1. A STUDY ON
INVENTORY MANAGEMENT
IN
HINDUSTAN SHIPYARD LIMITED
VISAKHAPATNAM
A Project report submitted to AMBEDKAR UNIVERSITY
In partial fulfillment for the award of degree of
MASTER OF BUSINESS ADMINISTRATION
SUBMITTED
M.KALYANI
Regd. No: 1109502013
Under the Esteemed Guidance of
Mr. V.MAHESH
Head of the Department of Management Studies
GAYATHRI COLLEGE FOR P.G COURSES
(Affiliated To AMBEDKARUNIVERSITY)
Munasabpeta Srikakulam
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2. DECLARATION
I hereby declare that this project report entitled “A STUDY
INVENTORY MANAGEMENT” with reference to “HINDUSTAN
SHIPYARD LIMITED, VISAKHAPATNAM” has been prepared by year 2012
in the month of MAY and JUNE and JULY is partial fulfillment for award of
degree of MASTER OF BUSINESS ADMINISTRATION OF AMBEDKAR
UNIVERSITY
I also declare that this project is a result of my own effort and that it has
not been submitted to any other university for the award of any degree or diploma.
M.KALYANI
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3. ACKNOWLEDGEMENT
I would like to express my sincere thanks to Mr.V.MAHESH,
Head Of The Department for his constructive co-operation and valuable
guidance throughout the course and also during the project work.
I am grateful to my project counselor Mr. MADHU, MBA lecturer
for his valuable guidance and suggestions to complete this project report
successfully.
I am grateful to Mr.U.S.PRAKASH RAO, M.com, P.G.D.P.A
(Account officer),
HINDUSTAN SHIPYARD LIMITED, VISAKHAPATNAM for giving me an
opportunity to work on this project.
I express my thanks to our parents and friends who helped and
supported to us to a great extent to complete this project and last but not least we
thankful to all mighty.
M.KALYANI
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4. CONTENTS
CHAPTER 1 .
• INTRODUCTION
• SCOPE OF THE STUDY
• NEED FOR THE STUDY
• OBJECTIVES OF THE STUDY
• METHODOLOGY
• LIMITATIONS
• CHAPTERISATION
CHAPTER 2
• INDUSTRIAL PROFILE
• ORGANIZATIONAL PROFILE
CHAPTER 3
• CONCEPTUAL FRAME WORK OF INVENTORY
MANAGEMENT
• INVENTORY MANAGEMENT TECHNIQUES
CHAPTER 4
• AN OVER VIEW
• ANALYSIS AND INTERPRETATION
CHAPTER 5
• SUMMARY
• FINDINGS
• SUGGESTIONS
• CONCLUSION
• BIBLIOGROPHY
• ANNEXURES
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5. CHAPTER – I
• INTRODUCTION
• SCOPE OF THE STUDY
• NEED FOR THE STUDY
• OBJECTS OF THE STUDY
• METHODOLOGY
• LIMITATIONS
• CHAPTERISATION
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6. INTRODUCTION
Inventory is the most important asset in any company. The term inventory
refers to the stockpile of the products a firm is offering for sale and the components
that make up the product. The word inventory was first recorded in 1601. The
French term inventaire, or “detailed of goods,” dates back to 1415. In other words,
inventory is composed of assets that will be sold in future in the normal course of
business operations. The assets which firms store as inventory in anticipation of
need are (i) raw materials, (ii) work-in-progress (semi-finished goods) and (iii)
finished goods. The raw material inventory contains items that are purchased by
the firm from others and are converted into finished goods through the
manufacturing (production) process. They are an important input of the final
product. The work-in-process inventory consists of items currently being used in
the production process. They are normally semi-finished goods that are at various
stages of production in a multi-stage production process. Finished goods represent
final or completed products, which are available for sale. The inventory of such
goods consists of items that have been produced but are yet to be sold. Inventory
allocation and mix presents the biggest risks and potential rewards for company
perform an Inventory management means keeping track of goods, which the
company buys, or purchase, process and store as a part of their business. The cost
of buying or purchasing and holding inventory can be very high. It can account for
up to 80% of the final price of goods or services in some industries. Good
inventory management involves minimizing inventory costs. It will also help in
determining whether a company is working profitably or is it making a loss. By
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7. keeping a poor track of inventory a company can make a loss in some areas of
operations without even knowing it. Inventory management involves more than
just record keeping as it affects the operational structure of any business.
The views concerning the appropriate level of inventory would
differ among the different functional areas. The job of the financial manager is to
reconcile the conflicting viewpoints of the various functional areas regarding the
appropriate inventory levels in order to fulfill the overall objective of maximizing
the owner’s wealth.
In the ancient days, the business process used to take place by the exchange
of goods that is the goods that are needed urgently was taken from other business
people by giving our goods, which are required for them. The business process of
exchanging that is importing and exporting of goods and services is done by means
shipping because other transport such as trains and carriage aircrafts were not
available, at that time. As the world became globalization, shipping transport plays
a major source and vital role in the shipping industry. Business in this world has
taken a major role in the life of human beings. Progress and growth of every
human being depends upon the business, by this we know how important it is. In
the olden days the business was carried out by exchange of goods and services
from one country to another country is done through ships
Hindustan Shipyard Limited was the pioneer ship building industry
situated in the eastern coast of Visakhapatnam, harbor almost midway between
Calcutta and Chennai.
The main activities of Hindustan Shipyard Limited are:
1. Ship Building
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8. 2. Ship Repair
3. Off shore platform construction
Hindustan Shipyard Limited is a tailored made company .it makes
products according to the customer’s requirements or specifications. Inventory
constitute the main significant part of the current assets in majority of companies in
India .On an average, inventories are approximately 60% of current assets in public
limited companies in India .As large size inventory are maintained by the firms, a
considerable amount of funds in the firm is neglected, the management of
inventories will be jeopardizing in its long run profitability and may fail
ultimately .It is possible for a company to reduce its levels of inventories to a
considerable degree. Example 10%-20% without any adverse effect or production
and sales. By using simple inventories it carries a favorable impact on company’s
profitability.
Meaning and Definition of Inventory Management: -
Every enterprise needs inventory for smooth running of its activities. It
serves as a link between production and distribution processes .The greater the
time lag, the higher the requirement for inventory, it also provides a caution for
future price fluctuations. Inventory management is required at different locations
within a facility or within multiple locations of a supply network to protect the
regular and planned course of production of production against the random
disturbance of running out of materials or goods.
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9. • Involves a retailer seeking to acquire and maintain a proper merchandise
assortment while ordering, shipping, handling, and related costs are kept in
check.
• Systems and processes that identify inventory requirements, set targets,
provide replenishment techniques and report actual and projected inventory
status.
• Handles all functions related to the tracking and management of material.
This would include the monitoring of material moved into and out of
stockroom locations and the reconciling of the inventory balances. Also may
include ABC analysis, lot tracking, cycle counting support etc.
• Management of the inventories, with the primary objective of determining.
controlling stock levels within the physical distribution function to balance
the need for product availability against the need for minimizing stock
holding and handling costs.
Inventory Management objectives
• To Find and track down all the processing data's in an inventory system
repository.
• Define a procedure by which assets are identified and maintained in the
Inventory System.
• Provide all necessary personnel (data entry, update and deletion).
• Restrict access of certain members
• Complete range of reports that will satisfy informational requirements.
• To file the Inventory Management System within the Standards and
Procedures Manual.
• To provide coaching to personnel responsible for supporting the Inventory
Management System
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10. The investment in inventories constitutes the most significant part of current
assets and working capital in most of the undertakings. Thus it is very essential to
have proper control and management of inventories .The purpose of inventory
management is to ensure availability of materials in sufficient quantity as and
when required and also to minimize investment in inventories. The investment in
inventory is very high in most of the undertakings engaged in manufacturing
wholesale and retail trade. The amount of investment is sometimes more in
inventory than in other assets.
Advantages of Inventory Management: -
1. Inventory allows customers to be served quickly and conveniently.
2. Inventory can be used so that a company can buy in bulk, which is
usually cheaper.
3. Inventory allows operations to meet unexpected surges in demand.
4. Inventory is insurance, if there is an unexpected interruption in supply
from outside the operation or with in the operation.
5. Inventory allows different parts of the operations to be decoupled. This
means that they can operate independently to suit their own constraints
and convenience while the stock of items between them absorbs short-
term differences between supply and demand.
6. Reduces cost and provide detailed reports for reference or checking
purposes
7. Increase Account Saturation and Maintenance
8. Provides a flexibility to suit individual needs of customers
9. Customer’s profitability improvement and demonstrating that product
price is only part of the cost of doing business with a supplier.
10. Manages item specifications and stock levels
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11. 11. Management of cycle and physical counting
12. Multiple warehouse support
13. Support a multi-bin system
14. Serial/Lot trace ability from raw materials to finished product
15. Item/document note system
16. Auto create purchase orders for reorder point items
Disadvantages of Inventory Management: -
1. It is expensive.
2. Keeping inventory means the company has to fund the gap between
paying for the stock to be produced and getting revenue by selling it.
This is known as working capital. There is also the cost of keeping the
stock in warehouses or containers.
3. Items can deteriorate while they are being kept; clearly this is
significant for the food industry whose products have a limited life.
However it is also an issue for any other company because stock could
be accidentally damaged while it is being stored.
4. Products can become obsolescent while they are being stored. Fashion
might change or commercial rivals may introduce better products.
5. Stock is confusing, large piles of inventory around the place need to be
managed. They need to be counted, looked after and so on.
In India a study of 29 major industries has received that the average
cost of materials is 64 paisa and the cost of labor and overheads is 36 paisa in
rupee. About 90% of working capital is invested in inventories. An efficient
system of inventory management will determine
a) What to purchase?
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12. b) How to purchase?
c) From where to purchase?
d) Where to store?
The purpose of inventory management is to keep the stock in such a way
that neither it is overstocking nor under stocking. The overstocking will mean a
reduction of liquidity and starving of other production processes under stocking
will result in stoppage of work. The investments in inventory should be kept in
reasonable limits.
Nature of inventories: -
The dictionary meaning of inventory is “stock of goods or list of goods”. In
accounting language it may mean “stock of finished goods only”.
1. Raw material: -
Raw material from a major input in the organization, they are required to
carry and production activities uninterruptedly. The quantity of raw materials
required will be determined by the rate of consumption and the time required for
replenishing the supplies. The factors like the availability of raw materials and the
government regulations etc to affect the stock of raw materials.
2. Work in process: -
The work in process is that stage of stock, which is in between raw materials
and finished goods. The raw materials enter the process of manufacturing but they
are yet to attain final shape of finished goods.
3. Finished goods: -
These are the goods, which are ready for the consumers. The stock of
finished goods provides a buffer between production and market.
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13. SCOPE OF INVENTORY MANAGEMENT
1. To obtain the materials and suppliers in the required quantity at the
2. Lower cost at the proper time and to meet the continuous production
program.
3. To keep the inventories as low as possible, consistent with the market
Conditions.
4. Forecast market and economic conditions of supply and availability of
Materials.
5. Work with the potential suppliers for finding new materials.
6. Product research and development.
7. Participation in the make or buy decision of the company.
8. Maintain proper records.
9. Ensure a continuous supply of materials to facilitate uninterrupted
10.Production.
11.Minimize the company cost and time.
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14. NEED OF INVENTORY MANAGEMENT
1. To study the basic concepts of inventory management.
2. To study the detail description of how inventory management is being
implement in companies.
3. To analyze the effect of inventory management in organization.
4. To study the step-by-step process of inventory management and its
practical application in organizations.
5. It is the responsibility of the firm’s management to reduce the cost of
inventory management.
6. To know the areas from where the high turnover can be achieved.
7. To access various techniques in order to analyze the inventory
managements in organizations.
8. To study how supply continuity can be maintained.
9. To study how quality of purchases can be maintained.
10. To know how cordial relations can be maintained with suppliers.
11. To study how actually are the scenario of inventory management in
organizations.
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15. OBJECTIVE OF THE STUDY
1. To give an overview on Inventory Management.
2. To give brief details about organization and company.
3. To study the theoretical frame work of Inventory Management with
reference to HSL.
4. To analyze and interpret the Inventory turnover, Work in progress turnover,
Inventory to Working Capital, and Inventory holding Periods by using ratios.
5. To come up with the suggestions and recommendations on Inventory
Management.
Need to hold inventory Management: -
The question of managing inventories arises only when the company’s
holding inventories, maintaining inventories involves tying up of the company
funds incurrence of storage and handling cost. If it is expensive to maintain
inventories, then, why do companies hold inventories?
There are three general motives of holding inventories: -
1. Transitive motive: -
It emphasizes the need to maintain inventories to facilitate smooth
production and sales operations.
2. Precautionary motive: -
It necessities holding of inventory to guard against the risk of
unpredictability changes in demand and supply force and other factors.
3. Speculative motive: -
It influences the decision to increase and reduce inventory level to take advantage
of price fluctuations. A company should maintain adequate stock of materials for
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16. continuous supply to the factors for an uninterrupted production. It is not possible
for a company to produce raw materials whenever it is needed. A time lag exists
between demand for materials and its supply. Also there exists uncertainty in
procuring raw materials.
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17. METHODOLOGY
The methodology of collecting data is an important part of the study. The sources
of data can be divided into two parts.
1. Primary Data:
Information of the primary data for the study is collected by
personal interaction with the officers and persons of various levels who involved
the inventory management of M/s. Hindustan Shipyard Limited Visakhapatnam.
2. Secondary Data:
The secondary data is required for the study of annual report
published by M/s. Hindustan shipyard limited, Visakhapatnam from. And also data
required for the study is collected from magazines, newspapers and Internet.
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18. LIMITATIONS OF THE STUDY
The limitations of this study are as follows:
1. The study is conducted with the limited data available and analysis was done
accordingly.
2. The study is conducted with the time period and analysis made accordingly.
3. As the data provided to using very limited and then department of matter is not
possible.
4. Most of the data collected was historical
5. There was no scope for gathering the entire financial information as it is
confidential.
6. Keeping inventory mean the company has to find the gap between pain for the
stock to be produced and getting revenue by selling it
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19. CHAPTER – II
• INDUSTRIAL PROFILE
• COMPANY PROFILE
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20. CHAPTER-2
INDUSTRIAL PROFILE-SHIP BUILDING INDUSTRY
 INTRODUCTION TO INDUSTRY
 ECONOMIC CONDITIONS
 MAJOR SHIP BUILDERS
 GROWTH OF SHI BUILDING
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21. INTRODUCTION TO INDUSTRY
The shipbuilding industry is involved in the
construction and modification of ships. This is carried out in a specialized
facility called a shipyard. The industry builds ships for commercial as
well as military purposes.
History:-
The shipbuilding industry can be traced back to 2,500
BC, when ancient Egyptians assembled wooden planks to build ships.
Greeks started using multiple masts for increasing the speed. The
shipbuilding industry across the world progressed during the ‘Middle
Ages.’ Chine was home to some of the biggest seaports of the world,
including Guangzhou and Guangzhou.
During the nineteenth century, the use of iron in
shipbuilding increased. In 1843, Islamabad Brunel built the ‘Great
Britain,’ the first ship made completely of iron. Steel replaced wrought
iron in the latter part of the century due to its easy availability. However,
the use of wood for building decks continues until today.
Modern shipbuilding manufacturing techniques
Modern shipbuilding makes considerable use of
prefabricated sections. Entire multi-deck segments of the hull or
superstructure will be built elsewhere in the yard, transported to the
building dock or slipway, and then lifted into place. This is known as
“block construction”. The most modern shipyards pre-install equipment,
pipes, electrical cables, and any other components within the blocks, to
minimize the effort needed to install components deep within the hull
once it is welded together. This was first introduced by Alstom chantiers
de I’Atlantique when they built the largest ocean liner in the world
canard’s RMS Queen Mary 2.
Ship design work, also called naval architecture, may
be conducted using a ship model basin. Modern ship, since roughly 1940,
have been produced almost exclusively of welded steel. Early welded
steel ships used steels with inadequate fracture toughness, which resulted
in some ships suffering catastrophic brittle fracture structural cracks.
Since roughly 1950, specialized steels such as ABS steels with good
properties for ship construction have been used. Although it is commonly
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22. accepted that modern steel has eliminated brittle fracture in ships, some
controversy still exists. Brittle fracture of modern vessels continues to
occur from time to time because grade A and grade B steel of unknown
toughness or fracture appearance transition temperature (FATT) in ships’
side shells can be less than adequate for all ambient conditions.
ACTIVITES OF SHIPYARD:-
 SHIP BUILDING
 SHIP BREAKING
 SHIP REPAIRING
Ship Building
Global ship building is estimated to be a USD 20billion industry
and is presently dominated by Korea, Japan and China, which together
account for around 75 per cent of the world output.
Fortunes of shipping and shipbuilding industries to be linked to
each other or at least move in tandem. For nearly three decades in the post
world war 11 era, both the industries were dominated by European nations
and united states. However, high labor costs in the yards of Europe and USA,
one of the major determinants in this cost competitive industry, has led to a
gradual shift of the center of shipbuilding to these Asian nations over the last
two decades.
Similar progress was observed in Indian shipbuilding industry,
as per the research carried out by i-maritime Consultancy the order book of
the Indian shipyards, which was hovering around Rs 1,500Crores in 2002,
has reached a value close to Rs 13,700crores by September 2006, with nine
times increase in just four years.
The Indian shipbuilding, which was totally domestic till late
90’s, has become export oriented. ABG shipyard was the first to build and
22

