Theoretical Framework Inventory Management

INVENTORY MANAGEMENT IN ELECTRIC LOCOSHED, KAZIPET” Submitted to

Jawaharlal Nehru Technological University, Hyderabad

in Partial fulfilment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION Submitted by

M. REKHA 10C31E0030 Under the guidance of MR. RAJ KUMAR

Department of Management Sciences BALAJI INSTITUTE OF TECHNOLOGY& SCIENCES, NARSAMPET WARANGAL – 506 331

[i]

K. Sharath Babu

Balaji Institute of Technology & Science

B.Tech., MBA, M.Phil., NET, (Ph.D)

Laknepally, Narsampet, Warangal – 506 331.

Head of the Department Department of Management Sciences

Tel: 08718-232641, 230556 Fax: 08718-230521 [email protected]

CERTIFICATE This

is

to

certify

that

the

project

report

entitled

INVENTORY MANAGEMENT IN ELECTRIC LOCOSHED KAZIPET was carried out by Ms M REKHA, bearing H.T.No 10C31E0030 under my supervision. She has completed her project work as per the rules prescribed and submitted to the JNT University, Hyderabad in partial fulfillment for the award of degree of Master of Business Administration. It is a bona fide work done by her and has not been submitted elsewhere either in part or in full for any degree or diploma of any university earlier.

Head of the Department

[ii]

Balaji Institute of Technology & Science

B. RAJ KUMAR MFA, M.Com, MBA, M.Phil., (Ph.D) Assistant Professor Department of Management Sciences

Laknepally, Narsampet, Warangal – 506 331. Tel: 08718-232641, 230556 Fax: 08718-230521 [email protected]

CERTIFICATE This

is

to

certify

that

the

project

report

entitled

INVENTORY MANAGEMENT IN ELECTRIC LOCOSHED KAZIPET was carried out by Ms M REKHA, bearing H.T.No 10C31E0030 under my supervision. She has completed his/her project work as per the rules prescribed and submitted to the JNT University, Hyderabad in partial fulfilment for the award of degree of Master of Business Administration. It is a bona fide work done by him/her and has not been submitted elsewhere either in part or in full for any degree or diploma of any university earlier.

Supervisor

[iii]

DECLARATION

I M REKHA bearing H.T.No.10C31E0030 (2010-12), hereby declare that the project report entitled “INVENTORY MANAGEMENT IN ELECTRIC LOCOSHED, KAZIPET” is submitted to, Jawaharlal Nehru Technological University, Hyderabad in partial fulfillment for the award of degree of Master of Business Administration and it is an original work undertaken by me and it is not submitted to any other University or Institution for the award of any degree/ diploma/certificate.

Place: Warangal Date:

M REKHA H.T.No 10C31E0030

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ACKNOWLEDGEMENT

Firstly, I am ever so grateful to Almighty God for bestowing His amazing grace upon me. I deem it a privilege to owe a special acknowledgment to BALAJI INSTITUTE OF TECHNOLOGY AND SCIENCES for giving me an opportunity to carry out the project. I am grateful to my internal project Guide professor Mr. RAJ KUMAR for his valuable support and guidance from time to time in giving a final shape to the project. I am grateful to the management of ELECTRIC LOCO SHED, KAZIPET and my external project guide Mr. PVSSS. APPALRAJU, for rendering me the privilege of doing a project in their esteemed company. Last but not least, also give my sincere thanks to all the people who directly or indirectly have helped and encouraged me in finding the way collecting the requisite information and completing the project effectively and timely.

M REKHA

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ABSTRACT Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is generally a time lag between the recognition of a need and its fulfilment. The greater the time lag, the higher the requirements for inventory. It also provides a cushion for future price fluctuations.

In a complex industry like Indian Railways Electric Loco Shed it is carefully studied as to the real performance and impact of inventory management in the Electric Loco Shed and the effectiveness of the inventory utilized is learned by the researcher because of its great significance in the research.

Every industry on an average spends 70% on raw materials i.e., inventory. Therefore there is a need to know the raw material cost. Also, there is great importance in understanding the inventory management system in Electric Loco Shed, Kazipet.

This study helps a lot to various departments to take steps to control the inventory process.

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TAB L E O F C O N T E N T S Certificates……........................................................................................................i-iii Student Declaration.................................................................................................iv Acknowledgement....................................................................................................v Abstract.....................................................................................................................vi List of Tables................................................................................................ ix List of Figures..............................................................................................x

1.0 Introduction........................................................................................................1-6 1.1. Inventory……...............................................................................................2 1.2. Need and Importance of the Study............................................................... 3 1.3. Objectives of the Study................................................................................. 3 1.4. Scope……………….....................................................................................4 1.5. Research Methodology and Database.......................................................... 5 1.6. Limitations of the Study............................................................................... 6 1.7. Chapterisation............................................................................................... 6 2.0 Organisational Profile.................................................................................... 7-29 2.1. Indian Railways at a Glance......................................................................... 8 2.2. South Central Railways................................................................................ 9 2.3. Profile of Electric Loco Shed Kazipet.......................................................... 11 2.4. Development of Railways in India............................................................... 14 2.5. Train Management System........................................................................... 18 2.6. Classification of Locomotives...................................................................... 20

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2.7. Electric Traction Voltages............................................................................ 22 2.8. History of Electrification.............................................................................. 22 2.9. Railway Zones............................................................................................ 24 2.10. Railway Gauges.......................................................................................... 25 2.11. Railway Museums.......................................................................................28 3.0 Theoretical Framework of Inventory Management.................................... 30-48 3.1. Management of Inventory.............................................................................31 3.2. Definition of Inventory................................................................................. 32 3.3. Importance of Inventory Management......................................................... 32 3.4. Objectives of Inventory Management.......................................................... 32 3.5. What is Inventory Management................................................................... 33 3.6. Inventory Control..........................................................................................34 3.7. Need for Inventory........................................................................................ 36 3.8. Types of Stock.............................................................................................. 37 3.9. Valuation of Inventory.................................................................................. 39 3.10. Inventory Control Techniques.................................................................... 42 4.0 Data Analysis and Interpretation.................................................................. 49-65 5.0 Summary..........................................................................................................66-68 5.1. Findings and Conclusions.............................................................................67 References................................................................................................................. 69

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L I S T O F TAB L E S TAB L E

PAG E N O

1. Table – 1

14

2. Table – 2

14

3. Table – 3

19

4. Table – 4

25

5. Table – 5

46

6. Table – 6

51

7. Table – 7

51

8. Table – 8

53

9. Table – 9

54

10. Table – 10

60

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LIST OF FIGURES FIGURE

PAG E N O

1. Figure – 1

12

2. Figure – 2

12

3. Figure – 3

13

4. Figure – 4

59

5. Figure – 5

64

[x]

[xi]

CHAPTER - I INTRODUCTION

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1.0 INTRODUCTION 1.1 INVENTORY Inventory constitutes the most significant part of current assets of large majority of companies in India. On an average, inventories are approximately 60% of current assets in public limited companies in India. Inventory serves as a link between production and distribution process. As firms maintain large size inventories, a considerable amount of funds is required to be committed to them. A firm neglecting the management of inventories will be jeopardizing it in long run profitability and may fail ultimately. In environments where an organization suffers from poor cash flow or lacks strong control over electronic information transfer among all departments and all significant suppliers, lead times, and quality of materials received, inventory plays important roles. Inventory management has important financial implications. Inventory financing can be either a line of credit or short-term loan made to a company so it can purchase the inputs to make the product, or purchase the product itself for resale. 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 programmers with the participation and involvement of others for effective management of inventories. It is possible for companies to reduce their inventories to a considerable degree by using simple inventory planning and technique which carries a favourable impact on company’s profitability. Inventory therefore, is categorized into 3 categories: 1. Raw materials 2. Work-in-progress 3. Finished goods

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1.1 NEED & IMPORTANCE OF THE STUDY: The importance of the Inventory management is...  Inventory Management System provides information to efficiently manage the flow of materials effectively.  The coordination of people and equipment helps in managing internal operations.  Inventory management provides information to managers who make more accurate and timely decisions to manage their operations.  Because of large size of inventories maintained by firms, considerable amount of funds is required to be committed to them.  It is therefore absolutely imperative to manage inventories effectively and efficiently in order to avoid unnecessary investment.  Inventory is maintained to take care of fluctuations demand and lead time.  It is also maintained to take care of increasing price tendency of commodities or rebate in bulk buying.  Inventory Management System provides information to effectively manage the flow of materials effectively with people and equipment.  It also coordinates internal activities for enhanced customer communication. 1.2 OBJECTIVES:  To understand the concept of Inventory Management  To discuss pattern, levels, trends of inventories in Electric Loco shed, Kazipet  To learn the inventory control techniques implemented in Electric loco shed  To assess the performance of Inventory Management by selecting accounting ratios

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 To find out the continuous supply of raw materials which facilitate for uninterrupted production.  To learn the effectiveness of inventory management in the overall financial management of Electric Loco Shed, Kazipet.

