Materials Management at Hospet Steels Limited

Project Report on Material Management at HSL

INDIAN INSTITUTE OF BUSINESS MANAGEMENT INDIAN INSTITUTE OF BUSINESS MANAGEMENT PUNEPUNE

Project Report

OnMATERIAL MANAGEMENT AT

HOSPET STEELS LTD

Submitted in partial fulfillmentOf the requirements

For the award of the degree in

MASTER OF BUSINESS ADMINISTRATIONMASTER OF BUSINESS ADMINISTRATIONWith specialization in

INTERNATIONAL BUSINESS MANGEMANT

INSTITUTE OF MANAGEMENT STUDIES INSTITUTE OF MANAGEMENT STUDIES

Under The Guidance of Mr. Rohit C Kalaskar Mr. Rohit C Kalaskar Submitted by:

Sec.Gen & professor IMSSec.Gen & professor IMS Sharath babu MSharath babu M HUBLI HUBLI Reg No: A-08/08/MBA/0033Reg No: A-08/08/MBA/0033

INSTITUTE OF MANAGEMENT STUDIES Hubli. 1



Recognized by AAMBA,, Affiliated to IIBM University, Pune

Email: [email protected] Website: www.hubliedu.org

H.E.T’S

INSTITUTE OF MANAGEMENT STUDIES LAKE-VIEW CAMPUS, BESIDE UNKAL LAKE, UNKAL, HUBLI-

580031 (Karnataka State)

Phone (o): 0836-2271011Tel/Fax: 0836-2271011

Ref. No: HETS-IMS/: Date:

Certificate

This is to certify that the project work entitled “Materials

management at hospet steels ltd” has been successfully

carried out by SHARATH BABU MOPARTHI (A-08/08/MBA/003) of

MBA VI Tri- Semester student under our supervision and

guidance.

Mr. Rohit. C. Kalaskar

Sec.Gen & Professor

HET’s IMS Hubli

External Examiner’s


DECLARATION

I, here by declare that the work embodied in this

project report entitled “Materials management at

Hospet steels ltd” represents the original work done by

me under the supervision and guidance of Prof. Rohit C

Kalaskar Department of Management Studies, Institute of

management studies, Hubli during the academic Year 2008-

2010. Previously this report or any part thereof has not

formed the basis for the award of any degree, or other

similar title.

.

Date:31/07/2010 SHARATH BABU MOPARTHI

Place: Hubli M.B.A VI Tri-Semester



ACKNOWLEDGEMENT

The satisfaction and euphoria that accompanies the

successful completion of any task would be incomplete

without thanking people who made it possible. Many are

responsible for the knowledge and experience I have gained

during my Major Concurrent Project.

I would like to express my profound sense of gratitude

to our esteemed our college chairmen my internal guide Mr.

Khaleel Ahemad Kukmari, for his complete support,

encouragement and guidance during my entire project.

I also would like to avail this opportunity to thank to

our esteemed secretary general and my internal guide Mr.

Rohit C Kalaskar for providing me an opportunity to carry

out the project and extending their valuable guidance and

complete support during this entire duration.

My sincere thanks to who in spite of their busy

schedules accommodated me for one to one interactions to

collect my primary data.

And I also thank my Parents and Family for their co-

operation and help.



SHARATH BABU

MOPARTHI

Reg No:

A-08/08/MBA/003

CHAPTER I

RATIONALE FOR THE STUDY

INTRODUCTION ON PRODUCTION

Among the functional areas of management, production is

considered to be crucial in any industrial organization. Production is

the process by which, raw materials and other inputs are converted

finished products. The other word synonymously used with

production is manufacturing. Some people try to draw distinction

between the two terms: production and manufacturing.

Manufacturing is understood to refer to the process of producing

only tangible goods, whereas production includes creation of both

tangible goods as well as intangible services. Though, distinction of

this type is sought to be made, we use these two terms

synonymously in this book.

Nature of production can better understood, if we view the

manufacturing function from three angles: production as a system,



production as an organizational function and decision making in

production.

Production management refers to the application of management

principles to the production function in a factory. In other words,

production management involves application of planning,

organization, directing and controlling to the production process.

The application of management to the field of production has

been the result of at least three developments. First is the

development of factory system of production. Until the emergence

of the concept of manufacturing. Until the emergence of the

concept of manufacturing, there was no such thing as management

as we know it. It is true that people operated business of one type

or another, but for the most part, these people were owners of

business and did not regard themselves as managers as well.

INTRODUCTION ON MATERIAL

Historically the five M’s of an industrial organizations viz.,

Men, Machines, Money, Materials and methods have shifted their

positions from time to tome in their relative importance. Materials

as an input in production system started receiving attention of the

industrialists from 1900 onwards. Earlier to this , supply or cost.

Materials occupy a significant place among the M’s of an industrial

enterprise because of several reasons. First the amount spent on

materials is increasing in relation to the expenditure on other

outputs. The trend is clear enough in manufacturing industries, the

proportion of total revenue spent on the acquisition of materials has



been gradually increasing until u has become four or five times as

great as that required for the remuneration of direct labour.

Such being the importance of materials, it is desirable, for an

industrial establishment to have a centralised authority vested with

the responsibility of planning,, procuring, preserving, handling,

usage and their related aspects.

Reasons for popularity of materials

1. The amount spent on materials is higher then other inputs.

2. Materials offer considerable scope for reducing cost and

improving profit.

3. Improving return on investment depends on the effective

utilization of materials.

4. Materials add value to product.

5. Quality of end product depends on materials.

6. Materials management assumes responsibility for what ever

happens in purchasing, storing, inventory or any other area

connected with materials.

7. Need for the preservation of scare resources for posterity.

8. Increasing demand for ensuring environmental safety.

9. The efficiency of any organization depends upon the

availability of right materials in right quantity at the right time

and at the right price.

10. Materials are the lifeblood of mans development.



CHAPTER 2. OBJECTIVE OF THE STUDY

Need for the study:

It’s necessary for a production industry to concentrate on the

procurement, preservation handling and usage of raw materials.

Proper methods of purchase of materials should be followed in order

to ensure the right source or no. it should be considered that right

quality of materials should be purchased it should be inspected and

then used.

It is also necessary that the right quality of output as per the

customer’s specification should be produced.

It is necessary to know the proper methods of preservation of raw

materials using codification should be followed to easy handling of

the raw materials.

Objective if the study

1. Lower price for materials and equipments.

2. Faster inventory turnover.

3. Continuity of supply

4. Reduced lead times

5. Reduced transportation costs

6. Less duplication of efforts

7. Elimination of buck passing

8. Reduced materials obsolescence.



9. Improved supplier relationship and netter records and

information.

10. Better inter department cooperation

11. Personnel development.

Scope of the study:

The present study covers the study of materials management at

Hospet steels ltd. It covers all the aspects related to purchase and

stores function at Hospet Steels Ltd.

Presentation of the study:

This present study is organised and structures in six chapters.

The first chapter discuss about production industry and the

detailed study on material management.

The second chapter discusses about the company profile i.e.

origin and development future plans etc of the company.

The third chapter discusses about the study of theoretical

framework of purchase function.

The fourth chapter discusses about the study of purchase

function followed at Hospet steels ltd.

Fifth chapter discusses about the theoretical procedure of

stores department.

The sixth chapter discusses about the stores functions

performed at Hospet steels ltd.



CHAPTER III

COMPANY PROFILE

ORIGIN AND DEVELOPMENT OF HOSPET STEELS LTD

As the emerging demand for steel increased to facilitate the

demand of customers who were in need of steel product the so

called Hospet steels Ltd is basically a joint venture company of two

leading firms i.e. Mukund Ltd- Bombay and Kalyani Ltd Pune.

Hospet steels ltd is world-class integrated steel making

company; both the firms have experience of 40 years in

manufacturing the steel. The ratio of investment of Mukund and

Kalyani is 58:42. The plant is set up with an initial investment of Rs.

