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Inventory Management

Inventory Management

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Published by: Navin Jain on Aug 11, 2011
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  • Valuation of inventories- methods of determination
  • Inventory of Obsolescence:
  • 1. Primary Data:
  • 2. Secondary data:
  • Origin and growth of the organization:
  • Growth of the company:
  • Locations:
  • 1. Cylinder Liners
  • 2. Cylinder Liners for Aluminum Blocks
  • 3. Grey & Ductile Iron Piston Rings
  • 4. Centrifugal Castings
  • Six Sigma
  • Infrastructure
  • “TIGER POWER” – The Tough Parts
  • Company Product:
  • Technology Up gradation:
  • ERP Software:
  • Materials:
  • Marketing:
  • EOQ:
  • Ordering cost:




 

Introduction to the topic Conceptual background


Need or significance of the Objectives of the study Research design

study  

  Industrial profile Organization profile






 Findings

 Suggestions  Bibliography




Material is a very important factor of a production. It includes physical commodities used to manufacture the final product. It is the inventorial and does not get waste and exhaust with the passage of time as labor is wasted with the passage of time whether in used or not. The other feature of material is that, is firm, where as other elements of cost like labor and other services can’t be easily varied once they are established. From this it can be concluded that material is most flexible on controllable input. It is the first and most important element of cost. Materials account for nearly 60% of the cost of production which is clear from analysis of financial statements of a large number of private and public sector organizations. According to the Indian association of materials management of 64 paisa in a rupee are spent on materials by Indian industries, 16 paisa on and the rest of 1 rupee of cost is spent on over heads. Importance of material control lies in the fact that any saving made in the cost of materials will go a long way in reducing the cost of production and improving the profitability of the concern. Studies by experts in this field have highlighted the facts that if an organization can affect 5% saving in material cost, it would be as good as increasing the production or sales by about 36%. Proper control of material is necessary from the time orders for purchasers of materials are placed with suppliers until they have been consumed the object of material control is to attack material cost on fronts, so that the cost of material may be reduced. In other words, efforts are to be made to reduce the cost of materials when it is purchase, stored and used Before coming to the discussion of material control, we may clear that purchase of materials will include both direct and indirect materials. Direct materials and indirect materials are both treated as stores items, where as stock of finished goods id not treated as a stores item, direct and indirect materials purchased for stock purpose to be issued to different jobs, works orders of departments as and when required. On the other hand, finished goods are treated as stock. We may also refer to the commonly used term “INVENTORY” which includes the stock not only of raw materials but also stores and spares, work-in-progress and finished goods. The stock materials are only a part of the inventory held by a manufacturing unit. Every enterprise needs inventory for smooth running of its activities. It serves As a link between production and distribution process. There is generally a time lag


the more will be the amount of work in progress. They are required to carry out production activities uninterruptedly. it is very essential to have proper control and management of inventories.between the recognition of a need and its fulfillment. c) Consumables: These are the materials which are needed to smoother the process of production. work-in-process and stores etc. a) Raw Material: Raw material form a major input into the organization. These materials do not directly enter production but they act as catalysts. MEANING AND NATURE OF INVENTORY In accounting language. The greater the time lag. inventory may mean the stock of finished goods only.Generally. The quantum of work in progress depends up on the time taken in the manufacturing process. consumable stores do not create any supply problem and firm a small part of production cost. Together the time taken in manufacturing. The quantity of raw materials required will be determined by the rate of consumption and the time required for replenishing the supplies. the higher requirements for inventory. 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. Thus. Consumables may be classified according to their consumption and critically. Inventory includes the following things. b) Work in Progress: The work in progress is that stage of stocks which are in between raw materials and finished good. The factories like the availability of raw materials and government regulations etc. There can be instances where these materials may account for much value than the raw materials. In manufacturing concern. It also provides a question for future price fluctuations. it may include raw materials. to affect the stock of raw materials. The investment in inventories constitutes the most significant part of current assets/ Working capital most of the undertaking. The 4 .

maintenance spares etc are not discarded after use. The costly spare parts like engines. every business enterprise has to be maintaining certain level of inventories to facilitate uninterrupted production and smooth running of business. The purpose of maintaining inventory is to ensure proper supply of goods to customers. The precautionary motive: This necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials The speculative motive: This induces to keep inventories for taking advantage of price fluctuations. It will mean loss of time and delays in execution of orders which sometimes may causes loss of customers and business. The stock of finished goods provides a buffer between production and market. Some industries like transport will require more spares than the other concerns. d) Finished goods: These are the goods which are ready for he consumers. rather they are kept in ready position for further use. e) Spares: The stocking policies of spares differ from industry to industry.fuel oil may form a substantial part of cost. saving in re-ordering costs and quantity discounts RISK AND COSTS OF HOLDING INVENTORIES 5 . There are three main purposes of holding inventories. BENEFITS OF HOLDING INVENTORIES Although holding inventories involves blocking of a firm's funds and the costs of storage and handling. A firm also needs to maintain inventories to reduce ordering cost and avail quantity discounts etc. All decisions about spare are base o the financial cost of inventory on such spares and the costs that may arise due to their non-availability. The transaction motive: This facilitates continuous production and timely execution of sales orders. In the absence of inventories a firm will have to make purchases as soon as it receives order.

Risk of obsolescence: The inventories may become obsolete due to improved technology. Capital Costs: Maintaining of inventories results in blocking of the firms financial resources. 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. This may be due to increase market suppliers. 1. TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT A proper inventory control not only helps in solving the actual problem of liquidity but also increase profits and causes substantial reduction in the working capital of the concern. iv.An efficient inventory management requires should maintain an optimum level of 6 .The holding of inventories involves blocking of a firm's funds and concurrence of capital and other costs. the firm has to pay interest to the outsiders. competition or general depression in the market. The storage of costs includes the rental of the go down. But in both the case. change in requirements. v. Risk of price decline: There is always a risk of reduction in the prices of inventories by the suppliers in holding inventories. The various costs and risk involved in holding inventories are: i. there is an opportunity cost of investment while in the later case. iii. In the former case. ii. Risk determination in quality: The quality of materials may also deteriorate while the inventories are kept. change in customer tastes etc. The fund may be arranged from own resources of firm outsiders. If the inventory level is too little. insurance charges etc. Storage and handling costs: Holding of inventories also involves cost on storage as well as handling of materials. Determination of stock levels: Carrying of too much and too little of inventory is determined to the firm. the firm incurs a cost. The firm has therefore to arrange for additional funds to meet the cost of inventories.

Re – ordering level is fixed between minimum level and maximum level. Minimum stock level can be calculated with the help of following formula. If the quantity exceeds minimum level limit then it will be overstocking. 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. The order is sent before the materials reach minimum stock level. The time taken in processing the order and then executing it is known as lead time. c) Maximum Level: It is the quantity of materials beyond which a firm should not exceed its stocks. more space for storing the materials. Overstocking will mean blocking of more working capital.inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss or shortage of production. more wastage of materials and more chances of losses from obsolescence. Lead-time: A purchase firm requires some time to process the order time is also required by the supplying firm to execute the order. Minimum stock level = Re ordering level (Normal consumption x normal reorder period. Maximum Stock Level = Re-ordering Level + Re-order Quantity – (Minimum consumption x Minimum Re-order period) 7 .) b) Re ordering level: When the quantity of materials reaches at a certain figures then fresh order is sent to get material again. Nature of material: The nature of material also affects the minimum level if a material `is required for such material. a)Minimum stock level: It represents the quantity below its stock of item should not be allowed to fall.order period. Re-ordering level = Maximum consumption x Maximum Re.

firms usually maintain some margin of safety stock. Determination of safety stocks: Safety stock is a buffered to meet some unanticipated increase in usage. ECONOMIC ORDER QUANTITY: The quantity of material to be ordered at one time knows an economic ordering quantity. On the other hand. The danger stock level indicates emergence of stock position and urgency of obtaining. If a firm maintains low level of safety frequent stock outs will occur resulting into the larger opportunity costs. Two costs are involved in the determination of this stock that is opportunity cost of stock outs and the carrying costs. This quantity is fixed in such a manner as to minimize the cost of ordering and 8 . 2. Danger stock level = Average Rate of consumption x emergency delivery time e) Average stock level: This stock level indicates the average stock held by the concern. fresh supply at any cost. 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. Average stock level = Minimum stock level + ½ x Re-order quantity.d) Danger Stock Level: It is fixed below minimum stock level. the larger quantity of safety stock involves carrying costs. In order to protect against the stock out arising out of usage fluctuation.

