INTRODUCTION

Finance in the modern business world is regarded as lifeblood of

business enterprise. Finance function has become so important that it has given birth
to financial management as a separate subject. So this subject is acquiring universal
applicability. Financial management is that managerial activity which is concerned
with the planning and controlling of the firm’s financial resource as a separate activity
of decline is of recent origin, it was a branch of economics till 1980. Still today it has
no unique body of knowledge of its own and it dreams lively on economies for its
theoretical concepts.

Financial management is broadly concerned with the acquisition and

use of funds by a business firm. It deals with:

* How large should the firm be and how fast should it grow

* What should be the mix of the firm’s financing

* How should be the firm analysis, plan of control its financial affairs.

While the first three questions express extra salmon’s conception of

financial management as discussed in his clerical work, “The theory financial
management”. The forth one represents an addition that is very relevant in the light of
the responsibilities surrounded by financial managers in practice. The modern
thinking in financial management records greater importance to management in
decision making and formation of policy. Financial management occupies key
position in top management and plays a dynamic role in solving complex
management problems. They are now responsible for snapping the fortunes of the
enterprise and are involved in allocation of capital.

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 OBJECTIVES OF THE STUDY

 To know the need and importance of financial management and inventory

management.
 To determine the requirement of inventory management in the firm.
 To gain knowledge about the oil & gas industry and business activities of
ONGC limited, Rajahmundry.
 To know the formation and products details of the ONGC using the company
profile.
 To examine the methods and techniques of inventory control in ONGC,
Rajahmundry.
 To summarize and suggest the observations made in ONGC limited.

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 NEED FOR THE STUDY

 The inventory plays a vital role in the efficient operation of a company.

Particularly, it is in direct touch with manufacturing departments, material
departments and marketing department in its day to day activities.

 In all most all industries, about 60% of the Working Capital invited in the
materials. An efficient inventory management can help to achieve better
utilization of this Investment with considerable degree of success.

 Providing all the required raw materials, consumable stores, components etc., to
the manufacturing units at the right time and place, at the lowest possible cost and
adopting inventory control measures, using good material handling practices are
the principle objectives of stores management.

 In other words reducing the cost in all spares of the manufacturing activities will
help in increasing the profits of the company.

 The efficient with which the Inventory is managed will invariable determine the
efficiency of the production and levels of profits of the enterprises.

 Hence “Inventory management” has attained significant status in the present day
business and industrial management. The increasing specialization in industry,
widening range of technical equipments, fast development in science and
technological field here forced the inventory management also to innovate and
improve its performance and contribute to efficiency and economy in production.

 In this project an effort has been made to study deeply the inventory system and
procedures adopted in the inventory management of “ONGC”.

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 SCOPE OF THE STUDY

The scope of inventory management is vast. It encompasses various functions starting

with determination of the requirement of inventory and ending with the supply of
finished products to the users. In widest sense, functions included in the scope of
inventory management can be summarized as:
 Determination of inventory requirement and planning its inflow.
 Floating tender enquiries.
 Identifying suppliers and placing orders for the suppliers.
 Inspection of items received
 Store keeping and stock control.
 Issue, Valuation and Store Accounting.
 Warehousing and Distribution.
All these functions are carried out, one after the other, in close sequence.
First the periodic requirement of inventory is determined on the basis of sales
forecasts and production plan. At the same time tender enquiries are floated for
identifying the sources of suppliers. Orders are then placed with the suppliers. When
the inventory consignments are received they are inspected to ascertain that items
supplied are as per the specifications given in the order. Items found in order are then
stored in bins, racks and containers to ensure their safety, security and prevent
deterioration in quality. Inventory items are issued from stores to production and other
departments as per their demand. Proper records are maintained for the receipt and
issue of all these items. The stores department also maintains the finished goods
inventory. Finally these items are issued to the distributors and dealers as their
purchase orders, after obtaining instruction from the sales department

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 METHODOLOGY OF THE STUDY

METHODOLOGY:

Methodology of this study takes place in following steps:-

• Data collection

• Data analysis

• Data interpretation.

DATA COLLECTION:

Data collection is the primary step to the methodology of this

study. Hence there are two sources of data collection are namely primary &
secondary.

• PRIMARY DATA:

Primary data is the specific information collected by the person who is doing
the research .it can be obtained through surveys, interviews ,true experiments and
controlled studies.

• SECONDARY DATA:

It is the data that have been already collected by and readily available
from other sources .I have obtained secondary data from some other organizations
than the one instaneously interested with current research project.

Here I have collected secondary data for my research purpose are:

1. NSE WEBSITE

2. ORGANIZATION WEB SITE.

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 LIMITATIONS OF THE STUDY

 The study is confined only to Inventory management.

 This is a study conducted within a period of 6 Weeks.
 During this limited period of study, the study may not be a detailed, Full –
fledged and utilitarian one in all aspects.
 The study contains some assumptions based on the demands of the analysis.
 The study does not provide any predictions or forecast of the selected scripts

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 EVALUATION OF INDUSTRY

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent,

intergovernmental Organization, created at the Baghdad Conference on September
10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The five Founding
Members were later joined by nine other Mesmbers: Qatar (1961); Indonesia (1962) –
suspended its membership from January 2009; Socialist People’s Libyan Arab
Jamahiriya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971);
Ecuador (1973) – suspended its membership from December 1992-October 2007;
Angola (2007) and Gabon (1975–1994). OPEC had its headquarters in Geneva,
Switzerland, in the first five years of its existence. This was moved to Vienna,
Austria, on September 1, 1965.

OPEC's objective is to co-ordinate and unify petroleum policies among Member

Countries, in order to secure fair and stable prices for petroleum producers; an
efficient, economic and regular supply of petroleum to consuming nations; and a fair
return on capital to those investing in the industry.

The 1960s

OPEC’s formation by five oil-producing developing countries in Baghdad in

September 1960 occurred at a time of transition in the international economic and
political landscape, with extensive decolonization and the birth of many new
independent states in the developing world. The international oil market was
dominated by the “Seven Sisters” multinational companies and was largely separate
from that of the former Soviet Union (FSU) and other centrally planned economies
(CPEs). OPEC developed its collective vision, set up its objectives and established its
Secretariat, first in Geneva and then, in 1965, in Vienna. It adopted a ‘Declaratory
Statement of Petroleum Policy in Member Countries’ in 1968, which emphasised the
inalienable right of all countries to exercise permanent sovereignty over their natural
resources in the interest of their national development. Membership grew to ten by
1969.

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The 1970s

OPEC rose to international prominence during this decade, as its Member Countries
took control of their domestic petroleum industries and acquired a major say in the
pricing of crude oil on world markets. On two occasions, oil prices rose steeply in a
volatile market, triggered by the Arab oil embargo in 1973 and the outbreak of the
Iranian Revolution in 1979. OPEC broadened its mandate with the first Summit of
Heads of State and Government in Algiers in 1975, which addressed the plight of the
poorer nations and called for a new era of cooperation in international relations, in the
interests of world economic development and stability. This led to the establishment
of the OPEC Fund for International Development in 1976. Member Countries
embarked on ambitious socio-economic development schemes. Membership grew to
13 by 1975.

The 1980s

After reaching record levels early in the decade, prices began to weaken, before
crashing in 1986, responding to a big oil glut and consumer shift away from this
hydrocarbon. OPEC’s share of the smaller oil market fell heavily and its total
petroleum revenue dropped below a third of earlier peaks, causing severe economic
hardship for many Member Countries. Prices rallied in the final part of the decade, but
to around half the levels of the early part, and OPEC’s share of newly growing world
output began to recover. This was supported by OPEC introducing a group production
ceiling divided among Member Countries and a Reference Basket for pricing, as well
as significant progress with OPEC/non-OPEC dialogue and cooperation, seen as
essential for market stability and reasonable prices. Environmental issues emerged on
the international energy agenda.

The 1990s

Prices moved less dramatically than in the 1970s and 1980s, and timely OPEC action
reduced the market impact of Middle East hostilities in 1990–91. But excessive
volatility and general price weakness dominated the decade, and the South-East Asian
economic downturn and mild Northern Hemisphere winter of 1998–99 saw prices
back at 1986 levels. However, a solid recovery followed in a more integrated oil

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market, which was adjusting to the post-Soviet world, greater regionalism,
globalization, the communications revolution and other high-tech trends.
Breakthroughs in producer-consumer dialogue matched continued advances in
OPEC/non-OPEC relations. As the United Nations-sponsored climate change
negotiations gathered momentum, after the Earth Summit of 1992, OPEC sought
fairness, balance and realism in the treatment of oil supply. One country left OPEC,
while another suspended its Membership

The 2000s

An innovative OPEC oil price band mechanism helped strengthen and stabilise crude
prices in the early years of the decade. But a combination of market forces,
speculation and other factors transformed the situation in 2004, pushing up prices and
increasing volatility in a well-supplied crude market. Oil was used increasingly as an
asset class. Prices soared to record levels in mid-2008, before collapsing in the
emerging global financial turmoil and economic recession. OPEC became prominent
in supporting the oil sector, as part of global efforts to address the economic crisis.
OPEC’s second and third summits in Caracas and Riyadh in 2000 and 2007
established stable energy markets, sustainable development and the environment as
three guiding themes, and it adopted a comprehensive long-term strategy in 2005. One
country joined OPEC, another reactivated its Membership and a third suspended it.

New York Mercantile Exchange:

The New York Mercantile Exchange (NYMEX) is the world's largest physical
commodity futures exchange. It is located at One North End Avenue in the World
Financial Center in the Battery Park City section of Manhattan, New York City.
Additional offices are located in Boston, Washington, D.C., Atlanta, San Francisco,
Dubai, London, and Tokyo.

The company's two principal divisions are the New York Mercantile Exchange and
Commodity Exchange, Inc (COMEX), once separately owned exchanges. NYMEX
Holdings, Inc., the former parent company of the New York Mercantile Exchange and
COMEX, became listed on the New York Stock Exchange on November 17, 2006,
under the ticker symbol NMX. On March 17, 2008, Chicago based CME Group

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signed a definitive agreement to acquire NYMEX Holdings, Inc. for $11.2 billion in
cash and stock and the takeover was completed in August 2008. Both NYMEX and
COMEX now operate as designated contract markets (DCM) of the CME Group. The
other two designated contract markets in the CME Group are the Chicago Mercantile
Exchange and the Chicago Board of Trade.

The New York Mercantile Exchange handles billions of dollars worth of energy
products, metals, and other commodities being bought and sold on the trading floor
and the overnight electronic trading computer systems for future delivery. The prices
quoted for transactions on the exchange are the basis for prices that people pay for
various commodities throughout the world.

The floor of the NYMEX is regulated by the Commodity Futures Trading

Commission, an independent agency of the United States government. Each
individual company that trades on the exchange must send its own independent
brokers. Therefore, a few employees on the floor of the exchange represent a big
corporation and the exchange employees only record the transactions and have
nothing to do with the actual trade. The NYMEX is one of the few exchanges in the
world to maintain the open outcry system, where traders employ shouting and
complex hand gestures on the physical trading floor. A project to preserve the hand
signals used at NYMEX has been published.

On February 26, 2003, the New York Board of Trade (NYBOT) signed a lease
agreement with the NYMEX to move into its World Financial Center headquarters
and trading facility after the NYBOT's original headquarters and trading floor was
destroyed in the September 11, 2001 terrorist attacks on the World Trade Center.

After the September 11 attacks, the NYMEX built a $12 million trading floor backup
facility outside of New York City with 700 traders' booths, 2,000 telephones, and a
backup computer system. This backup is in case of another terrorist attack or natural
disaster in Lower Manhattan.

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History of the exchange

Commodity exchanges began in the middle of the 19th century, when businessmen
began organizing market forums to make buying and selling of commodities easier.
These marketplaces provided a place for buyers and sellers to set the quality,
standards, and establish rules of business. By the late 19th century about 1,600
marketplaces had sprung up at ports and railroad stations. In 1872, a group of
Manhattan dairy merchants got together and created the Butter and Cheese Exchange
of New York. Soon, egg trade became part of the business conducted on the exchange
and the name was modified to the Butter, Cheese, and Egg Exchange. In 1882, the
name finally changed to the New York Mercantile Exchange when opening trade to
dried fruits, canned goods, and poultry.

As centralized warehouses were built into principal market centers such as New York
and Chicago in the early 20th century, exchanges in smaller cities began to disappear
giving more business to the exchanges such as the NYMEX in bigger cities. In 1933,
the COMEX was established through the merger of four smaller exchanges; the
National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk
Exchange, and the New York Hide Exchange. On August 3, 1994, the NYMEX and
COMEX finally merged under the NYMEX name. Now, the NYMEX operates in a
trading facility and office building with two trading floors in the World Financial
Center in downtown Manhattan.

Gold delivery problems

As of 2009, holders of COMEX gold futures contracts have experienced problems

taking delivery of their metal. Along with chronic delivery delays, some investors
have received delivery of bars not matching their contract in serial number and
weight. The delays cannot be easily explained by slow warehouse movements, as the
daily reports of these movements show little activity. Because of these problems,
there are concerns that COMEX may not have the gold inventory to back its existing
warehouse receipts. As a result of the CFTC's March 2010 Metals Hearings, position
limits will likely be imposed on COMEX Precious Metals Futures Contracts,
according to CFTC Commissioner Bart Chilton, in order to avoid continued charges
of unfair concentration and manipulation.

