A STUDY OF INVENTORY MANAGEMENT

At

MAHINDRA&MAHINDRA LTD, ZAHEERABAD

CONTENTS
Page No.
I.

CHAPTER
-24

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

FINDINGS AND SUGGESTIONS CONCLUSION

BIBILIOGRAPHY

87-88

I. CHAPTER

Introduction Scope Objectives Research Methodology Limitations

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

 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.

2.

WORK-IN-PROGRESS:
The work-in-progress is that stage of stocks, which are in between raw

materials and finished goods. The raw materials enter the process of manufacturing but they are yet to attain a final shape of finished goods. The quantum of work-inprogress depends upon the time taken in the manufacturing process. The greater the time taken in manufacturing, the more will be the amount of work-in-progress.

3. CONSUMABLES:
These are the materials, which are needed to smoothen the process of production. These materials do not enter directly into production but they act as catalysts. Consumables may be classified according to their consumption and criticality. Generally, consumables stores do not create any supply problem and form a small part of production cost. There can be instances where these materials may account for much value than the raw materials. The fuel oil may form a substantial part of the cost.

4. FINISHED GOODS:
These are goods, which are ready for the consumers. The stock of finished goods provides a buffer between production and market. The purpose of maintaining inventory is to ensure proper supply of goods to the customers. In some concerns the production is under taken on order basis. In these concerns there will not be a need for finished goods inventory. The need for finished goods inventory will be more when production is undertaken in general without waiting for specific orders.

5. SPARES:
Spares also form a part of inventory. The consumption pattern of raw materials, consumables, finished goods are different from that of spares. The stocking policies of spares are different from industry to industry. Some industries like transport will require more spares than the other concerns. The costly spare parts like engines, maintenance spares etc., are not discarded after use. Rather they are kept in 5

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 firms funds and cost of storage and handling, every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business. In the absence of inventories a firm will have to make purchases as soon as it receives orders. It will mean loss of time and delays in execution of orders, which sometimes may cause loss of customers and business. A firm also needs to maintain inventories to reduce ordering cost and avail quality discounts, etc. Generally there are three main purposes or motives of holding inventories. The transaction motive, which facilitates continuous production and timely execution of sales orders. The precautionary motive, which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials. The speculative motive which induces to keep inventories for taking advantage of price fluctuations, saving in re-ordering costs and quantity discounts, etc.,

RISK AND COSTS OF HOLDING INVENTORIES

The holding of inventories involves blocking of firms funds and incurrence of capital and other costs. It also exposes the firm to certain risks. The various costs and risks involved in holding inventories are as below:

1. CAPITAL COSTS:
Maintaining of inventories results in blocking of the firms financial resources. The firms have, therefore, to arrange for additional funds to meet the costs of inventories. The funds may be arranged from, own resources or from outsiders. But, in both cases, the firm incurs a cost. In the former case, there is opportunity cost of investment while in the later case, the firm has to pay interest to the outsiders.

2. STORAGE AND HANDLING COSTS:

Holding of inventories also involves cost on storage as well as handling of materials. The storage costs include the rental of the go down, insurance charges, etc.

RISK OF PRICE DECLINE:

There is always a risk of reduction in the prices of inventories by the suppliers in holding inventories. This may be due to increased market supplies, competition or general depression in the market.

RISK OF OBSOLESCENCE:
The inventories may become obsolete due to improved changes in requirements, change in customers tastes etc. technology,

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

Purchase of material Storing of material Issue of material

OBJECTIVES:
The objectives of material controls as follows 1. To ensure regular and uninterrupted supply of materials i.e., to make materials available as and when they are needed. 2. To keep investment in stock at a reasonable levels, so that there is no loss of interest on capital. 3. To purchase the materials at a reasonable price without sacrificing the quality of such materials. 4. To avoid abnormal wastage by exercising direct control. 5. To avoid the risk of spoilage and obsolescence of the materials by fixing the maximum stock level.

IMPORTANCE OF MATERIAL MANAGEMENT

For any manufacturing organization materials, supplies, equipments are of primary importance. The reasons are:1) Nothing can be produced with out materials supplies, or equipment 2) Materials constitute major part of total cost of products. This varies depending up on type of product. 3) Because materials from major part of total cost these offer a very good scope for reduction of total cost. A small percent material cost can result in large percent increase in profitability. 4) End product quality a part from other factors largely depends on quality of input materials. 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.

6) Because of growing concern for pollution same contribution has to be materials management by finding substitutes which are less polluting or less damaging. 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.

Right material. Right quality. Right quantity. Right time. Right price. Low pay rolls costs. Proper records.

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. ISSUE RELATED TO MATERIALS PLANNING:Materials identification. Standardization Make of buy Coding & classification Quality specification:

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1. By providing samples or proto type 2. By providing manufacturing operation specification 3. By brand or trade name 4. By specifying well accepted market grades 5. By specifying testing procedures and relevant standards 6. By specifying / providing engineering drawing / blue prints

2. ISSUE RELATING TO PURCHASING:

1. 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. For a single place organization decentralization might be feasible on a very limited scale. A) favorable price and items can be negotiated because of large volume purchase B) specialized vendors/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. 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

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3. 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, resulting in to reduced overhead cost of purchasing. E) Paper work record keeping in consolidated possible to develop uniform procedures and policies. F) Easier to maintain the quality of purchased parts/ Items though centralized testing and inspection. It is also possible to conduct testing and inspection at the vendors facilities. G) It is beneficial to the vendor also in case the size of order constitutes major proportion of his total production capacity.

4. VENDOR / ANCILLARY DEVELOPMENT: This is same what similar to single/multiple supplier decision and also an out come of make/buy decision. When total annual requirement is large and item is to be brought from the market, then it is worth it to encourage ancillaries to take-up production and supply of the item to a par cent company.

