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Project Report Submitted to Dept of M.B.A. Osmania University, Hyderabad, A.P. In partial fulfillment of the requirements for the award of
MASTER IN BUSINESS ADMINISTRATION 2010 – 2011
Shailesh kumar singh
(H.T. No: 1245-10-672-057)
Vivekananda school of PG studies
(Affiliated to Osmania University, Hyderabad.) 2010 - 2011.
Mahindra & Mahindra Ltd.,
M&M: Z: HR-33:2009 Date : May 17, 2011
To whom so ever it may concern
This is to certify that Mrs. Shailesh kumar singh bonafied student of Vivekananda school PG studies, Hyderabad, A.P. has undergone a project work on “Inventory Management” in partial fulfillment of his MASTER’S DEGREE in Business Administration 2010-2011. During the above period he was sincere, punctual and hard working. His character and conduct was found to be good. The Preliminary Report submitted by him is found relevant. We wish him all success in his future endeavours.
For MAHINDRA & MAHINDRA LIMITED MANAGER – HR
Regd. Office: Gateway Building, Apollo Bunder, Mumbai-400 001. Tel. (022) 2021031 / 287 3388 : Fax (022) 202 8708 / 8990.
I here by declare that the analysis and interpretation of the data and true and firm to the best of my knowledge. The project report entitled “INVENTORY MANAGEMENT IN MAHINDRA & MAHINDRA” is a study report has been submitted towards the partial fulfillment of the requirement for the award of MASTER OF COMMERCE from Osmania University. Any details pertained of study or the details of this project are not to be used may other from or not to the submitted any institution except to the M & M Ltd., The organization where I did the project and to the college from I am pursing the cource.
Shailesh kumar singh
(H.T. No: 1245-10-672-057)
I wish to express my appreciation to the various persons that have directly or indirectly helped me in completing my project. I am very much thankful to Mr. P.V.RAO, Vivekananda school of PG studies. College, Osmania University, Hyderabad for permitting me to pursue my project in M & M Ltd., I am grateful to Mrs. T.V.S.K. PRASAD – Faculty Finance, for providing her valuable inputs and sharing with the students her vast and practical experiences the field of finance. We are indeed lucky to have such as experienced and healthful person as over faculty. I am grateful to faculty members for their valuable guidance. I wish to express my sincere thanks to Mr. K.P.N. RAO, D.G.M. – HR & IR M & M Ltd., kondapur. For giving me a good opportunity for doing project in their organization. I am also thankful to Mr. A. KAMESHWAR RAO, D.G.M. Accounts for his valuable guidance. I extended my sincere thanks to Mr. PATTHABHI RAMA CHARYULU, (Accounts) Mr. SUNIL CHAND, (Supply Module) Mr. SAI PRASAD, (R & D) and Mr. B. SRIKANTH, (HR) for their kind co-operation. I thank all other members of the organization for having given me for their timely support and helped me to successfully complete of my project report.
Shailesh kumar singh
CHAPTER –1 CHAPTER – 2 CHAPTER – 3 CHAPTER – 4 CHAPTER – 5
: : : : :
INTRODUCTION COMPANY PROFILE THEORATICAL PERSPECTIVE STORES DEPARTMENT TOOLS AND TECHNIQIUES OF INVENTORY MANAGEMENT CONCLUSION AND RECOMMENDATIONS BIBILIOGRAPHY
1-4 5-19 20-30 31-32 33-48
CHAPTER – 6
CHAPTER – 7
CHAPTER –1 INTRODUCTION • MEANING AND NATURE OF INVENTORY • INVENTORY CONTROL • OBJECTIVES OF INVENTORY CONTROL • NEED FOR INVENTORY MANAGEMENT • OBJECTIVE OF THE STUDY • METHODOLOGY -6- .
Required quantity of availability of raw materials Minimize the investments in inventories Maintain reasonable stock levels not excess or not under stocks. stock at any given point of time. spare parts. work in progress and finished goods. 3. Inventory is composed of assets that will be sold in feature in the normal course of business operations. Controlling investments in inventories constitute crucial part in current assets. In large companies inventory place a most significant part of the current assets.MEANING AND NATURE OF INVENTORY Inventory can be referred to as sum of the value of raw materials fuels and lubricants. MEANING OF INVENTORY MANAGEMENT Inventory management consists of maintaining for a given financial investment an adequate of something in order to meet and accepted pattern of demand. -7- . The assets which firms stores as inventory is anticipation of need are raw materials. 2. maintenance consumables. What to purchase When to purchase How to purchase Size of purchase And from where to purchase (Suppliers) The main purpose of inventory management is to ensure 1. Inventory considers control over costs of inventory on one hand an handle the size of inventory on other hand. semi processed materials and finished goods. The business has about 15 to 30% of inventories in total assets. An efficient inventory controlling system will decide.
This is possible with the help of centralized purchasing. To facilitate furnishing of data for short term and long term planning and control of inventory. To eliminate duplication in ordering or replenishing stocks. It involves inventory planning and decision making with regard to the quantity and time of purchase. The price analysis. That twin objectives of inventory control are. OBJECTIVES OF INVENTORY CONTROL Inventory control includes not only of the physical stocks but also of the funds invested on it. To ensure right quality goods at reasonable prices. To maintain a balanced inventory. spares and finished goods so that production should not suffer and any time and customers demand should also be met. • • • • • • To avoid both under stocking and over stocking of inventory. To ensure continues supply of materials. the cost analysis will ensure paying of proper prices. To keep the amount invested in inventory as low as possible without hampering either flow of the production or deliveries of finished goods. 2.INVENTORY CONTORL Inventory control is the system devised an adopted for controlling investments in inventory. maintenance of stock records and continuous stock – taking. To design proper structure for inventory management. -8- . fixation of stock levels. Suitable quality standards will ensure proper quality of stocks. A clear cut accountability should be fixed at various levels of the organizations. 1.
