INVENTORY MANAGEMENT IN HINDUSTAN SHIPYARD LIMITED VISAKHAPATNAM

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INVENTORY MANAGEMENT IN HINDUSTAN SHIPYARD LIMITED VISAKHAPATNAM

  1. 1. A STUDY ON INVENTORY MANAGEMENT IN HINDUSTAN SHIPYARD LIMITED VISAKHAPATNAMA Project report submitted to AMBEDKAR UNIVERSITY In partial fulfillment for the award of degree of MASTER OF BUSINESS ADMINISTRATION SUBMITTED M.KALYANI Regd. No: 1109502013 Under the Esteemed Guidance of Mr. V.MAHESH Head of the Department of Management Studies GAYATHRI COLLEGE FOR P.G COURSES (Affiliated To AMBEDKARUNIVERSITY) Munasabpeta Srikakulam 1
  2. 2. DECLARATION I hereby declare that this project report entitled “A STUDYINVENTORY MANAGEMENT” with reference to “HINDUSTANSHIPYARD LIMITED, VISAKHAPATNAM” has been prepared by year 2012in the month of MAY and JUNE and JULY is partial fulfillment for award ofdegree of MASTER OF BUSINESS ADMINISTRATION OF AMBEDKARUNIVERSITY I also declare that this project is a result of my own effort and that it hasnot been submitted to any other university for the award of any degree or diploma. M.KALYANI 2
  3. 3. ACKNOWLEDGEMENT I would like to express my sincere thanks to Mr.V.MAHESH,Head Of The Department for his constructive co-operation and valuableguidance throughout the course and also during the project work. I am grateful to my project counselor Mr. MADHU, MBA lecturerfor his valuable guidance and suggestions to complete this project reportsuccessfully. I am grateful to Mr.U.S.PRAKASH RAO, M.com, P.G.D.P.A(Account officer),HINDUSTAN SHIPYARD LIMITED, VISAKHAPATNAM for giving me anopportunity to work on this project. I express my thanks to our parents and friends who helped andsupported to us to a great extent to complete this project and last but not least wethankful to all mighty. M.KALYANI 3
  4. 4. CONTENTSCHAPTER 1 . • INTRODUCTION • SCOPE OF THE STUDY • NEED FOR THE STUDY • OBJECTIVES OF THE STUDY • METHODOLOGY • LIMITATIONS • CHAPTERISATIONCHAPTER 2 • INDUSTRIAL PROFILE • ORGANIZATIONAL PROFILECHAPTER 3 • CONCEPTUAL FRAME WORK OF INVENTORY MANAGEMENT • INVENTORY MANAGEMENT TECHNIQUESCHAPTER 4 • AN OVER VIEW • ANALYSIS AND INTERPRETATIONCHAPTER 5 • SUMMARY • FINDINGS • SUGGESTIONS • CONCLUSION • BIBLIOGROPHY • ANNEXURES 4
  5. 5. CHAPTER – I• INTRODUCTION• SCOPE OF THE STUDY• NEED FOR THE STUDY• OBJECTS OF THE STUDY• METHODOLOGY• LIMITATIONS• CHAPTERISATION 5
  6. 6. INTRODUCTION Inventory is the most important asset in any company. The term inventoryrefers to the stockpile of the products a firm is offering for sale and the componentsthat make up the product. The word inventory was first recorded in 1601. TheFrench term inventaire, or “detailed of goods,” dates back to 1415. In other words,inventory is composed of assets that will be sold in future in the normal course ofbusiness operations. The assets which firms store as inventory in anticipation ofneed are (i) raw materials, (ii) work-in-progress (semi-finished goods) and (iii)finished goods. The raw material inventory contains items that are purchased bythe firm from others and are converted into finished goods through themanufacturing (production) process. They are an important input of the finalproduct. The work-in-process inventory consists of items currently being used inthe production process. They are normally semi-finished goods that are at variousstages of production in a multi-stage production process. Finished goods representfinal or completed products, which are available for sale. The inventory of suchgoods consists of items that have been produced but are yet to be sold. Inventoryallocation and mix presents the biggest risks and potential rewards for companyperform an Inventory management means keeping track of goods, which thecompany buys, or purchase, process and store as a part of their business. The costof buying or purchasing and holding inventory can be very high. It can account forup to 80% of the final price of goods or services in some industries. Goodinventory management involves minimizing inventory costs. It will also help indetermining whether a company is working profitably or is it making a loss. By 6
  7. 7. keeping a poor track of inventory a company can make a loss in some areas ofoperations without even knowing it. Inventory management involves more thanjust record keeping as it affects the operational structure of any business. The views concerning the appropriate level of inventory woulddiffer among the different functional areas. The job of the financial manager is toreconcile the conflicting viewpoints of the various functional areas regarding theappropriate inventory levels in order to fulfill the overall objective of maximizingthe owner’s wealth. In the ancient days, the business process used to take place by the exchangeof goods that is the goods that are needed urgently was taken from other businesspeople by giving our goods, which are required for them. The business process ofexchanging that is importing and exporting of goods and services is done by meansshipping because other transport such as trains and carriage aircrafts were notavailable, at that time. As the world became globalization, shipping transport playsa major source and vital role in the shipping industry. Business in this world hastaken a major role in the life of human beings. Progress and growth of everyhuman being depends upon the business, by this we know how important it is. Inthe olden days the business was carried out by exchange of goods and servicesfrom one country to another country is done through ships Hindustan Shipyard Limited was the pioneer ship building industrysituated in the eastern coast of Visakhapatnam, harbor almost midway betweenCalcutta and Chennai.The main activities of Hindustan Shipyard Limited are: 1. Ship Building 7
  8. 8. 2. Ship Repair 3. Off shore platform construction Hindustan Shipyard Limited is a tailored made company .it makesproducts according to the customer’s requirements or specifications. Inventoryconstitute the main significant part of the current assets in majority of companies inIndia .On an average, inventories are approximately 60% of current assets in publiclimited companies in India .As large size inventory are maintained by the firms, aconsiderable amount of funds in the firm is neglected, the management ofinventories will be jeopardizing in its long run profitability and may failultimately .It is possible for a company to reduce its levels of inventories to aconsiderable degree. Example 10%-20% without any adverse effect or productionand sales. By using simple inventories it carries a favorable impact on company’sprofitability.Meaning and Definition of Inventory Management: - Every enterprise needs inventory for smooth running of its activities. Itserves as a link between production and distribution processes .The greater thetime lag, the higher the requirement for inventory, it also provides a caution forfuture price fluctuations. Inventory management is required at different locationswithin a facility or within multiple locations of a supply network to protect theregular and planned course of production of production against the randomdisturbance of running out of materials or goods. 8
  9. 9. • Involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling, and related costs are kept in check. • Systems and processes that identify inventory requirements, set targets, provide replenishment techniques and report actual and projected inventory status. • Handles all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. Also may include ABC analysis, lot tracking, cycle counting support etc. • Management of the inventories, with the primary objective of determining. controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs.Inventory Management objectives • To Find and track down all the processing datas in an inventory system repository. • Define a procedure by which assets are identified and maintained in the Inventory System. • Provide all necessary personnel (data entry, update and deletion). • Restrict access of certain members • Complete range of reports that will satisfy informational requirements. • To file the Inventory Management System within the Standards and Procedures Manual. • To provide coaching to personnel responsible for supporting the Inventory Management System 9
  10. 10. The investment in inventories constitutes the most significant part of currentassets and working capital in most of the undertakings. Thus it is very essential tohave proper control and management of inventories .The purpose of inventorymanagement is to ensure availability of materials in sufficient quantity as andwhen required and also to minimize investment in inventories. The investment ininventory is very high in most of the undertakings engaged in manufacturingwholesale and retail trade. The amount of investment is sometimes more ininventory than in other assets.Advantages of Inventory Management: - 1. Inventory allows customers to be served quickly and conveniently. 2. Inventory can be used so that a company can buy in bulk, which is usually cheaper. 3. Inventory allows operations to meet unexpected surges in demand. 4. Inventory is insurance, if there is an unexpected interruption in supply from outside the operation or with in the operation. 5. Inventory allows different parts of the operations to be decoupled. This means that they can operate independently to suit their own constraints and convenience while the stock of items between them absorbs short- term differences between supply and demand. 6. Reduces cost and provide detailed reports for reference or checking purposes 7. Increase Account Saturation and Maintenance 8. Provides a flexibility to suit individual needs of customers 9. Customer’s profitability improvement and demonstrating that product price is only part of the cost of doing business with a supplier. 10. Manages item specifications and stock levels 10
