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“Inventory Management in BPCL”

Summer training project report submitted in Partial fulfillment of the
requirements of Master of Business Administration



Session 2009-2011

Submitted To: Submitted by:

Mr. Sandeep Kumar Manish Kumar
Roll No. 0912770014

IIMT Engineering College, Meerut

Affiliated to UPTU,

i . ex e

I hereby declare that this Summer training project report is based on visit at

BHARAT PUMPS AND COMPRESSORS LTD. (A subsidiary of Bharat Yantra

Nigam Ltd. & an Enterprise of govt. Of India)”.this is my original and genuine Project

report. The facts stated in the project are correct to the best of my knowledge and belief.

Manish Kumar



A formal line of appreciation would hardly meet the end of justice expression my
sincere thanks to Mr.R.B.singh (administrative officer training) for providing me
every possible help to complete my work within the given time period of 6 weeks.
As the task of completion was gigantic and stupendous, but I tried to give all the
efforts related to my training as my level best.

I as a vocational trainee wish to place on record my gratitude and

appreciation of the continued support, guidance and co-operation extended by
the different employee of each level of human resource and development, GAD,
welfare/safety, time office, production, purchase , quality control, store, and
marketing. I specially thank to the DGM (PERSONNEL), who contributed full
support and valuable guidance during my project work and training period in the

At the end I am thankful to all the employee of the BPCL, Naini, who gave
their full support and co-operation during my training by giving me sufficient
knowledge related to the organizational environment.
The completion of this training report is the result of valuable guidance,
constructive suggestions, keen interest and eminent supervision of the training
officials and the every experienced employee of BPCL.

Thanking you,
Manish Kumar
Summer training
Project report
(IIMT Engg. College

BPCL was incorporated on 1st Jan 1970. Since then it has established a reputation of

providing high quality durable products on which maintenance cost is least.

My basic idea was to learn as much as possible in the stipulated time period. The

project is based upon the general study of MKTG part of Organization and Marketing

Strategy and plan Of BPCL

The size of the company and work force is huge. Even though the competition is

tough the working efficiency and quality of products is great. It is an achievement in


I have included many interesting aspects of the organization including a very

original idea and comments of executive as well as non executive employees.


Summer training project is a part of the academic requirement incorporated in the

curriculum of MBA programme. This exercise enables the student to get practical

exposure to the realities of corporate world in action and in practice.

The intent of my work is to know the all marketing strategies of BPCL and the all

information collect through the secondary data. Due to good guidance and support of the

livelihood & marketing department of BPCL I could produce useful results. In this

project data is collected from the secondary through annual report, magazines, personal

manual, charts and tables. Similarly to conduct analysis of products of the BPCL the

secondary data was collected through the annual report, magazine, personal manual,

charts & tables and internet, I am able to complete project report, which is submitted as

a part of the two year course leading to Master of Marketing Management. The project

comprises several chapters namely, overview of organization, Research methodology,

finding and suggestion conclusion by these I have analyses the all strategies of BPCL. At

last on the basis of all records and the information collect by all workers of BPCL we can

say that BPCL is very powerful pumps and Compressor Company in India.

History of the organization

Company profile

Product Profile


Scope of the study

An Overview

Research Methodology

• Defining the Problem

• Research design

• Sample Design

Type of universe

Sampling units

Source list

Size of sample

• Sample procedure

• Collection of Data

Analysis and Interpretation of Data

Suggestions& Recommendations

Bharat Pump’s and Compressor’s Ltd. incorporated in 1970, was established at Naini.

The Trans of Yamuna area of Allahabad (U.P.) with the objective to design, manufacture

and supply of capital goods in the fluid handling field including provision of services

connected therewith.

BPC which caters to the need of core sector of the economy such as oil

Exploration and exploitation, refineries, petro-chemicals and fertilizers process

Industries, nuclear and thermal power plants ,had in its earlier phases entered into

Technical collaboration with word renowned manufacturers to indigenously design and

manufacture heavy duty centrifugal and reciprocating pumps, reciprocating compressors

and high pressure gas cylinders and other hi-tech oil field equipments such as cementing

units, sucker rod pumps etc.

In a very short span, the company absorbed the technology and established

itself as a world renowned manufacturer of a wide range of hi-tech products. Bpc has

supplied its products to the total satisfaction of the customers in almost all national

projects of companies like ONGC, OIL, BPCL, IOCL, HOC, RCF, Nuclear power

Corporation, Dept. of Atomic Energy, and IPCLETC.

The marketing planning is must to ensure growth and continued profitability to a

company. This can be achieved through identification of market opportunities, proper

investment plans and utilizing existing resources at the right time and right place.

Without proper marketing planning a marketing manager

a) Losses control over the future of the firm, as he is not in position to know the

reasons of failure and cannot take any corrective action.

b) Faces with the problems of managing by crisis rather than design.

c) Remains busy in counteracting the well timed, well planned offensive strategies

of competitors.

d) Cannot bring his company to the seat of the market leader rather the company will

always be a follower of the competitors.

Every product is designed in a particular way - product analysis enables us to

understand the important materials, processing, economic and aesthetic decisions which

are required before any product can be manufactured. An understanding of these

decisions can help us in designing and making for ourselves.

Product analysis includes following patterns:

1. Quality of products

2. Technology of products

3. Price concerning products

4. Delivery Performance of products

5. Sales Promotion concerned with products

6. Market share

Product analysis can seem to follow a fixed pattern:

1. Think about the design from an ergonomic and functional viewpoint.

2. Decide on the materials to fulfill the performance requirements.

3. Choose a suitable process that is also economic


Centrifugal Pumps
Pumps for Application in Power Plants.
Pumps and Reciprocating Piston and Plunger Pumps.
Compressors Cementing Units.
Sucker Rod Pumping Unit.
Reciprocating Compressors.

High Pressure Seamless Industrial Gas

Gas Cylinders Welded Cylinders.
Cylinders in Cascade for Storage of

Compressed Natural Gas (CNG)

Range of Products

Centrifugal Pumps Maximum

2500 KW
140 kg/cm2
12,000 M3/Hr
Fluids Dimineralized water, Sea water,

Handled Hydocarbons, Neptha, LPG, Carbonate

Solution, Boiler Feed Water, Benefield

solution, Alkaline and Acidic Solution,

Ammonia liquor and slurry

Reciprocating Pumps Maximum 1700 KW

675 kg/cm2
315 M3/Hr
Fluids Drilling Mud, Cementing Slurry, Crude Oil

Handled steam, Condensate, Heavy Water, Fatty

Acids, Ammonia Carbonate, Liquid

Ammonia, Water Injection

Reciprocating Compressors
Maximum Power 25,000 KW
450 kg/cm2
70,000 NM3/Hr
Fluids Handled Air, Nitrogen, Oxygen, Carbon Di-Oxide,

Hydrocarbons, Ammonia, Synthesis Gas,

Hydrogen Sulphate, Coal Gas etc.

400 kg/cm2
110 Litres.
Fluids Handled Oxygen, Nitrogen, Hydrogen, Argon,

Air, Helium, Carbon Di-Oxide, Nitrous

Oxide, Acetylene, Ammonia, Chlorine,

Freon, LPG, Compressed Natural Gas




1. Reciprocating pumps

2. Centrifugal pumps


1. Reciprocating Compressors

Gas cylinders:

1. High Pressure Seamless Industrial Cylinders

2. Welded Cylinders.

3. Cylinders for Compressed Natural Gas (CNG)


The company has embarked upon an ambitious plan to add its product range,

cementing and factoring unit sucker rod pumps, mini and micro hydro turbines, boiler
feed pumps and nuclear pumps. The diversification efforts would be directed towards

self-sufficiency in the capital goods requirement in the oil and petrochemical industries.


