Materials Management at Hospet Steels Limited

Project Report on Material Management at HSL
INDIAN INSTITUTE OF BUSINESS MANAGEMENT

PUNE
Project Report
On
MATERIAL MANAGEMENT AT
HOSPET STEELS LTD
Submitted in partial fulfillment

Of the requirements
For the award of the degree in
MASTER OF BUSINESS ADMINISTRATION

With specialization in
INTERNATIONAL BUSINESS MANGEMANT
INSTITUTE OF MANAGEMENT STUDIES
Under The Guidance of

Mr. Rohit C Kalaskar Submitted by:
Sec.Gen & professor IMS Sharath babu M
HUBLI Reg No: A-08/08/MBA/0033
INSTITUTE OF MANAGEMENT STUDIES Hubli. 1

H.E.T’S
Recognized by AAMBA,,
Affiliated to IIBM
INSTITUTE OF MANAGEMENT University, Pune
Phone (o): 0836-
2271011
STUDIES Email: info@hubliedu.org Tel/Fax: 0836-
Website: 2271011
ProjectBESIDE
LAKE-VIEW CAMPUS, Report on Material
UNKAL LAKE, Management at HSL
www.hubliedu.org
UNKAL, HUBLI-580031 (Karnataka State)
Ref. No: HETS-IMS/: Date:
Certificate
This is to certify that the project work entitled “Materials
management at hospet steels ltd” has been successfully carried out
by SHARATH BABU MOPARTHI (A-08/08/MBA/003) of MBA VI Tri-
Semester student under our supervision and guidance.
Mr. Rohit. C. Kalaskar

Sec.Gen & Professor
HET’s IMS Hubli
External Examiner’s

DECLARATION
I, here by declare that the work embodied in this project report

entitled “Materials management at Hospet steels ltd”
represents the original work done by me under the supervision and
guidance of Prof. Rohit C Kalaskar Department of Management
Studies, Institute of management studies, Hubli during the academic
Year 2008-2010. Previously this report or any part thereof has not
formed the basis for the award of any degree, or other similar title.
.
Date:31/07/2010 SHARATH BABU MOPARTHI
Place: Hubli M.B.A VI Tri-Semester

ACKNOWLEDGEMENT
The satisfaction and euphoria that accompanies the successful

completion of any task would be incomplete without thanking people
who made it possible. Many are responsible for the knowledge and
experience I have gained during my Major Concurrent Project.
I would like to express my profound sense of gratitude to our

esteemed our college chairmen my internal guide Mr. Khaleel
Ahemad Kukmari, for his complete support, encouragement and
guidance during my entire project.
I also would like to avail this opportunity to thank to our

esteemed secretary general and my internal guide Mr. Rohit C
Kalaskar for providing me an opportunity to carry out the project
and extending their valuable guidance and complete support during
this entire duration.
My sincere thanks to who in spite of their busy schedules

accommodated me for one to one interactions to collect my primary
data.
And I also thank my Parents and Family for their co-operation

and help.
SHARATH BABU MOPARTHI

Reg No: A-08/08/MBA/003

CHAPTER I
RATIONALE FOR THE STUDY
 INTRODUCTION ON PRODUCTION
Among the functional areas of management, production is

considered to be crucial in any industrial organization. Production is
the process by which, raw materials and other inputs are converted
finished products. The other word synonymously used with
production is manufacturing. Some people try to draw distinction
between the two terms: production and manufacturing.
Manufacturing is understood to refer to the process of producing
only tangible goods, whereas production includes creation of both
tangible goods as well as intangible services. Though, distinction of
this type is sought to be made, we use these two terms
synonymously in this book.
Nature of production can better understood, if we view the
manufacturing function from three angles: production as a system,
production as an organizational function and decision making in
production.
Production management refers to the application of management
principles to the production function in a factory. In other words,

production management involves application of planning,

organization, directing and controlling to the production process.
The application of management to the field of production has

been the result of at least three developments. First is the
development of factory system of production. Until the emergence
of the concept of manufacturing. Until the emergence of the
concept of manufacturing, there was no such thing as management
as we know it. It is true that people operated business of one type
or another, but for the most part, these people were owners of
business and did not regard themselves as managers as well.
 INTRODUCTION ON MATERIAL
Historically the five M’s of an industrial organizations viz.,
Men, Machines, Money, Materials and methods have shifted their
positions from time to tome in their relative importance. Materials
as an input in production system started receiving attention of the
industrialists from 1900 onwards. Earlier to this , supply or cost.
Materials occupy a significant place among the M’s of an industrial
enterprise because of several reasons. First the amount spent on
materials is increasing in relation to the expenditure on other
outputs. The trend is clear enough in manufacturing industries, the
proportion of total revenue spent on the acquisition of materials has
been gradually increasing until u has become four or five times as
great as that required for the remuneration of direct labour.
Such being the importance of materials, it is desirable, for an
industrial establishment to have a centralised authority vested with

the responsibility of planning,, procuring, preserving, handling,

usage and their related aspects.
Reasons for popularity of materials
1. The amount spent on materials is higher then other inputs.

2. Materials offer considerable scope for reducing cost and
improving profit.
3. Improving return on investment depends on the effective
utilization of materials.
4. Materials add value to product.
5. Quality of end product depends on materials.
6. Materials management assumes responsibility for what ever
happens in purchasing, storing, inventory or any other area
connected with materials.
7. Need for the preservation of scare resources for posterity.
8. Increasing demand for ensuring environmental safety.
9. The efficiency of any organization depends upon the
availability of right materials in right quantity at the right
time and at the right price.
10. Materials are the lifeblood of mans development.

CHAPTER 2. OBJECTIVE OF THE STUDY
 Need for the study:

It’s necessary for a production industry to concentrate on the
procurement, preservation handling and usage of raw materials.
Proper methods of purchase of materials should be followed in order
to ensure the right source or no. it should be considered that right
quality of materials should be purchased it should be inspected and
then used.
It is also necessary that the right quality of output as per the
customer’s specification should be produced.
It is necessary to know the proper methods of preservation of raw
materials using codification should be followed to easy handling of
the raw materials.
 Objective if the study

1. Lower price for materials and equipments.
2. Faster inventory turnover.
3. Continuity of supply
4. Reduced lead times
5. Reduced transportation costs
6. Less duplication of efforts
7. Elimination of buck passing
8. Reduced materials obsolescence.

9. Improved supplier relationship and netter records and

information.
10. Better inter department cooperation
11. Personnel development.
 Scope of the study:

The present study covers the study of materials management at
Hospet steels ltd. It covers all the aspects related to purchase and
stores function at Hospet Steels Ltd.
 Presentation of the study:

This present study is organised and structures in six chapters.
The first chapter discuss about production industry and the
detailed study on material management.
The second chapter discusses about the company profile i.e.
origin and development future plans etc of the company.
The third chapter discusses about the study of theoretical
framework of purchase function.
The fourth chapter discusses about the study of purchase
function followed at Hospet steels ltd.
Fifth chapter discusses about the theoretical procedure of
stores department.
The sixth chapter discusses about the stores functions
performed at Hospet steels ltd.

CHAPTER III
COMPANY PROFILE
ORIGIN AND DEVELOPMENT OF HOSPET STEELS LTD
As the emerging demand for steel increased to facilitate the
demand of customers who were in need of steel product the so
called Hospet steels Ltd is basically a joint venture company of two
leading firms i.e. Mukund Ltd- Bombay and Kalyani Ltd Pune.
Hospet steels ltd is world-class integrated steel making
company; both the firms have experience of 40 years in
manufacturing the steel. The ratio of investment of Mukund and
Kalyani is 58:42. The plant is set up with an initial investment of Rs.
800 Crs with the production capacity of 3 Lakh MT/Year.
Hospet steels Ltd is situated about 20 kms away form Hospet
and 10 Kms away from Koppal. Water requirement of the plant is
fulfilled by pumping water form Tungabhadra Dam with a storage
reserviour of 4 lakh m3. There is an oxygen plant in the premises
set up by M/S Praxair India Ltd and the power is being taken from
National Gird of about 11 KV.