1.3 SCOPE: There are two fundamental questions that must be answered in order to manage the inventory of any physical item – when to order and how much to order. When to order is determined by average and variation in demand and replenishment. How much to order is determined by the order quantity. Inventory control is the process of monitoring inventory status. Although the concept is simple, the process of getting the right balance can be quite a complex and time consuming task without the right technology. In the present study an attempt has been made to learn the actual implementation of Inventory management techniques in general and other aspects such as the scope of inventory management and the effectiveness of inventory management in particular. Financial management projections are valid on cutting down production costs. When inventory is seriously tracked down, the company will have a lot of scope for development and they can prepare themselves for higher responsibilities. A thorough analysis of the inventory will help the management to know the short comings, if any. It also helps the company to learn whether the financial position and capacity.

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1.4 RESEARCH METHODOLOGY & DATABASE: The research methodology is a systematic way to solve the problem and it is an important component of the study without which researcher may not be able to obtain the facts and figures from the employees. 1.1.1 SOURCE OF DATA: The data used in study was collected from primary & secondary sources, comparing annual reports & financial statements of the electric loco shed. 1.1.1.1 PRIMARY DATA: 

Primary data is collected from the original source of information. The primary data will be collected through personal interviews with various stores managers, office records in Electric Loco shed.



Data related to the organization history is collected from the historical record of organizations and Indian railway website.



Information related to the inventory management, its terms, its techniques and methods is collected from reference books, articles and Google search.



Information related to inventory management in this organization regarding the techniques implemented to maintain inventory is collected through store cards and observation of the stores, the employees of store keepers and discussion with the project guide and other records, and office files. Some of the data has been collected through discussion with the second level managers.

1.1.1.2 SECONDARY DATA: Secondary data will be collected from the sources like company annual reports, search engines, websites, magazines and various text books, news papers, research articles and other relevant sources.

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1.1.2 PERIOD OF THE STUDY: Since many years ELECTRIC LOCO SHED, KAZIPET has been following the same inventory management techniques. As such, for the study of my project, five years of data has been collected viz. 2007 through 2011.

1.5 LIMITATIONS OF THE STUDY:  There may be approximation in calculating ratios and taking figures from the annual reports.  It is not always possible to make future estimation on the basis of the past as it might not come true always.  The study did not include all the methods of Inventory Management.  The time period taken for the study is limited and hence it may not provide comprehensive insights. 1.6 CHAPTERISATION: 1. Chapter 1:

Introduction

2. Chapter 2:

Organisation Profile

3. Chapter 3:

Theoretical Framework of Inventory Management

4. Chapter 4:

Data Analysis and Interpretation

5. Chapter 5:

Summary

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CHAPTER-II ORGANISATIONAL PROFILE

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2.0 ORGANISATIONAL PROFILE 2.1 INDIAN RAILWAYS AT A GLANCE There are people today in who have never travelled on railway but thanks to the expansion of television network in the country that would have seen the railway and a locomotive; The Indian railways with more than 14 lakhs employees are the largest employees in the country. Established in 1853 when the first train was flagged from Bombay to thane, a distance of 34km, it has now grown to dizzy heights and is covering more than 62, 484 km. Across the country is the largest network in the world. The Indian railway have a felt of 8682 diesel locomotives, 1702 electric locomotives and 729 electric locomotives. Richard Trevithick was first man to produce rail locomotives. The first was completed in 1802, nothing of it is known now expect its existence. The first steam locomotive to run on a public railway was manufactured in 1802. The very like of this locomotive is preserved at a Darlington station, England. The era of steam locomotive began in India on December 22, 1851 when a small steam locomotive named “Thomson” started to haul some wagons containing earth during the construction of slain aqueduct near Roorkee (U.R). On Saturday April 16, 1853 the first Indian train (popularly called as AagGadi) steamed off BoriBunder to Thane a distance of 34km. The train drawn by three engines covered the 34km. Distance in 70 minutes from Bombay to Thaana. It had 400 passengers are than 18 lakhs employees, are the largest employers in the country. Indian railway is the largest in Asia, fourth in the world and also in signalling and telecommunication (S&T) first in the Asia.

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The most widely used engine on Indian Railways before independence was extensively used on RajputnaMalwa Railways which become the meter gauge section of the Bombay and central Indian Railway. The first of these engines was built by dubs and company Glasgow in 1875. From these engines were also manufactured in India at the Ajmer railway works. In the post-independence period, the first steam locomotive manufacturing unit was set up at chittaranjanin 1950. Between 1950 and 1972 this unit manufactured 2351 steam locomotives. During this period the steam locomotive were being replaced the world over by electrical and electric locos. In India too, manufacture of electrical and electric locomotives had started. The stamp depicts 2-8-2 class WG. The fastest train in the world is goods train and why because these trains will have starting point to destination. Some of the major stations such as junctions will be stopped for crew changes purpose. WDM2 electrical - The most widely used electrical locomotive in India. It hauls freight trains of 2250 tons and mail trains with 18 coaches. These engines haul nearly 56 percent of the total freight traffic on the Indian Railway and important mail and express trains. The electrical locomotive works at Varanasi has a capacity to manufacture 120 such locomotives per year.

2.2 SOUTH CENTRAL RAILWAYS The youngest of the nine zonal Railways in India, South central Railway was born on 1966. In its forty - three year is committed service and path breaking progress, South Central Railway has built a modern system of the mass transport, fulfilled the aspiration of the passengers and made a mark for itself in Indian Railway. Strategically positioned extending from the east coast to west coast in the southern at

[9]

Secunderabad, serves six major states - Andhra Pradesh, Karnataka, Maharashtra, Goa, Madhya Pradesh and Tamilnadu. From the day of steam hauled locomotives and wooden plank seats. South Central Railway has come a long way into the era of high powered Diesel and Electric locomotives, ultramodern microprocessor based signalling and train control system, Global passengers reservation. Network, microprocessor based interactive voice Response system (IVRS) for inquiries, aesthetically designed passenger coaches incorporating latest features and super-fast Trains. Today SCR is playing a vital role as a catalyst for agricultural and industrial development in the southern peninsula by providing a customer friendly transport network, even while performing greatly as a commercial enterprise. South Central Railway (SCR) was formed in October 1966 raving out the divisions of Hubli and Vijayawada from the southern Railway and the divisions of Sholapur and Secunderabad from Central Railway Jurisdictional adjustments were October 1977, merging Guntacal of the Southern Railway with South Central Railway and transferring Sholapur division back to central Railway. Secunderabad division was bifurcated in February 1978 into two divisions - Secunderabad & Hyderabad, to facilitate effective operational & administrative control. In just 38 years SCR has laid 322 route kms of now track & 1,220 route kms of parallel track, converted 2439 route kms of track from meter gauge, and electrified 1557 route kms introduced 46 new empress trains including Rajadhani & Shatabdhi trains. Emerged as the third largest one of Indian Railways in terms of originating freight traffic. Achieved threefold increase in passenger traffic from 50 million in 1966 to 495 million in 2003. Jump in freight movement from 9 million tons to 106

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million tons & stupendous improvement in earnings from Rs.58.00 crores to Rs.21, 380 crores.



Developed the five major stations Hyderabad, Tirupathi, Vijayawada, Bellary & Nanded as model stations.



Pioneered the concept of 24 coach express trains with a view to meet the increase in demands of passenger traffic.



Undertook special drives to preserve the environment by adoption the “clean & green” program of the government of A.P.



First lift provided to the foot over bridge (FOB) is at Tirupathi and it is successfully working to the passengers.



First escalators provided at Vijayawada and it is successfully working to the passengers.

2.3 PROFILE OF ELECTRIC LOCO SHED KAZIPET 1.1.3

INTRODUCTION: Electrical Loco Shed, ELS KZJ is homing the “working horse”(WAG-7) of

Indian Railways in Secunderabad Division of South Central Railway is located in the town of Kazipet which is 12 km north to Warangal Railway station. The Shed was constructed in 2002 and was inaugurated on November.2004 to cater to the needs of traffic requirement. At present, Electric Loco Shed, Kazipet has a homing capacity of 113 electric locos. The Shed is carrying out all the Inspection Schedules, unusual attentions and AOH for all the 113 locomotives. Secondary Maintenance is carried out for two

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MEMU rakes in the shed during night time. Apart from this Shed staffs are attending online break downs in the section KI-BPQ, KZJ-BN. 1.1.4

ORGANIZATION STRUCTURE

1) GAZZETTED ORGANISATION: Figure 1

2) ORGANIZATION STRUCTURE: Figure 2

It is line and function organization system. When junior administrative officer assistance by senior scales, junior scales, senior subordinate official that man

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management is more effective and is learnt that the industrial relation are excellent having no strike calls. 1.1.5

AIM Trouble free maintains of loco, which can achieve zero failure with optimum

of expenditure and utilization of man power. This clearly indicates job satisfaction and place satisfaction for employees. 1.1.6

IMPORTANT EVENTS:



Inspection Bays Inaugurated By GM/SC on 14/10/2004



IA, IB Schedules Started on 14/10/2004



Member Electrical Inspected the Shed on 25/11/2004



IC Schedule Started on 09/03/2005



AOH Started on 01/04/2007



IOH started on 28/07/2009

1.1.7

WAG7 LOCO HOLDING Figure 3

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Table 1 Date

01.01.06 01.07.06 01.06.07

Loco Holding 1.1.8

82

87

10.12.08

23.12.09

15.11.10

09.08.11

18.07.12

109

111

111

113

113

99

CURRENT SHED ACTIVITY: Table 2

S. No.

Type of Schedule

Periodicity

Time taken for schedule

1

IA

60 days

4 hours

2

IB

120 days

4 hours

3

IC-1

180 days

12 hours

4

IC-2

360 days

16 hours

5

AOH

18 months

07 days

6

IOH

54 months

10 days

7

MEMU attentions

Daily

8 hours

8

On line / Yard attentions

Daily

9

Break down Maintenance

As and when required

2.4 DEVELOPMENT OF RAILWAYS IN INDIA The development of railways in India started on all sides after successful initial projects in the west and the east. Indian Railways was under private owners who have

[14]

not endeavoured consolidated efforts to render quality service to the passengers. Later it was centralised and undertook by central government. 1.1.9

IN THE WEST:

On 16th April, 1853 the first railway on Indian sub-continent ran over a stretch of 21 miles from Bombay to Thane. The idea of a railway to connect Bombay with Thane, Kalyan and with the Thal and Bhore Ghats incline first occurred to Mr. George Clark, the Chief Engineer of the Bombay Government, during a visit to Bhandup in 1843.The first Indian train steamed off from Bombay (Bori Bunder) to Thane on 16th. April 1853, at 3:30 P.M. "amidst the loud applause of a vast multitude and to the salute of 21 guns." The train consisting of 14 carriages was hauled by three locomotives named Sultan, Sindh and Sahib with 400 VVIPs. The formal inauguration ceremony was performed on 16th April 1853, when 14 railway carriages carrying about 400 guests left Bori Bunder at 3.35 PM. 1.1.10 IN THE EAST: The Survey from Calcutta to Delhi was carried out by Mr. Stephenson during 1845-46. The construction of railway line from Howrah to Raniganj was sanctioned only after 3 years. But by the end of 1853 61 kms of line was ready up to Pandooah. Two historical incidents denied EIR, the first position in history of railways in India... The Locomotive Engine and the carriages for both the trains of Bombay and Howrah were despatched from England almost at the same time, but the ship carrying the loco for E.I.R. (HMS Goodwin) was misdirected to Australia and the other carrying the carriages for Howrah sank at Sandheads. Otherwise Howrah would have had the legacy of running the first train in India. The Locomotive Engine and the carriages for both the trains of Bombay and Howrah were despatched from England almost at the

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same time, but the ship carrying the loco for E.I.R. (HMS Goodwin) was misdirected to Australia and carriages for Howrah sank at Sandheads. The other problem faced was that the line was aligned through Chandernagore (Chandannagar) which was a French territory at that time. The settlement of this dispute with French rulers of Chandernagore also took considerable time. The Locomotive reached Calcutta via Australia and a trial run was made on 28th. June 1854. The coaches for the first train were however manufactured by two Calcutta based companies Steward & Company and Seton & Company. Otherwise Howrah would have had the legacy of running the first train in India. The first passenger train steamed out of Howrah station destined for Hooghly, a distance of 24 miles, on 15th August, 1854. Thus the first section of the East Indian Railway was opened to public traffic, inaugurating the beginning of railway transport on the Eastern side of the sub-continent. From 15th August 1854, the company ran regular services, morning and evening, between Howrah and Hugli with stops at Bally, Srerampore and Chandannagar. The fare ranged from Rs.3 by first class to 7 annas by third class. The main booking office was on the Calcutta bank, at the Armenian Ghat, and the fare covered the ferry to the station. At the Howrah end, the station consisted of a tin shed and a single line flanked by narrow platforms, somewhat to the south of the present station building constructed between 1901 and 1906. 1.1.11 IN THE SOUTH: In the South the first line was opened on 1st July, 1856 by the Madras Railway Company. It ran between Veyasarpandy and Walajah Road (Arcot), a distance of 63

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miles. The first line was opened on 1st July, 1856 by the Madras Railway Company. It ran between Veyasarpandy and Walajah Road (Arcot), a distance of 63 miles. 1.1.12 IN THE NORTH: In the North a length of 119 miles of line was laid from Allahabad to Kanpur on 3rd March 1859. The first section from Hathras Road to Mathura Cantonment was opened to traffic on 19th October, 1875. 1.1.13 THE FIRST LOCOMOTIVE BUILT IN INDIA: The F-734 built in 1895 by the Ajmer workshop of the Rajputana Malwa Railway. Earlier some locomotives were assembled using spares supplied with fully assembled locomotives which were imported. This locomotive with outside connecting and side rods was used on Rajputana Malwa & Bombay Baroda & Central India Railway systems. These were the small beginnings which is due course developed into a network of railway lines all over the country. By 1880 the Indian Railway system had a route mileage of about 9000 miles. The railway construction in India took an abrupt boom and a large number of companies started working. These companies had only one thing in their mind. To earn enough money. They had no co-ordination in their working and time tables. The British government was seriously thinking about this. Sir Thomas Robertson who was appointed by His Majesty as Special Commissioner to report on future management of railways submitted his report in 1903. As a result of his efforts the Railway Board assumed office in 1905. Railway mileage now at about 24,750 miles in India, of which 14,000 miles are BG, and most of the rest MG (with only a few hundred miles of 2' and 2'6" gauge lines). Regrouping was first conceived in 1904, but materialised after World War.

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1.1.14 THREE TERRITORIAL DIVISIONS WERE FORMED. 1. Western Division consisting of: Great Indian Peninsula, Bombay Boroda Central India (BBCI), North Western, Jodhpur, Bikaner together with branch and feeder railways in their areas. 2. Eastern Division consisting of: EIR, Oudh & Rohilkund, Bengal & North Western, Rohilkund & Kumaon, Assam Bengal, Bengal Nagpur(BNR), East Bengal (EBR). 3. Southern Division consisting of: Madras Railway, Southern Marhatta, South Indian, Nizam together with ports and local railways. 2.5 TRAIN MANAGEMENT SYSTEM: Train Management System (TMS) is a system implemented by Western Railway, and being implemented now by Central Railway, for integrated management and monitoring of suburban train movements and signalling, as well as planning train routes, diversions, and introduction or withdrawal of rakes in service. CR's TMS covers the major section from CST Mumbai to Kalyan, with four additional minor sections: Ambivli (Igatpuri side), Ambarnath (towards Pune beyond Kalyan), Bhiwandi Road on Vasai side beyond Dombivli, and Dativli Chord Cabin beyond Diva on Panvel side. Implementation is still in progress and is expected to be completed by 2008 or so. 1.1.15 TRAIN IDENTIFICATION: This information is based on WR practice today; CR's TMS will use a very similar system for identifying each rake and its trips. Each rake has a unique rake unit number assigned to it. This is entered at the TMS input unit of the driving cab of the rake, and is broadcast from an antenna mounted on the driving cab. This allows the position of every rake to be known to the TMS system. Every EMU is also assigned a unique train number when it is in service. This number (usually one or two

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alphanumeric characters, e.g., 'AR') is assigned (and entered manually into the TMS system) when the rake leaves the car shed, and also noted at the end of the day when the rake is stabled. Each EMU also gets a 1 to 4 digit trip number (e.g., '173') for each trip it makes while it is in service during the day. The trip number directly corresponds to each run of the EMU in the timetable. As the train passes various signals and other locations with TMS transponders, the rake unit number is picked up from the transmitting antenna on the driving cab; this is correlated with the train number and then the trip number by the TMS computers and the appropriate status updates are made for the train's position and movement at the TMS units used by station staff or section / traction controllers, and also for updating the PA systems at various passenger stations. 1.1.16 TOTAL TRACK LENGTH/GAUGE-WISE ROUTE KMS : Table 3 Year

Total Route Kms

Running Tracks Kms

Total Track Kms(*)

Electrified

Total

Electrified

Total

Electrified

Total

1950-51

388

53,596

937

59,315

1,253

77,609

1960-61

748

56,247

1,752

63,602

2,259

83,706

1970-71

3,706

59,790

7,447

71,669

9,586

98,546

1980-81

5,345

61,240

10,474

75,860

13,448

104,480

1990-91

9,968

62,367

18,954

78,607

23,305

108,858

1998-99

13,765

62,809

25,773

81,512

34,110

108,413

1999-00

14,261

62,759

26,809

81,252

35,120

107,969

2000-01

14,856

63,028

27,937

81,865

36,950

108,706

2001-02

15,994

63,140

29,567

82,354

39,030

109,227

2002-03

16,272

63,122

29,974

82,492

39,358

109,221

1.1.17 STATION SCHEDULING

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At each station, based on the train schedules, a platform and siding occupancy chart is drawn up. This provides, for each day of the week, an indication of which platforms and sidings are occupied by which trains at what times. Introducing a new train at a station (originating, or passing through) involves finding an appropriate slot in this chart. The overall scheduling, traffic planning, and operational aspects of a division are under the control of the Chief Operations Manager of a division who is ultimately responsible for the performance of the division in terms of punctuality, efficiency, etc. 2.6 CLASSIFICATION OF LOCOMOTIVES: Locos, except for older steam ones, have classification codes that identify them. This code is of the form '[gauge][power][load][series][subtype][suffix]'