To cope up with the challenge of indigenous manufacturing highly technical

sophisticated products equaling international standard of quality and performance BPCL

has installed a most modern and sophisticated special and general purpose machine

assembly, testing shops, heat treatment and most fabricated shops.

The machine center has in operation the latest computerized numerically control

(CNC) machines. Test facilities in factory are capable of full load testing of the

completed products range to 2000 KV endurance testing is conducted without affecting

other program. Heat treatment such as hardening, tempering, winding, normalizing etc.

can be done for the component up to 1800 mm length. The critical components are

fabricated as per international standards.

Three different assembly shops are catering the need for assembly and utilization

of centrifugal and reciprocating compressors. Utilization involves mounting on skill with

prime mover and associated system including various instruments, control system, high

pressure piping etc.

Quality assurance:

Backed up by metallurgical and other laboratories the quality assurance programs

confirm to international specification and requirement. The products and compressors

meet the specification of international codes such as API and are fully guaranteed for
performance on basis of proven a most update designs. Gas cylinders are manufactured as

per ISI and usage approved from the Chief controllers by explosive Nagpur.

Design and Engineering:

A strong design department has been in BPCL with highly qualified and

competent engineers who has been trained in application engineering, thermodynamic

calculations, hydraulic calculation and system design in the areas of piping and

instrumentation etc. a computer aided design center is being set up.

BPCL has achieved a number of breakthroughs in R & D activity. The progress

achieved in various R & D program are.

Solar pumps:

BPCL has already developed two stage solar pumps and complete system with

solar panel, which has been installed in company’s premises and is capable of pumping

2.5 m/hr of water at a head of 15 feet,

Ben field solution pumps:

This pump is required for a fertilizer plant is under final stage of development.

Slurry pumps:

Engineering work for development of L.C. pumps for slurry application has been


Ash slurry pumps:

Engineering work is under progress on ash-slurry pump requiring for thermal

power plant.
We have products for all core sectors

BPCL has been catering to the needs of core sectors of economy in India by way

of offering products/services in close association with user organization. BPCL is taking

an active part in progress of modern Indian by way of participating in supplying

equipments to prestigious projects of National importance.

Major core industries served by us are:

• Oil and Gas Exploration and Exploitation

• Refinery

• Petrochemicals

• Chemicals

• Fertilizers

• Thermal and Captive Power

• Nuclear power

• Defense

• Environment

• Steel

• Cross Country Crude and Product Pipelines

• Automobile


BPCL offers a wide range of pumps types conforming to latest API 610 edition

available in various sizes and ideally suited for use in process and allied industrial such


• Petrochemicals

• Chemicals

• Fertilizers

• Thermal Power

• Crude and Product Petroleum Pipelines

• Pipeline Services for crude and refined petroleum transportation

• Nuclear Power Plants

• Off-Shore Oil Exploration

• Refineries

• Booster Services



These are heavy duty single and double stage radial split centre line mounted and of

horizontal construction.


These are required for medium and high capacity and low/medium pressure and are axial

split pumps with near centre line support.


These are double volute multistage horizontal pumps for high pressure and medium

capacity duties with axial split casing and centre line support.


These are single stage horizontal construction Bracket mounted pumps for handling

abrasive, corrosive, viscous and clogging slurry.


These are medium duty vertical process pumps


Single stage or double stage horizontal pumps with axial split casing design suitable for

transfer of petroleum products for pipeline applications.

Nuclear Pumps:

BPCL developed moderator pumps model VN400X75 (mechanical seal type) and

emergency core cooling pump model VBN 430X16 for 235 MW Nuclear Power Plants.

For more advanced technology BPCL after absorption of technology from

Pompes Guinard, France is manufacturing a comprehensive product time for Nuclear

Pumps required for 235 MW and 500 MW Nuclear Power Plants.


Our models for different services of Nuclear Power Plants are:

1. Vertical multistage barrel type pumps i.e. VMBS, which is being used as Primary

System Feed Pumps.

2. Horizontal double suction heavy-duty radial split pumps i.e. KSMK which are

being used as shut down cooling pumps.

3. SMK/KSMK pumps available being used in heavy water plants and service water



BPCL design and manufactures custom built Reciprocating pumps conforming to

API (674) latest edition available in various sizes for a wide range of applications for

handling a variety of liquids such as Petroleum, Crude, Mud, Ammonia, Carbamate,

Cementing Slurry, DM-Water Condensate.

These pumps are basically required for services such as:


2. BPCL offer crude transfer pumps/Effluent injection pumps/Water Recycle

pumps/Drilling Mud Pumps/Work over rig pumps/Cementing Slurry pumps/Sucker

rod pumping units for such services.


In this area, BPCL offer Ammonia Reactor Feed Pumps, Carbamate Feed Pumps and

H.P. Wash Pumps.


In this area, BPCL offer sulfadizing Chemical Pumps wash water pumps and wax hydro

finishing units.


1. Triplex plunger pumps

2. Quintuplex plunger pumps


 Oil & Natural Gas Commission.

 Indian Oil Corporation.

 Hindustan Petroleum Corporation.

 Fertilizer Corporation of India Ltd.

 Indian Farmers Fertilizer Corporation.

 Gas Authority of India Ltd.

 Indian Petro-Chemicals Ltd.

 Madras Refineries Ltd.

 Oil India Ltd.

 Bharat Petroleum Corporation.

 Engineers India Ltd.

 National Fertilizer Corporation.

 Indo Gulf Fertilizers Corporation.

 Indraprastha Gas Limited.

 Bongaigaon Refineries & Petro-Chemicals Ltd.

 Cochin Refineries Ltd.

 Tamil Nadu Petro-Chemicals Ltd.

Quality Assurance A strong Design

Programmers conform Department has been

to International established which

specifications and houses Computer aided

requirements. Design Center. Highly

qualified, trained,
Research and
experienced and
Development efforts
competent engineers are
are supported by test
involved in application
facilities for model
testing in the
centrifugal pumps,
calculations, hydraulic
reciprocating pumps
calculations and
and compressors area
systems design in the
and also carry out live
area of piping,
testing of expendables
electrical, operational

Fully groomed control etc.

The company
Commissioning and
undertakes long term
Spare Parts Division
maintenance contract of
renders Product
Support, Technical the equipments installed

Assistance and advice and commissioned at

besides providing customers' plants, with

quick and effective the objective to

after sales service maximise their profits

and minimise their


In Time Delivery,


Commissioning of


Common Objective To Long Term Preventive

Maximise Profits And Maintenance Contract -

Minimise Cost Of The Low Cost,

Customer Low Downtime

Just In Time Continuous

Spare Parts And Rapid

Management- Technological

Low Downtime Upgradation

On The Job Training

Programme For Customer

Operational & Maintenance



Marketing plan is a systematic anticipation and analysis of future coupled with the

methodology for adapting such changes. It takes care of all the lapses of a marketing

manager and also highlights the weakness of the company, which would be attacked for

meeting the ultimate objective of the company i.e. “Profitability through Customer



There are following importance of planning to Management of Business:

• Planning forces on the future direction, values and sense of purpose; basic

objective tell the direction of growth.

• Planning provides a unifying decision making framework and facilities

integration of efforts.

• Planning helps to identify potential market opportunities and threats.

• Planning offers standards of performance for comparison and evaluation and

evaluation of actual performance.

• Planning enable the organization to tune its business with environment and

establish a profitable relationship with environment.

• Precise plan can achieve a correct balance among:

1. Corporate resources

2. Corporate effort and

3. The Market potential

• Planning assures effective management of change and thereby survival and

growth and the enterprise. If there is anything constant, it is change. Change

implies progress. Change is manageable only through conscious planning. For

instance. Planning can reveal future threats and uncertainties or probable changes

in the national economy. Management can be prepared to face the change, convert

difficulty into opportunities and meet the challenge of change (resistance to

change with reasonable success).