. 5. To know about the Purchasing procedure of the inventories. To analyze the records of stock levels. 3. -9- . 2. where and how much to order so that purchasing and storing costs are the lowest possible without affecting production and sales. The objectives are : 1. economic order quantity.NEED FOR INVENTORY MANAGEMENT In this competitive business world each and every business organization need inventory management system for determining what to order. The over all inventory management includes design and inventory control organization with proper accountability establishing procedure for inventory handling disposal of scrap. simplification. To analyze about JIT and Two bin system of M&M Ltd. ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL. inventory management control incorporates the determination of the optimum size of the inventory-how much to be order and when after taking into consideration the minimum inventory cost. To study about classification and codification of inventories. determining the size of inventory holdings. standardization and codification of inventories. OBJECTIVE OF THE STUDY The main objective of the project work is to study and analyze and preparation of INVENTORY MANAGEMENT in M & M Ltd. To know about the profitability of M&M Ltd throw inventory management. when to order. 4. maintaining record points and safety stocks. Thus.
Secondary Data : The Secondary data has been collected from annual reports of organization. stock levels.10 - .METHODOLOGY To attain the objective of studying the inventory of M & M Ltd. JIT has made possible by the discussions with various administrative executives and other concerned people of M & M Ltd. inventory data. The information has been collected in two ways: 1. Twobin system. 2. inventory turn over ratio.com) and books. internet (www. . ABC analysis. Primary data Secondary data Primary Data : In Primary data the analysis of purchasing procedure.mahindraworld.
obtained from the company’s finance and production department. The study is conducted within short period thus it may not be as detailed & fully fledged. . The study is based on the inventory data available from financial statements and internal records of the company and primary data collected through informal interview with the company officials.SCOPE OF THE STUDY: The topic titled “A STUDY ON INVENTORY MANAGEMENT is conducted in Mahindra&Mahindra Ltd. The analysis was conducted from 2004-2005 to 2008-2009.e. The scope of the study is limited to inventory management and period is limited to five financial years of the company.The tools used for are ratio analysis. Lack of additional information’s from the company due to confidential matters. The trend analysis is for sales and inventory is conducted. LIMITATIONS: Since the study is based on the inventory management i.11 - . the limitations of the inventory management shall be equally applicable. The study is conducted with the data available and analysis was made according to it.
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L. and NISSAN motor company was terminated and a fresh joint venture agreement was entered into 7th November 1988 by M & M Ltd.A. in this case preferably an established automobile company.P. After that an intensive negotiation MAHINDRA & MAHINDRA LTD. In July 1983 HYDERABAD ALLWYN LIMITED (HAL) A State Public Sector undertaking of A. Government entered in to a technical and financial assistance agreement with Nissan Motor Company (NMC) Limited of Japan for manufacturing of new generation of light commercial vehicles (LCVS) in India. At the same time the state government was facing a several financial crisis and both the financial and industrial development corporation were facing massive cuts in government finding therefore in order to cover the closing down of units.13 - .A. With NMC.COMPANY PROFILE UNIT SCENARIO: The MAHINDARA & MAHINDRA COMPANY is located 110 Kilometer from the State capital of Hyderabad in AP at Zaheerabad it has an area of 350 hectors land including all facilities. the state government in difference to the State Industrial Policy decided to sell of Allwyn Nissan Ltd. the joint venture between H. (ANL) the capable of business houses. The countries leading manufacturing of JEEPS & TRACTORS entered into a memorandum of understanding with H. on 10th June 1988 and agreed to acquire 26% of share capital in ANL and thereafter take control of the companies management with this transfer of share and management. .L.
LIMITED). Has started manufacture of utility vehicles firstly the WILLS JEEP in 1954 and later in 1965 it has concentrated on manufacturing the light commercial vehicles by producing “Successors”. upto Jan 1955 it was continued as private company which covered under the company act 1913. Name was included in the name of company as recognition of his enormous help for the establishment of the company. BOARD OF DIRECTORS The company is managed by the vice-chairman and managing director and the three executive directors (One for executive directors up to 24th Jan ’05) of the company. Complete localization of Cab King model at Zaheerabad. The company presents the thirteen directors the vice chairman and managing director and the three executive directors and whole time directors the chairman who is a nonexecutive chairman and the vice-chairman and managing director through professional . MAHINDRA & Mr. K. export also made to Celyon Singapoor. It was initially formed to manufacture the utility vehicles to Indian people and it was initially assembling and importing “WILLY OVER LAND CORPORATION” the M & M Ltd.The name of the company was changed to MAHINDRA ALLWYN NISSAN LTD. The company renamed as MAHINDRA & MAHINDRA LTD.14 - . Mr. M & M Ltd. Finally took entire control of the operation of the plant on 1992. Philippines and Indonesia. J. . HISTORY Mr. MAHINDRA established the company in 1945 and named as (MAHINDRA MOHEMMED.C. The Board review and approves strategy and oversees the action result of management to ensure that the long term objectives of enhancing state holder value are met.. in 13th Jan 1948. In 1963 export of vehicles started and the company started to export the spare part to YOGOSLAVIA.. MOHEMMED. In 1995 cab king DI 3150 were introduced and classic vehicles were launched in 1997 Voyager was launched at Zaheerabad Plant in 1998. It has become Public Limited Company on 15 th Jan 1955 and shares were listed in BSE in 1956.C.
belong to the company’s promoter group.15 - .directors in their individual capacities. . UTI has one nominee director as the board. The remaining eight non-executive directors (Including the nominee director) are independent directors and professionals with expertise and experience in general corporate management finance banking and other allied fields.
