INVENTORY MANAGEMENT IN ELECTRIC

LOCOSHED, KAZIPET
Submitted to

Jawaharlal Nehru Technological University,

Hyderabad

in
Partial fulfilment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

M. REKHA
10C31E0030
Under the guidance of
MR. RAJ KUMAR

Department of Management Sciences

BALAJI INSTITUTE OF TECHNOLOGY& SCIENCES,
NARSAMPET WARANGAL 506 331

[i]

K. Sharath Babu

Balaji Institute of
Technology & Science

B.Tech., MBA, M.Phil., NET, (Ph.D)

Laknepally, Narsampet,
Warangal 506 331.

Head of the Department

Department of Management Sciences

Tel: 08718-232641, 230556

Fax: 08718-230521
bits_nspt@rediffmail.com

CERTIFICATE
This

is

to

certify

that

the

project

report

entitled

INVENTORY MANAGEMENT IN ELECTRIC LOCOSHED KAZIPET was

carried out by Ms M REKHA, bearing H.T.No 10C31E0030 under my supervision.
She has completed her project work as per the rules prescribed and submitted to the
JNT University, Hyderabad in partial fulfillment for the award of degree of Master of
Business Administration. It is a bona fide work done by her and has not been
submitted elsewhere either in part or in full for any degree or diploma of any
university earlier.

Head of the Department

[ii]

Balaji Institute of
Technology & Science

B. RAJ KUMAR
MFA, M.Com, MBA, M.Phil., (Ph.D)
Assistant Professor
Department of Management Sciences

Laknepally, Narsampet,
Warangal 506 331.
Tel: 08718-232641, 230556
Fax: 08718-230521
bits_nspt@rediffmail.com

CERTIFICATE
This

is

to

certify

that

the

project

report

entitled

INVENTORY MANAGEMENT IN ELECTRIC LOCOSHED KAZIPET was carried

out by Ms M REKHA, bearing H.T.No 10C31E0030 under my supervision. She has
completed his/her project work as per the rules prescribed and submitted to the JNT
University, Hyderabad in partial fulfilment for the award of degree of Master of
Business Administration. It is a bona fide work done by him/her and has not been
submitted elsewhere either in part or in full for any degree or diploma of any
university earlier.

Supervisor

[iii]

DECLARATION

I M REKHA bearing H.T.No.10C31E0030 (2010-12), hereby declare that the

project report entitled INVENTORY MANAGEMENT IN ELECTRIC
LOCOSHED, KAZIPET is submitted to, Jawaharlal Nehru Technological
University, Hyderabad in partial fulfillment for the award of degree of Master
of Business Administration and it is an original work undertaken by me and it
is not submitted to any other University or Institution for the award of any
degree/ diploma/certificate.

Place: Warangal
Date:

M REKHA
H.T.No 10C31E0030

[iv]

ACKNOWLEDGEMENT

Firstly, I am ever so grateful to Almighty God for bestowing His amazing

grace upon me.
I deem it a privilege to owe a special acknowledgment to BALAJI
INSTITUTE OF TECHNOLOGY AND SCIENCES for giving me an opportunity to
carry out the project.
I am grateful to my internal project Guide professor Mr. RAJ KUMAR for
his valuable support and guidance from time to time in giving a final shape to the
project.
I am grateful to the management of ELECTRIC LOCO SHED, KAZIPET
and my external project guide Mr. PVSSS. APPALRAJU, for rendering me the
privilege of doing a project in their esteemed company.
Last but not least, also give my sincere thanks to all the people who directly or
indirectly have helped and encouraged me in finding the way collecting the requisite
information and completing the project effectively and timely.

M REKHA

[v]

ABSTRACT
Every enterprise needs inventory for smooth running of its activities. It serves
as a link between production and distribution process. There is generally a time lag
between the recognition of a need and its fulfilment. The greater the time lag, the
higher the requirements for inventory. It also provides a cushion for future price
fluctuations.

In a complex industry like Indian Railways Electric Loco Shed it is carefully

studied as to the real performance and impact of inventory management in the Electric
Loco Shed and the effectiveness of the inventory utilized is learned by the researcher
because of its great significance in the research.

Every industry on an average spends 70% on raw materials i.e., inventory.

Therefore there is a need to know the raw material cost. Also, there is great
importance in understanding the inventory management system in Electric Loco Shed,
Kazipet.

This study helps a lot to various departments to take steps to control the
inventory process.

[vi]

TAB L E O F C O N T E N T S
Certificates........................................................................................................i-iii
Student Declaration.................................................................................................iv
Acknowledgement....................................................................................................v
Abstract.....................................................................................................................vi
List of Tables................................................................................................ ix
List of Figures..............................................................................................x

1.0 Introduction........................................................................................................1-6
1.1. Inventory...............................................................................................2
1.2. Need and Importance of the Study............................................................... 3
1.3. Objectives of the Study................................................................................. 3
1.4. Scope.....................................................................................4
1.5. Research Methodology and Database.......................................................... 5
1.6. Limitations of the Study............................................................................... 6
1.7. Chapterisation............................................................................................... 6
2.0 Organisational Profile.................................................................................... 7-29
2.1. Indian Railways at a Glance......................................................................... 8
2.2. South Central Railways................................................................................ 9
2.3. Profile of Electric Loco Shed Kazipet.......................................................... 11
2.4. Development of Railways in India............................................................... 14
2.5. Train Management System........................................................................... 18
2.6. Classification of Locomotives...................................................................... 20

[vii]

2.7. Electric Traction Voltages............................................................................ 22

2.8. History of Electrification.............................................................................. 22
2.9. Railway Zones............................................................................................ 24
2.10. Railway Gauges.......................................................................................... 25
2.11. Railway Museums.......................................................................................28
3.0 Theoretical Framework of Inventory Management.................................... 30-48
3.1. Management of Inventory.............................................................................31
3.2. Definition of Inventory................................................................................. 32
3.3. Importance of Inventory Management......................................................... 32
3.4. Objectives of Inventory Management.......................................................... 32
3.5. What is Inventory Management................................................................... 33
3.6. Inventory Control..........................................................................................34
3.7. Need for Inventory........................................................................................ 36
3.8. Types of Stock.............................................................................................. 37
3.9. Valuation of Inventory.................................................................................. 39
3.10. Inventory Control Techniques.................................................................... 42
4.0 Data Analysis and Interpretation.................................................................. 49-65
5.0 Summary..........................................................................................................66-68
5.1. Findings and Conclusions.............................................................................67
References................................................................................................................. 69

[viii]

L I S T O F TAB L E S
TAB L E

PAG E N O

1. Table 1

14

2. Table 2

14

3. Table 3

19

4. Table 4

25

5. Table 5

46

6. Table 6

51

7. Table 7

51

8. Table 8

53

9. Table 9

54

10. Table 10

60

[ix]

LIST OF FIGURES
FIGURE

PAG E N O

1. Figure 1

12

2. Figure 2

12

3. Figure 3

13

4. Figure 4

59

5. Figure 5

64

[x]

[xi]

CHAPTER - I
INTRODUCTION

[1]

1.0 INTRODUCTION
1.1 INVENTORY
Inventory constitutes the most significant part of current assets of large
majority of companies in India. On an average, inventories are approximately 60% of
current assets in public limited companies in India. Inventory serves as a link between
production and distribution process. As firms maintain large size inventories, a
considerable amount of funds is required to be committed to them. A firm neglecting
the management of inventories will be jeopardizing it in long run profitability and
may fail ultimately. In environments where an organization suffers from poor cash
flow or lacks strong control over electronic information transfer among all
departments and all significant suppliers, lead times, and quality of materials received,
inventory plays important roles.
Inventory management has important financial implications. Inventory
financing can be either a line of credit or short-term loan made to a company so it can
purchase the inputs to make the product, or purchase the product itself for resale. The
financial manager has the responsibility to ensure that inventories are properly
monitored and controlled. He has to emphasize the financial point of view and
initiate programmers with the participation and involvement of others for effective
management of inventories. It is possible for companies to reduce their inventories to
a considerable degree by using simple inventory planning and technique which carries
a favourable impact on companys profitability.
Inventory therefore, is categorized into 3 categories:
1. Raw materials
2. Work-in-progress
3. Finished goods

[2]

1.1 NEED & IMPORTANCE OF THE STUDY:

The importance of the Inventory management is...
Inventory Management System provides information to efficiently manage the
flow of materials effectively.
The coordination of people and equipment helps in managing internal
operations.
Inventory management provides information to managers who make more
accurate and timely decisions to manage their operations.
Because of large size of inventories maintained by firms, considerable amount
of funds is required to be committed to them.
It is therefore absolutely imperative to manage inventories effectively and
efficiently in order to avoid unnecessary investment.
Inventory is maintained to take care of fluctuations demand and lead time.
It is also maintained to take care of increasing price tendency of commodities
or rebate in bulk buying.
Inventory Management System provides information to effectively manage the
flow of materials effectively with people and equipment.
It also coordinates internal activities for enhanced customer communication.
1.2 OBJECTIVES:
To understand the concept of Inventory Management
To discuss pattern, levels, trends of inventories in Electric Loco shed, Kazipet
To learn the inventory control techniques implemented in Electric loco shed
To assess the performance of Inventory Management by selecting accounting
ratios

[3]

 To find out the continuous supply of raw materials which facilitate for
uninterrupted production.
To learn the effectiveness of inventory management in the overall financial
management of Electric Loco Shed, Kazipet.

