Comparative Study on Working Capital Management. at Bhilai Steel by Anil Singh

8/2/2019 Comparative Study on Working Capital Management. at Bhilai Steel by Anil Singh

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A

PROJECT REPORT ON

A COMPARATIVE STUDY ON

WORKING CAPITAL MANAGEMENT

BETWEEN BHILAI STEEL PLANT & TISCO

SAIL

In

June July, 2005

In Partial Fulfillment of the Requirements

For

The Financial Management Course

Of

Master of Business Administration

University of Pune

By

Anil Kumar Siingh

Under the Guidance of

Mr. S.A. Ranade

VISHWAKARMA INSTITUTE OF MANAGEMENT,

PUNE-411048


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ACKNOWLEDGEMENT

We want to express our sincere gratitude to our Institute, which has provided us with

an excellent opportunity to achieve the most cherished goal in our life, that is a

Comparative Study On Working Capital Management Between Bhilai Steel Plant

& Tisco under the able guidance of Shri Narendra Singh General Manager

(Finance), Bhilai Steel Plant.

We acknowledge our gratitude to Shri A.S. Bhaskar Rao Manager (Cash), Shri

C.K. Agarwal Sr. Manager (Sales), Shri R.C. Bhoi Manager(Sales), Shri Lalit

Khanna Dy. Manager (Sales), Shri Prakash Kolkandi Dy. Manager (Excise), Shri

Abin Sarkar Manager (Sales Tax) Shri C.Raghu Dy. Manager (Raw Materials),

Shri A.R. Sahu Manager (Operations), Shri Rajesh Nair Manager(Inventory),

Shri G.Rajesh Dy. Manager (Stores), Shri Sudhanshu Kumar Shrivastava

Manager (Central Accounts), Shri Radhakrishnan Section Officer (Central

Accounts), who gave their support, encouragement at the times when we needed.

We express our sincere thanks to Shri Rajiv Mahendru Manager (Finance) BSP

for continuous guidance the project period in the huge organization without their

precious direction, valuable guidance and critical scrutiny this report could have not

been completed.


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DECLARATION

Anil Kumar Singh here by declare that this report is a result of our

intensive study during a period of 7 weeks at Bhilai Steel Plant,

Bhilai. This work is an original one and has not been submitted

earlier either to this university or to any other institution for

fulfillment of the requirement of a course of study to the best of our

knowledge.

Under the Guidance of Anil

Kumar Singh

Shri Rajiv Mahendru

Manager (Finance)

Bhilai Steel Plant

Date :23rd

July, 2005

Place : Bhilai


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CERTIFICATE

This is to certify that Mr. Anil Kumar Singh, the students of MBA in Finance

Course has worked under my guidance on the topic A Comparative Study of

Working Capital Management between Bhilai Steel Plant (SAIL) & TISCO in

the partial fulfillment of the requirements for the Financial Management

Course, 2005

This is also to certify that his work is original to the best of my knowledge.

Date : 23rd July 2005

Place : Bhilai Signature

Shri Rajiv Mahendru

Manager (Finance)

Bhilai Steel Plant


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ORGANISATION STRUCTURE OF SAIL

CHAIRMAN

DIRECTIOR (TECH)

DIRECTIOR

(PERSONNEL)

DIRECTIOR (FINANCE)

CHIEF VIGILANCEOFFICER

EXE. DIR (OPRNS)

EXE. DIR (IA)

ED (TECH & LEGALSERVICES

EXE.DIR. (PROJECTS)

EXE.DIR. (CMMG)

EXE.DIR. (CP)

MANAGING DIRECTOR, BSP

MANAGING DIRECTOR, BSL

MANAGING DIRECTOR, RSP

MANAGING DIRECTOR, DSP

EXE. DIRECTOR, VISL

EXE. DIRECTOR, SSP

EXE. DIRECTOR, ASP


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ORGANISATION STRUCTURE

OF

BHILAI STEEL PLANT

EXE.DIR. (CIG)

MANAGING DIRECTOR

GM F&A

GM IT

GM M & SP

GM IA

GM I/C (MINES)

DIR (M & HS)

ACVO

COC

ED PROJECTS

ED WORKS

GM PROJECTS

GM PP&E & BEDB

ED P&A

Ed MM

GM I/C SERVICES

GM SAFETY

GM IRON

GM Refr

GM I/C M & U

GM I/C MILLS-LP

GM P MILL

GM CO & CCD

GM SP & OHP

GM I/C PE & En

GM QUALITY

GM TS

GM PERS

GM HRD

GM (MS)

DGM(L&A)

GM (MM)


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INTRODUCTION

Business activity is dynamic in character and subject to wide

fluctuations. The movement from working capital to income and profits and

back to working capital is one of the most important characteristics of business

administration. This operation is concerned with the deployment of funds with

the hope that they will generate returns, rendering an additional amount called

profit. If the operations of an enterprise are to run smoothly, a proper

relationship between fixed capital and current capital must be maintained. Its

main aim is to use business funds in which a manner that earnings are

maximized. Financial Management provides a frame work for selecting a

proper course of action & deciding a viable commercial strategy. This objective

can be achieved by-

a) Profit maximization

b) Wealth maximization

Funds are needed for short term as well long term purposed. In short

term we say current operation of the business. For a manufacturing unit,

payment for raw materials and wages and for meeting routine expenses. All

the goods which are manufactured in a given time may not be sold in that

GM I/C STEEL

GM CCS SMS -II


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period. Naturally funds are blocked in inventory. It is also the fact that all

goods may not be sold on credit basis. The credit sales also involve the

blocking of funds till the cash received.

The term working capital is closely related to the term funds and has

two meaning. It is used to mean current assets minus current liabilities. In

simple words it is the investment needed for carrying out day-to-day

operations of the business smoothly. Working capital management thus

throws a challenge and should be a welcome opportunity for a financial

manager who is ready to play an important role in his organization.

CHAPTER 1

CONCEPTUAL OVER VIEW


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1.1 WORKING CAPITAL MANAGEMENT

One of the most important areas in day-to-day management of the firmdeals with the management of working capital, which is defined as all the

short-term assets used in daily operations. These consist primarily of cash,

marketable, securities, account receivable and inventories. Some of the

decisions taken in working capital management are:

An adequate supply of raw materials.

Cash to meet the operation payments.

The ability to grant credit to customers.

The capacity to wait for market for its finished products.

Investment in various current assets.

Appropriate sources of fund to finance current assets.


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Proportion of long term and short term funds to finance current

assets.

It may be clear that the objective of working capital management is to

maintain a satisfactory level to working capital. In other words, the current

assets should not only be sufficient enough o cover the current liabilities but at

the same time should also ensure the reasonable amount of safety margin.

This is possible only when the different components of working capital are

properly balanced.

1.2 WORKING CAPITAL CONCEPTS

There are two concepts of working capital.

(i) Gross concepts

(ii) Net concepts

Gross working capital concept

Simply called as working capital refers to the firms investment in current

assets are the assets which can be converted into cash within an accounting

year and include cash short term securities, debtors, bill receivables and

stock.

Net working capital concept

Net working capital refers to the differences between current assets and

current liabilities. Current liabilities are those claims of outsiders which are

expected to mature for payment with in an accounting year. Networking capital

can be positive or negative. A negative working capital means a negative


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liquidity and may prove to be harmful for the company. It occurs when current

liabilities are in excess if current assets. It may be due to mismanagement of

current assets.

In summary it may be emphasized that gross and net concepts of

working capital are two important facts of working capital management. The

data and problems of each firm is different, so it should be analyzed to

determine the amount of working capital and timely action should be taken by

management to improve the liquidity position of the firm.

1.3 OBJECTIVE OFWORKING CAPITAL MANAGEMENT

(i) To minimize the amount of capital employed in financing the

current assets. This will also lead to an improvement in

Return on Capital Employed .

(ii) To manage the current in such a way that the marginalreturn on investment in these assets is not less than the

cost of capital acquired to finance them. This will ensure the

maximization of the value of business unit.

