A STUDY OF INVENTORY MANAGEMENT

At

MAHINDRA&MAHINDRA LTD, ZAHEERABAD

CONTENTS
Page No.
I.

CHAPTER
-24

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INTRODUCTION  SCOPE  OBJECTIVES  RESEARCH&METHODOLOGY
II.

CHAPTER
INDUSTRY PROFILE COMPANY PROFILE

25-49

 

III. CHAPTER
 REVIEW OF LITERATURE

50-72

IV. CHAPTER

73-82
ANALYSIS AND INTERPRETATION

V. CHAPTER

83-86

1

 

FINDINGS AND SUGGESTIONS CONCLUSION

BIBILIOGRAPHY

87-88

I. CHAPTER
    

Introduction Scope Objectives Research Methodology Limitations

2

INTRODUCTION

Every enterprise needs inventory for smooth running of activities. It serves, as a link between production and distribution. For every process there is, generally, a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher the requirement for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It provides a cushion for future price fluctuations. The investment in inventories constitutes the most significant part of current assets/working capital in most of the undertakings. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. The investment in inventory is very high in most of the undertakings engaged in manufacturing, wholesale and retail trade. In India, a study of 29 major industries has revealed that the average cost of materials is 65paise and the cost of labor is 10paise and overheads is 15paise of a rupee, 10%is profit. It is necessary for every management to give proper attention to inventory management. A proper planning of purchasing, handling, storing and accounting should form a part of inventory management. An efficient system of inventory will determine,  What to purchase  How to purchase

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 From where to purchase  Where to store etc.,

There are conflicting interests of different departmental heads over the issue of inventory. The finance manager will try to invest less in inventory because to him it is an idle investment, where as production manager will emphasis to acquire more inventory as he does not want any interruption in production due to shortage of inventory. The purpose of inventory management is to keep the stocks in such a neither way that there is over-stocking nor under-stocking. The over-stocking will mean a reduction of liquidity and starving of other production processes whereas under-stocking, on other hand, will result in stoppage of work. The investments in inventory should be kept in reasonable limits.

MEANING AND NATURE OF INVENTORY
There are different meanings of inventory in different languages. In accounting language it may mean stocks of finished goods only. In a manufacturing concern, it may include raw materials; work in process and stores, etc., to understand the exact meaning of the work “inventory”

Inventory may include the following things: 1. RAW MATERIALS:
Raw materials form a major input into the organization. They are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of consumption and the time required for replacing the supplies. The factors like the availability of raw materials and government regulations, etc., too affect the stock of raw materials.

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The fuel oil may form a substantial part of the cost. The consumption pattern of raw materials. WORK-IN-PROGRESS: The work-in-progress is that stage of stocks. are not discarded after use. The quantum of work-inprogress depends upon the time taken in the manufacturing process. FINISHED GOODS: These are goods.2. consumables stores do not create any supply problem and form a small part of production cost. The costly spare parts like engines. The raw materials enter the process of manufacturing but they are yet to attain a final shape of finished goods. maintenance spares etc. Consumables may be classified according to their consumption and criticality. consumables. The greater the time taken in manufacturing. The purpose of maintaining inventory is to ensure proper supply of goods to the customers. These materials do not enter directly into production but they act as catalysts. The need for finished goods inventory will be more when production is undertaken in general without waiting for specific orders. CONSUMABLES: These are the materials.. which are needed to smoothen the process of production. SPARES: Spares also form a part of inventory. The stock of finished goods provides a buffer between production and market. Rather they are kept in 5 . 3. In some concerns the production is under taken on order basis. Some industries like transport will require more spares than the other concerns. Generally. The stocking policies of spares are different from industry to industry. In these concerns there will not be a need for finished goods inventory. the more will be the amount of work-in-progress. which are ready for the consumers. There can be instances where these materials may account for much value than the raw materials. 5. finished goods are different from that of spares. 4. which are in between raw materials and finished goods.

etc. Generally there are three main purposes or motives of holding inventories.  The transaction motive. every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business. etc. which facilitates continuous production and timely execution of sales orders. which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials. saving in re-ordering costs and quantity discounts.  The precautionary motive..ready positions for further use. All decisions about spares are based on the financial cost of inventory on such spares and the cost that may arise due to their nonavailability PURPOSE/BENEFITS OF HOLDING INVENTORY Although holding inventories involves blocking of firm’s funds and cost of storage and handling. It will mean loss of time and delays in execution of orders. In the absence of inventories a firm will have to make purchases as soon as it receives orders. A firm also needs to maintain inventories to reduce ordering cost and avail quality discounts.  The speculative motive which induces to keep inventories for taking advantage of price fluctuations. 6 . which sometimes may cause loss of customers and business.

The storage costs include the rental of the go down. in both cases.  RISK OF PRICE DECLINE: There is always a risk of reduction in the prices of inventories by the suppliers in holding inventories. 7 . there is opportunity cost of investment while in the later case. CAPITAL COSTS: Maintaining of inventories results in blocking of the firm’s financial resources. competition or general depression in the market. etc. STORAGE AND HANDLING COSTS: Holding of inventories also involves cost on storage as well as handling of materials. own resources or from outsiders.  RISK OF OBSOLESCENCE: The inventories may become obsolete due to improved changes in requirements. The various costs and risks involved in holding inventories are as below: 1. therefore. the firm incurs a cost. 2. The funds may be arranged from. change in customer’s tastes etc. to arrange for additional funds to meet the costs of inventories. It also exposes the firm to certain risks. But. In the former case. insurance charges. This may be due to increased market supplies. The firms have.RISK AND COSTS OF HOLDING INVENTORIES The holding of inventories involves blocking of firm’s funds and incurrence of capital and other costs. technology. the firm has to pay interest to the outsiders.

Material control covers three stages namely • Purchase of material • Storing of material • Issue of material 8 . Hence proper control over material is necessary from the time the order is placed with the suppliers till they are actually consumed.MATERIAL CONTROL In most of the manufacturing concerns. Material control may be defined as the “systematic control over the procurement. The cost of raw materials represents a major part of the total cost of production. An efficient system of material control will lead to a significant reduction in production cost. storage and usage of materials so as to maintain an even flow of materials and avoiding at the same time excessive investment in inventories”.

OBJECTIVES: The objectives of material controls as follows 1. A small percent material cost can result in large percent increase in profitability. 2. To purchase the materials at a reasonable price without sacrificing the quality of such materials. The reasons are:1) Nothing can be produced with out materials supplies. 3) Because materials from major part of total cost these offer a very good scope for reduction of total cost. To avoid abnormal wastage by exercising direct control. 5) Any interruption or shortage in supply of materials when needed by the production department in many situations can result in complete stoppage of production. This varies depending up on type of product. supplies. equipments are of primary importance. To avoid the risk of spoilage and obsolescence of the materials by fixing the maximum stock level.e. to make materials available as and when they are needed. 9 . 3. To keep investment in stock at a reasonable levels. 4) End product quality a part from other factors largely depends on quality of input materials. 5. so that there is no loss of interest on capital. IMPORTANCE OF MATERIAL MANAGEMENT For any manufacturing organization materials. 4.. or equipment 2) Materials constitute major part of total cost of products. To ensure regular and uninterrupted supply of materials i.

Right material. Right quality. Right price. Proper records. ISSUE RELATED TO MATERIALS PLANNING:Materials identification. Right quantity. 7) In the long term welfare and interest of the mankind the natural resources (most of the materials ultimately came from one or the other natural resources) need to be conserved and regenerated along with planned usage. Low pay rolls costs.6) Because of growing concern for pollution same contribution has to be materials management by finding substitutes which are less polluting or less damaging. ISSUE OF MATERIAL MANAGEMENT: As per major activity groups involved in material management in any manufacturing organization 1 Issue related to materials planning 2 Issues related to purchase 3 Issues related to stores or inventory 4 Issues related to material handling & display 1. Right time. Standardization Make of buy Coding & classification Quality specification: 10 .

By brand or trade name 4. It is also possible to conduct testing and inspection facilities G) It is beneficial to the vendor also in case the size of order constitutes major proportion of his total production capacity 11 . For a single place organization decentralization might be feasible on a very limited scale. By specifying / providing engineering drawing / blue prints 2. By providing samples or proto type 2. CENTRALISED VS DECENTRALALISED PURCHASING: This issue is comparatively more important & relevant to large corporations operating multiple plants may or may not be located at different places.1. A) favorable price and items can be negotiated because of large volume purchase B) specialized vendor’s/ancillaries can be encouraged to take up manufacture & supply of items/components of required & specified qualities C) administration and control is comparatively more easy & efficient D) number of personnel required is comparatively less resulting in to reduced overhead cost of purchasing E) paper work record keeping is consolidated possible to developing uniform procedures and policies F) Easier to maintain the quality of purchased parts/items through centralized testing and inspection. ISSUE RELATING TO PURCHASING: 1. By specifying testing procedures and relevant standards 6. By specifying well accepted market grades 5. By providing manufacturing operation specification 3.