Key Information of the company:
Existence of Firm - 1998
Cost of the plant - 800 crs
Production capacity - 3 lakh MT/year
Total manpower - 766 employees
Avg. energy consumption - 11 KV / Month
Avg. Electricity bill - 7 crs
Water reserviour - 4 lakhs cubic mts.
Head Office (Kalyani) - Pune.
Head Office (Mukund) - Bombay.
Kalyani shares - 42 %
Mukund Shares - 58 %
Oxygen plant - 115 TP
Contract demand - 22.1 MVA

Organization structure
CEO
Executive Vice President
Vice President
General Manager
Deputy General Manager
Executives
Engineers
Junior Engineers
Staff
Technicians
PRODUCT PROFILE
 Carbon and alloy constructional steels.
 Spring steels.
 Ball bearing steels.
 Other special grade steels. (As per customers specifications).
Size Range (as cast Products)
 Billets – 120 X 120 mm & 160 X 160 mm squares.
 Blooms – 240 X 280 mm rectangular.
 Rounds – 160, 200, 220 mm diameter rounds.
(As rolled products)
 Rounds - 95, 100, 115, 120, 125, 140, 160 mm.
 Any other size mutually agreed.

Various departments of the company
Production department
The steels manufacturing pro
 Mini blast furnace – production of item.
 Steels melting shop - manufacturing of steels. Cess in Hospet
steel limited undergoes three different stages.
 Rolling mill shop – Rolling the steels as per customer needs.
Three separate Managers control the three different sections.
Under them are the executives, engineers, officers, trainees,
technicians or operations.

COMMERCIAL DEPARTMENT
Commercial department is one of the basic departments. It
looks into the purchase of raw material and quality assurance. This
department undertakes the purchases as well as stores activity. The
vice president or general manager of commercial department is Mr.
S.K. Vakkalad.
 Functions of purchase Department
 Receipt of purchase requisitions from user department
 Release of enquiries
 Receipt of quotations
 Preparation of Comparative Statement
 Lowest party supplier
 Release of purchase order
 Follow up for material
 Receipt of material

Store functions
 Gate entry.
 Receipt of material
 Entering into ledger books and computer.
 Quality assurance department must inspect goods received.
 Quality assurance department has the right to reject the
material if it does not satisfy the specified quality.
 If approved it is sent to user department for proper utilization.
Marketing department
Marketing department is an essential part of the company
because this is the department where the sale of finished goods is
done. This is directly linked with production planning and control
(PPC). This department also deals with the dispatching of its
finished goods.
Finance department
Finance department deals with the various financial activities

of the organization. The books of accounts of Kalyani ferrous
industries limited. Mukund limited, Kalyani steels limited and
Hospet/steels limited are independent. The deputy General
manager.

Management Information System.

The management information system (MIS) department
maintains the data of four different companies – KFIL, ML, DSL and
A
HSL they collect the information form different areas of organization
Materials
through network-spread 2 km around
In line sample Yesthe company. The
Stocked ininformation
inspection slow cooling
or report to the management is MIS. Box
Maintenance department
Is slow cooling
required?
The maintenance department is one of the most impartment
No
Materials
departments. handledlined
It is directly to with the production department
finishing
without this, thedepartment
production cannot function properly.
Quality assurance department

Stocking of received
materials
Quality assurance department is a customer representative.
The department acts/ Testing

Inspection as a communicating channel between
customers and production department. The department inspects the

QAD clearance
cast and rolled producers. It also checks the raw materials before it
is taken for production No

Is Materialand
Ok also it takes the products before
Rejected
Yes
dispatching to the customers. The main objectives of QAD are to
Binding / packaging
inspect the quality of raw materials as well as the final or products.
The G.M. of this department is Mr. Tapan Saun.

B
INSTITUTE OF Stocking
MANAGEMENT STUDIES Hubli. 17
Dispatch
MANUFACTURING PROCESS:

Production:
The steel production in Hospet steels Ltd undergoes three
different stages.
 Mini blast furnace - production of iron.
 Steel melting shop - manufacturing of steel.
 Rolling mill shop - rolling the steel as per
Customers needs.
The three different sections are controlled by three separate
managers under them are the executives, engineers, officers,
trainees, technicians or operators.
I. Production of Iron (Mini Blast furnace)
The manufacture of iron takes place in this division. Kalyani
Ferrous Ltd owns it. The general manager of this division is Mr. R.
Sampath Kumar.
Raw materials used in manufacturing pig iron are:

Iron ore (Usually hematite)
Coke
Limestone Fluxes
Dolomite
Manganese ore
BHQ
Here the iron ore, coke and fluxes are brought to the furnace
through conveyer belts. There they have separate bunkers and are
crushed. The coke is allowed to burn with oxygen to form carbon
monoxide which acts as a reducing agent and covert iron ore to pig
iron. The coke burns at 12000, cold water is needed for circulation
to maintain the temperature the impurities in iron ore and coke are
fluxed with limestone and dolomite to form slag. Both the hot metal
and slag. Both the hot metal and slag is collected in the hearth and
tapped put from the furnace. The hot metal collected in cradles
from the furnace is sent at SMS to manufacture steels. The slag is
converted into granulated slag, which is used in the cement. Blast
furnace gas after cleaning is used in metallic blast preheater.

There are two MBF each producing a volume of 500 metric
tones per day. The total output per day is 1000 metric tones.
Products of MBF:
PIG IRON
SLAG
Blast Furnace gas
II manufacturing of steel (Steel melting shop)
Steel melting shop is a steel making division, which is owned
by Mukund Ltd. The deputy general Manager of this division is Mr.
M.O.Gupta.
SMS if further divided into:
(i) Energy optimizing furnace (EOF).
(ii) Laddle Furnace and vacuum degassing (LF & VD).
(iii) Continuous casting machine (CCM).

I) Energy optimizing Furnace (EOF)
The Pig Iron from MBF is the raw materials used here. The
EOF has oxygen supplied through 4 buyers, 4 atmospheric injectors,
1 supersonic, lance and 2 hand lances.
A mixture of 20% scrap and 80% hot metal is poured into the
furnace. The furnace is used to reduce the carbon content 4 to 0.1
% and primary steel is being produced here.
ii) Ladle Furnace: (LF)
The objective of ladle furnace (LF) is to process the heat is
heating, alloying, refining (LRF) is to process the heat i.e. heating,
alloying, refining and homogenizing the material as per standard to
meet this product requirements.
The hot metal is poured into the ladle from the EOF and is
brought of LRF. After the metal is poured into the ladle furnace, the
molten metal is heated with the help of three electrodes above
16000 C. There is a provision of continuous stirring of hot metal in
the furnace by the circulation of argon gas. The metal is heated to
alter its composition (Sulphur, Phosphorous) to meet the customer
requirements of desired steels.

Continuous casting machine (CCM):
It is called CCM because the molten metal is poured into a ‘T’
type tundish from top and the solid bass of metal cones come out
form the caster continuously.
The molten metal from the ladle is poured into tundish. Then
from here, it is poured into moulds blocked on the side by a dummy
bar. From mould it moves through casters where there is a
provision of continuous supply of cold water to solidify the molten
metal. It involves primary cooling as well as secondary cooling.
There are 3 types of casters.
Billet caster
Caster: 120 X 120 mm
160 X 160 mm
Bloom caster
Caster: 240 X 280 mm, 160 mm, 200 mm, and 220 mm.

iii) Rolling the steel as per customer needs:
In Hospet Kalyani Steels Limited owns steel limited rolling mill
section. The vice president of this section is Mr.Partha Moulik.
The steel is further made suitable as per the needs and
arrangements of the customers. The steel is melted in a reheating
furnace it is cooled by natural cooling or control cooling. Thereafter
the steel is moulded into different shapes and sizes. After rolling,
the products will be transferred to hot saw for cutting into length
according to the customers requirements in finishing bay, rolled
products will be reconditioned for whatever surface defect by means
of macro checking to be checked by MP1 machine for surface defect
only. As last the material will be dispatched.
Products: (As per isolated standards 9001 and 14001 std’s)
Carbon and alloy constructions steel4
Spring steels
Ball bearing steels.
Any other special grade of steels.
(As per customers requirements)

Major suppliers
 Mukund Ltd Bombay.
 Kalyani Ltd Pune
Major competitors
Kirloskar Ferrous Ltd
Mahindra Ungines Ltd
Vishweshwaraya Irons Steel Ltd (Bhadravati)
Sources of raw materials
Iron ore - sandur mines
Coke - china
Fluxes, limestones, dolomite - bagalkot
Manganese ore – Hospet

