LOVELY PROFESSIONAL UNIVERSITY DEPARTMENT OF MANAGEMENT

Summer Training Report On

INVENTORY MANAGEMENT OF NTPC

Submitted to LOVELY PROFESSIONAL UNIVERSITY In partial fulfillment of the Requirements for the award of Degree of Master of Business Administration

Submitted by: Neeraj Kumar 10907209

DECLARATION
I NEERAJ KUMAR student of M.B.A. III semester here by declare that the project report entitled STUDY OF INVENTORY MANAGEMENT SYSTEM AND ANALYSIS OF NTPC, SINGRAULI is my own original work is based on the Survey research study under taken by me.

I also declare that this project has not been submitted to any university/institute for the award of any degree or any professional.

DATE :

Neeraj kumar

ACKNOWLEDGEMENT
I take this opportunity to place on record my greatful thanks and sinecere gratitute to all those who gave me valuable advice and input for my study . My study could not have been completed if I had not been able to get the reference materials from the company .

I express my sincere regards to Mr. P.GHOSH (Project Guide) for constant support and guidance.

Last but not least, I would like to express my thanks to my family members who inspired me to put in my best efforts for the research/project report.

NEERAJ KUMAR

TRAINING DETAILS
Name of Student: Organization Name:
NEERAJ KUMAR NTPC Ltd. SHAKTINAGAR, SONEBHADRA (UP) 21th june 2010 to

Duration of Training:
2 august 2010

Department:

Finance &Accounts

Project Mentors:
Manager (Finance)

Probhakar Ghosh,

PREFACE
The research provides an opportunity to a student to demonstrate application of his/her knowledge, skill and comptencies required during the technical session. Research also helps the student to devote his/her skill to analyze the problem suggested alternative solutions, to evaluate them and to provide feasible recommendation on the provided data.

Although I have tried my level best to prepare this report an error free report every effort has been made to offer the most authenticate position with accuracy.

CONTENT
EXCUTIVE SUMMARY INTRODUCTION INVENTORY MANAGEMENT INVENTORY MANAGEMENT SYSTEM IN NTPC FINANCIAL PERFORMANCE AND ANALYSIS OF NTPC OBSERVATION AND FINDING SUGGESTION BIBLOGRAPHY

Executive Summary Inventory Management in NTPC - A Critical Analysis

RATIONALE: Inventory is a very important current asset. Any production requires Inventory. Insufficient Inventory can disrupt production. It should be optimized. OBJECTIVES: To study the various techniques of inventory management in NTPC. To find out the holding period of the Inventory. To find out the level of the Inventory. METHODOLOGY: After collection of data from the companys annual report of last 5 year from 02-03 to 0607. After taking the data we will apply the various method which are given below: Tabulating of ratio and its graphical representation for trend analysis. Ratio Analysis

LIMITATION: NTPC working in a dynamic situation and all the things are constant. We can use only those data which are available in NTPC. We can use only historical data.

EXPECTED CONTRIBUTION FROM THE STUDY: This study will help to know about the use of ratio analysis for making conclusion regarding available data of Inventory. It helps to know, what the affect, in nature of production is. It helps to know which techniques are useful about Inventory management in NTPC.

Introduction of NTPC

INTRODUCTION OF NTPC
NTPC Limited is the largest power generating company of India. A public sector company, it was incorporated on 7 Nov. 1975 to accelerate power

development in the country as a wholly owned company of the Government of India. At present, Government of India holds 89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs, Domestic Banks, Public and others. Within a span of 32 years, NTPC has emerged as a truly national power company, with power generating facilities in all the major regions of the country.

Indias largest power utility with an installed capacity of 27904 MW through 26 power stations including stations operated under joint venture companies. NTPC has emerged as an integrated power major with presence in Hydro Power, Coal mining, Oil & Gas exploration, Power Distribution & Trading and also plans to enter into nuclear power development. NTPC plans to become a 50,000 MW company by 2012 and 75000 MW plus company by 2017. The company contributed 29.25% of the total electricity generated in the country during 2006-07 with 20.71 % share of the total installed capacity of the nation including capacity and generation of joint venture companies.

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NTPC's core business is engineering, construction and operation of power generating plants. It also provides consultancy in the area of power plant constructions and power generation to companies in India and abroad. As on date the installed capacity of NTPC is 29,144 MW through its 15 coal based (23,395 MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects (1,794 MW). NTPC acquired 50% equity of the SAIL Power Supply Corporation Ltd. (SPSCL). This JV company operates the captive power plants of Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33% stake in Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture company between NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding Co. Ltd. The present capacity of RGPPL is 1480 MW.

NTPC's share on 31, Mar, 2008 in the total installed capacity of the country was 19.1% and it contributed 28.50% of the total power generation of the country during 2007-08.

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NTPC has set new benchmarks for the power industry both in the area of power plant

construction and operations. It is providing power at the cheapest average tariff in the country. With its experience and expertise in the power sector, consultancy services to various organizations in the NTPC power is extending business.

NTPC is committed to the environment, generating power at minimal environmental cost and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive a forestation in the vicinity of its plants. Plantations have increased forest area and reduced barren land. The massive a forestation by NTPC in and around its Ramagundam Power station (2600 MW) has contributed reducing the temperature in the areas by about 3c. NTPC has also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization Division to manage efficient use of the ash produced at its coal stations. This quality of ash produced is ideal for use in cement, concrete.

A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has been established in NTPC with the assistance of United States Agency for International Development. (USAID). Cenpeep is efficiency oriented, eco-friendly and econurturing initiative - a symbol of NTPC's concern towards environmental protection and continued commitment to sustainable power development in India.

As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-economic status of the people affected by the projects. Through its Rehabilitation and Resettlement programmer, the company endeavors to improve the overall socio-econocomic.

NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in 1987-88. NTPC has been Placed under the 'Excellent category' (the best category) every year since the MOU system became operative.

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Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector 'Navratnas'- a potential global giant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realize it's vision of being "A world class integrated power major, powering India's growth, with increasing global presence".

STRATEGIC INITIATIVES
NTPC has acquired 44.6% equity stake in Transformers and Electricity kerala ltd. (TELK) for manufacturing of Transformers. As part of globalization initiatives, NTPC Plans to construct and operate thermal power plants in overseas market. NTPC has signed an MOU with Nigeria for supply of LNG. NTPC in turn shall set up & operate 500 MW coal based and 700 MW gas based power plant in Nigeria. The company has also signed an MOU for setting up of a 500MW coal based power plant in Sri Lanka.

POWER PERFORMANCE (2006-2007)

Highest ever generation of 188.674 billion units. Highest ever capacity utilization (PLF) of 89.43% in coal-based power plants. Net profit after tax of 68.647 million. New national record of 559 days of uninterrupted running set by unit 3 of Vindhyachal Super Thermal Power Station. Paid a dividend of 32%

INTEGRATED POWER MAJOR

NTPC Electric Supply Company ltd., (NESCL) formed as a subsidiary company to take up power distribution activities. NESCL has started the process of implementation of accelerated Rural Electrification Programmed in West Bengal. NTPC Vidyut Vyapar Nigam Ltd. has been formed as a subsidiary company for power trading. NVVM transacted business of 2664 MUs in 2006-07. Entered the coal mining business and has been allotted 8 coal mining blocks.

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NTPC Has got the approval for Mining Plan of 15 MTPA for its first coal mining project at Pakri Barwadih. If is the largest ever capacity planned in the very first phase in single mine in the country.

NTPC has also signed a MoU with CIL and SCCL for formation of Joint Ventures to undertake development, Operation & maintenance of coal blocks and integrated coal-based power plants.

MoU signed with BEML for joint business development in the field of contract coal mining. Consortium comprising NTPC, Canoro and Geopetrol has been allotted an oil exploration block in Arunachal Pradesh.

Consortium comprising NTPC, Canoro and Geopetrol has been allotted an oil exploration block in Arunachal Pradesh.

MoU signed with Ministry of Railways for setting up power plant of 1000MW at Nabinagar in Bihar. Project approved by CCEA.

MoU signed with ADB for establishment of power generation of about 500 MW through Renewable Energy sources.

MoU signed with BHEL for taking up EPC jobs together.

FORAY INTO HYDRO SECTOR

NTPC has been giving increased thrust to hydro development for a balanced portfolio for long term sustainability. 1920 Mw Under implementation at Koldam (800 MW), Loharing Pala (600 MW) and Tapovan Vishnugad (520 MW). NTPC Hydro Ltd. Incorporated as a subsidiary company to take up small hydro projects. Presently, the planned for implementation are Lata Tapovan (171 MW), Uttrankhand and Ramman III (120 MW), West Bangal. MoU signed with Arunachal Pradesh for Implementation of two Hydro projects Etalian (4000 MW) and attunli (500 MW).

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PROJECT PROFILE
Coal Based Power Stations
Coal based 1. Singrauli 2. Korba 3. Ramagundam 4. Farakka 5. Vindhyachal 6. Rihand 7. Kahalgaon 8. NTCPP 9. Talcher Kaniha 10. Unchahar 11. Talcher Thermal 12. Simhadri 13. Tanda 14. Badarpur 15. Sipat State Uttar Pradesh Chattisgarh Andhra Pradesh West Bengal Madhya Pradesh Uttar Pradesh Bihar Uttar Pradesh Orissa Uttar Pradesh Orissa Andhra Pradesh Uttar Pradesh Delhi Chattisgarh Total (Coal) Commissioned Capacity (MW) 2,000 2,100 2,600 1,600 3,260 2,000 1,840 840 3,000 1,050 460 1,000 440 705 500 23,395

Gas/Liq. Fuel Based Power Stations Gas based 16. 17. 18. 19. 20. 21. 22. Anta Auraiya Kawas Dadri Jhanor-Gandhar Rajiv Gandhi CCPP Faridabad State Rajasthan Uttar Pradesh Gujarat Uttar Pradesh Gujarat Kayamkulam Kerala Haryana Total (Gas) Commissioned Capacity (MW) 413 652 645 817 648 350 430 3,955

Power Plants with Joint Ventures

Coal Based 23. Durgapur State West Bengal Fuel Coal Coal Coal Naptha/LNG Commissioned Capacity (MW) 120 120 324 1480 2044 29,394

24. Rourkela Orissa 25. Bhilai Chhattisgarh 26. RGPPL Maharastra Total (JV) Grand Total (Coal + Gas + JV)

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NEW PLANTS OF NTPC

The company has formulated a long term Corporate Plan for 15 years upto 2017. The Corporate Plan seeks to integrate the Companys vision, mission and strategies for growth with the national plans and to provide the company the cutting edge in the emerging competitive environment. NTPC is targeting to become a 75,000 MW Plus company by 2017.

