is an excellent method for determining the degree of

inventory control efforts required to expand each item of inventory.21 | P a g e

The following points should be kept in mind for ABC analysis:

1. Where items can be substituted for each other, they should be preferably treated as one item.

2. More emphasis should be given to the value of consumption and not to price per unit of the

item.

3. All the items consumed by an organization should be considered together for classifying as A,

B or C instead of taking item as spare, raw materials, semi-finished and finished items and

then classifying as A, B and C.

There can be more than three classes and the period of consumption need not necessarily be

one year

Application of ABC Analysis:

ABC analysis can be effectively used in Material Management. The various stages where it can

be applied are:

1. Information of items which require higher degree of control.

2. To evolve useful re-ordering strategy.

3. Stock records.

4. Priority treatment to different items.

5. Determination of safety stock items.

6. Stores layout.

7. Value analysis.

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OBJECTIVES OF THE PROJECT

The objective of my project is:

To understand the inventory management process for commercial items.

To study the documentation work involved in inventory management process.

To study the usage and benefits in incorporating IT tool – SAP in inventory management

process.

Significance of Project:

Inventory Department plays a vital role in the operation of a company. The most

important purpose served by the Inventory Department is to provide uninterrupted supply

of raw materials to all the departments of organization when required.

The need of study of Inventory Department is to know how the goods are received, stored

& issued in the organization. 

The need to study documentation work performed by the employees for proper

functioning of the system.

The study of the usage and advantages of IT tool i.e. ERP SAP implemented at Mazagon

Dock Ltd. which makes the system transparent and effective.

Hence because of the above described reasons the need to study the Inventory Department

process has its own significance.

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RESEARCH METHODOGY

Research methodology is the way to systematically solve the research problem. Objective of

research study is Analysis of inventory of Mazagon Dock Ltd. Analysing of inventory, we

determining following inventories-

1. Raw materials inventory.

2. Supplies inventory.

In this section of inventories, we should analyse the annual investment in inventories,

Valuation of inventory after closing balance of items in inventory. In this manner, we

calculate reorder point, safety stock levels, minimum & maximum levels of inventory.

Working hypothesis of the objective is that inventories are the stock piles of goods .The all

organization on their inventories. MDL invests about 60%of total assets inventory should

reanalysed their records. The analysis of inventory according to their data available in the

company. The data collection of inventory for analysis by the direct store department. We

should record primary and secondary data by the helps of assistants ledger books M R N etc.

We went to the all inventories as raw material, work in progress inventory, finished goods

inventory by the proper observation of data’s of the company.

The particular method for data collecting used direct interview with assistants and telephone

interview with friends to known about annual investment of inventories and other important

data.

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CHAPTER 2

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SHIP BUILDING INDUSTRY

Global Shipbuilding is estimated to be a USD 20 billion industry and is presently dominated

by Korea, Japan and China, which together account for around 75 per cent of the world

output.

Fortunes of shipping and shipbuilding industries seem to be linked to each other or at least

move in tandem. For nearly three decades in the post-World War II era, both the industries

were dominated by European nations and United States. However, high labour costs in the

yards of Europe and USA, one of the major determinants in this cost competitive industry, has

led to a gradual shift of the center of shipbuilding to these Asian nations over the last two

decades.

Similar progress was observed in Indian shipbuilding industry, as per the research carried out

by i-maritime Consultancy the order book of the Indian shipyards, which was hovering

around Rs 1,500 crore in 2002, has reached a value close to Rs 13,700 crore by September

2006, with nine times increase in just four years. The Indian shipbuilding, which was totally

domestic till late 90’s, has become export oriented. ABG Shipyard was the first to build and

export a newsprint carrier for a Norwegian client in 2000 and established India’s

competitiveness in building and delivering ships of the international standards. Today six

years down, out of the 199 ships on the order book, close to 124 are for exports.

India has a long history and tradition of shipbuilding that can be traced back to the Harappan

civilisation. However, since the beginning of the 20th century, it had been on a declining scale

and presently, rated capacity of country's shipbuilding yards is minuscule vis-à-vis world's

capacity.

Indian shipyards remain largely insulated from the present boom in shipping and shipbuilding.