VENDOR / ANCILLARY DEVELOPMENT: This is same what similar to single/multiple supplier decision and also an out come of make/buy decision. SINGLE SOURCE VS MULTIPLE SOURCE: The purchase dept can decide to choose and depend on a single source for each of same selected items in the extreme case the department can decide to use single source for each of the item A) for small total annual requirement of an item multiple sources tend to increase clerical and other expenses B) due to bulk purchases from single source it becomes possible to avail of discounts of prices or frights or other services C) suppliers tries to co-operate update & improve his services because of long term relation D) No of personnel required is comparatively less. When total annual requirement is large and item is to be brought from the market. E) Paper work record keeping in consolidated possible to develop uniform procedures and policies. G) It is beneficial to the vendor also in case the size of order constitutes major proportion of his total production capacity. It is also possible to conduct testing and inspection at the vendor’s facilities. 12 . 4.3. F) Easier to maintain the quality of purchased parts/ Items though centralized testing and inspection. resulting in to reduced overhead cost of purchasing. then it is worth it to encourage ancillaries to take-up production and supply of the item to a par cent company.

etc. For ‘A’ & ‘B’ class items precise methodical models for determination of EOQ frequency of purchase. suppliers capability time lag. safety stock/buffer stock level etc. SIZE AND TIMING OF PURCHASE ORDERS: This is an integrated issue. Stores and inventory. Providing item design/drawings  Providing technology for production  Helping in arrangement of finance  Helping by loading of its technical persons  Extending credit facilities  Extending quality control/testing facilities  Indirectly/directly helping in getting raw materials. can be used. all have an important bearing an how much to order and when to order Relative importance of material or an item to the organization is also an important issue since all items need not be considered equally for inventory management and control. A B C ANALYSIS:‘A’ class items are subjected to highest level of control supervision and management. 5. 13 . reliability cost of holding inventory and cost of placing orders. 4. ‘B’ class items are subjected to medium level of control supervision and management ‘C’ class items usually are not subjected to elaborate. production schedule. control/management since the cost of efforts is not worth it.

14 . either important or restricted. 8. desirable. Or rationed Items. vital.e. ‘H’ classified items are required to be subjected to highest level of control supervision and management the general guidelines are accordingly devised by the management in respect to each of the classification.6. may renders the stoppage of the production are classified as ‘V’. usually in short supply and not available uniformly throughout the year. the items would be classified as ‘H’ ‘M’ & ’L’. essential.M.L CLASSIFICATION:High medium and low classification is done on the basic of important of price/unit unlike ABC. Where total consumption value was considered it is for the management to decide beyond which level of price/unit. VED CLASSIFICATION:The classification i. 7. H. SED-CLASSIFICATION:Scarce difficult and easy classification is with respect to their availability in the market scarce items are those which are scarce. is done on the basis of importance of an item to the production process. ‘E’ items are those which are easily available in the local market as and when needed. Those which are highly important and whose non-available. ‘D’ items ate those which are available in the local market. where as those because of which if not available the production may be affected or hampered are classified as ‘E’ and others classified as ‘D’ in this classification the opinion of the of technical people in the production process plays very important role one can formulate a matrix considering ABC and VED analysis.

 All the classifications help in identifies more important items to be taken up for close supervision and management by materials management on selective bases. Easy and safe storage 15 . Safety from theft and pilferage Danger etc. A related requisition is when to order and how much to order? What should be the level of reorder point and safety stock the models relating LOCATION AND LAYOUT OF STORAGE: Location of store should be convenient from point of view point of view of receipt and inspection of material and also from the point of view of easy accessibility to internal users it also depends on the type of items handle e.heavy material requiting rail head etc. FSN-CLASSIFICATION:The fast slow non-moving classification is based on rate of movement of items for the store the item lapsed since last issue from the stores becomes one of the indicators to be used for this classification the fast moving items ‘F’ need to be reviewed frequently for placing the purchase order. keeping very low inventory with high risk of stock out.9. ISSUES RELATING TO STORAGE AND MATERIAL HANDILING:How much inventory of each item is to be maintained? This is the result of trade off between keeping very high inventory resulting in to high inventory holding costs vs.g.:. Where as non moving ‘N’ items need to be received for disposal consideration.

Minimizing unnecessary handling with in the stores Efficient use of space OBJECTIVES OF INVENTORY MANAGEMENT The main objectives are operational and financial. This is possible with the help of centralized purchasing. The price-analysis. The operational objectives mean that the materials and spares should be available in sufficient quantity so that the work is not disrupted for want of inventory. wastages and damages. The financial objectives means that investments in inventories should not remain idle and minimum capital should be locked in it.  To facilitate furnishing of data for short-term and long-term planning and control of inventory.  To ensure perpetual inventory control so that materials shown in stock ledgers should be actually lying in the stores.  To minimize losses through deterioration. The following are the objectives of inventory management:  To ensure continuous supply of materials. spares and finished goods so that production should not suffer at any time and the customers demand should also be met.  To avoid both under-stocking and over-stocking of inventory. the cost-analysis will ensure paying of proper prices. A clear-cut accountability should be fixed at various levels of the organization.  To ensure right quality goods at reasonable prices.  To eliminate duplication in ordering or replenishing stocks. pilferage.  To maintain investments in inventories at the optimum level as required by the operational and sales activities.  To keep materials cost under control so that they contribute in reducing cost of production and overall costs. Suitable quality standards will ensure proper quality of stocks. 16 .  To design proper structure for inventory management.

 To analyze the various costs involved in the inventory management. maximum stock level.OBJECTIVES OF THE STUDY  To analyze the stock levels like reordering level.  To analyze whether JIT (just in time) system can be implemented or not.  To give suggestions relating to efficient utilization of inventories in Mahindra & Mahindra. and inventory control method. 17 . minimum stock level.  To evaluate the process of supply chain management.

2005-2006. 2006-2007.e2004-2005. So.RESEARCH METHODOLOGY Any of the above systematic and scientific research lies in its methodology giving a clear idea of the forms of study and procedure adopted in conducting it and stating the purpose become essential parts of every study. 18 . in this study the information furnished from secondary source for three years i. Secondary source: The secondary data has been collected from  inventory reports  annual reports  magazines  newspapers  books  Internet.

LIMITATIONS:  The time confined for the study is very limited which is not sufficient to make a comprehensive study. 19 .  The complete data cant be obtained as it was confidential and was not revealed to outsiders.

CHAPTER   Industry Profile Company Profile 20 .II.

yet the raising value of yen continued to adversely affect its financial crisis and both. Therefore. The name of the company was changed to MAHINDRA ALLWYN NISSAN LTD.INDUSTRY PROFILE UNIT SCENARIO: The MAHINDRA & MAHINDRA plant is located at 108 kilometers from the state capital of AP at Zaheerabad. After that an intensive negotiation MAHINDRA & MAHINDRA LTD.M & M finally took entire control of the operation of the plant on 1992. the state government indifference to the state industrial policy decided to sell Allywn Nissan Ltd (ANL) to capable of business houses. PICK UP RANGE:  Mahindra utility  Mahindra pick up  Mahindra NC 640 DP  Mahindra pick up CBC 21 . The joint venture agreement was entered into 7th November 1988 by M & M with NMC. The financial corporation and industrial development corporation were facing massive cuts in government findings. In July 1983 Hyderabad Allwyn limited (HAL) a state public sector agreement with Nissan Motor Company (NMC) limited of Japan for manufacturing new generation of light commercial vehicles (LCVs) in India. in the case preferably and established automobile company.It has an area of 350 hectors land including all facilities. in order to cover the closing down of units. The scope of transfer stocks of imported kits procured at favorable rates during the year 1962 vehicles was sold. the country’s leading manufacturing of jeeps and tractors entered into the memorandum of understanding with HAL on 10th June 1988 and agreed to acquire 26% of share capital in ANL and there after took control of the company’s management with the transferor of shares and management. Although company achieved 60% localization in its products.

three door  Mahindra Bijlee  Mahindra FJ CNG mini bus. HARD TOP RANGE:  Mahindra economy  Mahindra Marshal  Mahindra MM775 XDB  Mahindra three and five door hard top  Mahindra Marshal 2000 Deluxe  Mahindra marshal DX Royal ALTERNATIVE FUEL RANGE:  Mahindra CNG.MAXX RANGE:  Mahindra Maxx  Mahindra Maxx LX CL RANGE:  Mahindra MM 540/550 DP  Mahindra MM 540/550 XDB  Mahindra MM 540 DP  Mahindra MM ISZ-petrol soft-top COMMANDER RANGE:  Mahindra commander 650 DI  Mahindra commander 750 ST. 22 .