(A) Projects approved and under construction for commissioning by 2012 - 13360 MW

Project (State)

Capacity Under Construction (MW) 500 (1x500) 500 (1x500) 1980 (3x660) 500 (1x500) 1980 (3x660) 500 (1x500) 500 (2x250)

Fuel

Kahalgaon Stage II Phase I (Bihar) Kahalgaon Stage II Phase II (Bihar) Sipat I (Chhattisgarh) Sipat II (Chhattisgarh)
Barh - I (Bihar) Korba-III (Chhattisgarh) Bhilai Exp. Power Project, JV with SAIL (Chhattisgarh) NCTPP-II, Dadri, Uttar Pradesh Farakka III, West Bengal Simhadri - II,Andhra Pradesh Vallur (JV with TNEB), Tamil Nadu Aravali Super Thermal Power Project, Jhajjar (JV with Haryana & Delhi) Koldam HEPP (Himachal Pradesh) Loharinag Pala HEPP(Uttaranchal) Tapovan Vishnughad (Uttaranchal) Total

Coal Coal Coal Coal Coal Coal Coal

980 (2x490 MW) 500 (1 X 500) 1000 (2x500) 1000 (2x500) 1500 (3x500) 800 (4x200) 600 (4x150) 520 (4x130) 13360

Coal Coal Coal Coal Coal Hydro Hydro Hydro

B) New projects being pursued for benefits starting in the 11th Plan capacity addition for Eleventh Plan and beyond

In addition to the above on-going projects, proposals for a host of new power projects as given below are being pursued for benefits starting in the 11th plan subject to timely linkages, clearances/approvals .

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Sl. No. 1 2 3 4 5 6 7 8

Project/ State Mauda, Maharastra Bongaigaon TPP, Assam Barh-II, Bihar Nabinagar-JV with Railways-Bihar* North Karanpura, Jharkhand Rihand - III Kawas-II CCPP, Gujarat@ Jhanor Gandhar-II CCPP, Gujarat@

Capacity (MW) 1000 750 1320 1000 1980 1000# 1300 1300

Fuel Coal Coal Coal Coal Coal Coal Gas/LNG Gas/LNG

PERFORMANCE OF NTPC
1. Share of Generating capacity

Share of Generating capacity (as on 31st March 2007)

NTPC 26350 MW, 20%

REST OF INDIA 105979 MW, 80%

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2. Share of Electricity

Share of Electricity Generated (as on 31st March 2007)

NTPC 188.67 BU, 29%

REST OF INDIA 470.74 BU, 71%

3.

NET WORTH DEBT

NET WORTH DEBT
600 0.6 0.42 356 418 0.44 450 0.41 486 0.45 0.5 0.5

RS. BILLOION

500 400 300 200 100 0 132 315

155

171

202

245

0.3 0.2 0.1 0

RATIO

0.4

Net Worth Debt Ratio

2002-03 2003-04 2004-05 2005-06 2006-07 YEAR

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THE COMPANYS PERFORMANCE HIGHLIGHTS

Company takes a new name 'NTPC Ltd' aligned to its new business plans.

The company's market capitalization crosses Rs. One trillion (Rs 1,00, 000 crore) and top three largest Indian companies in terms of market cap.

is one of the

A highest ever generation of 170.88 BUs during 2005-06 registering an increase of 7.40% over the generation of 159.11 BUs during 2004-05. With 19.51% [including capacities of Joint Ventures Companies] share of the total installed capacity of the nation, the Company contributed 27.68 % electricity generated in the country during 2005-06.

Coal Stations of the Company achieved an operating availability of 89.91%. Coal stations of the Company recorded a PLF of 87.54 %, which is the highest for any financial year since inception.

The PLF during previous year was 87.51%. Provisional and unaudited net sales of Rs 259928 million during the year 2005-06 as against Rs 225316 million for the year 2004-05. However, provisional and unaudited Gross Revenue is Rs 286473 million during 2005-06 as against Rs 255460 million for the year 2004-05.

Provisional and unaudited Net profit after tax for the year 2005-06 is Rs 57061 million as compared to Rs 58070 million during the year 2004-05.

Total capacity added during the four years of Xth Plan period (2002-2006) increases to 4000 MW with another 500 MW getting added during the year 2005-06 taking the total capacity of the company to 24,249 MW (including capacities of Joint Venture Companies).

Construction works on 9470 MW in progress. Further projects with capacity of 3720 MW under bidding process Ratnagiri Gas and Power Supply Pvt Ltd formed with the Company having a stake of 28.33% for taking over and operating the Dabhol Power Project. The Government allots 7 more coal mining blocks to the Company for captive use taking the total mines allotted to 8 with an expected output of 50 MT per annum. A consortium comprising of the Company and two other members allotted an oil exploration block in Arunachal Pradesh.

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Capital expenditure incurred in 2005-06 on capital schemes was Rs 71879 million compared to Rs 53603 million in 2004-05.

Capital Outlay for 2006-07 set at Rs 113250 million. An interim dividend of 20% for the financial year 2005-06 amounting to Rs 16491 million. The Company has also taken up Distribution Generation for rural electrification of remote villages through non-conventional energy sources.

Simhadri project receives International Project Management award instituted by International Project Management Association [IPMA]. The Company is the only Asian Company that has received this award.

Ranked 3rd Great Place to work for in India by M/s Grow Talent and Business World 2005. The Company has achieved all the targets to be rated Excellent during 2005-06 for the nineteenth consecutive year since inception of the MOU system.

The year 2005-06 was yet another year of excellent performance for the Company.

OPERATIONAL PERFORMANCE
The stations of the company recorded a total generation of 170.88 Billion Units (BUs), showing an increase of 7.40% over the previous year's generation of 159.11 BUs. With a share of 19.51% [including capacities of Joint Venture Companies] in the total installed capacity of the country, the Company generated 27.68% electricity during 2005-06. The Company stations recorded an all time high PLF of 87.54 % which is highest for any financial year since its inception.

GROSS REVENUE AND PROFIT

Provisional and unaudited net sales of Rs 259928 million during the year 2005-06 as against Rs 225316 million for the year 2004-05. However, Provisional and unaudited Gross Revenue is Rs 286473 million during 2005-06 as against Rs 255460 million for the year 2004-05. Provisional and unaudited Net profit after tax for the year 2005-06 is Rs 57061 million as compared to Rs 58070 million during the year 2004-05.

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Details are as under: Capacity already commissioned Capacity under implementation Capacity for which bids received Project for which FRs/DPRs have been Prepared and clearances / approval are in process Project for which FRs/DPRs under preparation : 4445 MW : 5101 MW : : : 4000 MW 9470 MW 3720 MW

Total 26,736* MW

JOINT VENTURES
UTILITY POWERTECH LTD. (UPL)
UPL (a Joint Venture Company of the Company & Reliance Energy) formed to take up assignments of construction, erection and supervision in power sector and other sectors in India and abroad is operating satisfactorily. The Provisional Turnover and Profit (after tax) for the year 2005-06 are Rs 1431 million and Rs 76 million respectively.

NTPC ALSTOM POWER SERVICES PVT. LTD. (NASL)

The Company has formed a JV Company with ASLTOM POWER GENERATION AG, under the name of NTPC-ALSTOM Power Services Pvt Ltd (NASL) for taking up Renovation & Modernization assignments of power plants both in India and abroad. The provisional gross revenue for the year 2005-06 is Rs 708 million and Profit (after Tax) of the company for the year is Rs 29 million. NTPC-SAIL Power Company (Pvt) Ltd (NSPCL) & Bhilai Electric Supply Company Pvt Ltd (BESCL) These joint venture companies were formed for operating and maintaining the captive power plants of SAIL. These companies are performing consistently well. The Provisional turnover of the NSPCL for the year 2005-06 is Rs 1280 million and Profit (after tax) of the company for the year is Rs 255 million. The provisional turnover of BESCL for the year 2005-06 is Rs 600 million and profit after tax is Rs 72 million.

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RATNAGIRI GAS AND POWER PVT LTD.

Ratnagiri Gas and Power Supply Pvt Ltd has been formed as joint venture between the Company, GAIL, Maharastra State Electricity Board and Indian Financial institutions with the Company having a stake of 28.33% for taking over and Operating Dabhol Power Project. The rehabilitation of the equipments in the plant is under progress and the project is likely to begin operations soon.

NEW JOINT VENTURES

TAMIL NADU ELECTRICITY BOARD (TNEB):
The Company and TNEB have formed a Joint Venture Company under the name of NTPC Tamil Nadu Energy Company Ltd. The company was incorporated on May 23, 2003 to set up a coal-based power station of 1000 MW capacity, at Ennore, using Ennore port infrastructure facilities. Site Specific & other studies have been completed. The Joint Venture Agreement was signed on January 24, 2006.

JOINT VENTURE WITH GPCL

MoU has been signed on February 20, 2004 between the Company, Gujarat Power Corporation Ltd (GPCL), and GEB to set up 1000 MW Thermal Power Project at Pipavav in Gujarat. Site Specific Studies for the project are in progress and FR is under preparation.

JOINT VENTURE WITH BSEB

An MOU has been entered between the Company, Government of Bihar and BSEB for formation of joint venture for take over of the Muzaffarpur Thermal Power Station having a capacity of 440 MW.

SUBSIDIARIES OF NTPC
NTPC Electric Supply Company Ltd (NESCL): NESCL is a wholly owned subsidiary of NTPC. It was incorporated in August 2002 with the objective to acquire, establish & operate Electricity Distribution Network in various circles/cities across India. The company provides consultancy in the area of: Turnkey

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execution, Project monitoring, Quality Assurance and Inspection, and Third Party Quality inspection on the behalf of utility.

NTPC Vidyut Vyapar Nigam Ltd. (NVVN): It was formed to cater to and deal with the vast potential of power trading in the country and optimum capacity utilization.

NTPC Hydro Limited (NHL): It was set up in December, 2002 to develop small and medium sized Hydro Electric Power Projects of up to 250 MW capacities.

MAJOR ACHIEVEMENTS OF NTPC

Largest thermal power generating company of India.

Sixth largest thermal power generator in the world.

Second most efficient utility in terms of capacity utilization.

One of the nine PSUs to be awarded the status of Navratna.

Provides power at the cheapest average tariff in the country.

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ORGANISATIONAL CHART

24

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NTPC IN SINGRAULI
NTPC/Singrauli, the flagship station of NTPC is situated in Sonebhadra District of Uttar Pradesh. It has five Units of 200 MW (Turbine: KWU design, Boiler: Combution Engineering Design) and two Units of 500 MW (Turbine: KWU design; Boiler: Combustion Engineering Design). Condenser cooling system of all units is open system. It takes water from Govind Ballabh Pant Reservoir and releases in the same reservoir after a distance of around 10 KM through open canal. NTPC, Singrauli has its own MGR (Merry Go Round) system for transportation of coal from NCL Jayant mines. Electricity generated from this plant goes to northern grid (UP,Harayana,Delhi,Rajsthsan,Panjab, J&K,HP& Uttaranchal).Start up power can be taken from Rihand hydle or from NTPC,Vindhyachal (Western grid ). Earlier Whole ash generated was disposed in ash dyke in slurry form. Now part of ash is being disposed in dry form for brick manufacturing and some part is provided to cement Manufacturers. The first unit of the station was commissioned in 1982 and the last one in 1987.Since then NTPC, Singrauli is serving the nation day and night.

During the initial period of operation NTPC Singrauli faced many operational problems in running the units of 200MW and 500MW. Experienced personnel for running 200MW sets with NTPC at that time were very few and for 500MW sets, were almost nil. Over the year of operation NTPC, Singrauli has not only overcome the operational problems but has also developed best practices which are very much useful for future NTPC stations and have been implemented in other station also.