In this the first item, '[gauge]', is a single letter identifying the gauge the loco runs on:

W = Broad Gauge Y = Meter Gauge Z = Narrow Gauge (2' 6") N = Narrow Gauge (2') The second item, '[power]', is one or two letters identifying the power source:

D = Diesel C = DC traction A = AC traction CA = Dual-power AC/DC traction B = Battery electric(rare)

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The third item, '[load]', is a single letter identifying the kind of load the loco is normally used for:

M = Mixed Traffic P = Passenger G = Goods S = Shunting L = Light Duty (Light Passenger?) (no longer in use) U = Multiple Unit (EMU / DEMU) R = Railcar (see below)

1.1.18 MULTIPLE UNITS: There are two senses of the phrase "multiple units" to be distinguished. Two or more regular locomotives may be coupled together for greater hauling capacity. In such a case the locos are said to be operating as multiple units or to be "MU'ed together" (US terminology: "lash-up"). This is not to be confused with the terms electric multiple unit (EMU) or diesel multiple unit (DMU) which refer to cars used for (mostly suburban) train services which have multiple prime movers (either electric motors or diesel engines) for each car. I.e., the same car that carries passengers also has the motive power, as opposed to the normal situation where the passengers are in coaches that are not self-propelling and a locomotive hauls the train.

2.7 ELECTRIC TRACTION VOLTAGES

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Voltages used are 1.5kV DC and 25kV AC for mainline trains. Calcutta had an overhead 3kV DC system until the '60s. The 1.5kV DC overhead system (negative earth, positive catenary) is used around Bombay (This includes Mumbai CST - Kalyan, Kalyan - Pune, Kalyan - Igatpuri, Mumbai CST - Belapur - Panvel, and Churchgate - Virar). There are plans [2/04] to change this to 25kV AC by 2010. In preparation for this, BHEL has been retrofitting some Alstom EMUs with AC drives to allow them to operate with both DC and AC traction as the system conversion proceeds (see the section on EMUs). Conversion to 25kV AC has already been done on the Titwala-Kasara section; next to be converted are Khapoli-Vangani, Vangani-Thane, and Titwala-Thane. The Madras suburban routes (Madras-Tambaram in the '60s, extended later to Villupuram) used to be 1.5kV DC until about 1967, when it was converted to 25kV AC (all overhead catenary supply). (This is where the MG DC locos were used, e.g., the YCG-1 series.)

2.8 HISTORY OF ELECTRIFICATION: The first electric train ran between Bombay's Victoria Terminus and Kurla along the Harbour Line of CR, on February 3, 1925, a distance of 9.5 miles. In 1926, Thana and Mahim were connected. In 1927, electrification was complete up to Kalyan. In 1928, Borivili in the north was connected (Colaba-Borivili of WR being inaugurated on May 1). In 1929, Kalyan - Igatpuri section was commissioned. In 1930, the Kalyan - Poona tracks were opened to electric trains. On November 15, 1931, electrification of the meter gauge track between Madras Beach and Tambaram was inaugurated (1.5kV DC). After that the only electrification project undertaken was Borivili - Virar, finished in 1936. For mainline traffic, GIPR undertook electrification of the Karjat-Pune and Kasara-Igatpuri

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sections because it was realized that the heavy traffic to and from Bombay would be suitable for electric haulage. India took the plunge from DC to AC electric traction in the mid-1950s, as mentioned above. Since French developments led the field, the AC locomotives supplied at first (from SNCF) followed that country's practice, whether built in India or France. These were the eight-wheeled WAM-1 locomotives that are still in operation in some places. The first train to be hauled by an electric locomotive from Delhi Jn. was the Assam Mail. Bombay-Delhi (WR) route was fully electrified by Dec. 1987. The CR route was fully electrified by June 1990, when the Bhusaval - Itarsi section was electrified. The 2 * 25kV AC system (see below) began to be put in place in the 1990s; the first regular service using this system was between Bina and Katni (CR) on January 16, 1995. This was later extended to Bishrampur. [12/04] With the BG conversion between Tambaram and Madras Beach complete, the only electrified MG line on IR is the Tambaram - Villupuram stretch. However, no train uses electric traction (the YAM 1 locomotives used to service this section have been dismantled). Madras Beach - Tambaram was originally on 1.5kV DC electrification but was converted around 1968 to the 25kV AC system. After a period of about 25 years of aggressive electrification, now [12/04] IR has most of the busy routes of its network electrified (although not all), and this has resulted in about 65% of the traffic being hauled by electric traction. Recently [12/04], therefore, IR has decided to slow down the pace of electrification -- about 2600km of routes are scheduled to be electrified in the next 10 years, compared to 5100km in the past 10 years. The focus will be on consolidating electric traction for the busiest

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sections; some of the sections that will be converted to electric traction in the next few years are Pune-Guntakal, Bina-Kota, and many 'B' sections of NR. 2.9 RAILWAY ZONES: 1.1.19 THE NINE OLDER RAILWAY ZONES ARE: Northern Railway (NR) North Eastern Railway (NER) Northeast Frontier Railway (NFR, sometimes NEFR) Western Railway (WR) Southern Railway (SR) South Central Railway (SCR) South Eastern Railway (SER) Eastern Railway (ER) Central Railway (CR) 1.1.20 THE SEVEN NEW ZONES ARE: South Western Railway (SWR) North Western Railway (NWR) West Central Railway (WCR) North Central Railway (NCR) South East Central Railway (SECR) East Coast Railway (ECoR) East Central Railway (ECR) 1.1.21 DEEMED ZONES:

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Kolkata Metro (given zonal status Dec. 29, 2010) Konkan Railway (deemed a zone for administrative purposes) 1.1.22 RAILWAY ZONAL LENGTH IN KILOMETRES Table 4 Railway Zone

Total Kms.

BG Kms.

MG Kms.

NG Kms.

Northern

11040

8920

2020

100

Western

10295

4600, 150 BG/NG

4455

890

South Central

7217

5955

1215

47

South Eastern

7420

6135

1280

40?

Southern

7040

4630

2125, 155 BG/MG

130

Central

7265

6240

1025

—

North Eastern

5143

2300

2820

23

Eastern

4320

4185

135

—

North East Frontier

3820

1370

2230, 131 BG/MG

80, 8 MG/NG

2.10

RAILWAY GUAGES:

1.1.23 BROAD GAUGE - 5'6" (1676MM) This is now found all over the country, and all major passenger and freight routes are now broad gauge. This is the widest gauge in regular use anywhere in the world. (In the past, though, an 8' gauge was used in Oregon, USA, and a 7'¼" gauge was used for the Great Western Railway in the UK.) Outside India, the 5'6" gauge is found in Pakistan, a spur from Pakistan into Iran, Sri Lanka, Bangladesh, Argentina, Chile, and the BART rapid transit system in the USA. The decision to use a gauge wider than the one in use in Great Britain was made with an eye towards economies in freight movement, and also to ensure stability in the face of Indian weather and the perceived threat of cyclonic winds.

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About 42,000 route km of IR's network are broad-gauge. 1.1.24 METER GAUGE - 1M This is still found in a lot of places, despite the push to convert everything to broad gauge. It is said that this gauge was chosen by Lord Mayo (then Viceroy of India) based on calculations to allow 4 persons to sit comfortably abreast — it would have been 3'3" except that there was then a push to move to the metric system and so the gauge became 1m. The first MG line was built in 1872 from Delhi to Farukh Nagar (??). Interestingly, the metric system was not after all adopted until nearly a century later, so the gauge was the only thing in India that was 'metric' for a very long time. About 14,500 route km of IR's network is meter-gauge [2/09] (the figure was about 17,000 route km in 2000). By 2014, MG route-kilometerage is expected to drop to 5,000km or less. The MG network was especially dense in the west (around Vadodara, and in Rajasthan), in the east / north-east (West Bengal, Assam) and, before Independence, the areas in what is now Bangladesh), and in much of the south of India. Until the late 1980s, the North-Eastern Railway had a completely MG network. The MG networks of northern India (including the north-east via the Assam Rail Link) and southern India (16,690 and 7940 route kms, respectively) remained separate until 1960, when the completion of the Khandwa - Hingoli section connected the two. This link went through Akot, Akola, and Basim, across the Tapti and Purna rivers and had 2 tunnels and 50 major bridges, and a spectacular spiral. This made possible the transit of freight from any MG station in India to any other (except, of course, the Nilgiri line which was always an isolated MG section), which was important even though MG's share of freight was never very large (about 12% before the Unigauge

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project started). The last MG line to be built in India was probably the Himmatnagar Udaipur line. 1.1.25 NARROW GAUGE - 2'6" (762MM) This gauge was adopted in various parts of the British Empire. There were (still are) considerable networks of these, for example in Gujarat around Vadodara (mostly from the old Baroda State Railway) and in MP (centred around Gondia on the S.E.R.). (Gondia-Jabalpur Satpura NG railway lines were closed in 2003 and converted to BG.) The most well-known line is probably the Kalka–Shimla route. The rationale for the narrower gauges was economy in building the lines — they could be laid much faster than broad gauge lines and in more difficult terrain. It was envisioned that narrow gauge lines would act as feeder lines to the broad gauge and meter gauge lines, but many became important railway routes in their own right.