• We determine our goals, policies, procedure and time bound precise action plans

in advance and all activities are well coordinated and direct along predetermined

channels on the target markets. Hence there is no problem of confusion or chaos,

no barriers of communication and no need to grope in the dark. Thus we have an

orderly and smooth journey to arrive at our destination as per plan.

The company has been facing stiff competition from various manufacturers both

domestic and foreign. The major competition is from the following competitors:

Centrifugal Pumps:

• Pump’s Gerhard France

• Kirlosker brother

• KSB PUMPS (India/Germany/France)

• Khimline Pumps

• David Brown, U.K.

• Sumitomo, Japan

• SULZER, japan

• EBARA, france

• Neuro Pignonce

Reciprocating pumps:

• Oil, Will, U.S.A.

• L & T Ltd.

• Ingersoll Rald

• M.Govind Dar

• Usha Tele Hoist

• Metriplex and gamma Engineering

• Urea Germany

• Recirproacting Compressors, Nuovo Pingnone, Italy

• Worthington, U.S.A.

• Regal International, U.S.A.

• Atlas COPCP (India/Germany)

• Newman Esser, U.S.A.

• Thomasser, Holland.



• Ingersoll Rand, India / USA

• Atlas Copaco, India/ Belgium

• K.G. Khosla, Faridabad

• Nuovo pig none, Italy

• Worthington, USA

• KOBE Steel, Japan

• Kirlosker Pneumatics, Pune

• Regal International, U.S.A.

• Hitachi, Japan

• Cooper Engineering, U.S.A.


1. C.V.O./ Vigillance Office

2. Calcutta offices

3. Chennai Offices.

4. Civil Department

5. Delhi Office

6. D.G.M. (W.) Office

7. Dibrugarh Office

8. E & C

9. E.P.b.

10. Feeder

11. Finance

12. G.C.M. (G.C.D. / S.G.C. / P.E.X. / M.P.X.s)

13. MD Office

14. MPX

15. MSX

16. Marketing / SDL

17. Mumbai Office

18. PCM

19. PDD. (GDE / PDE)

20. Personnel (Per / GAD / TO / TR)

21. PEX

22. Porous Mass

23. O.A.

24. OCX

25. RDE

26. SPCD


28. Secretary

29. Spare Parts (SPM)

30. System Appraisal

31. Technology (TSX)

32. Tool room (TGX)

33. Training

34. Transit Flat (G.H.)

35. Technology Service

36. Vadodara Office.

37. WS (GCM / PCM)

38. Welded


efore the order is placed for the product the major function of marketing department is to

get the order. To get the order the company sends its tenders on invitation. The tender

should not only be in a superior position in respect of price but also in respect of

technology with its competitors.

In order to achieve the target of order booking the steps being taken by BPCL to

bring about improvement are:

i) Delivery period: Before placing any order customers tries to evaluate the past

performance and present promised with regard to delivery period So BPCL needs special

attention to be in time for dispatching of final products.

ii) Economy: Due to entry of foreign suppliers, competition has increased, especially on

price front. So BPCL is trying to reduce its cost of production by brining about all round

economy in various stages of production and distribution, so that its price is not too high.

iii) Quality: Quality of product is one of the major factors that play an important role in

securing orders and increasing Market share, therefore total attention should be given for

maintaining quality of product.

iv) After sales service: Their should be sufficient after sales service given by marketing

department for maximum consumer satisfaction.


BPCL have a complete team of design and development engineers. Pumps and

compressors are designed in conformity to American Petroleum Institute Standards

(API), PN Europe or any other National/International codes specified by

clients/consultants. Once the marketing department to the design department

communicates the order specification, this department carries out material requirement

identification. It prepares Detailed Purchase Indents (DPI), which contains details about

each and every article to be purchased. This DPI is approved by Planning and Control

important function of design department is source identification i.e. it suggests those

sources, which could supply the technically acceptable materials.


The object of purchase department is to arrange the supply of materials, spare parts and

services or semi finished goods as required by the BPCL to produce the pumps,

compressors and gas cylinders. The materials planning in purchase is done in following


• The functioning of MPX department starts just after receiving DPI from

design department. Apart from detailed description of material, it also contains

general terms and conditions i.e. delivery schedule, inspection requirements,

recommended suppliers etc.

• With in a weak of receiving the DPI, MPX official float enquiry and the

vendors are given a specified time normally three weeks with in which they have to

submit the offer.

• One the specified date the technical bid is open and among the vendors, one

who fulfills the technical requirements at the lowest price is given that order.

• After placement of purchase, order the purchase personnel follow-up regularly

to gather information about the current status of the material procurement.



Planning department carry out the function of deciding about the resources the firm will

require for its manufacturing activities and of allocating these resources to product, the

desired output in required amount at least cost. Production planning procedure can be

broadly divided in three categories:

1. Routing: The production-planning department divides the path or route over

which each piece is to travel in being transformed to finished product.

The PEX department prepares the route sheet. The route sheet of a production

order contains a complete description of the item to the manufactured, details of each

operation involved in the process, the setup- time and the standard time required to

complete the work.

The PEX department looks out at the future workload of orders already on hand

and seeing date of delivery desired by customer to fix the date of delivery.

2. Scheduling: Scheduling decision allocates work loss to specify work center

and determine the sequence in which operation is performs within the

available capacity. Since scheduling is an allocating decision, it uses the

resources made available by aggregate planning.

3. Machine Loading: Cachine loading the first to the time taken by various

machines to change the raw-material or semi-finished item to Finish

Machine loading consists of two times:

A) Set-up time- Time allowed to cover

 To obtain authorization from supervisor.

 To study, drawing and get clarification

 To book crane for job-handling.

 Collect tool, fixtures and accessories.

 Arrange a set-up to perform jobs

B) Operation time- Time allowed to cover for:

 Load the job and set the job in position

 Ganging and inspection of the component

 Unclamp and unload job from the machine.

Production Planning in BPCL carries out the function of verifying whether

everything occurs in conformity with the adopted plan and established policies. It point

out weakness of various departments like purchase, inventory, finance and also suggests

them corrective actions.


Dispatching is the stage when the product is completely ready to be delivered to

the customers. Just before dispatching quality control department, carry on the quality

assurance function. The accuracy of each product, components and assembly is

maintained by stringent quality control standard. Quality control personnel make every
effort to ensure that high level of quality is maintained. The testing is done as per API



After the sales of the product as per the order of the customer, BPCL carry on the

function of Erection and commissioning. The pump or compressor is taken to the site and

is erected. Next it is demonstrated to the customer by running it at the site. Some more

function, which is provided by BPCL to its customers, are servicing, which is provided

renovating the equipment and also to supply maintenance spares in post-sales period.


• Leadership position in the India power generation sector in terms of installed

capacity and generate output.

• Long terms power purchase agreement with its customers (over 99% of its total

sales were under contract to the SEBs).

• Proximity to fuel sources (nine of its 13 coal stations are “pit head” stations of

which 7 are located with in 25 KM from the coal mines).

• High operational efficiency.

• Turnaround management.

• Financial soundness.

• BPCL became the 3rd most valuable company in terms of markets capitalization in



• Multiple buyer’s of coal.

• Technological Diversity and obsolesce.

• Initial Problem of diversification including experience pool of expertise and


• Exclusion of transmission functions from forward integration plan.

• Non Pit head stations like TANDA & UNCAHAR


• BPCL is expanding its services portfolios in EPC (engineering procurement

commissioning) renovation and modernization, operation and maintenance and

BOOT (build own operation transfer) activities in the domestic as well as

international market.

• BPCL has identified new area for Ash utilization like mine filling, cement, Ash


• BPCL has entered the hydro sector through its 800MW Koldam hydro power

project in Himachal Pradesh.