(iii) To maintain a proper balance between the amount of current

assets & the current liabilities in such a way that a firm is

always able to meet its financial obligations whenever due.

This will ensure smooth working of the unit without any

production held ups due to paucity of funds.

Thus, the objective is to ensure the maintenance of

satisfactory level of working capital in such a way that it is

neither inadequate nor excessive. In should not only be

sufficient to cover the current liabilities but should ensure a

reasonable margin of safety also.


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1.4 DETERMINANTS OF WORKING CAPITAL

To determine the amount of working capital needed by a firm, the

number of factors may be included in analysis.

Nature and size of Business

Trading and financial firms require a large sum of money to be invested

in working capital. Some manufacturing business like tobacco manufacturing

and construction firms also have very limited need for working capital. In

contract public utilities have a very limited need for working capital. Their

working capital requirements are nominal because they have cash sales only.

Size of business also has an important impact on its working capital. A

firm with longer scale of operation will need more working capital than a small

operation firm.

Availability of Credit

Availability of credit from bank also influences the working capital needs

of the firm. A firm, which can get bank credit easily on favorable conditions, will

operate with less working capital than a firm such a facility.

Attitude Toward Risk


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The greater the amount of capital, lower the risk of liquidity problems. If

firm don t want liquidity deficiency, may keep extra cash.

Operating Efficiency

Batter operating efficiency, lower need of working capital. Most firms

seek to maintain sufficient working capital to meet their needs for liquidity.

Manufacturing Cycle

Longer the manufacturing cycle larger will be the firm s working

capital requirements. Manufacturing cycle stands with the purchase and

use of raw materials and completes with the production of finished

goods. In order to minimize their investment in working capital, some

firms, like manufacturing industrial products, have a policy of asking for

advances payment from their customers.

Above all the amount of working capital that a firm would need is

affected not only by the factors associated with the firm itself but is also

affected by economic, monetary and general business environment.


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CASE STUDY

2.1 BHILAI STEEL PLANT

Bhilai steel plant a symbol of indo- soviet techno-economic

collaboration, is the one of first three integrated steel plants se up by

Government of India to built up a sound base for industrial growth of the

country. The agreement for setting up the plant with a capacity of 1 MT of


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ingot steel was assigned between the Government of the USSR and India on

2nd February 1955. Today the plant has already been expended to the

capacity of 4.0 million tone of crude steel & is producing 3.925 million tones of

crude steel & 3.153 million tones of saleable steel.

The plant was the 1st to produce wide (3600mm) & heavy plates. A

major exporter of steel products, Bhilai specializes in shaped products such as

heavy rails, heavy structural merchant products of wore rods. Its coke making

& chemicals, hot metal & pig from, entire making facility & Blooming and billet

mill and all the finishing mills are armed with ISO-9002 certification. Plate mill

of Bhilai Steel Plant has received the ISO-14001 certification for its

Environment Management System.

Among various SAIL steel plant B.S.P, is only plant, which has been

earnings profits continuously. More so when there has been a total loss to the

tune of 1707 crore. BSP has individually earned a profit in crore Rs. for the

year march 2003 - 732.20 BSP being BSP being one of the plant where

modernization has not been fully effected & still B.S.P. is able to isolate itself,

by earning profit, is a matter of great pride for the employee at Bhilai Steel

Plant.

Bhilai steel plant won the Prime Minister Trophy for the Best Integrated

Steel Plant in the country five times out of eight times since the inception of

the award.

2.2 STEEL AUTHORITY OF INDIA LIMITED


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Steel Authority if India Ltd. (SAIL) is India s largest and one of the

world s leading steel producers with a turnover of Rs. 19702.10 crores during

2002-03, which was 24% higher than previous year s turnover.

Vision of SAIL

To be a respected world class corporation and the leader in Indian

Steel Business in quality, Productivity, profitability and customer satisfaction.

SAIL has four integrated steel plants at Bhilai, Durgapur, Rourkela and

Bokaro having a total capacity of producing over 11 million tonnes of crude

steel. Three plants at salem, Durgapur and Bhadravati produce stainless and

alloy steels. A subsidiary at Burnpur produce heavy structural and another at

Chandrapur is a bulk producer of Ferro-alloys.

SAIL s vast Portfolio of long, flat and tabular products is marketed within

and outside India by its central Marketing Organisation (CMO) and the

International Trade Division (ITD) respectively steel plants. SAIL s Raw

Material Division, head quartered at kolkatta manages India s second largest

mines network. To develop new technologies for the steel industry and

achieve world standards in steel, SAIL has a well equipped research

&Development centre for iron and steel (RDCIS).

Besides it has its own in house centre for engineering & Technology

(CET), Management Training Institute (MTI) and SAIL safely organization

(SSO) at ranchi. SAIL consultancy Division (SAILCON) at New Delhi provides

consultancy services garnered over four decades of experience in steel

making, to clients word wide.


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SAIL s product mix has been reoriented to keep pace with market

demand. Higher availability of special grade products like API grade HR

Coils/Plates/Pipes, HR Coil for cold Reducing segment etc. It has enabled

SAIL to maintain & achieve larger market in value added segment, with a

market driven pricing system, key customers are provided special customer

services and there is increased product focus and constant review of

distribution channels.

One of the leading steel producers in the world and the largest steel

maker in the country, SAIL occupies a primes places in the industrial scenario

of India. Quality steel products from SAIL have craved a niche for themselves

in the globle steel market. The company aims at thinking its globle presence

felt through export joint ventures and strategic alliances with internationally

reputed steel markets.

SAIL is in the midst of organizational restructuring to bring greater focus

on its core business of making carbon steel. Making employees aware of

market requirements insuring greater involvement of plants in marketing

initiatives, achieving cost leadership through rigorous cost cutting drives and

rationalizing man power to bring down the total no. of employees to

competitive levels are some other facets of the strategy to insure sustained

profitability and growth.

SAIL s ability to continuously grow in different market conditions reflects

the inherent strengths of the company to manage its operations under the

varying and fast changing business environment over a long span of time.

In the new millennium there is a strong focus on SAIL s business

activities for customer satisfaction, adopting an approach for increased


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synergy between production capabilities and market needs and ensuring

supply of customized products with shorter lead times.

The product mix is being continuously oriented to specific needs of

different markets segments. SAIL has been progressively investing in

technological up gradation of its facilities to supporting cost reduction,

improving products quality and yields and for environment protection. In the

new millennium, the accent in SAIL is to accelerate the process of change,

adopt to emerging competitive business environment and excel as a business

organization both within and out side India.

2.3 MAJOR UNITS OF SAIL

Steel Plan.

a. Bhilai Steel Palnt (BSP) in C.G.

b. Durgapur Steel Plant (DSP) in West Bengal.

c. Rourkela Steel Plant (RSP) in Orissa.

d. Bokaro Steel Palnt (BSP) in Jharkhand.

Special Steel Plants

a. Alloys Steel Plant (ASP) in West Bengal.

b. Salem Steel Plants (SSP) in Tamilnadu.

c. Vivesvaraya Iron & Steel Plants (VISP) in Karnataka.

Subsidiaries.

a. Indian Iron & Steel Co. Ltd. (IISCO) in West Bengal.


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b. Maharastra Elektrosmelt Ltd. (MEL) in Maharastra.

Other Units.

a. Raw Material Division (RMD) at Kotkata.

b. Central Marketing Organisation (CMO) at Kolkata.

c. SAIL Consultancy Division (SAIL CON) at New Delhi.

d. Research and Development Centre for Iron and Steel (RDCIS) at

Ranchi.

e. Centre for Engineering and Technology (CET) at Ranchi.

f. Management Training Institute (MTI) at Ranchi.

g. Central Power Training Institute (CPTI) at Rourkela, Orissa.

h. SAIL Safety Organisation (SSO) at Ranchi.

i. Environment Management Division (EMD) at Kolkata.

j. Growth Division (G.D.) a Kolkata.

k. Central Coal Supply Organisation (CCSO) at Dhanbad.


