PROJECT REPORT

ON

INVENTORY MANAGEMENT AT TATA STEEL

Prepared for

Prof. Brajaballav Kar

Submitted by

Amruta kar - 19202137

Arun kumar Satapathy- 19202142

Sreyashi Khetua- 19202186

23 March 2020
EXECUTIVE SUMMARY

This project gives a picture of inventory management at TATA STEEL. Inventory

management is a great problem at TATA STEEL. As it is manufacturing firm, delay or other
issues related to stock, poses serious problems and huge losses. Inventory management is a
part of financial accounts of an organization. Hence the project underlines the relationship of
inventory with financial accounts and all other important aspect of inventory management at
TATA STEEL.

INTRODUCTION

INVENTORY MANAGEMENT

Inventory management and supply chain management are the backbone of any business
operations. With the development of technology and availability of process driven software
applications, inventory management has undergone revolutionary changes. In any business or
organization, all functions are interlinked and connected to each other and are often
overlapping. Some key aspects like supply chain management, logistics and inventory form
the backbone of the business delivery function.

Inventory management is a very important function that determines the health of the supply
chain as well as the impacts the financial health of the balance sheet. Every organization
constantly strives to maintain optimum inventory to be able to meet its requirements and
avoid over or under inventory that can impact the financial figures. Inventory is always
dynamic. Inventory management requires constant and careful evaluation of external and
internal factors and control through planning and review.

Most of the organizations have a separate department or job function called inventory
planners who continuously monitor, control and review inventory and interface with
production, procurement and finance departments.

INVENTORY

Inventory refers to goods and materials that held available in stock by a business. In
accounting inventory is considered an Asset. Inventory is most expensive Asset of a
company, representing as much as 40% of total invested capital.

INVENTORY MANAGEMENT

 Inventory management is primarily about specifying the size and placement of stocked
goods. Inventory management is required at different locations within a facility or
within multiple locations of a supply network to protect the regular and planned course
of production against the random disturbance or uncertainties of running out of
materials or goods. Balancing these competing requirements leads to optimal inventory
levels, which is an on-going process as the business needs shift and react to the wider
environment.
  Inventory management is the process of efficiently overseeing the constant flow of
units into and out of an existing inventory. This process usually involves controlling
the transfer in of units in order to prevent the inventory from becoming too high, or
dwindling to levels that could put the operation of the company into jeopardy.
Competent inventory management also seeks to control the costs associated with the
inventory, both from the perspective of the total value of the goods included and the
tax burden generated by the cumulative value of the inventory.

FUNCTIONS OF INVENTORY

 To maintain certain amount of inventory to prevent the time lag present in the supply
chain, from supplier to user at every stage.

 Economies of scale-Idea condition of “one unit at a time at a place where user needs it,
principle tends to incur lots of cost in terms of logistics. So bulk buying, movement
and storing brings in economies of scale thus inventory.

 To provide stock of goods to meet anticipated demand of any customers

 To separate production from the distribution. For example if product demand is high
only during the summer, a firm may build up stock during the winter and thus avoid
the costs of shortage and stock out during the summer.

 To hedge against inflation and price changes.

 To protect against any shortage that can occur due to weather, supplier’s shortages,
quality problems or improper deliveries.

 To take advantage of quantity discount, since purchase in larger quantities can reduce
the cost of goods.

 To meet the uncertainties and fluctuations in demand.

 To protect against any shortages that can occur due to weather, supplier’s shortages,
quality problems or improper deliveries.

 To permits operations to continue smoothly with the use of inventory.

TYPES OF INVENTORIES

RAW MATERIAL

Raw materials are inventory items that are used in the manufacture’s conversion process to
produce components, sub-assemblies, or finished products. These inventory items may be
commodities or extracted materials that the firm or its subsidiary has produced or extracted.
They also may be objects or elements that the firm has purchased from outside organisation.
Even if the item is partially assembled or is considered as finished goods to the suppliers, the
purchaser may consider it as raw material if his firm has no input into its production.
Typically, raw materials are commodities such as ore, paper, wood, paint, steel, food items,
minerals, chemicals, grains etc. However, items such as nut & bolts, ball bearings, key stock,
casters, seats and even engines may be regarded as raw materials if they are purchased from
outside firm.

