Professional Documents
Culture Documents
RESEARCH METHODOLOGY 6
INTRODUCTION TO IOCL 7
INVENTORY MANAGEMENT 44
CONCLUSION 84
SUGGESTIONS 85
BIBLIOGRAPHY 86
EXECUTIVE SUMMARY
Inventory management is vital in an oil plant. This project “ INVENTORY
MANAGEMENT ” has been completed in INDIAN OIL CORPORATION
LIMITED, BARAUNI. It deals with proper purchase operation, handling of
materials and oil management processes. Purchase procedures play a very
important part in inventory management. Cost reduction measures can be
taken right from the purchase process. Various methods involved in purchase
procedures have been studied. Thousands of spares and parts are stored by
material management department. Their proper upkeep and maintenance are
important for the refinery. Here the materials are classified on the basis of
ABC analysis based on monetary values. This method is applied because
materials are quite large. They are more than 30,000 in number. Other basic
concepts of inventory have also been studied and explained. The project is
also related to oil management in the last chapter. Efficient purchase of crude
oil and proper management of finished products can add to the profitability
of the company. The company maintains the storage of several finished
products for further distribution.
The Corporation's cross-country network of crude oil and product pipelines,
spanning more than 10,000 kms and the largest in the country, meets the vital
energy needs of the consumers in an efficient, economical and environment-
friendly manner. Indian Oil is investing Rs. 43,393 crore (US $10.8 billion)
during the period 2007-12 in augmentation of refining and pipeline
capacities, expansion of marketing infrastructure and product quality
upgradation as well as in integration and diversification projects. In financial
parlance, Inventory is defined as the sum of the value of raw materials, fuels
& lubricants, spare parts maintenance consumables, semi processed materials
and finished goods at any given point of time. Operational definition of
Inventory would be: "The amount required raw materials, fuels, lubricants,
spare parts and semi-processed material, stocked for smooth running of the
plant". Since these resources are idle when kept in stores, inventory is
defined as an idle resource of any kind having an economic value. The main
reasons for holding inventory are:-
To maintain targeted flow of production in line with national demand.
Protection against uncertainties of demand & supply which can not be
predicted with sufficient accuracy.
To avoid stock out in the period of shortages
In periods of rapid price rise, higher inventory levels .
1
STATEMENT OF THE PROBLEM
Inventory management is a core function of a production company.
It is an important area in the day to day management of the firm.
Inventory management is the functional area of the finance that
covers the efficiency of the production of a manufacturing firm. It
deals with the proper storage of materials and products. A suitable
inventory management applying various cost cutting measures
leads to overall cost reduction of the company. This project covers
the purchase procedures, material inventory and oil management in
IOCL, Barauni. Here materials are managed mainly on the basis of
ABC analysis. But, other concepts have also been studied and dealt
with. Oil products and oil management have also been studied. A
proper inventory management is a boon for a manufacturing
company like IOCL, the biggest oil company in India.
2
OBJECTIVES OF THE STUDY
1. To study the purchase procedures of materials.
2. To study and classify various spares and materials in the
store department (ABC analysis).
3. To analyse and understand the methods involved in the
inventory of materials.
4. Also to study related concepts in inventory management.
5. To study and explain EOQ, ROP, WIP, JIT etc.
6. To go through procurement and accounting procedures of
crude oil.
7. To study several oil products in the refinery.
8. Proper inventory management leads to cost reduction
3
RESEARCH METHODOLOGY
Intensive research has been done during this project to find out the
necessary information regarding both purchase and inventory activities
carried out in Barauni Refinery and the various projects that are being
implemented to optimize profit and product yield. While working in the
organization, I got much of the information during the practical work. The
methodology applied to gather the necessary information is discussed as
follows.
4
INTRODUCTION
TO IOCL
5
Indian Oil Corporation Limited (Indian Oil) is the country's largest
commercial enterprise, with a sales turnover of Rs.1, 50,677 crores
and profits of Rs.4,891crores for fiscal 2004.
Indian Oil Company Ltd. was established on 30th June 1959 with Mr
S. Nijalingappa as the first Chairman.
Beginning in 1959 as Indian Oil Company Ltd., Indian Oil Corporation Ltd.
was formed in 1964 with the merger of Indian Refineries Ltd. (Estd. 1958).
Indian Oil
Corporation
1964
6
As India's flagship national oil company, Indian Oil accounts for 56%
petroleum products market share among PSU companies, 42%
national refining capacity and 69% downstream pipeline throughput
capacity.
7
A major diversified, transnational, integrated
energy Company, with national leadership and a
strong environment conscience, playing a national
role in oil security& public distribution.
OBJECTIVES OF THE
CORPORATION
8
To serve the national interests in the oil and related sectors in
accordance and consistent with Government policies.
9
To further enhance distribution network for providing assured
service to customers throughout the country through expansion of
reseller network as per Marketing Plan/Government approval.