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Meaning of energy:

Energy makes change; it does things for us. It moves cars along the
road and boats over the water. It bakes a cake in the oven and keeps ice frozen in the
freezer. It plays our favorite songs on the radio and lights our homes. Energy makes
our bodies grow and allows our minds to think. Scientists define energy as the ability
to do work. People have learned how to change energy from one from to another so
that we can do work more easily and live more comfortably.
Forms of energy:

Energy is found in different forms, such as light, heat, sound and

motion. There are many forms of energy, but they can all be put into two categories:
kinetic and potential.
Law of conservation of energy:-

Conservation of energy is not saving energy. The law of conservation

of energy says that energy is neither created nor destroyed. When we use energy, it
doesn’t disappear. We change it from one from of energy into another.
A car engine burns gasoline, converting the chemical energy in gasoline into
mechanical energy. Solar cells change radiant energy into electrical energy. Energy
changes form, but the total amount of energy in universe stays the same. Scientists at
the department of energy think they have discovered a mysterious new form of energy
called “dark energy “that is actually causing the universe to grow.

I would prefer to use one simple definition of energy, which I was taught
at school:

Energy is a term of physics which describes something that we

cannot hold or see.

We can only see the results of its application, and that's why you will
never find a comprehensive definition of energy to please you.
To understand that, let’s have a look at a couple of everyday examples:

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We can see something moving which means that it has kinetic energy. Or
we can feel something is hot, meaning that it contains thermal energy.

To sum up, there are different forms of energy:

 Potential Energy
o Gravitational Potential Energy
o Elastic Potential Energy
 Kinetic Energy
 Thermal Energy
 Electric Energy
 Chemical Energy
 Nuclear Energy

Please have in mind that energy transforms from one form to another and
it is never destroyed. This is generally known as the conservation of energy principle.

To understand that, it is better to use an example:

Imagine that you go for a ride with your car. You turn it on and it makes
noise. After your ride, you park your car at the garage and you notice that engine is
hot, and that the fuel is less too.

Here is what happened: The chemical energy (fuel) became kinetic,

sound, and thermal energy as well.

Someone could say:

But I do NOT need sound or thermal energy either!

Indeed we lose energy by transforming it in other forms, but this is a

necessary evil. What we can do, is energy efficient designs. Those apply not only on
machines and vehicles but on buildings as well. We try to make everything use less,
and lose less energy.

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Well! I was looking something like green energy or solar power let’s
say...

I have an answer to that as well. They simply are not forms of energy.
These kinds of terms refer on the sources where energy is obtained from.

Solar energy for example, is the energy we get from the sun and it is
usually either in electric (electromagnetic) or thermal form.
Here is a nice article for solar energy on easy-green-living.org

Confused? Let’s put things together.

Energy is something we cannot see or touch. But We need it to move or shape things.

So We get it from different sources. And Use it or store it in different forms.

Haven't told anything about sources of energy yet?

Well, there are two major categories:

-Conventional Energy Sources

-Alternative Energy Sources

Alternative or renewable energy sources will never be exhausted, whereas

conventional sources are fading out day by day.

Need a list? Here it is:

Conventional sources are mostly used at present and actually harm the environment:

 Fossil Fuels
o Crude Oil or Petroleum
o Coal
o Natural Gas
 Nuclear Power

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Alternative Sources are those which do not harm the environment, and thank God,
they will never fade out:

 Biomass and Biofuels

 Earth - Geothermal Energy
 Water Movement - Hydroelectric, Wave Energy
 Air Movement- wind power
 Sun – solar power

You might say, I DO NOT CARE if it harms the environment, or how I will get it
from!

Here is your answer: You may not care but your children do!

Why? Because environment is suffering and natural habitat is going to get irreversibly
damaged in a few years. We are destroying the earth that our children are going to
live on!

So, do you want to do something to change that? Right decision. Think Green on
every aspect of your everyday living. Use green free energy to power up your house
and transform it to work in a sustainable way to make our world greener. Everyone
can help, and each tiny personal action counts.
P.S. As you can see, there is no such thing as a strict definition of energy. At
least not one that everyone understands. The key here is to understand the whole idea
and utilize energy as harmlessly as possible.

How oil was formed?

Plants, animals and marine organisms all get their energy from the sun one way
or another. Plants use photosynthesis to turn sunlight into plant food and animals eat
plants and other animals. When marine organisms die they fall to the seabed, silt and
sand gradually cover them. The layers of silt and sand become deeper and deeper. The
whole time, dead plants and animals are stuck in small pockets between the layers of
silt and sand. Eventually the layers on top of them are so deep that the sand and silt
turn to rock. The enormous pressure from the rock compresses the dead matter so that

15
it becomes petroleum and when the petroleum is eventually subjected to very high
heat it turns into oil and gas. Crude petroleum is of little use. It must be refined. A
distillation process separates the different things in the crude oil; in this process we
obtain petrol, kerosene, lubricating oils, fuel oil, and asphalt.

How was natural gas formed?

One theory is that natural gas was formed millions of years ago when plants and
tiny sea animals were buried by sand and rock. Layers of mud, sand, rock, plant, and
animal matter continued to build up until the pressure and heat turned them into oil
and natural gas. Another theory proposes that the earth is made up of primordial
materials that combined in space billions of years ago when the basic structure of the
earth evolved. The materials are still buried far below the earth's crust where they
have been trapped for 4.5 billion years.

To locate natural gas, geologic mapping, surveys

and aerial photographs are used. Recent technology is
helping find natural gas more accurately: magnetic
measurement (measure of the magnetic field of base
rock to determine how much sediment is lying above
it), satellite imagery (helps identify surface structures
and patterns that aid in the search for probable
underlying hydrocarbon deposits), gravity mapping
(determines the thickness of the basin or sedimentary rock layer and helps identify
base rock topography), and seismic sound wave reflection (measures the time to
various rock units that reflect acoustic energy). Gas is recovered through wells on-
shore or off-shore.

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Products Made from a Barrel of Crude Oil Products

Note: The gain from processing is about 5%.

After crude oil is removed from the ground, it is sent to a refinery by pipeline, ship or
barge. At a refinery, different parts of the crude oil are separated into useable
petroleum products. Crude oil is measured in barrels (abbreviated "bbls"). A 42-U.S.
gallon barrel of crude oil provides slightly more than 44 gallons of petroleum
products. This gain from processing the crude oil is similar to what happens to
popcorn, it gets bigger after it is popped.

Oily Waste Separation Systems provide benefit to clients seeking an environmentally

sound Waste Management Program. This is to comply with the standard practices of
the Environmental 3R's - Reduce, Recycle, Re-use. G-force treated oily waste is:

 Reduced (minimized) to solids by removal of liquids, and

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  Recycling of Oil and Water, and
 Re-use of oil as a product with water returned to nature

Petroleum (oil)

The world needs gasoline and petroleum products to move merchandise and
people; help make plastics; and do many other things. Today, some refineries turn
more than half of every 42-gallon barrel of crude oil into gasoline. How does this
motor a refinery is a factory. Just as a paper mill turns lumber into paper, a refinery
takes crude oil and turns it into gasoline and hundreds of other useful products. A
typical refinery costs billions of dollars to build and millions more to maintain A
refinery runs twenty-four hours a day, 365 days a year and requires a large number of
employees to run. A refinery can occupy as much land as several hundred football
fields. Workers ride bicycles to move from place to place inside the complex.
Transformation takes place? Essentially, refining breaks crude oil down into its
various components, which then are selectively reconfigured into new products? All
refineries perform three basic steps: separation, conversion, and treatment.

Separation:
Heavy petroleum fractions are on the bottom, light fractions are on the top.
This allows the separation of the various petrochemicals. Modern separation involves
piping oil through hot furnaces. The resulting liquids and vapors are discharged into
distillation towers.

Inside the towers, the liquids and vapors separate into components or fractions
according to weight and boiling point. The lightest fractions, including gasoline and
liquid petroleum gas (LPG), vaporize and rise to the top of the tower, where they
condense back to liquids. Medium weight liquids, including kerosene and diesel oil
distillates, say in the middle.

Conversion:

The finishing touches occur during the final treatment. To make gasoline,
Cracking and rearranging molecules adds value to the products. This is where refining
fanciest footwork takes place--where fractions from the distillation towers are

18
transformed into streams (intermediate components) that eventually become finished
products. The most widely used conversion method is called cracking because it uses
heat and pressure to "crack" heavy hydrocarbon molecules into lighter ones. A
cracking unit consists of one or more tall, thick-walled, bullet-shaped reactors and a
network of furnaces, heat exchangers and other vessels.

Cracking and coking are not the only forms of conversion. Other refinery
processes, instead of splitting molecules, rearrange them to add value. Alkylation’s,
for example, makes gasoline components by combining some of the gaseous
byproducts of cracking. The process, which essentially is cracking in reverse, takes
place in a series of large, horizontal vessels and tall, skinny towers that loom above
other refinery structures. Reforming uses heat, moderate pressure and catalysts to turn
naphtha, a light, relatively low-value fraction, into high-octane gasoline components.

Treatment:

The finishing touches occur during the final treatment. To make gasoline,
refinery technicians carefully combine a variety of streams from the processing units.
Among the variables that determine the blend are octane level, vapor pressure ratings
and special considerations, such as whether the gasoline will be used at high altitudes.

Storage:

Both the incoming crude oil and the outgoing final products need to be
stored. These liquids are stored in large tanks on a tank farm. Pipelines carry the final
products from the tank farm near the refinery to other tanks all across the country.

All of these activities are required to make the gasoline that powers our cars,
the diesel fuel that brings our food to market, and the jet fuel that flies our planes.
These provide us with the energy we need to get from place to place quickly and
comfortably.

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Energy use for transportation

Cars, vans, and buses are commonly used to carry people. Trucks, airplanes,
and trains can be used to carry people and freight. Barges and pipelines only carry
freight. In 2008, 1 there were about 250 million vehicles (cars, buses, and trucks) in
the United States — more than three vehicles for every four people.

Types of Energy Used for Transportation

Gasoline is used mainly by cars, motorcycles, and light trucks; diesel fuel is
used mainly by heavier trucks, buses, and trains. Together, gasoline and diesel, and
the biofuels ethanol and biodiesel that are added to gasoline and diesel, made up 83%
of all the energy used for transportation in the U.S. in 2010.

There is currently a push to develop vehicles that run on blended fuels or

fuels other than petroleum products. Today, there are some vehicles that run on
electricity, natural gas, propane, and fuels with high concentrations of ethanol and
biodiesel.

Hybrid-electric vehicles combine the benefits of gasoline engines and electric

motors by reducing the amount of fuel required to move a vehicle. This is why
hybrid-electric vehicles can get more miles per gallon of gasoline compared to
vehicles that run on gasoline alone
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How Is Crude Oil Formed?

It is generally believed that crude oil was formed from the remains of
animals and plants (called biomass) that lived many years ago. Over eons the biomass
was covered by layers of mud, silt, and sand that formed into sedimentary rock.
Geologic heat and the pressure of the overlying rock turned the biomass into a
hydrocarbon-rich liquid that we call crude oil, and eventually forced it into porous
rock strata called reservoirs. There are also formations or deposits of hydrocarbon-
saturated sands and shale where geologic conditions have not been sufficient to turn
the hydrocarbons into liquid

Where Is Crude Oil Produced?

U.S. Crude Oil Production
The first oil well in the U.S. was drilled in Titusville, Pennsylvania in 1859.
Drilling activity and crude oil production expanded slowly to supply mostly lubricants

21
and kerosene for use in lampto replace whale oil. Production began to accelerate in
the late 1800’s as crude oil refineries produced new petroleum products to meet
demand for fuels and products by a rapidly industrializing country and the growing
number of internal combustion engines. In 1859, U.S. production was about 2,000
barrels; in 1879 it was about 19 million barrels and in 1899 about 57 million barrels.
(A barrel contains 42 U.S. gallons.)

U.S. crude oil production peaked in 1970 and has declined gradually since
then. In 1970, domestic production of crude oil (including lease cond) averaged 9.64
million barrels per day (MMbbl/d). In 2006, total U.S. domestic crude oil production,
including Federal offshore, averaged 5.102 MMbbl/d, a decrease of about 47% from
1970.

The top six crude oil-producing States in 2006 (and their percent share of
total domestic production) were Texas (21%), Alaska (15%), California (12%),
Louisiana (4%), Oklahoma (3%), and New Mexico (3%). Production on Federal
offshore-leases in the Gulf of Mexico in 2006 was 1.3 MMbbl/d, about 25% of total
U.S. production.

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 GLOBAL SCENARIO

Total world production of crude oil (including lease condensate, but

excluding natural gas plant liquids²) in 2006 was 73.54 MMbbl/d (preliminary). The
top five oil producing countries, which together accounted for about 43% of total
world production, were: Russia (9.25 MMbbl/d), Saudi Arabia (9.15 MMbbl/d), the
United States (5.1 MMbbl/d), Iran (4.03 MMbbl/d) and China (3.69 MMbbl/d). The
Organization of Petroleum Exporting Countries (OPEC), which includes Saudi
Arabia, produced 32.1 MMbbl/d or about 44% of the world total.

1. Lease Condensate: A mixture consisting primarily of pentanes and heavier

hydrocarbons which is recovered as a liquid from natural gas in lease separation
facilities.

2. Natural Gas Plant Liquids: Hydrocarbons in natural gas that are separated as liquids
at natural gas processing plants, fractionating and cycling plants, and, in some
instances, field facilities.

Source: Energy Information Administration

How Is Crude Oil Produced?

