BHARAT HEAVY ELECTRICALS LIMITED

In the post independence era when India was moving towards industrialization, the thrust by the government was in the core sector. With this objective BHARAT HEAVY ELECTRICALS LIMITED was setup in Bhopal in August 1956, with a view to reach self sufficiency in industrial products and power equipments. This plan was setup under collaboration of M/s. AEJ, U.K. Now more plants were setup at Tiruchy, Hyderabad and Haridwar with Czechoslovakian and Soviet Union assistance in May 1956, Dec. 1965, Jan. 1967 respectively. Today B.H.E.L. has become the largest engineering plant employing managing approximately 72000 employees. Its headquarters are located at Delhi. B.H.E.L. is the largest engineering and manufacturing enterprise in India in the energy/infrastructure sector, today. B.H.E.L. was established more than forty years ago ushering in the indigenous heavy electrical equipments industry in India a dream that has been more than realized with a well-recognized track record of performance. It has been earning profits since 1971-72 and paying dividends since 1976-77. B.H.E.L. manufactures over 180 products under thirty major product groups and caters to core sectors of the Indian Economy viz., Power Generation and Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc. The wide network of

B.H.E.L.s fourteen manufacturing divisions, four power sector regional centers, over hundred project sites, eight service centers and eighteen regional offices, enables the company to promptly serve its customers and provide them with suitable products efficiently and at competitive prices. The quality and reliability of its products is due to the emphasis on design, engineering and manufacturing to international standards by acquiring and adapting some of the best technologies from leading companies in the world, together with technologies developed in its own R&D centers. B.H.E.L. has acquired certifications to Quality Management Systems- ISO 9001, Environmental Management Systems-ISO 14001 and Occupational Health and Safety Management Systems-OHSAS 18001 and has also adopted the concepts of Total Quality Management. B.H.E.L. has installed equipment for over 90,000 MW of power generation- for Utilities, Captive, and Industrial users. It supplied over 2,25,000 MVA transformer capacity and sustained equipment operating in transmission and distribution network up to 400 KV- AC & DC. It supplied over 25,000 motors with Drive Control System to power projects, petrochemicals, refineries, steel, aluminum, fertilizer, cement plants, etc. It also supplied traction electrics and AC/DC locos to power over 12,000 Km railway network. Supplied over one million valves to power plants and other industries. B.H.E.L.s operations are organized around three business sectors, namely Power Industry including Transmission, Transportation,

Telecommunication and Renewable Energy and Overseas Business. This enables B.H.E.L. to have a strong customer orientation, to be sensitive to his needs and respond quickly to the changes in the market. B.H.E.L.s vision is to become a world class engineering enterprise, committed to enhance stakeholder value. The company is striving to give shape to its aspirations and fulfill the expectations as a Navratna Company. The greatest strength of B.H.E.L. is its highly skilled and committed 44,000 employees. Every employee is given an equal opportunity to develop himself and improve his position. Continuous training and retaining, career planning, a positive work culture and participative style of management have engendered development of a committed and motivated work force leading to enhanced productivity and higher levels of quality.

BHEL OBJECTIVE A dynamic is one its aim high adopts itself quickly to changing environment. So here we are in BHEL. Business mission To be a leading engineering enterprises providing quality product, systems and services in the field of energy, transportation, industry, infrastructure, and their potential areas Growth To ensure steady growth by enhancing the competitive edge of BHEL in existing, new areas and international operations so as to fulfill national expectation for BHEL. Profitability To provide a reasonable and adequate return on capital employed, primarily through improvement in operational efficiency, capacity utilization and productivity and generate adequate internal resources to finance the companys growth. Customer Focus To build a high degree of customer confidence by providing increased value for his money through international standards of product performance superior customer service.

People Orientation

To enable each employee to achieve his potential, improve his capabilities, perceive his role and responsibilities and participate and contribute to the growth and success of the company, to invest in human resources continuously and be alive to their needs. Technology To achieve technological excellence in operations by development of indigenous technologies and efficient absorption and provide competitive advantage to the company. Image To fulfill the expectations which stakeholders like government as owner, employees, customers and the country at large have from B.H.E.L.