A. Deepak S Parekh Mr.B.K. V.K. Ganguly Mr. Anupam Puri Executives : Mr. Narayana Vaghu Mr.Directors : Non ExecutiveMr.M. Nanda (Executive Director and Secretary) . Mahindra (Vice-Chairman & Managing Director) Mr. A. M. Chanana (Nominee of UTI) Mr.16 - . Bharath Doshi (Executive Director) Mr. Murugappa Mr. Keshub Mahindra (Chairman) Mr.K. N. Alan E Durante (Executive Director) Mr. R. Kulkarni Mr.S. Anand G. Godrej Mr.
Mahindra DI 3200 4. Mahindra Cab King 576 2. Mahindra Cab King 576DI 7. Mahindra FJ Mini Bus 5. Mahindra Tourister 6.17 - . Mahindra Champion Alfa 9. Mahindra Champion DX 10.PRODUCT DETAILS MAHINDRA & MAHINDRA has modern facility at Zaheerabad. Mahindra Champion 8. Mahindra FJ 470 DS4 High Roof Mini Bus 3. Mahindra Load King DI 11. Mahindra Load King Super 12. Mahindra Martial DX Royal . near Hyderabad where some of its important products are : 1. Mahidnra Martial 2000 Delux 13.
SARTHY W-7 V. MR. SITAMAHALAXMI L8 OPERATIONAL BAPI RAJU W-7 K. RAO W-7 V.S.V.K. PATTHABHI RAMA CHARYULU MANAGER – L7 MR. NAGESH W-6 .GOPAL W-6 J. SASTRI MANAGER MR. SURSH SINGEKAR L 8 OPERATIONAL SMT.S.R. MURTHY W-6 ASIT W-6 K. AMOL DESHPANDE L7 (OP) MR.R.S.R. RAO W-7 J.P. N. A KAMESHWAR RAO DGM ZAHEERABAD / A/C. SAI GANESH IYER MANAGER – L(COSTING) MR.V.P. REDDY W-7 V.DEPARTMENT OF FINANCE MR.N. REDDY W-6 RAGHAVENDRA W-6 G. MOHAN W-7 V.S.18 - .
19 - . quality assurance. PLANT LAYOUT OF MAHINDRA AND MAHINDRA. ZAHEERABAD. PHRD Department. Supply Module Department. is headed by General Manager (Operations) who is assisted by Deputy General Managers from product department.. STORES ENGINE SHOP FRAME SHOP AXLE SHOP BODY SHOP VEHICLE ASSEMBLY SHOP TRIM SHOP PAINT SHOP .FUNCTIONAL PROFILE The Mahindra & Mahindra Ltd. The General Manager (Operations) is also assisted by Senior Managers from Service Department. finance department. Vehicle Engineering. Administrative Department.
The core departments are as follows : • • • • • • • • Administrative Department. Vehicle Engineering Department (VED).DEPARTMENTALISATION In Mahindra & Mahindra Ltd. Indirect Departments : The departments which are not directly involves in the production process and gives more assistance come under this category.20 - . Material Control Department of ancillary development department. Vehicle Engineering Department. Direct Department. Paint Shop. Indirect Department. Personnel and HRD Department. Finance Department.. Service Center. The core departments are as follows : • • • Production Planning & Control Department. Industrial Engineering Department. the departmentalization is divided into : I. Director Department : The department which directly involves in the production process comes under this category. Maintenance Stores Department. II. .
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. The raw materials and supplies are equivalent to cash and they make up and important part of cost of manufacturing in many cases. i.e. wage cost and expenses. material cost. INTRODUCTION The Primary Objective of cost accounting is cost control. Related to Material Sourcing. This is achieved by exercising effective control over element of cost of the three elements of costs. The term materials includes physical commodities used to make the final end – product.Introduction Material Control 1) 2) 3) 4) Definition of Material Control Objectives of Material Control Deference between Materials Control and Inventory Control Material Purchasing and Purchasing Procedure.. direct material cost is the largest single item of expenditure and substantial proportion of the costs of an organization. Material Control is effected by co-ordination and control activities related to • • • • Related to Material Planning. MATERIAL CONTROL Material Control refers to managerial functions which are directed to ensure that required quantity and quality of material is provided at the proper time with the minimum amount of capital.22 - . Related to Stores and Material Handling. Related to Material Purchasing.
They are : 1. 6. b. 5. Preventing excessive investment in material stock. . To effect purchases of materials of the right quantity consistent with the standards prescribed in respect of the finished products. 4.23 - . 2. 3. 3.Definition of Material Control The Term Material Control means “The regulation of the function of an organization relating to the procurement. Other than these two objectives the other objectives are as follows : 1. OBJECTIVES OF MATERIAL CONTROL : The Twin Objectives of Material Control : a. Procurement or Purchase Control Storage or Stock or Inventory Control and Issue or Usage or Consumption Control. 2. To make available assured supply of materials so as to keep the cycle of production going without any interruption. Storage and usage of materials in such a way as to maintain an even flow of production without excessive investment in material stock” Material control involves the control of the three important functions. To Procure materials on the most favorable terms with a due to effect maximum economy in the cost of buying. To ensure effective utilization of materials. To prevent over stocking of materials and consequent locking – up of working capital. Avoidance of production delay by maintaining an even flow of production. To prevent losses during up of storage of materials.