WORK IN PROGRESS

Work in process or In-process inventory includes the set at large of unfinished items for
products in a production process. These items are not yet completed but either just being
fabricated or waiting in a queue for further processing or in a buffer storage. The term is used
in production and Supply chain management.

Finished Goods (FG)

When the good is completed as to manufacturing but not yet sold or distributed to the end-
user, it is called a "finished good".

New Old Stock (NOS)

New Old Stock is a term used in business to refer to merchandise being offered for sale
which was manufactured long ago but that has never been used. Such merchandise may not
be produced any more, and the new old stock may represent the only market source of a
particular item at the present time.

SPARE PARTS

This category includes those products, which are accessories to main products produced for
the purpose of sale. Example of spare items are bolts, nuts, clamps, screws etc.

Stock Keeping Unit (SKU)

SKU is a unique combination of all the components that are assembled into the purchasable
item. Therefore, any change in the packaging or product is a new SKU. This level of detailed
specification assists in managing inventory. Stock out means running out of the inventory of
an SKU.
INVENTORY MODELS

Independent versus dependent demand

Inventory control model assumes that demand for an item is independent of, or dependent in,
the demand for other items. For example, the demand for refrigerator is independent of the
demand for toaster ovens. However, the demand for toaster oven components is dependent on
the production of toaster ovens.

Cost associated with independent items:

Holding costs: are the costs associated with holding or “carrying” inventory over time.

Therefore, holding cost also includes cost related to storage, such as insurance, extra staffing,
and interest payment.

Ordering cost: includes costs of supplies, forms, order processing, clerical support etc., when
order is being manufactured, ordering cost also exist, but they are known as setup cost.

Setup costs: is a cost to prepare a machine or process for manufacturing an order.

INVENTORY MODELS FOR INDEPENDENT DEMANDS

 Economic order quantity model.

 Production order quantity model.

 Quantity discount model.

ECONOMIC ORDER QUANTITY MODEL/FIXED QUANTITY MODEL:

It is one of the oldest and most commonly known inventory models. It is based on some
assumptions. They are: -

1) Demand is known and constant.

2) Lead time, the time between the placement of order and the receipt of the order, is
known as constant.
 3) Receipt of inventory is instantaneous. That is inventory from an order arrives in one
batch, at one time.
4) Quantity discount are not possible.
5) Stock out can be completely avoided if orders are placed at right time.

Fig: ECONOMIC ORDER QUANTITY

PRODUCTION ORDER QUANTITY MODEL / FIXED PERIOD MODEL:

What happens when firm receives its inventory over a period of time? Such case requires a
model that does not require the instantaneous receipt assumption. This model is applicable
when inventory continuously flows or build up over a period of time after an order has been
placed or when units are produced and sold simultaneously.

This model is called production order quantity model because it is suitable for production
environment. It is useful when inventory continuously builds up over time and the traditional
economic order quantity assumptions are valid.

This model is derived by setting ordering cost or setup cost equal to holding cost and solving
for Q.

Setup cost=(D/Q) S

Holding cost=1/2 HQ[1-(d/p)]

Where D=Annual demand in units for the inventory items

Q= Number of pieces per order

S= Setup cost for each order

 H= Holding or carrying cost per units per year

d= Daily demand rate or usage rate

p= Daily production rate

GENERAL POLICIES FOR EFFECTIVE INVENTORY MANAGEMENT

Each company must adopt and follow the following internal control policies for inventory:
a) Segregation of duties must exist between record keeping and custodial function.
b) Adequate accounting control over inventory must be established and maintained.
c) Inventory should be stored where loss form fire, theft, temperature, humidity or other
elements is minimized.
d) Store keeper must compare quantities received against receiving reports.
e) Materials may be released form storerooms only on the basis of approved requisition.
f) Access to storeroom must be controlled.
g) An annual physical inventory must be performed regardless of which inventory
system is used.
h) If perpetual inventory system is used, then periodic testing of items in the inventory
must be performed to verify the accuracy of the perpetual inventory records.

