A Project Report

A PROJECT REPORT

ON

INVENTORY MANAGEMENT

ACROSS THE SUPPLY CHAIN

THROUGH KANBAN SYSTEM

BY

DHAVAL A. MUNDADA

REG. NO. 200722210

SYMBIOSIS CENTRE FOR DISTANCE LEARNING

BATCH 2007-08

TO WHOMSOEVER IT MAY CONCERN

This is to certify that Mr. Dhaval Anand Mundada was an employee of PMP Components

Pvt Ltd during the period of May’2003 – May’2005. He was the core team member of

implementation of KANBAN system carried out in PMP.

We have no objection for him to carry out this implementation as a project work titled

“Inventory Management across the Supply Chain through KANBAN System” in our

organization & for submitting the same to the Director, SCDL as a part of fulfillment of the

PGDSCM Program.

We wish him all the success.

Seal of the company For PMP Components Pvt. Ltd.,

Mr. Jayen Nair

GM-Works (Satara)

Place: Satara

Date: 25/03/2009

DECLARATION BY LEARNER

This is to declare that I have carried out this project work myself in part fulfillment of the

PGDSCM Program of SCDL.

The work is original, has not been copied from anywhere else and has not been submitted to

any other University/Institute for an award of any degree/diploma.

Date: Signature:

Place: Name: Dhaval Anand Mundada

CERTIFICATE OF SUPERVISOR

Certified that the work incorporated in this Project Report “Inventory Management across the

Supply Chain through KANBAN System” submitted by Mr. Dhaval Anand Mundada is his

original work and completed under my supervision. Material obtained from other sources has

been duly acknowledged in the project report.

Date: Signature of Guide

Place:

TABLE OF CONTENTS

Chapters Page No.

Acknowledgement

1. Introduction----------------------------------------------- 01

2. Objective & Scope--------------------------------------- 04

3. Limitations------------------------------------------------ 05

4. Theoretical Perspective---------------------------------- 07

5. Methodology & Procedure of Work--------------------09

6. Analysis of Data------------------------------------------ 17

7. Findings, Inferences & Recommendations------------ 21

8. Conclusion------------------------------------------------- 28

9. Summary of the Project---------------------------------- 29

Annexures ----------------------------------------------------- 30

ACKNOWLEDGEMENT

I find myself fully engulfed with immense pleasure in expressing my sincere and profound

gratitude to ‘PMP Components Pvt Ltd.’ for giving me an opportunity to carry out this project.

I am very grateful to Mr. Jayen Nayar – GM (Works) for having shown confidence in us to

assign this project.

I express my sincere thanks to Mr. P. M. Dhole – Asst. GM, Supply chain for being helpful

and co-operative throughout the project.

I am also thankful to all staff members for their kind co-operation.

I take this opportunity to express my deep sense of gratitude & respect to my guide Mr.

Prashant Chandak without whose constant encouragement, it would not have been possible to

complete this work. I am also thankful to him for being highly co-operative & approachable.

Mr. Dhaval Mundada

Course:-PGDSCM

Reg. No.: 200722210

CHAPTER-1

INTRODUCTION

“The need for quality supply chain management where every action in the customer delivery

process adds customer value & where quality that forever improves, must be matched by value

for money solutions.”

It is this understanding that has driven the PMP group; to forever emerge as a customer value

provider in the business of quality Alternators. Highest importance is given to the customer

relationship and service. PMP tries to understand its customers and delivers a product exactly

as per customer’s needs.

PMP is part of US $ 400 million Piramal group headquartered at Mumbai. This is one of the

most progressive and reputed business houses in India. The highest corporate governance

standards are followed in conducting day-to-day business.

PMP has been in the business of auto-electrical components since 1962. There are two

manufacturing plants located at Mumbai and Satara. Both the plants have ISO 9001

accreditation.

PMP Components Pvt. Ltd., based in Satara, spread over 45000 sq. ft. of built up area and has

been in production since 1984.

PMP is manufacturing and marketing Alternators, Starter Motors, and D.C. motors, Horns,

Switches, Relays and Voltage Regulators for Vehicles manufactured in India and various

countries abroad. The company’s major business comes from reputed OEM customers in

India. Company also had a significant presence in the After Market in Europe, and USA.

Almost 150 professionals including designers, engineer technicians, skilled & semiskilled

workers perform in unison at PMP under the stewardship of its engineer founder CEO Mr.

S.N.Somani, to ensure that quality & commitment have become part of the fabric, which

drapes every aspect of PMP’s working.

OEM Customers

Segment Customers

Cars

Maruti Udyog Ltd.

TATA Motors - Indica

Hindustan Motors Ltd.

General Motors

FORD

Light

Commercial

Vehicles

TATA Motors

Bajaj Tempo Ltd.

Mahindra & Mahindra Ltd.

Heavy

Commercial

Vehicles

TATA Motors

Ashok Leyland Ltd.

Tractors

Mahindra & Mahindra Ltd

Eicher (good earth) Tractors Ltd.

L & T (John Deere) Tractors Ltd.

Gujarat Mahindra Tractor Ltd.

SAME DEUTZ

HMT Ltd.

New Holland

3 Wheelers

Bajaj Auto Ltd.

Bajaj Temp Ltd.

M&M Champion

Engine

Greaves Ltd.

Kirloskar Oil Engines Ltd.

Mahindra & Mahindra

Eicher Ltd.

PMP is exporting products to following countries:

USA, Canada, Australia, UK, Germany, France, Italy, Spain, Denmark, Finland,

Singapore, Belgium, Holland, Dubai, Sri Lanka & Taiwan.