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ORGANISATION STRUCTURE

OF

FINANCE & ACCOUNTS DEPARTMENT

G.M. (F&A)

D.G.M.(F&A) D.G.M.(F&A) CFM CFM CFM CFM

CASH, WAGES-1,

WAGES-III A,

INCENTIVE CELL,

STORES, FIN.

ESTABLISHMENT,

ADMINISTRATION

& COORDINATION

CENTRAL A/Cs, MANAGEMENT

A/Cs, ASSETS A/Cs, OPERATION

BUDGET, COST A/Cs, ENERGY

CELL OPERATION A/Cs, PC, CC.

MINES, ZONAL

WAGES, WAGES

COORDINATION

RAW MATERIALS

A/Cs, FREIGHT &

CLAIMS STOCK

VERIFICATION,

TOWNSHIP

SERVICES, HOSPIAL

A/Cs

PROJECT FINANCE,

CAPITAL BUDGET.

WORKS FINANCEZONAL A/Cs &

WORKS

COMPLATION

SALES EXCISE,

SALES TAX, FRT.

OUTWARD


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STORE ACCOUNTS

FUNCTIONS:

A. STORE AND MATERIAL FUNCTIONS

I. To account purchase, issue and inventory of following items:-

1) Stores and spares

2) Minor raw materials, where A/T is placed and store isthe custodian of materials.

3) LSHS, where A/T is placed and Energy Management isthe custodian.

II. Transfer of capital items to Expansion accounts section.

III. Transfer of Stores and Spares consumed in mines section forbooking inCost of the raw material.

IV. To account for materials issued to Local Fabricators forconversion.

V. To adjust consumption based on the inventory available at shopsVI. Toaccount for consumption of gases, internally produced.

VI. To account for consumption of steel, internally produced.

ACCOUNTING PROCEDURES


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1) Store accounts books the receipt transactions after the Generation of

Receipt Certificate by stores, after inspection by inspection deptt.and transferred to suppliers ledger.

2) Issue transactions are booked cost centre wise, at the time of issueby stores.

3) All the transactions are booked online in the MMIS system, forpreparation of monthly accounts.

4) Statement of shop floor inventory is received periodically from shopsand consumption is adjusted for the stock after physical verification.

5) Provision, as decided by the management, is being made for non-moving items where the items is not issued for more than 5 yearsfrom the date of receipt.

6) Provision, as decided by the management, is being made for surplusitems, declared out of non-moving items, which is no longer usableby shops

AGENCIES INVOLVED

1) Stores, for preparations of RCs, Issue notes & inventory keeping in the

bin card.

2) Purchase, for placement of Purchase order.

3) Inspection, for clearance of RCs.

4) MPD, for screening purchase Indents.

5) Planning cell of all shops, for getting custody stock statements.

6) MMIS, for maintenance & development of Material Management

Database.7) EDP, for maintenance & development of Accounting Database.

8) CMMS, for maintenance & development of Shop floor inventory system.

9) INCOS, for maintenance of Plate Mill Dispatch Advice system.

FINANCE SECTIONS INVOLVED

1) Stock ledger, for materials consumed internally out of own

production.


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2) Store bill accounting, for transfer of RC liability to Supplier Ledger.

3) Expansion finance section, for transfer of capital items.

B. DISPOSAL STORES SALES SYSTEM FUNCTIONS

1) To account for sale of store/steel items through Disposal

Store Tender / Auction System.

2) Maintenance of Customer Ledger.


1) Income is recognized at the time of invoice preparation and Sales &

Tax portion is being transferred to sales & sales tax section

respectively.

2) Customer ledger is prepared after taking into account sales, refunds &

other adjustments.

3) Preparation of receipts, refund and other adjustment vouchers, based

on DDs received from CMM (stores) along with Sales, Delivery orders.

AGENCIES INVOLVED

1) DISPOSAL STORES

2) CMM (STORES)


1) Sales Tax

2) Sales

3) Store Bills, for recovery & adjustment.


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CASH MANAGEMENT

INTRODUCTION

Cash section is an important section of Finance & Accounts Deptt. It dealswith the employees, contractors & suppliers for their payments.

FUNCTIONS

The main functional areas of the Cash Section is as follows :-

Liaison with Bankers

Fund Management

Daily Fund Monitoring and reporting


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Vouchers checking & control

Preparation & signing of cheques

Bank Reconciliation

Coordination with EDP

Preparation of Cash Book

Control of Physical Cash

Bank Guarantees control

Coordination with other sections and deptts.

Liaison with Bankers:-

This section is required to closely interact with the bankers at times even

on

minute-to-minute basis to ensure smooth functioning.

Fund Management:-

Fund allocation are made by SAIL corporate office on time- to-time basis

whereas the payments are required to be made evenly through out the month.

This is done through rationing, prioritizing and constant monitoring so that all

the obligations are met and at the same time all the payments are duly

honored.


This involves constant monitoring the fund availability, project the

requirements to the higher authorities based on discussions with the payment

section, report the management about the availability & utilization of funds on

time to time basis.


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Voucher received in the cash section are as follows :-

Cash payment vouchers

Cash Receipt vouchers

Bank payment vouchers

Bank receipt vouchers

Adjustment vouchers

Vouchers with the required supporting documents are sent to the cash

section for making payments and receiving deposits. These vouchers are

scrutinized before processing for payment / deposits.


For every bank payment voucher, the output is cheque. Normally

around 200-250 cheques are prepared on average per day. These cheques

are to be authenticated before issue by 2 officers.

Bank Reconciliation

Bank reconciliation is a very important aspect of finance & accounts

function. Through this process the cheques issued & instruments deposited


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are compared with the payments made and credits given by the bank.Differences if any are sorted out by passing necessary accounting entries.


The acceptance and processing of vouchers, cheques printing,

organization of Central Bill Clearance System (CBCS) all such activities are

computerized. Necessary hardware & software is supported by our EDP deptt.


After all the payments & receipt of cash & cheques are reconciled, a

consolidate cash book comprising cash and bank data is prepared.


This involves dealing with the receipt and payment in terms of hard cash, its

custody.

Cash deposits into and withdrawals from the bank. Custody of cash and any

other specified documents. Operation of a currency chest and a petty cash

chest.


Custodial function of Bank Guarantees sent by various sections.

Coordination with other sections and deptts

Interaction and coordination with related agencies such as CISF, Garage,

variousbranches of the banks.

OPERATION ACCOUNTS

OBJECTIVES:

Various work orders / contracts are awarded by contract cell

operation for smooth running, maintenance, repair, revamping, transportation

& handling, capital work etc. of the plant. This section deals with payments of

all such contractors.


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Apart from this, section also deals with various types of payments, suchas CISF (postage, telephone bills, printing & stationery, library books,

advertisement, law charges etc.), canteen, BWCCS, advance out of

contingencies, training fees, BMTC/BTI expenses, telephone bills, imprest,

NMR,RDCIS,CET,PRO etc various miscellaneous receipts like EMD, ISD,

vendor registration charges, refund of unspent advances etc.

FUNCTIONS:-

To make payments to various contractors working in works / non-works

area strictly as per contract / W.O. conditions, miscellaneous payments as per

DOP / budget etc.

Accounting of miscellaneous payments as well as receipts and proper

maintenance of ledger and other records thereof.

PAYMENTS:-

Works bills :-

The type of job got done through contractual agencies inside the plant aremainly :

1. Regular maintenance, repair, revamping to keep the plant in

smooth running condition.

2. Contract awarded for handling of Raw materials, pig iron,

processing of scrap etc.

3. Civil Engineering Deptt. Undertakes some jobs like additions /

alterations, which are normally revenue in nature.

4. Some job capital in nature are also undertaken by Civil Engg. Deptt.

/ other Deptt s, based on the scope of capital scheme. Expenditures

against such type of jobs is capitalized and added to fixed assets.