Wells are drilled into oil reservoirs to extract the crude oil. “Natural lift”
production methods that rely on the natural reservoir pressure to force the oil to the
surface are usually sufficient for a while after reservoirs are first tapped. In some
reservoirs, such as in the Middle East, the natural pressure is sufficient over a long
time. The natural pressure in many reservoirs, however, eventually dissipates. Then
the oil must be pumped out using “artificial lift” created by mechanical pumps
powered by gas or electricity. Over time, these “primary” methods become less
effective and “secondary” production methods may be used. A common secondary
method is “water flood” or injection of water into the reservoir to increase pressure
and force the oil to the drilled shaft or “wellbore.” Eventually “tertiary” or
“enhanced” oil recovery methods may be used to increase the oil’s flow
characteristics by injecting steam, carbon dioxide and other gases or chemicals into
the reservoir. In the United States, primary production methods account for less than

23
40% of the oil produced on a daily basis, secondary methods account for about half,
and tertiary recovery the remaining 10%. Extracting oil (or “bitumen”) from oil/tar
sand and oil shale deposits requires mining the sand or shale and heating it in a vessel
or retort, or using “in-situ” methods of injecting heated liquids into the deposit and
then pumping out the oil-saturated liquid.

Where the US Gets Its Oil From

How Much Oil Do We Produce, and How Much Is Imported?

The United States imported about 58% of the petroleum, which includes crude oil and
refined petroleum products that we consumed during 2007. About half of these
imports came from the Western Hemisphere

The United States consumed 20.7 million barrels per day (MMbd) of petroleum
products during 2007 making us the world’s largest petroleum consumer. The United
States was third in crude oil production at 5.1 MMbd. But crude oil alone does not
constitute all U.S. petroleum supplies. Significant gains occur, because crude oil
expands in the refining process, liquid fuel is captured in the processing of natural
gas, and we have other sources of liquid fuel, including biofuels. These additional
supplies totaled 3.6 MMbd in 2007. However, we still needed 13.5 MMbd of
imported crude oil and petroleum products to meet U.S. demand. The United States
also exported 1.4 MMbd of crude oil and petroleum products during 2007, so our net
imports (imports minus exports) equaled 12.0 MMbd.

24
Where Does Our Imported Oil Come From?

About Half of U.S. Petroleum Imports Come from the Western

Hemisphere

Some may be surprised to learn that almost 50% of U.S. crude oil

And petroleum products imports came from the Western Hemisphere (North, South,
and Central America and the Caribbean including U.S. territories) during 2006. We
imported only 16% of our crude oil and petroleum products from the Persian Gulf
countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates.
During 2007, our five biggest suppliers of crude oil and petroleum products were:

 Canada (18.2%)
 Mexico (11.4%)
 Saudi Arabia (11.0%)
 Venezuela (10.1%)
 Nigeria (8.4%)

It is usually impossible to tell whether the petroleum products you use came from
domestic or imported sources of oil once they are refined.

25
What is Natural Gas?

Natural gas, in itself, might be considered an uninteresting gas - it is

colorless, shapeless, and odorless in its pure form. Quite uninteresting - except that
natural gas is combustible, abundant in the United States and when burned it gives off
a great deal of energy and few emissions. Unlike other fossil fuels, natural gas is clean
burning and emits lower levels of potentially harmful byproducts into the air. We
require energy constantly, to heat our homes, cook our food, and generate our
electricity. It is this need for energy that has elevated natural gas to such a level of
importance in our society, and in our lives.

Natural gas is a combustible mixture of hydrocarbon gases. While natural gas is

formed primarily of methane, it can also include ethane, propane, butane and pentane.
The composition of natural gas can vary widely, but below is a chart outlining the
typical makeup of natural gas before it is refined.

The Formation of Natural Gas

Natural gas is a fossil fuel. Like oil and coal, this means that it is,
essentially, the remains of plants and animals and microorganisms that lived millions
and millions of years ago. But how do these once living organisms become an
inanimate mixture of gases?

There are many different theories as to the origins of fossil fuels. The
most widely accepted theory says that fossil fuels are formed when organic matter
(such as the remains of a plant or animal) is compressed under the earth, at very high
pressure for a very long time. This is referred to as thermogenic methane. Similar to
the formation of oil, thermogenic methane is formed from organic particles that are
covered in mud and other sediment. Over time, more and more sediment and mud and
other debris are piled on top of the organic matter. This sediment and debris puts a
great deal of pressure on the organic matter, which compresses it. This compression,
combined with high temperatures found deep underneath the earth, breaks down the
carbon bonds in the organic matter. As one gets deeper and deeper under the earth’s
crust, the temperature gets higher and higher. At low temperatures (shallower
deposits), more oil is produced relative to natural gas. At higher temperatures,

26
however, more natural gas is created, as opposed to oil. That is why natural gas is
usually associated with oil in deposits that are 1 to 2 miles below the earth's crust.
Deeper deposits, very far underground, usually contain primarily natural gas, and in
many cases, pure methane.

Natural gas can also be formed through the transformation of organic

matter by tiny microorganisms. This type of methane is referred to as biogenic
methane. Methanogens, tiny methane-producing microorganisms, chemically break
down organic matter to produce methane. These microorganisms are commonly found
in areas near the surface of the earth that are void of oxygen. These microorganisms
also live in the intestines of most animals, including humans. Formation of methane in
this manner usually takes place close to the surface of the earth, and the methane
produced is usually lost into the atmosphere. In certain circumstances, however, this
methane can be trapped underground, recoverable as natural gas. An example of
biogenic methane is landfill gas. Waste-containing landfills produce a relatively large
amount of natural gas from the decomposition of the waste materials that they
contain. New technologies are allowing this gas to be harvested and used to add to the
supply of natural gas.

A third way in which methane (and natural gas) may be formed is

through a biogenic process. Extremely deep under the earth's crust, there exist
hydrogen-rich gases and carbon molecules. As these gases gradually rise towards the
surface of the earth, they may interact with minerals that also exist underground, in
the absence of oxygen. This interaction may result in a reaction, forming elements and
compounds that are found in the atmosphere (including nitrogen, oxygen, carbon
dioxide, argon, and water). If these gases are under very high pressure as they move
toward the surface of the earth, they are likely to form methane deposits, similar to
thermogenic methane.

27
Natural Gas under the Earth

Although there are several ways that

methane, and thus natural gas, may be formed, it is
usually found underneath the surface of the earth.
As natural gas has a low density, once formed it
will rise toward the surface of the earth through
loose, shale type rock and other material. Some of
this methane will simply rise to the surface and
dissipate into the air. However, a great deal of this
methane will rise up into geological formations that
Source: U.S. Energy Information
'trap' the gas under the ground. These formations
Administration
are made up of layers of porous, sedimentary rock
(kind of like a sponge that soaks up and contains the gas), with a denser, impermeable
layer of rock on top.

This impermeable rock traps the natural gas under the ground. If these formations are
large enough, they can trap a great deal of natural gas underground, in what is known
as a reservoir. There are a number of different types of these formations, but the most
common is created when the impermeable sedimentary rock forms a 'dome' shape,
like an umbrella that catches all of the natural gas that is floating to the surface.

There are a number of ways that this sort of 'dome' may be formed. For
instance, faults are a common location for oil and natural gas deposits to exist. A fault
occurs when the normal sedimentary layers 'split' vertically, so that impermeable rock
shifts down to trap natural gas in the more permeable limestone or sandstone layers.
Essentially, the geological formation, which layers impermeable rock over more
porous, oil and gas rich sediment, has the potential to form a reservoir. The picture
below shows how natural gas and oil can be trapped under impermeable sedimentary
rock, in what is known as an anticline formation. To successfully bring these fossil
fuels to the surface, a hole must be drilled through the impermeable rock to release the
fossil fuels under pressure. Note that in reservoirs that contain oil and gas, the gas,
being the least dense, is found closest to the surface, with the oil beneath it, typically
followed by a certain amount of water. With natural gas trapped under the earth in this

28
fashion, it can be recovered by drilling a hole through the impermeable rock. Gas in
these reservoirs is typically under pressure, allowing it to escape from the reservoir on
its own.

Uses of natural gas

For hundreds of years, natural gas has been known as a very useful
substance. The Chinese discovered a very long time ago that the energy in natural gas
could be harnessed, and used to heat water. In the early days of the natural gas
industry, the gas was mainly used to light streetlamps, and the occasional house.
However, with much improved distribution channels and technological advancements,
natural gas is being used in ways never thought possible.

There are so many different applications for this fossil fuel that it is
hard to provide an exhaustive list of everything it is used for. And no doubt, new uses
are being discovered all the time. To learn more about technological advancements in
the natural gas industry,. Natural gas has many applications, commercially, in your
home, in industry, and even in the transportation sector! While the uses described here
are not exhaustive, they may help to show just how many things natural gas can do.

According to the energy information

administration, energy from natural
gas accounts for 24 percent of total
energy consumed in the United
States, making it a vital component of
the nation's energy supply. For more
detailed information on the demand
for and supply of energy, and natural
gas, including forecasts and outlooks,.

Natural gas is used across all sectors,

in varying amounts. The graph below
gives an idea of the proportion of
natural gas use per sector. The
industrial sector accounts for the

29
greatest proportion of natural gas use in the United States, with the residential sector
consuming the second greatest quantity of natural gas.

Measurement and Usage

We measure and sell natural gas in cubic feet (volume) or in British Thermal Units
(heat content). Heat from all energy sources can be measured and converted back and
forth between British thermal units (Btu) and metric units. See the Energy Calculator
for help with converting natural gas units.

One Btu is the heat required to raise the temperature of one pound of water one degree
Fahrenheit. Ten burning kitchen matches release 10 Btu. A candy bar has about 1000
Btu. One cubic foot of natural gas has about 1031 Btu. A box 10 feet deep, 10 feet
long, and 10 feet wide would hold one thousand cubic feet of natural gas.

Approximately 22 percent of the energy consumption of the U.S. comes from natural
gas. Slightly more than half of the homes in the U.S. use natural gas as their main
heating fuel.

Natural gas is also an essential raw material for many common products, such as:
paints , fertilizer, plastics, antifreeze, dyes, photographic film, medicines, and
explosives. We also get propane when we process natural gas. Propane is the fuel
many of us use in our barbecue grills.

Natural gas has thousands of uses and industry depends on it. It’s used to produce
steel, glass, paper, clothing, brick, electricity and much more!

Homes use it too. More than 62.5 percent of homes use natural gas to fuel stoves,
furnaces, water heaters, clothes dryers and other household appliances. It is also used
to roast coffee, smoke meats, bake bread and much more.

Effect on the Environment

Natural gas burns more cleanly than other fossil fuels. It has fewer emissions of
sulfur, carbon, and nitrogen than coal or oil, and when it is burned, it leaves almost no
ash particles. Being a clean fuel is one reason that the use of natural gas, especially for

30
electricity generation, has grown so much and is expected to grow even more in the
future.

Of course, there are environmental concerns with the use of any fuel. As with other
fossil fuels, burning natural gas produces carbon dioxide which is a very important
greenhouse gas. Many scientists believe that increasing levels of carbon dioxide and
other greenhouse gases in the earth’s atmosphere are changing the global climate.

Also, as with other fuels, natural gas also affects the environment when it is produced,
stored and transported. Because natural gas is made up mostly of methane (another
greenhouse gas), small amounts of methane can sometimes leak into the atmosphere
from wells, storage tanks and pipelines. The natural gas industry is working to prevent
any methane from escaping. Exploring and drilling for natural gas will always have
some impact on land and marine habitats. But new technologies have greatly reduced
the number and size of areas disturbed by drilling, sometimes called “footprints.”
Satellites, global positioning systems, remote sensing devices, and 3-D and 4-D
seismic technologies, make it possible to discover natural gas reserves while drilling
fewer wells. Plus, the use of horizontal and directional drilling makes it possible for a
single well to produce gas from much bigger areas than in the past.

Natural gas pipelines and storage facilities have a very good safety record. This is
very important because when natural gas leaks it can cause explosions. Since raw
natural gas has no odor, natural gas companies add a smelly substance to it so that
people will know if there is a leak. If you have a natural gas stove, you may have
smelled this “rotten egg” smell of natural gas when the pilot light has gone out.

31
 Top 50 Rankings Based On Six Operational Criteria
Output Reserves
Gas Liquids
Liquids (MMcf/d (Mil. Gas
Ra Ra PI (1,000 b/d) ) bbl) (Bcf)
nk nk W State-
200 200 Ind ownersh Volu Ra Volu Ra Volu Ra Volu
4 3 ex Company Country ip % Rank me nk me nk me nk me
Saudi Saudi 9,83 6,19 262, 238,4
1 1 31 Aramco Arabia 100 1 0 7 0 1 700 4 00
Exxon 2,57 9,86 11,6 60,36
2 2 35 Mobil US 5 1 2 4 13 51 13 2
2,60 4,00 77,1 150,0
3 4 36 PDV Venezuela 100 4 0 11 0 5 40 5 43
4,08 8,26 132, 970,8
4 3 37 NIOC Iran 100 2 1 5 9 2 500 2 00
2,53 8,50 9,93 48,50
5 5 51 BP UK 6 1 4 3 18 4 15 7
UK/
Royal Netherlan 2,33 8,80 5,50 40,56
6 5 57 Dutch Shell ds 8 3 3 8 25 3 17 6
1,69 4,89 7,00 22,78
7 8 79 Total France 15 5 9 4 22 3 21 5
1,73 3,95 8,14 19,67
8 7 80 Chevron US 11 7 12 8 19 0 24 5
3,75 3,36 14,8 14,80
9 9 83 Pemex Mexico 100 3 4 14 3 10 03 29 7
2,12 2,78 11,0 44,64
9 10 83 PetroChina China 90 9 4 19 6 14 19 16 5
ConocoPhil 1,19 3,31 5,53 17,69
11 11 99 lips US 20 5 16 7 24 9 27 6
1,70 7,73 10,9 149,3
12 13 102 Sonatrach Algeria 100 14 1 6 2 15 86 6 32
2,42 89,3 55,50
13 12 105 KPC Kuwait 100 7 4 40 938 4 97 14 0
1,64 2,15 9,94 11,24
14 15 107 Petrobras Brazil 32 16 9 23 4 17 5 33 7
6,02 3,99 76,75
15 16 108 Pertamina Indonesia 100 23 957 8 5 30 5 12 5
1,36 3,05 52,6 105,5
16 14 110 Adnoc UAE 100 18 3 17 0 6 16 10 02
1,03 3,54 4,00 18,43
17 17 136 Eni Italy 30 22 4 13 0 29 8 25 5
4,72 7,44 100,7
18 20 139 Petronas Malaysia 100 24 756 10 4 20 6 11 95
19 19 141 Lukoil Russia 12 1,73 65 475 9 15,9 20 24,59