23. export a newsprint carrier for a Norwegian client in 2000 and established
India’s competitiveness in building and delivering ships of the International
standards. Today six years down, out of the 199 ships on the order book,
close to 124 are for exports.
India has a long history and tradition of shipbuilding that can be
traced back to the Harappa civilization. However, since the beginning of the
20th century, it had been on a declining scale and presently, rated capacity of
country’s shipbuilding yards is minuscule vis-à-vis world’s capacity.
However, some private sector yards are showing increasingly
better performance. ABG shipyards, one of the leading private sector
shipyards of the country, has recently executed an order of newsprint carriers
for Norway-based Lys lines and got another order of delivering five 10,000-
dwt dry cargo vessels from a German ship-owner. Both Norwegians and
Germans are known to demand the best of quality products.
Looking at the prospects of Indian shipbuilding industry, it has
been observed that cost competitiveness remains the significant advantage of
domestic shipbuilding industry considering the two major parameters of
shipbuilding Viz. Steel fabrication and labor. China is emerging as a major
shipbuilding nation leveraging on these advantages and posing serious threats
to Korea and Japan. Considering this, it can be said that a proper strategy
taken in the right direction could leverage the competitive benefit and lead
the Indian shipbuilding industry towards better prospects.
Ship Breaking
Ship Breaking or ship demolition involves breaking up of aged
ships for scrap. Ships purchased on the basis of their light displacement
tonnage (LDT) are demolished in ship breaking yards and sent to steel re-
rolling mills for reuse as raw-material for production of steel. Currently, the
international ship demolition market is centered on the Indian subcontinent.
While a large number of tankers find their way to scrap yards in Pakistan and
Bangladesh, Indian ship breaking yards attract mostly dry and general cargo
vessels.
Ship breaking industry in India is mostly concentrated at Along
in Gujarat, Which the world’s largest ship is breaking yard catering to nearly
90 per cent of India’s ship breaking activity. However, sporadic activity also
takes place in other locations like Sachana, Gujarat, Mumbai and Calcutta.
The ship breaking activity at Along includes a total of 170 yards of which
50-70 are operational and around 50,000 people are involved directly in the
business of scrapping. The total tonnage of ships broken in India has varied
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24. from a low of 0.65 million 1dt in 1991-92 to a high of 2.79 million 1dt in
1997-98.Financing is an important aspect of the industry as scrapping
normally involves an intermediary ‘cash buyer’. Earlier state Bank of
Saurashtra and Dena Bank took active role in the ship breaking industry,
However, of late; Most banks have become reluctant to finance ship
scrapping projects.
Ship scrapping industry in India suffers from government
apathy. In spite of the fact that re-rolling accounts for about 60 per cent of the
national production of bars, rods and structural and ship scrapping supplies
nearly 200,000tons of scrap every year to the re-rolling mills, the sector
remains largely disorganized as well as unrecognized.
In the recent past, the ship scrapping industry attracted
considerable attention on the issues relating to environmentalists across the
world particularly Greenpeace and Basel Action Network have drawn
international attention to the poor working environment prevailing at the
Indian ship scrapping yards particularly at Along and opened up fronts
everywhere by calling for legal action against scrappers, building up public
opinion against scrapping and physically blocking the ships meant for
scrapping. The environmental issue could become the single largest factor
that could determine the structure of the ship breaking industry in future.
Looking at the prospects of the breaking industry in India it has
been observed that competition from neighboring countries is expected to
become tough in the near future. China has also come back to the scrapping
industry in recent years with a bang by capturing a significant volume of
tonnage sent for scrapping. Pakistan and Bangladesh are likely to pose
serious threat to Indian ship scrapping yards. Considering all the hurdles
faced by the Indian ship scrapping industry, ample scope for improvement
has remained and Indian ship scrapping industry is expected to take all
possible actions to keep the industry vibrant.
Ship Repair
Ship repairing is a service, consisting of a number of smaller
services on various parts and components of the ship. While the repairing
activity is adjunct to shipyards and ports, the extent and complexity of these
services vary.
Ship repairing in India started long back. The first dry dock was
built at Bombay port in 1750 and second at Calcutta port in 1781. For about
two decades immediately after the Independence, the Indian ship repair
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25. industry made a booming business. The potential size of the ship repair
industry in India is around Rs.44 billion, Which includes repairing by Indian
and foreign vessels calling at Indian ports.
However, only a small percentage of this business equivalent to
Rs 10-12 billion is executed by the Indian ship repairing industry.
In India, major shipyard carry out both ship repair and ship
building activities. The industry is controlled by 10 large and 30 to 40
medium and small sized shipyards apart from Naval Dock yards and Defense
shipyards. The attempts to set up exclusive ship repair facilities in the private
sector failed to perform.
The growing fear of pollution and stricter norms and
regulations, ship repairing services are in demand. Indian shipyards have the
competitive advantage like low labor costs, Availability of trained and skilled
labor force and proximity to international shipping routes required for getting
success in the business. However, the industry is in a dismal state, not
withstanding such advantages and has not been able to cater to the needs of
the Indian merchant fleet adequately due to following reasons.
• Lack of new investments in machinery/equipment
• Deterioration of existing machinery/equipment
• Usage of obsolete methods and systems
• Lack of suitable training for up gradation of skills
• Life emphasis on professional management techniques
• Supply bottlenecks for raw-material and spares
• Over dependence on public sector
• Cumbersome government procedures
• Extremely low labor productivity
While there has been success in the field of ship breaking and
ship building industry in India both of which are labor intensive, ship
repairing industry can also replicate the scenario provides it utilizes its
inherent competitive advantage.
 The ship building industry –riding the economic wave
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26. The global economic recession and the decline in sea-borne
trade led to over-capacity of ships globally ultimately affecting the
performance of the shipbuilding industry during 2009. The global
shipbuilding order book declined from 367.2 million GT as on December
31,2008 to 303.5 million GT as on December 31,2009 primarily led by the
slow growth of new-build orders aggregating 18.2 millions GT during
CY09 as against 90.7 million GT during CY08. The vessels delivered during
CY09 compared to 64.2 million GT of deliveries during CY08.
The record scrapping volume particularly in the dry vessel
segment and y-o-y decline in vessel prices in the range of 20-30% provides
no respite to the Dwindling global shipbuilding order book, especially in
case of major shipbuilding nations such as South Korea, China and Japan
thereby requiring their respective governments to take corrective measures
in terms of restructuring of yards facing financial crisis and also offering
monetary and non-monetary incentives to boost the industry’s prospects.
However, the Asian shipbuilders continue to dominate the global order
book accounting for 95.1% of the total as on December 31,2010. Of the
same, in continuation of the trend during 2008, the market share of the South
Korean shipbuilders remained the highest at 37%. The share of the Chinese
and Japanese shipbuilders stood at 36.1% & 16.8% respectively.
The Indian shipbuilders occupied 5th rank globally accounting
for 1.44% of the global order book with 2.2 million GRT of vessels on order
as on December 31,2009. The Indian shipbuilders specialize in the
construction of offshore vessels. However, the expansion of shipyards to the
extent of constructing bigger vessels such as dry bulk carriers has enabled
the Indian shipbuilders to attract new-build orders in the said vessel
segment. Importantly, the Indian yards reported no major instance of order
cancellation during CY09 as compared to their peers in South Korea and
China, primarily owing to no speculative orders being placed with the Indian
yards and majority of the orders being received from repetitive clients.
We expect the shipping fleet to be in over-capacity during
CY10-CY13 based on a combined mix of factors such as world fleet size,
world GDP-current prices and the historical trend of sea-borne trade. In spite
of the new-build vessel prices declining by 20-30% on y-o-y basis, we
expect increased demand for second-hand vessels as compared to new-
builds. The said demand is expected to be driven by relatively lower prices
of second-hand vessels with younger fleet on offer.
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27.  Major ship Builders
The world shipbuilding industry is largely dominated by Asian
players, such as South Korea, China and Japan. In 2008, South Korea’s
production level was higher than that of entire world combined. The nation’s
top shipbuilding companies include Hyundai Heavy Industries, Daewoo
shipbuilding and Marine Engineering and Samsung Heavy Industries. The
world’s biggest shipyard launches a new vessel every four days.
The shipbuilding industry is $100 billion. The industry is vital to
the economy as it supports trade and other ancillary services.
South Korea is the world’s largest shipbuilding nation with a
global leader in the production of advanced high-tech vessels such as cruise
liners, super tankers, LNG carriers, drill ships, and large-sized container
ships. In the 3rd quarter of 2011, South Korea won all 18 orders for LNG
carriers, 3 out of 5 drill ships and 5 out of 7 large-sized container ships.
South Korea’s shipyards are highly efficient, with the world’s
largest shipyard in Ulsan operated by Hyundai Heavy Industries slipping a
newly-built, $80 million vessel into the water every four working days. South
Korea’s “big three” shipbuilders, Hyundai Heavy Industries, Samsung Heavy
Industries, and Daewoo shipbuilding & Marine Engineering, dominate global
shipbuilding, with STX shipbuilding, Hyundai samho heavy Industries,
Hanjin Heavy Industries, and Sungdong shipbuilding & Marine Engineering
also ranking among the top ten shipbuilders in the world. In 2007, STX
shipbuilding further strengthened South Korea’s leading position in the
industry by acquiring Aker yards, The largest shipbuilding group in Europe.
In the first half of 2011, South Korean shipbuilders won new orders to build
25 LNG carriers, out of the total 29 orders placed worldwide during the
period. China is an emerging shipbuilder that briefly overtook South Korea
during the 2008-2010 global financial crises as they won new orders for
medium and small-sized container ships based on their cheap prices,
although its current production is limited mainly to basic vessels.
Japan lost it’s once industry leading position to South Korea in
2003 and its market share has since fallen sharply. The European nations
combined output has fallen to a tenth of South Korea’s, and the output of the
United States and rest of the world have become negligible.
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28. Indian ship building Industry
Shipbuilding, which includes shipyards, marine equipment
manufacturers, and large number of service and knowledge providers, is an
important and strategic industry in a number of countries around the world.
Shipbuilding is a globalized, technology-based, and capital intensive
industry. The industry is influenced by developments in the shipping industry
and the market dynamics. One of the unique factors of the shipbuilding
industry is sold before the construction begins and each ship is custom made
for the owner. it may take around 1 to 3 years for the delivery of a new ship.
The buyer orders a ship in anticipation of its future use and sometimes it is
done with an advance charter agreement which makes it important for the
shipyard to deliver the ship within the specified time. This feature makes
delays in shipbuilding unacceptable at times, and thus the buyers prefer to
place order with established shipyard that have a good track record.
Major shipyards in India
S.no NAME YEARS OF YEARS OF
FOUNDATION REGISTRATION
1 HSL-VIZAG 19 1956
2 CSL-COCHIN 19 1973
3 HOOGLY SHIPYARD 19 1901
KOLKATA
4 MDL-MUMBAI 19 1934
5 GRES-KOLKATA 1984 1931
6 GOA SHIPYARD-GOA 1857 1967
INDIA PORTS, MARITIME TRASPORTATION, AND INLAND
WATERWAYS
The linkages between international trade and the transport
network are obvious. An efficient transport system can boost trade and greater
volume of trade can, in turn, create demand for investment in the transport
network. It is now widely acknowledged that efficiency in the transport sector has
major spillover effects on the competitiveness of both goods and services.
Competition and increased efficiency in maritime transport services, resulting in
28