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 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. 4. SIZE AND TIMING OF PURCHASE ORDERS: This is an integrated issue. Stores and inventory, production schedule, suppliers capability time lag, reliability cost of holding inventory and cost of placing orders, etc. 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. 5. A B C ANALYSIS:A class items are subjected to highest level of control supervision and management. B class items are subjected to medium level of control supervision and management C class items usually are not subjected to elaborate, control/management since the cost of efforts is not worth it. For A & B class items precise methodical models for determination of EOQ frequency of purchase; safety stock/buffer stock level etc, can be used.

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6. H.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, the items would be classified as H M & L. 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. 7. VED CLASSIFICATION:The classification i.e. vital, essential, desirable, is done on the basis of importance of an item to the production process. Those which are highly important and whose non-available, may renders the stoppage of the production are classified as V, 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. 8. SED-CLASSIFICATION:Scarce difficult and easy classification is with respect to their availability in the market scarce items are those which are scarce, either important or restricted. Or rationed Items, usually in short supply and not available uniformly throughout the year. D items ate those which are available in the local market. E items are those which are easily available in the local market as and when needed.

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9. 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. Where as non moving N items need to be received for disposal consideration. All the classifications help in identifies more important items to be taken up for close supervision and management by materials management on selective bases.

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. keeping very low inventory with high risk of stock out. 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.g.:- heavy material requiting rail head etc. Safety from theft and pilferage Danger etc, Easy and safe storage 15

Minimizing unnecessary handling with in the stores Efficient use of space

OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives are operational and financial. 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. The financial objectives means that investments in inventories should not remain idle and minimum capital should be locked in it. 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 maintain investments in inventories at the optimum level as required by the operational and sales activities. To avoid both under-stocking and over-stocking of inventory. To keep materials cost under control so that they contribute in reducing cost of production and overall costs. To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralized purchasing. To minimize losses through deterioration, pilferage, wastages and damages. To design proper structure for inventory management. A clear-cut accountability should be fixed at various levels of the organization. To ensure perpetual inventory control so that materials shown in stock ledgers should be actually lying in the stores. To ensure right quality goods at reasonable prices. Suitable quality standards will ensure proper quality of stocks. The price-analysis, the cost-analysis will ensure paying of proper prices. To facilitate furnishing of data for short-term and long-term planning and control of inventory.

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OBJECTIVES OF THE STUDY

To analyze the stock levels like reordering level, minimum stock level, maximum stock level, and inventory control method. To analyze the various costs involved in the inventory management. To evaluate the process of supply chain management. 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.

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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. So, in this study the information furnished from secondary source for three years i.e2004-2005, 2005-2006, 2006-2007.

Secondary source:
The secondary data has been collected from inventory reports annual reports magazines newspapers books Internet.

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

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II. CHAPTER

Industry Profile Company Profile

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INDUSTRY PROFILE
UNIT SCENARIO:
The MAHINDRA & MAHINDRA plant is located at 108 kilometers from the state capital of AP at Zaheerabad.It has an area of 350 hectors land including all facilities. 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. The scope of transfer stocks of imported kits procured at favorable rates during the year 1962 vehicles was sold. Although company achieved 60% localization in its products, yet the raising value of yen continued to adversely affect its financial crisis and both. The financial corporation and industrial development corporation were facing massive cuts in government findings. Therefore, in order to cover the closing down of units, the state government indifference to the state industrial policy decided to sell Allywn Nissan Ltd (ANL) to capable of business houses, in the case preferably and established automobile company. After that an intensive negotiation MAHINDRA & MAHINDRA LTD; the countrys 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 companys management with the transferor of shares and management. The joint venture agreement was entered into 7th November 1988 by M & M with NMC. The name of the company was changed to MAHINDRA ALLWYN NISSAN LTD.M & M finally took entire control of the operation of the plant on 1992.

PICK UP RANGE:
Mahindra utility Mahindra pick up Mahindra NC 640 DP Mahindra pick up CBC

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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.

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- three door Mahindra Bijlee Mahindra FJ CNG mini bus.

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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. The mahindra group is divided into 6 sectors and these are the strategic core business units. Automotive sector Farm equipment Automotive component sector Trade and finance sector Infra structure development sector Telecom software exports sector.

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COMPONY PROFILE

Mahindra & Mahindra Limited (M&M) is the flagship company of around US $ 2.5 billion Mahindra Group, which has a significant presence in key sectors of the Indian economy. A consistently high performer, M&M is one of the most respected companies in the country. Set up in 1945 to make general-purpose utility vehicles for the Indian market, M&M soon branched out into manufacturing agricultural tractors and light commercial vehicles (LCVs). The company later expanded its operations from automobiles and tractors to secure a significant presence in many more important sectors. The Company has, over the years, transformed itself into a Group that caters to the Indian and overseas markets with a presence in vehicles, farm equipment, information technology, trade and finance related services, and infrastructure development. M&M has two main operating divisions:
1.

The Automotive Division manufactures utility vehicles, light

commercial vehicles and three wheelers.

2.

The Tractor (Farm Equipment) Division makes agricultural tractors

and implements that are used in conjunction with tractors, and has also ventured into manufacturing of industrial engines. The Tractor Division has won the coveted Deming Application Prize 2003, making it the only tractor manufacturing company in the world to secure this prize. The resurgence of the automotive industry and M&M's success in exploiting it, has created an opportunity to strengthen the company through an entry into the Auto Components business, the growth of which is being fueled by both, domestic and export demand. M&M employ around 11,500 people and have six state-of-the-art-manufacturing facilities spread over 500,000 square meters. M&M have also set up two satellite plants for tractor assembly.

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M&M have 49 sales offices that are supported by a network of over 780 dealers across the country. This network is connected to the Company's sales departments by an extensive IT infrastructure. M&M's outstanding manufacturing and engineering skills allow it to constantly innovate and launch new products for the Indian market. The Company's significant recent product launch, the "Scorpio", 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 launched India's first tractor with turbo technology - the Mahindra Sarpanch 595 DI Super Turbo. The Company's commitment to technology-driven innovation is reflected in Company's plans of setting up of the Mahindra Research Valley, a facility that will house the Company's engineering research and product development wings, under one roof. The M&M philosophy of growth is centered on its belief in people. As a result, the company has put in place initiatives that seek to reward and retain the best talent in the industry. M&M is also known for its progressive labor management practices. In the community development sphere, the company has implemented several programs that have benefited the people and institutions in its areas of operations.