MANUFACTURING UNITS OF B.H.E.L. First Generation Units BHOPAL HARDWAR HYDERABAD TIRUCHY Heavy Electrical Plant Heavy Electrical Equipment Plant Heavy Electrical Power Equipment Plant High Pressure Boiler Plant

Second Generation Units JHANSI HARDWAR TIRUCHY Transformer and Locomotive Plant Central Foundry and Forge Plant Seamless Steel Tube Plant

Unit Through Acquisition and Merger BANGALORE Electronic Electro Porcelain Division

New Manufacturing Units RANIPAT JAGDISHPUR RUDRAPUR BANGALORE Boiler Auxiliaries Plant Insulator Plant Component and Fabrication Plant Industrial System Group

BHARAT HEAVY ELECTRICALS LIMITED, JHANSI I. A Brief Introduction

By the end of five year plan it was envisaged by the planning commission that the demand for power transformer would raise in the coming years. Anticipating the countrys requirement B.H.E.L. decided to set up a plant which would manufacture power and other type of transformer in addition to he capacity available at B.H.E.L. Bhopal. The Bhopal plant was engaged in manufacturing of transformer of large rating and Jhansi unit would concentrate on power transformer like instrument transformer, traction transformer for railway etc. This unit of Jhansi was established around 14 Km from the city on the NHNO 26 on Jhansi Lalitpur Road. It was called second generation plant of B.H.E.L. set up in 1974 at an estimated cost of Rs. 16.22 crores inclusive of Rs. 2.1 crores for township. Its foundation was laid by Late Mrs. Indira Gandhi, the prime minister on 9th Jan. 1974. The commercial production of the unit began in 1976-77 with an output of Rs. 53 lacks since then there has been no looking back for B.H.E.L. Jhansi. This plant of BHEL is equipped with the most modern manufacturing processing and testing facilities for the manufacture of power, special transformer and instrument transformers. Diesel shunting locomotive and AC/DC locomotive. The layout of the plant is such that it is well streamlined to enable smooth material flow from the raw material stages to finished goods. All the feeders bays have

been laid perpendicular to main assembly bay and in each feeder bay raw material smoothly gets converted to subassemblies, which after inspection are sent to main assembly bay. The material that is needed for maintenance is used only after through material testing in the testing lab and with strict quality checks at various stages of productions. This unit BHEL is basically engaged in the production and manufacture of transformer of various type and capacities. with the growing competition in the transformer section in 1985-88 it under took the re powering of DSNL.

THE PRODUCT PROFILE OF B.H.E.L., JHANSI

1. Power Transformer 2. Special Transformer 3. ESP Transformer 4. Freight Loco Transformer

Up to 220 KV Class 250 MVA Up to 110 KVA 1000 KVA 3900-5400 KVA&6500KVA (3 Phase)

5. ACEMU Transformer

Up to 1000 KVA 25 KV (1Phase)

6. Dry Type Transformer 7. Bus duct

Up to 3150 KVA Up to 15.75 KVA(Generating Voltage)

8. Instrument Transformer 9. Diesel Electric Locomotive 10. AC/DC Locomotive

VT and CT Up to 220 KV Up to 2600 HP Up to 5000 HP(25 KV AC/1500V DC)

11.

Well Wagon

200Tone

12. Over Head Equipment Cum Test Car 13. Dynamic Track Stabilizer

14. Ballast Cleaning Machine

GROWTH OF PRODUCTION AND MILESTONES OF BHEL JHANSI UNIT

YEAR

MILESTONES

1976-77 1977-78

Start of Instrument Transformer Production Start of Traction Transformer and Power Transformer (Up To132 KV)

1978-79 1979-80

Start of HFTT type freight Locomotive Commissioning of 2,500 KV DG Set (due to Server power cuts)

1980-81 1981-82 1982-83 1983-84

Start of ESP Transformer Start of 220 KV Power Transformers Achieve Break Even Start of Bus duct

1984-85 1985-86 1986-87 1987-88 1988-89 1990-91

Start of Dry Type Transformer Re powering of Diesel Locomotive Started Start of Diesel Locomotive Started Manufacturing Facilities for AC Locomotive Crossed Core Target Successful Design and Manufacturing of 400 HP 3 Axel Diesel CCI

1991-92 1992-93

Manufacture of First 2600 HP Diesel for NTPC Successful Design and Development of 5000 HP Thruster Control Locomotive

1993-94

Unit has been Awarded ISO-19001 Certificate for Quality Systems

1994-95

240 MVA Power Transformer Produced First Time

1995-96 1996-97 1997-98 1998-99 1999-00

AC/DC Locomotives first time in India Hundredth Locomotive Manufactured 250 MVA Transformer Produced First Developed Over Head Equipment cum Test Car Diesel Hydraulic Shunting

PRODUCTION UNIT DEPARTMENTS

FABRICATION (BAY-0, 1, 2) Fabrication shop is the shop which deals with the manufacturing of transformer and locomotive components such as Tanks, Plates, Nuts and Bolts. Fabrication shop is divided into three parts BAY-0 BAY-1 BAY-2 BAY-(0,1, 2) These are fabrication shops established in 1978 and mainly deal with fabrication with fabrication work of transformers and locomotive.

BAY-3 It is split in two parts, half is consist of machine shop and the other half is consist of winding of dry type transformer. bus duct are used to transformer electricity from the generator to the transformer.