29. lower freight rates, contribute directly to a country’s international competitiveness.
Similarly, the development of air transport services is crucial for the sustainable
development of trade and tourism. This sector acts as an economic catalyst by
opening up new market opportunities, moving products and services with speed
and efficiency. The quality of the transport network has direct implications for the
inflow of foreign direct investment
In the past, the requirement of large-scale investment, long
gestation periods, uncertain returns, associated externalities together with social
objectives such as consumer protection, welfare and equity have resulted in
government monopoly in transport services. In many developing countries, the
government owned, operated and financed the transport sector and success and
failure in the provision of such services was largely a story of government’s
performance. This picture is rapidly changing with globalization and the
liberalization of national economies.
Increased commercialization and growth of international trade
has led to considerable pressure on the operating environment of the existing
transport infrastructure, forcing it to adapt new, improved and more reliable
technology. Commercialization has also enhanced competition among trading
nations to increase their share in the world’s trade. For instance, with increasing
size and sophistication of ships, container ships now make only a few calls in three
or four harbors at each end of the trade while the rest of the traffic is served by
small feeder ships.
This has increased the competition among neighboring harbors
to develop as “hub” ports catering to large container ships. Governments all over
the world are finding it increasingly difficult to finance the investment required to
sustain the growth of transport infrastructure. On the other hand, globalization has
given birth to large multinational corporations and alliances that have the
willingness.
Financial strength and technical know-how to operate and
manage t advanced transport network. This has created a unique situation where by
countries, which were once closed-door, are opening-up their corridors for
privatization and foreign investment. The Indian aviation and maritime transport
sectors have not been an exception to this trend. Prior to the 1990s, The
Government was the main provider of these services and there were various
restrictions on private participation.
During that period, the performance of these sectors was
marked by monopoly-induced in efficiency and low productivity. In fact, in both of
these transport services, India’s share in world trade had been steadily declining. In
the 1990s, When India embarked upon an ambitious reform programmed, the
demand-supply gap in transport infrastructure became more pronounced. The need
29