CHAPTER-2

OBJECTIVE & SCOPE

To achieve a highly efficient & effective inventory system, which developed into an optimum

inventory environment leading to global competitiveness.

Following are the objectives while implementing KANBAN system:-

To minimize the inventory holding stock

To remove mismatch of quantities required to produce alternators.

To prevent stock out of items.

JIT Purchasing( eliminating waste in the purchase process, at the supplier’s end & in

the purchased inventory)

Quality at source

To keep pace with changing market conditions.

Continuous improvement.

The project was carried out to remove excessive inventory & streamline & increase the

production to fulfill the market demand in JIT.

This project aims at the benefits of KANBAN system while reducing the inventory &

increasing production, improving quality in radical manner. This helped company to change

its strategy & policies so that it can improve its services & the satisfaction level of customers.

This will enhance its brand loyalty which further helps to retain its customer base as well as

increase its market share.

CHAPTER-3

LIMITATIONS

PMP is one of the major vendors of Mahindra & Mahindra, Kandivali. The major order of

alternators comes from M&M. (around 40-45%). Also PMP is the single source for alternators

for their tractor division & light commercial vehicle division. An err in supply of alternators

leads to stoppage of Mahindra’s line & will be placed PMP in black listed vendor list.

To achieve a highly efficient & effective production system through customer delivery with

quality parts, PMP made a lot of investment in inventory to ensure timely dispatch of

alternators at customer’s end. Due to the changing scenario in market demand, PMP’s

inventory piled up leads to increased inventory holding costs.

Also due to mismatch in stock figures for some items, inventory held up by the company was

in terms of rupees of average of 45 days sales, which could not converted a single alternator &

which eventually leads to loss of sales. Over buying results due to errors in the estimation of

the quantity & also non realization of anticipated sales. Also the supplier’s minimum quantity

condition was yet another cause of overbuying.

All these factors lead to production losses due to stoppage of proper material & therefore

failure to match the delivery schedule. And to make up these losses PMP ran 3rd shift many

times increasing overhead costs.

As alternators are made of stator, rotor, bearings, voltage regulators, brushes, slip rings, heat

sink, fan, end heads ( which are basically made up of steel, copper alloy, aluminum alloy,

silicon diodes comes into A &B class items), they are very costly. Keeping these high valuable

sub parts without converting into alternator leads to huge inventory holding costs. Also

environmental factor comes in the picture for the steel components & sheet metal components.

Therefore the main problem is to reduce the inventory, to prevent loss of sale, implement JIT

purchasing & to remove waste from supply chain management. For sorting out the above

problem we decided to go through KANBAN System.

In this project we are covering solution only for supply chain management. Also JIT &

KANBAN for production cycle is beyond the scope of work of this project.

CHAPTER-4

THEOROTICAL PERSPECTIVE

PMP has a wide range of alternator models which were produced by either batch production or

custom oriented job order production. So we decided to go for a Japanese proven system i.e.

JIT purchasing through KANBAN system which suits to our environment. We also keen to

implement JIT manufacturing simultaneously to meet our monthly target. By eliminating all

waste & seeking continuous improvement, we aim at creating a manufacturing system that is

responsive to market needs.

The characteristics of JIT purchasing are as follows:

Prevalence of a multi-tier structure of dedicated, partially & fully owned ancillary

suppliers.

Extension of KANBAN information system to include the suppliers

Communication of smoothed production plans to the suppliers, to ensure readiness to

deliver as per the production plan.

Development of high quality suppliers, who have eliminated the need for incoming

inspection at the manufacturer’s site.

High degree of cooperation & trust between the suppliers & the manufacturers,

resulting in development of long term relationships

Wide spread use of a single source policy which has eliminated problems of excessive

multi-sourcing.

Innovative part packaging & material handling systems.

PMP rely on 100% on purchased part & therefore want to make effective purchasing to

achieve the following things:-

Controlling the inventory levels

Drastic reduction in buffer inventories

Reduction of storage space

Reduction of material handling

Reduction of wasted/damaged materials.

Criteria for selection of KANBAN system :-

KANBAN system used by Japanese people to meet the precise demands of customers for

different models with minimum delay & had been proven manufacturing philosophy used by

them. It not only achieved a greater quality product but also achieved continuous improvement

in the manufacturing environment.

M&M & other OEMs adapted this system & achieved improved results in reducing inventory

& increasing level of customer service in their organizations. So PMP decided to go for

KANBAN system.

Criteria for Part Selection & alternator models:-

Bill Of Material of an alternator is made of around 80-85 items including “A” & “B” class

items like copper wire, aluminum castings, ball bearings, diode, machined steel component &

electronic regulators & “C” class items like all types of hardware.(washers, nut, bolts, spacer

etc.)

Out of which more or less hardware items are common to different model types of alternators.

Also 7022 model of alternator constitutes of sale of 40% of annual sales of all alternator

models.

Hence we decided to select BOM of 7022 model first for the implementation of KANBAN.

CHAPTER-5

METHODOLOGY & PROCEDURE OF WORK

Methodology:-

What is KANBAN :-

KANBAN (Japanese) : KAN-Card & BAN- Signal i.e. Card signal or visual Record.

In the modern lean terminology, a KANBAN is a visual information system established to

maintain the discipline of a JIT system on the shop floor.

A signal that authorizes production. A signal that to understand everyone i.e. from worker to

officer.