800 Crs with the production capacity of 3 Lakh MT/Year.

Hospet steels Ltd is situated about 20 kms away form Hospet

and 10 Kms away from Koppal. Water requirement of the plant is

fulfilled by pumping water form Tungabhadra Dam with a storage

reserviour of 4 lakh m3. There is an oxygen plant in the premises set

up by M/S Praxair India Ltd and the power is being taken from

National Gird of about 11 KV.



Key Information of the company:

Existence of Firm - 1998

Cost of the plant - 800 crs

Production capacity - 3 lakh MT/year

Total manpower - 766 employees

Avg. energy consumption - 11 KV / Month

Avg. Electricity bill - 7 crs

Water reserviour - 4 lakhs cubic mts.

Head Office (Kalyani) - Pune.

Head Office (Mukund) - Bombay.

Kalyani shares - 42 %

Mukund Shares - 58 %

Oxygen plant - 115 TP

Contract demand - 22.1 MVA



Organization structure


CEO

Executive Vice President

Vice President

General Manager

Deputy General Manager

Executives

Engineers

Junior Engineers

Staff

Technicians


PRODUCT PROFILE

Carbon and alloy constructional steels.

Spring steels.

Ball bearing steels.

Other special grade steels. (As per customers specifications).

Size Range (as cast Products)

Billets – 120 X 120 mm & 160 X 160 mm squares.

Blooms – 240 X 280 mm rectangular.

Rounds – 160, 200, 220 mm diameter rounds.

(As rolled products)

Rounds - 95, 100, 115, 120, 125, 140, 160 mm.

Any other size mutually agreed.



Various departments of the company

Production department

The steels manufacturing pro

Mini blast furnace – production of item.

Steels melting shop - manufacturing of steels. Cess in Hospet

steel limited undergoes three different stages.

Rolling mill shop – Rolling the steels as per customer needs.

Three separate Managers control the three different sections.

Under them are the executives, engineers, officers, trainees,

technicians or operations.



COMMERCIAL DEPARTMENT

Commercial department is one of the basic departments. It

looks into the purchase of raw material and quality assurance. This

department undertakes the purchases as well as stores activity. The

vice president or general manager of commercial department is Mr.

S.K. Vakkalad.

Functions of purchase Department

Receipt of purchase requisitions from user department

Release of enquiries

Receipt of quotations

Preparation of Comparative Statement

Lowest party supplier

Release of purchase order

Follow up for material

Receipt of material



Store functions

Gate entry.

Receipt of material

Entering into ledger books and computer.

Quality assurance department must inspect goods received.

Quality assurance department has the right to reject the

material if it does not satisfy the specified quality.

If approved it is sent to user department for proper utilization.

Marketing department

Marketing department is an essential part of the company

because this is the department where the sale of finished goods is

done. This is directly linked with production planning and control

(PPC). This department also deals with the dispatching of its finished

goods.

Finance department

Finance department deals with the various financial activities

of the organization. The books of accounts of Kalyani ferrous

industries limited. Mukund limited, Kalyani steels limited and

Hospet/steels limited are independent. The deputy General

manager.

Management Information System.



The management information system (MIS) department

maintains the data of four different companies – KFIL, ML, DSL and

HSL they collect the information form different areas of organization

through network-spread 2 km around the company. The information

or report to the management is MIS.

Maintenance department

The maintenance department is one of the most impartment

departments. It is directly lined with the production department

without this, the production cannot function properly.

Quality assurance department

Quality assurance department is a customer representative.

The department acts as a communicating channel between

customers and production department. The department inspects the

cast and rolled producers. It also checks the raw materials before it

is taken for production and also it takes the products before

dispatching to the customers. The main objectives of QAD are to

inspect the quality of raw materials as well as the final or products.

The G.M. of this department is Mr. Tapan Saun.


No

A

In line sample inspection

Materials Stocked in

slow cooling Box

Yes

Is slow cooling required?

Materials handled to finishing department

Stocking of received materials

Inspection / Testing

QAD clearance

Is Material Ok Rejected

Yes

Binding / packaging

No

B

Stocking

Dispatch


MANUFACTURING PROCESS:

Production:

The steel production in Hospet steels Ltd undergoes three

different stages.



Mini blast furnace - production of iron.

Steel melting shop - manufacturing of steel.

Rolling mill shop - rolling the steel as per

Customers needs.

The three different sections are controlled by three separate

managers under them are the executives, engineers, officers,

trainees, technicians or operators.

I. Production of Iron (Mini Blast furnace)

The manufacture of iron takes place in this division. Kalyani

Ferrous Ltd owns it. The general manager of this division is Mr. R.

Sampath Kumar.

Raw materials used in manufacturing pig iron are:


Iron ore (Usually hematite)

Coke

Limestone

Dolomite

Manganese oreBHQ

Fluxes


Here the iron ore, coke and fluxes are brought to the furnace

through conveyer belts. There they have separate bunkers and are

crushed. The coke is allowed to burn with oxygen to form carbon

monoxide which acts as a reducing agent and covert iron ore to pig

iron. The coke burns at 12000, cold water is needed for circulation to

maintain the temperature the impurities in iron ore and coke are

fluxed with limestone and dolomite to form slag. Both the hot metal

and slag. Both the hot metal and slag is collected in the hearth and

tapped put from the furnace. The hot metal collected in cradles

from the furnace is sent at SMS to manufacture steels. The slag is

converted into granulated slag, which is used in the cement. Blast

furnace gas after cleaning is used in metallic blast preheater.

There are two MBF each producing a volume of 500 metric

tones per day. The total output per day is 1000 metric tones.

Products of MBF:

PIG IRON

SLAG



Blast Furnace gas

II manufacturing of steel (Steel melting shop)

Steel melting shop is a steel making division, which is owned

by Mukund Ltd. The deputy general Manager of this division is Mr.

M.O.Gupta.

SMS if further divided into:

(i) Energy optimizing furnace (EOF).

(ii) Laddle Furnace and vacuum degassing (LF & VD).

(iii) Continuous casting machine (CCM).

I) Energy optimizing Furnace (EOF)

The Pig Iron from MBF is the raw materials used here. The EOF

has oxygen supplied through 4 buyers, 4 atmospheric injectors, 1

supersonic, lance and 2 hand lances.



A mixture of 20% scrap and 80% hot metal is poured into the

furnace. The furnace is used to reduce the carbon content 4 to 0.1

% and primary steel is being produced here.

ii) Ladle Furnace: (LF)

The objective of ladle furnace (LF) is to process the heat is

heating, alloying, refining (LRF) is to process the heat i.e. heating,

alloying, refining and homogenizing the material as per standard to

meet this product requirements.

The hot metal is poured into the ladle from the EOF and is

brought of LRF. After the metal is poured into the ladle furnace, the

molten metal is heated with the help of three electrodes above

16000 C. There is a provision of continuous stirring of hot metal in

the furnace by the circulation of argon gas. The metal is heated to

alter its composition (Sulphur, Phosphorous) to meet the customer

requirements of desired steels.

Continuous casting machine (CCM):

It is called CCM because the molten metal is poured into a ‘T’

type tundish from top and the solid bass of metal cones come out

form the caster continuously.



The molten metal from the ladle is poured into tundish. Then

from here, it is poured into moulds blocked on the side by a dummy

bar. From mould it moves through casters where there is a provision

of continuous supply of cold water to solidify the molten metal. It

involves primary cooling as well as secondary cooling.

There are 3 types of casters.

Billet caster

Caster: 120 X 120 mm

160 X 160 mm

Bloom caster

Caster: 240 X 280 mm, 160 mm, 200 mm, and 220 mm.

iii) Rolling the steel as per customer needs:

In Hospet Kalyani Steels Limited owns steel limited rolling mill

section. The vice president of this section is Mr.Partha Moulik.

The steel is further made suitable as per the needs and

arrangements of the customers. The steel is melted in a reheating

furnace it is cooled by natural cooling or control cooling. Thereafter



the steel is moulded into different shapes and sizes. After rolling,

the products will be transferred to hot saw for cutting into length

according to the customers requirements in finishing bay, rolled

products will be reconditioned for whatever surface defect by means

of macro checking to be checked by MP1 machine for surface defect

only. As last the material will be dispatched.