Performance of the company
2000-2001 2001-2002 2002-2003

Sales 1,75,37,16,707 2,45,61,35,618 3,56,37,68,341
Profit 1,53,98,849 5,28,22,199 8,72,70,302
before
tax (PBT)
Provision 13,75,000 27,50,000 70,73,000
s for
taxation
Profits 1,40,23,849 5,00,72,199 8,01,97,302
after tax
(PAT)
Current 2.89 2.43 2.39
ratio
Interpretation:

The company’s sales are increasing from year to year and
this trend is very good from the point of view of the company.
The company should try to increases the sales so that it
can end up with good profits in future.
The company should take care of its current ratio
because the current ratio is high compared to the standards.
Future plans of the company
 Planning to conduct an advanced technical program as
per ISO standards.
 Introducing reward scheme for shop in quality safety etc.
 Survey on organizational climate.
 Preparation of job description.
 Planning to conduct welfare facilities to the employees.
 Supply of uniforms and make facilities.
 Adult literacy programs for benefit of neighbouring
villages.
Chapter IV

THEORETICAL PERCEPTIVE OF PURCHASE DEPARTMENT
INTRODUCTION:
Purchasing of raw materials has got a prime consideration
in the production industry. As today three are four different
groups of buyers.
(a) Consumers
(b) Middlemen
(c) Government agencies.
(d) Manufacturers
The fourth category of purchase includes manufacture
that converts raw material and other inputs into saleable
products.
Purchases function plays a vital role in material
management as it consists of planning functions regarding
when the materials are to be brought. What kind of material is
required at what time and how it is brought, is to be property
planned as per the purchase requirements.

Of any manufacturing industry raw materials constitute

50% of cost of the products hence purchasing function is given
atmost importance.
The purchasing function, which includes raw materials,
consumables, spares etc.
Definition:
Purchasing refers to an act of buying an item at a price.
Meaning:
The broader meaning of purchasing makes it managerial
activity, which goes beyond the simple act of buying and
includes the planning and policy activities covering a wide
range of related and complementary activities.
Included in all such activities are the researches and
development strategies, required for proper selection of
materials may be bought, the following to ensure proper
delivery, the development of proper procedures etc.

Importance of purchasing:
Purchasing is a fundamental function in an industrial enterprise
is primarily meant for converting raw materials into finished
goods.
Its well known that 50% of total cost is contributed by
single element called materials. It is proved that 1 % of
savings in material is equal to 10% of increase in turn over. An
average manufacturer spends major portion of his earnings on
purchases and has largest portion of working capital is tied up
with inventories. The annual reports of companies prominently
illustrate the way their earnings are distributed as shown in
the following figure.
A C
D
E
F
G
H

 Purchasing function provider materials to the factory
without which wheels of machine cannot move.
 Purchasing can contribute to import substitution and save
foreign exchange.
 Purchasing is the main factor in the timely execution of
industrial projects.
 Other factors like
 Post war shortages.
 Cycling swings of surplus and shortages and their fast
rising materials costs.
 Heavy competition.
 Growing worldwide markets have contributed to
importance of purchasing.

Objectives of purchases:
Purchasing objectives is sometimes understood as buying
materials of the right quality in the right quantity, at the right
time, at right price and from the right source.
Purchasing chain:
The purchasing function listed above will be performed to
complete a transactary from its completion certain steps can
be noted in the process of investigation & completing the
transaction the step are.
1. Recognition of need
2. Description of need.
3. A suitable source is selected for supply often a source
has to be developed.
4. Price & availability are determined.
5. Purchases order is prepared & sent out to the supplier
6. Acceptance of the purchase order is obtained from the
supplier. The purchase department to ensure timely
delivery of the material does follow up.

RECOGNITION OF NEED
Recognition of need refers to the means by which a
needed item is officially brought to the attention of purchasing
department cut. Two procedures are followed. One involves
the issuance of requisition and other involves issuance of bills
of materials.
A purchase requisition describes the needed item and
becomes basis for actions by purchase department requisitions
are signed by authorized individuals to void irresponsible
purchase requests.
A bill of materials is a list of item to be incorporated into
finished product’s that the company procedures. Under this
method of establishing needs, the purchasing department is
notified to the manufacturing schedules by PPC (production,
planning and control) department the buyer then multiplies the
items in bills of materials by the total units planned for
production to determine the total requirement after the total

needs have been adjusted to make use of existing inventories
the quantity to be purchase is known.
Description of requirement
The purchase requisition describes the required item. In

order to assure complete and accurate information all
necessary information in a form that can be readily checked
and verified.
Selection of sources:
After the need has recognized, the purchasing
department proceeds to select a source of supply. In most of
the cases, the purchase department would know from where
the material could be bought. The purchasing department
often maintains a regular list of suppliers it becomes necessary
to advertise in the press inviting tenders from suppliers.
Whatever the method it is essential that a right source be
selected. A right supplier is one who delivers materials of the
correct. Specifications on the stipulated delivery date. He is
ethical in his behavior, stands by the promises and has higher

regard for the cordial buyer seller relationship. He is
progressive in his business and seeks technological
advancement in improving the quality of products, his price is
reasonable, in short, he can be wholly relied upon.
Determination of price and availability
The next step in the purchasing is to secure the price for
the items to be purchased. This may be accomplished in three
ways for standard items, vendor’s catalogues and price list are
available and for such items, the buyer needs to check current
listing to obtain the price. Negotiation unplugs bargaining
between buyer and seller. Inviting tenders or quotations in the
third method.
Placing the order:
The legal order is placed with the supplier known as the
purchase order, when the order is supplied by telephone or
telegraph, it is the practice to confirm the order by sending the
suppliers a regular purchase order such an order should be
clearly marked confirming to avoid the possibility of the
supplier taking it as a second order.

Order acknowledgement
Some companies insist an order-acknowledgement form
the supplier, acknowledging the receipt of purchase orders and
agreeing to supply items stated in the order.
Acknowledgement is to get a definite commitment from
the suppliers about the supply of item.
Follow up:
Follow up is done to ensure that, the supplier delivers the
items ordered on time.
Checking the invoice and approval
The last step of purchasing cycle is to check the invoice
and approve it for payment. Since the bill constitutes a definite
claim against the buyer, it needs to be handled with great
care.
The bill supplied by the supplier is compared with the
order and goods received note that is made when the
materials is received. If the bill is correct in all respects, it is
approved and given to the accounting department for
payment.

PURCHASE FUNCTION WITH REFERENCE TO HSL
Purchase procedure with reference to Hospet Steels Ltd.
Hospet steels ltd has organized a central purchase
department. This basically deals with procurement of materials
required. Purchase function starts when different departments
receive requisition or indent.
In Hospet Steel ltd where items handled and volume is
quite large, each specialized person takes care of particular
materials. For ex: some handle raw materials, some will
handle consumables and some will handle spares.
Purchase function
The raw materials such as iron ore, limestone, dolomite,
magnesia, quartzite, spares consumables, lubricants etc are
available in and around factory area. Iron ore is the main raw
material an is purchased from mines nearby. The raw material
coke is imported from CHINA.

INDENT SUPPLIER
IDENTIFICATION
RECEIPT OF
ENQUIRY QUOTATION/OFFER
COMPARISON PRICE AND TERM

STATEMENT OF NEGOTIATION
OFFER
PURCHASE OFFER RECEIPT OF

MATERIALS
QUANTITY MAINTENANCE OF
INSPECTION RECORDS
PAYMENT OF INVOICE

Indent or requisition form
An indent is a requisition slip from a department that
requires some material. It gives details of the items required
like material code, specification, dimensions, quantity required,
technical specification, and other information that is required
to get the material. The details of the items required are
furnished in a standard format.
The indent or requisition is prepared by stores
department it is sent to the purchase department, purchase
department will again pass the indent to general manager and
then get it approved, after the approval is done then the
material is taken form suppliers.

The specimen of the indent is shown below
Department:
No
Date :
Hospet steels
Ginibera : indent
Sl. Item Specification Qty Qty Required Remarks

No description available required date
Job No. Component No.: indentor
Date: - store keeper

Supplier identification:
After receiving the indent form stores department the
next step is to identify the supplier. The reputed supplier are
intangible assets of any organization. They are not only the
suppliers of materials but they are also extremely important
sources of information with regard to the market condition,
price trends.
The proper selection of supplier helps in bringing a fair
competition among suppliers.
Sending an enquiry letter:
Once the suitable supplier is identified, an enquiry letter is sent
to supplier asking him to quote the rate if the materials
including other applicable expenses. In case of regular supplier
of material, the purchase department directly order the
material required.