  11. 11. 11. Management of cycle and physical counting 12. Multiple warehouse support 13. Support a multi-bin system 14. Serial/Lot trace ability from raw materials to finished product 15. Item/document note system 16. Auto create purchase orders for reorder point itemsDisadvantages of Inventory Management: - 1. It is expensive. 2. Keeping inventory means the company has to fund the gap between paying for the stock to be produced and getting revenue by selling it. This is known as working capital. There is also the cost of keeping the stock in warehouses or containers. 3. Items can deteriorate while they are being kept; clearly this is significant for the food industry whose products have a limited life. However it is also an issue for any other company because stock could be accidentally damaged while it is being stored. 4. Products can become obsolescent while they are being stored. Fashion might change or commercial rivals may introduce better products. 5. Stock is confusing, large piles of inventory around the place need to be managed. They need to be counted, looked after and so on. In India a study of 29 major industries has received that the averagecost of materials is 64 paisa and the cost of labor and overheads is 36 paisa inrupee. About 90% of working capital is invested in inventories. An efficientsystem of inventory management will determine a) What to purchase? 11
  12. 12. b) How to purchase? c) From where to purchase? d) Where to store? The purpose of inventory management is to keep the stock in such a waythat neither it is overstocking nor under stocking. The overstocking will mean areduction of liquidity and starving of other production processes under stockingwill result in stoppage of work. The investments in inventory should be kept inreasonable limits.Nature of inventories: - The dictionary meaning of inventory is “stock of goods or list of goods”. Inaccounting language it may mean “stock of finished goods only”.1. Raw material: - Raw material from a major input in the organization, they are required tocarry and production activities uninterruptedly. The quantity of raw materialsrequired will be determined by the rate of consumption and the time required forreplenishing the supplies. The factors like the availability of raw materials and thegovernment regulations etc to affect the stock of raw materials.2. Work in process: - The work in process is that stage of stock, which is in between raw materialsand finished goods. The raw materials enter the process of manufacturing but theyare yet to attain final shape of finished goods.3. Finished goods: - These are the goods, which are ready for the consumers. The stock offinished goods provides a buffer between production and market. 12
  13. 13. SCOPE OF INVENTORY MANAGEMENT 1. To obtain the materials and suppliers in the required quantity at the 2. Lower cost at the proper time and to meet the continuous production program. 3. To keep the inventories as low as possible, consistent with the market Conditions. 4. Forecast market and economic conditions of supply and availability of Materials. 5. Work with the potential suppliers for finding new materials. 6. Product research and development. 7. Participation in the make or buy decision of the company. 8. Maintain proper records. 9. Ensure a continuous supply of materials to facilitate uninterrupted 10.Production. 11.Minimize the company cost and time. 13
  14. 14. NEED OF INVENTORY MANAGEMENT 1. To study the basic concepts of inventory management. 2. To study the detail description of how inventory management is being implement in companies. 3. To analyze the effect of inventory management in organization. 4. To study the step-by-step process of inventory management and its practical application in organizations. 5. It is the responsibility of the firm’s management to reduce the cost of inventory management. 6. To know the areas from where the high turnover can be achieved. 7. To access various techniques in order to analyze the inventory managements in organizations. 8. To study how supply continuity can be maintained. 9. To study how quality of purchases can be maintained. 10. To know how cordial relations can be maintained with suppliers. 11. To study how actually are the scenario of inventory management in organizations. 14
  15. 15. OBJECTIVE OF THE STUDY 1. To give an overview on Inventory Management. 2. To give brief details about organization and company. 3. To study the theoretical frame work of Inventory Management with reference to HSL. 4. To analyze and interpret the Inventory turnover, Work in progress turnover, Inventory to Working Capital, and Inventory holding Periods by using ratios. 5. To come up with the suggestions and recommendations on Inventory Management.Need to hold inventory Management: - The question of managing inventories arises only when the company’sholding inventories, maintaining inventories involves tying up of the companyfunds incurrence of storage and handling cost. If it is expensive to maintaininventories, then, why do companies hold inventories?There are three general motives of holding inventories: -1. Transitive motive: - It emphasizes the need to maintain inventories to facilitate smoothproduction and sales operations.2. Precautionary motive: - It necessities holding of inventory to guard against the risk ofunpredictability changes in demand and supply force and other factors.3. Speculative motive: -It influences the decision to increase and reduce inventory level to take advantageof price fluctuations. A company should maintain adequate stock of materials for 15
  16. 16. continuous supply to the factors for an uninterrupted production. It is not possiblefor a company to produce raw materials whenever it is needed. A time lag existsbetween demand for materials and its supply. Also there exists uncertainty inprocuring raw materials. 16
  17. 17. METHODOLOGYThe methodology of collecting data is an important part of the study. The sourcesof data can be divided into two parts.1. Primary Data: Information of the primary data for the study is collected bypersonal interaction with the officers and persons of various levels who involvedthe inventory management of M/s. Hindustan Shipyard Limited Visakhapatnam.2. Secondary Data: The secondary data is required for the study of annual reportpublished by M/s. Hindustan shipyard limited, Visakhapatnam from. And also datarequired for the study is collected from magazines, newspapers and Internet. 17
  18. 18. LIMITATIONS OF THE STUDYThe limitations of this study are as follows:1. The study is conducted with the limited data available and analysis was doneaccordingly.2. The study is conducted with the time period and analysis made accordingly.3. As the data provided to using very limited and then department of matter is notpossible.4. Most of the data collected was historical5. There was no scope for gathering the entire financial information as it isconfidential.6. Keeping inventory mean the company has to find the gap between pain for thestock to be produced and getting revenue by selling it 18
  19. 19. CHAPTER – II • INDUSTRIAL PROFILE • COMPANY PROFILE 19
  20. 20. CHAPTER-2INDUSTRIAL PROFILE-SHIP BUILDING INDUSTRY  INTRODUCTION TO INDUSTRY  ECONOMIC CONDITIONS  MAJOR SHIP BUILDERS  GROWTH OF SHI BUILDING 20
  21. 21. INTRODUCTION TO INDUSTRY The shipbuilding industry is involved in the construction and modification of ships. This is carried out in a specialized facility called a shipyard. The industry builds ships for commercial as well as military purposes. History:- The shipbuilding industry can be traced back to 2,500 BC, when ancient Egyptians assembled wooden planks to build ships. Greeks started using multiple masts for increasing the speed. The shipbuilding industry across the world progressed during the ‘Middle Ages.’ Chine was home to some of the biggest seaports of the world, including Guangzhou and Guangzhou. During the nineteenth century, the use of iron in shipbuilding increased. In 1843, Islamabad Brunel built the ‘Great Britain,’ the first ship made completely of iron. Steel replaced wrought iron in the latter part of the century due to its easy availability. However, the use of wood for building decks continues until today. Modern shipbuilding manufacturing techniques Modern shipbuilding makes considerable use of prefabricated sections. Entire multi-deck segments of the hull or superstructure will be built elsewhere in the yard, transported to the building dock or slipway, and then lifted into place. This is known as “block construction”. The most modern shipyards pre-install equipment, pipes, electrical cables, and any other components within the blocks, to minimize the effort needed to install components deep within the hull once it is welded together. This was first introduced by Alstom chantiers de I’Atlantique when they built the largest ocean liner in the world canard’s RMS Queen Mary 2. Ship design work, also called naval architecture, may be conducted using a ship model basin. Modern ship, since roughly 1940, have been produced almost exclusively of welded steel. Early welded steel ships used steels with inadequate fracture toughness, which resulted in some ships suffering catastrophic brittle fracture structural cracks. Since roughly 1950, specialized steels such as ABS steels with good properties for ship construction have been used. Although it is commonly 21
  22. 22. accepted that modern steel has eliminated brittle fracture in ships, some controversy still exists. Brittle fracture of modern vessels continues to occur from time to time because grade A and grade B steel of unknown toughness or fracture appearance transition temperature (FATT) in ships’ side shells can be less than adequate for all ambient conditions. ACTIVITES OF SHIPYARD:-  SHIP BUILDING  SHIP BREAKING  SHIP REPAIRING Ship Building Global ship building is estimated to be a USD 20billion industryand is presently dominated by Korea, Japan and China, which togetheraccount for around 75 per cent of the world output. Fortunes of shipping and shipbuilding industries to be linked toeach other or at least move in tandem. For nearly three decades in the postworld war 11 era, both the industries were dominated by European nationsand united states. However, high labor costs in the yards of Europe and USA,one of the major determinants in this cost competitive industry, has led to agradual shift of the center of shipbuilding to these Asian nations over the lasttwo decades. Similar progress was observed in Indian shipbuilding industry,as per the research carried out by i-maritime Consultancy the order book ofthe Indian shipyards, which was hovering around Rs 1,500Crores in 2002,has reached a value close to Rs 13,700crores by September 2006, with ninetimes increase in just four years. The Indian shipbuilding, which was totally domestic till late90’s, has become export oriented. ABG shipyard was the first to build and 22