1.1.26 NARROW GAUGE - 2' (610MM) A few places in India have the even narrower 2–foot gauge: New JalpaiguriDarjeeling, Neral Matheran, and the Gwalior branch lines, which include Gwalior Sheopur Kalan, Gwalior – Shivpuri, and Gwalior – Bhind. (The Gwalior lines in the past also included the Ujjain–Agar line.) The Howrah-Amta and Howrah-Sheakhala NG lines were shut down a while back, and are now being rebuilt as broad gauge. The two narrow gauges together make up about 3700 route km of IR's network.

1.1.27 STANDARD GAUGE (4'8½" OR 1435MM)

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This has been used in a few places in India. The Calcutta tram lines are probably the most well-known and probably the only surviving example. Heavy rail in this gauge was used during the construction of the Madras Harbour (3 standard gauge locos were procured by the Madras Port Trust). Standard gauge was also used for the original construction of the Bombay Docks (but this system, put in place in 1909, lasted only until 1954). Standard gauge was insisted upon by the contractors for the Bombay Docks project (Messrs. Price, Willis, and Co.), for the transportation of material from Elephanta Island and to the new dock works and basin dam. Eight standard gauge locos were procured for this, four used in Bombay City and four on Elephanta Island. Wagons included old North London Railway wagons 2.11

RAILWAY MUSEUMS:

1.1.28 NATIONAL RAILWAY MUSEUM: The National Rail Museum (NRM) is located in New Delhi. NRM's website has a lot of information on the exhibits, an on-line newsletter, etc. In addition to the better known and popular outdoor exhibits of plinthed or working locomotives and other rolling stock, and indoor exhibits of railway equipment, the NRM has a lot of books, maps, and other publications related to the railways in its library (access by permission; not open to the public). They have old timetables (all back to 1970, sparser before that, including the first Trains At A Glance (1977); annual reports for most of the 20th century, old issues of the Railway Gazette and other foreign railway publications; annual issues of the History of Indian Railways Constructed and In Progress up to 1964, and annual issues of History of Defunct Railways up to 1966; and many official Survey of India maps and railway maps.

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1.1.29 MYSORE RAIL MUSEUM The Railway Museum at Mysore is located adjacent to the Mysore railway station, but with the entrance on the other side (no direct way to reach it from the station). It is open daily except on Mondays. Nominal entrance and camera fees are charged. They have various locos preserved at the museum.

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CHAPTER III THEORETICAL FRAMEWORK OF INVENTORY MANAGEMENT

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3.0 THEORETICAL FRAMEWORK OF INVENTORY MANAGEMENT: 3.1 MANAGEMENT OF INVENTORY: Inventory often constitute a major element of the total working capital and hence it has been correctly observed, “Good Inventory Management is Good Financial Management”. Inventory management covers a large number of issues including fixation of minimum and maximum levels; determination the size of the inventory to be carried; deciding about the issue price policy; setting up receipt and inspection procedure; determining the economic order quantity; providing proper storage facilities keeping check of obsolescence and setting up effective information system with regard to the inventories, the stock items will be provided to the consignee’s through generating Annual Estimation Sheets(ANE), Advance Intimation Sheet(AIS), however, management of inventories involves two basic problems.  Maintaining a sufficiently large size of inventory for efficient and smooth production and sales operations.  Maintaining a minimum investment in inventories to minimize the direct indirect costs associated with holding inventories to maximize the profitability. Inventories should neither be excessive nor inadequate. If inventories are kept at a high level higher interest and storage costs would be incurred on the other hand, a low level of inventories may result in frequent interruption in the production schedule resulting in underutilization of capacity and lower sales. The objective of inventory management is therefore to determine maintain the optimum level of investment in inventories which help in achieving the required objectives.

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3.2 DEFINITION OF INVENTORY: The term inventory refers to the stock of the product a firm is offering for sale the components that make up the product. The term inventory comprise of raw material, work in process, finished goods, stores and spares and consumables. Inventory represent significant portion of assets in the case of most of the manufacturing firms and required substantial investment. 3.3 IMPORTANCE OF INVENTORY MANAGEMNT: The importance of inventory management cannot be defined because inventory are to manager as they directly show there impact on corporate profits. Any changes in the level of inventory effects profits. The cost of the corporation structure of the inventory depends upon the level of inventory held by it. If inventories are held above required level the cost which result from handling storage spoilage obsolesce are more if they are maintained at optimum level. Search extra cost reduced the profits of the corporation. This effect may cause when it is under invested. If the maintained level of inventory falls shortage the corporation has to produce at extra cost to continue its operation. In this situation it is obvious that more cost may incur. So important is given to inventories so that the cost will be minimum and profits will be maximum. 3.4 OBJECTIVES OF INVENTORY MANAGEMENT 

To provide a conceptual frame work theoretical perception about the inventory management.



To reduce the investment in inventories.

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

To make sure that the materials are available for use in production and produce services, as and when required.



To ascertain that finished goods are available for delivery to customers to fulfil orders.



To maintain a large sized inventory for efficient and smooth production and sales operation.



To ensure continuous supply of material to facilitate uninterrupted production.



To place an order at the right time with the right quality at the right price with right quality.



To maintain a minimum investment in inventories to maximize profitability because idle blocking of funds earn nothing.

3.5 WHAT IS INVENTORY MANAGEMENT Inventory management is the active control program which allows the management of sales, purchases and payments. Inventory management involves the ‘development and administration of policies, systems, and procedures which will minimize total cost relative to inventory decisions and functions such as customer service requirements, production scheduling, purchasing and tariff. Inventory management thus consists of deciding on the appropriate level of inventory to hold. Too less or too much inventory is harmful for any concern because it will increase the overall inventory cost. Inventory management software helps to create invoices, purchase orders, receiving lists, and payment receipts and can print bar code 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

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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 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

3.6 INVENTORY CONTROL: Rigid control over materials are necessary not only to guard against theft, But also minimize waste and measure from causes such as excessive inventories, over issue, deterioration, spoilage and obsolescence. There are certain prerequisites to an effective control system for materials.  Material of the desired quantity will be available when needed.  Materials will be purchased only when a need exists and in economical qualities.  Purchases of materials will be made at most favourable prices.  Vouchers for the payments of materials purchased will be approved only if the materials have been received good condition.  Materials will be protected against loss by proper physical control.  Issue of materials will be properly authorized and accounted for, and

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 All materials, at all times, will be charged, as the responsibility of some individual. The control of materials, as an element of cost of production, is illustrated with reference to the purchase and issues procedures, inventory systems, and inventory control techniques. The efficiency of inventory control agates the flexibility of the firm. There are several tools of inventory control. Some of these are:  The economic order quantity which enables determination of optimal size of order to place on the basis of demand or usage of the inventory.  The technique safety stocks to overcome problems of uncertainty  The order point formula which tells us the optimal point at which to reorder a particular item of inventory. Together these tools provide the means for determining an optimal average level of inventory for the firm. Ratio analysis has wider applications measure of inventory control among most manufacturing firms. Effective inventory management requires an effective control over inventories. Inventory control refers to a system which ensures supply of required quantity and quality of inventories. A good inventory control system is one which avoids problems of stick-outs, excessive inventory, and overstocking of inventory, ensures a continuous supply of materials to production department facilitating un-interrupted production.  Maintain sufficient stocks of finished goods for smooth sales operations.  Maintains sufficient stocks of raw material in periods of short supply.  Minimizes carrying costs and time, and

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 Keeps investment in inventories at the optimum level.

3.7 NEED FOR INVENTORY In a just-in-time manufacturing environment, inventory is considered waste. However, in environments where an organization suffers from poor cash flow or lacks strong control over (i) electronic information transfer among all departments and all significant suppliers, (ii) lead times, and (iii) quality of materials received, inventory plays important roles. Some of the more important reasons for holding inventory are: a. Predictability: In order to engage in capacity planning and production scheduling, you need to control how much raw material, parts, and subassemblies you process at a given time. Inventory buffers what you need from what you process. b. Fluctuations in demand: A supply of inventory on hand is protection: You don’t always know how much you are likely to need at any given time, but you still need to satisfy customer or production demand on time. If you can see how customers are acting in the supply chain, surprises in fluctuations in demand are held to a minimum. c. Unreliability of supply: Inventory protects you from unreliable suppliers or when an item is scarce and it is difficult to ensure a steady supply. Whenever possible unreliable suppliers should be rehabilitated through discussions or they should be replaced. Rehabilitation can be accomplished through master purchase orders with timed product releases, price or

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term penalties for non-performance, better verbal and electronic communications between the parties, etc. This will result in a lowering of on-hand inventory needs. d. Price protection: Buying quantities of inventory at appropriate times helps avoid the impact of cost inflation. Note that contracting to assure a price does not require actually taking delivery at the time of purchase. Many suppliers prefer to deliver periodically rather than to ship an entire year’s supply of a particular stock keeping unit ( SKU) at one time. e. Quantity discounts: Often bulk discounts are available if you buy in large rather than in small quantities. f. Lower ordering costs: If you buy a larger quantity of an item less frequently, the ordering costs are less than buying smaller quantities over and over again. In order to hold down ordering costs and to lock in favourable pricing, many organizations issue blanket purchase orders coupled with periodic release and receiving dates of the SKUs called for. 3.8 TYPES OF STOCK a. Basic Categories i. Raw materials: Raw materials inventory is made up of goods that will be used to produce partial products or completed goods or finished products, e.g., nuts, bolts, flour, sugar. ii.

