Download - Bhavana a.-indITAL Construction
&216758&7,21�2)�,17(51$/�&21752/�6<67(0�:,7+�5(63(&7�72�0$7(5,$/6�$1'�
6725(6� �
�
A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT
�2)�7+(�5(48,5(0(176�)25�7+(�$:$5'�2)� �0%$�'(*5((�2)�%$1*$/25(�81,9(56,7<� �
SUBMITTED BY 0V��%+$9$1 $�$ �
Reg. No – 02XQCM6016
UNDER THE GUIDANCE OF 'U��1$*(6+�6�0$/$9$//,��������������������� � �������0U��9,12'�0(121 PRINCIPAL INTERNAL AUDITOR (INTERNAL CO-GUIDE) (EXTERNAL GUIDE)
�
0��3��%,5/$�,167,787(�2)�0$1$*(0(17 �(ASSOCIATE BHARATIYA VIDYA BHAVAN)
BANGALORE – 560001 2002-2004
DECLARATION
I here by certify that this project report entitled “Construction Of
Internal Control System With Respect To Materials And Stores At
INDITAL Construction Machineries Limited”, has been prepared by
me under the able guidance and supervision of Dr. Nagesh S
Malavalli, Principal, M.P. Birla Institute of Management , Associate
Bhartiya Vidya Bhavan, Bangalore.
This project report was prepared by me in partial fulfillment of the
requirement for the award of MBA Degree. I also declare that this
project report has not been submitted to any other University or
Institution for the award of any Diploma or Degree.
Date: 13/09/2004
Place: Bangalore
BHAVANA A
Reg. No.: 02XQCM6016
ACKNOWLEDGEMENT
This Project report has been made possible through the direct and indirect
cooperation of various people to whom I wish to express my deep sense of
Gratitude.
I am extremely grateful to my Guide Dr. Nagesh S Malavalli, for his valuable
advice and guidance throughout, which has enabled me in the successful
completion of this project and whose constant backing and support made my
project a knowledgably and insightful experience.
I also wish to express my profound thanks and gratitude to Mr. Vinod Menon, for
providing me the opportunity to undertake the project at INDITAL Construction
Machineries Ltd.
I express my sincere thanks to all the staff of INDITAL Construction Machineries
Ltd. who took off their valuable time without which this project could not be
completed.
I would also like to thank my friends and family members for their continuous
support and assistance they have given me.
GGuuiiddee’’s s CCeerrttiiffiiccaattee
This is to certify that Project titled “Construction of Internal Control
System with respect to Materials and Stores “at INDITAL
Construction Machineries Ltd. has been prepared by Ms. Bhavana A
bearing the registration number 02XQCM6016 under my guidance.
This has not formed a basis for the award of any Degrees/Diploma by
any other University
Date: 13/09/2004 Place: Bangalore
Dr. Nagesh S Malavalli
(Principal)
CONTENTS
Page No.
CHAPTER 1 Executive Summary 01
CHAPTER 2 Introduction 04
CHAPTER 3 Company Profile 08
CHAPTER 4 Review of Literature 19
CHAPTER 5 Materials Requisition Planning 29
CHAPTER 6 Methodology 34
CHAPTER 7 Study and Analysis 37
CHAPTER 8 Proposed Model 42
CHAPTER 9 Summary and Conclusion 55
Chapter 1
ExExeecucuttive Sive Suummmmaarryy
INDITAL Construction Machinery Ltd., was established in the year 1989 by
qualified technocrats, well experienced in the manufacture of construction and
material handling equipments. INDITAL started operations with the primary
objective of development and manufacture of State-of-art Mobile Cranes and
Material Handling Equipments.
The problem faced by INDITAL is to control the internal movement of materials
and avoid mismanagement of the same. The company proposes to adopt a
proper documentation procedure for the movement of materials between
departments.
Materials management is the management of the flow of materials into an
organization to the point, where, those materials are converted into the firm’s end
product(s).
Materials management is a function responsible for coordination of planning,
sourcing, purchasing, moving, storing and controlling materials in an optimum
manner so as to provide predetermined services to the customer at a minimum
cost.
For an effective internal control of materials, it is necessary that all the
departments should coordinate and work in cooperation of other departments, so
that it is easy to track the movement of goods, trace the materials to a particular
work order. It will also facilitate to create accountability on the materials.
The methodology adopted was to interact with the concerned authorities and to
study the current procedure adapted by the company, for internal control of
materials and stores. The procedure was evaluated and possible loop holes were
identified. Henceforth, an appropriate tailor-made procedure for internal control of
materials and stores is proposed.
The major loop holes identified were that Bin cards were not maintained, Quality
control department verbally intimates the purchase department regarding the
acceptance or rejection of goods, no document is maintained for return of goods
from production department to stores.
Chapter 2
IntIntrroodductuctiioonn
BACKGROUND OF THE STUDY
Materials Management Is a function responsible for coordination of planning,
sourcing, purchasing, moving, storing and controlling materials in an optimum
manner so as to provide predetermined services to the customer at a minimum
cost. This has necessitated integrated materials management function, which
demands an ability to bring together conflicting and yet interrelated functions, viz.
materials planning, purchasing, receiving and inspection, stores, inventory
control, scrap and surplus disposal.