  23. 23. export a newsprint carrier for a Norwegian client in 2000 and establishedIndia’s competitiveness in building and delivering ships of the Internationalstandards. Today six years down, out of the 199 ships on the order book,close to 124 are for exports. India has a long history and tradition of shipbuilding that can betraced back to the Harappa civilization. However, since the beginning of the20th century, it had been on a declining scale and presently, rated capacity ofcountry’s shipbuilding yards is minuscule vis-à-vis world’s capacity. However, some private sector yards are showing increasinglybetter performance. ABG shipyards, one of the leading private sectorshipyards of the country, has recently executed an order of newsprint carriersfor Norway-based Lys lines and got another order of delivering five 10,000-dwt dry cargo vessels from a German ship-owner. Both Norwegians andGermans are known to demand the best of quality products. Looking at the prospects of Indian shipbuilding industry, it hasbeen observed that cost competitiveness remains the significant advantage ofdomestic shipbuilding industry considering the two major parameters ofshipbuilding Viz. Steel fabrication and labor. China is emerging as a majorshipbuilding nation leveraging on these advantages and posing serious threatsto Korea and Japan. Considering this, it can be said that a proper strategytaken in the right direction could leverage the competitive benefit and leadthe Indian shipbuilding industry towards better prospects.Ship Breaking Ship Breaking or ship demolition involves breaking up of agedships for scrap. Ships purchased on the basis of their light displacementtonnage (LDT) are demolished in ship breaking yards and sent to steel re-rolling mills for reuse as raw-material for production of steel. Currently, theinternational ship demolition market is centered on the Indian subcontinent.While a large number of tankers find their way to scrap yards in Pakistan andBangladesh, Indian ship breaking yards attract mostly dry and general cargovessels. Ship breaking industry in India is mostly concentrated at Alongin Gujarat, Which the world’s largest ship is breaking yard catering to nearly90 per cent of India’s ship breaking activity. However, sporadic activity alsotakes place in other locations like Sachana, Gujarat, Mumbai and Calcutta.The ship breaking activity at Along includes a total of 170 yards of which50-70 are operational and around 50,000 people are involved directly in thebusiness of scrapping. The total tonnage of ships broken in India has varied 23
  24. 24. from a low of 0.65 million 1dt in 1991-92 to a high of 2.79 million 1dt in1997-98.Financing is an important aspect of the industry as scrappingnormally involves an intermediary ‘cash buyer’. Earlier state Bank ofSaurashtra and Dena Bank took active role in the ship breaking industry,However, of late; Most banks have become reluctant to finance shipscrapping projects. Ship scrapping industry in India suffers from governmentapathy. In spite of the fact that re-rolling accounts for about 60 per cent of thenational production of bars, rods and structural and ship scrapping suppliesnearly 200,000tons of scrap every year to the re-rolling mills, the sectorremains largely disorganized as well as unrecognized. In the recent past, the ship scrapping industry attractedconsiderable attention on the issues relating to environmentalists across theworld particularly Greenpeace and Basel Action Network have drawninternational attention to the poor working environment prevailing at theIndian ship scrapping yards particularly at Along and opened up frontseverywhere by calling for legal action against scrappers, building up publicopinion against scrapping and physically blocking the ships meant forscrapping. The environmental issue could become the single largest factorthat could determine the structure of the ship breaking industry in future. Looking at the prospects of the breaking industry in India it hasbeen observed that competition from neighboring countries is expected tobecome tough in the near future. China has also come back to the scrappingindustry in recent years with a bang by capturing a significant volume oftonnage sent for scrapping. Pakistan and Bangladesh are likely to poseserious threat to Indian ship scrapping yards. Considering all the hurdlesfaced by the Indian ship scrapping industry, ample scope for improvementhas remained and Indian ship scrapping industry is expected to take allpossible actions to keep the industry vibrant.Ship Repair Ship repairing is a service, consisting of a number of smallerservices on various parts and components of the ship. While the repairingactivity is adjunct to shipyards and ports, the extent and complexity of theseservices vary. Ship repairing in India started long back. The first dry dock wasbuilt at Bombay port in 1750 and second at Calcutta port in 1781. For abouttwo decades immediately after the Independence, the Indian ship repair 24
  25. 25. industry made a booming business. The potential size of the ship repair industry in India is around Rs.44 billion, Which includes repairing by Indian and foreign vessels calling at Indian ports. However, only a small percentage of this business equivalent to Rs 10-12 billion is executed by the Indian ship repairing industry. In India, major shipyard carry out both ship repair and ship building activities. The industry is controlled by 10 large and 30 to 40 medium and small sized shipyards apart from Naval Dock yards and Defense shipyards. The attempts to set up exclusive ship repair facilities in the private sector failed to perform. The growing fear of pollution and stricter norms and regulations, ship repairing services are in demand. Indian shipyards have the competitive advantage like low labor costs, Availability of trained and skilled labor force and proximity to international shipping routes required for getting success in the business. However, the industry is in a dismal state, not withstanding such advantages and has not been able to cater to the needs of the Indian merchant fleet adequately due to following reasons. • Lack of new investments in machinery/equipment • Deterioration of existing machinery/equipment • Usage of obsolete methods and systems • Lack of suitable training for up gradation of skills • Life emphasis on professional management techniques • Supply bottlenecks for raw-material and spares • Over dependence on public sector • Cumbersome government procedures • Extremely low labor productivity While there has been success in the field of ship breaking and ship building industry in India both of which are labor intensive, ship repairing industry can also replicate the scenario provides it utilizes its inherent competitive advantage. The ship building industry –riding the economic wave 25
  26. 26. The global economic recession and the decline in sea-bornetrade led to over-capacity of ships globally ultimately affecting theperformance of the shipbuilding industry during 2009. The globalshipbuilding order book declined from 367.2 million GT as on December31,2008 to 303.5 million GT as on December 31,2009 primarily led by theslow growth of new-build orders aggregating 18.2 millions GT duringCY09 as against 90.7 million GT during CY08. The vessels delivered duringCY09 compared to 64.2 million GT of deliveries during CY08. The record scrapping volume particularly in the dry vesselsegment and y-o-y decline in vessel prices in the range of 20-30% providesno respite to the Dwindling global shipbuilding order book, especially incase of major shipbuilding nations such as South Korea, China and Japanthereby requiring their respective governments to take corrective measuresin terms of restructuring of yards facing financial crisis and also offeringmonetary and non-monetary incentives to boost the industry’s prospects.However, the Asian shipbuilders continue to dominate the global orderbook accounting for 95.1% of the total as on December 31,2010. Of thesame, in continuation of the trend during 2008, the market share of the SouthKorean shipbuilders remained the highest at 37%. The share of the Chineseand Japanese shipbuilders stood at 36.1% & 16.8% respectively. The Indian shipbuilders occupied 5th rank globally accountingfor 1.44% of the global order book with 2.2 million GRT of vessels on orderas on December 31,2009. The Indian shipbuilders specialize in theconstruction of offshore vessels. However, the expansion of shipyards to theextent of constructing bigger vessels such as dry bulk carriers has enabledthe Indian shipbuilders to attract new-build orders in the said vesselsegment. Importantly, the Indian yards reported no major instance of ordercancellation during CY09 as compared to their peers in South Korea andChina, primarily owing to no speculative orders being placed with the Indianyards and majority of the orders being received from repetitive clients. We expect the shipping fleet to be in over-capacity duringCY10-CY13 based on a combined mix of factors such as world fleet size,world GDP-current prices and the historical trend of sea-borne trade. In spiteof the new-build vessel prices declining by 20-30% on y-o-y basis, weexpect increased demand for second-hand vessels as compared to new-builds. The said demand is expected to be driven by relatively lower pricesof second-hand vessels with younger fleet on offer. 26