Products: (As per isolated standards 9001 and 14001 std’s)

Carbon and alloy constructions steel4

Spring steels

Ball bearing steels.

Any other special grade of steels.

(As per customers requirements)

Major suppliers

Mukund Ltd Bombay.

Kalyani Ltd Pune

Major competitors

Kirloskar Ferrous Ltd

Mahindra Ungines Ltd



Vishweshwaraya Irons Steel Ltd (Bhadravati)

Sources of raw materials

Iron ore - sandur mines

Coke - china

Fluxes, limestones, dolomite - bagalkot

Manganese ore – Hospet



Performance of the company

2000-2001 2001-2002 2002-2003

Sales 1,75,37,16,

707

2,45,61,35,

618

3,56,37,68,

341

Profit

before

tax

(PBT)

1,53,98,849 5,28,22,199 8,72,70,302

Provisio

ns for

taxatio

n

13,75,000 27,50,000 70,73,000

Profits

after

tax

(PAT)

1,40,23,849 5,00,72,199 8,01,97,302

Current

ratio

2.89 2.43 2.39



Interpretation:

The company’s sales are increasing from year to year and

this trend is very good from the point of view of the company.

The company should try to increases the sales so that it

can end up with good profits in future.

The company should take care of its current ratio because

the current ratio is high compared to the standards.

Future plans of the company

Planning to conduct an advanced technical program as

per ISO standards.

Introducing reward scheme for shop in quality safety etc.

Survey on organizational climate.

Preparation of job description.

Planning to conduct welfare facilities to the employees.

Supply of uniforms and make facilities.



Adult literacy programs for benefit of neighbouring

villages.

Chapter IV

THEORETICAL PERCEPTIVE OF PURCHASE DEPARTMENT

INTRODUCTION:

Purchasing of raw materials has got a prime consideration

in the production industry. As today three are four different

groups of buyers.

(a) Consumers

(b) Middlemen

(c) Government agencies.

(d) Manufacturers

The fourth category of purchase includes manufacture

that converts raw material and other inputs into saleable

products.

Purchases function plays a vital role in material

management as it consists of planning functions regarding

when the materials are to be brought. What kind of material is



required at what time and how it is brought, is to be property

planned as per the purchase requirements.

Of any manufacturing industry raw materials constitute

50% of cost of the products hence purchasing function is given

atmost importance.

The purchasing function, which includes raw materials,

consumables, spares etc.

Definition:

Purchasing refers to an act of buying an item at a price.

Meaning:

The broader meaning of purchasing makes it managerial

activity, which goes beyond the simple act of buying and

includes the planning and policy activities covering a wide

range of related and complementary activities.

Included in all such activities are the researches and

development strategies, required for proper selection of

materials may be bought, the following to ensure proper

delivery, the development of proper procedures etc.



Importance of purchasing:

Purchasing is a fundamental function in an industrial enterprise

is primarily meant for converting raw materials into finished

goods.

Its well known that 50% of total cost is contributed by

single element called materials. It is proved that 1 % of

savings in material is equal to 10% of increase in turn over. An

average manufacturer spends major portion of his earnings on

purchases and has largest portion of working capital is tied up

with inventories. The annual reports of companies prominently

illustrate the way their earnings are distributed as shown in the

following figure.


A

B

D

E

FG

H

C


Purchasing function provider materials to the factory

without which wheels of machine cannot move.

Purchasing can contribute to import substitution and save

foreign exchange.

Purchasing is the main factor in the timely execution of

industrial projects.

Other factors like

Post war shortages.

Cycling swings of surplus and shortages and their fast

rising materials costs.

Heavy competition.

Growing worldwide markets have contributed to

importance of purchasing.



Objectives of purchases:

Purchasing objectives is sometimes understood as buying

materials of the right quality in the right quantity, at the right

time, at right price and from the right source.

Purchasing chain:

The purchasing function listed above will be performed to

complete a transactary from its completion certain steps can

be noted in the process of investigation & completing the

transaction the step are.

1. Recognition of need

2. Description of need.

3. A suitable source is selected for supply often a source

has to be developed.

4. Price & availability are determined.

5. Purchases order is prepared & sent out to the supplier

6. Acceptance of the purchase order is obtained from the

supplier. The purchase department to ensure timely

delivery of the material does follow up.



RECOGNITION OF NEED

Recognition of need refers to the means by which a

needed item is officially brought to the attention of purchasing

department cut. Two procedures are followed. One involves the

issuance of requisition and other involves issuance of bills of

materials.

A purchase requisition describes the needed item and

becomes basis for actions by purchase department requisitions

are signed by authorized individuals to void irresponsible

purchase requests.

A bill of materials is a list of item to be incorporated into

finished product’s that the company procedures. Under this

method of establishing needs, the purchasing department is

notified to the manufacturing schedules by PPC (production,

planning and control) department the buyer then multiplies the

items in bills of materials by the total units planned for

production to determine the total requirement after the total

needs have been adjusted to make use of existing inventories

the quantity to be purchase is known.



Description of requirement

The purchase requisition describes the required item. In

order to assure complete and accurate information all

necessary information in a form that can be readily checked

and verified.

Selection of sources:

After the need has recognized, the purchasing

department proceeds to select a source of supply. In most of

the cases, the purchase department would know from where

the material could be bought. The purchasing department

often maintains a regular list of suppliers it becomes necessary

to advertise in the press inviting tenders from suppliers.

Whatever the method it is essential that a right source be

selected. A right supplier is one who delivers materials of the

correct. Specifications on the stipulated delivery date. He is

ethical in his behavior, stands by the promises and has higher

regard for the cordial buyer seller relationship. He is

progressive in his business and seeks technological

advancement in improving the quality of products, his price is

reasonable, in short, he can be wholly relied upon.



Determination of price and availability

The next step in the purchasing is to secure the price for

the items to be purchased. This may be accomplished in three

ways for standard items, vendor’s catalogues and price list are

available and for such items, the buyer needs to check current

listing to obtain the price. Negotiation unplugs bargaining

between buyer and seller. Inviting tenders or quotations in the

third method.

Placing the order:

The legal order is placed with the supplier known as the

purchase order, when the order is supplied by telephone or

telegraph, it is the practice to confirm the order by sending the

suppliers a regular purchase order such an order should be

clearly marked confirming to avoid the possibility of the

supplier taking it as a second order.

Order acknowledgement

Some companies insist an order-acknowledgement form

the supplier, acknowledging the receipt of purchase orders and

agreeing to supply items stated in the order.



Acknowledgement is to get a definite commitment from

the suppliers about the supply of item.

Follow up:

Follow up is done to ensure that, the supplier delivers the

items ordered on time.

Checking the invoice and approval

The last step of purchasing cycle is to check the invoice

and approve it for payment. Since the bill constitutes a definite

claim against the buyer, it needs to be handled with great

care.

The bill supplied by the supplier is compared with the

order and goods received note that is made when the

materials is received. If the bill is correct in all respects, it is

approved and given to the accounting department for

payment.

PURCHASE FUNCTION WITH REFERENCE TO HSL

Purchase procedure with reference to Hospet Steels

Ltd.



Hospet steels ltd has organized a central purchase

department. This basically deals with procurement of materials

required. Purchase function starts when different departments

receive requisition or indent.

In Hospet Steel ltd where items handled and volume is

quite large, each specialized person takes care of particular

materials. For ex: some handle raw materials, some will handle

consumables and some will handle spares.

Purchase function

The raw materials such as iron ore, limestone, dolomite,

magnesia, quartzite, spares consumables, lubricants etc are

available in and around factory area. Iron ore is the main raw

material an is purchased from mines nearby. The raw material

coke is imported from CHINA.


INDENT

ENQUIRYCOMPARISON STATEMENT OF OFFER

PURCHASE OFFER QUANTITY INSPECTION PAYMENT OF INVOICE

SUPPLIER IDENTIFICATION

RECEIPT OF QUOTATION/OFFERPRICE AND TERM NEGOTIATIONRECEIPT OF MATERIALSMAINTENANCE OF RECORDS


Indent or requisition form

An indent is a requisition slip from a department that

requires some material. It gives details of the items required

like material code, specification, dimensions, quantity required,

technical specification, and other information that is required

to get the material. The details of the items required are

furnished in a standard format.