BAY4 Here winding work of the power transformer& dry type transformer is carried out.

BAY5 It is core and punch section but in a part of it cast resin coil encapsulation plant is situated. The coils of dry type transformer are casted , cut and finally prepared.

BAY-6 It is also engaged in two processes one half is the traction transfer assembly

BAY7 In this bay various types of insulation are prepared which is to be used in transformers.

BAY8

This bay was established in the year 1974. it is one of the earliest bay to setup . it involved in the manufacturing of instruments transformer like 132KV and 220KV voltage/ current transformer. ESP transformer is also manufactured here.

BAY9 This is one of the largest bay in the unit engaged in the assembly of power and rectifier transformer. The time taken for assembly ranges from 4-12 weeks.

TRANSFORMER COMMERCIAL (TRC) The objective of this department is to interact with the customers. It brings out tenders arid notices and also responds to them. It is department that places the contracts of building the transformer and after delivery further interacts with the customer regarding faults, failure and maintenance is done by this department. All such snags are reported to them and they forward the information to the concerning department. The works of the commercial department are: Tenders and notices Interaction with design department

 Place of work Approximate cost of the work Earnest money Place and time where contract document can be seen. Amount if any to be paid for such document

TENDERS AND NOTICES: The department response to the tenders calls of companies or organization which requires transformer. Contracts are bagged through negotiations. The department also invites tenders and notices. Before inviting tenders it must be sure that BHEL is ready to undertake the contract and before full knowledge of scope of work is essential.

TESTING TRANSFORMER TESTING In this shop testing on the transformer is carried out in one section and for loco in other section. In transformer testing section there are for MG. sets. The electrical specification of the entire test is already given. These

tests are done on demand of customer on transformer manufactured, in this unit there are basically of test.

TRANSFORMER ENGINEERING (TRE) The transformer manufactured in BHEL Jhansi range from the 10MVA to 240MVA and up to 200 KV. The various transformers manufactured in this unit.

TECHNOLOGY This department analyses the changes tacking place in the world and suggest changes accordingly. This is very important because the product must not get obsolete in the market otherwise they will be rejected by customer.

BUS DUCT Bus duct is used as connection between generators and transformer. Bus duct are used in power connection over 150 M V. The question now arise that why are bus duct preferred over normal conductors. In high power application, insulations are the major problems and frequent insulation breakdown occurs. If this does happens then possibility of shorting of conductors and hence serious damage may occur to both transformer and generators. It have also the separate department BUS DUCT COMMERCIAL

LOCOMOTIVE A locomotive is a rail vehicle that provides the motive power for a train. Loco means from a place Motive means causing motion. A locomotive has no payload capacity of its own. It is used to move a train.

STORE There are separate stores for different type of material in the BHEL newly technique has been put name provincial inventory means continuation of maintains inventory. There are three sections in store; Control Receiving Section Custody Section Scrap Disposal Section

Functions: A list of material coming in store is prepared and Quality Control people are called for inspection. If material is found as par standard SRV (Store Receipt Voucher) is issued for each material. A

total of 08 SVRs are prepared. Some materials such as Silicon oil, Transformer oil, insulating material etc are directly stored in the Bays. Scraps are also sold through that unit by a MATERIAL SCRAP TRADING DELHI

CENTRAL QUALITY SERVICE First we get acquainted with a few terms concerning this department. Quality: It is the extent to which product and service satisfy the customer needs. Quality assurance: All those plants and systematic action necessary to provide adequate confidence that the product or the service will satisfy the given requirement is called quality assurance. Quality control: Activity such as measuring testing, gauging one or more characteristics of product or service and comparing these with specified requirement to determine conformity are termed quality section.

WORK ENGINEERING AND SERVICES (WE&S) As the name suggest this section deals with services and maintenance. It has following Sections:

Plant

Equipment:

This

has

electronics

and

electrical/mechanical maintenance.

Services: This section deals with air, steam and power equipments.

Telephone Exchange:

Township Electrical Maintenance:

 WE & S Planning

This section deals with stores and new machines procurement and others general things. There are three maintenance centers at Bay 2, Substation and LOCO.

FINANCE DEPARTMENT OF BHEL JHANSI UNIT

FINANCE DEPARTMENTS IN BHEL JHANSI

The finance department is very broad in that unit and has also many sub department under finance department Administration Pay Sales and sales bill Cash , P.F , T.A P.S.L, Costing

 Budget & books Miscellaneous expenses Price bill

ADMINISTRATION In this section main focus is to manage the functions of finance section. And to provide the facility to employee working in department.