23 . The mahindra group is divided into 6 sectors and these are the strategic core business units.ARMY RANGE:  Mahindra rakshak(Bullet-proof vehicle)  Mahindra MM550 XD THREE WHEELER RANGERS:  Mahindra champion DX  Mahindra champion BUSINESS: The main business of MAHINDRA & MAHINDRA limited is to manufacture the utility vehicles and light commercial vehicles and tractor to market these vehicles for customers.  Automotive sector  Farm equipment  Automotive component sector  Trade and finance sector  Infra structure development sector  Telecom software exports sector.

A consistently high performer.000 square meters. M&M have also set up two satellite plants for tractor assembly. which has a significant presence in key sectors of the Indian economy. M&M is one of the most respected companies in the country. the growth of which is being fueled by both. 24 .500 people and have six state-of-the-art-manufacturing facilities spread over 500. and has also ventured into manufacturing of industrial engines. M&M has two main operating divisions: 1. The Tractor Division has won the coveted Deming Application Prize 2003. The Company has. domestic and export demand. information technology. The resurgence of the automotive industry and M&M's success in exploiting it. M&M soon branched out into manufacturing agricultural tractors and light commercial vehicles (LCVs). trade and finance related services. over the years. transformed itself into a Group that caters to the Indian and overseas markets with a presence in vehicles.5 billion Mahindra Group. The Automotive Division manufactures utility vehicles.COMPONY PROFILE Mahindra & Mahindra Limited (M&M) is the flagship company of around US $ 2. light commercial vehicles and three wheelers. M&M employ around 11. The company later expanded its operations from automobiles and tractors to secure a significant presence in many more important sectors. making it the only tractor manufacturing company in the world to secure this prize. farm equipment. The Tractor (Farm Equipment) Division makes agricultural tractors and implements that are used in conjunction with tractors. and infrastructure development. 2. has created an opportunity to strengthen the company through an entry into the Auto Components business. Set up in 1945 to make general-purpose utility vehicles for the Indian market.

the company has put in place initiatives that seek to reward and retain the best talent in the industry.M&M have 49 sales offices that are supported by a network of over 780 dealers across the country. M&M's outstanding manufacturing and engineering skills allow it to constantly innovate and launch new products for the Indian market. resulted in the Company winning the National Award for outstanding in-house research and development from the Department of Science and Industry of the Government in 2003. the company has implemented several programs that have benefited the people and institutions in its areas of operations. 25 . a facility that will house the Company's engineering research and product development wings. USA. London. a Cambridge educated economist. The Government of India also requisitioned his services.Mahindra was a mechanical engineer from VJTI. the "Scorpio". As a result. • K. The Company's commitment to technology-driven innovation is reflected in Company's plans of setting up of the Mahindra Research Valley. The M&M philosophy of growth is centered on its belief in people. Mumbai. was partner with Martin Burn.the Mahindra Sarpanch 595 DI Super Turbo. He was appointed the country’s first Iron and Steel Controller. an agent to IISCO.Mahindra. The Company has launched India's first tractor with turbo technology . The Company's significant recent product launch. He took over as Chairman of India Supply Mission to Washington. This network is connected to the Company's sales departments by an extensive IT infrastructure. M&M is also known for its progressive labor management practices.  Founders • J. under one roof.C. In the community development sphere.C.

K.  Objectives The main objective of Mahindra is that they want to maintain none to second position and be the Best top company by maintaining talented people. As an organization we will be recognized for high Ethical Standards and responsiveness to the social environment we will continue to be.C. In our Business operations are will ensure sustained profitability and growth we will create a dynamic collaborative in which our people will feel challenged and cared or and build an organization that is resilient flexible and productive. J. Automotive Vehicles farm equipment and products.  Mission At M &M. Inspiration  Mr. manufacture and market Internationally Competitive.Mahindra were inspired by the vision of Pandit Jawaharlal Nehru of building a strong Independent India  Mr.C. will design.C.K. Customer Focus: • • • By Encouraging team work By providing a healthy and good work environment By Sake practices People Culture: 26 . tough and capable of tackling the Indian terrain.Mahindra and Mr. reliability value for money and farm productivity Will be our primary concern. 1. Our customer’s needs – especially the requirement of safety. Mahindra It was with this focus that they set out to manufacture an Indian vehicle that would be rugged.

procedures. Community Culture: • • • By setting high ethical standards. Cost Discipline: • • • By elimination of non-value added work. By to community welfare. systems and By delivering right time and every time. By productive use of assets. Through continues improvement. 27 . Time Discipline: • • • • By Meeting set targets By delivering on time By ensuring service on time By quick response to needs Quality Discipline: • • • By positive reputation for quality By following international quality assurance.• By appraisal and Reward System. By responsible to environmental needs.

Mahindra & Mahindra’s Logo symbolizes:
• •

The road ahead that links the company’s past with its future. The road through which the company’s thoughts, ideas, designs, and products will travel.

• •

A forward looking organization moving towards new horizons. Innovation and dynamism.

This Logo is created by Mr.Shyam Kumar from the Automotive Sector – Nasik.

 Core purpose and values
• Core Purpose
“Indians are second to none in the world. The Founders of our Nation and of our organization passionately believed this. We will prove them right by believing in ourselves and by making Mahindra & Mahindra Limited known worldwide for the quality, durability and reliability of its products and services.”

Core Values
i.

Good Corporate Citizenship
As in the past, we will continue to seek long term success, which is in alignment with our country’s needs. We will do this without compromising on ethical business standards.

ii.

Professionalism
We have always sought the best people for the job and given them the freedom and opportunity to grow. We will continue to do so. We will

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support innovation and well reasoned risk taking, but will demand performance.

iii.

Customer First
We exist and prosper only because of the customer. We will respond to the changing needs and expectations of our customers, speedily, courteously and effectively.

iv.

Quality Focus
Quality is the key to delivering value for money to our customers. We will make quality a driving value in our work, in our products and in our interactions with others. We will do it “first time right.

v.

Dignity of the Individual
We will value the individual dignity, uphold the right to express disagreement and respect the time and efforts of others. Through our actions we will nurture fairness, trust and transparency.

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MANAGEMENT PROFILE

Board of Directors
The Board of Directors of the Company has, as its members, eminent persons from Industry, Finance, Investment and other branches of business, who bring diverse experience and expertise to the Board.

The Company's current Board of Directors is as follows:

Keshub Mahindra Anand G. Mahindra Deepak S. Parekh Nadir B. Godrej M. M. Murugappan V. K. Chanana Narayanan Vaghul A. S. Ganguly R.K. Kulkarni Anupam Puri Bharat Doshi Alan Durante Arun Nanda

Chairman Vice-Chairman & Managing Director Director Director Director Nominee Director Director Director Director Director Executive Director Executive Director Executive Director Secretary

&

The Management Board

30

The Management Board comprises the Presidents of the business Sectors as well as heads of certain key corporate functions. The Vice-Chairman & Managing Director chair the Board. The Board meets regularly and serves as a forum through which the Corporate Centre implements its group responsibilities, which include formulation of Group policies and strategies, goal setting, raising and allocating financial resources, performance measurement, consolidated accounting and Group Human Resource development. The Management Board comprises: Mr. Anand G.Mahindra Vice Chairman & Managing Director Mr. Alan Durante Executive Director & President - Automotive Sector Mr. Bharat Doshi Executive Director & President - Trade & Financial Services Sector Mr. A.K. Nanda Executive Director & Secretary & President - Infrastructure Development Sector Mr. Anjanikumar Choudhari President - Farm Equipment Sector & Member of the Management Board Mr. Rajeev Dubey Executive Vice President - Human Resources and Corporate Services & Member of the Management Board

Mr. Hemant Luthra President - Mahindra Systems & Automotive Technologies & Member of the Management Board

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Mr.Finance. Uday Y. & Member of the Management Board Mr. Yargop President . Accounts & Legal Affairs & Member of the Management Board Mr. Raghunath Murti Managing Director .Telecom & Software Sector & Member of the Management Board 32 . Phadke Executive Vice President .Mahindra Intertrade Ltd. Ulhas N.

CLASSIFICATION OF M&M BUSSINESS SECTORS BUSINESS SECTORS Automotive Farm Trade & financial services Information Infrastructure Automotive  Automotive sector 33 .