The greater the time lag the higher the requirement for inventory. The main purposes of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. but they are not identical. c. semi-processed materials and finished goods stock at any given point of time. What to purchase When to purchase How to purchase Size of purchase and From where to purchase (Vendors) . The fluctuations in demand and supply of goods also necessitate the need for inventory. b. d. spare parts. work – in – progress and finished goods. control of transportation and usage control etc. The term material control and inventory control are not interchangeable. purchase procedure.. maintenance consumables. The average business has about 15-30% of total inventories in total assets. e. tools. Material control is wider term than inventory control.24 - . maintenance stores. ACTIVITY RELATED TO MATERIAL PLANNING • • • Identification of Materials Quantity and Quality of Materials Classification and Codification of Materials Every Enterprise needs inventory for smooth working activities. The latter is a wider term covers items like sundry supplies. In large companies inventory plays a most significant part of the current assets. A systemized inventory management will determine a. Generally a time lag between the recognition of a need and its fulfillment.Deference between Materials Control and Inventory Control The terms materials and inventory are used interchangeably. jigs and other components. Inventory serves as a link between production and distribution process of any organization. Material control refers to managerial function which are directed to ensure that required quantity and quality of material is provided at the proper time with the minimum amount of capital. where as inventory control referred to as some of the value of raw materials and fuels and lubricants. besides inventory control material control includes control of production and planning.
. The ultimately results in greater buying power. 4. Deciding the items to be purchased based on demand. But where as M & M Ltd. Collection the price information. 7.MATERIAL PURCHASING AND PURCHASING PROCEDURE Purchase of material is one of the important function of material management. At times more than 50% of the total product cost is material. PURCHASE PROCEDURE Purchasing procedure start with the initiation of purchase requisitions and ends with the receipt of materials in the stores. 3. . 6. • • Centralized purchasing avoids duplications of efforts and working at cross purpose from one plant to another. Centralized purchasing permits to avail facilities like quantity discounts and cash discounts thus its helps to reduce cost. Easier to maintain the quality of purchased parts / items through centralized testing and inspection. is a multiple plants operating organization. 8. Maintenance of purchase records. It is beneficial to vendor also in case the size of order constituted major proportion of his total production capacity. In Mahindra and Mahindra Centralized purchasing procedure is following to purchase of materials. Follow-up the ordered. Functions of Purchase Department 1. Placing the ordered.25 - • • • . For a single place organization decentralization might be feasible on a very limited place. 2. CENTERIZED PURCHASING It is most important and relevant to large organizations operating deferent plants may or may not be located at different places. Selection of sources of supply. It is also possible to conduct testing and inspection facilities. Centralized purchasing permits consolidation of order of materials commonly used for two or more plants. 5. Maintenance of vendors relations. favorable contracts and trade agreements. Checking the invoices.
Information gather compilation schedule updation Material collection and dispatch In M & M Ltd. 3. 7. quantity discounts.. term of payment. PROCESS MATERIAL PROCUREMENT PROCESS TRANSPORT BILL PASSING VENDOR AIDED MATERIAL RECEIVED AND DISPATCHED VENDOR AIDED RECONCILIATION PROCESS REJECTION PRE-EN PROCESS NON MOVING IDENTIFICATION AND DISPOSAL STATIONARY PURCHASING MANAGEMENT INFORMATION SYSTEM LOGISTICS SUB ACTIVITY Ordering Execution Closing – SAP Bill Entering Bill Passing – SAP Material Transfer Document Entering – SAP Reconciliation – SAP Vendor Aid Material Transfer Debit Receiving Document Security Meetings and Closures Identification through Non moving EN finalized and disposal approve from finance and dispatch Identifying quotation comparison information record and P. 5. quantity of materials and good will of the suppliers in the market.ZHB (MARCH – 2006) . 2. 9... the materials as purchased on monthly basis from the various vendors.26 - . Schedule made on monthly basis. In further purchasing procedure process. mode of delivery.e. NO. for next month material management department look after previous month performance of vendors the performance like.O. SL. time of delivery. i. On the basis of these factors vendors list is prepared VENDORS (OR) STORES SUPPLIERS OF M & M . 1. 8. 4. for every month the suppliers list is prepared and purchase the require quantity of materials from the selected vendors.PURCHASING ACTIVITIES OF INVENTORY IN MAHINDRA & MAHINDRA LTD. 6.
LTD.F. 13 14. LUCAS TVS LTD. APPOLLO TYRES GREAVES COTTON LTD. RANIPET GORAYA SAHIBABAD THANE. 7. 15. MUNGI BROTHERS ALF ENGINEERING COMPANY TATA IRON AND STEEL COMPANY SURENDERA FORGINGS PVT.G. MAHINDRA INTER TRADE LTD. 11. BREAKS INDIA LTD. 18. LTD. 9. PUNE DIVISION. 19. 12. LTD. PLACE ZAHEERABAD ZAHEERABAD ZAHEERABAD MUMBAI MUMBAI MUMBAI DELHI CHENNAI CHENNAI CHENNAI CHENNAI PUNE PUNE PUNE KOLHAPUR WAJODIA DIST. . 3. GKN DRIVE LINE (INDIA) LTD.27 - . 5. 4. 1. 6. TATA TOYO RADIOTORS LTD. AUTOMATIVES PVT. 10. BHUSHAN STEEL AND STRIPS LTD.SL. M.R. 17. 8. FAIR FIELD ATLAS LTD. WHEELS INDIA LTD. 20. 16. SPICER INDIA LTD. GURUNANAK AUTO ENTERPRICE LTD. MAKE SPIRING PVT. NO. LTD. 2. NAME OF VENDOR M. RANE (MADRAS) LTD.