Importance of Materials Management:
The significance of an efficient materials management system needs no
emphasis. It will facilitate the accomplishment of the following objectives: -
1. Lower prices for materials and equipment.
2. Faster inventory turnover.
3. Continuity of supply.
4. Reduced lead time.
5. Reduced transportation costs.
6. Less duplication of efforts.
7. Elimination of buck-passing.
8. Reduced materials obsolescence.
9. Improved supplier relationship and better records and information.
10. Better inter-departmental co-operation.
11. Personnel Development.
Materials occupy a significant place among the M’s of an industrial enterprise
because of several reasons. Some of these reasons are as follows:
1. The amount spent on materials is increasing in relation to the expenditure
on other inputs.
2. Materials offer considerable scope for reducing costs and improving
profits.
3. Materials form an important part of current assets in an organization.
4. Improving return on investment depends on the effective utilization of
materials
5. Materials ‘add value’ to a product.
6. Materials contribute to the quality of the end product.
7. Materials management assumes responsibility for whatever happens in
purchasing, storing, inventory or any other area connected with materials.
8. Conservation of materials and their availability for posterity is one of the
planks of social responsibility of business.
9. The efficiency of any organization depends upon the availability of right
materials, in right quantity, at right time and at the right price.
10. Materials, supplies and equipment are the life-blood of any functioning
industrial concern, government agency or commercial operation.
11.The relationship between man and materials is indivisible.
STATEMENT OF THE PROBLEM
The problem faced by INDITAL is to control the internal movement of
materials and avoid mismanagement of the same. The company proposes to
adopt a proper documentation procedure for the movement of materials
between departments.
OBJECTIVES OF THE STUDY
♦ To evaluate the procedure currently adopted to control the internal
movement of materials.
♦ To identify the loop–holes in the existing system and provide necessary
corrective actions to implement a better control on the internal movement
of materials
♦ To construct an effective Internal Control System with respect to Materials
and Stores.
Chapter 3
CoCommppaany ny PPrroofilefile
INDITAL CONSTRUCTION MACHINERY LTD., was established in the year
1989 by qualified technocrats, well experienced in the manufacture of
construction and materials handling equipments. INDITAL started operations with
the primary objective of development and manufacture of State-of-the-art Mobile
Cranes and Material Handling Equipments.
INDITAL, has since inception stressed on product quality. All equipments
produced are tailor-made to the Industry’s rigid specifications. This has resulted
in Sophisticated Material Handling products, produced exactly as per the
standards with pinpoint accuracy.
INDITAL’s products consistently help customers
cut costs, add efficiency, reduce down time and
increase speed of operations. INDITAL has the
products and knowledge to add increased value
to the customer’s material handling operations
and applications. Within the company’s business,
the resource of marketing, research, design,
engineering, systems and production share a common goal to enhance the
quality of the products and service in the market place while advancing the state
of Material Handling Equipment making technology.
At INDITAL, product and service combine to give its equipment their total value.
This value, along with INDITAL’s commitment to advanced manufacturing
technologies is the customers’ guarantee that the future of Material Handling
Equipments belong to the company with new ideas and the knowledge to
develop them.
COLLABORATOR
INDITAL derives its strength from the excellent Design base it has established
with initial support from a leading Italian Design firm specializing in Cranes,
Container Handling Equipments and Fork Lifts Trucks for leading European
Manufacturers, whose products are known World over for their steady
performance and quality.
With 15 years hands on experience in this field, INDITAL has established itself as
an innovative company with the capability to design and develop the most
sophisticated Material Handling Equipments with particular specialization on
customer designed equipments. INDITAL has achieved this capability through
years of active and close working with Material Handling Companies,
understanding their needs, and developing turnkey solutions. With this
background, INDITAL is now famous for the quick succession with which it has
been introducing new products in the country.
This tie up with MTS Engineering has thus enabled INDITAL to design and
produce the most modern equipments with State-of-the-art technology.
Mr. Claudio Fontanini heads m/s MTS Engineering, Italy, who is considered an
authority in the design of Material Handling Equipments and in particular Heavy
Fork Lifts, Container handling Equipments. Mr. Claudio Fontanini who holds
several patents to his credit is also on the board of INDITAL as the Technical
Director. This has further strengthened the capability of the Company and
INDITAL is now famous for quick succession with which it has been introducing
new products in the country.
INFRASTRUCTURE
INDITAL’s reputation as an innovative Material Handling Equipment producer is
without question. Its state-of-the-art production facilities offer superior quality. Its
research and technological skills are unparalleled. Its people are among the
experts in the industry. And its dedication to customers remains steadfast.
INDITAL manufactures its Mobile Cranes and
Container Handling Equipments in its modern
factory at Peenya, about 15 km from Bangalore.
The factory situated in a 10,000 sqm plot has state-
of-the-art Fabrication Facilities and modern
assembly shops covering about 5000 Sqm
TEAM
It is often been said that “Its not just what we make- its what we know”. With the
experience gained in manufacturing hundreds of equipments, INDITAL has learnt
plenty. Today INDITAL’s greatest strength has been its workforce. It has a
dedicated team of trained and experienced experts in the field of Engineering,
Design, Quality Control and Manufacturing, with whom it has been able to turn
out World Class products. All these experts are engaged in tackling the frequent
changes in the Material Handling Industry and the challenges presented by
changes in the technology.