OBLIGATIONS
10
To ensure prompt dealings with integrity, impartiality and
courtesy and promote ancillary industries.
Towards employees
Towards community
11
Refineries division
Pipelines division
Marketing division
Assam oil division
Research and development centre
Guwahati 1962
Barauni 1964
Gujarat 1965
Haldia 1975
Mathura 1982
Panipat 1998
12
Organogram of divisions of IOCL
IO
M A R K E T IN G P IP E L IN E RE
D IV IS IO N D IV IS IO N D IV
13
Organogram of Finance Department
(Refineries)
14
SWOT ANALYSIS
HIGH FOREIGN EXCHANGE DEBT.
IOCL has managed to significantly cut its borrowing cost due to high share
of foreign exchange debt. Its share of foreign exchange borrowings is
increasing with foreign exchange loans crossing 50% of its total debt
compared to 42% at the end of the last financial year.
As India's flagship national oil company, Indian Oil accounts for 56%
petroleum products market share, 42% national refining capacity and 67%
downstream pipeline throughput capacity
15
WEAKNESSES
The decisions relating to administration are taken at the corporate level. Even
minor proposals are to be referred to the top management. This leads to a
delay in decision-making.
Among the public sector oil companies, Indian Oil Corporation is the only
one to follow a weak marketing strategy. It in only in the recent years that
the company has started to market its products. However, still the efforts
seem to be weak when compared with the competitors like BPCL and HPCL
PROMOTION POLICY
Most of the public sector companies seem to suffer from these lacunae. The
employees are promoted mainly on the basis of experience and not on the
efforts and initiatives displayed by the employee in his work. This results in
de motivation and lack of interest for their work on the part of the
hardworking employees, who then tend to shift jobs to satisfy their need for
self-esteem.
TENDER PROCESS
The policy of selection of the lowest bidder tends to affect the quality of the
products/services on some occasions. A more simplistic procedure is also
likely to generate some savings for the company, since tendering process
leads to expenses on account of advertisement.
16
OPPORTUNITIES
THREATS
The opening up of the oil sector for private players poses a threat even for
this well established company. With Indian players like Reliance and Essar
and foreign player like Shell planning their entry into the Indian scenario, the
road seems to be tough for Indian Oil.
17
IOCL, BARAUNI
Barauni Refinery was built in collaboration with Russia and Romania.
Situated 125 kilometres from Patna, it was built with an initial cost of Rs
49.40 crore. Barauni Refinery was commissioned in 1964 with a refining
capacity of 1 Million Metric Tonnes per Annum (MMTPA) and it was
dedicated to the Nation by the then Union Minister for Petroleum, Prof.
Humayun Kabir in January 1965. After de-bottlenecking, revamping and
expansion project, its capacity today is 6 MMTPA. Matching secondary
processing facilities such Resid Fluidised Catalytic Cracker (RFCC), Diesel
Hydrotreating (DHDT), Sulphur Recovery Unit (SRU) have been added.
Theses state of the art eco-friendly technologies have enabled the refinery to
produce environment- friendly green fuels complying with international
standards.
Barauni Refinery was initially designed to process low sulphur crude oil
(sweet crude) of Assam. After establishment of other refineries in the
Northeast, Assam crude is unavailable for Barauni . Hence, sweet crude is
being sourced from African, South East Asian and Middle East countries like
Nigeria, Iraq & Malaysia. The crude is brought up to Haldia by Very Large
Crude Carriers (VLCCs) from where it is pumped through pipeline to
Barauni. With various revamps and expansion project at Barauni Refinery,
capability for processing high -sulphur crude has been added high-sulphur
crude oil (sour crude) is cheaper than low sulphur crudes thereby increasing
not only the capacity but also the profitability of the refinery.
Barauni Refinery has an elaborate Safety Management System. Refinery is
following stringent Oil Industry Safety Directorate (OISD) standards and
other Rules/ Acts as applicable. Periodic Safety Audit of the facilities and
system is carried out. Each recommendation’s status is thoroughly discussed
in the monthly Health & Safety Committee Meeting chaired by the top most
official of the company. No efforts are spared to fulfill recommendations
arising during Safety Audit, in shortest possible time.
The crude oil for Barauni refinery was initially sourced exclusively from oil
fields of Assam through Oil India Pipeline. But due to utilization of available
crude in North-East itself after commissioning of Numaligarh Refineries,
Barauni Refinery has been fully sourced by imported crude from 2001-2002.
To make this feasible, a new Pipeline namely Haldia Barauni Crude Pipeline
(HBCPL) was constructed and for economic viability of fresh investment the
18
old refinery management has roughly invested Rs. 2000 cr. in expanding the
refinery to 6 MMTPA in
2002-2003.
