field.

This project gives a complete picture of inventory management and working capitalmanagement at
TATA STEEL.Inventory management is a great problem at TATA STEEL .As it is manufacturing firm, delayor
other issues related to stock, poses serious problems and huge losses.Inventory management is a part of
financial accounts of an organization. Hence the projectunderlines the relationship of inventory with
financial accounts and all other important aspectof inventory management at TATA STEEL

SUPPLY CHAIN MANAGEMENT PRACTICES IN INDIA(A CASE STUDY OF TISCO) Introduction

Today’s world is moving in turbulent economic environment, firms are striving for waysto achieve
competitive advantage. One of the approaches is to manage the entire supplychain to reduce costs and
improve performance to create competitive advantage and business success. Supply chains are now at
the center-stage of business performance of manufacturing and service organisations. This research
explores and investigates howhigh technology firm’s uses supply chain management to gain competitive
advantage andincrease business success. This research provides a theoretical framework to understand
afirm’s performance and argues that supply chain management will help a firm to becompetitive and
successful

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Project Reprot on Working Capital & Inventory Management at TATA STEEL

Uploaded by Avik Roy on Jul 02, 2012

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PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY

The following are the general principles of a sound working capital management policy:1)

PRINCIPLE OF RISK VARIATION:

Risk here refers to the inability of a firm to meet itsobligations as and when they become due for
payments. Larger investments in current assetswith less dependence on short term borrowing increases
liquidity, reduces dependence on shortterm borrowings increases liquidity, reduces risk and there by
decreases the opportunity forgain or loss. On other hand less investment in current assets with greater
dependence on shortterm borrowings, reduces liquidity and increases profitability.2)

PRINCIPLE OF COST OF CAPITAL:

The variation source of raising working capitalfinance has different cost of capital and the degree of risk
involved. Generally, higher the risk lower is the cost and lower the risk higher is the cost. A sound
working capital managementshould always try to achieve a proper balance these two.3)

PRINCIPLE OF EQUITY POSITION:

This principle is concerned with planning the totalinvestment in current assets. According to this
principle the amount of working capital investedin each component should be adequately justified by a
firm equity position. Every rupeeinvested in the current assets should contribute to net worth of the
firm. The level of currentassets may be measured with the help of two ratios: (a) current assets as a
percentage of totalassets. (b) current assets as a percentage of total sales.4)

PRINCIPLE OF MATURITY OF PAYMENT:

This principle is concerned with planningthe source of finance for working capital. According to this
principle a firm should make everyeffort to relate maturities of payment to its flow of internally
generated fund. Maturity patternof various current obligations is an important factor in risk assumptions
and risk assessment.Generally, shorter the maturity schedule of current liabilities in relation to expected
cashinflows, the greater the inability to meet its obligation in time.

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FINANCING WORKING CAPITAL

Financing Working capital is an important part of working capital planning. They are:

Long term financing

Short term financing

Spontaneous financing


Mix of these.

LONG TERM FINANCING:

Long term financing includes:

EQUITY SHARES

: These are also called ordinary shares. The share holder‘s money

is used to finance the current assets.

PREFERENCE SHARES:

Preference shares are also a source of working capitalfinance. The management should decide the
preference shares capital to be used tofinance day to day trading.

DEBENTURE

: Debentures are an important source of long term financing. The capitalcollected through debentures is
used to finance current assets.

SHORT TERM FINANCING:

Refers to those short term credit that the firm has to arrange in advance.

BRIDGE LOAN:

A short term loan can be used by a person until he removes hiscurrent obligations. It provides instant
cash flow. It provides instant cash flow. It is
also known as ―interim dividend‖

gap financing or a swing loan.

COMMERCIAL PAPER

: It is an unsecured short term debt instrument issued by acorporation, typically for the financing of
accounts, receivables, inventories andmeeting short term liabilities maturities on commercial paper
rarely, range any longerthan a 270 days.

FACTORING

: Sales of accounts receivables is caused factoring. It is financingintermediary that purchase receivables

from companies.

SPONTANEOUS FINANCING:

They are cost free financing source. Therefore a firm would like to finance as much aspossible.