M&M's automotive division was created in 1994 following an organizational restructuring. The site also features car reviews. traders. with a market share in excess of 50 per cent. durability. government departments and institutions. 2. Launched in collaboration with a group of partner organizations. but its origins go back to 1954. The customer profile here includes individuals. and the Indian army. technical comparisons of different models. reliability. It is the leader in this segment. Farm Equipment sector 34 . car hire companies. contractors. entrepreneurs. and ratings to help the consumer make an informed decision. That was when the company entered into collaboration with Willys Overland Corporation (now part of the Daimler Chrysler group) to import and assembles the Willys Jeep for the Indian market. easy maintainability and operational economy. The M&M brand symbolizes ruggedness. price information. it offers a wide range of new vehicles and a virtual marketplace to buy or sell used automobiles. The Group Companies are: 1. Automartindia Ltd. M&M began producing light commercial vehicles (LCVs) in 1965. Automotive Division M&M's automotive division is in the business of manufacturing and marketing utility vehicles and LCVs. taxi owners. tour operators. Automartindia is a business-to-consumer portal that offers a comprehensive picture of the Indian automobile market.

manufactures and markets tractors as well as implements which are used in conjunction with tractors. This enterprise was a shot in the arm for the green revolution then beginning to sweep the country. outside Japan. ITCI merged with M&M and became its Tractor Division. to win this prize. The Farm Equipment Sector is the first Tractor Company in the world to win the Deming Application Prize. Apart from these two main manufacturing units. QS-9000 and ISO 14001. the Farm Equipment Sector has satellite plants located at Rudrapur in Uttarachal and Jaipur in Rajasthan. Marine Compressors etc. These engines are manufactured at the Company's state of art Engine Assembly plants at Kandivli and Nagpur. The Company's Farm Equipment Sector has a presence in all these segments across all states. The tractor industry in India is segmented by horsepower into the lower segment of 25 HP. The launch of high-performance tractors played a vital role in the mechanization of Indian agriculture. Construction.. this division was called the Farm Equipment Sector. and Voltas Limited. it is the fourth company in India and the 10th in the world. M&M have two main tractor manufacturing plants located at Mumbai and Nagpur in Maharashtra. The Farm Equipment Sector has also ventured into manufacturing of Industrial Engines. develops. International Harvester Inc. The Farm Equipment Sector of the Company has a strong and extensive dealer network of over 450 dealers for sales and service of tractors and spare parts. christened the International Tractor Company of India (ITCI).The origins of M&M's Farm Equipment Sector lie in the formation of a joint venture in 1963 between the Company. Both these plants have been certified for ISO 9001. Industrial. 28 35 . It designs. After M&M's organizational restructuring in 1994. mid-segment of 35 HP and higher segment of 45 HP and above. M&M's Farm Equipment Sector is the largest manufacturer of tractors in India with sustained market leadership of over 19 years. M&M Industrial engines are used for various applications like Genset. Also. In 1977.

M&M tractors have earned goodwill and trust of more than 8. Mahindra USA.area offices. Mahindra USA. Whilst around 90% of our tractor exports are to the USA. a wholly owned subsidiary based in the USA. M&M's Farm Equipment Sector has also found significant success in the international market. It is one of the oldest tractors manufacturing 36 . nursery operators. situated in all the major cities and covering all the principal states manage this dealer network. has established a network of 140 dealers. Bangladesh and Sri Lanka and African countries like Uganda. began selling tractors in America in 1994 from its headquarters in Tomball. It has since firmly established the Mahindra brand and captured a significant share of the American small-tractor market. 2. Nigeria.and four-wheeldrive utility tractor lines for part-time farming enthusiasts. Several other international markets are being developed to expand M&M's global reach in the Farm Equipment Sector. Texas. Mahindra USA Inc. and Zambia etc. The Group Companies are: 1. The company has two-wheel. a wholly owned subsidiary of M&M. Mahindra Gujarat Tractor Ltd. turf managers. Its products have gained considerable brand recall among users of small tractors in the US. and small and medium-sized contractors. 00. M&M also exports tractors to neighboring countries like Nepal. 000 customers and the 'Mahindra' tractor has come to be recognized as a powerful symbol of productivity and performance. In addition to capturing the domestic market. This company was formed in 1978 after the Indian government nationalized the ailing Hindustan Tractors.

Mahindra Shubhlabh Services Ltd. which in turn is the engine that drives industry. and check the latest weather information. buy seeds and fertilizers.  Trade & Financial Services sector Credit is the lifeblood of commerce. MSSL is a virtual marketplace where farmers and traders of agricultural commodities can sell their produce. low-cost tractors. The site provides constantly updated market information to enable procurement of quality inputs at competitive prices.units in India and produces rugged. obtain finance. rent farm equipment. The Mahindra Group helps keep the wheels of industry moving with its 37 . 3. The company has its own foundry and facilities for making auto components.

Auto ancillaries. such as a feeder line. The main plant has well-designed processing lines. third country business.presence in the trade and financial services sector through the following companies. Intertrade today handles Metals. erection & servicing of state of the art equipment. Mitsubishi and Nisho Iwai. Consumer Goods and Engineering goods. domestic trading & marketing & distribution activities. Starting with steel. Mahindra Intertrade Ltd. one of the 10 largest industrial houses in India. Machine Tools trading. Mahindra & Mahindra Financial Services Ltd. Incorporated in January 1991 by M&M with Kotak Mahindra Finance as a promoter. 38 . the group has also diversified into Non destructive testing equipment. a shearing line and an electrical sheet slitting line. Mahindra Intertrade is a wholly owned subsidiary of the Mahindra & Mahindra group. 1. 3. Mahindra Steel Service Centre Ltd. MMFSL is in the business of finance. MSSCL was incorporated in 1993 as a joint venture between M&M. 2. Home Appliances and Transformer manufacturers. now known as the Technical Business Group provides a clearly differentiated value chain with installation. MIL undertakes imports. Ferro Alloys.they now cover significant relationships in Auto. Seeking to deliver a distinct value proposition through leveraging its skills & competencies. Mahindra Intertrade handles a wide variety of products & services. leasing and hire purchase. exports. A pioneer in the steel service centre business. The first to set up a Steel Service Centre in the organized sector to bring a value beyond traditional intermediation . A key player in the Rubber & Tyre. it supplies cut-to-length steel blanks and silt coils to the automobile and homeappliances industries. Application Engineering products. a slitting line.

Mahindra British Telecom Ltd. Mahindra British Telecom. MBT offers solutions and Systems integration services to Telecom operators. Telecom equipment manufacturers and Telecom technology suppliers.  Information Technology sector Information Technology constitutes one of the thrust areas of the Mahindra Group. 1. 39 . and merged it with its subsidiary Mahindra Consulting. MBT utilizes its experience developed across various hardware and software platforms to offer comprehensive software services. and a business and development partner of SAP. They aspire to become a leading provider of IT services globally. was formed in association with British Telecom. industry domain and business processes to facilitate and manage organizational change and deliver lasting value. lease and hire purchase finance. Bristlecone Inc. The group's foray into Information Technology goes back to 1986 when the Flagship Company of the Sector.The company lends monetary muscle to M&M's dealers and customers and to other small businesses by extending short-term. are a leading software services company focused on the global Telecom industry. Bristlecone The Mahindra Group recently acquired a majority stake in US based IT services and solutions company. A joint venture between Mahindra & Mahindra and British Telecom. The group established other IT companies in the 90s and today they cater to entire IT services space from software engineering to product based solutions. a leading provider of extended supply chain solutions. 2. Bristlecone. Bristlecone uses its deep knowledge of technology. empowers Global 2000 companies and SMBs alike to build scalable IT infrastructure and solutions that support their value chain processes.

a division of Mahindra & Mahindra Ltd. designed to address specific needs of achieving customer care and relationship. and (e) Validation. Current product range includes Autopower . and ConnectEDGE .an interactive GUI software tool. 4. Mahindra Logisoft Business Solutions Pvt. Mahindra Engineering Services Mahindra Engineering Services. and off-shore services in the following areas. HumanEdge (HRMS) for human resource management. Ltd. with strong offshore engineering capabilities. The company is focused on product based solutions in automotive and hospitality verticals. Mahindra Special Services Group 40 . off-site.a solution for automotive dealerships. We are one of the few Asian full service providers.. The company is a joint venture with TVS family that brings domain expertise in automotive industry. is set up to provide engineering services to global OEMs and automotive supplier around the world. 5. Our approach is to partner with our customers in the area of product development by providing engineering services from a mix of on-site. With the acquisition of Information Services Division of Mahindra Holidays & Resorts the company now also possesses domain knowledge of hospitality industry.3.(a) Advanced surfacing and reverse engineering (b) CAD (c) CAE (d) Rapid prototyping & Tooling and parts.

Mahindra Acres Consulting Engineers Ltd. and accelerated the country's GDP growth to unprecedented levels.Mahindra Special Services Group (MSSG) helps organizations develop customized Information Security strategies to derisk their businesses and to protect their competitive advantage. The Great Eastern Shipping Co Ltd. with a host of companies operating in real estate. Pune and Bangalore. 2. This generated employment. mitigate and manage the risk exposure of the organization irrespective of its industry and the nature of the business.  Infrastructure Development sector The 1990s saw India embrace liberalization and globalization. MSSG's service offering help to identify. subsequently demerged from the parent Company in February 2000 to become an independent entity as GESCO Corporation Ltd. and infrastructure development was the key to spurring domestic and foreign direct investments. The Mahindra Group is playing its part in driving the nation's infrastructure development. diversified into real estate activities with the formulation of its property division in 1992 and over a period of time spread its operations in Mumbai.. Mahindra Gesco Developers Ltd. 41 . 1. The Property Division of The Great Eastern Shipping Co Ltd. business centers and development of residential and commercial complexes. gave free reign to domestic entrepreneurial talent. the hospitality industry and other core segments. engineering consultancy. project consultancy and design. Our ability to look at Information Security from a 'people & process' perspective rather than an IT centric approach has helped organizations to protect their short and long term business strategies and objectives thus preventing loss of hundreds and thousands of dollars every year.. Gurgaon. with focus on its core business activities of projects management services. Navi Mumbai.