SINGRAULI THERMAL POWER PROJECT

1-LOCATION SUB-DIVISIONAL OFFICE DISTRICT & STATE NEAREST MAJOR ROADHEAD: NEAREST MAJOR RAILHEAD NEAREST AIRPORT 2- CAPACITY IN MW (MEGA WATT) : : DUDHI SONEBHADRA, UTTER PRADESH

PIPRI-SINGRAULI : : SHAKTINAGAR & RENUKOOT VARANASI STAGE-2 1400 MW TOTAL 2000 MW

: STAGE-1 600 MW

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(3 x 200)

(2 x 200+2 x 500 )

3- ASSOCIATED TRANSMISSION SYSTEM STAGE 1 (600 MW) LINE SECTION SINGRAULI-OBRA SINGRAULI-KANPUR 2 (1400 MW) SINGRAULI-LUCKNOW LUCKNOW- MORADABAD MORADABAD-MURADNAGAR MURADNAGAR-PANIPAT SINGRAULI-KANPUR KANPUR-AGRA-JAIPUR TOTAL 4- APPROVAL DATA : STAGE-I (600 MW) DEC -76 STAGE-II(1400 MW)JULY 79 ASSOCIATED TRANSMISSION LINE SYSTEM JAN 78 (STAGE-I) ASSOCIATED TRANSMISSION LINE SYSTEM JAN 81 (STAGE-II) GOVERNMENT APPROVAL FOR 2000 MW OBTAINED ON 08.01.87 499 2389 Kms 57 455 405 332 132 87 422

5- COST OF PROJECT (Rs. In crores)

POWER STATION & FACILITIES

TRANSMISSION SYSTEM 256.05

APPROVED COST LATEST ESTIMATED COST (As per Annual Plan 89-90)

1118.88

1205.39

256.05

6- COAL & GAS SOURCES

: JAYANT MINE OF SINGRAULI COAL FIELD

7- COOLING WATER SOURCES

RIHAND RESERVOIR (200 CUSECS

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/SYSTEM

CONSSUMPTIVE COOLING SYSTEM

WATER)

ONCE

THROUGH

8- EXTERNAL FINANCING WORLD BANK

: -

STAGE-I US $ 150

STAGE-II US $ 300

TOTAL US $ 450

MILLION(IDA) MILLION (IDA) MILLION OTHER OPEC US $ 21.8 MILLION KFW NIL DM 240 MILLION 9- ALLOCATION OF POWER UPSEB RAJASTHAN SEB PUNJAB SEB HARIYANA SEB DELHI ESU UNALLOCATED : : : : : : 850 MW TARIFF 35.50 300 MW GEN.STATION:35.50 P/Kwh 200 MW (BASE TARIFF FUEL PRICE 200 MW ADJUSTMENTS, 7.43 P/Kwh 150 MW FOR TL SYSTEM) 300 MW GEN. COST: 29.0 P/Kwh NIL US $ 21.8 MILLION DM 240 MILLION

10- BENEFICIARY STATES

UTTAR PRADESH, UTTARAKHAND, DELHI RAJASTHAN, HARYANA, HIMACHAL PRADESH, KASHMIR. CHANDIGARH AND JAMMU &

11- COMMISSIONINGDATAS (ACTUAL/ANTICIPATED) Power station commissioned transmission Mar. 82 Singrauli-Kanpur I Singrauli-Lucknow Nov. 82 Feb. 86 commissioned

Unit-I (200 mw) Feb, 82(Actual) Singrauli-Obra Unit-II (200 mw) Unit-III (200 mw) Nov, 82(Actual) Mar, 83(Actual)

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Unit-IV (200 mw) Unit-V (200 MW) Unit-VI (200 MW) Unit-VII (200 mw)

Nov, 83(Actual)

Lucknow-Moradabad May. 86

Feb, 84(Actual) Moradabad- Muradnagar May. 86 Dec, 86(Actual) Muradnagar-Panipat Nov, 87(Actual) Singrauli-Kanpur II Kanpur-Agra-Jaipur Nov. 84 Mar. 87 Nov. 86

12- WATER POLLUTION CLEARANCE

CONSENT ORDER FOR AIR & WATER POLLUTION OBTAINED. RENEWAL FOR 89 UNDER PROGRESS

13- EMPLOYEES STRENGTH :

EXECUTIVE582, NON-EXECUTIVE-1964 TOTAL 2546

MILESTONES
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Incorporation of NTPC under Companies Act World Bank Appraisal Formation organization with Chairman in charges Feasibility report approval for Phase-I Cabinet approval Singrauli Phase-I Environment & forest clearance $ 150 million IDA credit for Phase-I First global tender invited Opening of site office at Shaktinagar $ 21.8 million credit form OPEC for Phase-I Starting of site leveling work Main Plant Equipment order (Phase-I) Start of main Plant Civil Works Start of Boiler Erection Singrauli expansion World Bank appraisal June 77 July 77 August 77 Oct. 77 Feb. 78 Feb. 78 Nov. 78 May/June 79 Nov. 75 Jan/Feb. 76 March 76 July 76 Dec. 76 Jan. 77 April 77

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16. 17. 18. 19. 20. 21. 22. 23. 24. 25.

Approval of feasibility report for 1400 MW Cabinet approval for 1400 MW expansion $ 300 million IDA credit for 1400 MW expansion Revised cost estimation for Phase-I approved 132 KV Transmission line charged Start up power made available First coal at site DPR approved for 2000 MW project Revised estimate (I) approved for 2000 MW Govt. approval for 2000 MW obtained May 85

July 79 July 79 May 80 Jan. 81 July 81 August 81 March 82 April 84

Jan. 85

FINANCIAL ASSISTANCE
The Singrauli STPP was the first NTPC project approved by government of India in December 1976, for an initial capacity of 600 MW consisting of three units of 200 MW units each. The expansion stage consisting of 2 unit of 200 MW and 2 units of 500 MW each was sanctioned in July 1979 bringing the total capacity to 2000 MW. The approved cost estimated of the project Rs. 1118.88 crores, out of each Rs. 949.52 crores expenditure has been incurred till March 1988. The international assistance tied up for this project is given below:

1. 2. 3.

World Bank (IDA credit) OPEC special fund West German (KFW Loan)

US $ 450 Mln. US $ 21.8 Mln. DM 240 Mln.

IMPORTANT EVENTS

UNIT

1ST SYNCHRONISATION

FULL LOAD

COMMERCIAL

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ACHIEVED I II III IV V VI VII 13.02.82 25.11.82 28.03.83 02.11.83 26.02.84 13.12.86 14.11.87 23.04.82 02.02.83 08.05.83 27.12.83 16.04.84 28.03.87 10.01.88 01.06.82 01.02.83 01.07.83 01.01.84 01.06.84 01.07.87 01.05.88

OPERATION

Different Section of Singrauli Super Thermal Power Station (SSTPS) Finance Departments
There are nine sections in finance department

1.

Books and budget section:

This section work on system that is online integrated material and finance accounting system (OLTMFAS). Language of the system is ingressed the new program coming in one or two years is enterprises resource planning of system.This section also make budgets firstly on the cost center is allocated in each department and each cost center is handle by a responsibility center. They make estimation and give to book and budget system. This section collects all estimation from each responsibility center and makes final estimation and sends it to corporate office then corporate office finalized this budget estimate in each 6 month the budget estimate is revised and if any change are required and then it send to corporate office and then it finalize. All these things done with the help of planning and system department.

1.

Conduct Audit: -

its conduct on quarterly bases.

A. Internal audit: it is outsourcing by the NTPC, it is done quarterly and it is start for statutory audit

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B. CAG audit: this audit done by controllers attorney general of India. This is the audit of balance sheet audit. C. Proprietary audit: This audit is done for check the system to see that all going properly or not. It is done in a 5 year. D. Cost Audit: Start From 2005-2006 in company for checking all the allocation (means all overheads).

2.

Fixed Assets Registered Maintenance: Its show written down value of assets. Its coordinate to Planning and System for collection of estimated various department. Variance analysis of estimated various department. It is associating to the financial budgeting. Budget certification.

2.

Store bills section:

This section does the payment of inventory as per tern of purchase order, advance and final payment and maintains account. Make advance schedule and material under inspection schedule. It also makes insurance payment and transporters payment.

3.

Priced store ledger (PSL) section:

This section does the physical inventory valuation. The method of valuation is monthly moving weighted average. This valuation done every month. There are some tools for PSL: Opening Balance

Add:a. (SRV) Store Received Voucher on invoice value.

b. (MRN) Material Return Note.

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Less:c. (SIV) Store Issue Voucher.

d. (MTN) Material Transfer Note. Closing Balance

Monthly moving weighted average method:Material Rate x Total Quantity of No. of Items. / 1000

This department gives the reports in various topics like XYZ, ABC and VED analysis report and non-moving item report and also done physical verification of stock of every year.

4.

Works bill section:

This section does the payment of services taken by SSTPS like Maintenance contracts. The payment made on Running Bill on the basis of Measurement book. Also do the final payment and take penalties and return their securities. This section also do the capitalization were work is going on. The work not had done fully completed show under capital work in progress account (CWIP). When this work complete then CWIP to fixed assets. Incidental expenditure during construction (IEDC) and interest during construction (IDC) add in CWIP account.Renovation and modernization work is going on four stations i.e. Singrauli, Korba Ramagundam and Farakka. And the work of renovation and modernization handle by this section Method of renovation and modernization-

For service pay. Old assets replace threw new assets. Totally new assets if life of assets is end. Improve the efficacy of machines. Increase the life of the machines.

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5.

Commercial section:

This section does the accounting of sales of the project. It makes oil and coal payment voucher. It also maintains price stored ledger (PSL).

Its according to Singrauli sells: + Energy charges (FDVA (Fuel Price varied Adjustments): its gross calorific value of coal station heat Rate) + Coal, Oil, PSL Maintenance.

6.

Establishment section:

This section give the salary and recover the PPF amount, house rent, electricity charges, club expenses and income tax from their employees. This section also deals with loan and advances given to employees. Some type of loan provide by NTPC to its employees-

A. Furniture or household loan up to 9000 for Non-Executive, 15,000 for Assistant managers, and 25,000 for Managers. B. Multipurpose loan it is equal to the basic pay. C. Convenience loan for car, bike. D. House advances maximum 7, 50,000. E. Computer loan maximum 40,000.

Advances are Traveling advances, Leave travel conation, and Medical conation. There is a recovery system. First recover the principal then recover the interest and there is no interest charge on interest.

7.

Cash and Bank section:

This section handles the cash. This department sends the estimation for cash requirement, to the corporate office weekly and daily basis and also tells why it is required. Also interface and with banks, make payment

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and receive payment. Take custody of monitory and non-monitory instrument for security. It is also take bank guarantee for performance; it is also called documentary credit.

Fund recognized by Corporate Centre Monthly, Weekly and daily recognized Against fund Interface by Bank - Lead bank (SBI), Subsidiary Bank (Concersion/group, union bank)

8.

Vetting and Concurrence: The work of this section is as followsA. Contract and purchase estimation: If we purchase any good in second time then last price is based. If we purchase first time then user gives budget offer. B. Vetting of competitive statement then we calculate land price. C. Vetting of draft purchase ordered. D. Finance concurrence.