32
 5 72 8
3,36 1,68 18,20
20 18 146 Repsol YPF Spain 30 567 15 0 42 3 26 7
1,50 1,19 21,1 105,6
21 20 147 NNPC Nigeria 100 17 8 32 5 8 80 9 00
2,02 115, 111,9
22 22 165 INOC ? Iraq 100 10 7 84 183 3 000 8 00
1,29 1,80 32,75
23 26 177 EGPC Egypt 100 38 354 30 6 40 0 19 0
52,5 14,3 1,140,
24 24 182 Gazprom Russia 73 50 240 1 74 11 72 1 000
1,18 28,7 38,71
25 23 184 Libya NOC Libya 100 21 3 64 498 7 78 18 4
2,73 10,9 655,2
26 25 186 QP Qatar 100 28 713 20 0 16 44 3 72
Surgutnefte 1,19 1,38 7,21 15,35
27 30 187 gas Russia 19 7 29 5 21 1 28 9
18 3,26
28 27 8 Sinopec China 55 25 749 56 566 32 7 60 3,033
19 1,71 12,5
29 28 2 Yukos Russia 13 4 71 331 12 81 50 4,490
19 2,13 1,72 14,41
30 29 6 Statoil Norway 84 27 719 24 7 41 0 30 6
21 4,74 137,6
31 31 0 Rosneft Russia 100 36 433 43 887 26 5 7 70
24 2,4 3,0 11,7
32 32 0 ONGC India 95 31 565 21 40 34 93 32 37
25
33 34 2 Marathon US 58 170 39 999 60 560 59 3,472
25 1,02 3,36 21,06
34 33 6 PDO Oman 60 34 471 35 2 31 0 22 0
28 Colombi 1,47
35 36 0 Ecopetrol a 100 41 306 54 619 43 8 52 4,187
28 Azerbaij 3,10 13,50
36 39 3 Socar an 100 56 179 67 387 33 0 31 0
28 2,40
37 38 8 SPC Syria 43 295 62 503 37 0 41 6,380
29 4,65
38 45 2 Sibneft Russia 29 682 83 189 27 6 74 1,440
29 Petro-
39 37 3 Canada Canada 42 306 46 873 53 801 66 2,473
29 3,00 10,46
40 35 4 EnCana Canada 46 261 18 5 50 860 34 0
33
 29 4,0 7 1,79
41 44 6 TNK-BP? Russia 26 720 66 388 28 09 0 3
30 2,4 3 7,49
42 42 1 Devon US 44 279 22 34 51 828 8 4
30 1,7 1,1 3 7,52
43 39 6 Anadarko US 51 230 27 40 45 13 7 8
31 Norsk 3 6,62
44 39 3 Hydro Norway 44 37 417 47 852 49 905 9 6
31 Amerada 6 2,40
45 43 4 Hess US 48 246 55 575 55 646 8 0
31 1,2 4 6,02
46 46 7 Apache US 49 242 31 35 48 932 3 8
32 1,9 3 9,07
47 46 7 BG UK 65 128 25 64 56 635 5 6
32 Burlingto 1,9 3 8,22
48 49 8 n US 63 151 26 14 57 630 6 6
32 1,5 4 6,56
48 48 8 Unocal US 60 159 28 10 54 659 0 8
33 5 3,49
50 67 0 OMV Austria 35 68 76 75 299 52 827 8 3

34
 INDIA SCENARIO

Industry has played an influential part in triggering the speedy expansion of the
country's economy by contributing 15% in the total GDP. Further to this, petroleum
exports gave new dimension to foreign exchange earnings by drawing US$ 23.64
billion in the FY 2008-09.

To assist and acknowledge the expansion of the sector, the Cabinet Committee on
Economic Affairs felicitated 44 petroleum research blocks on November 2008 under
the New Exploration Licensing Policy (NELP-VII).

Various production segments

Refinery production: Refinery production in context of crude oil escalated from

156.11 MT in FY 2007-08 to 160.67 MT in FY 2008-09. Indian Oil Corporation Ltd
is looking forward to elevate the capacity of its Haldia refinery and Panipat refinery
plants to 7.5 million tones and 15 million tons respectively in 2010.

Natural Gas Production: The natural gas production in 2008-09 increased from the
previous year's 32.40 billion cubic metres tones (BCM) to 32.84 BCM. In 2009 alone
the Natural gas production was registered at 33,846 million cubic metres.

Crude Oil Production: The projected production of crude oil during the 11th Five-
Year Plan (2007-2012) is 206.76 MMT, while that of natural gas is 255.27 BCM.
Cumulative production of crude oil between April-December 2009 was 25,152 MT,
while cumulative production of refinery production during the same period was
119,283 MT.

India as an international refinery destination

India is steadily emerging as an international destination for oil refining with

investment requirements lesser by 25% - 50% as compared to its Asian counterparts.
As per the analysis carried out by Deutsche Bank, India is expected to enhance its
refining competence by 45% in the next 5 years. Being the fifth biggest worldwide
nation in context of distillation capacity, India enjoys 3% of the international capacity

35
share. To move ahead in making its presence felt strongly in the global market, Indian
petroleum firms are planning to raise their distillation capacity from the existing 149
mtpa to 243 mtpa by FY 2011-12.

Indian petroleum retail market

Expansion of Indian petroleum retail market is triggered by the growth in automobile

sales that resulted in major foreign investments. The growth is estimated to sustain
and the market is likely to expand further by 20 million every year till 2030, placing
India at the world map in terms of being the biggest automobile market.

Accordingly, the petroleum dealers Bharat Petroleum Corporation, Hindustan

Petroleum Corporation and Indian Oil Corporation in collaboration with each other
are looking forward to add 2,262 petrol pumps in India by 2010.

Investments in India petroleum industry

In 2010 the state-owned oil firms are expected to splurge US$ 11.34 billion on
developing supplies and constructing new shipping networks for petroleum and
natural gas.

Indian Oil Corporation is looking forward to establish a petroleum plant in the state of
West Bengal by bringing in investments worth US$ 596.63 million.

ONGC will bring in US$ 694 million for raising services at its oil fields in Assam and
adjoining states to enhance the petroleum output. In addition it will also splurge US$
5.65 billion on capital expenses in the next two years.

GAIL (India) Limited and OVL, the international associate of leading oil and gas
player ONGC, are expected to bring in investments worth US$ 250 million.

Feature of India petroleum industry

As per the latest CII-KPMG analysis, the energy industry of India will help tin the
expansion of the petroleum sector by bringing in investments worth US$ 120 billion-

36
US$ 150 billion in the next 3-5 years. By 2012, the prospects in India Petroleum
Industry are estimated to accomplish US$ 35 billion to US$ 40

Top 50: How The PIW's Firms Stack Up

PIW's ranking of the world's 50 largest oil companies is based on operational

data from over 130 firms. The focus on operations allows meaningful
comparisons of all types of companies -- including state-owned firms -- and thus
differs from more financially oriented corporate rankings. PIW's unique system uses
as criteria oil reserves and production, natural gas reserves and output, refinery
capacity and product sales volumes.

Firms are compared in six different operational areas in the table below, with
companies assigned a separate rank within each category. The six individual ranks are
then added together to determine the cumulative, overall position, giving each of the
six criteria an equal weighting.

The rankings below are based on the 2004 operational results for the companies
as they existed at the end of that year or as they reported them. Estimates are used
mainly for state-owned oil companies that do not release regular or complete annual
reports in a timely fashion. Some numbers reflect estimates when complete corporate
data are not available. PIW's system of ranking tends to favor national oil companies
with large oil and gas reserves, and to favor integrated concerns over firms that
specialize in one industry sector.

To round out the picture, basic financial data are provided for the companies.
But these data are not used to create the PIW top 50 rankings, since they are
based on widely differing accounting practices.

Data in the tables below are primarily from company sources and annual
reports. In some cases, secondary sources or PIW estimates have been used to fill in
the gaps. Data are usually shown as reported by the companies but are sometimes
adjusted for interests or shares held by others. Data for the Russian and Caspian firms
are drawn from Energy Intelligence Research's 2005 Almanac of Russian & Caspian
Petroleum.

37
38
 ROLE AND DEVELOPMENT OF ECONOMIC COUNTRY

ONGC is playing an role in strengthening the fabric of society. This flagship company
in india’s corporate world has a finely tuned sense of moral responsibility towards the
community of people where it operates and the country at large.

Local population is the one which is benefited most as a result of the ONGC
operations in the region. It generates employment & business opportunities, which in
turn improves the overall economy of the region and the living standards of the
community. ONGC operations provide the necessary boost required for the industrial
growth of the region. The requirement of the physical inputs for ONGC’s operations
results in setting of ancillary industries and vendors network, generating a lot of
economic potential.

Oil and gas production ushers an era of growth, many core sector industries like
power, fertilizer and transport, thrive as a natural consequence of the oil and gas
availability. A part from this, grants-in-aid help in building schools and hospitals.
Villages are adopted and several health and community welfare programs are
organized in the area around our activities. Socio-economic development programs
apart from benefits accruing to the region from the primary function of the
corporation i.e. exploration and production of hydrocarbons by way of direct and
indirect employment and fiscal contributions to the exchequer of both state and
central governments. ONGC has been extending full support in the overall
development of the areas around its operations all over the country.

Scince1996-97, the execution of these programmers has been further streamlined.

Work-centre-wise allocations are made each year and programmers are being
executed under the comprehensive guidelines issued on the subject. Major emphasis
has been given for promotion of education, health and community development and in
times of natural calamities such as floods, cyclones, earthquakes, landslides, etc. the

39
Impact of our concerted efforts is being felt by the community and good-will is being
generated. Our programs about health care, eye camps, helping the educational
institutions are being widely appreciated. Socio-economic priority areas a proactive
approach towards socio-economic development is adopted i.e. projects are identified
by ONGC at the plant level by involving the district administration, local
representatives and recognized voluntary organizations. Priority is given to areas
around the projects with the following themes.

Community Development

Providing civic amenities: sanitation, clean drinking water facilities to panchatyas,

gram sabhas etc.

Development of agriculture and other cottage industries

Environment protection

Animal husbandry

Woman& child development

Support to vocational training institutions for upgrading the skills of the local people

Development of the socially and economically weaker sections of the society

Promotion of art and culture

Calamity relief

Development of infrastructure facilities-improvement of roads, bridges, street

lighting, drainage systems, etc.

Sponsoring/ co-sponsoring professional meets, conventions, seminars etc.

40
 RESENT TRENDS IN ONGC

The public sector Bharat Heavy Electricals Limited (BHEL) today said it had secured
a major contract for the supply of onshore drilling rigs from India’s upstream oil
exploration major Oil and Natural Gas Corporation Limited (ONGC).

Valued at over Rs. 774 crore, the order envisages manufacture and supply of six state-
of-the-art 2000 HP onshore drilling rigs with AC drives, a press release from the
company said here

ONGC has gone in for acquisition of new rigs after a gap of over 18 years and has
opted for rigs with high efficency AC drives in line with the latest trends worldwide.
Hitherto, ONGC has procured rigs with AC SCR technology where the drawworks
and mud pumps are powered with DC drives. Rig operation with AC drives is more
efficient than DC drives due to the high power factor of AC motors, the release said.

The release said BHEL has established facilities and a dedicated group of expert
engineers for manufacture, refurbishment and upgradation of onshore drilling rigs and
rig equipment. For the ONGC contract, the mechanical equipment will be
manufactured by BHEL’s Hyderabad plant, while the electrics will be manufactured
by its Bhopal plant.

BHEL is the only manufacturer of onland drilling rigs in the country, having supplied
84 rigs so far. Of these, 71 rigs have been supplied to ONGC and 13 to Oil India
Limited (OIL). For ONGC, BHEL has also successfully carried out refurbishment and
upgradation of 33 onshore drilling rigs, thereby enhancing their. The company is
presently in the process of completing refurbishment and upgradation work of seven
more rigs of ONGC.

41
 COMPANY PROFILE

HISTORY OF ONGC

1947 - 1960
During the pre-independence period, the Assam Oil Company in the northeastern
and Attock Oil company in northwestern part of the undivided India were the only oil
companies producing oil in the country, with minimal exploration input. The major
part of Indian sedimentary basins was deemed to be unfit for development of oil and
gas resources.

After independence, the national Government realized the importance oil and gas for
rapid industrial development and its strategic role in defense. Consequently, while
framing the Industrial Policy Statement of 1948, the development of petroleum
industry in the country was considered to be of utmost necessity.

Until 1955, private oil companies mainly carried out exploration of hydrocarbon
resources of India. In Assam, the Assam Oil Company was producing oil at Digboi
(discovered in 1889) and the Oil India Ltd. (a 50% joint venture between Government
of India and Burmah Oil Company) was engaged in developing two newly discovered
large fields Naharkatiya and Moran in Assam. In West Bengal, the Indo-Stanvac
Petroleum project (a joint venture between Government of India and Standard
Vacuum Oil Company of USA) was engaged in exploration work. The vast
sedimentary tract in other parts of India and adjoining offshore remained largely
unexplored.

In 1955, Government of India decided to develop the oil and natural gas resources in
the various regions of the country as part of the Public Sector development. With this
objective, an Oil and Natural Gas Directorate was set up towards the end of 1955, as a
subordinate office under the then Ministry of Natural Resources and Scientific
Research. The department was constituted with a nucleus of geoscientists from the
Geological survey of India.