• BPCL is moving by way of backward integration, the company is diversifying

into captive coalmining. The objective to improved fuel security.

• BPCL is moving by way of forward integration, the company is entering into the

business of distribution and trading of power coalmining and coal washery.

• Growing demand for Quality power supply.

• Renovation and Modernization program in existing older plants like


• Integration both forward and backward.

• Joint Ventures like SAIL.

• Diversification.


• Increased private sector involvement in power generation by removed licensing

requirement for thermal generators and removed restrictions on the right of build

captive generation plants. For example –Tata & Reliance group etc.

• Previous tariff policy directly linked with efficiency but new tariff policy based

on (ABT) availability based tariff. It’s becomes three parts, it is directly linked


• Grid’s requirement schedule, under or above schedule’s generator’s are penalize

and less incentives than the previous regime.

• ASH Disposal

• Prospective dues settlement by transfer of Non Pit Head stations owned by the

customers to the BPCL.


Inventory is defined as the sum of the value of raw material, fuels and lubricants, spare

parts, maintenance consumables, semi-processed materials and finished goods stock at

any given point of the time. Since these resources are idle when kept in stores, or in shop,

inventory is defined as an idle resource of any kind having an economic value.

The word inventory means stock of goods while control means regulate or check. When

we speak of inventory control, it refers to a planned method of purchasing and storing the

materials at the lowest possible costs without affecting the production and distribution

schedule. Inventories comprises of raw materials, general stores, work-in- progress &

finished goods which are to be purchased and stored.

Inventory control basically deals with two problems:

• When would an order be placed (order level)

• How much should be an ordered (order quantity)

Organization carry inventory for a number of reasons:

• Smooth production

• Product availability

• Advantage of production & buying in large quantities

• Accuracy
• Hedge against long uncertain lead time

Objectives of inventory control

• To minimize idle time caused by shortage of inventory and non availability of

inventories as per requirement and

• To keep down investment in inventories, inventory carrying cost and

obsolescence losses.

Why control inventory?

• Materials account for 30% of the cash outflow of most organization.

• Inventories are the single largest asset in balance sheet in many manufacturing


• If the inventory is not properly controlled, it results in obsolescence.

• The finance manager considers inventory as locked-up but the users always

claims for more capital, complaining of stock out.

• Inventory has to be controlled in order to optimize the cost of acquiring the items.

• An important factor to be considered in controlling the inventories is to reduce the

lead-time concept.

• Application of scientific techniques in inventory control increases the morale of

young executives.
What is Need of inventory?

To improve inventory management techniques it is necessary to maintain

inventory with minimum investment (Blockage) but consistent with adequate

service level.

Why to Control?

Material accounts 33% of cash flow and larger asset in balance sheet in most of

organization so required to control.

- What are types of Inventory?

a. Maintenance Spares

b. Overhauling Spares

c. Insurance Spares

d. Rotate able Spares (For Example: Equipment removed, Repaired and kept

for use in future).

- What is mean by Inventory Control?

Systematic procurement, Location, Storage and recording in such a way that

desired degree of services to operating shops at minimum ultimate cost.

- What is mean by Large Inventory?

a. Tie-up large amount

b. Deterioration

c. Damage

d. Obsolesce

e. Increased overhead

When to control the Inventory?

Positive approach is to control the inventory from beginning stage (procurement stage

or PR stage).

- Inventory is harder to move with longer it sits

- Increase in 20% sale = Reduction in 5% inventory so our aim should be to reduce the


- Inventory accounts are a) price (required negotiation) b) Service Level (% of demand


c) Lead time (time required from feeling need to availability).


Selective inventory control system means that we have various different methods of

inventory control from item to item and this differentiation should be on selective basis.

The importance of materials can be due to its cost, its criticality, its availability and its

consumption. There are a number of methods available for selective control of inventory.

Selective control can be divided into eight types:

ABC Classification:

ABC stands for always better control or avoid bluff confuse. This method is based on

annual consumption value, which is obtained by the multiplication of the unit price by the

annual consumption quantity. For example, on an adhoc basis, the items accounting for

an annual consumption value of more than Rs. (one) lakhs may be classified as ‘A’

category and below Rs. 10000 may be the ‘c’ category and in between these items will be

the ‘B’ category.

‘A’ Items: are the top 10% of the items and accounts for 60% of the consumption value.

‘B’ Items: are the next 30% of the items and accounts for 30% of the consumption value.

‘C’ Items: are the next 60% the items and accounts for only 10% of the consumption


H.M.L stands for:

H – High cost items (all unit cost)

M – Medium cost items (all unit cost)

L – Low cost items (all unit cost)

Unit value is the criteria in HML classification.


VED stand for

V- Vital

E- Essential

D- Desirable


‘S’ scare items –which are not easily available in the market

‘D’ Difficult items – which are non available in the market.

‘E’ Easy items – which are easily available in local market.


G.O.L.F stands for

Government - open market – local market – foreign sources.

Materials are classified according to nature of suppliers.


F-S-N stands for

‘F’ Fast moving items having consumption at least once in a year.

‘S’ slow moving consumption in alternative year.

‘N’ non-moving consumption in last 5-6 years.


X item is those items whose value is high while Z items are those items whose

values are low. Understandably Y items fall in between two categories.


Some of items required are seasonal in nature and require special

Purchasing and stocking strategies. Many commodities especially of agricultural origin

and seasonal in character have to be purchased at the best time. Operation research

techniques would have to be used to obtain optimum results. The inventory system will

have to balance between holding costs and lower prices at which it will be available.

Inventory turnover ratio may be defined as a ratio of Annual consumption (issue) in Rs.

divide by the average inventory in Rs.

ITR = Annual Consumption x 100

Average Inventory

This ratio is called Efficiency Indicator.



Inventory turn over ratio is defined as the ratio of annual consumption value divided by

average inventory holdings. This ratio is also called efficiency indicator. Hence, higher

the inventory turn over ratio the better is financial out look and system is considered

more efficient. There is considerable scope for improvement in this sphere.

Inventory turn over ratio= Annual issues in Rupees. / Average inventory in Rs.

Express as percentage the ratio is to be multiplied by hundred. [This ratio is called

efficiency indicator]
Case 1

Suppose an organization requires material worth Rs. 12 crores annually.

If purchased in 1 Lot and consumption is 1 crores per month.

Average inventory holding will be=6.5 crores

Inventory turn over ratio will be 2 approximate

Case 2

Suppose an organization requires material worth Rs. 10 crores annually.

If purchased in 2 Lots and consumption is 1 crores per month.

Average inventory holding will be=2.5crores

Inventory turn over ratio will be 4 approximate

In second case capital locked up has been reduced from 5 to 2.5crores and inventory turn

over ratio increased to 4 from 2.

It shows in second case released capital becomes available and organization has

A. Borrow less capital.

B. Less interest charges

C. Fewer inventories carrying cost

Hence, higher the ITOR the better is financial out look and system is more


How to improve inventory turn over ratio.

A. Efficient reduction of inventories.

B. Discourage flabby inventory due to poor maintenance.

C. Discourage profit-making inventory held with speculative.

D. Reduction in critical & non-critical items lying in stock since long period.

E. Identification of obsolete/surplus items and their disposal/utilization.

Inventory Management System in BPCL


The Inventory Management System covers details on General Principle on service level

BPCL has to maintain optimum level inventory by applying various inventory control

techniques depending on the nature of item with respect to its value, critically, market

availability and other consumption pattern


Operating guidelines for the functions concerned to optimize the inventory vis-à-vis

service level.

• Classification of items for management reporting and fixation of the norms.

• Elaborate Inventory Control Techniques and procedural guidelines for their


• Materials Planning and indenting, using the tools of the above stated techniques

or combination of techniques.