INDITAL’s Sales Team with the active support from its State-of-the-art Design
group is ready to develop products to new specifications. And solve the
customer’s handling problems. Once INDITAL’s products are in use, its service
team, work with customers at their sites to solve their most difficult challenges
The Operating Managers, Supervisors, Technical Staff and Mechanics are well
aware of the contribution they are making to INDITAL’s products and the impact
they have on exceeding customer expectations. Resting with them are the tools
and the know-how to manufacture the best quality Material Handling Equipments
in the world.
EXPORTS
INDITAL has exported its equipments to Italy, Kuwait, Iraq and Bangladesh.
INDITAL is confident of exporting more of its equipments, particularly Container
Handling in the coming years.
PRODUCTS
MOBILE CRANES
During 1989, INDITAL launched its first product: An 8 Ton
capacity, 100% Pick and Carry Cranes, which was later
upgraded to 12 Tons. These were primarily meant for the
Granite and general purpose Material Handling Industry.
These Cranes ushered in a revolution in the material
handling industry, which had seen so far only tractor
based, cranes. During March 1992, INDITAL introduced the HC-18. This 18 ton
capacity Pick and Carry Mobile Crane was again the first for India. This model
introduced for the first time in India the concept of Power Shift Transmission for a
100% Pick and Carry Crane. With this feature and the Hydrostatic Steering, the
HC-18 became a favorite with the operators with lesser strain and fatigue being
experienced by them. Today, this model has established itself as a forerunner
and the Benchmark in the industry.
REACH STACKERS
With the experience gained from the manufacture and
successful working of its 10 ton, 12 Ton and 18 ton Pick
and Carry Cranes, in the most demanding and difficult
Indian conditions, INDITAL ventured with confidence
into the Container Handling Sector. The field of
Container Handling essentially requires 100% Pick and
Carry equipment like Top Lift Trucks or the Reach
Stackers. The latter being very similar to its currently produced models, INDITAL
started manufacturing the Reach Stacker during the later 1992.
This prestigious order was secured inspite of stiff Global Competition from
established World Giants in the field. Excellent technical support was received
from Mr. Claudio Fontanini, which enabling INDITAL to manufacture the first
Reach Stacker to be produced outside Europe. In February 1993, the Reach
Stacker was commissioned at the Inland Container Depot (ICD) of the
Container Corporation of India (CONCOR) at White Field, 20 km from
Bangalore. Ever since, the equipment has been working exceedingly well and is
handling an average of 3000 TEU’s a month. It has been found that this machine
has a peak handling capacity of 6000 TEU’s a month on a 16 hour/day basis.
This Reach Stacker employed the latest design in the field of Container Handling
and was specially designed keeping in mind the 24-hour a day, 30 days a month
work expected from the machine. The design was also
customized taking into consideration the adverse and
dusty climatic conditions of India, and tough operating
parameters.The response after the successful working of
the Reach Stacker has been so great that INDITAL is
now manufacturing the equipment in greater numbers
both for the Indian market as well as for export. Enquiries
have been pouring in from all major Indian ports, Container Terminals and also
from the Middle East and Far East.
Today INDITAL’S Reach Stackers have been successfully working in many
ports, various ICD’s of CONCOR, many private container Freight Stations, and
several Contractors working for ports like Mumbai Port Trust, Calcutta Port Trust,
Cochin Port Trust, Kandla Port Trust etc.,
SIDE LIFT & FORK LIFT TRUCKS
In 1996 INDITAL launched India’s first 5 high Stacking Side Lift Trucks. These
machines meant for empty Container Handing, which were fitted with a
telescopic side spreader to accommodate both 20` and 40` long containers.
Designated as the ECT series, these machines have now become very popular
in Container Terminals where space is at a premium. These trucks are now
available up to 6 high stacking levels.
During early 1998, INDITAL launched its FLT series of 10-ton/12 ton capacity
Fork Lift Trucks. These were custom designed for India with performance levels
on par with the best European equipments. These machines have become a
favorite with Material Handling Contractors and can be seen successfully working
all over India. Several variants of FLT-12 with attachments for Container
Handling / Tyre Handling/ Log Handling etc., have been introduced.
PUSHBACK TRACTOR Ground Support Equipments
Having firmly established itself in the Fork Lift, Mobile Crane and Container
Handling Industry, INDITAL during 2003 entered the Airport Ground Support
Equipment Industry. With the first development order coming from M/s Jet
Airways, a leading private airline in India, INDITAL successfully launched its
PBT-12 Aircraft Push Back Tractor in September 2003. This high power tractor
was primarily designed to handle the new generation Aircrafts acquired by Jet
Airways. The equipment has been working quite successfully and INDITAL is
gearing up to manufacture more such Tractors in the future.
QUALITY
INDITAL operates a Quality Management System, which complies with the
requirements of ISO 9001-2000 and is certified for Design, Manufacture and
supply of Material Handling and Earth Moving Equipments.
Strict quality control is established right from the raw material stage to the
finished product. Only the best possible raw materials and components find their
way into an INDITAL product. Quality, Innovation and Customer Satisfaction
have been one of the primary strengths of INDITAL on which it plans to build its
future.
Reliability is a key benefit in doing business with INDITAL. The Company’s goal
is to surpass all quality and service expectations. Control of INDITAL’s product
quality is a major concern right up to the shipping stage. Special transporting
precautions preserve the high quality of INDITAL’s products. Appropriate safety
measures, rust protection etc., guarantee that the quality processed into the
products remain intact upon delivery. No one is tougher on the INDITAL’s
products than the people who make them.