Hindustan Shipyard Limited and Cochin Shipyard Limited, two of the country's largest

shipyards, have got only one order each - a Handymax and an Aframax vessels respectively.

Both their orders are from Shipping Corporation of India, a public sector unit and many

market participants believe that the above is not a result of economic consideration.

However, Indian shipowners have gone forward and placed sizeably large orders with foreign

shipyards. SCI has placed order for 4 Aframax with Hyundai Shipyard, which is due for

delivery in 2003. Great Eastern Shipping has placed order for 2 Aframax vessels, one each

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with Samho Shipyard and Samsung Shipyard and is also planning to place an order for one

more Aframax with a foreign shipyard. The lack of commitment, cost overruns, poor quality

constructions, delayed delivery, etc. has debarred the Indian shipyards from getting a

significant volume of orders.

However, some private sector yards are showing increasingly better performance. ABG

Shipyards, one of the leading private sector shipyards of the country, has recently executed an

order of newsprint carriers for Norway-based Lys Lines and got another order of delivering

five 10,000-dwt dry cargo vessels from a German ship-owner. Both Norwegians and Germans

are known to demand the best of quality products.

Looking at the prospects of Indian shipbuilding industry, it has been observed that cost

competitiveness remains the significant advantage of domestic shipbuilding industry

considering the two major parameters of shipbuilding viz. steel fabrication and labour. China

is emerging as a major shipbuilding nation leveraging on these advantages and posing serious

threats to Korea and Japan. Considering this, it can be said that a proper strategy taken in the

right direction could leverage the competitive benefit and lead the Indian shipbuilding

industry towards better prospects.

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WORLD SHIPBUILDING INDUSTRY

South Korea is the world's largest shipbuilding nation with a global market share of 37.45% in

2011. South Korea is the global leader in the production of advanced high-tech vessels such

as cruise liners, super tankers, LNG carriers, drill ships, and large-sized container ships. In the

3rd quarter of 2011, South Korea won all 18 orders for LNG carriers, 3 out of 5 drill ships and

5 out of 7 large-sized container ships.

South Korea's shipyards are highly efficient, with the world's largest shipyard in Ulsan

operated by Hyundai Heavy Industries slipping a newly-built, $80 million vessel into the

water every four working days. South Korea's "big three" shipbuilders, Hyundai Heavy

Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering,

dominate global shipbuilding, with STX Shipbuilding, Hyundai Samho Heavy Industries,

Hanjin Heavy Industries, and Sungdong Shipbuilding & Marine Engineering also ranking

among the top ten shipbuilders in the world.

China is an emerging shipbuilder that briefly overtook South Korea during the 2008-2010

global financial crises as they won new orders for medium and small-sized container ships

based on their cheap prices, although its current production is limited mainly to basic vessels.

Japan lost it’s once industry leading position to South Korea in 2003 and its market share has

since fallen sharply. The European nations' combined output has fallen to a tenth of South

Korea's, and the outputs of the United States and the rest of the world have become negligible.

World shipbuilding market share by countries (2011)

Rank Country Combined GT %

1 South Korea 137,596,000 37.45%

2 China 123,961,000 33.7%

3 Japan 63,641,000 17.3%

4 Philippines 423,000 1.6%

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INDIAN SHIPBUILDING

Shipbuilding is a globalized, technology and capital intensive industry, with more volatility

than the OSV industry.

Shipbuilding is a cyclical industry, where variables like fresh developments in the shipping

industry, current market perception, government tax and reforms. Shipbuilding is a unique

industry, because a ship is sold before the construction begins and each ship is custom made

for the owner. The lead time is anywhere between 1 year to 3 years for the delivery of a new

ship. Orders are placed in anticipation of the ship’s future use. In many cases, companies even

enter into a charter agreement in advance, which makes it absolutely imperative and critical

for the shipyard to deliver within specified deadlines.

Thus, delay in delivery not only affects the owner, but also the reputation of the yard where it

was put on order, not to mention the financial aftermath. Hence, companies prefer to place

orders with established shipyards with a good track record.