42
A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural
Resources, visited several European countries to study the status of oil industry in
those countries and to facilitate the training of Indian professionals for exploring
potential oil and gas reserves. Foreign experts from USA, West Germany, Romania
and erstwhile U.S.S.R visited India and helped the government with their expertise.
Finally, the visiting Soviet experts drew up a detailed plan for geological and
geophysical surveys and drilling operations to be carried out in the 2nd Five Year
Plan (1956-57 to 1960-61).

In April 1956, the Government of India adopted the Industrial Policy Resolution,
which placed mineral oil industry among the schedule 'A' industries, the future
development of which was to be the sole and exclusive responsibility of the state.

Soon, after the formation of the Oil and Natural Gas Directorate, it became apparent
that it would not be possible for the Directorate with its limited financial and
administrative powers as subordinate office of the Government, to function
efficiently. So in August, 1956, the Directorate was raised to the status of a
commission with enhanced powers, although it continued to be under the government.
In October 1959, the Commission was converted into a statutory body by an act of the
Indian Parliament, which enhanced powers of the commission further. The main
functions of the Oil and Natural Gas Commission subject to the provisions of the Act,
were "to plan, promote, organize and implement programmes for development of
Petroleum Resources and the production and sale of petroleum and petroleum
products produced by it, and to perform such other functions as the Central
Government may, from time to time, assign to it ". The act further outlined the
activities and steps to be taken by ONGC in fulfilling its mandate.

43
1961 - 1990

Since its inception, ONGC has been instrumental in transforming the country's limited
upstream sector into a large viable playing field, with its activities spread throughout
India and significantly in overseas territories. In the inland areas, ONGC not only
found new resources in Assam but also established new oil province in Cambay basin
(Gujarat), while adding new petroliferous areas in the Assam-Arakan Fold Belt and
East coast basins (both inland and offshore).
ONGC went offshore in early 70's and discovered a giant oil field in the form of
Bombay High, now known as Mumbai High. This discovery, along with subsequent
discoveries of huge oil and gas fields in Western offshore changed the oil scenario of
the country. Subsequently, over 5 billion tones of hydrocarbons, which were present
in the country, were discovered. The most important contribution of ONGC, however,
is its self-reliance and development of core competence in E&P activities at a globally
competitive level.

After 1990

The liberalized economic policy, adopted by the Government of India in July 1991,
sought to deregulate and de-license the core sectors (including petroleum sector) with
partial disinvestments of government equity in Public Sector Undertakings and other
measures. As a consequence thereof, ONGC was re-organized as a limited Company
under the Company's Act, 1956 in February 1994.

After the conversion of business of the erstwhile Oil & Natural Gas Commission to
that of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2
per cent of its shares through competitive bidding. Subsequently, ONGC expanded its
equity by another 2 per cent by offering shares to its employees.

44
ORGANIZATIONAL CHART

45
 RELATED TOPIC

PURCHASING SYSTEM

 To keep pace with changed market conditions.

 To satisfy demand during period of replenishment.

 To carry reserve stocks to avoid stock outs.

 To prevent loss of sales.

 To level out or stabilize production.

 To satisfy other business constraints.

 Suppliers’ conditions of lien quantity.

 Government regulation.

 Seasonal availability.

 Demand forecast error.

 Supplier’s delivery interval.

 Lead – time offered to customers are shorter than supplier lead – times.

 Minimization of delivery costs.

46
INTRODUCTION TO PURCHASING SYSTEM:

The purchasing department occupies a vital and unique position in the

organization of an industrial concern because purchasing is one of the main functions
of the success of a modern manufacturing concern.
Mass production industries, since they rely upon a continuous how of right
materials, for demand for an efficient purchasing division.
The purchasing function is liaison agency, which operates between the factory
organization and outside vendors on all matters of procurement.
Purchasing implies procurement materials, suppliers, machinery and services
needed for production and maintenance of the concern.

INTRODUCTION TO ONGC :

ONGC (Oil and Natural Gas Corporation Limited) is India's leading oil & gas
exploration company. ONGC has produced more than 600 million metric tones of
crude oil and supplied more than 200 billion cubic metres of gas since its inception.
Today, ONGC is India's highest profit making corporate. It has a share of 77 percent
in India's crude oil production and 81 per cent in India's natural gas production.

The origins of ONGC can be traced to the Industrial Policy Statement of 1948, which
called for the development of petroleum industry in India. Until 1955, private oil
companies such as Assam Oil Company at Digboi, Oil India Ltd (a 50% joint venture
between Government of India and Burmah Oil Company) at Naharkatiya and Moran
in Assam, and Indo-Stanvac Petroleum project (a joint venture between Government
of India and Standard Vacuum Oil Company of USA) at West Bengal, were engaged
in exploration work. The vast sedimentary tract in other parts of India and adjoining
offshore were largely unexplored. In 1955, Government of India decided to develop
the oil and natural gas resources in the various regions of the country as part of the
Public Sector development. To achieve this objective an Oil and Natural Gas
Directorate was set up in1955, as a subordinate office under the then Ministry of
Natural Resources and Scientific Research.
The Industrial Policy Resolution of 1956 placed mineral oil industry among the
schedule 'A' industries. In August 1956, to ensure efficient functioning of the Oil and
47
Natural Gas Directorate, the Directorate was raised to the status of a commission with
enhanced powers. In October 1959, the Commission was converted into a statutory
body by an act of the Indian Parliament, which enhanced powers of the commission
further. In 1960s, ONGC found new resources in Assam and established new oil
province in Cambay basin (Gujarat). In early 1970s went offshore and discovered a
giant oil field in the form of Bombay High. After liberalization in 1991, ONGC was
re-organized as a limited Company under the Company's Act, 1956 in February 1994.
Today, ONGC has grown into a full-fledged horizontally integrated petroleum
company. Recently, ONGC has made six new discoveries, at Vasai West (oil and gas)
in Western Offshore, GS-49 (gas) and GS-KW (oil and gas) in Krishna-Godavari
Offshore, Chinnewala Tibba (gas) in Rajasthan, and Laipling-gaon (oil and gas) and
Banamali (oil), both in Assam.

ONGC has a fully owned subsidiary, ONGC Videsh Ltd (OVL) that looks for
exploration opportunities in other parts of the world. OVL is pursuing exploration of
oil and gas in Russia, Iran, Iraq, Libya Myanmar and other countries. ONGC has also
acquired 72% stake in MRPL with full management control of the 9.69 tone, state-of-
the-art refinery.

Major Achievements of ONGC

 Judged as Asia's best Oil & Gas company, as per a recent survey conducted by
US-based magazine 'Global Finance'
 Ranked as the 2nd biggest E&P company (and 1st in terms of profits), as per
the Platts Energy Business Technology (EBT) Survey 2004.
 Leads the list of Indian companies listed in Forbes 400 Global Corporate and
Financial Times Global 500 by Market Capitalization.
 Only fully-integrated petroleum company in India, operating along the entire
hydrocarbon value chain.
 Holds largest share of hydrocarbon acreages in India.

48
Global Ranking:

 ONGC ranks 3rd Oil & Gas Exploration & Production (E&P) Company in the
world and 23rd among leading global energy majors as per Plants 250 Global
Energy Companies List for the year 2009

 ONGC ranks 24th among the Global publicly-listed Energy companies as per
‘PFC Energy 50” (Jan 2008)
 Finance Asia 100 list ranks ONGC no 1 among Indian Blue Chips.
 Occupies 155th rank in “Forbes Global 2000” list 2010 of the world’s biggest
companies for 2010 based on sales, profits, assets and market capitalism
 ONGC ranked 402nd position as per Fortune Global 500 - 2009 list; based on
revenues, profits, assets and shareholder’s equity.

Awards

 Ranked at 2nd position in FE500 list 2010 in net worth and overall composite
ranking.
 ONGC & MRPL won 6 Oil Industry Safety Awards for 2008-09 instituted by
OISD, MOP&NG.
 Ranked at top of the Best companies to work for in Core Sector by Business
Today in Feb 2010 edition.
 ONGC awarded with Gold Trophy for SCOPE Meritorious Award for
Corporate Social Responsibility & Responsiveness for the year 2007-08 and
for R&D, Technology Development & Innovation for the year 2008-09.
 Given Best Overall Performance Award amongst the upstream Sector Oil
Companies for Oil and Gas conservation programmed for 2009 by PCRA

Financial Highlights (FY ‘2011)

 ONGC posted a net profit of 18,924 crores for the year 2011
 The highest ever dividend total payout of 7,486 crore
 Reserve replacement ratio is 1.76(with 3p)
 Increase in Domestic Crude Oil Production by 2.1%

49
Products of ONGC
 Crude oil
 Natural gasoline
 Liquefied petroleum gas
 Ethane
 Kerosene
 Aromatic rich naphtha
 Electricity
 Sulphur
 Aviation turbine fuel
 Motor spirit

 To procure right material.

 To procure material in right quantities.

 To procure material of right quality.

 To procure from right and reliable source or vendor.

 To procure material economically, i.e at right or reasonable price.

 To receive a delivery of materials at right place and at right time.

FUNCTIONS OF PURCHASING DEPARTMENT

 Keep records – indicating possible materials and their substitutes.

 Maintain records of reliable sources of supply and price of materials.

 Review of materials specification with an idea of simplifying and

standardizing them.

 Making contacts with right sources of supply at competitive price.

50
  Procure and analyze quotations.

 Place and follow up purchase orders.

 Maintain records of all purchases.

 To make sure through inspection that right king ( i.e. quantity quality

Etc,)

 To act as liaison between the vendors and different departments of the

concern such as production, quality control, finance, maintenance etc :

 To check if the material has been purchases at right time and at

economical rates.

 To prepare purchasing budget.

ONGC PURCHASE DEPARTMENT:

The internal organization of purchases department in on a lime, basis

with purchasing agent, director of purchase or purchasing manager being in charge of
purchase department. He is responsible for the overall efficient operation of the
department. The purchasing manager is however assisted in purchasing by a number
of assistants and few clerical staff.

The purchasing manger has the powers to execute purchasing

contracts for the concern. He divides the duties among the assistants according to the
nature of purchases to be made. For, example goods, one assistant may purchase only
electrical another (major) raw materials, third plant equipment and so on. Purchasing
section places orders with the vendors, purchase service section fallows the progress
to the orders at its shipment by vendors and its vendors end its final receipt in the
company
At ONGC Developed Company has implemented ERP (SAP) system name called
ICE i.e. Information consolidation for Efficiency.
In this SAP system not only materials procured but material consumed in daily
production every transaction, can be updated in the system.
The company’s materials department is maintaining the following files.
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  Purchasing Requisition (PR)

 Purchasing Order (PO)

 Daily Receipt Report (DRR)

 Discrepancy Report (DR)

 Materials Receipt Report (MRR)

 Materials Issue Voucher ( MIV)

 Materials Return Voucher (MRV)

 Materials Transfer Voucher (MTV)

 Stores Correction Voucher (SCV)

The above shown files will give updated details of materials state.

STEPS IN COMPLETE PURCHASING CYCLE :

 Recognition of need, receipt and analysis of purchase requisition.

 Selection of possible potential sources of supply.

 Making the request for quotation.

 Receipt and analysis of quotation.

 Selection of right source of supply.

 Issuing the purchase order.

 Follow – up and expediting the orders.

 Analyzing received reports and processing discrepancies and rejection.

 Checking and approving vendor’s invoices for payment.

 Closing completed order.

 Maintenance of records.

52
 INTRODUCTION TO INVENTORY MANAGEMENT

In any industry there are four ‘M’s that play a very important role in the smooth
functioning of the organization and relation and objectives, they are Man, Machinery,
Money and Material.
The management of materials plays a pivotal role as 60% of the capital cost is
attributed to materials alone.
Inventories represent aggregate of those items, which are either held for the sale in the
ordinary course of the business, or are in the process of production for sale or yet to
be utilized consumed in the production of goods and services.
Inventory can be classifies into seven categories. They are given below:
 Raw materials
 Work-in-progress
 Finished goods
 Finished parts
 Tools
 Suppliers
 Machinery spares

Under natural heads inventory can be classified as under:

1. Capital items on stock (CIOS)
2. Stores& spares

TYPES OF INVENTORIES:-
The inventory means and includes the goods and services being sold by
the firm and the raw materials or other components being used in the manufacturing
of such goods and services. A retail shop keeper keeps an inventory of finished
goods to be offered to customers whenever demanded by them. On the other hand ,
manufacturing concern has to keep a stock pile of not only the finished goods it is
producing, but also of all physical ingredients being used in the production
process.
The common types of inventories for most of business firms may be
classified as finished goods, work-in-progress and raw materials

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FINISHED GOODS:-
These are the goods which are either being purchased by the
firm or are being produced or processed in the firm. These are just ready for sale to
customers. Inventories of finished goods arise because of the time involved in
production process and the need to meet customer’s demand promptly. If the firms do
not maintain a sufficient finished goods inventory, they run the risk of losing sales, as
the customers who are unwilling to wait may turn to competitors. The purpose of
finished goods inventory is to uncouple the production and sales function so that it is
not necessary to produce the goods before a sales can occur and therefore sales can be
made directly out of inventory.