Founders
J.C.Mahindra was a mechanical engineer from VJTI, Mumbai. He was appointed the countrys first Iron and Steel Controller. K.C.Mahindra, a Cambridge educated economist, was partner with

Martin Burn, London, an agent to IISCO. The Government of India also requisitioned his services. He took over as Chairman of India Supply Mission to Washington, USA.

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 Inspiration

Mr.K.C.Mahindra and Mr. J.C.Mahindra were inspired by the vision of

Pandit Jawaharlal Nehru of building a strong Independent India

Mr. K.C. Mahindra It was with this focus that they set out to

manufacture an Indian vehicle that would be rugged, tough and capable of tackling the Indian terrain.

Mission
At M &M, will design, manufacture and market Internationally Competitive, Automotive Vehicles farm equipment and products. Our customers needs especially the requirement of safety, reliability value for money and farm productivity Will be our primary concern. 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. As an organization we will be recognized for high Ethical Standards and responsiveness to the social environment we will continue to be.

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.

1.

Customer Focus:
By Encouraging team work By providing a healthy and good work environment By Sake practices

People Culture:

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By appraisal and Reward System.

Community Culture:
By setting high ethical standards. By responsible to environmental needs. By to community welfare.

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, systems and By delivering right time and every time.

procedures.

Cost Discipline:
By elimination of non-value added work. Through continues improvement. By productive use of assets.

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Mahindra & Mahindras Logo symbolizes:

The road ahead that links the companys past with its future. The road through which the companys 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 countrys 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

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

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CLASSIFICATION OF M&M BUSSINESS SECTORS

BUSINESS SECTORS

Automotive

Farm

Trade & financial services

Information

Infrastructure

Automotive

Automotive sector
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M&M's automotive division was created in 1994 following an organizational restructuring, but its origins go back to 1954. 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. M&M began producing light commercial vehicles (LCVs) in 1965. The Group Companies are:

1.

Automotive Division

M&M's automotive division is in the business of manufacturing and marketing utility vehicles and LCVs. It is the leader in this segment, with a market share in excess of 50 per cent. The M&M brand symbolizes ruggedness, durability, reliability, easy maintainability and operational economy. The customer profile here includes individuals, traders, entrepreneurs, contractors, tour operators, taxi owners, car hire companies, government departments and institutions, and the Indian army.

2.

Automartindia Ltd.

Automartindia is a business-to-consumer portal that offers a comprehensive picture of the Indian automobile market. Launched in collaboration with a group of partner organizations, it offers a wide range of new vehicles and a virtual marketplace to buy or sell used automobiles. The site also features car reviews, price information, technical comparisons of different models, and ratings to help the consumer make an informed decision.

Farm Equipment sector

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

area offices, situated in all the major cities and covering all the principal states manage this dealer network.

M&M tractors have earned goodwill and trust of more than 8, 00, 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, M&M's Farm Equipment Sector has also found significant success in the international market. Whilst around 90% of our tractor exports are to the USA, M&M also exports tractors to neighboring countries like Nepal, Bangladesh and Sri Lanka and African countries like Uganda, Nigeria, and Zambia etc. Mahindra USA, a wholly owned subsidiary based in the USA, has established a network of 140 dealers. Several other international markets are being developed to expand M&M's global reach in the Farm Equipment Sector. The Group Companies are:

1.

Mahindra USA Inc.

Mahindra USA, a wholly owned subsidiary of M&M, began selling tractors in America in 1994 from its headquarters in Tomball, Texas. It has since firmly established the Mahindra brand and captured a significant share of the American small-tractor market. The company has two-wheel- and four-wheeldrive utility tractor lines for part-time farming enthusiasts, turf managers, nursery operators, and small and medium-sized contractors. Its products have gained considerable brand recall among users of small tractors in the US.

2.

Mahindra Gujarat Tractor Ltd.

This company was formed in 1978 after the Indian government nationalized the ailing Hindustan Tractors. It is one of the oldest tractors manufacturing

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units in India and produces rugged, low-cost tractors. The company has its own foundry and facilities for making auto components.

3.

Mahindra Shubhlabh Services Ltd.

MSSL is a virtual marketplace where farmers and traders of agricultural commodities can sell their produce, obtain finance, buy seeds and fertilizers, rent farm equipment, and check the latest weather information. The site provides constantly updated market information to enable procurement of quality inputs at competitive prices.

Trade & Financial Services sector

Credit is the lifeblood of commerce, which in turn is the engine that drives industry. The Mahindra Group helps keep the wheels of industry moving with its 37

presence in the trade and financial services sector through the following companies.

1.

Mahindra Intertrade Ltd.

Mahindra Intertrade is a wholly owned subsidiary of the Mahindra & Mahindra group, one of the 10 largest industrial houses in India. MIL undertakes imports, exports, third country business, domestic trading & marketing & distribution activities. Seeking to deliver a distinct value proposition through leveraging its skills & competencies, Mahindra Intertrade handles a wide variety of products & services. Starting with steel, Intertrade today handles Metals, Ferro Alloys, Application Engineering products, Consumer Goods and Engineering goods. The first to set up a Steel Service Centre in the organized sector to bring a value beyond traditional intermediation - they now cover significant relationships in Auto, Auto ancillaries, Home Appliances and Transformer manufacturers. Machine Tools trading, now known as the Technical Business Group provides a clearly differentiated value chain with installation, erection & servicing of state of the art equipment. A key player in the Rubber & Tyre, the group has also diversified into Non destructive testing equipment.