RESEARCH & DEVELOPMENT
INDITAL is investing a substantial amount of time and money in its expansion
activities, Research and Development and New Plants. INDITAL faces the future
with pride and confidence and is poised to bring out the following products and
that too in a quick succession, which has been INDITAL’s trademark:
• Level Luffing Wharf Cranes
• Pick and Carry Hydraulic Mobile Cranes
• Light Duty Earth Moving Equipments.
• Terminal Tractors.
• Airport Handling Equipments
SUPPORT
At INDITAL, product and service combine to give its equipment their total value.
This value, along with INDITAL’s commitment to advanced manufacturing
technologies is the customers’ guarantee that the future belongs to the company
with new ideas and the knowledge to develop them.
Today INDITAL is supported by a strong sales and service team catering to the
various clientele. INDITAL has also preferred to grow gradually while catering to
customer satisfaction. As a consequence INDITAL’s products were initially
launched in India. Gradually INDITAL extended its operational area to the
neighboring countries. Now, with a firm footing in the domestic market, INDITAL
is all set to tap the growing global market
WHY INDITAL?
• India's largest Container Handling Equipment manufacturer.
• INDITAL manufactures the widest range of Container Handling
Equipments in India.
• The only manufacturer in India having the indigenous design capability to
manufacture Fork Lift Truck up to 50 tons capacity.
• India's first manufacturer of SIX High Stacking Empty Container Handler.
• India's only manufacturer of Pick And Carry Cranes in the 18-32
categories.
• Has a range of Reach Stackers to suit every application and budget.
• 3 different types of Side Lift Truck for Empty Container Handling
• Capabilities to manufacture Non-standard capacity in Reach stackers,
Fork Lift Trucks, Mobile Cranes
• First Indigenous Producer of Aircraft Push Back Tractor with greater than
8000 Kilograms Draw Bar Pull
Chapter 4
Review of Literature
INTRODUCTION
Materials are of many types, viz., raw materials, purchased
components, materials-in-process (i.e., semi-finished goods),
finished goods, packing materials, maintenance and repairs
supplies, scrap and waste and rejects or rework are used in
manufacturing organizations. These materials are of various
size, shape, and specific features. The characteristics of the
materials to be used in production are determined by product
design decisions. The layout of facilities is directly affected by
the nature of these materials. For example, large and bulky
materials, heavy materials, fluids, solids, flexible and inflexible
materials and materials requiring special handling to protect
them from conditions such as heat, cold, humidity, light, dust,
flame and vibration affect the layout of facilities for handling,
storing and processing these materials.
Materials Handling is defined as the art and science of moving, packing and
storing of substances in any form. The scope of materials handling within an
organization depends on the type of the product manufactured, the size of the
organization, the value of the product and the value of the activity being
performed and the relative importance of materials handling to the enterprise.
Importance of Material Handling
1. Efficient Materials Handling is important to manufacturing operations.
Materials sent by vendors must be unloaded and moved through various
departments. These movements do not add value to the product but they
do add to the cost.
2. Materials handling is an important part of the design of a production facility
and can hardly be treated as separate. Materials handling system and plant
layout enhance effectiveness of each other. A good plant layout enables an
operation to use the most efficient handling method. Efficient operation of
appropriate materials handling methods reduces costs and enables
maximum capabilities to be derived from a given production facility.
There are three perspectives about materials handling. They are:
• The traditional point of view, wherein the emphasis is on the
movement of material from one location to another within the confines of
the individual plant.
• Plant-wise concern for overall flow of materials focuses on the inter-
relationship between all handling problems and the possibility of
establishing an overall materials handling plan.
• The systems point of view, involves a much broader consideration of
all materials handling activities involving the movement of materials from
all sources of supply (vendors), all handling activities within and around
the plant and the handling activities involved in the distribution of finished
goods to all customers of the firm.
Objectives of Materials Handling
Even though the best solution to the material handling problem is no
handling, it is hardly practicable in a manufacturing process. Hence the main
objective of material handling is to reduce the number of handlings as well
as the overall cost of material handling equipments and reducing the
distances through which the materials are handled. Other objectives of
materials handling are as follows:
• Lower unit materials handling costs.
• Reduction in manufacturing cycle time through faster movement of
materials and by reducing the distance through which the materials are
moved. Reduction in manufacturing cycle time results in reduced work-
in-progress inventory costs.
• Contribution towards the better control of the flow of materials through
the manufacturing facility.
• Improved working conditions and greater safety in the movement of
materials.
• Contribute to better quality by avoiding damage to products by
insufficient handling.
• Increased storage capacity through better utilization of storage areas.
Materials Handling Principles
Certain principles have evolved to guide facility layout to ensure efficient handling
of materials. Although there are no hard and fast rules, they do provide effective
guidelines for the efficient movement of materials in most facility layout. The
material handling principles that provide a framework for selecting specific
materials handling equipment or devices, which are the core of the materials
handling system, are enlisted below:
• Materials should move through the facility in direct flow patterns,
minimizing backtracking
• Related production processes should be arranged to provide for direct
material flows
• Mechanized materials handling devices should be designed and located
appropriately so that human effort is minimized
• Heavy and bulk materials should be moved the shortest distance during
processing
• The number of times each material is handled should be minimized
• Systems flexibility should be allow for unexpected breakdowns of
materials handling equipments, changes in production system technology,
etc.