The indent or requisition is prepared by stores

department it is sent to the purchase department, purchase

department will again pass the indent to general manager and

then get it approved, after the approval is done then the

material is taken form suppliers.



The specimen of the indent is shown below

Department:NoDate :

Hospet steelsGinibera : indent

Sl. No

Item description

Specification Qty available

Qty required

Required date

Remarks

Job No. Component No.: indentor

Date: - store keeper



Supplier identification:

After receiving the indent form stores department the

next step is to identify the supplier. The reputed supplier are

intangible assets of any organization. They are not only the

suppliers of materials but they are also extremely important

sources of information with regard to the market condition,

price trends.

The proper selection of supplier helps in bringing a fair

competition among suppliers.

Sending an enquiry letter:

Once the suitable supplier is identified, an enquiry letter is sent

to supplier asking him to quote the rate if the materials

including other applicable expenses. In case of regular supplier

of material, the purchase department directly order the

material required.



The specimen of “enquiry letter” is shown below

HOSPET STEELS LIMITEDPURCHASES To, No. _____________________ Date _____________________

Dear Sir,

We are interested in purchasing the following materials, please quote us your terms & delivery date .

Sl. No. Description of materials

Quantity Qty required

Date of delivery required

Price Remarks

Yours faithfully

For HOSPET STEEL LTD

( )

PURCHASE MANAGER



Receipt of quotations or offers:

When the company has sent the enquiry letter to the supplier,

he in turn gives a quotation with details asked by the company

and specifying the terms and conditions of supply.

Comparative statement of quotation or offer:

When quotations are received from supplier quoting their

prices for the material, the next task is to compare the

quotations made by different suppliers. This statement helps in

selecting a better and economical supplier.

When company receives number of quotations from

number of suppliers they see the variations from the

quotations in various aspects, in order to evaluate these

quotations a comparative statement is prepared.

The keen study of this statement reveals the best supplier

out of available ones. This statement not only gives special

attention to price but it pays equal attention towards delivery

of goods, quantity and past experience with the supplier and

other terms and conditions.



P.R.S. No. Date: Dept

Sl No. Material DescriptionQty.

ReqdUnit

Sub- Contractor

Basic Price

Discount

Total

Packing & Forwarding

Excise Duty

Kist’s

Insurance

Any Levies/ Entry Tax

Freight

Other Charges

Gross Landed Cost

Less Exise Rebate

Net Landed Cost

Less Cost Of Cash Basis

Delivery Schedule

Terms Of Payment



Placing the purchase order:

The purchase order is placed with the selected supplier. It

indicates an official announcement of the intention of the

buyer addressed to the supplier to receive the specified

materials. Generally printed forms are used for purpose and

specifications such as price, date of requirement, mode of

delivery and other relevant terms are made in the purchase

order.

However the purchase order copies are generally

required as under:

Original copy - sent to the supplier.

Duplicate copy - initiating department.

Triplet copy - stores department.

Fourth copy - accounts department.

Fifth copy - retained by the purchase

department.



KALYANI STEEL LIMITED QR. NO. : HS/PUR/06.13 OFFICE : HOSPET ROAD, GINIGERA-583228. TQ.& DIST.KOPPAL, KARNATAKA TELEPHONE : 08539-286603 TP 08 (6LINES)

PURCHASE ORDER TELEFAX : 08539-286611

To, SUPPLIER CODE: PO NO. : PUR DATE: AMENDEMNT NO: DATE:

YOUR REF. NO: DATE:

PIN CODE

PLEASE SUPPLY THE GOODS IN ACCORDANCE WITH THE TERMS & CONDITIONS STIPULATED IN THIS ORDER SHEET NO.

SR. MAT. CD. DESCRIPTION QUANTITY UNIT RATE/ UNIT AMOUNT RS. RS. PS.

PLEASE ISSUE ORDER ACCEPTANCE CONFIRMING PRICE SCHDULE & OTHER TERMS & CONDITIONS OF THIS PURCHASE ORDER

PRICE BASIS : TAXES:PACKING & FORWARDING: TERMS OF PAYMENT : OTHER LEVIES : DELIVERY:MODVATABLE / NON MODVATABLE MODE OF DESPATCH:

PLEASE DELIVER THE ABOVE GOODS ON FOLLOWING ADDRESS:WORKS & POST : GINIGERA, TALUKA & DIST.: KOPPAL PINCODE -583 228

INSURANCE WILL BE ARRANGED BY YOU/ US ON PRIOR INTIMATION FROM YOU FOR KALYANI STEELS LIMITED

K.S.T REGN No. : 8060110-8 DATED 09-08-1995C.S.T REGN . NO. : 8065110-0 DATED 09-08-1995E.CC. REGN . NO.: AAACK7315DXM001RANGE: KOPPAL-583 231. DIST KOPPAL.DIVISION : 351, GSM ROAD, GANDHINAGAR, BELLARY-583 103.COMMISSIONERATE: 71 CLUB ROAD, BELGAUM.

Q.F.NO. : HS/ PUR/ 06.13



Terms and conditions of purchases on the Hospet steels

Ltd

1. All materials must be exact as per samples and

specifications.

2. In case if delay the contract is liable for cancellation and

the penalty will be paid at companies discretion.

3. All the materials must be forwarded through specific

mode of transportation, failing with differences in freight

and extra cost of carriage etc will be charges to sellers

account.

4. The seller shall be allowed for carriage or packaging etc

unless agreed to previously in writing by the buyer.

5. No variation of the order shall be valid unless made in

writing.

6. No variation in price will be entertained during tenure of

supply under the order.

7. In case of payment against document through book

a. Over due interest will not be paid by the company.

b. Any bankers commission will not be paid by the company.



Receipt of materials:

Receiving department receives the materials supplied by

the vendor. The quantity is verified and tallied with the

purchase order. The receipt of the materials is recorded on the

receiving slips or forms, which also specify the name of the

vendor and the purchase order number; it also records the

damages and inferiority of goods.

If the materials required any quantity control or

inspection they are sent for such testing, the inspection

department tries to verify that the incoming materials comply

with the standard quality as specified in purchase order.

The accept and reject decisions may be taken on the

basis of either sample testing or 100 % inspection for some

material. The inspection report along with test certificates and

recommended acceptance or rejection should be sent to the

purchasing department. On the basis of this recommendation

made by this inspection department, the purchase department

arrange for the segregation of the rejected materials.



GOODS RECEIVED NOTES

HOSPET STEEL LTD

Fax no._______

Phone _______

Date _______

Vendor Name ____

Code ___________

Purchase order no.

Date_________

Invoice No. ______

Date ________

Sl. No

Item Description

Item Code

Unit

Received

Accepted

Rejected

Date

Amt

Payment of invoice



When goods are received in satisfactory conditions, the invoice

is checked before it is appraised for the payment. Generally

the invoice is checked to refer that the goods were duly

authorized to purchase, thy were properly ordered, they are

paid as per the agreed terms, the quality inform to the order

the calculations are arithmetically correct etc.

Maintenance of records

Maintenance of records is an important part of the

purchasing departments in the industrial firms, most of the

purchases are repeat order & hence the post records serve as

a good source for further actions. They are very useful for

deciding the timing of the purchase & separating the best

source of supply.



PAYMENT RELEASE REQUEST

QRNo.HS/PUR/06.14

PAYMENT REQUIRED FOR:

Sub-Contractor Name Amount :

Facility : Iron making/steel making/ rolling mill/ common services

Enclosures:

A) PO/LOI No.: Date_____________

B) Invoice No/Performa invoice No. Date_____________

C) Other administrative/ pre operative itemsO As advance O As payment Bank Guarantee required Yes/ No Enclosed__________

Made of payment required O Cheque O Demand draft O CashPlace of payment: O Pune O Hospet O _____________

Special Instructions:__________ __________________ Requisitioned Sanctioning Authority

Received by __________________________Signature ________________ date________________

QF No. HS/ PUR/06.14


Date : Purchase S.L. No. ______

Date:

Payment required date ____________________


MUKUND LIMITED

HOSPET DIVISION

Order recommendation /approval form

Order no. HS/PUR/06.08

NO:

Date:

Item:

Quantity

Value:

Suppliers: M/s.