1.3 SCOPE:
There are two fundamental questions that must be answered in order to
manage the inventory of any physical item when to order and how much to order.
When to order is determined by average and variation in demand and replenishment.
How much to order is determined by the order quantity. Inventory control is the
process of monitoring inventory status. Although the concept is simple, the process of
getting the right balance can be quite a complex and time consuming task without the
right technology.
In the present study an attempt has been made to learn the actual
implementation of Inventory management techniques in general and other aspects
such as the scope of inventory management and the effectiveness of inventory
management in particular.
Financial management projections are valid on cutting down production costs.
When inventory is seriously tracked down, the company will have a lot of scope for
development and they can prepare themselves for higher responsibilities.
A thorough analysis of the inventory will help the management to know the
short comings, if any. It also helps the company to learn whether the financial position
and capacity.

[4]

1.4 RESEARCH METHODOLOGY & DATABASE:

The research methodology is a systematic way to solve the problem and it is
an important component of the study without which researcher may not be able to
obtain the facts and figures from the employees.
1.1.1 SOURCE OF DATA:
The data used in study was collected from primary & secondary sources,
comparing annual reports & financial statements of the electric loco shed.
1.1.1.1 PRIMARY DATA:

Primary data is collected from the original source of information. The primary
data will be collected through personal interviews with various stores
managers, office records in Electric Loco shed.

Data related to the organization history is collected from the historical record
of organizations and Indian railway website.

Information related to the inventory management, its terms, its techniques and
methods is collected from reference books, articles and Google search.

Information related to inventory management in this organization regarding

the techniques implemented to maintain inventory is collected through store
cards and observation of the stores, the employees of store keepers and
discussion with the project guide and other records, and office files. Some of
the data has been collected through discussion with the second level managers.

1.1.1.2 SECONDARY DATA:

Secondary data will be collected from the sources like company annual
reports, search engines, websites, magazines and various text books, news papers,
research articles and other relevant sources.

[5]

1.1.2 PERIOD OF THE STUDY:

Since many years ELECTRIC LOCO SHED, KAZIPET has been following
the same inventory management techniques. As such, for the study of my project, five
years of data has been collected viz. 2007 through 2011.

1.5 LIMITATIONS OF THE STUDY:

There may be approximation in calculating ratios and taking figures from the
annual reports.
It is not always possible to make future estimation on the basis of the past as it
might not come true always.
The study did not include all the methods of Inventory Management.
The time period taken for the study is limited and hence it may not provide
comprehensive insights.
1.6 CHAPTERISATION:
1. Chapter 1:

Introduction

2. Chapter 2:

Organisation Profile

3. Chapter 3:

Theoretical Framework of Inventory Management

4. Chapter 4:

Data Analysis and Interpretation

5. Chapter 5:

Summary

[6]

CHAPTER-II
ORGANISATIONAL PROFILE

[7]

2.0 ORGANISATIONAL PROFILE

2.1 INDIAN RAILWAYS AT A GLANCE
There are people today in who have never travelled on railway but thanks to
the expansion of television network in the country that would have seen the railway
and a locomotive; The Indian railways with more than 14 lakhs employees are the
largest employees in the country.
Established in 1853 when the first train was flagged from Bombay to thane, a
distance of 34km, it has now grown to dizzy heights and is covering more than 62,
484 km. Across the country is the largest network in the world. The Indian railway
have a felt of 8682 diesel locomotives, 1702 electric locomotives and 729 electric
locomotives.
Richard Trevithick was first man to produce rail locomotives. The first was
completed in 1802, nothing of it is known now expect its existence. The first steam
locomotive to run on a public railway was manufactured in 1802. The very like of this
locomotive is preserved at a Darlington station, England. The era of steam locomotive
began in India on December 22, 1851 when a small steam locomotive named
Thomson started to haul some wagons containing earth during the construction of
slain aqueduct near Roorkee (U.R).
On Saturday April 16, 1853 the first Indian train (popularly called as AagGadi)
steamed off BoriBunder to Thane a distance of 34km. The train drawn by three
engines covered the 34km. Distance in 70 minutes from Bombay to Thaana. It had
400 passengers are than 18 lakhs employees, are the largest employers in the country.
Indian railway is the largest in Asia, fourth in the world and also in signalling and
telecommunication (S&T) first in the Asia.

[8]

The most widely used engine on Indian Railways before independence

was extensively used on RajputnaMalwa Railways which become the meter gauge
section of the Bombay and central Indian Railway. The first of these engines was built
by dubs and company Glasgow in 1875. From these engines were also manufactured
in India at the Ajmer railway works.
In the post-independence period, the first steam locomotive manufacturing
unit was set up at chittaranjanin 1950. Between 1950 and 1972 this unit manufactured
2351 steam locomotives. During this period the steam locomotive were being
replaced the world over by electrical and electric locos. In India too, manufacture of
electrical and electric locomotives had started. The stamp depicts 2-8-2 class WG.
The fastest train in the world is goods train and why because these
trains will have starting point to destination. Some of the major stations such as
junctions will be stopped for crew changes purpose.
WDM2 electrical - The most widely used electrical locomotive in India. It
hauls freight trains of 2250 tons and mail trains with 18 coaches. These engines haul
nearly 56 percent of the total freight traffic on the Indian Railway and important mail
and express trains. The electrical locomotive works at Varanasi has a capacity to
manufacture 120 such locomotives per year.

2.2 SOUTH CENTRAL RAILWAYS

The youngest of the nine zonal Railways in India, South central Railway was
born on 1966. In its forty - three year is committed service and path breaking
progress, South Central Railway has built a modern system of the mass transport,
fulfilled the aspiration of the passengers and made a mark for itself in Indian Railway.
Strategically positioned extending from the east coast to west coast in the southern at

[9]

Secunderabad, serves six major states - Andhra Pradesh, Karnataka, Maharashtra,

Goa, Madhya Pradesh and Tamilnadu.
From the day of steam hauled locomotives and wooden plank seats. South
Central Railway has come a long way into the era of high powered Diesel and Electric
locomotives, ultramodern microprocessor based signalling and train control system,
Global passengers reservation. Network, microprocessor based interactive voice
Response system (IVRS) for inquiries, aesthetically designed passenger coaches
incorporating latest features and super-fast Trains.
Today SCR is playing a vital role as a catalyst for agricultural and industrial
development in the southern peninsula by providing a customer friendly transport
network, even while performing greatly as a commercial enterprise. South Central
Railway (SCR) was formed in October 1966 raving out the divisions of Hubli and
Vijayawada from the southern Railway and the divisions of Sholapur and
Secunderabad from Central Railway Jurisdictional adjustments were October 1977,
merging Guntacal of the Southern Railway with South Central Railway and
transferring Sholapur division back to central Railway. Secunderabad division was
bifurcated in February 1978 into two divisions - Secunderabad & Hyderabad, to
facilitate effective operational & administrative control.
In just 38 years SCR has laid 322 route kms of now track & 1,220 route kms
of parallel track, converted 2439 route kms of track from meter gauge, and electrified
1557 route kms introduced 46 new empress trains including Rajadhani & Shatabdhi
trains.
Emerged as the third largest one of Indian Railways in terms of originating
freight traffic. Achieved threefold increase in passenger traffic from 50 million in
1966 to 495 million in 2003. Jump in freight movement from 9 million tons to 106

[10]

million tons & stupendous improvement in earnings from Rs.58.00 crores to Rs.21,
380 crores.

Developed the five major stations Hyderabad, Tirupathi, Vijayawada, Bellary

& Nanded as model stations.

Pioneered the concept of 24 coach express trains with a view to meet the
increase in demands of passenger traffic.

Undertook special drives to preserve the environment by adoption the clean

& green program of the government of A.P.

First lift provided to the foot over bridge (FOB) is at Tirupathi and it is
successfully working to the passengers.

First escalators provided at Vijayawada and it is successfully working to the

passengers.

2.3 PROFILE OF ELECTRIC LOCO SHED KAZIPET

1.1.3

INTRODUCTION:
Electrical Loco Shed, ELS KZJ is homing the working horse(WAG-7) of

Indian Railways in Secunderabad Division of South Central Railway is located in the

town of Kazipet which is 12 km north to Warangal Railway station. The Shed was
constructed in 2002 and was inaugurated on November.2004 to cater to the needs of
traffic requirement.
At present, Electric Loco Shed, Kazipet has a homing capacity of 113 electric
locos. The Shed is carrying out all the Inspection Schedules, unusual attentions and
AOH for all the 113 locomotives. Secondary Maintenance is carried out for two

[11]

MEMU rakes in the shed during night time. Apart from this Shed staffs are attending
online break downs in the section KI-BPQ, KZJ-BN.
1.1.4

ORGANIZATION STRUCTURE

1) GAZZETTED ORGANISATION:
Figure 1

2) ORGANIZATION STRUCTURE:
Figure 2

It is line and function organization system. When junior administrative officer

assistance by senior scales, junior scales, senior subordinate official that man

[12]

management is more effective and is learnt that the industrial relation are excellent
having no strike calls.
1.1.5

AIM
Trouble free maintains of loco, which can achieve zero failure with optimum

of expenditure and utilization of man power. This clearly indicates job satisfaction and
place satisfaction for employees.
1.1.6

IMPORTANT EVENTS:

Inspection Bays Inaugurated By GM/SC on 14/10/2004

IA, IB Schedules Started on 14/10/2004

Member Electrical Inspected the Shed on 25/11/2004

IC Schedule Started on 09/03/2005

AOH Started on 01/04/2007

IOH started on 28/07/2009

1.1.7

WAG7 LOCO HOLDING

Figure 3

[13]

Table 1
Date

01.01.06 01.07.06 01.06.07

Loco
Holding
1.1.8

82

87

10.12.08

23.12.09

15.11.10

09.08.11

18.07.12

109

111

111

113

113

99

CURRENT SHED ACTIVITY:

Table 2

S. No.

Type of Schedule

Periodicity

Time taken for schedule

IA

60 days

4 hours

IB

120 days

4 hours

IC-1

180 days

12 hours

IC-2

360 days

16 hours

AOH

18 months

07 days

IOH

54 months

10 days

MEMU attentions

Daily

8 hours

On line / Yard attentions

Daily

Break down Maintenance

As and when required

2.4 DEVELOPMENT OF RAILWAYS IN INDIA

The development of railways in India started on all sides after successful initial
projects in the west and the east. Indian Railways was under private owners who have

[14]

not endeavoured consolidated efforts to render quality service to the passengers. Later
it was centralised and undertook by central government.
1.1.9

IN THE WEST:

On 16th April, 1853 the first railway on Indian sub-continent ran over a stretch of 21
miles from Bombay to Thane. The idea of a railway to connect Bombay with Thane,
Kalyan and with the Thal and Bhore Ghats incline first occurred to Mr. George Clark,
the Chief Engineer of the Bombay Government, during a visit to Bhandup in
1843.The first Indian train steamed off from Bombay (Bori Bunder) to Thane on 16th.
April 1853, at 3:30 P.M. "amidst the loud applause of a vast multitude and to the
salute of 21 guns." The train consisting of 14 carriages was hauled by three
locomotives named Sultan, Sindh and Sahib with 400 VVIPs. The formal
inauguration ceremony was performed on 16th April 1853, when 14 railway carriages
carrying about 400 guests left Bori Bunder at 3.35 PM.
1.1.10 IN THE EAST:
The Survey from Calcutta to Delhi was carried out by Mr. Stephenson during
1845-46. The construction of railway line from Howrah to Raniganj was sanctioned
only after 3 years. But by the end of 1853 61 kms of line was ready up to Pandooah.
Two historical incidents denied EIR, the first position in history of railways in India...
The Locomotive Engine and the carriages for both the trains of Bombay and Howrah
were despatched from England almost at the same time, but the ship carrying the loco
for E.I.R. (HMS Goodwin) was misdirected to Australia and the other carrying the
carriages for Howrah sank at Sandheads. Otherwise Howrah would have had the
legacy of running the first train in India. The Locomotive Engine and the carriages for
both the trains of Bombay and Howrah were despatched from England almost at the

[15]

same time, but the ship carrying the loco for E.I.R. (HMS Goodwin) was misdirected
to Australia and carriages for Howrah sank at Sandheads. The other problem faced
was that the line was aligned through Chandernagore (Chandannagar) which was a
French territory at that time. The settlement of this dispute with French rulers of
Chandernagore also took considerable time. The Locomotive reached Calcutta via
Australia and a trial run was made on 28th. June 1854. The coaches for the first train
were however manufactured by two Calcutta based companies Steward & Company
and Seton & Company. Otherwise Howrah would have had the legacy of running the
first train in India.
The first passenger train steamed out of Howrah station destined for Hooghly,
a distance of 24 miles, on 15th August, 1854. Thus the first section of the East Indian
Railway was opened to public traffic, inaugurating the beginning of railway transport
on the Eastern side of the sub-continent.
From 15th August 1854, the company ran regular services, morning and
evening, between Howrah and Hugli with stops at Bally, Srerampore and
Chandannagar. The fare ranged from Rs.3 by first class to 7 annas by third class. The
main booking office was on the Calcutta bank, at the Armenian Ghat, and the fare
covered the ferry to the station. At the Howrah end, the station consisted of a tin shed
and a single line flanked by narrow platforms, somewhat to the south of the present
station building constructed between 1901 and 1906.
1.1.11 IN THE SOUTH:
In the South the first line was opened on 1st July, 1856 by the Madras Railway
Company. It ran between Veyasarpandy and Walajah Road (Arcot), a distance of 63

[16]

miles. The first line was opened on 1st July, 1856 by the Madras Railway Company. It
ran between Veyasarpandy and Walajah Road (Arcot), a distance of 63 miles.
1.1.12 IN THE NORTH:
In the North a length of 119 miles of line was laid from Allahabad to Kanpur
on 3rd March 1859. The first section from Hathras Road to Mathura Cantonment was
opened to traffic on 19th October, 1875.
1.1.13 THE FIRST LOCOMOTIVE BUILT IN INDIA:
The F-734 built in 1895 by the Ajmer workshop of the Rajputana Malwa
Railway. Earlier some locomotives were assembled using spares supplied with fully
assembled locomotives which were imported. This locomotive with outside
connecting and side rods was used on Rajputana Malwa & Bombay Baroda & Central
India Railway systems.
These were the small beginnings which is due course developed into a
network of railway lines all over the country. By 1880 the Indian Railway system had
a route mileage of about 9000 miles.
The railway construction in India took an abrupt boom and a large number of
companies started working. These companies had only one thing in their mind. To
earn enough money. They had no co-ordination in their working and time tables. The
British government was seriously thinking about this. Sir Thomas Robertson who was
appointed by His Majesty as Special Commissioner to report on future management
of railways submitted his report in 1903. As a result of his efforts the Railway Board
assumed office in 1905. Railway mileage now at about 24,750 miles in India, of
which 14,000 miles are BG, and most of the rest MG (with only a few hundred miles
of 2' and 2'6" gauge lines). Regrouping was first conceived in 1904, but materialised
after World War.

[17]

1.1.14 THREE TERRITORIAL DIVISIONS WERE FORMED.

1. Western Division consisting of: Great Indian Peninsula, Bombay Boroda
Central India (BBCI), North Western, Jodhpur, Bikaner together with branch
and feeder railways in their areas.
2. Eastern Division consisting of: EIR, Oudh & Rohilkund, Bengal & North
Western, Rohilkund & Kumaon, Assam Bengal, Bengal Nagpur(BNR), East
Bengal (EBR).
3. Southern Division consisting of: Madras Railway, Southern Marhatta, South
Indian, Nizam together with ports and local railways.
2.5 TRAIN MANAGEMENT SYSTEM:
Train Management System (TMS) is a system implemented by Western
Railway, and being implemented now by Central Railway, for integrated management
and monitoring of suburban train movements and signalling, as well as planning train
routes, diversions, and introduction or withdrawal of rakes in service. CR's TMS
covers the major section from CST Mumbai to Kalyan, with four additional minor
sections: Ambivli (Igatpuri side), Ambarnath (towards Pune beyond Kalyan),
Bhiwandi Road on Vasai side beyond Dombivli, and Dativli Chord Cabin beyond
Diva on Panvel side. Implementation is still in progress and is expected to be
completed by 2008 or so.
1.1.15 TRAIN IDENTIFICATION:
This information is based on WR practice today; CR's TMS will use a very
similar system for identifying each rake and its trips. Each rake has a unique rake unit
number assigned to it. This is entered at the TMS input unit of the driving cab of the
rake, and is broadcast from an antenna mounted on the driving cab. This allows the
position of every rake to be known to the TMS system. Every EMU is also assigned a
unique train number when it is in service. This number (usually one or two

[18]

alphanumeric characters, e.g., 'AR') is assigned (and entered manually into the TMS
system) when the rake leaves the car shed, and also noted at the end of the day when
the rake is stabled. Each EMU also gets a 1 to 4 digit trip number (e.g., '173') for each
trip it makes while it is in service during the day. The trip number directly
corresponds to each run of the EMU in the timetable. As the train passes various
signals and other locations with TMS transponders, the rake unit number is picked up
from the transmitting antenna on the driving cab; this is correlated with the train
number and then the trip number by the TMS computers and the appropriate status
updates are made for the train's position and movement at the TMS units used by
station staff or section / traction controllers, and also for updating the PA systems at
various passenger stations.
1.1.16 TOTAL TRACK LENGTH/GAUGE-WISE ROUTE KMS :
Table 3
Year

Total Route Kms

Running Tracks Kms

Total Track Kms(*)

Electrified

Total

Electrified

Total

Electrified

Total

1950-51

388

53,596

937

59,315

1,253

77,609

1960-61

748

56,247

1,752

63,602

2,259

83,706

1970-71

3,706

59,790

7,447

71,669

9,586

98,546

1980-81

5,345

61,240

10,474

75,860

13,448

104,480

1990-91

9,968

62,367

18,954

78,607

23,305

108,858

1998-99

13,765

62,809

25,773

81,512

34,110

108,413

1999-00

14,261

62,759

26,809

81,252

35,120

107,969

2000-01

14,856

63,028

27,937

81,865

36,950

108,706

2001-02

15,994

63,140

29,567

82,354

39,030

109,227

2002-03

16,272

63,122

29,974

82,492

39,358

109,221

1.1.17 STATION SCHEDULING

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At each station, based on the train schedules, a platform and siding occupancy
chart is drawn up. This provides, for each day of the week, an indication of which
platforms and sidings are occupied by which trains at what times. Introducing a new
train at a station (originating, or passing through) involves finding an appropriate slot
in this chart.
The overall scheduling, traffic planning, and operational aspects of a division
are under the control of the Chief Operations Manager of a division who is ultimately
responsible for the performance of the division in terms of punctuality, efficiency, etc.
2.6 CLASSIFICATION OF LOCOMOTIVES:
Locos, except for older steam ones, have classification codes that identify
them. This code is of the form '[gauge][power][load][series][subtype][suffix]'