The three main principles of JIT are:-

Takt

Pull

Flow----Information (to material people) ------KANABAN signaling.

All the activity associated with any replenishment system is non value added. The target for

improvement should be to eliminate or stream line each activity associated with the

replenishment system.

A little inventory leads to the issues of overproduction, tying up the resources, deterioration or

damage in storage & handling, wasted space, storage costs, delay & long lead time & hidden

problems like production imbalance, late supplier deliveries, defects, downtime, long setups.

By using KANBAN signaling the response time have been reduced drastically proven by

Japanese people. It is based on pull system i.e. work releases are authorized based upon the

actual customer order status that means the status of downstream operations dictate the

production requirements for upstream operations.

Prerequisites of KANBAN “Pull” system:-

For a pull system to perform effectively, following should be in place:-

Quick changeovers, cellular manufacturing, one piece flow, low variability, reliable process &

stable, flat demand.

If these are not done first, implementing KANBAN pull will force these to take place.

How a KANBAN system does works across supply chain:-

Two bin card system : - This system used when WIP cannot be handed from one process to

the next, thus necessitating an inbound stock point & outbound stock point for processing

stations. This system utilized in the environment of high complexity parts.

In this system 2 bins are kept at production bay, stores & at suppliers end. When one bin is

empty, then it signals to the upstream operations & ultimately to suppliers to fill up that bin

within lead time. Therefore all operations are running smoothly at both end i.e. at

manufacturers & suppliers. There is no delay in the order, no delay in the production.

KANBAN size calculations:-

Establish average monthly consumption of all items (A, B & C class items).

Then establish average daily consumption of all items. Decide the packing size of all items

considering total lead time required to bring those quantities from supplier end.

Establish design control level & no. of KANBAN for ship lot. Also establish total KANBAN

issued across the supply chain & operating control level of each item.

No. of authorized KANBAN cards/containers controls the amount of inventory in the system

at any given time. The no. of cards/containers in the system directly impacts the WIP

inventory & safety stock. Material spends some time in transit, actual processing, waiting in

queue, waiting in storage location. So at any given time in the system, containers carrying

material are in one of the above stages.

The key to determining number of cards/containers is estimating the average lead time needed

to produce a container of parts.

Number of cards = (Avg. demand during lead time + safety stock)/ KANBAN size (size of the

container)

Where Lead time is the function of the processing time per container at the upstream supplier

station & the waiting time at the down stream production process & for material handling.

Procedure of work

Obtaining a clear understanding of KANBAN & what is involved in implementing KANBAN

by attending training programs & visiting implementing companies. Made training schedule

for the employees, workers & suppliers.

Working out an implementation strategy tailored to the needs of the business & with

quantifiable objectives & time scales. (nearly 6 months to 1 year horizon period)

Identification of “C” class items & their suppliers

We calculated average monthly consumption of all items (A, B & C class items) in bill of

materials of 7022 & 7803 first. Then we broke down the quantities into average daily

consumption.

We put present shipping lot against each items of BOM & present replenishment interval also.

From the above we decided new ship lot i.e. KANBAN quantity & calculated new

replenishment interval.

We calculated vendor response time (VRT) i.e. the time required for vendor for supplies to

PMP & transit time(TT) i.e. time required for transporters to pick up & deliver the supplies.

Then total lead time (TLT), the addition of VRT & TT had been calculated. Finally lead time

factor (LTF) had been calculated by adding TLT, internal lead time (ILT) i.e. the time required

for receiving, inspection & issuing on the line & safety stock (SS) level.

Then established no. of KANBANs in the system by dividing design control level to the

container quantity or KANABAN quantity.

Finally we arrived at operating control level of all items by multiplying KANBAN quantity to

total KANBAN s issued across the system.

We took the suppliers in confidence & gave training about the whole KANBAN concept.

Meanwhile we printed KANBAN cards & put it on plastic containers. Containers filled up

with KANBAN quantity from the current inventory of the stores so that to remove mismatch

in the system. Initially bins which were emptied, generates KANBAN signal to the suppliers.

Suppliers made deliveries against KANBAN signal.

When the production started, 2 bins are kept on the shop floor. Once the bin was emptied, it

returned back to stores. Stores generated KANBAN signal to the supplier & supplier ensured

the delivery within lead time. In this way the KANBAN cycle started.

On the next page, a sample sheet given for KANBAN calculations for few items of 7022

model.

Sample data for Vendor system KANBAN Design

Usa

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1 DEH ASSLY 70930503BEARING RETAINER