• Fixation of responsibilities for undertaking various inventory analyses.

• Review and Monitoring Inventory status with respect to norms and levels for

various items or category of items.

• Spare Parts forecasting, Planning, and Budgeting.

Inventory Management is an area where integrated management approach involving all

functional departments is the primary Requisite. Unless cooperation is forthcoming from

O&M/user departments as and when needed, the objective of achieving high service level

and at the same time optimizing inventory will be far from achieving. The basic need for

achieving this objective of optimizing inventory is dedicated all out efforts by all


Classification of Stores & Spares

With the introduction of computerized stores accounting system, all information/reports

can be generated either item wise or by any required group under the BPCL, Material

codification System (MCS). BPCL has codified the Stores & Spares under 100 main

groups (from 00 to 99). The analysis of reports for all 100 main groups will require

handling of a large volume of data and numerous & bulky reports. Therefore, for

inventory analysis as well as for reporting to management in a handy and convenient

form, the 100 main groups shall be further grouped as follows:

A. Construction Stores

1. Cement

2. Steel

3. Others (viz. Pipe, pipe fitting, cables etc.)

B. O&M Stores

1. Coal

2. Fuel(excluding coal)

3. Spares(excluding insurance spares)

4. Loose Tools

5. Chemicals, Gases & Explosives

6. Oils & Lubricants

7. Stores other then spares (consumables & Gen. stores)

8. Scrape.

“Inventory norms” is defined as the permissible upper limit of inventory holding

including quantities for which payments have been made in part or in full in advance of

receipt and acceptance. There are no guidelines available from Bureau of Public

Enterprise on fixation of these norms and this aspect has been left to the judgment and

experience of individual public sector undertakings primarily because the factors

influencing the optimum inventory would vary with the nature of the industry.

Guiding Factors for Fixation of Inventory Norms:

The factors which influence optimum inventory levels are the uncertain ties involved in

forecasting processing time for procurement, manufacturing and transportation,

variability associated with the future consumption pattern the future market availability

and the service level promised to be provided to the end user.

Keeping the above guiding factors in view, following inventory norms have been

suggested for adoption in BPCL for the period upto 1990-91. These will need review

there after on the basis of working experience expected to be then available.

Inventory Norms for specified categories of Stores & Spares

A. Construction Stores

1. Cement ------ 02 – 03 months usage.

2. Steel ------ 09 months usage

3. Others ------ 09 months usage

B. O & M Stores

1. Coal ------ 15 Days usage for all projects excepts


2. Fuel (except Coal) ------- OS shall fix inventory holding

norms Station wise.

3. Spares(Excluding ------- 18 months usage Indigenous

Insurance and 24 months Imported.

Unit replacement


4. Loose Tools ------- 6 Months usage.

5. Chemicals, Gases & ------- 3 Months usage.


6. Oils & Lubricants ------- 3Months usage.

7. Stores other then ------- 6 Months Usage


8. Scrape ------- 6Months Arising.

 The Inventory Holding Norms as suggested above need to be

reviewed by BPCL Continuously for further improvement in the

light of the experience that would then have become available.

 It is conceded that for group of Items Which have necessarily to be

imported both the lot quantity inventory and the safety stocks

caused by uncertainties in lead time and consumption during the

lead time would justify a norms nearer to 18 months usage as

shown above.

In order to effectively monitor the inventory trends under specified categories of stores &

spares every year (both for planning as well as at the final stage) as on the

beginning/closing of financial year, as the case may be, the following methodology for

computation of inventory Turnover Ratio shall be followed:

A. For Construction Stores

i. Inventory turnover ratio Opening Balance as on 1st April of each Fin. year

(For planning Purpose) = ________________________________

Anticipated consumption during the


Fin. Year as estimated on 31st March of the


Financial year

ii. Inventory - turnover – ratio Closing balance of the individual category as

(For assessment of performance) on 31st march

After the end of year. = _____________________________

Consumption during the succeeding

Financial year.

B. For O&M Stores

Closing Balance of the individual category as


31st March

Inventory Turnover Ratio = _________________________________

Consumption during the Preceding Financial Year

Ending on 31st March.


1. I.U.C. Classification

a. Insurance (I) Spares: Items of spare parts which are not normally

required for routine maintenance but would cause long shut down of vital

equipment or entire plant in case of non-availability when needed for use

b. Unit (U) Assembly: As per the BPCL maintenance policy, certain

assembly/sub assemblies are replaced as complete units to release

defective assemblies for repair in order to cut down on costly idle time of


c. Consumables: All spares which require replacement due to wear & tear

on their inherently short life are called “consumables”. These will

comprise of:

 Fast Moving Wearing Spares.

 Slow Moving Wearing Spares.


The various limits for analyzing the inventory as per ABC classification shall be

as under :
Class of items Annual usage(Rs.) Remark

A Class More then Rs. 1 lakh Based on the last fin. Year usage.

B Class More then Rs. 10,000/- upto Rs. 1lack.

C Class Upto Rs. 10,000/- Based on last 3 years usage for

Spares & last year for others.

Stock Holding (X,Y,Z) Analysis:

For ensuring continuous wedding out of unwanted inventory stock holding

analysis i.e. XYZ analysis will be significant importance. The criteria for

declaring an item as X, Y or Z shall be the same as for ABC items “on stock value

consideration basis”. The frequency of generation of reports for X, Y & Z

category items shall be same as that for ABC category. The analysis shall be

based on stocks held at end of every quarter for class items, at the end of every

quarter for X class items, at the end of half year for Y class items and at the end of

financial year for Z class items.

4. Analysis By Criticality for Operation (VED):

Vital (V): Non availability when needed involves

close down of the units/resulting in very high stock

out costs.

Essential (E): Non Availability involves high stock

out costs.

Desirable (D): Non Availability does not involve

any significant stock out cost.

5. Analysis By Velocity Of Usage:



N-Non Moving Items

The Criteria for velocity of movement to determine grouping FSN differ for

spares and other items.

6. Analysis by Market Availability

S – (Scarce) Those Items or Spare Parts which are not available in the Market or


D – (Difficult) Those item which are not found very easily in the Market.

E – (Easy) This is the category of Items which are very easy to collect from

anywhere and it is easily available everywhere.

7. The various standard categorization/analysis viz. ICU,VED shall be carried out

item wise in an agreed time frame by each SMM jointly with SOM & rectification

by OS to enable EDP to build computer master for various types of analysis. A

committee approach with formal approval by GM/DGM would help in expediting

the categorization & catching up with the considerable arrears that exit in this


8. Procurement of “I” items (unit price above Rs. 50 lakhs), shall be done by CC&M

division based on indents to be raised by SOM & vetted by OS . The effective

date for implementation will be circulated by CMM. till the issuance of the above

administration orders the existing procedure of SMM procuring the items will


9. Procurement of “U” items will be done by SMM on Indents initiated by SOM and

approved by GM (site) after machinery for repair/reconditioning have been

planned and documented.


Lead time is the estimated time lag between the date, the indent is accepted and registered

in purchase wing and the date of physical receipt of material in the Receipt Section of the

first consignment approximating in quantum to the EOQ/ELQ. Lead time is sub-divided

into the following components:-

1. Administrative Lead Time

2. Supplier’s Lead Time

3. Transportation Lead Time


The estimated lead time greatly influence provisioning of materials particularly more so

when there is an abrupt change in market conditions. Hence, monitoring of actual lead

time for individual items/groups of items against the estimate is very essential for

aligning the planning continually in line with latest trends to attain desired service levels

without increasing the level of inventory holding.


Since it is not possible to evaluate lead time for each item, it is suggested that as far as

possible the lead time for individual items should be assessed in case of ‘A’ class items

and that for other items i.e. ‘B’ &’C’ items it should be based on trade groups as

explained in Purchase Manual.