• Mobile equipments should carry full loads all the times
Materials Handling Costs
The costs of materials handling arise from two sources: the cost of owning and
maintaining equipment and the cost of operating the system. While the cost of
owning the equipment generally known since entries are available in the books of
accounts, the costs of operating the handling system are elusive, as records are
not generally maintained.
Every effort should be made to reduce materials handling costs, particularly
because they do not add any value to a product. The product will not be worth
any more to the consumer simply because it is moved, but it will cost the
customer more.
There are three fundamental ways of minimizing the costs. They are as follows:
• Eliminating the handling itself whenever and wherever possible
• Mechanizing whatever handling still remains
• Making the necessary handling more efficient
Primary requisite of any action to be taken towards minimizing handling costs is
to have a record maintained for them.
Factors to be considered in planning Material Flow
A. Material or Product (Material flowing through the facility)
1. Characteristics
a) Receipts
b) Shipments
2. Volume of production
3. Number of different parts
4. Number of operators
5. Storage requirements
B. Process (Activity Centers)
1. Type
2. Sequence of operations
3. Possibility of performance during move
4. Specific requirement of activities
5. Product vs. process layout
6. Quantity of equipments
7. Space requirements
8. Number of sub-assembles
C. Handling Methods
1. Unit Handled
2. Desired Flexibility
3. Equipment Required
4. Possible Alterations
D. Moves
1. Frequency
2. Speed
3. Rate
4. Volume
5. Scope
6. Area
7. Distance
8. Sources
9. Destinations
10. Cross Traffic
11. Location of receiving and shipping
E. Building
1. Size
2. Shape
3. Type
4. Number of floors
5. Location of doors
6. Ceiling height
7. Desired Location of departments
F. Personnel
1. Number
2. Movement
3. Safety
4. Working Conditions
5. Supervisory Requirements
G. Site
1. Transportation facilities
2. Expansion Possibilities
H. Miscellaneous
1. Location of Auxiliary services and activities
2. Possible damage of materials
3. Cost of implementation
4. Production Control
5. Flexibility
6. Expendability
7. Levels of activity
Types of Material Handling Systems
The materials handling systems can be classified according to the type of
handling equipment used, type of material handled and the methods, need or
functions performed. These classifications are:
1. Equipment oriented systems depending on the type of equipment used:
a. Overhead systems
b. Conveyor systems
c. Tractor-transfer systems
d. Fork-lift truck and pallet truck systems
e. Industrial truck systems
f. Underground systems
2. Material oriented system depends on the type of materials handled:
a. Unit handling system
b. Bulk handling system
c. Liquid handling system
3. Method oriented systems are as follows:
a. Manual systems
b. Mechanized or automated systems
c. Job-shop handling systems
d. Mass-production handling System
4. Function oriented systems such as:
a. Transportation System
b. Conveying System
c. Transferring System
d. Elevating System
Chapter 5
MatMateerriials Reals Reqquisuisiititioon n
PlaPlannnniingng
A manufacturing company, to produce its end products, must co-ordinate the availability
of sufficient production capacity with the availability of all raw materials and purchased
items from which the end products are produced.
Hence, there is a need to manage he availability of dependent demand items
from which the products are made. Dependent demand items are the
components i.e., materials or purchased items, fabricated parts or sub-
assemblies that make up the end product.
One approach to manage the availability of dependent demand items is to keep a
high stock of all the items that might be needed to produce the end products and
when on the other hand stock dropped below a present re-order level, the items
are produced or bought as the case may be to replenish the stock to the
maximum level. However, this approach is costly due to the excessive inventory
of components, fabricated parts and sub-assemblies to ensure high service level
(i.e., availability of dependent demand items at a short notice).
An alternative approach to managing dependent demand items is to plan for
procurement or manufacture of the specific components that will be required to
produce the required quantities of end products as per the production schedule
indicated by the Master Production Schedule (MPS). The technique is known as
Material Requirements Planning (MRP) technique.
MRP is a system in which the given MPS is exploded into the required amounts
of raw materials, parts and sub-assemblies, needed to produce the end product
each time period (week or month) of the planning horizon. The gross
requirements of these materials are reduced to net requirements by taking into
account the materials that are in inventory or on order.
A schedule of orders is developed for purchased materials and in-house
manufactured items over the planning horizon based on the knowledge of lead
items for procurement or in-house production.
Objectives of MRP:
• To improve customer service by meeting delivery schedules promised and
shortening delivery lead times.
• To reduce inventory costs by reducing inventory levels.
• To improve plant operating efficiency by better use of productive
resources.
The MRP technique is used as an inventory control tool, providing reports that
specify how many components should be ordered, when they should be ordered
and when they should be procured or produced in-house.
Overview of MRP
Basically, MRP consists of a set of computer programs that are run periodically
(once a week or month) to incorporate the latest schedule of production
requirements. MRP performs three important functions, which are as follows:
1. Order planning or control – when to release orders and for what quantity?
2. Priority planning and control – comparison of expected date of availability
with the need date of each item.
3. Provision of a basis for planning capacity requirements and development
of broad business plans.