PAY In this section they credit the salary on every months 25th the salary calculate under that date 15th
of

a month up to 14th of next month for

crediting the salary in there in 2 modes 1) CASH 2) BANK To prepare salary accounts section needed some data 1) staff no 2) Master data 3) Attendance
4)

Any bill remaining like medical bill, convance bill

SALES & SUPPLY BILL It include all sales made in an organization that process started when accounts section gets purchase order SRVs bills from supplier Terms of payment of three kinds
1)

10% in advance payment

2) 100% after receipt and acceptance 3) Partial advance and the remaining after receipt and acceptance.

In case of foreign purchase a license is required from DGTD This license is of 2 types 1) Quantity base 2) Value base Value base license changes according to change in market variation but quantity base are fixed for appropriate quantity BHEL have quantity base license

CASH, P.F, T.A This section is responsible for banking of all the money worth received by the customer and disbursement of all authorized payment on the

behalf of the company to suppliers, contractors in the form of cheque, cash, drafts, postal orders etc. Cash section prepares these statements for management information DAILY-CASHFLOW >DAILY COLLECTION OF CASH WEEKLY-CASH INFLOW > OUTFLOW DURING WEEK Cash flow forecast foe 3 months Operating result statement Statement of outstanding letter of credit & bank guarantee Daily bank transfers statement. P.F stands for provident fund that was that was started from 1952 the rate of interest decided by time to time rate of reduction is 8.33%-12% that whole amount get by employee at the time of retirement P.F includes same contribution of employee as well as company. T.A stands travel allowance in this section all convences of tours and travel company runs two things under this L.T.C Leave travel concession L.T.A Leave travel assistance In this section also check whether paper are appropriate or not To check whether the claim is according to company rules or not

PSL PSL stands for price store ledger through this we get a current status of material in the market the we calculate cost of a product and offer product to a customer some terms comes under this are as follows SRV- Store receipt voucher MIV- Material issue voucher SRN- Store return note MTV- Material transfer note RCDV- Receipt cum dispatch voucher SIV Store issue voucher DIV- direct material issue voucher PSLs monthly information report are prepared &sent to different HODs and users. In the MIR 1.1 details regarding 1. Reciept issue 2. Direct & Indirect material 3. Suspence balance status 4. Non-moving & slow moving items

COST SECTION

This section is responsible for calculating the cost incurred over a product and some expanses like 1) Material cost 2) Labour cost
3)

Direct expanses

4) Overhead Material cost calculate through that data like Material cost = MIV* PSL MIV collect from store and PSL check regularly another department

Labour cost calculates through collecting labors number on particular job there respective rate and the coast of job. Predetermined overhead matters in it also known as budget shop wise they calculate all expenses according to total job.

MISCELLANEOUS EXPENSES This section deals with miscellaneous expenses which are out of routine work like payment of contract worker, gifts.

BOOKS AND BUDGET

Budget section deals to with preparing revenue and capital budget and to match all predetermined cost with its actual by which regularly maintain balanced nature in organization. Budget is a coordinating agency that provides as a interface with other units as well as corporate. Books section deals with maintains books of accounts regularly by which they keep records for future. This section also check whole recording of books as per company law act minimum 8 years they have to maintain.

PRICE BILL This section is new section in this unit which checks SRV pricing on the basis of P.O purchase order according to there terms and conditions approximately 12000 SRVs processed under this section.

INTRODUCTION OF WORKING CAPITAL MANAGEMENT

Working capital refers to firm investment in short term assets-cash. Short term securities, accounts receivable & inventories. -Weston & Brigham Working capital can be classified regularly on its requirement. There are two concepts of working capital 1) Gross working capital 2) Net working capital

GROSS WORKING CAPITAL Gross working capital may be defined as a firms investment in current assets. Current assets are the assets which can be converted into cash with in an year and include cash, short term securities, debtors (accounts receivable or book debts) bill receivable and stock. The gross working capital concept works over two aspects of current assets management. 1) Optimum investment in current assets 2) Financing of current assets

NET WORKING CAPITAL Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within a year and include creditors, bills payable and outstanding expenses Net working capital may be negative or may be positive.

OPERATING CYCLE

Operating cycle involved in the conversion of sales into cash. Operating cycle is the time duration required to convert sales. After the conversion of resources into inventories into cash Operating cycle of a manufacturing company involves three phases 1) Acquisition of resources 2) Manufacture of goods 3) Sale of the product It is clear that working capital is required because of the time gap between the sales and their actual realization in cash. This time gap is technically termed as operating cycle of the business. Funds required investing in inventories; debtors and other current assets keep on changing shape and volume. Like a company has some cash in the beginning. This cash may be to the suppliers of raw material to meet

Understand credit Stock requirement debtors and debtors pay, the firm will again have cash. This cash will terms s well analyzing the production process. On sale these finished goods gets converted into
again used for financing raw material, WIP,etc. Thus, there is a complete debtors and finally again cash. Reorder cycle when cash gets converted into raw material, WIP, finished goods,

The Cash Cycle the completion of After WIP, which will be converted into finished goods on

labor costs and other overheads. These three combined would generate

Sales Keep sale count s

Supplier Payment

Cash

Understanding Inventory management and control is important

In case of manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of events: (1) Conversion of cash into raw materials; (2) Conversion of raw materials into work-in-process; (3) Conversion of work-in-process into finished goods; (4) Conversion of finished goods into accounts receivable, and (5) Conversion of accounts receivable into cash. The operation cycle of manufacturing business can be show as in the following chart.