3 EAAUTOMEK PRODUCTS

SATARA

2 ROTOR ASSLY. 70250206ROTOR POLE M/C

2 EA ARIHANT IND A'NAGAR

3 Alternator Assembly

70250104 SPACER 2 M SUNEETUL SATARA

4 COIL ASSLY 10007 23 SWG WIRE 2 Ea PRECISION WIRE SILVASA

5 SREH Assembly 70220605 SREH CASTING 3 Ea ISHAAN ENGG VAPI

6 SREH Assembly 78030605 SREH CASTING 2 EaSATARA TECHNOCRATE

SATARA

7 DEH Assembly 70220504 DEH CASTING 4 Ea ISHAAN ENGG VAPI

8 ST.STACK ASSLY

80107POLY.FILM 10MIL * 43 MM

3 Ea GUJARAT POLY SILVASA

9 ALU.CASTING 50003 ALU.INGOT 2 Ea GANGAJAMUNA SILVASA

Par

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1 70930503BEARING RETAINER

300 100 5000 17 500 1.67

2 70250206ROTOR POLE M/C

800 50 800 1 800 1.00

3 70250104 SPACER 600 100 5000 8 5000 8.33

4 10007 23 SWG WIRE 55 500 5000 91 1000 18.18

5 70220605SREH CASTING

400 500 5000 13 1000 2.50


60 500 5000 83 1000 16.67

7 70220504DEH CASTING

400 100 200 1 200 0.50

8 80107POLY.FILM 10MIL * 43

0.5 100 250 500 100 200.00

MM9 50003 ALU.INGOT 325 12 200 1 100 0.31

Par

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1 1 2 1 5 10.0 500 2900


2 1 3 1 2 7.0 800 5600

3 70250104 SPACER 5 1 6 1 5 20.0 5000 12200

4 10007 23 SWG WIRE 2 1 3 1 2 24.2 1000 1330


2 1 3 1 2 8.5 1000 3400


2 1 3 1 2 22.7 1000 1360


0.5 0.5 1 0.5 1 3.0 100 1200

8 80107POLY.FILM 10MIL * 43 MM

1 0.5 2 0.5 1 203.0 100 101.5

9 50003 ALU.INGOT 1 0.5 2 0.5 1 3.3 100 1075

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1.00 5.8 6 3000 100001 SR 2


1.00 7 7 5600 100005 SR 3

3 70250104 SPACER 1.00 2.44 3 15000 100010 SR 3

4 1000723 SWG WIRE

1.00 1.33 2 2000 100012 3 5


1.00 3.4 4 4000 100016 36, 11B


1.00 1.36 2 2000 100017 3 9


2.00 12 12 1200 100026EWA

1

8 80107POLY.FILM 10MIL * 43 MM

1.00 1.015 2 200 100044 GD 1

9 50003 ALU.INGOT 1.00 10.75 11 1100 100063SR 4

A

Flow chart for the stages of Implementation of KANBAN system

Obtaining a clear understanding of KANBAN & top management's approval for the implementation

Training on KANABAN for employees, workers & suppliers

Establish average monthly consumption of all BOM items of 7022 alternator model

Draw the average daily consumption of each item

Put the primary packing size & present shipping lot

Present replenishment interval (RI) = present shipping lot / avg daily consumption

Calculate new RI=New ship lot /Avg daily consumption

Establish VRT (vendor response time), TT (Transit Time), TLT (Total Lead Time),ILT (Internal Lead Time),SS (Safety Stock) from past experience

Calculate lead time factor (LTF) by adding TLT, ILT, SS & new RI

Continued on next pageNew ship lot = KANBAN Quantity

Calculate Design control level=LTF * Avg daily consumption

Calculate no. of KANBANs for ship lot = new ship lot / KANBAN qty

Calculate no. of KANBANs for control level =Design control level / KANBAN qty

Calculate Operating control level (OCL) = Total no. of KANBAN * KANBAN qty

Min Inventory valuation = Cost/unit * KANBAN QtyMax Inventory valuation= Cost/unit * OCL

Print KANBAN sticker & put on binsPrint KANBAN cards & put in the Bin, KANBAN post & Supplier’s end

Place 2 bins on Shop floor & 2 in stores & 2 at Vendors

Once bin is empty on shop floor, return back to store & in return store give another KANBAN bin

Also store generate the signal to vendor to ensure the supply of KANBAN qty within lead time. Repeat the cycle.

CHAPTER-6

ANALYSIS OF DATA

During implementation of KANBAN we focused on the most running model of alternator

supplied by us i.e.7022 to OEMs. Most of the hardware items covered in 7022 BOM is

common to other alternator models. These are the “C” class items for which production line

sometime stopped due to stock outs of materials & leads to production loss & sales loss. To

prevent out this, we started to work on “C” class items.

PMP have MRP II environment for its repetitive manufacture of different models of

alternators. MRP II provides a comprehensive framework for integrative planning & control of

manufacturing resources & generally includes:-

Resources requirement planning

Production planning

Master Production Schedule

Materials Requirement Planning

Capacity Requirement Planning

Shop Loading & shop floor control

Inventory Control

All these functions had been done by computer & to read, respond & manage these reports,

MRP II requires no. of planners. MRP II is forward looking& it replenished the material if it is

predicted that more is needed.

In PMP marketing people from Mumbai office forwards the next month’s internal purchase

order (IPO) of alternators which includes the order from export & OEM customers to Satara

office.

Then Planning officer run MRP for one month production considering the production plan, bill

of material & availability of the material. Material requirement generated & sent material

schedule to the approved vendors. Day to day production planning has been done by planning

officer & according to priority based on the inputs from Marketing people. The details of

customer wise production made & dispatch details has been informed to Marketing people to

enable them to make next month’s IPO.

This system is not full proof as some human errors occurred always while doing the above

steps. Some of the reasons are:

1) As the system stock did not match with physical stock so every time we have to take

physical stock before sending the schedule which is ideally not possible in each case.

2) Any changes in planning schedule, supplier found hard to switchover the respective

supply of material in minimum time.

3) If any order is pending or cancelled, then inventory piled up for that alternator model

or order.

4) Supplier sent the scheduled material in a single delivery to reduce the freight cost, not

in staggered delivery.

5) Due to mismatch in synchronization & avoid sale loss, PMP run 3rd shift many times in

a month which ultimately increases overhead costs.

6) It may happen sometime that production of not required models has been taken place

which blocked resources & eventually kept in finished good store till its sales.