The crude movement take place in very large crude carriers (VLCC)
up to the Bay of Bengal but due to the poor sea condition can’t reach Haldia
port directly. This necessitates transhipment of crude in high sea to smaller
vessels which in turn bring the crude up to the port where it is unloaded in
custom bonded tanks before being pumped through HBCPL. This particular
movement of transhipment involves additional costs in the nature of
2. Demurrage of VLCC
3. Additional wharfage
19
BARAUNI REFINERY FINANCE DEPARTMENT
ORGANOGRAM 2009
S .B H U N IA
D y.Ge neral M an ger(F )
S .C . B H A N S A LI S .B A N IK A .B A S U
S r.Fin ance M an ager S r.F inance M anager S r.F inance M anager
21
To provide high quality financial staff support for decision-
making and control to all levels of management – corporate,
divisional, unit and location to enable the achievement of overall
corporate objectives and goals.
22
To ensure adequate return on capital employed and maintain a
reasonable annual dividend on its equity capital.
Financial Goals
To inculcate cost consciousness in user departments.
23
Ensure payment on due date to various agencies.
24
PURCHASE
PROCEDURE
Purchase procedure
25
Purchase Function , as we know the important function in all type of
organizations. Without purchase of materials which are required for
producing goods, organization is not able to meet the demands of
goods. The material in the IOCL is divided into parts i.e. hydrocarbon
& non-hydrocarbon. The hydrocarbon like crude products etc & non-
hydrocarbon like furniture, tools, machinery, pipes etc.The
transactions relating to the procurement of materials from the
indenting stage to the payment stage have been divided in various
parts whereby each part of the work is handled by an independent
agency till the transactions is completely closed. The division of work
between various agencies operates as a system of internal check and
is a vital part of the system as a whole. The procedure is as follows:-
2). Budget estimate for next year and revised budget for current
financial year is required to be made by each unit and have to be
submitted to the head quarter by September in prescribed
Performa. Quarterly monitoring of the purchase budget to be done
at the unit level and the performance report has to be sent to the
head office. In respect of the inventory control items there should
be strictly controlled with reference to amount provided in the
budgets. As the items under inventory control are voluminous,
initial control may be in respect of A and B class items.
3). INDENTING
26
• For all repetitive items of stores the responsibility of
raising purchase indents, procurement, stocking and
supply to the consuming departments is entirely with the
material department.
• Re – order (ROL) to be constantly reviewed considering the
procurement lead time while raising purchase indents in order
to minimize the inventory levels.
• Indents to be approved by the competent authority as per
delegation of powers.
• To determine ROL for repetitive nature of items, the
following formula may be adopted, wherever applicable:-
R = CA (L-3) + Cmax
Where R = ROL
CA = average monthly consumption in last three years
Cmax = Maximum consumption in any quarter.
L = Lead time in months.
For each category of items, indent shall be prepared in SAP after
due approval of the competent authority, may be sent to the
purchase section. The third copy will be retained by inventory
control section for record.
27
• Indents for hospital requirement including medicines shall
be raised by the medical department.
• Indents for vehicles, office equipment, stationery and
printing, furniture, uniforms, canteen/welfare requirements
shall be raised by the administration departments.
• Spare parts, piping material and consumable items etc. are
required for one time consumption and which are not
covered by the inventory control section shall be indented
by technical service department. After conducting necessary
probabilistic survey relating to replacement need of
individual plant.
28
Indents should be completed in all respects and shall necessarily
include the information of previous source of supply (if known)
and the rate and purchase order reference against which the
supply was received earlier.
29
b) One repeat order within the prescribed limits at one time
and value up to Rs. 25000/-.
c) Purchase for proprietary items or DGS&D rate contract price
unless the value of the proposed individual order exceeds
Rs. 25000/-.
All other purchase proposals up to Rs. 50000/- shall be
scrutinized and concurred by the finance department. Proposal
above Rs. 50000/- shall be reserved for consideration of the
tender committee.
Open tenders
• Global open tenders
• Press tenders
Limited tenders
Single tenders
Open tenders
30
However, approval of head of material department is to be
obtained before issuing press notification.
For items of regular consumption nature where source of supply
have already been established and where list of approved vendors
is maintained and duly updated from time to time, press tenders
need not be invited for such items valuing more than Rs.
1000000. However, approval of GM/ED shall be taken for wavier
of issuing press tenders in such cases.
Limited tenders
Single tenders
31
for technical reasons such as spare parts, chemicals, special
tools etc.
In very exceptional cases, although there may be alternate
source of supply but they are not acceptable due to certain
specific reasons to be recorded with full justification and
approval of GM obtained for the same, it will be permissible to
float single tender enquiry.
Cash purchases within the limit as prescribed from time to
time is permissible on single tender basis subject to
ascertaining reasonability of price at a level of deputy manager
and above.
Repeat Orders
Where the same item has to be purchased identical in all respects,
a repeat order may be placed with the approval of the competent
authority provided the following conditions are satisfied:
That the original order against which repeat order is being
considered was not placed earlier than six months.
