Ril Inventory Mgmt

8/8/2019 Ril Inventory Mgmt

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A PROJECT REPORT ON

INVENTORY MANAGEMENT

Undertake n AtRIL-VMD

Submitted By

NAUTIYAL ANIMESH CHANDRAPRAKASH

IN PARTIAL FULFILLMENT OF

MASTER OF BUSINESS ADMINISTRATION PROGRAMMEAt

G. H. PATEL P.G. INSTITUTE OF BUSINESS MANAGEMENTSPU

VVNAGA


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DECLARATION

I, Animesh C Nautiyal, hereby declare that the report on Summer Training entitled

Inventory Management is a result of my own work and my indebtedness to other workpublications, if any, have been duly acknowledged.

Place: V.V. NagarDate: 19/6/2010 Animesh Nautiyal


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PREFACE

The G.H. Patel P.G. Institute of Business Management, V.V.Nagar gives the students anOpportunity to have an insight of any large scale unit so that we get the exposure to an

actual managerial environment of company. I am lucky to have summer training in acompany like RIL which is considered to be one of the largest establishments in India.

During this period, I had overview of the finance department within which I could make adetail study of all the section comes under the roof of finance in RIL. This training will helpme to correlate theoretical knowledge and its practical applications. It was a thrillingexperience while studying working of RIL and understanding it. This program has led me torealize the contribution of RIL to the Petroleum Industry of India.

I am grateful to the senior executives of RIL for their cooperation and interest in my projectwithout which it could not have been possible to go ahead with my assignment.

With great pleasure, I present this project which consists of a brief study of inventorymanagement in RIL.

Animesh Nautiyal

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ACKNOWLEDGEMENT

It is almost a ritual to begin the project report with an ACKNOWLEDGEMENT and our

heartfelt to all those who directly or indirectly made our project a great learning experience,

indicating me the values and importing the skills and hard work required for project.

Many have contributed to the successful preparation of this report. We would like to place

on record our grateful thanks to each one of them. We have great pleasure in submitting

this report on Inventory management as part of our 2nd semester project work.

I take this opportunity to Dr. (Prof.) H.J. Jani Director of GHPIBM for allowing me to carry

training and project.

I am thankful to A.K. Rastogi for his invaluable guidance given to me before and during our

project work and for their keen interest untiring effort, unfailing courtesy encouragement

and efficient guidance in completing the project in such and elegant form. I am also thankful

to all faculty members of GHPIBM as they provide true support and courage.

I would like to express my humble thanks to Mr. SAWANT (Training Officer) without

whom my training at RIL, Vadodara Complex would not have been possible at all.

I would also like to thank Mr. Amit Gupta, Mr. Amar Petiwale, Mr. Kushal Parikh, Miss

Chitra Shah, Mr. Yashwant Rathod who have given me time from their busy schedule to

provide me with information

At last but not the least, I take an opportunity to appeal my profound gratitude to my

adorable and beloved parents for their everlasting love, strong moral support,

encouragement and personal sacrifice without which I was unable to reach the present

status of education

Animesh Nautiyal

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Table of ContentsDECLARATION......................................................................................................................iiiPREFACE.................................................................................................................................iACKNOWLEDGEMENT..........................................................................................................iiTable of Contents....................................................................................................................iiiList of Tables...........................................................................................................................iii

List of Figures.........................................................................................................................ivEXECUTIVE SUMMARY.........................................................................................................vChapter 1 Company Profile.....................................................................................................1Chapter 2 Introduction of the subject....................................................................................10Chapter 3 Material Planning.................................................................................................14

Chapter 4 Purchase and Stores Department........................................................................17Chapter 6 Inventory Management.........................................................................................25SWOT MATRIX.....................................................................................................................41Results and Findings..............................................................................................................viBIBLOGRAPHY.....................................................................................................................vii

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List of Tables

Table 1.1 Milestones..............................................................................................................3Figure 1.1 Organizational Hierarchy.......................................................................................5Figure 1.2 VMD Layout...........................................................................................................5

Table 1.2 Plants and Their Capacity.......................................................................................6Table 1.3 Products..................................................................................................................7Table 1.4 Application of Products...........................................................................................8Table 1.5 Competitors.............................................................................................................9Figure 4.1 Purchase Procedure ..........................................................................................18Figure 4.2 Purchase Procedure (Liquid) .............................................................................19

Figure 4.3 Process Flow ......................................................23Table 6.1 Material Classification...........................................................................................26Figure 6.1 Inventory Structure...............................................................................................28

Figure 6.2 Inventory Component............................................................................29

Table 6.1 Item Classification by ABC....................................................................................30Figure 6.3 ABC Analysis (in percentage) .............................................................................30Figure 6.4 ABC Analysis (in Amount)....................................................................................31Table 6.1 Item in ABC...........................................................................................................31Table 6.2 Item Classification by FSN....................................................................................32Figure 6.5 FSN Analysis (in percentage) .............................................................................32Table 6.4 Distribution of Non Moving....................................................................................33Figure 6.6 FSN Distribution Analysis (in percentage) ..........................................................33Table 6.5 Provision for Non Moving......................................................................................34Figure 6.7 Provision for Non Moving Inventories (in percentage)........................................34Table 6.6 Example of Categorization of AX, BY and CZ Items............................................36

Figure 6.8 Inventory Turnover Ratio.....................................................................................38Figure 6.9 Material Cost Component....................................................................................38Figure 6.10 NWC to Sales....................................................................................................39Figure 6.11 Average Receivable Period...............................................................................39Figure 6.12 Inventory Conversion Ratio...............................................................................40Figure 6.13 Operating Cycle.................................................................................................40

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List of Figures

Table 1.1 Milestones..............................................................................................................3Figure 1.1 Organizational Hierarchy.......................................................................................5Figure 1.2 VMD Layout...........................................................................................................5

Table 1.2 Plants and Their Capacity.......................................................................................6Table 1.3 Products..................................................................................................................7Table 1.4 Application of Products...........................................................................................8Table 1.5 Competitors.............................................................................................................9Figure 4.1 Purchase Procedure ..........................................................................................18Figure 4.2 Purchase Procedure (Liquid) .............................................................................19

Figure 4.3 Process Flow ......................................................23Table 6.1 Material Classification...........................................................................................26Figure 6.1 Inventory Structure...............................................................................................28

Figure 6.2 Inventory Component............................................................................29

Table 6.1 Item Classification by ABC....................................................................................30Figure 6.3 ABC Analysis (in percentage) .............................................................................30Figure 6.4 ABC Analysis (in Amount)....................................................................................31Table 6.1 Item in ABC...........................................................................................................31Table 6.2 Item Classification by FSN....................................................................................32Figure 6.5 FSN Analysis (in percentage) .............................................................................32Table 6.4 Distribution of Non Moving....................................................................................33Figure 6.6 FSN Distribution Analysis (in percentage) ..........................................................33Table 6.5 Provision for Non Moving......................................................................................34Figure 6.7 Provision for Non Moving Inventories (in percentage)........................................34Table 6.6 Example of Categorization of AX, BY and CZ Items............................................36

Figure 6.8 Inventory Turnover Ratio.....................................................................................38Figure 6.9 Material Cost Component....................................................................................38Figure 6.10 NWC to Sales....................................................................................................39Figure 6.11 Average Receivable Period...............................................................................39Figure 6.12 Inventory Conversion Ratio...............................................................................40Figure 6.13 Operating Cycle.................................................................................................40

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EXECUTIVE SUMMARY

I have completed my training at material (finance) department. My area of work was onInventory Management .I undertook a unique, step-by-step methodology for preparation ofthe report. Reference books, RIL internal portal, website, and the data available at central

stores really help me to make this report valuable.

In this report first I have given the general information regarding the company. It includesthe history of company; its disinvestments, milestones, board of directors, quality policy,financial position of the company, and the products.