Mahindra Holidays & Resorts India Ltd. 3. 4. Kufri.Acres is one of the world's leading consulting engineering firms. and mining and heavy industries.. a part of the Infrastructure Sector of the Mahindra Group. lakes and a reserve forest. with expertise in planning. thermal. such as Goa. Its services include planning. Located just 30 minutes from Chennai airport. Mussoorie and Binsar. and transmission and distribution). Mahindra AshTech Ltd. hydraulic and geo-technical disciplines. The company's business lines encompass the power sector (hydroelectric. Trust and Customer Satisfaction. 5. design and project and environmental management in the civil. Mahindra Industrial Park Ltd. 42 . Manali. Ooty. transportation (air. Mahindra City encompasses 1400 acres of infrastructure-ready space surrounded by hills. (MIPL) symbolizes the combined expertise of three giants of Indian industry namely Mahindra & Mahindra. It has provided imaginative and cost-effective engineering solutions to clients throughout North America and around the world for over seven decades. brings to the industry values such as Reliability. engineering and project management. Started in 1996 the company today has a Customer Base of over 15000 members and 7 beautiful Resorts at some of the exotic spots in India. MACE leverages the considerable technical and financial resources of the Mahindra Group to stand tall in the country's consulting engineering industry. water and ground transportation). Infrastructure Leasing & Financial Services (IL&FS) and Tamil Nadu Industries Development Corporation (TIDCO). Mahindra Holidays & Resorts India Ltd. Mahindra Industrial Park Ltd. Munnar. MIPL is a special purpose vehicle formed to develop and promote Mahindra City. mechanical. India's first fully planned and integrated Business City in a private-public partnership model. electrical.

Maruti Udyog and Bajaj Auto. Siro Plast Ltd. Depending on technological demands. installed its plant and equipment in 1988.Mahindra AshTech Ltd. by virtue of technical collaboration with Dana Spicer Corporation. Siro Plast manufactures engineered composites such as sheet-moulding compounds and dough-moulding compounds. moulded components. such as chopped glass roving. In 1999 the business of MSL Division was transferred. including M&M. The company was registered in 1982. it supplies material to major OEMs such as Telco. 1. as a going concern. Telco and Ashok Leyland.  Automotive Components sector This sector of the Mahindra Group has companies involved in the manufacture of stampings. and mould design and manufacturing. The sector also exports to the United States and to European markets. It is in the business of turnkey contract execution for Ash Handling Systems and Traveling Water Screens. MATL has a track record of more than 100 major contracts. Ashok Leyland. propeller shafts and clutches. received technical know-how from Menzolit in 1986. with parent Company and became a division known as "MSL Division of Mahindra & Mahindra Ltd". continuous roving and synthetic fibres. Its partnership with Menzolit GmbH of Germany provides Siro Plast the latest technology in formulations. In addition to catering to the group's flagship company. chopped strand mats. and subsequently was renamed as Mahindra Spicer Ltd. MATL entered in this business as Turner Hoare Company Ltd. In 1984 "Mahindra Spicer Ltd. manufacturing processes. application engineering. Siroplast's customer list includes big names from the automobile sector. MUSCO Musco is a leading producer of various categories of high quality 43 . to Mahindra AshTech Ltd. MATL has a well-equipped manufacturing facility in the heart of Mumbai city with Regional / Branch offices at New Delhi & Calcutta. materials and products are made using different types of reinforcements. and started commercial production in 1989. (MATL) is a wholly owned subsidiary of Mahindra & Mahindra Ltd." merged. 2.

MECP is the pioneer to introduce cast resin joints for cable joining and terminations. MUSCO produces through ingot and continuous casting routes. engineering and capital goods industries.000 MT of alloy steel per annum. flats and bars) as per specifications. M-Seal Division is engaged in manufacturing and marketing of products for Energy Sector and Engineering Division is a major manufacturer of material handling equipment. Chemicals. Responding to changing market needs with technical innovations and new products. MECP has two divisions. M-Seal product range includes Cable Jointing Kits and accessories. shapes (such as rounds. Engineering Division products include wide range of conveying equipment and systems for Cement. Electrical Insulating compounds and Composite Fibre products. squares. 3. MUSCO's products have a large demand from automobile.alloy steel in various sizes. Steel and allied Process industries. The plant is located at Khopoli in Maharashtra and has a capacity to despatch 96. Mahindra Engineering & Chemical Products Ltd. 44 . MECP has been maintaining lead position in the market.

CHAPTER  Review of literature 45 .III.

A proper inventory control not only helps in solving the acute problem of liquidity but also increases profits and causes substantial reduction in the working capital of the concern. Selecting a proper system of ordering for inventory. the firm will face frequent stock-outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie-up of capital. Determination of safety stock levels. Therefore. Classification and codification of inventories.TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT:Effective inventory management requires an effective control system for inventories. A. If the inventory level is too little.C analysis.       Determination of stock levels. The following are the tools and techniques of inventory management and control. an optimum level of inventory where costs are the minimum and at 46 . DETERMINATION OF STOCK LEVELS:Carrying of to much and too little of inventories is determinate to the firm. Determination of economic order quantity (EOQ).B.

No. Following factors are taken into consideration while fixing minimum stock level. stock-out. Various stock levels are discussed as such A) MINIMUM LEVEL:This represents the quantity which must be maintained in hands at all times. 47 .the same time there Id. which may result in loss of sale or stoppage of production. If stock is less than the minimum level then the work will stop due to shortages of materials. LEAD-TIME: A purchasing firm requires some time to process the order and time is also required by the supplying firm to execute the order. RATE OF CONSUMPTION:It is the average consumption of materials in the factory. If a material is required only against special orders of the consumers then minimum stock will not be required for such materials minimum stock level can be calculated using the formula: Minimum stock level=re-order level-(normal consumption x normal re-order period). The time taken in processing the order and then executing it is known as lead-time. The rate of consumption will be decided on the basis of past experience and production plans. NATURE OF MATERIAL: The nature of materials also affects the minimum level. It is essential to maintain some inventory during this period.

number of days required replenishing the stock. C) MAXIMUM LEVEL:It is the quantity of materials beyond which a firm should not exceed its stock.  Availability of materials. Re-ordering level is fixed with the following formula.B) RE-ORDER LEVEL:When the quantity of materials reaches at a certain figures then fresh order is sent to get materials again. and maximum quantity of materials required on any day is taken into account while fixing re-ordering level. The order is sent before the materials reach minimum stock level. more wastage of materials and more chances of losses from obsolescence. The rate of consumption. Maximum stock level will depend upon following factors:  The maximum requirements of materials at any point of time. If the quantity exceeds maximum level limit then it will be over-stocking. A firm should avoid over-stocking because it will result in high material costs. Over-stocking will more blocking of more working capital. If the materials are available only during seasons then they will have to be stored foe the rest of the period. Re-order level= maximum consumption x maximum re-order period. 48 .  The rate of consumption of materials during lead-time. more space for storing the materials.  The cost of maintaining the stores. Re-ordering level or ordering level is fixed between minimum stock level and maximum stock level.  The availability of space for storing the materials.  The possibility of fluctuations in prices.  The possibility of change in fashions and production process will also affect the maximum stock level.

Danger level is determined with the formula: Danger level= consumption X maximum re-order period for emergency purchases. If level arises then immediately steps should be taken to replenish the stocks even if more cost is incurred in arranging the materials. Maximum stock level= re-order level + re-ordering quantity – (minimum consumption X minimum re-ordering period). D) DANGER LEVEL:It is the level beyond which materials should not fall in any case. E) AVERAGE STOCK LEVEL:The average stock level is calculated as such: Average stock = minimum stock level +1/2 of re-order quantity. If materials are not arranged immediately then there is a possibility of stoppage of work. DETERMINATION OF SAFETY STOCK:49 .The following formula may be used for calculating maximum stock level.