Wherever lead time consumption is high and not consistent with inventory holding norms

the supplies may be staggered so as to bring it in line with the norms, in which case a

clause a clause to this effect shall be incorporated in the Purchase Order. Alternatively

supplies can be deferred or order cancelled if need to be.



• The overall effectiveness of materials Management made up by the efficiency

levels reached in its component areas like purchase, Receipts, Storage, Issue,

Disposal & Inventory Control is reflected through Management reporting which

enables Management to analyze, evaluate and take decisions or remedies like

improvement in the methods of working, amendments to existing policy,

Procedure, staffing etc.

• It is, therefore, very important that Management at differential levels is apprised

at certain frequencies the status on various issues for enhancing the levels of

overall performance.

• With the computerization of stores accounting it is possible to achieve much

higher levels of performance and hence computerization of inventory accounting

assumes significantly importance from the control point of view.

• The following reports with their frequency are suggested for adherences by

SMMs. Wherever Stores Accounting systems have not been computerized

Manual methods need to be continued for generation of Management Reporting.

SMM and there associated finance are responsible to coordinate and hasten the

process of computerization of Stores Accounting with a committed plan accepted

to the site GM & Executive Director(CC&M).




- A software package used for procurement of material in the organization.

The advantages of this software packages are:

1. Inventory Accounting – Receipts/Issues.

2. Inventory Control – Stock review/decision making.

3. Inventory Planning.

4. MIS reports like

• Stock transaction.

• Purchase order follows up.

• Non moving items statement

• Lead time variance.

• Safety stock verification.

• Re order level, danger levels and zero stock items.

• Vendor analysis.

• Bills payable.

• Last purchase prices.

• Stock transaction ledger.

• Consumption statement.

• Indent rising.

To implement the computerized programmed of OLIMFAS the most important is

material codification of spares.

Codification of each spare is required due to.

• Easy identification.

• Avoids long description.

• Avoids duplicate indenting.

• Codification is done based on categorization.

– Plant and Machinery.

– Tools.

– Bought out items (Spares)

– Consumables.

– Steel and Cement.



• To procure at lesser period.

• To have an healthy competitive bidding process.

• To minimize the Cost of Purchase Order processing.

This will be operated through service provider.


An exploratory research has been carried out to study the behavior of customers. To

meet the research objective researches format, to collect information from the

respondents was made and the information were collected through secondary

data & the primary data.

In the case of exploratory research, the focus is on the discovery ideas. In a business

where sales have been declining for the past few months, the management may

conduct a quick study to find out what could be the possible explanations – the

sales might have declined on account of a number of factors, such as the

deterioration in the quality of the product, increased competition, inadequate or

ineffective advertising, lack of efficient and trained salesmen or used to the

wrong channels of distribution. In such a case an exploratory study may be

conducted to find the most likely cause.

Research Problem

• To assess the customer’s requirement regarding BPCL products & services.

• To evaluate the level of inventory management on BPCL products & services.

Research Objectives

The study has been designed to achieve the following objectives:

• To assess the level of inventory management on BPCL product & services.

• To identify the customer’s requirement regarding BPCL products & service.

• To compare BPCL with other company with regard to their services,

advertisement strategies, prices & sale’s ratio.


The following methodology was adopted for the study purpose:

Type of research:

Descriptive and Analytical type of study was adopted while conducting the project.

Sampling Design was taken by the researcher as the Research design.

The major purpose of the study is to describe the state of affairs as it exists at present.

The study was based on the facts or information already available, & analysis of this

available information make a critical evaluation of the material.

Research Method/Technique:

In the summer training project report the researcher used following techniques while

conducting his study:

• Analysis of documents

• Survey Method: A market survey was done on BPCL companies.

• Interview (Personal): Both open and closed ended (structured and unstructured)

questions were asked while taking interview from the executives.

Questionnaire (Structured): A structured designed comprehensive questionnaire was

framed and pre-tested


To get insight of the product, the research was involved in important discussion

with the relevant people. Researcher was also provided with Products catalogues,



Primary data was collected as a data collection technique. The data was collected

from the categories of the customer by personal interviews through questionnaire.


Area of Sample:

• The area covered up in this survey was Pane.

Sampling unit:

Sampling unit were the customers of –

• Indira Nagar

• Shakti Nagar

Source list (Sampling Frame)

Business class: 20

Professional class: 25

Service class: 20

(Government, Semi-Government &Private Sectors)

Students: 25

Household Ladies: 10

Sample size: 100


Data for this study has been collected primary sources

For the collection of data CONVENIENCE SAMPLING has

Been used.

1. PRIMARY DATA: Primary data was collected with

The help of:

(a)QUESTIONNAIRE METHOD: A Prepared questionnaire has been given to get

the information. This method helps in collecting the inner view of the respondent

and their suggestion about the product.

(b)PERSONAL INTERVIEW: Personal Interview was conducted. A mixed type

of questions was asked.

2. SECONDERY DATA: Secondary data have collected through referred books,

magazines, various articles, Internet etc.

Inventory Management in BPCL a Performance


Inventory in BPCL is consists of coal, oil & naphtha components & spares loose tools
chemicals & consumables & others. Composition of inventory in 2006-07 is as below:-
(From annual report) The inventory in BPCL assumes importance for the fact that the
operation continues non stop for power generation consuming inventories of all the
components stated above on a regular & continues basis. It is therefore crucial that all
inventories is maintained in sufficient stock to ensure uninterrupted operation &

A new dimension in this state of affairs is that along with fast changing technologies
& the completion of life of plant & machinery in the older power station

Bringing forth the phase of renovation & modernization.

This has added new items & quantities to the inventory as also rendering considerable
inventory surplus & obsolete.

Inventory is sought to be controlled by getting all the indents screened by a

committee for justification in the light of its population pipe line quantities past
consumption pattern & estimated costs.

The efforts at inventory control have resulted in curtailing the cost sunk in the

Inventory: - Total installed capacity for each of 5 year.

Inventory is valued by monthly weighted average method & is subject to, some major

analysis such as:-




ICU (Insurance consumables units)


& Other

The performance of inventory for 5 years under
consideration is as below:-
1. Inventory to Receivable

Inventory to Receivable = Inventory

Sundry Debtors

Year Inventory Sundry Debtors Ratio

(In Rs Million) (In Rs Million)

2005-06 17712 124349 0.142

2006-07 17380 4699 3.698

2007-08 17777 13747 1.293

2008-09 23405 8678 2.697

2009-10 25102 12523 2.004

Graph 1:-

25000 23405

20000 17777

15000 13747

10000 8678


2007-08 2008-09 2009-10

Inventory to Receivables:-

Inventory & receivables are both current asset & in the sequence in the

cycle inventory leads to receivables.

Receivables are a reflection of sales maximizing. receivables with controlled

inventory would translate as a profitable enterprise. The ratio therefore must follow

receding trend. Normally & reversal only in situation of receivables promptly serviced.

The ratio follows a mixed trend raising from 0.14 in 2002-03 to 3.69 in 2006-

07 the ratio recedes to 1.29 in 04-05 to 2.69 in 2008-09. It finally reduces to 2 in 2009-10.

The inventory follows controlled levels upto 2004-05. It thereafter registers increases

mainly due to expansion & accelerated renovation & modernization inventory to net

profit. This ratio seeks to relate inventory to net profit normally trend of ratio should be a

receding one as effective management practices must lead to greater profit out of

controlled smaller inventory. The ratio thus follows a receding trend upto 2004-05 with

reversal in 2005-06 due to the abruptly increase level of inventory during that year.

On the strength of a quantum increase in net profit for 2006-07. The ratio

again has a receded level in 2006-07. In general the ratio has a recessive tendency based

on regular increasing net profit over the year.