Then I have focused on my core project regarding the procedure followed for the inventorymanagement at RIL. It covers how the material requirement is generate followed by thepurchase procedure then and the report deals with the handling of the inventory. In the end,the findings and the bibliography are given. The report depends on the secondary datafrom annual reports and some interviews with various managers. It may be possible that

the data from which the report is made may not appear in the report because some data isconfidential for the company.

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Chapter 1 Company Profile

1.1 Introduction

Indian Petrochemicals Corporation Limited (IPCL) is a pioneering petrochemicals company

in India. It was established on March 22, 1969, with a view to promote and encourage theuse of plastics in India.

Its business comprises of polymers, synthetic fiber, fiber intermediaries, solvents,surfactants, industrial chemicals, catalysts, adsorbents and polyesters. The Companyoperates three petrochemical complexes, a naphtha-based complex at Vadodara and gas-based complex each at Nagothane near Mumbai and at Dahej on Narmada estuary in bayof Khambhat. The Company also operates a catalyst manufacturing facility at Vadodara.From a small 66,000 tonnes cracker the Company has come a long way and produces overone million tones of merchant products. Backed by strong Research Centre, ProductApplication Centres, Technology Management Centres and Customer Relation Centres the

Company is continuously innovating its processes and products.

In June 2002, the Government of India as a part of its disinvestment programme divested26% of its equity shares in favour of Reliance Petro investments Limited (RPIL), a RelianceGroup Company, and Indias fastest growing and most admired private sector groupfounded by visionary entrepreneur Shri Dhirubhai H. Ambani. RPIL acquired an additional20% equity shares through a cash offer in terms of SEBI (Takeover Regulations) andcurrently holds 46% of Company's equity shares.

The company was managed by a board nominated by government of India till June 4,2002. The government of India as a part of its divestment programme divested 26% ofcompanys equity shares in favour of reliance Petro-investments ltd. through an open,transparent and competitive bidding process.

The company is now a new entrant to reliance family, Indias fastest growing and mostadmire private sector group founded by a visionary entrepreneur late Mr. Dhirubhai H.Ambani. Reliance has acquired additional 20% of equity shares from public through publicoffer and now holds 46% of companys equity shares. The new board has six membersnominated by reliance, two nominated by government of India and four independentmembers.

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1.2 Milestones since Inception

DATE EVENT

Mar 22, 1969 IPCL incorporated.

Mar 26, 1969 First logo (seal) of the company adopted in the first board meeting.

May 7, 1970 First technology transfer agreement was signed by IPCL Chairman cum

Managing Director with Lummus Company, UK for Gujarat Olefins Project(Naphtha Cracker)

Dec 14, 1973First export of IPCL product. State Trading Corporation of India Ltd. (STC)exported IPCL's orthoxylene through Kandla Port.

Mar 28, 1978 Gujarat Olefins Project (Naphtha Cracker) Commissioned

Mar 15, 1979 All plants of Vadodara Petrochemicals Complex Commissioned

Aug 17, 1984 Government of India approved the setting up of a petrochemicals complexat Nagothane, (Maharashtra)

Jan 8, 1986 The foundation stone of Nagothane complex laid by Mr. Narian Dutt Tiwari,the then Minister of Industry, Government of India

Oct 24, 1986 First Bond issue totalling INR 400 million offered to public in India onOctober 9, 1986. New company logo came in force. Issue closed onearliest closing day, October 24, 1986. Received INR 960 million.

Oct 6, 1989 Mr. Rajiv Gandhi, Prime Minister of India laid the foundation stone for thepetrochemicals and Chlor-Alkali complex at Dahej in Gujarat

Jun 3, 1991 IPCL enters into a joint venture with General Electric Plastic, BVNetherlands, making it the first time a multinational ties up with a PublicSector unit from India, with equal equity holdings

Mar 23, 1992 The first lot of shares sold by government of India was transferred. UnitTrust of India with others became the first set non-governmentshareholders in IPCL.

Nov 14, 1996 RIL received the prestigious Economic Times Harvard Business SchoolAssociation of India award for outstanding overall performance for the year1995-96 in the public sector

Nov 1996 RIL received the Sword of Honour from the British Safety Council for itscommitment to adopting high standards of safety in all its units.

Feb 25, 1997 The company offered FCCB's worth US $ 175 million; Conversion price isUS $ 13 per GDS. The first issue from Asia to pierce Sovereign rating.

Mar 26, 1999 RIL became the largest producer of polyethylene with widest range oncommissioning of 160,000 MTA High Density Polyethylene plant atGandhar.

May 18, 1999 Advertisement for inviting Expression of Interest in divestment of 25 %equity of RIL by GOI.

Feb 10, 2000 The 300, 000 MTA ethylene cracker is commissioned at Gandhar

Nov 12, 2000 Government of India decided not to pursue sale of Vadodara Complex toIOC and decided to divest 26% equity to a strategic partner with acommitment to divesting at least further 25%

Nov 18, 2000 The Govt of India decided to bifurcate RIL by selling Vadodara Complex toIOCL.

May 28, 2002 Government of India accepted bid by Reliance Petro-investment Ltd., as it

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was the best bid received by the Government.

June4, 2002 Reliance Petro-investment Ltd. paid Rs. 1491 corers to GOI; Mr. MukeshD. Ambani was nominated as Chairman of the RIL by the winning bidder.

Sep 27, 2002 Mr. Mukesh D. Ambani, Chairman seeks approval for investments worthINR 70 billion from shareholders at 33rd Annual General Meeting.

2004Amendment Agreement between the Government and the Strategic

Partner, Reliance Petro-investments Limited, a Reliance group company2004 Government of India disinvested its balance shareholding

2005Government of India withdrew its nominee directors from the Board ofDirectors of Indian Petrochemicals Corporation Limited

2006

Amalgamation of six polyester companies i.e. Apollo Fibers Limited,Central India Polyesters Limited, India PolyFibers Limited, OrissaPolyFibers Limited, Recron Synthetics Limited and Silvassa IndustriesPrivate Limited with Indian Petrochemicals Corporation Limited.

April 18, 2007 Merger of IPCL into Reliance of Group of Industry

Sep 21, 2008 Reliance Industries Commences Production in KG-D6 Block.

2008 During the year, Reliance Retail Limited (RRL) continued i ts rollout ofstores across various verticals and formats. Reliance Retail today operatesover 590 stores in 57 cities, spanning 13 states, with over 3.5 millionsquare feet of trading space.

Table 1.1 Milestones

1.3 Vision, Mission, Values and Quality Policy

VISION: Be a globally preferred business associate with responsible concern for ecology,

society and stakeholders value.

MISSION: Continuously innovate to remain partner in human progress by harnessingscience and technology in the petrochemicals domain.

VALUES: Integrity, Respect for people, Unity of Purpose, Outside-in Focus, Agility andInnovation

QUALITY POLICY: We at RIL are committed to meet customers' requirements through

continual improvement of our quality management systems. We shall sustain organizational

excellence through visionary leadership and innovative efforts.

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1.4 Present Profile

Founder chairman Reliance group1932-2002

Board of Directors of Reliance Industries Limited

Shri Mukesh D. Ambani (Chairman and Managing Director)

Shri Nikhil R. Meshwani (Executive Director)Shri Hital R. Meshwani (Executive Director)Shri PMS Prasad (Executive Director)Shri P.K. Kapil (Executive Director)Shri Ramniklal H. AmbaniShri Mansingh L. BhaktaShri Yogendra P. TrivediDr. D.V. KapurShri M.P. ModiProf. Ashok MisraDr. Dipak C Jain

Dr Raghunath Anant Mashelkar

Achievements

Best Petrochemicals Company World-wide: 1990 (Cl , London)ICMA award for Forward technology development: 1981, 1985, and 1991.DGTD award for Bio-technology Process 1994.Corporate Performance Award ET HBSAI: 1994-95Sword of Honour from British safety council.

