LIBA EPGM 2022-24

Logistics and Supply Chain Management

A. Kamaraj (EPGM2215)

S. Muthukumar (EPGM2211)

Deepak kumar Dangua (EPGM2205)

P. Kandavel (EPGM2208)

M. Silambuchelvan (EPGM2213)

S. Sudhakar (EPGM2217)

Case Analysis on Inventory Management

POS DRIVE is a division of SURE DRIVE group, an automotive components company with a sales turn over of
$ 131 million and 1800 employees. The group is dealing with a number of auto components that go as Original
Equipment (OE) to major automobile manufacturers in India and abroad. For marketing & attracting orders
from Overseas auto makers, the company has representatives in different countries.
POS DRIVE started the manufacturing plant in Chennai – TAMIL NADU in1967, expanded the facilities at two
adjoining states also. Three plants make their purchasing from their supplier base. All the plants get their
monthly production schedules from the Corporate Marketing division – Chennai.
Most of the customers in domestic as well as overseas are long timers and their orders placing pattern is fairly
steady. Most of the suppliers have long term association with the company.
For schedule based corporate customers, 6 days of finished goods inventory is maintained.

A significant issue at POS DRIVE is that raw material (RM) contributes to 39% of total product cost. POS DRIVE
defined a material Price Index - MPI to measure the variance in the prices of key Raw materials with reference
to the base Year 2000 – 2001. Of the Raw materials (RM) consumed, fiber constituted 60% of total RM cost

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and is being imported from Canada, China, Korea, Russia, Europe and Japan. POS DRIVE moved to a
systematic mode of operation to improve the efficiency of material management division and following are
the observations. The current stock value at stores in Indian Rupees for different categories are: *
IMP means Imported
IMP RM - 269.37 lakhs
IMP BP - 5.16 lakhs (BP means Brake Parts)
Domestic RM – 40.46 lakhs
Domestic BP – 271.68 lakhs
At present, for all imports, 90days stock is maintained at stores inside the factory, for domestics 30 days stock
is maintained. The import suppliers are 32 and domestic suppliers are 120 in numbers. Basic data analysis
based on past four months consumption reveals that 6.5 % of items are contributing to 81% of monthly
consumption value, 5% of items are contributing to 10% of monthly consumption value. POS DRIVES finished
goods involve 32 different part numbers being supplied to OEMs and 210 part numbers cater the spare part
markets. The stores has the bin stock for 506 part numbers.
All the products that are bought out – raw material or brake parts are inspected before in warded in to stock.
Two thirds of the products are inspected by random sampling others are fully inspected.
A year back the company’s two successive export orders experienced heavy failures due to quality
problems, which broke the business deal with that foreign company. That company cancelled their orders.
This has pushed the related Raw material and BP unusable. Out of the 506 part numbers of items having bin
stock, based on current inventory stock values, 45.60 % of them are on regular issues, 3.40 % are less frequently
used, remaining not being used or issued for more than past 90 days. Of these items not used in the past
ninety days, contributions of categories are as following- Imported RM - 11.4 %, Imported BP - 1.7%, Domestic
RM -3.7% and domestic BP- 82.9%.
The above mentioned stocks are stored in two rented stores each measuring 30000 sq. ft., which are full now.
Transit / Sailing time From Origin to POS DRIVE are :
Canada -- 32 days
China -- 20 days
Korea -- 21 days
Russia -- 32 days
Europe , Japan --- 28 days
Chennai --- 3 hours
Within state ---- 1 day
Up country (domestic) --- 6 days maximum.
Problems currently faced are:
1. The store is full and overflowing. There is no space for keeping incoming fresh materials
2. Traceability and accountability is lost. Because of this, there is a delay in picking the right part number
and supplying to Assembly. This delay causes production loss.
3. When Stores Manager was questioned for the delay, he is demanding extra area for stores. He is
claiming, this stores area was sufficient to cater to the needs half of the current production volume.
4. Management has to take a decision on allotting more space to Stores. Before that they want to assess
the current practices and policies.
What are your suggestions to Materials Management team to improve the situation? Verify their practices
are right or needs improvement.

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Case study Overview & Summary

POS Drive has 3 Units for their business and works according to production schedule as per Corporate Office. For
scheduled corporate Customers - 6 days of Inventory is available
Raw material holding constitutes 39% of the Total Product Cost, which is a critical issue. Material Price Index was
derived based on the year 2000-2001
Raw Material Consumption mostly is fiber, which is 60% Total Raw material Cost. Fibers are Imported from
different countries and has respective Transit times
POS moved to systematic way of working, which revealed that Imported Raw Material and Imported Brake Parts
were 269.17 Lakhs and 5.16 Lakhs.
Similarly Domestic RM and Domestic BP contributed 40.46 Lakhs and 271.68 Lakhs respectively. 90 days stock is
maintained for Imported Parts and 30 days for Domestic
No of suppliers for Import is 32, where as domestic 120 in numbers. Data Study shows that 6.5% of Items
contribute to 81% Monthly consumption, 5% items contribute to 10% consumption value – Alarming

Part Numbers are Significant – Finished Goods :32 Numbers, Spare Part -210 Numbers – Bin Part Number – 506.
Inhouse random Inspection done for In warded Stocks.
Two Successive Export Order Failed , Business Deal broken with the foreign company. Bin stocks out of 506 Part
number, only 45.6% is regular, 3.4% are less frequent, remaining not used for > 90 days. Domestic BP – 82.9%
,Domestic RM -3.7%,Imported BP-1.7%, Imported RM-11.4% are unused for 90 days.
The Store is Full and No Place for Incoming stocks. Traceability and Accountability is a Problem. Delay in giving
parts to production team and schedules are not met against the demand. Stores team wanted additional space to
sort out the issues.
.