WORK-IN-PROGRESS:-

It refers to the raw materials engaged in various purchase of production

schedule. The degree of completion may be varying for different units. Some units
might have been just introduced, while some others may be 40%compleete or others
may be 90%complete.
The work-in-progress refers to partially produced goods. The value of work-in-
progress includes the raw material costs, the direct wages and expenses already
incurred and the over heads, if any. So, the work-in-progress inventory contains
partially produced or completed goods.
The quantity and the value of work-in-progress depend on the length of
production cycle. In case of shorter production cycle, the work-in-progress may be
small but if the production cycle is lengthy, the firm will be having a large work-in-
progress. The more complex and length of the production process, the larger the
investment in work-in-progress inventory. The purpose of work-in-progress inventory
is to uncouple the various operations in the production process so that machine
failures and stoppages in one operation will not affect the other operation

RAW MATERIALS:-
The raw materials include the materials which are used in the
production process and every manufacturing firm has to carry certain stock of raw

54
materials in stores. These units of raw materials are regularly issued / transferred to
production department.
Inventories of raw materials are held to ensure that the production
process in not interrupted by a shortage of these materials. The amount of raw
materials to be kept by a firm depends on a number of factors, including the speed
with which raw materials can be ordered and procured of and the uncertainty in the
supply of these raw materials.
Its purpose of is to uncouple the production function from the
purchasing function i.e., to make these too functions independent of each other so that
delay in procurement of raw materials do not cause production delays and the firm
can satisfy its need for raw materials out of the inventory lying in the stores.

FINISHED PARTS:

Finished parts are those which may either be brought out parts or piece
part’s brought out parts are those finished parts sub-assemblies or assemblies, which
are purchased from outside supplies Piece parts, are those parts, which are
manufactured at the company’s own plant from the basic raw materials

TOOLS:

These are comprised of standard tools and hand tools, standard tools
used machines such as saws, drills, reamers, etc. and hand tools are drill guns,
hammers, mallets, etc.
SUPPLIERS:

Include materials used in running the plant or in making company’s

products but do not they go into the product.

MACHINERY SPARES:

Are, which are used to maintain the machine without any problems so
that there won’t be unnecessary breakdowns, these spares include consumable spares,
replacement spares, rotatable spares, insurance spares.

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 MEANING & DEFINITION

In any business or organization, all functions are interlinked and connected to each
other and are often overlapping. Some key aspects like supply chain management,
logistics and inventory form the backbone of the business delivery function. Therefore
these functions are extremely important to marketing managers as well as finance
controllers.

Inventory management is a very important function that determines the health of the
supply chain as well as the impacts the financial health of the balance sheet. Every
organization constantly strives to maintain optimum inventory to be able to meet its
requirements and avoid over or under inventory that can impact the financial figures.

Inventory is always dynamic. Inventory management requires constant and careful

evaluation of external and internal factors and control through planning and review.
Most of the organizations have a separate department or job function called inventory
planners who continuously monitor, control and review inventory and interface with
production, procurement and finance departments.

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Defining Inventory

Inventory is an idle stock of physical goods that contain economic value, and are held
in various forms by an organization in its custody awaiting packing, processing,
transformation, use or sale in a future point of time.

Any organization which is into production, trading, sale and service of a product will
necessarily hold stock of various physical resources to aid in future consumption and
sale. While inventory is a necessary evil of any such business, it may be noted that the
organizations hold inventories for various reasons, which include speculative
purposes, functional purposes, physical necessities etc.

From the above definition the following points stand out with reference to inventory:

 All organizations engaged in production or sale of products hold inventory in

one form or other.
 Inventory can be in complete state or incomplete state.
 Inventory is held to facilitate future consumption, sale or further
processing/value addition.
 All inventoried resources have economic value and can be considered as assets
of the organization.

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 IMPORTANCE OF INVENTORY MANAGEMENT

One of the most important aspects of any business is inventory management. Those
who have never worked in the business sector may not understand the importance of
efficient inventory management.

But, the reality of it is if you don't have control of your inventory, you will be unable
to ascertain you will have enough inventory on hand to handle the needs of your
customers. Even worse than that--you will not have enough supplies on hand to
produce the products you need to meet the needs of your customers.

It is important to keep in mind there are several different functions of inventory

management: raw inventory, meaning the raw goods the company must keep on hand
for production; work in progress inventory which includes any of the goods that are in
the production process; and finished goods inventory or the products that are ready to
ship to customers.

Without inventory management it would be difficult for any company to maintain

control and be able to handle the needs of their customers. Whether you use a
fulfillment company or ship products yourself you need to know where your
inventory is and where it's going. Unless you can meet the needs of your customers
you will soon lose all of them to competitors who are able to meet their requirements,
no matter how stringent.

While inventory management has always been important, it has become more
important over the past several decades. As the needs of companies increase, they
must in turn increase demands on their suppliers. In order for suppliers to have the
goods their customers need, it is necessary for them to maintain excellent and accurate
inventory management.

58
The customers don't care if you have to manually count your inventory or have access
to an automated system like the ones that fulfillment centers provide, the only thing
that is of concern to customers is the ability of your company to have supplies on
hand to take care of their needs in a reasonable amount of time. When you are
preparing to open a business you need to look at inventory management as part of
your preliminary plans.

Before you even have customers you will need to plan for the maintenance of proper
inventory levels. You will also need to maintain a system for increasing those levels
as business dictates, and this requires the implementation of efficient and effective
inventory management procedures. Without procedures in place to oversee inventory
levels it will be quite easy to allow inventory levels to diminish to dangerous levels,
levels that will prevent your company from meeting the supply and demand needs of
your customers.

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 OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives of inventory management are operational and financial.

The operational objective means that the materials and spares should be available in
sufficient quantity so that work is not disrupted for want of inventory.
The financial objective means that investments should not remain idle and minimum
working capital should be locked in it.

Ensure sufficient stocks of raw materials in periods of short To ensure

continuous supply of material spares and finished goods so that production should not
suffer at any time and the customer’s demand should also be met.

 To avoid both over- stocking and under-stocking of inventory.

 To maintain investments in inventories at the optimum level as

required by the operational and sales activities.

 To keep material cost under control so that they contribute in reducing

cost of production and overall costs.

 To eliminate duplication in ordering or replenishing stocks. This is

possible with the help of centralizing purchases

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 METHODS & TECHNIQUES

These inventory management techniques will improve your inventory turnover

ratio and transform frozen assets into cash

ABC ANALYSIS :
All the spares and stores other than the construction meant for specific construction
activities are subjected to consumption analysis covering specific periods. Items
Constituting 70% of the total annual consumption by value are classified as ‘A ‘class
Items. Items constituting the next 20% of the annual consumption value are classified
as ‘B’ class items. The remaining moving items constituting 10% of the consumption
value are classified ‘C’ class items. Very large number of items by numbers falls
under this classification whose consumption value will be very low.

 ABC analysis is based on principal vital few trivel many

 ABC analysis is who based on pareto’s law of causes & effects.

 ABC analysis helps in classification of items in stores in A, B & C

class.
CLASS OF ITEMS % OF ITEMS % OF CONSUMPTION
A 10-15 70-75
B 10-15 10-15
C 70-75 5-10

XYZ ANALYSIS:

Inventory holding of each project will also be analyzed with reference to value of the
holding against each item. It is found that about 70% of the total holding would be
covered by very small percentage of items by number, which will be around 10%.
This category will be classified as ‘X’ class items. Similarly items accounting for the
remaining 20% contributing will be categorized as ‘Y’ class items and the remaining

61
items will be listed in ‘Z’ class. This analysis is usually done for the annual stock
review.

 In ABC analysis consumption value of items for a particular time span

is considered.
 In XYZ analysis inventory value of item on a particular day will be
considered.
 All steps in ABC analysis are followed in XYZ analysis.

VED ANALYSIS:

VITAL ESSENTIAL DESIRABLE:

 It is not ready to available in market.

 Can be replaced immediately
 Lead time for procurement is 1-2 month
 VED analysis is generally useful for spares parts inventory for company’s
plant & Machinery
 Items in stores are classified based on critical its of an item
 Items are classified as
 Vital
 Essential
 Desirable

NON – MOVING ITEM ANALYSIS:

All items held in stock will be subjected to non – movement analysis

segregating the items for different non – movement periods like over 2 years, over 5
years and 10 years so as to critically analyze the possibility of utilization of these
items or otherwise for declaring surplus especially those items which have not moved
for more than 5 years. Materials management department with the concerned
technical departments will jointly do this analysis and separate list will be prepared,
i.e code group wise, for the nonmoving items beyond 5 years on an annual basis
62
project wise under different code groups and steps would be taken so that the non –
moving items are not indented again, until the existing stocks are utilized. Every
effort will be made to keep as low as practicable because this is non – productive
inventory. Which is blocking the capital, storage space needing preservation and up
keeping efforts and results, in extra inventory carrying cost. The company reduces the
non – moving inventory by regular review for utilization or by declaring as surplus..

EOQ (ECONOMIC ORDER QUANTITY) :

One of the basic decisions that must be made in any stock control system is that of
determining the quantity to order since investment in inventories largely depends
upon the quantities in which the items are ordered for replenishment.

Ordering large lots infrequently, reduces administrative work but increases investment
in stocks ordering small lots frequently keeps the investment in low but increases
administrative work. This is because small lots require high order frequency, more
purchase requisition require to be raised, more frequently the comparative statement
must be raised, more the material must be received, more posting must be done more
bills must be handled. All these activities will call for more staff and hence more
administrative costs and over heads. Therefore a rational approach is needed for
fixing the order quantity of an item which will either increase neither the procurement
cost nor the storage cost. So such quantity which results in equal procurement cost &
storage cost is known as EOQ (Economic Order Quantity)

The mathematical explanation of the is as follows

EOQ is given by Q = √ (2 * C * 0) / I
Where:
C = annual consumption of the inventory in units
O = cost of placing one order including the cost of receiving the goods i.e
Cost of getting an item into the firm’s inventory
Q = quantity per order in units
I = annual carrying cost per unit

63
 The annual carrying costs are equal to the average value of stock held
multiplied by carrying cost per unit and represent as QI / 2. Where I = annual carrying
cost per unit.

REORDER – POINT:
An important question in any inventory management system is “when
should an order for the purchases of an item should be placed, so the RE – ORDER
point system provides the answer to this question. RE – ORDER point is the level of
inventory at which the storekeeper should initiate the purchases requisition for the
purchases of inventory in the amount of the economic order quantity.

In designing a RE – ORDER point sub – system three items of information are needed
as inputs to the sub – system.

1. Lead time, i.e. time lag between indenting and receiving of the
inventory. It is usually expressed in number of days.

2. Usage rate, i.e., the quantity per day at which the items consumed
in production process or sold to customers.

3. Minimum stock level, i.e., the quantity below which stock should
not be allowed to fall. This can be calculated by multiplying the
usage rate by the number of day the firm wants to hold as a
protection against shortages.

The following formula can be used for the calculation of the reorder paint

REORDER POINT = UR*LT= UR*DAYS OF SAFETY

Where:
UR = Usage rate per day.
LT = Lead time in days.
DAYS OF SAFETY = Days of safety stock desired by the firm.

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LEAD TIME:

There is a definite time lag between identification of the need for an item till
it is received in store ready for issue after placing of order, manufacturing, and
transport, receiving and inspection.

The total time that elapses between the recognition of the need for an item
and the fulfillment of the need is called lead time of the item and it plays an important
role in establishing the right time for procurement.

The right time for the procurement of an item is the time the stock on hand
is just enough to satisfy the demand for the period required for the procurement since
there may be increase in the demand between the time the order is placed and
received in store, safety stock may be added to the average requirements of the lead
time. This implies that the right time for procurement of an item is the time when
stock drops down to a level which is enough to take care of demand during the period
necessary to replenish stock and extension of lead time.

IMPORTANCE OF LEAD TIME:

Lead time has a direct relationship with investment in inventories. The

longer the lead time, higher is the requirement of the working capital. Since during the
lead time, there is no delivery of material, the requirement of the production is met
from the inventories in stock. Also since both lead time and consumption rate increase
without notice, over and above the stock to take care of normal consumption during
average lead time, safety stock is required to be maintained. This implies that a major
factor which influences investment in inventories is that lead time and it is therefore
responsibility of the purchase department to take steps to reduce the lead time.

65
ELEMENTS OF LEAD TIME:

 stock records. Time required by the indenting department to convey

requirements to purchase.

 Time required by the buyer to call quotation, make enquires / visit potential
vendors negotiate terms, enter in to contract.

 Time required by the supplier to route buyers order through his administrative
channel and fill the same.

 Transit time for goods to reach buyer works.

 Time required by the buyers receiving department to uncrate goods, prepare

necessary documents and offer material for inspection.

 Time require by buyers inward to verity quality of goods.

 Time required by the stores deportment to take goods in to stock, deposit into
appropriate bins and update stock records.

MAJOR PARTS OF LEAD TIME:

Lead time of an item can be divided into two parts

 Internal lead time
 External lead time

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INTERNAL LEAD TIME:

It is also called as buyer lead time, is the sum of servicing time and
receiving time. The servicing time includes time required by the buyers to call
quotations, compare quotations, visit vendors negotiate terms, obtain sanctions, enter
in to contract etc and receiving time is made up of time required to uncreated and
inspects goods, move them between stores, deposit them in appropriate bins and make
entries into stock cards.

EXTERNAL LEAD TIME:

It is also called as suppliers lead time, is made of administrative,

manufacturing and delivery times required by the supplier. External lead time
therefore is the time required to get the items from selected suppliers.

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 ADVANTAGES & DISADVANTAGES

Advantages :

Inventory is necessary for many businesses including retail and manufacturing

facilities. Maintaining appropriate inventory levels is crucial, as too much inventory
can be costly. An inventory management system helps to control and balance the flow
of incoming and outgoing merchandise. For most businesses, a strong inventory
management system is advantageous for several reasons.

Disadvantages :

 Efficient inventory control method can reduce but cannot eliminate business
risk.

 The objective of better sales through improve service to customer ; reduction

inventories to reduce size of investment and reducing cost of production by
smother production operation are conflicting each other.