Ordering cost: It is the cost of placing order for the purchase of materials. A. Carrying cost: It is the cost of holding the materials in the store. Total cost off material = Acquisition cost + carrying costs + ordering cost. Category 'C' covers about 70% of items of materials which contribute only 10% of value of consumption. JIT Analysis (Just in time): The goal of just in time analysis is manufacturing is not new. A-B-C Analysis: (Always better control analysis) Under ABC analysis. JIT the key theme is to work with out buffer stock/with minimal buffer stock. About 20% of the items contribute about 20% of value of consumption and this is known as category 'B' materials. the materials are dividing into 3 categories viz.carrying costs. 6. The inventory turnover ratio also knows as stock velocity is normally 9 . EOQ can be calculated with the help of the following formula EOQ=√2RCO/CH Where R CO CH = Annual Consumption = Ordering Cost = Carrying Cost 4. The primary goal of JIT is to achieve zero inventories with in an organization as well as through out entire supply chain. The means by which goal of JIT is now being accomplished is considered to be new. B and C Almost 10%of the items contribute to 70% of value of consumption and this category is called 'A' category. Inventory Turn over ratio: Inventory turn over ratios is calculated to indicate whether inventories have been used efficiently or not. The basic desired for continued reduction material resources requirements is quiet common. 5.

spares. The coding may be done alphabetically or numerically. Symbolically Cost of goods sold Inventory Turnover Ratio = ------------------------Average inventory at cost ( Or ) Net sales = -----------------------Average inventory Days in a year Inventory conversion period = ---------------------------Inventory Turnover Ratio 7. consumable stocks. materials are classified accordingly to their nature such as construction materials. The class of materials is assigned two digits and then two or three digits are assigned to the categories of items divided into 15 groups. The identification of short names is useful for inventory management not only for large concerns but also for small concerns. 10 . Lack of proper classification may also lead to reduction in production. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks. The third distinction is needed for the quality of goods and decimals are used to note this factor. The later method is generally used for coding. Classification and codification of Inventories: The inventories should first be classified and then code numbers should be assigned for their identification. after classification the materials are given code numbers. Generally. Two numbers will be category of materials in that class. lubricants etc.calculated as sales/ average inventory of cost of goods sold/average inventory.

Effective Computerization: Computers should be used merely for accounting purposes but also for improving decision making.Methods of valuation:     FIFO method LIFO method Base Stock method Weighted average price method CRITERIA FOR JUDGING THE INVENTORY SYSTEM While the overall objective of the inventory system is to minimize the cost to the firm at the risk level acceptable to management. production. the more proximate criteria for judging the inventory system are    Comprehensibility Adaptability Timeliness Areas of improvement: Inventory management in India can be improved in various ways. marketing and finance department will help in achieving greater efficiency in inventory management. Review of Classification: ABC & FSN classification must be periodically reviewed. Improved Co-ordination: Better co-ordination among purchase.8 Valuation of inventories. Adoption of Challenging Norms: 11 . Development of Long Term Relationships: Procedures for disposing obsolete/surplus inventories must be simplified. Improvements could be affected through.

The FIFO method of valuation of inventories is particularly suitable in the following 12 . and Last-in-first-out (LIFO). it must be used consistently and cannot be changed from year to year in order to secure the most favorable profit for each year. no unrealized profit enters into the financial The method is realistic since it takes into Account the normal procedure of utilizing or selling those materials or goods. • • It involves complicated calculations and hence increases the possibility of clerical errors. Valuation of inventories. The selection of the method for determining cost of inventory valuation is important for it has a direct bearing on the cost of goods sold and consequently on profit. Advantages: The FIFO method has the following advantages • It values stock nearer to current market prices since stock is presumed to be consisting of the most recent purchases.methods of determination Although the prime consideration in the valuation of inventories is cost. Thus. When a method is selected. which were acquired most recently. Comparison between different jobs using the exhausted the supply of same type of material becomes some times difficult. according to this method the inventory on a particular date is presumed to be composed of the items. A job commenced a few minutes after another job may have to bear an entirely different charge for materials because the first job completely exhausted the supply of materials of the particular lot. The most commonly used methods are First-in-first-out (FIFO) average. accounts of the company. • which have been longest in stock. Disadvantages: The method suffers from the following disadvantages. there are a number of generally accepted methods of determining the cost of inventories at the close of an accounting period. 1. The FIFO METHOD (FIRST-IN-FIRST-OUT METHOD): Under this method it is assumed that the materials or goods first received are the first to be issued or sold.Companies should set benchmarks with global competitors and use ideas like JIT to improve inventory management. • • It is based on cost ad. therefore.

 It takes into account the current market conditions while valuing materials issued to different jobs or calculating the cost of goods sold. Materials are usually identifiable as belonging to a particular purchase lot. 3.circumstances: • • • • The materials or goods are of a perishable nature. The base stock is deemed to have been creating out of the first lost purchased. The base stock method has the advantage of charging out materials/goods at actual cost. according to this method inventory consists of items purchased at the earliest cost. Thus.  type.  The method is based on cost and therefore no unrealized profit or loss is made on account of use of this method. Advantages: This method has the following advantage. The frequency of purchases is not large. As this method aims at matching current costs to current sales. Any quantity over and above the base sock is valued in accordance with any other appropriate method. the LIFO method will be most suitable for valuing stock of materials or finished good other than base stock. 2. There is only moderate fluctuation in the prices of materials or goods purchased. Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock. This quantity is termed as base stock. BASE STOCK METHOD: This method is based on the contention that each enterprise maintains at all time a minimum quantity of materials or finished goods in its stock. WEIGHTED AVERAGE PRICE METHOD: The method is most suitable for materials which are of a bulky and non-perishable 13 . 4. therefore it is always valued at this price and is carried forward as a fixed asset. THE LIFO METHOD (LAST-IN-FIRST-OUT) This method is based on the assumption that last time of material or goods purchased are the first to be issued or sold.

Weighted average price method is very popular on account of its being based on the total quantity and value of materials purchased besides reducing number of calculations. in case of this method different prices of materials are charged from production particularly when the frequency of purchases and issues/sales is quite large and the concern is following perpetual inventory system. LIFO methods. they lose identity. However. With a standard cost system there is no need for spending a great deal of time and money tracing unit cost through perpetual inventory record. As a matter of fact the new average price is to be calculated only when a fresh purchase of materials is made in place of calculating it very now and then as is the case with FIFO. The inventory is thus priced on the basis of average prices paid for the good.This method is based on the presumption that once the materials are put into a common bin. ACQUIRING RAW MATERIALS FROM THE STORE ROOM 14 . INVENTORIES VALUED AT STANDARD COST: A very useful method of valuing inventories is at standard cost. 5. Hence. weighted according to the quantity purchased at each price. the inventory consists of no specific batch of goods.

Job cost sheets used when manufacturing is of a job Shop variety and costs must be kept by individual jobs.Recognized need for materials in production Stores requisition Materials are sent to work place Notifies storeroom Clerk need. Departmental cost records used to accumulate materials Costs by responsibility centers and to determine process. Requisition summary used to record general ledger Entry transferring R. 4. 3. 2. of Requisition is recorded in 1. Perpetual inventory records.M's to WIP. Costs for individual production 15 .

Among the usual subsidiary ledgers are the perpetual inventory cards. Quantity Purpose Unit: Computer Code No. : 1 of 1 S. Date: Description of the Material Indenter Signature Approved Received In the general ledger. INTERNAL INDENT Document No. : 02.No. stores requisition are recorded by a transfer from raw materials inventory (a credit) to work in process (a debit)Each stores 16 .: ST/F/1506 Revision No. Section: S.RECORDING THE STORES REQUISITION – THE GENERAL LEDGER: The stores requisition is recorded in the general ledger and in various subsidiary ledgers. departmental cost records. and job cost sheets.Dated 01-05-2000 Page No.No.