30. of the hour was to rectify the infrastructural bottlenecks to sustain the reform
programmed. It is at this juncture that the Government announced various reform
measures in air and maritime transport services, including privatization.
It was expected that privatization would increase efficiency
through competition, reduce the financial constraints and speed up the process of
adaptation of new technologies. The following section will provide a broad
overview of maritime and air transport services in India. It will critically analyze
the policies and developments in these sectors since the 1990s. The subsequent
section will suggest various regulatory, fiscal and other reforms which could
facilitate the privatization process and improve the overall efficiency, productivity
and global competitiveness of the sectors.
Growth of ship Building in India
Ship building is a branch of heavy engineering industry
It is an assembly industry. It draws boilers, engines, electrical goods, glass, rubber,
nuts and bolts etc. manufactured by other industries.
The industry manufactures ship of a variety of sizes and
for a variety of purposes ranging from fishing vessels, cargo ships, oil tankers,
cruise liners to ferries. Boats, sailing boats, etc. are also made by this industry.
The industry also manufactures naval ships ranging
from mine layers, mine sweepers, destroyers, destroyers, frigates, tugs to air craft
carriers, gun boats, submarines etc.
Ship building is a highly expensive, Technical, time
consuming, scientific and sophisticated industry. It exists in a few economically
sound and technically advanced countries only the industry has developed on
account of:
 Growing international trade relationships among the countries of the
World
 Development of Iron and Steel and various other industries
connected with fitting and trimming of the ships.
 National security and race for naval supremacy in the world has
boosted construction of ships of different sizes and for different
purposes for the use of the navy.
30

31.  Availability of capital.
 Advancement in marine architecture and marine technology.
Kolkata, Visakhapatnam, Mumbai, Kochi and Moraga are ship building centers. In
these shipyards, ships of a variety of sizes and purpose are built. These include
boats, fishing boats, fishing vessels, barges, cargo ships and warships.
1. The Hindustan shipyard Ltd. Visakhapatnam set up by M/S Scindia
Steam Navigation company in 1941 was taken over by the Indian
Government in 1952 and named Hindustan Shipyard.
The yard has constructed over 150 ships so far.
2. The Cochin Shipyard Ltd. Kochi started work in 1976.
3. The Garden Reach factory, Kolkata has specialized in the
construction of naval boats, harbor crafts, tugs, barges, dredgers etc.
It is on the eastern bank of Hooghly.
4. Hooghly Dock and port Engineers Ltd. Was set up in 1984. It has
2 units in Howrah district in West Bengal.
(a) Salkia
(b) Nazirganj
These units manufacture a variety of ships like dredgers, tugs, fishing
trawlers, offshore platforms for the ONGC etc.
5.The Meagan Dock, Mumbai constructs dredgers, frigates, destroyers
etc. for the Indian Navy.
Besides there are three dozen small ship yards in the country engaged
in manufacturing of small sized vessels for the domestic shipping companies. Goa
shipyard makes fiber glass boats, trawlers, barges and dredgers.
Repair shipyards. These are 17 such yards in India.
They carry out ship repair work.
31

32. CHAPTER 2
COMPANY PROFILE-HINDUSTAN SHIPYARD LIMITED
 HISTORY AND BACKGROUND
 VISION AND MISSION
 OBJECTIVES
 MILESTONE ACHIEVEMENTS OF HSL
 ACTIVITES OF HSL
HISTORY AND BACKGROUND
One of the important components of Visakhapatnam economy, the
Hindustan Shipyard limited, Visakhapatnam is credited with the establishment of
one of the most significant shipyards in the city. The first president of India
Dr. Rajendra Prasad laid the foundation of the shipyard in 1941. The shipyard was
nationalized in 1961, and renamed Hindustan Shipyard limited. In 2009, HSL was
32

33. transferred from the Ministry of shipping to the Ministry of Defense. The shipyard
played a critical role in the development of nuclear-powered.
One of the major shipbuilding establishment of the country, HSL is an
ISO 9001:2000 organization. It maintains a separate safety department to ensure
safe working environment and a training centre to impart human resource
development lesson’s and technical trainings. The esteemed organization provides
housing, medical and educational facilities not only for its employees but for the
general public as well.
A government of India undertaking, HSL was built to facilitate an
efficient shipyard to serve customers better. Mr. Ajit Thiwari is the current
managing director of HSL Visakhapatnam. Covering a sprawling area of 46.2
hectares, the Hindustan Shipyard is equipped with latest technologies. The
shipyard has top of the line storage and logistic facilities plasma cutting machines,
modern cranes, separate quality checking department, vigilant cell, welding
machines and every other necessary components required to run a modern
shipyard. The ship repairing unit of the shipyard has facilities like water jet
cleaning, grit blasting, dynamic balancing, hydraulic elevators etc.,
The shipyard is relatively compact at 46.2 hectares(0.462 km2). It is
equipped with the plasma cutting machines steel processing and welding facilities,
material handling equipment, cranes logistics and storage facilities. It also has
testing and measuring facilities. It also conducts major overhauls of Indian Navy
Submarines, and is being equipped to construct nuclear powered submarines.
VISION:
To become a world class defence shipyard to construct naval ships
and submarines for the Indian navy and coast guard and to meet the repair
requirements of such vessels and other government vessels.
MISSION:
To upgrade the shipyard, acquire advanced technologies in war ship and
submarine construction in a phased manner from 2010to2025 and take up projects
planned by Indian navy and Indian coast guard for meeting its long terms needs.
OBJECTIVES:
 To incorporate “Best practices” in all key activities of the yard such as
production, efficiency, customer satisfaction, marketing, Human Resources,
purchasing and planning.
33