Indian Shipyards have an order book of close to 260 ships with aggregate value in the region

of Rs.280 billion. Approximately, Rs.200 billion are export orders, while Rs.80 billion is for

domestic shipping companies.

Majority of the orders placed at Indian shipyards are from European ship owners. Indian

shipyards have built offshore supply vessels for leading offshore companies such as Deep Sea

Supply, Bourbon Offshore, Lamnalco Group, Halul Offshore, Maridive Oil, etc. They have

also built ships for leading international cargo carriers. Cochin Shipyard has built ships for

Clipper Group. In addition, Indian shipyards have new-building orders from Precious

Shipping of Singapore, Reederei Vogemann and Opielok Reederei of Germany, etc.

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INDIAN SHIPBUILDING - CURRENT SCENARIO

India has close to 32 shipyards including those owned by Central Government, State

Government, and Defence Ministry, listed and privately held. The following chart summarises

the Indian shipbuilding industry, in terms of ownership of shipyards.

INDIAN SHIPBUILDING

Government Controlled Private Sector

Central Government State

Government

Public Listed Privately Held

Ministry of

Surface

Transport

Ministry of

Defence

Cochin

Shipyard

Hindustan

Shipyard

Hooghly

Dock

Mazagon

Dock

Goa

Shipyard

Garden

Reach

Shipyard

Alcock

Ashdown

Shalimar

Works

ABG

Shipyard

Bharati

Shipyard

Pipavav

Shipyard

About 22: some

of the leading

ones are L&T,

Chowgule,

Tebma, Dempo,

Shoft etc.

Despite the current downturn, Indian shipyards weren’t idle. Most new-building orders during

recession were from government companies such as ONGC, SCI and other firms such as coast

guard, navy, etc. The orders received during the shipping upturn period are due to be

completed by 2011-12. Many orders are nearing completion and the ones due for delivery in

2009-10 are unlikely to be cancelled. Orders due in 2011-12 may be cancelled. However, this

will not have an immediate impact, because the shipyards will be compensated with penalty

fees for such cancellations.

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CHAPTER 3

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BACKGROUND OF THE COMPANY

Mazagon Dock Limited is the India’s premier shipyard constructing warships as well as

offshore platforms.

Main activities are ship building, ship repairs and fabrication of offshore structures with

facilities situated at Mumbai and Nhava. We have the capability to build warships,

submarines, merchant ships up to 30,000 DWT and fabrication of well head platforms,

process and production platforms and jack up rigs. For outfitting work, the company has a

large number of workshops with sophisticated equipment and machines specific to hull

fabrication and ship construction work.

Repair work is also under taken using the available facilities.

The Company has qualified manpower to implement CAD/CAM/CIM using the latest ship

design software’s, operating from a number of work stations having the latest computer

hardware to provide, up to date design and production support, commensurate with for the

yard’s capabilities. The workforce is well trained various disciplines. Regular training

programmes keep the men technologically abreast of the latest techniques of their profession.

Mazagon Dock Limited, Mumbai, an ISO 9001 : 2008 Company is one of the leading

shipbuilding and offshore fabrication yards in India. The Yard was established in the 18th

century, and over the 200 odd eventful years, has earned a reputation for quality work and

established a tradition of skilled and resourceful service to the shipping world in general and

the Indian Navy, Coast Guard & ONGC in particular. In its varied history, MDL passed

through various ownerships like the P&O lines and the British India Steam Navigation

Company. It was incorporated as a Public Limited Company in 1934.

After its takeover by the Government in 1960, Mazagon Dock grew rapidly to become the

premier war-shipbuilding yard in India, producing sophisticated warships for the Navy and

offshore structures for the ONGC. It has grown from a single unit, small ship Repair

Company, into a multi-unit and multi-product company, with significant rise in production,

use of modern technology and sophistication of products. The company’s current portfolio of

designs spans a wide range of products for both domestic and overseas clients.

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Mazagon Dock Limited (MDL) is India’s prime shipyard. It manufactures warships and

submarines for the Indian Navy, as well as offshore platforms and associated support vessels

for offshore oil drilling. It also builds tankers, cargo bulk carriers and passenger ships and

ferries.