Case study root cause analysis

 POS team has worked in piling up the inventories without any systematic method of tracking the
incoming and supply of the raw material goods to the production team.
 This has led to chaos in the system causing production delays. The Inhouse method of part
checking of the incoming raw material is random and gives an indication that there is no
segregation between good and bad materials after random sampling inspection.
 This may have led to the business loss of two successive part orders and separation with the
foreign company. It is also noticed that the Domestic Brake Parts are the ones which is not used
for the last 90 days and they contribute to 80% of the Junk in the stores.
 The Layout of the stores looks to be improper considering the scattering of the materials and
the Bin part numbers are excessively protected against the consumption.
 The Ordering of material w.r.t the production demand from the corporate office and the
availability in stores is not in sync with the transit time of the Import and Domestic Supplies. Lot
of cost is frozen in the form of Inventory, unused and moves to a wastage or loss.
 Despite having two rented stores with larger sq. ft area, the stores is totally full and the system
requires complete revamp.

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Possible Causes:
1. Lack of Skilled Manpower managing the Department
2. Failure of Management to act as per latest Material Price Index
3. Absence of Plant Layout and effective utilization of larger space available.
4. Absence of System recording the movement of materials within stores and out of stores
5. Absence of Stock Verification Periodically
6. Lack of clarity in communication from corporate office for the demand and supply requirements
7. Ineffective understanding and utilization of transit times for taking import or domestic orders
8. Absence of Lean Management Principles
9. Lack in segregation of Part Numbers in Bin based on faster rate of consumption.- Very High Part
Numbering
10. Lack of facility or process in disposal of the unused materials or defective materials
11. Absence of modern facilities like fork lift trucks, weighing machines within the stores for ease of
movement of materials.

Action plan
1. Have a Skilled Manager
2. Deploy Inventory Management Software To track complete movement
3. Implement 5S Management
4. Segregate Unused Material Disposal
5. Order in Storing of Materials
6. Ease of Operation in Stores to take materials
7. Strategize material pricing periodically
8. Channelize Communication clearly to RM procuring team
9. Minimize Order Quantity(Transit time is given)
10. Stock Movement Display
11. Only do damage check of Incoming Parts. Use Inspection Report. RM supplier is responsible.
12. Bifurcate Incoming and Outgoing lines
13. Part Numbering Control (Use Ordering Methods)
14. Periodic Review on Cost from Management

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Evaluation

 Skilled Manager Deployment helps in total control of the Inventory Management of a stores.
The utilization of software in this service helps in recording the incoming raw material, quantity.
Also, one can record the incoming inspection based on the report submitted by the supplier.

 The report shall contain critical parameters which influence the function, quality and production
requirements of the part.

 The Incoming inspection team within the stores can now check for damages in transit and allow
quick entry into the stores.

 This procedure helps the inspection team to avoid misinterpreting RM standards on their own
and helps in minimizing bad RM to go into production schedule.

 The usage of software can also help to trace the part where it is kept based on the numbering
done in the bins and the layout path where it is stored.

 Application of Lean Management like 5S principles further helps the stores to completely
revamp and maintain the materials in order.

 This solves the scattering of material as per the will and helps to effectively utilize the available
space very efficiently.

 Deployment of multiple storage bins stacked over one and another with the aid of fork lift trucks
could help the movement easily.

 Defining Separate In and Out movements of the stores helps in avoiding mixing up or taking
stocks which are not entered in the system. Segregating Parts (Fast and Unused) reduces cycle
time to give it to Production. Periodic Review helps to reduce Inventory Holding.

 The strategizing of material pricing revision periodically and channelization of communication

from Demand team to Procurement team will help to totally abridge the gap in the way
materials are procured without efficiently exploiting the transit period that is available to the
company.

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Conclusion
 Given the Nature of working in Procuring, communicating within departments,

 It is imperative that the current two stores of 30,000 sq. ft be first done spring cleaning to take
stock of situation.

 With the Advent of skilled managers, software and Integration, the given space can be
effectively utilized considering the current usage of raw materials.

 Inventory cost holding can be bought down in a larger way by reducing wastage or avoiding not
utilization for a longer period of time.

 Material Price Index to be monitored periodically and the strategy to be planned and
communicated to purchasing time avoiding information blocks.

 This alone will help to avoid unnecessary procurement of materials without even understanding
what is going on.

 The additional Investment for Extending the Stores at this juncture may not be right choice
because of the current methods of working.

 “Clean the Home” first before doing anything is the feasible solution.

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