Running bills duly filled in/recorded and signed MB and relevant

documents are sent to this section for making payments. After verifications,


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payments are released strictly as per contracts terms. Before payments,deductions like SD, IT,WCT etc. are also made.

Final payments / SD refund are made only after completion of contract

and on fulfillment of contractual obligation. Capital exp. Amt. is tfd to

Expansion a/c sec.

Miscellaneous payments :-

This section also deals with the payments of entertainment bills, audit

expenses, workers education expenses, A/C maintanence, attendant fees

engaged at the residence of sr. executive, re-imbursement of cost of brief case

and calculator, CET, RDCIS payments, payments of interest/principal against

SAIL bonds, payment from PM trophy fund and accounting and payment of

CPD bills,NSVA payments, printing payments, administrative deptt. Payments

etc.

Bank guarantees:-

It is submitted by the contractor as SD and/or performance guarantee.

These BG s are submitted to operating authority who in turn sends to contract

cell. The section receives the BG s from the contract cell. The same are sent

to cash section for safe custody. The operating deptt./ contract cell are

intimated status of bank guarantee well in advance to take care of the expiry.

On request the BG s are returned to contract cell after verifying the fulfillment

of contractual obligations.


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HSCL Payments:-

As per the budget allocations, work orders are issued by RVC with

approval competent authority. The same taken to the database of CMS. On

execution of work, the final bills with the MB s submitted and checked in

finance and payments are released / adjustments are made if advances are

already released.

RECEIPTS:-

Earnest money deposit:-

This amount is taken in the form of DD at the time of opening of tender.

Money is refunded back to the parties who are not successful. The EMD of the

contractor who bags the order is converted into SD.

Security Deposit:-

The successful tenderer has to deposit an amount of 2.5% of the total

value of the work before the work is actually awarded to him after setting off

the EMD. This amount along with EMD is accounted for as SD. The SD is

refunded after getting clearance from IR section on successful completion of

guarantee period.

Accounting :-

The accounting of contractors payment is made through CMS system.This system is on line & the status of contracts can be taken at any time. All

the vouchers when passed are accounted for immediately against Bank

Payment Voucher entry. The accounting for advances is done through

advance management system developed by EDP. The accounting for

miscellaneous transaction are done through directly in VMS system. TDS

when recovered is deposit to the treasury in the following month by 7th of each

month.


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Journal entries ;-

1. Adjustments for temporary advances.

2. Clearance of inter sectional transfers.3. Acceptance of IUCA transactions.

4. Preparation of quarterly/half yearly/annual accounts.

5. Passing of rectification journal entries

CENTRAL ACCOUNTS AND ASSETS

A. CENTRAL ACCOUNTS:-

This section is engaged in the following jobs:-

1. Monthly Closing of Accounts:

Every month the accounts are closed taking into

account all the J.E. s passed by all the sections of the Finance

Deptt. for thatparticular month. Central Accounts Section takes

special care that all the entries pertaining to any particular

month are passed by the sections and are accepted by the

Central Accounts Section. For performing this job it takes care

that cash book is closed in tme taking into account Resident

Office transactions.

This job is done every month by the third week of the month following the

month forwhich the account is being closed.

After the account is closed by running the program prepared by EDP following

outputs are taken from EDP:


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Five digit all division comparative This output gives the accountcode wise & in account code section-wise cumulative balances of

current year & also the comparative cumulative balances of the

previous year. This is available at central accounts section & is very

useful for review of balances & checking whether proper booking has

been done by all the sections by comparing the balances with that of

previous year balances. This output is also useful for audit purpose.

Five digit all division this output gives the account code wise & in

account code section wise balances. This output is available at centralaccounts section & is used for review of balances & is also used by the

auditors.

Five digit division-wise this output gives the balances division wise

& in division account code wise & section wise.this output is available

at central account section for review of division wise balances and

checking whether the booking has to be done in proper division.

Seven digit balances :- This output gives the seven digit balances thatis with by-codes of all the sections. It is useful to analyse the balance

by-code wise. By-codes are given to identify the various nature of

transactions in any particular account code.

Accounts grouping :- This output gives the group wise totals with

account code total division wise in the manner in which the balances

are carried into B/S & P&L a/c. Thus, the total of any group can be

traced & checked with the balance in B/S & P&L a/c depending upon

the nature of Account Code & Group Code. It is also used for Audit

purpose.

Summarised Grouping :- This output gives the group-wise totals without

account codes in the manner in which the balances are carried into the

B/S & P&L a/c. It is also used by the auditors.

Cumulative Balances:- This output is in the sequence of section codes

& it gives the cumulative balances division wise & in division account

code wise. This output is distributed to all the sections of Finance Deptt.


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& is used by the sections for the review of balances at any particularmonth. One copy is kept at central accounts for reference.

Account Sequence:- This output gives account code wise & in account

code section-wise and in division-wise transactions details for any

particular month. This output contains the details of all the vouchers

passed by the section in one particular month. This is useful for tracing

the particulars of any transaction. This output is available at Central

Accounts Section.

Section Sequence:- This output gives section code-wise and in section

account code-wise & in division-wise transactions details for any

particular month. This output contains the details of all the vouchers

passed by the section in one particular month. This is useful for tracing

the particulars of any transaction. This output is available at Central

Accounts Section. This output is distributed to all the sections of

Finance Deptt. on monthly basis.

Responsibility Analysis:- This output gives the responsibility code-wisebooking & is useful for responsibility analysis & MIS reporting. A copy isavailable at Central Account Section.

ISA Balances:- This output gives the particular of ISA Balances & ishelpful for clearance ISA Balances. It gives the details of J.E. s withaccount code of Raising Sections and the details of J.E. of Responding

Section. Review of this output helps to locate un-responded J.E. thisoutput is distributed to all the sections of Finance Deptt. & a copy of thisis available at CSA.

IUBA Balances:- This output gives the details of IUBA Balances & isdistributed to all the concerned sections. This output contains thetransactions between the Rajhara mines, Nandini mines, Hirri mines,Mines Coordination, Store Accounts & Energy Cell. This output helps inclearing the IUBA Balances.

2. Quarterly & Half yearly closing:-


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As per SEBI guidelines all the listed companies have to published un-audited quarterly result this job is carried out by the central accounts section in

the same manner as is done in Annual Closing. The program for quarterly &

Half yearly closing is decided by corporate office within the time limit provided

by SEBI i.e. within 1month from the end of the quarter. Consolidation of

accounts is carried out in the last week of the following month at the Corporate

Office.

The jobs involved at the time of quarterly & half yearly closing are :-

Account are closed in various stages from 15th of the following month

depending upon the flow of the information from different section and closing

of Cash Book. Closing of accounts, its review & preparation of B/S & P&L a/c

to be carried to Corporate Office for final consolidation is done within the time

scheduled framed by Corporate Office.

IUCA Balances are reconciled at IUCA meetings held at Kolkata as per

corporate office program which usually takes place during the second or third

week of the following month. All the information collected at Kolkata are then

provided to respective sections for its accounting. Central Accounts takes care

that all the transactions intimated through DA or CA are accounted for by the

respective sections well in time.

Collection of all the necessary information data for Note on Accounts &preparation of additional data are compiled by CAS werll in time for purpose of

Consolidation of accounts. Data to comply with all the AS issued by the

institute of CA s & applicable to us are also furnished to Corporate Office by

CAS.

3. Limited Review of Quarterly and Haly-yearly accounts :-

As per the SEBI guidelines Quarterly & Half-yearly accounts after

consolidation at Corporate Office to be reviewed by the Statutory Auditors.


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CAS gets the accounts reviewed by the statutory auditors and furnishes all theinformation and data required for the audit with the help of all the sections of

Finance Deptt. this is also a time bound program, which has to be completed

as per the time frame of Corporate Office. Finally the Audit Report is prepared

& is sent to the Corporate Office for final consolidation at SAIL level by the

Main Auditors.