7) For the above reason overbuying took place which piled up inventory also.

8) Due to changes in design, some items become obsolete & lying as non-moving items.

9) Some items like ball bearings, regulators, diodes are imported so we have to give 4

month’s order in advance for these items.

Following facts observed in PMP:-

1) Yearly consumption of alternators : - Approx. 50,000 nos.

2) Monthly on an average : - Approx 4,200 nos.

3) Daily on an average : - Approx.175 nos.(25 working

days)

4) Monthly sale of alternators : - Approx Rs. 0.8-0.9 Crore

5) Annual sale of 7022 Alternator : - 17,000 nos.

6) Inventory lying at PMP : - approx Rs.1.1 Crore

(near about 45 days of alternators sale)

Details of inventory as below:-

“A” Class items like raw material copper wire, ball bearing, Aluminum ingot, job work

items & finished alternators :- Rs. 60 Lakhs

“B” class items like m/c steel components, WIP items : - Rs. 21 Lakhs

“C” class items like Hardware, washer, spacer etc : - Rs. 19 Lakhs

Nonmoving items : - Rs. 8 Lakhs

7) Manpower required for running third shift : - 25 workers + 1 Officer

8) No. of alternators produced in extra shift : - 100 nos.

9) Average no. of times to run extra shift in a month : - 4-5 times

10) Extra manpower cost: - no. of workers x man hrs. x cost/person in Rs/hr x no. of

times extra shift run = 25 x 8 x 30 x 5

= Rs. 30,000

11) Power cost for extra shift = Approx. 6000 Rs. / shift

12) Total power cost = 6000 x 5 = Rs.30,000

13) Avg Inventory carrying during each month :- Approx Rs.1.0 Crore

14) Therefore Annual avg inventory carrying cost = Inventory x interest rate

=1 Crore x 10%

=Rs. 10 Lakh

15) Loss of sale of 7022 model per month = approx 500 nos.

=500 x 1,600(Cost /alternator)

=Rs.8,00, 000

16) In addition to the above stock out cost considered as Rs.1, 00,000 due to idle men &

machine, loss of production profit, premium price paid to transporter, penalty paid to the

delayed OEM shipment.

If we add all the figures above i.e.

Total monetary loss = Extra manpower cost + Power cost + Loss of sale + stock out cost +

Avg inventory cost = 30,000 + 30,000 +8, 00,000 + 1, 00,000+ (10, 00,000/12)

= Rs.10, 43,335 per month

≈ Rs.10.5 Lakh Per month

≈ Rs.125 Lakhs per Annum i.e. approx. of one month’s sale of

alternators.

Therefore a huge cost is involved to streamline the production & timely supply to customers &

many others intangible things happened, which dilute the image of PMP.

Hence we had decided to correct our supply chain process & inventory management first. Our

aim is to reduce the waste (anything other than the absolute minimum resource of material,

machine & manpower required to add value to the product) in the supply chain & production.

We decided to remove mismatch of “C” class items & some of “B” class items. Also decided

to scrap non-moving items & after the modification some non-moving items would be used as

regular items.

CHAPTER-7

FINDINGS, INFERENCES & RECOMMENDATIONS

After implementation of KANBAN, we achieved drastic radical change in our system. We

have achieved a lot of tangible & intangible benefits from this system. Our morale becomes

high.

During implementation supplier played a major role in terms of delivery & quality of supplies.

We achieved to imbibe KANBAN system on them to large extent & extended our help in all

terms.

During the preliminary stage of first 6 months we achieved following data:-

1. Monthly Production increased for 7022 alternator : - 1000 nos.

2. Therefore monthly sales increases by=1000 x 1600 = Rs.16, 00,000.

3. No more extra shift which saved :-Rs.60, 000 than earlier

4. No stock out due to “B” or “C” items saves :-Rs.1,00,000 than earlier

5. Cost of KANBAN bins added :-Rs. 50,000

6. Cost of printing KANBAN cards & stickers added :-Rs. 5,000

7. Additional Freight cost added :-Rs. 20,000

8. Non moving items modification to moving items :-Rs.350,000

(melting aluminum casting, using modified washers, spacers in the replacement

product)

9. Non moving items sold as scrap :-Rs.50,000

(rejected copper wire, bearings, diode sold as scrap, through bolts & washers sold to

local spare part retailer)

10. Hence non moving inventory lies in the system :-Rs.3,00,000

11. “C” class items inventory reduced by 48% i.e. :-Rs. 9,00,000

(still Rs.10 Lakh inventory pending in the system)

12. “ B” class items inventory reduced by 42% i.e. :-Rs. 8,80,000

(still Rs.12.2 Lakh inventory pending in the system)

13. “A” class items inventory reduced by 34% i.e. :-Rs. 20,50,000

(still Rs. 39.5 Lakhs inventory pending in the system)

14. For imports item like ball bearing, voltage regulator, diodes, we reduced their delivery

schedule from 4 months to 2 months.

15. Now average inventory reduced in the system by 40%:- Rs. 43,00,000

16. Therefore inventory in sys = Non moving + A items + B items + C items

= 3L + 39.5L + 12.2L + 10L

= Rs. 64.7 Lakh

17. Inventory holding cost/month = (Avg inv in a month x bank interest for 1 yr/12)

= (Opening stock + closing stock)/ 2 x 10%/12

= (70 Lakh + 59.5Lakh) / 2 x 0.1 / 12

= Rs. 53920 / month

Sr. No.