3 ------. the produced finished products dispatched from the organization to the market. From the stores department stores are sent to the production plant.28 - .When the vendors list is prepared for a particular month purchase order placed before the vendor for purchasing of the materials.on the basis of classification of materials. After the purchase of the supplies from the different vendors inventory is checked. the damaged or spoiled materials segregated vendors vise from their the materials are packed. through transport the rejected materials sent back to the respective vendors. . 2. in production plant the raw materials are converted into finished products. Other than the rejected materials are kept in the stores 1.
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Store the material in the allotted places. 2. Issue materials only against authorised requisitions. They are : 1. Maintain stock levels in respect of every item of stores. Employ location coding and stores coding for easy identification of every item of stores. 9. issue and balances.STORES DEPARTMENT Efficient store-keeping and inventory control in dispensable to the control of material cost. 5. 7. 10. and issue of materials. FUNCTIONS OF THE STORE KEEPER The main function of store keeper are receipt. 4.30 - . There are a few other function which are identical to these. The store department rendering service departments and the accounts departments. . Maintain stock records entering their receipts. storage. Receive back surplus materials returned and make re-entries of the received back materials. Protect the materials and preserve them in good condition. 3. 11. Receive materials into the stores after checking them with the content of the goods received note and the inspection report. 6. Initiate purchase requisitions for the replenishment of stocks. Goods are received into the stores after inspection and they are held and issued to production as and when required. 8. Maintain the store department neat and tidy. Make a physical verification of materials at periodical intervals.
The annual conception analysis of M & M Ltd. MADE TO STOCK ABC Classification This is also referred as “Always better control approach” are the “Alphabetic approach”. 5. JIT ANALYSIS.TOOLS AND TECHNIQUES OF INVENTORY CONTROLS 1. CLASSIFICATION OF INVENTORY. The lower value items carry higher safety stocks. Made to order In M & M Ltd. would indicate that handful of top high value items.31 - . because cost of production is very high in respect of higher value items. 6. 2. Large number of bottom items over 70% of the total number account for only 10% of the consumption value and referred to as C category items. 7. made to stock procedure is following for the classification of inventory. . TWO BIN SYSTEM. Classification of inventory is of two kinds : a. The higher the value item have lower safety stocks. 8. ABC Concept of classifying goods in and inventory is very commonly used for exercising effective inventory control. 4. less than 10% of the total number will account for a substantial portion of above 75% of the total consumption value and such vital few items called A items. CODIFICATION OF INVENTORY. KANBAN MILK RUN CONCEPT DETERMINATION OF STOCK LEVELS INVENTORY TURNOVER RATIOS.. The items that lie between the top and the bottom are referred as B category items. Made to stock b. Under this techniques the items in inventory are classified according to the value of usage. 3. CLASSIFICATION OF INVENTORY..
Under the ABC analysis M & M using a special concept is XYZ analysis where ABC represents The value of materials XYZ represents The consumption of materials The table explanation % of Items 10 20 70 % of Value 70 20 10 Category –1 A B C Category –2 X Y Z PURCHASING PROCEDURE OF ABC ITEMS A ITEMS – 1 TO 3 DAYS B ITEMS – 2 TO 5 DAYS C ITEMS – 7 DAYS OR WEEKLY XYZ CLASSIFICATIONS X – (Runner Model) :Y – (Repeater Model) :Z – (Stranger Model) :Which is presently manufacturing. It is used in the manufacturing of vehicles. .32 - . Which are consumed less. AX – ITEMS – Daily Consumption AY – ITEMS – Time taken for 2 to 3 days for consumption AZ – ITEMS – By taking as per order.
XYZ analysis to maintain a proper stock level according to the flow of the day to day inventory in the organization. purchasing. A category materials.33 - . It helps to save the time to choose from the stores department. material holding cost. An attention should be paid in estimation requirements.ABC analysis helps to concentrate more efforts on A since greatest monetary advantages will come by controlling these items. in selection of the vendors. A little more attention should be given towards B category items and their purchased should be understood quarterly of half yearly intervals. determining in inventory levels and so on……. . M & M following classification of inventory in ABC. maintaining safety stocks and properly storing of These items are kept under a constant review so that a substantial material cost may be controlled. The control of C items may be relaxed and these stocks may be purchased for the year. estimation in expenditure of working capital. By giving course to the ABC classified inventory it is easy to identify the inventory from the stores department.
In Mahindra & Mahindra Limited the codification of materials done by allotting the number and alphabets. it becomes necessary to allot code numbers to the classified items.CODIFICATION OF INVENTORY After the classifying all items of stores. Numbering system for M & M Ltd. Third Group Third Group will be a four digit numerical and will be running serial number for the type of standard applicable . In M & M Ltd...34 - . X First Group XX Second Group XXXX Third Group X Fourth Group First Group The first group will be alphabet (Range A to Z) indicates types of standards Second Group This will be a two digit numeric and will be in line with existing part numbering system and the two digits are the first two digits indicating the vehicles and associated systems / sub systems. each and every part of material consists 10 digit code and code is divided into 4 different goods. The object of classification of only to allot a symbol or code number to every item to facilitate easy location and handling.