  27. 27.  Major ship Builders The world shipbuilding industry is largely dominated by Asian players, such as South Korea, China and Japan. In 2008, South Korea’s production level was higher than that of entire world combined. The nation’s top shipbuilding companies include Hyundai Heavy Industries, Daewoo shipbuilding and Marine Engineering and Samsung Heavy Industries. The world’s biggest shipyard launches a new vessel every four days. The shipbuilding industry is $100 billion. The industry is vital to the economy as it supports trade and other ancillary services. South Korea is the world’s largest shipbuilding nation with a global leader in the production of advanced high-tech vessels such as cruise liners, super tankers, LNG carriers, drill ships, and large-sized container ships. In the 3rd quarter of 2011, South Korea won all 18 orders for LNG carriers, 3 out of 5 drill ships and 5 out of 7 large-sized container ships. South Korea’s shipyards are highly efficient, with the world’s largest shipyard in Ulsan operated by Hyundai Heavy Industries slipping a newly-built, $80 million vessel into the water every four working days. South Korea’s “big three” shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo shipbuilding & Marine Engineering, dominate global shipbuilding, with STX shipbuilding, Hyundai samho heavy Industries, Hanjin Heavy Industries, and Sungdong shipbuilding & Marine Engineering also ranking among the top ten shipbuilders in the world. In 2007, STX shipbuilding further strengthened South Korea’s leading position in the industry by acquiring Aker yards, The largest shipbuilding group in Europe. In the first half of 2011, South Korean shipbuilders won new orders to build 25 LNG carriers, out of the total 29 orders placed worldwide during the period. China is an emerging shipbuilder that briefly overtook South Korea during the 2008-2010 global financial crises as they won new orders for medium and small-sized container ships based on their cheap prices, although its current production is limited mainly to basic vessels. Japan lost it’s once industry leading position to South Korea in 2003 and its market share has since fallen sharply. The European nations combined output has fallen to a tenth of South Korea’s, and the output of the United States and rest of the world have become negligible. 27
  28. 28. Indian ship building Industry Shipbuilding, which includes shipyards, marine equipment manufacturers, and large number of service and knowledge providers, is an important and strategic industry in a number of countries around the world. Shipbuilding is a globalized, technology-based, and capital intensive industry. The industry is influenced by developments in the shipping industry and the market dynamics. One of the unique factors of the shipbuilding industry is sold before the construction begins and each ship is custom made for the owner. it may take around 1 to 3 years for the delivery of a new ship. The buyer orders a ship in anticipation of its future use and sometimes it is done with an advance charter agreement which makes it important for the shipyard to deliver the ship within the specified time. This feature makes delays in shipbuilding unacceptable at times, and thus the buyers prefer to place order with established shipyard that have a good track record.Major shipyards in India S.no NAME YEARS OF YEARS OF FOUNDATION REGISTRATION 1 HSL-VIZAG 19 1956 2 CSL-COCHIN 19 1973 3 HOOGLY SHIPYARD 19 1901 KOLKATA 4 MDL-MUMBAI 19 1934 5 GRES-KOLKATA 1984 1931 6 GOA SHIPYARD-GOA 1857 1967INDIA PORTS, MARITIME TRASPORTATION, AND INLANDWATERWAYS The linkages between international trade and the transportnetwork are obvious. An efficient transport system can boost trade and greatervolume of trade can, in turn, create demand for investment in the transportnetwork. It is now widely acknowledged that efficiency in the transport sector hasmajor spillover effects on the competitiveness of both goods and services.Competition and increased efficiency in maritime transport services, resulting in 28
  29. 29. lower freight rates, contribute directly to a country’s international competitiveness.Similarly, the development of air transport services is crucial for the sustainabledevelopment of trade and tourism. This sector acts as an economic catalyst byopening up new market opportunities, moving products and services with speedand efficiency. The quality of the transport network has direct implications for theinflow of foreign direct investment In the past, the requirement of large-scale investment, longgestation periods, uncertain returns, associated externalities together with socialobjectives such as consumer protection, welfare and equity have resulted ingovernment monopoly in transport services. In many developing countries, thegovernment owned, operated and financed the transport sector and success andfailure in the provision of such services was largely a story of government’sperformance. This picture is rapidly changing with globalization and theliberalization of national economies. Increased commercialization and growth of international tradehas led to considerable pressure on the operating environment of the existingtransport infrastructure, forcing it to adapt new, improved and more reliabletechnology. Commercialization has also enhanced competition among tradingnations to increase their share in the world’s trade. For instance, with increasingsize and sophistication of ships, container ships now make only a few calls in threeor four harbors at each end of the trade while the rest of the traffic is served bysmall feeder ships. This has increased the competition among neighboring harborsto develop as “hub” ports catering to large container ships. Governments all overthe world are finding it increasingly difficult to finance the investment required tosustain the growth of transport infrastructure. On the other hand, globalization hasgiven birth to large multinational corporations and alliances that have thewillingness. Financial strength and technical know-how to operate andmanage t advanced transport network. This has created a unique situation where bycountries, which were once closed-door, are opening-up their corridors forprivatization and foreign investment. The Indian aviation and maritime transportsectors have not been an exception to this trend. Prior to the 1990s, TheGovernment was the main provider of these services and there were variousrestrictions on private participation. During that period, the performance of these sectors wasmarked by monopoly-induced in efficiency and low productivity. In fact, in both ofthese transport services, India’s share in world trade had been steadily declining. Inthe 1990s, When India embarked upon an ambitious reform programmed, thedemand-supply gap in transport infrastructure became more pronounced. The need 29
  30. 30. of the hour was to rectify the infrastructural bottlenecks to sustain the reformprogrammed. It is at this juncture that the Government announced various reformmeasures in air and maritime transport services, including privatization. It was expected that privatization would increase efficiencythrough competition, reduce the financial constraints and speed up the process ofadaptation of new technologies. The following section will provide a broadoverview of maritime and air transport services in India. It will critically analyzethe policies and developments in these sectors since the 1990s. The subsequentsection will suggest various regulatory, fiscal and other reforms which couldfacilitate the privatization process and improve the overall efficiency, productivityand global competitiveness of the sectors.Growth of ship Building in India Ship building is a branch of heavy engineering industryIt is an assembly industry. It draws boilers, engines, electrical goods, glass, rubber,nuts and bolts etc. manufactured by other industries. The industry manufactures ship of a variety of sizes andfor a variety of purposes ranging from fishing vessels, cargo ships, oil tankers,cruise liners to ferries. Boats, sailing boats, etc. are also made by this industry. The industry also manufactures naval ships rangingfrom mine layers, mine sweepers, destroyers, destroyers, frigates, tugs to air craftcarriers, gun boats, submarines etc. Ship building is a highly expensive, Technical, timeconsuming, scientific and sophisticated industry. It exists in a few economicallysound and technically advanced countries only the industry has developed onaccount of:  Growing international trade relationships among the countries of the World  Development of Iron and Steel and various other industries connected with fitting and trimming of the ships.  National security and race for naval supremacy in the world has boosted construction of ships of different sizes and for different purposes for the use of the navy. 30
  31. 31.  Availability of capital.  Advancement in marine architecture and marine technology.Kolkata, Visakhapatnam, Mumbai, Kochi and Moraga are ship building centers. Inthese shipyards, ships of a variety of sizes and purpose are built. These includeboats, fishing boats, fishing vessels, barges, cargo ships and warships. 1. The Hindustan shipyard Ltd. Visakhapatnam set up by M/S Scindia Steam Navigation company in 1941 was taken over by the Indian Government in 1952 and named Hindustan Shipyard. The yard has constructed over 150 ships so far. 2. The Cochin Shipyard Ltd. Kochi started work in 1976. 3. The Garden Reach factory, Kolkata has specialized in the construction of naval boats, harbor crafts, tugs, barges, dredgers etc. It is on the eastern bank of Hooghly. 4. Hooghly Dock and port Engineers Ltd. Was set up in 1984. It has 2 units in Howrah district in West Bengal.(a) Salkia(b) Nazirganj These units manufacture a variety of ships like dredgers, tugs, fishingtrawlers, offshore platforms for the ONGC etc. 5.The Meagan Dock, Mumbai constructs dredgers, frigates, destroyersetc. for the Indian Navy. Besides there are three dozen small ship yards in the country engagedin manufacturing of small sized vessels for the domestic shipping companies. Goashipyard makes fiber glass boats, trawlers, barges and dredgers. Repair shipyards. These are 17 such yards in India. They carry out ship repair work. 31
  32. 32. CHAPTER 2COMPANY PROFILE-HINDUSTAN SHIPYARD LIMITED  HISTORY AND BACKGROUND  VISION AND MISSION  OBJECTIVES  MILESTONE ACHIEVEMENTS OF HSL  ACTIVITES OF HSLHISTORY AND BACKGROUND One of the important components of Visakhapatnam economy, theHindustan Shipyard limited, Visakhapatnam is credited with the establishment ofone of the most significant shipyards in the city. The first president of IndiaDr. Rajendra Prasad laid the foundation of the shipyard in 1941. The shipyard wasnationalized in 1961, and renamed Hindustan Shipyard limited. In 2009, HSL was 32