COMPANY PROFILE

The TATA Iron and STEEL Company, formerly known as TISCO, began its production in
1911. It was the vision and foresight of Mr. Jamshedji Nusserwanji Tata, that on 27th
February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata steel
overcome several period of adversity and strive to improve against all odd. He untiringly
strove to create an organization that could provide India with the strength to stand on its own
feet. Tata Steel is the world’s sixth largest steel company, with an annual crude steel capacity
of 30 million tonnes per annum. It is the second largest private sector steel company in India
in terms of domestic production. Ranked 315th on fortune global 500, it is based in
Jamshedpur, Jharkhand, India.

It is part of TATA Group of companies in private sector with consolidated revenues of

Rs.1,32,110 cores and the net profit of over Rs12,350 cores, during the ended March 31 st ,
2008. Its main plant is located at Jamshedpur in Jharkhand with its acquisition of Corus, Nat
steel and Millennium Steel it has become a multinational company with operations in various
countries

The registered office of TATA STEEL is in Mumbai.

Tata steel Jamshedpur (India) works has a crude steel production capacity of 6.8 MTPA
which is slate to increase to10MTPA by 2011. The company also has proposed three
Greenfield steel project in the state of Jharkhand, Orissa and Chhattisgarh in India with
additional capacity of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, millennium steel (renamed Tata steel Thailand) and Nat steel
holdings, Singapore, Tata steel has created a manufacturing marketing network in Europe ,
south east Asia and the pacific –rim countries. Corus, which manufactured over 20 MTPA of
steel in 2008, has operations in the Netherlands, Germany, France, Norway and Belgium.

TATA STEEL Thailand is the largest producer of long steel products in Thailand, with a
manufacturing capacity of 1.7 MTPA. Tata steel has proposed a 0.5 MTPA mini blast furnace
project in Thailand. NatSteel holdings produce about 2MTPA of steel products across its
regional operations in seven countries.

Tata steel has lined up a series of Greenfield projects in India and outside which includes:

a) 6 million tonnes plant in Orissa

b) 12 million tonnes plant in Jharkhand
c) 5 million tonnes plant in Chhattisgarh
d) 3 million tonnes plant in Iran
e) 6.8 million tonnes capacity expansion at Jamshedpur.
f) 4.5 million plant in Vietnam.

TATA STEEL, through its joint venture with Tata Blue Scope Steel ltd., has also entered the
steel building and construction applications market.

The iron ore mines and collieries in India give the company a distinct advantage in raw
material sourcing. Tata Steel is also striving towards raw materials security through joint
venture in Thailand, Australia, Mozambique, Ivory Coast and Oman. Tata Steel has signed an
agreement with Steel Authority of India Limited to establish a 50:50 joint venture company
for coal mining in India. Also Tata Steel has brought 19.9% stake in New Millennium Capital
Corporation, Canada for iron ore mining.

CAPACITY

Tata Steel has set an ambitious target to achieve a capacity of 100 million tonne by 2015.
Managing Director B. Muthuraman stated that of the 100 million tonne, Tata Steel is
planning a 50-50 balance between greenfield facilities and acquisitions.

 Overseas acquisitions have already added up to 21.4 million tonne, which includes
Corus production at 18.2 million tonne, NatSteel production at two million tonne and
Millennium Steel production at 1.2 million tonne. Tata is looking to add another 29
million tonnes through the acquisition route

 Tata Steel has lined up a series of greenfield project in India and outside which
includes

1. 6 million tonne plant in Orissa (India)

2. 12 million tonne in Jharkhand (India)

3. 5 million tonne in Chhattisgarh (India)

4. 3-million tonne plant in Iran

5. 2.4-million tonne plant in Bangladesh

6. 5 million tonne capacity expansion at Jamshedpur (India)

7. 4.5 million tonne plant in Vietnam.