2. Mahindra Steel Service Centre Ltd.

MSSCL was incorporated in 1993 as a joint venture between M&M, Mitsubishi and Nisho Iwai. A pioneer in the steel service centre business, it supplies cut-to-length steel blanks and silt coils to the automobile and homeappliances industries. The main plant has well-designed processing lines, such as a feeder line, a slitting line, a shearing line and an electrical sheet slitting line.

3. Mahindra & Mahindra Financial Services Ltd.

Incorporated in January 1991 by M&M with Kotak Mahindra Finance as a promoter, MMFSL is in the business of finance, leasing and hire purchase. 38

The company lends monetary muscle to M&M's dealers and customers and to other small businesses by extending short-term, lease and hire purchase finance.

Information Technology sector

Information Technology constitutes one of the thrust areas of the Mahindra Group. The group's foray into Information Technology goes back to 1986 when the Flagship Company of the Sector, Mahindra British Telecom, was formed in association with 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. They aspire to become a leading provider of IT services globally.

1. Mahindra British Telecom Ltd.

A joint venture between Mahindra & Mahindra and British Telecom, are a leading software services company focused on the global Telecom industry. MBT offers solutions and Systems integration services to Telecom operators, Telecom equipment manufacturers and Telecom technology suppliers. MBT utilizes its experience developed across various hardware and software platforms to offer comprehensive software services.

2. Bristlecone
The Mahindra Group recently acquired a majority stake in US based IT services and solutions company, Bristlecone Inc. and merged it with its subsidiary Mahindra Consulting. Bristlecone, a leading provider of extended supply chain solutions, and a business and development partner of SAP, empowers Global 2000 companies and SMBs alike to build scalable IT infrastructure and solutions that support their value chain processes. Bristlecone uses its deep knowledge of technology, industry domain and business processes to facilitate and manage organizational change and deliver lasting value. 39

3. Mahindra Logisoft Business Solutions Pvt. Ltd.

The company is a joint venture with TVS family that brings domain expertise in automotive industry. With the acquisition of Information Services Division of Mahindra Holidays & Resorts the company now also possesses domain knowledge of hospitality industry. The company is focused on product based solutions in automotive and hospitality verticals. Current product range includes Autopower - a solution for automotive dealerships, HumanEdge (HRMS) for human resource management, and ConnectEDGE - an interactive GUI software tool, designed to address specific needs of achieving customer care and relationship.

4. Mahindra Engineering Services

Mahindra Engineering Services, a division of Mahindra & Mahindra Ltd., is set up to provide engineering services to global OEMs and automotive supplier around the world. Our approach is to partner with our customers in the area of product development by providing engineering services from a mix of on-site, off-site, and off-shore services in the following areas- (a) Advanced surfacing and reverse engineering (b) CAD (c) CAE (d) Rapid prototyping & Tooling and parts, and (e) Validation. We are one of the few Asian full service providers, with strong offshore engineering capabilities.

5. Mahindra Special Services Group

40

Mahindra Special Services Group (MSSG) helps organizations develop customized Information Security strategies to derisk their businesses and to protect their competitive advantage. MSSG's service offering help to identify, mitigate and manage the risk exposure of the organization irrespective of its industry and the nature of the business. 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.

Infrastructure Development sector

The 1990s saw India embrace liberalization and globalization, and infrastructure development was the key to spurring domestic and foreign direct investments. This generated employment, gave free reign to domestic entrepreneurial talent, and accelerated the country's GDP growth to unprecedented levels. The Mahindra Group is playing its part in driving the nation's infrastructure development, with a host of companies operating in real estate, project consultancy and design, engineering consultancy, the hospitality industry and other core segments.

1. Mahindra Gesco Developers Ltd.

The Great Eastern Shipping Co Ltd. 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, Navi Mumbai, Gurgaon, Pune and Bangalore. The Property Division of The Great Eastern Shipping Co Ltd., subsequently demerged from the parent Company in February 2000 to become an independent entity as GESCO Corporation Ltd., with focus on its core business activities of projects management services, business centers and development of residential and commercial complexes.

2. Mahindra Acres Consulting Engineers Ltd.

41

Acres is one of the world's leading consulting engineering firms, with expertise in planning, engineering and project management. It has provided imaginative and cost-effective engineering solutions to clients throughout North America and around the world for over seven decades. The company's business lines encompass the power sector (hydroelectric, thermal, and transmission and distribution), transportation (air, water and ground transportation), and mining and heavy industries. Its services include planning, design and project and environmental management in the civil, electrical, mechanical, hydraulic and geo-technical disciplines. MACE leverages the considerable technical and financial resources of the Mahindra Group to stand tall in the country's consulting engineering industry.

3. Mahindra Holidays & Resorts India Ltd.

Mahindra Holidays & Resorts India Ltd., a part of the Infrastructure Sector of the Mahindra Group, brings to the industry values such as Reliability, Trust and Customer Satisfaction. 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, such as Goa, Munnar, Ooty, Manali, Kufri, Mussoorie and Binsar.

4. Mahindra Industrial Park Ltd.

Mahindra Industrial Park Ltd. (MIPL) symbolizes the combined expertise of three giants of Indian industry namely Mahindra & Mahindra, Infrastructure Leasing & Financial Services (IL&FS) and Tamil Nadu Industries Development Corporation (TIDCO). MIPL is a special purpose vehicle formed to develop and promote Mahindra City, India's first fully planned and integrated Business City in a private-public partnership model. Located just 30 minutes from Chennai airport, Mahindra City encompasses 1400 acres of infrastructure-ready space surrounded by hills, lakes and a reserve forest.

5. Mahindra AshTech Ltd.

42

Mahindra AshTech Ltd. (MATL) is a wholly owned subsidiary of Mahindra & Mahindra Ltd. It is in the business of turnkey contract execution for Ash Handling Systems and Traveling Water Screens. MATL has a well-equipped manufacturing facility in the heart of Mumbai city with Regional / Branch offices at New Delhi & Calcutta. MATL entered in this business as Turner Hoare Company Ltd. and subsequently was renamed as Mahindra Spicer Ltd. by virtue of technical collaboration with Dana Spicer Corporation. MATL has a track record of more than 100 major contracts. In 1984 "Mahindra Spicer Ltd." merged, with parent Company and became a division known as "MSL Division of Mahindra & Mahindra Ltd". In 1999 the business of MSL Division was transferred, as a going concern, to Mahindra AshTech Ltd.