34.  To develop the technological capabilities in the area of ship design and ship
construction and render ‘Ship Building’ more viable.
 To secure new ship building orders from indigenous and export market &
construct vessels for National Maritime and Defense Sector.
 To expand ship repair facilities.
 To undertake retrofitting of normal refit, short refit & medium refit and
modernization of special class sub marines such as 877 EKM submarine.
 To work out cost effective funding arrangement for ship building and major
ship projects.
 To effect economy in expenditure.
Board of directors
1. RA dm. N.K.MISHRA,NM,IN(Retd.) Chairman & Managing director
2. Shri RAKESH MAHAJAN director Finance & Commercial
3. Cmde. K.S.SUBRAMANIAN,NM,IN(Retd) Director(shipbuilding)
4. Dr. DEVISINGH Independent director
5. Shri GYANESH KUMAR, IAS Director
6. VAdm. N.N.KUMAR,AVSM,VSM,IN Director
HSL being an old & premier shipyard of the country has been
striving towards better productivity and optimum utilization of resources. The total
income of the company during the year is Rs. 637.87 Crores as compared to Rs.
651.16 Crores for the previous year. your company recorded a profit of Rs. 54.99
Crores as against Rs. 2.32 Crores of previous years due to accounting of Rs.
34

35. 452.68 Crores grant in aid received from Government of India as financial
Restructuring Package.
The major highlights of the year 2010-11 are as follows
The Ministry has sanctioned RS.824.90 Crores as financial
Restructuring package and the same has been implemented successfully.
The company concluded contracts for an order value approx. Rs.
798 Crores with Coast Guard, Indian Navy and Kandla port Trust. However the
order value is not sufficient for the yard to sustain. The company desperately needs
to secure high value orders from Indian Navy after its transfer of Administrative
control from Ministry of shipping to Ministry of Defence.
Some of the noteworthy achievements during the year are as
follows
1. Two 53 K bulker vessels were delivered to M/s. GML.
2. Six vessels of different categories were launched /floated.
3. Keels were laid for five new vessels.
4. Repair of ONGC jack up rig is at advanced stage of completion and targeted
to be delivered by the end of Nov 2011.
5. Repair of twenty three vessels was undertaken during the year 2010-11
including two warships viz. INS KUMBHIR & INS SANDHAYAK.
The present shipbuilding order book position comprises 24 vessels
out of which 14 vessels are at various stages of their construction. The focus of the
yard during the next couple of years will be on completion of the orders of M/s.
GML & five IPVs for Indian Coast Guard. The other orders would also be attended
to with renewed planning & production norms to keep the workshops & workmen
optimally utilized. However, I regret to inform that with present order book most
workshops will remain idle in near future unless some high value orders are
secured by HSL.
Grading vide memorandum of understanding
The performance of the company for the year, based on self appraisal
is “GOOD” in terms of the MOU signed with the Ministry of Defense.
TRANSFER TO MINISTRY OF DEFENCE
Considering the strategic location of HSL and requirements of
defence, the president of India transferred the administrative control of Hindustan
35

36. Shipyard limited from the ministry of shipping to the Ministry of Defence with
effect from 22nd February, 2010 under Government of India (Allocation of
Business) Rules, 1961 vide notification No.1/22/1/2010-Cab, Dated 22nd
February,2010. The shipyard would now play a major role as a Defence yard and
undertake construction of Hi-tech Warships and Submarines.
Corporate Governance
Your company constantly endeavors to adopt and maintain the highest
standards of ethics in all spheres of its business activities. Your company firmly
believes in the fundamental principles of corporate Governance like honesty,
integrity, accountability, transparency and legal/statutory compliances, to protect,
promote and safe guard the interests of all stakeholders. It also strives to carry out
its business obligation with good corporate values duly discharging its duties for
maximum level of transparency in decision making to avoid conflict of interests. It
also accords due importance to adherence of adopted corporate values and
objectives and discharging social responsibilities as a responsible corporate citizen.
Infrastructure up gradation & modernization
The yard infrastructure is required to be upgraded to increase its
capacity and efficiency for construction of sophisticated defense vessels in future.
This up gradation has been planned to be undertaken in two phases. In first phase
the existing infrastructure facilities would be refurbished and or renewed. Budget
estimates for the phase-1 modernization is Rs. 457.36 Crores. In the second phase
the yard infrastructure would be augmented so as to make the yard capable of
constructing modern warship, submarines and amphibious vessels etc. Both the
proposals are under active consideration at Ministry of Defense.
Future outlook:-
HSL is strategically located on the east coast of India. The yard
has been transferred from ministry of shipping to ministry of defense in
february2010.The yard has been identified for construction of war ships and
submarines. The present order book will be completed by Aug 2013 and thereafter
HSL will construct mainly defense vessels. The surplus capacity, If any, available
would be utilized for commercial vessels.
In coming years there is a plan to modernize the infrastructure in
order to make this yard viable for construction of high value orders from navy
vizag, warship, submarines and other amphibious ships. with the capacity
improvement and modernization of the yard HSL will grow as one of the major
defense shipyard in the country.
36

37. Human resource development
Considering the large attrition rate of the existing workforce of the
company in coming years, Your company has started inducting the young
workforce to fill up the organizational gaps. Your company has inducted 15
management trainees recently and will continue to induct more in coming years
depending upon the requirements. The skill development is one of the high priority
areas to hone the skills required for construction of complex warships and
submarines. Hence, your company continues to impart training to new entrants and
existing employees as well to increase the productivity. Further, recently your
company has revised the pay scales of the staff and workmen of the company in
order to boost their morale which will result in higher productivity. However while
approving the wage revision: Your Company could not arrange the payment of
arrears due to staff & workmen as the financial health of the company did not
permit such payments. This is a major issue of the Unions as the wage for Officers
was undertaken prior to wage revision of staff & workmen and their arrears have
been paid.
Capital Structure:-
The authorized equity share capital of the company as on 31
March2011 stood at Rs 304.00crores against which the paid up equity share capital
as on 31 March2011 is Rs 301.99Crores
Financial Restructuring:-
The ministry has sanctioned Rs824.90Crores towards financial
restructuring package as mentioned below:
• An amount of Rs 452.68 crores (rupees four hundred fifty two crores and
sixty eight lakhs)has been given as grants in aid for clearance of old
outstanding liabilities towards banks ,employee arrears tax arrears and other
liabilities
• The existing government loan with interest and government guarantee fee
against loan from SBI amounting to Rs.372.22crores (Rupees three hundred
seventy two crores and twenty two lakhs)has been converted as loan in
perpetuity without interest.
PERFORMANCE HIGHLIGHTS:
financial parameters:-
37

38. The directors are pleased to inform that the company has recorded a
profit before tax (PBT)of Rs.165.18crores during the year 2010-2011.This increase
in PBT is due to accounting of grant-in-aid of Rs.452.68crores as income which
has been received from government of India towards financial restricting.
Value of production:-
The Company achieved a value of production of Rs.603.84crores
during the financial year 2010-2011.
MEMORANDUM OF UNDERSTANDING:-
In term of the parameters finally arrived at the memorandum of
understanding signed with government for the year 2010-2011,performance of the
company is expected to be rated as “GOOD”.
DIVISION WISE PERFORMANCE
SHIP BUILDING:-
Your Company had achieved a turnover of Rs.258.49 Crores during
the year 2008-09 on the shipbuilding front. Your Company had achieved a
production of 63772 DWT during the year 2008-09 which is 85% of the installed
capacity. The shipbuilding Division of your company achieved a value of
production of Rs. 243.08 Crores for 2009-10 as against Rs.258.49 Crores of the
previous year. The shipbuilding division of your company achieved a value of
production of Rs.243.19crores for 2010-2011 as against Rs243.08crores of the
previous year.
MAIN EVENTS:-
Following are the major events recorded by the shipbuilding division
during the year2010-2011
SI. Events Date Descriptions of vessel Owner
no
1 Fresh contracts 27Aug2010 3 no 50 TBP Tugs Indian navy
concluded
23 8 no. inshore patrol Coast Guard
Mar2011 vessel
24Mar2011 2 no.50-TBP Tugs Kandla port
trust
2 Delivery 12Apr2010 First (of 6 no)53000 GML, Chennai
DWT Bulker
05-Feb2011 Second(of 6 no)53000 GML, Chennai
DWT Bulker
3 Floating/Launching 03May2010 Floating of second (of GML, Chennai
6 no)53000 DWT
38

39. Bulker
15May2010 Launching of third (of Coast Guard
5 no)inshore patrol
vessel
14Jul2010 Launching of first (of 2 Visakhapatnam
no)50 TBP Tug port trust
(VPT)
04Nov2010 Launching of second VSP port trust
(of 2 no)50 TBP Tug (VPT)
06Nov2010 Launching fourth (of 5 Coast Guard
no)inshore petrol
vessel
31Mar2011 Floating of third (of 6 GML, Chennai
no)53000 DWT Bulker
4 Keel Laying 27Dec2010 First(of 3 no)50-Ton Indian navy
BP Tug
27 Second (of 3 no)50- Indian navy
Dec2010 Ton BP Tug
30Dec2010 Fourth(of 6 GML, Chennai
no)53000DWT Bulker
30Dec2010 Fifth (of 6 GML, Chennai
no)53000DWT Bulker
05Mar2011 Third(of 3 no)50-TBP Indian navy
Tug
Order book position as on 31 May2011:-
HSL is presently having an order book of 24 vessels of
which,14 vessels are under various stages of construction the value of the above
shipbuilding order is Rs 1108.21 crores.
The details of order book position are as follows:-
SI. Yard no Type of the No. Owner (Rs in Contractual Anticip
no vessel of c delivery ated
vesse r)Balan date Deliver
ls(qty ce y date
) contrac
t value
1 11138to111 53000 DWT 4 GML, 237.29 Jul2009- Sep201
41 Diamond series Chennai Jan2011 1-
39