That the quantity proposed to be purchased is less than or
equal to the quantity originally ordered.
32
That there has been no reduction in the market rates of
similar market ever since the original ordered was placed.
That the order was placed as a result of regular tender
enquiry and the order was placed on technically lowest basis.
One repeat order up to the value of Rs. 25000/- against
order would not require any financial concurrence. However
any subsequent repeat orders within the above conditions shall
be placed with financial concurrence only.
Cash purchase
For item of value below Rs.1000 in each case, a regular enquiry
is not necessary and such item can be procured on cash basis from
the open market. However the purchase officer shall ensure that
the items are being purchased at competitive prices prevailing in
the market.
The cash purchase should be authorized by CMTM/SMTM.
The items should be purchased preferably from government
owned stores.
Emergency purchase
Emergency purchases are permissible only in unforeseen
circumstances. In all cases of emergency purchases, the reason
for such emergency shall be recorded in writing and the
procedure to be followed as under:-
The indents should be prepared by the HOD and forwarded to
CMTM/SMTM after being approved by GM/ED.
In case of items costing Rs. 10000or less, an officer from
material department along with the representative of user
department shall be deputed to collect quotation by hand from
33
minimum of three firms. A decision on the offers so collected
may be taken on the spot and delivery obtained immediately.
In case of items costing between 10000 to 50000 the head of the
material department would constitute a committee of
DMTM/MTM and an officer each from accounts department and
the user department at appropriate level, with authority to visit
the nearest market and to collect minimum of three quotations.
The committee so constituted is empowered to take decision on
the spot.
In case of items costing more than 50000, a committee consisting
of representative from accounts, material and user department
would be constituted by GM/ED and the committee would follow
the same procedure.
34
Notice inviting tenders
Tender documents
35
In case of all other purchases where foreign exchange is involved
and/or where value of purchase is estimated to Rs. 50 lakhs or
more, two-bid system of tendering shall be followed.
Tender document
36
INVENTORY
MANAGEMENT
MATERIAL MANAGEMENT
37
INVENTORY CONTROL PROCEDURES FOR STORES,
SPARES & CHEMICALS
(Ref. Material Management Manual, IOCL)
1. Introduction
38
A: Rs 5 lacs and above
B: Rs 1 lac to Rs. 5 lacs
C: less than Rs 1 lac
3.2 In order to achieve selective control, the various items are first classified
as A or B or C class items. The classification is done by taking into account
the annual consumption value of each item. These values are usually
obtained by looking into last years consumption value of the items in
inventory. The steps involved in classifying items as A or B or C category
are as follows:-
(i) Calculate annual issues (in Rs.) for each item in inventory by multiplying
the unit cost of the item by the number of units issued in a year.
(ii) Sort all items by rupee annual issues in descending sequence
(iii) Prepare a list from the ranked items showing item no., unit cost, annual
units issued and annual rupee value of units issued.
(iv) Starting at the top of the list, compute a running total item-by-item issue
value and the rupees consumption value.
(vi) Compute and list for each item the cumulative percentage for the item
count and cumulative annual issues value.
(vii) Classify the top 10-15 percent of the items as "A" items while the
bottom 60 to 70 percent of the items are classified as "C" items. However,
the `balance items between these 2 limits shall be classified as "B" items.
The Purpose of carrying out ABC analysis is to develop policy guidelines for
selective control.
Tighter and accurate procedures are essential for "A" category items relating
to (i) forecasting, (ii) material planning, (iii) value analysis, (iv) lead time
analysis, (v) market research, source selection, source development and
follow-up (vi) safety stock determination, (vii) materials consumption
control,(viii) physical stock verification, (x) stores, and (xi) accounting and
inspection.
The stocking policy for 'B' items need not be highly sophisticated. For the
39
Items which are available ex-stock or of the shelf or in the near proximity,
the Re-order level shall be fixed at 3 1/2 - 4 months stock.
Periodic review system & re-order point system to be followed for these
items.
Procurement for these items shall be made in one or two lots per annum i.e.
Procurement for 6 months or 12 months at a time as far as practicable. Items
which are perishable or bulky shall be omitted from this arrangement.'C'
items shall be reviewed once a year according to a phased time table or when
reorder level is reached if that is earlier.
7. Spares
40
i) Spare purchase with capital goods imported from abroad should as far as
possible be initially fast moving spares and medium moving spares. The
slow moving spares and the insurance spares shall normally be obtained after
gaining actual experience in the working of the machines for a few months to
avoid danger of importing items in excess which may not be required.
Similar arrangements may be followed for indigenous machinery spares.
ii) Imported spare parts
For these the stocking policy shall be in line with the import policy and ad-
hoc imports shall be made in consultation with the using departments
according to the availability of import licence and the general policy stated
above.
iii) Fast moving and medium spare parts of regular consumption and of
category 'C' and 'B' or 'A'. The stocking policy shall be the same as for any
other 'C' items, and repetitive regular 'B' and 'A' items
iv) Slow moving spares parts and spare parts with erratic consumption.