Automotive Components sector

This sector of the Mahindra Group has companies involved in the manufacture of stampings, moulded components, propeller shafts and clutches. In addition to catering to the group's flagship company, it supplies material to major OEMs such as Telco, Ashok Leyland, Maruti Udyog and Bajaj Auto. The sector also exports to the United States and to European markets.

1. Siro Plast Ltd.

Siro Plast manufactures engineered composites such as sheet-moulding compounds and dough-moulding compounds. Its partnership with Menzolit GmbH of Germany provides Siro Plast the latest technology in formulations, manufacturing processes, application engineering, and mould design and manufacturing. Depending on technological demands, materials and products are made using different types of reinforcements, such as chopped glass roving, chopped strand mats, continuous roving and synthetic fibres. Siroplast's customer list includes big names from the automobile sector, including M&M, Telco and Ashok Leyland. The company was registered in 1982, received technical know-how from Menzolit in 1986, installed its plant and equipment in 1988, and started commercial production in 1989.

2.

MUSCO
Musco is a leading producer of various categories of high quality 43

alloy steel in various sizes, shapes (such as rounds, squares, flats and bars) as per specifications. The plant is located at Khopoli in Maharashtra and has a capacity to despatch 96,000 MT of alloy steel per annum. MUSCO produces through ingot and continuous casting routes. MUSCO's products have a large demand from automobile, engineering and capital goods industries.

3. Mahindra Engineering & Chemical Products Ltd.

MECP has two divisions, 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. M-Seal product range includes Cable Jointing Kits and accessories, Electrical Insulating compounds and Composite Fibre products. MECP is the pioneer to introduce cast resin joints for cable joining and terminations. Responding to changing market needs with technical innovations and new products, MECP has been maintaining lead position in the market. Engineering Division products include wide range of conveying equipment and systems for Cement, Chemicals, Steel and allied Process industries.

44

III.CHAPTER
Review of literature

45

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT:Effective inventory management requires an effective control system for inventories. 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. The following are the tools and techniques of inventory management and control; Determination of stock levels. Determination of safety stock levels. Selecting a proper system of ordering for inventory. Determination of economic order quantity (EOQ). A.B.C analysis. Classification and codification of inventories.

DETERMINATION OF STOCK LEVELS:Carrying of to much and too little of inventories is determinate to the firm. If the inventory level is too little, 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. Therefore, an optimum level of inventory where costs are the minimum and at

46

the same time there Id. No. stock-out, which may result in loss of sale or stoppage of production. Various stock levels are discussed as such A) MINIMUM LEVEL:This represents the quantity which must be maintained in hands at all times. If stock is less than the minimum level then the work will stop due to shortages of materials. Following factors are taken into consideration while fixing minimum stock level;

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. The time taken in processing the order and then executing it is known as lead-time. It is essential to maintain some inventory during this period. RATE OF CONSUMPTION:It is the average consumption of materials in the factory. 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. 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).

47

B) RE-ORDER LEVEL:When the quantity of materials reaches at a certain figures then fresh order is sent to get materials again. The order is sent before the materials reach minimum stock level. Re-ordering level or ordering level is fixed between minimum stock level and maximum stock level. The rate of consumption, number of days required replenishing the stock, and maximum quantity of materials required on any day is taken into account while fixing re-ordering level. Re-ordering level is fixed with the following formula.

Re-order level= maximum consumption x maximum re-order period.

C) MAXIMUM LEVEL:It is the quantity of materials beyond which a firm should not exceed its stock. 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, more space for storing the materials, more wastage of materials and more chances of losses from obsolescence. Maximum stock level will depend upon following factors: The maximum requirements of materials at any point of time. The availability of space for storing the materials. The rate of consumption of materials during lead-time. The cost of maintaining the stores. The possibility of fluctuations in prices. Availability of materials. If the materials are available only during seasons then they will have to be stored foe the rest of the period. The possibility of change in fashions and production process will also affect the maximum stock level.

48

The following formula may be used for calculating maximum stock level; 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. If level arises then immediately steps should be taken to replenish the stocks even if more cost is incurred in arranging the materials. If materials are not arranged immediately then there is a possibility of stoppage of work. Danger level is determined with the formula:

Danger level= consumption X maximum re-order period for emergency purchases.

E) AVERAGE STOCK LEVEL:The average stock level is calculated as such:

Average stock = minimum stock level +1/2 of re-order quantity. DETERMINATION OF SAFETY STOCK:49

The safety stock is a buffer to meet unanticipated increase in usage. The usage of inventory cannot be perfectly forecasted. It fluctuates over a period of time. 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. The stock-out can prove costly by affecting the smooth working of the concern. In order to protect against out of usage fluctuations, firms usually some margin of safety stocks. The basic problem is to determine the level of quantity of safety stocks. Two costs are involved in determination of this stock. I.e., opportunity cost of stock outs and the carrying costs. Thee stock-outs of raw materials cause production as the firm cannot provide proper customer service. If a firm maintains low level safety stocks them frequent stock-outs will occur resulting into the large opportunity costs. On the other hand, the larger quantity of safety stocks involves higher carrying costs.

There are three prevalent systems of ordering and a concern may use any one of these,
Fixed order quantity system generally known as economic as economic order quantity (EOQ) system. Fixed period order system of periodic re-ordering system or periodic review system; Single order and schedule part delivery system.