In this the first item, '[gauge]', is a single letter identifying the gauge the loco runs on:

W = Broad Gauge
Y = Meter Gauge
Z = Narrow Gauge (2' 6")
N = Narrow Gauge (2')
The second item, '[power]', is one or two letters identifying the power source:

D = Diesel
C = DC traction
A = AC traction
CA = Dual-power AC/DC traction
B = Battery electric(rare)

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The third item, '[load]', is a single letter identifying the kind of load the loco is
normally used for:

M = Mixed Traffic
P = Passenger
G = Goods
S = Shunting
L = Light Duty (Light Passenger?) (no longer in use)
U = Multiple Unit (EMU / DEMU)
R = Railcar (see below)

1.1.18 MULTIPLE UNITS:

There are two senses of the phrase "multiple units" to be distinguished. Two or more
regular locomotives may be coupled together for greater hauling capacity. In such a
case the locos are said to be operating as multiple units or to be "MU'ed together" (US
terminology: "lash-up").
This is not to be confused with the terms electric multiple unit (EMU) or diesel
multiple unit (DMU) which refer to cars used for (mostly suburban) train services
which have multiple prime movers (either electric motors or diesel engines) for each
car. I.e., the same car that carries passengers also has the motive power, as opposed to
the normal situation where the passengers are in coaches that are not self-propelling
and a locomotive hauls the train.

2.7 ELECTRIC TRACTION VOLTAGES

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Voltages used are 1.5kV DC and 25kV AC for mainline trains.

Calcutta had an overhead 3kV DC system until the '60s.
The 1.5kV DC overhead system (negative earth, positive catenary) is used around
Bombay (This includes Mumbai CST - Kalyan, Kalyan - Pune, Kalyan - Igatpuri,
Mumbai CST - Belapur - Panvel, and Churchgate - Virar). There are plans [2/04] to
change this to 25kV AC by 2010. In preparation for this, BHEL has been retrofitting
some Alstom EMUs with AC drives to allow them to operate with both DC and AC
traction as the system conversion proceeds (see the section on EMUs). Conversion to
25kV AC has already been done on the Titwala-Kasara section; next to be converted
are Khapoli-Vangani, Vangani-Thane, and Titwala-Thane. The Madras suburban
routes (Madras-Tambaram in the '60s, extended later to Villupuram) used to be 1.5kV
DC until about 1967, when it was converted to 25kV AC (all overhead catenary
supply). (This is where the MG DC locos were used, e.g., the YCG-1 series.)

2.8 HISTORY OF ELECTRIFICATION:

The first electric train ran between Bombay's Victoria Terminus and Kurla
along the Harbour Line of CR, on February 3, 1925, a distance of 9.5 miles. In 1926,
Thana and Mahim were connected. In 1927, electrification was complete up to
Kalyan. In 1928, Borivili in the north was connected (Colaba-Borivili of WR being
inaugurated on May 1). In 1929, Kalyan - Igatpuri section was commissioned. In
1930, the Kalyan - Poona tracks were opened to electric trains.
On November 15, 1931, electrification of the meter gauge track between
Madras Beach and Tambaram was inaugurated (1.5kV DC). After that the only
electrification project undertaken was Borivili - Virar, finished in 1936. For mainline
traffic, GIPR undertook electrification of the Karjat-Pune and Kasara-Igatpuri

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sections because it was realized that the heavy traffic to and from Bombay would be
suitable for electric haulage.
India took the plunge from DC to AC electric traction in the mid-1950s, as
mentioned above. Since French developments led the field, the AC locomotives
supplied at first (from SNCF) followed that country's practice, whether built in India
or France. These were the eight-wheeled WAM-1 locomotives that are still in
operation in some places.
The first train to be hauled by an electric locomotive from Delhi Jn. was the
Assam Mail.
Bombay-Delhi (WR) route was fully electrified by Dec. 1987. The CR route
was fully electrified by June 1990, when the Bhusaval - Itarsi section was electrified.
The 2 * 25kV AC system (see below) began to be put in place in the 1990s; the first
regular service using this system was between Bina and Katni (CR) on January 16,
1995. This was later extended to Bishrampur.
[12/04] With the BG conversion between Tambaram and Madras Beach complete, the
only electrified MG line on IR is the Tambaram - Villupuram stretch. However, no
train uses electric traction (the YAM 1 locomotives used to service this section have
been dismantled). Madras Beach - Tambaram was originally on 1.5kV DC
electrification but was converted around 1968 to the 25kV AC system.
After a period of about 25 years of aggressive electrification, now [12/04] IR
has most of the busy routes of its network electrified (although not all), and this has
resulted in about 65% of the traffic being hauled by electric traction. Recently [12/04],
therefore, IR has decided to slow down the pace of electrification -- about 2600km of
routes are scheduled to be electrified in the next 10 years, compared to 5100km in the
past 10 years. The focus will be on consolidating electric traction for the busiest

[23]

sections; some of the sections that will be converted to electric traction in the next few
years are Pune-Guntakal, Bina-Kota, and many 'B' sections of NR.
2.9 RAILWAY ZONES:
1.1.19 THE NINE OLDER RAILWAY ZONES ARE:
Northern Railway (NR)
North Eastern Railway (NER)
Northeast Frontier Railway (NFR, sometimes NEFR)
Western Railway (WR)
Southern Railway (SR)
South Central Railway (SCR)
South Eastern Railway (SER)
Eastern Railway (ER)
Central Railway (CR)
1.1.20 THE SEVEN NEW ZONES ARE:
South Western Railway (SWR)
North Western Railway (NWR)
West Central Railway (WCR)
North Central Railway (NCR)
South East Central Railway (SECR)
East Coast Railway (ECoR)
East Central Railway (ECR)
1.1.21 DEEMED ZONES:

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Kolkata Metro (given zonal status Dec. 29, 2010)

Konkan Railway (deemed a zone for administrative purposes)
1.1.22 RAILWAY ZONAL LENGTH IN KILOMETRES
Table 4
Railway Zone

Total Kms.

BG Kms.

MG Kms.

NG Kms.

Northern

11040

8920

2020

100

Western

10295

4600, 150
BG/NG

4455

890

South Central

7217

5955

1215

47

South Eastern

7420

6135

1280

40?

Southern

7040

4630

2125, 155
BG/MG

130

Central

7265

6240

1025

North Eastern

5143

2300

2820

23

Eastern

4320

4185

135

North East
Frontier

3820

1370

2230, 131
BG/MG

80, 8 MG/NG

2.10

RAILWAY GUAGES:

1.1.23 BROAD GAUGE - 5'6" (1676MM)

This is now found all over the country, and all major passenger and freight routes are
now broad gauge. This is the widest gauge in regular use anywhere in the world. (In
the past, though, an 8' gauge was used in Oregon, USA, and a 7'" gauge was used
for the Great Western Railway in the UK.) Outside India, the 5'6" gauge is found in
Pakistan, a spur from Pakistan into Iran, Sri Lanka, Bangladesh, Argentina, Chile, and
the BART rapid transit system in the USA. The decision to use a gauge wider than the
one in use in Great Britain was made with an eye towards economies in freight
movement, and also to ensure stability in the face of Indian weather and the perceived
threat of cyclonic winds.

[25]

About 42,000 route km of IR's network are broad-gauge.

1.1.24 METER GAUGE - 1M
This is still found in a lot of places, despite the push to convert everything to
broad gauge. It is said that this gauge was chosen by Lord Mayo (then Viceroy of
India) based on calculations to allow 4 persons to sit comfortably abreast it would
have been 3'3" except that there was then a push to move to the metric system and so
the gauge became 1m. The first MG line was built in 1872 from Delhi to Farukh
Nagar (??). Interestingly, the metric system was not after all adopted until nearly a
century later, so the gauge was the only thing in India that was 'metric' for a very long
time.
About 14,500 route km of IR's network is meter-gauge [2/09] (the figure was
about 17,000 route km in 2000). By 2014, MG route-kilometerage is expected to drop
to 5,000km or less. The MG network was especially dense in the west (around
Vadodara, and in Rajasthan), in the east / north-east (West Bengal, Assam) and, before
Independence, the areas in what is now Bangladesh), and in much of the south of
India. Until the late 1980s, the North-Eastern Railway had a completely MG network.
The MG networks of northern India (including the north-east via the Assam Rail
Link) and southern India (16,690 and 7940 route kms, respectively) remained separate
until 1960, when the completion of the Khandwa - Hingoli section connected the two.
This link went through Akot, Akola, and Basim, across the Tapti and Purna rivers and
had 2 tunnels and 50 major bridges, and a spectacular spiral. This made possible the
transit of freight from any MG station in India to any other (except, of course, the
Nilgiri line which was always an isolated MG section), which was important even
though MG's share of freight was never very large (about 12% before the Unigauge

[26]

project started). The last MG line to be built in India was probably the Himmatnagar Udaipur line.
1.1.25 NARROW GAUGE - 2'6" (762MM)
This gauge was adopted in various parts of the British Empire. There were
(still are) considerable networks of these, for example in Gujarat around Vadodara
(mostly from the old Baroda State Railway) and in MP (centred around Gondia on the
S.E.R.). (Gondia-Jabalpur Satpura NG railway lines were closed in 2003 and
converted to BG.) The most well-known line is probably the KalkaShimla route. The
rationale for the narrower gauges was economy in building the lines they could be
laid much faster than broad gauge lines and in more difficult terrain. It was envisioned
that narrow gauge lines would act as feeder lines to the broad gauge and meter gauge
lines, but many became important railway routes in their own right.