9.

Miscellaneous section:

This section makes the payment of Non-Operation & Maintenance contract payment. Deal with petty cash, Telephone bills and entertainment expenses paid by this section.

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INVENTORY MANAGEMENT THE THEORETICAL BASIS

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Inventory Management A Theoretical Basis

Inventory is very important current assets. The term Inventory refers to the stockpile of the products a firm is offering for sale and the components that makes up the product. In other words, inventory is composed of assets that will be sold in future in the normal course of business operations. The assets which firms stores as inventory in anticipation of need are (i) raw materials, (ii) work-in-process (semi finished goods) and (iii) finished goods. The raw materials inventory contains items that are purchased by the firm from others and are converted into finished goods through the manufacturing (production) process. They are an important input of the final product. The work-in-process inventory consists of items currently being used in the production process. They are normally semi-finished goods that are at various stages of production in a multi-stage production process. Finished goods represent final or completed products which are available for sale. The inventory of such goods consists of items that have been produced but are yet to be sold.

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that is ready or will be ready for selling. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the companies' shareholders/owners.

Inventory represents the second largest asset category for manufacturing companies, next only to plant and equipment. The proportion of inventory to total assets generally varies between 15 and 30 per cent.

Decision relating to inventories is taken primarily by executives in production, purchasing, and marketing departments. Usually raw material policies are shaped by purchasing and production executives, work-in-process inventory is influenced by the

Decisions production executives and finished goods inventory policy evolved by production and marketing executives .Yet, as inventory management has important financial implications, the financial manager has the responsibility to ensure that inventories are properly monitored and controlled. He has to emphasize the financial point of view and initiate programmed with the participation and involvement of others for effective management of inventories.

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Inventory, as a current asset, differ from other current assets because only financial managers are not involved. Rather, all the functional areas finance, marketing, production, and purchasing, are involved.

Inventory management
Inventory management is the active control program which allows the management of sales, purchases and payments. Inventory management software helps create invoices, purchase orders, receiving lists, payment receipts and can print bar coded labels. An inventory management software system configured to your warehouse, retail or product line will help to create revenue for your company. The Inventory Management will control operating costs and provide better understanding. We are your source for inventory management information, inventory management software and tools.

A complete Inventory Management Control system contains the following components:

Inventory Management Definition Inventory Management Terms Inventory Management Purposes Definition and Objectives for Inventory Management Organizational Hierarchy of Inventory Management Inventory Management Planning Inventory Management Controls for Inventory Determining Inventory Management Stock Levels

Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.

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Business inventory
All these stock reasons can apply to any owner or product stage.

Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in providing the next item for processing. Whilst some processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now moved to eliminate this stock type. Safety stock is held against process or machine failure in the hope/belief that the failure can be repaired before the stock runs out. This type of stock can be eliminated by programmer like Total Productive Maintenance. Overproduction is held because the forecast and the actual sales did not match. Making to order and JIT eliminates this stock type. Lot delay stock is held because a part of the process is designed to work on a batch basis whilst only processing items individually. Therefore each item of the lot must wait for the whole lot to be processed before moving to the next workstation. This can be eliminated by single piece working or a lot size of one. Demand fluctuation stock is held where production capacity is unable to flex with demand. Therefore a stock is built in times of lower utilization to be supplied to customers when demand exceeds production capacity. This can be eliminated by increasing the flexibility and capacity of a production line or reduced by moving to item level load balancing. Line balance stock is held because different sub-processes in a line work at different rates. Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process. Line balancing will eliminate this stock type. Changeover stock is held after a sub-process that has a long setup or change-over time. This stock is then used while that change-over is happening. This stock can be eliminated by tools like SMED.

These classifications apply along the whole Supply chain not just within a facility or plant. Where these stocks contain the same or similar items it is often the work practice to hold all these stocks mixed together before or after the sub-process to which they relate. This 'reduces' costs. Because they are mixed-up together there is no visual reminder to operators of the adjacent sub-processes or line management of the stock which

40

is due to a particular cause and should be a particular individual's responsibility with inevitable consequences. Some plants have centralized stock holding across sub-processes which makes the situation even more acute.

SPECIAL TERMS USED IN DEALING WITH INVENTORY

Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory. Stock out means running out of the inventory of an SKU. "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale which was manufactured long ago but that has never been used. Such merchandise may not be produced any more, and the new old stock may represent the only market source of a particular item at the present time.

Inventory examples
While accountants often discuss inventory in terms of goods for sale, organizations - manufacturers, serviceproviders and not-for-profits - also have inventories (fixtures, furniture, supplies, ...) that they do not intend to sell. Manufacturers', distributors', and wholesalers' inventory tends to cluster in warehouses. Retailers' inventory may exist in a warehouse or in a shop or store accessible to customers. Inventories not intended for sale to customers or to clients may be held in any premises an organization uses. Stock ties up cash and if uncontrolled it will be impossible to know the actual level of stocks and therefore impossible to control them.

Whilst the reasons for holding stock are covered earlier, most manufacturing organizations usually divide their "goods for sale" inventory into:

Raw Materials - materials and components scheduled for use in making a product. Work In Progress, WIP - materials and components that have begun their transformation to finished goods. Finished goods - goods ready for sale to customers.

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 Goods for resale - returned goods that are salable.

For example:

Manufacturing
A canned food manufacturer's materials inventory includes the ingredients to form the foods to be canned, empty cans and their lids (or coils of steel or aluminum for constructing those components), labels, and anything else (solder, glue ...) that will form part of a finished can. The firm's work in process includes those materials from the time of release to the work floor until they become complete and ready for sale to wholesale or retail customers. This may be vats of prepared food, filled cans not yet labeled or subassemblies of food components. It may also include finished cans that are not yet packaged into cartons or pallets. Its finished good inventory consists of all the filled and labeled cans of food in its warehouse that it has manufactured and wishes to sell to food distributors (wholesalers), to grocery stores (retailers), and even perhaps to consumers through arrangements like factory stores and outlet centers.

Logistics or distribution
The logistics chain includes the owners (wholesalers and retailers), manufacturers' agents, and transportation channels that an item passes through between initial manufacture and final purchase by a consumer. At each stage, goods belong (as assets) to the seller until the buyer accepts them. Distribution includes four components:

Manufacturers' agents: Distributors who hold and transport a consignment of finished goods for manufacturers without ever owning it. Accountants refer to manufacturers' agents' inventory as "material" in order to differentiate it from goods for sale. Transportation: The movement of goods between owners, or between locations of a given owner. The seller owns goods in transit until the buyer accepts them. Sellers or buyers may transport goods but most transportation providers act as the agent of the owner of the goods. Wholesaling: Distributors who buy goods from manufacturers and other suppliers (farmers, fishermen, etc.) for re-sale work in the wholesale industry. A wholesaler's inventory consists of all the products in its warehouse that it has purchased from manufacturers or other suppliers. A

42

produce-wholesaler (or distributor) may buy from distributors in other parts of the world or from local farmers. Food distributors wish to sell their inventory to grocery stores, other distributors, or possibly to consumers. Retailing: A retailer's inventory of goods for sale consists of all the products on its shelves that it has purchased from manufacturers or wholesalers. The store attempts to sell its inventory (soup, bolts, sweaters, or other goods) to consumers.

High level inventory management

It seems that around about 1880 there was a change in manufacturing practice from companies with relatively homogeneous lines of products to vertically integrated companies with unprecedented diversity in processes and products. Those companies (especially in metalworking) attempted to achieve success through economies of scale - the gains of jointly producing two or more products in one facility. The managers now needed information on the effect of product mix decisions on overall profits and therefore needed accurate product cost information. A variety of attempts to achieve this were unsuccessful due to the huge overhead of the information processing of the time. However, the burgeoning need for financial reporting after 1900 created unavoidable pressure for financial accounting of stock and the management need to cost manage products became overshadowed. In particular it was the need for audited Accounts that sealed the fate of managerial cost accounting. The dominance of financial reporting accounting over management accounting remains to this day with few exceptions and the financial reporting definitions of 'cost' have distorted effective management 'cost' accounting since that time. This is particularly true of inventory.

Hence high level financial inventory has these two basic formulas which relate to the accounting period:

1) Cost of Beginning Inventory (at the start of this period) + Inventory Purchases (within this period) + Cost of Production (within this period) = Cost of Goods Sold

2) Cost of Goods - Cost of Ending Inventory (at the end of this period)= Cost of Goods Sold

The benefit of these formulae is that the first absorbs all overheads of production and raw material costs in to a value of inventory for reporting. The second formula then creates the new start point for the next period and gives a figure to be subtracted from sales price to determine some form of sales margin figure.

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Whereas manufacturing management are more interested in Inventory Turnover Ratio or Average Days to Sell Inventory since it tells them something about relative inventory levels

Inventory Turn over Ratio (or Inventory turns) = Cost of Goods Sold/Average Inventory = Cost of Goods Sold / ((Beginning Inventory + Ending Inventory) /2)

And its inverse

Average Days to Sell Inventory = Number of Days a Year / Inventory Turn Over Ratio = 365 days a year/Inventory Turn Over Ratio

This ratio estimates how many times the inventory turns over a year. This number tells us how much cash/goods are tied up waiting for the process and is a critical Measure of process reliability and effectiveness. So a factory with 2 inventory turns has 6 months stock on hand which generally not a good figure (depending upon industry) whereas a factory that moves from 6 turns to 12 turns has probably improved effectiveness by 100%. Interestingly, this improvement will have some negative results in the financial reporting since the 'value' now stored in the factory as inventory is reduced!

Whilst the simplicity of these accounting measures of inventory is very useful they are in the end fraught with the danger of their own assumptions. There are in fact so many things which can vary hidden under this appearance of simplicity that a variety of 'adjusting' assumptions may be used. These include:

Specific Identification Weighted Average Cost Moving-Average Cost FIFO and LIFO.

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SOME MAJOR ANALYSIS OF INVENTORY

1. ABC Analysis in Inventory Management

Posted by Dylan Wan on March 11, 2008, I did some study on the ABC Analysis in Inventory Management. It is also useful in business analytics. I will cover what it is and how it is supported in various ERPs. Finally, how it may be used in analytics application.

ABC Analysis in Inventory Management

Some people may confuse this with activity based costing, which is also called ABC. However, in the inventory management area, ABC analysis refers to categorizing the stock according to their cost and quantity.

Not all stock is equally valuable and therefore doesnt require the same management focus. The results of the ABC analysis provide information that helps evaluate how each inventory part should be monitored and controlled. ABC category for an inventory item is derived based on its cost and quantity. You cannot say that an item is always a class A item or a class B item. The category of an inventory item can change over time. An inventory management system should be able to based on the information available and periodically update the ABC assignment.

3.

Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a
business by reducing in-process inventory and its associated costs. The process is driven by a series of signals that tell production processes when to make the next part. In short, the just-in-time inventory system is all about having

4.

the right material, at the right time, at the right place, and in the exact amount without the safety net of Inventory, the implications of which are broad for the implementers.

Benefits

1. 2.

Set up times are significantly reduced in the factory. The flows of goods from warehouse to shelves are improved.

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3.

Employees who possess multiple skills are utilized more efficiently. Better consistency of scheduling and consistency of employee work hours. Increased emphasis on supplier relationships.