These additional data are very useful for inventory and production control purposes. a LIFO or an average cost basis. inventories at standard cost could easily be converted into inventories on a FIFO. With the cost and value columns disposed off. and this total is the subject of the above general ledger entry. Work in process – I Dr. A requisition summary shown above provides departmental distinctions as well as distinction between direct and indirect materials. a perpetual inventory card can include additional data such as quantities on order. Inventory of Obsolescence: Obsolescent inventories cannot be used or disposed off at values carried on the books.I Dr. Frequent reviews should be made of all inventories and when obsolescence is 17 . Raw materials inventory As shown above. When the general ledger contains departmental account the monthly entry from the requisition summary would be: Dr. The stores requisition for a month are totaled. Factory overhead (for indirect materials) Cr. Factory overhead .When the general ledger contains only one work in process account and one factory overhead account the monthly entry from the requisition summary would be: Dr.requisition is not the subject of a general ledger entry. there is need only for physical quantities since the inventory value is the physical quantity multiplied by the standard cost. Ordinarily each stores requisition is recorded in a requisition summary. Work in process (for direct materials) Dr. Work in process – II Dr. Raw materials inventory. which is totaled each month to determine the dollar amount of the general ledger entry. and quantities available. Factory Overhead – II Cr. On the basis of a few calculations concerning actual units cost. quantities reserved.

and a credit to inventory. the entry would be only for the amount of write down. The difference between original and obsolete value should be recorded by a charge to an operating account. If the material is scrapped. Some companies carry a salvage inventory and transfer to its materials which may be sold or used at reduced values. CHAPTER—II RESEARCH METHODOLOGY 18 . Inventory obsolescence. this will be for the full inventory of the material. If it is anticipated that the material can be sold at reduced value or used in areas where it will be worthless than its original value.indicated a request for revaluation should be prepared for approval by management.

specially to meet raw materials requirements of mini steel plants. is selected. So as to find out the responsible factors that caused for high inventory cost. Kusalava International Ltd. The study was conducted in consultation with plant and head office executives. the findings will help the managers to examine day to day as well the 19 . It seems that one of the important problems faced by public enterprises id ineffective control measures especially out dated and unused inventory control measures. as being it is a monopoly. The study was done for the raw materials and cylinder liners for the plant situated at Adavinekkalam. Being an outside research the study will definitely make an impression in term of much useful to the production department and top level management to review proceedings of inventory management department. Thereby facilitate the control measures to be taken if any deviations found in due course. Even though the study scope is limited. As an academician the study will enhance an understanding on the practical aspects of business and inventory management in particular.NEED OF THE STUDY: For the purpose of the study. Therefore. it is felt quite appropriate to make a micro study on inventory control methods and policies of the Kusalava International Ltd. SCOPE AND SIGNIFICANCE OF THE STUDY: A study on Inventory management was carried out at Kusalava International Limited for the months of May to June. Sponge iron manufacturing unit in the country at the time when it was established in 1980 as a public sector unit. Inventory Management is essential for the viability and long run survivalist of business as it is most important component of Current Assets.

2. Some of the information had been verified of supplemented conducting personal with observation. 20 .  To study the common techniques for managing inventory-ABC system.  To identify the problems if any.   Primary data Secondary data 1. The collection is done through two principle sources viz. annual reports. Primary Data: It is the information collected directly without any reference. the basic economic order quantity model. returns and international records. the reorder point and the safety stock.periodical proceedings. In this study it was mainly through interviews with concerned officers and staff. either individually or collectively. To study about the tradeoffs between costs and benefits associated with the level of inventory. The data includes:   Interviews with Kusalava International Ltd. Organization chart has been drawn through observation. Secondary data: The secondary data was collected from already published source such as Pamphlets. and to provide appropriate suggestions for the improvement of the Inventory management DATA COLLECTION: Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. employees. OBJECTIVES OF THE STUDY:   To understand the importance of Auto component Industry in India.

. Journals on Management and Websites. PLAN OF THE STUDY: First chapter deals with introduction regarding inventory management. books.    The time for data collection is only 2 months. data analysis and interpretation.The data includes: Methodology under study has been collected from the annual reports of Kusalava International Ltd. 21 . the 5 and the last chapter is findings and suggestions . objectives and methodology. Adavinekkalam. in house magazines. LIMITATIONS OF THE STUDY:  The study was conducted with the data available and the analysis was made on the basis of secondary data only. Publications.  The study was conducted within the selected unit of Kusalava International Limited. As there is more dependency on secondary data realistic conclusion may not be possible to be made. The availability of data pertaining to 5 years is one of the constraints. Present in chapter-4. PERIOD OF THE STUDY: To analyse the inventory management here we have taken the data from the companies annual reports during the period 2006-2010. Present in chapter-2 and chapter-3 gives a brief profile of organization .


INDUSTRY PROFILE AUTOMOBILE INDUSTRY: The Indian automotive market managed to stand to the vagaries of the economic meltdown to show slightly positive growth during fiscal 2008-09.494 3.882 2008-09 15.880 DIFF 1998 GROWTH % 0.71 per cent from 96.71 4.69 2007-08 15. AUTOMOBILE DOMESTIC SALES TRENDSNo.49.719 OF VEHICLES Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total 3.13 2.6 0.122 -10637 -21.23 lakh grew 0. 2007-08 and 2008-09.13 COMMERCIAL VEHICLES SEGMENT: The Indian Automobile sector is presently going through a phase of slow down for the last two years i.49.278 9654435 3.54 lakh units in 2007-08.29% and in 2008-09 the sector posted a modest growth in 23 . The sector witnessed a net decline in production in 2007-08 of (-) 2.37.781 72.64.670 9723391 -15062 188392 164691 -4.49.e. Overall vehicle sales at 97.

4-87.9 lakh to 19. The department of heavy industry has taken the initiative to ensure that under the Stimulus Package-II announced by the Government. two-wheelers at 0-5 per cent and three-wheelers at 5-8 per cent. 76.4 lakh units.34 lakh units while Ashok Leyland showed 37 per cent drop at 47.production at 2.96% over 2007-08. Among commercial vehicle makers. all major players saw substantial fall in volumes.2-5.819 units in 2008-09. the automobile industry grew 2. The spiraling demand from domestic and international auto companies has seen 24 . During the year both automotive industry and the auto-component industry adversely affected by a unprecedented increase in the prices of major input materials along with the pricing pressures due to the economic slowdown. AUTO COMPONENTS INDUSTRY: In 2008-09. The exports of CVs have also plummeted. which has witnessed a production decline by almost 24% in 2008-09 over the previous year. According to SIAM in the fiscal 2009-10.6 lakh units .000 crore. showed 22 per cent drop in numbers at 2.96 % but the components industry outpaced the vehicle manufacturers with a 6 per cent growth. Commercial vehicles have been forecast to clock sales of 5.341 units and Force Motors was down 28 per cent at 7. Market leader Tata Motors with a 60 per cent plus share.The Indian auto components industry has an estimated production of US$ 10 billion.2 lakh units. The medium and Heavy Commercial vehicle category has been the hardest hit which has seen a decline in production by 35% in 2008-09. passenger vehicles are expected to have sales of 18. The worst affected segment in the auto sector is the Commercial Vehicle segment.300 crore from Rs 72. the state governments will be allowed to buy transport vehicles (buses) under the JNNURM programmed. while two-wheelers sales have been pegged at 83.632. “The freight movement is unlikely to improve this fiscal which will impact truck sales. passenger vehicles are expected to record a sales growth of 3-5 per cent in FY09-10. PROSPECTS: As per SIAM estimates. put significant pressures on the margins of the automobile manufacturers and the auto-component manufacturers. The total value of auto parts sold is Rs. commercial vehicles at 7-10 per cent (over a low base of the previous fiscal). Eicher’s sales volume fell 37 per cent at 17.

and overseas. And with India estimated to have the potential to become one of the top five auto component economies by 2025. Moreover the automotive components industry is perceived as a lucrative sector with tremendous potential for foreign direct investments. The ACMA estimates the global sourcing of components from the country to double from US$ 2.9 billion in 2008-09. A large number of joint ventures with leading global manufacturers have already been set up in the auto-components sector. This sector is now working towards an open market. The Auto components industry is predominantly divided into five segments: • Engine parts • Drive Transmission & Steering Parts • Suspension & Brake Parts • Electrical Parts • Body and chassis According to the ACMA (Auto Components Manufacturers Association of India). Domestic Investments The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations: Bharat Forge invested US$ 135 million in its Pune plant for increasing domestic capacity to 240. The year 2006-07 saw the auto components sector soar with exports touching the US$ 3 billion mark and investments continuing unabated.this sector emerging as one of the fastest growing manufacturing sectors in India and globally. the sector is set to grow at a CAGR of 15 per cent till fiscal 2012. 25 .95 billion to US$ 5.000 tones. and touch US$ 20 billion in seven years owing to the huge and growing markets both within India. the pace is expected to pick up even further.