2. Inventory to Current Asset

Inventory to Current Asset = Inventory

Current Asset

Year Inventory Current Asset Ratio

(In Rs. Million) (In Rs. Million)

2005-06 17712 194132 0.091
2006-07 17380 135468 0.128
2007-08 17777 129073 0.138
2008-09 23405 157245 0.148
2009-10 25102 221827 0.113

150000 129073



2007-08 2008-09 2009-10

Graph 2: Inventory to Current Asset

Inventory forms a substantial part in Current Assets. This is largely due to the uniqueness

of the process of power generation where the operation and maintenance continuous with

a regular consumption and maintenance of the safety stocks of permanent inventories of

Fuel (coal, Oil, Naptha) components and Spares, chemicals and consumables, Loose tools

and others.
The operation are continuous inter sparse with periodical overhauling for maintenance.

The system necessitates maintenance of Inventory at the minimum safety level to insure

safe and secure continuous operation.

The norms for fuel stock are the maintenance of coal equivalent to 15 days requirement at

Pit head stations and one month at other.

The stock of Furnace oil has to be maintained for 02 months requirement at all stations.

This forms the permanent inventory to be on a Mandatory Basis.

The nature of operation coupled with the Unavoidable technological obsolescence insures

that a constant exercise of review and control has to be undertaken.

The exercise has been the reported features of the Inventory management system of

BPCL during all the periods of our study resulting the controlled level of inventory


The level of inventory in current assets rises from 9% in the year 05-06 to the 15% in the

year 08-09. It falls to 11% in year 09-10.

In the business where much of the inventory is unseasonable and permanent in nature .

The level observed touch for effective control and curtailment. The small trends of

increase the natural with capacity addition and enhancement maintenance as well as the

renovation and modernization being undertaken at the older plant of the company viz.

Ssingrauli, Korba, Ramakundam, Farakka etc. that have nearly completed there life’s

Inventory to Cash
Inventory to Cash = Inventory


Year Inventory Cash Ratio

(In Rs. Million) (In Rs. Million)

2005-06 17712 5447 3.251
2006-07 17380 6091 2.85
2007-08 17777 60783 0.293
2008-09 23405 84714 0.276
2009-10 25102 133146 0.188
140000 133146



0 0 0.188

2007-08 2008-09 2009-10

Graph 3:- Inventory to Cash

Inventory to Cash seeks to relate Inventory to Cash in the organization. Normally the

trend should be a rising trends as the management always try to minimize the idle cash

amount by investing it into business.

But the trend in the above graph shows the falling trend through out the years.

In the year 2006-07 there is slight downfall in the ratio but in the year 2007-08 there was

a huge fall in the ratio from 2.85 to 0.293 this fall is only because of huge idle

cash. The source of all this idle cash is maturity of RBI bonds and many other bonds

cash from Debtors, and company unable to invest all this funds.

But after that till 2009-10 it was very much in control.

In general the ratio has a recessive tendency but not due to inventory because it was very

much in control throughout the five years and the receding trends also due to maturity of

different bonds .

So we can say that condition is not worst it is still very much in control. Except in one

year the ratio follows a nearly constant tendency.

Inventory to Net Profit
Inventory to Net Profit = Inventory

Profit after Tax

Year Inventory Profit after Tax Ratio

(In Rs. Million) (In Rs. Million)

2005-06 17712 36075 0.490
2006-07 17380 52608 0.330
2007-08 17777 58070 0.306
2008-09 23405 58202 0.402
2009-10 25102 68647 0.365




30000 2340525102

0 0 0.365

2007-08 2008-09 2009-10

Graph 4:- Inventory to Net Profit

Inventory to Net Profit ratio seeks to relate inventory to net profit. Normally the trend
of the ratio should be a receding one as effective management practices must lead to
greater profit out of smaller inventories.
The ratio does follow a receding trend upto 2007-08 with a reversal in 2008-09
due to an abruptly increased level of inventory in that year.

On the strength of a quantum increase in the Net Profit for 2009-10, the ratio
again less a receded level in 2009-10.

In general, the ratio has a recessive tendency based on regularly net profit over
the year.
Fuel to Inventory
Fuel to Inventory = Fuel


Fuel = (Coal + Fuel Oil + Naphtha)

Year Fuel Inventory Ratio

(In Rs. Million) (In Rs. Million)

2005-06 3787+772+456= 5015 17712 0.283
2006-07 3337+578+492= 4407 17380 0.253
2007-08 3115+823+645= 4583 17819 0.257
2008-09 7476+887+690= 9053 23405 0.386
2009-10 7318+1111+793= 9222 25102 0.367

25000 23405

20000 17819

9053 9222
0.257 0.386 0.367

2007-08 2008-09 2009-10

Graph 5:-Fuel to inventory

Fuel to Inventory= Fuel (Coal, Oil and Naphtha) are a large part of the total inventory

of BPCL. This ratio seeks to determine the trend of this proportion over the year. It is

seen that the proportion of fund is the total inventory ranges between 0.28 to 0.25 to 0.26
up to 2007-08. It then increase to 0.38 in 2008-09 and then register a slight fall 0.36 in


While small fluctuation may be due to incidental event. It is seen that with

expansion in capacity, fuel assumes in a proportion nearing 40% of the total inventory.

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold

Average Stock
Average Inventory (Stock) = Current Year Stock + Previous Year
Stock 2
Year Cost of Goods Sold Average Stock Ratio

(In Rs. Million) (In Rs. Million)

2005-06 160156 18944 8.454

2006-07 200562 17546 11.46

2007-08 194780 17599.5 11.06
2008-09 224818 20612 10.90
2009-10 264842 24253.5 10.91
250000 224818



50000 24253.5
11.06 10.9 10.91

2007-08 2008-09 2009-10

Graph 6:- Inventory Turnover Ratio.

Inventory turnover ratio = Cost of goods sold

Average Inventory

This ratio is designed to measure efficiency of use of inventory. In other

words it measures the efficiency of inventory management.

As all inventory is used to ultimately facilitate sales & carries a cost it is to

be related to the cost of goods sold to measure its efficiency.

Cost of goods sold although a cost also indicates the turnover achieved. It

increases over the year , therefore be natural the cost of goods sold over the period of 5

year follow a rising trend except for a slight decrease in the year 07-08.

The average inventory shows controlled level up to the year 07-08 &

increases thereafter due to the exercise of R & M. Being embarked upon in the older units

such as Singrauli. The ratio likewise registers a generally stable trends showing stability

with a receding trend signifying quite an efficient inventory management

Inventory Holding Period
Inventory Holding Period = Average inventory*365

Cost of Goods Sold

Average Inventories = Current Year + Previous Year

Average Inventory Cost of Goods Sold(In Rs. Days
Year Million)
(In Rs. Million)
2005-06 18944*365 160165 43
2006-07 17546*365 200562 32
2007-08 17599.5*365 194780 33
2008-09 23405*365 224818 33
2009-10 24253.5*365 264842 33
250000 224818



50000 24253.5
33 33 33

2007-08 2008-09 2009-10


ph 7:-Inventory Holding Period

Inventory Holding Period = Average inventory * 365

Cost of goods sold

The average holding period is the reciprocal of inventory turnover ratio &

indicates stability & control with the duration ranging from 44 days in 2005-06 to 34
days in 2009-10 after the first year the holding period recedes to 32 days in 2006-07 &

rises marginally to 33 in 2007-08.

It thereafter is unchanged at 34 days during 2008-09 & 2009-10.

The controlled inventory holding periods indicates sound inventory

management with the measures mentioned above despite the fact that due to many spares

being scarce. The inventory for them is currently being procured for up to 2 years in

advance for uninterrupted operation.