Components Prev data per month

Current data per month

Prev expenditure in Rs

Current expenditure / gain in Rs

Savings per month in Rs

1 Manpower cost 60,000 ------- 60,0002 Inventory

Holding CostA-60Lakh, B-21 Lakh, C-19Lakh, non move items-8 Lakh

A-39.5Lakh, B-12.2 Lakh, C-10Lakh, Non move items – 3.5Lakhs

83,335 53,920 29,415

3 Addl Freight cost

------- 20,000 20,000

4 Loss of production / sale

- 500 nos +1000 nos 8,00,000 16,00,000 8,00,000

5 Stock out cost 100,000 ----- 1,00,000

6 Scrap cost by selling non move items

50,000/12 ≈4,000

4,000

Total savings in Rs.

973,415

Therefore total savings generated by implementing KANBAN system is approximately

Rs.9.75 Lakhs per month. We continued to improve our performance day by day by utilizing

the inventory efficiently & by streamlining the supply to fulfill the customer’s order timely.

Apart from the above, following tangible benefits we have achieved :-

A. Simplified system :-

Due to KANBAN cards, we established a pre-determined inventory buffer through out the

supply chain cycle. We have to monitor continuously on the KANBAN post where all

KANBAN cards put, not to count physically each & every item before sending the

schedule. Due to this visual signal, even store man also sent the signal to vendor for

KANABAN as soon as empty bin returned from the shop floor.

No need to use either the computer system or paperwork.

B. Prevention of stock out: -

Earlier due to small items like shaft nut, bearing cap or through bolts, production line got

to be stopped. Men & machine became idle or produced unwanted model of alternators or

halfway assembly of the alternators to achieve the target of shift. As the KANBAN system

designed with lead time consideration, it prevented stock out of items unless some major

disruptions at any work center or failures of machine at supplier’s end.

C. Increase in Delivery Performance by supplier:-

We involved the suppliers in a formal education program on KANBAN & JIT, utilizing

SPC methods, made a delivery commitment from them& helped to establish a quality

assurance plan at their plant. Two KANBANs were kept ready at any time at supplier’s

end. After receiving KANBAN signal, the supplier sent the delivery immediately. Also

delivery lot size should be just enough to satisfy the immediate higher level requirement. .

We have only to ensure that proper communication should happen.

D. Increase in Production & Sales:-

Due to uninterrupted supply of materials, we fulfilled the customer’s order timely &

achieved the monthly target. Earlier due to stock outs, whole production line was stopped

& we did not meet the schedule. But now we regularly meet the schedule, customer

showed confidence in us & increased the order. Ultimately our production of 7022 model

increased by 500 nos. per month. Also our per day’s target increased from 250 to 300 nos.

alternators.

E. Reduction in inventory:-

As the KANBAN bins introduced, we removed mismatch of quantities & established

maximum & minimum inventory across the supply chain. Import items lead time reduced

from 4 months to 2 months. Therefore we achieved reduction of holding cost of Imports

item. For local & “C” class items, we achieved small lots in delivery i.e. in KANBAN

quantity. Due to increase in production, a lot of inventory lying at our end has been

consumed. Some non moving items modified & some sold as scrap. Overall we reduced

the inventory holding cost by 40%.

F. Increase in supplier’s involvement

Now we are providing the fortnightly schedule to our supplier & tentative supply of

monthly KANBAN quantities well in advance so that they can plan accordingly. We

helped them to meet quality requirements. We encouraged them to use process control

charts instead of lot sampling inspection. We encouraged them to package in exact

quantities & provided them KANBAN bins. Also we encouraged them to reduce their

production lot size.

G. Increase in Inventory turnover ratio

Purchased material turnover during the period of implementation increased 1.5-2 times

than previous 0.5-1 times.

H. Increase in meeting the delivery schedule of OEMs

Due to this system, we regularly met the customer’s order on time. Delivery index of PMP

improved & got more orders from OEMs. Also M&M showed interest & help for starting

PMP’s plant at Rudrapur to start supply of alternators for M&M, Rudrapur division.

We achieved some Intangible benefits apart from tangible benefits:-

A. Improved Product quality:-

PMP improved quality & delivery performance of alternators. Hence at the same

manufacturing cost PMP improved its operating profitability by reducing waste across the

supply chain.

B. Improved Productivity:-

Resources were used efficiently & effectively & only produced when needed. Unwanted

production (apart from customer orders) of alternators was stopped, so resources were not

blocked & no time was spent in finished goods store for waiting to be ordered. Due to

efficient planning, workers achieved the shift’s target easily. There was no extra shift to be

run. Productivity improved significantly.

C. Improved plant efficiency:-

Plant efficiency was increased due to well coordination & support of other departments

also. Maintenance people carried out weekly, monthly, yearly maintenance according to

maintenance schedule on holidays. Daily maintenance also carried out during the start of

each shift. Manpower on the shop floor used effectively. Store people also issued material

efficiently in KANBAN bins. Overall keeping the same resources earlier, the plant outputs

substantially increased.

D. Better production scheduling:-

Customer’s monthly order was divided in day’s output, and then shift’s output, then hourly

output i.e. by going backtracking of the order in micro level & ensured work load

uniformity. Monitored the KANBAN cards & delivery of the respective item closely &

effectively. System provided flexibility for changing the production line to cope up

customer’s order. Better scheduling achieved with better flow of material & reduced setup

time.