DETERMINATION (EOQ):-

OF

ECONOMIC

ORDER

QUANTITY

A decision about how much to order has great significance in inventory management. The quantity to be purchased neither should be neither small nor big because costs of buying and carrying materials are very high. Economic order quantity is the size of the lot to be purchase which is economically viable. This is the quantity of materials, which can be purchased at minimum costs. Generally, economic order quantity is the point at which inventory carrying costs are order costs. In determining economic order quantity it is assume that cost of managing inventory is made up solely of two parts I, e. ordering cists and carrying costs

50

C = consumption of the material concern in units during a year or a particular period. O = cost of placing one order including the cost of receiving the goods I.e. cost of getting An item into the firm stores. I = interest payment including variable cost of storing per unit per year or particular period.

A) ORDERING COSTS:These are the costs, which are associated with the purchasing or ordering of materials. These costs include; Costs of staff posted for ordering of goods. A purchase order is processed and they placed with suppliers. The labor spent on this process is including in ordering cost. Expenses include on transportation of goods purchased. Inspection costs of incoming materials. B) CARRYING COST: These are the costs for holding the inventories. These costs will not be incurred if inventoried are not carried. These costs include; The cost of capital invested in inventories. An interest will be paid on the amount of capital of capital locked-up in inventories. Cost of storage, which could have been used of 4 other purchases.

51

 The loss of materials due to determination and obsolescence. The materials may deteriorate with passage of time. The loss of obsolescence arises when the materials in stock are not usable because of change in process or product. Insurance cost. Cost of spoilage in handling of materials.

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. It is generally seen that in manufacturing concern, 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. In between these two limits there are some items, which have almost equal percentage of vale of materials. Under A-B-C analysis the materials are divided into three categories viz., A, B & C, and X, Y, Z where A, B, C represents the value of the material, where as X, Y, Z represents the consumption of the materials.

TOOLS AND TECHINIQUES OF INVENTORY MANAGEMENT, WHICH COMPANY IS ADOPTING: KAN BAN

52

 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. These cards are used to control work-in-process (W.I.P), production, and inventory flow. A KANBAN system allows a company to use just-intime (J.I.T) production and ordering systems which allow them to minimize their inventories while still satisfying customer demands. In M&M Company they used Kanban system for c class items. 2) JUST IN TIME INVENTORY CONTROL:the just-in-time inventory control system, originally developed by taichi okno of happen, 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. This may be contrasted with the traditional inventory management system, which calls for maintaining a healthy level of safety stock to

53

provide a reasonable protection against uncertainties of consumption and supply the traditional system may be referred to as a just-in-case system. The just in time inventory system, while conceptually very appealing, is difficult to implement because it involves a significant change in the total production and management system. It requires inter alias (i) (ii) (iii) . A strong and dependable relationship with suppliers who are geographically not very remote from the manufacturing facility. 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.

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. 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. 3) MILK RUN CONCEPT:The concept of the milk run is day to day purchasing. Here the buyer will purchase the material according to the production, which is for the next one day. The buyer will first know the safety and control stock and then he tells to the supplier the estimated trigger value. In milk run concept only quality-certified stock will be delivered. The purchaser should estimate the lead-time and it is compulsory so as to have the control over lead-time. It is direct on-line system. There will be no inspection so as to save time.

54

Advantages: Economical transportable lot(minimum transportation cost per piece) No inventory carrying cost at plant and at warehouse. It is direct online system Quality certified stock will be delivered and so no inspection is required.

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, while a production kanban specifies the quantity of the product to be with drawn by the subsequent process.

LAST IN FIRST OUT (LIFO):

LIFO method of pricing issues assume that the most recently purchased stocks are used first therefore, the items remaining in stock at the end of the year are of earlier purchases. This methods result in a higher amount of cost of goods and a lower profit figure, during the items of rising prices. The main advantages of using LIFO method are: (a). A matching of current costs against current revenues is facilitated. Cost of goods sold under this method represents the cost of recent purchases. (b). This method is helps in saving in taxes when inflationary conditions are present in the market. This is because most recent purchases are matched against sales revenue.

FIRST IN FIRST OUT (FIFO):

55

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. Therefore, the issues priced in the chronological order of receipt resulting in closing stock being valued at the latest purchases price. Advocates FIFO method argue that this method follows the conventional practice that goods purchased first are sold first. Under conditions rising prices, FIFO method requires that stock of earliest data and prices be demanded sold first, 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.

CLASSIFICATION OF INVENTORIES: CLASSIFICATION:The materials are classified into 2 they are

1. ABC analysis 2. XYZ analysis 1) ABC ANALYSIS:We assume that a vehicle cost is 100 Rs. The 70% of items from A class, 20% items from B class and 10% items from C class items ABC analysis is value based A - 70 B - 20 C - 10 100 vehicle cost 56

For A class items M&M Company use direct online (DOL). They purchase A items from local vendors. Ex: - chases frame, wires. 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.

2) XYZ CLASSIFICATION: XYZ classification is consumption based. X RUNNER MODEL Y REAPETER MODEL Z - STRANGER MODEL AX daily consumption. AY taken 2 to 3 days for consumption. AZ - by taking as per order. In M&M they maintain less stock, which are costly.

PAYMENT TERMS:They take the time for the payment of 32 to 64 days depending up on the vendors.

CODIFICATION OF MATERIALS:57

The inventories of manufacturing concern may consist of raw materials; work in process, finished goods. Spares, consumable stocks etc. all these categories may have their sub-divisions, for proper recording and control of inventory, a proper classification of various types of items is essential. The inventories should first be classified and then code numbers should be assigned for their identification. The identification of short names is useful for inventory management not only large concerns but also for small concerns. Lack of proper classification may also lead to reduce in production.

Guideline
Part I
Guidelines for deciding Schedule Based strategy of procurement for schedule based the following conditions should get satisfied all together.

Vendor Response Time + Transit Time + Internal Lead Time is less than one day
Part falls in AX, AZ & BZ category. Part is quality certified.

Part II
After having decided it follow Consumption Driven strategy for procurement, decide whether Fixed Time Variable Quantity (FTFQ) or Fixed Quantity Variable Time (FQVT) or Fixed Quantity Fixed Time (FQFT) be made applicable. FQFT is useful in the case of parts where one vendor is supposed to get Fixed Qty share by agreement irrespective of production volume. 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

Intervals. 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.

