CHAPTER- IV INVENTORY MANAGEMENT AT NTPC Inventory management covers important issues to maintain optimum level of inventory by applying various inventory control techniques or combination of techniques depending on the nature of the item with respect to its value, criticality, market availaity and other consumption patterns. OBJECTIVES: 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 ofcombination of techniques. Fixation of responsibility for undertaking various inventory analyses . Review and monitoring inventory status with respect to norms and levels for various items or category of items.
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1. GUIDING FACTORS FOR FIXATION OF INVENTORY NORMS:
The factors which influence optimum inventory levels are the uncertainties involved in
forecasting processing time for procurement, manufacturing and transportation variability
associated with the future consumption patter, the future market availability and the service level
promised to be provided to the end user. Based on these factors, NTPC has adopted the following
norms:
Construction stores:
o Cement 2 – 3 months usage.
o Steel 9 months usage
o Other 9 months usage
O & M Stores
o Coal - 15 days usage
o Spares - 18 months to 24
months
o Loose tools - 6 months usage
o Chemicals, gases & explosives - 3 months usage
o Oils and lubricants - 3 months usage
o Stores other than spares - 6 months usage
o Scrap - 6 months
2. MONITORING OF INVENTORY NORMS:
On the basis of inputs received from site materials management which shows the inventorystatus for 11 categories of items. The same is sent to HOMM‟s respective sites, who intern
analyze it and work out inventory turn – over ratio and compare the same with respect to set
norms in coordination with policy, planning and monitoring cell. Whenever any deviation found,
on inventory holding of particular group (s) of stores and spares with respect to norms, reason for
the deviation is established and recorded in a proper format. Further corrective actions proposed
is taken for bringing down the inventory holding to the norms and co-ordination required from
CMM and higher officials.
CONSUMPTION (A,B,C) ANALYSIS:
The various limits for analyzing the inventory as per ABC classification shall be as under
However, the under mentioned limits shall be subjected to periodical review:
• A class: More than Rs 1lakh
• B class: More than Rs. 10,000 up to 1lakh
• C class: Up to Rs. 10,000/-
For identifying an item as A,B or C, the annual value value of consumption in the
preceding financial year shall be the basis to start with. Subsequently i.e. after system capability
reaches an adequately level, computer shall identify an item as A, B, or C based on „moving
average‟ concept to take care of the situation more realistically.
STOCK HOLDING (X, Y, Z) ANALYSIS:
For ensuring continuous weeding out of unwanted inventory stock holding analysis i.e.
XYZ analysis will be of significant important. The criteria for declaring an item as X, Y, or Zshall be the same as for ABS items “on stock value consideration basis”. The analysis shall be
based n stocks held at the end of every quarter for X class items, at the end of half year for Y
class items and at the end of financial year for Z class items.
ANALYSIS BY CRITICALLY FOR OPERATION (VED):
• Vital (V): Non availability when needed involves close down of the units/resulting in
very high stocks outs.
• Essential (E): Non availability involves high stock out costs.
• Desirable (D): Non availability does not involve any significant stock out costs.
Lead time: is the estimated time lag between the date, 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. Lead time is sub-divided into the
following components:
Administrative lead time: Administrative lead time is an area where stringent control be
exercised by each SMM by fixing norms for different modes of tendering and circulating the
same to all the indenting department for realistic planning in raising the material indents. The
norms cannot be the same for all the projects by virtue for their work culture, geographical
locations, location of the market etc.
Supplier’s lead time: This is an area which normally falls in the domain of supplier. It is
therefore, very essential that each SMM takes cognizance of this fact ad ascertains/valuates the
time that is to be provided for manufacturers of stock lists to supply different types of materials
also taking into consideration that some of the materials may be available off the shelf. 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.
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 consignmentsare expected to be dispatched. This will also assist SMMS to take decisions for getting the
material with a lesser transportation lead time to meet the urgencies of plant operation. Provision
has been made in the Transport Manual for service level expected from the empanelled
The estimated lead time greatly influence provisioning of material particularly more sowhen there is an abrupt change in market conditions. Hence, monitoring of actual lead time for
individual items/groups of items against the estimate is very essential for alignment the planning
conditionally in line with latest trends to attain desirable service levels without increasing the
level of inventory holding.
Responsibility:
It shall be the responsibility of each Purchase Executive to collect latest data in respect of
the actual of three lead times identified above, maintain and assess, and forecast the estimated
future lead times after consulting the related vendors if need be, for various materials item
wise/trade/group wise as the case may be being procured by him and maintain the same. Issue of
lead time notification to the authorized inventors shall be the responsibility of the Head of
Material. There shall be a further review of the lead time periodically to optimize the lead time.
Though the production is higher in the year 2005-06 as per inventory conversion period it
took 272 days. This shows that there is demand for inventory and the funds unnecessarily
tied up. So, proper demand forecasting should be done and according to that it may be
manufactured.
The investment on raw material should be made as per the requirement. Unnecessary
investment may block up the funds.
Neither too high nor too may inventory turnover ratios reduce profit and liquidity
position of the industry. So, proper balance should be made to increase profits and to
ensure liquidity.
The raw material should be acquired from the right source at right quality and at right
cost
The process that was being used by NTPC with the purchasing department should
undergo changes, so that, it seeks enhance the celerity of the delivery of a productwithout compromising its quality by improving the utilization of material, labour and
equipment.
To reduce the work, the purchasing department may enter the purchasing order into a
database and did not send a copy to anyone.
This generally simplifies the process for all concerned. As a result it would able to reduce