  33. 33. transferred from the Ministry of shipping to the Ministry of Defense. The shipyardplayed a critical role in the development of nuclear-powered. One of the major shipbuilding establishment of the country, HSL is anISO 9001:2000 organization. It maintains a separate safety department to ensuresafe working environment and a training centre to impart human resourcedevelopment lesson’s and technical trainings. The esteemed organization provideshousing, medical and educational facilities not only for its employees but for thegeneral public as well. A government of India undertaking, HSL was built to facilitate anefficient shipyard to serve customers better. Mr. Ajit Thiwari is the currentmanaging director of HSL Visakhapatnam. Covering a sprawling area of 46.2hectares, the Hindustan Shipyard is equipped with latest technologies. Theshipyard has top of the line storage and logistic facilities plasma cutting machines,modern cranes, separate quality checking department, vigilant cell, weldingmachines and every other necessary components required to run a modernshipyard. The ship repairing unit of the shipyard has facilities like water jetcleaning, grit blasting, dynamic balancing, hydraulic elevators etc., The shipyard is relatively compact at 46.2 hectares(0.462 km2). It isequipped with the plasma cutting machines steel processing and welding facilities,material handling equipment, cranes logistics and storage facilities. It also hastesting and measuring facilities. It also conducts major overhauls of Indian NavySubmarines, and is being equipped to construct nuclear powered submarines.VISION: To become a world class defence shipyard to construct naval shipsand submarines for the Indian navy and coast guard and to meet the repairrequirements of such vessels and other government vessels.MISSION: To upgrade the shipyard, acquire advanced technologies in war ship andsubmarine construction in a phased manner from 2010to2025 and take up projectsplanned by Indian navy and Indian coast guard for meeting its long terms needs.OBJECTIVES:  To incorporate “Best practices” in all key activities of the yard such as production, efficiency, customer satisfaction, marketing, Human Resources, purchasing and planning. 33
  34. 34.  To develop the technological capabilities in the area of ship design and ship construction and render ‘Ship Building’ more viable.  To secure new ship building orders from indigenous and export market & construct vessels for National Maritime and Defense Sector.  To expand ship repair facilities.  To undertake retrofitting of normal refit, short refit & medium refit and modernization of special class sub marines such as 877 EKM submarine.  To work out cost effective funding arrangement for ship building and major ship projects.  To effect economy in expenditure.Board of directors1. RA dm. N.K.MISHRA,NM,IN(Retd.) Chairman & Managing director2. Shri RAKESH MAHAJAN director Finance & Commercial3. Cmde. K.S.SUBRAMANIAN,NM,IN(Retd) Director(shipbuilding)4. Dr. DEVISINGH Independent director5. Shri GYANESH KUMAR, IAS Director6. VAdm. N.N.KUMAR,AVSM,VSM,IN Director HSL being an old & premier shipyard of the country has beenstriving towards better productivity and optimum utilization of resources. The totalincome of the company during the year is Rs. 637.87 Crores as compared to Rs.651.16 Crores for the previous year. your company recorded a profit of Rs. 54.99Crores as against Rs. 2.32 Crores of previous years due to accounting of Rs. 34
  35. 35. 452.68 Crores grant in aid received from Government of India as financialRestructuring Package. The major highlights of the year 2010-11 are as follows The Ministry has sanctioned RS.824.90 Crores as financialRestructuring package and the same has been implemented successfully. The company concluded contracts for an order value approx. Rs.798 Crores with Coast Guard, Indian Navy and Kandla port Trust. However theorder value is not sufficient for the yard to sustain. The company desperately needsto secure high value orders from Indian Navy after its transfer of Administrativecontrol from Ministry of shipping to Ministry of Defence. Some of the noteworthy achievements during the year are asfollows 1. Two 53 K bulker vessels were delivered to M/s. GML. 2. Six vessels of different categories were launched /floated. 3. Keels were laid for five new vessels. 4. Repair of ONGC jack up rig is at advanced stage of completion and targeted to be delivered by the end of Nov 2011. 5. Repair of twenty three vessels was undertaken during the year 2010-11 including two warships viz. INS KUMBHIR & INS SANDHAYAK. The present shipbuilding order book position comprises 24 vesselsout of which 14 vessels are at various stages of their construction. The focus of theyard during the next couple of years will be on completion of the orders of M/s.GML & five IPVs for Indian Coast Guard. The other orders would also be attendedto with renewed planning & production norms to keep the workshops & workmenoptimally utilized. However, I regret to inform that with present order book mostworkshops will remain idle in near future unless some high value orders aresecured by HSL.Grading vide memorandum of understanding The performance of the company for the year, based on self appraisalis “GOOD” in terms of the MOU signed with the Ministry of Defense.TRANSFER TO MINISTRY OF DEFENCE Considering the strategic location of HSL and requirements ofdefence, the president of India transferred the administrative control of Hindustan 35
  36. 36. Shipyard limited from the ministry of shipping to the Ministry of Defence witheffect from 22nd February, 2010 under Government of India (Allocation ofBusiness) Rules, 1961 vide notification No.1/22/1/2010-Cab, Dated 22ndFebruary,2010. The shipyard would now play a major role as a Defence yard andundertake construction of Hi-tech Warships and Submarines.Corporate Governance Your company constantly endeavors to adopt and maintain the higheststandards of ethics in all spheres of its business activities. Your company firmlybelieves in the fundamental principles of corporate Governance like honesty,integrity, accountability, transparency and legal/statutory compliances, to protect,promote and safe guard the interests of all stakeholders. It also strives to carry outits business obligation with good corporate values duly discharging its duties formaximum level of transparency in decision making to avoid conflict of interests. Italso accords due importance to adherence of adopted corporate values andobjectives and discharging social responsibilities as a responsible corporate citizen.Infrastructure up gradation & modernization The yard infrastructure is required to be upgraded to increase itscapacity and efficiency for construction of sophisticated defense vessels in future.This up gradation has been planned to be undertaken in two phases. In first phasethe existing infrastructure facilities would be refurbished and or renewed. Budgetestimates for the phase-1 modernization is Rs. 457.36 Crores. In the second phasethe yard infrastructure would be augmented so as to make the yard capable ofconstructing modern warship, submarines and amphibious vessels etc. Both theproposals are under active consideration at Ministry of Defense.Future outlook:- HSL is strategically located on the east coast of India. The yardhas been transferred from ministry of shipping to ministry of defense infebruary2010.The yard has been identified for construction of war ships andsubmarines. The present order book will be completed by Aug 2013 and thereafterHSL will construct mainly defense vessels. The surplus capacity, If any, availablewould be utilized for commercial vessels. In coming years there is a plan to modernize the infrastructure inorder to make this yard viable for construction of high value orders from navyvizag, warship, submarines and other amphibious ships. with the capacityimprovement and modernization of the yard HSL will grow as one of the majordefense shipyard in the country. 36
  37. 37. Human resource development Considering the large attrition rate of the existing workforce of thecompany in coming years, Your company has started inducting the youngworkforce to fill up the organizational gaps. Your company has inducted 15management trainees recently and will continue to induct more in coming yearsdepending upon the requirements. The skill development is one of the high priorityareas to hone the skills required for construction of complex warships andsubmarines. Hence, your company continues to impart training to new entrants andexisting employees as well to increase the productivity. Further, recently yourcompany has revised the pay scales of the staff and workmen of the company inorder to boost their morale which will result in higher productivity. However whileapproving the wage revision: Your Company could not arrange the payment ofarrears due to staff & workmen as the financial health of the company did notpermit such payments. This is a major issue of the Unions as the wage for Officerswas undertaken prior to wage revision of staff & workmen and their arrears havebeen paid.Capital Structure:- The authorized equity share capital of the company as on 31March2011 stood at Rs 304.00crores against which the paid up equity share capitalas on 31 March2011 is Rs 301.99CroresFinancial Restructuring:- The ministry has sanctioned Rs824.90Crores towards financialrestructuring package as mentioned below: • An amount of Rs 452.68 crores (rupees four hundred fifty two crores and sixty eight lakhs)has been given as grants in aid for clearance of old outstanding liabilities towards banks ,employee arrears tax arrears and other liabilities • The existing government loan with interest and government guarantee fee against loan from SBI amounting to Rs.372.22crores (Rupees three hundred seventy two crores and twenty two lakhs)has been converted as loan in perpetuity without interest.PERFORMANCE HIGHLIGHTS:financial parameters:- 37
  38. 38. The directors are pleased to inform that the company has recorded aprofit before tax (PBT)of Rs.165.18crores during the year 2010-2011.This increasein PBT is due to accounting of grant-in-aid of Rs.452.68crores as income whichhas been received from government of India towards financial restricting. Value of production:- The Company achieved a value of production of Rs.603.84croresduring the financial year 2010-2011.MEMORANDUM OF UNDERSTANDING:- In term of the parameters finally arrived at the memorandum ofunderstanding signed with government for the year 2010-2011,performance of thecompany is expected to be rated as “GOOD”.DIVISION WISE PERFORMANCESHIP BUILDING:- Your Company had achieved a turnover of Rs.258.49 Crores duringthe year 2008-09 on the shipbuilding front. Your Company had achieved aproduction of 63772 DWT during the year 2008-09 which is 85% of the installedcapacity. The shipbuilding Division of your company achieved a value ofproduction of Rs. 243.08 Crores for 2009-10 as against Rs.258.49 Crores of theprevious year. The shipbuilding division of your company achieved a value ofproduction of Rs.243.19crores for 2010-2011 as against Rs243.08crores of theprevious year. MAIN EVENTS:- Following are the major events recorded by the shipbuilding divisionduring the year2010-2011 SI. Events Date Descriptions of vessel Owner no 1 Fresh contracts 27Aug2010 3 no 50 TBP Tugs Indian navy concluded 23 8 no. inshore patrol Coast Guard Mar2011 vessel 24Mar2011 2 no.50-TBP Tugs Kandla port trust 2 Delivery 12Apr2010 First (of 6 no)53000 GML, Chennai DWT Bulker 05-Feb2011 Second(of 6 no)53000 GML, Chennai DWT Bulker 3 Floating/Launching 03May2010 Floating of second (of GML, Chennai 6 no)53000 DWT 38