40. bulk carriers Aug201
3
2 11154to111 Inshore patrol 5 Indian 34.07 Mar2008- Aug201
58 vessels coast Mar2009 1-
guard Jul2012
3 11160&111 50-T bollard 2 VSP port 39.13 Mar2011- Aug201
61 pull Tugs trust Jul2011 1-
Oct201
1
4 11162to111 50-Ton bollard 3 Indian 155.40 Oct2012- Oct201
64 pull Tugs navy Jun2013 2-
Jun2013
5 11165to111 Inshore patrol 8 Indian 551.12 Aug2013- Aug201
72 vessels coast May2015 3-
guard May201
5
6 11173to111 50-T bollard 2 Kandla 91.20 Mar2013- Mar201
74 pull Tugs port trust Jun2013 3-
Jun2013
Total 24 1108.2
1
Production physical performance:-
The ship building production in DWT and capacity utilization
achieved during the year 2010-11 are presented below. The figures for same
parameters for previous year are also shown for comparison.
SI. Description unit 2010-11 2009-1
no 0
1 Installed capacity(at 3.5 DWT 75250 75250
standard pioneer ships per
annum)
2 Actual production achieved DWT 61853 67572
3 Capacity utilization percentage 82% 90%
4 Productivity achieved M.hrs/DW 42.5 27.20
T
40

41. SHIP REPAIRS:-
During the year, the ship-repair division undertook repairs on 53
vessels of various types belonging to Indian Navy, Dredging Corporation of India
Ltd., shipping Corporation of India Ltd., Visakhapatnam port trust and 27 foreign
vessels and also miscellaneous repair works. The ship repair division achieved a
Turnover of Rs.201.65 Crores inclusive of the repair works on INS Sindhukirti.
The ship repair turnover has increased by 32.88% in 2008-09. This could be
achieved by utilizing the Dock facilities to the optimum level. The ship Repairs
Division of against Rs.144.13 Crores of the previous year. Ship repair division has
undertaken belonging to Indian Navy, DCI, SCI, ONGC, VPT etc.
During the year ship repair division has undertaken repairs of 22
vessels (including 8 foreign flag)of various types belonging to Indian navy,
DCI,SCI,ONGC,VPT etc. and also miscellaneous works. The repair dock was
utilized to its optimum level. Your company achieved a ship repair turnover of
Rs277.38crores during the year2010-11and is committed to increase its revenue
from ship repairs in coming years.
Ship repair income (Rs in crores)
RETROFIT
41

42. Your company has signed a contract on 3rd October, 2005 with Indian
Navy for MR-cum-modernization of INS sindukirti and the total refit is jointly
undertaken by HSL, naval Dockyard (Visakhapatnam) & Rosoboron export
(ROE).
Subsequently 8 contracts were concluded with ROE for logistic
support and material supply to carry out the medium refit.
The major works on submarine that were completed under this refit
contract is enumerated below:
• Defect survey on entire hull structure completed and pressure hull repairs
commenced.
• Chemical cleaning & defect survey on piping spools of various systems
completed & pipe manufacturing commenced.
• Spares & yard material to take up repair works on Engineering equipment
and hull structure have been received.
• HSL welders were trained to take up pressure hull repairs and welding of
Titanium piping spools.
• Basic design for modification of keel block for leveling of Submarine has
been completed.
• Sonar Dome insulation renewal undertaken first time in India.
• Major infrastructure for submarine repairs has been set up.
The value of production on account of submarine Repairs was
Rs. 99.31 Crores for 2009-10 as against Rs.57.52 crore of the previous years. The
value of production on account of submarine repairs at the retrofit Division was
Rs.83.27 crores.
MAJOR WORKS DURING THE YEAR 2010-11
 Repair contract of Jack up Rig “SAGAR RATNA” of ONGC, worth Rs 450
Crores is at an advanced stage of completion and targeted to be delivered by
the end of Nov 2011.
 INS Sandhayak and INS kumbhir repair orders of Rs 75 crores is presently
in progress.
42

43. MODERNISATION:-
The yard is required to be modernized to increase its capacity and
efficiency for construction of sophisticated defense vessels in future. The
modernization is planned in two phases.
(a)Phase-1-in the first phase, the existing infrastructure facilities need to be
refurbished/renewed as identified.
(b)Phase-2-in the second phase of modernization in order to construct sophisticated
naval vessels.
DRAWING &DESIGN OFFICE:
The design works for ongoing projects such as inshore patrol
vessel, yard crafts, Dry dock gate and bulk carriers etc. Have been carried out
using Tribon M3 software in the CAD/CAM center. The capacity of design office
is also planned to be augmented to cater for design of warships and submarines.
IMPLEMENTATION OF INFORMATION TECHNOLOGY
Your company has successfully implemented the following tasks under IT:
• Database holding various enterprise data pertaining to the ERP application
i.e., purchase, inventory,
Finance, HR & payroll etc., was upgraded with higher version to enhance
the security, scalability, reliability of the data.
• To enrich the network facility in the yard, various technical
recommendations were obtained by conducting the survey in association
with various reputed network firms.
• The following jobs were undertaken during the year 2008-09 is under
progress:
43

44. 1. The applications i.e., provident fund loan, provident fund contribution,
pay arrears, family pensions, medical reimbursements etc lying under
payroll application which are placed on the legacy system platforms are
being customized and migrated to ERP package for enhanced level of
usage in terms of ease of use, online interface and integration with
enterprise modules.
2. Introduction of web-enabled employee attendance regulation system with
RFID readers at various yard entry points which enables centralized and
real-time storage of attendance data and enquiry of the same from all
computers which are connected over yard LAN for effective monitoring
of time keeping management for effective usage of production man days.
3. Provides of internet for more no. of employees in the yard and for
customers in customer servicing centre by placing the highly network
security unified threat tools and proper analyzer tools to monitor the
security and usage of internet service.
4. Enrichment of HINDI version in HSL website with more content which is
in English version.
OPERATING RESULTS:
The summarized financial results of the company for the year
2010-2011 are presented below. The profit shown is due to receipt of
Rs.452.68crores.Grant-in-aid from government of India for clearing old
outstanding liabilities reflected as extra-ordinary items in the statement given
below.
Description Rs.in crores
Ship Ship Retrofi Un Total
Buildings Repairs t Allocatio
n
Total income 247.85 286.02 91.18 12.83 637.88
Profit/loss before (170.02) 64.07 (28.20) (131.32) (265.47)
44

45. depreciation, interest
&incometax&extra-
ordinary items(PBDIT)
Depreciation 5.07 0.46 1.35 0.80 7.68
Interest & finance 2.39 5.29 0.42 6.25 14.35
charges
Extra-ordinary - - - 452.68 452.68
items(grant in aid
from )GOI
Profit/loss before (177.48) 58.32 (29.97) 314.31 165.18
tax(PBT)
Deferred tax asset 110.19
written off
Net profit after tax 54.99
CONTRIBUTION TO CENTRAL EXCHEQUER:-
Your company’s contribution to the national exchequer during the
year 2010-2011 by way of income tax, customs duty & excise duty is
Rs.104.64crores.
QUALITY ASSURANCE:-
The 3 rd surveillance audit transition to ISO 9001:2008
standards was satisfactorily carried out during 19May 2010,21-May2010 and a
new certificate of approval of ISO 9001:2008hasbeen issued by LRQA, The 4th
surveillance audit was satisfactorily conducted during
08Nov2010,10Nov2010.The Quality management system of ISO9001:2008 is
being maintained through periodical internal quality audits. The 5th surveillance
audit was last undertaken between21Jun2011to23Jun2011.
INDUSTRIAL RELATIONS
The industrial relations situation in the company during the year was
cordial and harmonious. HS staff and workers union elections were held on
14-11-09. Management has accorded recognition to the union for a period of 3
years. In order to motivate employees, HSL has implemented new promotion
policy for both staff and workman to streamline promotions. The wage revision for
staff & workmen is due from 1-1-2009. The management has constituted a wage
negotiation committee and the negotiations have been completed. The MOU is
45