Part III:For schedule driven Work out stock quantity to cover for production requirement for one day Vendor supplies days requirement in the morning by 10am. At 10am communicate next two days production schedule.

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, most economically transportable lot etc, Calculate RI as Fixed Qty/ADD Calculate Control Level

CL=ADD (RE+VRT+TLT+ILT)* Factor of Safety

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To being with take factor of safety as one. Simulate for above CL. Fix the CL through simulation. Substitute in the formula to arrive at proper factor of safety.

One Bin, 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. 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.

Estimation of different costs: In the calculation of the ordering cost and also for other calculation purpose or analyzing purpose, I have considered ALL CLASSES ITEMS inventory management as explained earlier. AND TO ALL MODELS, To calculate the various costs which are involved in the analysis of

TRANSPORTATION COST:These are the cost, which are incurred when the spare parts/materials are procured from different places in M&M ltd, the spare parts are procured from the places like Delhi, noida, Mumbai, pune, nashik and bang lore etc. and the cost is incurred by procuring the spare parts form vendors place to the company I, e. manufacturing unit. There are different slab for the transportation cost procured from different places. Two main important factors are considered in calculating transportation cost. Distance between the company and vendors place. Depending upon the weight of the spare part to be transported.

60

Transportation cost is taken as maximum 2.5%. The basic price of the spare parts on an average. It is calculated as the overall fright incurred during previous year divided by purchases made. Here in M&M the transportation cost will be 6 crores pa

(app). For Zaheerabad

CARRYING COST: These are the costs for holding the inventories. These costs will be depending up on their classes. These costs will not be incurred if inventories are not carried. Usually 4 days inventory are kept in stock for any A category items. Hence the carrying cost includes various costs and those are capital locked in the inventories, storage cost, maintenance cost etc.

ESTIMATION OF STOCK LEVELS FOR CHAMPION:

NOTE:MODELS.
There are different models used in the calculations of the stock levels. As mentioned earlier the formula for the calculations of the stock levels, economic order quantity, number of purchase orders placed in the month for different spare parts.

HERE IAM CONSIDERING ONLY CHAMPION

Reordering quantity - 2000units. Reordering period 2 to 3 weeks.

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Weekly usage: Maximum Normal Minimum 600 units. 480 units. 390 units.

RE-ORDERING QUANTITY:
The quantity to order is called re-order quantity. There are many factors to be considered to place an order for certain level at certain time. It depends upon the present demand, future, and the coordination between the buyer and vendor etc. The re-ordering quantity, which is generally followed, is that of ordering the bin quantity. In M&M ltd. A system is followed in ordering and that is like 2-bin system. After the consumption of 1-bin order is placed with the vendor for the procurement of spares. Hence reordering quantity is taken as the 1-bin quantity. 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. Reordering level = maximum consumption X maximum re-order period 600 x 3 = 1800 units.

MINIMUM STOCK LEVEL: NOTE: - For the calculated of the champion vehicles as 480. Hence the weekly
consumption of the parts id constants 62

Ex: - consider CHAMPION ENGINE for calculation purpose. Normal daily consumption = 480units. Normal reorder period = Reorder level = period) 1800-(480 x 2.5) = 600 units. The engine stocks should not go below 600 units. Otherwise there will be storage in stocks of engine and the company can come across losses due to the storage. 2.5weeks. 1800 units.

Minimum stock level reorders level- (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. If it exceeds this level. It is calculated as: Re-order level=1800 units. Re-order quantity =2000 units. Minimum consumption=390 units. Minimum re-order period = 2 weeks. Maximum stock level = re-order level + re-order quantity (minimum consumption X minimum re-order period). =1800 + 2000 (390 x 2) =3020 units. From this it is clear that the stock level of the engine should not exceed above 3020 units. It will be economical to maintain stock below 3020 units. Above this level the company incurs relating sort the maintenance of stock, loss due to storage, storage cost, insurance cost, etc.

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AVERAGE STOCK LEVEL: It is the company should maintain in order to reduce the various cost of inventory management. 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. Average stock level = minimum stock level + of re-ordering quantity. =600 + (1/2 x 2000) =1600 units.

SUPPLY CHAIN MANAGEMENT:A supply chain management is a network of facilities and distribution option that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both services and manufacturing organizations, although the complexity if the chain vary greatly from industry and firm to firm. Below is an example of very simple supply chain for a single product, where raw material is procured from vendors, transformed into finished goods in a single step, and then transported to distribution centers, and ultimately, customers.

THE TYPICAL BENEFITS OF EXCELLENT SUPPLY:Reduction in total logistics costs as a percentage of revenue (material acquisition, order management, inventory costs and finance/IT support). Reduction in order-fulfillment leads time. Reduction in inventory.

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Improvement in meeting commitment dates. Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organization along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketings 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. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single integrated plan for the organization-there was as many plans as businesses. Clearly, there is a need for a mechanism together supply chain management is a strategy through which such integration can be achieved. Supply chain management is typically viewed to lie between fully vertical integrated firms, where the entire material flow is owned by a singe firm and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Supply chain management can be compared to a well-balanced and wellpracticed relay team. Such a team is more competitive when each player knows to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Supply chain decisions

We classify the decisions for supply chain management into two broad categories strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they sometime {\it are} the corporate strategy), and guide supply chain policies from a decisions are short term and focus on activities over a day-to-day. The efforts in these types of decisions Is to effectively and efficiently manage the products flow in the strategically planned supply chain.

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There are four major decision areas in supply chain management. location Production. Inventory and. Transportation. And there are both strategic and operational elements in each of these decision areas.

1. LOCATION DECISIONS:The geographic placement of production facilities, stocking points and sourcing points is the is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distributions costs, production limitations, etc. although location decisions are primarily strategic, they also have implications on an operational level.