The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock-out.  Fixed period order system of periodic re-ordering system or periodic review system. In order to protect against out of usage fluctuations. The stock-out can prove costly by affecting the smooth working of the concern. In determining economic order quantity it is assume that cost of managing inventory is made up solely of two parts I. The basic problem is to determine the level of quantity of safety stocks. On the other hand. which can be purchased at minimum costs. The quantity to be purchased neither should be neither small nor big because costs of buying and carrying materials are very high. DETERMINATION (EOQ):- OF ECONOMIC ORDER QUANTITY A decision about how much to order has great significance in inventory management. firms usually some margin of safety stocks. If a firm maintains low level safety stocks them frequent stock-outs will occur resulting into the large opportunity costs. opportunity cost of stock outs and the carrying costs.e.  Fixed order quantity system generally known as economic as economic order quantity (EOQ) system. I. the larger quantity of safety stocks involves higher carrying costs. This is the quantity of materials. Two costs are involved in determination of this stock. It fluctuates over a period of time.The safety stock is a buffer to meet unanticipated increase in usage. ordering cists and carrying costs 50 . Generally. The usage of inventory cannot be perfectly forecasted.  Single order and schedule part delivery system. There are three prevalent systems of ordering and a concern may use any one of these. economic order quantity is the point at which inventory – carrying costs are order costs.. Economic order quantity is the size of the lot to be purchase which is economically viable. e. Thee stock-outs of raw materials cause production as the firm cannot provide proper customer service.

 Costs of staff posted for ordering of goods. cost of getting An item into the firm stores. A) ORDERING COSTS:These are the costs. These costs include. which could have been used of 4 other purchases.  Expenses include on transportation of goods purchased. These costs include. A purchase order is processed and they placed with suppliers. I = interest payment including variable cost of storing per unit per year or particular period.  Inspection costs of incoming materials. O = cost of placing one order including the cost of receiving the goods I.e. B) CARRYING COST: These are the costs for holding the inventories. The labor spent on this process is including in ordering cost. These costs will not be incurred if inventoried are not carried.C = consumption of the material concern in units during a year or a particular period. which are associated with the purchasing or ordering of materials. An interest will be paid on the amount of capital of capital locked-up in inventories.  Cost of storage.  The cost of capital invested in inventories. 51 .

A-B-C ANALYSIS (ALWAYS BETTER CONTROL):It is one of the types of the inventory control in which the material are divided into number of categories for adopting a selective approach for material control. B & C. Y. and X. which have almost equal percentage of vale of materials. Z where A.. Z represents the consumption of the materials.  Insurance cost.  Cost of spoilage in handling of materials. B. Under A-B-C analysis the materials are divided into three categories viz. C represents the value of the material. where as X. Y. It is generally seen that in manufacturing concern. TOOLS AND TECHINIQUES OF INVENTORY MANAGEMENT. WHICH COMPANY IS ADOPTING: ♣ KAN BAN 52 . The loss of obsolescence arises when the materials in stock are not usable because of change in process or product. a small percentage of items contributed a large percentage of value of consumption and a large percentage of times of material contribute a small percentage of value. The loss of materials due to determination and obsolescence. A. The materials may deteriorate with passage of time. In between these two limits there are some items.

which calls for maintaining a healthy level of safety stock to 53 . simply implies that the firm should maintain a minimum level of inventory and rely on suppliers to provide parts and components just in time to meet its assembly requirements.P). originally developed by taichi okno of happen.I. These cards are used to control work-in-process (W.T) production and ordering systems which allow them to minimize their inventories while still satisfying customer demands.I. 2) JUST IN TIME INVENTORY CONTROL:the just-in-time inventory control system. In M&M Company they used Kanban system for ‘c’ class items. production. This may be contrasted with the traditional inventory management system. A KANBAN system allows a company to use just-intime (J. and inventory flow.♣ JIT ♣ MILK RUN CONCEPT ♣ TWO BIN SYSTEM 1) KANBAN:A kanban is a card containing all the information required to be done on product at each stage long its path to completion and which parts are needed at subsequent process.

There will be no inspection so as to save time. 3) MILK RUN CONCEPT:The concept of the milk run is day to day purchasing. It is direct on-line system. The purchaser should estimate the lead-time and it is compulsory so as to have the control over lead-time. The just in time inventory system. under the just in time inventory system a concentrated effort is made to lower the ordering cost (F in the above equation) and also the safety stock by forging stronger long-term relationship with the supplier. 54 . A strong and dependable relationship with suppliers who are geographically not very remote from the manufacturing facility. Here the buyer will purchase the material according to the production. In milk run concept only quality-certified stock will be delivered. which is for the next one day. It requires inter alias (i) (ii) (iii) . is difficult to implement because it involves a significant change in the total production and management system. A reliable transportation system and As easy physical access in the form of enough doors and conveniently located docks and storage areas to dovetail incoming supplies. As a result both the components on the right hand side of the above equation declaim and this means that the average inventory level as lower.provide a reasonable protection against uncertainties of consumption and supply the traditional system may be referred to as a “just-in-case” system. The buyer will first know the safety and control stock and then he tells to the supplier the estimated trigger value. while conceptually very appealing.

LAST IN FIRST OUT (LIFO): LIFO method of pricing issues assume that the most recently purchased stocks are used first therefore. during the items of rising prices. It is direct online system Quality certified stock will be delivered and so no inspection is required. while a production kanban specifies the quantity of the product to be with drawn by the subsequent process. This is because most recent purchases are matched against sales revenue. This method is helps in saving in taxes when inflationary conditions are present in the market. The main advantages of using LIFO method are: (a). This methods result in a higher amount of cost of goods and a lower profit figure. A matching of current costs against current revenues is facilitated. the items remaining in stock at the end of the year are of earlier purchases. 4) TWO BIN SYSTEMS (DUAL CARD SYSTEM): Two bin systems use a conveyance (withdrawal) kanban and a production kanban. The conveyance kanban specifies the quantity of the part to be produced by the preceding process. FIRST IN FIRST OUT (FIFO): 55 .Advantages: • • • • Economical transportable lot(minimum transportation cost per piece) No inventory carrying cost at plant and at warehouse. (b). Cost of goods sold under this method represents the cost of recent purchases.

70 B .20 C . Under conditions rising prices. XYZ analysis 1) ABC ANALYSIS:We assume that a vehicle cost is 100 Rs. Therefore. Advocates FIFO method argue that this method follows the conventional practice that goods purchased first are sold first. the issues priced in the chronological order of receipt resulting in closing stock being valued at the latest purchases price.This methods assumes that the oldest items in stock are issued or used first and the items in stock are out of more recent purchases. with the result that the P/L account reflects a higher level of profit than would have been the case if latest costs have been used. Closing stock is shown in the balance sheet at the more recent acquisition prices. 20% items from ‘B’ class and 10% items from ‘C’ class items ABC analysis is value based A . CLASSIFICATION OF INVENTORIES: CLASSIFICATION:The materials are classified into 2 they are 1.10 100 vehicle cost 56 . FIFO method requires that stock of earliest data and prices be demanded sold first. ABC analysis 2. The 70% of items from ‘A’ class.

Ex: . PAYMENT TERMS:They take the time for the payment of 32 to 64 days depending up on the vendors.STRANGER MODEL AX – daily consumption. They purchase ‘A’ items from local vendors. wires. In M&M they maintain less stock. which are costly. X – RUNNER MODEL Y – REAPETER MODEL Z . 2) XYZ CLASSIFICATION: XYZ classification is consumption based. A class parts are purchased daily B class parts are purchased up to 4 days C class parts are purchased up to 7 days or 10 days.For ‘A’ class items M&M Company use direct online (DOL). AY – taken 2 to 3 days for consumption. AZ . CODIFICATION OF MATERIALS:57 .by taking as per order.chases frame.

finished goods. work in process. for proper recording and control of inventory. Guideline Part I Guidelines for deciding “Schedule Based” strategy of procurement for schedule based the following conditions should get satisfied all together.The inventories of manufacturing concern may consist of raw materials. a proper classification of various types of items is essential.  Vendor Response Time + Transit Time + Internal Lead Time is less than one day  Part falls in AX. Lack of proper classification may also lead to reduce in production.  Part is quality certified. Suppose for a part X there are two vendors A and B we have an official arrangement with vendor A whereby what ever be total consumption level we are bound to pick up Fixed Quantity from him then the Quantity from him then the Quantity and Time of the trigger with his vendor could be standardized to have Fixed Quantity schedules at Fixed Time 58 . The inventories should first be classified and then code numbers should be assigned for their identification. decide whether Fixed Time Variable Quantity (FTFQ) or Fixed Quantity Variable Time (FQVT) or Fixed Quantity Fixed Time (FQFT) be made applicable. The identification of short names is useful for inventory management not only large concerns but also for small concerns. Spares. all these categories may have their sub-divisions. FQFT is useful in the case of parts where one vendor is supposed to get Fixed Qty share by agreement irrespective of production volume. AZ & BZ category. Part II After having decided it follow “Consumption Driven” strategy for procurement. consumable stocks etc.