Order placement is recommended for the item on above supplier

The recommendation is based on following:

Approved supplier for the item

Competitive offers enclosed which shows that supplier rate is lowest

Competitive offers not considered necessary as value is small

Competitive offers not considered necessary due to urgency.

Telephonic offers.

One time requirement. Supplier credentials checked and found

satisfactory.

Any other reason.

________________ ______________ ____________

(Prepared by) (Checked by) Reviewed and approved by



Theoretical framework of stores

department

1.1 Introduction

1.2 Functions of stores

department

1.3 Stores layout

1.4 Centralized and sub stores

1.5 Stores keepers duties

responsibilities

1.6 Classification and codification

1.7 Setting stock levels INSTITUTE OF MANAGEMENT STUDIES Hubli. 52


Pricing material issue

THEORETICAL FRAME WORK OF STORES DEPARTMENT

STORAGE

Proper storage of goods is very essential effective production

planning. Materials when received are to be properly examined

and tested and kept in a proper place known as “store room”.

Store keeping, those may be described as “ physical stroge of

materials carried into the store room in a scientific manner

with a view to, Saving them from all kinds of damages and

losses and

Exercising over all control over their movement. Proper storage

of materials helps in minimizing production cost and providing

efficient service. Proper storing of separate storage

department is setup for efficient storing and handling of all



materials received. This department is responsible for physical

possession of materials in the organization.

Functions of stores department

The stores department play a very important role in an

organization, it is therefore essential that the overall

functioning of this department should be entrusted to a

capable and proper organized stores department.

i. Receipt of materials into the store.

ii. Acts as a store and depot for different types of materials.

iii. Protestation and preservation of materials.

iv. Issue of materials.

v. Checking the invoice with material received note and

purchase order in quality and quantity of material

received.

vi. Maintains stock of materials and

vii. Maintains proper books and records necessary for

accounting and control.



Stores location and organization

Location of the stores department should be care fully

planned out and as far as possible stores should be located

within the proximity of both receiving and consumption pains.

The location of stores depending on the requirements of the

enterprise may be organized in the following lines.

a) Centralized stores.

b) Decentralized stores.

c) Central stores with sub- stores

Organization of stores on these lines has its own merits and

demerits. But the cardinal points that should be kept in mind

are that the stores be located in such a manner which allows

free low of materials with minimum costs and does not hinder

the production schedules.

STORES LAYOUT

The stores department should be properly organized and

equipped for handling of materials movements. In determining



the location and layout of store, several important

considerations should be kept in view. The stores department

should be housed in a position, which is readily accessible from

any part of the factory, and also as near to the road, railway

siding or water as is possible in order that the minimum

expenditure is insured in unloading the materials purchased.

The layout of stores should be determined according to the

class and quantity of materials to be stored and the general

nature of the business. In laying out the shortest line with

minimum handling and maximum speed within the

department. Shelves, racks, bins etc., should be situated in

clearly defined lanes, so that easy accesses provide. In case of

heavy or bulky stores, storage in bins, sheaves etc., many not

be convenient, but white lines should be marked out on floor to

indicate the limits within which materials or storages of this

character are to be placed.

CENTRALISED AND SUB STORES

The types of stores organization are centralized stores,

central stores with sub-stores and independent stores situated



in various departments. The type of stores organization

depends on the class and quantity of materials to be stored,

layout of stores and the nature of the business.

ADVANTAGES OF CENTRALIZED STORES DEPARTMENT: -

1. Centralized control and economy in floor space, clerical

costs, records and stationery.

2. Better supervision, better layout of stores and better

control over stores

3. Fewer obsolete articles.

4. Minimum investment in stock.

5. Possibility of bulk buying at lower cost.

6. Preparation of concise reports and scarp, obsolete stocks,

loss etc., at regular intervals.

7. Inventory checks ad inventory control facilitated



DISADVANTAGES:-

1. Increased interval transportation costs as one central

stores may not be near to every department of the

factory

2. Inconvenience and delay in delivering goods to

departments from central stores.

3. Great risk of loss by fire as all materials are kept in

central store.

4. Production stoppages in departments due to breakdowns

in transport or holdups in central store.

SUB-DIVISION OF STORES

In a large manufacture organization separate store department

may be maintained for each item, viz raw materials,

consumable stores, components, part finished stores, finished

goods, scrape materials, plant maintenance materials etc.

STORE KEEPER HIS DUTIES AND RESPONSBILITIES.



The stores department should be under the control of one

person known as store keeper or store controller. He should be

able to organize the operation of the stores an capable of

controlling the men under his charges, wide experience is

stores routine and orderliness in store keeping are highly

desirable in a store keeper.

CLASIFCATION AND CODIFICATION

One of the accepted principles of store keeping is that all the

goods showed be broadly classified on the basis of some

similarity and usage These should be assigned some symbol or

identification or number code. In a large enterprise stores may

be classified as raw materials packaging stores, machinery and

equipment and general stores. Stores may also be known as

serviceable and non-serviceable, finished and semi finished

and dead stock items etc.

The classification of materials should be accompanied by

a proper codification implies assigning of some symbol



numerical or alphabetical for each classified item in

accordance with some suitable arrangements. Codification

helps not only in proper maintenance of the stores but also

facilities in mechanized accounting.

The following are the advantages of proper

codification:

1. Elimination of long and un widely description of materials.

2. Facilities standardization of stores.

3. Facilities efficient recording and accounting.

4. Ensures secrecy in the maintenance of stores.

5. Ease in identification of stores.

6. Assures proper system of location and indexing.

7. Prevention of duplication and quoting symbol along with

nomenclature ensures clarity.

CODIFICATION SYSTEMS

While assigning a code or a symbol, the following points should

be kept in mind.



1. Simplicity.

2. Flexibility.

3. Conciseness, definiteness

4. Clarity and

5. Minimum expenditure

There are methods of codification in use.

But the following are commonly used.

1. Alphabetical

2. Numerical

3. Combined alphabetical and numerical

ALPHABETICAL SYSTEM:

Under this system, the first alphabet of the name if the

material is the starting point of codification. Subsequently sub

alphabet may be used if necessary.

Example : iron ore = IN-O

Iron bars=IN-BA

Numerical system

Under this system, ach item is allotted as codes and the

numbering may be simple number, block number or stock



number. The following table illustrates an explains numerical

codification in its sub groups.

Example:-

Numerical codification

Items number Simple straight no Block

number

Stock

Raw material 01 00-10 15

Iron ore 04 01-20 15-1

Iron pig 06 21-40 15-2

Iron stocks 10 41-60 15-3

Iron bars 11 61-80 15-4

Combination of numeric and alphabetical system:

This system us a mixture of both alphabetical and numerical

system. Example : iron ore may be allotted code as IN-BAR-01.

this system ahs merits of the two system.

Replishment of stock

Materials are received and issued by the stock keeper to

different production department. The duty of a storekeeper is



the restocking of stores in order to ensure efficient functioning

of the stores department and study flow of materials has to be

the production departments. The inflow and the out flow of the

materials has to be regulated in such a manner that neither

production is adversely affected due to the need of materials

nor is there unnecessary blocking of capital funds due to

overstocking. This implies that there is always limit to the

minimum and maximum quantity of materials of stock in the

store. The storekeeper is to request for stock replishment in

time so as to ensure honouring of requisition slips from the

production departments. Replishment of stock therefore

implies as taking steps for the fresh purchase of those stocks,

which have been exhausted and for which requisition are to be

honoured in future.

SETTING OF STOCK LEVELS

In order to ensure that the optimum quantity of materials is

purchased and stocked neither less nor more, the stock keeper

applies scientific techniques of the materials management.



Fixing of certain level for each item of materials is one such

technique.