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THE CONCEPT OF ZERO WORKING CAPITAL

In today‘s world of intense global competition, working capital management is receiving

increasing attention from managers striving for peak efficiency the goalof many leading companies
today, is Zero working capital. Proponent of the zero workingcapitalConcept claims that a movement
toward this goal not only generates cash but also speeds upproduction and helps business make more
timely deliveries and operate more efficiently. Theconcept has its own definition of working capital:
inventories+ receivables-payables. The rational here is (i) that inventories and receivables are the keys to
making sales,but (II) that inventories can be financed by suppliers through account payables .Companies
useabout 20% of working capital for each sale. So, on average, working capital is turned over fivetimes
per year. Reducing working capital and thus increasing turnover has two major financialbenefits. First
every money freed up by reducing inventories or receivables, by increasingpayables, results in a
onetimecontribution to cash flow. Second, a movement toward zero working capital permanently

raises a company‘s earnings. The most important factor in moving

toward zero working capitalis increased speed. If the production process is fast enough, companies can
produce items asthey are ordered rather than having to forecast demand and build up large inventories
that aremanaged by bureaucracies. The best companies delivery requirements. This system is knownas
demand flow or demand based management. And it builds on the just in time method of inventory
control. Clearly it is not possible for most firms to achieve zero working capital andinfinitely efficient
production. Still, a focus on minimizing receivables and inventories whilemaximizing payables will help a
firm lower its investment in working capital and achievefinancial and production economies.

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INVENTORYInventory

refers to goods and materials that held available in stock by a business. Inaccounting inventory is
considered an Asset. Inventory is most expensive Asset of a company,representing as much as 40% of
total invested capital.

INVENTORY MANAGEMENT

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 or
uncertainties of running out of materials orgoods. Balancing these competing requirements leads to
optimal inventory levels, whichis an on-going process as the business needs shift and react to the wider
environment.

Inventory management is the process of efficiently overseeing the constant flow of unitsinto and out of
an existing inventory. This process usually involves controlling thetransfer in of units in order to prevent
the inventory from becoming too high, ordwindling to levels that could put the operation of the
company into jeopardy.Competent inventory management also seeks to control the costs associated
with theinventory, both from the perspective of the total value of the goods included and the taxburden
generated by the cumulative value of the inventory.

FUNCTIONS OF INVENTORY

To maintain certain amount of inventory to prevent the time lag present in the supplychain, from
supplier to user at every stage.

Economies of scale-

Idea condition of ―one unit at a time

at a place where user needs it,principle tends to incur lots of cost in terms of logistics. So bulk buying,
movement andstoring brings in economies of scale thus inventory.

To provide stock of goods to meet anticipated demand of any customers

To separate production from the distribution. For example if product demand is highonly during the
summer, a firm may build up stock during the winter and thus avoid thecosts of shortage and stock out
during the summer.

To hedge against inflation and price changes.


To protect against any shortage that can occur due to weather, supplier‘s shortages,

quality problems or improper deliveries.

To take advantage of quantity discount, since purchase in larger quantities can reducethe cost of goods.

To meet the uncertainties and fluctuations in demand.

To protect against any shortages that can occur due to weather, supplier‘s shortages,

quality problems or improper deliveries

To permits operations to continue smoothly with the use of inventory.

VENTORYInventory

refers to goods and materials that held available in stock by a business. Inaccounting inventory is
considered an Asset. Inventory is most expensive Asset of a company,representing as much as 40% of
total invested capital.

INVENTORY MANAGEMENTMANAGEMENT8

Inventory management is the process of efficiently overseeing the constant flow of unitsinto and out of
an existing inventory. This process usually involves controlling thetransfer in of units in order to prevent
the inventory from becoming too high, ordwindling to levels that could put the operation of the
company into jeopardy.Competent inventory management also seeks to control the costs associated
with theinventory, both from the perspective of the total value of the goods included and the taxburden
generated by the cumulative value of the inventory.
FUNCTIONS OF INVENTORY

To maintain certain amount of inventory to prevent the time lag present in the supplychain, from
supplier to user at every stage.

Economies of scale-

Idea condition of ―one unit at a time

at a place where user needs it,principle tends to incur lots of cost in terms of logistics. So bulk buying,
movement andstoring brings in economies of scale thus inventory.

To provide stock of goods to meet anticipated demand of any customers

To separate production from the distribution. For example if product demand is highonly during the
summer, a firm may build up stock during the winter and thus avoid thecosts of shortage and stock out
during the summer.

To hedge against inflation and price changes.

To protect against any shortage that can occur due to weather, supplier‘s shortages,

quality problems or improper deliveries.


To take advantage of quantity discount, since purchase in larger quantities can reducethe cost of goods.

To meet the uncertainties and fluctuations in demand.

To protect against any shortages that can occur due to weather, supplier‘s shortages,

quality problems or improper deliveries

To permits operations to continue smoothly with the use of inventory.