The shipyards of MDL were established in the 18th century. These yards have over two

centuries of experience in shipbuilding. Ownership of the yards passed through various

entities, including the P&O Lines and the British India Steam Navigation Company.

Eventually, Mazagon Dock Limited was registered as a public company in 1934. The

shipyard was nationalized in 1960, and is now a PSU of the Government of India.

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ACTIVITIES

Vice Admiral H. S. Malhi, AVSM, VSM-IN (Retd) is the head of Mazgaon Docks, the

activities at the yard are shipbuilding, Submarine, and fabrication of offshore structures. It has

manufacturing facilities situated at Mumbai and Nhava.

The yard has the capability to build warships, submarines, and merchant ships up to 62,000

metric tons deadweight (DWT). It can also fabricate well head platforms, process and

production platforms and jack up rigs for oil exploration.

COMMERCIAL PROJECTS

OFFSHORE PLATFORMS

MDL builds offshore oil drilling platforms. It operates facilities at Alcock, Mumbai and at

Nhava Yard for construction of platforms with wellhead, water injection and production

separator and glycol process capabilities, as well as jack up rigs, SBMs and other offshore

structures. Repair and maintenance jobs on offshore rigs are also undertaken at Alcock,

Jackets up to 80 m. length and 2200 T. weight can be constructed. At Nhava, Jackets up to

80 m. length and 2300 T. weight, Main Decks up to 550 T. weight and Helipads of 160 T.

weight. The yard also builds specialist vessels with capability to clean oil spills and fight

fires on offshore drilling platforms.

COMMERCIAL VESSELS

The yard has built a wide range of vessels for the commercial sector, including offshore

supply vessels (OSVs), harbour utility vessels and crafts such as tug boats, dredgers,

tankers, passenger ships and cargo ships. It has also built and supplied commercial

trawlers and barges, support vessels, a floating jetty and floating cranes.

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NAVAL PROJECTS

WARSHIPS

NILGIRI CLASS FRIGATE

The first warship built by MDL was the 2,900-ton displacement, INS Nilgiri, the lead ship

of her class. She was launched on 15 October 1966 and commissioned on 23 June 1972.

Five more frigates of this class were built over the next nine years for the Indian Navy.

GODAVARI CLASS FRIGATE

While construction of the Nilgiri-class was being completed, the Indian Navy proposed

requirements for an indigenously designed and built frigate. This new frigate was to be of

wholly Indian design and manufacture. To address these requirements, MDL designed and

built the Godavari class guided-missile frigates with a 3800 tons displacement, and ability

to embark two helicopters. Three ships of the class were built by MDL - the lead ship, INS

Godavari, the INS Ganga and INS Gomati.

KHUKRI CLASS CORVETTES

MDL designed and built the first two vessels of the Khukri class corvettes for the Indian

Navy. The lead vessel of the class was commissioned on 23 August 1989, and the second,

INS Kuthar, on 7 June 1990. The remainder of the class were built at Garden Reach

Shipbuilders and Engineers (GRSE) following a transfer of technology from MDL, in

order to diversify warship building capabilities to other yards, as well as to make room at

MDL for the larger projects to follow.

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DELHI CLASS DESTROYERS

The next class of vessels designed and built by MDL were the Project-15 Delhi class

guided-missile destroyers. These were powered by gas turbines and displaced 6,200

tonnes. The first of the class, INS Delhi, was launched in February 1991 and

commissioned on 15 November 1997. The second, INS Mysore, was commissioned on 2

June 1999 followed by the last ship in the series, INS Mumbai, on 22 January 2001.

SHIVALIK CLASS FRIGATES

The 6000 tons Shivalik class (Project-17) frigates are the first warships with stealth

features to be designed and built in India. These multi-role, guided-missile frigates have

reduced radar signature and are due to enter service starting in 2010. At least 3 of this

class are under construction at MDL. The lead vessel of the class commissioned on 29

April 2010.

KOLKATA CLASS DESTROYERS

Kolkata class vessels are the next-generation of guided-missile destroyers in the 6,800

tonnes range to be designed and built at MDL. They incorporate stealth features. The lead

vessel of the class was launched on 30 March 2006. At least three vessels of the class are

planned.