Dubai. • Sona Koyo plans to have capacity of three million pieces of manual steering gears. have invested US$ 1.000 tonnes per annum (TPA) from 30.000 units of electronic power steering (EPS). • Apollo Tyres plans to invest US$ 469. the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next five years to increase India's share in the global auto components market from the existing 0. 500. • Rico Auto is investing US$ 23 million to expand capacity.• Amtek Auto is expanding capacity of its castings unit to 70.000 units of hydraulic power steering and 250. Seeing the growing popularity of India in the automotive component sector (a whopping US$ 530 million in terms of foreign direct investment).4 per cent to 3-4 per cent. • Pal finger AG.000 TPA.58 million in the next three years to increase its production capacity both in India and abroad.7 million to set base in India. the vehicle dealership arm of ETA Star group. the Indian auto component industry is set to growth exponentially. apart from doubling the capacity of steering columns from one million parts. the Austrian hydraulic lifting. • Chrysler is setting up a local sourcing unit in Chennai and is expected to start sourcing for its global plant by next year. loading and handling systems manufacturer. • Kesoram Industries is planning to set up three new tyre units in the northern state of Uttaranchal to take its tyre-making capacity to 734 metric tonnes per day. 26 . With such accelerating interest by both domestic and foreign investors. has joined hands with Western Auto LLC. Foreign Investments India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 percent lower than their western counterparts.

4 million in its Indian subsidiaries over the next two years. • Swiss company Reiter Automotive India aims to increase its production capacity in India and extend its product range to heat shields • Fiat is setting up a group purchasing office in India as part of its strategy to cut costs by buying more components from low-cost centers such as India and China. Mercedes. India. • Auto parts maker Robert Bosch of Germany will invest US$ 201. Investments and exports in this segment are witnessing continuous growth. and heavy-duty vehicles by 2012. Malaysia's leading 27 . Crosslink International Wheels. Delphi. • Daimler. Hero joint venture will invest US$ 1. auto parts maker of Germany has relocated manufacture of certain products to MICO. • Japan’s Omron Corporation. Robert Bosch. As a result Japanese and British component manufacturers are seeking joint-ventures in India.1 billion in 5 years to manufacture light and medium CVs initially. the auto component division of General Motors is planning to set up plants in India.67 million focused entirely on domestic automotive components industry. the leading manufacturers of automation components has set up the company's first production base on the subcontinent. Global automobile manufactures see India as a manufacturing hub for auto components and are rapidly ramping up the value of components they source from India due to: • • • The cost competitiveness in terms of labor and raw material Its established manufacturing base Fine quality of components manufactured in India (used as original components for vehicles made by General Motors. IVECO and Daewoo among others).• IFCI Venture Capital Funds Limited is launching a private equity fund in association with German consultancy UBF-B worth US$ 144. Destination India The ACMA-McKinsey Vision 2015 document forecasts the potential for the Indian auto component industry to be US$ 40-45 billion by 2015.

According to ACMA. Foreign auto makers. with North America featuring a close second at 26 per cent. are all looking to increase their presence in India and use it as an export hub.. including Ford Motor Co. The Indian automotive industry has grown at a CAGR of 14 percent p. over the last 5 years sales of vehicles reaching around 9 million vehicles in 2005-06. 28 .. Presently.. India is:   2nd largest two-wheeler market in the world 4th largest commercial vehicle market in the world 11th largest passenger car in the world and is expected to be the 7 th largest  market.. DaimlerChrysler AG and Hyundai Motor Co. General Motors Corp.a. Honda Motor Co. It has the potential to emerge the largest in the world. Toyota Motor Corp. The Indian automotive export industry has made a global mark.. more than a third (36 per cent) of Indian auto component exports head for Europe.automobile security provider has set up its manufacturing unit at Baddi to make India the export hub for the SAARC region. Both the automobile industry along with the component industry is contributing to India’s overall export effort. The industry has emerged as a key contributor to the Indian economy.

00 20% 3.40 2% 3.75 21% 22 20 12.16 20% 9.2004-05 2005-06 Turnover Growth rate(%) Export Growth rate(%) Imports Growth rate(%) Investment Growth rate Imports as % of Turnover Exports as % of Turnover 8.40 23% 24 18 18.70 29% 1.30 1% 37 21 22.00 20% 3.67 8% 3.00 32% 12.40 17% 21 21 2006-07 2007-08 2008-09 2009-10 15.22 45% 7.00 18% 5.80 30% 7.00 25% 2.80 8.00 33% 18 AUTO COMPONENT INDUSTRY-STATISTICS (VALUE IN US $ BILLION) 29 .60 45% 5.00 38% 2.52 32% 5.48 30% 4.90 33% 3.69 34% 1.00 23% 37 13 2010-11(E) 26.80 8% 6.47 46% 2.20 33% 29 20 18.

494 384.0761.078 307.6298.292.5377.249.061.552.334 7.654.3917.7657.703 1.810.430 351.364.096 1.437.143.368 5.371.4359.765 Three Wheelers Two Wheelers Grand Total 284.549.862 359.379.041 467.8821.Automobile Domestic Sales Trends (Number of Vehicles) Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Passenger Vehicles 902.5721.2496.897.231 6.123.776 Commercial Vehicles 260.906.920 403.052.979 1.395 364.988 9.770 30 .42810.194 531.2787.724.949.910 490.619 9.114 318.872.243 12.727 440.209.781 349.

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general motors. Hyundai.The developments in the Indian auto component industry can be traced to trade liberalization during the 1990’s that resulted in an influx of multinational automotive companies like ford. Peugeot and 34 . Mercedes-Benz.

The entry of these foreign auto companies during the early 90’s changed quality standards and impacted the complexity of the parts required by OEMs. two wheelers.9 billion in the year 1999 to $7 billion in the year 2004. other Japanese majors like Honda. there was significant growth in multinational companies ($1 billion in 2003-04.752 passenger vehicles) during 2003-04. They key of course is the export-worthiness of the Maruthi 800. Toyota and Mitsubishi also flagged off two-wheelers and light commercial vehicles production. high fragmentation. commercial vehicles. Zen. Global tier-one suppliers like Delphi and Visteon set manufacturing units in India. For example. Maruthi it self floated 11 joint ventures (JVs) and has as many as 375 vendors. something total alien to the industry before. This was simply because the automobile industry did not have any volumes worth talking about. consisting of passenger vehicles. expanded from a sales level of 3. Consumers reacted favorably to the expanded set of offerings and consequently the demand for cars in India surged. they are a significant share of the sales ( approximately 10-12%) components firms. The Indian auto component industry responded to these challenges by adding capacity and modemizing existing plants.27 billion in 1997 exports are still very compared to annual global auto component sales. to nearly 6. During this period. which was $730 billion. Maruthi challenged all that (in the process. So as Maruthi grew crossing the 1. as against $0.Volvo into India. In the meantime. Before Maruthi. negligible auto machine and consequently poor quality. This paved the way for foreign collaborations in the component sector. three wheelers and tractors. the sale of foreign brand cars grew from almost nothing before the entry of Hyundai in 1997 to 15% of the car market in the year 1998-99 to more than 25% of the car market in 2004-05. The total sales volume of auto components has increased from $2.500 vehicles) For the first time the Indian market hand volumes worth speaking of a product that was exportable and proper systems. Many firms entered into technical collaboration and equity partnership global tier-one suppliers. the auto market. Yamaha. 35 .8 million vehicles (900. and till date some 95 Japanese alliances have been struck.3 million vehicles (417.762 passengers vehicles alone) in the year 1995-96. the auto component industry was characterized by low volumes. the component industry boomed in tandem. Indian car producers in the first year it self by making 22. 00.000 mark by 1989-90.