1.1.26 NARROW GAUGE - 2' (610MM)

A few places in India have the even narrower 2foot gauge: New JalpaiguriDarjeeling, Neral Matheran, and the Gwalior branch lines, which include Gwalior Sheopur Kalan, Gwalior Shivpuri, and Gwalior Bhind. (The Gwalior lines in the
past also included the UjjainAgar line.) The Howrah-Amta and Howrah-Sheakhala
NG lines were shut down a while back, and are now being rebuilt as broad gauge.
The two narrow gauges together make up about 3700 route km of IR's network.

1.1.27 STANDARD GAUGE (4'8" OR 1435MM)

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This has been used in a few places in India. The Calcutta tram lines are
probably the most well-known and probably the only surviving example. Heavy rail
in this gauge was used during the construction of the Madras Harbour (3 standard
gauge locos were procured by the Madras Port Trust). Standard gauge was also used
for the original construction of the Bombay Docks (but this system, put in place in
1909, lasted only until 1954). Standard gauge was insisted upon by the contractors for
the Bombay Docks project (Messrs. Price, Willis, and Co.), for the transportation of
material from Elephanta Island and to the new dock works and basin dam. Eight
standard gauge locos were procured for this, four used in Bombay City and four on
Elephanta Island. Wagons included old North London Railway wagons
2.11

RAILWAY MUSEUMS:

1.1.28 NATIONAL RAILWAY MUSEUM:

The National Rail Museum (NRM) is located in New Delhi. NRM's website has a lot
of information on the exhibits, an on-line newsletter, etc.
In addition to the better known and popular outdoor exhibits of plinthed or working
locomotives and other rolling stock, and indoor exhibits of railway equipment, the
NRM has a lot of books, maps, and other publications related to the railways in its
library (access by permission; not open to the public). They have old timetables (all
back to 1970, sparser before that, including the first Trains At A Glance (1977);
annual reports for most of the 20th century, old issues of the Railway Gazette and
other foreign railway publications; annual issues of the History of Indian Railways
Constructed and In Progress up to 1964, and annual issues of History of Defunct
Railways up to 1966; and many official Survey of India maps and railway maps.

[28]

1.1.29 MYSORE RAIL MUSEUM

The Railway Museum at Mysore is located adjacent to the Mysore railway station, but
with the entrance on the other side (no direct way to reach it from the station). It is
open daily except on Mondays. Nominal entrance and camera fees are charged. They
have various locos preserved at the museum.

[29]

CHAPTER III
THEORETICAL FRAMEWORK
OF
INVENTORY MANAGEMENT

[30]

3.0 THEORETICAL FRAMEWORK OF INVENTORY MANAGEMENT:

3.1 MANAGEMENT OF INVENTORY:
Inventory often constitute a major element of the total working capital and
hence it has been correctly observed, Good Inventory Management is Good
Financial Management. Inventory management covers a large number of issues
including fixation of minimum and maximum levels; determination the size of the
inventory to be carried; deciding about the issue price policy; setting up receipt and
inspection procedure; determining the economic order quantity; providing proper
storage facilities keeping check of obsolescence and setting up effective information
system with regard to the inventories, the stock items will be provided to the
consignees through generating Annual Estimation Sheets(ANE), Advance Intimation
Sheet(AIS), however, management of inventories involves two basic problems.
Maintaining a sufficiently large size of inventory for efficient and smooth
production and sales operations.
Maintaining a minimum investment in inventories to minimize the direct
indirect costs associated with holding inventories to maximize the
profitability.
Inventories should neither be excessive nor inadequate. If inventories are kept
at a high level higher interest and storage costs would be incurred on the other hand, a
low level of inventories may result in frequent interruption in the production schedule
resulting in underutilization of capacity and lower sales. The objective of inventory
management is therefore to determine maintain the optimum level of investment in
inventories which help in achieving the required objectives.

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3.2 DEFINITION OF INVENTORY:

The term inventory refers to the stock of the product a firm is offering for sale
the components that make up the product. The term inventory comprise of raw
material, work in process, finished goods, stores and spares and consumables.
Inventory represent significant portion of assets in the case of most of the
manufacturing firms and required substantial investment.
3.3 IMPORTANCE OF INVENTORY MANAGEMNT:
The importance of inventory management cannot be defined because
inventory are to manager as they directly show there impact on corporate profits. Any
changes in the level of inventory effects profits.
The cost of the corporation structure of the inventory depends upon the level
of inventory held by it. If inventories are held above required level the cost which
result from handling storage spoilage obsolesce are more if they are maintained at
optimum level.
Search extra cost reduced the profits of the corporation. This effect may cause
when it is under invested. If the maintained level of inventory falls shortage the
corporation has to produce at extra cost to continue its operation. In this situation it is
obvious that more cost may incur. So important is given to inventories so that the cost
will be minimum and profits will be maximum.
3.4 OBJECTIVES OF INVENTORY MANAGEMENT

To provide a conceptual frame work theoretical perception about the inventory

management.

To reduce the investment in inventories.

[32]

To make sure that the materials are available for use in production and
produce services, as and when required.

To ascertain that finished goods are available for delivery to customers to fulfil
orders.

To maintain a large sized inventory for efficient and smooth production and
sales operation.

To ensure continuous supply of material to facilitate uninterrupted production.

To place an order at the right time with the right quality at the right price with
right quality.

To maintain a minimum investment in inventories to maximize profitability

because idle blocking of funds earn nothing.

3.5 WHAT IS INVENTORY MANAGEMENT

Inventory management is the active control program which allows the
management of sales, purchases and payments.
Inventory management involves the development and administration of
policies, systems, and procedures which will minimize total cost relative to inventory
decisions and functions such as customer service requirements, production
scheduling, purchasing and tariff.
Inventory management thus consists of deciding on the appropriate level of
inventory to hold. Too less or too much inventory is harmful for any concern because
it will increase the overall inventory cost.
Inventory management software helps to create invoices, purchase orders,
receiving lists, and payment receipts and can print bar code labels. An inventory
management software system configured to your warehouse, retail or product line will
help to create revenue for your company. The Inventory management will control

[33]

operating costs and provide better understanding. We are your source for inventory
management information, inventory management software and tools.
A complete Inventory Management Control system contains the following
components:

Inventory Management Definition

Inventory Management Purposes

Definition and Objectives for Inventory Management

Organizational Hierarchy of inventory Management

Inventory Management Planning

Inventory Management Controls for Inventory

Determining Inventory Management Stock Levels

3.6 INVENTORY CONTROL:

Rigid control over materials are necessary not only to guard against theft, But
also minimize waste and measure from causes such as excessive inventories, over
issue, deterioration, spoilage and obsolescence. There are certain prerequisites to an
effective control system for materials.
Material of the desired quantity will be available when needed.
Materials will be purchased only when a need exists and in economical
qualities.
Purchases of materials will be made at most favourable prices.
Vouchers for the payments of materials purchased will be approved only if the
materials have been received good condition.
Materials will be protected against loss by proper physical control.
Issue of materials will be properly authorized and accounted for, and

[34]

 All materials, at all times, will be charged, as the responsibility of some

individual.
The control of materials, as an element of cost of production, is illustrated
with reference to the purchase and issues procedures, inventory systems, and
inventory control techniques. The efficiency of inventory control agates the flexibility
of the firm. There are several tools of inventory control. Some of these are:
The economic order quantity which enables determination of optimal size of
order to place on the basis of demand or usage of the inventory.
The technique safety stocks to overcome problems of uncertainty
The order point formula which tells us the optimal point at which to reorder a
particular item of inventory.
Together these tools provide the means for determining an optimal average
level of inventory for the firm. Ratio analysis has wider applications measure of
inventory control among most manufacturing firms.
Effective inventory management requires an effective control over inventories.
Inventory control refers to a system which ensures supply of required quantity and
quality of inventories.
A good inventory control system is one which avoids problems of stick-outs,
excessive inventory, and overstocking of inventory, ensures a continuous supply of
materials to production department facilitating un-interrupted production.
Maintain sufficient stocks of finished goods for smooth sales operations.
Maintains sufficient stocks of raw material in periods of short supply.
Minimizes carrying costs and time, and

[35]

 Keeps investment in inventories at the optimum level.