OBJECTIVE OF WORKING CAPITAL MANAGEMENT

The basic objective of working capital is to provide adequate support of the smooth functioning of normal business operation of a company. The term adequate working capital is subjective depending on managements attitude towards uncertainty/ risk. 1. Maintenance of working capital. 2. Availability of ample fund at the time of need.

SAFTEY CREDIT MGMT MINIMIZE TIME

LIQUIDITY

PROFITABILITY BANK MGMT MINIMIZE TIME EXCESS CAS H

ACCT RECEIVABLE MGMT MINIMIZE TIME

ACCT PAYBLE MGMT OPTIMIZE TIME

MEDIA Goals of working capital management

BALANCED WORKING CAPITAL The firm should maintain a sound working capital position there two cases one is excessive and inadequate working capital positions. Excessive working capital means holding cost and idle funds which earn no profits for the firm. Dangers facts of excessive working capital Unnecessary accumulation of inventories. Defective credit policy and slack collection period. There is managerial efficiency degeneracy

Inadequate working capital is also dangerous because it interrupt production Dangers facts of inadequate working capital Stagnates growth it becomes difficult for the firm to undertake profitable projects It becomes difficult to implement operating plans If operating efficiencies affected so it is difficult to meet day to day need Fixed assets are not efficiently utilized Firm loses their reputation in front of customer and society

An enlightenment management should maintain the right amount of working capital on a continuous basis. A firms net working capital

position is not only important as index liquidity but it is also as measure the firms risk.

GUIDELINES WORKING

AND

SOUCES

OF

FUNDS

FOR

CAPITAL REQUIREMENT OF BHEL

1. CASH CREDIT FROM BANKS The requirements of working capital will be met either from internal resources or borrowings from banks. All the banking transactions have been centralized at corporate office, New Delhi. The corporate office will negotiate with consortium of banks for total cash credit required for the company as a whole.

2. WORKING CAPITAL LOAN FROM GOVT

The funds for working capital over and above cash credit limits may also be Arranged through government loans.

3. RECEIPTS FROM CUSTOMERS The bulk of the working capital requirement are met from the advances from the customers in accordance with the contract conditions as approved by the board. The receipt are deposited in the centralized account.

4. FIXED DEPOSITS FROM MEMBERS OF PUBLIC Subject to the approval of the govt and board of director, the funds may be raised from public by obtaining fixed deposit under the provisions of the company rules to meet the working capital requirements of the company.

5. PROVISIONS OF THE FUNDS FOR SITE OFFICES Funds required to site offices will be provided by divisions under which they are functioning and for the purpose. Current accounts will be authorized to be opened with branches of SBI or any other nationalized bank.

6. OTHER SOURCES OF FUNDS a) Bill rediscounting scheme of IDBI: The scheme was introduced in 1965. The manufacturer of indigenous Capital equipment can push up the sales of their products by offering the prospective purchaser deferred payments facilities. The IDBI does not itself discount bill of discounted by any other approved bankers. exchange but rediscount those

b) Bill market scheme RBI providing rediscounting facility for bills having maturity of not more then 120 days introduced in the scheme. This facility enables the Supplier to get the payments for their supplies at a reduced rate of interest.

CASH MANAGEMENT

Cash is the important current assets for the operation s of the business. Cash is the money which a firm can disburse immediately without any restriction. Cash management is concerned with the managing of 1) Cash flows into and out of the firm. 2) Cash flows within the firm 3) Cash balances held by the firm at appoint of time by financing deficit or investing surplus cash. CASH MANGEMENT CYCLE

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MOTIVES FOR HOLDING CASH Transaction motive - transaction motive requires a firm to hold cash to conduct its business in the ordinary course. Precautionary motive precautionary motive is the need to hold cash to meet contingencies in the future. Speculative motive - speculative motive relates to the holding of cash for investing in profit making opportunities as and when they arise.