4.

Supplies continue around the clock keeping workers productive and businesses focused on turnover. Problems

3.

SCARE DIFFICULT EASY ANALYSIS (SDE)

SCARE Item not available normally. Special efforts are required to locate the source of such spares.

DIFFICULT Items which are available with difficulty. They have limited sources, lengthy procurement cycles etc.

EASY Items, which are available, ex-stock in the market.

4.
wise

VITAL ESSENTIAL DESIRABLE ANALYSIS (VED) Dispensability/criticality pattern

VITAL Items whose absence even for a short duration will cause a loss of generation.

ESSENTIAL Items whose non-availability can be tolerated for a short while without affecting the generation.

DESIRABLE Items, which are needed for plant equipment but without which the equipment can run without much effect on its operations.

5.

FAST, SLOW AND NON MOVING (FSN) FAST Items, which are used at least once in a two year term.

SLOW Spares used / needed once in a four year term.

NON MOVING Items without any movement for the last five years.

6.

INSURANCE, CONSUMABLE, UNIT REPLACEMENT ANALYSIS (ICU) -

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INSURANCE Items, also called emergency or capital spares, which are mostly function parts of the machines and their lift is very long and in many cases almost the same as the operating life of the machine. Their failure credibility is very low but their failure will cause long shutdown of vital equipment or the entire plant.

CONSUMABLE Items, which are required for the normal maintenance of the machine and are consumable in nature.

UNIT REPLACEMENT SPRAES Items where a unit as a whole is to be replaced either on breakdown or after a specified period of services such defective or used units are returned to the store after due repairs for future reuse.

ECONOMIC ORDER QUANTITY

Economic order quantity (also known as the Wilson EOQ Model or simply the EOQ Model) is a model that defines the optimal quantity to order that minimizes total variable costs required to order and hold inventory. The model was originally developed by F. W. Harris in 1913, though R. H. Wilson is credited for his early in-depth analysis of the model.

Underlying assumptions

1. 2. 3. 4. 5.

the monthly (annual) demand for the item is known, deterministic and constant the lead time is not taken into account the receipt of the order occurs in a single instant and immediately after ordering it quantity discounts are not calculated as part of the model the ordering cost is constant

Note that deterministic does not imply the constancy of the demand. For instance, the sine function is deterministic, but not constant. An inventory-related equation that determines the optimum order quantity that

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a company should hold in its inventory given a set cost of production, demand rate and other variables. This is done to minimize variable inventory costs. The full equation is as follows:

Where:

S = Setup costs

D = Demand rate

P = Production cost

I = Interest rate (considered an opportunity cost, so the risk-free rate can be used)

ACCOUNTING PERSPECTIVES
THE BASIS OF INVENTORY ACCOUNTING
Inventory needs to be accounted where it is held across accounting period boundaries since generally expenses should be matched against the results of that expense within the same period. When processes were simple and short then inventories were small but with more complex processes then inventories became larger and significant valued items on the balance sheet. This need to value unsold and incomplete goods has driven many new behaviors into management practice. Perhaps most significant of these are the complexities of fixed cost recovery, transfer pricing, and the separation of direct from indirect costs. This, supposedly, precluded "anticipating income" or "declaring dividends out of capital". It is one of the intangible benefits of Lean and the TPS that process times shorten and stock levels decline to the point where the importance of this activity is hugely reduced and therefore effort, especially managerial, to achieve it can be minimized.

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ACCOUNTING FOR INVENTORY

Each country has its own rules about accounting for inventory that fit with their financial reporting rules.

For example, organizations in the U.S. define inventory to suit their needs within US Generally Accepted Accounting Practices (GAAP), the rules defined by the Financial Accounting Standards Board (FASB) (and others) and enforced by the U.S. Securities and Exchange Commission (SEC) and other federal and state agencies. Other countries often have similar arrangements but with their own GAAP and national agencies instead.It is intentional that financial accounting uses standards that allow the public to compare firms' performance, cost accounting functions internally to an organization and potentially with much greater flexibility. A discussion of inventory from standard and Theory of Constraints-based (throughput) cost accounting perspective follows some examples and a discussion of inventory from a financial accounting perspective.

The internal costing/valuation of inventory can be complex. Whereas in the past most enterprises ran simple one process factories, this is quite probably in the minority in the 21st century. Where 'one process' factories exist then there is a market for the goods created which establishes an independent market value for the good. Today with multi-stage process companies there is much inventory that would once have been finished goods which is now held as 'work-in-process' (WIP). This needs to be valued in the accounts but the valuation is a management decision since there is no market for the partially finished product. This somewhat arbitrary 'valuation' of WIP combined with the allocation of overheads to it has led to some unintended and undesirable results.

FINANCIAL ACCOUNTING
An organization's inventory can appear a mixed blessing, since it counts as an asset on the balance sheet, but it also ties up money that could serve for other purposes and requires additional expense for its protection. Inventory may also cause significant tax expenses, depending on particular countries' laws regarding depreciation of inventory appears as a current asset on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations hold larger inventories than their operations require in order inflating their apparent asset value and their perceived profitability.

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In addition to the money tied up by acquiring inventory, inventory also brings associated costs for space, for utilities, and for insurance to cover staff to handle and protect it, fire and other disasters, obsolescence, shrinkage (theft and errors), and others. Such holding costs can mount up: between a third and a half of its acquisition value per year.

Businesses that stock too little inventory cannot take advantage of large orders from customers if they cannot deliver. The conflicting objectives of cost control and customer service often pit an organization's financial and operating managers against its sales and marketing departments. Sales people, in particular, often receive sales commission payments, so unavailable goods may reduce their potential personal income. This conflict can be minimized by reducing production time to being near or less than customer expected delivery time. This effort, known as "Lean production" will significantly reduce working capital tied up in inventory and reduce manufacturing costs).

FIFO vs. LIFO ACCOUNTING

When a dealer sells goods from inventory, the value of the inventory reduces by the cost of goods sold (CoG sold). This is simple where the CoG has not varied across those held in stock but where it has then an agreed method must be derived. For commodity items that one cannot track individually, accountants must choose a method that fits the nature of the sale. Two popular methods exist: FIFO and LIFO accounting (first in - first out, last in - first out). FIFO regards the first unit that arrived in inventory as the first one sold. LIFO considers the last unit arriving in inventory as the first one sold. Which method an accountant selects can have a significant effect on net income and book value and, in turn, on taxation. Using LIFO accounting for inventory, a company generally reports lower net income and lower book value due to the effects of inflation. This generally results in lower taxation. Due to LIFO potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO inventory accounting.

STANDARD COST ACCOUNTING

Standard cost accounting uses ratios called efficiencies that compare the labor and materials actually used to produce a good with those that the same goods would have required under "standard" conditions. As long as similar actual and standard conditions obtain, few problems arise. Unfortunately, standard cost accounting methods developed about 100 years ago, when labor comprised the most important cost in manufactured

50

goods. Standard methods continue to emphasize labor efficiency even though that resource now constitutes a (very) small part of cost in most cases.Standard cost accounting can hurt managers, workers, and firms in several ways. For example, a policy decision to increase inventory can harm a manufacturing managers' performance evaluation. Increasing inventory requires increased production, which means that processes must operate at higher rates. When (not if) something goes wrong, the process takes longer and uses more than the standard labor time. The manager appears responsible for the excess, even though s/he has no control over the production requirement or the problem.

In adverse economic times, firms use the same efficiencies to downsize, right size, or otherwise reduce their labor force. Workers laid off under those circumstances have even less control over excess inventory and cost efficiencies than their managers. Many financial and cost accountants have agreed for many years on the desirability of replacing standard cost accounting. They have not, however, found a successor.

Finished goods inventories remain balance-sheet assets, but labor efficiency ratios no longer evaluate managers and workers. Instead of an incentive to reduce labor cost, throughput accounting focuses attention on the relationships between throughput (revenue or income) on one hand and controllable operating expenses and changes in inventory on the other. Those relationships direct attention to the constraints or bottlenecks that prevent the system from producing more throughput, rather than to people - who have little or no control over their situations.

NATIONAL ACCOUNTS
Inventories also play an important role in national accounts and the analysis of the business cycle. Some short-term macroeconomic fluctuations are attributed to the inventory cycle.

DISTRESSED INVENTORY
Also known as distressed or expired stock, distressed inventory is inventory thats potential to be sold at a normal cost has or will soon pass. In certain industries it could also mean that the stock is or will soon be impossible to sell. Examples of distressed inventory include products that have reached its expiry date, or has reached a date in advance of expiry at which the planned market will no longer purchase it (e.g. 3 months left to expiry), clothing that is defective or out of fashion and old newspapers or magazines.

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INVENTORY/STORE MANAGEMENT SYSTEM IN NTPC

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INVENTORY/STORE MANAGEMENT IN SYSTEM

The Corporate Philosophy of NTPC explicitly stated, is the need to keep upto date systems manuals documenting various operating guidelines the company is to follow in various disciplines. This Manual is also in line with the above laid down philosophy of the Company.

The Inventory Management system Manual is covers details on General Principles on service level NTPC has to maintain vis--vis optimum level of inventory by applying inventory control techniques or combination of techniques depending on the nature of item with respect to its value, critically, market availability and other consumption patterns.

Operating guidelines for the function concerned to optimize the inventory vis--vis service level.

Classification of items for management reporting and fixation of the norms. Elaborate inventory control techniques and procedural guidelines for their application. Materials Planning and indenting, using the tools of the above stated techniques or combination of techniques. Fixation of responsibilities for undertaking various inventory analyses. Review and Monitoring Inventory status with respect to norms and levels for various items or category of items. Spares Parts forecasting, planning and budgeting.

CLASSIFICATION OF STORES & SPARES

With the introduction of computerized Stores Accounting System, all information/reports can be generated either item wise or by any required group under the NTPC, Materials codification System (MCS). NTPC has codified the stores & spares under 100 main groups (from 00 to 99). The analysis of reports for all 100 main groups will require handling of a large volume of data and numerous & bulky reports. Therefore, for inventory analysis as well as for reporting to management in a handy and convenient form.

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A). Construction Stores 1. Cement 2. Steel 3. Others (viz. pipe, pipe fitting, cables etc.) B). O&M Stores 1. Coal 2. Fuel (Excluding coal) 3. Spares (Excluding insurance spares) 4. Loose Tools 5. Chemical, Gases & Explosives 6. Oil & Lubricants 7. Stores other than spares (consumables & Gen. Stores) 8. Scrap

INVENTORY NORMS FOR STORES & SPARES

Inventory Norms is defined as the permissible upper limit of inventory holding including quantities for which payments have been made in part of in full in advance of receipt and acceptance. There are no guidelines available from Bureau of Public Enterprises on fixation of these norms and this aspect has been left to judgment and experience of individual public sector undertaking primarily because the factors influencing the optimum inventory would vary with the nature of the industry.