Inventory to Gross Profit(EBIT):
Inventory to EBIT= INVENTORY

Gross Profit

Year Inventory(In Rs. Million) Gross profit(EBIT) (In Rs. RATIO

2005-06 17712 38343 0.46
2006-07 17380 59080 0.29
2007-08 17777 60680 0.29
2008-09 23405 62712 0.37
2009-10 25102 88965 0.28

70000 6068062712
30000 2340525102
0.29 0.37 0.28

2007-08 2008-09 2009-10

Graph 8:

Inventory to EBIT uses for operating profit and Ratio seeks to measure the proportionate

change in the inventory and its target result

The ratio Inventory to EBIT should not have a falling trend over any given period of

time. Since it would be Ideal to have Increasing earning with control cost represented by


In our period of study the ratio assume a falling trend, falling from 0.46 to 0.29 it

continues at the level 0.29 in year 07-08, it rises 0.37 in 08-09 and then again falls at the

level of 0.28, Thus for three years of period ratio remains stable at the level of 0.29 or


The reversal of the trend in the year 08-09 is due to an increase in the level of Inventory

mainly attributable to additional installed capacity and the accelerating R&M exercise.

The level of 0.28 achieved in last year is due to controlled level of inventory and

considerably increased EBIT in 09-10.


The working capital cycle of BPCL has been taken as corresponding to its cash or its

operating cycle’s by assuming that in terms of current assets these cycles is beginnings

and ending with cash.

The working capital of BPCL includes Current Assets such as Cash, Inventory and

Bills receivables it also includes Loans and Advances given by the company to suppliers

and employees these however have not only been taken into account while computing the

cycle as advances to suppliers are for minimal duration and advances to employees are

spread over specified time period with regular recovery through salaries. In this sense

they are different from the conventional current assets that are per ported to last only for

the duration of the operational cycle.


(1). For this last year of our period the inventory holding period works out to 33 days.

This is quite a short period resulting from the fast turnover of fuel and keeping in view

the vast permanent inventory of spares that the company has to maintain for the safety

and continuity of operation. This short period has resulted from intensive inventory

monitory and control that has been undertaken in the company for the past few years.

(2). The cash holding period for this year has worked out to 2138 days this is abnormal as

it is based on the abnormal cash balances seen for the last three years of our period. This

high cash balances has resulted partly from the incentives based fast clearance of

receivables and the cash in flow due to the maturity of RBI bonds and other debentures

yet to be invested further.

(3). Bills receivables have registered a collection period of 107 days out of which 60

days are attributable to the period of credit allowed by BPCL to its customers and 35 days

to the billing cycle. The period of billing cycle includes 30 days (30 or 31 days of the bill

period and 5 day of the succeeding month in which the bill is raised after the joint meter

reading have been finalized under the super vision of monitor i.e. The Regional

Electricity Board. It can be seen that the unincremented collection period works out to

only to 12 days. This indicates quite a controlled situation achieved mainly due to the

incentive based collection encouraged through the mode of LC (Letter of Credit).

The company avails minimal current liabilities. At Singrauli the coal supply NCL

allows a credit of 3 days for coal payments. Additionally, assuming 1/3rd of its suppliers
to be accepting its standard payment terms of 30 days after receipt & acceptance of

materials, 10 days have been taken for current liabilities. The total current liabilities

period is therefore roughly 13 days.

This cycle for this year works out to 2265 days. This is an abnormally a long duration

clearly due to the abnormal cash holding period obtaining. The cycle is unrealistic and

would certainly be shorter if calculated shortly after words when the cash balances had

been normalized.

( 2009-2010)

In Days

Inventory Holding Period 33

Cash Holding Period 2138
Bills Receivables Collection Period 107
Current Liabilities (-) 13
Length Duration of Cycle 2265

YEAR 2008-09 TO 2009-10 -

As the last year of our period showed an abnormal cycle, it would be pertinent to

calculate the average cash cycle for first 3 year of the period to the exclusive of the last

year. This cycle for this year works out to 609 days this again is extremely long due to

the high cash holding period as well as the long bills receivables collection periods as yet

uncontrolled. The current liabilities have been assumed to be unchanged at 13 days.



Inventory Holding Period (43+32+33) 108

Cash Holding Period (322+62+720) 1104
Bills Receivables Collection Period (325+220+110) 655
Current Liabilities (13+13+13) 39


AVERAGE CASH CYCLE FOR YEAR (2008-09) & (2009-10)

To have a major of the working capital cycle in the initial 2 years of our period,

when the cash balances are apparently smaller and near to normal, a controlled inventory

holding period & average collection period of bills receivables near to their endemic

levels. The cycle works out to 489 days which could be said to be a more controlled

duration given the realities of the power sector & its commerce in India.



Inventory Holding Period (43+32) 75

Cash Holding Period (322+62) 384
Bills Receivables Collection Period (325+220) 545
Current Liabilities (13+13) 26




The cash or working capital cycle of a business should ideally be coterminous with the

financial year. It would be desirable to be shorter than this to be more than one during the

financial years. On the basis of the most favorable holding period & collection period

seen in the cycle computed variously for the years of our period, an ideal cash cycle

could be computed. The ideal cash cycle should have an inventory holding period of 30

days assuming that the holding period obtaining during the last year of our period is

maintained. The cash holding period should be reduced to 30 days after a credit period of

30 days only to be allowed to customers.

The bills receivables collection period obtained during the last year of our period

(2009-10) was 12 days without the incidental increment. The incidental increment of the

billing cycle of 35 days should be reduced to 15 days by making the billing period to be

15 days instead of the month.


Inventory Holding Period 30

Cash Holding Period 30
Bills Receivables Collection Period 60
Current Liabilities (5+15) 20
(IN DAYS) 140



1. In the cluster projects like SINGRAULI, VINDHYACAL, RIHAND etc. a pool

inventory can be developed so that each projects of cluster can use the inventory

from this common pool.

2. Each region like north, west, south etc. should give the contracts for the

procurement of the products required in the project of there region through Rate

Contract to avail of bulk quantity discounts.

3. Scarce parts should be replaced by the newer one which is easily available in the


4. Through stock verification the problem of multiple coding of materials should be


Inventories constitute the most significant part of current assets of a large majority of

companies in India, on an average inventories are approximately 30% of current assets in

a Pvt. & public ltd. companies in India because of the large size of inventories maintained

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

therefore, absolutely imperative to manage inventories efficiently and efectively in order

to avoid unnecessary investment

Now when we talk about BPCL there is completely different picture arise regarding

inventory management. BPCL is an unique firm where there is no inventory for finished

goods and no inventory for a raw material is managed because finished goods comes in

the form of electricity which is immediately transmitted after the generation.

The plant of BPCL is regularly working in24 hours and 7 days a week and this type of

work requires regular overhauling of plants and machinery.

There is norms fixed for inventories of different products like coal, fuel oil ,spare parts

etc. to ensure the regular and non stop working of plants.

The concept of inventory management in an organisation says that inventory should be

minimized to the possible extent.

here in case of BPCL inventory management quite good as it controls the inventory but

we can’t say that it is very efficient because they control the inventory but unable to

minimize it.

the inventory turnover ratio which shows a very constant tendency except in one year e.g.

in year 2009-10 where there is slight increase in the ratio. the constant tendency of this

ratio tells that the inventory is very much in control, and the inventory managements

system of BPCL is quite good but not very efficient, some steps should be taken to make

the system more efficient and effective to minimize the inventory.


• Inventory & working capital management

o By – P.Gopal Krisnan

• Stock control in manufacturing Industries

o By –Adin.B. Thomas

• Financial Management

o By – I.M.Pandey

• BPCL’S Annual Reports of YEAR :

o 2005-06

o 2006-07

o 2007-08

o 2008-09

o 2009-10


• WWW.Treystaa.Com




Research never ends”