The specimen of “enquiry letter” is shown below
HOSPET STEELS LIMITED

PURCHASES
To, No. ___________
__________ Date ___________
__________
Dear Sir,
We are interested in purchasing the following materials, please quote us

your terms & delivery date .
Sl. No. Description Quantity Qty Date of Price Remarks
of required delivery
materials required
Yours faithfully
For HOSPET STEEL LTD
( )
PURCHASE MANAGER

Receipt of quotations or offers:
When the company has sent the enquiry letter to the supplier,
he in turn gives a quotation with details asked by the company
and specifying the terms and conditions of supply.
Comparative statement of quotation or offer:
When quotations are received from supplier quoting their
prices for the material, the next task is to compare the
quotations made by different suppliers. This statement helps in
selecting a better and economical supplier.
When company receives number of quotations from
number of suppliers they see the variations from the
quotations in various aspects, in order to evaluate these
quotations a comparative statement is prepared.
The keen study of this statement reveals the best
supplier out of available ones. This statement not only gives
special attention to price but it pays equal attention towards
delivery of goods, quantity and past experience with the
supplier and other terms and conditions.

P.R.S. No. Date: Dept

Qty. Sub- Contractor
Sl No. Material Description Unit
Reqd
Basic Price
Discount
Total
Packing & Forwarding
Excise Duty
Kist’s
Insurance
Any Levies/ Entry Tax
Freight
Other Charges
Gross Landed Cost
Less Exise Rebate
Net Landed Cost
Less Cost Of Cash Basis
Delivery Schedule
Terms Of Payment

Placing the purchase order:
The purchase order is placed with the selected supplier. It
indicates an official announcement of the intention of the
buyer addressed to the supplier to receive the specified
materials. Generally printed forms are used for purpose and
specifications such as price, date of requirement, mode of
delivery and other relevant terms are made in the purchase
order.
However the purchase order copies are generally required
as under:
Original copy - sent to the supplier.
Duplicate copy - initiating department.
Triplet copy - stores department.
Fourth copy - accounts department.
Fifth copy - retained by the purchase
department.

KALYANI STEEL LIMITED QR. NO. :

HS/PUR/06.13
OFFICE : HOSPET ROAD, GINIGERA-583228.
TQ.& DIST.KOPPAL, KARNATAKA
TELEPHONE : 08539-286603 TP 08 (6LINES)
PURCHASE ORDER TELEFAX : 08539-286611
To, SUPPLIER CODE:

PO NO. : PUR DATE:
AMENDEMNT NO: DATE:
YOUR REF. NO: DATE:
PIN CODE
PLEASE SUPPLY THE GOODS IN ACCORDANCE WITH THE TERMS & CONDITIONS STIPULATED IN THIS ORDER
SHEET NO.
SR. MAT. CD. DESCRIPTION QUANTITY UNIT RATE/ UNIT

AMOUNT
RS. RS.
PS.
PLEASE ISSUE ORDER ACCEPTANCE CONFIRMING PRICE SCHDULE & OTHER TERMS & CONDITIONS OF THIS
PURCHASE ORDER
PRICE BASIS : TAXES:

PACKING & FORWARDING: TERMS OF PAYMENT :
OTHER LEVIES : DELIVERY:
MODVATABLE / NON MODVATABLE MODE OF DESPATCH:
 PLEASE DELIVER THE ABOVE GOODS ON FOLLOWING ADDRESS:

WORKS & POST : GINIGERA, TALUKA & DIST.: KOPPAL PINCODE -583 228
 INSURANCE WILL BE ARRANGED BY YOU/ US ON PRIOR INTIMATION FROM YOU FOR
KALYANI STEELS LIMITED
K.S.T REGN No. : 8060110-8 DATED 09-08-1995

C.S.T REGN . NO. : 8065110-0 DATED 09-08-1995
E.CC. REGN . NO.: AAACK7315DXM001
RANGE: KOPPAL-583 231. DIST KOPPAL.
DIVISION : 351, GSM ROAD, GANDHINAGAR, BELLARY-583 103.
COMMISSIONERATE: 71 CLUB ROAD, BELGAUM.
Q.F.NO. : HS/ PUR/ 06.13

Terms and conditions of purchases on the Hospet steels
Ltd
1. All materials must be exact as per samples and
specifications.
2. In case if delay the contract is liable for cancellation
and the penalty will be paid at companies discretion.
3. All the materials must be forwarded through specific
mode of transportation, failing with differences in freight
and extra cost of carriage etc will be charges to sellers
account.
4. The seller shall be allowed for carriage or packaging
etc unless agreed to previously in writing by the buyer.
5. No variation of the order shall be valid unless made
in writing.
6. No variation in price will be entertained during tenure
of supply under the order.
7. In case of payment against document through book
a. Over due interest will not be paid by the company.

b. Any bankers commission will not be paid by the
company.
Receipt of materials:
Receiving department receives the materials supplied by
the vendor. The quantity is verified and tallied with the
purchase order. The receipt of the materials is recorded on the
receiving slips or forms, which also specify the name of the
vendor and the purchase order number; it also records the
damages and inferiority of goods.
If the materials required any quantity control or
inspection they are sent for such testing, the inspection
department tries to verify that the incoming materials comply
with the standard quality as specified in purchase order.
The accept and reject decisions may be taken on the
basis of either sample testing or 100 % inspection for some
material. The inspection report along with test certificates and
recommended acceptance or rejection should be sent to the
purchasing department. On the basis of this recommendation

made by this inspection department, the purchase department
arrange for the segregation of the rejected materials.
GOODS RECEIVED NOTES
HOSPET STEEL LTD
Fax no._______
Phone _______
Date _______
Vendor Name ____ Purchase order no. Invoice No. ______
Code ___________ Date_________ Date ________
Sl. Item Item Unit Received Accepted Rejected Date Amt

No Description Code

Payment of invoice
When goods are received in satisfactory conditions, the invoice
is checked before it is appraised for the payment. Generally
the invoice is checked to refer that the goods were duly
authorized to purchase, thy were properly ordered, they are
paid as per the agreed terms, the quality inform to the order
the calculations are arithmetically correct etc.
Maintenance of records
Maintenance of records is an important part of the
purchasing departments in the industrial firms, most of the
purchases are repeat order & hence the post records serve as
a good source for further actions. They are very useful for
deciding the timing of the purchase & separating the best
source of supply.

PAYMENT RELEASE REQUEST
Date : Purchase S.L. No. ______

Date: QRNo.HS/PUR/06.14
PAYMENT REQUIRED FOR:
Sub-Contractor Name Amount :
Facility : Iron making/steel

Payment required date ____________________ making/ rolling mill/ common
services
Enclosures:
A) PO/LOI No.:
Date_____________
B) Invoice No/Performa invoice No.
Date_____________
C) Other administrative/ pre operative items
O As advance O As payment
Bank Guarantee required Yes/ No
Enclosed__________
Made of payment required

O Cheque O Demand draft O Cash
Place of payment: O Pune O Hospet O _____________
Special Instructions:
__________ __________________
Requisitioned Sanctioning Authority
Received by __________________________Signature ________________

date________________
QF No. HS/ PUR/06.14

MUKUND LIMITED
HOSPET DIVISION
Order recommendation /approval form

Order no. HS/PUR/06.08
NO:
Date:
Item:
Quantity
Value:
Suppliers: M/s.
Order placement is recommended for the item on above supplier
The recommendation is based on following:
 Approved supplier for the item
 Competitive offers enclosed which shows that supplier rate is lowest
 Competitive offers not considered necessary as value is small
 Competitive offers not considered necessary due to urgency.
 Telephonic offers.
 One time requirement. Supplier credentials checked and found
satisfactory.
 Any other reason.
________________ ______________ ____________
(Prepared by) (Checked by) Reviewed and approved by

Theoretical framework of stores
department
1.1 Introduction
1.2 Functions of stores
department
1.3 Stores layout
1.4 Centralized and sub stores
1.5 Stores keepers duties
responsibilities
1.6 Classification and codification
1.7 Setting stock levels

Pricing material issue
THEORETICAL FRAME WORK OF STORES DEPARTMENT
STORAGE
Proper storage of goods is very essential effective production
planning. Materials when received are to be properly examined
and tested and kept in a proper place known as “store room”.
Store keeping, those may be described as “ physical stroge of
materials carried into the store room in a scientific manner
with a view to, Saving them from all kinds of damages and
losses and
Exercising over all control over their movement. Proper
storage of materials helps in minimizing production cost and
providing efficient service. Proper storing of separate storage
department is setup for efficient storing and handling of all

materials received. This department is responsible for physical
possession of materials in the organization.
Functions of stores department
The stores department play a very important role in an
organization, it is therefore essential that the overall
functioning of this department should be entrusted to a
capable and proper organized stores department.
i. Receipt of materials into the store.
ii. Acts as a store and depot for different types of materials.
iii. Protestation and preservation of materials.
iv. Issue of materials.
v. Checking the invoice with material received note and
purchase order in quality and quantity of material
received.
vi. Maintains stock of materials and
vii. Maintains proper books and records necessary for
accounting and control.