In JIT purchasing.Fourth Group This will be a one alphabet will indicate the revision status of the standard. JIT purchasing is implemented by developing closer relationship with suppliers so that company and suppliers work together operatively. This will ensure that stocks are as low as possible. . JIT systems reduce the investment in raw materials and work in progress stocks.35 - . arrangement is made with supplier for more frequent deliveries of smaller quantities of materials so that each delivery in just sufficient to meet immediate production requirements. For Example :- Code for “ASSY CLUTCH CABLE” is 08 02 BA 0690N Where : 08 02 B A 069 0 N is is is is is is is Clutch system Sub-System – (Sub System) External Controls – Mechanical General Running Serial Number M & M Design Colour Code JIT – JUST IN TIME INVENTORY CONTROL Just in time purchasing in the purchase of materials and supplies in such a manner that delivery immediately precedes the demand of use.
MILK RUN CONCEPT It is a new type of inventory classification using by M & M.36 - . It is direct online system there will be inspection so as to save time and inventory handling cost. In milk run concept only quality certified stock will be delivered the purchaser should estimated the lead time and it is compulsory so as to have the control over the lead time. which is for the next one day. The buyer will first know the safety control stock and then he tells to the suppliers the estimated trigger value. A and B class items are considered under the milk run concept. Advantages :• • • • Economical transportable lot (minimum transportation cost per piece) No inventory carrying cost at plant and at warehouse. Milk Run Concept is a day-to-day purchasing concept. Direct Online (DOL) method is following in JIT system. . It is direct online system (DOL) Quality certified stock will be delivered and so no inspection is required. Here the buyer will purchase the material according the production. In JIT A Class items are purchasing and the time between the purchase of these items are 1 to 2 days.JIT purchasing include savings in factory space. large quantity discount and reduced paper work arising from issuing blanket long term orders to fewer suppliers instead of purchase orders.
e. The quantity contained in the first is used between the time on order is received and the next order is placed.. This method is most suited to the controlling of low value items i. ZHB . KANBAN CARD MODEL (BIN CARD) KAN BAN TYPE PART NO :DESCRIPTION :STORAGE LOCATION :SCHEDULE TO RECEIPT TIME IN DAYS KAN BAN CARD NO.. During the lead time the quantity contained in the second bin is made use of the second bin contains enough stock to cover the usage between ordering and delivery plus additional units into the second bin to restore the original quantity and the remaining quantity is put in the first bin. C category items. KANBAN Cards system is following.VSM KAN BAN QTY. BUYER . Under Two Bin system in M & M Ltd.37 - . C class items are storing in the bins under KANBAN system.TWO BIN SYSTEM The material inventory is physically separated into two bins. :M & M MAS.
38 - PART NO. HOLDER BEARING SEAL OIL FR COVER BALL STEEL SPRING IDLER FORK COVER DUST BALL STEEL PIN RETAINER PIN INTER LOCK CHECK BALL PIN SNAP RING SNAP E TYPE RING SNAP E CLAMP CLAMP GASKET EXHAUST O RING PINDART EL SILENCER SILENCER VINPLATE SPACER MAHINDRA LOGO ASSY BATTERY CABLE CLIP CLIP COMMON TO RUBBER MTG RUBBER EXT MTGA CABLE EARTH PIVOT W/D LEVER RUBBER EXT MTGB CLAMP STAY MUD GUARD DUST COVER GASTEK BREAK O RING INSUL BODY MTG 2ND U ASSIT GRIP ASSY . NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 PART DISCRIPTION RUBBER RADIATOR RUB CAB MTG CLAMP BUSH SPHERICAL WASHER PLAIN CLIP P. A 97214002 95154T8001 36458T8008 3446261000 3441461500 270422002 3051466300 3211386401 3272014600 3238486400 3238286401 3272036900 3280C0400 3281586400 3282926700 0092310610 0092251210 007540500P 0062151 0062141 0903BA0191N 005110010P 046510818P A97743003 A97743004 A93969006 A95572002 A93769004 A97241008 24210T8000 24045T8000 21491T8000 2013685001 24085T9001 211200402T 20137B5001 2404558011 A93781003 A93361005 4628375121 1734218000 95520T8000 S93739001 I-BIN QUANTITY IN UNITS 250 700 300 1500 5000 300 2000 3000 1000 2000 250 1000 2500 1000 20000 5000 2500 5000 2500 7500 1000 250 3000 180 210 5500 497 300 861 600 300 600 800 200 1000 800 300 150 4000 3000 250 400 300 .R.KAN BAN CARD SCHEDULE OF “LOAD KING” VEH ASSY (NEF PRTPE 25 STR) SL.
the store keeper should initiate action for the purchase of material. Various stock levels are discussed below.39 - . Abnormal usage b. The reorder level is slightly more than minimum stock level to guard against a. Reorder Level : Reorder level is fixed between the minimum and maximum levels. Lead time. b. MINIMUM STOCK LEVEL This is the lower limit below which the stock of any item should not normally be allowed to fall. Abnormal delay in supply Reorder level = Maximum consumption during the period X Maximum period required for delivery . Average rate of consumption. When stock of a material reaches at this point. The time taken processing the order and the executing it is known as lead-time.DETERMINATION OF STOCK LEVELS Carrying of to much and too little of inventories is determinate to the firm. which may result in loss of sale or stoppage of production.No. This is also technically known as safety or buffer stock. If the inventory level is too little. The prime considerations in fixing the minimum stock level or safety stocks are : a. Average delivery X time Normal usage Minimum Stock Level = Reordering level Per period - 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.Stock-out. the firm will face frequent stock – outs involving heavy ordering cost and if the inventory level of inventory where costs are the minimum and at the same time their ID. It is essential to maintain some inventory during this period.