Flow chart that provides a general overview of MRP
MRP Inventory status file Product structure file
Production Activity Controls
Buy Items
Make Items
Purchase orders
Operation of the MRP system
MRP System Inputs
1. Inventory Status File – gives complete and up to date information on the on-hand
quantities, gross requirements, schedule receipts and planned order releases for
the item. It also includes other information such as lot sizes, lead times, safety
stock levels, and scrap allowances, etc.
2. Production Schedule – specifies what end products are to be produced and when.
The planning horizon should be long enough to cover the cumulative lead times
of all components that must be purchased or manufactured to meet the end
product requirements.
3. BOM File or Bill of Materials File (Product Structure File) – provides the
information regarding all the materials, parts and sub-assemblies that go into the
end product. This file identifies each component by a unique part number and
Inputs Processing Outputs
Inventory Status F ile
Production Schedule
Exception Reports
MRP Systems
I Production Order
Schedule
BOM File
facilitates processing by exploding the end product requirements into component
requirements.
MRP System Outputs
1. Planned Order Schedule – plans the quantity of each material to be ordered in
each time period. It also modifies the previous planned orders.
2. Exception Reports – lists the items requiring management’s attention to control.
Chapter 6
MetMethohodoldolooggyy
The present study has three phases:
PHASE – I : EXPLORATORY RESEARCH
In the first phase, an exploratory research has been undertaken to gain additional
background information about the general nature of the research problem. It
consists of secondary literature of survey consisting of books, journals, websites,
legal requirements and process adopted by companies in general.
PHASE – II : STRUCTURED INTERVIEW
In the second phase, a detailed and structured interview was undertaken with the
management and the concerned departments, so as to study the existing system
adopted by the company with respect to internal control system of materials and
stores.
PHASE – III : ANALYTICAL RESEARCH
The process as studied in the second phase was compared against the
exploratory research conducted in the first phase and the likely loop holes in the
process were identified. Henceforth a tailor made mechanism for internal control
of materials and stores was proposed.
LIMITATIONS:
As we know every project /study has its own limitations. In the course of the
project various types of limitations have been experienced.
♦ Since the scope of study is restricted to INDITAL, the problem of
generalization exists.
♦ As the data collection is through personal interview, personal bias cannot
be totally eliminated.
Despite of the limitation maximum care was exercised to make the study
scientific & meaningful.
Chapter 7
StuStudydy
&&
AnAnaalylyssiiss
The problem statement is to control the internal movement of materials and
avoid mismanagement of the same. As such many loop holes in the existing
Internal Control System were identified during the study. Some of them are
listed below as follows:
1. Purchase Order:
Sometimes, the Purchase Orders are made verbally and no confirming
Purchase Orders are made subsequently to support a document for the
order placed. As such, there is no purchase Order Number to refer to the
receipt of goods.
Analysis:
Since, few Purchase orders are raised verbally, stores will not have any
basis to accept the materials arrived. In such cases, the storekeeper
should contact Purchase department to confirm the Purchase order,
which delays the entire process. Hence, Purchase department should
raise purchase orders verbally only in emergency situations and a
confirming Purchase order should be raised to keep track of the
materials.
2. Format for Purchse Requisition:
The Purchase requisition raised by the Production Department
against the Work Order received from the Purchase Department
does not have a particular format and is prepared in loose sheets.
Apart from this the document is also prepared for two or three
works orders together and does not mention what materials are
required for which order.
Analysis:
Since the same Purchase Requisition is used for more than one
work order, the purchase department may not be in a better
position to give preference to those materials that is required for
the Work order that should be executed earlier to the other. Also, as
they are prepared in loose sheets there is always a possibility of
loosing the papers by oversight.
3. Quality Control Department:
No document is maintained to record the movement of goods
between the Quality Department and Stores. Sometimes the
workers take delivery of goods directly from the Quality Control
Department and later fills up the Materials Issue Slip in the Stores.
Analysis:
Since no document is maintained for the movement of goods from
Quality Control Department to stores, there is always a possibility of
loosing the goods in transit, which may go unnoticed and hence
affect the production schedule as a whole.
4. Non-maintenance of Bin Card:
The Stores does not maintain any Bin Card. Stores Ledger is also
not maintained. The materials returned to the Stores by the
Production Department are not recorded. Stock details are recorded
in the Purchase Department on a monthly basis. This document
does not exhibit the receipt and issue of materials on a daily basis.
Analysis:
As, neither a BIN Card nor a daily Stores Ledger is maintained, it is
difficult to know the level of any material as on any particular day.
This may result in Ordering of materials that are sufficiently available
and non-availability of goods when required.
5. Non-maintenance of Materials Requisition Note:
Materials Requisition Note is not maintained by the Production
Department. Stores have a Materials Issue Slip, which requires the
signature of the worker requiring the material and that of the
supervisor for the issue of materials. The worker receives the
materials by signing the Materials Issue Slip that is signed by the
supervisor at his convenience.
Analysis:
As, no Materials Requisition Note is maintained, the storekeeper
issues the materials for Production without appropriate basis for
such an issue.
6. Non-maintenance of Materials Rejection Note:
The Quality Control Department verbally communicates to the
Purchase Department about the rejection of goods. No written
document is maintained for the purpose.
Analysis:
As, Materials Rejection Note is not maintained and such rejection is
verbally communicated to the Purchase department. This may result
in the Purchase Department personnel ignoring the matter by
oversight leading to delay in meeting the Production schedule.