E. Reduced inspection of incoming material:-

We provided suppliers loose specifications i.e. supplier relied more on performance

specifications rather than on design performance & encouraged the supplier to be more

innovative. We imbibed the concept of “Do it right, the first time, every time” & helped

them to meet quality requirements. Encouraged them to use SPC charts instead of lot

sampling inspection. Visited the supplier’s plant once in a month for sorting out any

quality issues.

F. Better Buyer Seller Relationship

We assumed supplier’s place as an extension of our buying centre & during KANBAN

implementation we encouraged supplier for the improved performance & helped in all

matters (e.g. educated them regarding JIT & KANBAN system, reduced their inventory,

encouraged in quality matters. We significantly changed our sourcing policy to shift single

source policy for long term contract & mutual benefits. We considered supplier’s

participation from the initial stages of this KANBAN project. We achieved supplier’s

reaction capability to our schedule changes without any special premium paid to the

transporter or carrying additional inventory carrying costs. Supplier’s business was

increased & operating profitability was also increased.

G. Improved morale in Production

People were more enthusiastic & energetic & responded well to this concept of KANBAN.

As the production streamlined, they achieved their shift’s target easily. No need for extra

shift even though the schedule was increased. Also there will be neither effect of

absenteeism nor the breakdown of the machine. All of them co-operated & helped each

other to achieve the target.

H. Reduction in paperwork

There was no need of computer to generate the work order & to check the stock. No print

of purchase order required. It saved a lot of time for the formal paperwork, changing the

delivery date & quantity required in PO.

I. Increased Market value & improved customer satisfaction

Due to better customer service, customer satisfaction level & market value of PMP

increased with respect to the competition. It would help PMP to build up its image as a

provider of “Value for Money” to its customers.

As the customer’s expectations were achieved, PMP got the major upcoming orders & a

lot of other new customers.

Recommendations:-

After gaining the above benefits, management decided to implement KANBAN for all

models of alternators & all of its products in phase wise manner. As the current system is

manual, we decided to go for computerized system since the new technology available in

the market. We recommended using the bar code on KANBAN cards for generating the

trigger to have errorless system.

CHAPTER-8

CONCLUSION

Inventory is an integral part of the any organization. Not only it adds value to the product

but adds to its cost. Organizations carries inventory to economize on buying /

manufacturing cost, to remain flexible with customer’s demand, to prevent stock outs, to

stabilize the production, to prevent loss of sale & to satisfy other business constraints (like

supplier’s condition of minimum quantity, government regulations, seasonal availability) .

But while satisfying the above facts, the inefficient use of handling inventory (ability to

convert it into finished product) becomes problem for any organization. Also wrong

buying methods & wrong calculations helps to pile up the inventory across the supply

chain.

The company is already running the heavy expenditure on the inventory to cope up the

customer’s requirement & stabilize the production in this competitive market. This

inventory issue can be improved by utilizing the available sources properly, structuring the

replenishment cycle efficiently & effectively & making effective sourcing policy, which

has been shown as an example of 7022 alternator in the project.

By using KANBAN system, PMP improved its sourcing policy, suppliers’ relations,

production scheduling, timely delivery to customers, product quality, inventory reduction,

sales of the product & competitive position in the market. PMP uses KANBAN & JIT

purchasing not just an inventory control or inventory reduction technique but a philosophy

or an approach to productivity which is applicable to all facets of manufacturing process,

including supply chain.

KANBAN & JIT purchasing implies a significant departure from the conventional

purchasing practice in a variety of ways. A phased approach will be therefore used for its

full implementation. As this effort intensifies, KANBAN & JIT purchasing might well

assume the character of “coordination of outside manufacturing & inside manufacturing”.

CHAPTER-9

SUMMARY OF THE PROJECT

This project carried out to remove excessive inventory, better inventory control, streamline

the production & continuous improvement in the organization.

Inventories are the physical stock of items that PMP keeps in hand for the efficient running

of its organization. But due to mismatch quantities of stocks, overbuying, inadequate

production planning, PMP failed to meet the customer’s requirement on time. Therefore

PMP’s inventory holding cost, procurement cost, overhead cost & stock out costs was high

& dented its profitability margin.

So PMP decided to implement Japanese technique “KANBAN” to keep better control on

the inventory. PMP selected 7022 model of alternator for the implementation of KANBAN

technique.

PMP got the fantastic results after initial implementation of KANBAN. Company achieved

the reduction in inventory with increased production & sales within 6 months period of

implementation. Customer satisfaction levels of company’s products increased.

PMP achieved increased market share & more orders from OEM & foreign customers.

From this PMP decided to go for the implementation of KANBAN on all alternator models

& company’s other products in phase wise manner. Also company decides to use latest

technology of bar code along with KANBAN system.

ANNEXURES

I) List of Diagrams ,charts

a) KANBAN Bins, carts, store & Supplier KANBAN card

b) Alternator yearly sale data

II) List of Tables

a) Alternator sale data before & after KANBAN system

b) KANBAN Bin Stickers

c) Comparison between Traditional purchasing & JIT Purchasing

KANBAN bins KANBAN cart KANBAN store

Supplier KANBAN Card:-

SUPPLIER KANBANPart Name

BRUSHCARD ASSEMBLY

Part No. UOM

70230720 Ea

KANBAN Qty Ship LotLead Time

300 300 3

BUYER MBJVendor

Samartha Enterprises

Storage Location 6 - 23, 24Card Sr. No. 100541

1 0 0 5 4 1 Card No. 1 of 4

Alternator yearly sale data

April to July : Before implementation of KANBAN system.

August to March : After implementation of KANBAN system.