Probabilistic studies shall be made for such items to determine probability or
usage and dangers of stock-out over a period of years together with cost of
carrying inventory versus loss due to stock-out.
41
Material Amount(Value) Quantity
2-ETHYL-HEXYL-NITRATE 158,668,140.00 INR 1,614.37 TO
FRESH FCC CATALYST 29,572,183.13 INR 192.871 TO
ROTOR,DYN BALANCED,W/CPLG HUB 17,686,323.00 INR 1 EA
PLATINUM IN SPENT CATALYST 16,105,348.00 INR 14,607.00 KG
ROTOR ASSY 14,756,045.00 INR 1 EA
RANDOM PACKING FOR COLUMN 9,121,340.00 INR 1 M3
BUCKET,TURBINE STAGE 1 KIT,P/N:35306090 8,887,997.00 INR 1 EA
DHDT CATALYST ACT 961 7,796,626.00 INR 9,000.00 KG
PIPE,SS,EFW,A358TP321,CL1,BE,10IN,160,H2 7,663,400.91 INR 114 M
PLATE,CS,IS 2062,A,6300x1500x8mm 4,519,704.05 INR 96.749 TO
PIPE,AS,EFW,A691,GR9CR,CL42,BE,26IN,9.53 4,335,897.89 INR 45 EA
DHDT CATALYST ACT 645 4,250,873.00 INR 4,000.00 KG
PLATE,CS,IS 2062,A,6300x1500x6mm 4,178,605.45 INR 113.237 TO
SODIUM HYDROXIDE,CAUSTIC SODA LYE,NaOH 4,028,713.81 INR 198.612 TO
BEND,90,XLR,BW,AS,A387,P12,20IN,30 3,913,414.89 INR 15 EA
DIMETHYL DISULPHIDE(DMDS) 3,683,208.60 INR 24 TO
FUEL NOZZLE F/GAS TURBINE,MS 5001 3,641,467.00 INR 10 EA
TEE,EQ,BW,AS,A387,P12,10IN,40 3,630,011.50 INR 52 EA
42
IMPORTANT CONCEPTS IN IVENTORY
MANAGEMENT
The basic elements of JIT were developed by Toyota in the 1950's, and
became known as the Toyota Production System (TPS). JIT was well-
established in many Japanese factories by the early 1970's. JIT began to be
adopted in the U.S. in the 1980's
43
components that were used to make the item, eliminating the need to collect
detailed usage information on the shop floor.
2. Reduce or eliminate setup times:- aim for single digit setup times (less
than 10 minutes) or "one-touch" setup -- this can be done through better
planning, process redesign, and product redesign. A good example of the
potential for improved setup times can be found in auto racing, where a
NASCAR pit crew can change all four tires and put gas in the tank in under
20 seconds. (How long would it take you to change just one tire on your
car?) The pit crew’s efficiency is the result of a team effort using specialized
equipment and a coordinated, well-rehearsed process.
44
slowdowns or stoppages) and "tally boards" (to record and analyze causes of
production stoppages and slowdowns to facilitate correcting them later) may
be used.
In Toyota’s dual-card kanban system, there are two main types of kanban:
45
A kanban system is referred to as a pull-system, because the kanban is used
to pull parts to the next production stage only when they are needed. In
contrast, an MRP system (or any schedule-based system) is a push system, in
which a detailed production schedule for each part is used to push parts to
the next production stage when scheduled.
REORDER POINT
In the EOQ model, the lead-time for procuring material is zero.
Consequently, the reorder point for replenishment of stock occurs when the
level of inventory drops down to zero. In view of instantaneous
replenishment of stock the level of inventory jumps to the original level from
zero level. In real life situations one never encounters a zero lead-time. There
is always a time lag from the date of placing an order for material and the
date on which materials are received. As a result the reorder level is always
at a level higher than zero.
The two factors that determine the appropriate order point are the
procurement or delivery time stock which is the Inventory needed during the
lead time (i.e., the difference between the order date and the receipt of the
inventory ordered) and the safety stock which is the minimum level of
inventory that is held as a protection against shortages.
46
Reorder Point = Normal consumption during lead-time + Safety Stock.
Several factors determine how much delivery time stock and safety stock
should be held. In summary, the efficiency of a replenishment system affects
how much delivery time is needed. And the determination of level of safety
stock involves a basic trade-off between the risk of stock-out, resulting in
possible customer dissatisfaction and lost sales, and the increased costs
associated with carrying additional inventory.
From the above formula it can be easily deduced that an order for
replenishment of materials be made when the level of inventory is just
adequate to meet the needs of production during lead-time.