4. Annual Accounts Closing:-

CAS plays a vital role in the completion of Annual A/c Closing with the

help & coordination of all the Sections of Finance Deptt. which is done during

the month of April & May. As soon as the program for Annual Closing

Accounts is intimated by the

Corporate Office, CAS draws time schedule & program for closing of various

stages of accounts, flow of information & data for Notes On A/cs, Additional

Data & data to comply with all the AS issued by the ICAI applicable to SAIL.

CAS monitors that all the sections of Finance Deptt. adheres to the time

schedule to enable timely closing of accounts. Review of balances after everystage of accounts is carried out & discrepancies are informed to all the

sections to take corrective actions. Al the necessary outputs after closing of

every state are sent in time to all the section for review at their level. After the

review all the transaction compilation of B/S & P&L a/c is carried out through

SAIL a/c preparation system(SAILAPS), a s/w package provided by the

Corporate Office and use by all the plants. After preparation of accounts data

for Notes on accounts, Additional Data, and all the AS applicable to SAIL are

compiled so that the same can be submitted in time. Accounts along with all

the data on Notes On Accounts and Additional Data are then placed before

the Statutory Auditors for audit.

CAS with the help of EDP has developed its own SAILAPS program

which can be prepared B/S & P&L a/c at any point of time after considering all

the vouchers accepted upto that point of time.

B. ASSETS SECTION:-


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Section 227 (4A) of the Companies Act, 1956 requires allmanufacturing, mining & processing companies to maintain proper records

showing full particulars, including quantitative & location of fixed assets.

It is entrusted with the job of maintaining records related to fixed assets

and as such our asset register contains the following information in the

columnar form :-

Location of assets (there are 500 locations in which assets are

situated.)Few of the major locations are as under :-

BBM, Blast Furnace, CCCS, CEZ, Cokeoven, Compressed air station,

DNW, Decoiling & Twisting Units, EDP, Fire Brigade, Health & Medical

Services, Instrumentation, Machine Shop, Merchant Mill, Mines,

Oxygen Plants, Plate Mill, SMS, T&D, WRM etc.

Group

Item code

Division

Section

Asset descriptionDate of capitalization

Quantity

Original value.(Gross Block)

Rate of depreciation(as per schedule XIV)

Cumulative depreciation(total depreciation till previous year B/S date)

Current depreciation (depreciation for the year)

Total depreciation

Net value (Net Block)

Scheme No.

Record No.

Asset register is prepared on yearly basis after Incorporation &reconciliation of the following asset related activities / transactions during afinancial year.

Inter Unit Current Account :

Under the IUCA system, transactions between plants / units interpertaining to IPtransfers of materials, employees & other transactions are accounted for

throughbook adjustment by exchange of debit/credit advices.


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Examples of IUCA transactions are mentioned as under:

1) IP transfer of iron & steel products, by-products, scrap, etc. at

mutually agreed price to & from sister plants.

2) Receipt of indigenous coal from CCSO, imported coal from CMO

(T&S-IMPORT) & other raw materials received through RMD.

3) Transactions with Corporate Office :

Interest & finance charges allocated by the Corporate Office, Exchange

Variation on account of FE loans & interest thereon, Foreign traveling

expenses, Operation remittances / Public Deposit Scheme etc.

4.) Transactions with CMO :-

Direct Sales through CMO, Stockyard Sales, Export Sales, Conversion

charges, Warehousing & Handling Charges for fertilizers, under charges/siding

charges paid to railways, demurrage, and wharfage transportation charges,

credit for railway claims for shortages in transit, missing wagons.

5.) Transactions common to all units :-

TA advance, payment of medical bills on behalf of other units, dues

from and to employees on transfer, traveling advance/allowance for

management trainees.

The CAS of the originating plants must ensure that the IUCA

debit/credit entries raised by different sections contain complete details before

sending DA/CA to the responding plants / units .

IUCA activities at BSP are computerized & linked to VMS of EDP.

Incoming Originating DA/CAs :-


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Original DA/CAs raised on BSP are centrally received at the CAS . Afterscrutiny, these DA/CAs, along with supporting documents, are forwarded to

the respective section for acceptance. Unit-wise & Section-wise data are fed

into the IUCA module of the VMS.

Outgoing responding DA/CAs :-

Sections respond to these Debit or Credit through Journal Vouchers.

Responding debits & credit advices are prepared through VMS modules

before sending them to respective units.

Outgoing Originating DA/CAs :-

Original debit/credit raised by our sections on various units identified by

scrutiny of accounts sequence & sectional journal vouchers. DA/CAs are

prepared through IUCA modules of VMS & sent to respective sister units along

with supporting details.

Incoming Responding DA/CAs :-

On receipt of the DA/CAs responding to our originating debits or credits,

concerned plants responding DA/CAs are received, fed in the VMS for linking.

Section wise / unit-wise list of DA/CAs pending for acceptance are

prepared periodically and taken up with the concern section for expediting

acceptance. Cases of disputes or non-furnishing of supporting documents by

any units are taken up with the respective sister units for early settlement.

IUCA balances are drawn periodically through generation of statement

accounts w.r.t the VMS and are cross tallied with accounting IUCA ledger

balances.


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Unrealized profit on unconsumed stock:-

Unrealized profit on unconsumed stock of IPT from BSP with any other

Sister Units worked out and credit, if any, given to the concerned units / plants.

For the purpose of knocking of IPT transactions details of product, quantity &

value etc. are furnished to the concerned official of the Corporate Office duringAccounts Closing.


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RECOMMANDATIONS

Here are some recommendations for improving the working capital

health of BSP some of them are implied from the ratio analysis and others are

taken from the restructuring plan of SAIL.

1. To further improve the state of liquidation, BSP should increase

its liquid assets by maximizing of sales revenue by manufacture

and sales of value added products.

2. Cost of sales should be reduced to some extent.

3. Co-Ordination between CMO and plant should be improved. The

plant be made well aware about the sale proceeds taking place

of their products in right time, currently it is done in one month

lag.

4. Though SAIL has online system of data flow but there is need to

improve in data updatation especially with regard to credit sales

and credit purchase of different CMO branches and regions.

5. Although coaking coal, iron ore and other raw materials for steel

industry are natural resources and are necessary, yet BSP and

all other steel manufacturing co. should be cautious while the

intensive use of these natural resources. They all together

should think and develop the alternatives of these raw materials

in steel making process.


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6. ERP package should be installed.

BIBLIOGRAPHY

1. Financial Management by M.Y.Khan and S.P. Jain.

2. Financial Management by Prasana Chandra

3. Financial Management by I.M. Pandey

4. Financial Management Analysis by John N. Myer.

5. Annual Reports of B.S.P. , TISCO & SAIL.

6. SAIL News.


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RATIO OF B.S.P.

2000 2001 2002 2003 2004 2005

Current Ratio=CA/CL

2.35:1 1.65:1 1.65:1 1.597:1 1.285:1 1.366:1

Liquid Ratio =LA/CL 0.52:1 0.46:1 0.44:1 0.499:1 0.297:1 0.267:1

W.C. to Gross Sales=W.C./Gross Sales

0.16:1 0.087:1 0.098:1 0.081:1 0.031:1 0.031:1

W.C. to Net Block=W.C. / Net Block

0.44:1 0.24:1 0.21:1 0.230:1 0.127:1 0.151:1

W.C. to Cost ofSales=W.C./Cost of Sales

0.192:1 0.105:1 0.12:1 0.091:1 0.039:1 0.047:1


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FIANANCE DEPARTMENT OF BHILAI STEEL PLANT

Finance Department of BSP is subdivided into various sections. Thesesections are independently responsible for the duties assigned to them. Themajor sections are:-

Cash: This section is responsible for the cost management at the plant.All cash inflows and outflows are managed by this particularsection.

Township: This section is responsible for matters concerning to thetownship area associated with plant. Township Education and

Medical also come under the preview of Township section.