INVENTORY NORMS FOR SPECIFIED CATEGORIES OF STORES & SPARES:

A). Construction Stores 1. Cement 2. Steel 3. Others (viz. pipe, pipe Fitting, cables etc.) 02-03 month usage

9 months usage 9 months usage

B). O&M Stores 1. Coal 15 days usage for all Projects except BTPS & NCTPP. 2. Fuel (Excluding coal) OS shall fix inventory

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Holding norms station wise. 3. Spares (Excluding insurance spares) 18 moths usage indigenous 24 month imported 4. Loose Tools 5. Chemical, Gases & Explosives 6. Oil & Lubricants 7. Stores other than spares (Consumables & Gen. Stores) 8. Scrap 6 month arising (at least two Disposals in a year) 6 month usage 3 month usage 3 month usage

6 month usage

The Inventory holding norms, as suggested above need to be reviewed by NTPC continuously (preferably once in three years) for further improvement in the light of the experience that would then have become available.

INVENTORY CLASSIFICATION FOR SELECTIVE INVENTORY CONTROL

The single most important objective of Material Management is to provide a specified level of service with minimum investment in Inventory. Hence material must be classified according to their important for control purposes and greater attention & time spent on selective basis on the more important items. In NTPC, the total no. of items runs into several tens of thousands.

I.U.C. Classification
All the spares shall be classified into the following three categories based on the type of utilization foreseen at the time the equipment is initially acquired.

INSURANCE SPARES (I) items of spare parts which are not normally required for routine maintenance but would cause long shut down of vital equipment or entire plant in case of non-availability when needed for use are termed as insurance spares

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UNIT ASSEMBLY (C) as per the NTPC maintenance policy, certain assemblies/sub-assemblies is replaced as complete units to release defective assemblies for repair in order to cut down on costly idle time of equipment. Such sub-assemblies/assemblies which are to be replaced as complete units for quick repair of equipment will be classified as unit assemblies.

CONSUMABLES (U) all spares which require replacement due to wear & tear on their inherently short life are called consumables. These will comprise of: Fast moving wearing spares Slow moving wearing spares

Classification of Inventory control:

1. 2. 3. 4. 5. 6.

ALWAYS BETTER CONTROL ANALYSIS (ABC ANALYSIS) XYZ ANALYSIS (STOCK VALUE WISE) SCARE DIFFICULT EASY ANALYSIS (SDE) VITAL ESSENTIAL DESIRABLE ANALYSIS (VED) Dispensability/ criticality pattern wise FAST, SLOW AND NON MOVING (FSN) INSURANCE, CONSUMABLE, UNIT REPLACEMENT ANALYSIS (ICU)

LEAD TIME ANALYSIS

LEAD TIME is the estimated time lag between the dates; the indent is accepted and registered in purchase wing and the date of physical receipt of material in the Receipt Section of the first consignment approximating in quantum to the EOQ/ELQ. Lead time is sub divided into the following components;-

1.

Administrative Lead Time - It is an area where stringent control could be exercised by each SMM by fixing norms for different modes of tendering and circulating the same to all the indenting departments for realistic planning in raising the material indents.

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2.

Suppliers Lead Time This is an area which normally falls in the domain of suppliers. It is therefore, essential to build a data bank of actual lead times encountered. This needs to be updated at least once in a year, before notifying the same to all concerned.

3.

Transportation Lead Time It is very essential to build data on the normal transportation time for different modes of transport for different important places from where the consignments are expected to be dispatched. Provision has been made in the Transport Manual for service level expected from the empanelled transporters.

MATERIAL REQUIREMENT PLANNING

Material Requirement Planning plays a crucial role in arranging availability of the material at the appropriate time i.e. just when it is required for actual use in Purchase Management System takes cognizance of the real requirement of various users by objectively studying the past trends of actual consumption jointly with users estimating future levels of usage in time and quantity as precisely as possible and raises a material indent/purchase requisition after determining the reasonableness of quantity and phasing of usage in time.

The requirement planning should take care of the following parameters namely, itemwise annual consumption in the preceding two to three years, anticipated requirement for the next one to two years, anticipated/actual lead times the classification of the items as ABC, VED and ICU in particular, the overall inventory norms and the method of recoupment adopted i.e. Periodical Review System or Recoup when due system etc.

MIS INVENTORY MANAGEMENT

The overall effectiveness of Material management made up by the efficiency levels reached in its component areas like purchase, Receipt, Storage, Issue, Disposal & Inventory control is reflected through management reporting which enables Management to analyses, evaluate and take decision or remedi3es like improvement in the methods of working, amendments to existing policy, procedure, staffing etc.

57

Therefore it is very improvement that management at differential levels is apprised at certain frequencies the status on various issues for enhancing the levels of overall performance.

STORE MANAGEMENT SYSTEM IN NTPC

The NTPC corporate philosophy is to maintain and keep upto date system manuals, documenting various systems of company operation. This manual to this stated philosophy. The manual has been prepared with the following objectives... To define the scope of stores operations and various activities involved; To provide guidelines in execution of various stores activities for achieving the objectives to materials management function; To spell out the interfaces as between various functions of materials management (stores) with other functions namely procurement, inventory control and clarify its role; To furnish detailed procedures to be followed so that standardized procedures could be established at all the power projects/stations/transmission regions. The manual has primarily been divided into a. b. Organization Goods Receipt Section

This manual shall deal with clearance and dispatch, receipt from outside, inspection & inward movement of materials, risk management involved in transportation of materials & ownership of fixed assets of corporation including claim settlement with under writers, suppliers & transporters for rejection/shortage/damages.

58

ORGANISATION

Site Material Management function ensures adequate and timely supply of

materials at right price to the contractor for smooth execution of power projects and to operating departments for smooth running of the power plants.

The major tasks performed by stores wing forming a part of the materials management function of stores wing are as follow:

a.

To arrange clearance, receive, inspect/arrange inspection, accept, arrange payment and store material.

b.

To systematically issue the materials for construction, erection and operations etc.

c.

To maintain up-to-date records on procurement, issue and stocks.

d.

To plan and arrange preservation, storage and requisite materials handling facilities.

e.

To maintain proper accounts of materials arranged.

f.

To identify surplus and obsolete materials at the earliest and arrange disposal of such materials as also materials returned as scrap;

FUNCTION GROUPS In order to facilitate division of responsibility of materials management department in clear terms, the organization set-up is prescribed on function basis involving following functional groups:

(I)

STORAGE FUNCTION
Stores Operations are divided into three distinct areas on the basis of distinct activities:

(a)

Goods Receipt section

59

Goods Receipt section shall be responsible for the following major function:

1. 2. 3. 4.

Goods Clearance and dispatch Receipt and arranging inspection of materials. Custody of rejected items and unconnected consignments. To have insurance coverage and handle claims for damages and shortages and rejection of materials and pursue settlement thereof.

5. 6. 7.

To maintain store for approved samples. In-ward movement and handling over goods to custody and warehousing section. Risk management.

(b)

Custody and warehousing section.

Its deals with receipt & issue of materials warehousing, stores accounting, preservation, security & safety, stock verification, recoupment of materials, disposal of materials etc.

Store custody shall be responsible for the following:

1.

Receipt of inspected materials in the custody cell (also Variously called godowns, sheds, yards etc.)

2. 3. 4.

Issue of materials to indenting department. To plan and arrange preservation, storage and requisite material handling facilities. To identify surplus and obsolete materials and arrange their disposal.

Receipt of Material in the Custody Section:

1. 2. 3. 4.

Stores Receipt Voucher Material Return Note Store Transfer Voucher (For inter stores transfer of material in a project). Material Transfer Note (for inter project transfer of material).

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(II)

PHYSICAL STOCK VERIFICATION

Physical stock verification is one of the very important activities of warehousing and storage. Under the activity the physical stock available against each item is required to be tallied with the book balance by custodian himself as a routine function and perpetually or periodically by stock verifier/s directly responsible to site finance. In the NTPC context where number of item are very large in number and as such become unmanageable to be covered under the exercise of stock verification each year. To overcome this difficulty stock verification in selective manner is a system envisaged wherein items are classified X, Y, Z or A, B, C depending on the consumption value.

Necessity of Stock Verification: To ensure that the actual physical balances of stocks tally with the balance appearing in the cardex as will as priced stores ledger (PSL). To ensure that the materials agree with the descriptions and specifications as recorded in the cardex and PSL. To ensure that the receipts, issue and the sock on hand have been accounted for accurately. To ensure that the discrepancies (shortages or excesses), if any, noticed during physical verification are properly investigated and accounted for. To identify slow moving and non-moving items so as to look into the necessity of holding such items any longer. To authenticate the correctness of the value of inventory shown in the Balance Sheet. To suggest remedial/preventive measures wherever abnormalities are observed.

Methods of stock verification and frequency of verification

Each unit of NTPC shall adopt the following stock verification methods. 1. Periodical Stock Verification Fixed assets held by different department shall be verified once in two years under periodical stock verification system

61

2.

Continuous Stock Verification Under this system all the materials shall be verified once in a year.

Selection of items for verification

As per as possible the items should be selected in such a way that the quantity involved on the date of verification is as minimal as possible to enables low point stock verification. This will help in reducing the quantum of verification work and thereby minimize cost involved for physical verification work.

Guidelines for Physical Stock Verification

100% stock verification of X class item (i.e. items having inventory holding over Rs. 1 lakh) at least once during the financial year. At least 50 % stock verification of Y class items (i.e. items having inventory holding over Rs. 10, 000/- and upto Rs. 1, 00,000/-) once during the financial year. At least 25 % stock verification of Z class items (i.e. items having inventory holding upto Rs. 10, 000/-) once during the financial year.

(III) MATERIALS PLANNING & INVENTORY CONTROL

1.

Material Panning This involves forecasting materials requirement, pricing and fixing inventory levels. It also includes preparation of materials budget and scheduling of the orders.

2.

Inventory Control It involves fixing order quantities, setting inventory levels and safety stock levels, designing and implementing inventory system, selective control of inventories, analysis and control of lead times.

3.

Material codification & Standardization It involves allotting the codes to each item of the stores as well as standardization of description to be mentioned on all indents, receipt, issue vouchers and other documents.

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4.

EDP Co-ordination & MIS This involves the co-ordination with the EDP Group regarding computerization and generation of various MIS reports from time to time.

5.

Fixation of Inventory level This cell shall undertake detailed study/analysis of each item for fixation of inventory levels viz. Maximum levels, Minimum levels, Reorder levels, Safety stock and EOQ of each item as per inventory management system manual.

(IV) POLICY PLANNING AND MONITORING CELL

As major project of NTPC have either entered in full operational stages or party switching over to operational stage, the job of arranging various inputs like consumables, spares has increased enormously and as such the activities of material management department are required to be geared up to face the challenges to be faced for keeping the various activities of Material Management wings has become a prime requisite. Therefore, a called Policy Planning an Monitoring shall be formed and will directly report to HOMM.

This will be an important organ of materials management directly responsible to HOMM. Its function shall be to identify major activities fixing targets, keeping track thereof, monitoring and coordinating with various agencies within and without NTPC. It main function shall be as follows: Fixing targets wherever possible and keeping track of the activities. Monitoring of the activities as per the targets fixed and reporting to HOMM. Coordination with or without for timely accomplishment of various tasks assigned by HOMM. Overseeing for implementation of various policies and procedures. Deviations if any due to local conditions prevailing in a particular project shall be coordinated for regularizing with the approval of GM (project). Coordination for compilation of MIS and preparation of Budget.