Two objectives of stock control system are: -

1. To maintain sufficient stock in order to avail shortages,

which can disrupt production and sales.

2. To avoid the high costs of holding excessive stock level

finance charges shortages costs and decoration.

A stock level, which strikes a balance between these two

objectives, should result in inventory costs being minimized

fixing of certain levels for each item of materials is one of such

techniques.

The following levels are generally fixed: -

1. Maximum level

2. Minimum level

3. Re-order level

4. Danger level.



1. Maximum Level:

The maximum stock level indicates the maximum

quantity of an item of material, which can be held ion

stock at any time. The maximum stock level is fixed by

taking into consideration the following factors.

a) Average rate of consumption.

b) Availability of funds.

c) Availability of storage space.

d) Risk of obsolesces, depletion, evaporation ad

material waste.

e) Future fluctuation of price of materials.

f) Cost of storage and insurance.

g) The nature of material- seasonal suppliers etc.,

The maximum stock can be calculated by applying the

following formula,

Maximum level = reorder level + reorder quantity = [minimum

consumption * minimum reorder period]

2. Minimum level:



Minimum level represents the quantity below the

inventory of any item should not be to fall. In order words,

an enterprise must maintain minimum quantity of stock

so that the production is not hampered due to non-

availability of materials. It is some buffer inventory acting

as a cushion against reasonable expected maximum

usage. The minimum stock level is fixed by taking into

account.

a) Re-Order level

b) Lead is time lag between dates of issuing order and

the receipts of materials.

c) Average, rate of consumption of material.

Formula:

Minimum level = Reorder level [ normal consumption* normal

reorder period]

3. Re-Ordering Level/Point: -

reorder point (ROP) or reordering stock level in relation to

an item of stock is the point at which it becomes essential

to initiate purchase orders for its fresh supplies. In



inventory management schedule is a key decision point

and is the quantity level that automatically triggers a new

order. Normally reordering level is a point between the

maximum and the minimum levels. Fresh orders must be

placed before the actual stocks touch the minimum so as

to take care of lapse in time between placing the order

and the receipt of materials.

The following factors are taken into account for fixing

reorder level.

a) Aggregate rate of consumption or usage per day.

b) Lead-time is maximum delivery or reorder point.

c) Economic order quantity.

Formula:

Reorder level = maximum reorder period * maximum usage

per day or per week.

In case purchases are made according to economic order

quantity formula, the reordering will be nearly half of the

economic order quantity.



4. Danger level:

The danger level is below the minimum level and represents

and stage where immediate steps are taken for getting stock

replenished when the stock reaches danger level, it is

indicative that if no emergency steps are taken to restock the

materials, the stores will be completely exhausted and normal

production stopped.

Generally, the danger level of stock is fixed above the

minimum level but below the reordering level.

ECONOMIC ORDER QUANTITY:

Economic order quantity (EOQ) is the inventory purchase

order size that minimizes annual order costs and holding costs.

This model determines how much to order, when to order at

one tome so as to minimize the total of

i) Cost of placing orders and receiving goods, and



ii) Cost of storing the goods as wekk as interest on

capital invested when this concept relates to

production, it is called economic lot size and

refers to the number of units, which should be

manufactures in a single run so that the

production costs are minimized. The economic

order quantity can be determined by the following

simple formula.

EOQ = 2AS

I

Where, EOQ = Economic order quantity of number of units in

one lot.

A = Annual usage in units.

S = Ordering costs in rupees for one order.

I = Inventory holding / carrying costs per units in rupees per

year.

The above EOQ model gives an approximate idea of the

number of units to order each time. This is enough because

precision as such is not needed.



Assumption underlying EOQ model are: -

1. Procurement of production is in batches. It is not

applicable in continuous production.

2. Price will remain constant throughout the year and

quantity discount is not involved.

3. Demand rate is constant and is predictable during the

period.

4. EOQ will be delivered each time the stock balance is just

reduce to nil, excluding of course, safety stock.

5. Lead-time is certain.

Stores ledger

The stores ledger is a basic record in accounting for

materials and supplies. It contains in details, receipts, issues

and balance along with money value of cash item of stores. It

is usually kept on cards or sheets and the details of materials

to be given depending on the requirements of a particular

organization. The ledger sheets are generally in loose leaf form

in binders and separate binders are used for each class of

materials. The loose sheets are numbered serially and are



initiated. The loose sheets are numbered serially and are

initiated.

The purchase order/ invoices.

1. The materials received reports and

2. The materials requisition.

The stores ledger and bin card, record, the physical

movements of all items of goods on the store. It is, therefore,

essential the quantity balances as shown by these two records

should always agree. The specimen of store ledger is shown as

under.

Company name

Stores Ledger

Name of the article…………….. Max. stock

level………

Specification………………………. Min. stock

level……….

Stores code no……………….. Reordering

level………



Date source of receipts.

Pricing materials issues

Need for pricing:

Normally, materials must be priced for two reasons. They are:

a) When charged to production and

b) When materials are computed for financial

statements.

The need for determining the prices of materials arises

from the fluctuations in the price of similar materials

purchased on different dates.

Cost price of an article is significantly affected by the

price at which materials are issued from the stores to the

production department materials are frequently purchased at

varying price and are issued to different production

department according to their needs. The price paid for the

procurement of such materials will be charged to that job.

Frequent changes in the material prices, inflationary trends,



nature of materials and its storage and the frequency with

which materials are issued to production departments are

some of the matters, which further complicated the pricing of

materials issues. However in order to ascertain the cost of

production per article as accurately as possible and value of

closing stock of raw materials reflecting its true valuation. The

pricing of material issue should have to be based on some

accepted principles. Before adopting a particular method of

pricing materials issue the following points should be

considered.

1) As far as possible the method of pricing materials issues

should reflect the market price of the material.

2) The method should be simple and should not involve

much adjustment at the closing period.

3) Frequently of receipts and issues transaction be taken

into account.

4) The nature of materials and type of costing system be

considered.



5) Frequent change in pricing materials issues should, as

far as possible, be avoided.

6) Cost of clerical work involved should be minimum.

7) The proportion which raw materials bear to total cost

should as far as possible be minimum.

8) The uniformity, is any, should be maintained within an

industry.

There are different methods of pricing materials issued, which

can be summarized, in the following main categories: -

1. Cost price methods

a. The actual cost / specific cost

b. First in first out (FIFO) price.

c. Last in first out (LIFO) price.

d. Next in first out (NIFO) Price.

e. Base stock price.

f. Highest in first out (HIFO) price.



g. First in last out (FILO) price.

2. Average cost price methods

a. Simple average price.

b. Weighted simple average price

c. Periodic simple average price.

d. Periodic weighted average price.

e. Moving simple average price.

f. Moving weighted average price.

3. National price methods.

a. Standard price

b. Inflated price

c. Replacement price.

The actual cost:

Under this method, the materials issued are priced at their

actual cost, which involves identification of each lot purchased.

The identified cost is applicable for materials purchased for a

specific job and for which separate cost records have been

maintained. The materials is stored at a special place avoiding



much efforts in its identification and cost price incurred the

method may be usefully applied if purchase prices are fairly

stable and materials are fairly stable and materials is readily

identifiable.

First in first out method (FIFO)

This method is commonly known as FIFO. The principle is

that issues are priced in chronological order of the purchases

and at their cost price.

The materials received first are to be issued as soon as

the materials requisitions are received.

1. This method is suitable in a falling market for purchases.

Profits ten to rise as the cost of production reflects the

lower materials prices.



2. Under this method, neither profit nor loss is unduly

made.

The ABC analysis:

The technique is based on the principle of management by

exception or selective control. This method of inventory control

provides a means for reducing safety stock investment without

increasing the probability of stock outs. The logic behind this

approach is the maximum, “put your efforts where the results

are maximized”. It is the efforts results management principle.

The premise of ABC concept of control is that management

should concentrate its energy in controlling those items that

most affect the organizational objectives. It is actually

materials use classification system where attention is paid to



estimates of requirements, purchase scheduling, safety stock,

prompt receipts and inspection. For more products there are a

few items which account for most materials costs as also a

large number of items who’s total cost is very low.