  39. 39. Bulker 15May2010 Launching of third (of Coast Guard 5 no)inshore patrol vessel 14Jul2010 Launching of first (of 2 Visakhapatnam no)50 TBP Tug port trust (VPT) 04Nov2010 Launching of second VSP port trust (of 2 no)50 TBP Tug (VPT) 06Nov2010 Launching fourth (of 5 Coast Guard no)inshore petrol vessel 31Mar2011 Floating of third (of 6 GML, Chennai no)53000 DWT Bulker 4 Keel Laying 27Dec2010 First(of 3 no)50-Ton Indian navy BP Tug 27 Second (of 3 no)50- Indian navy Dec2010 Ton BP Tug 30Dec2010 Fourth(of 6 GML, Chennai no)53000DWT Bulker 30Dec2010 Fifth (of 6 GML, Chennai no)53000DWT Bulker 05Mar2011 Third(of 3 no)50-TBP Indian navy Tug Order book position as on 31 May2011:- HSL is presently having an order book of 24 vessels of which,14 vessels are under various stages of construction the value of the above shipbuilding order is Rs 1108.21 crores. The details of order book position are as follows:-SI. Yard no Type of the No. Owner (Rs in Contractual Anticipno vessel of c delivery ated vesse r)Balan date Deliver ls(qty ce y date ) contrac t value1 11138to111 53000 DWT 4 GML, 237.29 Jul2009- Sep201 41 Diamond series Chennai Jan2011 1- 39
  40. 40. bulk carriers Aug201 32 11154to111 Inshore patrol 5 Indian 34.07 Mar2008- Aug201 58 vessels coast Mar2009 1- guard Jul20123 11160&111 50-T bollard 2 VSP port 39.13 Mar2011- Aug201 61 pull Tugs trust Jul2011 1- Oct201 14 11162to111 50-Ton bollard 3 Indian 155.40 Oct2012- Oct201 64 pull Tugs navy Jun2013 2- Jun20135 11165to111 Inshore patrol 8 Indian 551.12 Aug2013- Aug201 72 vessels coast May2015 3- guard May201 56 11173to111 50-T bollard 2 Kandla 91.20 Mar2013- Mar201 74 pull Tugs port trust Jun2013 3- Jun2013 Total 24 1108.2 1 Production physical performance:- The ship building production in DWT and capacity utilization achieved during the year 2010-11 are presented below. The figures for same parameters for previous year are also shown for comparison. SI. Description unit 2010-11 2009-1 no 0 1 Installed capacity(at 3.5 DWT 75250 75250 standard pioneer ships per annum) 2 Actual production achieved DWT 61853 67572 3 Capacity utilization percentage 82% 90% 4 Productivity achieved M.hrs/DW 42.5 27.20 T 40
  41. 41. SHIP REPAIRS:- During the year, the ship-repair division undertook repairs on 53vessels of various types belonging to Indian Navy, Dredging Corporation of IndiaLtd., shipping Corporation of India Ltd., Visakhapatnam port trust and 27 foreignvessels and also miscellaneous repair works. The ship repair division achieved aTurnover of Rs.201.65 Crores inclusive of the repair works on INS Sindhukirti.The ship repair turnover has increased by 32.88% in 2008-09. This could beachieved by utilizing the Dock facilities to the optimum level. The ship RepairsDivision of against Rs.144.13 Crores of the previous year. Ship repair division hasundertaken belonging to Indian Navy, DCI, SCI, ONGC, VPT etc. During the year ship repair division has undertaken repairs of 22vessels (including 8 foreign flag)of various types belonging to Indian navy,DCI,SCI,ONGC,VPT etc. and also miscellaneous works. The repair dock wasutilized to its optimum level. Your company achieved a ship repair turnover ofRs277.38crores during the year2010-11and is committed to increase its revenuefrom ship repairs in coming years.Ship repair income (Rs in crores)RETROFIT 41
  42. 42. Your company has signed a contract on 3rd October, 2005 with IndianNavy for MR-cum-modernization of INS sindukirti and the total refit is jointlyundertaken by HSL, naval Dockyard (Visakhapatnam) & Rosoboron export(ROE). Subsequently 8 contracts were concluded with ROE for logisticsupport and material supply to carry out the medium refit. The major works on submarine that were completed under this refitcontract is enumerated below: • Defect survey on entire hull structure completed and pressure hull repairs commenced. • Chemical cleaning & defect survey on piping spools of various systems completed & pipe manufacturing commenced. • Spares & yard material to take up repair works on Engineering equipment and hull structure have been received. • HSL welders were trained to take up pressure hull repairs and welding of Titanium piping spools. • Basic design for modification of keel block for leveling of Submarine has been completed. • Sonar Dome insulation renewal undertaken first time in India. • Major infrastructure for submarine repairs has been set up. The value of production on account of submarine Repairs wasRs. 99.31 Crores for 2009-10 as against Rs.57.52 crore of the previous years. Thevalue of production on account of submarine repairs at the retrofit Division wasRs.83.27 crores.MAJOR WORKS DURING THE YEAR 2010-11  Repair contract of Jack up Rig “SAGAR RATNA” of ONGC, worth Rs 450 Crores is at an advanced stage of completion and targeted to be delivered by the end of Nov 2011.  INS Sandhayak and INS kumbhir repair orders of Rs 75 crores is presently in progress. 42
  43. 43. MODERNISATION:- The yard is required to be modernized to increase its capacity andefficiency for construction of sophisticated defense vessels in future. Themodernization is planned in two phases.(a)Phase-1-in the first phase, the existing infrastructure facilities need to berefurbished/renewed as identified.(b)Phase-2-in the second phase of modernization in order to construct sophisticatednaval vessels.DRAWING &DESIGN OFFICE: The design works for ongoing projects such as inshore patrolvessel, yard crafts, Dry dock gate and bulk carriers etc. Have been carried outusing Tribon M3 software in the CAD/CAM center. The capacity of design officeis also planned to be augmented to cater for design of warships and submarines.IMPLEMENTATION OF INFORMATION TECHNOLOGY Your company has successfully implemented the following tasks under IT: • Database holding various enterprise data pertaining to the ERP application i.e., purchase, inventory, Finance, HR & payroll etc., was upgraded with higher version to enhance the security, scalability, reliability of the data. • To enrich the network facility in the yard, various technical recommendations were obtained by conducting the survey in association with various reputed network firms. • The following jobs were undertaken during the year 2008-09 is under progress: 43
  44. 44. 1. The applications i.e., provident fund loan, provident fund contribution, pay arrears, family pensions, medical reimbursements etc lying under payroll application which are placed on the legacy system platforms are being customized and migrated to ERP package for enhanced level of usage in terms of ease of use, online interface and integration with enterprise modules. 2. Introduction of web-enabled employee attendance regulation system with RFID readers at various yard entry points which enables centralized and real-time storage of attendance data and enquiry of the same from all computers which are connected over yard LAN for effective monitoring of time keeping management for effective usage of production man days. 3. Provides of internet for more no. of employees in the yard and for customers in customer servicing centre by placing the highly network security unified threat tools and proper analyzer tools to monitor the security and usage of internet service. 4. Enrichment of HINDI version in HSL website with more content which is in English version.OPERATING RESULTS: The summarized financial results of the company for the year2010-2011 are presented below. The profit shown is due to receipt ofRs.452.68crores.Grant-in-aid from government of India for clearing oldoutstanding liabilities reflected as extra-ordinary items in the statement givenbelow. Description Rs.in crores Ship Ship Retrofi Un Total Buildings Repairs t Allocatio n Total income 247.85 286.02 91.18 12.83 637.88 Profit/loss before (170.02) 64.07 (28.20) (131.32) (265.47) 44
  45. 45. depreciation, interest &incometax&extra- ordinary items(PBDIT) Depreciation 5.07 0.46 1.35 0.80 7.68 Interest & finance 2.39 5.29 0.42 6.25 14.35 charges Extra-ordinary - - - 452.68 452.68 items(grant in aid from )GOI Profit/loss before (177.48) 58.32 (29.97) 314.31 165.18 tax(PBT) Deferred tax asset 110.19 written off Net profit after tax 54.99CONTRIBUTION TO CENTRAL EXCHEQUER:- Your company’s contribution to the national exchequer during theyear 2010-2011 by way of income tax, customs duty & excise duty isRs.104.64crores.QUALITY ASSURANCE:- The 3 rd surveillance audit transition to ISO 9001:2008standards was satisfactorily carried out during 19May 2010,21-May2010 and anew certificate of approval of ISO 9001:2008hasbeen issued by LRQA, The 4thsurveillance audit was satisfactorily conducted during08Nov2010,10Nov2010.The Quality management system of ISO9001:2008 isbeing maintained through periodical internal quality audits. The 5th surveillanceaudit was last undertaken between21Jun2011to23Jun2011.INDUSTRIAL RELATIONS The industrial relations situation in the company during the year wascordial and harmonious. HS staff and workers union elections were held on14-11-09. Management has accorded recognition to the union for a period of 3years. In order to motivate employees, HSL has implemented new promotionpolicy for both staff and workman to streamline promotions. The wage revision forstaff & workmen is due from 1-1-2009. The management has constituted a wagenegotiation committee and the negotiations have been completed. The MOU is 45