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(V)

MATERIAL

IDENTIFICATION

(CLASSIFICATION

&

CODIFICATION)
NTPC power projects, when fully operation. Are likely to have 40,000 to 50,000 items (spares, consumable and others) in store at each of the power stations. Basis perquisite in managing inventory of such a large number of items is accurate identification of each part or raw material. As accurate description would involve a lengthy written explanation in many cases, NTPC has adopted use of codes for describing inventory items. The corporation has decided to use a 10 digit significant coding scheme for assigning codes. In a group of digit positions denotes some definition of that attribute.

Procedure Step by step procedure involved is described below: On receipt of permanent code directory from Corporate Centre, SMM will arrange to identify items with temporary codes that appear in the directory and prepare a conversion list indicating temporary & corresponding permanents codes. One copy of the conversion list will be passed on to Corporate EDP Group one month in advance from cut off date for arranging data entry and entries in the computer file. EDP group will generate multiple copies giving permanent code, description, unit of measurement 15 days ahead of cut-off date. Prior to cut-off date SMM will ensure that temporary codes appearing in cardex/bins are charged to permanent codes. Where PSL is manually prepared, temporary codes in PSL records will be changed manually by PSL section. Computerized PSL will be automatically generated as per permanent codes where the conversion list has been feed to the computer. Stores/purchase department will ensure that permanent codes appear on indents/SIVs/SRVs etc. from cut off date. Before assigning any item a temporary code at any time, store department will ensure that it does not already exist in the corresponding permanent code directory.

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 The list of temporary codes will be sent to EDP & MS department periodically for the allocation of permanent codes. The implementation of the changeover to permanent codes shall be as per the above procedure and that will be same for all the sites.

Agencies for implementation Site stores Site finance (PSL section) EDP & Ms Site Purchase Section User/Indentor at site

65

FINANCIAL PERFORMANCE OF NTPC

66

INVENTORY MANAGEMENT IN NTPC

Inventory is a form of working capital but with a difference in NTPC. In NTPC, due to the nature of its product, the inventory does not comprise semi-finished or finished goods as is true for many manufacturing business. Electricity cannot be stored nor is it generated in stages i.e. it is a finished product once it is generated in NTPC inventory there are no raw materials, their place is taken by fuel used in thermal power generation viz. coal, furnaces oil, naphtha or gas. Thermal power generation involves considerable plant and machinery, the operation and maintenance of which require an inventory of requisite spares and components to be regularly maintained. In NTPC, thus inventory comprises fuel and spares and components, loose tools, chemicals and consumables. This inventory is typically large and at a 2000 MW station, it could have as much as 50000 material codes or items. The absolute value of this inventory (priced by the monthly weighted average method) and its proportion in the total current assets structure can be gauged from the analysis to follow later. Inventory Management is an area where Integrated Management approach involving all functional departments is the primary requisite. Unless cooperation is forthcoming from O&M / user department as and when needed, the objective of achieving high service level and at the same time optimizing inventory will be far from achieving. The basic need for achieving this objective of optimizing inventory is dedicated all out efforts by all concerned.

MATERIAL MANAGEMENT IN NTPC

Over 24249 MW of operational plant capacity developed in house has given NTPC the experience in Handling plant & machinery, spares and consumables from various countries in the world to remote destinations. Services covered under Materials Management include the following:

Optimal logistics and transportation strategies Review and Risk Coverage Requirement Integrated Inventory Management system, and interlink ages with O&M system.

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Optimal Inventory Policy. Development of Material management system & its computerization. Scrap disposal management

Inventory is essentially an idle asset and hence it is unproductive to hold more inventory than it is necessary. In NTPC the system of continuous review of inventory has been adapted with regular analysis based on spares classification techniques.

The following are the analysis undertaken:

1.

ALWAYS BETTER CONTROL ANALYSIS (ABC ANALYSIS)

A Class - Annual consumption value More than Rs. 1, 00,000/B Class - Annual consumption value More than Rs. 10, 000/
upto Rs. 1, 00,000/-

C Class - Annual consumption value upto Rs. 10, 000/-

2.

XYZ ANALYSIS (STOCK VALUE WISE) for ensuring continuous weeding out of unwanted inventory stock holding analysis i.e. XYZ analysis will be of significant importance. The criteria for declaring an item as X, Y, & Z shall be the same as for ABC items on stock value consideration basis.

Class X Stock value exceeding Rs. 1, 00,000/Class Y Stock value between Rs. 10, 000/- & Rs. 1, 00,000/Class Z Stock value up to Rs. 10, 000/-

3.

SCARE DIFFICULT EASY ANALYSIS (SDE)

SCARE Item not available normally. Special efforts are required to locate the source of such spares. DIFFICULT Items which are available with difficulty. They have limited sources, lengthy procurement cycles etc.

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EASY Items, which are available, ex-stock in the market.

4.

VITAL ESSENTIAL DESIRABLE ANALYSIS (VED) Dispensability/ criticality pattern wise

VITAL Items whose absence even for a short duration will cause a loss of generation. ESSENTIAL Items whose non-availability can be tolerated for a short while without affecting the generation. DESIRABLE Items, which are needed for plant equipment but without which the equipment can run without much effect on its operations.

5.

FAST, SLOW AND NON MOVING (FSN)

FAST Items, which are used at least once in a two year term. SLOW Spares used / needed once in a four year term. NON MOVING Items without any movement for the last five years.

6.

INSURANCE, CONSUMABLE, UNIT REPLACEMENT ANALYSIS (ICU) -

INSURANCE Items, also called emergency or capital spares, which are mostly function parts of the machines and their lift is very long and in many cases almost the same as the operating life of the machine. Their failure credibility is very low but their failure will cause long shutdown of vital equipment or the entire plant.

CONSUMABLE Items, which are required for the normal maintenance of the machine and are consumable in nature.

UNIT REPLACEMENT SPRAES Items where a unit as a whole is to be replaced either on breakdown or after a specified period of services such defective or used units are returned to the store after due repairs for future reuse.

69

GROUPING OF ITEMS FOR REPORTING & CONTROL CLASSIFICATION OF STORES & SPARES
With the introduction of computerized Stores Accounting System, all information/reports can be generated either item wise or by any required group under the NTPC, Materials codification System (MCS). NTPC has codified the stores & spares under 100 main groups (from 00 to 99). The analysis of reports for all 100 main groups will require handling of a large volume of data and numerous & bulky reports. Therefore, for inventory analysis as well as for reporting to management in a handy and convenient form.

A). Construction Stores 1. Cement 2. Steel 3. Others (viz. pipe, pipe fitting, cables etc.)

B). O&M Stores 1. Coal 2. Fuel (Excluding coal) 3. Spares (Excluding insurance spares) 4. Loose Tools 5. Chemical, Gases & Explosives 6. Oil & Lubricants 7. Stores other than spares (consumables & Gen. Stores) 8. Scrap

INVENTORY NTPC is consist of fuel (coal, oil, Naphtha) components and spares, looses tools,
chemical and consumable and others. A composition of inventory in 2006-2007 is as below:

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Annual report: Schedule 10 Rs. Million 31.03.2007 (Valuation as per Accounting Policy No. 9) 31.03.2006

Components and spares Loose tools Coal Fuel oil Naphtha Chemical & consumables Others Steel Scrap

14,293 51 7,318 1,111 793 785 1,002 82 25,435 887

12,894 42 7,476

690 759 805 76 23,629 24 200

Less:

Provision for shortage Provision for obsolete/ unserviceable Items/ diminution in value of surplus Stores

26 307

25,102 Total Inventories include material in transit, under Inspection and with contractors 1,546 977

23,405

The inventory in NTPC assumes importance for the fact that the operations continuous non stop for power generation consuming inventories of all the components stated above on a regular and continuous bases it is there for crucial that all inventory is maintained and sufficient stock to ensure uninterrupted operation and maintenance. A new dimension in this state of affairs is that long with past changing technology and the

71

completion of the life of plant and machinery in the older power station bringing fourth the phases of renovation and modernization. This has added new items and quantities to the inventory as also rendering considerable inventory surplus and obsolete. Inventory however is short to be controlled by getting indents screen by a committee for justification in the light of its Population. Pipelines, Quantities, past consumptions patterns and estimated cost. The offered at inventory control have resulted in curtailing the cost sum in the inventory.

The performance of inventory for the 5 years under consideration is as below:

TABLE I

1.

Total Installed Capacity Ratio Rs. Million YEAR MW (TOTAL INSTALL CAPACITY ) 2002-03 2003-04 2004-05 2005-06 2006-07 20935 21435 23435 23935 26350 17,380 17,712 18,198 23,679 25,899 INVENTORY INSTALL CAPACITY RATIO 0.8301 0.8263 0.7603 0.9893 0.9828

Total Installed Capacity Ratio = Inventory / total installed capacity

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INSTALL CAPACITY RATIO 1.2 1 0.8

Ratio

0.9893 0.8301 0.8263 0.7603

0.9828

0.6 0.4 0.2 0 2002-03 2003-04 2004-05 2005-06 2006-07 year

INSTALL CAPACITY RATIO

TABLE II
2. INVENTORY TURNOVER RATIO Rs. Million YEAR COST GOOD SOLD 2002-03 2003-04 2004-05 2005-06 2006-07 1,60,156 2,00,562 1,94,734 2,24,818 2,64,842 20,176 17,712 17,380 17,819 23,405 17,712 17,380 17,819 23,405 25,102 37,888/2 35,092/2 35,199/2 41,224/2 48,507/2 8.454 11.43 11.06 10.90 10.91 OF INVENTORY OP. BAL. INVENTORY CLO. BAL. AVERAGE INVENTORY RATIO

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD AVERAGE INVENTORY

AVERAGE INVENTORY = OPENING BALANCE + CLOSING BALANCE 2

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INVENTORY TURNOVER RAIO

14 12 10
RATIO

11.43 8.454

11.06

10.9

10.91

8 6 4 2 0 2002-03 2003-04 2004-05 YEAR 2005-06 2006-07

RATIO

INTERPRETATION:This ratio is designed to major the efficiency to use of inventory in other words. It major the efficiency of inventory management as all inventory is used to ultimately facilities sales at carries a cost, it is to be related to cost of good sold to major its efficiency. Cost of good sold although a cost also indicates it turnover achieves. Its increase over the year would therefore be natural. The cost of good sold over the period of 5 years accept follow arising trends accept for a slide decrease in the year 2004-05. The average inventory shows controlled level up to the year 2004-05 and increase there after you to the exercise Renovation & Modernization being a ambartha upon in the older unit such as Singrauli. The ratio likewise registers generally stable trends showing stability with a receding trends signifying quite and efficient inventory management.