as is Hyundai. which will house all its ancillary suppliers in an industrial park. Gradually manufacturers from ale parts of the world are making a beeline for India. ancillary had little choice but to focus on export markets.1. Ford. In the south. and step up quality. is flagging off the ford ACG (Automotive component group) and general motors have brought in Delhi. Toyota too. Result: Component makers are now exposed to different. Laxman. at least 130 have bagged ISO 9000 certification. more complex and advanced development processes. the Americans. are imperative and at last count there were at least 322 collaborations with foreign auto majors. This is evident in the spate of ISO 9000certifications those component makers began to receive. 170 Crores). Consider the Ran group. Over the past 3 years the Indian auto component industry has been consistently exporting at least 20% of its production. The step up process has not ended with the Japanese innovation. The Reason: Access to technology to differentiate your product from the scores in the market. Earlier. auto archly has been taken over by US Major Rockwell.That was just the first step in the process of Indian component marks producing globally competitive products. they were dealing with just one culture. Today we have the Koreans. one standard Japanese. Saks Ancillaries has suffered the same fate Joint ventures though. We believe that we will be able to achieve leadership position in a couple of years. the Europeans and the French coming with their global suppliers in to the country. The next best thing to happen to this sector was the recession of 1992-93. for instance. In 5 years. To maintain their viability. says Ran group Chair Man L. overseas sales are expected to more than triple to 36 . Our partner is probably number 1 in clutches world. is creating a Toyota village around its manufacturing unit in the south. We are not getting the same satisfaction in the clutch business as we were getting from our other activities. Of the roughly 350 companies in this sector. which has hired off its clutch business with luck of Germany into a 50:50 joint venture. The guiding principle. behind the venture is the opportunity to bring new technology in to the country. In 1996-97 exports were worth a cool $ 300 millions (Rs. something no other industry can boast of.

Today “TIGER POWER” brand is the most dynamic name in the cylinder liner manufacturing business. Kusalava International Limited had geared up to meet the technological changes and 37 . Kusalava International Limited has nearly 38 years of industrial manufacturing experience in the field. To manufactured cylinder liners under the brand name of “TIGER POWER”.all of $ one billion. Kusalava International Limited is one of the largest cylinder liner manufactures in INDIA. The chairman of Kusalava International Limited is Mr. But later the name was changed to Kusalava International Limited. Nearly 50% of the production goes to original equipment. Chukkapalli Kusalava. It was earlier known as Bharat industries where it was started as a small work shop. ORGANISATION PROFILE Origin and growth of the organization: Kusalava International Limited was established in the year 1964.

world standards. Green.S. • • • TPM POLICY Kusalava International Ltd commits their selves to maximize ‘Overall plant Effectiveness’ by achieving: • • • • Zero Breakdowns Zero Accidents Zero Defects A Safe and Clean Environment and eliminate all other losses through Total Employee Involvement. Bangladesh. Chukkapalli Ramakrishna Prasad. It also in the stood the competition in the world market which arose done to the establishment of world trade organization. ENVIRONMENT AND SAFETY POLICY: We are committed for the satisfaction of all interested parties by: • • Supplying quality products on time. Australia. Its honorable chairman and promoter is Mr. Malaysia. Kusalava International Limited has consistently delivered quality automotives components in line with the specific of automobile majors in India and for the aftermarket spare parts segments to various countries like U. Growth of the company: Kusalava International Limited belongs to Kusalava group of companies. By providing Clean. Continual Improvement in all the Integrated Management System Process. Mauritius. and the Middle East. Healthy and Safe Work Environment. Italy. Complying with all applicable Legal and Other Requirements Conservation of Resources & Prevention of Pollution. New Zealand. The group of 38 . QUALITY. Thailand.

the division has been spun off into a separate company in 2006. Guntur. Kusalava Inc: The Company is a trading firm located in Houston. Kusalava Finance: The company has been established way back in 1970 and is engaged in the business of financing automobiles. Please visit www. Sneha Biotech: The Company is research firm. 2). Ongole. The products are used as a substitute to chemicals & fertilizers in agriculture and aqua industries and are used as substitutes to drugs for humans. which focuses on development of products using biotechnology for agriculture. USA and is involved in the activity of sourcing automotive components from India and China to OEM's in USA.kusalavainfo.com. Timken for Bearing. Kusalava Motors (P) Ltd : The company is involved in the activity of trading 2 Wheelers and 4 Wheelers. 3). 4). it is the official dealer for TVS Motors and Hyundai Cars in the cities of Vijayawada. apartments and shopping malls. 6). 7). Since then the company has been working on many projects with overseas clients and has seen unprecedented growth. The company has products stocked in 22 warehouses across USA to supply to customers on a JIT basis. Kusalava Power: The company is involved in the business of power generation and has a total generating capacity of 3 MW. 1). Bhimavaram and Gudivada. 39 . 5). marine industry and humans as well. 8). Kusalava Realty: The Company is involved in the business of developing housing. The company operations and network spread across entire south India. Texas. Kusalava Informatics: Started of as an in-house software arm for developing an integrated ERP solution.companies and their activities. Maple for Pistons and Kusalava for Liners. Bharat Automobiles: The company activities involve trading is automobile spare and represents a host of reputed manufacturers like Bharat Forge for Crank Shafts. The company has been able to carve a niche of itself in the automotive sector by offering clients customized financing options as per their needs.

MILESTONES IN ‘TIGER POWER’ MANUFACTURING: 1964: Kusalava International Limited comes into existence as M/S Bharat Industries. 2000: ISO/TS 16949 certified. Bajaj Tempo. 1995: Kusalava commissions its first overseas office in Houston. 1998: QS-9000 certified 1999: Started production of Ductile Iron castings. and USA ISO: 9002 certified. Received the best supplied award from EICHER MOTORS. Texas. Products: Brake drums During the inception year itself supplies were started to OEM. 1996: Sales figures crossed of 1 million USD. 2003: Introduced Six Sigma Process. Started supplies to major road transport corporations (STU's) 1982: Supplies to replacement market with TIGER POWER-TOUGH PARTS Brand name. 1986: Installed the first Dual Track Induction Furnace in India. 1992: Tiger Power became the major supplier of cylinder liners in After Market 1994: Emerged as the Largest cylinder liner manufacturer in India. Awarded by ACMA for Best Six Sigma Project in 2003 2004: Introduced Lean Manufacturing Practices. 1972: Started production of grey iron cylinder liners. Kusalava becomes a limited company. for outstanding contribution 40 . 1987: Became the major source for Defense Vehicle Factory 1990: Exported its first consignment to New Zealand. 2002: Turn Over crosses 10 millions USD.

to supply chain management. Awarded by ACMA for Best Six Sigma Project in 2004 again. 2005: Entered into an agreement with the Market Leader Darton Sleeves, USA for supplying High Grade Ductile iron liners to the Drag Racing Market. 2006: Total PM Kick off on July 3rd 2006. Kusalava commissions new plant at pantnagar, Uttarakhand. 2007: Turn over crosses 20 million USD. Kusalava commissions new plant at Visakhaptnam, Andhra Pradesh.



MANAGING DIRECTOR Maintenance Maintenance Engineers Director Quality Quality Vice Manager Technical Control Control Preside Director Production Production Opera Manager Engineers Super nt Production Engineer Manager Manager Product tor visor Operati Product Developmen ons General Director Development Sales Manager Exports t Engineers Officers Vice Marketing Marketing Exports Asst. President Manager Dispatc Dispatch Store Manager International Purchase h Clerk Supervisor s Director Business Manager Customer Dispatch Clerk Purchase Dispatc Representati Superviso h Clerk ve r Project Manager Accountant Manager Director Accounts s General Manager Internal Finance Manager Internal General Auditors IT Audit Manager IT Support Manag Information & Engineers er Technology Director Asst. Human Manager Assistant Manager Resources

Kusalava international Ltd is located in Autonagar in the city of Vijayawada situated in the state of Andhra Pradesh in India. This Industry has two production units. Unit-1 is situated in Adavinekkalam, which is 25 kms from Vijayawada, where as Unit2 is situated in Autonagar of Vijayawada. The main administration is at Adavinekkalam unit which is in the city of Vijayawada and other branches at Visakhapatnam and Rudrapur. A part from these branches, other branches are situated out of our country like the ones in USA, Middle East. Etc. There is a wide distribution are network of Kusalava International Ltd at different places in India at 1) 2) 3) 4) 5) COCHIN BANGALORE HYDERABAD PUNE MUMBAI


6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16)


Nature of Activity: Product Manufactured
1. Cylinder Liners Cylinder liner is a cylindrical part to be fitted into an engine block to form a cylinder. It is one of the most important functional parts to make up the interior of an engine the cylinder liner, serving as the inner wall of a cylinder, forms a sliding surface for the piston rings while retaining the lubricant within. The most important function of cylinder liners is the excellent characteristic as sliding surface and these four necessary points.
• • • •