Stores location and organization
Location of the stores department should be care fully
planned out and as far as possible stores should be located
within the proximity of both receiving and consumption pains.
The location of stores depending on the requirements of the
enterprise may be organized in the following lines.
a) Centralized stores.
b) Decentralized stores.
c) Central stores with sub- stores
Organization of stores on these lines has its own merits and
demerits. But the cardinal points that should be kept in mind
are that the stores be located in such a manner which allows
free low of materials with minimum costs and does not hinder
the production schedules.

STORES LAYOUT
The stores department should be properly organized and
equipped for handling of materials movements. In determining
the location and layout of store, several important
considerations should be kept in view. The stores department
should be housed in a position, which is readily accessible from
any part of the factory, and also as near to the road, railway
siding or water as is possible in order that the minimum
expenditure is insured in unloading the materials purchased.
The layout of stores should be determined according to the
class and quantity of materials to be stored and the general
nature of the business. In laying out the shortest line with
minimum handling and maximum speed within the
department. Shelves, racks, bins etc., should be situated in
clearly defined lanes, so that easy accesses provide. In case of
heavy or bulky stores, storage in bins, sheaves etc., many not
be convenient, but white lines should be marked out on floor
to indicate the limits within which materials or storages of this
character are to be placed.

CENTRALISED AND SUB STORES
The types of stores organization are centralized stores,
central stores with sub-stores and independent stores situated
in various departments. The type of stores organization
depends on the class and quantity of materials to be stored,
layout of stores and the nature of the business.
ADVANTAGES OF CENTRALIZED STORES DEPARTMENT: -
1. Centralized control and economy in floor space, clerical
costs, records and stationery.
2. Better supervision, better layout of stores and better
control over stores
3. Fewer obsolete articles.
4. Minimum investment in stock.
5. Possibility of bulk buying at lower cost.
6. Preparation of concise reports and scarp, obsolete stocks,
loss etc., at regular intervals.
7. Inventory checks ad inventory control facilitated

DISADVANTAGES:-
1. Increased interval transportation costs as one central
stores may not be near to every department of the
factory
2. Inconvenience and delay in delivering goods to
departments from central stores.
3. Great risk of loss by fire as all materials are kept in
central store.
4. Production stoppages in departments due to breakdowns
in transport or holdups in central store.
SUB-DIVISION OF STORES
In a large manufacture organization separate store department
may be maintained for each item, viz raw materials,
consumable stores, components, part finished stores, finished
goods, scrape materials, plant maintenance materials etc.

STORE KEEPER HIS DUTIES AND RESPONSBILITIES.
The stores department should be under the control of one
person known as store keeper or store controller. He should be
able to organize the operation of the stores an capable of
controlling the men under his charges, wide experience is
stores routine and orderliness in store keeping are highly
desirable in a store keeper.
CLASIFCATION AND CODIFICATION
One of the accepted principles of store keeping is that all the
goods showed be broadly classified on the basis of some
similarity and usage These should be assigned some symbol or
identification or number code. In a large enterprise stores may
be classified as raw materials packaging stores, machinery and
equipment and general stores. Stores may also be known as
serviceable and non-serviceable, finished and semi finished
and dead stock items etc.

The classification of materials should be accompanied by
a proper codification implies assigning of some symbol
numerical or alphabetical for each classified item in accordance
with some suitable arrangements. Codification helps not only
in proper maintenance of the stores but also facilities in
mechanized accounting.
The following are the advantages of proper
codification:
1. Elimination of long and un widely description of materials.
2. Facilities standardization of stores.
3. Facilities efficient recording and accounting.
4. Ensures secrecy in the maintenance of stores.
5. Ease in identification of stores.
6. Assures proper system of location and indexing.
7. Prevention of duplication and quoting symbol along with
nomenclature ensures clarity.

CODIFICATION SYSTEMS
While assigning a code or a symbol, the following points should
be kept in mind.
1. Simplicity.
2. Flexibility.
3. Conciseness, definiteness
4. Clarity and
5. Minimum expenditure
There are methods of codification in use.
But the following are commonly used.
1. Alphabetical
2. Numerical
3. Combined alphabetical and numerical
ALPHABETICAL SYSTEM:
Under this system, the first alphabet of the name if the

material is the starting point of codification. Subsequently sub
alphabet may be used if necessary.
Example : iron ore = IN-O
Iron bars=IN-BA

Numerical system
Under this system, ach item is allotted as codes and the
numbering may be simple number, block number or stock
number. The following table illustrates an explains numerical
codification in its sub groups.
Example:-
Numerical codification
Items number Simple straight no Block number Stock

Raw material 01 00-10 15
Iron ore 04 01-20 15-1
Iron pig 06 21-40 15-2
Iron stocks 10 41-60 15-3
Iron bars 11 61-80 15-4
Combination of numeric and alphabetical system:
This system us a mixture of both alphabetical and numerical
system. Example : iron ore may be allotted code as IN-BAR-
01. this system ahs merits of the two system.

Replishment of stock
Materials are received and issued by the stock keeper to
different production department. The duty of a storekeeper is
the restocking of stores in order to ensure efficient functioning
of the stores department and study flow of materials has to be
the production departments. The inflow and the out flow of the
materials has to be regulated in such a manner that neither
production is adversely affected due to the need of materials
nor is there unnecessary blocking of capital funds due to
overstocking. This implies that there is always limit to the
minimum and maximum quantity of materials of stock in the
store. The storekeeper is to request for stock replishment in
time so as to ensure honouring of requisition slips from the
production departments. Replishment of stock therefore
implies as taking steps for the fresh purchase of those stocks,
which have been exhausted and for which requisition are to be
honoured in future.

SETTING OF STOCK LEVELS
In order to ensure that the optimum quantity of materials is
purchased and stocked neither less nor more, the stock keeper
applies scientific techniques of the materials management.
Fixing of certain level for each item of materials is one such
technique.
Two objectives of stock control system are: -
1. To maintain sufficient stock in order to avail shortages,
which can disrupt production and sales.
2. To avoid the high costs of holding excessive stock level
finance charges shortages costs and decoration.
A stock level, which strikes a balance between these two
objectives, should result in inventory costs being minimized
fixing of certain levels for each item of materials is one of such
techniques.

The following levels are generally fixed: -
1. Maximum level
2. Minimum level
3. Re-order level
4. Danger level.
1. Maximum Level:
The maximum stock level indicates the maximum
quantity of an item of material, which can be held ion
stock at any time. The maximum stock level is fixed by
taking into consideration the following factors.
a) Average rate of consumption.
b) Availability of funds.
c) Availability of storage space.
d) Risk of obsolesces, depletion, evaporation ad
material waste.
e) Future fluctuation of price of materials.
f) Cost of storage and insurance.
g) The nature of material- seasonal suppliers etc.,

The maximum stock can be calculated by applying the
following formula,
Maximum level = reorder level + reorder quantity = [minimum
consumption * minimum reorder period]
2. Minimum level:
Minimum level represents the quantity below the
inventory of any item should not be to fall. In order
words, an enterprise must maintain minimum quantity of
stock so that the production is not hampered due to non-
availability of materials. It is some buffer inventory acting
as a cushion against reasonable expected maximum
usage. The minimum stock level is fixed by taking into
account.
a) Re-Order level
b) Lead is time lag between dates of issuing order and
the receipts of materials.
c) Average, rate of consumption of material.

Formula:
Minimum level = Reorder level [ normal consumption* normal
reorder period]
3. Re-Ordering Level/Point: -
reorder point (ROP) or reordering stock level in relation
to an item of stock is the point at which it becomes
essential to initiate purchase orders for its fresh supplies.
In inventory management schedule is a key decision
point and is the quantity level that automatically triggers
a new order. Normally reordering level is a point between
the maximum and the minimum levels. Fresh orders
must be placed before the actual stocks touch the
minimum so as to take care of lapse in time between
placing the order and the receipt of materials.
The following factors are taken into account for fixing
reorder level.
a) Aggregate rate of consumption or usage per day.
b) Lead-time is maximum delivery or reorder point.
c) Economic order quantity.