TECHNIQUE TO MANAGE CASH Cash planning

 Cash forecasting & budgeting

CASH MANANGEMENT IN BHEL Jhansi

In BHEL, the centralized cash credit system id followed. From 2407-75 all the banking transaction of the company have been centralized at corporate office at Delhi. Under this system all the sales proceeds of the units are deposited in a centralized account. This account number is universal for all units at RODs. They have to deposit the sales the process if this account withdraws money from it. Only corporate office operate it. For meeting day to day expenses, the units have to prepare the estimates of such expenses, which are then sent to corporate office weekly or monthly, or both. At unit level, the cash budget is prepared on

yearly basis for estimating the expected cash inflows and cash outflows. The inflows and outflows are estimated on following basis. The only source of cash inflow for units is the corporate office. The sale proceeds cannot be directly utilized. Based in the above requisition, the corporate office allocate the funds. For cash credit corporate office will negotiate with consortium of banks for total cash credit required for the company a a whole. A consortium deed for hypothecation of stocks and stores of company is executed by corporate office. All the information, documents etc required in this connection will be called for by corporate office from the division. Arrangement have already been made with state bank of India , HDFC bank, canara bank, Bank of Baroda for centralizing cash credit limit at Delhi. Under this scheme, the units have furnished the required information inder the following document. The units will send estimated, monthly cash flow statement to the corporate office by 18th of every month. Based on these cash flow statement the corporate office will allocate the sub limits will be transferred to the consortium of banks by 25th of the month the units can utilize this fund. The actual cash flow statement will be sending to corporate office monthly, 1st of succeeding month.

The units are also required to send the weekly report of daily bank transaction, to the corporate office. These reports show the details of daily. Debit and credit transaction appearing in bankbooks of the company, enabling the posting of corporate bankbooks as well as verification of bank statement received from bank. These report are send to corporate office on 1st (showing the transaction from 25th to 30th ) 8th (showing the transaction from 1st to 7th of current month ) 16th (showing the transaction from 8thto 15thof the current month ) 25th (showing the transaction from 16th to 21st if current month )

The units are required to send the comparative statement of estimated and annual cash flow of the proceeding month. This report will be sent quarterly after inter unit reconciliation meeting. The total interest payable on cash credit availed by corporate office is to be allocated among the units in the ratio of utilization of funds. Thus cash forecast & budget are the principle tools of cash management. Forcasting helps manger to know how much cash will be held in balance, to what extent the firms should rely on bank financing and how to invest in marketable securities.

ADVATAGES OF CENTRALISED SYESTEM

 Excess cash at various units can be efficiently used for various purposes and improvement. Deficit of cash at various units can be sorted out through centralized cash system Idle cash at various units, may be noted or avoided

RECEIVABLES MANAGEMENT

The customers from whom receivable or book debts have to be collected in the future are called trade debtors. Trade credit always create trade debtors or accounts receivables The trade credit arises when a firm sell its product or services on credit and does not receive cash immediately. Business firms generally sell goods on credit to facilitaes sales. When a firm makes an ordinary sale of goods on services and does not receive payments. The firm grants trade credit and create accounts receivable that would be collected in the future.

The characteristics of credit sales are It involves an element of risk It is based on economic value It implies for future

Credit policy are prepared in the receivable management it is the combination of three decision variables. Credit standards Credit terms Collection efforts

GOALS OF CREDIT POLICY A firm always follows a two type of credit policy Lenient credit policy- To sell on credit to customers on my liberal terms and standards Stringent credit policy- To sell on credit on a high selective basis only to those who always good credit worthiness and able to pay in future

MONITORING RECEIVABLE A firm need to continuously monitor and control its receivable to ensure success of collection efforts.

Two methods to monitor management of receivables Average collection period Average collection period = Debtors *360/credit sales Aging schedule it break down receivables according to the length of time for which they have been outstanding.

RECIEVABLE MANAGEMENT OF BHEL Jhansi The main products of BHEL are heavy industrial goods with long operating cycle. BHEL grant liberal term regarding trade credit to lure the potential customers to by its products at favorable selling prices.

To utilize its excess capacity, BHEL is granting liberal trade credit terms to its customers. The main customers of BHEL are railways, power industries and other private parties. BHEL has overseas sales also.

All the BHEL units are having their commercial department. Commercial department and regional operational divisions ( RODs ) primarily Carry out the job of recovery from customers. The sales section of finance department also actively takes part in receivable management by preparing and sending invoices and reminders to customers at appropriate time. They keep track of money received from customers as advances, as against dispatch of finished good and money recoverable on account of price variation claims and conversion of deferred depts into debtors. This monitoring is done works order wise. The aging schedule of customers if also prepared which gives the picture regarding period of outstanding balances.

The terms and condition with the customers are finalized according to the credit policy laid down by corporate office BHEL. However deviation are permitted with the due approval from corporate office.

While lying down of credit policy by head office, industry conditions are taken into consideration. Seeing huge investment in execution of work order. BHEL demands considerable payments in advance in different phases of completion of work i.e. erection, installation, commissioning, maintenance etc. despite all these BHEL is presently facing cash crunch because a major chunk of BHELs customers consists of Govt bodies, which are very casual in clearance of dues.