High anti-galling properties Less wear on the cylinder liner itself Less wear on the partner piston ring Less consumption of lubricant


However. Aircraft. cast iron cylinder liners are used in most cases. For that reason. the direct sliding motion of aluminum alloys has drawbacks in deformation during operation and wear-resistance. A cylinder wall in an engine is under high temperature and high pressure. As a result of close grain structure 44 . and Power generation. with the recent trend of lighter engines. As the molten metal solidifies from the outside in. In particular. as the sliding surface for the inner cylinder. 4. To improve rigidity and high thermal conductivity properties of engine blocks. a casting with dense. Centrifugal Castings Centrifugal casting method was developed after the turn of the 20th century to meet the need for higher standards. 3. Grey & Ductile Iron Piston Rings Kusalava has developed materials with special properties in grey and ductile iron by centrifugal casting process for critical sealing applications. We also supply rough machined rings to ring manufactures around the world in ductile and grey iron materials. Kusalava has developed different specifications of cylinder liners that have high adherence to aluminum blocks at the time of die casting by controlling the coarseness of the outer casting surface with the special coating materials and in-process controls. cast iron cylinders that have excellent wear-resistant properties are only used for cylinder parts. since longer service life is required of engines for trucks and buses. materials for engine blocks have been shifting from cast iron to aluminum alloys. Also. Cylinder Liners for Aluminum Blocks Global warming has started to show its adverse effects on the environment. Marine. Locomotive. close grain structure is created. Spinning molds generate centrifugal force on molten metal to position the metal within a mold. These engines have as cast cylinder liners with special surface on the outer diameter commonly referred to as spiny lock or stipple finish.The cylinder liner receives combustion heat through the piston and piston rings and transmits the heat to the coolant. 2. with the piston and piston rings sliding at high speeds. These rings are being supplied to Automotive. Aerospace and Hydrocarbon processing Applications. To improve the fuel efficiency and adhere to latest Euro norms automobile manufactures are shifting towards aluminum engines.

45 . cooling rates and metal chemistry results in castings with higher yields. pouring speeds.the centrifugal process offers products with better physical properties than castings made using the static casting method. mold spinning speeds. Proper mold design. mold coatings. fewer impurities and greater strength.

Quality 46 .

43 acres Casting & Machining. 3.10. Piston Rings. Valve Seats & centrifugal castings. 47 . India Cylinder Liners. And it was awarded twice for its best projects. Sector-2. Krishna District. Six Sigma has also become a movement focused on business process improvement.Uttaranchal-263 153. It had tangible results in terms of quality and production.6 Acres Machining. 14. Location of Plant 3Rudrapur.India Products Area Operations Cylinder Liners 3.IIE Pant Nagar. Adavinekkalem. India Products Area Operations Location of Plant 2 Address Products Area Operations Cylinder Liners. Address Plot No.4 defects per million items. Agiripalli Mandalam. Vijayawada – 520007. Vijayawada. Kusalava had started implementing these techniques in 2002.35 Acres Casting & Machining. Autonagar. AP – 521212. It is a quality measurement and improvement program originally developed by Motorola that focuses on the control of a process to the point of ± six sigma (standard deviations) from a centerline.Six Sigma A method or set of techniques. Vijayawada.Rudrapur. 2. Industrial Estate.The company had 5 Black belts and 14 Green Belts. Valve Seats. B-4. Uttaranchal. Infrastructure 1.UddamSing Nagar. A Six Sigma systematic quality program provides businesses with the tools to improvethe capability of the business processes. or put another way. Plants Location of Plant 1 Address Adavinekkalam.

We are proud to say now “TIGER POWER” – TOUGH PARTS is complete Global.India Cylinder Liners 7. COMPANY Ashok Leyland Ltd TELCO Eicher Motors Bajaj Tempo Ltd Swaraj Mazda COLLABIRATION Hino-Japan & British Leyland Mercedes Benz Mitsubishi Daimler Benz Mazda TP SHARE 100. Tillers Tractors Ltd Mitsubishi And for the international Market. Duvvada.16 acres Machining. Interestingly.Visakhapatnam -530046.T. Most of the vehicle manufacture in the Indian domestic market has a tie-up with international manufactures like Mazda.00% 100. Mercedes Benz. “TIGER POWER” – The Tough Parts “TIGER POWER” – TOUGH PARTS has dovetailed their process to give peak performance with best quality at affordable price – a tangible result. The above OEM’s contribute 30% of Kusalava International Limited turnover.S. Visakhapatnam. Hino.00% 100.M..00% 100.E. Kusalava International Limited supplies their product to the bellow OEM’s in India who has international collaboration.00% V. Kusalava international Limited had a start 5 years back and supplying the products after quality validation for the below customers. Technical officers from Kusalava have played a vital role in establishing and 48 ..Location of Plant 4 Address Products Area Operations Special Economic Zone. VSEZ.00% 100. LIST OF DOMESTIC O.. S.00% 70. Mitsubishi etc.No. Kusalava International Ltd. Kusalava has worked in tandem with the above international collaborated Indian OEM’s to achieve their stringent quality requirement both in Foundry and Machining. CLIENT: Product wise market share comparison with competitor.

Alfin Nickel Inserts. sugar crushers’ material. Italy. pipes for ash disposal for the thermal power plants. Mauritius and the Middle East. Piston Pins. France. Centric cast valve seat insert and Alfin Piston inserts. Tappets.G.. USA. It had wide-spread. Australia. It has a dominating presence in the after market and enjoys the confidence of major engine rebuilders/reborers. Canada and Europe to serve its clients on 24x7 bases.. Aeronautical and Truck Business.K. Malaysia. New Zealand. U. It also caters to the after market requirements by indirectly supplying the liners in Bulk to Liner manufacturers. Company Product: Kusalava manufacturers Liners/Sleeves in both cast iron and S. cast sleeves for aluminum blocks. Inertia Rings. refrigeration. Valve Seat Inserts. Thailand. Currently it possesses a market share of 35% in India and 30% in USA. Tractor. And for the International Market Kusalava International Limited is supplying the products after quality validation for the below customers. and motor frames for the heavy electrical motors. Automotive. As a new development Kusalava has started manufacturing the engineering items out of its own technology like 3 mts. Industrial. Gaskets. Valve Guides. cast iron/Ductile Iron Pipes. Pistons. Even Exports a major share of its production to various countries across the globe viz. Iron. Tiger Power offers a wide range of ‘The Tough Parts' like Cylinder Liners/Sleeves. OEMs and mechanics. Bangladesh.understanding the International specification for the domestic OEM’s and had good report for working hand in hand to meet the drawing print specifications. and compressors. STRENGTHS: • Equipped with the latest technology (in houses) in the industry to manufactur any variety of Cylinder Liners as per Customer Having a Track record of 45 years • requirements meeting international standards 49 . DOMESTIC AFTER MARKET: KUSALAVA had started supplying its products to the after market under the brand name “TIGER POWER” since 1982. It caters to Marine.. well established networks in India.

Manufacturing. ERP Software: Kusalava has in house software development Center. 50 . Till Kusalava has taken 3 rounds of experts views to validate their process and to fine tune their existing process for better productivity. Swaraj Mazda Ltd. Prasad R. Most significantly. Kusalava deputes their technical managerial personal for the training in different institutes for betterment of their knowledge and practices. Ashok Leyland Ltd.K Chukkapalli. Managing Director of the company has visited Japan under AOTS programmed for 15days technical training in Quality Systems during the first week of October ‘02. and in line to develop the technical strength hires experts from Germany for upgrading the foundry technology in line to the International practices. and presently implementing self developed ERP System of ‘K Online’ integrating Finance. VST Tiller Ltd and International OEM’s as Tier 2 • Good Distribution Network all over India in the aftermarket and USA • Wide spread Customer segmentation • Implementation of Lean Manufacturing • Dedicated Manpower • Professional approach to the market Multi-location facilities. Eicher Motors Ltd. Bajaj Tempo Ltd.• Highly automated with state of the art technology having the complete manufacturing facilities in house • Continuous R&D in house to have an edge over the competition • TS 16949 Certified Company • Good brand image • Major supplier to domestic OEM’s like Tata Motors limited. Technology Up gradation: Kusalava has developed the basic technical requirement for the manufacturing of their products. Mr.

we understand the strategic role supply management must play in a corporation today and the significant impact a supply chain management strategy can have on earnings. technology and information to help you bring immediate value and profit your company’s bottom line. A SIMPLE EXAMPLE OF THE SUPPLY CHAIN LOOP SALES NET WORK-USA 51 . Supply chain management solutions help companies transform supply strategy into a competitive advantage. At KOnline. We combine expertise.Distribution and HR Activities across INDIA and USA offices. It was used by the firm in the past SAP SOFTWARE: Recently SAP SOFTWARE was introduced in KUSALAVA INTERNATIONAL LIMITED.