  46. 46. being processed further for the Board and Government sanction. The industrialrelations were cordial and harmonious during the year 2010-11.The company under takes the following ship repair activities: Oil tankers, general cargo vessels, bulk carriers, passenger’s vessels,port crafts, hand mix bulker, survey vessels, off shore patrol vessels, drill shifts, offshore supply vessels and drilling platforms for oil sector.ORGANIZATIONAL STRUCTURE The department can be mainly categorized as follows:- 1. PRODUCTION DEPARTMENT 2. ADMINISTRATION DEPARTMENT 3. SERVICE DEPARTMENT1. PRODUCTION DEPARTMENT The production department mainly consists of following sectionsHULL SHOP:- It deals with material preparation like plates used for the construction ofship.PRE-FABRICATION:- It deals with ship parts like the funnel, wheel house and engine roots.FRECTION DEPARTMENT:- Assembling the ship parts to make complete ship workBLACK SMITH DEPARTMENT:- It deals with railing work, flooring work etc.STEEL METAL DEPARTMENT:- It deals with air conditioned works. 46
  47. 47. RIGGING DEPARTMENT:- Holding the ship with repairs.PAINTING DEPARTMENT:- Plumbing works in trappers.ENGINEERING DEPARTMENT:- Facilitating and assembling the main engine.ADMINISTRATION DEPARTMENT The Administration department consists of the following sections. a) ACCOUNTS DEPARTMENT b) PERSONAL DEPARTMENT c) INTERNAL AUDIT DEPARTMENT d) GENERAL AUDIT DEPARTMENTACCOUNT DEPARTMENT:- The following are the sections in accounts department • COST ACCOUNTS • BILLS AND INSURANCE • PROVIDENT FUND • SALARIES SECTION Cost accounts deals with compilation of final accounts, budgets andcost report to ministry, direct and indirect taxation that is central excise, income taxand sales tax. Bill and insurance deals with payments bills is passing of billsand insurance of materials etc. Pay account deals with the payment of wages, salaries,provident fund and gratuity and V.R provident fund is allowed. 47
  48. 48. PERSONAL DEPARTMENT It consists of the following cells:  STAFF CELL  WORKMEN CELL  EXCUTIVE CELL Acts which are present in the HSL are: Promotions leave management, medical requirements, visitorsman agent facilities, general administration shifts, time keeping etc.INTERNAL AUDIT DEPARTMENT The department checks the value of inventories and billsdifferent branches of accounts are a waited annually.GENERAL DEPARTMENT This responsible for procurement of the stationary and functionalgoods others incidental items.SERVICE DEPARTMENT The service department consists of the following sections:- a. Design office b. Production, planning department c. Quality control department d. Purchase department e. General stores f. Bond store g. Clearance department h. Maintenance department 48
  49. 49. i. Civil engineering department j. Medical and health department k. Transport department l. Security departmentINFORMATION TECHNOLOGY In the field of information Technology your company has successfullyimplemented the following tasks during the year  Action is initiated for introduction of e-procurement in HSL and likely to be implemented by Mar 2012  Initiated National informatics Center (NIC) mail service in view of more confidentiality & security for all HSL official correspondence.  Implemented the network security using group policy.ENVIRONMENTAL ASPECTS Your company continues to be environmental friendly and hasfulfilled all the statutory requirements of central and state pollution control boards.The company is committed to meet all the stipulated for maintaining andprotecting the environmentMILESTONE EVENTS OF HINDUSTAN SHIPYARD LIMITED 49
  50. 50. • 1941 DR.RAJENDRA PRASAD, the then president of Indian National congress laid the Foundation stone on 21-06-1941 for scindia shipyard at Visakhapatnam• 1946 Keel for the first steam ship “JALA USHA” was laid on 22.06.1946.• 1948 First steam ship of 8000 DWT, JALA USHA was launched by pandit JAWAHARLAL NEHRU the first prime minister of India on 14-03-1948• 1953 Switch over of the construction of steam ship to Diesel ships• 1958 Achievement of 100000 GRT• 1961 HSL becomes a fully owned Govt. of India enterprise in July, 1961.• 1962 Awarded certificate of Honour by president of India for 1961-62.• 1971 Commission of dry dock for ship repairs• 1972 Training ship “RAJENDRA” handed over to Smt. Indira Gandhi, P.M.• 1976 Commissioning of wet basin adjacent to dry dock for afloat repairs.• 1983 Laying of foundation stone for building dock on 28-08-1983.• 1983 Inauguration of stage-11 development programmed by MoS & t.• 1985 Inauguration of off-shore platform construction yard by Hon’ble sri glani zall singh, the president of India on 17-07-1985• 1987 Inauguration of new covered building dock for construction of ships upto 50,000 DWT by president of India on 05-04-1987• 1987 Delivery of highly sophisticated drill ship “SAGAR BHUSHAN” to ONGC.• 1992 Float out of the first biggest vessel of 42,750 DWT bulker from the building dock on 23-09-1992.• 1993 First time oil flown from K.G.basin, through HSL built platforms.• 1993 Delivery of the 100th vessel-M.V.LOK PRATAP on 28-06-1993. 50
  51. 51. • 1999 first biggest 1200 passenger-cum-cargo vessel “M.V.Swaraj Dweep” to A&N Admin.• 2000 Delivery of first biggest bulker of 42,750 DWT.• 2004 First major repair of jack up oil rig ‘sagar praghati’ for ONGC• 2005 modernization &medium refit of INS sindhukirti,877 EKM submarine• 2006 INS vagli for Indian navy was successfully completed.• 2007 Launching/floating and delivery of 2 nos. 30,000 DWT bulk carriers.• 2008 second biggest 700 passenger vessel delivered to union territory of Lakshadweep• 2009 commencement of hi-tech major lay up repairs on jack up oil rig “sagar ratna” for ONGC• 2010 Transfer of administrative control from MOS to MOD• 2010 Delivery of the first biggest 53,000 DWT bulk carrier M.V. Good pride to GML• 2011 Delivery of the second biggest 53,000 DWT bulk carrier M.V. Good precedent to GML• 2011 Modernization of the yard is in progress. 51
  52. 52. Main engine installation Out fittinA SHIP IS BORNBasic designDetailed designWorking plansMarking and cuttingFabricationsSub-assemblyMain assemblyKeel lyingBlock erectionLaunchingDock and sea trails Delivery of ship 52
  53. 53. CHAPTER - III • THEORETICAL FRAME WORK OF INVENTORY MANAGEMENT • INVENTORY MANAGEMENT TECHNIQUES 53
  54. 54. CONCEPTUAL FRAMEWORK Inventory in a wider sense is defined as an idle source of allenterprises. However, it is commonly used to indicate raw material in process,finished, packaging spares and others, stocked in order to meet an expecteddemand and distribution in future. Even though inventory of material is an idleresource in the sense it is not meant for the most immediate use, it is almostnecessary to maintain some inventories for the smooth functioning of theorganization. The benefit of inventory can be best understood if one imagines ofan organization is working on no inventories at all this organization on receiving asales order would have to order out the quality of materials required for computerthis order wait till this arrives and start production. One will think of various disadvantages of this way of fluctuatingcustomers would invariable have to part every high price meal buy inch. Theproduction cost would also be high because of facilities to take advantage ofpatching. Incase there is excessive receiving at either receipts or at any of themanufacturing stages, long waiting be inevitable to get fresh suppliers. The load onthe manufacturing shop would vary from the period depending upon the order onhand in should show a come put would not be able to provide satisfactorycustomers service and would fail to take advantage of economics in bulkprocurement and batch manufacturing and this would not stand long in completionboth in the matter of price and customers. In many organizations materials from the largest usedexpenditure items analyze of the financial start of a large number of private and 54
  55. 55. public sector organization indicates that materials account of nearly 60% of totalexpenditure. The various firms in which inventories exist in manufacturingcompanies are raw materials work-in-progress (semi finished goods) and finishedgoods. Raw materials are those basic input materials that are converted in tofinished products. Working process inventories are semi-manufactured products that needmore work before they become finished products for sale, stocks of raw materialsand work-in-processes facilities production which stock of finished goods isrequired for smooth marketing operations. These inventories serve as link betweenthe production and consumption of goods. A manufacturing firm will havesubsequently high levels of all three kinds of inventories which retail of wholesales, firms will have a very high level of finished goods inventories and no rawmaterials and work-in-process inventories, inventories constitute that mostsignificant part of current assets of a large majority of countries in India. Forexample, are an organization inventories are approximately 60% of current assetsin public limited companies in India.NATURE OF INVENTORIES: - Inventories are stock of the product a company is manufactured for sale andcomponents that make up the product. The various forms in which inventories existin a manufacturing company are raw materials, work-in-progress and finishedgoods. Raw materials are those basic inputs that concerted in to finished productsthrough the manufactured process. Raw materials inventory those units, which 55
  56. 56. have been purchased and stored for future production. Work-in-process inventoriesare semi-manufactured products. They represent products the need more workbefore they become finished productivity for sale. Finished goods inventories arethose completely manufactured products, which are ready for sale Stock of rawmaterials and work-in-process facilities production while stock finished goods arerequired for smooth marketing operational. These inventories serve as a linkbetween the production and consumption or goods with in manufacturing firmsthere will be difference. Large heavy engineering companies produce longproduction cycle products on the other hand inventories of the consumer productcompanies will not be large become of short production cycle and fast turn over.Objectives of Inventory Management: In the context of the inventory management the firm is face with theproblem of meeting two confliction needs: 1. To maintain a large size of inventory for efficient and smooth production and sales operations. 2. To maintain a minimum investment inventories to maximize profitability. Both excessive and inadequate inventories are not desirable, thereare two danger points with in which the firm should be determined and maintainoptimum level of inventory investment. The optimum level of inventory will be thelevel between the two degree points of excessive and inadequate inventory. Thefirm should always avoid a situation of over investment or under investment ininventories.The major dangers of over investment are:1. Unnecessary tie up of the firm funds and loss of profit. 56