Alternator Sale Figures

39574391

4710 4642

54355045

5525 54415963

54455735

5989

0

1000

2000

3000

4000

5000

6000

7000

April

May

June Ju

ly

Augus

t

Septe

mbe

r

Octobe

r

Novem

ber

Decem

ber

Janu

ary

Febru

ary

Mar

ch

Month

Alt

ern

ato

r Q

ty i

n n

os.

Series1

Yearly Sale figure of Alternator Models

Before implementation of KANBAN system

After implementation of KANBAN system

Model Ap

r' 0

4

May

' 04

Jun

e' 0

4

July

' 04

Au

g' 0

4

Sep

t' 0

4

Oc

t' 0

4

No

v' 0

4

De

c' 0

4

Jan

' 05

Feb

' 05

Mar

' 05

To

tal

7016 100 100 24216

2 10 100 125 45 8847017 5 57018 22 50 5 50 1277019 36 36

7021 124 180 100 62 50 2522

5 7667022 / oe 1152 783 1245

1088 1800

2150

2100

2050

2100

2200

2075 2115 20858

7023 8 17 5 307026 140 10 5 50 50 2557033 150 1507036 150 185 25 150 302 500 100 100 1512

7043 1 107 103 81 180 180 175 198 300 7010

0 14957046 30 50 807063 27 73 7 42 45 5 58 45 25 327

7065 14710

3 50 100 115 129 175 10020

0 50 11697068 100 90 130 18 50 388

07803/oe 949 1009 664

723 1200 805

1500 991

1460

1275

1300 1275 13151

7807 5 80 150 180 49 50 5147809 20 24 4 25 15 50 25 50 100 3137811 85 85

0

EFA 1312 1043 12991791 1225 875 700 689

1135 875

525 1318 12787

IFA 70A 408 780 944

495 400 450 200 576 80 300

1040 591 6264

IFA 90A 30 20 125 57 200

270 380 1082

Total 3957 4391 47104642 5435

5045

5525

5441

5963

5445

5735 5989 62278

KANBAN Bin Stickers :-

PART NO 70220501 PART NO 70220501DESCRIPTION DEH M/C

DESCRIPTION DEH M/C

STATION NO D-1 STATION NO D-1BIN QTY 40 BIN QTY 40 PART NO 70250104 PART NO 70250104DESCRIPTION SPACER

DESCRIPTION SPACER

STATION NO D-1 STATION NO D-1BIN QTY 900 BIN QTY 900 PART NO 70930213 PART NO 70930213DESCRIPTION BALL BEARING

DESCRIPTION BALL BEARING

STATION NO D-2 STATION NO D-2BIN QTY 150 BIN QTY 150 PART NO 70930503 PART NO 70930503DESCRIPTION BEARING RETAINER

DESCRIPTION BEARING RETAINER

STATION NO D-2 STATION NO D-2BIN QTY 900 BIN QTY 900 PART NO 70510503 PART NO 70510503DESCRIPTION BEARING RETAINER

DESCRIPTION BEARING RETAINER

STATION NO D-2 STATION NO D-2BIN QTY 600 BIN QTY 600

PART NO 70930502 PART NO 70930502DESCRIPTION BALL BEARING

DESCRIPTION BALL BEARING

STATION NO D-3 STATION NO D-3BIN QTY 150 BIN QTY 150 PART NO 70930105 PART NO 70930105DESCRIPTION WOODRUFF KEY

DESCRIPTION WOODRUFF KEY

STATION NO D-5 STATION NO D-5BIN QTY 600 BIN QTY 600PART NO 79010106 PART NO 79010106DESCRIPTION SHAFT NUT

DESCRIPTION SHAFT NUT

STATION NO D-5 STATION NO D-5BIN QTY 900 BIN QTY 900

Comparison between JIT Purchasing & Traditional purchasing

Purchasing Activity JIT Purchasing Traditional Purchase

Purchase lot size Purchase in small lots with frequent deliveries.

Purchase in large batch size with less frequent deliveries.

Selecting supplier Single source of supply of a given part in nearby geographical area with a long term contract.

Rely on multiple sources of supply for a given part and short term contracts.

Evaluating supplier Emphasis is placed on product quality, delivery performance, and price but no percentage of reject from supplier is acceptable.

Emphasis is placed on product quality, delivery performance and price by certain percentage reject is acceptable.

Receiving inspection Counting and receiving inspection of incoming parts is reduced and eventually eliminated.

Buyer is responsible for receiving, counting, and inspecting all incoming parts.

Negotiating and bidding process

Primary objective is to achieve product quality through a long term contract and fair price.

Primary objective is to get the lowest possible price.

Determining mode of transportation

Concern for both inbound and outbound freight, and

Concern for outbound freight and lower outbound

on-time delivery. Delivery schedule left to the buyer.

costs. Delivery schedule left to the supplier.

Product Specification “Loose” specifications. The buyer relies more on performance specs than on product design and the supplier is encouraged to be more innovative.

“Rigid” specifications. The buyer relies more on design specs than on product performance and suppliers have less freedom in design specs.

Paper work Less formal paperwork. Delivery time and quantity level can be changed by phone calls.

Requires great deal of time and formal paperwork; changes in delivery date and quantity require purchase orders.

Packaging Small standard containers used to hold exact quantity and to specify the precise specs.

Regular packaging for every part type and part number with no clear specs on product content.

ISO 9001 Certificate

A Project Report

Documents

project work

pmp group

mahindra mahindra

employee of pmp components

original work

starter motors

kanban system

dhaval mundada course