SALES NETWORK .INDIA VISION:  “To produce Quality auto component products the matching best available in the world in terms of innovative design features and endues at competitive cost deliverable in time and maximize customer satisfaction to ensure constant increase in market share and global presence for the company.” 52 .

It takes 8 – 10 operations.MISION:  To constantly strive for automation and technology up gradation of company’s plant process and product to maximize customer satisfaction and efficient use of resources at company’s disposal to optimize production and minimize cost.  To trigger higher demand for company’s products both Domestic and International Market and there by improve market share. Materials: Material department purchases the raw material on the parameters like good quality in time delivery. This department sends the senior engineers to check complaints of the customers. sales officers and distributors. This department provides incentives to sell the product in the market. corporate governance initiatives and compliances. This department gets the orders from the customers through the representatives.  To improve both top line and Bottom Line of the company to ensure optimureturns for all stake-holders of the company. Finance: 53 . After completion of these operations finished liners will be sent to quality control department to check the quality of the liner manufactured. In production department production engineer does operations according to all the liners drawings. FUNCTIONS OF DIFFERENT DEPARTMENTS: Production: Production department takes the raw materials and melts it down in the electrical induction furnace. These operations will be finished on different machines. It makes rough casting through centrifugal dice. credit facility and on the right time acquiring the raw materials cost variability. sales offices and distributors. Marketing: Marketing departments sells the products through marketing representatives.  To make Kusalava a true global conglomerate through professional strict adherence to regulatory management.

change in got policies and sales. 54 . market conditions and orders being placed. It took into the matters like fluctuations of profits. It also prepares and sends yearly expenditure and net profits to the management.This department makes economic plans and helps in decision making through MIS which are needed in survival and profitability of the organization. This departments work to the requirements of loans and take necessary steps to acquire them from banks and other financial institutions.

This quantity is fixed in such a manner as to minimize the cost of ordering and carrying costs. It is one of the oldest classical production scheduling 55 . Economic order quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs.CHAPTER IV DATA ANALYSIS AND INTERPRETATION EOQ: The quantity of material to be ordered at one time knows an economic ordering quantity.

It is primarily made up of the costs associated with the inventory investment and storage cost. the cost to process the receipt. Wilson. Purchasing larger quantities may decrease the unit cost of acquisition. In other words. The model was developed by F. Carrying cost: It is the cost of holding the materials in the store. the economic order quantity (EOQ) is the amount of inventory to be ordered at one time for purposes of minimizing annual inventory cost. any approval steps. Ordering cost: It is the cost of placing order for the purchase of materials. W. but this saving may not be more than offset by the cost of carrying materials in stock for a longer period of time.models. H. if the cost does not change based upon the quantity of inventory on hand it should not be included in carrying cost. carrying cost is represented as the annual cost per average on hand inventory unit. These costs are not associated with the quantity ordered but primarily with physical activities required to process the order. Economic order quantity (EOQ) is that size of the order which gives maximum economy in purchasing any material and ultimately contributes towards maintaining the materials at the optimum level and at the minimum cost. carrying cost is the cost associated with having inventory on hand. The framework used to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula. Harris in 1913. these would include the cost to enter the purchase order and/or requisition. Total cost of material = Acquisition cost + carrying costs + ordering cost.Also called Holding cost. 56 . The quantity to order at a given time must be determined by balancing two factors: (1) the cost of possessing or carrying materials and (2) the cost of acquiring or ordering materials. For the purpose of the EOQ calculation. but R. In the EOQ formula. For purchased items.EOQ can be calculated with the help of the following formula Also known as purchase cost or set up cost. this is the sum of the fixed costs that are incurred each time an item is ordered.

 The rate of demand is constant  The lead time is fixed  The purchase price of the item is constant i. In addition. the whole batch is delivered at once. The inventory turnover ratio also knows as stock velocity is normally calculated as sales/ average inventory of cost of goods sold/average inventory.incoming inspection. it automatically computes the reorder point (= the amount of inventory at which new orders must be placed) and order cycle time in days.e. no discount is available  The replenishment is made instantaneously. Inventory conversion period may also be calculated to find the average time taken for clearing the 57 . purchasing and inventory managers. Benefits:  EOQ calculations are frequently used in business. both if there is a lead time (= period between the placement of an order and its receipt in inventory) or none. invoice processing and vendor payment. An automatically generated chart based on input data can be directly exported to any presentation. This tool provides everything it takes to make reliable calculations. both by production. and in some cases a portion of the inbound freight may also be included in order cost Underlying Assumptions of Economic Order Quantity:  The ordering cost is constant. EOQ=√2RCO/CH INVENTORY TURNOVER RATIO: Inventory turnover ratios is calculated to indicate whether inventories have been used efficiently or not.

58 . Re – ordering level is fixed between minimum level and maximum level. The order is sent before the materials reach minimum stock level. Re-ordering level = Maximum consumption x Maximum Re-order period.stocks. Symbolically Cost of goods sold Inventory Turnover Ratio = -------------------------------Average inventory at cost (Or) Net Sales = ---------------------------Inventory (Average) INVENTORY CONVERSION PERIOD: Days in a year Inventory conversion period = -------------------------------Inventory Turnover Ratio THE PERCENTAGE OF INVENTORY IN CURRENT ASSETS: Inventory The percentage of inventory in Current Assets = --------------------Current Assets RE – ORDER LEVEL: LEVEL: When the quantity of materials reaches at a certain figures then fresh order is sent to get material again.

more space for storing the materials. Overstocking will mean blocking of more working capital. If a material is required for such material. Minimum stock level can be calculated with the help of following formula. Lead-time: A purchase firm requires some time to process the order time is also required by the supplying firm to execute the order. Normal Usage: 7 weeks. 59 . Re-Order Level=Maximum Usage x Maximum Delivery Time MINIMUM LEVEL: Minimum stock level: It represents the quantity below its stock of item should not be allowed to fall. The rate of consumption will be decided on the basis of past experience and production plans.(Normal consumption x normal re order period MAXIMUM LEVEL: It is the quantity of materials beyond which a firm should not exceed its stocks. The time taken in processing the order and then executing it is known as lead time. If the quantity exceeds minimum level limit then it will be overstocking. Rate of consumption: It is the average consumption of materials in the factory. more wastage of materials and more chances of losses from obsolescence. Minimum stock level = Re ordering level . Nature of material: The nature of material also affects the minimum level.Delivery time: 4-6 weeks.

Average stock level = Minimum stock level + ½ x Re-order quantity TABLE:1 RAW MATERIAL: ANNUAL CONSUMPTION YEAR IN M/T (R) ORDERING COST IN RS. (CH) EOQ IN M/T 60 .Maximum Stock Level = Re-ordering Level + Re-order Quantity – (Minimum consumption x Minimum Re-order period) AVERAGE LEVEL: This stock level indicates the average stock held by the concern. (CO) CARRYING COST IN RS.

00 16.48 14. the annual demand is higher than the rest years.2006 2007 2008 2009 2010 CHART:-1 5446 6108 6905 5168 7772 10 10 10 10 10 216 407 250 555 495 22.00 INTERPRETATION: When compared to all the years.30 23. TABLE:2 CYLINDER LINERS: ANNUAL YEAR 2006 CONSUMPTION R 11785983 ORDERING COST CO 10 CARRYING COST CH 4.44 17. Due to highly ordering of Raw material. Because in this year. the carrying cost will be less.1 EOQ IN NOS 3559 61 . the EOQ is high in the year 2007.