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1.5 Organizational Hierarchy of Finance of RIL (VMD)

Figure 1.1 Organizational Hierarchy

1.6 PLANT LAY OUT OF BARODA MANUFACTURING DIVISION

Figure 1.2 VMD Layout

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Techno

logyR&DCSD

PROPOSEDPIB

VCM /PVC

ACRACNGREENBELT

GTPP

IOP

DSAF

AF

PBR

PR

PPCP

LDPE

PTD

GOP

GAP

Cent.W/S

OCG

ESD

Cent.Store

Safety

FPUnit

EQ

LABEG &N2O2LAB

tankarea

PACPMDI

P

PIV

PBRII

CarbonFibre

Mat.Dept

WaterSupply

RailwaySiding

Flare

RIL ( BC )LAY-OUT

Fire

Area forNewproject

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1.7 Product Portfolio

The Vadodara Complex houses 21 plants on over nearly 500 hectares of land andproduces large variety of products consisting of Linear Alkyl Benzene, Acrylic Fibers,Acrylic Esters, Ethylene Glycol, Polyvinyl chloride, Polyethylene, polypropylene, Butadienerubber, etc. The company's registered office is located in Vadodara Complex and that was

the first manufacturing facility setup by the company.

NAME OF PLANTS CAPACITY (MT)

Naphtha cracker (ethylene) 130000LDPE plant 110000Ethylene glycol 20000VCM plant 57300PVC plant 60000PPCP plant 25000PP4 plant 75000Acrylonitrite plant 30000Acrylates plant 10000Butadiene extraction plant 54000Poly butadiene rubber plant -| 20000Poly butadiene rubber plant - || 30000

Table 1.2 Plants and Their Capacity

Products at a Glance: The products manufactured and marketed by the Corporation couldbe classified into the following 3 major groups:

Polymers: Polymers that include plastic and rubber is a major product-line, not only by

virtue of the quantity and multiplicity of grades but also because of the very number ofsmall-scale customers spread all over India. Polypropylene and Polybutadiene rubber arenew to Indian market. These have been produced for the first time in India by IPCL.

Fibers and Fibre Intermediates: Some quantities of Acrylic fibre being imported earlier weremainly for hand knitting yarn. Due to the developmental activities undertaken by IPCL,unprecedented applications have been possible for acrylic fibre namely range ofsuiting/dress materials/hosiery/carpets/blankets/upholstery, thus making Indacryl (brandname for Acrylic Fibre) the fibre for all seasons. Having developed a wide range ofapplications, to meet the growing demand for acrylic fibre, IPCL decided to expand theacrylic fibre manufacturing capacity to 24,000 MTA. The expansion is with the technical

know-how from EI Du Pont Nemours, USA.

Chemicals: At present, about 31, different chemical products are being marketed, and thegrowth in the product line has been possible mainly due to the development of value addedproducts from the return streams. Chemical intermediaries find wide and diverseapplications in various industries.

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Commodity Chemicals: AcetonitrileBenzeneButyl AcrylateCaustic Soda LyeEthylene

2-Ethylhexyl AcrylateOrthoxylenePropylene (Polymer Grade)Ammonium SulphateButadieneCaustic Soda FlakesCarbon Black FeedstockEthyl AcrylateMethyl AcrylatePropylene (Chemical Grade)

Solvents:

CIXONHEPTON

Solvent CIXSurfactants:

Ethylene OxideLinear Alkyl Benzene

Commodity Plastics:Indothene

Indothene LL Indothene HD Koylene

Koylene CP Koylene ADL and Koylene ADL - CP IndovinRubber and Hydrocarbon Resin:

Cisamer 01 Cisamer 1220 PetrezCatalysts and Adsorbents:

CatalCatsiv

Speciality CatalystFibers and Intermediates:

AcrylonitrileEthylene Glycol

Demethyl TerephthalateTable 1.3 Products

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http://www.ipcl.co.in/html/products/commodity_chem.htmlhttp://www.ipcl.co.in/html/products/acent.htmlhttp://www.ipcl.co.in/html/products/benzene.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/caustic_soda.htmlhttp://www.ipcl.co.in/html/products/ethylene.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/propylene.htmlhttp://www.ipcl.co.in/html/products/ammonium_sulphate.htmlhttp://www.ipcl.co.in/html/products/butadiene.htmlhttp://www.ipcl.co.in/html/products/caustic_soda_flakes.htmlhttp://www.ipcl.co.in/html/products/carbon_blk.htmlhttp://www.ipcl.co.in/html/products/ethyl_acrylate.htmlhttp://www.ipcl.co.in/html/products/methyl_acrylate.htmlhttp://www.ipcl.co.in/html/products/prop_chem.htmlhttp://www.ipcl.co.in/html/products/solvents.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/surfactants.htmlhttp://www.ipcl.co.in/html/products/ethyleneoxide.htmlhttp://www.ipcl.co.in/html/products/lab.htmlhttp://www.ipcl.co.in/html/products/commodity_plastics.htmlhttp://www.ipcl.co.in/html/products/indothene.htmlhttp://www.ipcl.co.in/html/products/indothenell.htmlhttp://www.ipcl.co.in/html/products/indothenehd.htmlhttp://www.ipcl.co.in/html/products/koylene.htmlhttp://www.ipcl.co.in/html/products/koylenecp.htmlhttp://www.ipcl.co.in/html/products/koyleneadl.htmlhttp://www.ipcl.co.in/html/products/indovin.htmlhttp://www.ipcl.co.in/html/products/rubber_hydro.htmlhttp://www.ipcl.co.in/html/products/cisamer01.htmlhttp://www.ipcl.co.in/html/products/cisamer1220.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/catalysts_adsorb.htmlhttp://www.ipcl.co.in/html/products/catal.htmlhttp://www.ipcl.co.in/html/products/catsiv.htmlhttp://www.ipcl.co.in/html/products/speciality_catalyst.htmlhttp://www.ipcl.co.in/html/products/fibres_intermediates.htmlhttp://www.ipcl.co.in/html/products/acrylonitrile.htmlhttp://www.ipcl.co.in/html/products/ethylene_glycol.htmlhttp://www.ipcl.co.in/html/products/demethylterephthalate.htmlhttp://www.ipcl.co.in/html/products/commodity_chem.htmlhttp://www.ipcl.co.in/html/products/acent.htmlhttp://www.ipcl.co.in/html/products/benzene.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/caustic_soda.htmlhttp://www.ipcl.co.in/html/products/ethylene.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/propylene.htmlhttp://www.ipcl.co.in/html/products/ammonium_sulphate.htmlhttp://www.ipcl.co.in/html/products/butadiene.htmlhttp://www.ipcl.co.in/html/products/caustic_soda_flakes.htmlhttp://www.ipcl.co.in/html/products/carbon_blk.htmlhttp://www.ipcl.co.in/html/products/ethyl_acrylate.htmlhttp://www.ipcl.co.in/html/products/methyl_acrylate.htmlhttp://www.ipcl.co.in/html/products/prop_chem.htmlhttp://www.ipcl.co.in/html/products/solvents.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/surfactants.htmlhttp://www.ipcl.co.in/html/products/ethyleneoxide.htmlhttp://www.ipcl.co.in/html/products/lab.htmlhttp://www.ipcl.co.in/html/products/commodity_plastics.htmlhttp://www.ipcl.co.in/html/products/indothene.htmlhttp://www.ipcl.co.in/html/products/indothenell.htmlhttp://www.ipcl.co.in/html/products/indothenehd.htmlhttp://www.ipcl.co.in/html/products/koylene.htmlhttp://www.ipcl.co.in/html/products/koylenecp.htmlhttp://www.ipcl.co.in/html/products/koyleneadl.htmlhttp://www.ipcl.co.in/html/products/indovin.htmlhttp://www.ipcl.co.in/html/products/rubber_hydro.htmlhttp://www.ipcl.co.in/html/products/cisamer01.htmlhttp://www.ipcl.co.in/html/products/cisamer1220.htmlhttp://www.ipcl.co.in/sitemap.htmlhttp://www.ipcl.co.in/html/products/catalysts_adsorb.htmlhttp://www.ipcl.co.in/html/products/catal.htmlhttp://www.ipcl.co.in/html/products/catsiv.htmlhttp://www.ipcl.co.in/html/products/speciality_catalyst.htmlhttp://www.ipcl.co.in/html/products/fibres_intermediates.htmlhttp://www.ipcl.co.in/html/products/acrylonitrile.htmlhttp://www.ipcl.co.in/html/products/ethylene_glycol.htmlhttp://www.ipcl.co.in/html/products/demethylterephthalate.html


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Application of Products

Product Uses

Solid Products: Polymers

LDPE/LLDPEConsumer packaging/film, extrusion wires, cable coatings,heavy-duty bags, garbage bags, milk & shopping bags.