Finished product: This is product ready for current customer sales. It can also be used to buffer

manufacturing from predictable or unpredictable market demand. In other words, a

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manufacturing company can make up a supply of toys during the year for predictably higher sales during the holiday season. It includes completed products waiting to be sold, e.g., bar stools, bread, cookies. iii.

Work-in-process (WIP): Items are considered to be WIP during the time raw material is being

converted into partial product, subassemblies, and finished product. WIP should be kept to a minimum. WIP occurs from such things as work delays, long movement times between operations, and queuing bottlenecks. b. Functional Categories: i. Consumables: Light bulbs, hand towels, computer and photocopying paper, brochures, tape, envelopes, cleaning materials, lubricants, fertilizer, paint, dunnage, and so on are used in many operations. These are treated like raw materials. ii.

Service, repair, replacement, and spare items (S&R Items): These are after-market items used to “keep things going.” As long as a

machine or device of some type is being used (in the market) and will need service and repair in the future, it will never be obsolete. S&R Items should not be treated like finished goods for purposes of forecasting the quantity level of your normal stock. Quantity levels of S&R Items will be based on considerations such as preventive maintenance schedules, predicted failure rates, and dates of various items of equipment. For example, if an organization replaced its fluorescent tubes on an as needed, on-failure basis, it would need a larger supply of these lights on hand at all times. However, if the same company relamped all of its ballasts once per year, it would buy a large quantity of tubes at one time and only keep a small supply on hand

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on an ongoing basis. Since S&R Items are never “obsolete” or “dead” until the equipment or device they are to be used for is no longer in service, these items should not be included in calculating dead stock levels.

iii.

Buffer/safety inventory: This type of inventory can serve various purposes, such as: —compensating

for demand and supply uncertainties. —holding it to “decouple” and separate different parts of your operation so that they can function independently from one another. iv.

Anticipation Stock: This is inventory produced in anticipation of an upcoming season such as

fancy chocolates made up in advance of Mother’s Day or Valentine’s Day. Failure to sell in the anticipated period could be disastrous because you may be left with considerable amounts of stock past its perceived shelf life. v.

Transit Inventory: This is inventory en route from one place to another. It could be argued that

product moving within a facility is transit inventory; however, the common meaning of the concept concerns items moving within the distribution channel toward you and also outside of your facility or en route from your facility to the customer. 3.9 VALUATION OF INVENTORY Most inventories fit into raw materials, work-in-process and finished goods, yet the amount of each category varies greatly depending on the specifics of industry and business. The types of inventory found in distribution environments are fundamentally different from those found in manufacturing environments. Distribution businesses tend to carry mostly finished goods for resale while

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manufacturing companies tend to have less finished goods and more raw materials and work in progress. Given these differences, it is natural that the accounting choices vary between distribution and manufacturing settings. In order to assign a cost value to inventory, you must make some assumptions about the inventory on hand. Under the general income tax laws, a company can only make these assumptions once per fiscal year. Tax treatment is often an organization’s chief concern regarding inventory valuation. Generally there are number of methods accepted to determining the cost of inventories at close of the accounting period. The selection of a suitable method assumes significance in view of the fact that it has a direct bearing on the cost of goods sold and consequently on profit. There are five common inventory valuation methods: 1. First-in, First-out (FIFO) This method of inventory valuation assumes that the first goods purchased are the first to be used or sold regardless of the actual timing of their use or sale. This method is most closely tied to actual physical flow of goods in inventory. 2. Last-in, First-out (LIFO) This method of inventory valuation assumes that the most recently purchased/acquired goods are the first to be used or sold regardless of the actual timing of their use or sale. Since items you have just bought often cost more than those purchased in the past, this method best matches current costs with current revenues. The cost of goods sold and the value of closing inventory can be determined only after the final lot of the year has been received. This is because of the assumption

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underlying the valuation of inventory. As the name LIFO suggests, the use of inventory is valued on the basis of the inverse sequence of receipts. 3. Average Cost Method This method of inventory valuation identifies the value of inventory and cost of goods sold by calculating an average unit cost for all goods available for sale during a given period of time. This valuation method assumes that ending inventory consists of all goods available for sale. Each purchase is added to inventory and an average cost determined. Materials are charged into cost of sales at this average until another lot is received, when anew average unit inventory cost is calculated. Average Cost = Total Cost of Goods ÷ Total Quantity of Goods Available for Sale Available for Sale 4. Specific Cost Method (also Actual Cost Method) This method of inventory valuation assumes that the organization can track the actual cost of an item into, through, and out of the facility. That ability allows you to charge the actual cost of a given item to production or sales. Specific costing is generally used only by companies with sophisticated computer systems or reserved for high-value items such as artwork or custom-made items. The materials used are priced at their actual cost which involves identification of each lot purchased. It is the simplest but also the most time-consuming method of determining cost of material used is computed by multiplying the quantity used by the specific price each material. 5. Standard Cost Method This method of inventory valuation is often used by manufacturing companies to give all of their departments a uniform value for an item throughout a given year. This method is a “best guess” approach based on known costs and expenses such as

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historical costs and any anticipated changes coming up in the foreseeable future. It is not used to calculate actual net profit or for income tax purposes. Rather, it is a working tool more than a formal accounting approach. It is based on a standard price for a specified period. A standard price is fixed for each class of materials in advance after proper investigation. The different between actual price and standard price is transferred to purchase price variance which reveals to what extent actual costs are different from standard material cost.

6. BASE STOCK PRICES METHOD: The base stock refers to the minimum quantity of stock of materials that a firm has to maintain at all times. Under this method it is assumed that the minimum stock which must always be carried is in the nature of fixed assets, and is never realized while the business continues. The minimum stock is carried at original cost of acquisition. The quality of material in excess of the base stock is available for the production, while the base stock is used only in case of emergency. 7. REPLACEMENT / MARKET PRICE METHOD: Under this method material are issued at the price at which they can be replaced, that is at the market price prevailing on the date of issue. This method could be applied principally to materials purchased in advance for the use in large quantities, in anticipation of economic / profitable use, or in such items of stores which are either absolute or lying unused for a long time in store. 3.10

INVENTORY CONTROL TECHNIQUES:

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Effective inventory management requires an effective control over inventories. It maintains of Inventory management. Inventory controls refers to a system which ensures supply of required quantity and quality of inventories at the required time and at the same time prevent unnecessary investment in inventories. The techniques of inventory control/inventory management are as follows. 

Economic Order Quantity



Reorder Point



ABC Analysis



Safety Stock

1.1.30 ECONOMIC ORDER QUANTITY: Determination of the quantity for which the order should be placed is one of the important problems concerned with efficient inventory management. Economic order refers to the size of the order which gives maximum economy in purchasing any item of raw material or finished product. One of the major inventory management problems to be resolved is how much inventory should be added when inventory is replenished.  ORDERING COST: This is the cost of placing items an order and securing the supplies. It varies from time to time depending upon the number of orders placed and the number of items ordered.  INVENTORY CARRYING COST: It is the cost of keeping items in stock. It includes interest on investment, obsolescence losses, store-keeping cost, insurance premium etc. The large value of inventory, the higher will be the inventory carrying cost and vice versa.

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The former cost may be referred as the “cost of acquiring” will the later as the “cost of holding” Inventory.  FORMULA:

EOQ= Economic order quantity R = quantity purchased in a year or month Cp = cost of placing in order/ holding cost C = consumption

 ASSUMPTIONS: The EOQ model is a technique to determine the economic order quantity, illustrated by us, is based on three respective assumptions, namely 1.

The firm knows with certainty the annual usage of a particular item inventory.

2.

The rate wish the firm uses inventory is steady over time.

3.

The orders placed to replenish inventory stocks are received at exactly the point in time when inventories reach Zero.  APPROACHES OF EOQ: The EOQ model can be illustrated

 By long/analytical approach are trial and error approach and  By the shortcut or simple mathematical approach.  TRIAL AND ERROR APPROACH: Given the total requirement of inventory during a given period of time depending upon the inventory planning horizon, a firm has different alternatives to

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purchase its inventory. For instance it can by its entire requirements in one single lot at the beginning of the inventory planning period.

