Lesson No. 34 – Stock Inspection of a Manufacturing unit under SME.

LESSON No 34

My Dear "¥" generation f b friends. Good morning.
Wednesday 9/3/16

Let us continue our discussion on Stock Inspection of a Manufacturing unit under SME.

Our young energetic MBA officer Mr.Ashwin who had recently joined, was invited by his BM Shri Rameshsingh (RS) to accompany him for the visit and inspection of a unit M/S Jalaram Utensils, manufacturing Aluminum Utensils.
Ashwin was very excited since this was his first such experience.
Shri RS called A and asked him to collect the information from records with branch.
Mr.Ashwin prepared following notes under the guidance of RS.
1.Sales projected 560 lacs (Cost of material 80% ie app 440 lac ie.Rs.440 lac/1000= 44,000 kg yearly = 3700kg per month= 3700/25=150 kg per day cost approx.)
2.Margin RM 20% on Ingots,30% on scrap,SFG & FG ,Debtors 25%
3.Limit Sanctioned 110lacs.
4.LC limit within 110lac Rs50 lac (Revolving) for purchase of ingots from MMTC
5. Stocks as per last month's statement : RM Rs65lac ;SFG & FGscrap Rs.17.50lac; Debtors. Rs57lac.
6 Dr Summations 3 months Rs168 lac Credit summations Rs138 lac
Average Dr bal Rs109 lac
Present balance Rs 120.57 lac
On reaching the unit they were welcomed by Shri Bharatbhai proprietor of the concern.He gave following information.

OBSERVATIONS NOTED by BM

Shri Bharatbhai an Engineering graduate furnished the details:

a) Aluminium Ingots landed price (1)Rs1000 per kg for ingots (2)Scrap Rs.950 per kg
b) Credit available on scrap about10 days suppliers are Girdhar Scrap ; Irfan and brothers ; Others
c) The WC cycle RM holding period 1.45monthsSFG+ FG 0.25 mths(5 to 7 days) Debtors 1.40months Total=3.10 months (Turns in a year=12/3.10 =3.9 times ie.roughly 4)
d) The manufacturing process described in short is as :- The ingots and scrap is fed in furnace, the molted mass is dropped in moulds to make Aluminum circles.The circles are put on a pressing machine with difficult patterns to get forms of Utensils. Then finishing and polishing operations are carried out. Lastly utensils undergo buffing operations to get the requisite gloss.
We sale about 5 % of Aluminum circles if excellent price is received.
All this explanation took about half an hour.
RK asked A to count the Stock of Ingots.
A counted nos and were 370, the average weight being Kgs15.
The scrap was around Kgs 120

The value was thus
i. RM = 370*15*1000 = Rs.55lac
ii.Scrap value 120*900 =Rs10.80lac
iii (SFG+FG ) 20kg= Rs.20.oo lac
iv.Debtors of 1.5 months of Sales{=(138/3)*1.5=}. Rs.69.00 lac
Total i to iv Rs.154.80
Drawing Power44+75 Rs.119.00
(Outstanding Rs.120.57lac ).
Some questions/clarification sought by RS.
1.The account is overdrawn for last 15 days?
Sir, the goods received under LC and bills for Rs.48.50 lacs paid thru a/c and there is some lag in sales.
2.The bank's board not displayed properly.
Sir, it will be affixed today only. We have on the entrance gate displayed Our Banker " ..........."
3.Show the ST returns for 3 months.
Provided by client.There was a difference of about Rs.14.50 lacs.
Client explained that it was filed after due date as there was some flaw in our Computer system.
4.The insurance is for Rs.60 lacs it is insufficient.
Sir,It covers your limit against stock of Rs.50 lacs.
(Ashwin asked BM, why we seek higher value of insurance. SR smiled and explained.In the Insurance policies always there is an Average Clause.According to it the loss to the properion will be settled.Sir pl exemplify. In this case suppose there is loss of material say Rs 20 lac. The settled amount will be in that proportion =20*(60/80.80)=Rs14.85 lac.Hence insurance should always be higher than maximum stock maintained.). SK arranged for necessary insurance cover.

5.Then RS checked electricity consumption bills for last 3 months.They were app 2% of RM consumption as per projected operating statement.
6.RS spoke with 2/3 boys undertaking the job of polishing and was satisfied to find that all were above 18 yrs.(No child abuse).
7.The repayment of TL instalment for Machinery taken from NSIC was regular.
8.RS found that there was a fly wheel and moving parts not properly protected.He instructed Bharatbhai to fix a grill and fence it and send photo thereof.
9.RS pulled the entrepreneur for better upkeep of the unit.
10.RS showed A how to check Creditors,Debtors and relevant bills.
11.Lastly RS referred his diary and questioned about payment of cheque ,for Rs.1.5lac to Kelwani Mandal.
Sir,we have taken a small office cum stores in the city to store goods informed Bharatbhai.
Bharatbhai then requested to have snacks from the nearby reastaurent.RS made friendship with the proprietor Krishna and opened a RD ac of Rs.5000/-.During snacks RS enquired with Bharat about his brother. Sir he will be joining Engineering College said B. RS was able to convince B to avail a Education loan.
B also requested for a small transport vehicle. RS asked him to put up the proposal.
They exchanged greetings and departed.
Ashwin was delighted and thanked RS for mentoring. RS had given an insight how an inspection of a manufacturing unit was to be carried out.
(This was a real life case during my tenure as BM).
Thank u and good by.

Waman Gokhale
7350901500
(Writer of "Banking Beyond Books" a book where I shared 50+ episodes about practical banking)