HDPEFertilizers/household packaging, woven sacks, cartons,crates, luggage, pipes, paints, storage bins etc.

PP Cement packaging, monofilament yarn, ropes, fishing nets.

PVCWater pipes, electrical conduit/wires, cables, sheets,footwear, flexible films

PBR Automobile tires & tubes, conveyor belts, footwear.

Solid Products: Fibre & fibre intermediates

AF/DSF Textiles, knitting yarns, sweeter.

MEG Polyesters, Anti freeze.

A C N Acrylic fibre, Acrylates, engineering polymers.

DMT Polyester staple Fibers, polyester filament yarns, polyester.

Liquid Products: Chemicals

LAB Raw material for household, industrial detergents, personalcare products.

EO/BENEZENE/TOLUENE Phenol, dyestuff, pharmaceuticals, paints, industrial uses,caprolactum

Caustic Soda Alumina/paper.

Table 1.4 Application of Products

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Major Competitors

Product group Domestic Foreign

PBRNIL Sanghai petro,

Goodyear

Bridgstone

Polymers

HPL Exxon mobil

GAIL BasellFinolex Dow chemicalSupreme petrochemical AutofinaNOCIL BP-AmocoChemplast Equistar DCM Shriram Philips-Chevron

Vardhaman Acrylic ltd. Sabic, Borealis

Chemicals

GAIL, HPL Exxon mobil

BPCL, HPCL Dow chemicalIOC BasellSAIL SabicTamil Nadu PetroproductsLtd.

Nirma Chemical

Table 1.5 Competitors

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Chapter 2 Introduction of the subject

2.1 Introduction to Inventory Management

Managing inventory is a juggling act. Inventory represents the second largest

assets for manufacturing companies next only to plant and equipments. TheAverage proportion of inventories to total assets, in manufacturing firm,generally varies between 20 to 30 percent. Inventories are the stock of theproduct made for sale by the company or semi finished goods or rawmaterials. Inventory of finished goods which are ready for sale is required tomaintain smooth marketing operation. The inventory of raw material and workin progress is required in order to maintain an unobstructed flow of material inthe production line. These inventories serve as a link between the productionand consumption of goods.

The aspect of management of inventory is especially important in respect tothe fact that in country like India, the capital block in terms of inventory isabout 70% of the current assets. It is therefore, absolutely imperative tomanage efficiently and effectively in order to avoid unnecessary investment inthem. Although to maintain low inventories may prove to be profitable but tomaintain very low inventories may prove risky on the contrary.This aspect of management if tackled in a proper way may prove to be a boon its effectiveand efficient management would result in the maintaining of optimum level of inventories.At this level the profitability of the organization will not be jeopardized at the cost ofinventory.

Now from the above stated facts it is clear that maintaining of optimum level of inventoryinvolves huge cost, so why should keep the inventories at all. Basically there are threemain reasons for which inventories are stocked and they are:-

1. Transaction Motive: This motive lays emphasis on maintaining of inventories inorder to maintain a smooth and unobstructed supply of materials for the salesand production operations.

2. Precautionary Motive: This motive emphasizes on the stocking goods in order toguard against the uncertainties of future i.e. unpredictable changes in the forcesof demand, supply and other forces.

3. Speculative Motive: This motive influences the decisions regarding the increase ordecrease in the level of inventory in order to take advantage of price fluctuations.

A company should maintain adequate stock of materials for a continuous supply to thefactory for an uninterrupted production. It is not possible for a company to procure rawmaterial instantaneously whenever needed. A time lag exists between demand and supplyof material. Also, there exists an uncertainty in procuring raw material in time at manyoccasions. The procurement of materials may be delayed because of factors beyond

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companys control e.g. transport disruption, strike etc. Therefore, the firm should keep asufficient stock of raw material at a time to have streamline Other factors which may inciteus to keep stock of inventories is the quantity discounts, expected rise is price.The work in process inventory builds up because of the production cycle. Production cycleis the time span between the introduction of raw material in to the production and theemergence of finished goods at the completion of production cycle. Till the production cyclecompletes, the stock of work in process has to be maintained. Efficient firms constantly tryto make the production cycle smaller by improving their production techniques.

The inventory of a manufacturing concern usually includes:

Raw material

Work-in-Progress

Finished goodsThe stock of finished goods has to be held because production and sales are notinstantaneous. A firm cannot produce immediately when goods are demanded bycustomers. Therefore to supply finished goods on regular basis, their stock has to maintainfor sudden demand of customers, in case the firm sales are seasonal in nature, substantial

finished goods inventory should be kept to meet the peak demand. Failure to supplyproducts to customer, when demanded, would mean loss of the firms sales to thecompetitors.

The basic objective in holding raw material inventory is separate purchase and productionactivities and in holding finished goods inventory is to separate production and salesactivities. If raw material inventory is not held, purchase would have to be made regularly atthe time of usage. This would mean production interruptions and high cost of ordering.

A sufficiently large inventory has to be maintained of finished goods so as to meet thefluctuating demands. If a close link is maintained between the sales and the productiondepartment then an organization can do with a small inventory also. In the process,inventory is also necessary because production cannot be instantaneous. But it should beseen that the size of production cycle should be small.

2.2 Objectives of the Project

To study the Inventory Management at RIL

To study the Purchase Procedure at RIL

2.3 Importance of the Study

Inventory management is an important part of a business because inventories are usuallythe largest expense incurred from business operations. Most companies will use aninventory management system that will track and maintain the inventory required to meet

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customer demand. Most systems used by companies are linked to the management oraccounting information system, increasing the effectiveness of their operations.

Inventory management is primarily about specifying the size and placement of stockedgoods. Inventory management is required at different locations within a facility or withinmultiple locations of a supply network to protect the regular and planned course of

production against the random disturbance of running out of materials or goods. The scopeof inventory management also concerns the fine lines between replenishment lead time,carrying costs of inventory, asset management, inventory forecasting, inventory valuation,inventory visibility, future inventory price forecasting, physical inventory, available physicalspace for inventory, quality management, replenishment, returns and defective goods anddemand forecasting. Balancing these competing requirements leads to optimal inventorylevels, which is an on-going process as the business needs shift and react to the widerenvironment.

Involves a retailer seeking to acquire and maintain a proper merchandise assortment whileordering, shipping, handling, and related costs are kept in check.

Systems and processes that identify inventory requirements, set targets, providereplenishment techniques and report actual and projected inventory status.

Handles all functions related to the tracking and management of material. This wouldinclude the monitoring of material moved into and out of stockroom locations and thereconciling of the inventory balances. Also may include ABC analysis, lot tracking, XYZanalysis etc.

Management of the inventories, with the primary objective of determining/controlling stocklevels within the physical distribution function to balance the need for product availabilityagainst the need for minimizing stock holding and handling costs

2.4 Methodology

Research/Study in common parlance refers to a search for knowledge. Research studymay be defined as manipulation of things, concepts or symbols for the purpose ofgeneralizing to extent, correct or verify knowledge, whether that knowledge aids inconstruction of theory or in the practice of an art.