SWOT ANALYSIS

STRENGTHS: -

 LOW COST AND EFFICIENT LABOUR FORCE

 STRONG MANAGERIL CAPABILITIES.
 STRONGLY GLOBLISED INDUSTRY AND EMERGING GLOBAL
COMPETITIVENESS.
 MODERN NEW PLANT.
 STABLE BALABCE SHEET.
 EXPERINCE OF TATA GROUP IN DOING.

WEAKNESS: -

 HIGH COST OF ENERGY.

 HIGHER DUTIES AND TAXES.
 DEPENDENCE ON IMPORTS FOR SALE.
 MANUFACTURING EQUIPMENTS AND TECHNOLOGY.

OPPORTNITIES: -

 HUGE INFRASTRUCTURE DEMAND.

 RAPID URBANIZATION.
 INCREASING DEMAND FOR CONSUMERS DURABLES.
 UNTAPPED RURAL DEMAND.
 CONSILIDATION TREND IN STEEL INDUSTRY TO GET EXPOSED TO
THE GLOBAL STEEL MARKET.

THREATS: -

 SLOW GROTH IN INFRASTRUCTURE DEVELOPMENT.

 MARKET FLUCTATION.
  GLOBAL ECONOMY SLOW DOWN
 THRETS TO HOSTILE TAKEOVER BY ITS COMPETITORS.

COMPETITORS

The major competitors of TATA STEEL are

 SAIL,

 JINDAL,

 JSW STEEL ltd,

 VISA STEEL ltd.,

 Essar steel ltd,

 Electro steel steels ltd.,

 OCL iron and steel ltd.,

 Techno craft Industries ltd.,

 Gallantt Ispat ltd,

 Steel Exchange India ltd.,

FINANCIAL ANALYSIS OF INVENTORY AT TATA STEEL

INVENTORY RATIOS

 INVENTORY CONVERSION PERIOD

This ratio shows that in how many days’ inventories are converted into net sales and
generates revenue for the company.

INVENTORY CONVERSION PERIOD (in crores)

INVENTORY CONVERSION PERIOD=(INVENTORY/SALES)SALES

PARTICULAR 2015 2016 2017 2018 2019
INVENTORY 11255 11023 10237 7083.8 8042
SALES 41785 38269 47993 59161 70611
INVENTORY CONVERSION PERIOD 98.32 105.14 77.85 43.70 41.57

INVENTORY CONVERSION PERIOD

120.00

100.00

80.00

60.00

40.00

20.00

0.00
2015 2016 2017 2018 2019
INTERPRETATION

The inventory conversion period shows how efficiently inventory is converted into sales.
Smaller the Inventory Conversion Period better is the company’s performance. In 2015,it has
decreased by 0.16% further In 2016 it has increased 6.93% ,in the year 2017 decreased by
25.96% and in 2018 decreased by 43.86%,and in 2019 it has further ben decreased by
4.87%.This ratio establishes the relationship between sales with average stock. Therefore the
company is continuously increasing its sales in order to minimize its inventory conversion
cost.

 Stock turnover ratio

Every firm has to maintain a certain level of inventory of finished goods so as to be

able to meet the requirement of the business. But the level of inventory should neither
be too high nor too low. The stock turnover ratio measures the number of times a
company sells its inventories during the year.