46. being processed further for the Board and Government sanction. The industrial
relations were cordial and harmonious during the year 2010-11.
The company under takes the following ship repair activities:
Oil tankers, general cargo vessels, bulk carriers, passenger’s vessels,
port crafts, hand mix bulker, survey vessels, off shore patrol vessels, drill shifts, off
shore supply vessels and drilling platforms for oil sector.
ORGANIZATIONAL STRUCTURE
The department can be mainly categorized as follows:-
1. PRODUCTION DEPARTMENT
2. ADMINISTRATION DEPARTMENT
3. SERVICE DEPARTMENT
1. PRODUCTION DEPARTMENT
The production department mainly consists of following sections
HULL SHOP:-
It deals with material preparation like plates used for the construction of
ship.
PRE-FABRICATION:-
It deals with ship parts like the funnel, wheel house and engine roots.
FRECTION DEPARTMENT:-
Assembling the ship parts to make complete ship work
BLACK SMITH DEPARTMENT:-
It deals with railing work, flooring work etc.
STEEL METAL DEPARTMENT:-
It deals with air conditioned works.
46

47. RIGGING DEPARTMENT:-
Holding the ship with repairs.
PAINTING DEPARTMENT:-
Plumbing works in trappers.
ENGINEERING DEPARTMENT:-
Facilitating and assembling the main engine.
ADMINISTRATION DEPARTMENT
The Administration department consists of the following sections.
a) ACCOUNTS DEPARTMENT
b) PERSONAL DEPARTMENT
c) INTERNAL AUDIT DEPARTMENT
d) GENERAL AUDIT DEPARTMENT
ACCOUNT DEPARTMENT:-
The following are the sections in accounts department
• COST ACCOUNTS
• BILLS AND INSURANCE
• PROVIDENT FUND
• SALARIES SECTION
Cost accounts deals with compilation of final accounts, budgets and
cost report to ministry, direct and indirect taxation that is central excise, income tax
and sales tax.
Bill and insurance deals with payments bills is passing of bills
and insurance of materials etc.
Pay account deals with the payment of wages, salaries,
provident fund and gratuity and V.R provident fund is allowed.
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48. PERSONAL DEPARTMENT
It consists of the following cells:
 STAFF CELL
 WORKMEN CELL
 EXCUTIVE CELL
Acts which are present in the HSL are:
Promotions leave management, medical requirements, visitors
man agent facilities, general administration shifts, time keeping etc.
INTERNAL AUDIT DEPARTMENT
The department checks the value of inventories and bills
different branches of accounts are a waited annually.
GENERAL DEPARTMENT
This responsible for procurement of the stationary and functional
goods others incidental items.
SERVICE DEPARTMENT
The service department consists of the following sections:-
a. Design office
b. Production, planning department
c. Quality control department
d. Purchase department
e. General stores
f. Bond store
g. Clearance department
h. Maintenance department
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49. i. Civil engineering department
j. Medical and health department
k. Transport department
l. Security department
INFORMATION TECHNOLOGY
In the field of information Technology your company has successfully
implemented the following tasks during the year
 Action is initiated for introduction of e-procurement in HSL and likely to be
implemented by Mar 2012
 Initiated National informatics Center (NIC) mail service in view of more
confidentiality & security for all HSL official correspondence.
 Implemented the network security using group policy.
ENVIRONMENTAL ASPECTS
Your company continues to be environmental friendly and has
fulfilled all the statutory requirements of central and state pollution control boards.
The company is committed to meet all the stipulated for maintaining and
protecting the environment
MILESTONE EVENTS OF HINDUSTAN SHIPYARD LIMITED
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50. • 1941 DR.RAJENDRA PRASAD, the then president of Indian National
congress laid the Foundation stone on 21-06-1941 for scindia shipyard at
Visakhapatnam
• 1946 Keel for the first steam ship “JALA USHA” was laid on 22.06.1946.
• 1948 First steam ship of 8000 DWT, JALA USHA was launched by pandit
JAWAHARLAL NEHRU the first prime minister of India on 14-03-1948
• 1953 Switch over of the construction of steam ship to Diesel ships
• 1958 Achievement of 100000 GRT
• 1961 HSL becomes a fully owned Govt. of India enterprise in July, 1961.
• 1962 Awarded certificate of Honour by president of India for 1961-62.
• 1971 Commission of dry dock for ship repairs
• 1972 Training ship “RAJENDRA” handed over to Smt. Indira Gandhi, P.M.
• 1976 Commissioning of wet basin adjacent to dry dock for afloat repairs.
• 1983 Laying of foundation stone for building dock on 28-08-1983.
• 1983 Inauguration of stage-11 development programmed by MoS & t.
• 1985 Inauguration of off-shore platform construction yard by Hon’ble sri
glani zall singh, the president of India on 17-07-1985
• 1987 Inauguration of new covered building dock for construction of ships
upto 50,000 DWT by president of India on 05-04-1987
• 1987 Delivery of highly sophisticated drill ship “SAGAR BHUSHAN” to
ONGC.
• 1992 Float out of the first biggest vessel of 42,750 DWT bulker from the
building dock on 23-09-1992.
• 1993 First time oil flown from K.G.basin, through HSL built platforms.
• 1993 Delivery of the 100th vessel-M.V.LOK PRATAP on 28-06-1993.
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51. • 1999 first biggest 1200 passenger-cum-cargo vessel “M.V.Swaraj Dweep” to
A&N Admin.
• 2000 Delivery of first biggest bulker of 42,750 DWT.
• 2004 First major repair of jack up oil rig ‘sagar praghati’ for ONGC
• 2005 modernization &medium refit of INS sindhukirti,877 EKM submarine
• 2006 INS vagli for Indian navy was successfully completed.
• 2007 Launching/floating and delivery of 2 nos. 30,000 DWT bulk carriers.
• 2008 second biggest 700 passenger vessel delivered to union territory of
Lakshadweep
• 2009 commencement of hi-tech major lay up repairs on jack up oil rig “sagar
ratna” for ONGC
• 2010 Transfer of administrative control from MOS to MOD
• 2010 Delivery of the first biggest 53,000 DWT bulk carrier M.V. Good pride
to GML
• 2011 Delivery of the second biggest 53,000 DWT bulk carrier M.V. Good
precedent to GML
• 2011 Modernization of the yard is in progress.
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52. Main engine installation
Out fittin
A SHIP IS BORN
Basic design
Detailed design
Working plans
Marking and cutting
Fabrications
Sub-assembly
Main assembly
Keel lying
Block erection
Launching
Dock and sea trails
Deliver
y of ship
52

53. CHAPTER - III
• THEORETICAL FRAME WORK OF INVENTORY
MANAGEMENT
• INVENTORY MANAGEMENT TECHNIQUES
53

54. CONCEPTUAL FRAMEWORK
Inventory in a wider sense is defined as an idle source of all
enterprises. However, it is commonly used to indicate raw material in process,
finished, packaging spares and others, stocked in order to meet an expected
demand and distribution in future. Even though inventory of material is an idle
resource in the sense it is not meant for the most immediate use, it is almost
necessary to maintain some inventories for the smooth functioning of the
organization.
The benefit of inventory can be best understood if one imagines of
an organization is working on no inventories at all this organization on receiving a
sales order would have to order out the quality of materials required for computer
this order wait till this arrives and start production.
One will think of various disadvantages of this way of fluctuating
customers would invariable have to part every high price meal buy inch. The
production cost would also be high because of facilities to take advantage of
patching. Incase there is excessive receiving at either receipts or at any of the
manufacturing stages, long waiting be inevitable to get fresh suppliers. The load on
the manufacturing shop would vary from the period depending upon the order on
hand in should show a come put would not be able to provide satisfactory
customers service and would fail to take advantage of economics in bulk
procurement and batch manufacturing and this would not stand long in completion
both in the matter of price and customers.
In many organizations materials from the largest used
expenditure items analyze of the financial start of a large number of private and
54

55. public sector organization indicates that materials account of nearly 60% of total
expenditure. The various firms in which inventories exist in manufacturing
companies are raw materials work-in-progress (semi finished goods) and finished
goods. Raw materials are those basic input materials that are converted in to
finished products.
Working process inventories are semi-manufactured products that need
more work before they become finished products for sale, stocks of raw materials
and work-in-processes facilities production which stock of finished goods is
required for smooth marketing operations. These inventories serve as link between
the production and consumption of goods. A manufacturing firm will have
subsequently high levels of all three kinds of inventories which retail of whole
sales, firms will have a very high level of finished goods inventories and no raw
materials and work-in-process inventories, inventories constitute that most
significant part of current assets of a large majority of countries in India. For
example, are an organization inventories are approximately 60% of current assets
in public limited companies in India.
NATURE OF INVENTORIES: -
Inventories are stock of the product a company is manufactured for sale and
components that make up the product. The various forms in which inventories exist
in a manufacturing company are raw materials, work-in-progress and finished
goods.
Raw materials are those basic inputs that concerted in to finished products
through the manufactured process. Raw materials inventory those units, which
55