Methods of Data CollectionThere are mainly two methods of collecting data

Primary data Collection

Secondary data Collection

In this project I have used both the methods of data Collection, which helped me in

understanding the working of Reliance Industries.

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Primary data: For obtaining the appropriate data interview was the one of the most feasiblemethod to collect the information. As I meet employees of different designation and workingin different section questionnaire would have been an inappropriate tool to collect theinformation. Also interview gave me an opportunity to understand their working in a betterway and any doubt was resolved at that very instance. During this project I visited differententities associated in inventory management. I also visited central store, chemical store,engineering department, and Materials Bhavan.Secondary data: As I was dealing with financial data most of the information that is beingused in this information is from the annual reports that are available for used of everyone.But still most of the figures that are in the report are more related to RIL-VMD than whole ofRIL.

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Chapter 3 Material Planning

3.1 Annual Material Planning

Annual Material Planning is one of the most critical exercises in the overall materialmanagement framework, it deals with the overall estimation of the material demand whichforms the basis for procurement planning and inventory management. It forms the linkagebetween material consumption and procurement.

The objective of the process is to estimate the material demand for the next financial year.

Planned material demand for a site constitutes known demand, deterministic innature that can be planned and procured well in time to meet the demand. Thisincludes major maintenance jobs such as planned shutdowns, major overhauls,refurbishments, rebuilding, statutory inspection, post shut down recommendation

jobs and approved Capex jobs. Planned material demand is generated in the systemthrough the Annual Maintenance Plan which is created for next year and entered inthe SAP system by creating and saving (but not releasing) work orders along withmaterial requirement for these jobs.

Unplanned material requirement for a site constitutes the demand that cannot beplanned. This includes unplanned breakdowns, maintenance activities based onconditional monitoring, maintenance events not forecasted at the beginning of theyear, post shut down recommendation jobs, etc. Projection of the unplanneddemand for the next year is created by analyzing and extrapolating the unplannedportion of the historical demand.

There may be exception viz. one time unplanned requirement (e.g., direct charged

items) during a year which are not considered in unplanned material requirement atbeginning of the year.

Obsolete & surplus inventory is excluded from the exercise.

The annual material planning process places greater emphasis on 'planned'inventory management to optimize inventory levels while maintaining the requiredservice levels

Planned Component of Annual Material Plan: This is the consolidated site based estimateof next year's planned material demand at item level. The demand is estimated byconsolidating the material requirement associated with each maintenance job, shutdown

job and Capex job scheduled in SAP PM at the start of the year as part of annual

maintenance plan. In the system, planned material demand comes out of planned workorders such as PM02/PM03/Shut down orders. Further, this planned demand is updatedduring the year as and when new maintenance jobs are scheduled enough in advance toprocure the material required for those jobs directly from vendor. For instance, if in Mayduring the year a new job was scheduled for December such that lead time to procurematerial for that job is smaller than 7 months, then demand for that material 1 also termedas planned demand.

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3.2 Material Requirement Planning Run

The objective of the process is to manage site inventory at regular basis by using inventorylevels (safety stock level. reorder level and reorder quantity) based replenishment approachfor unplanned requirement and reservation based replenishment based approach forplanned requirement of each SKU inventory levels are determined scientifically by

modelling systematically historical demand data for unplanned demand and requiredservice levels, and incorporated into SAP. Then SAPs MRP Run generates PRs so thatthe required service levels can be met

The MRP run is conducted at least once a month to conduct material planning. The MRP istriggered when current inventory hits a reorder level after considering pipeline inventory aswell as open reservations falling within the planning horizon.

The MRP run is conducted by the inventory controller tor the site. An inventory modellingprocess I tool is used to determine the optimal inventory levels which are incorporated intoSAP. Material requisitioning is done by inventory controller at the site bases on either an

inventory levels based replenishment (if the levels for the item was modelled by theinventory modelling process /tool) or a user based reservation in a work order (items thatare not under the scope of the Inventory modelling process/ tool)

Planned Order is a system generated draft material requisitioning order that needsinventory controller's approval for quantity and specifications before being converted by thesystem to a Purchase Requisition (PR)

Planned Material Demand is any demand where the requirement of the material is knownbeyond the lead time horizon (defined as sum of MRP run time, internal lead time andexternal lead time) e.g. demand of SKU with lead-time of two months known before two

months is a planned demand

Unplanned Material Demand: Any demand where the requirement are not known beyondthe lead time horizon. E g demand of SKU with lead-time of two months known before1month of requirement is an unplanned demand.

3.3 Storage/ Binning Of Materials

The objective of this process is to bin incoming material at correct location for tackingsubsequent movement of material. Binning process leverages the warehouse module of

SAP to generate bin location and track materials current bin location. Here expiry date iscaptured while the receipt of material is done, but it is applicable only for few items.

Binning location refers to the location where the item is binned as defined in the system.There is also transfer order generated to transfer the stock to respective bin from inspectionor receipt area.

This process includes following steps:

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Generating binning report of materials for which usage decision is posted onprevious day and for items received through MRN/STN.

Shift material from receipt area to corresponding storage area.

Check initial preservation requirement of items under binning and executepreservation.

Affix tag / label on material received through STN / MRN.

Allocate bin location for new material in system. Post Transfer Order in Warehouse Management module of SAP system.

Bin material at corresponding suggested location.

The process will be started daily in the morning after the usage decision of incomingmaterials has been posted on previous day. The total process will be completed in the spanof a day. Exceptions to the procedure is whenever discrepancy is observed between theitem lying in existing stock and the new item received for binning same need to beresolved.

3.4 Cycle Counting

The objective of the process is to create a standard system driven cycle counting processacross all sites that leverages the benefits of cycle counting to indentify discrepancies inthe inventory count early.

Item segmentation for frequency of count is on the basis of consumption and value. Allitems m A and X category should be counted once a year. Items in B and Y categoryshould be counted once in two years and items in and 2 categories should be countedonce in three years.Root Cause Analyse (RCA) of all discrepancies should be done. If RCA does not yield any

plausible reason, the discrepancy should be written off in the system after due approval ofthe site president and the finance department.Apart from perpetual counting as per the counting schedule cycle counting will also bedone at the time of binning the item. Physical count and court date will be updated in thesystem

3.5 Preservation

Objective of the process is to create a standardized preservation process across sites thatare driven by system for scheduling and task listing

Periodic preservation is scheduled through the system. General preservation activities foritems are recorded in the system. This allows inter- site sharing of preservation activitiesand will help in auto generating preservation task list for new items of similar type beingbinned. Preservation task list is entered into the system by site inventory controller basedon the recommendations given to them by CES site maintenance and site stores.Preservation of insurance items should be given special attention including periodicalphysical inspection by user and taking suggested corrective action.

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Chapter 4 Purchase and Stores Department

4.1 Purchase Flow

Purchase Requisition Note

(When plant require material)

Request Quotation

(Company ask for quotation from vendor)

Quotations comes

Selection of vendor

(On basis of terms and conditions expected by the company)

Put Purchase Order

Material comes

Material goes to the excise section

(Capture the invoices)

Material goes to security keeper17


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(They check the material are as per unit mention in invoices or not)

Material goes in stores Receipt Ward

(Here the material check against P.O. and labelling is done)

Material goes to the Inspection Ward

(They do quality check and prepare Inspection Report)

On the basis of the Inspection Report they prepare Goods Receipt Note and also check

Test Certificate send by vendor and then

Inspected Material

Go to Issue Ward Go to vendor

(If goods accepted) (If goods rejected)

Figure 4.1 Purchase Procedure

Before sending goods to the Issue Ward goods are insured.

And for rejected goods they prepare Goods Rejection Note and also prepare O.G.P. (Out

Goods Note) and sent to the vendor.