All items of inventories are arranged in order of

magnitude and classified in to three classes of high value,

medium value and low value. The first 10% are called A items,

and next 20% are B items and the remaining 70% are C items.

The ABC classification has its basis on proved “ vital few and

trivial many” idea. ‘A’ items are vital few. ‘B’ items are less

important and C items are wasted, the trival many. It is

commonly found that top 10% items involved the greatest of

rupee investment and the bottom 10% is the lest shown in the

following table.



ABC analysis

Class or

group

No of

items

Percentag

e of item

Value Percentag

e of the

total value

of items

Average

value

A (High

value)

40 10 70000 70 1750

B

(Medium

value)

80 20 20000 20 250

C ( low

value)

280 70 10000 10 360

400 100 100000 100 2560



For the basis of classification of materials two methods may be

used: -

1) Actual inventory holding method and

2) Actual inventory usage method.

The first would be useful when the inventories represent

mostly dead surplus stores. The second method would be

usefully applied when the stress is laid upon the relative usage

if the inventory so as to avoid stock out.



Stores function with reference to

HSL

1.1 Introduction

1.2 Functions of stores at HSL

1.3 Stores layout in HSL



STORES FUNCTION WITH REFERENCE TO HSL

Stores function start with inspection of the purchased

material, & if that is according to the order made then it will be

according & send for storage department, some items which

cannot be stocked will be directly taken to the assembly line

from inspection.

HLS follows a scientific method of storing systems with a

view to saving them from all kinds of damages and exercising

over the movement in HSL separate centralized with sub stores

department is setup which does efficient storing and handling

of materials received.

FUNCTIONS OF STORES DEPARTMENT

Preparation of goods received note (GRN)

A stores department prepares goods received note according

to purchase order, store personal check the physical quantity if



the quantity are stores as per the purchase order then it

accepts and materials and stories in the department

FUNCTIONS OF STORES


Preparation of goods received note and inspection note

Preservation of goods

Codification system

Issue of materials when required

Maintenance of records


Protection And Preservation

The stores department protects the material from

pilferage, mishandling, evaporation etc. The stores department

preserves and protection such materials.

It minimizes obsolesce surplus and scrap through proper

codification, preservation and handling. The HSL Ltd

stores department codifies preserves all the materials in

a systematic way. It handles the materials with scientific

methods.

Issue of materials

The stores department issues the materials when an

indent is received from the production follows FIFO

method (first in first out) of issue the data into the

computer online systems.



It maintains proper records necessary for

accounting and control

In HSL stores department records the issue of materials and

stock details in the computer online systems. But adopting the

method o accountability is very effective and control over

materials is possible.

STORES LAYOUT

The HSL stores department is properly organized and equipped

from handling of materials coming in and going out. In

determining the location and layout of store, several important

considerations are kept in view.

This is housed in a location, which is easily accessible from

any part of the factory and also near to road and railway

siding.

Centralized and sub-office



The HSL organised a centrally with sub stores

department. The centralised store is always good from point of

view of control and economic. The centralised office have

certain advantages, they are as follows.

Centralized controls and economy in floor space,

electrical costs, records and stationery are educed

Possibility of bulk buying at lower cost

Minimum investment in stock

Stores keepers duties and responsibility is HSL



1. He has to accept the materials into his stores or as

returned by process.

2. He has to issue the materials when he receives the indent

from the production

3. To record all the transaction in the complete online

systems.

4. He has to watch the stock levels and arranges to

replenish them whenever necessary.

5. He has to maintain stock in good condition free from

deterioration, pilferage and wastage.

6. He has to report on absolute slow moving and non-

moving scrap materials.

7. He has to maintain the stores clean and tidily.

8. He ahs to supervise the staff under his charge.



Classification and condition

In HSL stores the stores personal broadly classify the

materials on the basis of some similarity and usage. The stores

personal assign some symbol or identification numbers and

code number.

The classification of materials is accompanied by a proper

codification. Codification implies assigning of some symbol

numeric or alphabetically for each classified items in

accordance with some suitable arrangements. Codification

helps in proper maintains of stores and it facilitates in

mechanized accounting.

The following are the advantage of proper classification

1. Elimination of long and unwieldy description of materials

2. It facilities standardisation of stores.

3. Ease in identification of stores.

4. It facilitates efficient recoding and accounting

5. It assures proper system of location and indexing



Codification system

While assigning a code or a symbol the following points are

kept in mind.

a) Simplicity

b) Flexibility

c) Conciseness (definiteness)

d) Clarity

e) Minimum expenditure

The HSL stores department assigns the code to the materials

with alphanumeric systems, this system is the combination of

alphabetically and numeric system

Ex: Iron bar may be allotted as (code) IN BAR-01

Replenishment of stock: -

Material are required and issued by the store keeper to

different production department one important duty of store

keeper is the restocking of stores in order to ensure efficient

function of stores department and steady of material to the

production departments.



The storekeeper requests for stock replenishment in time

so as to ensure honoring of requisition slip from production

departments. Replacement of stock therefore implies taking

steps for fresh purchase of those stocks which have been

exhausted and for which requisition will be honored in

further.

STOCK LEVELS WITH REFERENE TO HSL

In order to ensure that the optimum quantity of material

is purchase and stocked neither less nor more, the storekeeper

applies scientific techniques of material management fixing f

certain level for each item or material is one of such

techniques.

Two objectives of stock control systems are:-

1) To maintain sufficient stock is order to avoid which can

disrupt production and sales

2) To avoid the high costs holding excessive stock level

finance charges, storage costs and deterioration.

A stock level, which strikes a balance B/n these two objectives,

it should result in inventory costs being minimized. Fixing of

certain levels for each item of material is one of such



techniques the following levels are fixed by HSL (Hospet steels

Ltd.) are: -

1) Maximum level

2) Minimum level

3) Re-order level

SL No. Major raw

materials

Daily

consumptio

n

Maximu

m

Minimu

m

Unit of

measure

s

1 Mild steel scrap 2.5 60 25 Tonnes

2 Ferro chrome 0.5 09 03 Tonnes

3 Ferro silicon

lumps

0.25 06 02 Tonnes

4 Ferro silicon

inoculants

0.5 06 02 Tonnes

5 Manganese 0.3 09 03 Tonnes

6 Copper 0.2 01 0.5 Tonnes

7 Pet cock 0.1 04 0.2 Tonnes



Consumables

Sl.no Major raw materials Daily cons

Max Min Unit of measurements.

1. Code box resins 1.2 04 0.2 Tones

2 Silica sand 125 1500 500 Tones

3 Core sand 02 04 03 Tones

i) Red oxide casting

sealer

300 2.000 500 Litres

ii) Sedset black paints 040 500 200 Liters

iii) Gray paints 040 500 200 Liters

iv) Zinc chromite green 40 500 200 Liters

v) Thinner 20 1500 500 Liters

5 Resin coated sand 01 30 10 Liters

6 Sulphur 50 1000 500 Tones

7 Tin metal 10 300 100 Kgs

8 Mold wash 0.02 03 10 Kgs

9 Bentomite 08 250 150 Tones

10 Coat dust 04 30 20 Tones

List of consumables:



Sl.no Major raw materials

Daily cons

Max Min Unit of measurements

1 Mud gum clay 24 04 18.40 Met. Ton

2 Fire wood 10 1.65 2.35 Met. Ton

3 Cotton cloth 25 15 20 Number

4 Pig moulds 120 20 36 Met. Ton

5 Refractory

bricks

4800 800 2080 Number

6 High speed

diesel

30 05 09 Liters

7 Furnace oil 80 15 24 Liters

8 Grease servo

gem

556 182 364 Kgs

9 Red, mati: SS

304

12 06 06 Kgs

10 M.S. barrel

Nipple

30 20 25 Number

11 Ball bearing 06 04 05 Number

Stores Record



In Hospet steel Ltd, the stores keepers maintain two

material records that is Bin card and stores ledger.