As the above loop holes were identified and appropriately analyzed,
the existing system adopted at INDITAL was found to be
insufficient. Quite a few grounds have been identified and analyzed
that make way for mismanagement of materials, which can be
eliminated by adopting a suitable process and procedure for the
same.
Chapter 8
ProProppoossed ed MoModeldel
The requirement of materials should be arrived at, by adopting an appropriate
Materials Requirements Planning (MRP) which requires the consideration of
the following:
♦ Bill Of material for the Work order received
♦ Requirement of the Materials by other projects
♦ Materials already ordered but awaiting receipt
♦ Production and Delivery Schedules
♦ Current levels of Materials in stores
♦ Safety Stock / Minimum Stock
♦ Maximum Stock
Purchase order shall be raised on the basis of the Bill of Material prepared
for each order received from the customer. However this system should be
adopted only for ‘A’ Class and ‘B’ Class items. ‘C’ Class items can be
ordered against the Purchase Requisition raised and issued by the Stores.
Purchase Requisition shall be prepared in duplicate. The original is passed
on to the Purchase Department while the duplicate is retained as a file
copy.
(Note: Purchase Requisition is raised only in case of ‘C’ Class
items)
Purchase Order shall be prepared in a set of three copies for distribution as
follows:
• Original and acknowledgement copy to supplier for acceptance
• Copy to the purchase department
• One copy to stores, for receiving materials
Purchase Order can be placed verbally only in case of emergency and the
Purchase Department should ensure that a ‘Confirming Purchase Order’ is
raised subsequently.
Conditions of purchase, indicating detail instructions as to indemnify
against dispute with the third party, method of settlement of disputes,
arbitration and the liquidated damages in case of non-supply within
schedule time etc. should be printed on the reverse side of the original
copy of the order.
A specimen of Purchase Requisition is given below:
Purchase Requisition
Date…/…/…….
No……….
Description Code No. Quantity Quantity Required for Orders
in Hand
Available Work Order No. Quantity
Required
Prepared By… … … … … … … … ...
Signature:………………
Flow Chart of Purchase Order
*- Denotes File Copy
Purchase Order
*Purchase Order
(Purchase)
Purchase Order
(Supplier)
Purchase Order
(Stores)
To check the materials on
receipt
Purchase orders shall be followed up thoroughly by purchase department
till the material is received in stores, accepted after quality inspection, and
replacement received for rejected materials.The copy issued to the Stores
for its reference shall mention the Work Order No. and shall be
accompanied by the Bill Of Material for each order.
Stores Receipt:
On the receipt of materials from the Supplier, the Storekeeper shall refer to
the Delivery Challen to find out Purchase Order concerned, and shall
prepare a Stores Received Note (SRN), in three copies, to be circulated as
follows-
• Purchase Department
• Quality Approval
• File copy
A Specimen of Stores Received Note is given below:
Stores Received Note No.
Supplier’s name:… … … … … … … … … … … … … … … … … … ..
Date…./…./…….. Carrier’s name:… … … … … … … … … …
Purchase Order No……………….. Challen No. & Date……………
Description Code No. Quantity Quantity
Quantity
Received Accepted Rejected
Received By… … … … … … … … … … … … … … …
Quantity Checked By… … … … … … … … … … … …
Quality Inspected By... … … … … … … … … … … …
After verification with the specifications given in the Purchase Order and
physical counting, the storekeeper shall enter the quantity columns, and
send two copies of SRN to Quality Control Department along with sample
material for Inspection and approval of quality. When the Quality Control
Department accepts the materials, the Inspector puts a seal on the
respective copies of SRN and puts his signature. One copy of the SRN is
sent to Stores for recording in Bin Card, while the first copy is sent to
Purchase Department as a record of acceptance of materials ordered and
supplied by the vendor. SRN can be checked and priced out by the
Purchase Department with reference to Purchase Order. Invoice when
received are checked with Priced SRN for issue of Pay Order to the
Accounts Department.
Flow Chart of Stores Received Note
*- Denotes File Copy
With Seal on Acceptance
S R N *S R N (Stores)
S R N (Stores)
S R N (Q.C.)
S R N (Purchase)
S R N (Q.C.
)
Entry in Bin Card
Entry in Stores Ledger
A Specimen of BIN Card is given below:
BIN CARD No.
Description:……………………………………………………
Code:………………… Lo cation:……………… Unit:………………..
Receipt Issue Balance Verified
Date SRN No. Quantity MRN No. Quantity Quantity By
When Materials are rejected, the Inspector shall preferably inspect the
whole lot and immediately raise a Material Rejection Note (MRjN) in three
copies. The original is sent to the Purchase Department through which the
supplier is intimated to replace the goods free of cost. The second copy is
sent to the Stores wherein the Storekeeper separates the goods and places
them in “Rejected Goods” areas.
Entry of outsiders, other than those employed in the department should not
be allowed inside the department, especially in the Quality Control
Department and Stores.
Flow chart of Material Rejection Note
* Denotes File Copy
A Specimen of Material Rejection Note is given below:
Material Rejection Note No.
SRN No.:……… Date…/…/………
Purchase Order No…………………
Supplier’s name: … … … … … … … … … … … … … … …
Description Code No. Quantity Rejected Reason for Rejection
Inspected By: … … … … … … … … …
Signature:……………………………………
Stores Issues:
When a worker requires any material, he shall approach the Supervisor
who issues a Materials Requisition Note (MRN) to that worker. This Note shall
mention the name of the worker authorized to receive the materials, Work
Order No. and should require the signature of the Supervisor. The worker
shall submit this Note to the storekeeper who prepares a Materials Issue
M Rj N
M Rj N (Purchase)
M Rj N (Stores)
*M Rj N (Q.C.)