If the average daily usage rate of a material is 50 units and the lead-time is
seven days, then Reorder level =Average daily usage rate x Lead time in
days = 50 units x 7 days = 350 units
When the inventory level reaches 350 units an order should be placed for
material. By the time the inventory level reaches zero towards the end of the
seventh day from placing the order materials will reach and there is no cause
for concern.
47
Saw
Inventory Model Under
Uncertainty
reorder Qm
point
inventory
safety stock
It minimizes the sum of holding and setup costs. Assumptions of EOQ are as
follows:
48
1. The supply of goods is satisfactory. Goods can be purchased whenever
required.
2. Quantity to be purchased is known and certain.
3. Prices of the goods are stable resulting into stabilization of carrying
costs.
When above conditions are satisfied, EOQ can be calculated using the
following formula:
Marginal Analysis
Total costs
Holding
Costs
Ordering
Costs
Units
SAFETY STOCK
49
Safety or buffer stock is held in excess of cycle stock because of
uncertainty in demand or lead time. The notion is that a portion of
average inventory should be devoted to cover short range variations in
demand and lead time. It is used to prevent stock out.
AVERAGE INVENTORY
Throughput time refers to the time taken by the part to enter into the
assembly and come out as a finished good. Cycle time refers to the time
taken to manufacture a machine per day.
50
It is one of the techniques of inventory management. It tells stock with the
organization can be used for how many days. So the organization can
place an order with the help of this and can also know whether the stock
in hand when put in use will sustain till the receipt of the order.
AND CONTROL
1. Product type:
2. Manufacture type:
51
is of a major importance and in reality controls the production of the
product. The economic advantage of this type of manufacture is the
uninterrupted operations of the machines and assembly lines in the plant.
It is a major offence on the part of inventory personnel to have a plant
shut down for the lack of material; intermittent manufacture, on the other
hand, permits greater flexibility in the control of the material.
3. Volume:
52
OIL MANAGEMENT
Crude oil is imported by IOC for requirement of IOC, CPCL & BRPL. The
crude oil is sourced mainly from Gulf countries, West African Countries,
Malaysia, Brunei etc. crude is transported through Tankers vessels and
53
discharged at Vadinar / Mandra for Western coast refineries and at
Kakinada / Vizag / Sandheads for Eastern coast refineries.
Following are the major elements of payments for crude oil imports:
- FOB
- Freight
- Charter Hire
- Demurrage
- Insurance
- Survey Fees
- Port Charges
- NMA / OTD Charges
- Lighterage Charges & Port Dues
- Other Related Charges
Payments like FOB, Freight, Survey Fees, Demurrage etc. are made US
Dollar for beneficiaries. In case of Indian Vessel owner the payment for
Freight / Demurrage etc. are made in equivalent INR by suitable currency
exchange rates agreed in charter Party / COA. Insurance premium for each
cargo is paid in INR to the Indian Insurance Co. with whom Marine Transit
policy is taken.
2. Shipping finalizes with the supplier and line up vessel for loading. A
Loadport Surveyor is appointed for executing loading function on behalf of
buyer at load port.
Letters of Credits are opened by Finance as per request of Shipping for the
proposed crude oil loadings from concerned Supplier. The LCs are opened
through empanelled Bankers in line with the guidelines issued from time to
54
time by Corporate Office. LCs are opened as per terms and conditions of the
import contracts entered into by IOCL with the supplier.
Flow of documents:
55
1. Shipping department receives the following documents:
a. Invoice
b. Bill of entry
c. Certificate of quality and quantity
d. Certificate of origin
e. Letter of indemnity, where b, c , d above are not available.
After calculating the FOB value based upon the pricing formula and
contract, shipping Finance certifies the payments and forwards the
same to finance for payment.
3. Based on the plan advised by CO (T), the FOB payments are effected
to the beneficiary either through Loan Availments or Currency
Purchase.
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3. After approval shipping forwards the payment papers to Finance
for remittance of the same.
4. Payment of demurrage less than USD 1 million is made through
SBI-CAG, Mumbai directly. Payments more than USD 1
million would be effected through currency purchases from CO
(Treasury).
5. Finance executes necessary documentation to effect the
remittance.
Flow of documents:
a. Invoice
b. Fixture note / charter party copy
c. Calculation of demurrage payable
d. Approval note
Accounting entries:
Based upon the bank advice, demurrage value in INR is computed for
each cargo and accounting entry is passed based on B/L holder and
sharing for each OMC.
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Difference in INR between the liability created and the actual payment to
the vendor is debited / credited to the Exchange Fluctuation a/c.
FREIGHT:
Freight is the charge payable to the Tanker vessel for the crude oil
transported from the various load ports to the disports of IOC at Vadinar /
Mundra (on the West Coast) and at Haldia / Sandheads / Kakinada (on the
East Coast). The charges for freight are enumerated in the Agreement
with Vessel Owners called Charter Party Fixture Note along with other
conditions of the transportations.