Formula:
Reorder level = maximum reorder period * maximum usage
per day or per week.
In case purchases are made according to economic order
quantity formula, the reordering will be nearly half of the
economic order quantity.
4. Danger level:
The danger level is below the minimum level and represents
and stage where immediate steps are taken for getting stock
replenished when the stock reaches danger level, it is
indicative that if no emergency steps are taken to restock the
materials, the stores will be completely exhausted and normal
production stopped.
Generally, the danger level of stock is fixed above the
minimum level but below the reordering level.

ECONOMIC ORDER QUANTITY:
Economic order quantity (EOQ) is the inventory purchase
order size that minimizes annual order costs and holding costs.
This model determines how much to order, when to order at
one tome so as to minimize the total of
i) Cost of placing orders and receiving goods, and
ii) Cost of storing the goods as wekk as interest on
capital invested when this concept relates to
production, it is called economic lot size and
refers to the number of units, which should be
manufactures in a single run so that the
production costs are minimized. The economic
order quantity can be determined by the following
simple formula.
EOQ = 2AS

Where, EOQ = Economic order quantity of number of units in
one lot.
A = Annual usage in units.
S = Ordering costs in rupees for one order.
I = Inventory holding / carrying costs per units in rupees per
year.
The above EOQ model gives an approximate idea of the
number of units to order each time. This is enough because
precision as such is not needed.
Assumption underlying EOQ model are: -
1. Procurement of production is in batches. It is not
applicable in continuous production.
2. Price will remain constant throughout the year and
quantity discount is not involved.
3. Demand rate is constant and is predictable during the
period.
4. EOQ will be delivered each time the stock balance is just
reduce to nil, excluding of course, safety stock.
5. Lead-time is certain.

Stores ledger
The stores ledger is a basic record in accounting for
materials and supplies. It contains in details, receipts, issues
and balance along with money value of cash item of stores. It
is usually kept on cards or sheets and the details of materials
to be given depending on the requirements of a particular
organization. The ledger sheets are generally in loose leaf form
in binders and separate binders are used for each class of
materials. The loose sheets are numbered serially and are
initiated. The loose sheets are numbered serially and are
initiated.
The purchase order/ invoices.
1. The materials received reports and
2. The materials requisition.
The stores ledger and bin card, record, the physical
movements of all items of goods on the store. It is, therefore,
essential the quantity balances as shown by these two records
should always agree. The specimen of store ledger is shown as
under.

Company name
Stores Ledger
Name of the article…………….. Max. stock level………
Specification………………………. Min. stock level……….
Stores code no……………….. Reordering level………
Date source of receipts.
Pricing materials issues
Need for pricing:
Normally, materials must be priced for two reasons. They are:
a) When charged to production and
b) When materials are computed for financial
statements.
The need for determining the prices of materials arises
from the fluctuations in the price of similar materials
purchased on different dates.

Cost price of an article is significantly affected by the
price at which materials are issued from the stores to the
production department materials are frequently purchased at
varying price and are issued to different production
department according to their needs. The price paid for the
procurement of such materials will be charged to that job.
Frequent changes in the material prices, inflationary trends,
nature of materials and its storage and the frequency with
which materials are issued to production departments are
some of the matters, which further complicated the pricing of
materials issues. However in order to ascertain the cost of
production per article as accurately as possible and value of
closing stock of raw materials reflecting its true valuation. The
pricing of material issue should have to be based on some
accepted principles. Before adopting a particular method of
pricing materials issue the following points should be
considered.

1) As far as possible the method of pricing materials issues
should reflect the market price of the material.
2) The method should be simple and should not involve
much adjustment at the closing period.
3) Frequently of receipts and issues transaction be taken
into account.
4) The nature of materials and type of costing system be
considered.
5) Frequent change in pricing materials issues should, as
far as possible, be avoided.
6) Cost of clerical work involved should be minimum.
7) The proportion which raw materials bear to total cost
should as far as possible be minimum.
8) The uniformity, is any, should be maintained within an
industry.

There are different methods of pricing materials issued, which
can be summarized, in the following main categories: -
1. Cost price methods
a. The actual cost / specific cost
b. First in first out (FIFO) price.
c. Last in first out (LIFO) price.
d. Next in first out (NIFO) Price.
e. Base stock price.
f. Highest in first out (HIFO) price.
g. First in last out (FILO) price.
2. Average cost price methods
a. Simple average price.
b. Weighted simple average price
c. Periodic simple average price.
d. Periodic weighted average price.
e. Moving simple average price.
f. Moving weighted average price.

3. National price methods.
a. Standard price
b. Inflated price
c. Replacement price.
The actual cost:
Under this method, the materials issued are priced at their
actual cost, which involves identification of each lot purchased.
The identified cost is applicable for materials purchased for a
specific job and for which separate cost records have been
maintained. The materials is stored at a special place avoiding
much efforts in its identification and cost price incurred the
method may be usefully applied if purchase prices are fairly
stable and materials are fairly stable and materials is readily
identifiable.

First in first out method (FIFO)
This method is commonly known as FIFO. The principle is
that issues are priced in chronological order of the purchases
and at their cost price.
The materials received first are to be issued as soon as
the materials requisitions are received.
1. This method is suitable in a falling market for purchases.
Profits ten to rise as the cost of production reflects the
lower materials prices.
2. Under this method, neither profit nor loss is unduly
made.

The ABC analysis:
The technique is based on the principle of management by
exception or selective control. This method of inventory control
provides a means for reducing safety stock investment without
increasing the probability of stock outs. The logic behind this
approach is the maximum, “put your efforts where the results
are maximized”. It is the efforts results management principle.
The premise of ABC concept of control is that management
should concentrate its energy in controlling those items that
most affect the organizational objectives. It is actually
materials use classification system where attention is paid to
estimates of requirements, purchase scheduling, safety stock,
prompt receipts and inspection. For more products there are a
few items which account for most materials costs as also a
large number of items who’s total cost is very low.

All items of inventories are arranged in order of
magnitude and classified in to three classes of high value,
medium value and low value. The first 10% are called A items,
and next 20% are B items and the remaining 70% are C
items. The ABC classification has its basis on proved “ vital few
and trivial many” idea. ‘A’ items are vital few. ‘B’ items are
less important and C items are wasted, the trival many. It is
commonly found that top 10% items involved the greatest of
rupee investment and the bottom 10% is the lest shown in the
following table.

ABC analysis
Class or No of Percentage Value Percentage Average
group items of item of the total value
value of
items
A (High 40 10 70000 70 1750
value)
B 80 20 20000 20 250
(Medium
value)
C ( low 280 70 10000 10 360
value)
400 100 100000 100 2560

For the basis of classification of materials two methods may be
used: -
1) Actual inventory holding method and
2) Actual inventory usage method.
The first would be useful when the inventories represent
mostly dead surplus stores. The second method would be
usefully applied when the stress is laid upon the relative usage
if the inventory so as to avoid stock out.

Stores function with reference to
HSL
1.1 Introduction
1.2 Functions of stores at HSL
1.3 Stores layout in HSL

STORES FUNCTION WITH REFERENCE TO HSL
Stores function start with inspection of the purchased
material, & if that is according to the order made then it will be
according & send for storage department, some items which
cannot be stocked will be directly taken to the assembly line
from inspection.
HLS follows a scientific method of storing systems with a
view to saving them from all kinds of damages and exercising
over the movement in HSL separate centralized with sub
stores department is setup which does efficient storing and
handling of materials received.
FUNCTIONS OF STORES DEPARTMENT
Preparation of goods received note (GRN)
A stores department prepares goods received note according
to purchase order, store personal check the physical quantity if

the quantity are stores as per the purchase order then it
accepts and materials and stories in the department
FUNCTIONS OF STORES
Preparation of goods received note and

inspection note
Preservation of
goods
Codification
system
Issue of materials
when required
Maintenance of
records

Protection And Preservation
The stores department protects the material from
pilferage, mishandling, evaporation etc. The stores department
preserves and protection such materials.
 It minimizes obsolesce surplus and scrap through proper
codification, preservation and handling. The HSL Ltd
stores department codifies preserves all the materials in
a systematic way. It handles the materials with scientific
methods.
 Issue of materials
The stores department issues the materials when an
indent is received from the production follows FIFO
method (first in first out) of issue the data into the
computer online systems.