Calculate RI as Fixed Qty/ADD Calculate Control Level CL=ADD (RE+VRT+TLT+ILT)* Factor of Safety 59 . most economically transportable lot etc. Part IV:Fixed Time Variable quantity (FTVQ) Fix up replenishment interval Calculate Control Level by formula CL= ADD (RI+VRTLT+ILT)*FACTORY OF SAFETY To begin with take factor of safety as one Decided upon the control level at which you are comfortable to work with the closing stock level as in the simulation Substitute acceptable control level in the formula to recalculate factor of safety Part V: Fixed Quantity Variable time (FQVT) Decide upon the Fixed Quantity shipping lot based on considerations like most preferred load. Part III:For schedule driven Work out stock quantity to cover for production requirement for one day Vendor supplies day’s requirement in the morning by 10am. The increase and decrease in total consumption of the month is taken by the other vendor with whom the scheduling arrangement has to be of Fixed Quantity and Variable Time type.Intervals. At 10am communicate next two days production schedule.

and the cost is incurred by procuring the spare parts form vendor’s place to the company I. e. AND TO ALL MODELS’. Substitute in the formula to arrive at proper factor of safety. 60 . manufacturing unit.To being with take factor of safety as one. There are different slab for the transportation cost procured from different places. noida. ‘I have considered ALL CLASSES ITEMS inventory management as explained earlier. Fix the CL through simulation. One Bin. the spare parts are procured from the places like Delhi.  Distance between the company and vendors place.  Depending upon the weight of the spare part to be transported. Estimation of different costs: In the calculation of the ordering cost and also for other calculation purpose or analyzing purpose. To calculate the various costs which are involved in the analysis of TRANSPORTATION COST:These are the cost. Two main important factors are considered in calculating transportation cost. Two Bin System of replenishment are offshoots of FQVT system in which case the Fixed Qty decided is isolated in a bin to trolley or pallet or specified area from which it is issued to production and empty bin is taken as a trigger for schedule purpose. Mumbai. pune. which are incurred when the spare parts/materials are procured from different places in M&M ltd. nashik and bang lore etc. Here total quantity in one bin in the case of one bin system or total quantity in both the bins in the two bin system is taken as the control level. Simulate for above CL.

These costs will be depending up on their classes. There are different models used in the calculations of the stock levels. Usually 4 days inventory are kept in stock for any ‘A’ category items. Here in M&M the transportation cost will be 6 crores pa (app). It is calculated as the overall fright incurred during previous year divided by purchases made. number of purchase orders placed in the month for different spare parts. As mentioned earlier the formula for the calculations of the stock levels. Reordering period – 2 to 3 weeks. The basic price of the spare parts on an average. These costs will not be incurred if inventories are not carried.2000units.5%. For Zaheerabad CARRYING COST: These are the costs for holding the inventories. storage cost. 61 . ESTIMATION OF STOCK LEVELS FOR CHAMPION: NOTE:MODELS. HERE IAM CONSIDERING ONLY CHAMPION Reordering quantity . maintenance cost etc.Transportation cost is taken as maximum 2. economic order quantity. Hence the carrying cost includes various costs and those are capital locked in the inventories.

There are many factors to be considered to place an order for certain level at certain time. After the consumption of 1-bin order is placed with the vendor for the procurement of spares.Weekly usage: Maximum – Normal – Minimum – 600 units. RE-ORDERING QUANTITY: The quantity to order is called re-order quantity. The re-ordering quantity. In M&M ltd. MINIMUM STOCK LEVEL: NOTE: . Reordering level = maximum consumption X maximum re-order period 600 x 3 = 1800 units. Hence reordering quantity is taken as the 1-bin quantity. and the coordination between the buyer and vendor etc. 390 units. A system is followed in ordering and that is like 2-bin system.For the calculated of the champion vehicles as 480. Hence the weekly consumption of the parts id constants 62 . future. which is generally followed. is that of ordering the bin quantity. 480 units. This process of ordering is not exact as per the schedule of the production is concerned because it keeps on changing Reordering quantity is 2000 units Reordering period is 2-3weeks. It depends upon the present demand.

63 . 1800 units. It is calculated as: Re-order level=1800 units. =1800 + 2000 – (390 x 2) =3020 units. It will be economical to maintain stock below 3020 units. The engine stocks should not go below 600 units. loss due to storage. Minimum stock level reorders level. Maximum stock level = re-order level + re-order quantity –(minimum consumption X minimum re-order period).consider “CHAMPION ENGINE” for calculation purpose. insurance cost. If it exceeds this level. Normal daily consumption = 480units. 2. From this it is clear that the stock level of the engine should not exceed above 3020 units. Otherwise there will be storage in stocks of engine and the company can come across losses due to the storage. Above this level the company incurs relating sort the maintenance of stock.5weeks. Minimum re-order period = 2 weeks.5) = 600 units.Ex: . Re-order quantity =2000 units. Normal reorder period = Reorder level = period) 1800-(480 x 2.(normal consumption x normal reorder MAXIMUM STOCK LEVEL:It is the level at which it is risk of storing the inventory and thus it is loss to the company. Minimum consumption=390 units. etc. storage cost.

THE TYPICAL BENEFITS OF EXCELLENT SUPPLY:Reduction in total logistics costs as a percentage of revenue (material acquisition. customers. Reduction in order-fulfillment leads time. order management. although the complexity if the chain vary greatly from industry and firm to firm. Supply chains exist in both services and manufacturing organizations. SUPPLY CHAIN MANAGEMENT:A supply chain management is a network of facilities and distribution option that performs the functions of procurement of materials. and ultimately. where raw material is procured from vendors. 64 . and then transported to distribution centers. At this level it is very economical for the company to maintain the stocks at this level It is calculated as: Minimum stock level = 600units Re-ordering quantity = 2000 units. and the distribution of these finished products to customers. Average stock level = minimum stock level + ½ of re-ordering quantity. transformed into finished goods in a single step. transformation of these materials into intermediate and finished products. Below is an example of very simple supply chain for a single product. inventory costs and finance/IT support). =600 + (1/2 x 2000) =1600 units.AVERAGE STOCK LEVEL: It is the company should maintain in order to reduce the various cost of inventory management. Reduction in inventory.

These organizations have their own objectives and these are often conflicting. and the purchasing organization along the supply chain operated independently. Supply chain management is typically viewed to lie between fully vertical integrated firms. Clearly. 65 . planning. where the entire material flow is owned by a singe firm and those where each channel member operates independently. distribution. and guide supply chain policies from a decisions are short term and focus on activities over a day-to-day. manufacturing. Therefore coordination between the various players in the chain is key in its effective management. The result of these factors is that there is not a single integrated plan for the organization-there was as many plans as businesses. Traditionally. As the term implies.Improvement in meeting commitment dates. These are closely linked to the corporate strategy (they sometime {\it are} the corporate strategy). strategic decisions are made typically over a longer time horizon. Supply chain decisions We classify the decisions for supply chain management into two broad categories – strategic and operational. there is a need for a mechanism together supply chain management is a strategy through which such integration can be achieved. Marketing’s objective of high customer service and maximum sales collars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. The relationships are the strongest between players who directly pass the baton. Such a team is more competitive when each player knows to be positioned for the hand-off. Supply chain management can be compared to a well-balanced and wellpracticed relay team. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. marketing. but the entire team needs to make a coordinated effort to win the race. The efforts in these types of decisions Is to effectively and efficiently manage the products flow in the “strategically” planned supply chain.

2. they also have implications on an operational level. stocking points and sourcing points is the is the natural first step in creating a supply chain. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets.  Transportation. these decisions have a big impact on the revenues. Once the size. and which plants to produce them in. plants to DC’s. As before. These decisions should be determined by an optimization routine that considers production costs. and will have a considerable impact on revenue. 1. local content. etc. and level of service. tariffs. so are the possible paths by which the product flows through to the final customer. although location decisions are primarily strategic. and location of these are determined. And there are both strategic and operational elements in each of these decision areas. cost. allocation of plants. The location of facilities involves a commitment of resources to a long-term plan.  Inventory and. number. costs and customer 66 . taxes. distributions costs. LOCATION DECISIONS:The geographic placement of production facilities.There are four major decision areas in supply chain management. production limitations. PRODUCTION DECISIONS:The strategic decisions include what products to produce. duties and duty drawback.  location  Production. and DC’s to customer markets.

Another critical issue is the capacity of the manufacturing facilities and this largely depends the degree of vertical integration within the firm. Their primary purpose to buffer against any uncertainty that might exist in the supply chain . The efficient management is critical in supply chain operations.service levels of the firm. It is strategic in the sense that top management sets goals.inventories exist at every stage of the supply chain as either raw materials. and equipment maintenance. Semi finished or finished goods. 4. They can also be in process between locations. at each stocking location. Since transportation is more than 30% of the logistics costs. and geographic location play vital roles in such decisions. TRANSPORTATION DECISIONS:Therefore customer service levels.these decisions includes the construction of the master production schedules. Operating 67 . Operational decisions focus on detailed production scheduling . INVENTORY DECISIONS:These refer to means by which inventories are managed .since holding of inventories can cost anywhere between 20 to 40 percent of their value. most researches have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull). These are critical since they are primary determinants of customer service levels. and setting safety stock levels. 3. Scheduling production on machines. and quality control measures at a production facility. control policies – the determination of the optimum levels of order points. Other considerations include workload balancing. How ever. These decisions assume the existence of the facilities gut determine the exact path(S) through which a product flows to and from these facilities.