DANGER LEVEL : This is generally fixed below the minimum stock level. Normal stock should not be below the minimum level.MAXIMUM STOCK LEVEL : Maximum stock level represents the upper limit beyond which the quantity of any item is not normally allowed to rise. Theoretically. Reordering Quantity Reordering Period Weekly usage :Maximum usage Normal usage Minimum usage Reordering Level - 2500 units 4 – 5 weeks - 900 units 700 units 500 units = Maximum consumption X Maximum Reordering Period = 900 X 5 = 4500 units. ESTIMATION OF STOCK LEVELS : There are different techniques used in the calculation of the stock levels. . Ex :.Consider “Load King” for calculation purpose. maximum stock level is the sum – total of minimum stock level and economic order quantity.40 - . If it reaches the danger level at any point of time. urgent action for replenishment of stock must be taken to prevent stock out. Maximum level = Reorder Level + Reordering quantity – Minimum consumption AVERAGE STOCK LEVEL : The average stock level is calculated as such : Average stock = minimum stock level + ½ of re-order quantity. The main object of establishing this limit is to ensure that unnecessary working capital is not blocked in stores.
5 weeks = 4500 units = 500 units Minimum Reorder period = 4 weeks Maximum Reorder period = 5 weeks MINIMUM STOCK LEVEL = = = = Reorder Level – (Normal consumption X Normal Reorder Period) 4500 – (700 X 4. 500 + (½ X 2500) 500 + 1250 1750 Units .5) 4500 – 3150 1350 Units MAXIMUM STOCK LEVEL = = = = Reorder Level + Reorder Quantity – 4500 + 2500 – (500 X 4) 7000 – 2000 5000 Units (Minimum consumption X Minimum Reorder Period) AVERAGE STOCK LEVEL = = = = Minimum stock + ½ of Reordering Quantity. Normal Daily consumption = 700 units Normal Reorder period Reorder level Minimum usage = 4.41 - .Calculated of the load king vehicle as 500 units.
A high turnover rate indicates that the material in question is a fast moving one.42 - . In Lakhs) Closing Inventory (Rs. Average Inventory = Opening Stock + Closing Stock 2 Material consumed Average Inventory Number of days in a year Inventory turnover ratio 2007 45675 49970 2006 46904 45675 2005 55253 46904 2004 51554 55253 Inventory turnover ratio = Inventory turnover in number of days = YEARS Opening Inventory (Rs. The ratio indicates the number of time the average inventory is consumed and replenished by dividing number of days for which the average inventory is held can be ascertained. “Inventory or Stock turnover is measured in terms of the ratio of the value of materials consumed to the average inventory during the period”. A low turnover rate on the other hand indicates over investments and looking up of working capital on undesirable items. it is possible to known which is fast moving and which slow on that basis attempt may be made to reduce the amount of capital locked up and prevent over stocking of slow moving items. Computation of inventory turn over ratios for different items of materials and comparison of the turnover ratios provide a useful guidance for measuring inventory performance. In Lakhs) 2009 75983 78670 2008 49970 75983 . Comparing the number of days in the case of two different materials.Minimum Stock Level Average Stock Level Maximum Stock Level = 1350 Units = 1750 Units = 5000 Units INVENTORY TURN OVER RATIO “A Ratio which measures the number of times a firms average inventory is sold during a year” – Kohler.
416 INVENTORY TURNOVER IN NUMBER OF DAYS 365 7..5 =7.5 46904 + 45675 2 = 46389.52 250021.10 335286.5 INVENTORY TURNOVER RATIO 610570.296 = 50.5 55253 + 46904 2 = 51078. 5.01 = 52. 4.5 45675 + 49970 2 = 47822.23 365.24 = 88..5 = 4.895 459537.027 366.52 47822..5 = 7.296 335286.10 62976. 4.145 235858.01 250021.1 51078.13 .04 AVERAGE INVENTORY (Rupees in Lakhs) 75983+ 78690 2 =77336.INVENTORY TURNOVER RATIO INVENTORY CONSUMED (Rupees in Lakhs) 610570.73 365.04 77336.21 365.5 = 4.13 53403.389 211723.05 365. 7.895 =46..5 = 5.41 = 82..5 51554 + 55253 2 = 53403. 7.84 211723.5 = 7.84 46389.1 235858.65 YEARS March – 2009 March – 2008 March – 2007 March – 2006 March – 2005 March – 2004 459537.5 49970 + 75983 2 = 62976.389 = 67.43 - .
01 7.01 7.41 4.INVENTORY TURNOVER RATIO 10 7.895 5 0 4.1 6 45 5.296 7.41 4.389 INVENTORY TURNOVER RATIO 2001 2002 2003 2004 2005 2006 2004 2005 2006 2007 2008 2009 .895 5 0 4.44 - .296 7.389 INVENTORY TURNOVER RATIO 2001 2002 2003 2004 2005 2006 2004 2005 2006 2007 2008 2009 INVENTORY TURNOVER RATIO 10 7.1 6 45 5.