 MATHEMATICAL (SHORTCUT) APPROACH: The economic order quantity can using a shortcut method, be calculated by the following equation.

1.1.31 RE-ORDER POINT:

The EOQ technique determines the size of an order to acquire inventory so as to minimize the carrying as well as the ordering costs. In other words, the EOQ provides on answer to the question. How much inventory should be ordered in one lot? Another important question pertaining to efficient inventory management is which should the order to procure inventory be placed? This aspect of inventory management is covered under the order point problem.

The Reorder point is stated in terms of the level of inventory at which on order should be placed for replenishing the current stock of inventory. In other words, reorder point may be defined as that level of inventory when a fresh order should be placed with the suppliers for procuring additional inventory to the economic order quantity.

This is based on the following assumptions, 

Constant daily usage of inventory and



Fixed lead time.

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In other words the formula assumes with condition of certainty

The reorder point = lead time in days X Average daily usage of inventory.

Here lead time refers to the time normally taken in receiving the delivery of inventory after placing orders with the suppliers. The technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep more rigorous control on items that are, 1. Most costly and 2. Slowest-turning 1.1.32 ABC ANALYSIS An ABC analysis is ranking mechanism whereby our attention can be focused on study of product inventory levels. It is also means “Always Better Control”, inventory control should be preceded by a value analysis. A very effective as well as economical inventory level should be based on ABC analysis. In a process industry, number of moving spares will be very less compared to in terms, which are not being consumed. The spares which are having nulled consumption in financial year as called D class item. ABC analysis classification is done among the items, which are having consumption value greater that zero, for easy segregation. RAIL WAY ELECTRIC LOCO SHED has classified ABC as following.

Table 5

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CLASS ITEMS

ANNUAL USAGE

REMARK

A

Above 22 lakhs

Based on the last financial year usage

B

3.25 lakh-22 lakhs

Based on the last financial year usage

C1

Below 25 to 3.25 lakhs

Based on the last financial year usage

C2

Less than 25

Items not covered by ABC

For finding an items as A, B or C the annual value of consumption in the preceding financial year shall be the basis to start with the item are identified as A, B or C based on moving average concept to take care of situation more realistically, the power of control of stores(COS) who is the principle head of this department(PHOD). He is holding powers,

To procure the items up to 8crores, when it exceeds A and B the procurement will be approval by G.M. up to 14crores exceeds than the railway board.

The spares, which are having nil consumption in a financial year are called ‘D’ class item in a power for the next year we shall to divert more attention towards inventory value then consumption value , so major attention is required for higher inventory values i.e., A class and for B class.

[47]

 XYZ ANALYSIS: This is based on the value of inventory stored. If the value is high special efforts should be made to reduce them. This exercise can be done once a year. Items classified as ‘X’ denotes high inventory value. Items classified as Y&Z denote medium and low inventory values respectively. RAILWAY LOCO SHED has classified XYZ norms. X= Inventory value more than Rs.5, 00,000 Y= Inventory value more than Rs.1, 00,000 to less than Rs.5, 00,000 Z= Inventory value more than zero and less Rs.1, 00,000 W= Inventory value zero

 VED ANALYSIS: This type of analysis is applicable mostly in the case of spare parts. The peculiarity about spare parts is that they do not follow a predictable demand pattern as in the case of raw materials. V = Vital E = Essential items D = Desirable items

 FSN ANALYSIS:

This analysis takes in to account the pattern of issued from stores. The 3 letters stands for Fast-moving, Slow-moving, Non-moving. This analysis comes in very hand we desire to control obsolescence.

[48]

1.1.33 SAFETY STOCK:

In the example given above the recorder level was computed presuming that there is no uncertainty regarding the usage as well as the lead time. In actual practice, it is almost impossible to correctly predict both of them. The actual usage as well as the lead time may be different from the normal usage or the normal lead time. The level of safety stock can be calculated by applying the following formula

SAFETY STOCK = AVERAGE USAGE X PERIOD OF SAFETY STOCK

[49]

1.1.

CHAPTER-IV DATA ANALYSIS AND INTERPRETATION

[50]

4.0 DATA ANALYSIS & INTERPRETATION 4.1 INVENTORY MANAGEMENT IN RAILWAY ELECTRIC LOCO SHED KAZIPET:

Kazipet Electric Loco Shed was established in November, 2004. It is a Government organization. In this organization provides the three types of services to the Indian railway sector those are here one section is repair the express repair section, the second section is normal loco belongs to half yearly and quarterly and minor repair section the last one is normal locomotive belongs to major and more than one year repairs. In this organization 350 employees are working here, in this organization has here Three inventory store and issue section those are electronic and general section, machine equipment section and another is receipt section. In this organization total estimated annual inventory turnover is 9.36 corers, and here inventory in terms are 546 types. These 546 types of inventory items are divided into sub categories like safety, vital items, nil items another classification is cat A, B, and cat C like that Here inventory issue methods mostly used methods are FIRST IN FIRST OUT and LAST IN FIRST OUT methods are mostly used methods. Here any inventory item arise surplus and died surplus. The died surplus value declared by the survey committee consists two section engineers and two inventory store staff member maximum 90 percent of value will be declared. The inventory classification and issued are described as following.

[51]

Table 6 CATEGORY

ITEMS

VALUE

NNR

HDG

A

54

6.15 CRORE

05

01

B

132

2.19 CRORE

07

-

C1

232

0.91 CRORE

32

02

C2

128

0.07 CRORE

20

02

TOTAL

546

9.36 CRORE

CLOSED

4.2 ELECTRICAL & WARD 01

TOTAL NO.OF ITEMS

387

AAC VALUE Rs.

5.12 CRORES

NO. OF SAFETY ITEMS

44

NO. VITAL ITEMS

20

A CATEGORY

22

B CATEGORY

85

C CATEGORY

280

NO. NIL ITEMS

NIL

 STOCK VERIFICATION: Table 7 CATEGORY

STOCK

VALUE OF INVENTORY

A

10%

70%

B

70%

20%

[52]

C

20%

10%

 ANALYSIS OF INVENTORY ITEMS OF WARD-01

Total inventory items of ward-01are 387 items these AAC value is Rs.5.22. These items classified in to six categories those are safety items, vital items category A, category B, category C and Nil items.

Here major proportion of percentage in to items are category C1 & category C2 determine the less than 3.25 lakhs value items comes under the category C. The second major items are category B items. This category determine by the value of more than 3.25lakh and less than 22 lakh value items comes under category B the remaining percentage items belongs to the category A. This category determine by the value of more than 22 lakhs.

In this word major category is category C because this section to the electricity and general items this is second important ward in the organization. So generally all spare parts value as less than 3.25 lakhs. So this category a has higher proportion of percentage in the total percentage value.

SAFETY ITEMS 55, VALUE 1.37 CRORES VITAL ITEMS 58, VALUE 1.97 CRORES

[53]

4.3 GENERAL WARD 02

TOTAL NO.OF ITEMS

157

AAC VALUE Rs.

2.49 CRORES

NO. OF SAFETY ITEMS

11

NO. OF VITAL ITEMS

36

A CATEGORY

31

B CATEGORY

47

C CATEGORY

79

NO. NIL ITEMS

NIL

 STOCK VERIFICATION: Table 8 NUMBER OF

NUMBER OF

ITEMS

ITEMS UNIFIED

A

31

-

6 months

B

47

-

1 year

C

79

-

2 year

CATEGORY

PERIOD

 ANALYSIS OF INVENTORY ITEMS OF WARD 2: This ward consist of 157 inventory items all this items are classified into 6 categories those are Safety items, Vital items, category A, category B,

[54]

category C and NIL items. This ward belongs to the mechanical items ward like cable, batteries and filters etc., this ward average annual consumption is 2.49 crores. In this ward also major proportion of inventory items are category C items. 4.4 BIN CARD

CATEGORY A Price list no: 79010805 15,600\-

EAC: 7529

Description:

Dungry cloth blue

WARD: 02

UNITS: 22

13(nos)

Book avg. rate: 64.35

2436 Mode of purchase:

supplier KVIC

Statement shows the month wise consumption, issues, receipts from system dispose untrades.