INVENTORY MANAGEMENT

Inventories are the most significant part of current assets of a large majority of companies in India. The large size of inventory maintained by the firms a considerable amount of funds is required to be committed to them. A firm neglecting the management of inventories will be jeopardizing its long run profitability and may fail ultimately. In a manufacturing firm the level of inventory depends on the operation cycle. A manufacturing firm with a long operating cycle has to maintain a high inventory level.

NATURE OF INVENTORIES

Inventories are stock of the product a company is manufacturing for sale and components that make up the product. There are three type of inventory Raw material Work in progress Finished goods Supplies or stores and spares The forth type of inventory is not very common some firms maintain it like BHEL maintains it.

NEED FOR INVENTORY It have also same need as receivable management Transaction motive Precautionary motive Speculative motive

TECHNIQUES OF INVENTORY MANAGEMENT EOQ (Economic order quantity) a) Ordering cost ordering placing , transportation. b) Carrying cost warehousing , handling.

Reorder point

Safety stock

INVENTORY CONTROL SYESTEM

ABC inventory control system This analytical approach tends to measure the significant of each item of inventories in terms of its value JIT system Japanese firm popularize that system it eliminates the necessity of carrying large inventories and thus, saves carrying and other expences. Computerized inventory control system it is an automatic system of counting inventories

Annual of holding inventories are These cost Inventory Cost of

Material cost Order Goodscost Sold Carrying cost

Annual Inventory Turns 1

Investment

Cost of funds tied up in inventory

Rs 10,000 Rs 10,000 Cost of running out of goods

Inventory Turnover Rs 10,000 Rs 5,000 2 Example

Rs 10,000 Rs 2,500 4

INVENTORY MANAGEMENT IN BHEL Jhansi The investment in inventory in proportion to total is a dominant determinant of working capital management. It holds much importance in context in BHEL as it is having a long production cycle where a good amount of capital is tied up in form of raw material, work in progress and conversion cost. Production planning and control department plays a pivotal role in inventory management. The engineering department plays a supporting role and provides the requisition regarding technology to be applied and

material required to PPC department. In BHEL the inventory control is perform with following steps

1. Planning This is done by PPC department is consultation with purchase, commercial, design and manufacturing department prepares the planning schedule. The schedule along with information provided by engineering and design department help in material planning and inventory control 2. Procurement The procurement done by purchase department. It is done with the assistance of PPC and commercial department for maintaining a tradeoff between carrying cost and ordering cost. A single purchase order is placed for the entire quantity of a specific item and its scattered delivery over a period of time is received. The method help in obtaining cash and quantity discount and saving carrying cost. In case of foreign purchase also one order in placed for the full requirement of an item and scattered delivery is obtained because variation caused in material cost due to fluctuation in exchange rate is much less than the carrying cost of the material which is approximately 25% of the total price. 3. Receipt & Custody

For the proper inventory control on receipt of material in store, quality control department checks the material as per specification. The cost section fills detail of all the purchase by issuing store receipt voucher and material issue voucher. 4. Issue After receiving the material and storing, the management keeps the information whether these material are being issued to desired destination. Full record of every issuing of material is kept for the proper inventory control. 5. Accounting The record of every transaction regarding the use of material in every department is kept. These records give the overall view of how and where inventories have been used.

Method Use For Inventory Control IN BHEL, PLANNING AND CONTROL OF INVENTORY IS DONE BY USING TWO METHODS (1). ABC analysis (2). Slow moving and non-moving goods analysis. (3). Budgeting material requirements.

(4). Fixation of raw material levels. (5). Variety reduction.

Inventory Valuation

(1). Inventory is valued at actual / estimated cost or net realizable value, whichever is lower. (2). Finished goods in plants and work in progress involving hydro and Thermal sets including gas based power plants, boilers auxiliaries, compressors and industrial turbo sets are valued at actual/ estimated factory cost or at 97.5% of the realizable value whichever is lower.

(3)

In respect of raw material, components, loose tools, stores and

spares cost means weighted average cost. (4). The components and other materials purchased / manufactured against production order but declared surplus are charged off to revenue retaining residual value based on technical estimates.

ANALYSIS OF WORKING CAPITAL MANAGEMENT The analysis working capital is primarily a test of short term solvency. There are dangers in having too little or too much working capital. Therefore

The financial manager has to be very vigilant all though out about the trends in the items that make up working capital. The question to be studied and answered in connection with the analysis of working capital include the following Is the management utilizing working capital effectively? I the amount of working capital adequate, excessive or insufficient? does the firm have a favorable credit rating? Is the current financial position improving?