Shipment sizes (consolidated bulk shipments versus lot-for-lot).efficiently makes good economic sense. Routing and scheduling of equipment are key in effective management of the firm’s transport strategy. CHAPTER  Data analysis &  Interpretation 68 . IV.

1: TOTAL PRODUCTION OF DURING THE YEAR -2005-2006. 2007-2008 TO END OF THE YEAR MONTH/YEAR MODEL WISE LOAD KING SR CABKING SR CABKINGJR(SXJ) VOYAGER FJ TOURISTER/MOUKA MARSHAL TOTAL FOURWHEELER CHAMPION (3 WHEELER) TOTAL MARCH-08 MARCH -07 ACTUAL 4960 32 917 68 693 2172 2114 10956 23230 34186 ACTUAL 3604 44 690 154 854 2172 485 8003 17794 25797 MARCH -06 ACTUAL 2444 124 575 249 2707 1428 0 7527 10279 17806 INTERPRETATION: 69 .TABLE 3. 2006-2007.

2007-2008. TABLE 3.2: TOTAL DISPATCH OF DURING THE YEAR -2005-2006.2007-2008. four wheeler which gave rise to the growth of inventory maintenance from 2005-2006.In the above table we can see that there is a tremendous increase in total production of three. four wheeler which gives rise to the growth of inventory maintenance from 2005-2006. 70 . 2006-2007. 20062007. 2007-2008 TO END OF THE YEAR MONTH/YEAR MARCH -08 MARCH -07 MODEL WISE LOAD KING SR CABKING SR CABKINGJR(SXJ) VOYAGER FJ TOURISTER/MOUKA MARSHAL TOTAL FOURWHEELER CHAMPION (3 WHEELER) TOTAL ACTUAL 4766 32 861 79 741 2043 2126 10648 23118 33766 ACTUAL 3589 44 682 144 893 2066 470 7888 17528 25416 MARCH -06 ACTUAL 2422 127 585 253 2791 1422 0 7600 10273 17873 INTERPRETATION: In the above table we can see the total dispatch of three. 2006-2007.

TABLE 3.2007-2008.794 18.120 24.70% 43.000 0 20052006 20062007 20072008 PRODUCTION DISPATCH TABLE 3.13% and INTERPRETATION: There is a tremendous increase in production dispatch which in turn gave rise to growth of production and dispatch from 2005-2006.952 17.774 31.4: 71 .24% 12.2006-2007.000 10.000 20.000 5.16% 32.3: THREE YEARS COMPARITIVE STATEMENT OF PRODUCTION DISPATCH FOR THREE WHEELER SEGMENT PRODUCTION GROWTH% DISPATCH GROWTH% 2005-2006 2006-2007 2007-2008 16.000 15.40% 35. PRODUCTION AND DISPATCH 25.695 17.34% 33.528 23.

000 2.59% 33.19% 38.000 0 20052006 20062007 20072008 PRODUCTION DISPATCH TABLE 3.46% INTERPRETATION:Comparing the two years we can see a raise in production and dispatch and a maximum growth of production and dispatch mostly for light commercial vehicles.000 6.284 8.90% 6.220 7.441 28.000 4.5: THREE YEARS COMPARITIVE DISPATCH STATEMENT OF PRODUCTION AND 72 . PROUCTION AND DISPATCH FOR LIGHT COMMERCIAL VEHICE 10.000 8.34% 33.364 8.THREE ANDDISPATCH YEARS COMPARITIVE STATEMENT OF PRODUCTION FOR LIGHT COMMERCIAL VEHICLES SEGMENT PRODUCTION GROWTH% DISPATCH GROWTH% 2005-2006 2006-2007 2007-2008 5.847 7.774 26.49% 39.

500 2.495 33.485 2.25% 33.465 2.485 2.485 2.2006-2007.475 2.17% 33.470 2.44% 2.35% 33.39% INTERPRETATION: There is a great demand in production dispatch for utility vehicles which gave rise to maximum growth 2006.460 2.470 2.455 2005-2006 2006-2007 2007-2008 PRODUCTION DISPATCH 73 . when Compared to other vehicles during 2005- PRODUCTION AND DISPATCH FOR UTILITY VEHICLES 2.490 33.480 2.495 2.492 2.490 2.FOR UTILITY VEHICLES SEGMENT PRODUCTION GROWTH % DISPATCH GROWTH% 2005-2006 2006-2007 2007-2008 2.37% 33.2007-2008.

TABLE 3.44% 32.05% 19029 25416 33766 24.6: CUMULATIVE PRODUCTION AND DISPATCH SEGMENT PRODUCTION GROWTH DISPATCH GROWTH 2005-2006 2006-2007 2007-2208 19410 25797 34186 24.49% 43.33% 32. CUMULATIVE PRODUCTION AND DISPATCH 40000 35000 30000 25000 20000 15000 10000 5000 0 2005-2006 2006-2007 2007-2208 PRODUCTION DISPATCH 74 .49% 43.17% INTERPRETATION: There is an increase in total production and dispatch of Vehicles from the past three years.

7: MAINTAINANCE OF INVENTORY FOR CHAMPION MODEL STOCK LEVELS REORDERING LEVEL NO OF UNITS 1800 600 MINIMUM LEVEL MAXIMUM LEVEL 3020 AVERAGE LEVEL 1600 INTERPRETATION: From the above table we can see that Mahindra & Mahindra will always maintain a stock for champion according to these levels shown in the table. TABLE 3.TABLE 3.8: 75 .

9: IMPLEMENTATION OF A-B-C ANALYSIS: 76 . TABLE 3. OF DAYS MODELS ASSEMBLING IN MAHINDRA & MAHINDRA TIME INTERVAL CHAMPION 25 SEATER LOAD KING 8 DAYS 10 DAYS 24 DAYS MAX AND MARSHAL 8 DAYS TOURISTER(50 SEATER) 3 DAYS INTERPRETATION: From the table we can see that procurement of materials will be done accorinding to the model wise and also for an definite inteval of no of days and definitely we can say that JIT system can be implemented in Mahindra & mahindra.MODEL WISE PROCUREMENT OF INVENTORY IN A NO.

C class items. CHAPTER 77 . V.INTERPRETATION: From the above table we can se that Mahindra & Mahindra is using A-B-C analysis and much preference is given to A class items and it is future classified to X-Y-Z analysis and then Preference is given to B.

after the consumption of one bin only the second bin order is placed. Findings&suggestions  Conclusion FINDINGS  For all the models assembled in Mahindra & Mahindra the reordering quantity is followed by two bin system i. 78 .e.

 From the past two years there is a tremendous increase of production and dispatches which in turn gave rise to growth of all models of Mahindra&Mahindra.  There is a risk and loss to the company if it exceeds a maximum stock more than 3020units for champion model.  From the study we found that for champion auto the average stock level is 1600 units on the basis of minimum stock and reordering quantity. SUGGESTIONS 79 .  JIT system is being implemented in Mahindra&Mahindra as consumption of materials for all models are procured for a definite period of time. The minimum stock level that Mahindra & Mahindra will store for champion model is 600 units by calculation.  While purchasing materials a definite codification is given to each and every spare parts of vehicle for all models and it is maintained with that particular code only.  Management concentrates much while taking decisions in supply chain as there is a problem in transportation due to location disadvantage.

otherwise there will be a risk of storing inventory and thus it is a loss to the company. The process two bin system of reordering quantity must be taken exactly as per the schedule of production as there may be changes due to increase in demand and unforeseen conditions.  Investment of finance will be less if the stock is brought day-to-day.  To keep materials cost under control so that they contribute in reducing cost of production and over all costs.  Finally I suggest that Mahindra & Mahindra should continue in using the high Japanese technology .  The company should maintain the average stock level accordingly in order to reduce the various costs of inventory management. CONCLUSION 80 .  Proper codification leads to maximum cost control.  The minimum and maximum stock level should be accordingly to the calculated units. So the full inventory has to be made direct online system on basis of milk run concept.

81 . Zaheerabad Inventory system is very good with high Japanese Techniques.  Mahindra & Mahindra are maintaining average stock levels in order to reduce the various inventory cost.  The stock levels are being constant in last three years. Finally it is conclude that MAHINDRA & MAHINDRA plant.

Bibliography BIBLIOGRAPHY 82 .

com 83 .mahindraautomotive.S. MAHESHWARI  COST ACCOUNTING .com  www.VARSHINI & SAXENA Websites:  www. N. FINANCIAL MANAGEMENT .mahindra.PRASANNA CHANDRA  COST ACCOUNTING .

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