3.7 NEED FOR INVENTORY

In a just-in-time manufacturing environment, inventory is considered waste. However,
in environments where an organization suffers from poor cash flow or lacks strong
control over (i) electronic information transfer among all departments and all
significant suppliers, (ii) lead times, and (iii) quality of materials received, inventory
plays important roles. Some of the more important reasons for holding inventory are:
a. Predictability:
In order to engage in capacity planning and production scheduling, you need
to control how much raw material, parts, and subassemblies you process at a given
time. Inventory buffers what you need from what you process.
b. Fluctuations in demand:
A supply of inventory on hand is protection: You dont always know how
much you are likely to need at any given time, but you still need to satisfy customer or
production demand on time. If you can see how customers are acting in the supply
chain, surprises in fluctuations in demand are held to a minimum.
c. Unreliability of supply:
Inventory protects you from unreliable suppliers or when an item is scarce and
it is difficult to ensure a steady supply. Whenever possible unreliable suppliers should
be rehabilitated through discussions or they should be replaced. Rehabilitation can be
accomplished through master purchase orders with timed product releases, price or

[36]

term penalties for non-performance, better verbal and electronic communications

between the parties, etc. This will result in a lowering of on-hand inventory needs.
d. Price protection:
Buying quantities of inventory at appropriate times helps avoid the impact of
cost inflation. Note that contracting to assure a price does not require actually taking
delivery at the time of purchase. Many suppliers prefer to deliver periodically rather
than to ship an entire years supply of a particular stock keeping unit ( SKU) at one
time.
e. Quantity discounts:
Often bulk discounts are available if you buy in large rather than in small quantities.
f. Lower ordering costs:
If you buy a larger quantity of an item less frequently, the ordering costs are
less than buying smaller quantities over and over again. In order to hold down
ordering costs and to lock in favourable pricing, many organizations issue blanket
purchase orders coupled with periodic release and receiving dates of the SKUs called
for.
3.8 TYPES OF STOCK
a. Basic Categories
i.
Raw materials:
Raw materials inventory is made up of goods that will be used to produce
partial products or completed goods or finished products, e.g., nuts, bolts, flour, sugar.
ii.

Finished product:
This is product ready for current customer sales. It can also be used to buffer

manufacturing from predictable or unpredictable market demand. In other words, a

[37]

manufacturing company can make up a supply of toys during the year for predictably
higher sales during the holiday season. It includes completed products waiting to be
sold, e.g., bar stools, bread, cookies.
iii.

Work-in-process (WIP):
Items are considered to be WIP during the time raw material is being

converted into partial product, subassemblies, and finished product. WIP should be
kept to a minimum. WIP occurs from such things as work delays, long movement
times between operations, and queuing bottlenecks.
b. Functional Categories:
i.
Consumables:
Light bulbs, hand towels, computer and photocopying paper, brochures, tape,
envelopes, cleaning materials, lubricants, fertilizer, paint, dunnage, and so on are used
in many operations. These are treated like raw materials.
ii.

Service, repair, replacement, and spare items (S&R Items):

These are after-market items used to keep things going. As long as a

machine or device of some type is being used (in the market) and will need service
and repair in the future, it will never be obsolete. S&R Items should not be treated like
finished goods for purposes of forecasting the quantity level of your normal stock.
Quantity levels of S&R Items will be based on considerations such as preventive
maintenance schedules, predicted failure rates, and dates of various items of
equipment. For example, if an organization replaced its fluorescent tubes on an as
needed, on-failure basis, it would need a larger supply of these lights on hand at all
times. However, if the same company relamped all of its ballasts once per year, it
would buy a large quantity of tubes at one time and only keep a small supply on hand

[38]

on an ongoing basis. Since S&R Items are never obsolete or dead until the
equipment or device they are to be used for is no longer in service, these items should
not be included in calculating dead stock levels.

iii.

Buffer/safety inventory:
This type of inventory can serve various purposes, such as: compensating

for demand and supply uncertainties. holding it to decouple and separate different
parts of your operation so that they can function independently from one another.
iv.

Anticipation Stock:
This is inventory produced in anticipation of an upcoming season such as

fancy chocolates made up in advance of Mothers Day or Valentines Day. Failure to

sell in the anticipated period could be disastrous because you may be left with
considerable amounts of stock past its perceived shelf life.
v.

Transit Inventory:
This is inventory en route from one place to another. It could be argued that

product moving within a facility is transit inventory; however, the common meaning
of the concept concerns items moving within the distribution channel toward you and
also outside of your facility or en route from your facility to the customer.
3.9 VALUATION OF INVENTORY
Most inventories fit into raw materials, work-in-process and finished goods,
yet the amount of each category varies greatly depending on the specifics of industry
and business. The types of inventory found in distribution environments are
fundamentally different from those found in manufacturing environments.
Distribution businesses tend to carry mostly finished goods for resale while

[39]

manufacturing companies tend to have less finished goods and more raw materials
and work in progress. Given these differences, it is natural that the accounting choices
vary between distribution and manufacturing settings.
In order to assign a cost value to inventory, you must make some assumptions
about the inventory on hand. Under the general income tax laws, a company can only
make these assumptions once per fiscal year. Tax treatment is often an organizations
chief concern regarding inventory valuation.
Generally there are number of methods accepted to determining the cost of
inventories at close of the accounting period. The selection of a suitable method
assumes significance in view of the fact that it has a direct bearing on the cost of
goods sold and consequently on profit.
There are five common inventory valuation methods:
1. First-in, First-out (FIFO)
This method of inventory valuation assumes that the first goods purchased are
the first to be used or sold regardless of the actual timing of their use or sale. This
method is most closely tied to actual physical flow of goods in inventory.
2. Last-in, First-out (LIFO)
This method of inventory valuation assumes that the most recently
purchased/acquired goods are the first to be used or sold regardless of the actual
timing of their use or sale. Since items you have just bought often cost more than
those purchased in the past, this method best matches current costs with current
revenues. The cost of goods sold and the value of closing inventory can be determined
only after the final lot of the year has been received. This is because of the assumption

[40]

underlying the valuation of inventory. As the name LIFO suggests, the use of
inventory is valued on the basis of the inverse sequence of receipts.
3. Average Cost Method
This method of inventory valuation identifies the value of inventory and cost
of goods sold by calculating an average unit cost for all goods available for sale
during a given period of time. This valuation method assumes that ending inventory
consists of all goods available for sale. Each purchase is added to inventory and an
average cost determined. Materials are charged into cost of sales at this average until
another lot is received, when anew average unit inventory cost is calculated.
Average Cost = Total Cost of Goods Total Quantity of Goods
Available for Sale Available for Sale
4. Specific Cost Method (also Actual Cost Method)
This method of inventory valuation assumes that the organization can track the
actual cost of an item into, through, and out of the facility. That ability allows you to
charge the actual cost of a given item to production or sales. Specific costing is
generally used only by companies with sophisticated computer systems or reserved
for high-value items such as artwork or custom-made items. The materials used are
priced at their actual cost which involves identification of each lot purchased. It is the
simplest but also the most time-consuming method of determining cost of material
used is computed by multiplying the quantity used by the specific price each material.
5. Standard Cost Method
This method of inventory valuation is often used by manufacturing companies
to give all of their departments a uniform value for an item throughout a given year.
This method is a best guess approach based on known costs and expenses such as

[41]

historical costs and any anticipated changes coming up in the foreseeable future. It is
not used to calculate actual net profit or for income tax purposes. Rather, it is a
working tool more than a formal accounting approach. It is based on a standard price
for a specified period. A standard price is fixed for each class of materials in advance
after proper investigation. The different between actual price and standard price is
transferred to purchase price variance which reveals to what extent actual costs are
different from standard material cost.

6. BASE STOCK PRICES METHOD:

The base stock refers to the minimum quantity of stock of materials that a firm
has to maintain at all times. Under this method it is assumed that the minimum stock
which must always be carried is in the nature of fixed assets, and is never realized
while the business continues. The minimum stock is carried at original cost of
acquisition. The quality of material in excess of the base stock is available for the
production, while the base stock is used only in case of emergency.
7. REPLACEMENT / MARKET PRICE METHOD:
Under this method material are issued at the price at which they can be
replaced, that is at the market price prevailing on the date of issue. This method could
be applied principally to materials purchased in advance for the use in large
quantities, in anticipation of economic / profitable use, or in such items of stores
which are either absolute or lying unused for a long time in store.
3.10

INVENTORY CONTROL TECHNIQUES:

[42]

Effective inventory management requires an effective control over inventories.

It maintains of Inventory management. Inventory controls refers to a system which
ensures supply of required quantity and quality of inventories at the required time and
at the same time prevent unnecessary investment in inventories. The techniques of
inventory control/inventory management are as follows.

Economic Order Quantity

Reorder Point

ABC Analysis

Safety Stock

1.1.30 ECONOMIC ORDER QUANTITY:

Determination of the quantity for which the order should be placed is one of
the important problems concerned with efficient inventory management. Economic
order refers to the size of the order which gives maximum economy in purchasing any
item of raw material or finished product. One of the major inventory management
problems to be resolved is how much inventory should be added when inventory is
replenished.
ORDERING COST:
This is the cost of placing items an order and securing the supplies. It varies
from time to time depending upon the number of orders placed and the number of
items ordered.
INVENTORY CARRYING COST:
It is the cost of keeping items in stock. It includes interest on investment,
obsolescence losses, store-keeping cost, insurance premium etc. The large value of
inventory, the higher will be the inventory carrying cost and vice versa.

[43]

The former cost may be referred as the cost of acquiring will the later as the cost
of holding Inventory.
FORMULA:

EOQ= Economic order quantity

R = quantity purchased in a year or month
Cp = cost of placing in order/ holding cost
C = consumption

ASSUMPTIONS:
The EOQ model is a technique to determine the economic order quantity,
illustrated by us, is based on three respective assumptions, namely
1.