 The control of inventories is complex because of many function it perform

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 RECENT TRENDS

Let's assume your inventory automation strategy is well past the 90s -- that's the
Eighteen 90s -- and you have long been tracking and planning inventory in your ERP
system or via a specialized piece of inventory planning software. You might even
have made the leap to demand planning and, better still, linked the two sides to bring
supply into sync with the real demand for your product.

What's next in terms of inventory planning?

According to analysts who cover the inventory management market, users can expect
several technology options that will be able to improve forecasting by analyzing the
information that goes into them, whether it comes from a point-of-sale (POS) system's
overnight data dump or the mind of George in sales.

69
 DATA ANALYSIS & INTERPRETATION
2012- 2011- 2010- 2009- 2008-
S.NO PARTICULARS 13 12 11 10 09
1 Sales turnover 677,194.09 617,335.70 660,506.96 617,352.04 876,120.43
2 Production 275,300.61 243,199.46 232,438.87 230,215.67 470,485.72

3 Turnover 59,007.70 41,866.86 53,122.72 45,410.91 47,387.81

4 Drilling meterage
5 Inventory levels
A Stores & spares 35,247.91 40,195.55 34,252.58 31,276.95 30,943.95
B Stores & spares in transits 2,509.78 3,439.01 4,209.66 2,546.99 2,995.49
Subtota
l stores & spares 37,757.69 43,634.49 38,462.24 33,823.94 33,939.44
Provision for non-moving
LESS inventories 3,589.65 3,734.49 3,601.55 3,942.65 3,681.92
TOTEL 34,168.04 39,900.07 34,860.69 29,881.29 30,257.32
C Raw material 4.82 5.47 19.52 0.00 11,842.77
D FG 6,897.20 6,768.09 5,587.71 4,776.69 16,482.23
E Unserviceable scrap 119.78 112.09 138.79 148.39 160.97
F Total inventory 41,189.84 46,785.72 40,606.71 34,806.37 58,743.49
G Inventory turnover ratio 1.43 0.89 1.30 1.30 0.80

The Above Table briefly describe the changes in inventory of ONGC ltd. this table
explains how the changes are occur by providing the chances to analysis the various
particulars like stores & spares, Raw material, FG, Unserviceable scrap, Sales
turnover
Production, Turnover, Drilling meter age, Inventory levels.

70
Last 5 years consumption of spares and stores

S.NO PARTICULARS 2012-13 2011-12 2010-11 2009-10 2008-09

6,816.8 251,802.5
1 Stores & spares 6,214.63 5,703.12 7,681.49 3 3

300,000.00

250,000.00

200,000.00

Series1
150,000.00

100,000.00

50,000.00

0.00
2012-13 2011-12 2010-11 2009-10 2008-09

INTERPRETATION
 The consumption of spares and stores of the company for the past five years
had under gone many changes.
 It records the highest ratio in the year 2008-09 is 251,802.53
 It records the lowest ratio in the year 2011-12 is 5,703.12
 In current year the ratio 6,214.63

71
SALES TURNOVER RATIO
S NO 2012-13 2011-12 2010-11 2009-10 2008-09
Sales
turnover 677194.09 617335.7 660507 617352 876120.4
Incease
(YOY) -9.69 6.53 -6.99 29.53

Sales turnover
850000
650000
450000
250000
Axis Title 50000
2012-13 2011-12 2010-11 2009-10 2008-09
Sale 677194.09 617335.69 660507 617352 876120.4
s 9999999
tur
nov
er

INTERPRETATION
 in this salies turn over the graph indicates on x-axis and y-axis percent of
change
 The salies turn over of the company for the past five years had under gone
many changes.
 It records the highest ratio in the year 2008-09 is 876120

72
Production

year 2012-13 2011-12 2010-11 2009-10 2008-09

Production 275,300.61 243,199.46 232,438.87 230,215.67 470,485.72
increase%(YOY) -13.19 -4.62 -0.96 51.06

Production
500,000.00
450,000.00
400,000.00
350,000.00
300,000.00 Production
250,000.00
200,000.00
150,000.00
100,000.00
50,000.00
0.00
2012-13 2011-12 2010-11 2009-10 2008-09

INTERPRETATION
 The above chart can explain the changes of production of following years.
 In the innitial stage the i.e 2008-09 is very high comparing withother years.

73
Last 5 years stores and spares inventory

year 2012-13 2011-12 2010-11 2009-10 2008-09

stores &
spares 35,247.91 40,195.55 34,252.58 31,276.95 30,943.95

stores & spares

45,000.00
40,000.00
35,000.00
30,000.00
25,000.00 stores & spares

20,000.00
15,000.00
10,000.00
5,000.00
0.00
2012-13 2011-12 2010-11 2009-10 2008-09

INTERPRETATION
 in this stores and spares inventory the graph indicates on x-axis and y-axis
stores and spares inventory
 The stores and spares inventory of the company for the past five years had
under gone many changes.
 It records the highest ratio in the year 2011-12 is 40155.55
 It records the lowest ratio in the year 2008-9 is 30945.95

74
Last 5 years total raw materials

year 2012-13 2011-12 2010-11 2009-10 2008-09

Raw material 4.82 5.47 19.52 0.00 11,842.77

Raw material
14000

12000

10000

8000 Raw material

6000

4000

2000

0
2012-13 2011-12 2010-11 2009-10 2008-09

INTERPRETATION
 The Raw Material of the company for the past five years had under gone many
changes.
 It records the highest ratio in the year 2008-09 is 11,842.77
 It records the lowest ratio in the year 2009-10 is 0
 In current year the ratio 4.82

75
Last 5 years total finished goods

year 2012-13 2011-12 2010-11 2009-10 2008-09

FG 6,897.20 6,768.09 5,587.71 4,776.69 16,482.23

FG
18,000.00
16,000.00
14,000.00
12,000.00
10,000.00 FG

8,000.00
6,000.00
4,000.00
2,000.00
0.00
2012-13 2011-12 2010-11 2009-10 2008-09

INTERPRETATION
 The consumption of total finished goods of the company for the past five years
had under gone many changes.
 It records the highest ratio in the year 2008-09 is 16,428.23
 It records the lowest ratio in the year 2009-10 is 4776.69
 In current year the ratio 6879.20

76
Last 5 years total inventory

year 2012-13 2011-12 2010-11 2009-10 2008-09

Total inventory 41,189.45 46,785.72 40,606.71 34,806.37 58,743.49

Total inventory
70,000.00

60,000.00

50,000.00

40,000.00 Total inventory

30,000.00

20,000.00

10,000.00

0.00
2012-13 2011-12 2010-11 2009-10 2008-09

INTERPRETATION
 The total inventory of the company for the past five years had under gone
many changes.
 It records the highest ratio in the year 2008-09 is 40,606.44
 It records the lowest ratio in the year 2009-10 is 34,806.37
 In current year the ratio 41,189.45s

77
TABLE-1

ABC ANALYSIS FOR THE YEAR 2008-09

Category Material Group Tot. Usage val.

A P03 Fuels 92,575,775.95

A P02 Chemical 52,564,596.05

A M43 Iron& s 8,728,628.47

B M41 Lubricant 7,401,910.48

B ME02 Bearings 6,630,722.78

B P01 Catalyst 5,865,600.00

B M30 Pumps 5,739,743.78

B G05 Safety I 4,164,326.47

B C200 Building 3,278,347.15

B ME01 Welding 3,149,585.27

B M22 Mech Mis 2,714,306.71

C M40 Valves 2,568,213.46

C CIH Transmit 2,027,156.30

C M45 Automobiles 1,952,082.86

C M08 Conveyors 1,919,883.91

C M28 Pipes 1,873,206.93

C M11 Gases 1,395,812.34

C M34 Screens 1,384,817.79

C M13 Fastener 1,328,516.98

C MC01 Refractors 1,221,619.18

C EI04 Cables 1,138,841.47

C M44 Packings 1,119,440.03

C M06 Chains 1,093,278.22

C MEI04 Baggng& p 1,055,509.80

C M04 Blowers 1,039,956.10

78
 segment Material group % value Total usage value in %
segment
A 3 12 153869000.47 INR71.92
B 8 32 38944542.64 INR18.2
C 14 56 21118339.37 INR9.87
Total 25 100% 213931882.48 INR100%

80

70

60

50

40 % value
meterial group
30

20

10

0
A B C

Interpretation
During the year 2008-09 71.92% of the items have been classified as a
class items which requires tight control and strict monitoring. Almost half of the
inventory is maintained under B category but which requires only medium control and
has a less value of 18.2% and the remaining items are under C,which requires least
control and has a very minimum value 9.87%

79
TURN OVER FOR 2008-09

Material group Tot. Usage val. No.iss.VS

Total 230705451.76 46145
P03 Fuels 92575775.95 362
P02 Chemical 52564596.05 471
M43 Iron& s 8728628.47 1254
M41 Lubricant 7401910.48 730
ME02 Bearings 6630722.78 568
P01 Catalyst 5865600.00 4
M30 Pumps 5739743.78 1136
G05 Safety I 4164326.47 6189
C200 Building 3278347.15 1395
ME01 Welding 3149585.27 1909
M22 Mech Mis 2714306.71 2725
M40 Valves 2568213.46 631
CIH Transmit 2027156.30 54
M45 Automobiles 1952086.86 753
M08 Conveyors 1919883.91 202
M28 Pipes 1873206.93 516
M11 Gases 1395812.34 2713
M34 Screens 1384817.79 157
M13 Fastener 1328516.98 8834
MC01 Refractors 1221619.18 84
EI04 Cables 1138841.47 185
M44 Packings 1119440.03 1798
M06 Chains 1093278.22 112
MEI04 Baggng& p 1055509.80 117
M04 Blowers 1039956.10 14
Rest 16773569.28 13232

80
TABLE-2
ABC ANALYSIS FOR THE YEAR 2009-10

Category Material group Tot.usage val.

A P03 Fuels 52073199.89
A P02 Chemical 44740129.43
A M30 Pumps 10584785.39
A M43 Iron& S 7997661.22
A ME02 Bearings 7139914.92
A P01 Catalyst 6561100.00
B M41 Lubrican 5717098.45
B C200 Building 5004607.36
B M06 Chains 3749980.78
B ME01 Welding 3744411.70
B G05 Safety I 3423598.26
B M22 Mech Mis 2926524.43
B M08 Conveyors 2346692097
B M40 Valves 2337586.63
B M15 Ganty 2125947.71
C M28 Pipes 2092465.23
C M13 Fastener 2066560.43
C M11 Gases 1858291.02
C M45 Automobiles 1657372.30
C M44 Packings 1641943.05
C EI04 Cables 1601236.10
C CIH Transmit 1523854.63
C M34 Screens 1363918.47
C M27 Pipe fit 1127446.10
C MEI02 DG set S 1050265.11

81
 Segment Material group % value Total usage value in %
segment
A 6 24 129096790.85 INR73.16
B 9 36 31376448.29 INR17.78
C 10 40 15983352.44 INR9.6
Total 25 100% 176456591.58 INR100%

60

50

40

30 %value
material group

20

10

0
A B C

Interpretation
During the year 2007-08 73.16% of the items have been classified as a
class items, which requires tight control and strict monitoring. Almost half of the
inventory is maintained under B category but which requires only medium control and
has a less value of 18.2% and the remaining items are under C, which requires least
control and has a very minimum value 9.87

82
TURN OVER FOR 2009-10

Material group Tot. usage val. No. iss. VS

Total 193630030.82 48222
P03 Fuels 52073199.89 326
P02 Chemical 44740129.43 446
M30 Pumps 10584785.39 1403
M43 Iron& S 7997661.22 1217
ME02 Bearings 7139914.92 557
P01 Catalyst 6561100.00 4
M41 Lubrican 5717098.45 680
C200 Building 5004607.36 1531
M06 Chains 3749980.78 80
ME01 Welding 3744411.70 2078
G05 Safety I 3423598.26 6477
M22 Mech Mis 2926524.43 2968
M08 Conveyors 2346692.97 146
M40 Valves 2337586.63 496
M15 Ganty 2125947.71 45
M28 Pipes 2092465.23 505
M13 Fastener 2066560.43 9968
M11 Gases 1858291.02 3007
M45 Automobiles 1657372.30 587
M44 Packings 1641943.05 1685
EI04 Cables 1601236.10 203
CIH Transmit 1523854.63 44
M34 Screens 1363918.47 144
M27 Pipe fit 1127446.10 2478

83
MEI02 DG set S 1050265.11 71
Rest 17173439.24 11076

TABLE-3
ABC ANALYSIS FOR THE YEAR 2010-11

CATEGORY MATERIAL GROUP TOT:USAGE:VALUE

A P02 Chemical 46028763.88
A P03 Fuels 34632176.06
A M30 Pumps 10089684.20
A M43 Iron& S 9581212.31
A P01 Catalyst 8536792.84
A M41 Lubrican 5309360.13
B M15 Gantry 4718710.03
B M08 Conveyors 3161086.43
B ME02 Bearings 3032565.05
B C200 Building 2979143.64
B G05 Safety 2959104.08
B ME01 welding 2495578.70
B M06 Chains 2462279.64
B M22 Mech Mis 2364055.18
B M13 Fastener 2290439.99
B M11 Gases 2261293.62
C M28 Pipes 2117095.74
C M40 Valves 2024137.83
C M34 Screens 1733802.16
C EI04 Cables 1689689.43
C M45 Automobile 1608383.42
C M27 Pipe fit 1409914.82

84
 C M44 Packing’s 1386665.97
C M33 Rubber 1201023.15
C M17 Grinding 979581.93

Segment Material group %value Total usage value in %

segment
A 6 24 114177989.42 INR72.7
B 10 40 28724256.36 INR18.29
C 9 36 14150294.45 INR9.01
Total 25 100% 157052540.23 INR100%

60

50

40

30 % value
MATERIAL GROUP

20

10

0
A B C

Interpretation
During the year 2010-11 72.17% of the items have been classified as a
class items which requires tight control and strict monitoring. Almost half of the
inventory is maintained under B category but which requires only medium control and
has a less value of 18.29% and the remaining items are under C, which requires least
control and has a very minimum value 9.01

85
TURN OVER FOR YEAR 2010-11

Material Tot. Usage val. No.iss.VS

Total 169453563.59 INR 46781
P02 Chemical 46028763.88 INR 385
P03 Fuels 34632176.06 INR 286
M30 Pumps 10089684.20 INR 882
M43 Iron& S 9581212.31 INR 1351
P01 Catalyst 8536792.84 INR 6
M41 Lubrican 5309360.13 INR 611
M15 Gantry 4718710.03 INR 27
M08 Conveyors 3161086.43 INR 124
ME02 Bearings 3032565.05 INR 515
C200 Building 2979143.64 INR 1318
G05 Safety 2959104.08 INR 6764
ME01 welding 2495578.70 INR 2079
M06 Chains 2462279.64 INR 48
M22 Mech Mis 2364055.18 INR 2942
M13 Fastener 2290439.99 INR 9364
M11 Gases 2261293.62 INR 2842
M28 Pipes 2117095.74 INR 457
M40 Valves 2024137.83 INR 458
M34 Screens 1733802.16 INR 168
EI04 Cables 1689689.43 INR 272
M45 Automobile 1608383.42 INR 897
M27 Pipe fit 1409914.82 INR 2291
86
M44 Packing’s 1386665.97 INR 1434
M33 Rubber 1201023.15 INR 255
M17 Grinding 979581.93 INR 68
Reset 12401023.36 INR 10937

TABLE-4
ABC ANALYSIS FOR THE YEAR 2011-12

Category Material group Tot. Usage val.