 It maintains proper records necessary for
accounting and control
In HSL stores department records the issue of materials and
stock details in the computer online systems. But adopting the
method o accountability is very effective and control over
materials is possible.
STORES LAYOUT
The HSL stores department is properly organized and equipped
from handling of materials coming in and going out. In
determining the location and layout of store, several important
considerations are kept in view.
This is housed in a location, which is easily accessible from
any part of the factory and also near to road and railway
siding.

Centralized and sub-office
The HSL organised a centrally with sub stores
department. The centralised store is always good from point of
view of control and economic. The centralised office have
certain advantages, they are as follows.
 Centralized controls and economy in floor space,
electrical costs, records and stationery are educed
 Possibility of bulk buying at lower cost
 Minimum investment in stock

Stores keepers duties and responsibility is HSL
1. He has to accept the materials into his stores or as
returned by process.
2. He has to issue the materials when he receives the indent
from the production
3. To record all the transaction in the complete online
systems.
4. He has to watch the stock levels and arranges to
replenish them whenever necessary.
5. He has to maintain stock in good condition free from
deterioration, pilferage and wastage.
6. He has to report on absolute slow moving and non-
moving scrap materials.
7. He has to maintain the stores clean and tidily.
8. He ahs to supervise the staff under his charge.

Classification and condition
In HSL stores the stores personal broadly classify the
materials on the basis of some similarity and usage. The stores
personal assign some symbol or identification numbers and
code number.
The classification of materials is accompanied by a proper
codification. Codification implies assigning of some symbol
numeric or alphabetically for each classified items in
accordance with some suitable arrangements. Codification
helps in proper maintains of stores and it facilitates in
mechanized accounting.
The following are the advantage of proper classification
1. Elimination of long and unwieldy description of materials
2. It facilities standardisation of stores.
3. Ease in identification of stores.
4. It facilitates efficient recoding and accounting
5. It assures proper system of location and indexing

Codification system
While assigning a code or a symbol the following points are
kept in mind.
a) Simplicity
b) Flexibility
c) Conciseness (definiteness)
d) Clarity
e) Minimum expenditure
The HSL stores department assigns the code to the materials
with alphanumeric systems, this system is the combination of
alphabetically and numeric system
Ex: Iron bar may be allotted as (code) IN BAR-01
Replenishment of stock: -
Material are required and issued by the store keeper to
different production department one important duty of store
keeper is the restocking of stores in order to ensure efficient
function of stores department and steady of material to the
production departments.

The storekeeper requests for stock replenishment in time
so as to ensure honoring of requisition slip from production
departments. Replacement of stock therefore implies taking
steps for fresh purchase of those stocks which have been
exhausted and for which requisition will be honored in
further.
STOCK LEVELS WITH REFERENE TO HSL
In order to ensure that the optimum quantity of material
is purchase and stocked neither less nor more, the storekeeper
applies scientific techniques of material management fixing f
certain level for each item or material is one of such
techniques.
Two objectives of stock control systems are:-
1) To maintain sufficient stock is order to avoid which can
disrupt production and sales
2) To avoid the high costs holding excessive stock level
finance charges, storage costs and deterioration.

A stock level, which strikes a balance B/n these two objectives,
it should result in inventory costs being minimized. Fixing of
certain levels for each item of material is one of such
techniques the following levels are fixed by HSL (Hospet steels
Ltd.) are: -
1) Maximum level
2) Minimum level
3) Re-order level
SL No. Major raw Daily Maximum Minimum Unit of

materials consumption measures
1 Mild steel scrap 2.5 60 25 Tonnes
2 Ferro chrome 0.5 09 03 Tonnes
3 Ferro silicon 0.25 06 02 Tonnes
lumps
4 Ferro silicon 0.5 06 02 Tonnes
inoculants
5 Manganese 0.3 09 03 Tonnes
6 Copper 0.2 01 0.5 Tonnes
7 Pet cock 0.1 04 0.2 Tonnes

Consumables
Sl.no Major raw materials Daily Max Min Unit of

cons measu
rement
s.
1. Code box resins 1.2 04 0.2 Tones
2 Silica sand 125 1500 500 Tones
3 Core sand 02 04 03 Tones
i) Red oxide casting 300 2.000 500 Litres
sealer
ii) Sedset black paints 040 500 200 Liters
iii) Gray paints 040 500 200 Liters
iv) Zinc chromite green 40 500 200 Liters
v) Thinner 20 1500 500 Liters
5 Resin coated sand 01 30 10 Liters
6 Sulphur 50 1000 500 Tones
7 Tin metal 10 300 100 Kgs
8 Mold wash 0.02 03 10 Kgs
9 Bentomite 08 250 150 Tones
10 Coat dust 04 30 20 Tones
List of consumables:
Sl.no Major raw Daily Max Min Unit of

materials cons measurements
1 Mud gum clay 24 04 18.40 Met. Ton
2 Fire wood 10 1.65 2.35 Met. Ton
3 Cotton cloth 25 15 20 Number
4 Pig moulds 120 20 36 Met. Ton
5 Refractory 4800 800 2080 Number
bricks
6 High speed 30 05 09 Liters
diesel

7 Furnace oil 80 15 24 Liters

8 Grease servo 556 182 364 Kgs
gem
9 Red, mati: SS 12 06 06 Kgs
304
10 M.S. barrel 30 20 25 Number
Nipple
11 Ball bearing 06 04 05 Number
Stores Record
In Hospet steel Ltd, the stores keepers maintain two
material records that is Bin card and stores ledger.
Bin card
The stores keeper maintains a bin card for each item of
material in stores room. The bin card shows physical
movements of each item of materials in the stores, this is a
quantitative record of receipts, issues and closing balance of
items of stores. For each kind of material a separate record of
the bin card is kept showing all the details of receipts and
issues.

The main purpose of bin card is to disclose at a glance to
anyone in the stores what quantity of a particular commodity
is in the stock without having to refer to stores ledger of
ascertain the informatory by actual inspection of the goods.

Hospet Steel Ltd
Bin card
Bin card number _____________ Max Stock________
Name of the article _____________ Min Stock ________
Street code No. _______________ Re-Ordering stock_______
Unit of measures _____________ Re-Ordering level________
Date Delivery or Receipts Issues Balanc Date of Remarks
issued returns qty e qty verificatio sign
notification only n with
stores
ledger
Stores ledger of Hospet steels ltd
Hospet Steels Ltd
Stores ledger
Name of the article _____________ Min Stock ________
Street code No. _______________ Re-Ordering stock_______
Unit of measures _____________ Re-Ordering level________


PRICING THE MATERIAL ISSUES
 NEED FOR PRICING: -
Material is to be priced for two reasons
1. When changed to production
2. When materials are compared for financial
statements
The need for determining of material arises from the
fluctuation in the prices of similar materials purchased on
deferent dates.
There are four different types of pricing materials issues,
but in Hospet steels Ltd, FIFO (First in First out) method is
adopted.
In FIFO the material issues are priced in chronological
order of the purchases and at their cost price. The materials
received first are to be issue as soon as the material
requisitions are received.

Features of FIFO method: -
1. This is a very simple method and is useful for issue of
bulky materials with high price.
2. It appears logical as the materials bought earlier are
used for earlier jobs.
3. Stock valued at recent purchase price and hence it
closely represents current market price.
4. When price, material cost charged to production being at
lower prices profit is fluctuated to the advantage of the
management and share holder’s
5. During price decline, material cost, cost charged to
products or jobs keep in line with the price trend.
6. This method is suitable where the items are bulky, slow
moving and costly, because it is easy to identify units
belonging to a particular purchase lot.

Chapter 5.
RESEARCH METHODOLOGY
Methodology of the study refers to the methods used to
collect the required data for project work. The research is
exploratory in nature. The data required has been collected
from the following.
Primary Sources:
Those data which are collected at first hand by researcher
especially for the purpose of the study. The following point is
used to consider for collecting primary data.
1. Discussions with the management
2. Interviews with the concerned officer
Secondary sources:
Any data which has been gathered earlier for some other
purpose are secondary data in the hand of researcher. The
following points are used to consider for collecting secondary
data.
1. Records of the company: This helped me to get details,
regarding the history of the company.
2. Library Research.
3. A number of books on international business were
referred to collect theoretical back ground relating to
material management.