Raw Material Accounts: This section looks after & everything from the

purchase of raw material. This includes maintaining accounts for

the raw materials and payment of bill due for the raw material

purchased by the plant.

Stores Account: This section is responsible for accounting of store items

and looks after the issue of materials from stores. This section is

divided into2.

a. Import Accounts.

b. Indigenous Accounts.

a. Import Accounts look after the payment and payment of

imported store items.

b. Indigenous Accounts handles only the payments of bills

for store items excluding the import items.


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Sales: This section is responsible for all sales related matters. Thissection is further divided into invoicing section, Excise section,

sales tax section, Direct sales section and stock ledger. All

sections look after their area and the stock ledger section is

responsible for accounting of stockyard sales and stock valuation

at the end of the year.

Expansion: This section deals with all the project works and the expansion

plans undertaken at Bhilai Steel Plant. This section also

prepares the capital budget.

Costing : This section is responsible for ascertainment of cost of

production of various products of produced at Bhilai Steel Plant.

Management Accounting: This section is responsible for all accounting

details. This is done by preparation of various financial reports

for providing information to the and middle level management.

Central Accounts: This section complies of all the accounts including the

statutory & legally required statements like accounts manual.

Operation Budget: This section is responsible for preparation of that to

related to the operations.

Provident Fund: This section is looks after provident fund.

Finance(Mines): There are three more sections for the captive mines

handle the finance requirements of the mines.


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OVERVIEW


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Overview of W.C. MGT at Bhilai Steel Plant

Working Capital typically means the firms holding of current or short

term assets such as cash, receivables, inventory & marketable securities. BSP

a major unit of SAIL tries to manage its working capital in the best possible

manner.

Forecasting :

The corporate office allocates the funds to various unit of SAIL. The

amount of fund required is decided by individual unit during the preparation of

operation budget of for the coming year & the amt. is intimated to the

corporate office. Cash inflows and outflows are also estimated in the budget.

The marketing of all SAIL prime products is done by the Central Marketing

Organization and the receipts of sales are directly sent into the Inter Unit

Current Account which is centrally controlled by the corporate office and the

corporate office allocates the funds as per intimation to individual units.

Besides coordinating with Central Marketing Organization, the cash realization

is also done by the plant itself through the sale of scrap, defectives & by

products.

Monitoring:


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In Bhilai Steel Plant, all the three aspects of working capital aremonitored separately.

1.Cash:

Cash is monitored every day and intimated to top management as well

as fortnightly to the company. The cash report generated daily has all details

of cash inflows & outflows. The annual cash budget is again broken into month

wise cash budget which tries to estimate the cash inflows & outflows on

monthly basis. In the total cash inflow, 12% is from the plant & the rest 88% is

from that of Inter Unit Current Account.

2. Inventory:

Inventory is monitored differently for stores, raw materials and finished

goods on monthly basis. Every month one report is directly sent to the

Chairman through the finance dept. of corporate office known as the 3 rd day

report providing the bill details of sales, inventory, working capital position and

debtors of the local sales for the previous month. These figures are compared

with month wise budgeted figures in this particular report. This report is

prepared at plant level. The Production Planning & Control report gives theclosing stock of Raw Material and closing stock of finished goods are

estimated while preparing the monthly profitability report.

3. Receivables.

The receivables are monitored separately. The major portion of debtors

are dealt by the Central Marketing Organization and at the plant level only the

debtors concerning the sale of scrap or some of the township debtors are dealt

with. As for the creditors, the coal is monitored by corporate office and theindividual creditors are monitored by the concerned departments i.e. the Raw

Material. Stores & Spares & the Operations accounts department which look

after the contracts. In this way the main creditors and debtors are estimated.

To summaries, Working Capital at a plant level of SAIL, mainly involve

fore-casting & monitoring of different elements which is done quite

systematically. However, decisions regarding borrowing of funds for working

capital are done at corporate level. Major portion of Sunday debtors are

managed by Central Marketing Organization for all plants & part of Sunday


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creditors with regard to coal purchase- a major raw material is managed byCentral Coal Supply Organization.


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WORKING CAPITAL

MANAGEMENT

MANAGEMENT OF CASH

Cash is the life blood of a business firm needed to acquire supplies,

resource, equipment, and other assets used in generating the products and

services providing by the firm, cash is the medium of exchange that allows

management to carry on the varies activities of the business firm from day to

day.

Objective of Cash Management

(i) To meet cash disbursement needs as per the payment schedule.


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(ii) To minimize the amount of funds held as cash balance [nonearning & lying idle].

Mgt. of Cash in Bhilai Steel Plant

Basically the cash is managed by the corporate office. The corporate

office allocates different amounts of each to different steel plant as per

requirement. We can say that corporate office acts as a linkage between the

SAIL & the main bank i.e. the SBI known as the Corporate Account Group.

Here also, the bank has a limit for credit facility for the company known

as the Rolling Cash Credit Limit. This limit keeps on changing from year to

year depending upon company s position, profitability & inventory position. For

this particular year the Rolling Cash Credit Limit For SAIL-> Rs.5000 Crores.

For BSP -> Rs. 250 Crores. [including the deferred

payments]

The corporate office manages the cash & it doesn t provide the money

in bulk to the individual steel plants. Therefore BSP priorities its payment

depending upon status of the disbursement and send it to the corporate office.Here also, we can see that BSP is not fully dependent on the corporate office

but at first it adjusts fund from collection through sale of scrap & defectives at

plant level and then balance amount is only intimated to the corporate office

for payment. After the prioritization intimated, the corporate office releases the

cash.

Fund Allocation:

Initially the fund allocation is done by the corporate office. The

corporate office allocates the fund for all steel plants & particularly talking

about Bhilai Steel Plant the corporate office allocates it for the steel plant, the

3 mines & the 2 resident office. All the three mines and two resident office


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work independently and all activities are same as that of Bhilai Steel Plant.The mines are situated at:

Rajhara - Iron ore

Nandini - Limestone

Hirri - Dolomite

Resident office: Basically there are 3 resident office sat :-

(i) Delhi - Looked after by the corporate office

(ii) Kolkatta} Both are Looked after

(iii) Mumbai} by Bhilai Steel Plant

Here the initial allocation for mine & resident office is done by the

corporate office and all supplementary requirements are to be looked by Bhilai

Steel Plant.

Fund Utilization:

Funds are generated to different department as per their requirements.

It is always seen at BSP that proper utilization of cash should be done. Daily

reports on cash transitions is prepared by the cash section to keep a track of

all payments made in the day s work. Based on the report sent by cash section

another report is prepared which is sent to be management daily for

scrutinizing. Every day Bank Statements are received which tells the actual

money left with them and the payments actually to be made on that particular

day. Every month report is sent to the corporate office showing the working of

the plant. Apart from monthly report, the comparison between allocation and

the actual utilization of cash is also provided. If the justification is not found

convincing then letters of improvement is given by the corporate office.

Sometimes the credit note arrangement is also given. This credit note

arrangement is a kind of barter system which is a letter of arrangement for

lifting the material.

Annual Cash Forecasting:


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Annually the forecasting is done by preparation of cash budget. Theannual cash requirement is got from cash budget. Again this cash budget is

broken into month wise budget where allocation of cash on month wise it

becomes easier to allocate the amount.

Thus we can say in BSP, the management of cash is not so

emphasized as the major allocation of cash is given by the corporate office

and the plant just have to follow its working according to the allocated amount.


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MANAGEMENT OF INVENTORY

Every enterprise needs inventory for a smooth running of its activities.

On an average, inventories are approximately 60% of current assets in public

limited companies India. Because of the large size of inventories maintained

by firms, a considerable amount of funds is required to be committed to them.

It serves as a link between production and distribution processes. The

unforeseen fluctuations in demand and supply of goods necessitate need for

inventory. The investment in inventories constitute the most signification partof working capital in most of the undertakings. The purpose of inventory

management is to ensure availability of material in sufficient quality as when

required and also minimizes investment in inventories.