TOOLS OF WORKING CAPITAL ANALYSIS 1. Working capital ratio analysis 2. Movement of working capital analysis 3. Fund flow analysis

4. Cash flow analysis 5. Working capital budget 6. Working capital report We are using the technique of ratio analysis as a means of checking upon the efficiency with which working capital is being used in the company. These ratios would increase or decrease that measure the working capital of management of BHEL. These are as follows

(1) CURRENT RATIO

Current ratio represent margin of safety for creditors. The higher the current ratio, the greater the margin of safety, the larger the amount of current assets in relation to current liabilities, the more the firm ability to meet its current obligations. This ratio is calculated as follows:

Current ratio = Current assets / Current ratio Current ratio of 2:1 is satisfactory.

(2) QUICK RATIO:

This ratio provides a better measure of over all liquidity. A firms inventory cannot be easily being converted in to cash so it is not taken into account here. A ratio of 1:1 is considered satisfactory. Ratio is computed as under

Quick ratio= Current asset - Inventory / Current liabilities

(3) CASH RATIO:

Cash is the most liquid asset and it should be minimum in the firm as the excess of cash in hand/bank implies loss of interest i.e. the wrong utilization of funds, which could have been utilized/invested elsewhere. There is nothing to be worried about lack of cash if the company has reserve borrowing power. Cash ratio is calculated by this formula Cash ratio= Cash / Current liabilities

(4) Inventory turnover ratio: It shows how rapidly the inventory is turning into receivable through sales. High ratio is indicative of good inventory management. A low ITR implies excessive inventory levels. Ratio should neither be low nor too high. It is computed as follows ITR= Sales / Average inventory

RECOMMENDATIONS AND SUGGESTIONS

During my project period, I have studied the working capital management in BHEL, Jhansi. On the basis of my study I am putting forward some suggestions. Implementation of which may certainly improve the efficiency of working capital management in the unit.

1. Estimation of working capital requirement should be done on the basis of the length of operating cycle of different products.

W.C Requirement = Average daily requirement of working Capital X Length of operating cycle. 1. Working capital requirement can be minimized by decreasing the length of operating cycle of different products this can be done by adopting technology or state of art, mechanized operations and by adopting of Critical Path Method (CPM) of production operation.

2. The credit policy of BHEL, Jhansi should be made more practical to shorten the debt collection period. The age wise schedule of debtors shows that debtors pertaining since financial year 1991-92 are outstanding. This an alarming phenomenon as a point out that the terms and conditions of pavements as well as recovery procedure had been very-very liberal. The financial crunch would have been not there had all the recoveries been made on time. A new credit policy is the need of the hour which should specify strict terms and penalties in case of delay release of payments without doing my to relations with BHELs customers. 3. To decrease loss due to bad debts and to reduce collection period credit rating of customers should be done more efficiently. Evaluation of credit worthiness is a precursor to the final decision whether to grant credit or not for decision making. Decision tree approach can be adopted. Under this approach probability of default and payment by the customer are determined. The weighted net benefit is calculated as .

P (Revenue-cost)- (1-P) Cost

should not be granted credit if answer is negative. Quality of the product should be improved so that company can dictate the term of payment. This will screen out unworthy customers and recovery position will definitely be improved.

4. Inventory management plays an important role in effective working capital management for a business firm producing industrial goods.

For improvement in the area of inventory management, suggested steps are as under:

I. The ABC analysis used considers only the value of material and quantity of uses .It does not considers the importance of the material in production function .To over come this VED analysis could also be used which categories the item according to their importance as vital, essential and desirable

I. Suggest though research in this regard to arrive at some suitable mix of both these method which gives due consideration to value, quantity importance etc of stock item. II. The maximum and minimum level of each item should be indicated avoid over stock or under stock situation. III. Internal performance report on inventory on at least monthly basis should be prepared to study the material price variance, material uses variance and inventory level variance from the estimated figures. IV. The indenting and tendering process for purchase should be made expeditious to decrease the lead time and to reduce the change of stocks out situations. V. It has been seen that delay in supply of raw materials is regularly occurring on this ultimately to delay in supply to customers. This should be avoided as it lowers the performance rating of the company. VI. The Material procurement period should be low by which production is not to be delayed

VII. The capital employed should not be maximum by which return can not be appropriate. VIII. In the case of inventory management there is lack of doing proper treatment for obsolete product. IX. There should not be excess of turnover by which it becomes work load for a employee. X. The company should increase its credit sale at a certain limit by which it can easily stand in market in front of customer. Therefore we can see easily this year the debtor turnover ratio decreases and profit also decreases.

BIBLOGRAPHY

Financial management (9th edition) Writer (I.M Pandey)

Management accounting (6th edition) Writer (S.D Chowdhary)

Financial reports of BHEL Jhansi unit