STOCK TURNOVER RATIO (in crores):

STOCK TURNOVER RATIO=COST OF GOODS SOLD/AVERAGE INVENTORY

PARTICULAR 2015 2016 2017 2018 2019
COST OF GOODS SOLD 31776.2 30656.88 36117.07 43381.83 50047.98
AVERAGE INVENTORY 5884.24 4930.07 3999.42 3189.06 3482.08
STOCK TURNOVER
RATIO 5.4 6.2 9.0 13.6 14.4

STOCK TURNOVER RATIO

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0
2015 2016 2017 2018 2019
INTERPRETATION

A low ratio indicates speedy conversion of stocks to cost of goods sold or sale. From the
above table, we can see that there has been almost a consistent increase in the stock turnover
ratio of TATA STEEL. This is a good sign for the company as it indicates that high
conversion period leads increased sales and thus increases the profitability of the firm.

INVENTORY MANAGEMENT OF TATA STEEL

(in crores)
Particulars 2015 2016 2017 2018 2019
Inventory of RAW
11255.34 11023.41 10236.85 7083.81 8042
Materials(A)
Average Inventory(B) 350.85 343.62 319.10 220.82 250.69
Consumption of RAW
Materials(C) 11707.83 9700.01 12496.78 16877.63 19840.29
Consumption of RAW
Materials/Day(D) 32.08 26.58 34.24 46.24 54.36
Inventories in
Days(B/D) 10.94 12.93 9.32 4.78 4.61
Sales 41785 38268.67 47993.02 59160.79 70610.92

GRAPH SHOWING CONSUMPTION & STOCK OF RAW MATERIAL

Consumption of RAW Materials/Day

60.00

50.00

40.00

30.00

20.00

10.00

0.00
2015 2016 2017 2018 2019
 Inventories in Days(B/D)
14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00
2015 2016 2017 2018 2019

WORK IN PROGRESS(WIP)

(in crores)
Particulars 2015 2016 2017 2018 2019
WIP(A) 23036.67 26982.4 6163.96 5673.27 5796.29
Average WIP(B) 63.11 73.92 16.89 15.54 15.88
Cost of Goods Produced(C) 50047.77 43837.9 36117.1 30998.6 31776.2
Cost of Goods
Produced/Day(D) 137.12 120.10 98.95 84.93 87.06
WIP(operating days)(B/D) 0.46 0.62 0.17 0.18 0.18

WORK IN PROGRESS HOLDING PERIOD

0.70

0.60

0.50

0.40
Days

0.30

0.20

0.10

0.00
2015 2016 2017 2018 2019

Years
INTERPRETATION

 Product line of TATA STEEL includes long tubes, semis, hot rods, cold rods and galvanized
tubes.
 Tubes division uses Just –In-Time purchase system.
 A look at the chart indicates though in the last four years sales has remained same or
decreased, the stock of raw material has increased. This is due to the fact that price of
raw material has increased but company is not able to increase the price due to stiff
competition. Increase in inventory may also be due to wrong estimation of orders.
 The chart of WIP shows that both cost of goods produced and WIP have increased during
the period. work in progress holding period also has gone up which the company must
look into.

CONCLUSION

This project studies the inventory management of TATA STEEL, which is one of the most
important aspects of any organization, as it deals in managing the entire stock of raw
materials, stores and spares and finished and semi- finished goods. inventory management is
a difficult task at TATA STEEL as it is a manufacturing company and needs huge stocks at
all point of time to avoid lag time and delay in production.

The inventory ratio is a key figure in financial management of TATA STEEL. It

characterizes how much stocks are required at a point of time and and how much time does
the stock takes to be converted into finished goods and sales. The core objective is to
maintain the lowest inventory in order to reduce inventory holding cost. Further the increased
inventory also locks up short term funds of the company.
BIBLOGRAPHY

ANNUAL REPORTS

 TATA STEEL

BOOKS

 Inventory Management and Working Capital- By P.Gopal Krishnan.

 Cost Accounting-By B.K.Mehta, SBPD publication.
 I.M.Pandey, 2007 Financial Management New Delhi, Vikas publishing Hous.

WEBSITES
 www.moneycontrol.com
 www.tatasteel.com
 www.jpsindainsteel.com
 www.ibef.org