21 50.027 46.73 52.45 - .05 67.23 2004 2005 2006 2007 2008 2009 2001 2002 2003 2004 2005 2006 Years .73 60 50 52.65 88.23 40 30 20 10 0 2004 2002 2005 2001 2006 2003 Years 2007 2004 2008 2006 2009 2005 I NVE NT ORY I N NUMBE R OF DAY S Invertory in Number of Days 100 80 60 40 20 0 82.21 50.05 82.INVENTORY IN NUMBER OF DAYS 1 00 90 88.65 80 70 67.027 46.
416 33.296 & the inventory in number of days is low level.766 33. And from 2006.46 - . This indicates the inventory faced a bad position in these three years.A high turnover ratio indicates that the material in question is a fast moving one and also a low amount of stocks are replacing stocks in large number of installments. 2005 the stock turnover ratio is gradually decreasing and the inventory turnover in number of days are in high level. 2007. VEHICLE PRODUCTION AND DISPATCH VEHICLE PRODUCTION (QUANTITY IN UNITS) 25.797 34. In the year 2003. This position indicates that the stocks are fast moving and get converted into sales quickly. In march 31st 2006 the difference between the vehicle production and .885 YEAR MARCH 31ST 2007 MARCH 31ST 2008 MARCH 31ST 2009 VEHICLE PRODUCTION & DISPATCH VEHICLE PRODUCTION & DISPATCH 40000 35000 30000 25000 20000 15000 10000 5000 0 2007 2004 2008 2005 YEARS 2009 2006 Vehicle Production Vehicle Dispatch The inflow of raw materials and dispatch of finished goods from the organization is in good position. 2008 the stock turnover ratio continuously increased from 5.630 VEHICLES DISPATCH (QUANTITY IN UNITS) 25. 2004.38 to 7.186 33.
.47 - .dispatched is 381 and in march 31st 2007 the close stock in the go down is also dispatched from the organization and as well as in the year 2007 31st march the stored vehicles are dispatched from the company. This indicates that the consuming storage cost is very low and risk related to preservation of the stock is very less.
48 - ..
The total cost of inventory should be compared with the total benefits arising out of inventory for determining its optimum level. They should maintain the safety stock. . This inturn will lead to timely delivery of goods to customers. For smooth production should provide adequate supply of items.49 - . so that they can use it when there is need of the inventory.SUGGESTIONS: Always in stock to keep production process continuous. They should always make verification of inventory holding cost for the better control of inventory in the organization and to increase the profitability.
CONCLUSIONS 1.There is great improvement in the inventory turnover ratio from 3 years.Class A & B items are consider under the just in time philosophy as the procurement time has been reduced up to greater extent by the proper co-ordination of buyer and supplier. 3. and get converted into sales quickly in M & M Ltd.From the various calculations and figures relating to inventory management it is clear that the inventory classification of A items are maintain for 1 – 3 days.50 - . 4.38 to 7. 2. It is increased from 5. as a result it reduce investment in raw material..895% this position indicates that the stocks are fast moving .Finally we conclude that MAHINDRA AND MAHINDRA plant the inventory system is very good with high Japanese techniques. reducing the lead time and also the large quantity discount because the stock are kept for 1 – 3 days.
51 - .2 0 1017 9 8453 6 9471 Book value per share is calculated after reducing Intangible Assets.5 0 1104 9 1906 62 2017 11 166.2 6 1104 9 1958 33 2068 8 165.Financial Position at a Glance (Rupees in lakhs) 2009 Gross Fixed Assets Net Fixed Assets Investments Inventories Debtors Other Current Assets Misc.1 5 2007 2489 13 1466 09 8622 7 4567 5 5170 8 6396 4 3972 1071 90 6794 0947 8 1771 0 1160 1 1453 92 1569 83 130. Expenditure Not written off Long-term Borrowings Short-term Current Liabilities and Provisions Deferred Tax Liability (Net) Equity Capital Reserves Net Worth Book Value Per Share (Rupees 2810 44 1474 88 1189 79 7598 3 5115 3 1046 02 2438 9414 0 1112 2 1751 80 1897 5 1160 1 1896 25 2012 26 168. .5 6 2006 2416 77 1537 23 8001 3 4690 4 6477 8 6155 4 2005 2231 48 1482 52 7100 0 5525 3 6320 1 5291 1 2236 1 7908 8 3430 4 9270 4 2004 1858 92 1231 99 8229 9 5155 4 4615 8 6837 3 1551 6 8448 1 1088 6 9002 1 2003 1614 64 1098 61 8103 0 4369 7 5920 7 8038 1 9684 1334 57 1316 2 8702 7 2002 1426 53 1017 41 6559 6 5148 5 5165 7 7299 8 5988 1151 47 1836 3 8162 3 2001 1146 42 8101 1 6093 4 4471 6 2080 5 7292 6 3623 9584 7 6924 7155 9 200 0 8131 4 5383 5 4144 4 3829 8 1555 0 4262 4 1819 1680 9 2097 6 6107 0 1191 80 1852 6 1050 74 1379 0 1160 1 1388 01 1504 07 128.1 4 1033 7 1341 3 122.3 5 2008 2559 27 1391 60 1111 15 4997 0 4004 8 6247 6 964 6520 3 7778 1329 24 2032 5 1160 1 1659 02 1775 03 149. Miscellaneous Expenditure not written off and Revaluation Reserve from Net Worth.2 9 1017 9 9950 6 1096 102.9 0 1033 7 1398 77 1507 14 134.
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Vashist S. Iyenger S. Thrivadi .K.53 - . Maheshwari * * * Cost Accounting Cost Accounting Financial Management - - Khan & Jain * Cost Management Accounting - R. Saxena C.N.P.D.P.BIBILOGRAPHY : * Cost Accounting – V.
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