  57. 57. 2. Excessive carrying cost.3. Risk of liquidity. The excessive level of inventories consumes funds of the firms, thatcannot be used for any other purpose, this involves opportunities cost. Thecarrying cost such as the cost of storage, handling insurance, recording andinspection also increase in proportion to the volume of inventory. These costs willimpair the firms’ profitability further. Excessive inventories carried out for longperiod increases chance of loss of liquidity. This is possible under constitution ofinflation and scarcity, work-in-process is far more difficult to sell. Similarlydifficulties may be faced to dispose off finished goods inventories as time length.The downward shifts in market and the seasonal factors may be because finishedgoods to be sold at low price another danger of carrying excessive inventories isthe physical determination of inventory while in shortage facilities, thus factors arewith in the control of managing unnecessary inventory in inventories can be cutdown maintain as inadequate level of inventories is also dangerous. Theconsequences of under investment in inventories are:1. Production hold upper2. Failure to meet delivery commitment. Inadequate raw materials and Work-in-process inventories will result infrequent production interruption. Similarly it finished goods inventories are notsufficient to meet the demand of customers regularly they may shift to competitionwhich will amount to a permanent loss to the firm.An effective inventory management should be: 57
  58. 58. 1. Ensure continuous raw materials of facilities.2. Uninterrupted production.3. Maintain sufficient stock of raw materials in period of short supply and Anticipate price changes.4. Maintain sufficient finished goods inventory for smooth sale operation and efficient customer service.5. Minimize the carrying cost and time.6. Control investment in inventories and keep it at optimum level.Types of Inventories: -Raw materials: To hold stock of materials, an organization deploys its primaryproduction section and process to obtain raw material from manufacture stockiest.Work-in-progress: Work in progress inventories are some manufacture productsthat need more work before they become finished products for sale.Finished Goods: The stock of finished goods provides a buffer between customerand demand and manufacturing supplies.Flabby Inventories: It comprises finished goods, raw materials and stores heldbecause of poor working capital management and inefficient distribution.Profit Making Inventories: It represents stocks of raw materials and finishedgoods held for realizing stock profit.Safety Inventory: It provides for failure in suppliers unexpected spent in demandetc., although there may be an insurance cover. 58
  59. 59. Normal Inventory: Based on a production plan, lead time of suppliers andeconomic levels. Normal inventories fluctuate primarily with change in productionplan.Excessive Inventory: Even an efficient management may be compelled to buildup excessive inventory for reasons beyond its control as in the case of strategicimpact as a measure of government price support of a commodity.ADVANTAGES OF INVENTORY MANAGEMENT: -QUICK SERVICE: Customers desire a prompt fulfillment of orders. A girl willhave to make goods available for sale. In the event of its not being able to officequick service to customers, the latter are likely to get then orders executed thecompetition, a firm is in a position to the advantage of trade discount by placingbulk orders with suppliers.REDUCTION IN ORDER COST: Each other increase certain cost if the numberof orders is reduced it is possible to economize on these costs or the procedureinvolves each other need not be repeated each time.EFFICIENT PRODUCTION RUNS: Inventories help a firm to make sufficientlong runs and these by achieve efficient production, which increase in theproduction run, is possible to reduce the run it is possible procedure the set upcosts of operations. 59
  60. 60. PROTECTION AGAINST SHORTAGE: Adequate inventory protect a firmagainst shortage that would result in production stoppage and considerable losses.INVENTORY MANAGEMENT CONTROL: - In management inventories the fill objective should be in consonance withthe shareholders wealth maximization principle. To achieve this, the firm shoulddetermine the optimum level of inventory make the firm feasible inefficientinventory control results in unbalanced inventory and inflexibility the firm maysome time run out of stock and sometimes may file up unnecessary stocks. Thisincreases the level of investments and makes the firm unprofitable. To manageinventories efficient answers should be sought to the following two questions:1. How much should be ordered?2. When should it be ordered? The first question is how much to order, relates to the problem if determiningeconomic order quantity and is answered with an analysis of costs to maintaincertain level of inventories. The second question when to order arises became ofuncertainness and is a problem of determining the order points. 60
  61. 61. INVENTORY MANAGEMENT TECHNIQUES RE-ORDERING LEVEL: It is the point at which if stock of a particular material in store approaches, the storekeeper should initiate the purchase requisition for fresh supplies of that material. This level is fixed somewhere between the maximum and minimum levels in such a way that the difference of quantity of the material between the re- ordering level and the minimum level will be sufficient to meet the requirements of production up to the time the fresh supply of the material is received. Re-ordering level = Minimum level + Consumption during the time required to get the fresh delivery. (Or) Re-ordering level = Maximum consumption x Maximum re-order period MINIMUM LEVEL OR SAFETY STOCK LEVEL: This represents the minimum quantity of the material which must be maintained in hand at all times. The quantity is fixed so that production may not be held up due to shortage of the material. Minimum stock level = Re-ordering level – (Normal Consumption x Normal Re-order Period) MAXIMUM LEVEL: It represents the maximum quantity of an item of material which can be held in stock at any time. Stock should not exceed this quantity. The quantity is fixed so that there may be no overstocking. Maximum stock level = Re-ordering level + Re-ordering quantity – 61
  62. 62. (Minimum consumption x Minimum re-ordering period)DANGER LEVEL: This means a level at which normal issues of the material are stopped andissued are made only under specific instructions. The purchase officer will makespecial arrangements to get the materials which reach at their danger levels so thatthe production may not stop due to shortage of materials.Danger level = Average consumption * Max. Re-order period for emergencypurchasesAVERAGE STOCK LEVEL: Average stock level = Minimum stock level + ½ of re-order quantityECONOMIC ORDER QUANTITY: One of the major inventory management problems to be involved in howmuch inventory should be ordered when inventory is replenished. If the firm isbuying raw materials it has to decide lots in which it has to be purchased on eachreplenishment. If the firm is planning are called order quantity problems and thetask of the firm is to determine the optima or economic order quantity. Determineare optimum inventory levels involves two types of cost:1. Ordering cost: The term ordering is used in case of raw materials include the entire costsof acquiring raw materials, they include costs incurred in the following activities,requisition purchases ordering, transportation, receiving, inspecting and storing,ordering cost increases in proportion to the number of orders place. The clerical 62
  63. 63. and staff cost how ever do not have to vary in proportion to the number of ordersplaced. Alternatively, as the number of orders increases the clerical and staff costsalso increases. Ordering cost increases with the number of orders. Thus the morefrequently inventories acquired, the higher the firm ordering cost on the other handif the firm maintains large inventory levels, they will be few orders placed andordering cost will be relatively small. Thus ordering costs decreases withincreasing size of inventories.2. Carrying cost: Cost incurred for maintaining a given level of inventory is calledcarrying cost. They include storage insurance taxes, determination and obsolesce.The storage cost comprises cost of shortage costs of storage space incurred inrecording and providing special facility such as fencing lines and racks.TABLE -3.1The following table provides summary or ordering and carrying costs ORDERING COSTS CARRYING COSTS Requisition Ware housing Order placing Handling Transportation Clerical and staff Receiving and inspecting and storing Insurance Clerical and staff Deterioration and obsolescence Carrying cost vary with inventory sizes. This behavior is contrary to thatof ordering cost, which declines with increase in inventory size. The economic sizeof inventory would thus depend on trade off between carrying costs and orderingcosts.ABC ANALYSIS: 63
  64. 64. ABC analysis is a basis analytical technique for inventory management, which enables top management to direct the effort where the result will be the highest. This tool is popularly known as “always better control”. This analysis classifies the inventories according to the importance of each component. All components are not off equal importance. The firm should therefore classify inventories to identify which item should receive major attention. The high value items are classified as an items and would be under highest control. “B” items fall in between these two categories and require reasonable attention of management. “C” items represent relatively least value and would be under simple control. The normal items in most of the organizations show the following pattern:1. Category “A” generally consists of 15-25% of inventory, which is of highest value.2. Category “B” consists of 20-30% of inventory and accounts for 20-30% of annual usage value.3. Category “C” consists of 40-60% of inventory and accounts for 10-15% of annual usage value.4. The purpose of ABC analysis: the object of carrying out ABC analysis is to develop policy guidelines for selective control. 64

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