The firm knows with certainty the annual usage of a particular item inventory.

2.

The rate wish the firm uses inventory is steady over time.

3.

The orders placed to replenish inventory stocks are received at exactly the
point in time when inventories reach Zero.
APPROACHES OF EOQ:
The EOQ model can be illustrated

By long/analytical approach are trial and error approach and

By the shortcut or simple mathematical approach.
TRIAL AND ERROR APPROACH:
Given the total requirement of inventory during a given period of time
depending upon the inventory planning horizon, a firm has different alternatives to

[44]

purchase its inventory. For instance it can by its entire requirements in one single lot
at the beginning of the inventory planning period.

MATHEMATICAL (SHORTCUT) APPROACH:

The economic order quantity can using a shortcut method, be calculated by the
following equation.

1.1.31 RE-ORDER POINT:

The EOQ technique determines the size of an order to acquire inventory so as to

minimize the carrying as well as the ordering costs. In other words, the EOQ provides
on answer to the question. How much inventory should be ordered in one lot? Another
important question pertaining to efficient inventory management is which should the
order to procure inventory be placed? This aspect of inventory management is
covered under the order point problem.

The Reorder point is stated in terms of the level of inventory at which on order
should be placed for replenishing the current stock of inventory. In other words,
reorder point may be defined as that level of inventory when a fresh order should be
placed with the suppliers for procuring additional inventory to the economic order
quantity.

This is based on the following assumptions,

Constant daily usage of inventory and

Fixed lead time.

[45]

In other words the formula assumes with condition of certainty

The reorder point = lead time in days X Average daily usage of inventory.

Here lead time refers to the time normally taken in receiving the delivery of
inventory after placing orders with the suppliers.
The technique is based on the assumption that a firm should not exercise the
same degree of control on all items of inventory. It should rather keep more rigorous
control on items that are,
1. Most costly and
2. Slowest-turning
1.1.32 ABC ANALYSIS
An ABC analysis is ranking mechanism whereby our attention can be focused on
study of product inventory levels. It is also means Always Better Control, inventory
control should be preceded by a value analysis. A very effective as well as economical
inventory level should be based on ABC analysis.
In a process industry, number of moving spares will be very less compared to
in terms, which are not being consumed. The spares which are having nulled
consumption in financial year as called D class item. ABC analysis classification is
done among the items, which are having consumption value greater that zero, for easy
segregation. RAIL WAY ELECTRIC LOCO SHED has classified ABC as following.

Table 5

[46]

CLASS ITEMS

ANNUAL USAGE

REMARK

Above 22 lakhs

Based on the last financial

year usage

3.25 lakh-22 lakhs

Based on the last financial

year usage

C1

Below 25 to 3.25 lakhs

Based on the last financial

year usage

C2

Less than 25

Items not covered by ABC

For finding an items as A, B or C the annual value of consumption in the

preceding financial year shall be the basis to start with the item are identified as A, B
or C based on moving average concept to take care of situation more realistically, the
power of control of stores(COS) who is the principle head of this department(PHOD).
He is holding powers,

To procure the items up to 8crores, when it exceeds A and B the procurement

will be approval by G.M. up to 14crores exceeds than the railway board.

The spares, which are having nil consumption in a financial year are called D
class item in a power for the next year we shall to divert more attention towards
inventory value then consumption value , so major attention is required for higher
inventory values i.e., A class and for B class.

[47]

 XYZ ANALYSIS:
This is based on the value of inventory stored. If the value is high special
efforts should be made to reduce them. This exercise can be done once a year. Items
classified as X denotes high inventory value.
Items classified as Y&Z denote medium and low inventory values
respectively. RAILWAY LOCO SHED has classified XYZ norms.
X= Inventory value more than Rs.5, 00,000
Y= Inventory value more than Rs.1, 00,000 to less than Rs.5, 00,000
Z= Inventory value more than zero and less Rs.1, 00,000
W= Inventory value zero

VED ANALYSIS:
This type of analysis is applicable mostly in the case of spare parts. The
peculiarity about spare parts is that they do not follow a predictable demand pattern as
in the case of raw materials.
V = Vital
E = Essential items
D = Desirable items

FSN ANALYSIS:

This analysis takes in to account the pattern of issued from stores. The 3 letters stands
for Fast-moving, Slow-moving, Non-moving. This analysis comes in very hand we
desire to control obsolescence.

[48]

1.1.33 SAFETY STOCK:

In the example given above the recorder level was computed presuming that
there is no uncertainty regarding the usage as well as the lead time. In actual practice,
it is almost impossible to correctly predict both of them. The actual usage as well as
the lead time may be different from the normal usage or the normal lead time. The
level of safety stock can be calculated by applying the following formula

SAFETY STOCK = AVERAGE USAGE X PERIOD OF SAFETY STOCK

[49]

1.1.

CHAPTER-IV
DATA ANALYSIS AND INTERPRETATION

[50]

4.0 DATA ANALYSIS & INTERPRETATION

4.1 INVENTORY MANAGEMENT IN RAILWAY ELECTRIC LOCO SHED
KAZIPET:

Kazipet Electric Loco Shed was established in November, 2004. It is a

Government organization. In this organization provides the three types of
services to the Indian railway sector those are here one section is repair the
express repair section, the second section is normal loco belongs to half yearly
and quarterly and minor repair section the last one is normal locomotive
belongs to major and more than one year repairs.
In this organization 350 employees are working here, in this
organization has here Three inventory store and issue section those are
electronic and general section, machine equipment section and another is
receipt section. In this organization total estimated annual inventory turnover is
9.36 corers, and here inventory in terms are 546 types. These 546 types of
inventory items are divided into sub categories like safety, vital items, nil items
another classification is cat A, B, and cat C like that
Here inventory issue methods mostly used methods are FIRST IN
FIRST OUT and LAST IN FIRST OUT methods are mostly used methods.
Here any inventory item arise surplus and died surplus. The died surplus value
declared by the survey committee consists two section engineers and two
inventory store staff member maximum 90 percent of value will be declared.
The inventory classification and issued are described as following.

[51]

Table 6
CATEGORY

ITEMS

VALUE

NNR

HDG

54

6.15 CRORE

05

01

132

2.19 CRORE

07

C1

232

0.91 CRORE

32

02

C2

128

0.07 CRORE

20

02

TOTAL

546

9.36 CRORE

CLOSED

4.2 ELECTRICAL & WARD 01

TOTAL NO.OF ITEMS

387

AAC VALUE Rs.

5.12 CRORES

NO. OF SAFETY ITEMS

44

NO. VITAL ITEMS

20

A CATEGORY

22

B CATEGORY

85

C CATEGORY

280

NO. NIL ITEMS

NIL

STOCK VERIFICATION:
Table 7
CATEGORY

STOCK

VALUE OF
INVENTORY

10%

70%

70%

20%

[52]

20%

10%

ANALYSIS OF INVENTORY ITEMS OF WARD-01

Total inventory items of ward-01are 387 items these AAC value is

Rs.5.22. These items classified in to six categories those are safety items, vital
items category A, category B, category C and Nil items.

Here major proportion of percentage in to items are category C1 &

category C2 determine the less than 3.25 lakhs value items comes under the
category C. The second major items are category B items. This category
determine by the value of more than 3.25lakh and less than 22 lakh value items
comes under category B the remaining percentage items belongs to the
category A. This category determine by the value of more than 22 lakhs.

In this word major category is category C because this section to the

electricity and general items this is second important ward in the organization.
So generally all spare parts value as less than 3.25 lakhs. So this category a has
higher proportion of percentage in the total percentage value.

SAFETY ITEMS 55, VALUE 1.37 CRORES

VITAL ITEMS 58, VALUE 1.97 CRORES

[53]

4.3 GENERAL WARD 02

TOTAL NO.OF ITEMS

157

AAC VALUE Rs.

2.49 CRORES

NO. OF SAFETY ITEMS

11

NO. OF VITAL ITEMS

36

A CATEGORY

31

B CATEGORY

47

C CATEGORY

79

NO. NIL ITEMS

NIL

STOCK VERIFICATION:
Table 8
NUMBER OF

NUMBER OF

ITEMS

ITEMS UNIFIED

31

6 months

47

1 year

79

2 year

CATEGORY

PERIOD

ANALYSIS OF INVENTORY ITEMS OF WARD 2:

This ward consist of 157 inventory items all this items are classified
into 6 categories those are Safety items, Vital items, category A, category B,

[54]

category C and NIL items. This ward belongs to the mechanical items ward like
cable, batteries and filters etc., this ward average annual consumption is 2.49
crores.
In this ward also major proportion of inventory items are category C
items.
4.4 BIN CARD

CATEGORY A
Price list no: 79010805
15,600\-

EAC: 7529

Description:

Dungry cloth blue

WARD: 02

UNITS: 22

13(nos)

Book avg. rate: 64.35

2436
Mode of purchase:

supplier KVIC

Statement shows the month wise consumption, issues, receipts from

system dispose untrades.