Objective of Inventory Management:

To ensure continuous supply of material, spares and finished goods so

that production is not hindered.

To maintain investments in inventories at the optimum level as required

by operational and sales activities.

Inventory Management in Bhilai Steel Plant:

Here, inventory is divided into 3 parts namely:

i. Raw material

ii. Stores/Spares

iii. Semi finished & Finished Goods

Raw Materials:

In BSP, basically the raw materials are purchased using Centralprocurement and regional procurement. From Central procurement, we mean

to say the bulk purchases and these bulk purchases are made by the nodal

agency of SAIL. As per the requirements of the individual steel plants, the bulk

purchase are procured and sent to the place of need. The divisions looking

after the bulk purchase are:

Raw Materials Agencies

i) Imported Coal Central Market Organization Transport and

Shipping


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ii) Indigenous Coal

iii) Sulphur

iv) Alloys

Central Coal supply organization

Bokaro Steel Plant

Durgapur Steel Plant

The regional procurements are the small purchase made by the

individual plants as per their requirements and decisions.

It can also be said that the total requirements of Bhilai Steel Plants is

met by the sum total of bulk purchase and the regional purchase and also from

captive mines.

Total procurement = Purchase (Bulk + Regional) + Captivemines

of raw materialMainly the bulk purchase are made on global tender basic by SAIL itself

whereas the regional purchase are done on limited tender basic by BSP which

means limited people are called for tender & they give their offers and tender

prices are fixed.

While fixing the tender price, a special eye is kept on the specification;

quality parameters, rates of taxes by the in tender. These tenders are been

seen in 3-bits known as the Technical Bit, The Commercial Bit and The Price

Bit. The lower offer party is decided. Negotiation can be done for pricing and

acceptance is through the acceptance of Tender which contains all terms and

conditions of tender including the specification.

The movement of material is by rail or road. Bhilai Steel Plant is more

dependent on railways and for this a special division is there inside the plant

known as the Transport and Diesel Division. The main function of this division

is to coordinate the movement of material inside the plant. Once the rawmaterials are inside the plant they are transported to their particular depots

near the consuming units by roadways.

The pricing method followed is the weighted average method. For this ,

periodically norms are setup by the committee of corporate office and these

norms acts as a guiding factor for the stock holding at different plants. At the

year end, physical stock verification is done and if any surplus is found then it

is treated to the profit and loss a/c. In all there are 25 raw materials and the

total annual consumption of raw material is of Rs.2000 crores in addition of


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keeping an inventory of 5 7%. The inventory of bulk material is maintainedfrom 1 week 3 week.

Stores & Spares

Here the inventory is categorized into:

a. ABC analysis,

b. XYZ analysis,

c. Non-moving inventory,

d. Surplus inventory.(i) ABC Analysis: Items which constitute top 70% of total consumption

(of stores & spares) value when arranged in descending order of

consumption value will be termed as A Class items. Next 20% of

total consumption value will be termed as B class items and the rest

10% as the C items.

(ii) XYZ Analysis : Items which constitute the top 70% of total stock (of

stores & spares) holding value when arranged in descending order

of stock holding will be termed as X class items. Next 20% of stock

holding value is Y class items & the rest 10% as the Z class items.(iii) Non-moving inventory: Items which have not been issued for the last

3 or 5 years shall be considered as non-moving items.

(iv) Surplus inventory: Out of the above non-moving inventory when

there is issue made to various shops asking for the requirements of

the inventory and if there also it is not needed then transferred to

another steel plant and if again not needed there also then sent for

disposal through auction sale.

Placement of order:


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The procurement of items of common use is done through automaticprocurement which means that as these items reach the reorder level the

orders are placed for the same. Here again, another department comes into

action i.e. the Material Planning Department. This department takes

responsibility of floating the purchase of Material and the process of

purchasing starts only when it scrutinizes that the orders made are specifically

as per the requirements and there is sufficient capital to make the purchase.

But at first, the Material Planning Department checks in the stock and see to

whether making the item is cost beneficial or not and if the decision is in favour

of buying then MPD looks into budget and then the purchase is registered .Again here, the purchase department will issue enquiry letters to different

vendors who are registered. The quotations are received from various bidders

and the technical analysis are made i.e. the technicalities as well as the price

are compared. Here again the discretion is with the purchase department to

whom the tender should be given based on their experience.

Procurement

After the purchase order is of delivery whether through rail\road, nature

of sharing taxes, the inspection time, the terms and documents needed with

the material all the formalities are finalized. Once the material is received then

it is examined by visual survey. Then the whole lot is sent to the central store

which takes into account the whole documentation process known as the

central documentation Cell. After the documentation the wagons are unloaded

and materials are sent to those stores which have been allocated to the

products as per the nature of material by Central Documentation Cell. The

details of stores and materials stored are given below:

Bulk Store - Bulk materialCentral Plant Store Cell - Silicon Mangenese

Borio Store - Capital Items

Plant Spare Store - Spare items

When the material is received the consignment control number is

provided and when the identification of material with the purchase order is

done then the R.N number is given. Here again, the inspection takes place

and if the quality received is accepted then receipt is prepared and accounting

is done and if the quality is rejected then no receipt is prepared and here again


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there is a clause that if the quality rejected is accepted to the acceptable levelby the Material Review Board then new receipt certificate is prepared by

Material Review Board.

Budgetory Control

The budgeting section monitors the shop wise procurement budgets for

indents raised by the shop. The amount sanctioned are utilized for the items

and quantities. The material Management Department monitors the receipt

budget on monthly basis and control the daily receipts. Separate funds are

being allocated to the product.

Here the inventory pileup is very large i.e., the annual consumption is of

Rs.50 crores while the pile up of inventory is of Rs.70 crores which is more

than the annual consumption.

Semi/Finished Goods

The entire process of selling steel is quite cumbersome & the dynamics

involved mind boggling. The specifications are stringent, operations are

complex, the tonnage is staggering and logistics are troublesome. A long

chain of activity is configured to make sure that right material reach customer

at the right time. At SAIL, the coordination between plant and marketing wing

is done through a section of its marketing outfit the Sales Residence

Manager s office better known as SRM s office situated in each of 4 plantlocations Bhilai, Bokaro, Durgapur and Rourkela.

SRM`s office is the single point of coordination between respective

plant and CMO. The plant officials interact with SRM to collect feedback on

marketing trend, customer s satisfaction level and the criticalness of the

orders. Sales coordination meeting are held every month which becomes a

forum for both plant and marketing to meet the customer requirements. The

movement plan is issued after the SRM office receives order from the

branches. The SRM office has to think globally and act locally.


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Once the movement plan is prepared it is immediately sent to theProduction, Planning and control Department of the plant and to other

concerned department. The critical point in production plan is to match the

rolling plan with the market requirements so that with the minimum inventory

the company satisfies the maximum customers. The movement plan is

discussed in the presence of the heads of mills and their planning section.

Accordingly the requirements are communicated to the Steel Melting Shops

and Rollling Mills and depending upon the priorities &mill availability the

production commences. The movement plan no. now becomes the point of

reference for any further communication among the units.Once the material is produced it is dispatched through rail or road. For

rail dispatch rake formation is there which means that minimum 35 numbers of

wagons are to be filled. Every week a Committee Review Meeting is held. Now

at the end of the year while the valuation of stock is done it is seen whether

the stock remaining with the plant is Rollable or Saleable. Valuation is done on

the basis of cost or NRV whichever is less. At BSP, it is valued at Plant,

Stockyard and at export yard. The entire process of movement planning,

monitoring and documentation is on line. The smooth and efficient function of

SAIL s marketing is a testimony to this harmonious work culture.

MANAGEMENT OF RECEIVABLES

A Sound managerial control requires proper management of liquid assetsand inventory. When the firm sells its products and services and does not

receive cash for it immediately, the firm is said to have granted trade credit to

customers. Trade credit thus creates receivables or book debts which the firm

is expected to collect in near future. The purpose of maintaining or investment

in receivables is to meet competition and to increase the sales and profit.