For the liquid chemicals used as raw material storing process are as follows

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Liquid chemical comes in tanker at gate

Tanker goes to excise section

(Capture the invoices)

Tanker goes to store

(Weight of the tanker with liquid and quality check of the chemical is done)

Unloading

(Tanker is unloaded to respective plant)

Tanker again comes to the store after unloading

(Again weight of the tanker is done without liquid)

Figure 4.2 Purchase Procedure (Liquid)

Difference between weight of tanker before and after unloading the chemical is the actual

quantity comes from the vendor.

This is the whole procedure for storing to issuing of the raw material. Thus stores

department works with the materials.

4.2 Purchase order terms

Packing forwarding charges: extra 2%

Excise duty (as applicable)

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CST: Extra as applicable presently at 4% against formc.

Freight charges extra, kindly arrange to dispatch the goods through our authorizedtransporter.

Insurance by RIL as same as the goods are dispatched.

Please inform dispatch details to our material manager.

Manufacturer test certificate, guarantee certificate submitted along with the supply.

4.3 Payments terms

1) Our standard payment terms is 100% payment within the 30 days of receipt subjectto acceptance of materials at RIL stores Vadodra by: E-payment onlyAs under: -

We have a mission to convert all vendors into e-payment route; in this connectionwe have issued service of communication to all vendors.

2) WE have e-payment (direct electronic credit to vendors a/c) facilities with threebanks, they are HDFC, ICICI, CITI Bank, The major requirement here is that youhave to open a/c with this banks. However e-payment through this route is free ofcost.

3) As the designated banks do not have branches at all the places across India and somany vendors are to open a/c. So we explore the bank neutral, RBI operatedelectronic payment system (RTGS) Real Time Gross Settlement to SEFT Specialelectronic Fund Transfer where the vendor can have a/c in the any bank but itsbranch should RTGS / SEFT enabled. The bank will charge vendor a fee forreceiving RTGS / SEFT facility.

4) Liquidated or Damages will be charged weekly 11% subject to maximum of 5% oforder value will be levied in case of delayed supply.

4.4 General Terms of QUOTATIONS

1) Packing and forwarding as applicable will be charged extra

2) All transaction will be negotiated through bank only unless otherwise agreed upon

3) Complaint if any of the goods supplied should be informed within 7 days of yourreceipt

4) Deliveries : we are at liberty to supply goods sold by us in one lot or in separatelot .The delivery time is subject to the usual FERCE MAJEURE clause whichincludes strike, breakdowns , riots and other causes of delay beyond our control

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5) Place of delivery : Delivery is made always in our ex-workshop MUMBAI in case wedeliver goods for Mumbai or to any other place it is understood that we aremaking such delivery for and behalf of the buyer

6) Confirmation of order: All the orders placed with our salesman ,agents, and othersare subject to our confirmation

7) Claims: Claims will be made be entertained only if brought to our notice in writingwithin 7 days after receipt of goods and are in their original condition in that casewe admit our liability for reason of defective materials or defective workmanshipthe buyer is only entitled for replacement which shall be made free of cost .Weare not liable for any other compensation whatsoever

8) Jurisdiction: All suits or disputes arising out of contract of negotiations will beinstituted in court of competent jurisdiction in Mumbai and in no other court.

9) Advance: A sum of rupees equivalent to 25% of the value of the order should beforwarded with the order

4.5 Purchasing Groups

Feed Stock

Chemicals & Catalysts

Packaging

Administration

Consumables

Electrical

Instrumentation

Pumps and Spares

Heavy Equipment

4.6 PR Creation

Account Assignment

Delivery Date

Plant

Purchasing Group

Requisitioned

Code

Quantity

Value

MRP Control

Valuation

Fund Centre

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4.7 PO CREATION

Pr no.

Vendor code

Purchase organization

Purchasing group Delivery date

Plant

Rate

Inco terms

Tax code

Fund centre

4.8 Process Flow

22

PRRelease

RFQs

Tender

Opening

RateComparison

PurchaseFinalization

POExecution


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Gate Entry

Figure 4.3 Process Flow

4.9 Purchase Procedure

23

Receipt&

Inspection

AcceptanceOr

Rejection

Storage

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Chapter 5 Material Handling

5.1 Material Delivery, Issue and Return

Material Issue delivery & return deals with the issue & delivery of material against workorder reservation & silent hour requirement. It also deals with the return of excess materialafter a maintenance job completion.Material Issue, delivery & return process compromise following activities.

Material issue & delivery: issue & delivery By the stores of reserved material through

work order by plant within a specified time

Material issue during silent hour: i.e. in non working hours.

Material return: return from plant to stores.

Some key policies that they have are as follows:- Material issue shall take place against reservation

Monthly report of open reservation more than 30 days old must be sent to HOD.

Door delivery plan with respect to MATERIAL DROP POINT at various plants.

Counter issue from stores against plants request to meet urgent maintenance work.

The process is executed twice a day and will cover all reservations entered on previousday. Delivery process completed on the same day.

Material issue during silent hour must be recorded in system while issue posting.

5.2 Project overage material transfer

Here the objective is to transfer of project overage with complete specification of individualSKU to warehouse.

Project overage is transferred to steady state only after reconciliation and approval

of concerned project engineering discipline head.

Materials of individual SKU identified as project overage shall take place through

Spare part interchangeable records (SPIR) provided by OEM to buyer.

Unit rate of material being transfer is be given by procurement.

Transfer material must have reference of project receipt and project code.

Material transfer takes place with test certificate wherever applicable.

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The process shall be initiated immediately upon complete of project activities. Materialtransfer should not take place more than 15 days after generation of MTN in system.

5.3 STOCK OUT HANDLING:

Stock out handling is critical for handling the actual and potential stock out situation formaterial required for the maintenance of plant machinery on urgent basis.Objective is to streamline the stock out handling process that lays clearly the order ofmethods to minimize the adverse impact of potential and actual stock outs.

Potential stock out handling process that lays clearly the order of methods to

minimize the adverse impact of potential and actual stock outs.

Inventory controller will drive the stock out handling process. Controller has to look

for opportunities to re-schedule work order, identify alternative material availability,

and inter site stock transfer and emergency ways of handling stock out.

Stock out handling process will take not more than 5 working days.

5.4 Obsolete and Surplus Management

Over a period of time, equipment spares and other materials becomes surplus/obsoleteand hence unserviceable due to various reasons like long usage design change /redundancy uneconomical operation / stock in excess than requirement etc.

Obsolete & surplus spares identification is one of the most important functions of materialsmanagement organization for early disposal actions of such spares.

Obsolete Identification includes following stages:-

Enter details of equipment/spares decommissioning in the system

Review of decommissioned equipment / spares list for items which can be usedelsewhere in site

Sending of potential obsolete items list to CES Head for approval

Flagging of approved items as obsolete in system

Intimation of discontinued items

Review and initiation of approval process for discontinued items

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Surplus Identification: The objective is to create a surplus identification process thatfocuses on early identification of excess materials for utilization of surplus stocksand Reliance group.

Disposal: The following process take place for disposal of surplus and obsolete materials

Review the disposable list and segregate into equipment sparer consumables and bulk

earns Segregate equipment spares into various categories (linked to equipments EPCG,

Merit local, etc)

Disposal of equipment spares

Segregation into consumables and bulk items into unusable and usable

Disposal of consumables and bulk items

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Chapter 6 Inventory ManagementInventory is a very expensive asset that can be replaced with a less expensive assetcalled information. In order to do this, the information must be timely, accurate, reliable,and consistent. When this happens, you carry less inventory, reduce cost and get productsto customers faster.

-J. David VialeRIL vadodara complex is the only unit in whole Asia, which is having 22 plants in a singlecomplex. RIL has various department like finance, marketing, human resource, materialprocurement, research and development and safety and security etc.

The basic work of inventory management is to procure the material to the requireddepartment and to maintain the stock. The materials that are purchased are bothindigenous and imported. The inventory can be classified in to various categories.

Raw material, chemical and catalysts.

Fuel and lubricants.

Instrumentation items.