56. have been purchased and stored for future production. Work-in-process inventories
are semi-manufactured products. They represent products the need more work
before they become finished productivity for sale. Finished goods inventories are
those completely manufactured products, which are ready for sale Stock of raw
materials and work-in-process facilities production while stock finished goods are
required for smooth marketing operational. These inventories serve as a link
between the production and consumption or goods with in manufacturing firms
there will be difference. Large heavy engineering companies produce long
production cycle products on the other hand inventories of the consumer product
companies will not be large become of short production cycle and fast turn over.
Objectives of Inventory Management:
In the context of the inventory management the firm is face with the
problem of meeting two confliction needs:
1. To maintain a large size of inventory for efficient and smooth production
and sales operations.
2. To maintain a minimum investment inventories to maximize profitability.
Both excessive and inadequate inventories are not desirable, there
are two danger points with in which the firm should be determined and maintain
optimum level of inventory investment. The optimum level of inventory will be the
level between the two degree points of excessive and inadequate inventory. The
firm should always avoid a situation of over investment or under investment in
inventories.
The major dangers of over investment are:
1. Unnecessary tie up of the firm funds and loss of profit.
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57. 2. Excessive carrying cost.
3. Risk of liquidity.
The excessive level of inventories consumes funds of the firms, that
cannot be used for any other purpose, this involves opportunities cost. The
carrying cost such as the cost of storage, handling insurance, recording and
inspection also increase in proportion to the volume of inventory. These costs will
impair the firms’ profitability further. Excessive inventories carried out for long
period increases chance of loss of liquidity. This is possible under constitution of
inflation and scarcity, work-in-process is far more difficult to sell. Similarly
difficulties may be faced to dispose off finished goods inventories as time length.
The downward shifts in market and the seasonal factors may be because finished
goods to be sold at low price another danger of carrying excessive inventories is
the physical determination of inventory while in shortage facilities, thus factors are
with in the control of managing unnecessary inventory in inventories can be cut
down maintain as inadequate level of inventories is also dangerous. The
consequences of under investment in inventories are:
1. Production hold upper
2. Failure to meet delivery commitment.
Inadequate raw materials and Work-in-process inventories will result in
frequent production interruption. Similarly it finished goods inventories are not
sufficient to meet the demand of customers regularly they may shift to competition
which will amount to a permanent loss to the firm.
An effective inventory management should be:
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58. 1. Ensure continuous raw materials of facilities.
2. Uninterrupted production.
3. Maintain sufficient stock of raw materials in period of short supply and
Anticipate price changes.
4. Maintain sufficient finished goods inventory for smooth sale operation
and efficient customer service.
5. Minimize the carrying cost and time.
6. Control investment in inventories and keep it at optimum level.
Types of Inventories: -
Raw materials: To hold stock of materials, an organization deploys its primary
production section and process to obtain raw material from manufacture stockiest.
Work-in-progress: Work in progress inventories are some manufacture products
that need more work before they become finished products for sale.
Finished Goods: The stock of finished goods provides a buffer between customer
and demand and manufacturing supplies.
Flabby Inventories: It comprises finished goods, raw materials and stores held
because of poor working capital management and inefficient distribution.
Profit Making Inventories: It represents stocks of raw materials and finished
goods held for realizing stock profit.
Safety Inventory: It provides for failure in suppliers unexpected spent in demand
etc., although there may be an insurance cover.
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59. Normal Inventory: Based on a production plan, lead time of suppliers and
economic levels. Normal inventories fluctuate primarily with change in production
plan.
Excessive Inventory: Even an efficient management may be compelled to build
up excessive inventory for reasons beyond its control as in the case of strategic
impact as a measure of government price support of a commodity.
ADVANTAGES OF INVENTORY MANAGEMENT: -
QUICK SERVICE: Customers desire a prompt fulfillment of orders. A girl will
have to make goods available for sale. In the event of its not being able to office
quick service to customers, the latter are likely to get then orders executed the
competition, a firm is in a position to the advantage of trade discount by placing
bulk orders with suppliers.
REDUCTION IN ORDER COST: Each other increase certain cost if the number
of orders is reduced it is possible to economize on these costs or the procedure
involves each other need not be repeated each time.
EFFICIENT PRODUCTION RUNS: Inventories help a firm to make sufficient
long runs and these by achieve efficient production, which increase in the
production run, is possible to reduce the run it is possible procedure the set up
costs of operations.
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60. PROTECTION AGAINST SHORTAGE: Adequate inventory protect a firm
against shortage that would result in production stoppage and considerable losses.
INVENTORY MANAGEMENT CONTROL: -
In management inventories the fill objective should be in consonance with
the shareholders wealth maximization principle. To achieve this, the firm should
determine the optimum level of inventory make the firm feasible inefficient
inventory control results in unbalanced inventory and inflexibility the firm may
some time run out of stock and sometimes may file up unnecessary stocks. This
increases the level of investments and makes the firm unprofitable. To manage
inventories efficient answers should be sought to the following two questions:
1. How much should be ordered?
2. When should it be ordered?
The first question is how much to order, relates to the problem if determining
economic order quantity and is answered with an analysis of costs to maintain
certain level of inventories. The second question when to order arises became of
uncertainness and is a problem of determining the order points.
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61. INVENTORY MANAGEMENT TECHNIQUES
RE-ORDERING LEVEL:
It is the point at which if stock of a particular material in store approaches,
the storekeeper should initiate the purchase requisition for fresh supplies of that
material. This level is fixed somewhere between the maximum and minimum
levels in such a way that the difference of quantity of the material between the re-
ordering level and the minimum level will be sufficient to meet the requirements
of production up to the time the fresh supply of the material is received.
Re-ordering level = Minimum level + Consumption during the time required
to get the fresh delivery. (Or)
Re-ordering level = Maximum consumption x Maximum re-order period
MINIMUM LEVEL OR SAFETY STOCK LEVEL:
This represents the minimum quantity of the material which must be
maintained in hand at all times. The quantity is fixed so that production may not be
held up due to shortage of the material.
Minimum stock level = Re-ordering level – (Normal
Consumption x Normal Re-order Period)
MAXIMUM LEVEL:
It represents the maximum quantity of an item of material which can be held
in stock at any time. Stock should not exceed this quantity. The quantity is fixed so
that there may be no overstocking.
Maximum stock level = Re-ordering level + Re-ordering quantity –
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62. (Minimum consumption x Minimum re-ordering period)
DANGER LEVEL:
This means a level at which normal issues of the material are stopped and
issued are made only under specific instructions. The purchase officer will make
special arrangements to get the materials which reach at their danger levels so that
the production may not stop due to shortage of materials.
Danger level = Average consumption * Max. Re-order period for emergency
purchases
AVERAGE STOCK LEVEL:
Average stock level = Minimum stock level + ½ of re-order quantity
ECONOMIC ORDER QUANTITY:
One of the major inventory management problems to be involved in how
much inventory should be ordered when inventory is replenished. If the firm is
buying raw materials it has to decide lots in which it has to be purchased on each
replenishment. If the firm is planning are called order quantity problems and the
task of the firm is to determine the optima or economic order quantity. Determine
are optimum inventory levels involves two types of cost:
1. Ordering cost:
The term ordering is used in case of raw materials include the entire costs
of acquiring raw materials, they include costs incurred in the following activities,
requisition purchases ordering, transportation, receiving, inspecting and storing,
ordering cost increases in proportion to the number of orders place. The clerical
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63. and staff cost how ever do not have to vary in proportion to the number of orders
placed. Alternatively, as the number of orders increases the clerical and staff costs
also increases. Ordering cost increases with the number of orders. Thus the more
frequently inventories acquired, the higher the firm ordering cost on the other hand
if the firm maintains large inventory levels, they will be few orders placed and
ordering cost will be relatively small. Thus ordering costs decreases with
increasing size of inventories.
2. Carrying cost:
Cost incurred for maintaining a given level of inventory is called
carrying cost. They include storage insurance taxes, determination and obsolesce.
The storage cost comprises cost of shortage costs of storage space incurred in
recording and providing special facility such as fencing lines and racks.
TABLE -3.1
The following table provides summary or ordering and carrying costs
ORDERING COSTS CARRYING COSTS
Requisition Ware housing
Order placing Handling
Transportation Clerical and staff
Receiving and inspecting and storing Insurance
Clerical and staff Deterioration and obsolescence
Carrying cost vary with inventory sizes. This behavior is contrary to that
of ordering cost, which declines with increase in inventory size. The economic size
of inventory would thus depend on trade off between carrying costs and ordering
costs.
ABC ANALYSIS:
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64. ABC analysis is a basis analytical technique for inventory
management, which enables top management to direct the effort where the result
will be the highest. This tool is popularly known as “always better control”.
This analysis classifies the inventories according to the importance of
each component. All components are not off equal importance. The firm should
therefore classify inventories to identify which item should receive major
attention. The high value items are classified as an items and would be under
highest control. “B” items fall in between these two categories and require
reasonable attention of management. “C” items represent relatively least value and
would be under simple control. The normal items in most of the organizations
show the following pattern:
1. Category “A” generally consists of 15-25% of inventory, which is of highest value.
2. Category “B” consists of 20-30% of inventory and accounts for 20-30% of annual
usage value.
3. Category “C” consists of 40-60% of inventory and accounts for 10-15% of annual
usage value.
4. The purpose of ABC analysis: the object of carrying out ABC analysis is to
develop policy guidelines for selective control.
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65. CHAPTER – IV
• AN OVERVIEW
• FUNCTIONS OF INSPECTION DEPARTMENT
• FUNCTIONS OF STORES DEPARTMENT
• FUNCTIONING OF MATRIALS
ACCOUNTING SECTIONS IN
ACCOUNTING DEPARTMENT
• INVENTORY NORMS
• ANALYSIS AND INTERPRETATION
AN OVERVIEW
65