COAST GUARD VESSELS

The yard also builds offshore patrol vessels (OPVs) for the Indian Coast Guard. These

vessels are specialised ships built for patrolling, policing, search and rescue operations in

India's Exclusive Economic Zone. Each of these ships carries a helicopter on board. Seven

such ships have been delivered to the Coast Guard.

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FLOATING POLICE STATIONS

Based on the order by the BSF the yard started construction of floating Border Out Posts

(BOPs). Essentially these BOPs are floating police stations, each with four high-speed

boats. The yard has delivered 9 out of an order for 14 BOPs.

OTHER VESSELS

Among other ships, the yard has built three fast missile boats, a cadet training ship, and

various other utility ships for the Indian Navy.

SUBMARINES

SHISHUMAR CLASS SUBMARINE

The Shishumar class submarines are a variant of the Type 209 diesel-electric submarine

designed by Howaldtswerke-Deutsche Werft. Two vessels of this class were constructed

at MDL. These were the first two indigenously built submarines in India. INS Shalki was

commissioned on 7 February 1992 and INS Shankul was commissioned on 28 May 1994.

SCORPÈNE CLASS SUBMARINE

MDL is presently building six diesel-electric submarines of the Scorpène class under a

technology-transfer agreement with DCNS.

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CHAPTER 4

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DATA ANALYSIS

PRIMARY SOURCES

Primary data is the data which is collected initially for the first time. It helps in the validation

of secondary data from secondary sources. It is originals in nature and it may include the

following methods:

Observations

Personal interaction

SECONDARY SOURCES

Secondary data is the details that are available in the form of facts and figures. The sources of

secondary data are;

Magazines

Websites

Books

Most of the data in this research is primary in the form of print screens & also secondary data

are used in this project.

RESEARCH INSTRUMENTS OR TOOL USED

Research instrument used for collection of information is Observation, Practice & Interviews.

As this research is descriptive so it includes the study of process as it is by observing people

on their work, doing the process on computer system & taking print screens at the same time,

& taking interviews of people by asking them questions to give recommendations for

improvement.

ANALYSIS OF DATA OBTAINED40 | P a g e

ITEM MAXIMUM

STOCK LEVEL

RE-ORDER

LEVEL

SAFETY STOCK

LEVEL

ARGON

CYINDERS

45 20 10

STEEL SHEETS 150 60 30

PAINTS 100 45 20

STEEL PIPES 200 90 50

PETROL/DIESEL

(LITRES)

5000 1800 1000

LEAD TIME = 45 DAYS

GRAPHICAL REPRESENTATIONS

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CHAPTER 5

a) CONCLUSION

1. Proper Inventory management system is followed using SAP.45 | P a g e

2. Although the SAP is installed but still the process was slow because of more paper

work & lack of knowledge among employees about the SAP.

3. The firm follows inventory control techniques such as A-B-C technique which is quite

effective.

4. Storage facility in Mazagon Dock Ltd. is quite large and up to the mark.

b) FINDINGS

1. Mazagon Dock Ltd. Faces the problem of competition from private companies.

2. There is no proper sequence & acknowledgement board for certain items in store

department. It is not good when external auditing held in company.

3. Organization has no record of wastage items. It is not good for operating profit of the

company.

4. In organization store assistants have no proper knowledge about engineering goods &

raw materials.

5. There is no proper staff in HR/ Personnel department for listening grievances of

employees. So employees get rid of the organization without any notice. It is not good

for any organization.

c) RECOMMENDATION

1. The new recruits and less experienced employees should be given proper training on

related SAP modules.

2. Proper work division should be done so that employee knows what work is assigned to

them. Sometimes during my training period I noticed that in the goods receipt process

because of lack of coordination there confusion as to who do it.

3. The paper work should be reduced and computerization should be increased for more

successful working.

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CHAPTER 6

a) REFERENCES

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1. WEBSITES

en.wikipedia.org/wiki/MDL

www.mazagondock.gov.in/

www.google.com

2. BOOKS

Inventory manual - stores (Mazagon dock Ltd.)

Essentials of inventory management - Max Muller

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