Note (MIN) in duplicate against the Materials Requisition Note wherein the
worker signs on receipt of materials. The Storekeeper shall cancel the
materials issued in the Bill Of Material for the respective Work Order and
make necessary entries in the Bin Card. The Storekeeper shall seal the
original MIN and forward the same to the Purchase Department.
Flow Chart of Material Requisition Note
Flow Chart of Material Issue Note
* - Denotes- File Copy
A Specimen of Material Requisition Note is given below:
Material Requisition Note No.
Date: …/…. /……. Work Order No………..
Description Code No. Quantity Required
Worker Taking Delivery: … … … … … … … …
Supervisor’s Signature
M R N (Production)
M R N (Stores)
M I N (Stores)
*M I N (Stores)
M I N (Purchase)
A Specimen of Materials Issue Note is given below:
Material Issue Note
Date:.…/…./…… No.
MRN NO……….. Work Order NO………
Description Code No. Quantity Issued
Worker’s Signature Storekeeper’s Signature
Stores Returns:
The left over stock in Production should be sent back to the Stores after
the completion of each Work Order accompanied with a Materials Return
Note (MRtN) mentioning the materials returned, their quantity, pertaining to
which Work Order and shall be signed by the Production Manager. On the
receipt of the materials, the Storekeeper shall make necessary entry in the
Bin Card, put the materials in their respective bin. The Storekeeper shall
then put a seal on this note and send it to the Purchase Department along
with the other MINs for recording in the Stores Ledger.
Flow Chart of Materials Return Note
M Rt N (Production)
M Rt N (Stores)
M Rt N (Purchase)
Sealed on Receipt and Recording
A Specimen of Material Return Note is given below:
Material Return Note
Date:.…/…./…… No.
Work Order NO………
Description Code No. Quantity Issued
Production manager’s Signature
Stores Ledger:
The Purchase Department shall maintain a Stores Ledger wherein different
pages are allocated for different items of materials and entries are made on
day-to-day basis. This book shall also mention the value of the items.
A Specimen of Stores Ledger is given below:
Stores Ledger
Description: … … … … … … … … … … … … Folio No. …….
Code:………………… Location:……………… Unit:………………..
Receipt Issue Balance
Date SRN No. Qty Amt MRN No. Qty Amt Quantity Amount
Other issues at Stores:
Stores shall demark different locations that store materials that are at
different stage in the process. The proposed demarcation can be as
follows:
• Rejected Area
• Under Inspection
• Allocated for a particular order. Here the Work Order Number should
be mentioned and can be created as and when required.
Work in Progress:
At the Production Department, a Works Book must be maintained where in
a separate page is allotted for each Crane and entries are made each day
as to the materials that has gone into the Crane. This will provide as a solid
basis for valuing Work in progress as on any day.
Specialized Process for ‘A’ Class items:
‘A’ Class items, as they are bulky and frequent movement of the same is
not preferred, can be directly downloaded at the factory instead of Stores
so that the frequent handling of the materials is avoided. However, SRN
should be raised and necessary Quality Inspection should be conducted at
the factory itself. Also, when the material is taken to assemble to the final
product necessary MRN should be raised in the Production Department,
against which a MIN is also raised in the Stores. All these documents
should be circulated as usual.
Specialized Process for ‘B’ Class items:
As most of the ‘B’ Class items are Sub-contracted, and are received in less
quantities, each of these items should be preferably inspected so a better
check can be imposed on these items. This will ensure that the production
schedules are met and the finished product is ready for delivery on
schedule.
Specialized Process for ‘C’ Class items:
‘C’ Class items should be ordered on the basis of PRN raised by Stores
which is in turn raised when a particular item has reached a particular level
that can be fixed as ‘Reorder Level’. These items do not require any
Quality Testing and as only Quantity Check is sufficient which can be done
at Stores itself. As such it is sufficient if the Storekeeper himself certify the
Quality for these items and hence sign for the Quality of these items in the
SRN rose for the purpose.
Flow Chart of ‘A’ Class items
Flow Chart of ‘B’ Class items
Quality Inspection At Factory
Used For Production At Factory
Directly Unloaded At Factory
Unloaded At Stores
Total Quality Inspection At Quality Control Department
Issued for Production by Stores to Factory
Flow Chart of ‘C’ Class items
Unloaded and Quantity Tested At
Stores
Issued for Production by Stores to Factory
Chapter 9
Summary & Conclusion
The problem of controlling the internal movement of materials at INDITAL and
avoiding the mismanagement of the same can be resolved considerably by
adopting the proposed model that is tailor made for INDITAL. The proposed
model is advantageous to the company and ensures the company that there are
minimum or rather negligible possibilities for mismanagement of the materials,
especially during the internal movements of materials between various
departments.
The benefits that can be derived by the company by adopting the proposed
model are enlisted below:
9�Better control on the internal movement of materials between the
concerned departments.
9�Easy identification of the materials as to the source and destination.
9�Complete documentation of the activities concerning the internal
movement of materials between departments.
9�Improved Materials Requirements Planning.