A P02 Chemical 42819089.47
A P03 Fuels 39183239.90
A M43 Iron& S 10058162.05
A C200 Building 8338709.40
A M41 Lubrican 7177875.27
A M30 Pumps 6369395.49
B G05 Safety I 5211828.18
B ME02 Bearings 4301349.32
B M15 Gantry 3906851.26
B ME01 Welding 3154926.54
B M08 Conveyors 3057780.91
B M28 Pipes 2882387.07
B M22 Mech Mis 2866757.38
B M13 Fastener 2764678.46
B M40 valves 2729919.10
C M11 Gases 2559825.68
C M34 Screens 2536908.99
C M44 Packings 1919582.69
C M27 pipe fit 1566179.00
C M33 Rubber 1397512.22
C M17 Grinding 1359805.70

87
 C M45 Automobile 1187259.32
C CIH Transmit 1048212.12
C M32 Rubber 1019736.92
C MI01 Filters 1016147.94

segment Material group %value Total usage value in %

segment
A 6 24 113946471.58 INR71.02
B 10 36 30876478.22 INR19.25
C 9 40 15611170.58 INR9.73
Total 25 100% 160434120.38 INR100%

60

50

40

30 %value
material group

20

10

0
A B C

Interpretation
During the year 2011-12 71.02% of the items have been classified as a
class items which requires tight control and strict monitoring. Almost half of the
inventory is maintained under B category but which requires only medium control and
has a less value of 19.25% and the remaining items are under C, which requires least
control and has a very minimum value 9.73%
88
TURN OVER FOR 2011-12

Material group Tot. usage val. No. iss. VS

Total 175277279.29 49139
P02 Chemical 42819089.47 386
P03 Fuels 39183239.90 275
M43 Iron& S 10058162.05 1316
C200 Building 8338709.40 1621
M41 Lubrican 7177875.27 715
M30 Pumps 6369395.49 678
G05 Safety I 5211828.18 7406
ME02 Bearings 4301349.32 599
M15 Gantry 3906851.26 13
ME01 Welding 3154926.54 2438
M08 Conveyors 3057780.91 163
M28 Pipes 2882387.07 534
M22 Mech Mis 2866757.38 2981
M13 Fastener 2764678.46 10254
M40 valves 2729919.10 444
M11 Gases 2559825.68 3398
M34 Screens 2536908.99 172
M44 Packings 1919582.69 1509
M27 pipe fit 1566179.00 2401
M33 Rubber 1397512.22 235
M17 Grinding 1359805.70 59
89
M45 Automobile 1187259.32 495
CIH Transmit 1048212.12 26
M32 Rubber 1019736.92 212
MI01 Filters 1016147.94 65
Rest 14843158.91 10744

TABLE-5

ABC ANALYSIS FOR THE YEAR 2012-13

Category Material group Tot. usage val.

A P03 Fuels 39768720.19
A P02 Chemical 35443890.43
A P01 Catalyst 24451692.69
A C200 Building 10771847.89
A M43 Iron & S 8435757.70
A M41 Lubrican 7495057.14
A M08 Conveyors 7130081.57
B ME02 Bearinngs 7075462.94
B M30 pumps 5703282.50
B G05 Safety 5331618.02
B M22 Mech Mis 3923468.65
B ME01 welding 3784513.02
B MI01 Filters 3207853.61
B M13 Fastener 3145124.06
B M44 Pickings 2588588.57
C M11 Gases 2366248.11
C M28 Pipes 2065628.16
C M40 valves 2037829.67

90
 C M27 Pipe fit 1914075.98
C M06 Chains 1538959.55
C M34 Screens 1460943.15
C M45 Automobiles 1225199.04
C M33 Rubber 1223088.61
C M16 Gears 1197341.74
C ME03 Drier/Gr 1030013.64

Segments Material group % value Tot. Usage val. In %

segment
A 7 28 133497047.61 INR72.43
B 8 32 34759911.37 INR18.86
C 10 40 16059327.65 INR8.71
Total 25 100.00 184316286.63 100.00

60

50

40

30 % value
material group

20

10

0
A B C

Interpretation
During the year 2012-13 72.11% of the items have been classified as A
class items which requires tight control and strict monitoring. Almost half of the

91
inventory is maintained under B category but which requires only medium control and
a less value of 18.86% and the remaining items are under C, which requires least
control and has a very minimum value 8.01%

TURNOVER FOR THE YEAR 2012-2013

Material group Tot. Usage val. No. iss .VS

Total 201556950.54 51327
P03 Fuels 39768720.19 239
P02 Chemical 35443890.43 437
P01 Catalyst 24451692.69 21
C200 Building 10771847.89 1775
M43 Iron & S 8435757.70 1086
M41 Lubrican 7495057.14 823
M08 Conveyors 7130081.57 204
ME02 Bearinngs 7075462.94 764
M30 pumps 5703282.50 654
G05 Safety 5331618.02 7922
M22 Mech Mis 3923468.65 3176
ME01 welding 3784513.02 2691
MI01 Filters 3207853.61 56
M13 Fastener 3145124.06 10936
M44 Pickings 2588588.57 1668
M11 Gases 2366248.11 2924
M28 Pipes 2065628.16 522

92
 M40 valves 2037829.67 461
M27 Pipe fit 1914075.98 2420
M06 Chains 1538959.55 37
M34 Screens 1460943.15 109
M45 Automobiles 1225199.04 684
M33 Rubber 1223088.61 241
M16 Gears 1197341.74 23
ME03 Drier/Gr 1030013.64 21
Rest 17240663.91 11433

Inventory control is very essential for any organization. An organization represents

aggregate of those items which are either held for the sale in ordinary course of
business or are in the process of production for the sale (i.e., work-in-progress) or yet
to be utilized in the production of goods and services. In case of CFL raw material
department procures the required raw material here as central stores department take
care of spares consumed the production & distribution are responsible for managing
the finished goods.

PHOSPHORIC ACID:

YEAR QUANTITY VALUE

(MEN TONN) (IN LAKHS)
2008-2009 71682.00 1602740107
2009-2010 45859.00 1105902839
2010-2011 53327.00 4010910167
2011-2012 134901.00 3998451045
2012-2013 87466.00 3790288965

AMMONIA

93
YEAR QUANTITY VALUE
(MET TONN) (LAKHS)
2008-2009 177259.00 270904410
2009-2010 110828.00 14875018
2010-2011 1441170 3626629918
2011-2012 203659.00 2993491350
2012-2013 184798 3494997254

MAP

YEAR QUANTITY VALUE

(MET TONN) (LAKHS)
2008-2009 2143 277214065
2009-2010 1952 25619619
2010-2011 883 1179364
2011-2012 707 11045316
2012-2013 159 2998920

PHOS. ACID

YEAR QUANTITY VALUE

(MET TONN) (LAKHS)
2008-2009 71682 1602740107
2009-2010 45859 1105902839
2010-2011 53327 4010910617
2011-2012 134901 3998451045
2012-2013 87446 3290288965

94
ROCK

YEAR QUANTITY VALUE

(MET TONN) (LAKHS)
2008-2009 581814 2412196293
2009-2010 461296 2118679731
2010-2011 421198 510095856
2011-2012 480869 4200325119
2012-2013 471759 3244172145

INVENTORY MANAGAMENT OF FINISHED GOODS

Sales & distribution department ensure that finished goods reach the right place at
right time and at right cost. Operation department prepares the production plan and
sends it to vice president marketing who along with RMO of different region prepares
a sales plan & sends it to the sales & distribution department.

These plans are of different formats:

 Product wise, season wise sales plan

 Product wise, month wise sales plan

95
  Marketing office wise, month wise DAP sales plan
 Marketing office wise, product wise sales plan
 Month wise, destination wise rake movement plan
Sales & distribution department considers both sales and production while
preparing a dispatch plan, S & D department also make sure to crosscheck the
monthly stock reconciliation report, sent by RMO from every region, so that details
about the closing stock of each centre are known. So any variation in the closing
stock will lead to a little variation in the dispatch plan when compared to sales plan.

CALCULATION OF EOQ FOR THE YEAR 2012-2013

FOR PHOS.ACID

ANNUAL DEMAND (D) = 87446

UNIT PRICE = 37626

ORDERING COST = 28446 RS

CARRYING COST = 20% on unit price
37626*20/100
= 7525

EOQ = √ 2*D*O.C
C.C

EOQ = √ 2*(87446) (28446)

7525

= 813 M
96
FOR AMMONIA:

ANNUAL DEMAND (D) = 184798 mt

UNIT PRICE = 18912 rs

ORDERING COST = 16554 rs

CARRYING COST = 20% on unit price

18912*20/100
= 3782 rs
EOQ = √ 2*D*O.C
C.C

= √ 2*(184798) (16554)
3782
= 1272MT

97
FOR MAP

ANNUAL DEMAND (D) = 159 MT

UNIT PRICE = 18861

ORDERING COST = 6465 rs

CARRYING COST = 20% on unit price

=18861*20/100
=3772 rs

EOQ = √ 2*D*O.C
C.C

EOQ = √ 2*(159) (6465)

3772
=23.34

98
FOR PHOS.ACID

ANNUAL DEMAND (D) = 87446

UNIT PRICE = 37626

ORDERING COST = 28446

CARRYING COST = 20% on unit price

=37626*20/100

EOQ = √ 2*D*O.C
C.C

EOQ = √ 2*(87446) (28446)

7525
= 813 M

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FOR ROCK

ANNUAL DEMAND (D) = 471757

UNIT PRICE = 6876

ORDERING COST = 6465

CARRYING COST = 20% on unit price

= 6876*20/100

EOQ = √ 2*D*O.C
C.C

EOQ = √ 2*471757*6465
1375
= 666 MT

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 FINDINGS

 ONGC has introduced SAP to overall departments to update and enter each

and every transaction easily.

 The company follows ABC analysis to maintain optimum quantity levels.

 Lead time for the items was very high. It is high in ‘A’ class items.

 The company follows Weighted Average (MAP-Moving Average Price) for

issuing of stores & spares to the production.

 The company follows codification for the material requisition orders.

 The company has been minimizing the investment to maximize its

profitability.

 The company follows EOQ (Economic Order Quantity) in issuing the raw

material.

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 SUGGESTIONS

 ONGC has to concentrate more on some of the areas such as codification and

non-moving items.

 The company should concentrate more on procurement of the items which

were already in the stock and which were not moving from the past 3 to 4

years.

 The company should take necessary steps to reduce duplication through proper

description of all the items with proper codes.

 The obsolete items should be kept for deletion which will reduce the

continuation of duplication.

 The company should update its technology from time to time.

 In case of procurement, more emphasis on procuring Economic Order

Quantity (EOQ) may result in increase of profits of the company.

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103
 CONCLUSION

If your goal is to make your business more profitable, you must increase efficiency

and reduce costs.

 As a member of the distributions industry, inventory is the largest investment

that you make. Careful classification of your inventory, and continuing

analysis of those classifications, can play a vital role in maintaining cost at the

efficient levels you have established as your goals.

 Payroll is an immediate expense of your business. The time you invest in

inventory management will pay immediate and long-term dividends by

reducing the amount of time your employees spend performing their tasks.

With their increased speed, accuracy, and efficiency, you will no longer be

paying them to repeat tasks that the O/P Dealer can do for them.

 Inventory control is a constant requirement of doing business successfully.

Procedures for pulling, receiving, and replenishing stock should be

established, with considerations made for your particular environment. These

procedures should be enforced as law at your company: inventory accuracy is

developed only through adherence to consistent practices and procedures.

 Inventory management involves more than immediate and reactionary

decisions that affect your business. Inventory management requires that you

establish and enforce procedures that will serve as tools in utilizing your

system on a daily basis in the most efficient manner to produce the most

profits for your company.

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 BIBLIOGRAPHY

Financial Management System - I.M. Pandey

Rastugi

Khan & Jain

Production and Operation Management

- K. Aswathappa

K. Sridhar Bhat

WEB SITES:
 www.oilcareer.com
 www.ongc.com
 www.wikipedia.com
 www.google.com

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