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TABLE III
3. INVENTORY HOLDING PERIOD Rs. Million YEAR INVENTORY OP. BAL. 2002-03 2003-04 2004-05 2005-06 2006-07 20,176 17,712 17,380 17,819 23,405 INVENTORY CLO. BAL. 17,712 17,380 17,819 23,405 25,102 AVERAGE INVENTORY 37,888/2 35,092/2 35,199/2 41,224/2 48,507/2 COST OF RATIO

GOOD SOLD 1,60,156 2,00,562 1,94,734 2,24,818 2,64,842 43.17 31.93 32.98 32.73 33.42

INVENTORY HOLDING PERIOD RATIO = AVERAGE INVENTORY * 365 COST OF GOOD SOLD

INVENTORY HOLDING PERIOD

50 40
RATIO

43.17 31.93 32.98 32.73 33.42 RATIO

30 20 10 0 2002-03 2003-04 2004-05 YEAR 2005-06 2006-07

INTERPRETATION:-

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The average holding period is reciprocal of inventory turnover ratio and indicated stability & controlled with the duration ranging from 44 days in 2002-03 and 34 days 2006-07, alter first year. Period the holding period received to 32 days in 2003-04 year and raise marginally to 33 days in 2004-05. it there after is unchanged at 34 days during 2005-06 and 2006-07. The controlled inventory holding period indicates sound inventory management with the majors mentioned about despite the fact that due to many spares being scares the inventory for them is currently being procured for up to 2 years in advances for uninterrupted operation.

TABLE IV
4. INVENTORY TO BILL RECEIVABLE Rs. Million YEAR INVENTORY INVENTORY BILL RECEIVABLE 2002-03 2003-04 2004-05 2005-06 2006-07 17,712 17,380 17,819 23,405 25,102 1,24,399 4699 13,747 8,678 12,523 0.142 3.69 1.29 2.69 2 RATIO

INVENTORY TO BILL RECEIVABLE RATIO =

INVENTORY BILL RECEIVABLE

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INVENTORY TO BILL RECEIVABLE

4 3.5 3 2.69 2 RATIO 1.29 3.69

RATIO

2.5 2 1.5 1 0.5 0 2002-03 2003-04 2004-05 YEAR 2005-06 0.142

2006-07

INTERPRETATION:Inventory and receivable are both current assets and in the sequence in the cycles. Inventory leads to receivable. Receivable are a reflection of sales maximizing Receivable with controlled inventories would translate as a profitable enterprises the ratio therefore must follow a receding trends normally and a reversal only in a situation of receivable promptly services. The ratio follows the mix trends rising from 0.14 2002-03 to 3.69 in 2003-04. The ratio received to 1.29 in 2004-05 to 2.69 in 2005-06, it finally reduced to 2006-07. The inventory follows controlled level up to 2004-05. It there after registers increases mainly due to expansion and accelerated Renovation & Modernization.

TABLE V
5. INVENTORY TO NET PROFIT (PAT (PROFIT AFTER TAX)) RATIO Rs. Million YEAR 2002-03 2003-04 2004-05 2005-06 INVENTORY 17,712 17,380 17,819 23,405 NET PROFIT 36,075 52,608 58,070 58,202 RATIO 0.49 0.33 0.30 0.40

77

2006-04

25,102

68,647

0.36

INVENTORY TO NET PROFIT RATIO =

INVENTORY NET PROFIT

INVENTORY TO NET PROFIT (PAT (PROFIT AFTER TAX)) RATIO

0.6 0.5 0.4
RATIO

0.49 0.4 0.33 0.3 RATIO 0.36

0.3 0.2 0.1 0 2002-03 2003-04 2004-05 YEAR 2005-06 2006-07

INTERPRETAION:This ratio seeks to relate inventory to net profit normally a trend of the ratio should be a receding one as effective management practices must leads to greater profits out of controlled or smaller inventories. The ratio thus follows a receding trends up to 2004-05 with a reversal in 2005-06 due to and abruptly increase level of inventory in the years on the strength of quantum increase in the net profit in 2006-07 the ratio again has receded level in 2006-07 in general the ratio has a recessive tendency based on regularly increases Net Profit over the years.

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TABLE VI
6. INVENTORY TO FUEL RATIO Rs. Million YEAR COAL OIL NAPHTHA TOTAL FUEL 2002-03 2003-04 2004-05 2005-06 2006-07 3,787 3,337 3,115 7,476 7,318 772 578 823 887 1,111 456 492 645 690 793 5,015 4,407 4,583 9,053 9,222 17,712 17380 17,819 23,405 25,102 0.283 0.253 0.257 0.386 0.367 INVENTORY RATIO

INVENTORY TO FUEL RATIO =

FUEL INVENTORY

INVENTORY TO FUEL RATIO

0.45 0.4 0.35 0.3
RATIO

0.386 0.283

0.367

0.253

0.257 RATIO

0.25 0.2 0.15 0.1 0.05 0 2002-03 2003-04 2004-05 YEAR 2005-06 2006-07

INTERPRATATION:79

Fuel (Coal, Oil, Naphtha) are a large part of inventory of NTPC. This ratio seeks to determine a trend of this proportion over the year. It is seem proportion of fuel in the total inventory ranges between 0.528 to 0.26 up to 2004-05 it then increases 0.38 in 2005-06. While small fluctuation may be due to incidental events it is seen that with expansion in capacity fewer assumes a proportions nearing 40% of the total inventory.

TABLE VII
7. INVENTORY TO CASH RATIO Rs. Million YEAR 2002-03 2003-04 2004-05 2005-06 2006-07 CASH 5,447 6,091 60,783 84,714 1,33146 INVENTORY 17,712 17,380 17,819 23,405 25,102 RATIO 0.30 0.35 3.41 3.61 5.31

INVENTORY TO FUEL RATIO =

CASH INVENTORY

80

INVENTORY TO CASH RATIO

6 5 4
RATIO

5.31

3.41

3.619 RATIO

3 2 1 0 2002-03 2003-04 2004-05 YEAR 2005-06 2006-07 0.3 0.35

INTERPRETAION:One of the major purposes of cash is to pay for inventory. The relationship of these to current assets is mutually competematly flow ever , the tend of the ratio of cash to inventory in a business that is normally expanding and where cash is being effectively managed and controlled should be a decreasing one. The tend evidenced is can opposite one through out the period and specially show during the last 3 years due to high cash balances obtaining there.

TABLE VIII
8. INVENTORY TO CURENT ASSETS RATIO Rs. Million YEAR 2002-03 2003-04 INVENTORY 17,712 17380 CURENT ASSETS 1,94,132 1,35,468 RATIO 0.0912 0.1282

81

2004-05 2005-06 2006-07

17,819 23,405 25,102

1,29,106 1,57,245 2,21,827

0.1380 0.1488 0.1131

INVENTORY TO FUEL RATIO =

INVENTORY

CURRENT ASSETS

INVENTORY TO CURRENT ASSETS RATIO

16 14 12
RATIO

14.88 12.82 9.12 RATIO 13.8 11.31

10 8 6 4 2 0

2002-03

2003-04

2004-05 YEAR

2005-06

2006-07

INTERPRETATION:Inventory in NTPC is unique for not having any raw material or finished goods. The inventory consists of fuel (coal, oil), spares and components, loose tools, chemical & consumable goods and others as the operation and maintenance in power generations is continuous and regular exercise, the inventory becomes not only critical but voluminous in all its aspects. NTPC has different technology at its different units finance had been tied up with conditions of technological cooperation and technical assistance from different collaborating countries and financial institution. As a result NTPC has a larger inventory of component and spares then would have been required under conditions of uniform technology. The fact of continuous operation & maintenance ensures certain inventory on permanent basis for securities of operations. This along with the fact that due to technological changes and changes of phase from initial to the later or from the initial synchronization to the later stable operation a large quantum inventory is rendered surplus.

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This large inventory has been attempted to be controlled by closed monetary and economic. However, addition to the install capacities being a regular features of he companies development & the on set of the phase of Renovation & Modernization has resulted in and enlargement of inventory in the later year of out period.

The ratio of inventory to current assets is designed to measure the proportion of inventory in the total current assets of the company. The ratio follows and increasing trends from the first to the fourth year of our period from 9.12% in 2002-03 to 14.28% in 2005-06. In the year 2006-07 the ratio registered a fall to 11.32%. This fall is more due to the abnormal level of cash in the current assets during this year then due to the enhancement of inventory. In General, the inventory constitutes between 13 to 15% of the inventory and indicated controlled over all the year of Rupees.

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OBSERVATION AND FINDING

84

OBSERVATION AND FINDING

It have larger inventory items : 73000 item in NTPC, 53000 item in Singrauli Project, It have permanent nature inventory, They are maintained on : Pithead 2 Month Oil Stock and 15 days Coal Stock and, Non-Pithead 2 Month Oil Stock and 1 Month Coal.

1.

Inventory turnover ratio was increased in 2002-03 to 2004-05 but further its constant. It means Company was able to overcome the short coming to a limit. So many is on the positive pace which is expected to maintained in future also.

2.

Install capacity ratio was declined in 2002-03 to 2004-05 and then increased in 2005-06 and 200607, which means they are increased install capacity ratio with the control the inventory and increased production.

3.

Inventory holding period within 5 year slightly up and down but they control holding period (i.e. 30 days) which means sound inventory management.

4.

Inventory to Net Profit is going on downward position. In 2006 its increased and 2007 again decreased because of sudden increased inventory in 2006 and 2007.

5.

Fuel to Inventory ratio increased year to year. Using fuel in production is larger amount (Fuel contain Coal, Oil and Naphtha).

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6.

Cash to Inventory ratio is increased year to year but in 2007 is cash largly increased because of many Goverment Security and Bonds, RBI Bonds are mature in this year but not invested that way ratio is increased 2% approx. against last year.

7.

Inventory to Current Assets ratio in the year of 2003 to 2006 is increased and in 2007 is suddenly 3% declined because of in the year cash is suddenly increased because of many Goverment Security and Bonds, RBI Bonds are mature in this year but not invested (Excepted cash all the current assets is controlled).

SUGGESTION

1. 2.

Renovation and Moderanization must be for uniformity of technology. Using Renovation and Moderanization trends replace the Old technology into New technology (current technology which is better) which is easy to use.

3.

Through Renovation and Moderanization increase the production technique and reduced the obsolute technique and spares.

4. 5.

Inventory analysis must be done closely. Company want always more and more profitability so they want be proper manage the inventory system.

6.

Better and Efficient utilization of Inventory (Components and spares, Loose tools, Coal, oil, Naphtha, Chemical & consumables and Others steel Scrap) contribute to higher profit in the long term.

7.

A Company invest money in inventory to commenve operation that are financed through debt and equity.

8. 9.

The Company must be try maintained good inventory base. The Company should be utilize its stock more efficiently which means obsolute, Non moving of surplus inventory should be dispose off.

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10.

Inventory to Net Profit ratio is going on downward posotion so must be increase the Net Profit through maintained inventory system.

11.

Reduce the problem of Multiple or Duplicate material coding through addressed to be stock varification.

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BIBLOGRAPHY

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BIBLOGRAPHY
1. SRIKANTHAN S. (OCT. 1989), STORE MANAGEMENT SYSTEMS (MANUAL) N.T.P.C., VOL:XII, PART II

2.

NTPC NEWS MAGZINE

3.

SINGRAULI AT A GLANCE, NTPC, A PROMISE FULFILLED (MAGZINE), SINGRAULI

4.

FINANCIAL ASSISTANCE, NTPC, A PROMISE FULFILLED(MAGZINE), SINGRAULI

5.

WWW.NTPC.COM

6.

WWW.NTPC.CO.IN/COMPANY PERFORMANCE

7.

WWW.NTPC.CO.IN/INTRODUCTION OF NTPC

89