Table 9
MONTH

RECEIPTS

ISSUES

BALANCE

OPENING BALANCE

3000

JANUARY 2007

400

550

FEBRUARY 2007

200

250

500

[55]

MARCH 2007

300

200

APRIL 2007

1000

300

900

MAY 2007

1500

400

2000

JUNE 2007

250

1850

JULY 2007

150

1700

AUGUST 2007

300

1400

SEPTEMBER 2007

500

350

1550

OCTOBER 2007

100

1450

NOVEMBER 2007

350

1150

DECEMBER 2007

350

800

OPENING BALANCE 2008

3500

JANUARY 2008

200

3300

FEBRUARY 2008

140

3160

MARCH 2008

160

3000

APRIL 2008

231

2769

MAY 2008

348

2421

CLOSING BALANCE 2007

[56]

JUNE 2008

253

2168

JULY 2008

520

1648

AUGUST 2008

353

270

1731

SEPTEMBER 2008

2000

441

3290

OCTOBER 2008

471

2819

NOVEMBER 2008

315

2504

DECEMBER 2008

400

2104

CLOSING BALANCE 2008

400

2104

OPENING BALANCE 2009

400

2104

JANUARY 2009

54

505

1653

FEBRUARY 2009

403

1250

MARCH 2009

463

787

APRIL 2009

3322

1015

3094

MAY 2009

1000

550

3544

JUNE 2009

441

3103

JULY 2009

492

2611

AUGUST 2009

450

2196

[57]

SEPTEMBER 2009

483

1713

OCTOBER 2009

482

1231

NOVEMBER 2009

3000

400

3831

DECEMBER 2009

521

3310

CLOSING BALANCE 2009

521

3310

OPENING BALANCE 2010

521

3310

JANUARY 2010

440

2870

FEBRUARY 2010

810

2060

MARCH 2010

710

1350

APRIL 2010

550

800

MAY 2010

537

470

867

JUNE 2010

3889

610

4146

JULY 2010

600

3546

AUGUST 2010

450

3096

SEPTEMBER 2010

650

2446

OCTOBER 2010

540

1906

NOVEMBER 2010

800

1106

[58]

DECEMBER 2010

544

420

1230

CLOSING BALANCE 2010

544

420

1230

OPENING BALANCE 2011

544

420

1230

JANUARY 2011

525

610

1145

FEBRUARY 2011

560

585

MARCH 2011

540

45

APRIL 2011

200

124

121

MAY 2011

JUNE 2011

JULY 2011

525

646

AUGUST 2011

600

46

SEPTEMBER 2011

738

680

104

OCTOBER 2011

47

57

NOVEMBER 2011

537

224

370

DECEMBER 2011

259

111

[59]

Figure 4

INTERPRETATION
When we compare with these three years information the following
points were find out those are.
1. In 2008 receipt was 2353 units issues 3749 units the surplus item are
1396 units with last year balance.
2. In 2009 receipt was 7376 units issues 6170 units the surplus item are
1206 units with last year balance.
3. In 2010 receipt was 4970 units issues 7050 units the surplus item are
2080 units with last year balance.
4. In 2011 receipt was 2525 units issues 3644 units the surplus item are
1119 units with last year balance.

[60]

BIN CARD
CATEGORY B
Price list no: 43310011
Description: dry cells

EAC: 2000\-

WARD: 02
Unit: 01

book avg. rate: 9.40

Mode of purchase: NIPPO

Statement shows in the month wise consumption, issues, receipts from

system dispose untrades.
Table 10
MONTH

RECEIPTS

ISSUES

BALANCE

JANUARY 2007

300

300

FEBRUARY 2007

135

145

MARCH 2007

1000

155

1010

APRIL 2007

308

704

MAY 2007

205

497

JUNE 2007

145

352

JULY 2007

101

251

AUGUST 2007

500

205

546

[61]

SEPTEMBER 2007

220

326

OCTOBER 2007

210

116

NOVEMBER 2007

1000

264

852

DECEMBER 2007

418

434

418

434

418

434

JANUARY 2008

1000

1434

1344

FEBRUARY 2008

228

1116

MARCH 2008

270

846

APRIL 2008

253

596

MAY 2008

220

376

JUNE 2008

203

273

JULY 2008

100

273

50

AUGUST 2008

50

90

10

SEPTEMBER 2008

55

55

10

OCTOBER 2008

40

40

10

NOVEMBER 2008

305

300

15

DECEMBER 2008

1000

413

602

CLOSING
BALANCE 2007
OPENING
BALANCE 2008

[62]

CLOSING
1000

413

602

1000

413

602

JANUARY 2009

500

445

657

FEBRUARY 2009

445

212

MARCH 2009

600

475

337

APRIL 2009

900

475

762

MAY 2009

455

307

JUNE 2009

385

3922

JULY 2009

460

3462

AUGUST 2009

420

3042

SEPTEMBER 2009

382

2660

OCTOBER 2009

9600

403

11857

NOVEMBER 2009

443

11414

DECEMBER 2009

356

11058

356

11058

356

11058

JANUARY 2010

508

10550

FEBRUARY 2010

738

9812

BALANCE 2008
OPENING
BALANCE 2009

CLOSING
BALANCE 2009
OPENING
BALANCE 2010

[63]

MARCH 2010

500

8782

APRIL 2010

530

7882

MAY 2010

900

7512

JUNE 2010

370

7122

JULY 2010

390

11549

AUGUST 2010

4687

260

11059

SEPTEMBER 2010

490

10839

OCTOBER 2010

220

10359

NOVEMBER 2010

480

10359

DECEMBER 2010

320

10039

10039

10039

JANUARY 2011

1570

8469

FEBRUARY 2011

220

8249

MARCH 2011

470

7779

APRIL 2011

270

7509

MAY 2011

600

6909

JUNE 2011

520

6389

CLOSING
BALANCE 2010
OPENING
BALANCE 2011

[64]

JULY 2011

145

6244

AUGUST 2011

200

6044

SEPTEMBER 2011

400

5644

OCTOBER 2011

90

5554

NOVEMBER 2011

5554

DECEMBER 2011

300

240

5614

Figure 5

INTERPRETATION
This item is category A it is a vital item in the organization its maximum
level is 21000 and minimum level is 27 units.

[65]

When we compare with these three years information the following

points were find out those are.
1. In 2008 receipt was 2600 units issues 3776 units the surplus items are
1176 units with last year balance.
2. In 2009 receipt was6000 units issues 5144units the surplus items are 856
units with last year balance.
3. In 2010 receipt was 4687 units issues 5706units the surplus items are
1019 units with last year balance.
4. In 2011 receipt was 300 units issues 4725units the surplus items are
4425 units with last year balance.

[66]

CHAPTER-V
SUMMARY
FINDINGS AND CONCLUSIONS
BIBLIOGRAPHY

[67]

5.0 SUMMARY
5.1 FINDINGS AND CONCLUSIONS
In the light of the above discussion the following findings and conclusions are
made:
This chapter deals with presentation of the summary of the work done. It also presents
certain suggestions for improving the efficiency of an organization.
In order to evaluate the performance of an inventory, the inventory
management technique is the measure available, to take a decision for efficient
utilization of inventory. The theory of application of cost accounting techniques plays
a very important role. The organization, Electric loco shed Kazipet of South Central
Railway is chosen for applying inventory control techniques to control the wastage
of inventory and overcome the ordering and issuing problems.
Understanding the specific procedure of the inventory issues and orders.
Therefore this chapter deals with presenting a total financial picture of railway.
The practical application of inventory management techniques for taking
decision whether to concentrate existing procedure or implement the new methods.
The maximum level of holding is estimated as 3 months for A category, 6
months for B category and 12 months for C category respectively.
The organization structure of the department of Electric loco shed, Kazipet depicts the
executive responsible and sections operating in the department.
The stores department is divided into wings rolling stock and work shop
facilities Rolling stock which comprise of loco motives, coaches and wagons. Work
shop facilities for the maintenance of track.

[68]

Electric loco shed is adopting periodic stock verification method for the
verification of stock. It is adopting book average price and purchasing rate for
evaluating the issue of materials.

Electric loco shed following ABC analysis as a part of their inventory control
techniques. It has been classified into three categories they are A category items. In
this category all repetitive items are generally controlled by applying the ABC
analysis.

In Electric loco shed - Kazipet the classification of materials, in A B and

C category is based on the cost of items. All the items whose value is above Rs 5
Lakhs is included in category A and whose value is less than 5 lakhs is included in
category B and remaining items whose values is less than 3 lakhs is included in
category C.

Electric loco shed Kazipet has been using ABC analysis coupled with VED
analysis for control and remaining items whose values is less than 3 lakhs is
included in category C.

[69]

1.2.
BIBLIOGRAPHY

Chandra, Prasanna., (2008). Financial Management, New Delhi: Tata McGraw Hill.
Company Profile, (2012), Indian Railways Database, Electric Railway Loco Shed,
Kazipet.
Cooper Donald, Pamela Shindler., (2010), Business Research Methods (11th edition),
New York: McGraw-Hill.
Frequently Asked Questions, 2012, Indian Railways Fans Association Website.
[Online]. Available at: http://www.irfca.org. [Accessed 15 June 2012]
Jain, Khan, (2008), Cost Accounting, New Delhi: Tata McGraw Hill.
Maheswari, S.N., (2002), Financial Management: Principles and Practice (7th
edition), New Delhi: Sultan Chand Publishers.
Muller, Max., (2003), Essentials of Inventory Management Broadway, New York:
AMACOM.
Pandey, I.M.,(2009), Financial Management (9th Edition), New Delhi: Vikas
Publishing House.

[70]