CHARTERING:
Types of chartering:
1. Voyage Chartering
2. Time Chartering
Crude oil to Haldia fed refineries is supplied through daughter vessels after
lighterages of Mother Vessel at Kakinada / Sandhead / Vizag based on the
sea conditions during the year. IOCL has entered into contract with M/s
Kakinada Seaport Ltd (KSPL) for carrying ship to ship transfer operation at
Kakinada. As per present agreement mother Vessel port dues are paid @
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USD 0.03/GRT, Daughter Vessel port dues @ Rs 6 / MT for port services
and @ Rs 12 / MT for mooring / bunkering and water charges.
Vessel owner and Charterer depending on the terms agreed upon in charter
party share the above charges. These charges are paid by vessel owner
directly, and later reimbursed by IOCL. These charges are also accounted for
as freight by running T-code YMIROOTH.
Port Charges:
Port charges at load port / disport are borne by IOCL depending on the
agreement between the vessel owner and the charterer i.e. as per the clause of
Charter party. Vessel owner prima facie pays port charges to the Port
Authority and claims reimbursement From IOCL for the same, if the port
charges of disport are not included in the World Scale rate applicable for the
voyage. Reimbursement is effected to the vessel owner based on Invoice
raised by the vessel owner for the same duly certified by shipping for
payment, and forwarded to Finance along with necessary supporting
documents like Port Trust Invoices, remittance account details , payment
proof etc. the amount to be paid in USD / INR is certified by Shipping
department . Finance department releases the payment after verifying its
admissibility as per charter party and port tariff rates.
Survey Fees:
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Invoices in USD are raised by the surveyors periodically. These invoices are
certified by Shipping department and sent to Finance for payment. Survey
fee as per Bank advice is booked in books by T-code YMIROOTH i.e.
invoice verification process in respective Purchase orders.
The section dealing with accounting of stores in the Finance shall have
following function:
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(i) Where freight cost is included in the suppliers invoice. Suppliers
of the goods should indicate the freight amount and the service tax
in the supply invoice to IOCL so that CENVAT credit can be taken
on the service tax portion of the freight amount.
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2. MIRO Invoice verification for customs & related
duties
3. YMIROOTH For passing transportation bills in relation
to Purchase Order
4. FB60 Passing other Transportation bills
5. MCYG For extracting slow moving & non-
moving inventory
6. YMR160 Stock Verification Report
7. MC9 Inventory Status
8. MMBE Current Stock
9. MB5L Stock in relation to General Ledger code
(used for value reconciliation)
10. MB1B Transfer Posting
11. MBBS Project Stock
12. YMR146 PSL Report
13. MB5B Stock as on Posting Date
14. J1IS Creation of Cenvat Invoice for inter unit
transfer
IMPORTANT PRODUCTS
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PRODUCTS
Light Distillate %
LPG
SRN
REFORMATE
MS(BS-II)
Middle Distillate %
SK
HSD (BSD-II)
HSD (EURO-III)
LDO
Total Distillate %
LSHS
RPC LS
RPC HS
BITUMEN
CBFS(high BMCI)
SULPHUR
HSD Ex-HBPL
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The Refinery is capable of producing about 8 lakh tonnes of petrol, 3
lakh tonnes of jet fuel, 12 lakh tonnes of Kerosene & 26 lakh tonnes
of Diesel annually. Other products include Naphtha, Mineral
Turpentine Oil, Bitumen, Sulphur etc. Besides, about 2.4 lakh tonnes
of cooking gas is presently made available to the people.
LPG
NAPHTHA
BITUMEN
MOTOR
SPIRIT
ATF
SKO
HSD
Historically IOC was the sole canalizing agency of crude oil for this nation
having increasing demand of petroleum products posed by rapid forecasted
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growth in industrial as well as consumer sector. Lately from April-01 1998
with the opening of the industry from the closely held government sector to
the globally competitive private sector, the scenario of crude of crude oil
exploration within the country and import there of also underwent change
considering the dynamics of the changes in price per barrel of crude oil in
the international market. The government allowed import of crude to all
refining companies independently.
In Indian Oil, crude oil was centrally procured based on the planned
production at all refineries through its specific cell at the marketing division
office Mumbai, which was also responsible to procure petroleum products
from international market to fill the gap between the national demand and
indigenous production. From 2003 onwards the procurement of crude oil
segregated by making a specific cell namely “Shipping Department” located
at Refineries Headquarter Delhi and since then this department is
exclusively handling the procurement of crude oil both from India as well as
international market to meet the production requirement various refineries
and its subsidiaries.
The crude oil for Barauni refinery was initially sourced exclusively from
oil fields of Assam through Oil India Pipeline. But due to utilization of
available crude in North-East itself after commissioning of Numaligarh
Refineries, Barauni Refinery has been fully sourced by imported crude from
2001-2002. To make this feasible, a new Pipeline namely Haldia Barauni
Crude Pipeline (HBCPL) was constructed and for economic viability of
fresh investment the old refinery management has roughly invested Rs. 2000
cr. in expanding the refinery to 6 MMTPA in 2002-2003.