Table 9 MONTH

RECEIPTS

ISSUES

BALANCE

OPENING BALANCE

3000

-

-

JANUARY 2007

-

400

550

FEBRUARY 2007

200

250

500

[55]

MARCH 2007

-

300

200

APRIL 2007

1000

300

900

MAY 2007

1500

400

2000

JUNE 2007

-

250

1850

JULY 2007

-

150

1700

AUGUST 2007

-

300

1400

SEPTEMBER 2007

500

350

1550

OCTOBER 2007

-

100

1450

NOVEMBER 2007

-

350

1150

DECEMBER 2007

-

350

800

OPENING BALANCE 2008

3500

-

-

JANUARY 2008

-

200

3300

FEBRUARY 2008

-

140

3160

MARCH 2008

-

160

3000

APRIL 2008

-

231

2769

MAY 2008

-

348

2421

CLOSING BALANCE 2007

[56]

JUNE 2008

-

253

2168

JULY 2008

-

520

1648

AUGUST 2008

353

270

1731

SEPTEMBER 2008

2000

441

3290

OCTOBER 2008

-

471

2819

NOVEMBER 2008

-

315

2504

DECEMBER 2008

-

400

2104

CLOSING BALANCE 2008

-

400

2104

OPENING BALANCE 2009

-

400

2104

JANUARY 2009

54

505

1653

FEBRUARY 2009

-

403

1250

MARCH 2009

-

463

787

APRIL 2009

3322

1015

3094

MAY 2009

1000

550

3544

JUNE 2009

-

441

3103

JULY 2009

-

492

2611

AUGUST 2009

-

450

2196

[57]

SEPTEMBER 2009

-

483

1713

OCTOBER 2009

-

482

1231

NOVEMBER 2009

3000

400

3831

DECEMBER 2009

-

521

3310

CLOSING BALANCE 2009

-

521

3310

OPENING BALANCE 2010

-

521

3310

JANUARY 2010

-

440

2870

FEBRUARY 2010

-

810

2060

MARCH 2010

-

710

1350

APRIL 2010

-

550

800

MAY 2010

537

470

867

JUNE 2010

3889

610

4146

JULY 2010

-

600

3546

AUGUST 2010

-

450

3096

SEPTEMBER 2010

-

650

2446

OCTOBER 2010

-

540

1906

NOVEMBER 2010

-

800

1106

[58]

DECEMBER 2010

544

420

1230

CLOSING BALANCE 2010

544

420

1230

OPENING BALANCE 2011

544

420

1230

JANUARY 2011

525

610

1145

FEBRUARY 2011

-

560

585

MARCH 2011

-

540

45

APRIL 2011

200

124

121

MAY 2011

-

-

-

JUNE 2011

-

-

-

JULY 2011

525

-

646

AUGUST 2011

-

600

46

SEPTEMBER 2011

738

680

104

OCTOBER 2011

-

47

57

NOVEMBER 2011

537

224

370

DECEMBER 2011

-

259

111

[59]

Figure 4

INTERPRETATION When we compare with these three years information the following points were find out those are. 1. In 2008 receipt was 2353 units issues 3749 units the surplus item are 1396 units with last year balance. 2. In 2009 receipt was 7376 units issues 6170 units the surplus item are 1206 units with last year balance. 3. In 2010 receipt was 4970 units issues 7050 units the surplus item are 2080 units with last year balance. 4. In 2011 receipt was 2525 units issues 3644 units the surplus item are 1119 units with last year balance.

[60]

BIN CARD CATEGORY B Price list no: 43310011 Description: dry cells

EAC: 2000\-

WARD: 02 Unit: 01

book avg. rate: 9.40

Mode of purchase: NIPPO

Statement shows in the month wise consumption, issues, receipts from system dispose untrades. Table 10 MONTH

RECEIPTS

ISSUES

BALANCE

JANUARY 2007

300

-

300

FEBRUARY 2007

-

135

145

MARCH 2007

1000

155

1010

APRIL 2007

-

308

704

MAY 2007

-

205

497

JUNE 2007

-

145

352

JULY 2007

-

101

251

AUGUST 2007

500

205

546

[61]

SEPTEMBER 2007

-

220

326

OCTOBER 2007

-

210

116

NOVEMBER 2007

1000

264

852

DECEMBER 2007

-

418

434

-

418

434

-

418

434

JANUARY 2008

1000

1434

1344

FEBRUARY 2008

-

228

1116

MARCH 2008

-

270

846

APRIL 2008

-

253

596

MAY 2008

-

220

376

JUNE 2008

-

203

273

JULY 2008

100

273

50

AUGUST 2008

50

90

10

SEPTEMBER 2008

55

55

10

OCTOBER 2008

40

40

10

NOVEMBER 2008

305

300

15

DECEMBER 2008

1000

413

602

CLOSING BALANCE 2007 OPENING BALANCE 2008

[62]

CLOSING 1000

413

602

1000

413

602

JANUARY 2009

500

445

657

FEBRUARY 2009

-

445

212

MARCH 2009

600

475

337

APRIL 2009

900

475

762

MAY 2009

-

455

307

JUNE 2009

-

385

3922

JULY 2009

-

460

3462

AUGUST 2009

-

420

3042

SEPTEMBER 2009

-

382

2660

OCTOBER 2009

9600

403

11857

NOVEMBER 2009

-

443

11414

DECEMBER 2009

-

356

11058

-

356

11058

-

356

11058

JANUARY 2010

-

508

10550

FEBRUARY 2010

-

738

9812

BALANCE 2008 OPENING BALANCE 2009

CLOSING BALANCE 2009 OPENING BALANCE 2010

[63]

MARCH 2010

-

500

8782

APRIL 2010

-

530

7882

MAY 2010

-

900

7512

JUNE 2010

-

370

7122

JULY 2010

-

390

11549

AUGUST 2010

4687

260

11059

SEPTEMBER 2010

-

490

10839

OCTOBER 2010

-

220

10359

NOVEMBER 2010

-

480

10359

DECEMBER 2010

-

320

10039

-

-

10039

-

-

10039

JANUARY 2011

-

1570

8469

FEBRUARY 2011

-

220

8249

MARCH 2011

-

470

7779

APRIL 2011

-

270

7509

MAY 2011

-

600

6909

JUNE 2011

-

520

6389

CLOSING BALANCE 2010 OPENING BALANCE 2011

[64]

JULY 2011

-

145

6244

AUGUST 2011

-

200

6044

SEPTEMBER 2011

-

400

5644

OCTOBER 2011

-

90

5554

NOVEMBER 2011

-

-

5554

DECEMBER 2011

300

240

5614

Figure 5

INTERPRETATION This item is category A it is a vital item in the organization its maximum level is 21000 and minimum level is 27 units.

[65]

When we compare with these three years information the following points were find out those are. 1. In 2008 receipt was 2600 units issues 3776 units the surplus items are 1176 units with last year balance. 2. In 2009 receipt was6000 units issues 5144units the surplus items are 856 units with last year balance. 3. In 2010 receipt was 4687 units issues 5706units the surplus items are 1019 units with last year balance. 4. In 2011 receipt was 300 units issues 4725units the surplus items are 4425 units with last year balance.

[66]

CHAPTER-V SUMMARY FINDINGS AND CONCLUSIONS BIBLIOGRAPHY

[67]

5.0 SUMMARY 5.1 FINDINGS AND CONCLUSIONS In the light of the above discussion the following findings and conclusions are made: This chapter deals with presentation of the summary of the work done. It also presents certain suggestions for improving the efficiency of an organization. In order to evaluate the performance of an inventory, the inventory management technique is the measure available, to take a decision for efficient utilization of inventory. The theory of application of cost accounting techniques plays a very important role. The organization, Electric loco shed Kazipet of South Central Railway is chosen for applying inventory control techniques to control the wastage of inventory and overcome the ordering and issuing problems. Understanding the specific procedure of the inventory issues and orders. Therefore this chapter deals with presenting a total financial picture of railway. The practical application of inventory management techniques for taking decision whether to concentrate existing procedure or implement the new methods. The maximum level of holding is estimated as 3 months for “A’ category, 6 months for “B” category and 12 months for “C’ category respectively. The organization structure of the department of Electric loco shed, Kazipet depicts the executive responsible and sections operating in the department. The stores department is divided into wings rolling stock and work shop facilities Rolling stock which comprise of loco motives, coaches and wagons. Work shop facilities for the maintenance of track.

[68]

Electric loco shed is adopting periodic stock verification method for the verification of stock. It is adopting book average price and purchasing rate for evaluating the issue of materials.

Electric loco shed following ABC analysis as a part of their inventory control techniques. It has been classified into three categories they are “A” category items. In this category all repetitive items are generally controlled by applying the ABC analysis.

In Electric loco shed - Kazipet the classification of materials, in “A” “B” and “C” category is based on the cost of items. All the items whose value is above Rs 5 Lakhs is included in category “A” and whose value is less than 5 lakhs is included in category “B” and remaining items whose values is less than 3 lakhs is included in category “C”.

Electric loco shed Kazipet has been using ABC analysis coupled with VED analysis for control and remaining items whose values is less than 3 lakhs is included in category “C”.

[69]

1.2. BIBLIOGRAPHY

Chandra, Prasanna., (2008). Financial Management, New Delhi: Tata McGraw Hill. Company Profile, (2012), Indian Railways Database, Electric Railway Loco Shed, Kazipet. Cooper Donald, Pamela Shindler., (2010), Business Research Methods (11th edition), New York: McGraw-Hill. Frequently Asked Questions, 2012, Indian Railways Fans Association Website. [Online]. Available at: http://www.irfca.org. [Accessed 15 June 2012] Jain, Khan, (2008), Cost Accounting, New Delhi: Tata McGraw Hill. Maheswari, S.N., (2002), Financial Management: Principles and Practice (7th edition), New Delhi: Sultan Chand Publishers. Muller, Max., (2003), Essentials of Inventory Management Broadway, New York: AMACOM. Pandey, I.M.,(2009), Financial Management (9th Edition), New Delhi: Vikas Publishing House.

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