FINDINGS
• Low prices- to be lowest - includes transportation:

enhances profit
• High inventory Turnover- value of inventories to be low
in relation to sales. Reduces storage costs
• Low cost acquisition and possession- reduced handling
and storage costs.
• Continuity of supply- alternative sources, , captive
suppliers, flexible suppliers
• Low payroll costs- Low operating costs of material
management personnel
• Favorable supplier relations- supplier development
• New materials and products- working closely with

Design and research departments for
• development of new materials and products
• Interdepartmental Harmony- Success of materials
management department depends on the success of
other departments. Hence relations are to be
harmonious
• Forecasts- Forecasts in terms of prices, availability and
general market conditions are to be regularly
monitored towards taking important business decisions.
SUGGESTIONS
 For uninterrupted flow of materials, stock levels are to
be verified frequently
 Obsolescence materials are to be disposed frequently
to minimize the maintenance cost
 Importance is to be given for grade materials such as
coke etc.
 Slow moving & non moving items to be reviewed
frequently & action is to be taken to re- use or disposal
 Finished products is to be stored in secured place so as
to eliminate rust, breakage spoilage etc.till it is
dispatched to the customers

CHAPTER 8.
LIMITATIONS
The study relies upon the data available in the

company records (supplies records of the company) &
information provided by the company and its purchase and
stores department
The aim of the project report is to study the material
management of the organization. Hence the study of
material management includes purchasing, purchasing
policies, material storing, & inventory management & so on
The study mainly deals with purchase & stores functions at
hospet steels ltd.

CHAPTER 9
EXPECTED CONTRIBUTION FROM THE
STUDY
Material occupies a significant place in an industry
enterprise because the amount spent on materials is
increasing in relation to the expenditure on their inputs. The
trend is clear enough in manufacturing industries, the
production of total revenue spent ion the acquisition of
material has been gradually increasing unit it has become four
of five fives as great as required for remuneration of direct
labor.
HSL has organized centralized purchase department. The
material playas a vital role and it is handled and controlled by
the well-experienced personnel are specialized in material
engineering. The purchase department work starts as soon as
the indent is received, they identity the suitable supplier and
ask for quotations and after making a comparitative study,
they place the order. HSL has very good relationship with all
their suppliers

Even the stores department of HSL is centralized with
sub-stores; all transactions are recorded in a computer online
system. The stores department maintains codification of
material wherever requisition comes from the production
department the stores department issues the materials
through authorized personal. The stores department maintains
FIFO method of issue of materials.
As soon as the material is received the inspection
department inspects whether the materials are as per invoice
specification and the accepted material are sent to stores
department in turn stores department received the material
and prepare (GRN) goods received note and place the material
in systematic order for these material the code is gives so as
to identify material easily.

PRODUSTION PROCESS
IRON ORE

IRON
PROCESSER BLAST FURNACE
LD 1
STEEL PROCESSER
LD 2
HOT MILL SLABS

COLD MILL
OUT PUT

Bibliography
K.ASWATHAPPA: PRODUCTION MANAGEMENT
CHUNAWALLA & PATEL: PRODUCTION MANAGEMENT
www.google.com
www.sal.com
www.hospetsteels.com
ANNEXURE; PURCHASE ORDER

KALYANI STEEL LIMITED QR. NO. :

HS/PUR/06.13
OFFICE : HOSPET ROAD, GINIGERA-583228.
TQ.& DIST.KOPPAL, KARNATAKA
TELEPHONE : 08539-286603 TP 08 (6LINES)
PURCHASE ORDER TELEFAX : 08539-286611
To, SUPPLIER CODE:

PO NO. : PUR DATE:
AMENDEMNT NO: DATE:
YOUR REF. NO: DATE:
PIN CODE
PLEASE SUPPLY THE GOODS IN ACCORDANCE WITH THE TERMS & CONDITIONS STIPULATED IN THIS ORDER
SHEET NO.
SR. MAT. CD. DESCRIPTION QUANTITY UNIT RATE/ UNIT

AMOUNT
RS.
RS.
PS.
PLEASE ISSUE ORDER ACCEPTANCE CONFIRMING PRICE SCHDULE & OTHER TERMS & CONDITIONS OF THIS
PURCHASE ORDER
PRICE BASIS : TAXES:

PACKING & FORWARDING: TERMS OF PAYMENT :
OTHER LEVIES : DELIVERY:
MODVATABLE / NON MODVATABLE MODE OF DESPATCH:
 PLEASE DELIVER THE ABOVE GOODS ON FOLLOWING ADDRESS:

WORKS & POST : GINIGERA, TALUKA & DIST.: KOPPAL PINCODE -583 228
 INSURANCE WILL BE ARRANGED BY YOU/ US ON PRIOR INTIMATION FROM YOU FOR
KALYANI STEELS LIMITED
K.S.T REGN No. : 8060110-8 DATED 09-08-1995

C.S.T REGN . NO. : 8065110-0 DATED 09-08-1995
E.CC. REGN . NO.: AAACK7315DXM001
RANGE : KOPPAL-583 231. DIST KOPPAL.
DIVISION : 351, GSM ROAD, GANDHINAGAR, BELLARY-583 103.
COMMISSIONERATE: 71 CLUB ROAD, BELGAUM.
Q.F.NO. : HS/ PUR/ 06.13

Materials Management at Hospet Steels Limited

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Materials Management at Hospet Steels Limited

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Project Report on Material Management at HSL

INDIAN INSTITUTE OF BUSINESS MANAGEMENT

Submitted in partial fulfillment

MASTER OF BUSINESS ADMINISTRATION

INSTITUTE OF MANAGEMENT STUDIES

Under The Guidance of

INSTITUTE OF MANAGEMENT STUDIES Hubli. 1

Ref. No: HETS-IMS/: Date:

This is to certify that the project work entitled “Materials

management at hospet steels ltd” has been successfully carried out

by SHARATH BABU MOPARTHI (A-08/08/MBA/003) of MBA VI Tri-

Semester student under our supervision and guidance.

Mr. Rohit. C. Kalaskar

INSTITUTE OF MANAGEMENT STUDIES Hubli. 2

I, here by declare that the work embodied in this project report

Date:31/07/2010 SHARATH BABU MOPARTHI

Place: Hubli M.B.A VI Tri-Semester

INSTITUTE OF MANAGEMENT STUDIES Hubli. 3

The satisfaction and euphoria that accompanies the successful

I would like to express my profound sense of gratitude to our

I also would like to avail this opportunity to thank to our

My sincere thanks to who in spite of their busy schedules

And I also thank my Parents and Family for their co-operation

SHARATH BABU MOPARTHI

INSTITUTE OF MANAGEMENT STUDIES Hubli. 4

Among the functional areas of management, production is

INSTITUTE OF MANAGEMENT STUDIES Hubli. 5

production management involves application of planning,

The application of management to the field of production has

INSTITUTE OF MANAGEMENT STUDIES Hubli. 6

the responsibility of planning,, procuring, preserving, handling,

Reasons for popularity of materials

1. The amount spent on materials is higher then other inputs.

INSTITUTE OF MANAGEMENT STUDIES Hubli. 7

CHAPTER 2. OBJECTIVE OF THE STUDY

 Need for the study:

 Objective if the study

INSTITUTE OF MANAGEMENT STUDIES Hubli. 8

9. Improved supplier relationship and netter records and

 Scope of the study:

 Presentation of the study:

INSTITUTE OF MANAGEMENT STUDIES Hubli. 9

As the emerging demand for steel increased to facilitate the

demand of customers who were in need of steel product the so

called Hospet steels Ltd is basically a joint venture company of two

Hospet steels ltd is world-class integrated steel making

company; both the firms have experience of 40 years in

manufacturing the steel. The ratio of investment of Mukund and

Kalyani is 58:42. The plant is set up with an initial investment of Rs.

800 Crs with the production capacity of 3 Lakh MT/Year.

Hospet steels Ltd is situated about 20 kms away form Hospet

and 10 Kms away from Koppal. Water requirement of the plant is

fulfilled by pumping water form Tungabhadra Dam with a storage

reserviour of 4 lakh m3. There is an oxygen plant in the premises

National Gird of about 11 KV.

INSTITUTE OF MANAGEMENT STUDIES Hubli. 10

Key Information of the company:

Existence of Firm - 1998

Cost of the plant - 800 crs

Production capacity - 3 lakh MT/year

Total manpower - 766 employees

Avg. energy consumption - 11 KV / Month

Avg. Electricity bill - 7 crs