The crude movement take place in very large crude carriers (VLCC)
up to the Bay of Bengal but due to the poor sea condition can’t reach Haldia
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port directly. This necessitates transhipment of crude in high sea to smaller
vessels which in turn bring the crude up to the port where it is unloaded in
custom bonded tanks before being pumped through HBCPL. This particular
movement of transhipment involves additional costs in the nature of
4. Freight of daughter vessels
5. Demurrage of VLCC
6. Additional wharfage
To this additional cost is putting Barauni Refinery into a sort of
disadvantage in comparison to other west coast Refineries. Considering the
scene management is implementing a new pipeline project to connect
HBCPL with Paradip port to which place VLCC’s will be directly wharfed
and above additional expenditures can be avoided. There is another
additional expenditure which is specific to Barauni Refinery and doesn’t
apply to many Refineries of India is “Entry Tax”. This has been contested
by the management in the Court of Law on Constitutional grounds and stay
off 50% has been obtained from High Court, decision of which is pending in
Supreme Court.
Normally the cost constituents of Imported Crude is as under
1. Basic Costs
2. Marine Freight
3. Marine Insurance
4. Custom Duty
5. Port Expenses
6. Cost of Inland Transportation
There are three stages where costs can be reduced. These are
1. While procurement of crude
2. During process stage
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3. Transportation inward as well as outward.
1. While procuring crude oil we can use certain buying methods
such as forward buying, hedging etc. These techniques certainly help in
reducing the overall cost of crude. Apart from this we can also reduce the
cost of crude by selecting the right crude mix.
2. During process stage we can reduce cost by cutting the
operating costs such as Power & Fuel, Chemicals, Catalysts & Consumables,
Repairs and maintenance, Administrative overheads, Depreciation. Apart
from this we can check the Fuel & Loss.
3. We can also reduce the transportation costs of crude oil and also the
finished products. To reduce the transportation cost of the crude oil Indian
Oil is implementing a new project namely Paradip-Haldia Crude Pipeline
Project. This is a very important project as it will reduce the transportation
cost substantially.
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2003- 2004-
PARTICULAR 2004 2005 2005-2006 2006-2007 2007-2008 2008-2009
THROUGHPUT
(TMTs) 2993.4 4303.5 5082.545 5553.165 5469.111 5634
1. TRANSFER OF
PRODUCTS
( Rs. Lakh) 400555 565773 887370 1234873 1386166 1568810
2. POOL A/C
ADJUSTMENTS (Rs.
Lakh) 4752 1500 -84 0 0 0
TRANSFER OF
PRODUCTS
(NET):1+2 405307 567273 887286 1234873 1386166 1568810
4. STOCK
VARIATION ( Rs.
Lakh) 767 7266 15702 3583 6668 1330
5. VALUE OF
PRODUCTION (Rs.
Lakh) 406074 574539 902988 1231290 1392834 1570140
6. (a) CST OF RAW
MATERIALS ( Rs.
Lakh) 353549 497344 799102 1147209 1335133 1449061
(b) OTHER RAW
MATERIALS (Rs.
Lakh)
(c)DEMERRAGE ON
CRUDE (Rs. Lakh) 895 1325 4807 3822 8312 6302
( d) NATURAL GAS
TOTAL COST OF
RAW MATERIALS
(Rs. Lakh) 354444 498669 803909 1151031 1343445 1455363
7. GROSS MARGIN
( 5 - 6 ) (Rs. Lakh) 51630 75870 99079 80259 49389 114777
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Fig: - Throughput / Annum
THROUGHPUT/ANNUM
6000
5000
4000
3000
2000
G
O
U
R
H
P
T
1000
0
2004-2005 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEAR
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CAPACITY UTILISATION
INSTALLED THROUGHPUT
YEAR CAPACITIES (MMT) %
90
80
70
60
50
40
%
p
ity
a
c
30
20
10
0
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
year
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PRODUCT RECOVERY
DISTILLED YIELD % %
YEAR
83.18 92.52
2001-2002
84.9 91.16
2002-2003
84.6 88.09
2003-2004
85.6 88.68
2004-2005
85.5 89.86
2005-2006
86.2 89.94
2006-2007
85.8 89.74
2007-2008
86.2 91.26
2008-2009
CONCLUSION
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4. As the company may increase its production the imported items would
be costly with the depreciation of INR.
SUGGESTIONS
1. Continuous supply of materials and finished goods should be
maintained so that production process does not suffer and customer’s
demands are met.
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5. Centralizing purchases eliminate duplication in ordering or
replenishing stocks.
BIBLIOGRAPHY
4. www.iocl .com
5. www.indianoilxpress.com
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7. www.google.com
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