2. PRODUCTION DECISIONS:The strategic decisions include what products to produce, and which plants to produce them in, allocation of plants, plants to DCs, and DCs to customer markets. As before, these decisions have a big impact on the revenues, costs and customer 66

service levels of the firm. These decisions assume the existence of the facilities gut determine the exact path(S) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities and this largely depends the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling .these decisions includes the construction of the master production schedules. Scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.

3. INVENTORY DECISIONS:These refer to means by which inventories are managed .inventories exist at every stage of the supply chain as either raw materials. Semi finished or finished goods. They can also be in process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain .since holding of inventories can cost anywhere between 20 to 40 percent of their value. The efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. How ever, most researches have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies the determination of the optimum levels of order points, and setting safety stock levels, at each stocking location. These are critical since they are primary determinants of customer service levels. 4. TRANSPORTATION DECISIONS:Therefore customer service levels, and geographic location play vital roles in such decisions. Since transportation is more than 30% of the logistics costs. Operating

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efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus lot-for-lot). Routing and scheduling of equipment are key in effective management of the firms transport strategy.

IV. CHAPTER
Data analysis & Interpretation

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TABLE 3.1:
TOTAL PRODUCTION OF DURING THE YEAR -2005-2006, 2006-2007, 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:

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In the above table we can see that there is a tremendous increase in total production of three, four wheeler which gave rise to the growth of inventory maintenance from 2005-2006, 2006-2007,2007-2008.

TABLE 3.2:
TOTAL DISPATCH OF DURING THE YEAR -2005-2006, 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, four wheeler which gives rise to the growth of inventory maintenance from 2005-2006,

2006-2007, 2007-2008.

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TABLE 3.3:
THREE YEARS COMPARITIVE STATEMENT OF PRODUCTION DISPATCH FOR THREE WHEELER
SEGMENT PRODUCTION GROWTH% DISPATCH GROWTH%

2005-2006 2006-2007 2007-2008

16,695 17,794 18,774

31.34% 33.40% 35.24%

12,952 17,528 23,120

24.16% 32.70% 43.13%

and

INTERPRETATION:

There is a tremendous increase in production

dispatch which in turn gave rise to growth of production and dispatch from 2005-2006,2006-2007,2007-2008.

PRODUCTION AND DISPATCH

25,000 20,000 15,000 10,000 5,000 0 20052006 20062007 20072008 PRODUCTION DISPATCH

TABLE 3.4:
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THREE ANDDISPATCH

YEARS

COMPARITIVE

STATEMENT

OF

PRODUCTION

FOR LIGHT COMMERCIAL VEHICLES SEGMENT PRODUCTION GROWTH% DISPATCH GROWTH%

2005-2006 2006-2007 2007-2008

5,847 7,364 8,774

26.59% 33.49% 39.90%

6,220 7,284 8,441

28.34% 33.19% 38.46%

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.

PROUCTION AND DISPATCH FOR LIGHT COMMERCIAL VEHICE

10,000 8,000 6,000 4,000 2,000 0 20052006 20062007 20072008 PRODUCTION DISPATCH

TABLE 3.5:
THREE YEARS COMPARITIVE DISPATCH STATEMENT OF PRODUCTION AND

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FOR UTILITY VEHICLES

SEGMENT

PRODUCTION

GROWTH %

DISPATCH

GROWTH%

2005-2006 2006-2007 2007-2008

2,470 2,485 2,490

33.17% 33.37% 33.44%

2,485 2,492 2,495

33.25% 33.35% 33.39%

INTERPRETATION: There is a great demand in production dispatch for utility vehicles which gave rise to maximum growth 2006,2006-2007,2007-2008. when Compared to other vehicles during 2005-

PRODUCTION AND DISPATCH FOR UTILITY VEHICLES

2,500 2,495 2,490 2,485 2,480 2,475 2,470 2,465 2,460 2,455 2005-2006 2006-2007 2007-2008

PRODUCTION DISPATCH

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TABLE 3.6:
CUMULATIVE PRODUCTION AND DISPATCH

SEGMENT

PRODUCTION

GROWTH

DISPATCH

GROWTH

2005-2006 2006-2007 2007-2208

19410 25797 34186

24.44% 32.49% 43.05%

19029 25416 33766

24.33% 32.49% 43.17%

INTERPRETATION: There is an increase in total production and dispatch of Vehicles from the past three years.

CUMULATIVE PRODUCTION AND DISPATCH

40000 35000 30000 25000 20000 15000 10000 5000 0 2005-2006 2006-2007 2007-2208

PRODUCTION DISPATCH

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TABLE 3.7:
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 3.8:

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MODEL WISE PROCUREMENT OF INVENTORY IN A NO. 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.

TABLE 3.9:
IMPLEMENTATION OF A-B-C ANALYSIS:

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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,C class items.

V. CHAPTER
77

 Findings&suggestions Conclusion

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

 The minimum stock level that Mahindra & Mahindra will store for
champion model is 600 units by calculation.

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.

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.

Management concentrates much while taking decisions in supply

chain as there is a problem in transportation due to location disadvantage.

JIT system is being implemented in Mahindra&Mahindra as

consumption of materials for all models are procured for a definite period of time.

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.

SUGGESTIONS

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 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. The minimum and maximum stock level should be accordingly to the calculated units, otherwise there will be a risk of storing inventory and thus it is a loss to the company. The company should maintain the average stock level accordingly in order to reduce the various costs of inventory management. Investment of finance will be less if the stock is brought day-to-day. So the full inventory has to be made direct online system on basis of milk run concept. To keep materials cost under control so that they contribute in reducing cost of production and over all costs. Proper codification leads to maximum cost control. Finally I suggest that Mahindra & Mahindra should continue in using the high Japanese technology .

CONCLUSION

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

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Bibliography

BIBLIOGRAPHY

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 FINANCIAL MANAGEMENT - PRASANNA CHANDRA COST ACCOUNTING - S. N. MAHESHWARI COST ACCOUNTING - VARSHINI & SAXENA

Websites:
www.mahindra.com www.mahindraautomotive.com

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