Objectives of Receivables Management.

a. To take a sound decision as regards to investment in debtors


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b. To promote sales and profit until that point is reached where thereturn on investment in future funding of receivables is less than

the cost funds raised to finance that additional credit.

Management of Receivables in Bhilai Steel Plant

Managing the receivables is basically done by Corporate office and the

Central Marketing Organization directly deals with it. The major part of

receivables is managed by CMO and the minor part relating to the plant is

dealt at the Bhilai Steel Plant. The minor part consists of the recovery of the

direct sales of defectives and by products and employee related matters. In

most of the cases the due month is 1 month and only in the case of ex-

employees money is not recovered as the final payment are only due. Mostly

the whole of sundry debtors and the 3rd party and debtors like CISF, IT and

shopkeepers. The shop keepers are the ones to whom the BSP quarters and

shops are given from whom the money is recovered and that too the credit

given is one month s credit. In case of interest which are basically got from

house building advances given where 1 month recovery is done. Other

debtors are the claims which cannot be controlled. These are got as per the

negotiations with the party for freight, raw materials etc.

Sundry Creditors

The creditors are managed at plant level only. Mostly the creditors

comprises of contractors to whom payments are to be given and the capital

works. This is basically done as per terms and conditions with the respective

parties. In the case of small scale industries it is done with in 30 days if the

dues are above 1 lakh. There is also a scheme of Earnest Money Deposit for

the registered small industries. The scheme allows to have a security deposit

which is refundable at the contract. In case of statutory payments i.e. the

Income Tax, Sale Tax, Excise Tax one month due is there. The account ofreceivables are prepared quarterly on estimated basic and finally prepared on

the closing date.

Ex- Employees

When the final payment is to be made, it is only done after the file

reaches the department as per the individual case. Major chunk is from

statutory liabilities which are repaid as per i.e. one month due is given.

Credit Note Facility


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According to this facility no outflow of money from the department ismade and as such the material is also lifted. Therefore with the facility of credit

note we are able to manage funds without actual outflow of cash but through

material.

Thus we can say that management of receivables in Bhilai Steel Plant

is done on minor basis and the major work of managing it is done in the

corporate office.


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CERTIFICATE

This is to certify that the project report titled: A Comparative Study on

Working Capital Management Between Bhilai Steel Plant & Tisco

is a

bonafide work carried out by Anil Kumar Singh for Bhilai Steel Plant. He is a

student of Vishwakarma Institute Of Management, and has worked under our

direction and guidance.

The project is submitted is partial fulfillment of Master of Business

Administration (MBA) Course of University of Pune for the academic year

2004-06

Director VIM Internal Guide

Dr. Sharad Joshi S.A. Ranade


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STORE ACCOUNTS

FUNCTIONS:

C. STORE AND MATERIAL FUNCTIONS

I. To account purchase, issue and inventory of following items:-

1) Stores and spares

2) Minor raw materials, where A/T is placed and store is the

custodian of materials.

3) LSHS, where A/T is placed and Energy Management is thecustodian.

II. Transfer of capital items to Expansion accounts section.

III. Transfer of Stores and Spares consumed in mines section for booking inCost of the raw material.

IV. To account for materials issued to Local Fabricators for conversion.

V. To adjust consumption based on the inventory available at shops VI. Toaccount for consumption of gases, internally produced.

VI. To account for consumption of steel, internally produced.


7) Store accounts books the receipt transactions after the Generation ofReceipt Certificate by stores, after inspection by inspection deptt.and

transferred to suppliers ledger.

8) Issue transactions are booked cost centre wise, at the time of issue by stores.

9) All the transactions are booked online in the MMIS system, for preparationof monthly accounts.

10)Statement of shop floor inventory is received periodically from shops andconsumption is adjusted for the stock after physical verification.

11)Provision, as decided by the management, is being made for non-movingitems where the items is not issued for more than 5 years from the date of

receipt.


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12)Provision, as decided by the management, is being made for surplus items,

declared out of non-moving items, which is no longer usable by shops.

AGENCIES INVOLVED

10)Stores, for preparations of RCs, Issue notes & inventory keeping in the bin

card.

11)Purchase, for placement of Purchase order.

12)Inspection, for clearance of RCs.

13)MPD, for screening purchase Indents.

14)Planning cell of all shops, for getting custody stock statements.

15)MMIS, for maintenance & development of Material Management Database.

16)EDP, for maintenance & development of Accounting Database.

17)CMMS, for maintenance & development of Shop floor inventory system.

18)INCOS,for maintenance of Plate Mill Dispatch Advice system.


4) Stockledger, for materials consumed internally out of own production.

5) Store bill accounting, for transfer of RC liability to Supplier Ledger.

6) Expansion finance section, for transfer of capital items.

D. DISPOSAL STORES SALES SYSTEM FUNCTIONS

1) To account for sale of store/steel items through Disposal StoreTender / Auction System.

2) Maintenance of Customer Ledger.


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4) Income is recognized at the time of invoice preparation and Sales & Tax

portion is being transferred to sales & sales tax section respectively.

5) Customer ledger is prepared after taking into account sales, refunds & otheradjustments.

6) Preparation of receipts, refund and other adjustment vouchers, based on DDsreceived from CMM (stores) along with Sales, Delivery orders.

AGENCIES INVOLVED

3) DISPOSAL STORES

4) CMM (STORES)


4) Sales Tax

5) Sales

6) Store Bills, for recovery & adjustment.


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CASH MANAGEMENT

INTRODUCTION

Cash section is an important section of Finanace & Accounts Deptt. It deals

with the employees, contractors & suppliers for their payments.

FUNCTIONS

The main functional areas of the Cash Section is as follows :-

Liaison with Bankers

Fund Management




Bank Reconciliation





Coordination with other sections and deptts.

Liaison with Bankers:-


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This section is required to closely interact with the bankers at times even on

minute-to-minute basis to ensure smooth functioning.

Fund Management:-

Fund allocation are made by SAIL corporate office on time-to-time basis whereas

the

payments are required to be made evenly through out the month. This is done

through

rationing, prioritizing and constant monitoring so that all the obligations are met

and

at the same time all the payments are duly honoured.


This involves constant monitoring the fund availability, project the requirements to the

higher authorities based on discussions with the payment section, report the

management

about the availability & utilization of funds on time to time basis.


Voucher received in the cash section are as follows :-

Cash payment vouchers

Cash Receipt vouchers

Bank payment vouchers

Bank receipt vouchers

Adjustment vouchers


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Vouchers with the required supporting documents are sent to the cash sectionfor

making payments and receiving deposits. These vouchers are scrutinizedbefore

processing for payment / deposits.


For every bank payment voucher, the output is cheque. Normally around 200-250

cheques are prepared on average per day.these cheques are to be authenticated before

issue by 2 officers.

Bank Reconciliation

Bank reconciliation is a very important aspect of finance & accounts function.

Through

this process the cheques issued & instruments deposited are compared with thepayments

made and credits given by the bank. Differences if any are sorted out by passing

necessary accounting entries.


The acceptance and processing of vouchers, cheques printing, organization of Central

Bill Clearance System (CBCS) all such activities are computerized. Necessary

hardware & software is supported by our EDP deptt.



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After all the payments & receipt of cash & cheques are reconciled, a consolidate cash

bookcomprising cash and bank data is prepared.


This involves dealing with the receipt and payment in terms of hard cash, its custody.

Cash deposits into and withdrawals from the bank. Custody of cash and any other

specified documents. Operation of a currency chest and a petty cash chest.


Custodial function of Bank Guarantees sent by various sections.

Coordination with other sections and deptts

Interaction and coordination with related agencies such as CISF, Garage, various

branches of the banks.


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OPERATION ACCOUNTS

Comparative Study on Working Capital Management. at Bhilai Steel by Anil Singh

Documents