Bin card

The stores keeper maintains a bin card for each item of

material in stores room. The bin card shows physical

movements of each item of materials in the stores, this is a

quantitative record of receipts, issues and closing balance of

items of stores. For each kind of material a separate record of

the bin card is kept showing all the details of receipts and

issues.

The main purpose of bin card is to disclose at a glance to

anyone in the stores what quantity of a particular commodity is

in the stock without having to refer to stores ledger of

ascertain the informatory by actual inspection of the goods.



Hospet Steel Ltd

Bin card

Bin card number _____________ Max Stock________

Name of the article _____________ Min Stock ________

Street code No. _______________ Re-Ordering stock_______

Unit of measures _____________ Re-Ordering level________

Dat

e

Delivery or

issued

notificatio

n

Receipt

s

returns

only

Issues

qty

Balanc

e qty

Date of

verificatio

n with

stores

ledger

Remark

s sign

Stores ledger of Hospet steels ltd

Hospet Steels Ltd

Stores ledger

Name of the article _____________ Min Stock ________

Street code No. _______________ Re-Ordering stock_______

Unit of measures _____________ Re-Ordering level________



PRICING THE MATERIAL ISSUES

NEED FOR PRICING: -

Material is to be priced for two reasons

1. When changed to production

2. When materials are compared for financial

statements

The need for determining of material arises from the

fluctuation in the prices of similar materials purchased on

deferent dates.

There are four different types of pricing materials issues,

but in Hospet steels Ltd, FIFO (First in First out) method is

adopted.

In FIFO the material issues are priced in chronological

order of the purchases and at their cost price. The materials

received first are to be issue as soon as the material

requisitions are received.



Features of FIFO method: -

1. This is a very simple method and is useful for issue of

bulky materials with high price.

2. It appears logical as the materials bought earlier are

used for earlier jobs.

3. Stock valued at recent purchase price and hence it

closely represents current market price.

4. When price, material cost charged to production being at

lower prices profit is fluctuated to the advantage of the

management and share holder’s

5. During price decline, material cost, cost charged to

products or jobs keep in line with the price trend.

6. This method is suitable where the items are bulky, slow

moving and costly, because it is easy to identify units

belonging to a particular purchase lot.

Chapter 5.RESEARCH METHODOLOGY



Methodology of the study refers to the methods used to

collect the required data for project work. The research is

exploratory in nature. The data required has been collected

from the following.

Primary Sources:

Those data which are collected at first hand by researcher

especially for the purpose of the study. The following point is

used to consider for collecting primary data.

1. Discussions with the management

2. Interviews with the concerned officer

Secondary sources:

Any data which has been gathered earlier for some other

purpose are secondary data in the hand of researcher. The

following points are used to consider for collecting secondary

data.

1. Records of the company: This helped me to get details,

regarding the history of the company.

2. Library Research.

3. A number of books on international business were

referred to collect theoretical back ground relating to

material management.

FINDINGS



Low prices- to be lowest - includes transportation:

enhances profit

High inventory Turnover- value of inventories to be low

in relation to sales. Reduces storage costs

Low cost acquisition and possession- reduced handling

and storage costs.

Continuity of supply- alternative sources, , captive

suppliers, flexible suppliers

Low payroll costs- Low operating costs of material

management personnel

Favorable supplier relations- supplier development

New materials and products- working closely with

Design and research departments for

development of new materials and products

Interdepartmental Harmony- Success of materials

management department depends on the success of

other departments. Hence relations are to be

harmonious

Forecasts- Forecasts in terms of prices, availability and

general market conditions are to be regularly monitored

towards taking important business decisions.

SUGGESTIONS



For uninterrupted flow of materials, stock levels are to

be verified frequently

Obsolescence materials are to be disposed frequently

to minimize the maintenance cost

Importance is to be given for grade materials such as

coke etc.

Slow moving & non moving items to be reviewed

frequently & action is to be taken to re- use or disposal

Finished products is to be stored in secured place so as

to eliminate rust, breakage spoilage etc.till it is

dispatched to the customers

CHAPTER 8.

LIMITATIONS



The study relies upon the data available in the

company records (supplies records of the company) &

information provided by the company and its purchase and

stores department

The aim of the project report is to study the material

management of the organization. Hence the study of

material management includes purchasing, purchasing

policies, material storing, & inventory management & so on

The study mainly deals with purchase & stores functions at

hospet steels ltd.

CHAPTER 9

EXPECTED CONTRIBUTION FROM THE STUDY

Material occupies a significant place in an industry

enterprise because the amount spent on materials is



increasing in relation to the expenditure on their inputs. The

trend is clear enough in manufacturing industries, the

production of total revenue spent ion the acquisition of

material has been gradually increasing unit it has become four

of five fives as great as required for remuneration of direct

labor.

HSL has organized centralized purchase department. The

material playas a vital role and it is handled and controlled by

the well-experienced personnel are specialized in material

engineering. The purchase department work starts as soon as

the indent is received, they identity the suitable supplier and

ask for quotations and after making a comparitative study,

they place the order. HSL has very good relationship with all

their suppliers

Even the stores department of HSL is centralized with

sub-stores; all transactions are recorded in a computer online

system. The stores department maintains codification of

material wherever requisition comes from the production



department the stores department issues the materials

through authorized personal. The stores department maintains

FIFO method of issue of materials.

As soon as the material is received the inspection

department inspects whether the materials are as per invoice

specification and the accepted material are sent to stores

department in turn stores department received the material

and prepare (GRN) goods received note and place the material

in systematic order for these material the code is gives so as to

identify material easily.

PRODUSTION PROCESS


IRON ORE



IRON PROCESSER BLAST FURNACE

LD 1

LD 2

STEEL PROCESSER

SLABSHOT MILLCOLD MILL

OUT PUT


Bibliography

K.ASWATHAPPA: PRODUCTION MANAGEMENT

CHUNAWALLA & PATEL: PRODUCTION MANAGEMENT

www.google.com

www.sal.com

www.hospetsteels.com

ANNEXURE; PURCHASE ORDER


http://www.hospetsteels.com/

http://www.sal.com/

http://www.google.com/


KALYANI STEEL LIMITED QR. NO. : HS/PUR/06.13 OFFICE : HOSPET ROAD, GINIGERA-583228. TQ.& DIST.KOPPAL, KARNATAKA TELEPHONE : 08539-286603 TP 08 (6LINES)

PURCHASE ORDER TELEFAX : 08539-286611

To, SUPPLIER CODE: PO NO. : PUR DATE: AMENDEMNT NO: DATE:

YOUR REF. NO: DATE:

PIN CODE

PLEASE SUPPLY THE GOODS IN ACCORDANCE WITH THE TERMS & CONDITIONS STIPULATED IN THIS ORDER SHEET NO.

SR. MAT. CD. DESCRIPTION QUANTITY UNIT RATE/ UNIT AMOUNT RS.

RS. PS.

PLEASE ISSUE ORDER ACCEPTANCE CONFIRMING PRICE SCHDULE & OTHER TERMS & CONDITIONS OF THIS PURCHASE ORDER

PRICE BASIS : TAXES:PACKING & FORWARDING: TERMS OF PAYMENT : OTHER LEVIES : DELIVERY:MODVATABLE / NON MODVATABLE MODE OF DESPATCH:

PLEASE DELIVER THE ABOVE GOODS ON FOLLOWING ADDRESS:WORKS & POST : GINIGERA, TALUKA & DIST.: KOPPAL PINCODE -583 228

INSURANCE WILL BE ARRANGED BY YOU/ US ON PRIOR INTIMATION FROM YOU FOR KALYANI STEELS LIMITED

K.S.T REGN No. : 8060110-8 DATED 09-08-1995C.S.T REGN . NO. : 8065110-0 DATED 09-08-1995E.CC. REGN . NO.: AAACK7315DXM001RANGE : KOPPAL-583 231. DIST KOPPAL.DIVISION : 351, GSM ROAD, GANDHINAGAR, BELLARY-583 103.COMMISSIONERATE: 71 CLUB ROAD, BELGAUM.

Q.F.NO. : HS/ PUR/ 06.13


Documents

Materials Management at Hospet Steels Limited