Mechanical consumables. Safety and fire items.

Steel and cement.

Packaging items.

Scrap.

6.1 Stores Cycle

Receipt of material at Material Gate

Excise Capturing

Verification by RGHS Weighing

GRN preparation by Receiving Section

Offering material for inspection

User Decision

Stocking of material in respective wards

Issue of material to users

6.2 Various Classification

A) OF MATERIALS In SAP materials are classified into following category.

CODE MATERIALS

SPAR SPARES

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CACHCHEMICALA&CATALYSTS

PAMAPACKAGINGMATERIAL

FTRM

FINISHED

TRADABLE RAWMATERIALS

LABC LAB CHEMICALS

Table 6.1 Material Classification

B) OF STORES

Central stores

Chemical stores Bulk chemicals

Gap stores

Scrap YardC) Classification of inventory

Inventory can be classified in to different types

Raw material

Work in progress

Finished goods

Scrap

Spares Tools

Consumables.

6.3 Tools for inventory control

Codification

Receipt

Inspection

Storage and preservation

Issue Scrap and disposal.

Codification:The code is been given of 10 numbers the first 2 digits are the main code, next 2 digit is for

the model number of the inventory, next 2 number is for the company code, and then next 3

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digit is for the serial number of the product, and net single digit is for the imported andindigenous product. If the product is imported then the code will be 1 and if it is indigenousthen the code will be 3.

Receipts: After the order has been placed, the goods are been received. First of all the gatesecurity will check the truck number and they will provide them the TPN number after takingthat number the truck will go for the excise clearing where it will get the excise ID fromthere. The excise person will make a entry of excise, after that the MMN entry is done andthen they will sent the goods to the stores department where the GRN (Goods ReceiptNote) will be made. Stores department will send the goods for the inspection and on thatbase the inspection note is to be prepared of acceptance or rejection of the goods. That isalso known as user decision and the goods will be consider as the RILs property and if thegoods are rejected then they will make the MMX exit entry

6.4 Costs oriented with inventory management

Ordering costWhenever the order is placed for the stock there is cost occurs, the cost will differ as per

the nature of inventory

Inventory carrying costInventory carrying cost is always proportional to the investment in inventory and it is,therefore expressed as a percentage of average investment in inventory. Various costs arefollows

Capital costThis is the largest component of the carrying cost and it represents the cost of capitalinvested which includes the cost of borrowing capital which is the borrowing rate or thebank lending rate.

Storage cost

The chief elements of storage cost are the cost of space, maintenance and repairs,lighting, wages of personnel, handling charges and other.

Obsolescence costThe value of an item gets progressively reduced, as the life of inventory goes on.Obsolescence is done due to life span of inventory, technology changes, and loss due tohandling.

InsuranceThis cost occurs because for every item there is insurance which is associated with it and iffire or other damage occurs then there is cost associated with it.

Stock out costThis is the cost of not carrying the inventory, it is an opportunity cost and it is because ofloss of production.

Overstocking cost

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This is due to blocking of capital in inventory

6.5 Inventory at RIL

THE INVENTORY STRUCTURE

-1,000.00

4,000.00

9,000.00

14,000.00

19,000.00

24,000.00

29,000.00

2010 2009 2008 2007 2006

Year

AmountinCr.

Finished Goods / Traded

Goods

Stock-in-Process

Raw Materials

Stores,Chemicals&Packa

ging Materials

Figure 6.1 Inventory Structure

This figure shows the proportion of each type of inventory in the total inventory. This showsthat major part of inventory is in the form of Raw material. Except it the inventory is not

access, this show that company try to maintain minimum inventory so that the amount notblocked in the inventory. Further the total inventory reduces over a period of time. This isdue to good management techniques as well as efficient management RIL.

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//

Figure 6.2 Inventory Component

6.6 Inventory categorization

Velocity is the primary basis of categorization. Velocity is number of issues in a period oftime. Items are first segregated into fast moving, rarely moving and non moving itemsbased on monthly aggregated consumption. Fast moving items are always consider stock

items, while further categorization is done for rarely moving and non moving items beforethe stock/non stock decision is made.

After the velocity categorization a value based categorization is done. To optimizedengineer effort, the high value items are subject to further analysis and validation and thelower value items are considered as stock items.

Finally, for high value items, a stock/non-stock decision is taken based on the critically,predictability of demand and the probability of demand of the item. This may be done by

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Total Inventory as on 31.03.2010(as per valuation class)

Mech. Items59.84%

Lubes. & Greases0.50%

Others & Consumes.13.72%

Packing material0.85% Cat-Chem.

10.05%

Elec. Items3.90%

Inst. Items11.14%


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answering a detailed questionnaire or having a quick look, depending on the nature of theitem.

ABC ANALYSIS

Table 6.1 Item Classification by ABC

70%

20%

10%

ABC ANALYSIS

ITEM A ITEM B ITEM C

Figure 6.3 ABC Analysis (in percentage)

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PARTICULARS AMT (IN CRORE)ITEM A 157.5ITEM B 45ITEM C 22.5TOAL 225.0


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ABC Analysis

157.5

4522.5

0

50

100

150

200


Rs.

incrores

Figure 6.4 ABC Analysis (in Amount)


MechanicalItems

126.0CatalystChemicals

24.7 Electrical 12.73

Inst. Items 26.05Lubes andGrease

.89

Other andConsumer

32.67PackingMaterial

1.89

Table 6.1 Item in ABC

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FSN ANALYSIS

PARTICULARS AMT IN CRORE.MOVING MATERIAL 159.75NON-MOVING MATERIAL 065.25TOTAL 225.00

Table 6.2 Item Classification by FSN

FSN ANALYSIS

71%

29%

MOVING MATERIAL NON-MOVING MATERIAL

Figure 6.5 FSN Analysis (in percentage)

Above chart mention that out of total non-moving stock near about 29% of the total stock.BASIS OF DECIDING FSNThe general practice to decide the block of material at RIL isFast Moving: 2-4 years

Slow moving: 4-6 yearsNon-moving: More than 8 year

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DISTRIBUTION OF NON MOVING MATERIAL

ITEMSNON-MOVING INVENT. Rs. INCRORE

FUEL & LUBRICANT 00.82ADM/SAFTY 03.28RM/CHE/CAT. 01.60ELECTRIC STORES 01.43PACKAGING 05.4INSTRUMENTS 01.99MECH. CONSUME 50.7STEEL/CEMENT 00.03TOTAL 65.25

Table 6.4 Distribution of Non Moving

NON-MOVING INVENTORY

1%

5%

2%2%

8%

3%

79%

0%

FUEL& LUBRICANT ADM/SAFTY RM/CHE./CAT.

ELECTRIC STORES PACKAGING INSTUMENTATION

MECH.CONSUME STEEL/CEMENT

Figure 6.6 FSN Distribution Analysis (in percentage)

From the above chart we can conclude that a large share of 79% of mechanical consumeremains in non moving material. This is a fairly large amount. Non-moving material ishaving I ideal time of maximum of 17 to 20 years.

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PERCENTAGE PROVISION OF NON-MOING MATERIAL

ITEMS PROVISIONS PERCENTAGEFUEL & LUBRICANT 0.12%ADM/SAFTY 11.63%RM/CHE/CAT. 00.14%

ELECTRIC STORES 40.39%PACKAGING 00.00%INSTUMENTATION 21.51%MECH.CONSUME 27.95%STEEL/CEMENT 06.85%

Table 6.5 Provision for Non Moving

On the above chart we see that company can able to write off 40% value of electrical storesand 28% value of mechanical stores, but company cannot write off any value of packagingstores. Very important matter is that purchase value of RM/CHE/CAT is very high butcompany writes off its value only 0.143% it is very low compare to other materials. There

for company should take certain steps against RM/CHE/CAT stores.