TABLE:3 INVENTORY TURNOVER RATIO 62 .67 7 7.2007 2008 2009 2010 CHART:2 24859847 17293582 10203 189581 10 10 10 10 7. In this year carrying cost also low. This was due to the increased demand in the market for the same period.3 2984 4808 3255 3311 INTERPRETATION: EOQ for cylinder liner was comparatively high in the year 2008.09 3. it was 4808 nos.

rental of space.97 3. Excessive inventory due to funds locked up. It implies good inventory management. the Inventory Turnover Ratio was very high than the rest of the years.77 2006 2007 2008 2009 2010 CHART:3 INTERPRETATION: In the year 2008.09 7.44 4. it was 4.81 it was very lower than the other years. It means excessive inventory or it may be overinvestment in inventory.INVENTORY YEAR SALES INVENTORY TURNOVER RATIO 370959201 484833736 500922885 670730918 805074792 56925237 68352276 67352546 134707864 213142088 6. TABLE:4 INVENTORY CONVERSION PERIOD IN DAYS 63 .52 7. In the year 2010.

It may be due to the inflation. But it should be decreased. 64 .44 4.YEAR INVENTORY TURN OVER RATIO 6. It was very good to the firm.77 INVENTORY CONVERSION PERIOD IN DAYS 56 51 49 74 97 2006 2007 2008 2009 2010 CHART:4 INTERPRETATION: Inventory conversion period was decreasing from 2006-2008. it was increased.97 3. Being the price of the product was increasing and the sales were decreased.52 7. But in the years 2009 and 2010.09 7. So the inventory conversion period increased.

This will show the percentage of inventory in totals Current Assets.99 INTERPRETATION: The Kusalava International Limited was giving more importance to inventory in Current Assets.1 24.04 29. In the earlier year they gave more preference to inventory.82 46. 65 . Inventory plays a vital role in the total Current Assets. More attention has to be played by the management towards Inventory as it consists 35% of Current Assets.46 35.TABLE:5 PERCENTAGE OF INVENTORY IN CURRENT ASSETS YEAR 2006 2007 2008 2009 2010 CHART:5 INVENTORY 56925237 68352276 67352546 134707864 213142088 CURRENT ASSETS 157939330 234814785 275344324 376047336 453569567 PERCENTAGE 36.

Because the annual demand is high but the Re-order level was decreased. the order should be placed. at 6384 M/T of Raw material. It may be happened due to decrease in the demand of final product TABLE:7 CYLINDER LINERS: 66 .TABLE:6 RAW MATEIAL: YEAR RE-ORDER LEVEL IN M/T 5040 5664 6384 4848 6048 2006 2007 2008 2009 2010 CHART:6 INTERPRETATION: In the year 2008.

TABLE:8 RAW MATERIAL: 67 . it was 3915264 nos in the 2008. At the level of 3915264 nos the order was placed.YEAR 2006 2007 2008 2009 2010 RE-ORDER LEVEL IN NOS 2397312 2913744 3915246 3429840 3693120 CHART:7 INTERPRETATION: By comparing the Re-order levels in all the years. So definitely there should be high annual demand for the finished product where as in the year 2006 the reorder level was 2397312 nos but it was gradually increased that means annual demand was increasing.

YEAR 2006 2007 2008 2009 2010 MINIMUM LEVEL IN M/T 4515 5074 1729 1313 1638 CHART:8 INTERPRETATION: Minimum level was reduced. TABLE:9 CYLINDER LINERS: 68 . Because by reducing the storage cost and to avoid the obsolete goods.

TABLE:10 RAW MATERIAL: 69 . But in 2008.YEAR MINIMUM LEVEL IN NOS 2006 2007 2008 2009 2010 649272 789139 1060384 927290 1000220 CHART:9 INTERPRETATION: In the year 2006. they maintained only 649272 nos as Minimum level. That means the production was increasing. But it was gradually increasing. the production is high so they maintained 1060384 nos as minimum level but in 2009 it slightly decreased because annual demand decreased.

YEAR MAXIMUM LEVEL IN M/T 2006 2007 2008 2009 2010 2974 3341 3767 2863 3571 CHART:10 INTERPRETATION: The maximum levels were increased because the sales were increased. TABLE:11 CYLINDER LINERS: 70 .

YEAR 2006 2007 2008 2009 2010 MAXIMUM LEVEL 1415082 1719921 2311096 2021018 279968 CHART:11 INTERPRETATION: Due to increasing of annual demand the maximum level varied. the maximum level decreases because the production was decreased due to low sales. In the year 2009. TABLE:12 RAW MATERIAL: 71 .

YEAR 2006 2007 2008 2009 2010 AVERAGE LEVEL IN M/T 4742 5328.5 2016.5 1532. TABLE:13 CYLINDER LINERS: 72 .5 CHART:12 INTERPRETATION: Average level for the Raw material was calculated by maximum and minimum levels were taking into account.5 1911.

Stock was necessary to run the production. It was gradually decreasing 73 .YEAR 2006 2007 2008 2009 2010 AVERAGE LEVEL 757485 920663 1237116 1081839 1166924 CHART:13 INTERPRETATION: NTERPRETATION: Generally Kusalava International Limited was maintaining these stock levels per annum.

CHAPTER-V FINDINGS & SUGGESTIONS FINDINGS: FINDINGS:  The Economic Order Quantity of Raw material in Metric Tones is high in the year 2008 it was 23. The total cost was low in 74 . And it was low in the year 2009 it was 14.48.

Minimum level was decreasing because the sales were increasing. It was gradually decreasing. That means sales were decreasing. in minimum level in the year 2006 it was 649272 numbers. it was 2974 M/T. The more importance was given to inventory in the current assets.  For Cylinder liners.  Economic order quantity for cylinder liners in nos is high in the year 2008 it was 4808 and low in the year 2007 it was 2984  Inventory Turnover Ratio was very high in the year 2008. It was decreasing because the orders may be decreased.  The percentage of inventory over current assets increased from 25 in the year 2008 to 35 in the year 2010. That is gradually increasing. So that the sales were increased and consumption was increased. The demand was increasing to the raw material. And it was 6384 in the year 2008. Gradually the level was increased up to 2008.the year 2006 and it was very high in the year 2009.  Maximum level of Raw material in the year 2006. For cylinder liners to maximum level in the year 2006 it was 1415082 numbers. In the year 2010 it was 1638. Because of increase in the average stock maintained in the company. EOQ was better in the year 2006.81.  For Cylinder liners to reorder level in the year 2006 it was 239712 numbers. In the year 2010 it was 4. It was gradually increasing from 649272 to 1000220 numbers. It was gradually decreasing.  Minimum level of Raw material in the year 2006 it was 4515 Metric Tones. It was increased to 3571 M/T in the year 2010 because of the sales was increasing. Because of average stock maintained in the company. 75 .44. And also it was decreasing from 2008 to 2010. It increased from 237312 to 3693120 numbers due to high rate of stock level should be carried out.  Reorder level of Raw material was in the year 2006 it was 5040 Metric Tones. It was 7. It was not good practice.  11.  Inventory Conversion Period increases from 2008 to 2010 that was 49 to 76 days. it was gradually increasing. But in 2009 it slightly reduced.

there is a chance to improve this period by bringing down approximately to 65 to 70 in the current financial various items under ABC system. Reorder level was 6048 M/T. SUGESTIONS:  The Economic Order Quantity can be further increased by another 10% by reducing the carrying cost. this can be increased seeing the more demand for the final product.  As a demand for Cylinder liners in other countries are also increasing.  13 Average level for cylinder liners from 2006 to 2008. But in the year 2010. Where as in the year 2009 it reduced 1081839.  The component of inventory in the Current Assets has been increasing every year approximately 40% on the same line for the next year the share of inventory further increased by 50%.  12.5 M/T due to increasing of sales. 76 .Average level of raw material in the year 4742 M/T. it increased to 1166924 numbers due to the high need of cylinder liners. Similarly for Cylinder liners also increased by 60%. For Raw material it can be increased by 50%.  More sophisticated techniques can be used in order too has more control over Inventory Conversion Period has increased from 70 to 76. It was increased to 5328 M/T in the year 2007.  As the demand increasing for cylinder liners the Raw material Turn over Ratio can further increased. It was gradually decreased from 2007 to 2009. In the year 2010 it was 1911. the two levels of inventories that are minimum and maximum have to be increased.Even in 2010 it was increased due to the high requisition for the product.  In the year 2010.  year. it was gradually increased that is from 757485 to 1237116 numbers.

PANDY Financial Management: R.K.com www.M.Sharma & K.acma.Gupta Journals: Annual Audit Reports of Kusalava International Limited. Web Sites: www.com 77 .kusalava.BIBLOGRAPHY Financial management: Khan & Jain Financial Management: Prasanna Chandra Financial Management: I.

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