PROVISIONS

0% 11%

0%

37%

0%20%

26%

6%

FUEL& LUBRICANT ADM/SAFTY RM/CHE./CAT. ELECTRIC STORES

PACKAGING INSTUMENTATION MECH.CONSUME STEEL/CEMENT

Figure 6.7 Provision for Non Moving Inventories (in percentage)

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Because of the non moving nature of items mentioned in previous chart it is mandatory tocreate provisions as above.

6.7 ABC and XYZ Analysis

Mixture of ABC and XYZ analysis (A Combination developed by the company)

Physical verification of stock on perpetual basis at different stores is done through

perpetual inventory.

Perpetual inventory is the process of concurrent physical stock check to be carried out on

daily basis.

ABC Analysis

ABC is based on consumption value.

A class items- 60% consumption value of inventoryB class items- 30% consumption value of inventory

C class items- 10% consumption value of inventory

XYZ Analysis

XYZ is based on inventory value.

X class items- 60% of inventory value

Y class items- 30% of inventory value

Z class items- 10% of inventory value

Frequency of different groups of items to be covered under physical stock check is as

under:-

Items falling under A and X category- 3 times in a year

Items falling under B and Y category- 2 times in a year

Items falling under C and Z category- 1 time in a year

Overlapping of items between ABC and XYZ categories would be unified to avoid

duplication.

The following are the examples of few of the items falling in the various categories:-

A & X CATEGORY ITEMS

SAP Code Item Amount (Rs.)

2000013246 Impeller 7678062000013815 Shaft 250217

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2000551833 Gear 4850002000561829 Chain Drive 847254

B & Y CATEGORY ITEMS

SAP Code Item Amount (Rs.)2000661678 Valve 549712000572977 Bearing 10000

C & Z CATEGORY ITEMS

SAP Code Item Amount (Rs.)2000397295 Connecting rod 209762000368049 Gasket 331

2000537103 Ring retainer 11392000546778 Ring Piston 4101Table 6.6 Example of Categorization of AX, BY and CZ Items

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6.8 Comparison of Inventory Costing Methods

Items of inventories are measured at lower of cost and net realisable value after providingfor obsolescence, if any. Cost of inventories comprises of cost of purchase, cost ofconversion and other costs incurred in bringing them to their respective present locationand condition. Cost of raw materials, process chemicals, stores and spares, packingmaterials, trading and other products are determined on weighted average basis. By-products are valued at net realisable value. Cost of work-in-progress and finished stock isdetermined on absorption costing method.Weighted average method give the average cost of goods i.e. the value falls in-between thecost value abstract from FIFO and LIFO. In increasing prices FIFO method gives thehighest value of sock, and the value abstract from LIFO is the lowest, as compare to thesethree methods. Similarly the profit derived from the LIFO method is highest and profit fromthe FIFO is lowest, as shown in the example.

Particulars Per barrelprice

No. ofBarrels

LIFO WAM FIFO

Goods Available for sale 400 3500 1400000 1400000 1400000

Less: Ending inventory 385/400/412 305 117425 122000 125660Cost of goods sold 1282575 1278000 1274340

SALES 900 3195 2875500 2875500 2875500

Less: Cost of Goods sold 1282575 1278000 1274340

Gross Profit 1592925 1597500 1601160

LIFO gives the lowest gross profit, therefore the lowest tax on profit.

In General when the purchase price of inventory is going down, choose FIFO.

When the purchase price of inventory is going up, choose LIFO.

When it goes up and down, choose weighted average.

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6.9 Inventory Related Ratio

Inventory Turnover Ratio

6.77

7.77 7.9 8.07

6.22

5

6

7

8

9

1 2 3 4 5

Years

Figure 6.8 Inventory Turnover Ratio

The inventory turnover ratio shows how much the inventory with compare to sales. Fromthe chart we can say that the company has decrease its inventory compared to past years.

Material Cost Component

6.777.77 7.9 8.07

6.22

0

2

4

6

8

10

2005-06 2006-07 2007-08 2008-09 2009-10

Years

Figure 6.9 Material Cost Component

The material cost component shows the Material cost with respect to earning. From the lastpast five-year trend, we can see that the cost of material is fluctuating. But this year thematerial cost is quite high if we see the last five-year data.

.

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Figure 6.10 NWC to Sales

This ratio indicates the proportion of working capital in total sales. Lower the ratio better forthe company. From the past trend it shows that company has tried to decrease the

inventory and due to this the overall working capital is decrease with respect to total sales.

Avg receivable Period

21.21

15.3 15.59 15.94 16.77

0

5

10

15

20

25

2005-06 2006-07 2006-07 2008-09 2009-10

Years

Figure 6.11 Average Receivable Period

Average receivable period decreases as compare to last few years. It increases nominal inlast two years. The main reason is the recession. Recession affect the rill but they recoververy speedy and the average receivable period help in recovery as they receive payment ingood time.

39

Networking Capital to Sales

4.485.39

8.41

6.88 6.37

0

2

4

6

8

10

2005-06 2006-07 2007-08 2008-09 2009-10


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Inventory Conversion ratio(days)

26.08

33.01 34.09 34.08

23.45

0

10

20

30

40

2005-06 2006-07 2006-07 2008-09 2009-10

Years

C

Figure 6.12 Inventory Conversion Ratio

Inventory conversion periods indicate the time in which the money invested in inventoryconvert into cash. In 2006 the company has lowest conversion cycle, which indicates thegood operating cycle.

Operating Cycle

47.29 48.31 49.59 50

40.22

0

10

20

30

40

50

60

2005-06 2006-07 2007-08 2008-09 2009-10

Figure 6.13 Operating Cycle

Operating cycle start with the material purchases and ends with the money received after

sales. The company has a fast operating cycle it completes in 40days, which is consideredgood in such industries.

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SWOT MATRIX

RIL-VMD Strengths

o Manpower with rich experience in managerial, technical and

Commercial fields.o Plants located on the west coast, where the downstream industry

is concentrated.o Both liquid and gas fired crackers.

o Diverse product range.

o Global sized plants at Gandhar and Nagothane complex.

o Extensive sales network and infrastructure facilities.

o Noteworthy safety & Environment records.

RIL-VMD Weaknesses

o Aged and smaller sized plants at Vadodara.

o Higher Manpower (Vadodara) compared to peer group.

o Feedback supply constraints at Gandhar & Nagothane.

o Dependence on the sole suppliers for Natural gas & C2/C3.

o Commodity Business- subject to cyclicity.

o Dependence on the external sources for feed stocks.

RIL-VMD Opportunitieso Huge growth potential in the Indian Polymer market.

o Excellent Research & Development facilities.

o Scope for expansion especially at Gandhar complex.

o Revamp of the old plants located at Baroda.

RIL-VMD Threatso Universities on natural gas pricing.

o Competition from low cost Middle East producers.

o High rate of technological obsolescence.o Environmental concerns on plastics.

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RESULTS AND FINDINGS

It is observed that in RIL, VMD a lot of importance is given to safety.

They are following Six Sigma Technology which helps them to render optimal

requirements in every functional area.

All the work is coordinated through SAP System.

Inventory level is maintained on reorder level.

Most of the inventory level maintained comprises of mechanical items.

Most of the mechanical inventory is non-moving in nature.

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BIBLOGRAPHY

Web-Sites:-

www.ril.co.in

http://www.moneycontrol.com/stocks/company_info/company_history.php?sc_did=IPC

http://www.indianexpress.com/news/ipcl-to-merge-with-reliance-industries/25015/

Books:-

Annual Reports of RIL

Reliance Material Master Control System
http://www.ril.co.in/http://www.moneycontrol.com/stocks/company_info/company_history.php?sc_did=IPChttp://www.indianexpress.com/news/ipcl-to-merge-with-reliance-industries/25015/http://www.ril.co.in/http://www.moneycontrol.com/stocks/company_info/company_history.php?sc_did=IPChttp://www.indianexpress.com/news/ipcl-to-merge-with-reliance-industries/25015/

Documents

Ril Inventory Mgmt